26 Mar 2009 07:00
PV Crystalox Solar PLC
Preliminary Results
For the year ended 31st December 2008
PV Crystalox Solar PLC and its subsidiaries ("the Group"), a highly specialised supplier to the world's leading solar cell manufacturers producing multicrystalline silicon wafers for use in solar electricity generation systems, today announce preliminary results for the year to 31 December 2008.
Financial highlights
Silicon products revenue up 28.6% to €273.8 million
Adjusted EBIT (excluding currency gains) up 60.7% to €106.5 million
Earnings after tax up 119.7% to €103.2 million
Cash flow from operations up 40.6% to €89.0 million
Free cash flow €22.9 million after net capital expenditure of €61.0 million
Net cash on 31 December 2008 €81.1 million
Basic Earnings per share up 110.0% to 25.2 euro cents
Total dividend 6.0 euro cents (payable in sterling) up 140%
Maarten Henderson, Chairman, commented
"The current economic uncertainty means that we remain cautious about the outlook for 2009. While the Board recognises that 2009 will be a challenging year for the PV industry we remain positive about our medium term prospects. We believe the PV Crystalox Solar Group is well positioned for future growth with our own internal silicon production complementing our contracted polysilicon supplies and enabling us to strengthen our position as one of the PV industry's leading wafer producers. Furthermore, the Group's strong cash position will provide a significant advantage."
Iain Dorrity, Chief Executive Officer, commented
"We achieved a strong operational performance during 2008 with improved silicon utilisation and production efficiencies enabling us to deliver considerable improvement over the previous year. Sales of our core silicon products increased by 28.6% to €273.8 million (2007: €212.9 million) while adjusted EBIT (excluding currency gains) was €106.5 million, an increase of 60.7%. Wafer shipment volumes increased by 21% to 230MW (2007: 190MW) reflecting the processing of additional contracted polysilicon deliveries which started in the second half of 2007 coupled with improved silicon utilisation."
Enquiries:
| PV Crystalox Solar PLC Iain Dorrity, Chief Executive Peter Finnegan, Chief Financial Officer Matthew Wethey, Company Secretary | +44 (0) 1235 437188 |
| Kreab Gavin Anderson Kate Hill Robert Speed | +44 (0) 20 7554 1400 |
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 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. The Group's own polysilicon production is due to begin in Bitterfeld, Germany in May this year.
PV Crystalox Solar was admitted to the main market of the London Stock Exchange on 11 June 2007 and entered the FTSE250 in September 2007. The Group's production output of silicon wafers during 2008, was sufficient for production of solar modules (for solar electricity generation systems) with total peak output of 230MW.
Chairman's Statement
I am delighted to report that 2008, our first full year as a public company, was another very good year for the Group, with growth in sales, operating profit and operating margin. We have maintained our very strong cash position despite significant levels of investment in our Bitterfeld polysilicon facility and our ingot and wafer production capacity.
Group revenues totalled €274.1 million (up 4.0%) while underlying growth in our core silicon products business rose 28.6% to €273.8 million compared against 2007. Our EBIT excluding currency gains show a substantial improvement of 60.7% to €106.5 million. Earnings before taxes including the €36.3 million currency gain in the year was €147.2 million, an increase of 108.0% over 2007. Our strong cash conversion rate was demonstrated by our net cash flow from operating activities of €89.0million. After continuing net capital investment of €61.0million (mainly in respect of our new polysilicon plant at Bitterfeld) the Group enjoyed a positive cash flow of €28.0million before financing activities.
The global economic crisis during the past year has led to significant volatility in share prices generally and a sharp decline in the share prices of many PV companies. However, the impact has been less severe on the share price of PV Crystalox Solar. Accordingly we have retained a solid position within the FTSE250 index and have also outperformed the index in the period from the time of our IPO in June 2007 until 31 December 2008.
The Board recognises the importance of dividends to shareholders and has recommended a final dividend of €0.04 per share to be payable on 10 June 2009 to shareholders on the register on 15 May 2009. This is in line with our previous indications that the interim and final dividends in respect of each year will be paid in approximate proportions of 1/3 and 2/3 of the total annual dividend respectively. The recommended final dividend represents a 60% increase on the final dividend last year.
We have long established relationships with PV companies in our major markets Japan and Germany. Our strategic focus remains on the major module producers with 68% of our silicon product sales made to customers in the top 10 global companies. Furthermore we have strengthened partnerships with several of these companies through the signing of long term agreements. Our fundamental strategic philosophy remains one of prudent controlled long term growth and we believe this philosophy has strengthened our position in these difficult times.
We plan to drive growth through a secured silicon feedstock supply and to expand our production capacity at a flexible rate to ensure a sustainable business. We believe that the availability of economically priced silicon and continual incremental cost reduction in the production of silicon wafers will be imperative to ensure the growth of the global PV market during the coming years. We continue on this path of solid controlled growth and have now strengthened our position by further diversifying the source of our silicon supply. Going forward we will continue to evaluate strategic opportunities, whilst maintaining our prudent approach.
Construction of our solar grade polysilicon facility in Bitterfeld, Germany has continued on schedule and within the budget of €100m, which will be partially offset by the €21 million grants receivable in respect of the project. Since November 2008 all silicon production activities in Bitterfeld have been concentrated within PV Crystalox Solar Silicon GmbH a newly formed 100% subsidiary of PV Crystalox Solar plc. The inauguration ceremony was held on 4th February 2009 and was attended by Dr. Reiner Haseloff, Minister for Economic Affairs and Employment of Saxony-Anhalt, the Board and numerous invited guests. We now anticipate that polysilicon production will start in May with a projected output of 450 metric tonnes (MT) in 2009 in balance with our current wafer production requirements. In the medium term our production target for 2011 remains as 1800MT.
We recognise that the quality of our employees is one of the Group's key attributes 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.
We have continued to develop and strengthen our organisation and have employed a number of personnel in key positions throughout the Group including the appointment of Matthew Wethey as Group Company Secretary.
The current economic uncertainty means that we remain cautious about the outlook for 2009. While the Board recognises that 2009 will be a challenging year for the PV industry we remain positive about our medium term prospects. We believe the PV Crystalox Solar Group is well positioned for future growth with our own internal silicon production complementing our contracted polysilicon supplies and enabling us to strengthen our position as one of the PV industry's leading wafer producers. Furthermore, the Group's strong cash position, which is a direct consequence of our basic strategic philosophy, will provide a significant advantage.
Maarten Henderson
Chairman
25 March 2009
.
Business Review
Introduction
We achieved a strong operational performance during 2008 with improved silicon utilisation and production efficiencies enabling us to deliver considerable improvement over the previous year. Sales of our core silicon products increased by 29% to €273.8 million (2007: €212.9 million) while adjusted EBIT (excluding currency gains) was €106.5 million, an increase of 46.6%. Wafer shipment volumes increased by 21% to 230MW (2007: 190MW) reflecting the processing of additional contracted polysilicon deliveries which started in the second half of 2007 coupled with improved silicon utilisation.
Demand for our products in 2008 was strong and was driven by increase in the global PV module market. According to industry consultant, Solarbuzz, module installations grew by 110% to 5.95GW with Spain surpassing Germany to become the largest market and accounting for 2.46GW (41% of total installations).
As expected there has been no resumption of our trading activity in the sale of single crystal ingots which stopped during fourth quarter 2007 at the request of our partners. Since the business was carried out primarily to facilitate relationships and at low margins the impact on our overall profits has been minimal.
The Group had a free cash flow of €23 million in 2008 after spending €61 million on fixed assets net of grants in the year. This capital investment was mainly in connection with the construction of the polysilicon plant at Bitterfeld. Net cash balances totaled €81 million on 31 December 2008.
Operations and Strategic Development
We continue to make progress in our medium and long-term aim of reducing further the cost of wafer production to enhance the Group's position as a low cost producer.
Effective silicon utilisation has been improved as our customers have progressively moved to thinner wafers and 65% of wafers shipped during the year were supplied at industry leading 180µm thickness. This momentum is being maintained this year with 82% of shipments made at this size in the first two months of 2009. Additional savings are being made by the progressive reduction in wire thickness from 140/150µm to 120µm. Furthermore the adoption of new technology for ingot cutting has also enabled a very significant reduction in silicon losses during block production. The new ingot wire saws have effectively reduced silicon kerf losses during cutting by more than 90% in comparison with the sawing equipment used previously.
The construction of our polysilicon manufacturing facility in Bitterfeld is proceeding on schedule with mechanical completion achieved in December 2008 and the final stages of commissioning currently underway. Initial polysilicon production is now expected to start in May with a projected output of 450 metric tonnes (MT) in 2009 in balance with our current wafer production requirements In the medium term our production target for 2011 remains as 1800MT.
During the year we have continued with the planned expansion of our ingot production capacity in the UK through the construction and installation of the Group's in-house designed systems. We expect to reach our capacity target of 350MW by mid-2009. In parallel we are expanding our wafering capacity both in-house and with our subcontractor in Japan.
PV Crystalox Solar is committed to systematically enhancing its leadership 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 the one of the PV industry's cost leaders and to supply quality wafers at competitive prices whilst retaining attractive margins.
We have long established relationships with solar cell producers in Japan and Germany and these companies continue to represent the Group's major customer base. In 2008, 84% of our sales were made to these two geographic markets which together with China represent the three leading global PV manufacturing centres. Our strategy of cost leadership and flexibility is underpinned by carrying out wafer production in both Japan and Germany. This proximity of production to customers not only facilitates closer cooperation but also enables us to address rapidly changes in customer needs. Furthermore our dual geographic wafer production locations help offset the influence of euro/yen exchange rate variations. We recognise also the growing importance of China as a manufacturing location and our sales in this region accounted for 6% of our revenues. The signing of our sales agreement with Suntech, China's leading cell/module producer, is expected to result in China accounting for an increasing proportion of our revenues in future years.
Although the PV industry sees an increasing number of new entrants to solar cell and module production, our focus remains on the major integrated cell/module producers. Customers within the leading 10 PV companies accounted for more than 68% of our core silicon product sales in 2008. At the same time we are developing relationships with those smaller companies which we identify as having the potential to grow to become significant players in the market.
During 2008 we have consolidated our partnerships with leading PV companies in Europe, Japan, Asia and the USA through the signing of seven new wafer supply agreements with predetermined prices and volumes. Customers include Q Cells, Suntech, Schott Solar and the Intel spin off, SpectraWatt. The newly contracted wafer volume is equivalent to 900MW over the period 2009-2011 and complements wafer supply agreements signed in 2007.
Risks
The Board regularly reviews risks faced by the Group and how they may be mitigated. The principal risks and uncertainties can be summarised as follows:
Continued government incentives are critical to the development of the solar electricity industry and without these the increased uptake of solar electricity may be slow to develop. The Group mitigates these risks by focusing supply on major PV companies which through their superior market share and operating efficiencies are better equipped to push product into the market.
While the long tern prospects for the PV industry remain strong, the current economic uncertainty and the tight financing situation is may reduce global demand in the short term but the impact and its duration are difficult to quantify.
Sales to a small number of customers represent a substantial portion of the Group's revenues and the loss of any major customer might impact significantly on the Group's financial condition. The Group seeks to mitigate this risk, however, by the use of long term agreements wherever possible although the possible renegotiation of such contracts cannot be discounted in difficult market conditions. In addition we concentrate on customers that are financially strong with a clear strategic vision for the PV Industry and accordingly the potential to be long-term major players in the industry.
Loss of a key facility. The Group operates two ingot manufacturing facilities in the UK, a wafering operation in Germany, the Bitterfeld facility and is also reliant on a sub-contractor to process its ingots into wafers in Japan. Production problems at any one of these would interrupt revenue flows.
Silicon availability is crucial to the efficient operation of the Group. The Group mitigates this risk by setting up its own silicon feedstock facility in Bitterfeld and by securing high quality feedstock at fixed prices from leading suppliers.
The polysilicon facility at Bitterfeld represents a new technology area for Group. In order to mitigate the execution risk and to ensure the most efficient operation we decided to locate next to and to purchase, rather than manufacture, the input gas silicon tetrachloride from Evonik, the world's largest manufacturer of chlorosilanes. Furthermore Evonik has been an engineering partner in the design and manufacture of large sections of the plant and has assisted us with commissioning of the facility.
The Group's relationship with Evonik and their supply of silicon tetrachloride is critical for our production of polysilicon. This is secured by a 10 year supply agreement.
Financial Review
Key financial data is set out below:
| PV Crystalox plc | |||||
| Group Consolidated Income Statement | |||||
| 2008 | 2007 | Change | |||
| €'000 | €'000 | ||||
| Revenues - Silicon Products | 273,810 | 212,939 | 28.6% | ||
| Revenues - Equipment, Parts & Trading | 285 | 50,505 | -99.4% | ||
| Total revenues | 274,095 | 263,444 | 4.0% | ||
| EBIT excluding currency gains | 106,466 | 66,260 | 60.7% | ||
| Currency gains* | 36,315 | 1,239 | |||
| EBIT | 142,781 | 67,499 | 111.5% | ||
| Net interest income | 4,442 | 3,265 | 36.0% | ||
| Earnings before taxation (EBT) | 147,223 | 70,764 | 108.0% | ||
| Taxation | (44,029) | (23,793) | 85.1% | ||
| Earnings | 103,194 | 46,971 | 119.7% | ||
| Earnings Per Share (euro cents) | 25 | 12 | 110.0% | ||
| Free cash flow (see below*) | 22,861 | 36,039 | -36.6% | ||
| Net cash (see below*) | 81,117 | 108,266 | -25.1% | ||
*Free cash flow defined using the cash flow statement as net cash from operating activities less cash used in investing activities less interest received.
*Net cash is cash and cash equivalents less loans payable
*Further information on the currency gain can be found in note 28
In the period under review the Group generated underlying earnings before interest and taxation and excluding currency gains of (EBIT excluding currency gains) of €106.5 million (2007 €66.3 million). Actual EBIT (including currency gains) was €142.8 million (2007 €67.5 million). The continuing improvement in underlying profitability was driven primarily by higher market prices, although volumes increased in the year following higher quantities of raw materials being available from existing suppliers in the second half of 2007. The strong Japanese yen had a positive impact on Group sales turnover in the period. Net interest income at €4.4 million (2006 €3.3 million) is significantly higher than last year due to the Group generating and maintaining relatively large cash deposits through the year.
Earnings increased to €103.2 million (2007 €47.0 million) and unadjusted earnings per share increased by 110.0% to €0.252 (2007 €0.12).
These strong financial results generated operating cash flows of €89.0 million (2007 €63.3 million) and free cash flow of €22.9 million (2007 €36.0 million). Capital expenditure was €61.0 million (2007 €22.7 million. The Group repaid loans of €27.5 million (2007 €11.8 million) and paid dividends totalling €18.4 million (2007 Nil)
The Group's strong profitability, strong balance sheet and strong operational cash flow give the directors a firm basis to be confident about the year ahead.
Outlook
Although the mid- term market drivers for the PV industry remain positive, the outlook for 2009 is uncertain with few credible forecasts of positive growth. It is generally expected that the dramatic contraction in the PV market in Spain coupled with the effects of the global economic crisis will result at best in flat market demand in 2009.
Group wafer shipments and prices remained strong both at the end of 2008 and in the first two months of the year. While revenues for first quarter are expected to be above those achieved in the same period in 2008, visibility for second quarter and beyond is limited by the difficult market conditions experienced by our customers. Market weakness has become evident during recent weeks and we are now working with a few of our customers to assist in these uncertain times by rescheduling deliveries. However, the net effect of the rescheduling is modest to date and is equivalent to less than 10MW in the first quarter.
In a market already showing resistance to modules of unknown quality produced by less established players, our focus on major PV companies is expected to offer some protection as these companies will be better able to market their products in this difficult environment and to cope with any financial stress.
We have contracts for supply of 275MW wafers in 2009 but the current economic uncertainties and lack of market visibility mean that we cannot be confident at this stage that these shipment volumes will be achieved. Wafer deliveries are scheduled to increase in the second half of the year as our production ramps up using polysilicon from our Bitterfeld facility. At that time, there is some expectation of a better solar market environment, with demand being boosted from growth in Germany, which is traditionally stronger in the second half of the year, and funds starting to flow to renewable energy companies from the US government's economic stimulus bill; but timing and visibility remain uncertain.
Similarly in Japan, the Ministry of Economy, Trade and Industry (METI) has reintroduced a subsidy scheme for residential PV installations. This program will run at least until the end of 2010 and is expected to stimulate growth in PV installations which have declined in recent years following the withdrawal of earlier subsidies in 2006. Furthermore, METI is also considering the introduction of a feed in tariff scheme in 2010 similar to that successfully operating in Germany, which would oblige electricity utilities to purchase power generated by PV systems at approximately double the current electricity price.
An important component of 2009 will be the ramp up of Bitterfeld although the Group will not see significant output until the second half of 2009. The Group enters 2009 with a robust net cash balance of €81million and this together with our strong customer base and cash generation ability will ensure that we are well positioned to benefit from the eventual improvement in global PV markets.
| Iain Dorrity Chief Executive 25 March 2009 | Peter Finnegan Chief Financial Officer 25 March 2009 |
Consolidated income statement
for the year ended 31 December 2008
| 2008 | 2007 | ||||||
| Note | €'000 | €'000 | |||||
| Revenues | [8] | 274,095 | 263,444 | ||||
| Other income | [2] | 1,475 | 1,765 | ||||
| Cost of material and services | |||||||
| Cost of material | [3] | (135,700) | (163,703) | ||||
| Cost of services | [3] | (7,497) | (6,198) | ||||
| Personnel expenses | |||||||
| Wages and salaries | [4] | (10,769) | (8,151) | ||||
| Social security costs | [4] | (1,438) | (1,103) | ||||
| Pension costs | [4] | (470) | (391) | ||||
| Employee share schemes | [4] | (1,134) | (2,913) | ||||
| Depreciation on fixed and intangible assets | (3,962) | (4,670) | |||||
| Other expenses | [5] | (8,134) | (8,382) | ||||
| Costs of initial public offering | - | (3,438) | |||||
| Currency gains and losses | [29] | 36,315 | 1,239 | ||||
| EARNINGS BEFORE INTEREST AND TAXES (EBIT) | 142,781 | 67,499 | |||||
| Interest income | [6] | 5,130 | 4,626 | ||||
| Interest expense | [6] | (688) | (1,361) | ||||
| EARNINGS BEFORE TAXES (EBT) | 147,223 | 70,764 | |||||
| Income taxes | [7] | (44,029) | (23,793) | ||||
| PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT | 103,194 | 46,971 | |||||
| EARNINGS PER SHARE ON CONTINUING ACTIVITIES | |||||||
| Basic in euro cents | [9] | 25.2 | 12.0 | ||||
| Diluted in euro cents | [9] | 25.1 | 11.9 | ||||
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 2008
| 2008 | 2007 | ||||||
| Note | €'000 | €'000 | |||||
| Cash and cash equivalents | 96,820 | 147,892 | |||||
| Accounts receivable | [11] | 76,294 | 61,748 | ||||
| Inventories | [12] | 24,017 | 20,653 | ||||
| Prepaid expenses and other assets | [13] | 35,873 | 13,564 | ||||
| Current tax assets | 1,346 | 18 | |||||
| TOTAL CURRENT ASSETS | 234,350 | 243,875 | |||||
| Intangible assets | [14] | 635 | 378 | ||||
| Property, plant and equipment | [15] | 110,930 | 35,115 | ||||
| Other long term assets | [16] | 22,979 | 4,597 | ||||
| Deferred tax asset | [17] | 5,022 | 2,329 | ||||
| TOTAL NON CURRENT ASSETS | 139,566 | 42,419 | |||||
| TOTAL ASSETS | 373,916 | 286,294 | |||||
| Loans payable short term | [18] | 15,703 | 39,619 | ||||
| Accounts payable | [19] | 29,753 | 21,747 | ||||
| Deferred revenue | [24] | 2,692 | - | ||||
| Accrued expenses | [20] | 9,079 | 3,632 | ||||
| Deferred income current portion | [21] | 2,052 | 860 | ||||
| Income tax payable | [22] | 26,271 | 10,855 | ||||
| Other current liabilities | [23] | 772 | 931 | ||||
| TOTAL CURRENT LIABILITIES | 86,322 | 77,644 | |||||
| Loans payable long term | [18] | - | 7 | ||||
| Deferred revenue | [24] | 19,016 | 10,000 | ||||
| Accrued expenses | [20] | 166 | 128 | ||||
| Pension benefit obligation | [25] | 335 | 476 | ||||
| Deferred income less current portion | [21] | 22,199 | 5,196 | ||||
| Deferred tax liability | [17] | 374 | 280 | ||||
| Other long term liabilities | 851 | 1,088 | |||||
| TOTAL NON CURRENT LIABILITIES | 42,941 | 17,175 | |||||
| TOTAL LIABILITIES | 129,263 | 94,819 | |||||
| Share capital | [26] | 12,332 | 12,332 | ||||
| Share premium | 75,607 | 75,607 | |||||
| Investment in own shares | (5,642) | (5,642) | |||||
| Share based payment reserve | 968 | - | |||||
| Reverse acquisition reserve | (3,601) | (3,601) | |||||
| Retained earnings | 209,320 | 124,559 | |||||
| Currency translation adjustment | (44,331) | (11,780) | |||||
| TOTAL SHAREHOLDERS' EQUITY | 244,653 | 191,475 | |||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 373,916 | 286,294 | |||||
The accompanying notes form an integral part of these statements.
Approved by the Board of directors and signed on its behalf by:
DR IAIN DORRITY
25 MARCH 2009
Consolidated statement of changes in equity
For the year ended 31 December 2008
| Investment in | Share based | Reverse | Currency | |||||
| Share | Share | own 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 |
| Currency translation adjustment | - | - | - | - | - | - | -10,805 | -10,805 |
| NET INCOME RECOGNISED DIRECTLY IN EQUITY | 7,500 | - | - | - | - | 77,588 | -11,780 | 73,308 |
| Net profit | - | - | - | - | - | 46,971 | - | 46,971 |
| Total recognised income and expense | 7,500 | - | - | - | - | 124,559 | -11,780 | 120,279 |
| Investment in own shares | - | - | -5,642 | - | - | - | - | -5,642 |
| Reverse acquisition reserve | - | - | - | - | -3,601 | - | - | -3,601 |
| Share issue | 4,832 | 75,607 | - | - | - | - | - | 80,439 |
| 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 |
| Currency translation adjustment | - | - | - | - | - | - | -32,551 | -32,551 |
| NET INCOME RECOGNISED DIRECTLY IN EQUITY | 12,332 | 75,607 | -5,642 | - | -3,601 | 124,559 | -44,331 | 158,924 |
| Share based payment charge | 968 | 968 | ||||||
| Net profit | - | - | - | - | - | 103,194 | - | 103,194 |
| Total recognised income and expense | 12,332 | 75,607 | -5,642 | 968 | -3,601 | 227,753 | -44,331 | 263,086 |
| Dividends paid | - | - | - | - | - | -18,433 | - | -18,433 |
| AS AT 31 DECEMBER 2008 | 12,332 | 75,607 | -5,642 | 968 | -3,601 | 209,320 | -44,331 | 244,653 |
Further information on equity is presented in note [26].
The accompanying notes form an integral part of these financial statements.
Consolidated cash flow statement
For the year ended 31 December 2008
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| EARNINGS BEFORE TAXES | 147,223 | 70,764 | |||||
| ADJUSTMENTS FOR: | |||||||
| Interest | (4,442) | (3,265) | |||||
| Depreciation and amortisation | 3,962 | 4,670 | |||||
| Change in pension accruals | (141) | (155) | |||||
| Change in other provisions | 5,484 | 281 | |||||
| Loss from the disposal of property, plant and equipment | 26 | 15 | |||||
| Unrealised (gain)/losses in foreign currency exchange | (8,298) | 81 | |||||
| Deferred income | (818) | (975) | |||||
| 142,996 | 71,416 | ||||||
| CHANGES IN WORKING CAPITAL: | |||||||
| Increase in inventories | (3,364) | (6,820) | |||||
| Decrease in trade receivables | 684 | 10,457 | |||||
| Increase in trade payables and advance payments | 16,388 | 15,800 | |||||
| Increase in other assets | (40,691) | (11,617) | |||||
| Increase in other liabilities | 573 | 859 | |||||
| 116,586 | 80,095 | ||||||
| Income taxes paid | (32,678) | (21,375) | |||||
| Interest received | 5,130 | 4,626 | |||||
| NET CASH FROM OPERATING ACTIVITIES | 89,038 | 63,346 | |||||
| CASH FLOW FROM INVESTING ACTIVITIES | |||||||
| Proceeds from sale of property, plant and equipment | 11 | 36 | |||||
| Proceeds from investment grants and subsidies | 19,013 | 3,353 | |||||
| Payments to acquire property, plant and equipment | (80,071) | (26,070) | |||||
| CASH USED IN INVESTING ACTIVITES | (61,047) | (22,681) | |||||
| CASH FLOW FROM FINANCING ACTIVITIES | |||||||
| Repayment of bank and other borrowings | (27,530) | (11,764) | |||||
| Repayment Microventure | - | (1,620) | |||||
| Dividends paid | (18,433) | - | |||||
| Proceeds from IPO | - | 76,838 | |||||
| Interest paid | (688) | (1,361) | |||||
| Investment in own shares | - | (5,642) | |||||
| NET CASH FLOWS FROM FINANCING ACTIVITIES | (46,651) | 56,451 | |||||
| Net change in cash and cash equivalents available | (18,660) | 97,116 | |||||
| Effects of foreign exchange rate changes on cash and cash equivalents | (32,412) | (10,751) | |||||
| CASH AND EQUIVALENTS AT BEGINNING OF PERIOD | 147,892 | 61,527 | |||||
| CASH AND EQUIVALENTS AT END OF PERIOD | 96,820 | 147,892 | |||||
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 Income Statement.
PV Crystalox Solar PLC is incorporated and domiciled in the United Kingdom.
The financial statements for the year ended 31 December 2008 were approved by the Board of directors on 25 March 2009.
FUNCTIONAL AND PRESENTATIONAL CURRENCY
The financial information has been presented in euros, which is the presentational currency. All financial information presented has been rounded to the nearest thousand.
The functional currency of the parent company is sterling.
USE OF ESTIMATES AND JUDGEMENTS
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.
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.
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.
The Group is currently using 68 ingot production systems, with a historical cost of €12.5million, which are fully depreciated.
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.
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.
BASIS OF CONSOLIDATION
The Group financial statements consolidate those of the Group and its subsidiary undertakings drawn up to 31 December 2008. 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 Group Income Statement 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 Japan 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 inter group 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.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
Accounting standards in effect or applied for the first time in 2008
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 in 2007.
Newly issued accounting standards
In issue, effective and adopted
In November 2006, the IFRIC issued IFRIC 11 (IFRS 2 Group and Treasury Share Transactions). The interpretation addresses how to apply IFRS 2 (Share based Payment) to accounting for share based payment arrangements involving an entity's own equity instruments. It also provides guidance on whether share based payment arrangements, in which suppliers of goods or services of an entity are provided with equity instruments of the entity's parent should be accounted for as cash settled or equity settled in the entity's financial statements. IFRIC 11 has to be applied for annual periods beginning on or after 1 March 2007.
IFRIC 14, IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction, is not expected to have any impact on the Group or Company's accounts.
In issue, effective but not applicable to the Group due to nature of business
In November 2006, the IFRIC issued IFRIC 12 (Service Concession Arrangements). Service concessions are arrangements whereby a government or other public sector entity grants contracts for the supply of public services - such as roads, airports, prisons and energy and water supply and distribution facilities - to private sector operators. IFRIC 12 has to be applied for annual periods beginning on or after 1 January 2008.
In issue, but not yet effective
IFRS 3 (Business Combinations) has been revised. The revised standard has to be applied to accounting periods beginning on or after 1 July 2009. The Group does not believe that the application of this interpretation will have a material impact on the Group's financial position, results of operations or cash flows.
IAS 1 (Presentation of Financial Statements) has been revised to clarify the classification of balance sheet items between current and non current, and an entity's compliance with IFRS. The revised standard has to be applied to accounting periods beginning on or after 1 January 2009. Earlier application is permitted. The Group does not believe that the application of this interpretation will have a material impact on the Group's financial position, results of operations or cash flows.
IAS 23 (Borrowing Costs) has been revised so that guidance on effective interest rates is consistent with IAS 39 (Financial Instruments: Recognition and Measurement). The revised standard has to be applied to accounting periods beginning on or after 1 January 2009. Earlier application is permitted. The Group does not believe that the application of this interpretation will have a material impact on the Group's financial position, 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. The Group does not believe that the application of this interpretation will have a material impact on the Group's financial position, results of operations or cash flows.
IAS 32 (Financial Instruments: Presentation) has been amended to provide details of the disclosure required when investments in associates and jointly controlled entities are accounted for at fair value through profit or loss. The amended standard has to be applied to accounting periods beginning on or after 1 January 2009. The Group does not believe that the application of this interpretation will have a material impact on the Group's financial position, results of operations or cash flows.
Amendment to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items (effective 1 July 2009) - This amendment clarifies the possibility of movement into and out of the fair value through profit or loss category where a derivative commences or ceases to qualify as a hedging instrument in cash flow or net investment hedge. The Group will apply the IAS39 (amendment) from 1 January 2009, subject to endorsement by the EU, however, it is not expected to have an impact in the Group or Company's income statement.
IFRS 7 (Amendment to IFRS 7 Financial Instruments: Disclosures - Improving Disclosures About Financial Instruments (effective 1 January 2009)) The amendments aim to explain more clearly how entities determine the fair value of their financial instruments and improve the disclosure of liquidity risk. The amendment is not expected to have an impact on the Group.
IFRIC 16 (Hedges of Net Investment in Foreign Operation (effective 1 October 2008)) This Interpretation provides guidance on where, within a group, hedging instruments that are hedges of a net investment in a foreign operation can be held to qualify for hedge accounting. The Group is not expecting any impact on its financial position, results of operations or cashflows.
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. The Group is not expecting any impact on its financial position, results of operations or cashflows.FINANCING STRATEGY AND CAPITAL STRUCTURE
We define capital as equity plus cash 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 in the planned polysilicon plant 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 2008 was 1.1% (2007: 1.5%) and our gearing ratio was 6% (2007: 21%).
INTANGIBLE ASSETS
Intangible assets are capitalised at cost and amortised over a useful life of three to five years. Amortisation of intangible assets is recorded under 'Depreciation and amortisation' in the Income Statement.
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 Income Statement 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 Income Statement as an expense as occurred. 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 Income Statement.
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. Interest on funding of self constructed assets is capitalised together with all allowable costs up until the point at which the asset is physically able to operate as intended by management. 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 & 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 30 years for buildings, five to ten years for plant and equipment, up to ten years for fixtures and fittings and 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 only asset relating to the Bitterfeld facility that has been depreciated in the period, is the building, over a term of 30 years. It is anticipated that other categories of asset will commence to be depreciated during 2009 and careful consideration will be given to their estimated useful lives.
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 Income Statement.
IMPAIRMENT
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.
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 Income Statement 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 Income Statement. Subsequent measurement depends on the designation of the instrument, as follows:
Amortised Cost
long term loans are held at amortised cost;
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
Loans & Receivables
Changes in the fair value relating to all these financial instruments are treated as follows:
Interest and other income resulting from financial assets are recognised in the Income Statement 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 usually are 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. 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 income statement, 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 Income Statement 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 Income Statement 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.
If a provision is not considered necessary because a future outflow of resources is only considered possible (and not probable), the corresponding obligations are reported as contingent liabilities. Contingent liabilities are determined at the present value of the expected outflow of resources.
Provisions include both provisions and accruals.
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 a third party. Revenues exclude inter 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.
The Group has two sales segments; Silicon Products and Trading and Equipment. These are defined as follows:
The Silicon Products segment consists of silicon ingots and wafers produced by Group companies and sold to solar cell manufacturers. This segment is the core business of the Group.
The Trading & Equipment segment is mainly the sourcing of silicon ingots from a key supplier to the Group and the onwards supply of these ingots to a major customer. This is done to facilitate these two key relationships and is not a long term activity of the Group. In addition, the Trading & Equipment segment includes a relatively small amount of spare parts manufactured by the Group. These sales of spare parts are made to customers that operate equipment that had been built by the Group in the past. The Group no longer supplies crystal growth equipment and accordingly the sale of spare parts is expected to fall over the coming years.
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 Income Statement. 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 operating profit. 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.
INTEREST INCOME AND EXPENSES
Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested, dividend income and gains, and any gains and losses on hedging instruments.
Interest income is recognised in the Income Statement as it accrues, using the effective interest method.
The interest expense component of finance lease payments is recognised in the Income Statement using the effective interest rate method.
SEGMENT REPORTING
A business segment is a group of assets and operating activities that provides products or services, which differ in terms of their risks and opportunities from those of other areas of business. A geographical segment provides products or services within a certain economic environment with risks and opportunities different from those in other economic environments.
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.
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. A defined contribution plan is a pension plan under which the Group pays fixed contributions to a separate entity.
The Group therefore has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in current and prior periods.
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 Income Statement 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.
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 INCOME
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 Note24.
SHARE-BASED PAYMENTS
The Group has applied the requirements of IFRS 2 (Share-based payments). The Group issues equity-settled equity 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 2008 the Group granted share options to an employee. 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 Income Statement 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 26.
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 and 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
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Recognition of accrued grants and subsidies for investments | 818 | 975 | |||||
| Research and development grants | 111 | 147 | |||||
| Release of accruals and provisions | 186 | 8 | |||||
| Other income | 360 | 635 | |||||
| 1,475 | 1,765 | ||||||
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.
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Cost of raw materials, supplies and purchased merchandise | 139,725 | 171,247 | |||||
| Change in unfinished goods | (384) | (7,544) | |||||
| Own work capitalised | (3,641) | - | |||||
| Cost of materials | 135,700 | 163,703 | |||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Cost of purchased services | 7,497 | 6,198 | |||||
| Cost of services | 7,497 | 6,198 | |||||
Own work capitalised relates to the construction of production equipment including in particular crystallisation systems, outer diameter saws.
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 52% (2007: 64%).
4. PERSONNEL EXPENSES
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Wages and salaries | 10,769 | 8,151 | |||||
| Social securities | 1,438 | 1,103 | |||||
| Pension costs (see below) | 470 | 391 | |||||
| Employee Share Schemes | 1,134 | 2,913 | |||||
| 13,811 | 12,558 | ||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Appropriation to pension accruals for Defined benefit schemes | 93 | 85 | |||||
| Early retirement settlements and pay | 9 | 12 | |||||
| Contributions to defined pension plans | 368 | 294 | |||||
| 470 | 391 | ||||||
The Group employed an average of 257 employees during the year ended 31 December 2008 (2007: 215).
| 2008 | 2007 | ||||||
| Number | Number | ||||||
| Germany | 159 | 126 | |||||
| United Kingdom | 92 | 85 | |||||
| Japan | 6 | 4 | |||||
| 257 | 215 | ||||||
| 2008 | 2007 | ||||||
| Number | Number | ||||||
| Production | 168 | 145 | |||||
| Administration | 89 | 70 | |||||
| 257 | 215 | ||||||
5. OTHER EXPENSES
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Property rental and rates | 2,012 | 2,151 | |||||
| Repairs and maintenance | 1,203 | 867 | |||||
| Contribution to supply costs | 673 | 382 | |||||
| Selling expenses | 151 | 478 | |||||
| Technical consulting, research and development | 429 | 611 | |||||
| Outside professional services | 1,432 | 1,276 | |||||
| Insurance premiums | 469 | 545 | |||||
| Travel and advertising expenses | 392 | 518 | |||||
| Other | 1,373 | 1,554 | |||||
| 8,134 | 8,382 | ||||||
The land and buildings used by the Group, with the exception of Bitterfeld, are rented. The contracts have durations of up to ten years. In some cases there are options to extend the rental period. In readiness for the completion of the polysilicon plant, the Group purchased, in 2007, land with an area of approximately 31,000m2 in the Chemical Park at Bitterfeld in Germany.
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. Also included are preliminary costs relating to plans for the plant to produce solar silicon feedstock.
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 €6,150,000 for the year ended 31 December 2008 (2007: €4,350,000).
Included within other expenses are the following amounts which were paid to the Group's auditor:
| For the year ended 31 December | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Fees payable to the Company's auditor for the audit of the Company's annual accounts | 79 | 88 | |||||
| Plc audit costs | 16 | 18 | |||||
| Other services pursuant to legislation | 18 | 96 | |||||
| The audit of the Company's subsidiaries pursuant to legislation | 177 | 102 | |||||
| Tax services | 5 | 24 | |||||
| 295 | 328 | ||||||
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:
| For the year ended 31 December | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Income taxes in the United Kingdom | 34,696 | 15,900 | |||||
| Income taxes in Germany | 6,864 | 6,784 | |||||
| Income taxes in Japan | 5,207 | 2,458 | |||||
| INCOME TAXES TOTAL | 46,767 | 25,142 | |||||
| Deferred taxes in the United Kingdom | (801) | (330) | |||||
| Deferred taxes in Germany | (1,045) | (92) | |||||
| Deferred taxes in Japan | (892) | (927) | |||||
| DEFERRED TAXES TOTAL | (2,738) | (1,349) | |||||
| TOTAL TAXES | 44,029 | 23,793 | |||||
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.
7. INCOME TAXES CONTINUED
The German corporation tax rate in 2008 and 2007 was 25% plus the solidarity surcharge of 5.5% of corporation tax. This resulted in an effective corporation tax rate of 26.375%. The effective trade income tax amounted to 16.67%. Taking into account the deductibility of trade income tax from corporation tax, the total tax rate for the German companies was 38.65%. 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.
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| PROFIT BEFORE TAX | 147,223 | 70,764 | |||||
| Expected income tax expense at effective tax rate 30.6% (34.6%) | 45,003 | 24,486 | |||||
| Taxation for inter-company dividends | 447 | - | |||||
| Tax reduction due to non-taxable income | (145) | (202) | |||||
| Tax for profit in stock eliminations | (2,014) | - | |||||
| Deferred tax movement on share based payments | (129) | - | |||||
| Movement in prior year deferred balances | 287 | - | |||||
| Tax on non-deductible expenses | 233 | 192 | |||||
| Tax rate adjustment | 605 | - | |||||
| Adjustments to tax charge in respect of prior periods | (330) | (382) | |||||
| Other tax effects | 72 | (301) | |||||
| TOTAL TAX EXPENSE | 44,029 | 23,792 | |||||
8. SEGMENT REPORTING
The segments are defined on the basis of the internal organisational and management structure and on the internal reporting to the Board. A distinction is made between Silicon Products and Trading and Equipment (for crystallisation).
Information is also presented based on the geographical location of sales. These reflect country specific risks and opportunities.
SEGMENT INFORMATION 2008
| Silicon | Trading and | ||||||
| products | equipment | Consolidation | Group | ||||
| €'000 | €'000 | €'000 | €'000 | ||||
| Revenue | |||||||
| External revenues | 273,810 | 285 | - | 274,095 | |||
| Intercompany revenues | 207,272 | 1,960 | (209,232) | - | |||
| Segment results | |||||||
| Operating result | 106,347 | 119 | - | 106,466 | |||
| Net finance income | 40,757 | - | - | 40,757 | |||
| 147,104 | 119 | - | 147,223 | ||||
| Other information | |||||||
| Assets | 373,709 | 207 | - | 373,916 | |||
| Liabilities | 129,192 | 71 | - | 129,263 | |||
| Property, plant and equipment additions | 80,268 | - | - | 80,268 | |||
| Depreciation charged | 3,803 | - | - | 3,803 | |||
| The rest | The rest | ||||||
| Japan | of Asia | Germany | of Europe | USA | Group | ||
| €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | ||
| External revenues | 154,607 | 30,913 | 75,554 | 5,942 | 7,079 | 274,095 | |
| Assets | 87,524 | - | 174,888 | 111,504 | - | 373,916 | |
| Liabilities | 35,220 | - | 61,008 | 33,035 | - | 129,263 | |
| Other information | |||||||
| Property, plant and equipment additions | 332 | - | 78,638 | 1,298 | - | 80,268 | |
| Depreciation charged | 55 | - | 2,285 | 1,465 | - | 3,805 | |
Three customers accounted for more than 10% of 2008 Group revenue each and these customers had sales in the year as follows (figures in €'000):
1. Sales 100,977 (Japan 100,977) (Silicon Products 100,925; Trading, Parts and Equipment 52);
2. Sales 53,202 (Japan 53,202) (Silicon Products 53,202); and
3. Sales 34,127 (Germany 34,127) (Silicon Products 34,127).
SEGMENT INFORMATION 2007
| Silicon | Trading and | ||||||
| products | equipment | Consolidation | Group | ||||
| €'000 | €'000 | €'000 | €'000 | ||||
| Revenue | |||||||
| External revenues | 212,939 | 50,505 | - | 263,444 | |||
| Intercompany revenues | 138,815 | 1,486 | (140,301) | - | |||
| Segment results | |||||||
| Operating result | 65,353 | 907 | - | 66,260 | |||
| Net finance cost | 4,795 | (291) | - | 4,504 | |||
| 70,148 | 616 | - | 70,764 | ||||
| Other information | |||||||
| Assets | 267,614 | 18,680 | - | 286,294 | |||
| Liabilities | 78,219 | 16,600 | - | 94,819 | |||
| Property, plant and equipment additions | 26,282 | - | - | 26,282 | |||
| Depreciation charged | 4,670 | - | - | 4,670 | |||
| The rest | The rest | ||||||
| Japan | of Asia | Germany | of Europe | USA | Group | ||
| €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | ||
| External revenues | 163,520 | 40,093 | 51,397 | 4,297 | 4,137 | 263,444 | |
| Assets | 63,021 | - | 80,818 | 142,454 | - | 286,293 | |
| Liabilities | 53,877 | - | 26,688 | 14,254 | - | 94,819 | |
| Other information | |||||||
| Property, plant and equipment additions | 11 | - | 24,587 | 1,684 | - | 26,282 | |
| Depreciation charged | 10 | - | 2,460 | 2,200 | - | 4,670 | |
Three customers accounted for more than 10% of 2007 Group revenue each and these customers had sales in the year as follows (figures in €'000):
1. Sales 127,018 (Japan 127,018) (Silicon Products 76,513; Trading, Parts and Equipment 50,505);
2. Sales 28,850 (Japan 28,850) (Silicon Products 28,850); and
3. Sales 27,614 (Germany 27,614) (Silicon Products 27,614).
The geographical segments are reflecting the presence of the Group in the most relevant markets of the PV industry.
9. EARNINGS PER SHARE
Earnings per share are calculated by dividing the net profit for the year (as per the Income Statement) by the weighted average number of shares outstanding during the financial year.
| 2008 | 2007 | ||||||
| Basic shares (average) | 409,637,335 | 392,118,454 | |||||
| Basic earnings per share (euro cents) | 25.2 | 12.0 | |||||
| Diluted shares (average) | 411,711,184 | 394,186,193 | |||||
| Diluted earnings per share (euro cents) | 25.1 | 11.9 | |||||
Basic shares and diluted shares for this calculation can be reconciled to the number of issued shares, as per note 26, as follows:
| SHARES IN ISSUE (AS PER NOTE [26]) | 416,725,335 |
| EBT shares held | (7,088,000) |
| WEIGHTED AVERAGE NUMBER OF SHARES FOR BASIC EPS CALCULATION | 409,637,335 |
| 2,025,000 EBT shares, granted but not vested | 2,025,000 |
| 33,000 EBT shares, held for 310 days, granted but not exercised | 28,027 |
| 200,000 EBT shares under option, held for 38 days granted but not exercised | 20,822 |
| WEIGHTED AVERAGE NUMBER OF SHARES FOR FULLY DILUTED EPS CALCULATION | 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 | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Japan | 70,684 | 51,065 | |||||
| Germany | 5,574 | 6,291 | |||||
| United kingdom | 36 | 4,392 | |||||
| 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:
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Not more than three months | 1,303 | 3,391 | |||||
12. INVENTORIES
Inventories include finished goods and work in progress (ingots and blocks), as well as production supplies. The change in inventories reported in the Income Statement includes the additions and disposals under the items "finished goods" and "work in progress".
| As at 31 December | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Finished products | 6,408 | 2,618 | |||||
| Work in progress | 6,229 | 9,635 | |||||
| Raw materials | 11,380 | 8,400 | |||||
| 24,017 | 20,653 | ||||||
No significant write downs were necessary on inventories in the period under review.
13. PREPAID EXPENSES AND OTHER ASSETS
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Subsidy claims relating to Bitterfeld facility | 21,388 | 2,601 | |||||
| Other subsidy claims | 616 | 613 | |||||
| VAT | 5,215 | 3,418 | |||||
| Prepaid expenses | 8,022 | 6,341 | |||||
| Other Current Assets | 632 | 591 | |||||
| 35,873 | 13,564 | ||||||
14. INTANGIBLE ASSETS
| Software | |||||||
| Patents and | under | ||||||
| licenses | development | Total | |||||
| €'000 | €'000 | €'000 | |||||
| COST | |||||||
| At 1 January 2008 | 425 | 157 | 582 | ||||
| Additions | 447 | 127 | 574 | ||||
| Disposals | (1) | (157) | (158) | ||||
| 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 | ||||
| Software | |||||||
| Patents and | under | ||||||
| licenses | development | Total | |||||
| €'000 | €'000 | €'000 | |||||
| COST | |||||||
| At 1 January 2007 | 304 | 7 | 311 | ||||
| Additions | 128 | 157 | 285 | ||||
| Disposals | (6) | (7) | (13) | ||||
| 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 | ||||
15. 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 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) | - | (5,044) | ||
| AT 31 DECEMBER 2008 | 144 | 26,151 | 1,572 | - | 27,866 | ||
| 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 | ||
Assets under construction mainly relate to the polysilicon facility in Bitterfeld.
Capital commitments at year end 2008 relating to the above 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 year end 2007 relating to the above amounted to €30.65 million.
16. OTHER LONG TERM ASSETS
| As at 31 December | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Other assets | 326 | 246 | |||||
| Prepaid expenses | 307 | 351 | |||||
| Silicon tetrachloride deposits (for Bitterfeld) | 3,593 | 4,000 | |||||
| Polysilicon feedstock deposits | 18,753 | - | |||||
| 22,979 | 4,597 | ||||||
17. 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.
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Elimination of inter-company gains | 3,351 | 1,337 | |||||
| Tax loss carried forward | 592 | - | |||||
| Fixed assets | 453 | 632 | |||||
| Enterprise tax | 411 | 166 | |||||
| Pension plans | 69 | 75 | |||||
| Share based reserve | 105 | - | |||||
| Other | 41 | 119 | |||||
| DEFERRED TAX ASSET | 5,022 | 2,329 | |||||
| General allowance on accounts receivables | (303) | (233) | |||||
| Property, plant & equipment | (71) | (47) | |||||
| DEFERRED TAX LIABILITY | (374) | (280) | |||||
| TOTAL DEFERRED TAXES | 4,648 | 2,049 | |||||
18. LOANS PAYABLE
| As at 31 December | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Syndicated loans | 15,696 | 39,537 | |||||
| Other loans | 7 | 89 | |||||
| 15,703 | 39,626 | ||||||
| Current portion | 15,703 | 39,619 | |||||
| Non-current portion | 0 | 7 | |||||
| 15,703 | 39,626 | ||||||
| 2008 | 2007 | ||||
| Underwriter | €'000 | €'000 | Maturity | Interest rate | Assets pledged |
| Sumitomo Mitsui Banking Corporation | 11,772 | - | 06/09 | 1.04-1.26% | Accounts receivable |
| Mizuho Bank | 3,924 | - | 03/09 | 1.09% | Accounts receivable |
| The Bank of Tokyo Mitsubishi UFJ | - | 8,742 | Variable | 1.47583-1.49917% | Accounts receivable |
| Other syndicated loans | - | 30,191 | Variable | 1.47583-1.49917% | Accounts receivable |
| The Bank of Mitsubishi Tokyo UFJ | - | 605 | Variable | 1.96% | Accounts receivable |
| Other loans | 7 | 88 | 01/09 | 4.84% | Machinery and equipment |
| 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.
19. ACCOUNTS PAYABLE
Accounts payable are obligations arising from normal business transactions.
| As at 31 December | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Japan | 14,474 | 11,647 | |||||
| United Kingdom | 3,369 | 3,774 | |||||
| Germany | 11,910 | 6,326 | |||||
| 29,753 | 21,747 | ||||||
The book value of these payables are materially the same as the fair value.
20. PROVISIONS AND ACCRUALS
The provisions and accruals of the Group are as follows:
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Rents and ancillary rent costs | 127 | 592 | |||||
| Cost of material | 3,826 | ||||||
| Outstanding invoices | 2,940 | 1,281 | |||||
| Bonuses | 840 | 524 | |||||
| Warranty provisions | 449 | 396 | |||||
| Other payroll accruals | 390 | 260 | |||||
| Year end costs | 333 | 265 | |||||
| Supervisory Board remuneration | - | 38 | |||||
| Other | 174 | 276 | |||||
| CURRENT ACCRUALS AND PROVISIONS | 9,079 | 3,632 | |||||
| Rents and ancillary rent costs | 117 | - | |||||
| Stamp duty | - | 100 | |||||
| Other | 49 | 28 | |||||
| NON-CURRENT ACCRUALS AND PROVISIONS | 166 | 128 | |||||
| TOTAL ACCRUALS AND PROVISIONS | 9,245 | 3,760 | |||||
The cost of material accrual relates 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. Movement in warranty provisions is shown below:
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Provision b/fwd | 396 | 370 | |||||
| Addition | 73 | 33 | |||||
| Utilised | (20) | (7) | |||||
| Provision c/fwd | 449 | 396 | |||||
21. DEFERRED INCOME
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 | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Investment subsidies | 12,649 | 2,246 | |||||
| Investment grants | 11,596 | 3,809 | |||||
| Other grants and subsidies | 6 | 1 | |||||
| 24,251 | 6,056 | ||||||
| Current portion | 2,052 | 860 | |||||
| Non-current portion | 22,199 | 5,196 | |||||
| 24,251 | 6,056 | ||||||
22. INCOME TAX PAYABLE
| As at 31 December | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| United Kingdom | 18,070 | 8,516 | |||||
| Germany | 3,712 | 532 | |||||
| Japan | 4,489 | 1,807 | |||||
| 26,271 | 10,855 | ||||||
Income tax liabilities comprise both corporation and trade 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.
23. OTHER CURRENT LIABILITIES
| As at 31 December | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| VAT liability | - | 85 | |||||
| Payroll liabilities | 339 | 344 | |||||
| Other liabilities | 433 | 502 | |||||
| 772 | 931 | ||||||
24. ADVANCE PAYMENTS RECEIVED
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 2008, such deposits amounted to €21,707,335 from three customers. (2007: €10,000,000 from one customer).
| As at 31 December | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Short term element | 2,692 | - | |||||
| Long term element | 19,016 | 10,000 | |||||
| 21,708 | 10,000 | ||||||
25. 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 Income Statement 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 | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| PENSION BENEFITS | |||||||
| Present value of defined benefit obligations | (1,354) | (1,241) | |||||
| Fair value of plan assets | 1,019 | 765 | |||||
| TOTAL EMPLOYEE BENEFITS | (335) | (476) | |||||
| MOVEMENTS IN THE BALANCE SHEET: | |||||||
| Present value of defined benefit obligations 1 January | (1,241) | (1,145) | |||||
| Expense recognised | (116) | (118) | |||||
| Interest cost | (62) | (50) | |||||
| Actuarial gains | 66 | 72 | |||||
| Present value of defined benefit obligations 31 December | (1,353) | (1,241) | |||||
| Fair value of plan assets 1 January | 765 | 512 | |||||
| Contribution | 256 | 256 | |||||
| Expected return of plan assets | 40 | 32 | |||||
| Actuarial losses | (42) | (35) | |||||
| Fair value of plan assets 31 December | 1,019 | 765 | |||||
| AMOUNTS RECOGNISED IN THE INCOME STATEMENT: | |||||||
| Interest cost | (62) | (50) | |||||
| Expected return of plan assets | 40 | 32 | |||||
| Current service cost | (116) | (119) | |||||
| Actuarial gains/losses | 24 | 37 | |||||
| (114) | (100) | ||||||
| The principal actuarial assumptions used were as follows: | |||||||
| Discount rate | 5.00% | 5.00% | |||||
| Expected return of plan assets | 4.50% | 4.50% | |||||
| Future salary increases | - | - | |||||
| Future pension increases | 1.50% | 2.00% | |||||
The expected service expenses for 2009 are €138,325 and the contributions to plan assets are estimated at €255,717.
26. EQUITY
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| AUTHORISED SHARE CAPITAL |
|
|
| ||||
| 600,000,000 ordinary shares of 2 pence each | 17,756 | 17,756 | |||||
| ALLOTTED, CALLED UP AND FULLY PAID |
|
|
| ||||
| 416,725,335 ordinary shares of 2 pence each |
| 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.
27. 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. On 19 January 2007 75,000 ordinary shares of £1 each (on 21 May 2007 each ordinary share of £1 in the Capital of the Company was sub divided into 50 ordinary shares of 2 pence each) were granted by the EBT at the market price on that date of £26 per share. These shares were exercised immediately at an exercise price of nil pence. The total value of the grant was therefore £1,950,000 or €2,281,017.
The Group 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 scheme two award schemes 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 the year under review 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 10 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.
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 for each of the schemes is set out as follows:
| PSA* | MVO | SIP* | |||
| Number | Number | Weighted average exercise price (pence) | Number | ||
| 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 2008 PSA options are exercisable, between 36 months and 42 months after the date of grant , up to August 2011. MVO options are exercisable between 3 years and 10 years after the date of grant, up to December 2018. SIP options are exercisable between 3 and 5 years after date of grant, up to February 2013.
The remaining weighted average remaining contractual life of options outstanding at 31 December 2008 is 2.46 years for PSA (2007 3.46 years), 9.99 years for MVO and 4.16 years for SIP.
28. RISK MANAGEMENT AND HEDGING STRATEGIES
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 2008 36.8% of the sales are related to the largest customer (2007: 48%). The number of customers accounting for approximately 95% of the annual revenue decreased from 16 in 2007 to 10 in 2008. 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.
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 2008, about €154.6million (2007: €163.5 million) of the Group's sales was generated in JPY. Expenses of €92.9million (2007: €125.2 million) invoiced in JPY 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 predominantly 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, pounds sterling and US dollars).
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 pounds 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 is endeavoring to increase its Japanese yen borrowings to hedge against downwards movement in the Japanese yen/euro exchange rate.
After careful consideration and due to the satisfactory natural operating hedging position coupled with its policy to increase borrowings in Japanese yen, the directors have adopted a long term policy of setting off any downside risks of currency fluctuation against the associated up side risks.
During 2008 the Japanese yen/euro exchange rate increased 22.97% (2007: declined 5.22%). The impact of this increase on the Income Statement was to increase sales revenues by approximately 16% (2007: decrease 4%) and to increase operating profit (EBIT) by approximately 6% (2007: decrease 0.8%). The relatively high profit margins achieved during 2008 were exacerbated by the effect of the strength of the Japanese yen.
For each 1% movement in the Japanese yen/euro exchange rate profits would increase/decrease by approximately €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 is seeking to increase borrowings in Japanese yen so that these largely offset asset balances held in that currency. However, based on Japanese yen asset balances on 31 December 2008, each 1% movement in the Japanese yen/euro exchange rate would increase/decrease the currency translation adjustment by approximately €320k.
During 2008 the net gain on foreign currency adjustments was a gain of €38.2 million (2007: gain of €1.9 million). This gain 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 gain 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:
| Revaluation of cash balances | €16.9 million |
| Revaluation of Group loan in Japanese yen | €11.3 million |
| Debtor/Creditor revaluation | € 0.4 million |
| Revaluation of suppliers deposits | € 7.7 million |
| Total currency gain | €36.3 million |
In line with the Group's natural hedging, upon translation of net assets in the consolidation, there was a negative impact in 2008 of €32.6 million recorded as a currency translation adjustment in the consolidated statement of changes in equity.
INTEREST FLUCTUATION RISKS
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 and part of credit lines that expire at the latest in September 2009. The vast majority of borrowings €15.696 million (99.96%) at the end of 2008 are in Japanese yen (2007: 99.8%). Accordingly, there is a downside risk that Japanese yen interest rates may increase substantially from the current 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 2008 the Group had borrowings in Japanese yen of €15.7 million (2007: €39.5 million) at an average interest rate of approximately 1.135% (2007: 1.5%). For each 1% rise in the Japanese yen interest rates Group interest costs would increase by approximately €160,000 (2007: €400,000) and for each 1% fall in the Japanese yen interest rates interest costs would fall by approximately €160,000 (2007: €400,000). Accordingly, Group profits and equity would fall or rise (after corporation tax in Japan) by approximately €80,000 (2007: €200,000).
Further sensitivity analysis of the accruals and loans outstanding at 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 interests on this loan is paid monthly in arrears.
Financial assets and liabilities
| Book | Held for | Loan & | Amortised | Non | |||
| Value | Trading | Receivables | Cost | Financial | Total | ||
| €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | ||
| 2007 | |||||||
| Assets:- | |||||||
| 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 | (3,760) | (3,760) | (3,760) | ||||
| 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) |
|
|
| (67,067) | (27,752) | (94,819) |
| 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 | 169,929 | 169,929 | 169,929 | ||||
| TOTAL | 378,916 |
|
| 195,750 |
| 183,166 | 378,916 |
| Liabilities:- | |||||||
| Loans payable short term | (15,703) | (15,703) | (15,703) | ||||
| Accounts payable trade | (29,753) | (29,753) | (29,753) | ||||
| Accrued expenses | (9,245) | (9,245) | (9,245) | ||||
| Other current liabilities | (772) | (772) | (772) | ||||
| Other long term liabilties | (851) | (851) | (851) | ||||
| Other non financial liabilities | (72,939) | (72,939) | (72,939) | ||||
| TOTAL | (129,263) |
|
|
| (56,324) | (72,939) | (129,263) |
29. 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.
30. 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 2008 are pending at the current time.
31. 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 | |||||||
| 2008 | 2007 | ||||||
| €'000 | €'000 | ||||||
| Less than one year | 1,317 | 1,326 | |||||
| Two to five years | 4,142 | 5,009 | |||||
| Longer than five years | 796 | 2,172 | |||||
| 6,255 | 8,507 | ||||||
EQUIPMENT PURCHASE COMMITMENTS
Orders to the amount of €12.0 million had been made on 31 December, €9.5 million of which related to advance payments made in order to further the investments regarding the expansion of production.
32. RELATED PARTY DISCLOSURES
The Group basically 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.
33. POST BALANCE SHEET EVENTS
There are no significant post balance sheet events.
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The consolidated income statement, consolidated balance sheet at 31 December 2008, consolidated statement of changes in equity, consolidated cashflow statement and associated notes have been extracted from the group's 2008 statutory financial statements upon which the auditors opinion is unqualified and which do not include any statement under section 237 of the Companies Act 1985. Those financial statements have not yet been delivered to the registrar of companies. The results for the financial period ended 31 December 2008 are available on the Company's website www.pvcrystalox.com. Report and accounts for the financial period ended 31 December 2008 will be sent to shareholders with details of the annual general meeting.