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PV Crystalox Solar PLC

Interim report 2020

PV Crystalox Solar PLC (the "Group"), a long established supplier to the global PV industry now also providing slicing services for the high technology ceramics and optics industries in Germany, announces its unaudited interim results for the six month period ended 30 June 2020.

Highlights

· Up to £2m capital return via a tender offer subject to approval by shareholders at General Meeting to be held on 9 September

· Cancellation of listing to take effect on 29 September

· €0.8m received relating to the settlement of a legacy wafer supply contract

· Focus on the transformation of German operations and resolution of outstanding tax issue

Financial Overview

· Revenues €0.3m (H1 2019: €0.3m)

· Loss before taxes (EBT) €(0.4)m (H1 2019: €(1.4)m)

· Net cash €7.3m at 30 June 2020 (31 December 2019: €8.6m)

Iain Dorrity, Chief Executive Officer, commented:

"The Board will continue its endeavours to complete the transformation of the manufacturing operation in Germany and to resolve any potential challenge from the tax authorities there regarding the distribution of payments received under the arbitration settlement in 2018. A sale of the German business to a third party or a transfer to the existing management team remains the ultimate objective and together with a resolution of the tax issues may enable a further cash return to shareholders in due course."  

Enquiries:

PV Crystalox Solar PLC +44 (0) 1235 437160

Iain Dorrity, Chief Executive Officer

Peter Finnegan, Chief Financial Officer and Group Secretary

About PV Crystalox Solar PLC

PV Crystalox Solar a long established supplier to the global PV industry now also providing slicing services for the high technology ceramics and optical industries in Germany.

Chairman and Chief Executive's joint statement

During the last two years the Board has explored various options to maximise any value from the listing of the Group's shares on the Official List but has been unable to identify any viable opportunities.

In March 2019, following an extensive review of the strategic options for the future of the Group, the Board concluded that returning a large proportion of the Group's surplus capital, as part of an orderly resolution of the Group's affairs, would be in the best interests of shareholders. A capital return of €43.4 million (£38.5 million) was duly completed in June 2019.

On 19 March 2020, the Group announced that the Board had concluded that a further return of capital would be an appropriate course of action, followed by a Cancellation of the Listing. The Board noted that this further return of capital was to be contingent upon receipt of the payment relating to the settlement of a legacy wafer supply contract.

On 29 June 2020, the Group announced that following receipt of the payment relating to the settlement of a legacy wafer supply contract, it will proceed to return up to £2 million of surplus capital to Shareholders by way of a Tender Offer.

The Board has for some time been reviewing the benefits to, and burdens on, the Group and Shareholders of continuing the Listing. The Board has concluded that it is in the interests of Shareholders to proceed with the Cancellation of Listing for the following reasons:

(1) The Group has no intention of completing a public markets transaction such as a secondary fundraise or an acquisition using its Ordinary Shares as currency; and

(2) given the reduced size of the Group and its limited business activity, the cost of maintaining the systems, procedures, staff and advisers to comply with listed company requirements is not an optimal use of the Group's financial resources.

The Cancellation of Listing is expected to take effect from 7.00 am on 29 September 2020. In accordance with UK Listing Rule 5.2.8, the Group is required to give at least 20 business days' notice to the London Stock Exchange of the intended Cancellation of Listing. Shareholder approval is not required in order to effect the Cancellation of Listing.

With around 20 employees now remaining in the downsized operation in Germany, some silicon wafering capabilities have been retained as limited contract wafering is periodically carried out for a local PV customer. The funded PV related research and development activities for which grants of €0.2 million were received in H1 2020 are also continuing.

The key focus now is applying our wire sawing expertise to the cutting and slicing of a variety of materials other than silicon to meet the requirements of the optical, ceramic and semiconductor industries in Germany. While we have been successful in developing some new customer relationships and consolidating these into regular contracting business, the overall performance has been below expectations. Progress has been hampered by the Covid-19 coronavirus outbreak which has negatively impacted the global economy and has led to a further contraction of the notoriously cyclical semiconductor industry which in 2019 suffered its worst downturn in almost two decades.

Financial Review

Group revenues in H1 2020 of €0.3million were at almost the same level as H1 2019, as the negative impact of the Coronavirus pandemic on the global economy hampered the Group's efforts to develop the new slicing services business.

The Company's loss before taxes was €0.4 million (H1 2019: loss of €1.4 million). This improvement was mainly driven by the receipt of a €0.8 million distribution in respect of a legacy wafer supply contract which is included in other income. Personnel costs were higher in the period due to final redundancy costs in connection with the closure of the UK office. Other income in H1 2020 of €1.1 million was significantly higher than H1 2019 when €0.3 million was recognised. Currency gains of €0.1 million in H1 2020 were an improvement on the €0.6 million loss in H1 2019.

Depreciation and impairment charges were negligible in H1 2020 as they were in H1 2019. Other expenses at €0.5 million in the first six months of 2020 were marginally lower than in the same period last year. The Group's net cash position at the end of the period was €7.3 million, which was €1.3 million lower than the net position of €8.6 million at the start of the year.

The Group's Employee Benefit Trust (EBT) has been closed and its remaining shares sold. The net cash balance on closure of €1.1 million was returned to the Group on 8 July 2020. This amount is included in the net cash shown in the accounts.

Risk factors

The principal risks and uncertainties affecting the business activities of the Group were identified under the heading "Risk management and principal risks" in the Strategic Report on pages 5 and 6 of the 2019 Annual Report, a copy of which is available on the Group's website, www.pvcrystalox.com. The most significant of these risks, is the "Transfer pricing risk", whereby tax authorities in Germany may challenge the distribution of payments received under the arbitration settlement in 2018 and which might lead to an additional tax liability up to a maximum of €1.9 million. The Group's position which is supported by its legal and tax advisers and is consistent with the treatment of a settlement received in 2012 is that there is no further tax due to tax authorities. In order to further mitigate this risk efforts are being made to engage with the authorities to get clarity and early resolution of this issue. In the view of the Board, the key risks and uncertainties for the remaining six months of the financial year continue to be those set out in the 2019 Annual Report.

Outlook

As part of the continuing resolution of the Group's affairs the Board has implemented various measures to reduce costs. The UK office has now been closed and the CFO/Group Secretary's role has become part-time with effect from 1 July 2020. Non-executive director fees were reduced by 50% from January 2020 and a similar adjustment will be effected for the Chief Executive. The Cancellation of Listing will deliver a further reduction in overheads and Michael Parker will also step down at that time from his position as a non-executive director. The Board will continue its endeavours to complete the transformation of the manufacturing operation in Germany and to resolve any potential challenge from tax authorities there regarding the distribution of payments received under the arbitration settlement in 2018. A sale of the German business to a third party or a transfer to the existing management team remains the ultimate objective and together with a resolution of the tax issues may enable a further cash return to shareholders in due course. As the Group's ability to accelerate the liquidation process is limited and economic considerations make such action unfavourable, the Board's focus is on minimising the cash burn during the next 12-18 months while the outstanding issues are resolved.

John Sleeman Dr Iain Dorrity

Chairman Chief Executive Officer

26 August 2020

Consolidated statement of comprehensive income

for the six months ended 30 June 2020

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

Consolidated balance sheet

as at 30 June 2020

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

Consolidated statement of changes in equity

for the six months ended 30 June 2020

Consolidated cash flow statement

for the six months ended 30 June 2020

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

Notes to the consolidated interim financial statements

for the six months ended 30 June 2020

1. Group accounting policies

Basis of preparation

These condensed consolidated interim financial statements are for the six months ended 30 June 2020. They have been prepared in accordance with International Accounting Standard ("IAS") 34, 'Interim Financial Reporting'. They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2019.

The statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the financial statements for the year ended 31 December 2019.

Going concern

The Group's directors are required to make an assessment as to whether it is appropriate to prepare the financial statements on a going concern basis by considering the Group's ability and intention to continue in business.

The Group have been operating a cash conservation strategy to maximise cash held and to enable the Group to manage its operations whilst market conditions remain difficult. A description of the market conditions and the Group's plans are included in the Strategic Report.

On 30 June 2020 there was a net cash balance of €7.3 million. As part of its normal business practice, the Group regularly prepares both annual and longer-term plans which are based on the directors' expectations concerning key assumptions. The directors, after careful consideration and after making appropriate enquiries, are of the opinion that the levels of net cash outflows remain low such that Group has sufficient cash to continue in operational existence for at least twelve months from the date of approval of the financial statements, in August 2020.

The Group intends to continue operations at PV Crystalox Solar Silicon GmbH, in Germany which involve the cutting of silicon and non-silicon materials together with a continued focus on research and development activities. A sale to a third party or a transfer of the business to the existing management team remains the ultimate objective.

As a result of this assessment the directors have concluded that the Group has the ability and the intention to continue in business. It should be noted that whilst the accounts of the Group and PV Crystalox Solar Silicon GmbH have been prepared on a going concern basis, Crystalox Limited ceased manufacturing operations in the United Kingdom in H2 2017 and accordingly its accounts have been prepared to reflect this.

Basis of consolidation

The Group financial statements consolidate those of the parent company and its subsidiary undertakings drawn up to 30 June 2020. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights.

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

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

All intra-group transactions, balances, income and expenses are eliminated upon consolidation.

Functional and presentational currency

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

2. Segment reporting

The chief operating decision maker, who is responsible for allocating resources and assessing performance, has been identified as the Group Board. The Group is organised around the production and supply of wafers from silicon and non-silicon materials. Accordingly, the Board reviews the performance of the Group as a whole and there is only one operating segment. Disclosure of reportable segments under IFRS 8 is therefore not made.

Geographical information for the six months ended 30 June 2020

* Excludes financial instruments, deferred tax assets and post-employment benefit assets.

Three customers accounted for more than 10% of Group revenue each and sales to these customers were (figure in €'000):

1. Germany 79

2. Germany 70

3. Germany 50

Geographical information for the six months ended 30 June 2019

* Excludes financial instruments, deferred tax assets and post-employment benefit assets.

3. Income tax

The average taxation rate shown in the Consolidated Statement of Comprehensive Income is nil% (H1 2019: nil%).

The anticipated long-term average tax rate for the Group, normalised on the basis that the Group returns to profitability, is approximately 32%.

4. Earnings per share

Net earnings per share is computed by dividing the net loss for the period attributable to ordinary shareholders of €0.4 million (H1 2019: loss of €1.4 million) by the weighted average number of ordinary shares outstanding during the year.

Diluted net earnings per share is computed by dividing the (loss) / profit for the year by the weighted average number of ordinary shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares, including share options.

The calculation of the weighted average number of ordinary shares is set out below:

5. Share Capital

Ordinary shares of 3.0206 pence each (2019: 3.0206 pence)

As a result of a Share Capital Consolidation Shareholders received 1 New Ordinary Share for every 22 Existing Ordinary Shares, effective from 7 June 2019.

6. Shares held by the Employee Benefit Trust ("EBT")

As at 30 June 2020 the EBT held zero shares (0.0%) of the issued share capital in the Company (30 June 2019: 89,685 shares (1.2%)). It held these shares in trust for the benefit of employees. The EBT has been closed, the remaining shares sold and the final cash balance of €1,138,477 was returned to the Company in July 2020. The cash balance held by the EBT on 30 June 2019 was €1,127,000.

7. Return of Capital

In June 2019 a return of cash was made to all shareholders of 24 pence per share to shareholders on the register at the time of the Return of Capital, This was implemented through a reduction of the capital reserves. The reduction of the Company's share premium account and of the nominal value of the Ordinary Shares enabled the Company to make a Return of Capital to Shareholders of €44.1 million in aggregate.

8. Changes in contingent assets and liabilities

There were no changes in contingent assets and liabilities.

9. Related party disclosures

Related parties as defined by IAS 24 comprise the senior executives of the Group including their close family members and also companies that these persons could have a material influence on as related parties as well as other Group companies. During the reporting period, none of the shareholders had control over or a material influence in the parent company.

Transactions between the Company and its subsidiaries have been eliminated on consolidation.

10. Approval of interim financial statements

The unaudited consolidated interim financial statements for the six months ended 30 June 2020 were approved by the Board of Directors on 26 August 2020.

The financial information for the year ended 31 December 2019 set out in this Interim Report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2019 have been filed with the Registrar of Companies. The Auditors' Report on those financial statements was unqualified and did not contain statements under Section 498(2) or Section 498(3) of the Companies Act 2006.

Statement of directors' responsibilities

to the members of PV Crystalox Solar PLC

The directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the European Union and that this Interim Report includes a fair review of the information required by the Disclosure and Transparency Rules of the Financial Services Authority, paragraphs DTR 4.2.7 and DTR 4.2.8.

The directors of PV Crystalox Solar PLC are listed at the end of this Interim Report and their biographies are included in the PV Crystalox Solar PLC Annual Report for the year ended 31 December 2019.

By order of the Board

Peter Finnegan

Chief Financial Officer and Group Secretary

26 August 2020