PVCS.L Regulatory News (PVCS)

PV Crystalox Solar PLC

Preliminary Results

For the year ended 31 December 2011

PV Crystalox Solar PLC and its subsidiaries (the "Group"), one of the world's leading providers of photovoltaic ('PV') silicon wafers, today announces preliminary results for the year ended 31 December 2011.

Market overview

·; 2011 global module installations estimated at 27.7GW up 70% from 2010

·; Unprecedented wafer spot pricing reduction of 69% during 2011

Overview of results

·; Wafer shipments 384MW (2010: 378MW)

·; Revenues €210.4m (2010: €252.6m)

·; EBIT before exceptional items of €4.1m (2010: €33.3m)

o Exceptional impairment of plant of €27.8m

o Exceptional inventory writedown of €22.8m

o Exceptional onerous contract charge & provisions of €20.9m

·; EBIT loss of €67.5m (2010: profit of €33.3m)

·; EBT loss of €67.1m (2010: profit of €33.7m)

·; Net Cash €22.6m (2010: €54.8m)

Maarten Henderson,Chairman, commented

"We remain committed to the solar industry and believe that the long term outlook for solar installations remains positive. In the medium-term we expect that market conditions will return to levels that allow companies to operate profitably. In parallel the Group will accelerate its cost reduction programmes, continue its cash conservation strategy, whilst preserving the Group's operational capabilities. The Board will continue to take the decisions necessary to maximise shareholder value."

Iain Dorrity, Chief Executive Officer commented

"2011 has been an extremely challenging year the for the global PV industry. We believe that our cash conservation measures and internal cost reduction programme are the most appropriate approach to protect shareholder value in the current turbulent environment."

Enquiries:

About PV Crystalox

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

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

Chairman's statement

PV Crystalox Solar has navigated a very difficult 2011, which was a very challenging year for the PV industry. Worldwide production capacity continued to increase dramatically particularly from companies in China, which led to sharp falls in pricing across the PV value chain and drove wafer sales prices below production costs.

Despite the problems faced by the industry during 2011, growth in the global PV market was significantly above industry expectations, with strong demand in the second half of the year driven by the 40% fall in module prices and the continuing market incentive programmes in Europe. The European Photovoltaic Industry Association (EPIA) estimates that global installations grew to around 27.7GW in 2011, which represents a 70% increase over the previous year.

In response to the challenging market environment, the Board has taken action to manage the business through these difficult times and in particular to conserve the Group's cash. Production output was significantly reduced at our ingot and wafer operations in the UK and Germany and polysilicon production was suspended at our facility in Germany. Employment costs were reduced through the introduction of short time working, a reduction in the number of temporary workers in Germany and, regrettably, redundancies in the UK.

The Group's shipment volumes of 384MW in 2011 were slightly above the 378MW achieved in 2010. However, Group revenue was 17% lower at €210.4 million due to the effect of lower average selling prices which impacted profitability leading to earnings before interest and taxes (EBIT), before exceptional items, of €4.1 million, representing a margin of 1.9%. As a result of the dramatic reduction in wafer and polysilicon spot prices and the challenging market environment, the Group recognised exceptional charges of €71.6 million in 2011. These comprised: a €27.9 million impairment charge in relation to the Group's polysilicon facility at Bitterfeld; a €22.9 million inventory write down; and a €20.9 million write down in relation to onerous contracts with our external suppliers. Once these exceptional items are taken into account, total EBIT loss was €67.5 million for the year.

The loss after taxes was €60.9 million, equating to a loss per share of 15.0 euro cents. The Group retained a positive net cash position of €22.6 million at the year end.

In view of the current challenging market conditions that continue to be experienced in the first three months of 2012, the Board has decided not to declare a dividend. The Board continues to recognise the importance of dividends to shareholders and the directors will review the potential to reinstate dividends based on the future performance and prospects of the Group.

We remain committed to the solar industry and believe that the long term outlook for solar installations remains positive. In the medium-term we expect that market conditions will return to levels that allow companies to operate profitably. In parallel the Group will accelerate its cost reduction programmes, continue its cash conservation strategy, whilst preserving the Group's operational capabilities. The Board will continue to take the decisions necessary to maximise shareholder value.

Maarten Henderson

Chairman

27 March 2012

Operational review

Summary

PV market conditions in 2011 were extremely challenging, with a combination of increasing industry production capacity and high inventory levels leading to pressure on pricing, which grew in intensity as the year progressed.

Our wafer shipment volumes of 384MW in 2011 were marginally above the 378MW achieved in 2010. Although our long term wafer supply contracts provided some protection from the worst of the market pressures, average sales prices (ASPs) fell by 18% and adversely impacted our margins. Fierce price competition resulted in the market pricing falling below our production costs in the second half of the year, and has resulted in inventory write-downs, onerous contract provisions and impairment of assets.

The Group has responded to market oversupply and lower selling prices by adopting a cash conservation strategy. Accordingly, in December 2011 production was suspended at our polysilicon facility in Bitterfeld and production output was significantly reduced at our UK ingot and German wafer operations.

Market

Overall global PV installations grew by 70% in 2011 to reach 27.7GW according to the European Photovoltaic Industry Association (EPIA), with Europe continuing to be the major market and accounting for 75% of the installed capacity.

PV end-market demand was sluggish in the first half of the year, particularly in the two key markets Germany and Italy. PV installations in Germany, hitherto the largest global market, were only around half the level installed in the same period in 2010. In Italy, uncertainty due to delays in finalising revisions to feed in tariffs ("FIT") froze demand during the first half of the year.

In the second half both markets rebounded strongly, stimulated by lower pricing, and showed remarkable growth with Germany installing 3.0GW in December alone to reach a full year total of 7.5GW, slightly above the 2010 level. Italy overtook Germany to become the largest market with installations of 9.0GW in 2011.

The turbulent times in the PV industry have created difficulties for many PV companies as market prices for cells and modules also fell below production costs. Spot prices across the value chain remained stable until April 2011 but had fallen by 40% for modules, 69% for wafers and 59% for polysilicon by the year end. The turmoil has taken its toll of PV companies both in Europe and in the USA, with several filing for bankruptcy including SpectraWatt, one of our long term contract customers in a key strategic market.

Operational Review of 2011

In light of the weak pricing environment, in October the Board decided to take action to conserve the Group's cash. Accordingly the Group reduced production output at its UK ingot and German wafer operations and also suspended production temporarily at its polysilicon facility in Bitterfeld, Germany. Regrettably, these actions led to redundancies in the UK, short-time working in Germany and a reduction in temporary workers in both countries. In addition, the Group continued to have discussions with its suppliers in order to reduce costs and will continue to seek further methods of achieving greater efficiencies within the Group's operations.

During 2007-2008, Group companies entered into a number of long term agreements with customers to supply wafers at prices which are considerably above today's market levels. In most cases we have been able to reach agreement with our customers to continue supply of contracted volumes, albeit at reduced prices. However the Group has been unable to reach any agreement with two customers who no longer wish to take delivery of wafers and so resolution is being sought under the jurisdiction of the International Court of Arbitration. If these actions are successful, they will result in significant cash settlements in the Group's favour, during the latter part of 2012.

While the Group was successful in managing the effect of the difficult market environment during the first half of the year, the more intense pressure during the second half impacted pricing and to a lesser extent volumes. Demand for our products continued to be strong during the first four months of the year and although demand weakened during May and June, shipment volumes for the first half of 2011 totalled 204MW, a 23.6% increase on the 165MW shipped in the same period in 2010. Our average sales price (ASPs) during the first half was approximately 9% below that reported for the full year 2010 but the impact on margins was offset by the accelerated progress in our wafering and internal polysilicon production cost reduction programmes. Our ASPs fell more sharply during the second half as market pressures intensified but shipment volumes of 180MW were only 8.8% down on the first half. This represented a creditable performance in the context of the unprecedented 69% decline in wafer spot market prices which was seen during the year.

The Group continues to respond to the global shift in PV manufacturing to Asia. Shipments to customers in Asia exceeded 80% (2010: 75%) with China overtaking Japan to become our largest geographical market. Sales to customers in Taiwan also grew significantly and were up by almost 50% on those in 2010. However, shipments to this region were predominately achieved during the first half as sales were lower during the second half as market conditions and pricing deteriorated sharply.

Strategic Developments

The interim Group strategy focuses on cash conservation and retention of capabilities, at the expense of emphasis on growth. We will review this strategy on a regular basis while monitoring market conditions.

The Group remains committed to systematically enhancing its position in the PV industry as an independent producer of multicrystalline silicon wafers. By focusing on the wafer and not competing with our customers in cell production, we are able to develop strong relationships with solar cell producers. It is our intention to remain one of the PV industry's cost leaders and to supply quality wafers.

The chart below shows how our priorities are being adapted to address the current market conditions.

Bitterfeld

Further progress was made at our internal polysilicon production facility in Bitterfeld where improvements in both electricity and SiCl4 consumption per kg Si were achieved. Since operation started in July 2009 production has ramped up steadily and a significant increase in output to 1218MT was achieved during 2011 (823MT:2010). However, output of the plant was restricted to some extent by a bottleneck identified in part of the plant and has led us to reduce the name-plate capacity from 1800MT to 1600MT. The fully loaded production cost remained below the average price of our contracted polysilicon from external suppliers throughout 2011.

The Group's decision to cut back on ingot and wafer production and the associated reduction in internal polysilicon requirements necessitated a temporary suspension of production from December 2011 onwards. After taking this unscheduled shutdown into account, annualised output in 2011 was equivalent to 1330MT per annum or 83% of the current name plate capacity. It should be noted that further investment of €4m on debottlenecking would enable capacity to be expanded to 2000MT. No expenditure is under consideration whilst current market conditions persist.

Flexibility in production

The Group maintains its strategic focus on its core technology and undertakes all ingot production in-house but retains flexibility with regard to polysilicon and wafering. The Group has invested in the Bitterfeld facility to produce its own polysilicon but also retains relationships with external polysilicon suppliers and obtains significant quantities of polysilicon from them. Whilst production at Bitterfeld has been temporarily suspended the Group has the flexibility to restart production should market conditions be favourable.

The Group wafers its ingots through a combination of its in house wafering facility at Erfurt, Germany and wafering sub-contractors in Japan.

Capacity expansion

The expansion of the Group's ingot production capacity is approaching completion and following implementation of productivity improvements, the capacity will reach 750MW during Q2 2012 rather than the originally planned 670MW. The Group had earlier indicated an intention to expand capacity further to reach 1GW by 2013 but this capital expenditure has been postponed until there is a recovery in market conditions.

Cash conservation focus in 2012

The Group will continue with its cash conservation strategy while current market conditions persist. Wafer and ingot production volumes will be maintained at reduced levels, consistent with the retention of our operating capabilities, and maintain a strong focus on cost control and inventory management including trading of excess polysilicon. At the same time we will prioritise our own internal cost reduction programmes.

The decision to restart production at our polysilicon facility in Bitterfeld will depend on the development of market wafer pricing, the Group's internal polysilicon requirements and on polysilicon pricing.

The Group has long term contractual commitments for purchase of polysilicon but has been successful in negotiating improved pricing for deliveries in the first half. Price reductions have also been negotiated with other key suppliers including wafering subcontractors which will enable direct wafer production costs to be reduced significantly (in excess of 20%) during the first half of the year.

Outlook

There continues to be great uncertainty regarding short term market developments and most industry forecasts predict little if any growth in global PV demand in 2012. Increases in installations are expected in China, where the government has recently increased its PV target from 10 to 15GW by 2015 and also in Japan where a feed in tariff will be introduced in July 2012. However, these increases are expected to be offset by reduced demand following policy adjustments in key markets in Europe. Pressure on pricing is expected to continue, resulting in an intensely competitive environment. Accordingly we will accelerate our cost reduction and efficiency programmes.

With the difficult trading conditions expected to persist throughout 2012, the Group's cash conservation measures are expected to continue. Production output is currently running at around 40% of average 2011 levels. Shipments to customers have been reduced accordingly and are expected to be in the range 80-100MW in the first half. ASPs are expected to be considerably above spot price levels.

The Group is trading excess polysilicon in order to optimise inventory levels. The success of the strong focus on working capital management is demonstrated by the improvement of our net cash balance, which at the end of February 2012 was markedly higher than at the end of 2011.

Dr Iain Dorrity

Chief Executive Officer

27 March 2012

Financial review

In 2011 Group revenue decreased by 16.7% to €210.4 million (2010: €252.6 million) although total wafer shipments were marginally higher than in 2010 at 384MW (2010: 378MW). The decline was mainly due to the 18% fall in ASPs during the year. This impact was more significant in the second half of 2011 when ASPs were 29% lower than in the first half.

During the year the Group generated EBIT (before exceptional items) of €4.1 million (2010: €33.3 million). Actual EBIT (including exceptional items) was a loss of €67.5 million (2010: profit €33.3 million). This reduction in underlying profitability was driven primarily by the severe decline in average selling prices during the second half of 2011. In addition, the relatively strong Japanese Yen had a negative impact on Group EBIT due to higher raw material and subcontracting costs in Japan.

Net interest income of €0.5 million (2010: €0.4 million) was almost the same as that in the previous year due to continuing low global interest rates. The Group's net cash position at year end was €22.6 million (2010: €54.8 million). In the first half the main impact on cash was the completion of the planned capital expenditure programme and a balancing advance payment to an external supplier of polysilicon. During the second half the cash position was impacted by the effect of the poor trading environment on inventory levels and to a lesser extent, the pressure on margins.

Earnings after tax were a loss of €60.9 million (2010: profit of €23.3 million) producing earnings per share at a loss of €0.15 (2010: profit of €0.06).

These financial results generated net cash inflows from operating activities of €1.6 million (2010: inflows of €11.3 million) and free cash outflow of €20.0 million (2010: outflow of €6.3 million). Free cash flow is defined using the cash flow statement as net cash from operating activities plus cash from/(used in) investing activities less interest received. The net operating cash flow was impacted by the absorption of €6.8 million into working capital (2010: €23.5 million). Poor sales at the end of the year led to cash being absorbed into higher inventories, although non cash write-downs of closing inventory led to closing inventory levels being slightly lower than at the previous year end. This was offset to some extent by a reduction in debtors due to lower sales in Q4 2011 and improved payment terms, resulting from the change in the geographical mix of customers.

The Group's capital expenditure in the year of €21.9 million (2010: €19.9 million) was offset by grants received of €1.1 million (2010: €3.3 million), giving a net cash outflow of €20.8 million compared against 2010 when the net cash outflow was €16.5 million. Investment grants received were all in respect of the German operations as capital expenditure in the United Kingdom does not qualify for such grants.

There was a small increase in Japanese Yen loans of a net €0.3 million (2010: €11.1million). These loans were utilised as a hedge against movements in the Japanese yen and its effect on assets held in that currency. Dividends totalling €8.1 million were paid in respect of the 2010 profit in June 2011 (2010: €12.1 million).

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

Going concern

A description of the market conditions, the reduction in spot prices of wafers during 2011 and the Group's actions to conserve cash are included in the Operational Review.

As part of its normal business practice, the Group regularly prepares both annual and longer-term plans which are based on the directors' expectations concerning key assumptions. The assumptions around contracted sales volumes and prices and contracted purchase volumes and prices are based on management's expectations and are consistent with the Group's experience in the first part of 2012.

There are several long-term wafer supply contracts for unexpired periods of up to three years and accordingly the Group is able to sell wafers at prices that are above current market spot prices despite the difficult market environment. Wafer sales to customers without long term contracts are assumed in the longer term plans at values close to spot prices. In addition the Group is negotiating compensation for the termination of certain wafer supply contracts and these are expected to generate a significant cash inflow within the next twelve months.

Likewise, the Group has long-term contracts with suppliers of our main raw material polysilicon for unexpired periods of between two and four years. Polysilicon used in the Group's wafer production comes from two external suppliers and from the Group's plant at Bitterfeld. The Group's management has been successful in working with these suppliers to secure periodic contract amendments through a combination of adjusted prices and volumes. As a result, these amendments have brought the terms more in-line with current market pricing. To manage inventory levels the Group will sell excess polysilicon and has been successful in this respect during the first quarter of 2012.

The nature of the Group's operation means that it can vary production levels to match market requirements. As part of the cash conservation measures and the associated planning assumptions, production output has been reduced to match expected demand. At the same time production capacity has been retained. In line with the Group's strategy of retaining flexibility in production levels, production can be brought back on stream when market conditions allow. Employment costs have been reduced following the reduction in contract labour, redundancies in the UK and government supported short-time working in Germany. The Group expects to reduce other costs through negotiation with suppliers and by achieving greater efficiencies within the Group's operations.

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

On 31 December 2011 there was a net cash balance of €22.6 million, comprising cash or cash equivalents of €71.6 million and short-term loans of €49.0 million. The borrowings are in Japanese Yen and are subject to certain covenants on the Japanese subsidiary company (including interest cover, profitability, restrictions on Group dividends and debtor cover). The Group's plans are based upon remaining within its net cash balance and are not dependent upon these short-term borrowings.

Therefore, whilst any consideration of future matters involves making a judgement at a particular point in time about future events that are inherently uncertain, the Directors, after careful consideration and after making appropriate enquiries, are of the opinion that the Group has adequate resources to continue in operational existence for at least 12 months from the date of approval of the financial statements. Thus the Group continues to adopt the going concern basis of accounting in preparing the annual financial statements.

Impairment

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

On 31 December 2011 the Group had invested €100 million in its polysilicon plant at Bitterfeld and had received grants of €23 million. The current difficulties in the photovoltaic industry dictated that an impairment test should be carried out to determined whether the plant should be impaired. The recoverable value of Bitterfeld plant is estimated to amount to €47.9 million, based on an estimate of its value in use. This has been derived from a forecast of potential cash flowsfrom the plant. These cash flows were discounted at a post tax cost of capital of 9.67%, which was determined by calculating the Group's cost of capital using the CAPM (capital asset pricing model). The resultant (discounted cash flow) analysis determined the net present value of the plant. The potential future cash flows have been estimated on the assumption that the plant is brought into production in the second half of 2012 and produces at full capacity thereafter. This analysis assumes that sales of polysilicon are at prices based on managements' expectations backed up by the forecast from an external consultant that has a high level of experience of the photovoltaic industry. Plant running costs were obtained from the Group's internal planning system.

The level of impairment of the assets of our plant is predominantly dependent upon judgements used in arriving at future market prices, plant maintenance costs, future growth rates, the discount rate applied to cash flow projections and successfully operating the plant at Bitterfeld. The estimates and judgement used in the aforementioned assessment represents management's best estimate based on current experience and information available, which may be different from the actual results in the future due to changes in the Group's business and the external environment. Any significant changes in the market price of polysilicon, $/€ exchange rate, or plant maintenance costs might lead to further impairment of some or all of the capitalised assets.

The sensitivity of the valuation to these parameters is as follows:

·; 5% increase/decrease in the sales price forecast decreases/increases the impairment by €14 million

·; 5% reduction/increase in the direct cost of production forecast decreases/increases the impairment by €9 million

·; 1% change in the cost of capital changes the impairment by €6 million

Other exceptional items

The exceptional items in the year are set out in note 35 to the accounts. In addition to the above mentioned impairment of €27.9 million, the Group wrote down its inventories by €22.9 million and made onerous contract charge and provisions of €20.9 million. The inventory write down was made to adjust inventory carrying values to realisable value. The onerous contract provision was made in respect of contracts with external suppliers of raw materials. These contracts run for the unexpired period of between two and four years. The provision relates to future losses that are likely to be made if the Group processes or sells the material committed to under the contracts, although adjustments have been made to purchase prices according to the Directors' estimates of how contract prices are likely to be renegotiated.

Dr Peter Finnegan

Chief Financial Officer

27 March 2012

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2011

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 2011

The accompanying notes form an integral part of these statements.

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

Dr Peter Finnegan

Chief Financial Officer

Company number

06019466

27th March 2012

Consolidated statement of changes in Equity

for the year ended 31 December 2011

Consolidated Cashflow Statement

for the year ended 31 December 2011

Notes to the Company Financial Statements

for the year ended 31 December 2011

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

1. Group accounting policies

Basis of preparation

The Consolidated Financial Statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial information has also been prepared under the historical cost convention except that it has been modified to include certain financial assets and liabilities (including derivatives) at their fair value through the Consolidated Statement of Comprehensive Income.

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

The company is listed on the London Stock Exchange.

The financial statements for the year ended 31 December 2011 were approved by the Board of Directors on 27 March 2012.

Functional and presentational currency 

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

Foreign currency translation 

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

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

Use of estimates and judgements - overview

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

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

Use of estimates - property, plant and equipment impairment

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

Managements expectations of the future cash flows of the currently closed plant showed that carrying value was in excess of net realisable amount. Consequently, included in the statement of comprehensive income for this year is an impairment charge of €27.9 million (2010: €nil).The most important variable is the assumed future market price of polysilicon. Other variables are: production/sales volumes, variable direct production cost per kg, personnel costs, other overhead cost, cash taxes, incremental working capital investment and replacement fixed capital investment

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

Use of estimates - deferred taxes

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

Deferred tax assets at 31 December 2011 totalled €19.32 million (2010: €12.08 million) (see note 18).

Use of estimates - provisions - onerous contract provisions

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

Consequently the financial statements include a provision of €17.9m (2010 €NIL) for the discounted total of currently anticipated losses under these contracts.

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

Use of estimates - share‑based payments

Share options granted to employees and share-based arrangements are valued at the date of grant or award using an appropriate option pricing model and are charged to operating profit over the performance or vesting period of the scheme. The annual charge is modified to take account of shares forfeited by employees who leave during the performance or vesting period and, in the case of non-market related performance conditions, where it becomes unlikely the options will vest.

The fair value of shares and share options granted are calculated using an appropriate option pricing model, eg. the Black‑Scholes model. Such models require the input of highly subjective assumptions, including volatility of share price.

Details of the inputs and how they were derived are included in note 29.

Use of estimates - inventory valuation

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

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

Any improvement in anticipated selling prices would reduce the level of writedown necessary and would be taken as profit in 2012.

Basis of consolidation

The Group financial statements consolidate those of the Group and its subsidiary undertakings drawn up to 31 December 2011. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights.

The results of any subsidiary sold or acquired are included in the Consolidated Statement of Comprehensive Income up to, or from, the date control passes. Unrealised gains and losses on intra-group transactions are eliminated fully on consolidation.

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

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

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

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

Going concern

A description of the market conditions, the reduction in spot prices of wafers during 2011 and the Group's actions to conserve cash are included in the Operational Review.

As part of its normal business practice, the Group regularly prepares both annual and longer-term plans which are based on the directors' expectations concerning key assumptions. The assumptions around contracted sales volumes and prices and contracted purchase volumes and prices are based on management's expectations and are consistent with the Group's experience in the first part of 2012.

There are several long-term wafer supply contracts for unexpired periods of up to three years and accordingly the Group is able to sell wafers at prices that are above current market spot prices despite the difficult market environment. Wafer sales to customers without long term contracts are assumed in the longer term plans at values close to spot prices. In addition the Group is negotiating compensation for the termination of certain wafer supply contracts and these are expected to generate a significant cash inflow within the next twelve months.

Likewise, the Group has long-term contracts with suppliers of our main raw material polysilicon for unexpired periods of between two and four years. Polysilicon used in the Group's wafer production comes from two external suppliers and from the Group's plant at Bitterfeld. The Group's management has been successful in working with these suppliers to secure periodic contract amendments through a combination of adjusted prices and adjusted volumes. As a result, these amendments have brought the terms more in-line with current market pricing. To manage inventory levels the Group will sell excess polysilicon and has been successful in this respect during the first quarter of 2012.

The nature of the Group's operation means that it can vary production levels to match market requirements. As part of the cash conservation measures and the associated planning assumptions, production output has been reduced to match expected demand. At the same time production capacity has been retained. In line with the Group's strategy of retaining flexibility in production levels, production can be brought back on stream when market conditions allow. Employment costs have been reduced following the reduction in contract labour, redundancies in the UK and government supported short-time working in Germany. The Group expects to reduce other costs through negotiation with suppliers and by achieving greater efficiencies within the Group's operations.

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

On 31 December 2011 there was a net cash balance of €22.6 million, comprising cash or cash equivalents of €71.6 million and short-term loans of €49.0 million. The borrowings are in Japanese Yen and are subject to certain covenants on the Japanese subsidiary company (including interest cover, profitability, restrictions on Group dividends and debtor cover). The Group's plans are based upon remaining within its net cash balance and are not dependent upon these short-term borrowings.

Therefore, whilst any consideration of future matters involves making a judgement at a particular point in time about future events that are inherently uncertain, the Directors, after careful consideration and after making appropriate enquiries, are of the opinion that the Group has adequate resources to continue in operational existence for at least 12 months from the date of approval of the financial statements. Thus the Group continues to adopt the going concern basis of accounting in preparing the annual financial statements.

Effects of new accounting pronouncements

Accounting standards in effect or applied for the first time in 2011

·; IAS24 (revised) Related party disclosures (effective for accounting periods starting on or after 1 January 2011). This revised standard clarifies the definition of a related party.

·; Amendments to IAS32 (Financial instruments: Presentation) deals with accounting for rights issues.

·; Amendments to IFRS1 ' First time adoption' on financial instruments disclosures (effective for accounting periods starting on or after 1 January 2010). This amendment provides first time adopters with the same transition provisions regarding comparative information for the new three-level classification disclosures.

·; Annual improvements to IFRSs 2010 (effective for accounting periods starting on or after 1 January 2011) . This set of amendments includes changes to six standards and one IFRIC.

·; IFRS1 - First time adoption

·; IFRS3 - Business combinations

·; IFRS7 - Financial Instruments, Disclosure

·; IAS1 - Presentation of financial statements

·; IAS27 - Separate financial statements

·; IAS34 - Interim financial reporting

·; IFRIC13 - Customer loyalty programmes

·; IFRIC19 'Extinguishing financial liabilities with equity investments' (effective for accounting periods starting on or after 1 July 2010) clarifies the accounting when an entity renegotiates the terms of its debt.

·; Amendment to IFRIC14 'Prepayment of minimum funding requirement' (effective for accounting periods starting on or after 1 January 2011). Applies only to entities required to make minimum funding to defined benefit pension plans.

All of the above are expected to make no material difference to the financial statements.

Effects of new accounting pronouncements continued

In issue, but not yet effective

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

·; Amendments to IFRS7 'Financial instruments: Disclosures (effective for accounting periods starting on or after 1 July 2011).

·; Amendments to IFRS1 'First time adoption' (effective for accounting periods starting on or after 1 July 2011)

·; Amendment to IAS12 'Income taxes on deferred tax' (effective for accounting periods starting on or after 1 January 2012)

·; Amendment to IAS19 'Employee Benefit' (effective for accounting periods starting on or after 1 July 2012)

·; Amendment to IAS1 'Financial statement Presentation' (effective for accounting periods starting on or after 1 July 2012)

·; IFRS9 'Financial Instruments' classification and measurement (effective for accounting periods starting on or after 1 January 2015)

·; IFRS10 'Consolidated financial statements' (effective for accounting periods starting on or after 1 January 2013)

·; IFRS11 'Joint Arrangements' (effective for accounting periods starting on or after 1 January 2013)

·; IFRS12 'Disclosure of interest in other entities' (effective for accounting periods starting on or after 1 January 2013)

·; IFRS13 'Fair Value Measurement' (effective for accounting periods starting on or after 1 January 2013)

·; IAS27 (revised 2011) 'Separate financial statements' (effective for accounting periods starting on or after 1 January 2013)

·; IAS28 (revised 2011) 'Associates and joint ventures' (effective for accounting periods starting on or after 1 January 2013)

Intangible assets

Intangible assets are capitalised at cost and amortised over their useful life. Amortisation of intangible assets is recorded under 'Depreciation and impairment of property plant and equipment & intangible assets' in the Consolidated Statement of Comprehensive Income.

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

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

Internally generated intangible assets - research and development expenditure

Expenditure on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding is recognised in the Consolidated Statement of Comprehensive Income.

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

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

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

Property, plant and equipment

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

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

The total useful lives range from approximately 25 to 33 years for buildings, 5 to10 years for plant and machinery, up to 15 years for other furniture and equipment. No depreciation is provided on freehold land. Property, plant and equipment are reviewed for impairment at each balance sheet date or upon indication that the carrying value may not be recoverable.

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

Impairment

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

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

Leased assets

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

Rentals under operating leases are charged to the Consolidated Statement of Comprehensive Income

on a straight-line basis over the lease term. Lease incentives are spread over the total period of the lease.

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

For the reporting year, no assets were recorded under finance leases.

Financial instruments

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

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

Amortised cost

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

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

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

Held for trading

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

Loans and receivables

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

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

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

Inventories

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

Acquisition costs for raw materials are usually determined by the weighted average method.

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

Contingent liabilities

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

Current and deferred taxes

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

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.

Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

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

Public grants and subsidies

As the German operations are located in a region designated for economic development, the Group 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 Consolidated Statement of Comprehensive Income by equal annual instalments over the expected useful lives of the relevant assets under 'Other income'.

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

All required conditions of these grants have been met and it is the Group's intention they will continue to be met.

Provisions

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

Accruals

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

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

Revenue recognition

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

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

Interest income and expenses

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

Interest income is recognised in the Consolidated statement of Comprehensive Income as it accrues, using the effective interest method.

Employee benefits

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

Exceptional items

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

Defined benefit pension plan

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

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

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited directly to the Consolidated Statement of Comprehensive Income in the period in which they arise.

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

Defined contribution plan

For defined contribution plans, the Group pays contributions to pension insurance plans on a contractual basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expenses when they are 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

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

Deferred revenue and other long‑term assets

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

These deposits are held on the Balance Sheet and matched against revenue/cost as appropriate.

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

Share‑based payments

The Group has applied the requirements of IFRS 2 (Share‑based Payments). The Group issues equity‑settled share‑based payments to certain employees. These are measured at their fair value at the date of the grant using an appropriate option pricing model and are expensed over the vesting the year, based on the Group's estimate of the number of shares that will eventually vest. Grants of shares made during 2008 and 2007 are not subject to performance criteria and were valued at the date of the grant at market value. During 2009 the Group granted share options to employees. During 2011 awards were granted under the Performance Share Plan to employees. The share options granted are subject to performance criteria required for the option to vest and are considered in the method of measuring fair value.

Charges made to the Consolidated Statement of Comprehensive Income in respect of share‑based payments are credited to the share‑based payment reserve.

Shareholders' equity

Shareholders' equity is comprised of the following balances:

·; share capital is comprised of 416,725,335 ordinary shares of 2 pence each, see note 28;

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

·; investment in own shares is the Group's shares held by the EBT that are held in Trust for the benefit of employees;

·; share‑based payment reserve is the amount charged to the Consolidated Statement of Comprehensive Income in respect of shares already granted or options outstanding relative to the vesting date or option exercise date;

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

·; retained earnings is the cumulative profit retained by the Group; and

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

2. Other income

3. Cost of material and services

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

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

4. Personnel expenses

Pension costs

Employees

The Group employed a monthly average of 385 employees during the year ended 31 December 2011 (2010: 355).

2010 numbers have been reallocated using the same rationale as 2011 numbers.

The Group employed 361 employees at 31 December 2011.

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

5. Other expenses

Selling expenses mainly include delivery costs and warranty provisions.

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

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

The directors have estimated, on the basis of directly attributable costs and a general proportion of production and personnel costs, that the cost of research and development is approximately €6.4m for the year ended 31 December 2011 (2010: €11.1m).

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

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

The total tax rate for the German companies is 30.5% (2010: 30.5%) in Erfurt and 28.4% in Bitterfeld (2010: 28.4%). The effective total tax rate in the United Kingdom was 26.5% (2010: 28%), and the total tax rate in Japan was 42.1% (2010: 42.1%). These rates are based on the legal regulations applicable or adopted at the balance sheet date.

The standard rate of corporation tax in the UK changed from 28% to 26% with effect from 1 April 2011. Accordingly, profits in the UK were taxed at an effective rate of 26.5%. Legislation to reduce the main rate of corporation tax from 26% to 25% from 1 April 2012 was included in the Finance Act 2011 and consequently deferred tax balances have been remeasured. Further legislation to reduce the main rate of corporation tax to 24% from 1 April 2012 was included in the Provisional Collection of Taxes Act 1968 (PCTA) and further reductions to the main rate are proposed to reduce the rate by 1% per annum to 22% by 1 April 2014. These further rate reductions had not been substantively enacted at the balance sheet date and, therefore, are not included in these financial statements. The impact of these further changes is not expected to be material.

The German rates are increasing, to 31.6% in Erfurt in 2012 and 29.1% in Bitterfeld in 2012.

7. Income taxes continued.

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

8. Segment reporting

The chief operating decision-maker, who is responsible for allocating resources and assessing performance, has been identified as the executive board. The group is organised around one product, with all revenues derived from the production and supply of multicrystalline silicon wafers. Accordingly, the board reviews the performance of the group as a whole, and there is only one operating segment. Disclosure of reportable segments under IFRS 8 is therefore not made.

Geographical information 2011

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

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

1. 64,962 (China);

2. 43,305 (Japan).

Geographical information 2010

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

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

1. 74,888 (China);

2. 39,397 (Japan);

3. 38,633 (Japan); and

4. 33,040 (USA).

9. Net loss / earnings per share

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

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

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

For the year ended 31 December 2011, there were no differences in the weighted-average number of Ordinary shares used for basic and diluted net loss per Ordinary Share as the effect of all potentially dilutive Ordinary Shares outstanding was anti-dilutive. As at 31 December 2011, there were 3,458,022 share options outstanding that could potentially have a dilutive impact in the future but were anti-dilutive in 2011.

10. Cash and cash equivalents

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

11. Trade Accounts receivable

All receivables have short‑term maturity. No significant doubtful debt allowances were necessary during the year.

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

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

12. Inventories

Inventories include finished goods and work in progress (ingots and blocks), as well as production supplies. The change in inventories is included in the Consolidated statement of Comprehensive Income in the line 'Cost of materials and services'.

Exceptional inventory writedowns of €22.9m in 2011 are included in cost of materials (2010 NIL)

13. Prepaid expenses and other assets

Prepaid expenses primarily comprise polysilicon feedstock deposits

14. Current tax assets

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

15. Intangible assets

16. Property, plant and equipment

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

Assets under construction related to future plant and machinery. Capital commitments at 31 December 2010 relating to this amounted to €17.5 million.

16. Property, plant and equipment continued

 Impairment

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

On 31 December 2011 the Group had invested €100 million in its polysilicon plant at Bitterfeld and had received grants of €23 million. The current difficulties in the photovoltaic industry dictated that an impairment test should be carried out to determined whether the plant should be impaired. The recoverable value of Bitterfeld plant is estimated to amount of €47.9 million, based on an estimate of its value in use. This has been derived from a forecast of potential cash flows from the plant. These cash flows were discounted at a post tax cost of capital of 9.67%, which was determined by calculating the Group's cost of capital using the CAPM (capital asset pricing model). The resultant (discounted cash flow) analysis determined the net present value of the plant. The potential future cash flows have been estimated on the assumption that the plant is brought into production in the second half of 2012 and produces at full capacity thereafter. This analysis assumes that sales of polysilicon are at prices based on managements' expectations backed up by the forecast from an external consultant that has a high level of experience of the photovoltaic industry. Plant running costs were obtained from the Group's internal planning system.

The level of impairment of the assets of our plant is predominantly dependent upon judgements used in arriving at future market prices, plant maintenance costs, future growth rates, the discount rate applied to cash flow projections and successfully operating the plant at Bitterfeld. The estimates and judgement used in the aforementioned assessment represents management's best estimate based on current experience and information available, which may be different from the actual results in the future due to changes in the Group's business and other external environment. Any significant changes in the market price of polysilicon, $/€ exchange rate, or plant maintenance costs might lead to further impairment of some or all of the capitalised assets.

The sensitivity of the valuation to these parameters is as follows:

·; 5% increase/decrease in the sales price forecast decreases/increases the impairment by €14 million

·; 5% reduction/increase in the direct cost of production forecast decreases/increases the impairment by €9 million

·; 1% change in the cost of capital changes the impairment by €6 million

17. Other long‑term assets

18. Deferred taxes

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

Analysis of deferred tax assets and liabilities:

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

As at 31 December 2011 there were unrecognised potential deferred tax assets in respect of losses of €11.4m (2010: NIL).

19. Loans payable

All current loans are in Japanese Yen.

Security for the loan with Barclays Bank was provided by sterling cash cover. This facility was not renewed.

Security/comfort for all other loans, is provided by the Japanese accounts receivable, details of which can be found in note 11. These facilities have been reduced upon renewal in line with the lower receivables.

20. Trade accounts payable

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

21. Accrued expenses

22. Provisions

Movement in provisions is shown below:

Provisions included above are detailed below:

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

The onerous contract provision is an allowance for the loss arising on the difference between raw material costs under these contracts and the anticipated selling price of the Group's end product. This is discussed further in note 1. This provision will unwind over the length of the contracts, between 2 and 4 years.

23. Deferred grants and subsidies

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

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