PVCS.L Regulatory News (PVCS)

24 March 2010

PV Crystalox Solar PLC

Preliminary Results

For the Year ended 31 December 2010

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 2010.

Market Overview

·; 2010 global module installations estimated at 16.5GW

o Major markets in Germany and Italy

o  80% installations in Europe

Highlights

·; Wafer shipments 378MW (rebased 16% cell efficiency)

o Up 48% on 2009 (255MW @16% previously 239MW @15%)

o Operating at full capacity in H2

·; Revenues grew 6% as volumes outperformed price falls

o Pricing stabilised in H2 2009

·; Strong progress on cost reductions

o 20% reduction in average wafer production cost in 2010

·; Polysilicon production ramping up in Bitterfeld

o Bitterfeld polysilicon costs below average contracted costs since August 2010

o Annualised output averaging 1450MT during Jan and Feb 2011

·; Customer base increased and expanded geographically

·; Ingot production capacity increasing

o From 430MW (in 2010) to 535MW by end Q1 2011

Maarten Henderson, Chairman, commented:

"2010 was a year of strong progress for the Group, we saw record shipment volumes supported by a growing market for PV installations. This led to revenue growth of 6.4% despite continuing declines in average selling prices across the industry. We have continued to execute successfully against our production facility expansion plans whilst maintaining our focus on low production costs with our Bitterfeld polysilicon production generating strong levels of output. Our sound financial footing and strong customer relationships position us well to benefit from continued growth across the industry."

Iain Dorrity, Chief Executive Officer, commented

"We have continued to execute against our strategy in 2010; we have grown our customer base and expanded geographically with China and Japan now of similar importance; we have reduced wafer production costs by 20% ahead of our stated 15% target; and have continued with the planned expansion of our ingoting facilities in line with the anticipated demand from our growing customer base.

"The year has started well with healthy demand and pricing maintained at levels seen in the second half of 2010, consequently, we anticipate shipment volumes in H1 to be in range of 225-240MW. As anticipated, there is less visibility at present with regards to the second half given the expected cuts in feed-in-tariff in Germany and Italy. Nevertheless the Group remains cautiously optimistic about market prospects for 2011 and expects double digit growth in global PV installations in the year. The Group's strong customer relationships with leading PV companies in the major geographical manufacturing locations, continuing production cost efficiencies and strong balance sheet give the Board confidence that the Group will continue to grow profitably throughout the course of 2011 and beyond."

Enquiries:

About PV Crystalox Solar PLC

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

The Group manufactures silicon ingots in Oxfordshire, United Kingdom, and carries out wafer production primarily for European customers at its facilities in Erfurt, Germany. Wafers for customers in Asia are produced in Japan. The Group's own polysilicon plant commenced production in Bitterfeld, Germany in July 2009.

Chairman's Statement

I am pleased to announce the results for the year ended 31 December 2010 and to report on another strong performance by the Group.

Growth in the global PV market in 2010 was significantly above industry expectations with demand driven by the 40% price fall in module prices seen in the previous year and the continuing market incentive programmes in Europe. The European Photovoltaic Industry Association (EPIA) estimates that global installations reached around 16.5GW in 2010 which represents a twofold increase over the previous year. In response to this strong market demand we operated at full capacity in the second half of 2010 and full year shipment volumes grew by 48% to reach 378MW (2009: 255MW after rebasing assuming 16% cell efficiency, described in the Business Review on page 8). Group revenues were 6.4% higher at €252.6m with the impact of higher volumes being largely offset by lower average selling prices. Our EBIT performance, excluding currency losses, was €34.5m representing a margin of 13.7%. Earnings after taxes were €23.3 million equating to earnings per share of 5.7 euro cents. The Group retained its strong net cash position with €54.8m at the year end.

The Board continues to be aware of the importance of dividends for shareholders and in determining the level of dividend payments in any year takes into account the Group's performance, cash flow, current balance sheet and planned growth strategy. As a result the Board is recommending a final dividend of €0.02 per share, giving a total dividend for the year of €0.03 (covered 1.9 times by the earnings per share for the year) compared with €0.04 in 2009. The dividend is payable on 8 June 2011 to shareholders on the register on 13 May 2011.

We continue to pursue our strategy of solid controlled growth with a focus on low production cost and production flexibility. Following the successful expansion and geographical broadening of our customer base in China and Taiwan, we are progressively increasing our ingot manufacturing capacity. Starting from a capacity of 430MW at the end of 2010 we expect to reach 535MW by the end of the first quarter and 670MW by the end of 2011, which will represent a 56% year on year increase in capacity.

In expanding our production capacity in 2010 we have seen further increases in employee numbers. Staff numbers in the UK, Germany and Japan rose from 350 at the start of the year to 400 at the end and will continue to rise in 2011. Our employees are one of the Group's key strengths and I would like to thank them for their continuing outstanding commitment and contribution. In particular, I would like to congratulate our employees for the way they maintain excellent product quality while significantly increasing production volumes and incorporating new members of staff into high performing teams.

Given the importance of Japan, the Group has undertaken an initial appraisal of the effects related to the earthquake and tsunami and has found no impact on our customers, suppliers, sub-contractors and our own operations.

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

The Board believes that renewable electricity production will become ever more important. Therefore the Board remains committed to the solar electricity industry and with our strategy of controlled growth we expect to remain a significant profitable long-term player in one of the most exciting industries in the world. Trading in the first quarter of 2011 is strong, although visibility in the second half of the year remains limited due to a number of anticipated major changes to feed-in tariffs in Germany and Italy. On balance, we remain cautiously optimistic with regard to the outcome for the year. In summary, with our sound financial footing, low cost basis and strong customer relationships with major international companies, we remain well placed to grow and prosper.

Maarten Henderson

Chairman

23 March 2011

Business Review

Market Overview

The growth of the global PV market in 2010 has been significant and the European Photovoltaic Industries Association (EPIA) has indicated that installations will have reached approximately 16.5GW, which is twice the level achieved in the previous year. Time delays in reporting new installations vary from country to country and so it is difficult to provide definitive figures at this stage but it is clear that Germany which has been the largest market for the last ten years (with the sole exception of 2008), nearly doubled in size and accounted for 40-50% of total global demand. The market in Italy grew at least fourfold and may even have reached levels of 4GW. Overall Europe, where the widely implemented feed-in tariff (FIT) market incentive programmes have provided significant stimulus, is expected to account for 80% of global installations in 2010.

Installations in Japan and the USA, the two largest markets outside Europe both more than doubled for the second successive year. 992MW were installed in Japan according to the Japanese Photovoltaic Association: this growth follows the reintroduction of investment grants coupled with the advent of a FIT in 2009. The Solar Energy Industry Association (SEIA) in the USA reported that installations reached 956MW and that growth was helped by the US Treasury Grant program which reimburses 30% of the installation costs. A further doubling of the market in the US in 2011 is anticipated by the SEIA.

Operational Review

Historically the Group has reported its production output and capacity in MW on the basis that wafers produced would be processed into cells of 15% cell efficiency. In these results we have assumed conversion of wafers to 16% efficient cells and have restated historical data on a consistent basis. This is in recognition of the technological improvements obtained in cell processing where average efficiencies of 16-16.5% are routinely achieved by our customers and in common with practice of many other wafer companies. Consequently our output of 239MW in 2009 is now restated as 255MW to reflect the increased cell output.

During 2010 the Group saw strengthening demand for its wafers and our production operated at full capacity during the second half of the year. The full year shipment volumes grew by 48% in comparison with 2009 to reach 378MW, a new record for the Group.

In 2010 the Group has seen a significant expansion and broadening of its geographical customer base of leading PV companies. Increasing volumes have been shipped to China which accounted for 30.7% of our revenues (2009: 9%). Japan remained our largest customer base but its share of sales fell to 31.1% (2009: 56.3%) reflecting both the decline in Japan as a global PV manufacturing centre and the corresponding growth of China which it is estimated now accounts for half of global PV production. Indeed the strengthening Japanese Yen and the growth of high quality competitively priced manufacturing in Taiwan has increasingly led Japanese PV companies to outsource cell production there.

Strong sales growth was achieved in Taiwan where volumes increased fourfold over the previous year and which represented 11% of revenues (2009: 2.9%). Taiwan is becoming an increasingly important PV manufacturing centre as it builds on its long heritage in the semiconductor sector and is expected to have overtaken Germany and Japan to become the world's second largest PV manufacturing centre in 2010 after China. During 2011 we expect Taiwan to become an increasingly significant regional customer base for the Group and anticipate that its share will increase two to threefold from current levels.

Overall shipments to Asia accounted for 74.7% of revenues reflecting the geographical shift in cell manufacturing to Asia and that region's reported 85% global share of cell production.

The Group continues to supply the leading PV companies in Europe and the USA, and sales to these regions accounted for the remaining 25.3% of revenues.

Financial Review

Group Consolidated Income Statement

Financial Review continued

In 2010 the Group revenues increased by 6.4% to €252.6 million (2009: €237.3 million) although total wafer shipments were up 48% to 378MW (2009: 255MW). This increase in revenues was due to the net effect of a 48% increase in wafer shipment volumes offset by a 28% decrease in average selling prices.

In 2010 the Group generated underlying earnings before interest and taxation (EBIT excluding currency losses) of €34.5 million (2009: €50.0 million). Actual EBIT (including currency losses) was €33.3 million (2009: €41.7 million). This reduction in underlying profitability was driven primarily by the anticipated decline in average selling prices partially offset by reductions in average wafer costs. The relatively strong Japanese Yen had a negative impact on Group EBIT in 2010 due to the adverse effect on raw material and subcontracting costs in Japan.

Net interest income of €0.4 million (2009: €0.8 million) was lower than the previous year due to lower net cash balances and low global interest rates. The Group's net cash position at year end was €54.8 million (2009: €70.2 million). The main impact on the net cash position was the planned capital expenditure to grow the business and an advance payment to an external supplier of polysilicon in respect of the additional polysilicon required for this increase in volume.

Earnings after tax were €23.3 million (2009: €29.6 million) and earnings per share were €0.057 (2009: €0.072).

These financial results generated net operating cash flows of €11.3 million (2009: €3.5 million) and free cash outflow of €6.3 million (2009: inflow of €3.3 million). Free cash flow is defined 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 €23.5 million into working capital (2009: €2.8 million). Strong business growth in the second half of the year led to cash being absorbed into higher inventories, although this was off-set to some extent by a reduction in debtors due to improved payment terms resulting from the change in the geographical mix of customers.

Capital expenditure in the year of €19.9 million (2009: €20.8 million) was offset by grants received of €3.3 million (2009: €22.0 million) giving a net cash outflow of €16.5 million (2009: net cash inflow €1.2 million). Grants received were lower in 2010 than the previous year as grants in respect of Bitterfeld had been largely received and a larger part of capital expenditure was in the United Kingdom where grants are not available.

As part of its currency hedging strategy, the Group increased its Japanese Yen loans by a net €11.1 million (2009: €15.1 million). Dividends totalling €12.1 million were paid in the year (2009: €24.6 million).

Although market conditions remain highly competitive the Group has continued to generate profits and a positive operational cash flow and has retained its solid balance sheet. The Group has adequate cash resources to fund its planned capacity expansion. In addition, the polysilicon facility at Bitterfeld continues to ramp-up to full capacity during 2011 and is expected to generate a positive result and cash flow for the year.

Strategic developments

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 cost leaders and to supply quality wafers at competitive prices whilst retaining attractive margins. The Board feels that this is best achieved through controlled growth.

The strategy we have been following for a number of years seeks to combine low costs with production flexibility. This involves four key areas of focus which we believe will strengthen our position as a leading pure-play solar wafer manufacturer:

·; Continued focus on operating cost reductions through:

o operating Bitterfeld polysilicon facility at full capacity

o production efficiencies

o higher yields

·; Retain flexibility of production

o diversity in sourcing polysilicon

o diversity in wafer production

·; Continued focus on major PV companies through:

o enhanced relationships with existing customers

o new customers in the major markets of Taiwan and Korea

·; Focus on further developments of the leading silicon processing technology

o working with customers to increase product quality and develop the next generation of wafer technology

Bitterfeld

The Group continues to make good progress with its internal polysilicon production facility in Bitterfeld. Production has ramped up steadily since operation started in July 2009 and we achieved an annualised output averaging 1450MT during the first two months of 2011. The facility is now expected to operate at its nameplate capacity of 1800MT during the second half of 2011. At the same time production costs have been falling and since August 2010 the fully loaded production cost has been below the average price of our contracted polysilicon from external suppliers. Increasingly, our internal polysilicon will become a significant driver of our future profitability as a further reduction in cost is expected during 2011 when we reach full capacity.

Costs

The Group has made excellent progress on its cost reduction programmes which have enabled average wafer production costs to be decreased by 20 % during 2010, ahead of our 10-15% target for FY 2010. The largest contribution was obtained through lower blocking and wafering costs. Operating costs at Bitterfeld were reduced in comparison to 2009 when operation started and contributed to lower silicon costs. Improvements were also made in wafer yields which led to more effective silicon utilisation. This progress has been achieved despite the strengthening of the Japanese Yen which has had an adverse effect on wafering and some material costs. The Group is targeting a further 10-15% reduction in 2011 when the lower polysilicon cost from our internal production plant in Bitterfeld will be a key contributor.

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

Capacity Expansion

In March 2010 we announced the expansion of our Milton Park ingot production facility to increase capacity from 425MW to 535MW and this programme is currently scheduled to be completed by the end of Q1 2011. These ingot production systems which are designed and constructed in-house at a significantly lower cost than sourcing equivalent equipment from external companies remain one of the Group's core strengths and we continue to benefit both from the lower capital cost and our extensive operational experience.

In view of the forecast market growth and the anticipated requirements of our growing customer base, we have decided to carry out the next phase of capacity expansion which will enable us to reach 670MW at the end of 2011. Furthermore we are actively planning the next stage which would necessitate the construction of a new 50,000sq ft building at Milton Park to provide the space to enable us to reach 855MW at the end of 2012. We expect to make the decision to proceed during the next few months. In order to secure the additional volume of raw materials necessary to meet these expansion plans, the Group has recently agreed a new five year contract with one of its external polysilicon suppliers.

Outlook

The group has seen continued demand for its products during the first two months of the year with pricing broadly maintained at levels seen in the second half of 2010. This demand is expected to continue into the second quarter as consumers pull forward module installations ahead of the impending cuts in FIT in the two major global PV markets, Germany and Italy, which are scheduled for 1 July and 1 June respectively; pricing however may come under some pressure. Accordingly the Group expects H1 shipment volumes to be in the range 225MW-240MW.

The size of the FIT cut in Germany will be between 3-15% depending on the level of installations during the three month period of March to May whereas the size of the FIT cut in Italy will be announced before April. In both cases the magnitude of the cut will be critical in influencing the level of demand in these locations in the second half of the 2011. Nevertheless the Group remains cautiously optimistic about market prospects for 2011 and expects double digit growth in global PV installations in the year. The Group's strong customer relationships with leading PV companies in the major geographical manufacturing locations, continuing production cost efficiencies and strong balance sheet give the Board confidence that the Group will continue to grow profitably throughout the course of 2011 and beyond.

Dr Iain Dorrity

Chief Executive Officer

23 March 2011

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2010

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 2010

The accompanying notes form an integral part of these statements.

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

Dr Peter Finnegan Company number

Chief Financial Officer 06019466

23 March 2011

Consolidated Statement of Changes in Equity

for the year ended 31 December 2010

Further information on equity is presented in note 28.The accompanying notes form an integral part of these financial statements.

Consolidated Cash Flow Statement

for the year ended 31 December 2010

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

Notes to the Consolidated Financial Statements

for the year ended 31 December 2010

1. Group accounting policies

Basis of preparation

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

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

The financial statements for the year ended 31 December 2010 were approved by the Board of directors on 23 March 2011.

Functional and presentational currency

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 functional currency of the parent company is Sterling. The financial statements are presented in round thousands.

Use of estimates and judgements - overview

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

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

Use of estimates - property, plant and equipment

Property, plant and equipment are 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, there is no indication of impairment and therefore a detailed review has not been performed.

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.

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

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.

Deferred tax assets at 31 December 2010 totalled €12.08m (see note 18).

Use of estimates - pension costs

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

Use of estimates - provisions

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

Use of estimates - share-based payments

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

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

Basis of consolidation

The Group financial statements consolidate those of the Group and its subsidiary undertakings drawn up to 31 December 2010. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights.

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

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

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

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

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

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

Going concern

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

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk are described in note 30.

The Group has considerable financial resources together with long‐term contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully in the current economic climate.

Taking these factors into consideration the directors' expectation is that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue 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 2010

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

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

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

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

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

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.

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

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

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

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

Capital structure

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

Capital structure continued

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

The weighted average rate of interest in 2010 was 1.0% (2009: 1.0%), our gearing ratio was 17% (2009: 12%) and debt to capital ratio was 14% (2009: 9%).

Intangible assets

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

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

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

Internally generated intangible assets - research and development expenditure

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

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

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

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

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

Property, plant and equipment

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

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

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

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

Impairment

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

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

Leased assets

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

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

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

Financial instruments

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

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

Amortised cost

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

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

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

Held for trading

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

Loans and receivables

·; non-interest bearing accounts 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 less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Income taxes

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

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

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

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

Public grants and subsidies

As the German operations are located in a region designated for economic development, the Group receives both investment subsidies and investment grants. Government grants and subsidies relating to capital expenditure are credited to the 'Deferred income' account and are released to the profit or loss by equal annual 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 profit or loss in the same period as the related expenditure. All required conditions of these grants have been and will continue to be met.

Provisions

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

Accruals

Accruals are recognised when an obligation to meet an outflow of economic benefit in 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.

Contingent liabilities

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

Revenue recognition

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

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

Foreign currency translation

Assets and liabilities of foreign operations are translated to Euros at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into Euros at the average foreign exchange rates of the year that the transactions occurred in.

Transactions of the included entities in foreign currencies are translated into the functional currency of the respective entity at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the functional currency (Euros), at the foreign exchange rate ruling at that date. Foreign exchange rate differences arising on transactions are recognised in the profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities that are stated at fair value are translated to 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. 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'.

Interest income and expenses

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

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

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

Employee benefits

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

Defined benefit pension plan

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

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

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

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

Defined contribution plan

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

Employee benefit trust accounting policy

All assets and liabilities of the 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 & 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.

See also note 26.

Share-based payments

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

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

Shareholders' equity

Shareholders' equity is comprised of the following balances:

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

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

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

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

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

Retained earnings is the cumulative profit retained by the Group.

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

2. Other income

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.

The cost of materials and services ratio (cost of materials and services including changes in inventories and own work capitalised as a percentage of the aggregate operating performance) is 72%% (2009: 65%).

4. Personnel expenses

Pension costs

The remuneration of the Board of Directors, including appropriations to pension accruals, is shown in the Directors' remuneration report in the Annual 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 €11,075,000 for the year ended 31 December 2010 (2009: €8,423,000).

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

6. Interest income and expenses

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

7. Income taxes

Tax expenses can be broken down as follows:

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

The total tax rate for the German companies is 30.525 (2009: 29.825%) in Erfurt and 28.425% in Bitterfeld. The total tax rate of Crystalox Ltd in the United Kingdom was 28%, and the total tax rate in Japan was 42.05%. These rates are always based on the legal regulations applicable or adopted at the balance sheet date.

The Erfurt tax rate increased by 0.7% due to an increase in local town tax rate. All other tax rates are unchanged from 2009.

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

8. Segment reporting

The segments are defined by the financial information reported internally to the chief operating decision maker.

Trading and equipment revenue represented

Segment information 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).

Segment information 2009

* 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. 83,334 (Japan) and

2. 49,786 (Japan).

Segment information 2008

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

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

1. 100,977 (Japan);

2. 53,202 (Japan) and

3. 34,127 (Germany).

9. Earnings per share

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

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

10. Cash and cash equivalents

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

11. Accounts receivable

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

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

These amounts represent the Group's maximum credit risk at the year end.

Of the €4.058m, €0.871m remained outstanding at end of February 2010, although no bad allowance is deemed necessary due to cash deposits held.

12. Inventories

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

13. Prepaid expenses and other assets

14. Current tax assets

Recoverable capital gains tax relates to tax paid on internal dividend payments. No such asset existed at the end of 2010.

Prepaid income tax relates to an overpayment of income tax. No such asset existed at the end of 2010.

15. Intangible assets

16. Property, plant and equipment

Assets under construction relate to future plant and machinery. Capital commitments at 31 December 2010 relating to this amounted to €17.48million.

Assets under construction related to future plant and machinery. Capital commitments at 31 December 2009 relating to this amounted to €1.10 million.

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

17. Other long-term assets

18. Deferred taxes

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

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

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

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

19. Loans payable