PVCS.L Regulatory News (PVCS)

PV Crystalox Solar PLC

("PV Crystalox", the "Company" or the "Group")

Preliminary Results for the year ended 31 December 2017

PV Crystalox, the long established supplier to the global photovoltaic industry of multicrystalline silicon wafers for use in solar electricity generation systems is pleased to announce its preliminary results for the year to 31 December 2017.

Highlights

· ICC arbitration final award rendered in November 2017

· Wafer shipment volumes up 28% at 146MW (2016: 114MW)

· Closure of United Kingdom manufacturing operations during H2 2017

· Look for a buyer or restructure German wafer production operations during 2018

Overview of results

· Revenues €26.4m (2016: €56.7m)

· EBT of €12.0m (2016: EBT of €1.7m)

· Net cash (used in) /from operating activities €(1.2)m (2016: €18.0m)

· Net cash €26.9m (2016: €28.8m)

· Inventories €3.9m (2016: €11.2m)

· Other income of €20.5m recognised in relation to arbitration award.

o Additional income to be recognised in 2018.

Iain Dorrity, Chief Executive Officer commented

 "After seven years the Board has concluded that there is no real prospect of any change in market conditions which might permit a return to profitability for the Group's wafering operation without further investment. Instead the Board has concluded that it should instead seek a buyer who would be willing to develop the silicon wafering operation. In parallel consultations will take place with the workers council in Germany to explore the merits of significantly restructuring the operation to focus on the cutting of non-silicon materials such as glass and quartz together with a continued focus on research and development activities."

John Sleeman, Chairman, commented

 "Following receipt of the funds from the arbitration award mentioned above, the Group is expected to have a substantial net cash position. In the light of this the board intends to explore options for the future of the Company in order to maximise shareholder value. These may include a cash return to shareholders, the acquisition of an existing business or a combination of these alternatives."

Enquiries:

About PV Crystalox

PV Crystalox Solar continues to contribute to making solar power cost competitive with conventional hydrocarbon power generation and, as such, continues to seek to drive down the cost of production whilst increasing solar cell efficiency.

We are the only remaining pure play wafer manufacturer in Europe and are able to take advantage of any EU specific manufacturing incentives. The Group has focused on the French niche low carbon footprint wafer market, where it has some competitive advantage. The Group exports the vast majority of its wafers to customers around the world.

Chairman's statement

In view of the difficult industry environment which has persisted since 2011, the Group has been operating under a cash conservation strategy to protect shareholder value whilst preserving the Group's core production capabilities. The Board has been conducting an ongoing strategic review and in July 2017 it made the decision to close the Group's production facilities in the United Kingdom, to source blocks from a third party supplier and process these into wafers from its facility in Germany. As is explained in more detail in the operational and financial review the Board has now decided to seek a buyer who would continue silicon wafering and in parallel to consult with the workers council on restructuring the wafering operations in Germany. A restructure would substantially reduce wafer production output and regrettably this would lead to significant job losses in Germany.

On 8 November 2017 the Group announced that it had received notification of the final award rendered by the International Court of Arbitration of the International Chamber of Commerce ("Court of Arbitration") in the matter filed by the Group in March 2015 and arising from an outstanding long term wafer supply contract with one of the world's leading PV companies. The award requires the customer, who has failed to purchase wafers in line with its contractual obligations, to pay the amount of around €36 million including interest to the Group as at 31 December 2017. Once payment has been made the customer has the right to receive the outstanding 22.9 million wafers. After taking account of the cost of supplying the wafers, at 31 December 2017, the Group expected a minimum net income of €20.5 million. On 13 March 2018 the Group was informed, by the Court of Arbitration, that the customer's request for correction had been disallowed meaning that the expected minimum net income is increased by €3.1 million. This will be recognised in the results for the year ended 31 December 2018.

Wafer sales volumes in 2017 of 146MW were 28% higher than the 114W achieved in 2016 but we traded significantly less polysilicon volumes than in 2016. Total revenues of €26.4 million were 54% lower than in the prior year. As a result of recognising €20.5 million in relation to the arbitration award we achieved a profit before tax of €12.0 million. Net cash of €26.9 million at the end of the period was €1.9 million lower than at the beginning of the year, but does not include any settlement from the arbitration award.

The closure of our United Kingdom production operations has resulted in a significant reduction in our staff numbers there. Of the 44 staff employed there when the closure was announced 37 left during 2017 and the remaining 7 employees will leave during H1 2018. Our employees have been vital to the Group's ability to pursue the cash conservation strategy since 2011 and I would like to thank all of them for their commitment and contribution during these challenging times.

The Board remains committed to maintaining governance at their historic levels to ensure that the right people, systems and processes are in place to manage risk and to deliver the Group's agreed strategy. These governance levels are above those required for a company with a standard listing. The Board has again reported against the Quoted Companies Alliance Corporate Governance Code and our internal review found that the Board is operating effectively. I have now been a member of the Board and its committees for ten years and in the normal course of events I would have stood down after serving for nine years and a new non-executive director would have been appointed. The Board believes that given the current circumstances the most appropriate course of action is that I should remain in office. All directors will retire at the 2018 AGM and will offer themselves for re-election. Full details of our governance activities can be found in the Corporate Governance section of the Annual Report.

Following receipt of the funds from the arbitration award mentioned above, the Group is expected to have a substantial net cash position. In the light of this the board intends to explore options for the future of the Company in order to maximise shareholder value. These may include a cash return to shareholders, the acquisition of an existing business or a combination of these alternatives.

Operational and financial review

Operational review of 2017

Market environment

Market prices continued to decline across all sectors of the PV value chain (except polysilicon) during 2017 although there was a modest and short lived price recovery during a four month period from April to August 2017. Multicrystalline wafer prices remained under acute pressure and fell by around 15%. The impact on wafer manufacturers has been exacerbated by a corresponding increase in polysilicon prices during the period and into 2018 when prices peaked at close to a three year high in January 2018. Prices essentially remained decoupled from production costs due to industry over-capacity in China which continued to consolidate its dominant position both in manufacturing and end market demand. According to data released by the China PV Industry Association, China accounted for 71% of global PV module production and 68% of solar cells in 2017. The country's position in wafer production was even stronger with a market share of 83% while for polysilicon it was 56%.

Group operations in 2017

Wafers

Group wafer shipments totalled 146MW in 2017 an increase of 28% on the 114MW shipped in 2016 and were broadly in line with production volumes. A minor increase in wafer dimensions from 156mm to 156.75mm was carried out during Q1 2017 in line with a change in the industry standard. All 156mm inventory was sold during the year and wafers in inventory at the year end are 156.75mm. As in the previous year, the vast majority of the Group's wafers were used in modules for the French PV market where the low carbon footprint obtained by wafering in Germany was beneficial. This special market supported demand but only provided limited insulation from the pricing pressure which was ravaging the PV industry.

France had a cumulative installed PV capacity of around 7.4GW in June 2017 and has set an ambitious growth target to reach 20GW by the end of 2023. The French government has an ongoing solar energy tender program of 2.5GW per year and the Energy Regulatory Commission requires an official carbon footprint assessment of all modules to be eligible for the auctions. The carbon footprint is the second most important factor taken into consideration after price.

Ingot and block production

In March 2017 the Group announced the termination of multicrystalline silicon ingot production in the United Kingdom. It was intended that once these ingot production facilities had been closed that the Group would instead source ingots from external sources. After the announcement the Group continued to produce some of its own ingots and purchased the balance of the required ingots all of which were processed into blocks in the United Kingdom. These blocks were then processed into wafers in our German facility.

The Group advised in July 2017 the closure of all United Kingdom manufacturing operations in order to better align production costs with market prices and further reduce overheads. In addition to the closure of ingot production facilities the Group proposed ceasing block production in the United Kingdom and instead source blocks from an external supplier. Following a consultation process with its United Kingdom workers all production, both ingot and block, ceased at the end of August 2017.

By purchasing blocks directly from an external supplier the Group's intention was to maintain its operational wafer production capabilities in Germany and continue its focus on the niche low carbon footprint wafer market where it has some competitive advantage.

Since August 2017, work in the United Kingdom has focused on clearing the production facilities and the former head office and returning the buildings to the landlord. The programme is now close to a successful conclusion following the surrender of two leases at the end of 2017 and a further lease at the end of January 2018. Advanced negotiations are ongoing for an agreement to vacate and to terminate the lease on the remaining building on 31 March 2018.

Polysilicon contracts and polysilicon revenue

The Group is no longer burdened with purchase obligations under long term polysilicon contracts following the settlement of the last outstanding contract in September 2016. The legacy of the polysilicon contracts was a significant build up of raw material inventory at the end of 2015 due to annual purchase volumes being considerably in excess of production requirements together with a slowdown in the polysilicon market during 2015. The Group was able to achieve a significant reduction in inventory level by trading surplus volumes in 2016. This trading continued in 2017 albeit at a lower level and outstanding polysilicon inventory was successfully eliminated during Q4 2017.

Wafer supply contracts

The Group has a significant outstanding long term sales contract with one of the world's leading PV companies which has failed to purchase wafers in line with its obligations since 2013. The supply contract was signed in 2008 and related to wafer shipments over a seven year period with prices which reflected market prices at that time and which are considerably above current levels. Despite extensive negotiations it has not been possible to reach a mutually acceptable agreement and a request for arbitration was filed in March 2015 with the International Court of Arbitration of the International Chamber of Commerce. Subsequently in an attempt to find an amicable solution both parties agreed to follow a mediation process led by an external mediator during December 2016 but without success.

The evidentiary hearing of the arbitral tribunal eventually took place in Frankfurt in late March 2017 and the final award rendered by the International Court of Arbitration of the International Chamber of Commerce was received on 8 November 2017. The award requires the customer, to pay the amount of around €36 million including interest to the Group. Once payment has been made the customer has the right to receive the outstanding 22.9 million wafers.

No payment has yet been made to the Group despite interest continuing to accrue at a rate of around €180,000 per month. Negotiations have taken place in recent weeks without success as yet to explore whether any agreement could be reached to eliminate the wafer deliveries together with a corresponding reduction in the payment.

As reported previously a partial resolution of the other outstanding wafer supply contract, with a customer which entered insolvency and where shipments stopped in 2012, has been achieved. Claims had been registered with the administrator and an interim settlement of €0.96 million was received during H1 2016. The expected final payment has been increased from €0.375 million to €0.562 million following approval from the insolvency court although the timing remains uncertain.

Financial Review

In 2017 Group revenues decreased by 53.5% to €26.4 million (2016: €56.7 million). Despite the volume of wafer shipments increasing by 28% the decrease in revenues was mainly due to a decline in sales of excess polysilicon feedstock when compared to 2016.

During 2017 the Group recognised other income of €23.8 million, which was €18.4 million higher than in 2016. €21.8 million of this income was in relation to customer compensations including €20.5 million for the final arbitration award. It should be noted that the Group expects to recognise further income for the arbitration award in 2018 once a final agreement has been reached with the customer over the outstanding wafer obligations.

The positive gross margin in the year was €1.7 million whereas in 2016 there was a gross margin of €8.1 million. Two factors contributed to the positive margin in 2016: sales of excess polysilicon inventory at prices above the 2015 year end valuation as a result of the rebound in polysilicon spot prices during H1 2016 and stronger wafer sales prices during that period.

Personnel expenses of €8.2 million (2016: €7.6 million) were 8.1% higher than those in 2016 due to termination payments in relation to the closure of United Kingdom production operations partly offset by lower employee numbers there.

Other expenses at €4.7 million were €3.2 million lower than in 2016 mainly due to the €4.3 million cost of cancelling the polysilicon purchase contract, where the Group forfeited a significant portion of its outstanding prepayment in 2016. Partly offsetting this were higher legal costs in 2017 due to pursuing the arbitration award.

The Group's annual depreciation and impairment charge in 2017 at €0.7 million was €0.5 million higher than in 2016 due to an impairment charge of €0.5 million which was recognised following a review of the recoverable value of certain assets. It should be noted that the Group's remaining plant and equipment, was largely written down between 2011 and 2013.

There was a negligible currency gain in 2017 compared to a much larger gain of €3.9 million in 2016. Approximately two thirds of the 2016 gain related to the retranslation of the polysilicon contract deposit, whilst the remainder of the gain mostly related to revaluing foreign currency cash balances held in the UK.

Overall the Group generated a profit before taxes of €12.0 million (2016: profit of €1.7 million). The €10.3 million increase compared to 2016 was driven largely by increases in other income of €18.4 million and reductions in other expenses of €3.2 million. Offsetting this was a €6.4 million reduction in gross margin and €3.9 million in currency gains together with increases in personnel costs (€0.6 million) and depreciation and impairment €0.5 million.

The Group's cash position at the year end of €26.9 million was €1.9 million lower than the net position of €28.8 million at the start of the year. Net cash outflows of €1.2 million used in operating activities and negative foreign exchange rate changes on cash of €1.0 million were partially offset by €0.3 million of net cash generated from investing activities.

Inventories decreased during the year by €7.3 million from €11.2 million at the end of 2016 to €3.9 million at the end of 2017. Raw materials inventory decreased by €3.6 million compared to 2016. Finished product decreased by €1.5 million as wafer inventory decreased. Work in progress was no longer recognised following the closure of United Kingdom production operations and consequently decreased by €2.1 million. Previously work in progress included ingots and blocks processed at Crystalox Limited.

Going concern

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

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

On 31 December 2017 there was a net cash balance of €26.9 million, and a cash inflow of at least €20.5 million expected from the arbitration award. As part of its normal business practice, the Group regularly prepares both annual and longer-term plans which are based on the directors' expectations concerning key assumptions. The directors, after careful consideration and after making appropriate enquiries, are of the opinion that the levels of net cash outflows remain low such that Group has sufficient cash to continue in operational existence for at least twelve months from the date of approval of the financial statements, in March 2019.

The Group intends to continuing wafering operations at close to capacity during H1 2018 and has announced in these financial statements an intention to sell or restructure the wafering operation at PV Crystalox Solar Silicon GmbH, in Germany. Under the restructuring option the Group will focus on the cutting of non-silicon materials together with a continued focus on research and development activities.

As a result of this assessment the directors have concluded that the Group has the ability and the intention to continue in business. It should be noted that whilst the Group and PV Crystalox Solar Silicon GmbH have been prepared on a going concern basis the operations at Crystalox Limited have not following the announcement on 13 July 2017 that Group intended to cease United Kingdom manufacturing operations in H2 2017.

Strategy

The Group has been operating in cash conservation mode since 2011 when the PV industry was first impacted by Chinese manufacturing overcapacity and pricing collapsed. During the intervening years the Group has progressively restructured and pursued cost reduction programmes while attempting to maintain key operational capabilities in the expectation that market supply and demand might come into equilibrium and pricing environment become more rational. In addition it has been successful in managing its working capital especially by reducing inventory.

Regrettably no improvement in market conditions has materialised during the intervening seven years. Despite claims of unfair trade practices and anti-dumping investigations in Europe and USA, Chinese players in the PV industry have become totally dominant and the market environment transformed. PV manufacturing in Europe has been virtually eliminated while PV installations in Europe which accounted for around 75% of global demand in 2011 now account for less than 10%. At the same time PV installations in China have grown at an extraordinary rate such that China has been the largest global market since 2013 and accounted for around 50% of global demand in 2017. It is worth noting that China installed around 50GW in 2017 which exceeded the total global demand in 2014.

After seven years the Board has concluded that there is no real prospect of any change in market conditions which might permit a return to profitability for the Group's wafering operation without further investment. Currently the Group uses slurry wafering technology which has been the dominant technology for multicrystalline wafer production for many years. Fixed abrasive wafering (FAW) using diamond wire where the abrasive grains are fixed to the wire, offers significant cost reductions through reduced silicon consumption. The technology has been successfully adopted for monocrystalline wafering in recent years and is now being extensively applied to multicrystalline wafer production in China.

Investment in new diamond wire saws should thus improve the Group's competitive position and also enable diversification into production of monocrystalline wafers. However with little prospect of any relaxation in the extreme pricing pressure from Chinese companies the Board does not believe such investment is in shareholders' interests. Instead the Board has concluded that it should instead seek a buyer who would be willing to develop the silicon wafering operation. In parallel consultations will take place with the workers council in Germany to explore the merits of significantly restructuring the operation to focus on the cutting of non-silicon materials such as glass and quartz together with a continued focus on research and development activities. The Group has been developing capabilities in cutting of non-silicon materials during the last 12 months and sees interesting opportunities for growth albeit on a smaller scale than silicon wafering but importantly without the intense price competition.

Outlook

During the first half of the year our focus will be on completing the clearing of UK facilities and resolving the future of our German wafering facility. Wafering is expected to terminate at the end of June but in the meantime we will decide on two possible alternative options either finding a buyer for the operation or significantly restructuring to focus on cutting of non-silicon materials.

The Group expects soon to reach an understanding with the customer regarding the arbitration award and will have a substantial cash position following receipt of the funds. As a consequence the board will explore options for the future which might include return of cash to shareholders or the acquisition of an existing business.

Consolidated Statement of Comprehensive Income

For The Year Ended 31 December 2017

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

Consolidated Balance Sheet

As At 31 December 2017

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

The financial statements were approved by the Board of Directors on 14 March 2018 and signed on its behalf by:

Iain Dorrity Company number

Chief Executive Officer 06019466

Consolidated Statement Of Changes in Equity

For The Year Ended 31 December 2017

Consolidated Cash Flow Statement

For The Year Ended 31 December 2017

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

Notes to The Consolidated Financial Statements

For The Year Ended 31 December 2017

1. Group accounting policies

Basis of preparation

The Consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial information has also been prepared under the historical cost convention except that it has been modified to include certain financial assets and liabilities (including derivatives) at their fair value through profit and loss. These policies have been consistently applied to all years presented unless otherwise stated.

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

The financial statements for the year ended 31 December 2017 were approved by the Board of Directors on 14 March 2018.

Functional and presentational currency

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

Foreign currency translation

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

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".

Non going concern entities

Subsidiary accounts no longer prepared on a going concern basis include an estimate of all related costs either committed to or incurred in the period. Where the Company continues to trade any losses incurred in so doing are booked in the same period as revenue derived and therefore no accrual is made for these. The preparation of these accounts differ from that of going concern in that:

· Non current assets / liabilities become current

· Assets are written down to a recoverable amount

· Provision for wind down costs is charged to the income statement

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 assets and liabilities. Estimates and assumptions mainly relate to the useful life of non-current assets, the discounted cash flows used in impairment testing, taxes, share-based payments and inventory valuations. Estimates are based on historical experience and other assumptions that are considered reasonable under the circumstances. Actual values may vary from the estimates. The estimates and the assumptions are under continuous review with particular attention paid to the life of material plant.

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

Use of estimates - property, plant and equipment impairment

Property, plant and equipment are depreciated over their estimated useful lives. The estimated useful lives are based on estimates of the period during which the assets will generate revenue. The carrying amount of the Group's non-financial assets, other than inventories, are subject to regular impairment testing and are reviewed annually and upon indication of impairment.

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

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

Use of estimates - deferred taxes

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

Due to the lack of certainty around future profits, all deferred tax assets continue to be unrecognised in the year's balance sheet.

Use of estimates - inventory valuation

Given the decline in market prices for silicon wafers to below the Group's cost of production, the carrying amount of inventory is recorded at 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 2018.

Use of estimates - arbitration award

To compute the value of the arbitration award which was recognised during the year, estimates have been applied. Whilst the arbitration award suggested an amount payable to the Group, both customer and the Group have sought clarification on specific points which have delayed payment to the Group. In addition the Group have estimated the cost of supplying the outstanding wafers as at 31 December 2017. The Group have made an assessment of the amounts in the arbitration award for which clarification is not being sought and for supplying the wafers to determine the minimum amount that would have been received at 31 December 2017.

Basis of consolidation

The Group financial statements consolidate those of the Group and its subsidiary undertakings drawn up to 31 December 2017. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights.

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

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

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

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

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

On 31 December 2017 there was a net cash balance of €26.9 million, and a cash inflow of at least €20.5 million expected from the arbitration award. As part of its normal business practice, the Group regularly prepares both annual and longer-term plans which are based on the directors' expectations concerning key assumptions. The directors, after careful consideration and after making appropriate enquiries, are of the opinion that the levels of net cash outflows remain low such that Group has sufficient cash to continue in operational existence for at least twelve months from the date of approval of the financial statements, in March 2019.

The Group intends to continuing wafering operations at close to capacity during H1 2018 and has announced in these financial statements an intention to sell or restructure the wafering operation at PV Crystalox Solar Silicon GmbH, in Germany. Under the restructuring option the Group will focus on the cutting of non-silicon materials together with a continued focus on research and development activities.

As a result of this assessment the directors have concluded that the Group has the ability and the intention to continue in business. It should be noted that whilst the Group and PV Crystalox Solar Silicon GmbH have been prepared on a going concern basis the operations at Crystalox Limited have not following the announcement on 13 July 2017 that Group intended to cease United Kingdom manufacturing operations in H2 2017

Effects of new accounting pronouncements

Accounting standards, IFRICs and other guidance in effect or applied for the first time in 2017

· IFRS 14, 'Regulatory deferral accounts'

· Annual improvements 2014

· Amendment to IFRS 11, 'Joint arrangements' on acquisition of an interest in a joint operation

· Amendment to IAS 16, 'Property, plant and equipment' and IAS 38,'Intangible assets', on depreciation and amortization

· Amendments to IAS 27, 'Separate financial statements' on the equity method

· Amendment to IFRS 10 and IAS 28 on investment entities applying the consolidation exception

· Amendment to IAS 1, 'Presentation of financial statements' on the disclosure initiative

· Amendments to IAS 7, Statement of cash flows on disclosure initiative

· Amendments to IAS 12, 'Income taxes' on Recognition of deferred tax assets for unrealised losses

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

In issue, but not yet effective

· IFRS 9 'Financial instruments'

· IFRS 15, Revenue from contracts with customers

· IFRS 16 'Leases'

· Amendments to IFRS 2, 'Share based payments', on clarifying how to account for certain types of share-based payment transactions

The Group does not believe that any of these will have a material impact on the Group's financial positions, results of operations or cash flows, but will complete a full exercise assessing their impact during 2018.

Intangible assets

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

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

The capitalised costs are written down using the straight-line method over the expected economic life of the patents and licences (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.

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 five to ten years for plant and machinery and up to 15 years for other furniture and equipment. Property, plant and equipment are reviewed for impairment at each balance sheet date or upon indication that the carrying value may not be recoverable.

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

Impairment

The carrying amount of the Group's non-financial assets is subject to impairment testing upon indication of impairment.

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

Leased assets

Leases are categorised as per the requirements of IAS 17. 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.

Other income

Income other than that from sale of silicon products is recognised at the point of entitlement to receipt and shown as other income.

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. Subsequent measurement depends on the designation of the instrument, as follows:

Amortised cost

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

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

Held for trading

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

Loans and receivables

· non-interest bearing accounts receivable are initially recorded at fair value and subsequently valued at amortised cost, less provisions for impairment. Any change in their value through impairment or reversal of impairment is recognised in profit or loss net of any advance payment held by the Group where a right of offset exists; and

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

Interest and other income resulting from financial assets are recognised in profit or loss on the accruals basis, using the effective interest method.

Inventories

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

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

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

Contingent liabilities

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

Current and deferred taxes

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

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

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

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

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

Public grants and subsidies

As the German wafering operation is located in a region designated for economic development, the Group received both investment subsidies and investment grants. Government grants and subsidies relating to capital expenditure were credited to the "Deferred grants and subsidies" account and released to the Consolidated Statement of Comprehensive Income by equal annual instalments over the expected useful lives of the relevant assets under "Other income".

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

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

Provisions

Provisions are formed where a third party obligation exists, which will lead to a probable future outflow of resources and where this outflow can be reliably estimated. Provisions are measured at the best estimate of the expenditure required to settle the obligation, discounted to present value. The resulting charge upon the discounting being unwound is recorded as a finance cost.

Future expected wind down costs for Group companies no longer classed as going concern are included within provisions.

Accruals

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

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

Revenue recognition

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

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

Finance income and costs

Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested, dividend income and gains and financial income and costs relating to the defined benefit pension scheme.

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

Defined contribution pension plan

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

Defined benefit pension plan

For defined benefit plans, the Group previously made contributions to pension insurance plans in Germany which covered the estimated liability for the two German members. These amounts have historically been shown netted off due to the fact that the gross balances were not deemed to be material to the financial statements. During 2017 the liability was reduced due to the death of the spouse of one of the employees. The insurance asset will continue to pay out to the Group over the next ten years and therefore an asset has been recognised along with a corresponding actuarial gain in the Consolidated Statement of Comprehensive Income. The plans are reviewed annually by an actuary and any actuarial gains or losses are recorded in other comprehensive income.

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 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 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. Fair value is assessed using the Black-Scholes method.

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 160,278,975 ordinary shares of 5.2 pence each;

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

· other reserves arising from the issue and redemption of B shares in 2013;

· 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;

· the 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;

· accumulated losses is the cumulative loss retained by the Group; and

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

2. Segment reporting

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

Geographical information 2017

Notes

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

** Includes sales of surplus polysilicon feedstock.

One customer in Taiwan accounted for more than 10% of Group revenue, with sales to this customer of €16,720 (figures in €'000).

Geographical information 2016

Notes

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

** Includes sales of surplus polysilicon feedstock.

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

1. 26,536 (Canada); and

2. 18,399 (Taiwan).

3. Cost of materials 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.

4. Personnel expenses

Included within pension costs is nil (2016: €87k) relating to actuarial losses on defined benefit pension obligations.

Employees

The Group employed a monthly average of 126 employees during the year ended 31 December 2017 (2016: 138).

The Group employed 98 employees at 31 December 2017 (31 December 2016: 139).

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

5. Other income

Customer compensations relate to realisation of payments received in respect of unfulfilled customer purchase obligations and includes €20.516m in relation to arbitration proceedings.

On 13 March 2018 the Group was informed, by the Court of Arbitration, that the customer's request for correction had been disallowed meaning that the expected minimum net income is increased. The additional customer compensations income of €3.1 million will be recognised in the results for the year ended 31 December 2018.

6. Other expenses

The Group's last remaining supply contract was cancelled during 2016 and, as part of the mutual agreement, the Group forfeited a proportion of the deposit previously made.

Amounts payable to the Group's auditors

7. Finance income and costs

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

8. Income taxes

The total tax rate for the German companies is 32.275% (2016: 32.275%). The effective total tax rate in the United Kingdom was 19.25% (2017: 20.0%). These rates are based on the legal regulations applicable or adopted at the balance sheet date.

The rate of corporation tax in the United Kingdom will fall to 17% in 2020. The German rate will be unchanged in 2017. The impact of these changes is not expected to be material.

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

9. Actuarial gains

Actuarial gains represent the net of movements in the defined benefit obligation and the asset value of the Group's defined benefit pension scheme.

Following the death of one beneficiary in the year there was a gain of €295k being a €759k release of benefit obligation and €464k decrease in the value of the plan assets (2016: €nil).

10. Earnings per share

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

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

Basic shares and diluted shares for this calculation can be reconciled to the number of issued shares (see note 24) as follows:

11. Intangible assets

Intangible assets relate to software licences.

12. Property, plant and equipment (PPE)

13. Other non-current assets

The Group have historically paid in to an insurance policy for two German employees that served to match the liabilities that arose under a legacy pension scheme. These amounts have historically been shown netted off due to the fact that the gross balances were not deemed to be material to the financial statements. During 2017 the liability was reduced due to the death of the spouse of one of the employees. The insurance asset will continue to pay out to the Group over the next ten years and therefore an asset has been recognised.

14. Cash and cash equivalents

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

15. Trade accounts receivable

All receivables have short-term maturity. During the year receivables of €7k were written off (2016: €nil).

All amounts outstanding as at 31 December 2017 and due at date of signing had been received, consequently there is no provision for doubtful debts (2016: €nil).

None of the unimpaired trade receivables are past due at the reporting date.

These amounts, together with the customer compensations detailed in note 17, represent the Group's maximum exposure to credit risk at the year end.

16. Inventories

Inventories include finished goods as well as production supplies. The change in inventories is included in the Consolidated Statement of Comprehensive Income in the line "Cost of materials". Previously, work in progress included ingots and blocks processed at Crystalox Ltd.

No Inventory writedowns are included in cost of materials in 2017 (2016: €nil).

17. Assets held for sale

The above assets have an estimated fair value of €586k.

18. Prepaid expenses and other assets

Customer compensations relate to realisation of payments received in respect of unfulfilled customer purchase obligations and includes €20.516m in relation to arbitration proceedings.

19. Trade accounts payable

20. Accrued expenses

21. Provisions

All provisions are short-term and relate to the winding down of operations in the UK.

22. Deferred tax

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 2017 there were unrecognised potential deferred tax assets in respect of losses of €44.5 million (2016: €50.4 million).

Deferred tax liabilities

Deferred tax liabilities, calculated or estimated by the Group companies, comprise taxes payable due to local tax laws, including probable amounts arising on completed or current tax audits. Movement in the year is shown below.

23. Other liabilities

24. Share capital

Summary of rights of share capital

The ordinary shares are entitled to receipt of dividends. On winding up, their rights are restricted to a repayment of the amount paid up to their share in any surplus assets arising. The ordinary shares have full voting rights.

Shares held by the EBT

At 31 December 2017, 1,973,063 ordinary shares of 5.2 pence were held by the EBT (2016: 1,971,910). The market value of these shares was €0.461 million (2016: €0.546 million). Additionally, the cash balance held by the EBT on 31 December 2017 was €0.603 million (2016: €0.627 million).

25. Share-based payment plans

The Group established the PV Crystalox Solar PLC EBT on 18 January 2007, which has acquired, and may in the future acquire, the Company's ordinary shares for the benefit of the Group's employees.

During the year the Group had six share incentive plans in operation which are satisfied by grants from the EBT.

PV Crystalox Solar PLC Performance Share Plan ("PSP")

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

No awards were made during 2017 (2016: nil).

PV Crystalox Solar PLC Executive Directors' Deferred Share Plan ("EDDSP")

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

On 31 March 2017 awards over 544,135 shares were made to Iain Dorrity, as detailed in the Directors' Remuneration Report. No awards were made during 2016.

PV Crystalox Solar PLC Long Term Incentive Plan ("LTIP")

This is a long-term incentive scheme under which awards are made to employees consisting of the right to acquire ordinary shares for a nominal price subject to the achievement of specified performance conditions at the end of the vesting period which is not less than three years from the date of grant. Under the LTIP it is possible for awards to be granted which are designated as a Performance Share Award, a Market Value Option or a Nil-Cost Option.

Market Value Option ("MVO")

An MVO is an option with an exercise price per share equal to the market value of a share on the date of grant. The vesting period of each award is three years from the date of grant and the award must be exercised no later than ten years following the date of grant.

On 24 November 2008 an MVO over 200,000 ordinary shares was granted to a senior employee and this option is exercisable from 24 November 2011 at £1.00 per share subject to agreed performance criteria. This option is now exercisable at any time until 23 November 2018.

On 26 March 2009 an MVO over 200,000 ordinary shares was granted to a senior employee and this option is exercisable from 26 March 2012 at 76.0 pence per share subject to agreed performance criteria, and on 25 September 2009 MVO awards over 1,200,000 ordinary shares were granted to key senior employees and these options are exercisable from 25 September 2012 at 76.9 pence per share subject to agreed performance criteria.

One of the employees to whom an award over 200,000 ordinary shares was issued on 25 September 2009 left the Group after the closure of PV Crystalox Solar KK during 2016 and the award was forfeited].

No awards were issued or lapsed in 2017 (2016: nil).

PV Crystalox Solar PLC Share Award Bonus Plan ("SABP")

This plan was approved by the Board in January 2014 under which awards can be made to employees, excluding the executive directors. Under the SABP conditional awards are granted for a specific number of ordinary shares which may be acquired for nil consideration. On 31 March 2015 SABP awards were granted to key senior employees over 1,975,000 shares. These awards vested on 31 March 2016.

No awards were issued in 2017 (2016: none).

PV Crystalox Solar PLC Share Incentive Plan ("SIP")

The SIP is an employee share scheme approved by HM Revenue and Customs in accordance with the provisions of Schedule 8 to the Finance Act 2000. On 26 February 2008 awards were granted to United Kingdom employees of 500 shares each over a total of 37,000 ordinary shares of 2 pence. These 37,000 ordinary shares of 2 pence each were transferred from the EBT into the SIP. The shares in the SIP were subject to the share consolidation so that each holding of 500 ordinary shares of 2 pence became a holding of 192 shares of 5.2 pence following the 5 for 13 share consolidation in 2013.

During 2017 awards over 3,455 shares vested due to employees leaving the Group as good leavers due to redundancy and/or where the employees had held the award for more than five years and were able to withdraw the shares from the SIP without incurring a tax personal liability. The balance of 1,153 shares which had previously been within the SIP as a result of leavers forfeiting their shares was transferred to the EBT. At the end of 2017 the Group closed the SIP. No awards vested in 2016.

The Group recognised a total credit before tax of €32,000 (2016: €212,000) related to equity-settled share-based payment transactions during the year.

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

Note

* The weighted average exercise price for the PSP, SABP, PSA and SIP options is £nil.

26. Risk management

The main risks arising from the Group's financial instruments are credit risk, exchange rate fluctuation risks, interest rate risk and liquidity risk. The Board reviews and determines policies for managing each of these risks and they are, as such, summarised below. These policies have been consistently applied throughout the period.

Credit risk

The main credit risk arises from accounts receivable and the customer compensations debtor. All trade receivables are of a short-term nature, with maximum payment terms of 60 days, although the majority of customers currently have payment terms of 45 days. In order to manage credit risk, local management defines limits for customers based on a combination of payment history and customer reputation. Credit limits are reviewed by local management on a regular basis. As a supplier to some of the leading manufacturers of solar cells, the Group has a limited number of customers. In 2017 63.4% of the Group's sales are related to the largest customer (2016: 46.8%). The number of customers accounting for approximately 95% of the annual revenue was 12, which was up from six in 2016. Where appropriate, the Group requests payment or part payment in advance of shipment, which generally covers the cost of the goods. Different forms of retention of title are used for security depending on local restrictions prevalent on the respective markets. The customer compensations debtor relates to the realisation of payments due from arbitration award and from the liquidators of former customers. The maximum credit risk to the Group is the total of trade accounts receivable and the customer compensations debtor, details of which can be seen in notes 15 and 18.

Cash is not considered to be a high credit risk due to all funds being immediately available, consideration being given to the institution in which it is deposited and the setting of counterparty limits. All institutions used have a minimum Moody's credit rating of A3.

Exchange rate fluctuation risks

In the financial year 2017 33% (2016: 95%) of sales revenue was invoiced in US Dollars potentially exposing the Group to exchange rate risks.

Significant cash funds are denominated in currencies other than the presentational currency of the Group. Excess cash funds not needed for local sourcing are exposed to exchange rate and associated interest fluctuation risks, particularly so in the United Kingdom. The exchange rate risk is based on assets held in currencies other than Euros.

The spot prices of wafers and polysilicon are quoted in US Dollars and this influences the price the Group can obtain. The Group sells its products in a number of currencies (mainly US Dollars and Euros) and also purchases goods and services in a number of currencies (mainly Euros Sterling and to a small extent US Dollars).

The following exchange rates were used to translate individual companies' financial information into the Group's presentational currency:

Hedging strategy

The Group sells to customers in the worldwide photovoltaic market and sells in two main currencies: US Dollars (33%) and Euros (67%). Sales to the largest customer (63.4%) are in Euros however the selling price is agreed on a monthly basis by reference to the spot price for wafers which is quotes in US Dollars. It operates its wafering factory in Germany, with local costs in Euros. However, during 2017 the ingot and block production operations were within the United Kingdom and therefore a relatively small proportion of overall costs are in Sterling, being mainly related to personnel costs, overheads and utilities (most of the raw materials are purchased in US Dollars and Euros).

During 2017 the net gain on foreign currency adjustments was €0.0 million (2016: gain of €3.9 million).

In addition to the above, upon translation of net assets in the consolidation, there was a negative impact in 2017 of €1.2 million (2016: negative impact of €4.9 million) recording as a currency translation adjustment which is shown in the Consolidated Statement of Comprehensive Income as "other comprehensive income".

Interest rate risk

The Group has limited exposure to interest rate fluctuation risks, since the Group does not have any borrowings.

Sensitivity analysis of the accruals and loans outstanding at the year end has not been disclosed as these are all current and paid in line with standard payment terms.

The Group had a cash balance at the end of 2017 of €26.9 million (2016: €28.8 million) and places these cash funds on deposit with various quality banks subject to a counterparty limit of €15 million. Accordingly, there is an interest rate risk in respect of interest receivable which amounted to €0.1 million in the year (2016: €0.1 million). The Group is cash positive and current interest rates are low. The risk of interest rates falling is considered small and in any case would have a small impact on the Group's income statement and cash flows. Group management considers that in the medium term it is more likely that interest rates might rise. The impact of interest rate rises would positively impact the Group's profits and cash flow.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages its exposure to liquidity risk by regularly reviewing net debt and forecast cash flows to ensure that current cash resources are available to meet its business objectives. The Group is exposed to the worldwide photovoltaic market where wafer prices have remained below industry production costs for several years. Accordingly, the market pricing of the Group's main product (silicon wafers) has been under pressure. Against this difficult market background, Group management introduced a cash conservation strategy in 2011. This cash conservation plan has been maintained, so that the Group can optimise its cash position whilst these conditions persist. Various measures have been taken to adjust production to levels appropriate to current market conditions. At the same time production capacity has been maintained so that this can be utilised when market conditions allow. Due to changing market and economic conditions, the expenses and liabilities actually arising in the future may differ materially from the estimates made in this plan.

On 31 December 2017 the Group had a net cash balance of €26.9 million (2016: €28.8 million) and this together with cash flow projections from the cash conservation plan indicate, assuming the projections are broadly correct, that the Group will have adequate cash reserves until at least twelve months beyond the signing of the accounts.

Financial assets and liabilities

Capital management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns to shareholders and other stakeholders and to maintain an optimal capital structure that strikes the appropriate balance between risk and the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group from time to time uses debt as a natural hedging instrument, where amounts are borrowed in the same foreign currency as it holds assets (for instance debtors) denominated in the same foreign currency. However, these borrowings have always been lower than the balance of cash and cash equivalents in any period. Accordingly, the Group has maintained a net cash positive position. This is a different approach to others in the photovoltaic industry where being heavily indebted (particularly in China) has become the norm. The directors believe that the Group's policy of not carrying any net debt has significantly reduced the Group's risk, which has been particularly important during the current extremely difficult market conditions.

The Group defines capital as all elements of equity.

The Group's capital (plus its cash and cash equivalents) is set out in the following table. The Group is not subject to any externally imposed capital requirements.

The Group is net cash positive and therefore does not have any gearing. Accordingly, the leverage ratio has no meaning and has not been calculated.

27. Calculation of fair value

There are no publicly traded financial instruments (e.g. publicly traded derivatives and securities held for trading and available-for-sale securities) nor any other financial instruments held at fair value.

28. Contingent liabilities

The Group did not assume any contingent liabilities for third parties. No material litigation or risks from violation of third parties' rights or laws are pending at the time of approval of these financial statements.

29. Other financial obligations

Lease agreements (operating leases)

The leases primarily relate to rented buildings and have terms of no more than five years. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

The above represent the contractual obligation at balance sheet date.

Subsequently agreement was reached, subject to contract, with the relevant landlord to reduce this total commitment to €826k.

There were no significant purchase commitments at the year end.

30. Related party disclosures

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

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

The remuneration of the directors, who are the key management personnel of the Group, is set out in the audited part of the Directors' Remuneration Report.

31. Dividends and return of cash

No dividends were paid in 2017 (2016: €nil).

32. Post-balance sheet events

There are no significant post-balance sheet events.