PVCS.L Regulatory News (PVCS)

PV Crystalox Solar PLC

Preliminary Results

For the year ended 31 December 2013

PV Crystalox Solar PLC and its subsidiaries (the "Group"), a long established supplier of photovoltaic ('PV') silicon wafers, today announces preliminary results for the year ended 31 December 2013.

Highlights

· Cash conservation strategy continued throughout 2013

· Restructuring completed whilst retaining core ingot and wafering production capabilities

· Disposal of Group's polysilicon production facility at Bitterfeld to management buy-in team

· €36.3 million of cash returned to shareholders in December 2013

· Wafer shipments 211MW (2012: 115MW)

Overview of results

· Revenues €71.4m (2012: €46.3m)

· EBT on continuing operations of €6.6m (2012 restated: loss of €30.7m)

· Net cash from operating activities on continuing operations €4.4m (2012 restated: €77.3m)

· Net Cash €39.2m (2012:€89.4m)

John Sleeman, Chairman, commented

"The Board continues to believe that our cash conservation strategy is the necessary response to current market conditions, enabling us to protect shareholder value whilst preserving the Group's core production capabilities. The Board remains committed to the solar industry and believes that the medium term outlook for solar installations remains positive"

Iain Dorrity, Chief Executive Officer commented

"The Group will continue with its cash conservation strategy in 2014. At the same time our improved cost structure enables us to increase production output in order to consolidate existing and to develop new customer relationships."

Enquiries:

About PV Crystalox

PV Crystalox Solar is a long established supplier to the global photovoltaic industry, producing multicrystalline silicon wafers for use in solar electricity generation systems.

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

Chairman's statement

Despite 2013 being another record year for global photovoltaic installations, PV market conditions continue to be challenging with pressure on pricing persisting. As a consequence PV Crystalox Solar has continued to protect shareholder value by operating in cash conservation mode, with a strong focus on cost control and inventory management.

Revenues of €71.4 million, which included wafer shipments and the trading of surplus polysilicon, were 54% higher than 2012. Looking at continuing operations, earnings before tax of €6.6 million improved from the €30.7 million loss in 2012. This increase in profitability was driven primarily by the impact of revised assumptions in respect of the onerous contract provision (including that market conditions at the end of 2013 were somewhat better than anticipated last year) which resulted in non cash income of €11.7 million in the statement of comprehensive income. Net cash at the year end was €39.2 million which was €50.2 million lower than the €89.4 million held at the end of 2012, reflecting the return to shareholders of €36.3 million, and the payment made to the management buy-in team at Bitterfeld of €12.3 million. Operating cash flow on continuing operations was €4.4 million.

At the General Meeting in September 2013 shareholders approved the move of the Company's listing from Premium to Standard on the Official List and this change took place on 10 October 2013. This enabled the Company to undertake the return of cash in a tax efficient manner. Additionally, it will enable the Company to implement any other transactions which might be in the interests of the Company, such as acquisitions or disposals, in a shorter timescale and at a lower expense.

A standard listing requires a company to comply with a minimum level of regulatory requirements, but does not require compliance with super-equivalent provisions of the Listing Rules which apply only to companies with a premium listing. Despite this reduction in governance requirements, I am pleased to say that we have chosen to report, as we have previously, on a "comply or explain" basis against the UK Corporate Governance Code (September 2012) (the "Code").

Return of cash

In December we completed a return of cash to all shareholders amounting to €36.3 million (7.25 pence per share), by way of a B and C share scheme, which gave shareholders (other than certain overseas shareholders) a choice between receiving cash in the form of income or capital. The return of cash was accompanied by a 5 for 13 share consolidation to maintain broad comparability of the share price and return per share before and after the creation of the B and C shares.

Our people

Our radical restructuring in 2013 required a significant reduction in our staff numbers from 299 at the end of 2012 to 88 at the end of 2013. Of those who left around 50 were able to join the new management buy in company at Bitterfeld. Our employees are one of the Group's key strengths and are vital in ensuring that we retain our core production capabilities. I would like to thank them for their continuing outstanding commitment and contribution. I would like also to thank those employees who left for the significant contribution they made to the Group and for their professionalism during the previous years.

I would particularly like to thank: Hubert Aulich, who retired from his role as executive director of German operations and left the Board in May 2013; and Peter Finnegan, the Chief Financial Officer ("CFO"), who informed the Board in March 2014 that he will retire from the Group on 31 May 2014 and accordingly will not stand for re-election at this year's Annual General Meeting. Peter has been involved with the Group since 1985, became CFO immediately prior to the IPO in 2007 and has made an outstanding contribution to the Group's development and progress. The Board expresses its gratitude to Peter for his contribution to the success of the Group and wishes him well for the future.

I am pleased to advise that the Board has appointed Matthew Wethey as the new CFO in addition to his role as Group Secretary. Matthew is a chartered accountant with 20 years' business experience who joined the Group in January 2009. He will not be an executive director of the Company and thus the Company will comply with the provisions of the Code in relation to size and composition of the Board from June 2014.

I confirm that all other directors are standing for re-election at this year's Annual General Meeting in line with the recommendations of the Code.

The Board continues to believe that our cash conservation strategy is the necessary response to current market conditions, enabling us to protect shareholder value whilst preserving the Group's core production capabilities. The Board remains committed to the solar industry and believes that the medium term outlook for solar installations remains positive.

John Sleeman

Chairman

19 March 2014

CEO Statement

Summary

2013 has seen significant growth in global PV installations and some modest improvement in the industry environment. Prices across the value chain showed some slight recovery towards the end of the year following two years of continuous price declines. This improvement has continued into 2014 but wafer prices remain below industry production costs as polysilicon prices have been rising at a faster rate.

Following a strategic review in late 2012, the Group has completed a radical restructuring during 2013 whilst retaining core production capabilities and has stabilised its financial position. The Group restructuring involved a reduction in production output at the UK ingot and German wafer operations, with a corresponding reduction in personnel, and the disposal of the Group's polysilicon production facility in Bitterfeld, Germany to a management buy-in team. The facility and staff were transferred together with associated obligations and liabilities including those relating to the repayment of grants, subsidies and closure costs in return for a cash payment of €12.3 million from the Group. This transaction was an improvement on the alternative shutdown scenario as it resulted in lower cash outflows for the Group and also enabled some jobs to be retained under the new management.

In view of the challenging market pricing and intensely competitive industry environment the Group continued to operate in cash conservation mode during 2013; maintaining production at low levels while focusing on internal cost reduction, quality improvement programmes and inventory management. Wafer shipments of 211MW1 were significantly higher than shipments in the previous year (2012:115MW) and also higher than our production output as the Group took the opportunity to expand its customer base and to reduce inventories to normal levels.

During 2007-2008, Group companies entered into a number of long-term agreements with customers to supply wafers at prices which are considerably above current market levels. In view of the market conditions, our strategy has always been to reach accommodation where possible with these long-term contract customers although some have exited the industry either voluntarily or through insolvency. Five contracts of this type remained at the start of 2013, but only two were active during 2013. Neither of these contracts will continue in 2014 as one has now expired and a settlement of the other has been concluded. The overall importance of these long term contracts was much reduced as we have successfully developed new customers during 2013. Sales at a premium to spot prices under these contracts accounted for only 34% of wafer shipment volumes in 2013.

__________[1] In order to reflect improvements in industry cell efficiencies wafer shipments have been converted to MW assuming a cell efficiency of 17% rather than 16% as in previous years. For comparison purposes 2012 shipments have been restated using 17% efficiency

The Group has two other contracts where customers have entered insolvency and shipments stopped in 2011 and 2012 respectively. We have registered claims with the respective administrators and expect to conclude settlements during the next twelve months. Negotiations with the final remaining long-term contract customer are progressing with the aim of reaching agreement to resume wafer supply. In the absence of any agreement it will be necessary to seek resolution through arbitration under the auspices of the International Court of Arbitration.

In common with most PV companies, the Group has long-term contractual commitments for purchase of polysilicon which were made to secure supply necessary to service long term wafer supply contracts. As in previous years we continued to be successful in reaching agreement with our suppliers during 2013 to adjust volumes and prices on a periodic basis. Nevertheless, as a consequence of the reduced wafer production levels it was still necessary for the Group to trade excess polysilicon during the year in order to manage inventory levels. The Group has been successful in reaching accommodation with both suppliers in the year to date.

The year ahead

Considerable progress was achieved during 2013 in lowering our wafer production costs, both internally and at our subcontractor in Japan where the weakening of the Japanese yen was also beneficial. As a result of these cost reductions and the modest price improvement seen in late 2013 and early 2014, our cash cost of wafer production is now closer to market prices. In view of this improved cost structure, the Group decided to increase production output during the first quarter of 2014 to take advantage of the improved market situation and to consolidate links with our new customers. Initially we are doubling our production output compared to 2013 and this has necessitated some recruitment of production personnel in UK and Germany. This expansion will enable wafer shipments to be maintained at 2013 levels when sales volumes were boosted by shipments from inventory.

The Group will look to conclude settlements with the administrators of the two long term contract customers in insolvency and also to conclude negotiations with the remaining long term contract customer so that wafer shipments can resume. The Group will look to reinforce relationships with those new customers where trading started in 2013 and to develop new customers as opportunities allow.

As in previous years the Group will continue to negotiate with our polysilicon suppliers in order to adjust prices and volumes on a periodic basis. The Group expects to use increasing quantities of polysilicon for our expanding wafer production, however, it will trade excess polysilicon as required to manage inventory levels.

Iain Dorrity

Chief Executive Officer

19 March 2014

Operational Review

Market Drivers

According to the European Photovoltaic Industry Association (EPIA), global PV installations grew to 37GW in 2013, a 35% rise over the previous year. China and Japan were the two leading markets and together accounted for 49% of installations as the market continued its transition from a European-dominated environment to a global market. New European installations were 10GW, down 43% on 2012 as demand in several key markets such as Germany and Italy continued to decline.

Cumulative PV installations in Japan passed the 10GW landmark in August 2013 making Japan only the fifth country to reach this milestone joining Germany, Italy, China, and the US. The latter two only reached the milestone during the first half of 2013. Growth in Japan has been stimulated by the generous incentive programme that started in July 2012 whereby Japan's feed in tariff in fiscal 2013 was 37.8 Yen (US$0.38)/kWhr for 20 years, which is more than twice the tariffs on offer in China and Germany.

China was the leading global market and installed 11.3GW. No country has ever added more than 8GW of solar power in a single year prior to 2013, and China's record outstripped even the most optimistic forecasts of 12 months ago. The Chinese State Council backed up targets recently announced by the State Grid, and has set a cumulative target of 35GW of installed capacity by 2015. This represents a 14GW increase on the previously stated 2015 target of 21GW and provides further support for its substantial domestic manufacturing industry. The Chinese government is targeting 14GW of additional PV capacity in 2014.

The dramatic decline in PV industry pricing during the last two years led to claims of unfair trade practices and to anti-dumping investigations in the USA, China and Europe. In November 2012 the U.S. International Trade Commission ("USITC") judged that Chinese producers/exporters had sold solar cells at below fair market value and had materially damaged the US PV industry. Duties ranging from 24% to 254% were imposed. The enquiries in China and Europe have recently been concluded although with varying outcomes.

In July 2013 China's Ministry of Commerce ("MOFCOM") announced that a probe launched last year had found that polysilicon imports into China were damaging domestic manufacturers. Provisional anti-dumping duties ranging from 2.4% to 57% were imposed against solar-grade polysilicon imports from South Korea and the United States.

The European Commission launched investigations in September 2012 and concluded that Chinese producers were dumping wafers, cells and modules into the EU market and that the fair market value was 88% higher than current prices. Exports of PV products from China to the EU totalled €21 billion in 2011, making the case the largest unfair-trade probe ever started by the EU. While provisional antidumping duties of 11.8% were imposed in June 2013 with a further threatened increase to an average 47%, the EU abruptly changed its stance in August 2013 and accepted an undertaking by Chinese PV companies to set a minimum import price. While details remain unclear, this price is apparently almost half the level originally deemed necessary to remedy the injury from dumping. An import quota of 7GW will also apply, above which duties will be imposed.

Following a period of calm in the latter part of 2013, PV industry trade disputes have erupted again in January 2014 with the US government officially opening another anti-dumping and anti-subsidy investigation into Chinese solar products imported into the US. The decision by USITC follows a petition at the end of 2013 in which it claimed that existing anti-dumping levies, averaging 31%, were being circumvented by China's manufacturers who are exploiting a loophole by using cells from Taiwan and elsewhere for their modules. A preliminary determination of any countervailing and antidumping duties is not expected until June at the earliest.

China responded swiftly, even before the US decision was finalised, by imposing fresh duties on imports of polysilicon from the US and which will be applied for five years.

Operational Review of 2013

On account of the depressed market prices, excess inventory and our cash conservation strategy, wafer production output was maintained at low levels during 2013. We operated at below 20% of our maximum 750MW capacity but actual sales volumes of 211MW were almost twice our production output as the Group was able to supply customers from inventory. As a result wafer inventories were reduced to almost optimum levels by the end of 2013.

The Group restructuring involved a reduction in production levels and headcount at each of the Group's manufacturing sites in UK and Germany and its sales office in Japan. The Group retained its core ingot, block and wafer production facilities although the majority of the value of production equipment was written down as an impairment charge in 2012.

· In the UK where the Group's ingot and block production facilities are located headcount was reduced by 65%, two of the four production plants were mothballed and production cut such that operations continued at less than 20% of the 750MW capacity.

· In Erfurt, Germany, the wafering operation suffered a 52% headcount reduction, the mothballing of the majority of the wafering wire saws and a significant cut in output.

· In Bitterfeld, Germany, polysilicon production at the plant was suspended in November 2011, from which time the plant operated in idle mode. A decision to permanently discontinue operations at the plant was taken at the end of 2012. The Group commenced consultation with its employees as part of the shut down process. However, during this process an agreement was reached for the disposal of the plant to a management buy-in team. The facility and staff were transferred together with associated obligations and liabilities including those relating to the repayment of grants, subsidies and closure costs in return for a cash payment of €12.3 million from the Group. This transaction was an improvement on the alternative shutdown scenario as it resulted in lower cash outflows for the Group and also enabled some jobs to be retained under the new management.

· In Japan there was a headcount reduction of 29% and the operation relocated to smaller office premises in December 2013.

During the year the Group remained in cash conservation mode and was successful in achieving internal cost reductions, quality improvements and lowering inventory levels.

· Internal costs were reduced through a number of activities including: successful negotiation with our polysilicon suppliers on price and volumes; disposal of the Group's polysilicon facility at Bitterfeld; improvements in the efficiency of the wafer production activities at Erfurt; and negotiating lower costs with our wafering sub-contractor in Japan which also benefited from a weakening Japanese yen.

· The Group undertook quality improvement programmes in the UK which focused on optimisation of the ingot crystallisation process and which has enabled us to offer higher efficiency wafers that command a premium price.

· We reduced levels of polysilicon and wafer inventory and at the year end they are now close to optimum levels.

A description of 2013 developments with our customers and polysilicon suppliers is included in the Chief Executive's statement.

Outlook

Double digit growth is expected for the PV market in 2014 with some analysts expecting global installations to exceed 50GW, up from the 37GW achieved in 2013. Pressure on pricing is likely to remain although some market tightness may positively impact sales prices as supply and demand come closer to balance later in the year.

The Board continues to be mindful of the challenging market situation and the increasingly dominant role of Chinese players in the PV industry and does not expect the underlying business to return to profitability during 2014. Nevertheless it is taking cautious steps to position the Group to take advantage of any further improvement in market conditions. The Group has a healthy net cash balance and the restructuring carried out together with the progress achieved in cost reductions during 2013 will enable the Group to compete more effectively and provide the opportunity to broaden its customer base in 2014.

Iain Dorrity

Chief Executive Officer

19 March 2014

Financial Review

"The Board believes that its ongoing strategy will enable the Group to operate within its net cash reserves for the foreseeable future and accordingly be in a strong position to take advantage of improving market conditions at the appropriate time"

Summary of Financial Review

· In 2013 Group revenue increased by 54.2% to €71.4 million

· Profit for the year from continuing operations was €6.2 million (2012 restated: a loss of €41.3 million)

· Profit attributed to equity owners of the parent was €3.7 million (2012: a loss of €121.4 million)

· In December the Group returned €36.3 million to shareholders under a B/C share scheme

· The Group's net cash position at year end was €39.2 million

· Operating cash flow from continuing operations was €4.4 million

The presentation of the financial statements has been amended for 2013 following the disposal of the polysilicon facility at Bitterfeld which is classed as a discontinued operation. The consolidated statement of comprehensive income and the consolidated cash flow statement have been split between continuing operations and discontinued operations. The 2012 comparatives have been restated to exclude the discontinued operations. Comments below, unless expressly stated, refer to the continuing operations.

In 2013 Group revenue increased by 54.2% to €71.4 million (2012: €46.3 million) due to higher wafer sales volumes, including a large proportion of its surplus wafer inventories, and increased trading of surplus polysilicon feedstock.

During the year the Group generated an EBIT of €10.5 million (2012 restated: loss of €30.0 million). This increase in profitability was driven primarily by the impact of revised assumptions in respect of the onerous contract provision (including that market conditions at the end of 2013 were somewhat better than anticipated last year) which resulted in non cash income of €11.7 million in the statement of comprehensive income. The onerous contract provision was created in 2011 and updated in 2012 as non cash charges to the cost of material in respect of the onerous nature of the Group's long-term polysilicon supply agreements. The onerous contract provision unwinds from period to period as the related contracts move towards expiry. Details of the onerous contract provision are discussed later in this review and details of the movement in the onerous contract provision are set-out in Note 22 of the financial statements.

Net interest expense was €3.9 million (2012 restated: €0.7 million). This was made up of a charge of €4.6 million in respect of the unwinding of the discount rate used in the calculation of the Group's onerous contract provision and interest charged on Group borrowings and pension commitments of €0.1 million, which was partly offset by interest income of €0.8 million.

The income tax charge of €0.4 million is mainly due to tax on interest received which cannot be off-set against trading tax losses brought forward. The prior year tax charge of €10.6 million was mainly the result of the reversal of deferred tax assets relating to previously recognised tax losses. These losses are still available for off-set against future trading profits, but these are unlikely to be utilised in the immediate future.

The profit attributable to equity owners in the year of €6.24 million on continuing operations was offset by losses of €2.58 million on discontinued operations to give an overall profit attributable to equity owners in the year of €3.66 million, which equates to a profit per share of €0.01. In 2012 the loss on the restated continuing operations of €41.3 million and the loss of €80.1 million on discontinued operations gave an overall loss attributable to the equity owners of €121.4 million, which equates to a loss per share of €0.299.

The Group's net cash position at year end was €39.2 million which was €50.2 million lower than the net position of €89.4 million at the start of the year. The main outflows in the year were the €36.3 million cash return to shareholders, of £0.0725 (approximately €0.087) per share under a B/C Share Scheme, and outflows of €15.8 million in respect of the discontinued operations.

When earnings before taxes of €6.6 million are adjusted for non cash movements (mainly the decrease in provisions of €31.7 million and the reversal of the net interest expense, relating to the discounting of the onerous contract provision, of €3.9 million) the adjusted cash loss before tax from continuing operations was €21.7 million. The Group was successful in releasing €24.2 million of cash from working capital mainly due to the reductions in inventories (€21.0 million) and polysilicon feedstock advance payments (€9.5 million) partially offset by the increase in debtors of €5.7 million. This gives net cash inflows from operating activities of €4.4 million when the effects of inflows from income taxes of €1.1 million and interest received of €0.8 million are included. After deducting cash used in investing activities of €1.4 million and reversing out interest received of €0.8 million the free cash inflow was €2.2 million. The Group's capital expenditure in the year was €0.1 million (2012 restated: €1.1 million). The cash conservation strategy had meant that there was no significant capital expenditure in the year and accordingly only essential items were purchased. Investment grants received in prior years were all in respect of the German operations as capital expenditure in the United Kingdom does not qualify for such grants.

Further cash flows were due to the cash return to shareholders of €36.3 million, the amounts paid of €15.8 million in respect of the discontinued polysilicon operations and the effect of foreign exchange rate changes on cash of €2.3 million. The cash outflows due to the discontinued operation consisted of adjusted cash losses of €0.7 million, an increase in working capital of €3.5 million and a payment to the management buy in team of €12.3 million.

Onerous contract provision (OCP)

The Group has long-term agreements for the purchase of its raw material, polysilicon, from two external suppliers that were entered into in 2008 and 2010. Given the significant decline in market prices for polysilicon and silicon wafers since the contracts were signed, the contracted cost of polysilicon under these agreements means the Group is likely to incur losses in respect of these contracts. Consequently the Board provided for the anticipated losses under these contracts taking into account the terms of the contracts and market conditions.

Group management has continued to negotiate and reach agreement with both suppliers as to volumes and price during 2013 and this will continue for the duration of the contracts. In addition, market conditions for the trading of surplus polysilicon were a little better than had previously been anticipated. The OCP has been recalculated as at 31 December 2013 taking into account the remaining contractual periods, the current and anticipated agreements with suppliers plus updated market conditions and the net effect has been the release of €11.7 million from the provision. Note 22 details the various movements in the provision during the year: the amount credited to the cost of materials totalled €24.4 million; the amount charged as finance cost was €4.6 million in respect of the unwinding of the discount factor (as there is one year less outstanding on the contracts); and the amount charged in respect of exchange differences was €5.7 million (as the provision is calculated in various currencies). The net provision was €26.5 million at the year-end (2012: €52.0 million).

Impairment

The Board assessed the carrying values of the Group's property, plant and equipment for impairment as at 31 December 2012. As a result of this assessment, an impairment charge was recognised in 2012 that reduced the carrying values of property, plant and equipment and intangibles by €82.5 million. Only €37.6 million of this amount related to that used in continuing operations and the remainder related to the discontinued operation that was disposed-off in June 2013. Accordingly, the Group's property, plant and equipment in respect of continuing operations had been largely written-down and the 2013 annual depreciation charge was a modest €0.4 million. It should be noted that the plant and equipment remains available for use and a significant increase in production can be achieved without a significant increase in capital expenditure or an increase in the annual depreciation charge.

Discontinued operations

In June 2013 the Group disposed of its polysilicon production facility in Bitterfeld, Germany, to a management buy-in team. The team acquired the facility and staff together with associated obligations and liabilities including those related to the repayment of grants, subsidies and closure costs in return for a cash payment from the Group of €12.3 million. This transaction was preferable to shutting the facility as it resulted in lower cash outflows for the Group and enabled some jobs to be retained under the new management. Specifically, the disposal was preferable to closure because it gave certainty as to the timing and quantum of cash flows rather than the uncertainty inherent in closing a production facility and thereby dismissing employees, disposing of plant and equipment and selling land. Note 36 sets out the loss incurred at the polysilicon plant in the period prior to disposal of €2.6 million and the related operating cash outflow of €3.5 million in addition to the above mentioned payment on disposal of €12.3 million. The 2012 comparison numbers in the accounts have been restated to remove the prior year effect of this discontinued operation.

Going concern

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

A description of the current market conditions and the Group's actions to conserve cash are included in the Strategic Report.

As part of its normal business practice, the Group regularly prepares both annual and longer-term plans which are based on the directors' expectations concerning key assumptions. The assumptions around contracted sales volumes and prices and contracted purchase volumes and prices are based on management's expectations and are consistent with the Group's experience in the first part of 2014.

The Group has long-term contracts with two external suppliers for the purchase of polysilicon, our main raw material. The Group's management has been successful in reaching accommodation with these suppliers to secure periodic contract amendments and to adjust prices and volumes. As a result, these amendments have brought the terms more in line with current market pricing. To manage inventory levels the Group will sell surplus polysilicon and has been successful in this respect during 2013 and the first quarter of 2014.

The nature of the Group's operation means that it can vary production levels to match market requirements. As part of the cash conservation measures and the associated planning assumptions, production output has been flexed to match expected demand. In line with the Group's strategy of retaining flexibility in production levels, production can be brought back on stream when market conditions allow. Employment costs were reduced during 2013 following redundancies in the United Kingdom and Germany at the beginning of the year. The Group has also reduced other costs through negotiation with suppliers and by achieving greater efficiencies within the Group's operations.

As a result of these actions and related modelling assumptions the Group's base plans indicate that the Group will be able to operate within its net cash reserves for the foreseeable future.

On 31 December 2013 there was a net cash balance of €39.2 million, comprising cash or cash equivalents of €39.9 million and short term loans of €0.7 million. The current borrowings are in Japanese yen and are subject to certain covenants on the Japanese subsidiary company (including interest cover, profitability, and receivables cover). The Group's plans are based upon remaining within its net cash balance and are not dependent upon these short-term borrowings.

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

The Board believes that its ongoing strategy will enable the Group to operate within its net cash reserves for the foreseeable future and accordingly be in a strong position to take advantage of improving market conditions at the appropriate time.

Dr Peter Finnegan

Chief Financial Officer

19 March 2014

*Prior year figures have been restated due to the discontinued operations.

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

Consolidated financial statements:

Consolidated balance sheet

for the year ended 31 December 2013

The accompanying notes form an integral part of these statements.

The financial statements were approved by the Board of Directors on 19th March 2014 and signed on its behalf by:

Dr Peter Finnegan Company number

Chief Financial Officer 06019466

Consolidated financial statements:

Consolidated statement of changes in equity

for the year ended 31 December 2013

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

Consolidated financial statements:

Notes to the consolidated financial statements

for the year ended 31 December 2013

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 Company's listing on the London Stock Exchange changed from premium to standard listing during 2013.

The financial statements for the year ended 31 December 2013 were approved by the Board of Directors on 19 March 2014.

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 EBIT.

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

Use of estimates and judgements - overview

The preparation of financial statements in conformity with adopted IFRS requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income, expenses and contingent liabilities. Estimates and assumptions mainly relate to the useful life of non‑current assets, the discounted cash flows used in impairment testing, the establishing of provisions for onerous contracts, taxes, share-based payment 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 and deferred tax assets, 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 - provisions - onerous contract provisions

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

Consequently the financial statements include a provision of €26.5m (2012: €52.0m) for the discounted total of currently anticipated losses under these contracts.

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

Use of estimates - inventory valuation

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

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

Any improvement in anticipated selling prices would reduce the level of writedown necessary and would be taken as profit in 2014.

Basis of consolidation

The Group financial statements consolidate those of the Group and its subsidiary undertakings drawn up to 31 December 2013. 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.

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

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

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

Going concern

A description of the market conditions including the continued suppression in spot prices of wafers during 2013 and the Group's actions to conserve cash are included in the Operational Review.

As part of its normal business practice, the Group regularly prepares both annual and longer-term plans which are based on the directors' expectations concerning key assumptions. The assumptions around contracted sales volumes and prices and contracted purchase volumes and prices are based on management's expectations and are consistent with the Group's experience in the first part of 2014.

The Group has two remaining wafer supply contracts and although these in theory should give the ability to sell wafers at prices that are above current market spot prices during 2014 despite the difficult market environment, wafer sales to customers without long-term contracts are assumed in the business plan at values close to spot prices.

On the other hand, the Group has long-term contracts with two external suppliers for purchase of polysilicon, our main raw material, for volumes in excess of current reduced production requirements. The Group's management has been successful in reaching accommodation with these suppliers to secure periodic contract amendments and adjust prices and volumes. As a result, these amendments have brought the terms more in line with current market pricing. To manage inventory levels the Group continues to sell excess polysilicon into the spot market.

The nature of the Group's operation means that it can vary production levels to match market requirements. As part of the cash conservation measures and the associated planning assumptions, production output has been reduced to match expected demand. In line with the Group's strategy of retaining flexibility in production levels, production can be brought back on stream when market conditions allow and this has started to happen in the first few weeks of 2014.

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

On 31 December 2013 there was a net cash balance of €39.2 million, comprising cash or cash equivalents of €39.9 million and short‑term loans of €0.7 million. The borrowings are in Japanese Yen and security/comfort is given to the lender by the Japanese accounts receivable. The Group's plans are based upon remaining within its net cash balance and are not dependent upon these minimal short-term borrowings.

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

Effects of new accounting pronouncements

Accounting standards in effect or applied for the first time in 2013

· Amendment to IAS 1, 'Financial statement presentation', regarding other comprehensive income (effective 1 July 2012)

· Amendment to IAS 12,'Income taxes' on deferred tax (effective 1 January 2013)

· Amendment to IAS 19, 'Employee benefits' (effective 1 January 2013)

· Amendment to IFRS 1, 'First time adoption', on government loans (effective 1 January 2013)

· Amendment to IFRS 1 on hyperinflation and fixed dates (effective 1 January 2013)

· Amendment to IFRS 7, 'Financial instruments: Disclosures', on asset and liability offsetting (effective 1 January 2013)

· Annual improvements 2011 (effective 1 January 2013)

· IFRIC 20, 'Stripping costs in the production phase of a surface mine' (effective 1 January 2013)

· IFRS 13, 'Fair value measurement' (effective 1 January 2013)

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

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.

· IFRS 10, 'Consolidated financial statements' (effective 1 January 2014)

· IFRS 11, 'Joint arrangements' (effective 1 January 2014)

· IFRS 12, 'Disclosures of interests in other entities' (effective 1 January 2014)

· Amendment to IAS 32, 'Financial instruments: Presentation', on asset and liability offsetting (effective 1 January 2014)

· IAS 27 (revised 2011), 'Separate financial statements' (1 January 2014)

· IAS 28 (revised 2011), 'Associates and joint ventures' (effective 1 January 2014)

· IFRS 9, 'Financial instruments' (effective 1 January 2015)

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

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

Impairment

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

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

The total amount of such impairments, included in the Statement of Comprehensive Income for this year is an impairment charge of nil (2012: €82.6m).

Leased assets

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

Rentals under operating leases are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the lease term. Lease incentives are spread over the total period of the lease.

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

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

Financial instruments

Financial assets and financial liabilities are recognised on the Group's Balance Sheet when the Group becomes a party to the contractual provisions of the instrument. Financial instruments are recorded initially at fair value net of transaction costs if changes in value are not charged directly to the Consolidated Statement of Comprehensive Income. Subsequent measurement depends on the designation of the instrument, as follows:

Amortised cost

· 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 they will continue to be met.

Responsibility for grants connected to the discontinued operation in Bitterfeld has been entirely passed to the new ownership company and the Group has no further liabilities in this regard.

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.

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 and dividend income and gains.

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

Exceptional items

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

Due to the current volatility in the PV industry and any (previously) unusual charges being in keeping with those of other similar companies, the Directors' believe that separate disclosure would not therefore be beneficial.

Defined benefit pension plan

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

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

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

Past service costs are recognised immediately in profit or loss, unless the changes to the pension plan are conditional to the employees remaining in service for a specified period of time (the vesting period).

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 incurred.

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 IFRS2 (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 2009 the Group granted share options to employees. During 2011 awards were granted under the Performance Share Plan to employees. The share options granted are subject to performance criteria required for the option to vest and are considered in the method of measuring fair value. 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.

Return of cash to Shareholders

In December 2013 a Return of Cash was made to all shareholders amounting to €36.3m in cash (7.25 pence per share, equivalent to approximately 8.7 cents per share), by way of a B and C share scheme, which gave shareholders (other than certain overseas subsidiaries) a choice between receiving the cash in the form of income or capital. The Return of Cash was accompanied by a 5 for 13 share consolidation to maintain broad comparability of the share price and return per share of the ordinary shares before and after the creation of the B and C shares.

Shareholders' equity

Shareholders' equity is comprised of the following balances:

· share capital is comprised of 160,278,275 ordinary shares of 5.2 pence each, (following a share consolidation) 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;

· 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;

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

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

2. Other income

3. Cost of material and services

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

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

4. Personnel expenses

Included within pension costs of continuing operations are €nil (2012 €179k) relating to actuarial losses on defined benefit pension obligations.

Employees

The Group employed a monthly average of 112 employees during the year ended 31 December 2013 (2012: 209).

The Group employed 88 employees at 31 December 2013 (31 December 2012: 299).

Of which, relating to discontinued operations, nil at 31 December 2013 (31 December 2012: 98).

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

5. Other expenses

The following amounts were paid / are payable to the Group's auditors:

Other assurance services relate to the restructure of the Group and the shareholder return.

6. Finance income and costs

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

The resulting charge upon unwinding the discount charge on provisions is recorded as a finance cost.

7. Income taxes

The total tax rate for the German companies is 32.275% (2012:31.575 %) in Erfurt and n/a% (2012: 29.125%) in Bitterfeld. The effective total tax rate in the United Kingdom was 23.25% (2012: 24.5%) and the total tax rate in Japan was 39.91 % (2012: 39.91 %). These rates are based on the legal regulations applicable or adopted at the balance sheet date.

The Finance Act 2012, included legislation to reduce the main rate of corporation tax in the UK to 23% with effect from 1 April 2013. The Finance Act 2013, included legislation to further reduce the main rate of corporation tax in the UK to 21% with effect from 1 April 2014 and to 20% with effect from 1 April 2015. As these changes were substantively enacted during the year, they have been reflected in these financial statements.

The German rate will be unchanged in 2014, in Japan it is expected the total rate will fall to 37.11% from 2016 onwards.

The impact of these changes on net deferred tax liabilities at 31 December 2013, profit for the year (underlying and statutory) and comprehensive income for the year has not been significant. The impact of these further 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 weighted average tax rate applicable to the losses of the consolidated entities as follows:

8. Segment reporting

The chief operating decision-maker, who is responsible for allocating resources and assessing performance, has been identified as the executive board. The group is organised around 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 IFRS8 is therefore not made.

Geographical information 2013

* 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. 16,813 (Japan);

2. 14,979 (Rest of World); and

3. 9,575 (Germany).

Geographical information 2012 (restated)

* 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. 17,049 (Japan);and

2. 13,178 (China).

9. Earnings per share

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

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

10. Cash and cash equivalents

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

11. Trade accounts receivable

All receivables have short‑term maturity. During the year, receivables of €133,238 (2012: €771,648 ) were written off.

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 exposure to credit risk at the year end. All amounts outstanding as at 31 December 2013 were received in January 2014.

12. Inventories

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

Inventory writedowns of €0.7 m in 2013 are included in cost of materials (2012 restated: €35.2m).

13. Prepaid expenses and other assets

Prepaid expenses primarily comprise polysilicon feedstock deposits.

14. Current tax assets

Income tax recoverable relates to tax paid at source on interest received (2013) and prior year profits that is expected to be recovered against later year losses (2012).

15. Intangible assets

16. Property, plant and equipment

Assets under construction related to future plant and machinery yet to be bought into production at which point they are reclassified as such.

16. Property, plant and equipment continued

Assets under construction related to future plant and machinery. Capital commitments at 31 December 2012 relating to this amounted to €0.1 million.

17. Other long‑term assets

18. Deferred taxes

Analysis of deferred tax assets and liabilities:

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

As at 31 December 2013 there were unrecognised potential deferred tax assets in respect of losses of €48.1m (2012: €50.6m).

The gross movement on the deferred income tax account is as follows:

The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

19. Loans payable

All current loans are in Japanese Yen.

Security/comfort for the SMBC loans is provided by the Japanese accounts receivable, details of which can be found in note 11. This facility has been reduced upon renewal in line with the lower receivables.

20. Trade accounts payable