PVCS.L Regulatory News (PVCS)

PV Crystalox Solar PLC

Preliminary Results

For the year ended 31 December 2014

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 2014.

Highlights

· Cash conservation strategy continued during 2014

· There were no shipments to long term contract customers

· We have strengthened relationships with new customers in Taiwan and Europe.

· Wafer shipments were in line with production 212MW (2013: 211MW)

Overview of results

· Revenues €53.3m (2013: €71.4m)

· LBT on continuing operations of €(4.7)m (2013: profit of €6.6m)

· Net cash from operating activities on continuing operations €(15.7)m (2013: €4.4m)

· Net Cash €24.6m (2013:€ 39.2m)

· Inventories €28.6m (2013: €13.0m)

Iain Dorrity, Chief Executive Officer commented

"The Group has made steady progress during 2014 in its limited objectives to ramp up production output and consolidate relationships with its newly developed customer base, which is mainly in Taiwan. However the industry environment remains intensely competitive and continues to be disrupted by US-China trade disputes."

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. Whilst the Board remains committed to the solar industry, our future is dependent upon sensible trading conditions returning to the solar marketplace."

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 continue to contribute to 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

The photovoltaic market continues to experience significant growth in global installations, however pressure on pricing and international trade disputes make it very challenging for all manufacturers. As a consequence, PV Crystalox Solar has continued to protect shareholder value by operating in cash conservation mode, with some increase in production, albeit at levels far below our maximum capacity, and with a strong focus on cost control.

In 2014 we maintained wafer shipments at the same level as in 2013, but trading volumes of excess polysilicon were significantly lower than in 2013. As a consequence our revenues of €53.3 million were 25% lower than 2013 and our year end polysilicon inventory was €14.2 million higher. There was a reduction in profitability during 2014 mainly due to the negative impact of revised assumptions in respect of the onerous contract provision which was partly offset by higher levels of other income due to a customer settlement received in 2014. As a result the loss before tax from continuing operations was €4.7 million compared to the €6.6 million profit in 2013. Net cash at the year end was €24.6 million which was €14.6 million lower than the €39.2 million held at the end of 2013.

Our employees are one of the Group's key strengths and are vital in ensuring that we retain our core production capabilities. During 2014 we ramped up production volumes in order to consolidate relationships with our newly developed customer base. This required an increase in our staff numbers from 88 at the end of 2013 to 138 at the end of 2014. Many of these additional employees had previously been employed within the Group but had left following the restructuring in 2011 and 2013. I would like to welcome them back and to thank all our employees for their continuing outstanding commitment and contribution.

I would also like to thank Peter Finnegan, who retired from his role as Chief Financial Officer of the Group on 31 May 2014. The Board expresses its gratitude to Peter for his contribution to the success of the Group and wishes him well for the future. Following Peter Finnegan's departure Matthew Wethey took over the Chief Financial Officer role in addition to his role as Group Secretary.

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. Whilst the Board remains committed to the solar industry, our future is dependent upon sensible trading conditions returning to the solar marketplace. 

John Sleeman

Chairman

18 March 2015

OPERATIONAL AND FINANCIAL REVIEW

Operational review of 2014

The Group has made steady progress during 2014 in its limited objectives to ramp up production output and consolidate relationships with its newly developed customer base, which is mainly in Taiwan. However the industry environment remains intensely competitive and continues to be disrupted by US-China trade disputes. Pricing across the value chain has shown considerable volatility and market conditions have deteriorated markedly since the middle of the year with renewed pressure on pricing. Wafer prices saw a modest recovery in late 2013 and peaked in Q1 2014 but have declined thereafter barring a short lived rally in Q4 to reach levels close to historic lows during Q1 2015. Current wafer prices are 10% below the Q1 2014 peak with premium wafers suffering an even greater fall of close to 20%. In contrast the decline in the pricing of polysilicon, the key raw material, has not been less precipitous and has further squeezed already negative margins.

On a positive note the Group's production and material costs, which are primarily incurred in euro and Japanese yen, have benefited from foreign currency effects during the year and increasingly so in recent months. Both currencies have significantly weakened against the US dollar and accordingly costs in US dollar terms have declined considerably. With wafer market prices denominated in US dollars the reduction in production costs has effectively offset some of the impact of the market price declines. However despite these currency effects our production costs exceed market prices.

The Group not only faces the challenge of aligning production costs with market prices but also has to deal with the shrinking accessible customer base for our wafers following the dramatic shift in global manufacturing during recent years. Most EU manufacturers have declared bankruptcy or shutdown operations and solar cell production in Europe has declined alarmingly. Cell production in Japan which had been historically a major manufacturing centre has been drastically reduced as companies have opted to outsource manufacturing. The Group did not make any shipments in 2014 to Japan which had previously been the major market for the Group and accounted for 34% of wafer volumes as recently as 2013. The PV industry is now dominated by companies in other regions within Asia and by companies in China in particular. It is sobering to note that ten of the 20 leading global crystalline silicon solar cell makers are based in China and seven in Taiwan with China-based makers accounting for 55% of global capacity and 20% by those based in Taiwan. The abundance of local suppliers makes competing in the Chinese market impractical and so the Group's focus is on customers in Taiwan and those survivors in Europe, where the weaker euro is providing a lifeline.

The Group continues to operate in cash conservation mode with reduced output, a strong focus on internal cost reduction and quality improvement programmes. As announced previously in the 2013 Annual Report, production volumes have been increased during 2014 to consolidate links with our new customers. The increased output has enabled wafer shipments (2014:212MW) to be maintained at levels in line with those achieved in the previous year (2013:211MW) when almost half was supplied from inventory. Nevertheless the Group remains cautious and, in view of the unfavourable market pricing no increase in output is anticipated for 2015 and production levels will be restricted to around 30% of our 750MW operating capacity.

In common with most PV companies the Group is burdened by long term contractual commitments for purchase of polysilicon which were made during 2008-2010 when market supply was very restricted. As in previous years the Group has continued to negotiate on a periodic basis with its two polysilicon suppliers to modify pricing and volumes under its long term contracts and has been able to reach accommodation to date. The prices negotiated were significantly below contract prices but were at a premium to market prices. Nevertheless, the agreed polysilicon purchase volumes during the year still significantly exceeded the Group's production requirements. During H1 2014 the Group was successful in trading excess polysilicon at market prices in order to manage inventory. However, as result of market oversupply and changes in Chinese import regulations, trading became much more difficult from the second half of the year onwards and polysilicon inventory has risen accordingly.

The Group's larger polysilicon contract is due to expire at the end of 2015. In the case of the other contract an amendment was formally concluded during 2014 to secure fixed prices significantly below the original contract levels and to reschedule volumes over an extended period.

During 2007 and 2008, Group companies entered into a number of long-term agreements with customers to supply wafers at prices which are very considerably above current market levels. Three wafer supply contracts remained at the start of 2014 although in two cases, customers have entered insolvency and shipments stopped in 2011 and 2012 respectively. Claims had been registered with the respective administrators and a settlement was finally agreed in one case whereby the Group received a cash payment of €8.7million in August 2014. A settlement with the other customer in insolvency is expected before the end of 2015, although the magnitude of any cash payment is expected to be significantly lower.

The final remaining long-term contract customer is one of the world's leading PV companies which has failed to purchase wafers in line with its contractual obligations. Despite negotiations over the last two years we have been unable to reach an agreement on pricing which would enable us to resume the supply of wafers. Due to the absence of any substantive progress it has become necessary to seek resolution through arbitration and a request has been filed recently with the International Court of Arbitration of the International Chamber of Commerce (ICC) in Paris. 

Financial review

Despite wafer sales volumes being in line with the prior year, Group revenue in 2014 decreased by 25.4% to €53.3 million (2013: €71.4 million). This was mainly due to a significant reduction in the level of trading of surplus polysilicon feedstock, with the result that raw material inventories increased by €14.2 million during the year. In addition the average selling price of and the margins achieved for wafers were significantly lower following the ending of sales to contract customers in 2013, when 34% of shipment volumes were sold at a premium to spot prices.

During 2014 the Group recognised other income of €12.1 million which was €9.4 million higher than in 2013. The main reason for this increase was receipt in H2 2014 of a settlement with the administrator of one of the long-term contract customers in insolvency.

The income statement was impacted by negative changes to the onerous contract provision ("OCP") which resulted in an additional charge being recorded in the year. Due to IFRS requirements changes to the OCP impact costs of materials and services, currency gain and finance cost. Details of the onerous contract provision are discussed later in this review.

Within personnel costs, gross wages and salaries at €5.8 million were 12% higher than in 2013. This increase in gross wages and salaries was mainly due to a 9% increase in the number of Group employees, following the increase in production volumes, and a cost of living pay increase which was awarded from 1 January 2014.

The Group's annual depreciation charge in 2014 was a modest €0.3 million. It should be noted that the Group's plant and equipment, which was largely written down between 2011 and 2013, 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.

Net interest expense was €2.3 million (2013: €3.9 million) mainly due to the unwinding of the discount rate used in the calculation of the Group's OCP.

As a result the Group generated a loss before taxes of €4.7 million (2013: profit of €6.6 million).

When looking at the amounts attributable to equity holders, the €4.7 million loss in 2014 equated to a loss per share of €0.03. In 2013 the profit of €6.2 million on continuing operations was offset by losses of €2.6 million on discontinued operations to give an overall profit in the year of €3.6 million, which resulted in earnings per share of €0.01.

The Group's cash position at year end of €24.6 million was €14.6 million lower than the net position of €39.2 million at the start of the year. €15.7 million of this was from net cash out flows on operating activities. This was partially offset by positive foreign exchange rate changes on cash of €1.3 million. It should be noted that, whilst net cash flows on operating activities included inflows of €0.9 million due to working capital changes, inventories increased from €13.0 million to €28.6 million during 2014.

Onerous contract provision ("OCP")

In common with many PV companies, the Group has long-term contractual commitments for the purchase of polysilicon. In the Group's case there are two external supply contracts. These contracts were made to secure the supply of raw material necessary to service the Group's long-term wafer supply contracts. 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 these contracts have become onerous so the Board provides for the present value of the amount at which the Group expects to purchase polysilicon less the amount at which the Group expects to be able to sell polysilicon or wafers taking into account associated manufacturing costs.

The OCP unwinds from period to period as the related contracts move towards expiry and is periodically recalculated to reflect changes in the underlying assumptions. During 2014 the reduction in the onerous contract provision was €11.0 million (2013: €25.5 million). This reduction in the provision was driven by a number of factors. These include:

· €12.6million of utilisation being approximately half of the prior year provision, reflecting the fact that the majority of the prior year provision was in respect of the contract ending on 31 December 2015 and the volumes that remain to be taken have halved with only a year of the contract remaining at 31 December 2014.

· There have also been significant foreign exchange gains made against the Euro and the Yen when comparing to the USD selling price, meaning the contract prices have become more favourable to the Group. This reduced the provision by a further €8.9m.

· These gains were offset by €9.7m of additional provision required as a result of movements in pricing assumptions where it has been seen over the past six months that the polysilicon sales price the Group has achieved no longer reflects the spot price. As such whilst quarterly negotiations have resulted in a 'predictable' purchase price (in that movements have broadly reflected spot movements), the price at which polysilicon can be sold has reduced resulting in an increased loss and therefore an increase in the provision.

· The remainder of the movement is a €2.4m increase due to the unwinding of the discount rate and €1.6m of release due to taking lower volumes than expected.

In determining the closing level of provision required in the current year, assumptions are made as to how the polysilicon is expected to be used and subsequently to calculate the losses that will be generated from that use. In 2013 the Group strategy changed to both produce wafers for sale, subject to demand, and to trade excess polysilicon as opposed to trading all future purchases of polysilicon. This strategy operated in 2014, however the price at which the excess polysilicon could be traded and the value it has in production of wafers have converged to mean there is now no difference in margin whether it is traded or used in manufacture. Accordingly the decision to either trade polysilicon or manufacture wafers has no impact on the OCP.

Going concern

The Group's directors continue to operate its cash conservation strategy to enable the Group to manage its operations whilst market conditions remain difficult.

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 wafer and polysilicon sales volumes and prices and contracted polysilicon purchase volumes and prices are based on management's expectations which are consistent with the Group's experience in 2014 and in the first part of 2015.

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 and a positive cash position the Group will continue to sell surplus polysilicon during 2015.

The nature of the Group's operation means that it can vary production levels to match market requirements and to balance the requirements of the Group's customers. During Q1 2014 the Group doubled production output compared to 2013. This was as a result of wafer production cost reductions and to consolidate existing customer relationships and to develop new ones. The Group maintained production at that level during 2014 and this has continued in Q1 2015. These customers were based in Taiwan and the two largest Taiwanese customers accounted for 61% of Group revenue in 2014.

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 2014 the balance of cash or cash equivalents was €24.6 million.

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.

Outlook

Double digit growth in global PV installations is again forecasted for 2015 but there is little expectation in the short term of any relief of the pricing pressure that has been experienced in recent months. This challenging market and the irrational behaviour of participants is expected to endure during the year and so the Board does not expect any return to profitability for the underlying business during 2015. The Board continues to view positively the growth prospects for the PV industry but is also mindful of the need to protect shareholder value. Accordingly it will be imperative during the forthcoming period to establish definitively whether the Group can achieve a cost structure which is compatible with market pricing.

Iain DorrityChief Executive Officer18 March 2015

Consolidated statement of comprehensive income

for the year ended 31 December 2014

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

Consolidated balance sheet

as at 31 December 2014

The accompanying notes form an integral part of these statements.

The financial statements were approved by the Board of directors on 18 March 2015 and signed on its behalf by:

Iain Dorrity Company numberChief Executive Officer 06019466

Consolidated statement of changes in equity

for the year ended 31 December 2014

Consolidated cash flow statement

for the year ended 31 December 2014

Consolidated cash flow statement (continued)

for the year ended 31 December 2014

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

Notes to the consolidated financial statements

for the year ended 31 December 2014

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 2014 were approved by the Board of directors on 18 March 2015.

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.

1. Group accounting policies (continued)

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 €15.5million (2013: €26.5 million) 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 2015.

1. Group accounting policies (continued)

Basis of consolidation

The Group financial statements consolidate those of the Group and its subsidiary undertakings drawn up to 31 December 2014. 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 2014 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 2015.

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 currently remains 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.

 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 2014 there was a net cash balance of €24.6 million, including funds held by an employee benefit trust.

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.

1. Group accounting policies (continued)

Effects of new accounting pronouncements

Accounting standards, IFRICS and other guidance in effect or applied for the first time in 2014

· IFRS 10, 'Consolidated financial statements'

· IFRS 11, 'Join arrangements'

· IFRS 12, 'Disclosures of interests in other entities'

· Amendments to IFRS 10, 11 & 12 on transition guidance

· IAS27, 'Separate financial statements'

· IAS28, 'Associates and joint ventures'

· Amendments to IFRS 10, 12 & IAS27 on consolidation for investment entities

· Amendments to IAS32 on Financial instruments asset and liability offsetting

· Amendment to IAS36, 'Impairment of asset' on recoverable amount disclosures

· Amendment to IAS39, 'Financial instruments: Recognition and measurement' on novation of derivatives and hedge accounting.

· IFRIC 21, 'Levies'

The above have 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.

· Amendment to IAS19 regarding defined benefit plans

· Annual improvements 2012, Annual improvements 2013 & Annual improvements 2014

· Amendment to IFRS11, 'Joint arrangements'

· Amendment to IAS16, 'Property, plant & equipment' & IAS38, 'Intangible Assets'

· Amendments to IAS16, 'Property, plant and equipment'

· IFRS 14, 'Regulatory deferral accounts'

· Amendments to IFRS10, 'Consolidated financial statements' & IAS28, 'Investments in associates and join ventures'

· IFRS15, 'Revenue from contracts with customers'

· IFRS9, 'Financial instruments'

· Amendments to IFRS9, 'Financial instruments', regarding general hedge accouting

1. Group accounting policies (continued)

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 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.

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.

1. Group accounting policies (continued)

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.

1. Group accounting policies (continued)

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.

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.

1. Group accounting policies (continued)

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 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.

1. Group accounting policies (continued)

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

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

2. Other income

Customer compensations relate to settlements with two of the Group's previous contract wafer customers.

Supplier compensation in 2014 relates to a release of a provision for a previously cancelled supply contract.

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 of continuing operations is €nil (2013: €nil) relating to actuarial losses on defined benefit pension obligations.

Employees

The Group employed a monthly average of 122 employees during the year ended 31 December 2014 (2013: 153).

The Group employed 138 employees at 31 December 2014 (31 December 2013: 88).

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

5. Other expenses

Amounts 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% (2013: 32.275%). The effective total tax rate in the United Kingdom was 21.5% (2013: 23.25%) and the total tax rate in Japan was 39.91% (2013: 39.91%). These rates are based on the legal regulations applicable or adopted at the balance sheet date.

The Finance Act 2013 included legislation to further reduce the main rate of corporation tax in the UK to 20% with effect from 1 April 2015. The German rate will be unchanged in 2015 and 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 2014, 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 IFRS 8 is therefore not made.

Geographical information 2014

* 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. 22,154 (Taiwan);2. 10,509(Taiwan); and3. 6,289 (Rest of Europe).

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); and3. 9,575 (Germany).

9. Earnings per share

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

As the Group is currently loss making, the diluted loss per share is equal to the basic loss per share.

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 no receivables were written off (2013: €133,238).

None 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 2014 were received in the first two months of 2015.

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".

No Inventory writedowns are included in cost of materials in 2014 (2013: €0.7 million).

13. Prepaid expenses and other assets

Prepaid expenses primarily comprise polysilicon feedstock deposits.

14. Current tax assets

Income tax recoverable relates to reclaimable capital gains tax on interest received.

15. Intangible assets

Intangible assets relate to software licenses.

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.

17. Other non-current 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 2014 there were unrecognised potential deferred tax assets in respect of losses of €49.5 million (2013: €48.1 million).

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

19. Loans payable

Previous loans were in Japanese Yen at a rate of 0.95%.

20. Trade accounts payable

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

21. Accrued expenses

22. Provisions

Movement in provisions is shown below:

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

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

23. Deferred grants and subsidies

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

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

24. Current tax liabilities

Current tax liabilities comprise both corporation and other non-VAT tax liabilities, calculated or estimated by the Group companies, as well as corresponding taxes payable abroad due to local tax laws, including probable amounts arising on completed or current tax audits.

25. Other current liabilities

26. Deferred revenue

Where appropriate the Group enters into long-term contracts with its customers and may request payment deposits from them ahead of the supply of goods. At 31 December 2014, such deposits amounted to €3.2 million from one customer (2013: €3.3 million from two customers).

27. Pension surplus/benefit

The obligation relates to fixed post-retirement payments for one former employee and one former employee's surviving spouse granted in 2005. The plan has been fully funded by insurance contracts held and paid in by the Group. In case of insolvency the benefits have been ceded to the beneficiaries directly. The scheme is not significant to the Group. Movements to the surplus/benefit are included within pension costs on the Consolidated statement of comprehensive income.

28. Share capital

Ordinary shares of 5.2 pence each (2013: 5.2 pence)

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.

B Shares at 7.25 pence each

On 27 November 2013, 288,216,112 B shares were issued at 7.25 pence each, resulting in a total of €25.096 million (£20.896 million) being credited to the B share capital account in "other reserves". On 4 December 2013, 288,216,112 B shares were redeemed at 7.25 pence each and an amount of €25.096 million (£20.896 million) was deducted from the B share capital account in "other reserves".

C Shares/deferred shares at 0.0000001 pence each

On 27 November 2013, 128,509,223 C shares were issued at 0.0000001 pence each, resulting in a total of €0.16 being credited to the C share capital account. On 11 December 2013, these shares paid a dividend of 7.25 pence each totalling €11.189 million (£9.317 million) and were immediately reclassified as deferred shares of 0.0000001 pence each. The deferred shares remain outstanding at the year end.

At a Board meeting on 18 March 2014 the Board agreed to purchase the deferred shares with a nominal value of €0.16 and to cancel them in accordance with the Companies Act 2006.

Shares held by the EBT

At 31 December 2014, 3,853,910 ordinary shares of 5.2 pence were held by the EBT (2013: 4,100,326 ordinary shares of 5.2 pence). The market value of these shares was €640k (2013: €712k). Additionally, the EBT holds cash including the received cash in December 2013 following its election for B shares in the return of cash to shareholders. The cash balance held by the EBT on 31 December 2014 was €1,015k (2013: €946k).

In December 2014 the Directors agreed to write down the value of the shares held by the EBT to the market value at 31 December 2014. The share price was 13p per ordinary share of 5.2 pence each. This adjustment alters the value of the shares held by the EBT and reduces retained earnings by €6,868k.

29. Share-based payment plans

In December 2013 a return of cash was made to all and was accompanied by a 5 for 13 share consolidation to maintain broad comparability of the share price. As a result the Board has agreed not to alter outstanding awards as a result of the share consolidation. Thus outstanding awards which were previously based on ordinary shares of 2 pence each are now the same number of ordinary shares of 5.2 pence each.

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.

The Group currently has four 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 2014 (2013: nil).

On 26 May 2011 awards over up to 3,038,454 ordinary shares were granted to key senior employees including the three executive directors on the Board at that time. These awards were subject to achieving growth in both total shareholder return and earnings per share in the performance period ending on 31 December 2013. In view of the failure to achieve the minimum required performance as described in the Remuneration Report these awards lapsed.

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.

No awards were made during 2014 (2013: nil). On 24 March 2011 awards over 358,423 shares were made to executive directors. As detailed in the Directors' Remuneration Report the award over the remaining 246,416 shares vested in May 2014.

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. To date Performance Share Awards and Market Value Options have been granted.

Performance Share Award ("PSA")

A PSA is a conditional award of a specified number of ordinary shares which may be acquired for nil consideration. The PSAs granted to date have all been initial awards where there is no specified performance condition. The vesting period of each award is three years from the date of grant.

No awards were issued in 2014 (2013: nil). No awards are outstanding under this scheme.

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 an 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 pence per share subject to an 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.

No awards were issued in 2014 (2013: 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 30 January 2014 SABP awards were granted key senior employees over 2,550,000 shares. These awards are due to vest on 31 March 2015.

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 UK 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 2014 awards over 4,608 shares vested due to employees leaving the Group as good leavers due to redundancy or retirement.

The Group recognised a total credit before tax of €181,000 (2013: €103,000) 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:

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

No share options were exercised during the year and no options were exercised in 2013.

30. Risk management

The main risks arising from the Group's financial instruments are credit risk, exchange rate fluctuation risks, interest rate risk, liquidity risk and commodity price 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. 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 2014 41.5% of the Group's sales are related to the largest customer (2013: 23.5%). The number of customers accounting for approximately 95% of the annual revenue was seven, which was down from twelve in 2012. 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 maximum credit risk to the Group is the total of accounts receivable, details of which can be seen in note 11.

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 Ba3.

Exchange rate fluctuation risks

In the financial year 2014, 93% 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, Euros and Japanese Yen) and also purchases goods and services in a number of currencies (mainly Euros, Japanese Yen, 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 (93%) and Euros (7%). It operates its wafering factory within the Euro zone and pays for the sub-contracting of wafer production in Japan in Japanese Yen. However, the ingot manufacturing operation is 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 Euros and Japanese Yen).

During 2014 the net gain on foreign currency adjustments was €9.0 million (2013: gain of €3.1 million). This gain was mainly related to the revaluation of balance sheet provisions (in particular the onerous contract provision, the conversion of currency balances in respect of Group advances or loans, currency debtor/creditor balances, currency advance payments to raw material suppliers and currency cash balances. These can be broken down into the following broad categories:

In addition to the above, upon translation of net assets in the consolidation, there was a positive impact in 2014 of €2.5 million (2013: negative €5.0 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. The Group has borrowing facilities in Japan which are available to be drawn. These borrowing facilities when drawn are subject to variable interest rates. All variable interest rate loans are of a short-term nature with a maturity of less than twelve months. The Group had no borrowings at the end of 2014 but did have borrowings in Japanese Yen of €0.7 million at the end of 2013. Accordingly, there is technically a downside risk that Japanese Yen interest rates may increase substantially from the current relatively low levels, although the current lack of borrowings means that this risk equates to an insignificant amount.

On 31 December 2014 there were no Group borrowings in Japanese Yen (2013: €0.7 million at an interest rate of approximately 0.95%. For each 1% rise in the Japanese Yen interest rates Group interest costs would remain unchanged but based on the 2013 borrowing levels would increase by €7,000..

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

The Group had a cash balance at the end of 2014 of €24.6 million (2013: €39.9 million) and places these cash funds on deposit with various quality banks subject to a counter party 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 (2013: €0.8 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. The next phase of the Cash Conservation Plan covers the period until 31 December 2015. 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 2014 the Group had a net cash balance of €24.6 million (2013: €39.2 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.

The Group also regularly monitors its compliance with its debt covenants. During the financial year, all covenants have been complied with. The Group has borrowing facilities in Japanese Yen which are available to be drawn.

Commodity price risk

The main raw material used in the production of multicrystalline silicon wafers is polysilicon feedstock which the Group obtains through two long term contracts, There is a commodity price risk that an increase in the market price of the polysilicon will adversely affect the cost of producing wafers. The Group has historically managed this risk by having long term contracts with polysilicon producers which guarantee both the supply of polysilicon and price of that polysilicon.

At present the pricing in the contracts is significantly above current market levels. The Group manages this by obtaining flexibility in terms of price, volume and timing of deliveries by negotiating amendments to the terms of our long-term contracts with our suppliers. Where we have excess polysilicon we look to trade the excess volumes.

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.

31. 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.

32. 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.

33. Other financial obligations

Lease agreements (operating leases)

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

The group also leases buildings under cancellable operating lease arrangements. The group is required to give a six-month notice for the termination of these agreements. The lease expenditure charged to the income statement during the year is disclosed in note 5.

There were no significant purchase commitments at the year end.

34. Related party disclosures

Related parties as defined by IAS24 comprise the senior executives of the Group 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.

As part of a settlement with the administrators of a previous customer, Iain Dorrity is 1 of 3 directors of a subsequently formed SPV.

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.

35. Dividends and return of cash

In December 2013 a return of cash was made to all shareholders of 7.25 pence 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. The return of cash was approved by shareholders on 19 November 2013.

No other dividends were paid in 2014 (2013: £nil).

36. Discontinued operations

Analysis of the result of discontinued operations and the result recognised on the remeasurement of assets is as follows:

Cash flows relating to the discontinued operations were as follows:

37. Post balance sheet events

There are no significant post balance sheet events.