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, the majority
of deferred tax assets have been expensed in the year's income
statement.
Deferred tax assets at 31 December 2012 totalled EUR0.2m (2011:
EUR19.3m) (see note 18).
Use of estimates - provisions - onerous contract provisions
In keeping with normal practice in the industry at the time, the
Group entered into long-term supply contracts for its raw material,
polysilicon, with two major suppliers. Given the 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
EUR52.0m (2011: EUR17.9m) 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
2013.
Basis of consolidation
The Group financial statements consolidate those of the Group
and its subsidiary undertakings drawn up to 31 December 2012.
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 EUR43,400
are related to non--redeemable preferred stock, subject to a
guaranteed annual dividend payment of EUR2,000. 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
decline in spot prices of wafers during 2012 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
2013.
The Group has three remaining long-term wafer supply contracts
and accordingly these should give the ability to sell wafers at
prices that are above current market spot prices during 2013
despite the difficult market environment. Wafer sales to customers
without long-term contracts are assumed in the longer term plans at
values close to spot prices.
On the other hand, the Group has long-term contracts with two
external suppliers for purchase of polysilicon, our main raw
material, for unexpired periods of between two and three years and
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 will sell excess
polysilicon and has been successful in this respect during 2012 and
the first quarter of 2013.
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.
Following the fall in employment costs in 2012 resulting from
the reduction in contract labour in Germany and redundancies in the
United Kingdom, further cost savings will be obtained in 2013 as a
result of the announced Group restructuring. The Group expects to
reduce other costs through negotiation with suppliers and by
achieving greater efficiencies within the Group's operations.
As a result of these 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 2012 there was a net cash balance of EUR89.4
million, comprising cash or cash equivalents of EUR94.7 million and
short--term loans of EUR5.3 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
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
2012
-- Amendment to IFRS 7, Financial instruments: Transfers of
financial assets (effective 1 July 2011)
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.
-- 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)
-- 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.
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