Phoenix Solar at a glance Group structure Letter to our shareholders Phoenix SonnenAktie... 06

Transcription

1 INTERIM MANAGEMENT REPORT JANUARY TO SEPTEMBER 2014

2 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 ContentS 02 CONTENTS TO OUR SHAREHOLDERS Phoenix Solar at a glance Group structure Letter to our shareholders Phoenix SonnenAktie INTERIM MANAGEMENT REPORT 1 Events and results in the first nine months of the year Background information on the group General conditions Net assets, financial position and result of operations Guidance, opportunity and risk report CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED INCOME STATEMENT from continuing operations CONSOLIDATED BALANCE SHEET CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED CASH FLOW STATEMENT SELECTED EXPLANATORY NOTES A. General information B. Accounting, valuation and consolidation methods C. Selected notes to the consolidated income statement D. Selected notes to the consolidated balance sheet E. Seasonal factors F. Segment report Affirmation by the legally authorised representatives FURTHER INFORMATION Financial calendar Editorials and contact... 51

3 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 PHOENIX SOLAR AT A GLANCE 03 PHOENIX SOLAR AT A GLANCE Financial Figures Revenues and results Shipments MWp Revenues (Consolidated) k Revenues 4 k Domestic k International k Overall performance k EBIT (Consolidated) k In % of revenues (EBIT margin) % EBIT 4 k in % of revenues (EBIT margin) % Consolidated net income for the period k from continuing operations from discontinued operations Orders on hand 1 k 01/01/ /09/ ,60 19,539 15, ,723 15,890 5, , ,257 11, ,033 01/01/ /09/ ,66 116, ,003 13,684 98, ,003 1, , ,278 7,323 1,045 69,083 Change 85.1 % 83.2 % 85.8 % 98.8 % 84.0 % 85.8 % % 27.6 PP % 40.0 PP 63.4 % 51.2 % 21.7 % 40.6 % Balance sheet 1 Total assets k Equity k Equity ratio % Return on equity % 30/09/14 50,498 2, /12/13 67,758 7, % % 15.0 PP PP Phoenix SonnenAktie 1 No-par bearer shares Units Closing price 7,372, ,372, % 42.1 % Market capitalisation k Earnings per share Basic from continuing operations from discontinued operations Diluted from continuing operations from discontinued operations 15, , % Employees 1 Employees from continuing operations 2 Heads Employees from discontinued operations 2 Heads Employees from continuing operations 3 FTE Employees from discontinued operations 3 FTE Revenues per capita 3 k % 23.5 % 28.9 % 21.7 % 80.0 % 1 At the end of the period (balance sheet data as of 30/09/2014 and 31/12/2013, respectively) 2 Number of employees as of 30/09/ including part-time and temporary staff 3 Full-time equivalent, average of the period 01/01/-30/09/ 4 All figures are based on continuing operations Eventual rounding differences in the tables are due to arithmetic reasons.

4 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 Group structure 04 GROUP STRUCTURE Locations and holdings as per 30/09/2014 SUBSIDIARIES 100 % Phoenix Solar S.L. Madrid, Spain 100 % Phoenix Solar E.P.E. Athen, Greece 100 % Phoenix Solar SAS Lyon, France 100 % Phoenix Solar America GmbH Sulzemoos, Germany 100 % Phoenix Solar Inc San Ramon, USA Phoenix Solar AG Sulzemoos, Germany 75 % 75 % Phoenix Solar Pte Ltd Singapore Phoenix Solar Sdn Bhd Kuala Lumpur, Malaysia 70 % Phoenix Solar L.L.C. Muscat, Oman 100 % Phoenix Solar Fonds Verwaltung GmbH Sulzemoos, Germany OTHER HOLDINGS 100 % 12 special purpose entities (see Notes A.) 31.2 % Phoenix SonnenFonds GmbH & Co. KG B1 Sulzemoos, Germany

5 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 LETTER TO OUR SHAREHOLDERS 05 LETTER TO OUR SHAREHOLDERS Dear Shareholders, This is the eighth time that I write to you to explain the situation and prospects of our company Phoenix Solar AG. At the same time, I now use this letter as a medium to say my farewells. Two days ago, I informed the company that I will not be renewing my contract which expires on 31 December You will rightly be asking why let me start by quickly reviewing the three years in which I was honoured to help steer Phoenix Solar AG through the most difficult crisis of its history and of the whole solar sector. When, at the end of 2011, the Supervisory Board appointed me to the Executive Board, we no longer had any secure financing. If we had failed back then in our endeavours to convince our banks of our restructuring concept that was drawn up with pressing urgency, Phoenix Solar AG would have been faced with the end. It had become patently evident that the changed market situation, compounded by political headwind, necessitated a radical rethinking of our business. You may recall that since then we have completely withdrawn, step by step, from the German market, focused our business largely on the growth regions of Asia and the USA, while realigning our German headquarters at the same time to assume a pure holding function for our operational subsidiaries across the world. The whole process was painful and complex. It was nonetheless a process that your company will ultimately bring to a successful conclusion. After all, whereas, all around us, a raft of leading companies in the German solar industry had to throw in the towel, Phoenix Solar has prevailed and has worked hard to develop its prospects for the coming years. Although the revenue trend of the current year is anything but pleasing we had counted on winning larger orders at a much earlier date order intake has finally begun to go in the right direction since the end of the third quarter, which has given us a great deal more confidence for We have on several occasions emphasised that turning international sales into a success story is what is important for the future of Phoenix Solar. Sales needs to generate a sustainable pipeline of projects commissioned which also enable planning and forecasting across the board. Fulfilling this task has cost our subsidiaries more time and effort in 2014 than originally anticipated finding the right people to build up sales teams independent of and alongside our team of engineers was no simple matter, especially in the USA. In the face of adversity, we have made a great deal of progress here. We are now receiving the first orders for 2015 which may reach the volume planned for The available order book exceeded the EUR 40 million mark on 30 September. This is a basis which can be built on. Once again, we have seen that this development has been understood by banks which are behind it. The fact that our (slightly modified) financing has been extended to 30 September 2016 is another indication that Phoenix Solar is on the threshold of a new phase. Three years ago I signed on as a restructuring expert and navigator through stormy seas. My work is now largely complete. Other specialists are needed for the long-term task of building up a powerful international group of photovoltaic companies. The foundations have been laid, the ship (the metaphor I used for the company at the Annual General Meeting of Shareholders) has been considerably downsized for the new tasks, but it is now shipshape with a highly motivated team on board. Thus armed for the future, Phoenix Solar can continue to fully live up its motto of: Making energy together! Kind regards, Dr. Bernd Köhler (Chief Executive Officer)

6 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 PHOENIX SONNENAKTIE 6 PHOENIX SONNENAKTIE STOCK MARKET ENVIRONMET At the start of the year the uptrend on most international stock markets initially faltered. The US Federal Reserve s announcement of gradually tightening its relaxed monetary policy in future, as well as the flareup of the crisis in Ukraine and its possible global impact both played an equal role in the generally reticent sentiment of capital market participants. By contrast, the second quarter saw a strong uptrend, despite tension in the Middle East, with the DAX as Germany s leading index setting a new record of more than 10,000 points. In the third quarter, however, there were signs of a significant correction which appeared to firm up in October. Growing concern about the economy, caused among other things by the bilateral sanctions between Russia and the European Union, the incursions of Islamic State in Iraq and Syria, and the clash between the government and demonstrators in Hong Kong fuelled uncertainty and triggered price declines across the board. Germany s leading index unable to decouple. Following its new record high, the DAX declined rapidly again, testing the support level of 9,000 points at the start of August. Having rallied to around 9,800 points, it was affected by concerns about Germany s lacklustre economy and the international environment. The DAX closed at 9,474 points on 30 September and then slumped to below 8,800 points in the first half of October, a trend which was essentially mirrored by both the MDAX and the SDAX. Having peaked at 1,337 points on 19 June, the TecDAX re-attained this level at the start of July, and then suffered another downturn. It closed the quarter at 1,249 points and subsequently continued its downtrend in October, similar to the other indices. By mid-month, the TecDAX had also shed all its gains since the start of the year. The industry s Photovoltaik Global 30 index displayed great volatility in the first nine months of the current year. After opening the year at EUR 30.48, it climbed to EUR at the start of March, which marks its highest level for thirty months. Thereafter the index rapidly shed its price gains and, following its lowest levels of EUR 29 and 28, peaked again at EUR 35 in mid-june and EUR 34 at the start of September, finally closing at EUR on 30 September. The strong price corrections in mid-october then pushed the index down to its lowest level for the year of EUR on 14 October. SHARE PRICE PERFORMANCE By the end of the first six months of the current year, the Phoenix SonnenAktie had already shed some of the gains generated in the second half of Profit taking, on the one hand, and disappointment in the wake of our profit warning released on 6 August owing to the lack of major orders, on the other, caused a number of investors to sell their shares in the third quarter as well. The reform of the German Renewable Energies Act (EEG) under which the German government defined tight caps for photovoltaic installation, coupled with the reports of a number of companies on difficulties, fanned the doubts of many investors about the prospects of German solar companies overall. Starting from its closing price in the stock market year 2013 of EUR 4.70, the Phoenix SonnenAktie (share of Phoenix Solar AG) rapidly reached its highest level for the year so far of EUR 5.77 at the beginning of Towards the end of the first quarter, however, it came under considerable pressure when a shareholder quickly liquidated larger holdings. It lost 22.2 percent of its value on 24 March, and emerged from trading at EUR 3.39 at the end of the quarter. Having moved sideways within a corridor between EUR 2.80 and EUR 3.20 since the end of May, the share came under renewed pressure in July and, one and a half weeks after the profit warning on 6 August, fell to its lowest level for the year of EUR 1.51.

7 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 PHOENIX SONNENAKTIE 07 Only upon the announcement of a major order in the USA at the end of September did the share price recover somewhat, closing at EUR 2.12 on 30 September. After the end of the quarter, the Phoenix SonnenAktie was also affected by the partly strong price correction on the capital market overall. On the date this report went to print, namely 31 October 2014, the Phoenix SonnenAktie stood at EUR Aside from the stock market development in general and the solar sector in particular, the future share price performance will largely depend on the news released by Phoenix Solar AG. Price performance of the Phoenix SonnenAktie versus TecDAX (01/01/ 30/09/2014) % /12/ /01/ /02/ /03/ /03/ /04/ /05/ /06/ /06/ /07/ /07/ /07/ /08/ /08/ /08/ /09/ /09/2014 Highest Price (07/01/2014): 5.77 Lowest Price (06/08/2014): 1.51 Phoenix SonnenAktie TecDAX The market capitalisation of Phoenix Solar AG stood at EUR 15.6 million on 30 September 2014 (31 December 2013: EUR 34.7 million). In terms of its trading volume (XETRA), the share s daily turnover averaged 40,000 units in the first six months of the financial year SHAREHOLDER STRUCTURE According to the definition of Deutsche Börse AG, 100 percent of the shares of Phoenix Solar AG are in free float. INVESTOR RELATIONS The sixteenth regular Annual General Meeting of the shareholders of Phoenix Solar AG took place on 28 May All motions were approved by a large majority. The Chief Executive Officer discussed the status and prospects of the company with investors at road shows in Frankfurt in January and March. The results of the first and second quarter of 2014 were presented and discussed in May and August respectively, both by way of a telephone conference.

8 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 PHOENIX SONNENAKTIE 08 Key data 2013 Jan-Mar 2014 Jan-Jun 2014 Jan-Sep 2014 Jan-Sep 2013 Number of shares outstanding 1 No. 7,372,700 7,372,700 7,372,700 7,372,700 7,372,700 Market capitalisation 1 34,651,690 31,702,610 22,784,613 15,637,497 27,020,946 Closing price (XETRA) Highest price (since 01/01/2012) Lowest price (since 01/01/2012) Trading volume (XETRA) 4 No. 7,296,914 4,122,549 5,752,174 7,604,138 6,782,856 37,047,264 18,114,167 23,478,861 27,352,031 14,093,564 Earnings per share 4 1,45 2 0,49 2 0, ,01 2 1,45 3 0,49 3 0, , At the end of the period 2 Basic earnings per share 3 Diluted earnings per share 4 Accumulated through to the reporting date of the reporting quarter Share fact sheet International Securities Identification Number (ISIN) DE000A0BVU93 Securities ID No. (WKN) A0BVU9 Symbol PS4 Class of shares No-bar bearer shares No. of shares outstanding as of 30/09/2014 7,372,700 Share capital as of 30/09/2014 EUR 7,372,700 Transparency level Prime Standard Market segment Regulated Market Stock exchanges XETRA, Frankfurt am Main (Prime Standard), Munich (M:access), Stuttgart, Berlin, Düsseldorf, Hamburg, Hanover Sector/sub sector Industrial Products & Services/Renewable Energies Indexes CDAX, Prime All Share, Technology All Share, various sector and sub sector indices of Deutsche Börse AG Financial year closing date 31 December Accounting standards IFRS Initial date of stock exchange listing 18/11/2004 Designated Sponsor Close Brothers Seydler AG

9 Interim MANAGEMENT Report ON THE IFRS FINANCIAL STATEMENTS FOR THE REPORTING PERIOD FROM 1 JANUARY TO 30 SEPTEMBER 2014 OF PHOENIX SOLAR AKTIENGESELLSCHAFT, SULZEMOOS 1 Events and results in the first nine months of the year Background information on the group General conditions Net assets, financial position and result of operations Guidance, opportunity and risk report... 23

10 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 INTERIM MANAGEMENT REPORT 10 1 EVENTS AND RESULTS IN THE FIRST NINE MONTHS OF THE YEAR In the first nine months of 2014, Phoenix Solar AG generated consolidated revenues from continuing operations of EUR 15.9 million, 85.8 percent lower than during the first nine months of the 2013 financial year (Q1-Q3/2013: EUR million). The first nine months of 2013 still included revenue from the now relinquished project and trading business in Germany, as well as to a considerable extent from large-scale projects in Thailand and the USA. Compared with the reporting for the prior-year period and the reports on the financial year to date, the revenues and earnings from the Operation & Maintenance activities in Germany, which have now been sold, are no longer included. Including these activities, revenue would have stood at EUR 19.5 million, an 83.2 percent decline compared with the EUR million reported in the first nine months of the previous year. The result before interest and taxes (EBIT) also worsened. At EUR million, EBIT was EUR 3.7 million below that for the first nine months of the 2013 financial year (EBIT Q1-Q3/2013: EUR million). The result for the first nine months of 2013 included EUR 1.9 million of provisions for severance payments in connection with the strategic reorientation, and the third quarter 2014 included EUR 0.5 million of provisions for severance payments. The consolidated net result for the period, excluding discontinued operations, that is attributable to the shareholders stood at EUR million (Q1-Q2/2013: EUR million). The loss per share increased to EUR 1.51 (Q1-Q3/2013: EUR 1.15). In the third quarter of the 2014 financial year, Phoenix Solar AG generated consolidated revenue of EUR 6.1 million (Q3/2013: EUR 46.7 million), reflecting a EUR 40.6 million decline, or 86.8 percent. The result before interest and taxes (EBIT) also reduced by EUR 5.1 million to EUR million (Q3/2013: EUR million). The consolidated net result for the period attributable to the parent company shareholders stood at EUR million (Q3/2013: EUR 0.2 million). The result per share was EUR in the third quarter (Q3/2013: EUR 0.02). Since taking up office as a new Executive Board member on 1 January 2014, Olaf Laber has been responsible for New Business Models and IT as well as business in the regions of Germany, Europe and the Middle East. In January 2014, the subsidiary in the USA was transferred to Phoenix Solar America GmbH, a newly founded intermediate holding company. Alongside structural aspects, this measure was aimed at leveraging valuation reserves, thereby strengthening the equity base of Phoenix Solar AG. As of 30 September 2014, the equity of Phoenix Solar AG amounts to EUR 8.7 million, which corresponds to an equity ratio of 14.8 percent. Given the background of unfavourable business and political conditions locally, and in view of the negative outlook for our subsidiary in Italy in the foreseeable future, an application was submitted on 12 March 2014 to launch insolvency proceedings. As a result, operating activities in Italy have ceased completely. This measure did not have any material impact on the Group s earnings, financial and assets position.

11 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 INTERIM MANAGEMENT REPORT 11 While first-quarter consolidated revenue was still within the scope of expectations, it became apparent in the second and third quarters that the planned and announced larger orders in the USA and Asia were being postponed, or that some of them were even cancelled. For this reason, the risk categorised in our risk management system as significant from the international sales and project business was to be viewed as of the end of the second quarter as both having partially materialised, and continuing to exist. Although the Phoenix Solar Group does not face any going concern risk as of the reporting date, the Executive Board cannot exclude that further delays to sales successes might continue to result in significant impacts on the overall Group in the future. During the course of the third quarter, our subsidiaries succeeded in winning not only ongoing business entailing smaller parts, but also major orders again. Among other news, on 25 September 2014 we reported on the order to construct a solar power plant in North Carolina with a rated output of 32.1 MWp. With an agreement dated 6 August 2014, Phoenix Solar AG sold its Operation & Maintenance (O&M) activities in Europe to SMA Solar Technology AG. Confidentiality was agreed concerning the contents of the agreement. The disposal proceeds are to be utilised to repay debt and to strengthen the core operating business. The possibility of a sale had been considered since the end of Over the course of 2013, the company examined the extent to which this business area could retain its significance within the further development of the strategy of Phoenix Solar AG. Three aspects prompted considerations to sell this business: the discontinuation in the first quarter 2013 of the project business that was operated from Germany and the resultant lack of growth in new business for the O&M area, a fall in growth in the construction of large-scale photovoltaic power plants by the European subsidiaries, and a lack of synergies with the O&M activities at the subsidiaries in Asia and the USA. The good profitability of these operations suggested that they could be transferred successfully to another market participant. They exhibit a high level of stability due to a contractual base comprising some long contractual durations, as well as a motivated team of staff that ensures that the operating activities function extremely well. The O&M activities that are independently managed by subsidiaries, especially in the USA and Asia, are unaffected by the sale. Instead, it is more likely that their O&M business will be expanded as part of EPC projects that are to be realised in the future. EVENTS after the end of the first nine months of the year Due to the unsatisfactory new order intake during the second quarter, we reduced our basis forecast for the full financial year by way of an ad hoc announcement on 6 August At that time, we assumed that the Group in the 2014 financial year would report a revenue decline of approximately 35 to 50 percent compared to Although new order intake during the third quarter adopted a somewhat more positive trend again, most of these orders will nevertheless not become effective in terms of sales revenue until the following financial year, which has prompted us to make a further correction to our forecast by way of an ad hoc announcement on 4 November We are now assuming that we will achieve revenue of between EUR 45 million and EUR 55 million in the 2014 financial year, and generate an operating result before interest and taxes (EBIT) in a range between EUR - 3 million and EUR - 4 million. This forecast nevertheless includes a positive extraordinary item from the disposal of the European O&M business, which has not yet been realised. A return to revenue growth and a tangible improvement in the result for the coming financial year are already becoming evident on the basis of the orders on hand to date.

12 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 INTERIM MANAGEMENT REPORT 12 After the end of the first nine months, on 4 November 2014, Phoenix Solar AG concluded an agreement with its syndicate of financing banks, which extends the existing financing until 30 September The new financing facility has a volume totalling around EUR 116 million and consists of a syndicated loan of almost EUR 93 million, as well as other bilateral cash and guarantee credit lines. In the context of the revised corporate planning, a decision was also taken to end the pilot phase of implementing new business models in the residential homes area in Germany, and to discontinue this activity without creating a replacement for it. This measure has already been implemented. Upon finalisation of the new financing, we announced at the same time that Dr. Bernd Köhler will not be renewing his contract which expires on 31 December Now that the process of restructuring and realigning the company to focus on the international project business has been completed and financing renewed through to 30 September 2016 secured, Dr. Köhler, who is specialised in these areas, has decided to take on new challenges presented within this environment. The Supervisory Board acknowledged his decision with great regret. The Board thanks Dr. Köhler for his exceptional commitment in recent years in an extremely difficult environment and in particular for the results achieved. Following his withdrawal from the Executive Board, Dr. Köhler will be available to the company on occasion in an advisory capacity. 2 BACKGROUND INFORMATION ON THE GROUP As a photovoltaic system integrator with global operations, Phoenix Solar plans, builds and operates largescale photovoltaic power plants. The company is also a specialised wholesaler of complete solar power systems, solar modules and accessories. This strategy is reflected in the operations of the Power Plants and Components & Systems segments. This division of business is also generally replicated in the subsidiaries, subject to local adjustments. The US subsidiary, for instance, has been active only in the project business to date. In addition to supplying individual components for photovoltaic plants, the Components & Systems segment also develops tailored system solutions, provides planning support and offers logistics and other services. The customers of this segment include resellers and installation companies. The range of products and services on offer in the Power Plants segment comprises the necessary planning services and the turnkey construction of photovoltaic systems, including their subsequent operation and maintenance. We supplement this range of products and services through other services, particularly in the USA. We also support our customers in coordinating, securing and realising the necessary financing, as well as in dealing with complex formal approval procedures. The Power Plants segment s customers include small and large companies from trade, industry and commerce, alongside private individuals. Other target customers are institutional investors either seeking to set up investment fund models or to hold large-scale photovoltaic plants in their own portfolios. Our customer base also includes project developers and financing companies in the USA in particular. This business model enables Phoenix Solar to cover all sizes of grid-connected photovoltaic systems, from rooftop systems with a small peak output of one kilowatt (kwp) mounted on private homes to large power plants of up to 50 MWp.

13 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 INTERIM MANAGEMENT REPORT 13 Since Phoenix Solar operates in the market as a manufacturer-independent photovoltaic systems integrator, research and development are not core functions of the company; no research and development expenses are incurred at all, or to a very limited extent. Until it was divested, a further service of the Phoenix Solar Group comprised the operation and maintenance of PV power plants located in Ulm (Operation & Maintenance, O&M). Business was based primarily on long-term contracts with fixed conditions. The O&M services nevertheless continue to be offered by the local companies in international business, and are even to be further expanded. In 2013, a team of employees was entrusted with developing new business models and offerings to enable customers to realise substantial benefits from investing in photovoltaics independent of feed-in remuneration or other government-backed measures. Since the end of 2013, a launch phase of this offering had been running in a defined region. Despite positive reactions from customers, this business failed to develop with the dynamism that we expected. To a certain extent, this is also due to the approach of the German government before approving this year s amendment to the German Renewable Energies Act (EEG), and to the fact that this approach proved deeply unsettling to potential buyers of the standard packages that we offer. For this reason, these activities were discontinued at the end of the quarter under review as part of the new Group planning. Provisions were formed as of 30 September 2014 for the severance payments anticipated in this connection. 3. GENERAL CONDITIONS In each of our individual markets, demand for our services depends to a great extent on whether private individuals or entities, the public sector and private companies are prepared to invest in photovoltaic systems. Securing a safe, affordable and sustainable supply of electricity for the world s growing population or even establishing such a supply can generally be seen as one of the world s greatest challenges. Global demand for energy doubled over the period from 1990 to 2011, and continues to grow. Photovoltaics brings its own special benefits to bear in satisfying this growing demand: solar electricity does not affect the climate and can be generated locally, also in small units, with minimal input. Its capacity will have increased nine fold by 2035 and, in the most likely scenario of the World Energy Outlook 2013, will be delivering around 3 percent equating to approximately 950 TWh of the output required for global energy consumption. The commercial dimension of willingness to invest in photovoltaics is initially part and parcel of the question of how far the investor can trust in framework conditions on the local energy market to offer the necessary legal and planning certainty. Assuming that this is the case, the return generated by a photovoltaic system then becomes decisive. Such returns depend on various factors. The amount of investment, meaning the level of capital required, is directly associated with how much the modules and other components cost. If funds are borrowed, the financing conditions also affect the return.

14 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 INTERIM MANAGEMENT REPORT 14 Depending on the market conditions, earnings generated may depend on the feed-in remuneration granted or the selling conditions; in some places, tax relief is granted. As the consumption of solar electricity generated by individual households is now much cheaper in many places than buying from local energy utilities, the savings made, in other words, the difference between the cost of producing and of buying energy, is becoming increasingly important. 3.1 PROCUREMENT markets and price trends Following steep descents in 2011 and 2012, the prices of solar modules have stabilised. In Germany, quarter-end spot market prices traded only a little lower at an average of around EUR 0.57/Wp for Chinese polycrystalline modules. European modules also became slightly cheaper, also costing an average of around 0.57 EUR/Wp. Market observers do not anticipate significant price declines for the time being, with prices remaining within a certain range. Given the constant fall in feed-in remuneration levels and the debate about the levies to be charged on self-consumed electricity, stable prices are also already tending to feed through to falling returns on photovoltaic systems. 3.2 SALES markets The Group management report included in our 2013 annual report provides a detailed account of overall conditions on our sales markets. In comparison with these explanations, essentially only the following changes have taken place. USA: The market in the USA stagnated during the first eight months of the current year. Solar systems with a rated output totalling 1.5 GWp were newly installed in the USA between January and August 2014, as many as during the first eight months of the previous year. In July, the International Trade Administration (ITA) of the United States Department of Commerce (DoC) reached a provisional decision on levying further customs duties and charges on Chinese modules with Taiwanese components imported into the USA. The enacting of this decision means that the cheapest products on offer to date in the USA would no longer be available, which would potentially increase procurement levels, thereby impacting the profitability of power plants or that of EPC providers. In order to counteract any detrimental effect on our business arising from this situation, we are conducting in-depth discussions with a number of leading module suppliers and continue to consistently practice our triedand-tested internal cost management. Greece: The legislation announced to facilitate domestic consumption solutions in the net metering model has meanwhile been adopted, although it has not yet gone into force. In addition, with Act 4254, which was published in the Journal of Laws on 7 April 2014, the Greek Parliament has set up an expansion plan for the years 2014 to 2020 according to which open-site systems with peak output of a total of 200 MW peak are to be supported annually from the third quarter of this year. We anticipate that this improved legal situation will revive the photovoltaic market in Greece, and we have taken appropriate marketing and sales measures.

15 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 INTERIM MANAGEMENT REPORT 15 Southeast Asia: Many states in the region are now pursuing ambitious expansion plans for renewable energies and have expanded their activities. In the Philippines, for instance, the Ministry of Energy has suggested to the Energy Regulatory Commission that it should increase the volume limitation for the granting of feed-in tariffs from previously 50 MW to 500 MW. This island state can also utilise solar energy to supply electricity to remote areas. While 94 percent of the population in cities and centres has access to electricity supplies, this holds true for only 73 percent of the rural population. Along with other promotional measures, the expansion is also being supported by a net metering model for grid-linked systems of up to 100 kwp. Thailand plans to expand its photovoltaic capacities to 3 GWp by Around one third will be attributable to smaller systems such as rooftop systems on residential homes and business buildings. Here, too, support and state projects are aimed particularly at delivering decentralised electricity supplies to rural areas. Given this, the military government that is currently in office has recently set up an ambitious photovoltaic expansion programme that also opens up additional opportunities for Phoenix Solar. Demand for domestic consumption solutions independent of state support measures is meanwhile also growing in other Southeast Asian countries. As photovoltaic systems have also become economically viable without support over the course of the past year, demand has also increased significantly in Singapore, for example. As far major systems at industrial and wholesale/retail companies are concerned, too, amortisation periods have fallen to below eight years, which corresponds to an attractive return of 9 to 13 percent. This is also feeding through to stronger demand for larger solar installations in Singapore, whether by way of sale and operation, or by way of third-party operation of electricity purchase agreements. France: The rated output of installed photovoltaic systems has exceeded the 5 GWp level in France. Almost 400 MWp was brought onto the grid during the first half the year, significantly more than during the first six months of 2013, although the figure still represents a new round of half of the additional capacity expansion during the 2011 and 2012 years. The market in France is characterised by great pricing pressure as buyers attempt to avoid potential price increases due to anti-dumping duties. On the other hand, the French Ministry for the Environment and Sustainable Development in its fifth tender round has approved feed-in remuneration for 193 new photovoltaic projects with outputs of between 100 and 250 kilowatts. The guaranteed remuneration lies 2 percent below the first tender round. 4 NET ASSETS, FINANCIAL POSITION AND RESULT OF OPERATIONS With an ad hoc announcement on 6 August 2014, we communicated that we will sell the Operation & Maintenance (O&M) activities in Ulm to SMA Technologies AG. As part of the Power Plants segment in Germany, the Operation & Maintenance business comprised discontinued operations as of 30 September By contrast, the Components & Systems segment and the continuing portion of the Power Plants segment qualify as continuing operations as of 30 September 2014.

16 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 INTERIM MANAGEMENT REPORT RESULTS of operations Although the company succeeded in winning a notable level of new orders during the third quarter 2014, including a major order for 32 MWp in the USA, most of these orders will nevertheless not become effective in terms of sales revenue until the end of the year at the earliest, with revenue and EBIT consequently continuing to fall significantly short of expectations during the third quarter. With an ad hoc announcement on 4 November 2014, we communicated that the pilot phase to sell standardised small photovoltaic systems for own consumption systems in Germany is to be ended, and that this activity is to be discontinued in its entirety. The resultant layoffs generated further charges to EBIT due to provisions for severance payments. For this reason, revenue during the first nine months of 2014 registered a sharp year-on-year decline mainly due to delayed new order intake and EBIT is also now lower than during the January to September 2013 period. 4.2 ANALYSIS of revenues The Phoenix Solar Group generated revenues of EUR 6.1 million from continuing operations in the third quarter of 2014 (Q3/2013: EUR 46.7 million), which corresponds to a decline of EUR 40.6 million, the equivalent of 86.8 percent, in a year-on-year comparison. In the third quarter of 2014, too, unit sales fell by 35.1 MWp year-on-year, or 85.8 percent, to 5.8 MWp (Q3/2013: 40.9 MWp). This decline is primarily attributable to delays to new order intake from abroad to date. Of the revenues from the continuing operations, only 0.7 percent (Q3/2013: 2.5 percent) was accounted for by business in Germany, whereas 99.3 percent (Q3/2013: 97.5 percent) derived from foreign markets, which were served exclusively by our foreign subsidiaries. In the previous year s quarter, the foreign subsidiaries share of consolidated revenue amounted to 98.9 percent. The strong growth in international business is due first and foremost to the strategic realignment in Germany. The Components & Systems segment realised EUR 4.3 million of revenues in the third quarter of 2014 (Q3/2013: EUR 6.6 million) a fall of 34.8 percent. The continuing operations of the Power Plants segment delivered revenues of EUR 1.8 million (Q3/2013: EUR 40.1 million), reflecting a decrease of 95.5 percent. The previous year s quarter was nevertheless affected by a major order in the USA. Of the total revenues from the continuing operations during the quarter, the Components & Systems segment therefore accounted for 70.3 percent (Q3/2013: 14.1 percent) and the Power Plants segment for 29.7 percent (Q3/2013: 85.9 percent). Revenue from the discontinued O&M operations amounted to EUR 1.3 million in the third quarter 2014, EUR 0.4 million, or 40.6 percent, above the prior-new comparable figure (Q3/2013: EUR 0.9 million). Of these revenues, 69.6 percent was attributable to Germany (Q3/2013: 77.7 percent), and 30.4 percent to abroad (Q3/2013: 22.3 percent). During the first nine months of 2014, revenue from the continuing operations also registered a significant fall of EUR 96.1 million (85.8 percent) to EUR 15.9 million. The previous year s comparable months were nevertheless affected by large-scale projects in Asia and America, and the first months of 2013 were still especially characterised by the sales and project business, which was being wound down at the time. Due to the fall in revenue, unit sales also reduced from MWp in the January to September 2013 period to 15.6 MWp in the same period of the current year.

17 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 INTERIM MANAGEMENT REPORT 17 Of the total revenue from the continuing operations, 1.1 percent was attributable to Germany (Q1- Q3/2013: 12.2 percent) and 98.9 percent was attributable to abroad (Q1-Q3/2013: 87.8 percent). The foreign subsidiaries generated a 98.9 percent share of consolidated revenue (Q1-Q3/2013: 83.7 percent). Revenue of EUR 12.5 million was attributable to the Components & Systems segment in the first nine months of the year (Q1-Q3/2013: EUR 51.3 million), while the continuing operations of the Power Plants segment contributed EUR 3.4 million to total revenue (Q1-Q3/2013: EUR 60.7 million). In relation to the total revenue of the first nine months of the year, 78.4 percent was consequently attributable to the Components & Systems segment (Q1-Q3/2013: 45.8 percent), and 21.6 percent was attributable to the continuing operations of the Power Plants segment (Q1-Q3/2013: 54.2 percent). The discontinued O&M operations realised EUR 3.6 million of revenue in the January to September 2014 period. This represents a fall of EUR 0.4 million (9.8 percent) compared with the previous year (Q1- Q3/2013: EUR 4.0 million). Of the total revenue from the continuing operations, 68.0 percent was attributable to Germany (Q1-Q3/2013: 63.7 percent) and 32.0 percent was attributable to abroad (Q1-Q3/2013: 36.3 percent). 4.3 ORDER book As the discontinued O&M operations do not report any order book position in the classic sense the word, but are instead characterised mostly by long-term service contracts, the following statements about the order book position relating exclusively to the continuing operations. As per the reporting date of 30 September 2014, orders on hand stood at EUR 44.1 million (30 September 2013: EUR 69.1 million) representing a decline of EUR 25.0 million, equivalent to 36.2 percent, compared with the year-earlier period. The Components & Systems segment registered a fall in its order book position to EUR 3.1 million (30 September 2013: EUR 3.5 million). In the Power Plants segment, the order book position fell to EUR 41.0 million (30 September 2013: EUR 65.6 million). The order book position reduced to reflect realised orders (net orders) grew from EUR 27.2 million at the end of the previous year s quarter to currently EUR 41.0 million, reflecting growth of EUR 13.8 million (50.7 percent), and due to a major order in the USA that was received in September DEVELOPMENT of key items in the income statement OTHER operating income Other operating income from continuing operations amounted to EUR 1.9 million in the third quarter of 2014 (Q3/2013: EUR 1.5 million), thereby EUR 0.4 million higher than in the third quarter During the third quarter of the current financial year, this income comprises mainly around EUR 1.0 million of electricity revenues from the company s own photovoltaic systems, and the release of warranty provisions in an amount of EUR 0.4 million. This item also includes income of EUR 0.1 million from the release of an omnibus value allowance EUR 0.1 million, income from penalty payments (EUR 0.1 million) and from unrealised foreign exchange rate gains (EUR 0.1 million). The discontinued O&M operations reported only a minor level of other operating income both in the quarter under review and in the identical period of the previous year. During the January to September 2014 period, other operating income from the continuing operations grew by EUR 2.6 million, from EUR 3.3 million to EUR 5.9 million.

18 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 INTERIM MANAGEMENT REPORT 18 The discontinued O&M operations generated EUR 0.1 million of other operating income over this period (Q1-Q3/2013: EUR 0.2 million). COST of materials/gross profit The cost of materials in the continuing operations declined by 86.8 percent to EUR 5.4 million in the third quarter of 2014, mainly due to the lower level of revenues (Q3/2013: EUR 41.0 million). In relation to both sales revenue and overall performance (total operating revenue), gross profit calculated on this basis amounted to EUR 0.7 million (Q3/2013: EUR 5.7 million). The gross profit margin on both sales revenue and overall performance (total operating revenue) amounted to an identical 12.2 percent in both quarters. The discontinued O&M operations incurred a cost of materials of EUR 0.5 million in the July to September 2014 period (Q3/2013: EUR 0.7 million). These operations consequently generated EUR 0.9 million of gross profit (Q3/2013: EUR 0.2 million). This is equivalent to a 64.3 percent gross profit margin in the third quarter of 2014 (Q3/2013: 21.2 percent). On a nine-month view, and primarily as a consequence of the fall in revenue, the company registered a marked reduction in its cost of materials in its continuing operations of EUR 84.2 million to EUR 13.0 million (Q1-Q3/2013: EUR 97.2 million). Consequently, gross profit on sales revenue and overall performance (total operating revenue) stood at EUR 2.8 million during this period (Q1-Q3/2013: EUR 14.8 million). The gross profit margin in the continuing operations improved significantly from 13.2 percent in the previous-year period to currently 17.9 percent. In the discontinued O&M operations, the cost of materials in the January to September 2014 period fell by EUR 0.3 million compared with the prior-year equivalent period to EUR 1.4 million (Q1-Q3/2013: EUR 1.7 million). This reflects a 19.5 percent reduction. In consequence, gross profit of EUR 2.2 million was generated in the 2014 reporting period (Q1-Q3/2013: EUR 2.3 million). The gross profit margin thereby increase from 57.0 percent during the first nine months of 2013 to currently 61.7 percent. Personnel expenses As of 30 September 2014, Phoenix Solar employed 100 staff at Group level in its continuing operations (30 September 2013: 104; excluding Executive Board members, though including temporary staff), 97 of whom were permanent employees (30 September 2013: 99). In the third quarter of 2014, personnel expenses stood at EUR 2.6 million (Q3/2013: EUR 2.4 million). Personnel expenses during the third quarter 2014 were nevertheless burdened by EUR 0.5 million of severance payments in connection with the discontinuation of the new business model of solar systems for own consumption solutions in Germany. However, the personnel expense ratio (proportion of personnel costs measured against sales revenues) climbed to 41.8 percent in the quarter under review due to the 5.2 percent downturn in revenues in the third quarter of In the discontinued operations, a total of 19 individuals were employed on a permanent basis as of the end of September 2014 (30 September 2013: 16 individuals), consequently two individuals as temporary staff (30 September 2013: one temporary staff member).

19 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 INTERIM MANAGEMENT REPORT 19 In the third quarter of 2014, personnel expenses in the discontinued operations stood at EUR 0.3 million (Q3/2013: EUR 0.2 million). This is equivalent to a personal expense ratio of 20.9 percent (Q3/2013: 24.4 percent). Between January and September 2014, personnel expenses in the continuing operations amounted to EUR 6.9 million, down by 38.5 percent compared with the first nine months of 2013 (Q1-Q3/2013: EUR 11.2 million). The personnel expenses in the prior-year period included provisions of EUR 1.9 million for severance payments that were formed at that time in connection with the job cuts for the strategic reorientation in Germany. The personal expense ratio consequently stood at 43.3 percent (Q1-Q3/2013: 10.0 percent). In the discontinued operations, personnel expenses during the first nine months of 2014 amounted to EUR 0.8 million (Q1-Q3/2013: EUR 0.7 million). As a consequence, the personal expense ratio was equivalent to 22.9 percent (Q1-Q3/2014: 18.4 percent). Depreciation AND AMORTISATION Depreciation and amortisation remained virtually unchanged at EUR 0.3 million over the period from July to September 2014 when compared with the prior-year period. Depreciation and amortisation in the discontinued operations reflects only a small amount, and have also changed only slightly year-on-year. On a nine-month view, depreciation and amortisation of EUR 1.0 million in the continuing operations was also almost unchanged compared with the previous-year period (Q1-Q3/2013: EUR 1.1 million). Here, too, the same applies as for the discontinued operations: depreciation and amortisation in the period under review was identical to the prior-year period at EUR 0.1 million. OTHER operating expenses Other operating expenses in the continuing operations registered an increase of EUR 0.4 million, or 17.9 percent, to EUR 2.6 million in the second quarter of 2014 (Q3/2013: EUR 2.2 million). This rise derives chiefly from a higher level of legal and consulting expenses (EUR million) for litigation and advisory costs in connection with the extension of credit lines, as well as from a partial value allowance applied to a receivable at the Spanish subsidiary (EUR 0.2 million). This increase was partially offset by reduced expenses for foreign currency exchange rate losses and bank fees, as well as for other operating expenses. The discontinued operations reported EUR 0.1 million of other operating expenses in the third quarter of 2014 (Q3/2013: EUR 0.1 million). Between January and September 2014, other operating expenses in the continuing operations were down by EUR 1.2 million, from EUR 8.9 million in the first nine months of 2013 to currently EUR 7.7 million. This reflects a saving of 13.3 percent.

20 PHOENIX SOLAR AG Interim Report JANUARY to September 2014 INTERIM MANAGEMENT REPORT 20 In the discontinued operations, other operating expenses of EUR 0.3 million during the first nine months were at a comparable level to the corresponding period of the previous year (Q1-Q3/2013: EUR 0.2 million). INCOME from associated companies In the third quarter of 2014, Phoenix SonnenFonds GmbH & Co. KG B1, the 31.2 percent equity-accounted interest of Phoenix Solar AG, distributed a discount to the income for the 2013 year of keur 31. In the prior-year comparable period, Phoenix SonnenFonds GmbH & Co. KG B1 distributed income of keur 38 arising from the 2012 year. During the first nine months of 2014, distributions from Phoenix SonnenFonds GmbH & Co. KG B1 amounted to keur 39 (Q1-Q3/2013: keur 38). These distributions are attributable exclusively to the area of the discontinued operations. EARNINGS before interest and taxes (EBIT) In consequence, the Group generated EBIT of EUR million in its continuing operations in the third quarter of 2014 (Q3/2013: EUR million), down considerably year-on-year, mainly as a result of the fall in revenue. The discontinued O&M operations generated EUR 0.4 million of EBIT in the July to September 2014 period (Q3/2013: EUR million). During the first nine months of 2014, EBIT from the continuing operations stood at EUR million, with this difference of EUR 3.7 million also being below the 2013 comparable figure (Q1-Q3/2013: EUR million). This figure includes EUR 0.5 million of provisions for severance payments, while corresponding provisions burdened EBIT in the previous-year period in an amount of EUR 1.9 million. The O&M division, as discontinued operations, generated EUR 1.1 million of EBIT (Q1-Q3/2013: EUR 1.5 million). FINANCIAL result The financial result came in at EUR million in the July to September months of 2014 (Q3/2013: EUR million). Both the financial income and the financial costs remained virtually unchanged from the previous-year period. At EUR million, the financial result in the first nine months of 2014 was EUR 0.3 million (6.9 percent) above the period during the January to September 2013 period (Q1-Q3/2013: EUR million). The financial result relates exclusively to the continuing operations as the discontinued operations do not have any financing lines of their own. Tax rate In the third quarter of 2014, tax expenses of EUR 0.2 million accrued in the continuing operations (Q3/2013: tax revenue of EUR 0.8 million). Accordingly, the tax rate (ratio of tax expenses to consolidated net result before income taxes) amounts to percent (Q3/2013: 76.7 percent). The tax expense for the July to September 2014 period for the discontinued O&M operations stands at EUR 0.1 million (Q3/2013: tax income of EUR 0.03 million). The tax rate in this context amounts to 28.4 percent (Q3/2013: 28.4 percent).