Photon Energy a.s. PERIODIC REPORT. For the period from 1 January till 31 December 2011

Transcription

1 Photon Energy a.s. PERIODIC REPORT For the period from 1 January till 31 December 2011 Prague, 14 June 2012

2 Content Page 1. Letter of the Chairman of the Management Board Selected Financial Information Company introduction Company profile Identification & Contact Details History Group Structure Our Activities Statutory bodies Management Board Supervisory Board Employees Shares & shareholder structure Dividend policy Report of the Management Board Basic exposures and risks Operating & financial risks Political, economical and other uncertainties Market description and market share Summary of the major achievements in Important events in 2011, which had material impact on the Group s business Future plans Financial Ratios Authorised Advisors Remuneration Statutory Auditor Remuneration NewConnect s Good Practices not applied in Summary of information disseminated Statement of Relations Activities in R&D Material off-balance sheet items Management Board statements Unaudited consolidated financial results for full year Unaudited entity financial results for full year ` Page 2/61

3 1. Letter of the Chairman of the Management Board Dear shareholders, Despite the fact that year 2011 proved to be another challenging one in the history of Photon Energy Group, it affirmed our conviction of the inevitable future leadership of the photovoltaic industry in the global energy mix. What drives us forward is the ever clearer reality that solar energy is at the brink of becoming the most competitive renewable energy source within a much shorter period than thought possible even one year ago. Although, this increasing competitiveness is being achieved at the expense of a significant industry stress and many bankruptcies we do believe that those who survive will be clear winners, owning the know-how and competences on one hand, and facing unlimited opportunities on the other. At Photon Energy we consider ourselves lucky to have been able to set up and grow our business in this early adopter times. When summarizing our operating results of the last year can highlight that we installed 10.3 MW of photovoltaic power plants in three different countries: Slovakia, Italy and Germany. This may seem low compared to our engineering results of 2010 when we built approximately 32 MWp. However, it is important to note that we started operations in those foreign locations from scratch in 2011 H1 only. The time to hire a reliable team of people, secure appropriate offices and launch operations enabled us to effectively start business development in the second half of 2011 only. The importance of wholesale equipment business has changed dramatically last year, which translates into a significant contraction of trading volumes. Our wholesale arm - Photon Trading sold 14.4 MWp of inverters and 10.0 MWp of photovoltaic modules in total. Going forward we view future of the wholesale business not in trading technology per-se but in selling kits i.e. full solutions for interested PV investors instead of individual technology components. Photon Management ended the year with more than 48 MW under maintenance contracts, providing a growing uncorrelated and recurring long-term revenue stream. We view this business segment as strategic for the future of the Group given the significant advantages including: high operating margins, low capital needs and counterbalancing the cyclicality of our industry. Last but not least, we are happy to report that our proprietary portfolio generated nearly 24 GWh of electricity, compared to 923 MWh in 2010 and outperforming energy audits by more than 19%, on average. As a result, the Group reported CZK 650 million in revenues (down by 74% y-o-y), which results mainly from contraction of engineering and trading activities. For the first time in the history of being a public company, we recorded a net loss of CZK 152 million and a negative total comprehensive income of CZK 39 million. Our bottom line was severely impacted by events which were external and out of our control such as: declining prices of PV technology translating into an impairment of our inventories, 26% of tax on revenues from Czech power plants, and write-off of receivables which relates to the negative trends in the PV industry, experiencing bankruptcies and liquidity crisis. We would also like to apologise to our shareholders for not being able to publish our annual report in a timely manner due to unavailability of the audited financial statements. We do our best to ensure that the audit is completed in due course. For more information please kindly refer to the Management Board s comments in chapter 4. In concluding my letter I would like to thank all our shareholders for the trust they have bestowed upon our company. We truly believe that the experience we gained managing the Group over the last two, difficult years, enable us to become even more competitive and adaptive to challenges that we may have to face in the future. Page 3/61

4 On the behalf of the Management Board of Photon Energy Group and the controlling shareholders, we would like to repeat that we are committed to creating the value for all our shareholders. Michal Gärtner Chairman of the Management Board Prague, 14 June 2011 Page 4/61

5 2. Selected Financial Information Selected Financial Information in Thousands CZK EUR PLN Revenues 2,492, ,524 98,550 26, , ,588 Operating profit 64,834-31,385 2,564-1,277 10,235-5,247 EBIT 72,415-15,330 2, ,432-2,563 Pre-tax profit 61, ,170 2,433 5,295 9,713 21,762 Net profit 42, ,640 1,685-6,168 6,723-25,351 Total comprehensive income 436,316-38,902 17,253-1,582 68,880-6,504 Fixed assets 1,706,909 2,112,276 68,113 81, , ,878 Current assets 766, ,407 30,585 20, ,504 90,932 Cash and cash equivalents 60, ,387 2,401 4,627 9,539 20,623 TOTAL ASSETS 2,473,364 2,638,683 98, , , ,810 Total equity 505, ,842 20,163 18,288 80,103 81,507 Short-term liabilities 936, ,683 37,385 24, , ,045 Long-term liabilities 1,031,193 1,547,158 41,149 59, , ,258 Operating cash flow 517,635-19,501 20, ,075-3,260 Investment cash flow - 49,006-15, ,361-62,720-1,236, ,163 Financial cash flow 702, ,876 27,780 18, ,913 75,879 Net change in cash -16,639 59, ,408-2,373 9,899 CZK exchange rate - low CZK exchange rate - average CZK exchange rate - end of period CZK exchange rate - high Note: Exchange rates provided by the Czech National Bank Selected Multiples as of EV/Revenues (1) 0,54 2,73 EV/EBIT (1) 18,43-115,64 P/E 14,54-1,32 P/Total Compr. Income 1,42-5,16 Note: (1) Enterprise value is calculated as marcet capitalization minus cash and plus interest bearing debt Selected share information PLN Opening price ( ) 4,79 52-week max ( ) 6,27 52-week min ( ) 1,40 Closing Price ( ) 1,46 Note: (1) Based on the exchange rate on the specified date All financial figures throughout this report are provided in Czech Crowns (CZK), figures stated in other currencies such as Euro (EUR) and Polish Zloty (PLN) are provided for information purposes only. Figures provided in EUR and PLN were translated in accordance with IAS 21 as follows: Statement of Comprehensive Income - at the average exchange rate for given period; Statement of Financial Position - at the closing exchange rate for given period. For simplicity, throughout this report following separators were used: point. for decimals, comma, for thousand and million. Page 5/61

6 3. Company introduction 3.1. Company profile Photon Energy a.s. (the Company, the Group, we ) is an integrated developer of photovoltaic power plants. The Company develops and builds brownfield, greenfiled and rooftop photovoltaic instalations. Through its main divisions Photon Energy offers a full range of technology and specialized services to PV project developers and investors. The Company has vast experience and a proven track record of completing photovoltaic projects for its own portfolio as well as for the third parties. The scope of services provided includes Engineering Procurement and Construction services (EPC), arranging credit financing and insurance as well as ongoing operational management and maintenance provided along the lifespan of the plant. The range of services offered by the Photon Energy Group covers the downstream segment of the photovoltaic industry, from project origination and development through financing, design and engineering followed by construction and commissioning to the operation and maintenance. Chart 1. The downstream operations of Photon Energy The list of services provided by the Group includes but is not limited to: Project development - technical due diligence, feasibility analysis, site identification and acquisition, securing permits and licenses; Financing and Insurance - financial consulting, processing credit documentation and securing insurance in co-operation with Allianz; Design, engineering and procurement - system design and optimization, project engineering, technology procurement; the technology is procured for the projects being developed by the Group as well as traded on a wholesale basis; Construction and commissioning construction and installation, quality control, connection to the grid and commissioning of the plant; this and the previous phase are jointly referred to as: Engineering, Procurement and Construction (EPC) services; Operations and Maintenance regular maintenance, performance monitoring, reporting and providing accounting services. Photon Energy s business model is designed to extract the most value from the downstream segment of the solar industry value chain. The applied business model has enabled the Group to construct more than 45 photovoltaic power plants with a total installed capacity of nearly 46 MWp since its formation in Currently, the Group is present in seven countries and two continents, including: the Czech Republic, Slovakia, Italy, Germany, and Australia, with administrative offices in the Netherlands and Poland. Page 6/61

7 Chart 2. International presence of Photon Energy Group Page 7/61

8 3.2. Identification & Contact Details Name: Photon Energy a.s. Legal form: joint-stock company Address: Uruguayská 380/17, Praha 2, Czech Republic Registration: Municipal Court in Prague, section B, file Company No.: Tax No: CZ web address: History Important events prior to year /2007 CEO Michal Gärtner co-develops one of the first industry-scale solar power plants in the Czech Republic, a 0.5 MWp plant in Northern Bohemia. 01/2008 Photon Energy a.s (the Company or. Photon Energy ) founded by four co-founders. 09/2008 Photon Energy completes private placement, raising CZK 15 mil. (EUR 0.6 mil.). 10/2008 Photon Energy lists on NewConnect stock exchange in Warsaw on 16th October, the first non- Polish company to do so. 12/2008 Střešní burza (Solar roof exchange) website is officially launched. Important events in year 2009: 07/2009 EPC contract; commissioning of MWp PV plant in Milčice 12/2009 EPC contract, commissioning of MWp PV plant in Zahořany 12/2009 completion of MWp PV plant in Mostkovice for the proprietary portfolio 12/2009 EPC contract; commissioning of MWp PV plant in Sychrov 12/2009 EPC contract; commissioning of MWp in Ženské domovy MWp in Svatoslav. Important events in year 2010: 07/ EPC contract; commissioning of MWp PV plant in Dvur Kralove 08/ EPC contract; commissioning of MWp PV plant in Svatoslav 10/ EPC contract; commissioning of MWp PV plant in Drnov 10/2010 EPC contract; commissioning of MWp PV plant in Turany 11/ EPC contract; commissioning of MWp PV plant in Zvikov 11/2010 commissioning of MWp PV plant in Zvíkov for the proprietary portfolio 12/ EPC contract; commissioning of MWp PV plant in Mostkovice 12/ commissioning of MWp PV plant in Radvanice for the proprietary portfolio 12/ commissioning of 2.99 MWp PV plant in Zdice for the proprietary portfolio 12/2010 amendment to Czech Renewable Energy Act approved 12/ EPC contract; commissioning of MWp PV plant in Slavkov 12/ commissioning of MWp PV plant in Slavkov for the proprietary portfolio 12/ commissioning of MWp PV plant in Komorovice for the proprietary portfolio 12/ EPC contract; commissioning of MWp PV plant in Louny 12/ commissioning of MWp PV plant in Svatoslav for the proprietary portfolio 12/ commissioning of MWp PV plant in Dolni Dvoriste for the proprietary portfolio 12/ commissioning of MWp PV plant in Mostkovice for the proprietary portfolio 12/ commissioning of MWp PV plant in Blatna for the proprietary portfolio (share of 70%) 12/ EPC contract; commissioning of MWp PV plant in Prague 12/ EPC contract; commissioning of MWp PV plant in Svatoslav surface 12/ EPC contract; commissioning of MWp PV plant in Prsa Page 8/61

9 12/ commissioning of MWp PV plant in Prsa for the proprietary portfolio (share of 60%) 12/ commissioning of MWp PV plant in Hrusov for the proprietary portfolio (share of 66%) 12/ commissioning of MWp PV plant in Babina II for the proprietary portfolio (share of 66%) 12/ commissioning of MWp PV plant in Babina III for the proprietary portfolio (share of 66%) 12/ restructuring of the Group launched, establishment of subsidiaries in Netherlands and transfer of control to Photon Energy N.V. Important events in year 2011: 02/2011 the sale of two 1 MWp photovoltaic projects in Slovakia (Energy Solutions s.r.o. and Energy Profit s.r.o.) 06/2011 the completion and securing a grid connection for 6.8 MWp power plants in Slovakia 06/2011 divestment of 100% stake in MWp PV power plant in Mostkovice, Czech Republic 08/2011 swap of shares in the Slovak power plants Hrusov, Babina II and Babina III 11/ securing grid connection for 261 kwp PV power plant in Verderio, Italy 12/2012 completion of the the construction of 1.3 MWp power plants in Germany. Page 9/61

10 3.4. Group Structure The following table presents the Group s structure (subsidiaries and joint-ventures) and the holding company's stake in the entities comprising the Group as of 31 December Name % of share % of votes Country of registr. Consolid. method Legal Owner 1 Photon Energy a.s. Holding Company CZ Full Cons. Photon Energy 2 Photon Engineering s.r.o. 100% 100% CZ Full Cons. Photon Energy 3 Photon Trading s.r.o. 100% 100% CZ Full Cons. Photon Energy 4 Photon Finance s.r.o. 100% 100% CZ Full Cons. Photon Energy 5 Photon Import s.r.o. 100% 100% CZ Full Cons. Photon Energy 6 Photon Management s.r.o. 100% 100% CZ Full Cons. Photon Energy 7 Photon Electricity s.r.o. 100% 100% CZ Full Cons. Photon Energy 8 Střešní Burza s.r.o. 100% 100% CZ Full Cons. Photon Energy 9 Solární věcná břemena s.r.o. 100% 100% CZ Full Cons. Photon Energy 10 Photon Corporate Services s.r.o. 100% 100% CZ Full Cons. Photon Energy 11 Photon FinCo s.r.o. 100% 100% CZ Full Cons. Photon Energy 12 GOLF CLUB GRYGOV s.r.o. 100% 100% CZ Full Cons. Photon Energy 13 Photon SPV 1 s.r.o. 100% 100% CZ Full Cons. PEI CZ NV 14 Photon SPV 2 s.r.o. 100% 100% CZ Full Cons. PEI CZ NV 15 Photon SPV 5 s.r.o. 100% 100% CZ Full Cons. PEI CZ NV 16 Photon SPV 9 s.r.o. 100% 100% CZ Full Cons. PEI CZ NV 17 Solarpark Mikulov I s.r.o. 49% 49% CZ Equity PEI CZ NV 18 Solarpark Mikulov II s.r.o. 30% 30% CZ Equity PEI CZ NV 19 Photon Engineering Slovensko s. r. o. 100% 100% SK Full Cons. Photon Energy 20 Photon Management Slovensko s. r. o. 100% 100% SK Full Cons. Photon Energy 21 Photon SK SPV 1 s.r.o. 50% 50% SK Equity Photon Energy 22 Photon SK SPV 2 s.r.o. 100% 100% SK Full Cons. Photon Energy 23 Photon SK SPV 3 s.r.o. 100% 100% SK Full Cons. Photon Energy 24 EcoPlan 2 s.r.o. 100% 100% SK Full Cons. Photon Energy 25 EcoPlan 3 s.r.o. 100% 100% SK Full Cons. Photon Energy 26 SUN4ENERGY ZVB, s.r.o. 100% 100% SK Full Cons Photon Energy 27 SUN4ENERGY ZVC, s.r.o. 100% 100% SK Full Cons. Photon Energy 28 Fotonika, s.r.o. 60% 50% SK Equity Photon Energy 29 ATS Energy, s.r.o. 70% 70% SK Full Cons. Photon Energy 30 Solarpark Myjava s.r.o. 50% 50% SK Equity Photon Energy 31 Solarpark Polianka s.r.o. 50% 50% SK Equity Photon Energy 32 Photon Energy Investments CZ N.V. 100% 100% NL Full Cons. Photon Energy 33 Photon Energy Polska Sp. z o.o. 100% 100% PL Full Cons. Photon Energy 34 Photon Energy Australia Pty Ltd. 100% 100% AUS Full Cons. Photon Energy 35 Photon Energy Italia s.r.l. 100% 100% IT Full Cons. Photon Energy 36 Photon Engineering Italia s.r.l. 100% 100% IT Full Cons. Photon Energy 37 Photon Management Italia s.r.l. 100% 100% IT Full Cons. Photon Energy 38 IPVIC GbR 15% 15% DE Not Cons. Photon Energy 39 Alpensolar Einkauf GmbH 5.90% 5.90% DE Not Cons. Photon Energy 40 Photon Energy Deutschland GmbH 100% 100% DE Full Cons. Photon Energy 41 Photon Engineering Deutschland GmBH 100% 100% DE Full Cons. Photon Energy 42 Photon Management GmbH Deutschland GmbH 100% 100% DE Full Cons. Photon Energy Notes: Photon Energy Photon Energy a.s. PEI CZ NV Photon Energy Investments CZ N.V. PEI IT NV Photon Energy Investment IT N.V. Country of registration CZ - the Czech Republic SK - Slovakia Consolidation method: Full Cons. - Full Consolidation Not Cons. - Not Consolidated Page 10/61

11 PL - Poland NL - the Netherlands DE Germany AUS Australia IT Italy Equity - Equity Method In Q Photon Energy established the following new subsidiaries and/or joint venture companies with its share as specified below: Name % of Ownership share Country of registration 1 Photon SK SPV 2 s.r.o. 100% SK 2 Photon SK SPV 3 s.r.o. 100% SK 3 Solarpark Myjava s.r.o. 50% SK 4 Solarpark Polianka s.r.o. 50% SK 5 Photon Energy Australia Pty Ltd. 100% AUS 6 Photon Energy Italia s.r.l. 100% IT 7 Photon Engineering s.r.l. 100% IT 8 Photon Management s.r.l. 100% IT In Q Photon Energy executed the following acquisitions and disposals of shares: Name Structure Change % of Sold / Acquired Ownership share % of Remaining Ownership share Country of registration 1 Energy Profit s.r.o. Sale 100% 0% SK 2 Energy Solutions s.r.o. Sale 100% 0% SK 3 Photon SK SPV 1 s.r.o. Sale 50% 50% SK 4 EcoPlan 2 s.r.o. Acquisition 100% 100% SK 5 EcoPlan 3 s.r.o. Acquisition 100% 100% SK In Q Photon Energy established the following new subsidiaries and/or joint venture companies with its share as specified below: Name % of Ownership share Country of registration 1 Photon Energy Deutsch. GmbH 100% GE 2 Photon Engineering Deutsch. GmbH 100% GE 3 Photon Manag. Deutsch. GmbH 50% GE 4 Photon DE SPV 1 GmbH 50% GE 5 Photon DE SPV 2 GmbH 100% GE 6 Photon DE SPV 3 GmbH 100% GE 7 Photon DE SPV 4 GmbH 100% GE 8 Photon DE SPV 5 GmbH 100% GE 9 Photon SPV 1 srl 100% IT 10 Photon SPV 2 srl 100% IT 11 Photon SPV 3 srl 100% IT In Q Photon Energy sold 100% shares it hold in Max Energy s.r.o. In Q Photon Energy has not established any new subsidiaries and/or joint venture companies and has not disposed shares in any of its subsidiaries. In August 2011 Photon Energy signed the following agreements with SUN4ENERGY s.r.o., related to a swap of shares in the following Slovak joint-ventures: Photon Energy agreed to sell its majority stake of 66% in the Slovak project company SUN4ENERGY BB s.r.o. to SUN4ENERGY s.r.o., which previously held the remaining 34% of the shares; Page 11/61

12 SUN4ENERGY s.r.o. agreed to sell its minority stake of 34% in the Slovak project company SUN4ENERGY ZVB s.r.o. to Photon Energy a.s., which previously held 66% of the shares; SUN4ENERGY s.r.o. agreed to sell its minority stake of 34% in the Slovak project company SUN4ENERGY ZVC s.r.o. to Photon Energy a.s., which previously held 66% of the shares. As a result Photon Energy became the 100% owner in SUN4ENERGY ZVB s.r.o. and SUN4ENERGY ZVC s.r.o.. At the same time Photon Energy ceased to be a shareholder in SUN4ENERGY BB s.r.o. In Q Photon Energy established four new SPV s in Italy: Photon Italia SPV 4 s.r.l., Photon Italia SPV 5 s.r.l., Photon Italia SPV 6 s.r.l., Photon Italia SPV 7 s.r.l. These entities were sold in November 2011 from Photon Energy a.s. to Photon Energy N.V. In November 2011, Photon Energy NV, signed the Share transfer agreement (hereinafter referred to as the Share Transfer ) on the basis of which Photon Energy N.V. acquired, and Photon Energy a.s. sold, the following shares: shares in Photon Energy Investments DE N.V. (hereinafter referred to as Photon DE NV), seated in Netherlands, for the total consideration of CZK 291,000; shares in Photon Energy Investment IT N.V. (hereinafter referred to as Photon IT NV), seated in Netherlands, for the total consideration of CZK 212,000; shares in Photon Energy Investments SK N.V. (hereinafter referred to as Photon SK NV), seated in Netherlands, for the total consideration of CZK 503,000. The Share Transfer was the first step leading to the restructuring of the Group. For more information, please kindly refer to EBI report 5/2012. Since the begining of 2012, the Group continued restructuring process and the following events occurred since the 1 January 2012 to date. On 30 March 2012 the Company signed the following share transfer agreements, from the Issuer to Photon Energy Investments SK N.V., seated in Amsterdam, which is 100% owned by Photon Energy N.V., the controlling shareholder of Photon Energy a.s.: transfer of a 100% ownership interest in SUN4Energy ZVB s.r.o., seated in Bratislava, owning the power plant Babina II of the total installed capacity 1.0 MWp; transfer of a 100% ownership interest in SUN4ENERGY ZVC s.r.o. seated in Bratislava, owning the power plant Babina III of the total installed capacity 1 MWp; transfer of a 4, / 6, (70%) ownership interest in ATS Energy s.r.o., seated in Bratislava, owning the power plant Blatna of the total installed capacity 0.7 MWp; transfer of a 100% ownership interest in Eco Plan 2 s.r.o., seated in Bratislava, owning the power plant Mokra Luka II of the total installed capacity MWp; transfer of a 100% ownership interest in EcoPlan 3 s.r.o., seated in Bratislava, owning the power plant Mokra Luka III of the total installed capacity MWp; transfer of a 60% ownership interest in Fotonika s.r.o., seated in Bratislava, owning the power plant Prsa of the total installed capacity 1.0 MWp; transfer of a 50% ownership interest in Solarpark Myjava s.r.o., seated in Bratislava, owning the power plant Myjava of the total installed capacity 1.0 MWp; transfer of a 50% ownership interest in Solarpark Polianka s.r.o., seated in Bratislava, owning the power plant Polianka of the total installed capacity 1.0 MWp; transfer of a 50% ownership interest in Photon SK SPV 1 s.r.o., seated in Bratislava, owning the power plant Brestovec of the total installed capacity 0.85 MWp; transfer of a 100% ownership interest in Photon SK SPV 2 s.r.o., seated in Bratislava, owning the power plant Jovice I of the total installed capacity 0.98 MWp; transfer of a 100% ownership interest in Photon SK SPV 3 s.r.o., seated in Bratislava, owning the power plant Jovice II of the total installed capacity 0.98 MWp. Page 12/61

13 On 30 April 2012, the General Meeting of Shareholders passed following resolutions, some of which will have a further impact on the Group s structure upon the execution of relevant agreements in the next reporting periods: The contributions of receivables of Photon Energy a.s. against selected project companies into the equity capital of Photon Energy Investments CZ N.V., reg. No , seated Barbara Strozzilaan 201, 1083 HN Amsterdam, the Netherlands, in the total amount of CZK 401,697, plus interest; the transfer of a 100% ownership stake comprising of 46,000 pieces of shares in Photon Energy Investments CZ N.V. seated at Barbara Strozzilaan 201, 1083 HJ Amsterdam, the Netherlands, registered in the commercial register of the Commercial Chamber under No , from Photon Energy a.s. to Photon Energy Investments SK N.V., a subsidiary of Photon Energy N.V. at a price to be determined by an expert opinion in compliance with Section 196a (3) of the Commercial Code; transfer of Company s ownership interests in Slovak companies, in particular: 50% ownership interest in Solarpark Polianka, s.r.o., 50 % ownership interest in Solarpark Myjava, s.r.o., 50 % ownership interest in Photon SK SPV 1 s.r.o., ownership interest amounting to / in ATS Energy, s.r.o., 60 % ownership interest in Fotonika, s.r.o., 100 % ownership interest in SUN4ENERGY ZVC, s.r.o., 100 % ownership interest in SUN4ENERGY ZVB, s.r.o., 100 % ownership interest in EcoPlan 3 s.r.o., 100 % ownership interest in Eco Plan 2 s.r.o., 100 % ownership interest in Photon SK SPV 2 s.r.o., 100 % ownership interest in Photon SK SPV 3 s.r.o. All the above mentioned ownership interests were transferred to Photon Energy Investments SK N.V., seated at Barbara Strozzilaan 201, 1083 HJ Amsterdam, the Netherlands, which is an affiliated entity to Photon Energy a.s., at a price determined by an expert opinion in compliance with Section 196a (3) of the Commercial Code. Granting the consent to execute the amendments to the above mentioned eleven agreements of transfer of ownership interest in Slovak projects which included a clause on deferred payment term of the purchase price (deferred by 12 months following the execution of the transfer agreements) and bearing the interest rate of 3% p.a. Granting its consent regarding the transfer of other ownership interests and shares in particular: 100% ownership interest in Photon Corporate Services s.r.o., 100% ownership interest in Photon Management Slovensko s.r.o., 100% ownership interest in Photon Management s.r.l., 100% ownership interest in Photon Energy Italia s.r.l., 100% ownership interest in PHOTON ENERGY AUSTRALIA PTY LTD, 100% ownership interest in PHOTON ENERGY POLSKA Sp. z o.o., 100% ownership interest in Photon Engineering Deutschland GmbH, 100% ownership interest in Photon Management Deutschland GmbH, 100% ownership interest in Photon Energy Deutschland GmbH, 100% ownership interest in Photon Management s.r.o. to Photon Energy Investments SK N.V., seated at Barbara Strozzilaan 201, 1083 HJ Amsterdam, the Netherlands, which is an affiliated entity to Photon Energy a.s., at a price to be determined by an expert opinion in compliance with Section 196a (3) of the Commercial Code. Granting its consent to the execution of the following agreements: a) Loan Agreement by and between Photon Energy, a.s. (as debtor) and Photon Engineering s.r.o. (as creditor) regarding the loan up to CZK 685,000,000, b) Loan Agreement by and between the Company (as debtor) and Photon Import s.r.o. (as creditor) regarding the loan up to CZK 38,000,000, c) Loan Agreement by and between the Company (as debtor) and GOLF CLUB GRYGOV s.r.o. (as creditor) regarding the loan up to CZK 1,400,000. Page 13/61

14 For the purposes of IFRS reporting, the Company consolidates following entities: Name % of % of Country of Consolidation Legal Owner Consolidated share Ownership share registration method 1 Photon SPV 3 s.r.o. 100% 0% CZ Full Cons. RLRE 2 Photon SPV 8 s.r.o. 100% 0% CZ Full Cons. RLRE 3 Exit 90 SPV s.r.o. 100% 0% CZ Full Cons. RLRE 4 Photon SPV 4 s.r.o. 100% 0% CZ Full Cons. RLRE 5 Photon SPV 6 s.r.o. 100% 0% CZ Full Cons. RLRE 6 Onyx Energy s.r.o. 100% 0% CZ Full Cons. RLRE 7 Onyx Energy projekt II s.r.o. 100% 0% CZ Full Cons. RLRE 8 Photon SPV 10 s.r.o. 100% 0% CZ Full Cons. RLRE 9 Photon SPV 11 s.r.o. 100% 0% CZ Full Cons. RLRE Notes: RLRE - Raiffeisen - Leasing Real Estate, s.r.o. Page 14/61

15 3.5. Our Activities Photon Energy operates through a group of subsidiaries which cover specific areas of its activities. Photon Engineering represent an in-house engineering and installation division involved in the technical design, engineering and quality control of our own projects as well as third-party projects where we perform as a turnkey EPC contractor. We provide a full scope of services, from project planning to turnkey solutions, and undertake the following scope of work: determination of ground conditions and selection of the mounting system for the best PV module installation; Communication with the relevant public authorities, public utilities and others such as owners of neighbouring land. Project documentation is drawn up and public consultation and the building permitting process is undertaken; Tendering of subcontractors and completion of the EPC project. During the project realization phase, subcontractors carry out construction activities and a security agency is hired to secure the premises. Photon Engineering also undertakes feasibility studies for roof as well as green-field and brown-field projects. Photon Trading and Photon Import trade in photovoltaic technology, mainly solar modules and inverters. We cooperate with top-tier bankable suppliers with high quality, which passed rigorous due diligence, have a strong corporate background and provide industry leading warranties. Solar modules Solar modules are fully certified (TUV, IEC and CE) for European markets and are manufactured in ISO 9001 and facilities. Our range includes a wide variety of module dimensions and output wattages. Inverters Photon Trading is an official reseller of SMA inverter systems, monitoring and accessories. We also provide high quality central inverters from Advanced Energy and LT-I Reenergy. All inverter components fully comply with European and Czech standards. Services Photon Trading provides high quality services including full logistics handling, technical support for system design and maintenance and the handling of warranty claims. Photon Finance provides financing and insurance solutions for PV investors. Our services include full scope PV investment consulting, the structuring and arranging of loans, current account facilities and insurance packages including customized services and other financial products. Page 15/61

16 Project financing We provide comprehensive financial advisory for the whole project preparation and realization phase. Our value added comes from long-term experience in banking, project management and an in-depth knowledge of PV project financing conditions. We closely communicate with the financing bank and provide all cash-flow calculations and documentation for the loan offer. Risk management is consulted with our partner insurance Allianz which prepares an integrated insurance model for all project phases. Our project financing structures often include an investment loan for capital expenditure, an operating credit line for VAT and letters of credit. Project Insurance We cooperate with Allianz on an exclusive basis and are an insurance intermediation license holder (No VPA, granted by the Czech National Bank). We structure insurance offers for our clients for all phases of their PV plant construction and operation. Contracts are tailor-made and linked to conditions of the financing bank. Photon Management offers complete operations and maintenance services for PV installations, including: maintenance, repair work, performance monitoring, management reporting, security control, insurance and accounting services. Maintenance Our technicians perform regular scheduled physical inspections and tests to ensure any unusual deterioration of system components is discovered and prevented from worsening. Repair work, when required, is undertaken expeditiously and with concern to safety and minimum interruption of the power plant. Photon Management ensures all work is done only by qualified and experienced technicians, whether our own or of a subcontractor on a best practice basis. All work is backed by industry standard warranties. Accounting services In addition to the technical side of operating solar power plants, Photon Management offers complete accounting services for the power plant project company, to truly render owning a power plant a hassle-free experience. Performance monitoring & reporting We perform ongoing performance monitoring and are able to react quickly to incidents that affect the performance any time of day, ensuring that the revenues from the plant remain at the highest possible level. All performance results and service works are reported to the client on a regular basis. Security support Photon Management partners with qualified local security firms to ensure around the clock infrared intrusion detection and remote video surveillance. In the rare case of an incident security personnel is dispatched immediately to the site and any consequential paperwork is taken care of. Comprehensive insurance coverage Photon Management s sister company Photon Finance partners with Allianz and offers market-leading insurance solutions for the life cycle of each PV power plant. Page 16/61

17 3.6. Statutory bodies In accordance with the legal requirements, the Company uses a two-tier board structure consisting of the Management Board and Supervisory Board Management Board The Management Board is responsible for day-to-day operations of the Company. The Management Board consists of three members. The decision of the Management Board needs to be approved by at least two members. Management Board Members in 2011 Name Position Date of birth Member since Member until Michal Gärtner Chairman to date Georg Hotar Vice-chairman to date Tomáš Vaník Member On 21 December 2011 Mr. Tomáš Vaník resigned from his membership of the Management Board of Photon Energy with immediate effect. According to the Articles of Association, the Management Board consists of at least three members therefore the Management Board called an extraordinary general meeting of shareholders on March 5, 2012, which elected Ms. Petra Bednářová as a new, third Management Board member to replace Mr. Mr. Tomáš Vaník. Petra Bednářová is a Czech national with extensive experience in financial and business administration in major corporations including ICL and St. Gobain as well as financial services companies. Petra Bednářová has worked for Photon Energy since its foundation supporting the Management in financial processes and human resources Supervisory Board The Supervisory Board is responsible for supervising the conduct of the Management Board and the course of business affairs undertaken by it. In performing its duties, the Supervisory Board is required to act in the interests of the Company and its business activities as a whole. The members of the Supervisory Board are not, however, authorized to represent the Company in any dealings with third parties. Supervisory Board Members in 2011 Name Position Date of birth Member since Member until Bogusława Cimoszko Chairwoman Skowrońska Jiří Mazánek Member to date Petra Bednářová Member Magda Gärtnerová Member to date On 25 January 2011 Ms. Bogusława Cimoszko-Skowroński who held a position of the chairwoman since 17 July 2008, resigned from being a member of the Supervisory Board, with immediate effect. According to the Articles of Association the Supervisory Board of the Company shall have three (3) members. Therefore it was necessary to elect a new member of the Supervisory Board. Therefore on 7 July, 2011, Annual Shareholders Meeting of the Company elected Mr. Jiří Mazánek as the third member of the Supervisory Board. Page 17/61

18 On 1 March 2012 Petra Bednářová, the Chairwoman of Supervisory Board, resigned from being a member of the Supervisory Board and ceased to be a member of the Supervisory Board as of 4 March The reason for Ms. Bednářová's resignation was the fact that she was a candidate to the Management Board of Photon Energy a.s. to be elected by Extraordinary Shareholders' Meeting on 5 March On 1 March 2012, the Supervisory Board elected Mr. Jiří Mazánek as the new Chairman of Supervisory Board, effective since the day of his election. On 28 March 2012, in accordance with 34 of the Articles of Association, the chairman of the Supervisory Board Mr. Jiri Mazanek called for a vote in the course of which Mr. Peter Novotny was elected as third Supervisory Board Member. Mr. Peter Novotny was elected as a Supervisory Board Member by the general meeting of shareholders held on 30 April Employees Our team has grown both in terms of size and experience. We were happy to welcome several new colleagues from various backgrounds who represented significant strengthening of our capabilities. By the end 2011 the Group had 53 employees (compared to 49 in 2010), of which 49 in the Czech Republic and 4 in Slovakia. Apart from that 10 employees were employed in Germany (under the structure of Photon Energy N.V.) and 3 in Italy (under the structure of Photon Energy N.V.) The management recognizes the significant contribution of the team members to the future development of the Group. In 2009 we have implemented the Employee Share Purchase Programme of which all the employees and management are members Shares & shareholder structure Market: NewConnect, Poland Ticker: PHO Web address: Share Capital as of 31 December 2011 Series (issue) Type of shares Type of preference Limitation of share right Number of shares Nominal value of series (issue) [CZK] Capital covered with Nominal value per share [CZK] A bearer ,000,000 2,300,000 cash 0.10 Total number of shares 23,000,000 Total registered capital (CZK) 2,300,000 There were no changes to our share capital following the private placement on NewConnect. The Company shares are issued in a certificate form and were deposited (dematerialized) in the Central Polish Depository of Shares (KDPW). Authorized Advisor and Animator: On 27 January 2011 the Company decided to terminate the service agreement with its Authorized Advisor CMS Corporate Management Services after over two years of being listed on New Connect. The agreement was terminated as of 31 January Animator Details: Name: CYRRUS, a.s. Page 18/61

19 Address: Veveří 111, Brno, Czech Republic Web address: Shareholder Structure All shares of the Company were admitted to trading on NewConnect. As of 14 June 2012, to the knowledge of the Management, the shareholder structure was as follows: Shareholder Structure Shareholder No. of shares % of capital No. of votes at the General Shareholders Meeting % of votes at the General Shareholders Meeting Photon Energy N.V. 16,627, % 16,627, % Free float 6,372, % 6,372, % Total 23,000, % 23,000, % To the knowledge of the Management Board, Photon Energy N.V. became a majority shareholder of the Company in Decmber Mr. Michal Gärtner and Mr. Georg Hotar are the final beneficial owners of Photon Energ N.V. Share Purchase Programme The Group deploys the Employee Share Purchase Programme as a part of its motivation system. Under the terms of the programme, the Group periodically purchases shares for each employee equal to 10% of their gross wage. The disposition rights to these shares are limited and employees can dispose of these shares only after their job contract is terminated. Costs related to the Share Purchase Programme in year 2011 amounted to CZK 1,809 thousand versus CZK 1,168 thousand in Page 19/61

20 Price in PLN Photon Energy a.s. Consolidated Financial Statements for the year ended 31 December 2011 Chart 3. Performance of Photon Energy Shares Source: Selected share information PLN Opening price ( ) 4,79 52-week max ( ) 6,27 52-week min ( ) 1,40 Closing Price ( ) 1,46 Note: (1) Based on the exchange rate in the period stated The average trading volume in year 2011 amounted to 18,227 shares per trading session and decreased from an average volume of 22,213 shares in year Dividend policy In the mid-term, the dividend policy does not foresee a pay-out of earnings hence the Management Board intends to make a recommendation to the Shareholders Meeting that all profits remain accumulated in the Company and reinvested in new projects. Page 20/61

21 4. Report of the Management Board 4.1. Basic exposures and risks Operating & financial risks Legislative, regulatory and market risks: The economic viability of energy production using PV installations depends on the incentive scheme introduced which include: Feed-in-Tariff (FiT) or green certificates, an obligation to purchase the total amount of energy originated from renewable sources, preferential loans, tax holidays or even non-repayable grants. However as those measure serve a purpose of meeting the goals set by the politicians in terms of national targets of energy generation mix, as such they are a subject to changes resulting from shifts in political interests. In 2010, the Company experienced an introduction of such an adverse law in the Czech Republic, where the Group still holds majority of its operations. As of November 2010 the new Renewable Energy Act imposed a levy of 26% on PV plants revenues, which significantly impacted the profitability of the business. On the investment side the Company faces uncertainty in relation to the approval process for the construction of PV installations, grid connection and necessary permits. In particular, the Company must secure various licenses and permits to operate PV plants and while electricity distribution companies in the Czech Republic are compelled to connect renewable energy sources by law, the Company cannot exclude any delays in any of the described areas, which may have a material negative effect on the Company s operating results and financial position. Risk related to personnel and property: There will always be risks involved in the operation and installation of PV plants, the installation of PV systems for third parties as well as the operations of the roof exchange. The build-up of these business areas is occurring simultaneously, thus posing high demands on management resources. The operating risks relating to the development of PV projects and the installation and operation of PV systems includes among others un-expected failure or damage to the PV panels and other technical equipment, theft or sabotage, or adverse weather conditions causing production interruptions and damage. The installation of PV systems on roofs involves specific risks such as damage to the roofs and higher wind-related stress. Risk related to the technology: The technology involved in the production of electricity using PV is characterized by rapid fundamental developments. Currently the Company does not own any patents for the technology used in relation to PV technologies. However, the development of new technology may fundamentally change the economics of electricity production plants using PV technology. For various reasons the Company may not gain access to this new technology, which may put it at a significant disadvantage to its competitors. Construction and performance risk: A PV installation is based on several technical components, namely the solar panels converting sunlight into electricity, cabling, converters converting DC into AC, transformers and grid connection devices. There is always risk associated with the construction and installation of PV installations. Despite efforts made to reduce such risks, there can be no assurances that delays and cost overruns will not occur. Furthermore, the Company is partly dependent upon the ability of sub-contractors to install PV systems that meet specifications, performance parameters, quality standards and delivery schedules of the Company. Contractual risks: The Company s business depends on contracts with multiple parties including, but not limited to, land owners, banks, investors, suppliers, contractors, energy utilities and electricity customers. Each contract normally involves a substantial value or consideration to the Company. Furthermore, some of the Page 21/61

22 contracts are governed by foreign law, which may create both legal and practical difficulties in case of a dispute or conflict. Competitive situation: The development of power plants using PV technology is highly competitive. The Company competes with other companies with an equal or larger resource base. There can be no assurance that the Company will be able to respond to existing and new sources of competition. Uninsured losses: The development and the operation of PV installations are subject to a number of risks and hazards, including adverse environmental conditions, theft, technical failure, changes in the regulatory environment and natural phenomena such as inclement weather conditions. Although Photon Energy maintains some insurance to protect against certain of these risks, the Company s insurance will not cover all the potential risks associated with the development and operation of PV installations. Dependence on key personnel: The Company s development and prospects are dependent upon the continued services and performance of its senior management and other key personnel. Financial difficulties or other factors could also adversely affect the Company s ability to retain key employees. The loss of the services of any key personnel may have negative effects on the Company s operating results and financial condition. In addition, the Company s business is subject to continued expansion, and thus dependent upon further employment of personnel. Environmental risk: The Company s operations are subject to numerous national and supra-national, environmental, health and safety laws, regulations, treaties and conventions. The amendment or modification of existing regulations or the adoption of new regulations curtailing or further regulating the operation of PV installations could have a material adverse effect on the Company s operating results and financial condition. During the lifespan of a PV plant certain environmental changes, in particular in sun irradiation and the local level of dust particles per cubic meter of air, can have a negative impact on performance and thus the financial performance and position of the Company. Expansion risk: the Group is expanding internationally and growing its operations at an impressive pace, attempting to capitalize on the emerging market opportunities in the PV industry. However, given its fast growth, the Group faces the risk of not being able to manage its expansion properly, having insufficient personnel or appropriate corporate structures in place to secure smooth operations of the growing Group. Liquidity risks: Photon Energy is dependent upon having access to short- and long term funding mainly in the form of project financing. Hence, there is a risk that the Company will not be able to arrange such project financing or/and that the credit market tightens or completely dries out for PV industry, which would have an adverse effect on the liquidity of the Company and costs of debt financing in the short term as well as growth prospects in the long term. There can be no assurance that the Company may not experience net cash flow shortfalls exceeding the Company s available funding sources. Furthermore, there can be no assurance that the Company will be able to raise new equity, or arrange new borrowing facilities, on favourable terms and in amounts necessary to conduct its ongoing and future operations, should this be required. In case that the necessary funding cannot be raised the Company may have to declare bankruptcy. Interest rate risks: The Company s results are highly dependent on interest rates as a high proportion of project capital expenditure is debt financed. A substantial increase in interest rates may have a material negative impact on the project equity returns and thus profitability of the Company and returns to shareholders. Indebntess risk: The Group is burdened by high level of leverage as the business model assumes financing of individual projects in the model of 80/20 debt-to-equity ratio. A significant amount of debt outstanding, results in growing financial costs which expose the Group to a risk of insufficient cash flow to service the debt payments and hence the liquidity risk. Page 22/61

23 Political, economical and other uncertainties Changes in the regulatory, legislative and fiscal framework (including tax rules) governing the production of energy using PV installations could have a material impact on the Company's operations. Although the level of Feed-in-Tariff per KWh as well as the obligation to purchase the electricity produced from renewable energy resources are governed by the respective legal acts regulating the energy sectors in countries where the Group operates, it is still a subject to political interests and influence of various lobbying groups. Therefore, the given regulatory framework cannot be taken for granted and temporary adjustments in the incentives schemes and national targets can be introduced ad-hoc, reflecting short-term fiscal needs of changes in the economic situation of the country. Such changes in the regulatory framework may have a material, adverse effect on the profitability of existing projects and future growth opportunities hence should be taken into consideration while assessing the risk of PV business. Companies operating internationally are also subject to various risks including risks of war, terrorist activities, political, civil or labour disturbances and embargoes. The Company currently operates in several European Union member countries including: Czech Republic, Slovakia, Germany, Italy, Poland and Netherlands as well as one non-eu country - Australia. Among those we can distinguish between developed economies such as Germany, Italy, Netherlands and Australia with relatively stable political systems economic policies. However, most of the Group s operations is still held in Central and Eastern European countries which are still perceived as emerging economies and hence may represent risks that are not encountered in countries with wellestablished economic and political systems. In addition, the legal and regulatory systems of the emerging European markets identified above may be less developed and less well enforced than in more developed countries. The Company s ability to protect contractual and other legal rights in those regions may thus be limited compared to regions with more well established markets Market description and market share 1 Market developments in 2011 Photovoltaic (PV) industry continued its remarkable growth trend in 2011, even in the midst of a financial and economic crisis and industry consolidation. PV markets again grew faster than anyone had expected both in Europe and around the world. In total 29.7 GW of PV systems were connected to the grid in 2011 globally, up from 16.8 GW in In Europe, about 21.9 GW were connected in 2011, compared to 13.4 GW in Europe still accounts for the predominant share of the global PV market, with 75% of all new capacities installed in Italy was the top market for the last year, with 9.3 GW connected, and followed by Germany with 7.5 GW. Italy and Germany accounted for nearly 60% of global market growth in In 2011, more than 69 GW are installed globally with the total electricity generation capacity of 85 TWh annually. This energy volume is sufficient to cover the annual power supply needs of over 20 million households. PV is now, after hydro and wind power, the third most important renewable energy in terms of globally installed capacity. When we look at the geographical breakdown of PV industry, in terms of global cumulative installed capacity, Europe still leads the way with more than 51 GW installed as of This represents about 75% of the world s total PV cumulative capacity. Next in the ranking are Japan (5 GW) and the USA (4.4 GW), followed by China (3.1 GW) which reached its first GW in Many of the markets outside Europe, in particular China, the USA and Japan, but also Australia (1.3 GW) and India (0.46 GW), have addressed only a very small part of their enormous potential. Several countries from large Sunbelt regions like Africa, the Middle East, South East Asia and Latin America are on the brink of starting their development. Even so, the cumulative installed capacity 1 After European Photovoltaic Industry Association Global market outlook May 2012, Page 23/61

24 outside Europe almost doubled between 2010 and 2011, demonstrating the ongoing rebalancing between Europe and the rest of the world and reflecting more closely the patterns in electricity consumption. Chart 4. PV capacity installed in 2011 (MWp) Chart 5. Cummulated PV capacity in 2011 (MWp) Chart 6. PV markets where Photon Energy Group and Photon Energy NV were present in 2011 (MWp) Czech Republic With 6 MWp connected in 2011 versus 1,490 MWp in 2010, the Czech PV market may be claimed dead. This should not be a surprise to anyone, given the unprecedented measures that the Czech government implemented in November 2010 and which not only stopped any further growth of PV industry but also destroyed many existing businesses. Page 24/61