2ANNUAL0 10REPORT ANNUAL REPORT 2010
TABLE OF CONTENTS
1. Letter from the President
2. The Company
3. Main figures
4. Main strategic lines
5. The sector
6. Lines of business
7. Corporate Social Responsibility (CSR)
8. Audit Committee Report
9. Consolidated annual accounts
10. Consolidated management report
LETTER FROM THE PRESIDENT
3 ANNUAL REPORT 2010
4 LETTER FROM THE PRESIDENT
Dear partners, shareholders, employees and clients:
The year of 2010 was characterised by regulatory ups and downs in the photovoltaic industry, with the shadow of retroactivity flying over the Spanish market and tariff discussions dominating activities in the German market. This environment of uncertainty affected demand, creating peaks and leading to significant price pressure.
Nonetheless, Solaria knew better than ever how to materialise opportunities identified in markets such as the Italian, Spanish and Central European ones, with the company reporting total sales figures higher than in 2009 by 81%. 2010 was the year of Solaria’s international consolidation as a project designer and producer of turnkey photovoltaic solutions, where exports represented 77% of total sales.
We launched our activities in turnkey projects for third parties with four projects in Italy and one more in Greece. The Solaria generation park grew by 26 MW with plants executed in Central Europe, Italy and Greece that were added to the 22 MW that the company already had operative in Spain. External financing for these projects, employing Project Finance, entailed a true challenge faced with the economic and financial climate in which we are submerged, but it was successfully achieved, once again spotlighting the solidity of our company.
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LETTER FROM THE PRESIDENT
During 2010 we drove forward our policy of compensating shareholders by means of dividend distribution, treasury stock amortisation and a share repurchase programme, with the aim of favouring share liquidity.
Despite the aforementioned regulatory oscillations, 2010 saw great growth in the photovoltaic sector, with a total worldwide installed capacity of some 15 GW. At present, the engine for photovoltaic energy is in Europe, although new regions primarily located in the so-called ‘Sun Belt’ are creating new growth opportunities, including the Middle East and South America. Solaria will be ready where these opportunities are, as revealed by the announcement of the construction of the largest grid- connected energy facility in Brazil through our subsidiary in this country, for the first semester of the year in progress.
6 Photovoltaic energy is undoubtedly a future energy that is already playing an important role in the energy mix of the principal territories in the world. As harshly reminded by the energy situation in Japan and political instability in North Africa, the certainty of energy supplying and climate change are the main issues we must tackle and resolve globally with regard to energy. Solar energy is and will be –naturally– part of this solution.
I do not want to sign off without thanking shareholders, clients and suppliers again for placing their trust with us, as well as the Solaria team for its hard work and dedication throughout 2010.
Mr Enrique Díaz–Tejeiro Gutiérrez President of Solaria Energía y Medio Ambiente, SA
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THE COMPANY
9 ANNUAL REPORT 2010
THE COMPANY
Company profile
Solaria Energía y Medio Ambiente, the only solar energy company listed on the Spanish Stock Exchange, manufactures at its production centres in Spain, with capacity for the production of 250 MW modules, cells and photovoltaic modules, executing turnkey projects for large facilities both its own and third party, operates and maintains photovoltaic plants and generates electricity by means of the plants constructed and operated by Solaria in several European countries. Generation capacity at the end of 2010 was 48 MW on permanently-owned lands, which translates into recurrent earnings, guarantees great financial solidity and validates our commitment to photovoltaic solar energy.
Solaria has become one of the leading companies in the renewable energy sector, thanks to its ongoing investment in R&D&i, its vertical integration in the value chain and its international presence, representing 77% of its consolidated invoicing in 2010. Further strengths include recognition and endorsement by the top main international banks and institutions that have issued certifications that let it market its products throughout the world and guarantee the quality of its production processes.
Founded in 2002, Solaria is one of the main photovoltaic plant operators in Spain, contributing decisively to the expansion of the photovoltaic market in this country, exporting its knowledge base to the other countries in which it operates. These activities make it one of the few Spanish companies that provides vertical integration across the entire value chain from the production of solar cells to operation & maintenance services at photovoltaic facilities.
10 This lets it offer a wide range of products and Fuenmayor (La Rioja) - and its sales offices in the services, guarantee complete stability in the leading world markets: Germany, France, Italy, manufacturing process and minimise exposure to Spain, Greece and Brazil. supply risks.
Solaria employs over 800 workers, among its two factories in Spain -Puertollano (Ciudad Real) and
Main milestones
2002 Year founded
2002- 2003 Start of progressively installing photovoltaic modules produced by third parties and development of solar farms.
2004 Start search for suitable technological suppliers for designing, installing and operating a photovoltaic module production plant.
2005 Construction of Solaria’s first photovoltaic panel production plant in Puertollano (Ciu- dad Real). Before year-end 2005, the first mass production of photovoltaic modules was successfully completed.
2006 In February 2006, Solaria sold the first panels it produced.
2007 In April, construction was started on industrial buildings located in the La Nava II Industrial Estates, which house the facilities for the new Solaria photovoltaic cells fac- tory, as well as start-up of the Fuenmayor factory.
In June, Solaria entered the stock exchange via an Initial Public Offering.
2008 Solaria completed 44 MW in turnkey projects in Spain, becoming one of the largest PV plant operators in Spain.
2009 Start of Solaria’s international expansion: Germany, Italy, France.
2010 Because of internationalisation, Solaria supplies more than 110 MW throughout Europe and finishes construction of 37 MW for in-house and third-party projects, reaching a total of more than 250 MW supplied.
Solaria’s presence in the world Latin America, widening its expansion network to encompass the main international markets. Solaria has two production centres in Spain with around 800 employees: Solar has a R&D centre located in the Puertollano plant, one of the international centres par • Puertollano (Ciudad Real) excellence in developing photovoltaic technology. • Fuenmayor (La Rioja) The company makes ongoing investments with the aim of maintaining technology leadership, applying Solaria’s headquarters are in Madrid and employ a advances to module production and in-house and further 50 professionals, primarily housing functional third-party turnkey projects. departments.
Internationally, Solaria is present in Germany, Italy, France, the United Kingdom, Greece, Israel and
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MAIN FIGURES
13 ANNUAL REPORT 2010
MAIN FIGURES
This section presents some of the most significant total sales, compared to 1% in 2008, the year in figures for the 2008-2010 triennial, a period which our deployment into international markets during which the Spanish market underwent a began. severe contraction and during which Solaria was able to open up new international markets to counteract this situation in the local market and present positive results. During the 2010 fiscal year, international turnover represented 77% of
Comparison of the main lines of business between 2008 and 2010
Thousands of euros
2008 2009 2010
Turnover 109.685 88.892 161.335 EBITDA -1.250 9.491 18.049 Operating results -26.654 2.962 8.967 Net profits -21.462 298 6.504
Thousands of euros
2008 2009 2010
Photovoltaic line 77.788 23.325 108.673 Turnkey projects 30.892 45.388 37.852 Generation & others 1.005 20.179 14.810 Total sales 109.685 88.892 161.335
2008 2009 2010
Domestic sales 99% 85% 23% Export sales 1% 15% 77%
Consolidated data under IFI standards
14 2008 2009 2010
Main 200.000 Figures
150.000
100.000
50.000
0
-50.000 Turnover EBITDA Operating results Net profits Thousands of euros
2008 2009 2010
Turnover by line of product 120.000
100.000
80.000
60.000
40.000
20.000
0 Thousands of euros Photovoltaic line Projects Generation and others
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MAIN FIGURES
OTHER DATA OF INTEREST
During 2010, we launched our activities in turnkey projects for third parties in Italy and Greece. Over the course of the year, we strengthened our generation activities, increasing operating plants from three units in Spain with an accrued power of 22 MW to 11 facilities in Spain, Italy, Germany, Greece and the Czech Republic, totalling 48 MW attributable to Solaria.
16 NUMBER OF EMPLOYEES
2010
Number of employees (to 31 December 2010) 780 Average staff during 2010 716
OUR STAFF
In 2010, the Company’s average staff experienced a employees who assisted in setting production significant rise, moving from 505 to 716 employees records at both plants. During the first months of (+42%). 2010, the Temporary Redundancy Plan was nearly inoperative, as the majority of staff worked almost The substantial increase in sales, particularly at non-stop, without need to suspend employment an international level, the fruit of the Company’s contracts. efforts to internationalise and increase its range of businesses, notably reactivated production and, The increase in structural staff was also remarkable, consequently, needs for personnel. jumping from 91 to 120 employees (45%): the large part of them for the Company’s international The largest jump in staff took place in the industrial business offices. division, where Authorised Redundancy Plans at both factories (Puertollano in August 2009, Fuenmayor in January 2010) were cancelled early in May 2010, proceeding to hire new temporary
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MAIN STRATEGIC LINES
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MAIN STRATEGIC LINES
Solaria’s main strategic lines are centred on consolidating its position as a leading company in the international solar energy market.
BUSINESS EXPANSION
Solaria is now present through business offices in Germany, Italy, Spain, France, Greece and Brazil, as well as via strategic agreements with important partners in countries like Israel and the United Kingdom.
International expansion continues to be one of the Company’s primary objectives. Solaria selects markets with regulatory and political stability to market its modules and develop projects, both for third parties and fully-owned plants. Expansion into the United States and other countries with great potential is under study, with the objective of continuing to export the knowledge it has obtained from its extensive experience.
20 Solaria has a vision of internationalisation to • In 2010, Solaria constructed photovoltaic consolidate its growth strategy: plants in four European countries: Italy, Germany, Greece and the Czech • The global photovoltaic market has Republic, diversifying its investments and undergone highly significant growth for its generation portfolio. over a decade, with annual average growth of some 40%. • In its future expansion plans, Solaria’s objectives include increasing its presence • Exports represented 77% of revenue in in the Americas. 2010, compared to 15% at year-end 2009 and 37% in the first quarter of 2010.
GENERATION
Throughout 2010, Solaria executed important expansion tasks in its generation business, moving into new countries and new markets. Taking advantage of our extensive experience in the Spanish photovoltaic sector, we have developed several electric generation projects based on photovoltaic solar projects in the most promising and active markets in the world, where those that most merit mention include:
• Italy: With projects in the regions of Sardinia, Lazio and Marche, Solaria has accrued installed power of over 19 MW, of which 12 MW are fully owned.
• Czech Republic: Solaria has successfully constructed, started up and financed two plants with a total power of 7 MW.
• Germany: In this country, that is a world reference in the photovoltaic industry, Solaria developed a 6.4 MW project.
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MAIN STRATEGIC LINES
International development in the generation division during 2010 let Solaria:
• Geographically diversify business, reducing exposure to regulatory risk.
• Provide a recurrent source of income that minimises the impact of cyclical changes in a sector as dynamic as renewable energies.
• Obtain better and greater knowledge of our clients’ needs at all levels: operation and maintenance, financing, etc.
Solaria currently has an important portfolio of new projects in these countries, where the experience garnered from executed projects will lead to speeding up the project evaluation process, closing agreements and their execution and financing, as well as permitting stable and sustained business growth.
Moreover, significant efforts have been taken to analyse and search for new markets where both growth potential and financial and regulatory stability are present, which include France, the United Kingdom, Brazil and the United States, in which Solaria will operate with its generation activities.
22 BUSINESS DEVELOPMENT OF TURNKEY PROJECTS
Solaria has extensive experience in processing, • Technical and financial analysis execution, operation, maintenance and running • Engineering - design photovoltaic facilities, providing value during each • Administrative processes of the phases that comprise a comprehensive • Equipment supplying turnkey project. • Construction • Implementation This experience has been gained by executed in- • Operations and maintenance house and third-party projects, of which 48 MW are permanently owned. Solaria shall continue By means of executing ‘turnkey’ facilities, Solaria capitalising on this knowledge in 2011, by provides a comprehensive guarantee of all elements developing new projects in its portfolio. at the facility, as well as a guarantee of output and performance. The Company’s offering in this area has a broad reach, providing services in:
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MAIN STRATEGIC LINES
VERTICAL INTEGRATION
Over the course of 2008, the first cell via presence in practically all levels of the production line was started up, unique in Spain solar value chain. for the production technologies employed. The Solaria cell factory is located at the • Have greater control over the quality of its Puertollano facility and positions us as an own products, performing more efficient verifications on the quality of the cells that integrated manufacturer. The development of are joined to the panels. in-house production of cells provides Solaria with the chance to reduce its dependency on • Acquire greater flexibility in the production outsourced suppliers. The ability to dodge of monocrystalline and polycrystalline currency exchange risks strengthens Solaria’s modules and change from one product status as a domestic producer of high quality type to another depending on market panels with competitive prices. requirements.
Solaria believes that vertical integration will let • Foster improvements in its products with the Company: regard to cell efficiency.
• Reduce its exposure to price fluctuations in raw materials.
• Obtain savings via a reduction in transaction costs at different levels in the photovoltaic value chain.
• Reduce dependence on suppliers in terms of purchase prices and changes in their production capacity.
• Obtain greater protection if faced with possible changes in solar sector dynamics,
24 The following chart depicts Solaria’s positioning throughout the value chain of photovoltaic solar energy:
Distribution/ O&M / Pure silicon Silicon blocks Silicon wafers Solar cells Solar modules Installation Turnkey Generation
Years
Solaria has become a leading supplier of photovoltaic solutions, contributing significantly to the expansion of photovoltaic solar energy in the country.
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THE SECTOR
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THE SECTOR
CURRENT SITUATION OF THE SECTOR
According to a study published recently by EPIA, in 2010 the photovoltaic market experienced unprecedented growth. Some 15,000 MW were installed worldwide with a total installed capacity of 40,000 MW, which translates into close to 2 million photovoltaic facilities.
Europe is now the growth engine for the photovoltaic market, having approximately 70% of the global market, followed by highly promising markets like the United States, China and Australia. The broad area known as the ‘Sun Belt’ encompassing regions like Africa, the Middle East and South America is also a market with huge opportunities.
Photovoltaic solar energy is expanding extremely quickly owing to the dramatic cost reductions this technology is undergoing.
Crystalline technology represents 85-90% of the current global market. Crystalline technology modules are sub-divided into two categories: monocrystalline and polycrystalline.
28 There are four different types of end users in the photovoltaic sector:
• Residential systems (generally up to 20 kW for homes)
• Commercial systems (normally up to 1 MW for office buildings, schools, hospitals and businesses)
• Large systems (higher than 1 MW, assembled on roofs or directly on the ground)
• Systems not connected to the grid (different sizes)
29
LINES OF BUSINESS
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LINES OF BUSINESS
Solaria’s vertical integration lets it maximise its competitive advantages throughout the value chain in the solar energy sector.
Since the outset, Solaria has established the highest quality in all its products, services and tailor-made and added-value solutions as one of the basic mainstays of its business philosophy.
SOLAR Brief description of the production CELLS process
The most important steps in the photovoltaic cell production process are summarised below: Concept and applications • Quality control of the silicon wafers The Company has designed its solar cell production line to be able to process silicon wafers, both Solaria performs a series of previous verifications monocrystalline and polycrystalline, thus positioned on all silicon wafers before starting the with the maximum efficiency standards existing on manufacturing process. The quality of the silicon the market. wafers is a key factor in the final performance of the photovoltaic cells. The production of solar cells is the most technologically complex activity in the photovoltaic Damaged or defective wafers are removed from value chain. the production line.
32 • Texturing. of the wafer. Sunlight is then responsible for providing the energy needed to trigger the Each wafer is subjected to a chemical electron exchange between both layers. process called ‘texturing’. • Anti-reflective layers This chemical process assures that the wafer surface is completely clean, where possible With the aim of maximising the use of solar contaminants are eliminated and the surface radiation, an anti-reflective coat is applied, treated to improve the silicon wafers’ anti- thus reducing the indexes of reflection over the reflective properties. cells’ surfaces. This coat must be uniform and is what adds the characteristic blue colour to photovoltaic cells. • Phosphorus doping • Metal contacts. The silicon on the wafer is initially doped with boron, during the crystallisation process. These contacts permit the photovoltaic cells to Thermal processes spread the phosphorus be connected in series that will later shape the over the surface of the wafer. This process, module. which is often called ‘doping’, creates a negative layer on the silicon wafer. This gives Advanced metallisation processes are executed us the elements required to have a layer with to reduce the system’s resistivity and favour a negative charge and another layer with a subsequent weldability and durability. positive charge in the crystalline structure
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• Classification and final quality controls.
Photovoltaic cells are subjected to the strictest quality controls before sending them to the module production lines. Visual sorting assures the product’s quality and homogeneity. Using a solar simulator, the cells are then classified according to their electric characteristics, measured under standard conditions.
lighting, signalling, telecommunications…), and in grid connected systems (photovoltaic parks, PHOTOVOLTAIC AND THERMAL housing, etc.). They can be deployed on fixed structures or tracking systems, directly on the MODULES ground, or in buildings, roofs, car parks, warehouse roofs and similar. During 2010, smaller modules General description of the line of were developed and designed for special purposes business (primarily off-grid 12 V systems), upholding its trademark quality and high efficiency. These Design, manufacturing, installation and marketing modules will be on the market and available in of photovoltaic modules aimed at electric energy 2011. production from solar radiation. The production process Solaria employs both monocrystalline and polycrystalline silicon cells in its photovoltaic Solaria produces its photovoltaic modules at its two modules, which have the absolutely highest quality production centres: Puertollano (Ciudad Real) and and efficiency to offer a wide range of power Fuenmayor (La Rioja). ratings, which range from 120 Wp (watt-peak) to 250 Wp per module with positive tolerances. The Company manufactures its photovoltaic Solaria is increasing its production capacity both modules on production lines that employ the most- at its Puertollano and Fuenmayor facilities with the advanced technology, with semi-automated and aim of reducing costs via economies of scale and high-capacity stations. This production model is increasing the quality of raw materials acquired due more efficient with respect to costs than a fully- to having greater negotiating power. automated system and is also more flexible when faced with product changes or specific production These panels are employed both in off-grid facilities needs. (rural electrification, water pumping systems,
34 The Company produces five series of photovoltaic The Solaria production process follows a continuous modules (5M Series, 6M2G Series, 6P2G Series, improvement philosophy, which is verified using 5M+ Series and 6Ps Series) with different nominal strict quality controls in all the different stages of power ratings for each series. Solaria modules have this process. Solaria panels have been designed to power ratings ranging from 125 Wp to 250 Wp and guarantee optimal performance and yields under employ both polycrystalline and monocrystalline extreme weather conditions and, in parallel, to solar cells. Said products are manufactured in make them easy to transport and install. Solaria accordance with standard specifications for their only markets and sells photovoltaic modules it use in grid-connected facilities, as well as in off- produces. grid systems for residential, business and even industrial uses. The following table details the main characteristics of each series of photovoltaic modules manufactured All of the Company’s photovoltaic modules are by the Company: manufactured using the highest quality materials, proceeding from suppliers who have first been officially qualified according to the Company’s Quality Plan and certified by outsourced laboratories in accordance with international standards IEC 61215 and IEC 61730.
Electrical Maximum Peak voltage Peak current of No-load Short Module Fill characteristics power of maximum maximum power voltage circuit efficiency Factor 0/+5 power Ipm (A) Voc (V) current Ef (%) (%) Pmax (Wp) Vpm (V) Isc (A)
S5M175 175 36,16 4,84 44,45 5,18 14,0% 76,0% S5M180 180 36,55 4,93 44,75 5,25 14,4% 76,7% S5M185 185 36,93 5,01 44,98 5,31 14,8% 77,5% S6P2G215 215 29,26 7,35 36,38 8,10 13,2% 73,0% S6P2G220 220 29,58 7,44 36,69 8,17 13,5% 73,4% S6P2G225 225 29,89 7,53 37,00 8,25 13,8% 73,7% S6P2G230 230 30,19 7,62 37,31 8,32 14,1% 74,1% S6P2G235 235 30,49 7,71 37,62 8,40 14,4% 74,4% S6M2G225 225 29,15 7,72 36,86 8,42 13,8% 72,5% S6M2G230 230 29,46 7,81 37,10 8,44 14,1% 73,4% S6M2G235 235 29,75 7,90 37,34 8,47 14,4% 74,3% S6M2G240 240 30,05 7,99 37,58 8,49 14,7% 75,2% S6M2G245 245 30,33 8,08 37,82 8,52 15,0% 76,0% S6Ps125 125 17,19 7,27 21,81 8,13 12,5% 70,5% S6Ps130 130 17,33 7,50 22,09 8,28 13,0% 71,1% S6Ps135 135 17,44 7,74 22,37 8,42 13,5% 71,7% S6Ps140 140 17,58 7,96 22,65 8,57 14,0% 72,2% S5M+225 225 47,52 4,74 58,57 5,18 13,5% 74,2% S5M+230 230 48,02 4,79 58,74 5,23 13,8% 74,9% S5M+235 235 48,50 4,85 58,91 5,29 14,1% 75,5% S5M+240 240 48,98 4,90 59,08 5,34 14,4% 76,1% S5M+245 245 49,40 4,96 59,25 5,40 14,7% 76,6% S5M+250 250 49,90 5.01 59,42 5,45 15,0% 77,2%
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LINES OF BUSINESS
Each photovoltaic module is made up of a thus guaranteeing the efficient use of cell series of electrically interconnected solar stocktaking. cells, assembled together with other materials that make the whole resistant to atmospheric • Cell welding: conditions, with robust designs that are easy to install. A brief summary of the main stages of The solar cells that are grouped into ranges the manufacturing process follows: with similar efficiency are then grouped into ‘strings’ and connected via metal conduction bands. A welding machine is employed to assure adhesion and cohesion between the conduction band and the metal conductive surface of the cells.
• ‘String’ inspection:
Inspections are done in this stage to find any possible welding failures, using the most effective techniques. Furthermore, after the cells are interconnected, several high- • Quality control of solar cells and pre- definition cameras carry out a computer production verifications: inspection of the surface area of each ‘string’. First, a quality inspection is performed for the cell batches that are going to be • Lay-up and interconnection: input for a production order, assuring that the specifications match the established Next, a robotic arm places the matrix technical criteria. These quality controls onto a tempered glass panel with high- are implemented using fully automated sorting machines. This has two functions: (i) First, defective cells are removed from the production process; (ii) secondly, given that the maximum power of this ‘string’ of cells is dependent on the individual capacity of the weakest cell in the chain, the sorting system assures that only solar cell ‘strings’ with similar power ratings are formed,
36 transmissivity that is covered with an ethyl- vinyl-acetate (EVA) encapsulation film. After a complete matrix of cells is mounted onto the glass panel, the strings forming the matrix are interconnected so that all the cells are connected in a series electric circuit. Then the external connections are prepared for their subsequent placement into the junction box.
• Laminating, deburring and framing:
Next, an additional sheet of EVA encapsulation material is laid over the interconnected cells, along with an insulating sheet, which will be the back of the module. In addition to electric insulation, this last sheet will protect the active parts of the module from ultraviolet radiation, moisture and other external agents. During this stage, the panels are heat sealed under pressure in a vacuum, employing a fully-automated laminator. Vacuum pumps are used so that the laminate units extract the air from the lamination chamber, creating a vacuum inside the module to obtain seamless and complete seals.
The sub-product obtained is called laminate, which must be deburred to remove any material excess to the profile that melted onto the surface during lamination. This laminate must be protected along its sides and have a structure that makes handling and installing it easier. For this reason, it is framed with anodised aluminium profiles that increase the strength of the overall unit.
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• Insulation and simulation test: • Post-production controls: quality controls are performed using sun simulators and over 30 The module is now subjected to an electric visual inspections, which is how the Company safety test, with the aim of assuring that seeks to determine the initial power of the there is no electric contact between the end module and to detect any defects in the active parts of the module and parts that materials and/or in the production process of are accessible from the outside, which the product. could cause a risk of electric shock at the facility. It then undergoes an additional solar • A team of quality inspectors randomly selects simulation stage to measure all the electric groups of photovoltaic modules produced to characteristics. Lamps that simulate the then perform laboratory tests on them, with behaviour of solar radiation on the earth’s the aim of guaranteeing that all modules surface under standard conditions are operate perfectly under the most demanding employed for this purpose (25º C, 1000 W/ conditions. m2, AM 1.5). Guarantees Quality control in Solaria photovoltaic module manufacturing processes are centred on: As a general rule, Solaria photovoltaic modules have five-year warranties that start • Pre-production controls: quality controls are on the delivery date and cover material and performed through routine inspections and manufacturing defects under normal usage tests, in which the Company seeks to assure and service conditions. Clients also have the the quality of the raw materials obtained guarantee that the modules installed according from external suppliers to thus guarantee the to procedure will produce at least 90% of their production process and the behaviour of the initial nominal electric power for the first 10 module at the end facility. years after installation, and at least 80% of their initial nominal electric • During production: quality control is carried out by the automatic verifiers and visual power for the following 15 years. In other inspections of solar cells, via which the words, a guarantee of power is issued for the Company seeks to maximise the efficiency maximum period of 25 years. of the production lines, eliminating any cells from the lines as soon as any defect is detected.
38 Quality and the environment in Spain and internationally. Its activities are carried out under the auspices of the Ministry Modern-day business circumstances demand of Education and Science and the Energy, great quality from companies’ products, as Environmental and Technological Research well as greater environmental protection. Due Centre (CIEMAT). These organisations, along to this, Solaria is aware of this responsibility with the Ministry of Industry, Tourism and and has established a Integrated Management Commerce, are part of its trust. AT4 Wireless is System as part of its continuous improvement a private technology centre that is recognised process and environmental pollution prevention internationally in the electric/electronics sector. process. This system is based on UNE-EN- ISO 9001:2008 and UNE-EN-ISO 14001:2004 standards, with the objective of obtaining sustainable development in all of its production activities for photovoltaic solar modules and solar thermal collectors. This new management model –called an Integrated Management System– has been certified by an external company accredited by the ENAC.
Solaria’s new Quality and the Environment Policy is present at all levels of the Company and establishes a reference framework to assure the establishment and review of all quality and environmental management objectives and goals.
Solaria photovoltaic modules hold the EC declaration of conformity (EC Directive 2004/108/EC on Electromagnetic Compatibility and Directive 2006/95/EC on Low Voltage). It also holds IEC 61215, IEC 61730 and Electric Safety Class II certifications, issued by AENOR (Spanish Standardisation and Certification Association) and TÜV Nord (leading international group in offering certification services for the energy sector). The tests performed on Solaria photovoltaic modules on which these certifications are based were carried out by the CENER-CIEMAT Foundation and by AT4 Wireless. The National Renewable Energy Centre (CENER) is a technological centre specialising in applied research, development and promotion of renewable energies. It is highly qualified and has recognised prestige both
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In 2010, Solaria also obtained UL 1703 stringently applying the Internal Homologation certification for two of its product families Plan and certified externally by the aforesaid directly through Underwriters Laboratories. In prestigious entities. the first quarter of 2011, another two certificates were awarded via the company Intertek. Furthermore, all Solaria photovoltaic panels are subjected to strict quality controls and The table below summarises all the certifications certificates of conformity with international obtained since January 2010 for different standards to have the highest guarantees. Solaria panels.
All raw materials used in manufacturing Solaria modules are thoroughly inspected and tested by
CERTIFICACIONS SCOPE FAMILY CERTIFICACIONS STAMP / CERTIFYING AGENCY
S6P2G Qualification of design and S6M2G IEC 61215 homologation of crystalline-silicon S6M2G-3BB photovoltaic modules (PV) for land S6Ps use S5M+ S6P2G Qualification of the safety of S6M2G IEC 61730 photovoltaic modules S6M2G-3BB S6Ps S5M+ S5M S6P2G MCS Micro-generation certifying scheme S6M2G S6P S6M
S6M2G Safety standard for flat panels S6P2G UL 1703 designed for installation on top of or integrated with buildings or independently pursuant to NEC and NFPA 70 standards and building S5M+ model codes S6P UL
40 PROJECTS TURNKEY
General description of this line of business
Integrated development of photovoltaic facilities both for investment groups and for companies and individuals concerned about the environment. The different services offered by the Company for these types of projects include:
• Processing of all permits, licences and authorisations needed, including required monitoring to obtain permits
• Localisation and evaluation of suitable sites for photovoltaic activity
• Planning and design of photovoltaic systems
• Technical management, engineering and writing of projects Concept and applications
Supervision and coordination of facility • Over the course of 2010, the Company construction consolidated this line of business, offering its clients integrated turnkey solutions in which Control of the execution of works at the • the photovoltaic systems produced by the facility, with regard to technical and quality Company are installed. levels and meeting timelines
The Company’s turnkey projects encompass Start up of the facilities • large-scale commercial and industrial facilities, as well as electric power stations with several Operations and maintenance • megawatts of power.
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LINES OF BUSINESS
Brief description of the Process of the system as a electric energy production facility under a special system, Solaria’s turnkey projects are executed in three (ii) registration of the system at the main stages, which can sometimes take place administrative registry for special-system simultaneously: facilities, (iii) administrative authorisation and project authorisation from the Spanish • Site localisation and evaluation. The Ministry of Industry, and (iv) permit from initial phase of a turnkey project consists the autonomous community in question of finding and evaluating a suitable and the distribution company to connect site. Among other issues, this process the photovoltaic system to the electric involves evaluating urban planning and grid. development issues, the viability study for connecting the site to the grid and a Solaria offers these services internationally, general cost and profit analysis. possible thanks to its extensive experience in executing turnkey projects in the different • Design, construction and installation. countries in which it is present. Solaria designs, constructs and installs the photovoltaic system. The Company also Guarantees takes charge of obtaining all applicable work authorisations, permits and licenses. The guarantees that Solaria offers its turnkey Starting at that time, construction and project clients are with regard to both its installation activities begin, which come photovoltaic modules and the facility itself. under the strictest and most-detailed supervision to guarantee their proper Quality control installation, safety and optimal efficiency. After it is up and running, the performance To perform quality control for the turnkey and safety of the photovoltaic system is project line of business, Solaria uses internal tested and it is connected to the grid. audits and management programs designed to execute turnkey projects, with the aim of • Homologation, concession of licenses and assuring that they run well and are finished grid connection. Solaria also completes punctually. the administrative processes needed to connect the photovoltaic system to the grid and start operations at the facility. In summary, at present in Spain this administrative process includes the steps detailed below: (i) homologation
Business development Financing Execution Generation
42 Main projects of reference
The table below shows the main projects in which Solaria has been involved in recent years:
Project Total (MW) Location
El Villar 35,7 Spain La Robla 13,3 Spain Biesse 12 Italy Fuenmayor 11 Spain Magacela 11 Spain Villanueva 11 Spain Orte 8 Italy Elpo 7,5 Italy Casa del Angel 7,2 Spain Alhama 7 Spain Stalldorf 6,4 Germany Marche 5 Italy UTA 5,8 Italy Benatky 4,5 Czech Republic Phoenix Solar 4 Germany Albasolar 4 Italy Link Energy 3 Italy Cejetice 2,5 Czech Republic Grupotec 2,4 Spain Positive Energy 2 Greece HAWI 2 Germany Generlux 2 Italy DECA s.r.l. 2 Italy Neimpianti 2 Italy Elettrodinamica 2 Italy Miguelturra 1,3 Spain Villamañan 1,1 Spain ERICA 1,1 Italy Pozuelo de Calatrava 1 Spain Puertollano 1 Spain Poggio Fiorito 1 Italy Hagemeyer 1 Germany La Granja 0,8 Spain Puertollano cubiertas 0,6 Spain Eolicia 0,7 Spain Endesa 0,7 Spain Elassona 0,4 Greece TOTAL (MW) 184,0
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GENERATION Solaria is a leading company in solar plant operation in Spain, contributing decisively to Solaria has executed more than 44 MW of the expansion of the photovoltaic solar market projects in Spain, of which 22 MW are in this country, exporting its knowledge base permanently owned. In 2010, it also completed to the other countries in which it operates. over 33 MW of projects in several main Solaria has the knowledge and experience European countries, with permanent required to offer the market an attractive ownership of 26 MW. The map below shows package of products and services. the exact location and additional information about the plants that Solaria has in Spain and in different European markets.
STALLDORF Power: 6,4 MW Annual production: 5,8 GWh/año Financing: DKB CEJETICE FUENMAYOR Power: 2,5 MW Power: 11 MW Annual production: 2,4 GWh/año Annual production: 11,07 GWh/año Financing: CSOB Financing: Nova Caixa Galicia BENATKY Power: 4,5 MW Annual production: 4,06 GWh/año Financing: CSOB
VILLANUEVA DE LA SERENA Power: 11 MW Annual production: 16,15 GWh/año Financing: Dexia-Sabadell, Nova Caixa Galicia
ELASSONA Power: 0,4 MW Annual production: 0,5 GWh/año Financing: NBG
MARCHE Power: 5 MW Annual production: 5,75 GWh/año PUERTOLLANO 1 Financing: Natixis Power: 1 MW UTA Annual production: 1,51 GWh/año Power: 5,8 MW Financing: Fondos Propios Annual production: 7,7 GWh/año ______Financing: BIIS PUERTOLLANO 2 Power: 0,6 MW VENUSIA Annual production: 0,96 GWh/año Power: 8 MW Financing: Fondos Propios Annual production: 9,74 GWh/año Financing: BIIS
44 Main projects completed in 2010 part of the Grupo Intesa San Paolo, under the Project Finance mode. Solaria completed more than 33 MW in 2010 in the main European markets that it deems Germany strategic, with permanent ownership of 26 MW. This strengthens Solaria’s generation activity, • Stalldorf, Bavaria, Germany (2010): which grew by +118% in 2010, increasing the 6,4 MWp generation capacity on permanently owned sites from 22 MW to 48 MW and, in parallel, Solaria finished its first project in Germany in increasing its geographic diversification. This December 2010, thus diversifying its project translates into recurrent earnings and a well- portfolio and demonstrating its interest in this established presence internationally. market. This is a 6.4 MWp ground mounted plant, 100% owned by Solaria, located less than Italy 400 km from the two plants that the Company has in the Czech Republic, with the consequent • UTA, Sardinia, Italy (2010): 5,826 MWp. operation and maintenance synergies. The project was financed by Deutsche Kreditbank First large international project constructed Aktiengesellschaft. by Solaria and started up in August 2010. It is a rooftop installation on large greenhouses, Czech Republic which includes a new technical component in Solaria’s experience in executing these types of • Benatky, North Bohemia, Czech Republic photovoltaic projects. The project was sold to (2010): 4,5 MWp the Solaria investment fund Aleph Generación, in which Solaria owns 50% participation. This is the first project acquired by Solaria in Project financing was attained successfully the Czech Republic, whose execution started with the Banca Infrastrutture e Sviluppo (BIIS), in May 2010 and finished in December 2010, belonging to the Grupo Intesa San Paolo. then admitted to the country’s attractive tariffs. It is a 4.5 MWp ground mounted plant, 100% • Marches, Marches, Italy (2010): 5 MWp owned by Solaria. The project was financed by the local bank CSOB. After the success of the UTA project, Solaria decided to continue with its commitment to the • Cejetice, South Bohemia, Czech Republic Italian market via the Marches project. There (2010): 2,5 MWp are five photovoltaic plants with 0.998 MWp each, where start-up took place in December With the aim of obtaining synergies with respect 2010, recently obtaining financing with Natixis. to construction, financing, operation and maintenance, in June 2010 Solaria decided to • Lazio, Venosa, Italy (2010): 8 MWp start developing its second photovoltaic plant in the Czech Republic, also 100% permanently This is a ground mounted solar plant located owned by Solaria and started up in December outside of the Italian town of Orte (Viterbo, 2010. The project was financed by the local Venosa), which is owned by the Solaria Aleph bank CSOB. Generación fund, with 50% participation held by Solaria. The plant started operating in December 2010, recently obtaining financing from the Banca Infrastrutture e Sviluppo (BIIS),
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Greece through a wise combination of mature European markets and emerging markets. • Elassona, Greece (2009): 0.4 MWn. New projects At the end of 2009, Solaria reached a strategic agreement with a local partner to execute and Projects are under analysis in markets that operate photovoltaic projects in this country. Solaria considers strategic: The first project, 50% with the local partner, was started in 2009 with the subsequent start Brazil up in November 2010, obtaining financing this same year with the entity NBG. Solaria signed an agreement to execute a 3 MW plant in this country, jointly with CEMIG Spain (Compañía Eléctrica de Minas Gerais), the largest integrated electric company in Brazil • Puertollano 500, Puertollano, Spain that is listed on the Sao Paulo Exchange and (2010): 0.6 MWp New York Stock Exchange. The plant will be located in the town of Sete Lagoas. It is a joint With the aim of taking advantage of its investment by both companies. Works will industrial facilities in Puertollano, and in light begin in June 2011 and completion is forecast of the new tariff structure framed within Royal for December of this same year. Decree 1578/2008, which clearly favours ground mounted installations over solar Italy parks, in September 2010 Solaria successfully installed and started up another large ground Solaria continues to have a commitment to mounted project. Along with the Fuenmayor the Italian market, in which it is currently project, operational in 2008, it was able to constructing a 8.5 MW project jointly with the add a large amount of energy annually to the Solaria-Aleph Fund, and planning to execute grid proceeding from renewable energies, thus projects totalling 12 MW. compensating for the environmental impact caused by the energy consumption that Solaria France needs to be able to develop its activity in its two production plants. Solaria is analysing different investment Photovoltaic energy generation is one of opportunities for projects in France. Meriting Solaria’s main strategic lines, with a total of 48 mention are several ground mounted facilities MW permanently owned in Europe, 22 MW in with a total power of 2 MW. Financing will be Spain and 26 MW distributed internationally in done with local banks. Italy, Greece, the Czech Republic and Germany. There are other geographic regions that Solaria is exploring and analysing opportunities
46 Germany - Equipment - Electric wiring (low and medium voltage) Solaria is analysing projects of over 10 MW - All other plant installations in different parts of Germany, with preliminary - Replacement stock control and optimisation agreements of more than 6 MW already closed - Environmental management and execution planned in 2011. The experience acquired on the Stalldorf project will also let • Predictive, preventive and corrective us optimise costs and execution and start-up maintenance periods for these projects.
Greece • Warranty and post-sales services
Working with local companies, Solaria is • Output optimisation, indicator analysis developing several opportunities with a and plant operations management combined power of 6 MW in different locations. They are ground mounted projects with all Solaria also has all additional components authorisations obtained and ready for imminent required for any type of photovoltaic or execution. thermal facility: structures for attaching the panels, tracking systems, invertors, transformer Spain substations, measurement equipment, batteries, exchangers, storage cells, etc. Despite regulatory changes, Solaria continues to reveal its commitment to the sector in Spain, through its participation in several projects, including one ground mounted facility with pre- allocation of 2 MW, as well as several rooftop modules whose processing are underway.
OPERATIONS AND MAINTENANCE
Solaria operates and manages the integrated maintenance of in-house and third-party plants, using the most modern monitoring and security systems, guaranteeing maximum levels of availability and output at the plants. The main services provided by Solaria are:
• Comprehensive maintenance of photovoltaic plants, including:
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CORPORATE SOCIAL RESPONSIBILITY
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OUR COMMITMENT TO • Development opportunity: because to Solaria equal opportunities are the foundation for SUSTAINABLE finding and retaining the best professionals, DEVELOPMENT including from among the least favoured social groups. The objective of sustainable development is ‘to meet present needs without placing the ability of future generations to meet their own needs in danger’.
The growth of all Company divisions is founded on a platform of sustainable development that lets risks be minimised and opportunities taken advantage of, thus combining business and environmental benefits.
The policies and programmes that generate a positive impact on the environment, as well as on the economy and on society, shall be those that guarantee sustainability of the surroundings and the company itself. The Solaria Corporate Social Responsibility (CSR) strategy has three mainstays:
• Excellence: because advancing in sustainable growth is synonymous with management excellence to Solaria.
• Reindustrialisation: because socioeconomic development in the regions in which it is located is extremely important to Solaria.
50 OUR COMMITMENT TO OUR EMPLOYEES
The excellent results obtained by the Company have gone hand-in-hand with intensive growth of the group of professionals who work at Solaria.
The Company has the very best employees in all its divisions, as support for the present and a guarantee of the organisation’s future. Suitable management of human resources is a strategic mainstay which assures that commitments taken on with clients and other stakeholders are met as sustenance for the Company’s expansion.
During 2010, Solaria has become established as one of the leading companies in the photovoltaic sector, confronting new market circumstances and new sectoral regulations. • The largest growth was experienced in the Industrial Division: the Company factories, Likewise and throughout last year, the with an increase of 63%, when comparing Company’s internationalisation process was the staff size on 31/12 in 2009 and 2010 consolidated, setting up new business offices (437 and 714 employees, respectively). The in France, Germany and Italy, as well as joint average staff, adding together both plants, ventures in Brazil and Greece. was 607 employees.
In 2010, the average number of employees • With respect to staff distribution jumped by 42%, closing the fiscal year with by ages, Solaria has always been an average staff size of 716 employees. 780 characterised in its industrial area by employees on 31 December 2010. a balanced hiring between profiles with greater and lesser experience, combining hiring employees with long careers in factory settings with hiring workers who are entering the job market for the first time.
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• The Company has a vision of economic international subsidiaries were development and reindustrialisation established and the business offices in the regions where its production founded in Germany, Italy and France centres are located: practically 100% grew, with international staff increasing of the Company’s industrial employees from 3 to 17 (data from 31 December are local to the area. 2010).
• The increase in structural –not directly • Business relations continue to intensify, industrial- staff is also remarkable, increasing with the development of joint ventures in from 91 to 120 employees (+45%), the both Brazil and Greece, with further staff majority of them going to the Company’s growth expectations, particularly in the Latin business offices and the International American region. Construction Division.
• This further strengthens the internal structures that permit the Company’s international development, reaching a staff of 66 employees as of 31 December 2010.
• In structural job posts, Solaria is comprised of a team of young professionals, with extensive technical training, whose average age is 34.
Nonetheless, this same group also includes directors, with an average of over 15 years experience, whose solid knowledge of the sector lets them establish the Company’s strategic objectives and align their teams towards obtaining organisational goals.
• During 2010, as a consequence of the growth Solaria experienced,
52 STRONG RECRUITMENT POLICY
• Collaboration agreements with finishing studies and depending on the universities performance evaluation results, there is a real possibility to be hired on staff with an With the aim of guaranteeing new graduates employment contract. a chance to join the workforce quickly, Solaria has signed several collaboration • Integration programmes agreements with prestigious Spanish universities, increasing and strengthening Solaria wants to contribute to the integration its relations with the university community. of groups that have less favourable situations in the job market. To achieve this • Collaboration agreements with other objective, internal programmes have been teaching centres created that seek to maintain a team of people with comparable diversity in ages, As a complement to the aforesaid initiative, genders and social conditions. Solaria has signed collaboration agreements with non-university education centres and university foundations located in the geographic regions in which it executes its activities. These agreements lead to students doing work experience and, after
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Furthermore, 2% of the Solaria staff is disabled, as regulated by current legislation in force. Solaria’s intention is to continue advancing in this area without limiting itself to only meeting legal stipulations. Thus, several action fronts stand out in which the Human Resources Department is working:
Remuneration
Solaria is aware that designing a wage policy to guarantee internal equality that is, in parallel, competitive on the market, is an essential element for retaining talent and Conciliation attaining high workforce stability.
Solaria is aware of the relevance of Ethical conduct professional and family life conciliation. For this reason, different policies and initiatives Knowledge of Solaria’s values by all have been created, such as systems for personnel is a priority goal of the Human schedules, shifts, leaves of absence, Resources Department. In the industrial maternity and paternity leaves, as well as area, each new employee hired at the an internal shift swapping system. The Company is given a copy of the Employee Company aims to make the daily lives of its Manual. The manual includes a section with employees easier and make the integration the Solaria Workplace Code of Conduct, possible of work and family life. developed and published in 2010, which lets all personnel become familiar with the Training organisation and the role that their post plays within it. To the Company, the permanent training of its employees is particularly important, not only as an essential part of obtaining the required technical
54
quality, but also as a tool that is necessary for the full development and professional promotion of all workers.
The ongoing organisation of training courses and seminars is constantly promoted, adapted to the training and development needs that are detected in the annual performance review meetings. Likewise, the teaching of training courses that are created internally by the different Company departments is also promoted: Production, Throughout 2010, different evaluation Quality, Risk Prevention and R&D. This committees were organised in which the performance of 100% of the employees internal training assures that courses are working at that time was assessed. fully adapted to specific business needs, leading to greater technical specialisation Communication and participation and encouraging employees’ knowledge, experience and talent to be transferred to Solaria encourages its employees to give the entire Company. their opinions about any issue related to the Company. Performance review With this goal, there are suggestion The Solaria management model is based on boxes inside the Company’s industrial evaluating talent according to merits and facilities. Suggestions are always taken skills, with the aim of fostering professional into consideration and, if applicable, are development by employees taking on integrated into the different continuous competences and responsibilities. improvement programmes. The Solaria Human Resources Department always has The performance review is part of the open doors and is at the service of each and skills analysis processes for Company every employee. employees, as well as assessing their suitability for the post that they hold. The objective sought is to guarantee that employees have the suitable preparation to confront technological, regulatory and operational system improvements.
In this regard and each semester, employees are evaluated by the heads of the departments in which they work. The professional careers of Solaria employees depend on the results of these reviews.
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The health and safety of our employees committee, in which all Company employees at this work centre are represented, is comprised Solaria has a great commitment to the health of six members, three prevention delegates and safety of its workers. Owing to the large- as workers’ representatives and another three scale growth experienced in recent years, the representing the Company, where all of them Company now has its own Prevention Service, have the training needed in workplace risk which handles the three technical specialities, prevention. If needed, participation is also as well as a contract with an accredited requested by prevention delegates from unions, organisation that specialises in health and members of the in-house Prevention Service managing Workplace accidents (AT) and and even experts from outside the Company Professional Diseases (EP), covering the three with special qualifications. work centres located in Madrid, Puertollano and Fuenmayor. One of the main objectives of the Prevention Additionally and due to the large number of Service consists of training and informing employees, the Puertollano work centre also has staff about the risks of different job posts a Workplace Health and Safety Committee. This and how to handle them, with the aim of
56 minimising and reducing any adverse effects • They can be hybridised with other that can cause either workplace accidents energy sources to be better adapted or professional illnesses. In this sense, the to consumption. training programmes established have included fifty hours of workplace risk prevention training. • They are suitable for modular energy The Prevention Service also investigates and transformation adapted to demand, analyses any work-related accidents that both in size and in territorial location. may occur. At present, measured annually • They are an energy resource that is from February 2010 to February 2011, the very widespread. accident frequency indexes with leave (FI1) and seriousness index (SI) have decreased very Among the fundamental objectives of significantly at the factories. FI1 (-13%), FI2 the Spanish Strategy on Climate Change (-42%). and Clean Energy by the Ministry of the Environment and Rural and Marine Affairs is the effective integration of renewable energy OUR COMMITMENT TO THE into the transport and building sectors, with special emphasis placed on both thermal and ENVIRONMENT photovoltaic solar energy.
Climate change is one of the main threats to sustainable development due to the effect it has –among others- on the global economy, health and social wellbeing, even more so if we analyse the possible impact it can cause to future generations.
Renewable energies contribute to mitigating the effects of climate change, resolving many of the environmental problems we face today. Within renewables, solar technology has the greatest development potential due to the favourable climate conditions in Spain.
Some of the advantages of solar technologies are:
• They can generate electricity and/ or heat in the time ranges in which consumption is greatest.
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Environmental performance
Energy
Electric energy consumption at Solaria factories in 2010 was some 20,708.84 GJ.
Solaria permanently owns different photovoltaic plants both in Spain and abroad.
The energy generated at the different Solaria plants installed in Spain was 29.7 GWh, while the energy generated at plants installed outside of Spain was 15.2 GWh.
Over the course of 2011, Solaria plans to develop different projects to install photovoltaic plants outside of Spain. All of this entails adding a large amount of energy per annum proceeding from renewable energies, thus counterbalancing environmental impact, since these plants produce clean energy.
58 Waste
In the different types of processes and activities carried out at Solaria, a minimum quantity of hazardous wastes are generated.
Furthermore, the Company takes every effort to employ materials that are easily recyclable and/or reusable, seeking to minimise wastes generated as much as possible at all times. Solaria also performs external audits each year under the framework of the ISO 14001, in which the proper environmental behaviour of the Company is evaluated.
Solaria holds the authorisations necessary as a production centre of hazardous wastes and always assures that all wastes generated are correctly separated and managed, working at all times with authorised managers and transport carriers, both for hazardous and non-hazardous wastes.
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AUDIT COMMITTEE REPORT
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62 CONTENT OF THE INTERNAL AUDIT REPORT
1. ORGANISATION OF THE AUDIT COMMITTEE
1. Composition 2. Functions and responsibilities 3. Operation
2. SESSIONS HELD
1. Sessions and convocations 2. Quorum 3. Audit Committee meetings
3. AUDIT COMMITTEE ACTIVITIES
1. Review of financial-economic information 2. Relations with external auditors 3. Supervision of internal audit and management control activities 4. Risk management 5. Corporate governance
4. CONCLUSION
5. APPROVAL
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ORGANISATION OF THE AUDIT COMMITTEE
1. Composition
The SOLARIA ENERGÍA Y MEDIO AMBIENTE, SA Audit Committee was created by the agreement of the Board of Directors on 24 May 2007.
Its regulation is detailed in article 48 of the Company Bylaws.
The composition of the Audit Committee heeds the following rules:
1. It shall be made up of three members, the majority not board members, appointed by the Board of Directors, who shall exercise their post for a four-year term, and may be re-elected at the end of this term.
2. The Committee chairperson shall be elected from among non-board members, replaced every four years, and may be re-elected one year after the termination date of the term.
3. The Committee secretary shall be appointed from among its members. On 31 December 2010, the composition of the Audit Committee was:
Appointment Name Post Nature of Post
24 may 2007 Mr. Manuel Azpilicueta Ferrer Chairman External advisor 25 may 2007 Mr. Iñigo Sagardoy de Simón Member External advisor 26 may 2007 Mr. Miguel Díaz-Tejeiro Larrañaga Member Board member
64 Mr Manuel Azpilicueta (independent), member since 24/05/2007.
• Business expert and state economist. • From 1976 to 1985, vice-president of the National Institute of Industry (INI), president of Banco Unión and president of Repsol Butano. • Managing director of Russell Reynolds Associates, one of the main international human-resources consulting firms, for 15 years. • At present, president of Autopista Madrid Sur and member of several boards of directors and advisory committees. • Honorary chairman of the Círculo de Empresarios and previously the chairman. • Acts as chairman of the Audit Committee and is a member of the Appointments and Remuneration Committee.
Mr Iñigo Sagardoy de Simón (independent), member since 24/05/2007.
• Bachelor in Law and Corporate Legal Counsel and PhD in Employment Law. • At present, president of the firm Sagardoy Abogados. • Vice-president and member of the Executive Committee of the International Employment Law, Pensions, and Employee Benefits Alliance since 2000. • Member of the European Employment Lawyers Association since 2005. • Chairman of the Advisory Board of IRCO, IESE since 2001. • Member of the Advisory Board of the company Global Strategies, SL since 2006. • Board member of Broad Optical Access since 1998. • Member of the Executive Committee of the Spanish Forum of Labour Law Specialists. • At present, he is also the vice-chairman and member of the Trust of the Sagardoy Foundation, a post held since 2002. • Acts as chairman of the Appointments and Remuneration Committee and member of the Audit Committee.
Mr Miguel Díaz-Tejeiro Larrañaga (board), member since 24/05/2007.
• Computer engineer. • Until accession to Company senior management, he worked at Instalaciones Díaz-Tejeiro, SL, performing different functions in the sales department
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2. Functions and responsibilities of the Audit Committee
The functions of the Audit Committee include:
1. Notify the General Shareholders Meeting about issues within their competence raised therein by shareholders.
2. Propose to the Board of Directors, for their submission to the General Shareholders Meeting, the appointment of external account auditors, as made reference to in section 264 of the Capital Companies Act, as well as their hiring conditions, scope of their professional term and, where applicable, their rescission or not.
3. Supervise the internal audit systems.
4. Inspect the Company and Group accounts, assuring compliance with legal requirements and the correct application of generally accepted accounting principles, working directly with external and internal auditors, to this end.
5. Have full knowledge of the financial information process and internal control systems. In particular, the Audit Committee is responsible for:
a. supervising the process for drawing up and the integrity of financial information related to the Company and the Group; and
b. periodically review the internal control and risk management systems, as well as the appointment and replacement of the parties in charge of them.
6. Maintain relations with external auditors to receive information about matters that could put their independence at risk and any other matters related to the account auditing execution process, as well as other communications pursuant to account audit legislation and auditing technical standards.
7. Supervise compliance with the audit contract, assuring that opinion on the annual account and the main contents of the audit report are drawn up clearly and precisely, as well as evaluating the results of each audit.
8. Inspect the periodic financial information that the Company must supply to markets and their supervisory bodies.
66 9. Supervise compliance with regulations with respect to linked operations. In particular, assure that the information provided to the market about said operations complies with that which is established in Order 3050/2004 by the Ministry of Finance of 15 September 2004.
10. Examine compliance with the Internal Conduct Regulations in securities markets of the present regulations and, in general, of the Company’s rules of governance and make proposals required to improve them.
11. Inform, review and supervise the Group’s risk control policy.
12. Receive information and, where applicable, issue reports on the disciplinary measures planned for imposition on members of the Company’s senior management team.
13. At least once a year, evaluate their performance and the quality of their work.
3. Committee operation
3.1. The system planned in Board regulations establishes the valid establishment of the Audit Committee when more than half of its members attend the meeting, present or represented. The representation of absent members may be granted in favour of another member of the Audit Committee by any written means addressed to the chairman, although no member may hold more than two representations.
3.2. The adoption of agreements by the Audit Committee shall be by majority of the attendees present and represented. In the event of a draw, the matter shall be taken to the Board of Directors.
3.3. The Committee is empowered to request expert advice. The Committee may also request any Group employee and the account auditor to attend its meetings (including management personnel).
3.4. As shown in the activities report below, the Committee upholds fluent and permanent contact with the account auditor and Group management team.
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2. SESSIONS HELD
1. Sessions and convocations
The Audit Committee, pursuant to its regulations, meets as many times as called by agreement of the Committee itself or its chairman and, at least, four times a year. Seven sessions were held in 2010. The meetings shall generally be held at the Company headquarters, although its members may designate another location for a specific meeting.
The Audit Committee will also meet whenever it is called by the chairman, at his initiative or the request of any of its members, who may always notify the chair about the advisability of including a specific matter in the agenda for the following meeting. The convocation shall have to be sent by writing, including the agenda, with advance notice of at least three days.
2. Quorum
The Audit Committee shall be deemed as validly established when the majority of its members are present. Attendance can only be delegated to a non-board member.
An agreement shall be valid when it receives a majority favourable vote of the Committee members present. In the event of a draw, the chairman shall cast the deciding vote.
3. 2010 Audit Committee meetings
Attendance as present at Audit Committee meetings in 2010 was:
No. of mettings • Mr. Manuel Azpilicueta Ferrer 7/7 • Mr. Iñigo Sagardoy de Simón 7/7 • Mr. Miguel Díaz-Tejeiro Larrañaga 7/7
68 During 2010, the average estimated time that each board member of the Audit Committee devoted to preparing and participating at meetings was some 65 hours.
No Committee members were absent from any of the seven meetings held in 2010. The issues handled in these seven meetings were:
Committee date Issues handled in sessions
Session on 26/02/10 Inspection of Company accounts Session on 14/04/10 Supervision of compliance with regulations with respect to linked operations Session on 03/05/10 Drawing up of the annual report on its operations Session on 14/05/10 Review of periodic financial information Session on 26/08/10 Review of periodic financial information Session on 15/11/10 Review of periodic financial information Session on 21/12/10 Supervision of the Company rules of governance and drawing up of proposals for its improvement
3. AUDIT COMMITTEE ACTIVITIES
The present section summarises the activities of the Audit Committee in 2010, where said activities are grouped around its basic functions.
1. Review of financial information
The Committee, in accordance with the competences attributed in virtue of article 13.2 of the Board of Directors regulations, paid particular attention to the inspection, prior to that done by the Board of Directors, and dissemination of the Company and Group annual accounts, as well as the quarterly financial statements, and all other information made available to the market and supervisory bodies during the fiscal year.
The Committee carried out the appropriate suggestions and gave a favourable assessment of the annual accounts, the consolidated quarterly financial statements, the periodic public information to send to the National Stock Exchange Commission (CNMV), the Group Annual Report and the Corporate Governance Annual Report.
The Committee also issued a favourable ruling on the periodic financial statements in 2010.
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2. Relations with external auditors
In its session held on 3 May 2010, the Committee agreed to notify the Board of Directors of its favourable ruling on the annual accounts and management report for the fiscal year closed on 31 December 2009.
KPMG Auditores, SL was the auditor for the individual and consolidated Solaria Group accounts for the 2010 fiscal year.
The account auditor was present at one of the seven meetings held by the Audit Committee in the last fiscal year, thus reconfirming the function planned for this committee, when it deems it appropriate, to be employed as a communication channel between the latter and the account auditor.
The amount invoiced by the Group account auditor during the 2010 fiscal year was:
• Solaria Group annual consolidated accounts, 33 thousand euros • Solaria Energía y Medio Ambiente, SA annual individual accounts, 115 thousand euros • Other services provided, 24 thousand euros
Services apart from auditing provided by KPMG Auditores, SL were for the limited inspection of the Group quarterly financial statements.
The services commissioned from our auditors meet with the requirements of the Sarbanes-Oxley Act and do not include the execution of tasks incompatible with audit functions.
The 2010 fiscal year was the second year audited by KPMG Auditores, SL.
3. Supervision of internal audit and internal control activities
Internal audits at Solaria were established as an independent and objective appraisal activity. Additionally, the Audit Committee also handled recurrent matters in its meetings, including:
• Monitoring of the Internal Audit Plan • Information on linked operations • Compliance with the code of conduct
70 3.1. Activities developed
In compliance with its primordial function of supporting the Board of Directors, the main activities handled, analysed and in progress by the Audit Committee, can be broken down into four different areas of competences:
FINANCIAL REPORTING INTERNAL AUDITING
Periodic information to CNMV Scope of functions Suitability of accounting policies IA implementation and Other analyses INTERNAL AUDIT recommendations COMMITTEE IA efficiency (main areas of analysis and control)
INTERNAL RISKS AND CONTROL EXTERNAL AUDITING
Analysis of areas of risk Appointment and remuneration Efficacy of controls Scope of functions Risks of fraud Significant audit points
3.2. Internal control
The Audit Committee supervised the implications of the working document on the Internal Control System on Financial Information (SCIIF) for listed companies published by the CNMV (National Securities Market Commission) in 2010.
4. Risk management
In 2010, Solaria Energía y Medio Ambiente, SA continued to grow, carrying out expansion outside of Spain. To confront this growth securely and in a controlled manner, Solaria follows a single management system with offices in those countries in which administrative or logistics conditions thus require, and also leads to more efficient work.
In upcoming years, the plan is to continue with the same expansion policy, so that to confront the new scenario, Solaria Energía y Medio Ambiente, SA believes risk management is a necessary activity and function in decision- making.
71 ANNUAL REPORT 2010
AUDIT COMMITTEE REPORT
RISK MATRIX IDENTIFIED WITH SOLARIA
OFFENCES
FRAUD CORRUPTION AMONG MONEY CRIMES AGAINST INDIVIDUALS LAUNDERING INTELLECTUAL PROPERTY
CRIMES RELATED TO THE CORRUPTION IN CRIMES AGAINST DISCOVERY AND MARKET AND CONSUMERS INTERNATIONAL THE TREASURY DISCLOSURE OF COMMERCIAL SECRETS TRANSACTIONS CRIMES AGAINST NATURAL BRIBERY CRIMES AGAINST RESOURCES AND INFLUENCE PEDDLING INDUSTRIAL THE ENVIRONMENT PROPERTY
RISK AREA 1 CONTROL
RISK AREA 2 IMPORTANT
RISK AREA 3 PRIORITY
WORKING AREAS
FIXED ASSETS MANAGEMENT RECEPTION SUBSIDIARIES CONTROL IT R&D QUALITY LOGISTICS (RECEPTION/ SAFETY SHIPMENTS) PROCUREMENT INVESTOR RELATIONS ENGINEERING PRODUCTION
ACCOUNTS PAYABLE ACCOUNTING CONSTRUCTION BUSINESS DEVELOPMENT
TREASURY COMMERCIAL GENERAL SERVICES HR
INTERNAL AUDITING STOCK MARKETING BILLING
ACCOUNTS RECEIVABLE PROJECT FINANCE GENERAL LEGAL MANAGEMENT
RISK AREA CONTROL
RISK AREA 1 TO BE CONSIDERED
RISK AREA 2 IMPORTANT
RISK AREA 3 PRIORITY
72 5. Corporate governance
The Internal Audit Committee has reviewed and inspected the Annual Report on Corporate Governance for the 2010 fiscal year for approval by the Board of Directors.
At the same session, the Board Report on Remuneration Policy was reviewed and accepted, with the proposal raised to the Appointments and Remuneration Committee.
4. CONCLUSION
Throughout 2010, the Audit Committee has suitably exercised the functions with which it was entrusted.
The Audit Committee has been in constant contact with those in charge of internal audits and with other Group departments, as well as with the account auditor, and was able to verify the quality and transparency of the Group’s periodic financial information and the efficacy of its internal control systems.
5. APPROVAL
The present report was approved by the Solaria Energía y Medio Ambiente, SA Audit Committee in its session of 13 April 2011.
73
CONSOLIDATED ANNUAL ACCOUNTS
75 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
CONTENTS OF THE NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS FOR 2010
1. Nature, Activities and Composition of the Group 2. Basis of Preparation 2.1 Fair presentation 2.2 Basis of preparation of the consolidated annual accounts 2.3 Comparison of information 2.4 Functional and presentation currency 2.5 Relevant accounting estimates, assumptions and judgements used when applying accounting principles 2.6 Standards, amendments and interpretations effective from 1 January 2009 applicable to the accounts of the Group 2.7 Standards, amendments and interpretations effective from 1 January 2009 application of which has no impact on the Group’s accounts 3. Distribution of Profit 4. Significant Accounting Principles 4.1 Subsidiaries 4.2 Business combinations 4.3 Joint ventures 4.4 Foreign currency transactions, balances and cash flows 4.5 Property, plant and equipment 4.6 Intangible assets 4.7 Impairment losses on non-financial assets subject to amortisation or depreciation 4.8 Leases 4.9 Financial assets 4.10 Financial liabilities
76 4.11 Hedge accounting 4.12 Equity instruments held by the Parent company 4.13 Inventories 4.14 Cash and cash equivalents 4.15 Grants 4.16 Provisions 4.17 Compensation for termination of employment 4.18 Short-term employee benefits 4.19 Income tax 4.20 Recognition of revenue 4.21 Classification of assets and liabilities as current and non-current 4.22 Environment 5. Segment Reporting 6. Property, Plant and Equipment 7. Intangible Assets 8. Operating Leases 9. Risk Management Policy 10. Other Current Financial Assets 11. Trade and Other Receivables 12. Derivative Financial Instruments 13. Inventories 14. Cash and Cash Equivalents 15. Equity 16. Other Comprehensive Income 17. Loans and Borrowings 18. Deferred Income 19. Trade and Other Payables 20. Taxation 21. Income and Expenses 22. Contingencies 23. Relevant Information regarding the Board of Directors and Senior Management 24. Earnings per Share 25. Balances and Transactions with Related Parties 26. Other Information 27. Subsequent Events APPENDIXES Information on subsidiaries
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CONSOLIDATED ANNUAL ACCOUNTS
Auditors’ Report on the Consolidated Annual Accounts (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)
To the Shareholders of Solaria Energía y Medio Ambiente, S.A.
We have audited the consolidated annual accounts of Solaria Energía y Medio Ambiente, S.A. (the “Company”) and subsidiaries (the “Group”), which comprise the consolidated statement of financial position at 31 December 2010, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows for the year then ended and the notes thereto. As mentioned in note 2 to the accompanying consolidated annual accounts, in accordance with International Financial Reporting Standards as adopted by the European Union, and other provisions of financial reporting legislation applicable to the Group, preparation of the Group’s annual accounts is the responsibility of the Company’s directors. Our responsibility is to express an opinion on the consolidated annual accounts taken as a whole, based on our audit, which was conducted in accordance with prevailing legislation regulating the audit of accounts in Spain, which requires examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated annual accounts and evaluating whether their overall presentation, the accounting principles and criteria used and the accounting estimates made comply with the applicable legislation governing financial information.
In our opinion, the accompanying consolidated annual accounts for 2010 present fairly, in all material respects, the consolidated equity and consolidated financial position of Solaria Energía y Medio Ambiente, S.A. and subsidiaries at 31 December 2010 and the consolidated results of their operations and consolidated cash flows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union, and other provisions of applicable legislation governing financial reporting.
78 The accompanying consolidated director’s report for 2010 contains such explanations as the Directors of Solaria Energía y Medio Ambiente, S.A. consider relevant to the situation of the Group, the evolution of its business and other matters, and is not an integral part of the consolidated annual accounts. We have verified that the accounting information contained therein is consistent with that disclosed in the consolidated annual accounts for 2010. Our work as auditors is limited to the verification of the consolidated director’s report within the scope described in this paragraph and does not include a review of information other than that obtained from the accounting records of the Company and its subsidiaries.
KPMG Auditores, S.L. (Signed on the original in Spanish)
Carlos Peregrina García Partner 22 February 2011
79 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 2010 AND 2009 AND AT 1 JANUARY 2009 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) Thousands of euros
Assets Note 31/12/10 31/12/09 (*) 1/1/09 (*)
Property, plant and equipment 6 200,010 199,358 70,099
Intangible assets 7 2,443 2,969 18
Deferred tax assets 20 16,893 15,208 14,006
Trade receivables 11 5,042 7,590 -
Other non-current financial assets 145 124 34
Total non-current assets 224,533 225,249 84,157
Current assets
Inventories 13 135,662 27,729 191,190
Trade and other receivables 11 51,756 46,588 100,162
Other current financial assets 10 10,602 11,097 -
Current tax assets - - 7,603
Other current assets 1,180 844 -
Cash and cash equivalents 14 18,914 17,503 10,142
Total current assets 218,114 103,761 309,097
TOTAL ASSETS 442,647 329,010 393,254
(*) Restated figures
The accompanying consolidated notes form an integral part of the consolidated annual accounts for 2010.
80 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 2010 AND 2009 AND AT 1 JANUARY 2009 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)
Thousands of euros
Note 31/12/10 31/12/09 (*) 1/1/09 (*)
Liabilities and Equity
Share capital 997 1,011 1,011
Share premium 211,558 213,586 213,586
Other reserves 5,311 5,311 5,311
Own shares (1,146) (5,016) (8,540)
Retained earnings 16,026 14,564 19,458
Other comprehensive income 16 (353) (198) (509)
Total equity 15 232,393 229,258 230,317
Loans and borrowings 17 74,333 25,029 29,374
Other financial liabilities 18 3,634 4,167 5,107
Total non-current liabilities 77,967 29,196 34,481
Loans and borrowings 57,155 39,196 63,704
Derivative financial instruments 12 2,345 2,105 1,957
Trade and other payables 19 72,670 29,255 62,795
Other current liabilities 117 - -
Total current liabilities 132,287 70,556 128,456
132,287 70,556
TOTAL LIABILITIES AND EQUITY 442,647 329,010 393,254
(*) Restated figures
The accompanying consolidated notes form an integral part of the consolidated annual accounts for 2010.
81 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2010 AND 2009 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)
Thousands of euros
CONTINUING OPERATIONS Note 2010 2009 (*)
Revenues 21(a) 161,335 88,892
Other income 1,396 1,595
Changes in inventories of finished goods and work in progress 13 88,157 (157,219)
Self-constructed non-current assets 2,095 116,918
Raw materials and consumables used 21 (b) (197,964) (12,628)
Personnel expenses 21 (c) (23,468) (15,267)
Amortisation and depreciation 6 y 7 (9,082) (4,402)
Non-financial and other capital grants 532 940
Impairment losses on current assets 21 (d) - (2,127)
Other expenses 11 (14,034) (13,740)
21 (c)
Operating profit 8,967 2,962
Finance income 21 (f) 1,936 1,152
Finance expenses 21 (f) (5,975) (5,095)
Net finance expense (4,039) (3,943)
Profit/(loss) before tax from continuing operations 4,928 (981)
Income tax expense/(recoverable tax) 20 1,576 1,279
Profit for the year from continuing operations 6,504 298
Profit for the year 6,504 298
Attributable to: 1,576
Equity holders of the parent 15 6,504 298
Basic and diluted earnings per share (Euros) 24 0,07 0,00
(*) Restated figures
The accompanying consolidated notes form an integral part of the consolidated annual accounts for 2010.
82 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2010 AND 2009
(Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) Thousands of euros
Note 2010 2009 (*)
Profit for the year 6,504 298
Other comprehensive income:
Cash flow hedges 12 y 16 (223) 444
Tax effect 67 (133)
Total comprehensive income for the year 6,349 609
Total comprehensive income attributable to equity holders of 6,349 609 the Parent
83 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2010 AND 2009 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)
Thousands of euros
Share Share Other Retained Own Other Total capital premium reserves earnings shares compre- equity hensi ve in- come
Balances at 31 December 1,011 213,586 5,311 23,022 (8,540) (509) 233,881 2008 Changes in accounting policy - - - (3,564) - - (3,564) Restated balances at January 1,011 213,586 5,311 19,458 (8,540) (509) 230,317 2009 Restated total - - - 298 - 311 609 comprehensive income for the year Own shares redeemed - - - - (2,738) - (2,738) Own shares sold - - - (3,293) 3,524 - 2,969 Other movements - - - (1,899) - - (1,899) Balances at 31 December 1,011 213,586 5,311 14,564 (5,016) (198) 229,258 2009 Total comprehensive - - - 6,504 - (155) 6,349 income for the year Operations with equity ------holders or owners Distribution of dividends - (2,022) - - - - (2,022) Own shares redeemed - (6) - - (1,146) - (1,152) Redemption of own shares (14) - - (5,002) 5,016 - - Other movements - - - (40) - - (40) Balances at 31 December 997 211,558 5,311 16,026 (1,146) (353) 232,393 2010
(*) Restated figures
The accompanying consolidated notes form an integral part of the consolidated annual accounts for 2010.
84 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2010 AND 2009 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)
Thousands of euros
2010 2009 (*)
Cash flows from operating activities Profit for the year 6,504 298 Adjustments to profit 11,955 8,645 Amortisation and depreciation 9,082 4,353 Recognition of grants (532) (940) Impairment losses on trade receivables - 2,127 Finance income (936) (444) Finance expenses 3,732 3,401 Change in fair value of financial instruments 609 148 Income tax (1,576) (1,279) Changes in operating assets and liabilities (69,164) 74,208 Inventories (105,582) 44,681 Trade and other receivables (13,454) 51,798 Other current assets 159 6,759 Trade and other payables 49,283 (29,210) Other current liabilities 430 180 Other cash flows from operating activities (943) (4,059) Interest paid (3,732) (4,503) Interest received 936 444 Other payments (collections) 1,853 - Cash flows from operating activities (53,224) 77,813 Cash flows from investing activities (14,353) (39,324) Proceeds from sale of intangible assets 2 - 2 Proceeds from sale of financial assets - 403 Acquisition of intangible assets (1,377) (3,242) Acquisition of property, plant and equipment (12,955) (17,800) Non-current receivables - (7,590) Acquisition of other financial liabilities (21) (11,097) 2,548 - Non-current receivables 2,548 - Cash flows from investing activities (11,805) (39,324) Cash flows from financing activities Payments for the acquisition of own shares and other equity instruments (1,146) (7,442) Collections for the disposal of own shares and other equity instruments - 7,673 Issue of 69,608 - Loans and borrowings 69,608 - Other payments - (3,608) Payments on loans and borrowings and finance leases - (27,751) Payments for dividends and remuneration for other equity instruments (2,022) - Dividends (2,022) - Net cash generated by financing activities 66,440 (31,128) Net increase in cash and cash equivalents 1,411 7,361 Cash and cash equivalents at 1 January 2010 17,503 10,142 Cash and cash equivalents at 31 December 2010 18,914 17,503
(*) Restated figures The accompanying consolidated notes form an integral part of the consolidated annual accounts for 2010.
85 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS 31 DECEMBER 2010 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)
1.NATURE, ACTIVITIES AND COMPOSITION OF THE GROUP
Solaria Energía y Medio Ambiente, S.A. (hereinafter Solaria or the Company) was incorporated with limited liability under Spanish law on 27 November 2002. On 28 April 2008 the Company moved its registered offices to calle Velázquez, 47, Madrid, subsequently moving to calle Princesa, 2, Madrid on 1 July 2009.
Its statutory activity primarily consists of:
1. Installation and repair of solar, thermal, photovoltaic and wind energy plants, as well as any other type of renewable energy
2. Installation and repair of plumbing, gas, electricity, heating and air conditioning.
3. Carrying out technical projects relating to the above activities.
4. Maintenance and repair services relating to works carried out either by the Company or by third parties
5. Manufacture of modules, cells and components for solar, thermal, wind and other renewable energy sources.
The principal activity of Solaria during 2010 was the production of photovoltaic modules for their sale to third parties and use in turnkey projects. These projects consist of designing and carrying out photovoltaic solar energy installations through contracts for the construction, installation and start-up of photovoltaic solar plants.
The photovoltaic modules are largely produced at the Company’s factories in Puertollano (Ciudad Real) and Fuenmayor (La Rioja).
The Company’s shares are quoted on the four official Spanish stock exchanges and have been listed in the automated quotation system since 19 June 2007.
86 total share capital of Solaria Deutschland GmbH, Solaria Italia, S.r.l and Solaria Francia, S.A.S. and 50% of the share capital of El Fondo Solaria Aleph, F.C.R., Elassona Solar Energía, L.L.C. and Serra UTA, S.r.l.
All Group companies are incorporated or acquired at their start-up stage for the purpose of constructing solar plants and do not constitute business acquisitions.
During 2009 the companies Magacela Solar 1, S.L. and Técnicas Ambientales del Norte, S.L. were sold to Solaria DTL Corporación, S.L. (see notes 6, 13 and 25 (b)) while Alhama Solar, S.L. was sold to a third party.
The Parent company is controlled by DTL Corporación, S.L. (see note 15), which has its registered offices in Madrid and is the ultimate Parent company of the Group. The consolidated annual accounts of DTL Corporación, S.L. for 2010 will be prepared and filed at the Mercantile Registry of Madrid. The consolidated annual accounts for 2009 were authorised for issue on 30 June 2010 and presented a consolidated profit of Euros 5,911 thousand and consolidated equity of Euros 271,225 thousand.
2. BASIS OF PREPARATION
2.1. Fair presentation
The consolidated annual accounts have been prepared based on the accounting records of Solaria Energía y Medio Ambiente, S.A. and the consolidated entities in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with other applicable provisions of the regulatory framework relating to financial reporting to present fairly the consolidated equity and consolidated financial position of the Group at 31 December 2010, as well as the consolidated results of its operations and changes in consolidated equity and consolidated cash flows for the year then ended.
The directors of the Parent consider that the consolidated annual accounts for 2010, which were prepared on 22 February 2011, will be approved by the shareholders without significant changes.
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2.2. Basis of preparation of the consolidated annual accounts
These consolidated annual accounts have been prepared on the historical cost basis, except for derivative finan- cial instruments, which have been recognised at fair value.
2.3. Comparison of information
The consolidated statement of financial position, consolidated income statement, consolidated statement of changes in equity, consolidated statement of cash flows and the notes thereto for 2010 include comparative figures for 2009, which formed part of the consolidated annual accounts approved by shareholders at the annual general meeting held on 30 June 2010.
Nevertheless, in 2007 the Group signed a sales contract with Nozesba Desarrollos Energéticos S.A. to supply modules totalling 6.6 MWp, of which 4.9 MWp was invoiced and 1.7 MWp supplied. The modules invoiced in accordance with the agreements reached with the customer were subject to recognition as sales. However, according to the terms of the contract the criteria for the recognition of revenue was not met, primarily because the aforementioned modules were not consigned to the customer, despite being available to them at the Group’s warehouses. During the period 2008-2010 actions were undertaken to fulfil the terms of the contract, but a ruling was issued on 2 November 2010 (see note 22) whereby the contract was considered null and void with respect to the amounts not received or accepted by Nozesba Desarrollos Energéticos S.A.
Consequently the annual accounts have been restated with retroactive effect from 2007 (to reflect the change in the value of inventories), recognising balances payable in respect of reimbursement of advances received, cancelling balances receivable and restating the equivalent inventories available for sale.
88 The effects of this restatement are as follows: Thousands of euros
01/01/09 31/12/09 Consolidated statements of financial position Assets
Deferred tax assets 1,528 2,450 Inventories 7,572 4,499 Trade and other receivables (3,800) (3,800) 5,300 3,149
Equity and liabilities - Retained earnings (3,564) (5,715) Trade and other payables 8,864 8,864 5,300 3,149
Consolidated income statements Changes in inventories of finished goods and work in progress - (3,073) Income tax expense - 922 Loss for the year - (2,151)
2.4. Functional and presentation currency
The figures disclosed in the consolidated annual accounts are expressed in thousands of Euros, the Parent’s functional and presentation currency, rounded off to the nearest thousand.
2.5. Relevant accounting estimates, assumptions and judgements used when applying accounting principles
In preparing the consolidated annual accounts under IFRS-EU, the directors of the Parent company have made relevant estimates, assumptions and judgements in their application of the Group’s accounting policies based on historical experience and other factors considered reasonable in light of the current circumstances and that constitute the basis for establishing the carrying amounts of assets and liabilities not easily determinable through other sources. The Company reviews its estimates on a continuous basis.
The future success of the Group depends substantially on its capacity to construct the new plants and to manage its production lines under an efficient cost structure based on the requirements of the projects in the medium and long term. The expansion of the Company’s production capacity is subject to the risks and uncertainties inherent to a business project.
To efficiently manage the expansion of its activities, the Company strives to make continual improvements to its operating and financial systems and its procedures and controls, to increase the efficiency of its production lines.
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The strategy pursued by Solaria since the end of 2008, which has already had a notable impact in 2010, is enabling it to increase its capacity to generate revenues, both in the photovoltaic market and from the construction of solar plants.
A summary of the items requiring a greater degree of judgement or complexity, or where the assumptions and estimates made are significant to the preparation of the consolidated annual accounts, are as follows:
a) Recognition of revenue
The Group follows the percentage of completion method for those turnkey contracts in which, due to their characteristics, the customer progressively assumes the control and risks deriving from the contract as the construction work advances. This method is based on estimates of the stage of completion of projects. Significant estimates include the total cost of the contracts, the costs required to complete the works, total revenue, associated risks and other judgements.
b) Useful lives of property, plant and equipment
Group management calculates the estimated useful life of its property, plant and equipment, primarily comprising the photovoltaic solar plants, and the corresponding depreciation charges. This estimate is based on the foreseen life cycles of the Group assets for which state-of-the-art technology is used. This could change significantly due to the technical innovations and initiatives of the Group’s competitors as the sector develops. Management will modify the depreciation charges for these items when the useful lives are considered to differ from the lives previously estimated and will depreciate or derecognise technically obsolete or non-strategic assets that have been abandoned or sold.
c) Guarantees
In accordance with usual sector practice, the Group extends warranties to both its module sale and turnkey project customers for a specified number of years. Taking into account the lack of significant claims on warranties to date, Group management has calculated the provisions for warranties based on relevant experience and on the percentage of errors arising from the effectiveness testing carried out on the modules produced to assess its commitments with regard to existing warranties. However, the directors of the Parent company do not consider that the warranties extended will generate any significant liabilities (see note 26 (d)).
90 d) Valuation allowance for trade receivables
Valuation allowances for bad debts require a high degree of judgement by management and a review of individual balances based on customers’ credit ratings, market trends, and historical analysis of bad debts at aggregate level. Any reduction in the volume of outstanding balances results in a reduction in the valuation allowance for bad debts, which is based on analysis of historical bad debts. e) Deferred tax assets
At 31 December 2010, the Group has recognised deferred tax assets amounting to Euros 16,893 thousand (Euros 15,209 thousand at 31 December 2009), of which Euros 5,749 thousand comprises tax credits and the remaining amount reflects deductible temporary differences (see note 20). The determination of the recoverable amount of the aforementioned deferred tax assets requires the use of estimates by management. The estimates made at the date of preparing these consolidated annual accounts consider the total recoverability of these tax assets in a period of less than three-to- five years. f) Impairment of non-current assets
The Group has considered the existence of indications of impairment in some of the Company’s non-current assets, especially those relating to its module production activity. However, since the beginning of 2010, the Group has created a new sales structure through which to internationalise its sales, especially in Italy, Germany and the Czech Republic, where the tariffs applicable to photovoltaic generation are more attractive than those currently legislated in Royal Decree 661/2007 of 25 May 2007.
Management of the Parent company has carried out impairment testing to verify that it is not necessary to recognise an impairment allowance for non-current assets. To this end it has used estimates to determine the recoverable amount of the non-current assets of the factories that manufacture the photovoltaic modules. Recoverable amount is the higher of fair value less costs to sell and value in use. The Company has used discounted cash flows to calculate these values based on five-year projections of its budgets. Flows take into account past experience and represent management’s best estimate of future market performance. Cash flows subsequent to the fifth year are extrapolated using individual growth rates. The key assumptions employed when determining fair value less costs to sell and value in use include growth rates, the weighted average cost of capital, and tax rates. The estimates, including the methodology employed, could have a significant impact on values and impairment losses.
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2.6. Standards, amendments and interpretations effective from 1 January 2010 applicable to the accounts of the Group
None of the regulations that have entered into force since 1 January 2010 have had a significant impact on the consolidated annual accounts of the Solaria Group.
2.7. Standards and amendments to existing standards that are not yet effective
The Group has not opted for the early application of any of the standards or amendments to existing standards that are not yet effective on considering that none of them will have a significant impact on the financial state- ments for the years in which they will first be applied.
3. DISTRIBUTION OF PARENT COMPANY PROFIT
At the general meeting held on 30 June 2010 the shareholders of the Parent company agreed that the profit for 2009, amounting to Euros 4,639 thousand, be used to offset prior years’ losses.
The directors of the Parent company will propose to the shareholders at their annual general meeting that Euros 3,490 thousand of the Euros 28,053 thousand profit for 2010 be distributed as dividends and the remaining amount applied to offset prior years losses, considering the proposal that the Euros 5,715 thousand loss recognised retroactively for prior years (see note 2.3) be recorded as accumulated losses.
92 4. SIGNIFICANT ACCOUNTING PRINCIPLES
4.1. Subsidiaries
Subsidiaries are entities over which the Parent company exercises control, either directly or indirectly, through subsidiaries. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control potential voting rights held by the Group or other entities that are exercisable or convertible at the end of each reporting period are considered.
Information on subsidiaries forming the consolidated Group is included in Appendix I to note 1.
The income, expenses and cash flows of subsidiaries are included in the consolidated annual accounts from the date of acquisition, which is when the Group takes control, until the date that control ceases.
Intragroup balances and transactions and unrealised gains or losses are eliminated on consolidation. Nevertheless, unrealised losses are considered as indicative of impairment of the transferred assets.
The accounting policies of subsidiaries have been adapted to those of the Group for transactions and other events in similar circumstances.
The annual accounts or financial statements of consolidated subsidiaries have been prepared as at the same date and for the same reporting period as the financial statements of the Parent.
4.2. Business combinations
The Solaria Group was incorporated in 2008. The Group has not acquired any businesses during 2010 and 2009.
4.3. Joint ventures
Joint ventures are those in which there is a contractual agreement to share the control over an economic activity, in such a way that strategic financial and operating decisions relating to the activity require the unanimous consent of the Group and the remaining venturers. During 2010 the Group acquired a 55% interest in Solaria Brasil. Irrespective of the percentage acquired, this investment constitutes a joint venture, pursuant to the definition set forth above.
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Investments in jointly controlled entities are accounted for by applying proportionate consolidation based on the percentage of ownership from the date joint control is obtained until the date joint control ceases. However, investments meeting the conditions for classification as non-current assets or disposal groups held for sale at the date joint control is obtained are recognised at fair value less costs to sell.
The Group includes its share of assets, liabilities, income, expenses, other comprehensive income and cash flows of the jointly controlled entity combined line by line with similar items in its consolidated annual accounts, from the date joint control commences.
Details of jointly controlled entities are provided in Appendix I.
Reciprocal transactions, balances, income, expenses and cash flows have been eliminated in proportion to the interest held by the Group in joint ventures.
Unrealised gains and losses from non-monetary contributions or downstream transactions in joint ventures are recognised based on the substance of the transaction. While the assets are retained by the joint venture and the Group has transferred the significant risks and rewards of ownership, only that portion of the gain or loss that is attributable to the interests of the other venturers is recognised. Unrealised losses are not eliminated if they provide evidence of an impairment loss.
The Group only recognises the portion of gains and losses on transactions in joint ventures that is attributable to the interests of the other venturers. In the event of losses, the Group applies the same recognition criteria as that described in the previous paragraph.
The Group has made the necessary measurement and timing harmonisation adjustments applying the criteria described for subsidiaries.
4.4. Foreign currency transactions, balances and cash flows
Transactions in foreign currency are translated at the foreign exchange rate prevailing at the transaction date.
Monetary assets and liabilities denominated in foreign currencies have been translated into Euros at the closing rate, while non-monetary assets and liabilities measured at historical cost have been translated at the exchange rate prevailing at the transaction date.
94 In the consolidated statement of cash flows, cash flows from foreign currency transactions have been translated into Euros at the exchange rates prevailing at the dates the cash flows occurred.
Exchange gains and losses arising on the settlement of foreign currency transactions and the translation into Euros of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.
4.5. Property, plant and equipment
Property, plant and equipment primarily comprise the technical installations and machinery necessary to manufacture the photovoltaic modules, as well as the photovoltaic solar plants owned and operated by the Group (see note 4.13).
Property, plant and equipment are recognised at cost less accumulated depreciation.
The historical cost includes any expenses directly attributable to the acquisition of these assets.
After initial recognition of the asset, only those costs which increase capacity or productivity or lengthen the useful life of the asset are capitalised. The carrying amount of parts that are replaced is derecognised. Day-to- day servicing costs are recognised in profit and loss as incurred.
Property, plant and equipment are depreciated by allocating the depreciable amount of an asset on a systematic basis over its useful life. The depreciable amount is the cost of an asset, less its residual value. The Group determines the depreciation charge separately for each item with a cost that is significant in relation to the total cost of the asset and with a useful life that differs from the remainder of the asset.
Property, plant and equipment are depreciated on a straight-line basis over the following years of estimated useful life:
Years Buildings 33 Solar plants 25 Other plants 8-10 Machinery 8 Other assets 4-10
The Group reviews residual values, useful lives and depreciation methods at each financial year end. Changes to initially established criteria are accounted for as a change in accounting estimates.
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The Group recognises borrowing costs directly attributable to the purchase, construction or production of qualifying assets as an increase in the value of these assets.
Qualifying assets are those which require a period of one year before they can be used.
To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined as the actual borrowing costs incurred, less any investment income on the temporary investment of those funds.
Capitalised borrowing costs corresponding to general borrowing are calculated as the weighted average of the borrowing costs applicable to the borrowing of the Company. The amount of borrowing costs capitalised cannot exceed the amount of borrowing costs incurred during that period. The capitalised interest cost includes adjustments to the carrying amount of financial liabilities arising from the effective portion of hedges entered into by the Group.
The Group begins capitalising borrowing costs as part of the cost of a qualifying asset when it incurs expenditures for the asset, interest is accrued, and it undertakes activities that are necessary to prepare the asset for its intended use or sale, and ceases capitalising borrowing costs when all or substantially all the activities necessary to prepare the qualifying asset for use are complete.
Nevertheless, capitalisation of borrowing costs is suspended when activities are interrupted for extended periods.
4.6. Intangible assets
Intangible assets are stated at their price of acquisition or cost of production. Intangible assets are presented in the consolidated statement of financial position at their cost value less any accumulated amortisation.
Research and development expenses
Expenditure on research is recognised as an expense when incurred. The costs incurred in development projects are recognised as intangible assets when the following requirements are met:
• Costs are clearly allocated, assigned and timed for each project.
• When there is evidence of the project’s technical success and economiccommercial feasibility.
96 Development costs previously recognised as an expense are not capitalised in subsequent years. Capitalised development costs are amortised on a straight-line basis over the five years commencing from the project completion date.
Software
Software is capitalised based on the costs of acquisition and preparation for the use of a specific program and recognised at cost. Amortisation is on a straight-line basis over an estimated useful life of three years.
Software maintenance costs are charged as expenses when incurred.
4.7. Impairment losses on non-financial assets subject to amortisation or depreciation
The Group evaluates whether there are indications of possible impairment losses on nonfinancial assets subject to amortisation or depreciation to verify whether the carrying amount of these assets exceeds the recoverable amount. Consequently, an impairment loss is recognised when the carrying amount of an asset is higher than its recoverable amount, understood as the higher of the fair value of the asset less costs to sell and the value in use.
The value in use of an asset is determined based on the future cash flows expected from the use of the asset, expectations regarding possible changes in the amount of the flows or their distribution over time, the time value of money, the price payable to withstand the uncertainty related to the asset and other factors that market players would consider in the valuation of the future cash flows related to an asset.
Recoverable amount is determined for each individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs.
The Group has calculated this recoverable amount based on calculations of the value in use. These calculations use cash flow projections based on financial budgets covering a five-year period. After five years, cash flows are extrapolated applying a 1% growth rate.
The Group has determined the budgeted gross margin based on past returns and the foreseeable development of the market. The weighted average growth rates are coherent with the forecasts included in industry reports.
The discount rates used, of approximately 8%, are pre-tax values and reflect specific risks related to the relevant segments.
Impairment losses, when they arise, are recognised in the consolidated income statement.
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4.8. Leases
• Lessee accounting records
a) Finance leases
The determination of whether a contract is, or includes, a lease is based on analysis of the nature of the agreement to evaluate whether compliance with the contract requires the use of a specific asset and if the agreement confers the right to use the asset to the Group.
Finance leases are capitalised at the commencement of the lease term at the lower of the fair value of the leased property or the present value of the minimum lease payments. Initial direct costs are added to the asset’s carrying amount. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability.
Interest is expensed using the effective interest method. Property, plant and equipment acquired under finance leases are subject to the same criteria as in note 4.5.
Reasonable certainty exists that the Parent company will obtain ownership of the items acquired under finance leases at the end of the lease term.
b) Operating leases
Lease contracts in which the lessor substantially retains the risks and rewards of ownership of the assets included in the contract are classified as operating leases.
Operating lease instalments, net of the incentives received, are taken to consolidated profit on a straightline basis over the term of the lease.
4.9. Financial assets
The Group classifies its financial assets in the different categories of fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial asset was acquired and management’s intentions at the time of initial recognition.
a) Financial assets at fair value through profit or loss
The Group classifies derivative financial instruments held for trading in this category unless they are designated and recognised as hedging instruments.
98 Financial assets are recognised initially and subsequently at fair value. Transaction costs directly attributable to the acquisition of financial assets are recognised as expenses in the consolidated income statement. Gains and losses from changes in fair value are included in the consolidated income statement in the year in which they arise.
b) Loans and receivables
Loans and receivables comprise trade and non-trade receivables with fixed or determinable payments that are not quoted in an active market. These assets are recognised initially at fair value, including transaction costs, and are subsequently measured at amortised cost using the effective interest method.
Provision is made for impairment losses on trade receivables when objective evidence exists that the Group will not be able to collect all the amounts due under the original terms.
Indications that receivables are impaired include major financial difficulties for the debtor, the probability that the debtor will go into administration or require refinancing and defaults or arrears on payments.
The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate.
The carrying amount of the asset is reduced to the extent that the provision is applied and the loss is recognised in the income statement under impairment losses on current receivables.
When a receivable is irrecoverable, an adjustment is made in the corresponding provision. Subsequent recoveries of previously derecognised amounts are recognised as credits under impairment losses on current receivables. Current receivables which have no established interest rate are measured at the amount on the original invoice when the effect of discounting is immaterial.
c) Interest
Interest is recognised following the effective interest method.
d) Derecognition of financial assets
Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
4.10. Financial liabilities
Financial liabilities, including trade and other payables, which are not classified as held for trading or as financial liabilities at fair value through profit or loss, are initially recognised at fair value less any transaction costs that are directly attributable to the issue of the financial liability. After initial recognition, liabilities classified under this category are measured at amortised cost using the effective interest method.
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Nevertheless, financial liabilities which have no established interest rate, which mature or are expected to be settled in the short term, and for which the effect of discounting is immaterial, are measured at their nominal amount.
A financial liability, or part of it, is derecognised when the Group either discharges the liability by paying the creditor, or is legally released from primary responsibility for the liability either by process of law or by the creditor.
The Group has contracted payables discounting facilities with various financial institutions to manage payments to suppliers.
Trade payables settled under the management of financial institutions are recognised under trade and other payables in the consolidated statement of financial position until they have been settled, repaid or have expired.
4.11. Hedge accounting
Derivative financial instruments which qualify for hedge accounting are initially measured at fair value on the date on which the contract is signed, plus any transaction costs that are directly attributable to the acquisition.
At 31 December 2010 and 2009 the Group has contracted interest rate hedges for loans received.
At the inception of the hedge the Group formally designates and documents the hedging relationships and the objective and strategy for undertaking the hedges.
Hedge accounting is only applicable when the hedge is expected to be highly effective at the inception of the hedge and in subsequent years in achieving offsetting changes in fair value or cash flows attributable to the hedged risk, throughout the period for which the hedge was designated (prospective analysis) and the actual effectiveness, which can be reliably measured, is within a range of 80%-125% (retrospective analysis).
Details of the fair values of hedging derivatives are provided in note 12.
Movement due to changes in measurement criteria is recognised in other comprehensive income within consolidated equity and detailed in note 16.
100 4.12. Equity instruments held by the Parent company
Equity instruments of the Parent acquired by the Group are recognised separately at cost of acquisition in the consolidated statement of financial position as a reduction in equity, regardless of the motive of the purchase. Gains or losses on transactions with own equity instruments are not recognised in consolidated profit or loss.
The subsequent redemption of Parent company shares leads to a reduction in share capital in an amount equivalent to the par value of the shares redeemed. Any positive or negative difference between the cost of acquisition and the par value of the shares is debited or credited to retained earnings.
Transaction costs related to own equity instruments are accounted for as a reduction in reserves, net of any tax effect.
Dividends relating to capital instruments are recognised as a reduction in equity when approved by the shareholders.
4.13. Inventories
Inventories primarily comprise raw materials and finished goods relating to the photovoltaic solar modules, as well as Company investments in photovoltaic solar plants held for sale that have not been sold at year end.
Inventories are measured at the lower of cost and net realisable value. The cost of raw materials is determined based on the weighted average cost of purchase. The cost of finished goods (photovoltaic and thermal solar modules, and photovoltaic solar plants) includes the cost of raw materials, direct labour and other direct costs and manufacturing overheads (based on normal operating capacity) in addition to borrowing costs, provided the production period exceeds one year, and is determined applying the FIFO method.
The net realisable value is the estimated selling price in the Group’s normal business operations less costs to sell.
The photovoltaic solar plants owned by the Company are initially classified as inventories as the directors consider that they are usually earmarked for sale. In those cases in which the decision to operate a plant is made from the outset, it will be classified under fixed assets. However, if a photovoltaic solar plant held for sale has been in operation for more than one year and no sales contract or similar agreement has been reached with a third party, the Company’s directors consider that as of that date the plant should be allocated for operation by the Company and therefore classified as an asset and depreciated.
4.14. Cash and cash equivalents
Cash and cash equivalents include cash on hand and demand deposits in financial institutions. They also include other short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
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An investment normally qualifies as a cash equivalent when it has a maturity of less than three months from the date of acquisition.
The Group recognises cash payments and receipts for financial assets and financial liabilities in which turnover is quick on a net basis in the consolidated statement of cash flows.
Turnover is considered to be quick when the period between the date of acquisition and maturity does not exceed six months.
In the statement of cash flows, bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents. Bank overdrafts are recognised in the consolidated statement of financial position as financial liabilities from bank borrowings.
4.15. Grants
Government grants are recognised when there is reasonable assurance that they will be received and that the Group will comply with the conditions attached.
1. Capital grants
Capital grants awarded as monetary assets are recognised under government grants in the consolidated statement of financial position and allocated to other income in the consolidated income statement in line with the amortisation or depreciation of the assets for which the grants have been received.
Government grants in the form of the transfer of a non-monetary asset are recognised at fair value under government grants in the consolidated statement of financial position and are allocated to other income in the consolidated income statement in line with the amortisation or depreciation of the assets for which the grants have been received.
2. Operating grants
Operating grants are recognised as a reduction in the expenses they are allocated to finance and included under other income.
Operating grants received to offset expenses or losses already incurred, or to provide immediate financial support not related to future disbursements, are recognised as other income.
102 3. Interest-rate grants
Financial liabilities comprising implicit assistance in the form of below market interest rates are initially recognised at fair value. The difference between this value, adjusted where necessary for the emission costs of the financial liability and the amount received, is recognised as an official grant based on the nature of the grant awarded.
4.16. Provisions
Provisions are recognised when:
1- The Group has a present obligation (legal, contractual, constructive or implicit) as a result of a past event.
2- It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.
3- A reliable estimate can be made of the amount of the obligation.
Non-current provisions are measured at the present value of the disbursements expected to be required to settle the obligation, using a pre-tax discount rate that reflects the current market assessments of the time value of money and risks specific to the liability. The increase in the provision due to the passage of time is recognised as an interest expense.
The tax effect and gains on the expected disposals of assets are not taken into account in measuring a provision.
Provisions for warranties
The Group extends warranties to customers in the turnkey contracts for photovoltaic plants, operating and maintenance contracts and contracts for the sale of photovoltaic modules (see note 26 (d)).
The provisions required to cover the warranties extended are calculated based on theoretical expectations and historical information on defect rates and estimated repair costs. These items are reviewed and adjusted on a regular basis.
These provisions are recognised, when considered applicable, at the estimated value of future claims deriving from previous contracts and charged against operating expenses
4.17. Compensation for termination of employment
The Group recognises termination benefits for employees in the consolidated income statement when Group management has decided to terminate an employment contract before the employee’s normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits, provided that the Group has demonstrably undertaken to terminate the contracts of current employees in accordance with a formal, detailed and binding agreement, the main characteristics of which have been announced. Benefits that will not be paid within 12 months from the consolidated statement of financial position are discounted to their present value.
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4.18. Short-term employee benefits
The Group recognises the expected cost of profit-sharing and bonus plans when it has a present legal or constructive obligation to make such payments as a result of past events and a reliable estimate of the obligation can be made. At 31 December 2010 and 2009 the Group is under no such obligation and therefore no provision has been made
4.19. Income tax
The income tax expense and tax income for the year comprises current tax and deferred tax.
Current tax assets or liabilities are measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates and tax laws that have been enacted or substantially enacted at year end.
Current and deferred tax are recognised as income or an expense and included in profit or loss for the year, except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different year, directly in equity, or a business combination.
The tax group Solaria Energía y Medio Ambiente, S.A. and its fully-owned Spanish subsidiaries began filing consolidated tax returns in 2010.
• Taxable temporary differences
Taxable temporary differences are recognised in all cases except when they arise from the initial recognition of goodwill or an asset or liability in a transaction which is not a business combination and affects neither accounting profit nor taxable income at the date of the transaction.
• Deductible temporary differences
Deductible temporary differences are recognised when it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the differences arise from the initial recognition of an asset or liability in a transaction which is not a business combination and affects neither accounting profit nor taxable income at the date of the transaction.
104 • Measurement
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the years when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted. The tax consequences that would follow from the manner in which the Group expects to recover or settle the carrying amount of its assets or liabilities are also reflected in the measurement of deferred tax assets and liabilities.
Deferred tax assets and liabilities are recognised in the consolidated statement of financial position under non-current assets or liabilities, irrespective of the expected date of recovery or settlement.
4.20. Recognition of revenue
Revenue is generated by the following ordinary activities of the Group:
1. Sales of goods
a. Sale of photovoltaic modules for distribution to third parties. b. Sale of photovoltaic solar plants provided that the start-up and completion of construction is a Group initiative and exclusively for their subsequent sale to third parties. c. Sale of electricity generated by the solar plants owned by the Group.
2. Services rendered
a. Turnkey contracts for photovoltaic solar plants consisting of the installation and start-up of the plants as well as services rendered through construction contracts with third parties. b. Search and development projects for photovoltaic solar plants. c. Maintenance contracts for photovoltaic solar plants.
Income and expenses are recognised on an accruals basis.
Revenue from the sale of goods or services is measured at the fair value of the consideration received or receivable. Prompt payment and any other discounts, as well as the interest on the nominal amount of the consideration, are recognised as a reduction in revenues.
Advances on account of future sales are measured at the amount received.
When the Group commits to multi-item contracts (those including several implicit transactions), specific income recognition criteria is applied to each transaction.
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Sales of goods
Income from the sale of modules and power generation is recognised when:
• The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • The amount of revenue can be measured reliably; • It is probable that the economic benefits associated with the transaction will flow to the Group; and
Where goods are sold conditional on installation and/or inspection, sales are recognised when the purchaser accepts the goods and the installation and/or inspection has been completed, except when the installation process is routine or the inspection is performed to determine the final contract price, in which case the sale of goods is recognised immediately.
Services rendered
Revenues associated with the rendering of service transactions are recognised by reference to the stage of completion at year end when the outcome of the transaction can be estimated reliably; i.e., when revenues, the stage of completion, the costs incurred and the costs to complete the transaction can be estimated reliably and it is probable that the economic benefits derived from the transaction will flow to the Group.
The Company follows the percentage of completion method to recognise turnkey project sales when the following conditions apply:
• There is a specific customer with a firm obligation.
• The amount of revenue can be reliably measured.
• The Group will, in all likelihood, receive the profits or financial gains deriving from the transaction. In any event, the solvency of the customer is analysed before closing the contract to avoid reasonable doubts regarding future collection.
106 • The stage of completion can be reliably measured at the end of each year.
• The costs incurred, as well as costs to complete the transaction, can be reliably measured and may be compared with estimated forecasts.
• The customer can specify or substantially modify the basic design of the project, at the start of and during construction.
• Control over the project and the risks and rewards of ownership of the property are progressively transferred from the vendor to the buyer as the construction work advances.
• The buyer cannot rescind the contract by returning completed work.
Under the aforementioned conditions, the Group recognises revenues from these projects based on the percentage of completion method. This percentage is calculated applying to the total revenue forecast (which includes the initial amount of revenue agreed , any change to the scope of the work considered in the contract, as well as amounts related to claims and incentives that are considered probable), the costs incurred to date as a proportion of the total forecast cost of the project. Revenue for the year is determined by this method, deducting the revenue recognised on the same projects in prior years.
Modifications to forecast revenue and contract costs are recognised prospectively as a change in estimates.
Positive differences between total production and the amount invoiced for each project until the end of the period or year are recognised as trade receivables for invoices pending receipt under trade and other receivables. Any prior negative differences are recognised as liabilities in the consolidated statement of financial position under trade and other payables.
When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable, whilst contract costs are recognised as an expense in the period in which they are incurred. When the uncertainties that prevented the outcome of the contract being estimated reliably no longer exist, revenue and expenses associated with the construction contract are recognised in accordance with the criteria described in the previous paragraphs. Modifications are recognised prospectively.
When it is probable that project costs will exceed total revenue, the expected loss until completion is recognised immediately as an expense for the year.
Revenues associated with the rendering of other service transactions are recognised by reference to the stage of completion at year end when the outcome of the transaction can be estimated reliably; i.e., when revenues, the stage of completion, the costs incurred and the costs to complete the transaction can be estimated reliably and it is probable that the economic benefits derived from the transaction will flow to the Group.
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CONSOLIDATED ANNUAL ACCOUNTS
4.21.Classification of assets and liabilities as current and non-current
The Group classifies assets and liabilities in the consolidated statement of financial position as current and non- current. Current assets and liabilities are determined as follows:
• Assets are classified as current when they are expected to be realised or are intended for sale or consumption in the Group’s normal operating cycle, they are held primarily for the purpose of trading, they are expected to be realised within twelve months of the end of the reporting period or are cash or a cash equivalent, unless the assets may not be exchanged or used to settle a liability for at least twelve months from the end of the reporting period.
• Liabilities are classified as current when they are expected to be settled in the Group’s normal operating cycle, they are held primarily for the purpose of trading, they are due to be settled within twelve months of the end of the reporting period or the Group does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.
• Financial liabilities are classified as current when they are due to be settled within twelve months after the reporting period, even if the original term was for a period longer than twelve months, and an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorised for issue.
4.22. Environment
Expenses derived from business activities intended to protect and improve the environment are expensed in the year in which they are incurred.
Property, plant and equipment acquired by the Group to minimise the environmental impact of its activity and protect and improve the environment, including the reduction and elimination of future pollution from the Group’s activities, are recognised as assets, applying the measurement, presentation and disclosure criteria described in section 4.5 of this note.
108 5. SEGMENT REPORTING
As described below, the Group is organised internally into operating segments, which are strategic business units. The strategic business units have different products and services and are managed separately because they require different market strategies.
At 31 December 2010, the Group is organised into three main business segments:
• Segment 1 Photovoltaic: Production of photovoltaic modules for sale to third parties and use in turnkey projects.
• Segment 2 Projects: Development and sale of photovoltaic plants through turnkey projects including the construction and installation of modules and the start-up of the plants.
Segment 3 Generation: Generación. Ingresos procedentes de la generación de energía de las plantas que • Solaria explota directamente.
There are different levels of integration between the photovoltaic and project segments.
The integration includes transfers of modules. Segment performance is measured based on the pre-tax profit generated by each segment.
The profit generated by each segment is used as a measure of its performance because the Group considers that this is the most relevant information in the assessment of the profits generated by specific segments in relation to other groups which operate in these businesses.
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CONSOLIDATED ANNUAL ACCOUNTS
The results for each Group segment are as follows:
Thousands of euros
Photovoltaic Projects Generation O&M Other Consolidated 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
Revenue from external customers External sales 108,673 23,325 37,852 45,388 13,752 20,149 546 - 512 30 161,335 88,892
Other income 849 1,595 547 ------1,396 1,595
Total revenue from 109,522 24,920 38,399 45,388 13,752 20,149 546 - 512 30 162,731 90,487 external customers Amortisation and (3,474) (3,152) -- (4,522) (1,105) -- (1,086) (145) (9,082) (4,402) depreciation Supplies (80,934) (24,615) (27,476) (28,302) - (12) - - 698 66 (107,712) (52,989)
Other segment in- come and expenses (22,364) (8,656) (3,087) (10,041) (298) (3,254) (121) - (11,100) (8,183) (36,970) (30,134) Operating income/ expenses 2,750 (11,503) 7,836 7,045 8,932 15,778 425 - (10,976) (8,358) 8,967 2,962
Net finance expense ------425 - - -- - (4,039) (3,943)
Pre-tax segment 2,750 (11,503) 7,836 7,045 8,932 15,778 425 - (10,976) (8,358) 4,928 (981) profit or loss Income tax expense/ 1,576 1,279 (recoverable tax) Profit for the year 6,504 298
110 Other segment items included in the income statement are as follows:
Thousands of euros
Photovoltaic Projects Generation O&M Other Consolidated 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
Segment 138,274 132,309 125,588 19,689 121,201 123,874 252 - 4,509 - 389,824 275,872 assets Property, 79,621 79,420 - - 119,917 122,907 - - 2,825 - 202,363 202,327 plant and equipment Inventories 47,888 21,970 81,442 6,260 - - - - 1,334 - 135,622 28,230 Trade and 10,765 30,919 44,146 13,429 1,285 967 252 - 350 - 56,798 45,315 other receivables Undistributed ------60,242 54,036 60,242 54,036 Total assets 138,274 132,309 125,588 19,689 121,201 123,874 252 - 64,751 54,036 450,066 329,908
Thousands of euros
Photovoltaic Projects Generation O&M Other Consolidated 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009
Segment 44,051 39,059 20,424 9,394 65,014 736 - - 14,739 1,837 144,228 51,026 liabilities Undistributed ------73,446 49,624 liabilities Total liabilities 44,051 39,059 20,424 9,394 65,014 736 -- 14,739 1,837 217,674 100,650
The assets located outside Spain at 31 December 2010 primarily comprise solar plants classified as inventories (see note 13) and a plot of land (see note 6). At 31 December 2009 these assets are not significant.
As regards individual sales to customers representing over 10% of revenues, during 2010 the Company sold a solar plant to a third party for Euros 18,984 thousand (Euros 35,971 thousand at 31 December 2009).
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CONSOLIDATED ANNUAL ACCOUNTS
6. PROPERTY, PLANT AND EQUIPMENT
Details and movement of the different items of property, plant and equipment, in thousands of Euros, are as follows:
Thousands of euros
- 2010 -
Lands Buildings Technical Other assets Property, Total installations plant and and achinery equipment under construction
Cost at 1 January 2010 7,082 38,641 141,682 1,310 17,240 205,955
Additions 2,379 681 5,556 410 2,558 11,584
Disposals - - (4,647) - - (4,647)
Transfers from inventories - - 1,133 - - 1,133
Transfers to inventories - - - - (2,983) (2,983)
Trasnfers - - (259) - 259 -
Cost at 31 December 2010 9,461 39,322 143,465 1,720 17,074 211,042
Accumulated depreciation - (934) (5,288) (375) - (6,597) at 1 January 2010
Additions - (1,184) (7,690) (208) - (9,082)
Disposals - - 4,647 - - 4,647
Accumulated depreciation - (2,118) (8,331) (583) - (11,032) at 31 December 2010
Carrying amount at 31 9,461 37,204 135,134 1,137 17,074 200,010 December 2010
112 Thousands of euros
- 2009 -
Lands Buildings Technical Other Property, Total installations assets plant and and equipment machinery under construction
Cost at 1 January 2009 9,347 12,793 10,513 748 36,397 70,098
Additions - 1,527 4,794 429 10,059 16,809
Disposals - - (403) - - (403)
Transfers from inventories - - - -
Transfers to inventories - - - - -
Transfers - 21,543 132,770 - (37,446) 116,917
Cost at 31 December 2009 9,347 35,913 147,674 1,177 9,310 203,421
Accumulated depreciation - (383) (1,167) (72) - (1,622) at 1 January 2009
Additions - (88) (2,211) (143) - (2,442)
Disposals - - -
Accumulated depreciation - (471) (3,378) (215) - (4,064) at 31 December 2009
Carrying amount at 31 9,347 35,442 144,296 962 9,310 199,357 December 2009 a. General
In 2010 additions to machinery and property, plant and equipment under construction primarily reflect the pur- chase of machinery for the module-manufacturing factory in Puertollano. Additions to land reflect the acquisition made by the subsidiary Sudero SRO.
Property, plant and equipment under construction primarily comprise Euros 13 million for a photovoltaic cell fac- tory as well as extensions to the module production line at the Puertollano factory.
Additions to technical installations in 2009 mainly related to panelling construction work at the Parent company’s two factories using solar modules owned by Solaria.
Additions to property, plant and equipment under construction included costs reflecting the installation of ma- chinery for the extension of the photovoltaic module factory in Puertollano, which started up in 2008.
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CONSOLIDATED ANNUAL ACCOUNTS
Transfers to buildings during 2009 included the panelling installed on the rooftops of the two factories and warehouses owned by the Company. This panelling was assembled using modules manufactured by the Company with a capacity of approximately 2 MWp. Transfers to machinery comprised the new module manufacturing lines in Puertollano.
During the final quarter of 2009, the Group transferred the manufacturing costs incurred by the three photovoltaic solar plants located in Villanueva de la Serena, La Rioja and Rueda from inventories in amounts of Euros 60,324 thousand, Euros 48,664 thousand and Euros 7,929 thousand, respectively, as no new sales agreements had been signed with third parties during the prior twelve months.
The Group began to depreciate these plants upon their transfer to property, plant and equipment because they are operational and generate power. These transfers reflect the Group’s strategy of constructing solar plants to obtain higher recurring income from power generation (see note 25).
At 31 December 2010 and 2009 the Group does not have any fully depreciated items of property, plant and equipment.
b. Insurance
The Group has contracted various insurance policies to cover the risk of damage to its property, plant and equip- ment. The coverage of these policies is considered sufficient.
c. Goods under finance leases
The vehicles, land and buildings and module manufacturing machinery of the Fuenmayor factory have been contracted by the Parent company under finance leases, with the following costs and accumulated depreciation:
Thousands of euros
2010 2009
Cost 16,788 16,788 Accumulated depreciation (1,283) (477) 15,512 16,311
The cost of the land and buildings corresponding to this contract is Euros 16,500 thousand.
The most significant finance leases are detailed in note 17.
114 d. Capitalised borrowing costs
The Group capitalised borrowing costs on general financing of property, plant and equipment in 2009 rather than on assets specifically attributable to the Group. These capitalised borrowing costs amounted to Euros 250 thousand. Borrowing costs accrued prior to the start-up of the aforementioned assets were capitalised at a rate of 3%, which represents the average borrowing cost of the loans used by the Group to finance the assets in question.
No borrowing costs were capitalised in 2010.
7. INTANGIBLE ASSETS
Details and movement of the different intangible assets, in thousands of Euros, are as follows:
Thousands of euros - 2010 -
Development Industrial Software Software under Total property development
Cost at 1 January 2010 1,495 1,593 170 - 3,258
Additions 317 109 36 946 1,408
Disposals - - (31) - (31)
Transfers - (1,593) (130) 130 (1,593)
Cost at 31 December 2010 1,812 109 45 1,076 3,042
Accumulated amortisation at 1 (257) - (32) - (289) January 2010
Additions (339) - (2) - (341)
Disposals - - 31 - 31
Accumulated amortisation at (596) - (3) - (599) 31.12.10
Net carrying amount at 31 1,216 109 42 1,076 2,443 December 2010
115 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
- 2009 - Thousands of euros
Development Industrial Software Total property
Cost at 1 January 2010 - - 50 50
Additions 1,495 1,593 154 3,242
Disposals - - (2) (2)
Transfers - - - -
Cost at 31 December 2010 1,495 1,593 202 3,290
Accumulated amortisation at 1 January 2010 - - (32) (32)
Additions (257) - (32) (298)
Disposals - - --
Accumulated amortisation at 31.12.10 (257) - (64) (321)
Net carrying amount at 31 December 2010 1,238 1,593 138 2,969
In 2010 additions to software primarily reflect the purchase of the SAP programme, which the Group plans to implement in the first quarter of 2011.
During 2009 the Group capitalised Euros 1,495 thousand for the development project for the production of pho- tovoltaic cells, which is expected to enter into service in the second quarter of 2011. This development is key to the Group’s continuing improvement in that it reduces manufacturing costs for photovoltaic modules. During 2010 the Group capitalised an additional Euros 317 thousand.
In 2009 additions recognised under industrial property amounted to Euros 1,593 thousand and related to the licences and permits owned by the company Serre UTA, S.r.l., which is 50% owned by the Group subsidiary Solaria Aleph, for the construction of a photovoltaic solar plant with a nominal capacity of approximately 5 MW.
116 8. OPERATING LEASES
The Group is the lessee of certain items of property, plant and equipment. The most significant lease contracts are as follows:
1. The Parent company occupies the head offices located on calle Princesa (Madrid) owned by its main shareholder DTL Corporación, S.L. by virtue of the lease contract signed on 1 July 2009.
2. The Group signed various operating lease contracts for company cars for managers in 2010 and 2009.
Operating lease payments have been recognised as an expense for the year as follows:
Thousands of euros 2010 2009
Head offices 619 412 Vehicles 251 144 Other 85 - 955 556
Future minimum payments under non-cancellable operating leases are as follows:
Thousands of euros 2010 2009
Up to 1 year 870 1,711 Between 1 and 5 years 3,542 2,334 4,412 4,045
117 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
9. RISK MANAGEMENT POLICY
The Group’s activities are exposed to various financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk, and liquidity risk.
The Group’s global risk management programme focuses on uncertainty in the financial markets and aims to minimise potential adverse effects on the Group’s profits by using derivatives to hedge currency risk and interest rate risk.
Risk management is controlled by the finance department of the Parent company. This department identifies, evaluates and mitigates financial risks in close collaboration with the Group’s operational units.
a. Market risk
1. Currency risk
The Group operates internationally and is therefore exposed to currency risks when operating with foreign currencies, especially with regard to the US Dollar. Exchange rate risk arises from commercial transactions, mainly derived from purchases of foreign machinery and raw materials.
The Group has constructed photovoltaic plants in non-Euro countries. To minimise the currency risk of the in-flow generated, the Group has financed these plants with loans denominated in that currency.
The finance department has established procedures to hedge the currency risk of all operations carried out by the Group in foreign currency due in a period over 30 days, provided that this is advisable in light of the prevailing market conditions at the date of the transaction.
The non-Euro currency in which the Group currently operates is the US Dollar. If at 31 December 2010 and 2009 the Euro had appreciated/depreciated by 5% compared with the US Dollar, the changes in profit or loss and equity at those dates would not have been significant.
118 2. Price risk
The Group is exposed to market price risk on raw materials. Management controls this risk by considering the market conditions prevailing at the date of the transaction and signing fixed-price contracts.
3. Cash flow interest rate risk
As the Group does not have a considerable amount of remunerated assets, income and cash flows from operating activities are not significantly affected by fluctuations in market interest rates.
Interest rate risk arises from loans and borrowings. Borrowings at variable interest rates expose the Group to cash flow interest rate risks. The Solaria Group contracts derivatives to hedge interest rate risk on certain loans with a variable interest rate.
The Group manages interest rate risks in cash flows through variable to fixed interest rate swaps. These interest rate swaps convert variable interest rates on borrowings to fixed interest rates.
At 31 December 2010 and 2009, and including the effect of the interest rate swaps contracted, the Group’s debt is structured as follows:
Thousands of euros
2010 2009
Fixed-interest rate payables 51,484 10,328 Variable-interest rate payables 78,004 53,874 Total 129,488 64,202
The sensitivity of the Group’s profits to a positive or negative change of 10 interest-rate basis points is not significant. b. Credit risk
The Group does not have significant concentrations of credit risk and has policies to ensure that sales are only made to customers with adequate credit records. Transactions with derivative financial instruments and cash operations are only contracted with financial institutions with high credit ratings and the Group has policies to limit the amount of risk with any one financial institution. When there is no independent assessment of the customer’s credit rating, the finance department carries out the evaluation, considering the financial position of the customer, past experience and other factors. The Group does not extend non-current loans to its customers except in very exceptional circumstances.
119 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
At 31 December 2010 the Group had past-due trade receivables amounting to Euros 10,114 thousand, of which Euros 3,127 thousand were impaired. At 31 December 2009 past-due balances amounted to Euros 13,699 thousand, of which Euros 3,127 thousand were impaired.
Details of the ageing at 31 December 2010 and 2009 of receivables that are past due but unimpaired are as follows:
Thousands of euros
2010 2009
Less than three months - 9,027 From three to six months - 147 From six to 12 months 3,043 821 More than 1 year 6,984 3,704 10,027 13,699
c. Liquidity risk
The Group applies a prudent policy to cover its liquidity risks, based on having sufficient cash and marketable securities as well as sufficient financing through credit facilities to settle market positions. Given the dynamic nature of its underlying business, the Group’s finance department aims to be flexible with regard to financing through drawdowns on contracted credit facilities. Management monitors cash forecasts for the Group based on expected cash flows.
120 10. OTHER CURRENT FINANCIAL ASSETS
Details of other current financial assets are as follows:
Thousands of euros 2010 2009
Bank deposits 10,377 10,300 Current account with Group companies (note 25( b)) 99 741 Other financial assets 126 56 10,602 11,097
Bank deposits are mainly those paid to financial institutions to secure certain operating guarantees granted by these financial institutions.
11. TRADE AND OTHER RECEIVABLES
Details of current trade receivables are as follows:
Thousands of euros
2010 2009 01/01/09
No current Current No current Current No current Current
Trade receivables 5,042 31,101 7,590 16,596 - 24,730 Loans to Group companies - 95 - 5,733 - 42,244 and associates (note 25( b)) Other receivables - 1,143 - 1,201 - 453 Public entities (note 20) - 19,417 - 23,058 - 32,735 5,042 51,756 7,590 46,588 - 100,162
121 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
Thousands of euros
2010 2009
Trade receivables – discounted notes 610 4.411 Trade receivables 25.160 15.312 Trade receivables for invoices pending receipt 8.458 - Impairment (3.127) (3.127) 31.101 16.596
At 31 December 2010 current receivables from third parties are largely for sales of photovoltaic solar modules.
At 31 December 2010, the amount recognised under trade receivables for invoices pending issue relates to work carried out on international photovoltaic plant installation projects underway that are pending invoicing.
Non-current trade receivables comprise financing extended to a customer in the sale of several modules in 2008. An agreement was reached with this customer in June 2009 for settlement of the outstanding balances through the direct collection by Solaria of the amounts received for 66% of the photovoltaic installations based on the power generation of the plant in which the Company modules were installed. These balances earn interest at market rates and have been guaranteed by pledged assets of a higher value than the debt. Details of the maturity of this debt are as follows:
Thousands of euros
2010 2009
Less than 1 year 2.767 406 1 to 5 years 5.042 7.590 7.809 7.996
122 An analysis of the changes in valuation allowances related to impairment of customer credit risk is as follows:
Thousands of euros
2010 2009
Balance at 1 January 3.127 1.000 Charges 220 2.127 Reversals (220) - Balance at 31 December 3.127 3.127
According to internal Group policy, the provision for bad debts relates to balances which are past due by over 6 months and for which management considers recoverability is not probable. Since 2009 the Company has improved the management of the collection of trade receivables.
12. DERIVATIVE FINANCIAL INSTRUMENTS
Details of assets and liabilities from derivative financial instruments at 2010 and 2009 year end are as follows:
Thousands of euros 2010 2009
Liabilities Liabilities
Fair value of non-hedging financial instruments
- Interest rate (1,839) (1,822) Fair value of hedging financial instruments
- Interest rate (506) (283) Total (2,345) (2,105)
Financial instruments which do not qualify for hedge accounting are classified as financial liabilities at fair value with changes in consolidated profit or loss. The changes in the fair value of these financial instruments recognised in the consolidated income statement under finance expenses amount to Euros 17 thousand (Euros 593 thousand in 2009).
123 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
a. Interest rate hedges
In order to hedge against fluctuations in the interest rate applicable to loans obtained for Euros 1,500 thousand and Euros 4,500 thousand, respectively (see note 17), the Group has contracted an interest rate hedge, the main characteristics of which are as follows:
Initial notional amount: Euros 5,893 thousand Maturity date: 12 December 2011 Floating rate: 6-month Euribor Fixed rate: 3.96%, in the event that the Euribor rises to 5%, the reduction is 0.10%.
The maturity dates for the derivatives are as follows:
Thousands of euros
YEAR 2010 2009
2010 - 857 2011 4,071 4,071
To hedge against fluctuations in the interest rate applicable to a Euros 6,000 thousand loan contracted (see note 17). The Group has obtained an interest rate swap with the following characteristics
Initial notional amount: Euros 6,000 thousand Fixed rate payer: Solaria Energía y Medio Ambiente, S.A. Fixed rate: 4.63% Floating rate: 6-month Euribor In 2009 the maturity dates for the derivative were as follows:
Year Thousands of euros
2010 1,200 2011 1,200 2012 1,200 2013 1,200 2014 600 5,400
124 On 26 April 2010 the Group cancelled the operation hedging the Euros 6,000 thousand loan.
In order to hedge against interest rate fluctuations applicable to a Euros 5,028 thousand loan received, the Group has contracted an interest rate hedge of which the main characteristics are as follows:
Initial notional amount: Euros 6,413 thousand Maturity date: 31 October 2024 Floating rate: 3-month Pribor Fixed rate: 3.25%
The maturity dates for the derivatives are as follows:
Thousands of euros
Year 2010 2009 2011 333 - 2012 354 - 2013 376 - 2014 400 - 2015 and thereafter 4,950 - 6,413 -
In order to hedge against interest rate fluctuations applicable to a Euros 8,699 thousand loan received, the Group has contracted an interest rate hedge of which the main characteristics are as follows:
Initial notional amount: Euros 3,709 thousand Maturity date: 31 October 2024 Floating rate: 3-month Pribor Fixed rate: 3.125%
The maturity dates for the derivatives are as follows:
Thousands of euros
Year 2010 2009 2011 192 - 2012 204 - 2013 217 - 2014 231 - 2015 and thereafter 2,865 - 3,709 -
125 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
In order to hedge against interest rate fluctuations applicable to a Euros 26,000 thousand loan received (see note 12), the Group contracted two interest rate hedges in 2010, of which the main characteristics are as follows:
Initial notional amount: 13,600,000 Maturity date: 20 December 2023 Interest rate: 3.2175% Maturity dates for the notional amounts of the derivative: every six months
Initial notional amount: 8.500.000 Maturity date: 20/12/2023 Floating rate: 3,2175% Fixed rate:: semestralmente
The maturity dates for the derivatives are as follows:
Thousands of euros
Year 2010 2009 2011 929 - 2012 1,106 - 2013 1,154 - 2014 18,854 - 22,044 -
b. Foreign currency hedges
No foreign currency hedges were contracted in 2010.
In order to hedge against exchange rate fluctuations between the Euro and the US Dollar in certain production machinery purchases foreseen for 2009, the Group contracted a hedging transaction with a financial institution in 2008, in the form of a currency option with a knock-out barrier of 1.110. The main characteristics of this transaction were:
Initial notional amount: USD 8 thousand Strike Price: 1,310 Maturity: 10 June 2009 This derivative was cancelled before its maturity date in the first quarter of 2009.
126 c. Derivatives which do not qualify for hedge accounting
The Group has obtained an interest rate swap with the following characteristics:
Initial notional amount: Euros 16,500 thousand Fixed rate: 4.985% Floating rate: 12 month- Euribor with a floor of 4%.
The maturity dates for the derivatives are as follows:
Thousands of euros
Year 2010 2009 2010 - 503 2011 931 896 2012 978 942 2013 1,028 991 2014 12,254 13,168 15,191 16,500
This interest rate swap does not qualify for hedge accounting as it was not highly effective at its inception or in subsequent years.
13. INVENTORIES
Details of inventories at 31 December 2010 and 2009 and at 1 January 2009 are as follows:
Thousands of euros
2010 2009
Thermal Photovoltaico Solar Total Thermal Photovoltaico Solar Total plants plants Raw materials and 600 29,545 6,521 36,245 600 9,620 6,260 16,480 other supplies Finished products 724 22,873 75,809 99,406 724 10,525 - 11,249 TOTAL 1,324 52,418 81,909 135,651 1,324 20,145 6,260 27,729
127 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
Thousands of euros
01/01/09
Thermal Photovoltaico Solar plants Total Raw materials and other supplies 589 8,881 5,286 14,756 Finished products 724 9,341 158,405 168,470 Advances to suppliers - 7,964 - 7,964 1,313 26,186 163,691 191,190
Raw material inventories are mainly cells, glass, aluminium and other materials required to manufacture photovoltaic modules. The Group has prepared a specific marketing plan for the thermal segment.
At 31 December 2010 inventories of finished products comprise both modules and fullyconstructed and operating solar plants that had not been sold at year end. These plants are located in Italy, Germany and the Czech Republic and have a joint capacity of 27 MWp and are recognised at Euros 42,253 thousand, Euros 16,254 thousand and Euros 18,067 thousand, respectively (see note 5).
During 2009 there were significant derecognitions of inventories due to the sale of solar plants. The most significant changes in inventories were as follows:
• On 21 January 2009, a solar plant with a nominal capacity of approximately 6 MWp located in Alhama (Murcia) was sold to a third party. The cost in inventories of this installation amounted to Euros 26,122 thousand and its sales price excluding the value of the investment in Alhama Solar, S.L. amounted to Euros 35,971 thousand (see note 5).
• On 31 July 2009, the Company sold a plant with a capacity of 1 MWp to Técnicas Ambientales del Norte, S.L. Inventories of Euros 4,343 thousand were derecognised and the sales price of the transaction was Euros 6,221 thousand.
• On 30 September 2009 the Company and DTL Corporación S.L. reached an agreement to terminate the contract signed by the two companies in November 2007. Under the terms of this agreement, the Company undertook to hand over the 10 MWp plant owned by Magacela Solar 1, S.L. (see note 1) to substitute the previously assigned plant located in La Rioja, which has similar characteristics and the same Euros 67,100 thousand price, which was recognised as revenue prior to 2009, following the percentage of completion method. The objective of this agreement was to hand over a fully operational plant and collect the outstanding amounts included in the aforementioned contract. The cost of the plant sold amounted to Euros 51,675 thousand.
128 • During 2009 the photovoltaic solar plants located in Villanueva de la Serena (Badajoz), Fuenmayor (La Rioja) and Rueda (Valladolid) were transferred from inventories to property, plant and equipment in an amount of Euros 116,918 thousand (see note 6) as 12 months had elapsed since their completion and it is Group policy to reclassify solar plants included under inventories when they have been completed.
The Company has contracted insurance policies to cover the risk of damage to inventories. The coverage of these policies is considered sufficient.
14. CASH AND CASH EQUIVALENTS
This item comprises balances in current accounts in banks and cash.
15. EQUITY
Share capital
At 31 December 2010 the subscribed and fully paid share capital of Solaria Energía y Medio Ambiente, S.A. amounts to Euros 977 thousand (Euros 1,011 thousand at 31 December 2009) and is represented by bearer shares with a par value of Euros 0.01 each, distributed as follows:
2010 2009 Number of % of Number of % of shares ownership shares ownership DTL Corporación, S.L. 62,235,544 62,42 62,235,544 61,53 Own shares 733,033 0,74 1,440,635 1,45 Electronic trading system 36,737,455 36,84 37,470,488 37,02 Total 99,706,032 100,00 101,146,667 100,00
129 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
At the general meeting held on 30 June 2010 the Company’s shareholders agreed to reduce share capital by Euros 14 thousand Euros by redeeming 1,440,635 own shares with a par value of Euros 0.01 each at that date. All shares are quoted on the four Spanish stock exchanges and are listed on the electronic trading system. These shares are freely transferable.
The quoted price of Company shares at the end of 2010 was Euros 1.45 (Euros 2.52 at 31 December 2009). The Group’s capital management objective is to safeguard the Company’s capacity to continue operating as a going concern, enabling it to continue providing shareholder remuneration and benefiting other stakeholders, while maintaining an optimum capital structure to reduce the cost of capital. To maintain and adjust the capital structure, the Group can adjust the amount of dividends payable to shareholders, reimburse capital, or increase or reduce debt, as required. Parent company management monitors the capital structure based on the debt ratio. This ratio is calculated as net debt divided by equity. Net debt is calculated as the sum of financial borrowings less cash and cash equivalents. Equity is the sum of the share capital plus reserves, and non-distributed profits, as shown in the consolidated statement of financial position.
The Group’s aim is to have sufficient equity to obtain the necessary financing for its expansion through borrowings, but without compromising its solvency and maximising its performance so that shareholders can benefit from the equity invested.
Debt ratios at 31 December 2010 and 2009 are as follows:
Thousands of euros
2010 2009
Borrowings (note 17) 129,488 64,225 Less: Cash and cash equivalents (note 14) (18,914) (17,503) Net debt 110,574 46,722 Total equity 232,393 229,258 Debt/equity ratio 48% 20%
130 Own shares Changes to the portfolio of own shares during 2009 and 2010 are as follows: Thousands of euros
Number Average Amount transaction price Balance at 01.01.2009 1,462,163 8,540
Acquisitions 1,434,114 1,91 2,738 Disposals (1,455,642) 4,3 (6,262) Balance at 31.12.2009 1,440,635 5,016
Acquisitions 733,033 1,56 1,146 Redemptions (1,440,635) 3,48 (5,016) Balance at 31.12.2010 733,033 1,146
On 18 February 2008, executing the agreements adopted by the shareholders’ of the Parent company at the extraordinary general meeting held on 24 May 2007, the board of directors unanimously agreed to purchase Parent company shares, in one or various transactions, in accordance with the terms and conditions agreed by the shareholders at that meeting and for a maximum amount of Euros 15,000 thousand, in line with the legal maximum of 5% of the shares. On 19 February 2008, the Company signed a liquidity agreement with Banesto Bolsa, S.V., S.A. in accordance with Circular 3 of 19 December 2007 from the Spanish National Securities Market Commission, on liquidity contracts for the purposes of their acceptance as a market practice. The liquidity contract was subsequently cancelled on 18 February 2009.
On 19 February 2009, the Company signed a liquidity contract with Mercados y Gestión de Valores, A.V., S.A., the terms of which complied with the stipulations of Circular 3 of 19 December 2007 from the Spanish National Securities Market Commission, which established the conditions under which Mercados y Gestión de Valores, A.V., S.A. would operate on behalf of Solaria Energía y Medio Ambiente, S.A. in buying or selling shares in the latter to increase the Company’s liquidity and to regulate the quoted value of its shares within the limits established for this purpose at the general shareholders’ meeting on 30 June 2008. The Company deposited 1,470,000 shares in the financial institution’s securities account and Euros 4,458 thousand in the cash account.
Pursuant to the aforementioned standard, the liquidity contract signed between the Company and Mercados y Gestión de Valores, A.V., S.A. was terminated on 31 July 2009. At the annual general meeting held on 30 June 2010 the Company’s shareholders’ authorised the board of directors to purchase Company shares within the limits established by law, rendering the previously extended authorisation null and void.
131 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
On 29 July 2010, the board of directors authorised a share repurchase programme pursuant to Commission Regulation (EC) no. 2273/2003 authorising a repurchase of shares up to a maximum of 10% of outstanding shares. Under these premises the Group has acquired a total of 733,033 own shares at 31 December 2010.
At 31 December 2010, the Company holds 733,033 shares amounting to Euros 1,146 thousand. In 2009 the shares were valued at Euros 5,016 thousand.
Legal reserve
The legal reserve has been appropriated in compliance with article 274 of the Spanish Companies Act, which requires that companies transfer 10% of profits for the year to a legal reserve until this reserve reaches an amount equal to 20% of share capital.
The legal reserve is not distributable to shareholders and if it is used to offset losses, in the event that no other reserves are available, the reserve must be replenished with future profits.
Share Premium and Voluntary Reserves
The share premium and voluntary reserves of the Parent company are freely distributable except for Euros 1,216 thousand recognised under development expenses at 31 December 2010.
As authorised by the shareholders at their annual general meeting of 30 June 2010, at the meeting held on 29 July 2010 the Company’s board of directors agreed to repay contributions received from Company shareholders, with a charge to the share premium account, in an amount of two Euro cents per share. These amounts were disbursed during 2010.
132 Retained earnings
Details and movement during 2009 and 2010 are as follows: Thousands of euros Voluntary Other Profit/(loss) reserves reserves for the year Total
Balance at 31 December 2008 41,171 3,313 (21,462) 23,022 Changes in accounting policy - - (3,564) (3,564) Balances at 1 January 2009 41,171 3,313 (25,025) 19,458 Application of 2008 loss - (25,025) 25,025 - Own shares sold (3,293) - - (3,293) Other movements - (1,899) - (1,899) Profit for 2009 - - 298 298 Balance at 31 December 2009 37,878 (23,611) 298 14,564 Distribution of profit for 2009 - 298 (298) - Own shares redeemed (5,002) - - (5,002) Other movements (40) - - (40) Profit for 2010 - - 6,504 6,504 Balance at 31 December 2010 32,836 (23,313) 6,504 16,026
16. OTHER COMPREHENSIVE INCOME
During 2010 and 2009, changes in other comprehensive income were as follows:
Thousands of euros Cash flow hedges
Balance at 1 January 2009 (509) Recognition in income statement 444 Tax effect (133) Balance at 31 December 2009 (198) Recognition in income statement (221) Tax effect 66 Balance at 31 December 2010 (353)
This caption includes the effect on equity of derivative financial instruments to which the Group applies hedge accounting (see note 12).
133 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
17. LOANS AND BORROWINGS
Details of these liabilities at 31 December 2010 and 2009 are as follows: Thousands of euros
Current No Current Current
Institution 2010
Loans and borrowings 21,971 59, 486 81,457 Balances payable to public entities 144 550 694 Finance lease payables 1,030 14,297 15,327 Import facilities 34,010 - 34,010 Total at 31.12.10 57,155 74,333 131,488
Thousands of euros
Current No Current Current
Institution 2009
Loans and borrowings 2,546 8,793 11,339 Balances payable to public entities 144 916 1,060 Finance lease payables 991 15,320 16,311 Import facilities 35,515 - 35,515 Total at 31.12.09 39,196 25,029 64,225
All Group payables are in Euros.
The Group does not have any unused credit facilities at year end.
The Group has contracted several financing facilities for the importation of production materials, and in particular photovoltaic cells. These facilities are negotiated to finance the expansion of Group production.
134 Bank loans and borrowings:
Bank loans and borrowings comprise loans which are largely earmarked for financing investment projects. The Group is required to maintain the financed investment in equity for at least five years after signing the contract. As a result of these projects, the Spanish Institute for the Diversification and Saving of Energy has extended certain grants to the Parent company (see note 18).
The main loans contracted by the Company and outstanding at 31 December 2010 and 31 December 2009, expressed in thousands of Euros, are as follows:
Thousands of euros
Original 31.12.2010 31.12.2009 Maturity
1 412 42 79 2,011 2 547 78 127 2,012 3 1,500 535 750 2,013 4 4,500 3,536 4,179 2,016 5 1,800 389 770 2,011 6 6,000 4,200 5,400 2,024 7 4,500 3,536 4,179 2,016 8 1,800 389 770 2,011 9 6,000 4,200 5,400 2,024 10 6,110 6,110 - 2,024 11 10,920 10,920 - 2,024 12 26,000 25,204 - 2,026 13 581 581 - 2,028 14 11,500 11,500 - 2,028 Accrued interest payable 125 567 81,457 11,872
Loans 1 to 6 are denominated in Euros, while loans 7 and 8 are denominated in Czech crowns and have been extended at a variable rate linked to the Euribor plus a spread and are subject to market terms.
During 2010 the Group entered into several project finance contracts. All “project finance” loans are subject to compliance with certain financial ratios and other conditions. In the event of non-compliance the financial institutions could request the early repayment of these loans. At 31 December 2010 the Group has fully complied with the terms of these loans. Additionally, project finance loans are secured with the plants they are extended to finance. Details of these loans and their main characteristics are as follows:
135 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
Villanueva
On 28 July 2010, the Company contracted a loan from two financial institutions with a principal of Euros 26,000 thousand, earmarked to finance the acquisition of the Villanueva photovoltaic solar plant. This loan has is for a term of 16.5 years, and falls due on 20 December 2026.
To hedge against the interest rate fluctuations relating to these loans, the Company contracted several interest rate hedging transactions (see note 12).
Czech Republic
• LContactCej, S.r.O
On 14 October 2010 the Company signed a loan contract with a financial institution with a principal of CZK 160,414,806, most of which was earmarked to finance the construction of a photovoltaic solar plant (tranche A), and CZK 41,000 thousand to finance the payment of the input VAT related to the aforementioned transaction (tranche B). The Euro values of the two tranches total Euros 6,556 thousand and Euros 1,675 thousand, respectively.
Tranche A has an established term of 14 years and 17 days, falling due on 31 October 2024. Tranche B has a term of 5.5 months, falling due on 31 March 2011.
To hedge against the interest rate fluctuations relating to these loans, the Company contracted several interest rate hedging transactions (see note 12).
• Sudero, S.r.O
On 14 October 2010, the Company signed a loan contract with a financial institution with a principal of CZK 285,095,220. Tranche A of this amount was earmarked to finance the construction of a photovoltaic solar plant (see note 5), while tranche B (CZK 70,000 thousand) was allocated to finance the payment of the input VAT relating to the transaction.
Tranche A has an established term of 14 years and 17 days, falling due on 31 October 2024, while tranche B has a term of 5.5 months, falling due on 31 March 2011.
The Company has contracted several interest rate hedges to cover the interest rate fluctuations relating to these loans.
136 • UTA
On 15 September 2010 the Company signed a loan contract with a financial institution with a principal of Euros 11,500 thousand, earmarked to finance a photovoltaic solar plant. This loan has a term of 20 years, three months and 15 days, falling due on 30 December 2030. The Group has contracted an interest rate hedge to cover the interest rate fluctuations relating to this loan.
Details of future payments by maturity date including interest on loans and borrowings at 31 December 2010 are as follows: Thousands of euros 2010
Up to 1 year 25,418 Between 1 and 5 years 48,578 More than 5 years 69,379 143,375
The future financial charges of the loans at 31 December 2009 amount to Euros 534 thousand.
Payables to public entities:
Since the Parent company was incorporated, it has signed several financing facilities with different public entities mainly for projects for investment in new production assets and to carry out investments in renewable energy and energy efficiency.
As part of these loans, the Parent company has been required to earmark the financing received solely and exclusively for the associated investment project.
These financing loans are interest-free. The corresponding deferred income has therefore been recognised (see note 18).
Finance lease payables:
During 2008 the Parent company contracted certain vehicles as well as land, buildings and machinery related to the Fuenmayor factory under a finance lease constituting the largest finance lease entered into by the Group at 31 December 2010 and 2009. This Euros 16,500 thousand contract was signed with Banco Popular on 28 March 2008 and has a 15-year term (see note 6).
This lease accrues interest at the 1-year Euribor plus a spread, with a floor of 4%. Given that at the contract date the reference interest rate was higher than the interest rate floor in the contract, there is no need to separate the embedded derivative at that date.
137 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
Other items acquired by this method are not significant.
Future minimum lease payments are reconciled with their present value and presented together with their different maturities as follows:
Thousands of euros
2010 2009
Up to 1 year 1,669 1,711 Between 1 and 5 years 8,345 9,102 More than 5 years 10,429 11,398 Future financial charges for finance leases (5,116) (5,900) Present value of finance lease liabilities 15,327 16,311
Details of maturities of financial payables to banks and public entities at 31 December 2010 and 2009 are as follows:
Thousands of euros
2010
Years Finance lease Loans, public Banks Total payables bodies
Up to 1 year 1,030 144 55,981 57,155 Between 1 and 5 years 5,622 550 23,952 30,124 More than 5 years 8,675 - 35,534 42,209 Total at 31.12.10 15,327 694 115,467 131,488
Thousands of euros
2009
Years Finance lease Loans, public Banks Total payables bodies
Up to 1 year 991 144 38,061 39,196 Between 1 and 5 years 5,410 916 8,449 14,775 More than 5 years 9,910 - 321 10,231 Total at 31.12.09 16,311 1,060 46,831 64,202
138 18. DEFERRED INCOME
This caption mainly comprises capital grants according to the following details: Thousands of euros
Granting entity Thousands Objective Date of euros awarded
IDAE (Spanish Institute for Energy 124 Early repayment of the Caja Duero loan (i) 26.10.2004 Diversification and Saving)
IDAE (Spanish Institute for Energy 164 Early repayment of Caja Duero loan (ii) 14.04.2005 Diversification and Saving) Ministry of Industry loan 4,546 Financing for property, plant and 17.01.2006 equipment
IDAE (Spanish Institute for Energy 29 Reduction rate of interest Caja Duero loan (i) 26.10.2004 Diversification and Saving)
IDAE (Spanish Institute for Energy 38 Reduction rate of interest Caja Duero loan (ii) 14.04.2005 Diversification and Saving) Ministry of Industry loan 91 Financing of property, plant and equipment and operating expense grants 26.07.2005
CDTI (Spanish Centre for the 52 Financing of property, plant and equipment and 29.04.2006 Development of Industrial operating expense grants Technology) (Note 19) Ministry of Industry loan 131 Financing for personnel expenses 09.01.2007
5,175
The amounts and movement in the accounts included under this caption during 2009 and 2010 are as follows: Thousands of euros
Balance at Recognition Balance at Recognition Balance at 01.01.09 in income 31.12.09 in income 31.12.10 statement for statement 2009 2010
IDAE (Spanish Institute for Energy Diversi- 77 (19) 58 (19) 39 fication and Saving)
IDAE (Spanish Institute for Energy Diversi- 105 (19) 86 (19) 67 fication and Saving) Ministry of Industry loan 4,546 (840) 3,706 (433) 3,273
IDAE (Spanish Institute for Energy Diversi- 12 (5) 7 (5) 2 fication and Saving)
IDAE (Spanish Institute for Energy Diversi- 17 (5) 12 (4) 7 fication and Saving) Ministry of Industry loan 151 (22) 129 (22) 107 Ministry of Industry loan 60 (9) 51 (9) 42
CCDTI (Spanish Centre for the 33 (7) 26 (7) 19 Development of Industrial Technology) Ministry of Industry loan 106 (14) 92 (14) 78 5,107 (940) 4,167 (532) 3,634
139 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
Grant for property, plant and equipment from the Ministry of Industry
On 17 January 2006, the Ministry of Industry, Tourism and Trade notified the Parent company that it had been awarded the grant requested for the project to start up a plant to manufacture thermal solar modules and photovoltaic cells. The eligible investment amounted to Euros 22,732 thousand and the grant awarded totalled Euros 4,546 thousand, representing 20% of the investment.
The grant awarded is currently subject to the following conditions:
• The Company should execute at least 10% of the eligible investment prior to 31 December 2005.
• Deadline for the whole investment: 31 December 2007.
• Once the investment has been made, it should be maintained for 5 years.
• At least 25% of the eligible investment should be financed by the Company, which should provide evidence of this funding in the documentation supporting the investment.
• The eligible project should maintain the workforce existing at the date of the grant request and, prior to 28 February 2008, generate ninety jobs which should be maintained until 28 February 2011.
In 2007, the Parent company extended a Euros 4,500 thousand guarantee (see note 26 (c)) to the Ministry of Industry, Tourism and Trade to cover collection of 85% of the total grant awarded. On 10 December 2007, the Parent company requested an advance of 85% of the total loan, availing of the Ministerial Order of 17 December 2001, which regulates the terms applying to grants awarded to business projects which generate employment. On 17 January 2008 the Parent company was awarded this advance payment, which was collected on 7 February 2008, with the remaining 15% left outstanding at 31 December 2009. This balance was collected in 2010.
At the beginning of February 2010, the Company was informed it had been awarded an outright grant of approximately Euros 12 million as part of the Miner plan for 2009. These grants have been earmarked to create jobs and invest in improvements to the factories which manufacture photovoltaic modules and cells in Puertollano (Ciudad Real). The final terms of the grant were announced on 10 March 2010 and accepted on 18 March 2010. The terms of payment of the grant are subject to the completion of the project, understood as the execution of the investment, the payment of the amounts invested, the provision of evidence supporting the level of self- financing, the creation of the jobs committed and the signing of the corresponding verification certification. The amount of the grant equals 30% of the foreseen investments for 2011, 2012 and 2013.
140 19. TRADE AND OTHER PAYABLES
Details of suppliers and other payables are as follows:
Thousands of euros
2010 2009 01.01.09
Suppliers and other payables 30,461 15,191 49,061 Suppliers, Group 8 - - Trade payables advanced by banks 25,233 571 - Suppliers of property, plant and equipment 2,418 3,215 3,289 Salaries payable - 148 412 Advances from customers 9,441 8,863 8,863 Current tax liabilities 97 - - Public entities, other (note 20) 5,012 1,267 1,170 72,670 29,255 62,795
At 31 December 2010 the Group had balances payable in foreign currency totalling Euros 16,565 thousand (Euros 445 thousand in 2009), mainly in US Dollars. The balance payable to suppliers and creditors, which at 31 December 2010 has been deferred beyond the legal deadline (85 days for 2010), amounts to Euros 23,005 thousand.
141 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
20. TAXATION
The income tax expense for 2010 and 2009 is as follows:
Thousands of euros
2010 2009
Profit/(loss) before income tax 4,928 (981) Permanent differences 27 79 Temporary differences 320 320 Consolidation adjustments - 7,501 - Offsetting of tax losses (14,058) - Taxable income (1,282) (582) Deductions (3,177) (1,008) Withholdings and payments on account (26) (39) Income tax expense / (receivable) (26) (39)
In 2010 the Group began filing consolidated tax returns, with Solaria Energía y Medio Ambiente, S.A. as the parent of tax group 191/10. This tax group is formed by the Group’s fully-owned Spanish subsidiaries.
Reconciliation of taxation is as follows: Thousands of euros 2010
Profit and Equity Total loss
Income and expenses for the year before tax 4,928 (223) 4,705 Tax at the applicable rate 1,478 (67) 1,411 Non-deductible expenses 123 - 123 Deductions and credits for the current year (3,177) - (3,177) Income tax expense (1,576) (67) (1,643) Effective tax rate (32%) 30% 35%
142 Thousands of euros 2009
Profit and Equity Total loss
Income and expenses for the year before tax (981) (444) (1,425) Tax at the applicable rate (294) (133) (427) Non-deductible expenses 24 - 24 Deductions and credits for the current year (1,008) - (1,008) Income tax expense (1,278) (133) (1,411) Effective tax rate 130% 30% 99%
The Parent company has recognised a deduction for environmental investment at 31 December 2010 for investments in assets allocated for use in renewable energy sources as permitted by article 39.3 of the revised Spanish Income Tax Act. This deduction is applicable to 2009 for the two solar plants built in Villanueva de la Serena and Fuenmayor (La Rioja). The investment made to build both plants totalled approximately Euros 101 million.
As permitted by article 109 of the Spanish Income Tax Act, in 2007 the Group opted to apply accelerated depreciation rates to its new items of property, plant and equipment. The aforementioned law permits companies to apply accelerated depreciation rates provided that, during the 24 months following the start date of the taxation period in which the assets acquired entered into service, the total average headcount of the Company increases in comparison with the average for the prior 12 months, and that this increase is maintained during an additional 24 months. The items to which these accelerated depreciation rates were applied amount to Euros 3,329 thousand, generating associated deferred tax.
Deferred tax assets and liabilities are as follows: Thousands of euros
Assets Liabilities Net 2010 2009 1/1/09 2010 2009 1/1/09 2010 2009 1/1/09 Property, plant and equipment 6,803 6,803 6,803 (804) (897) (993) 5,999 5,906 5,810 Transactions with consolidated assets, 2,489 - -- - - 2,489 - - international subsidiaries Hedging operations 176 85 218 - - - 176 85 -
Tax loss carryforwards, SEMA 923 5,454 4,179 - - - 923 5,454 218 Tax loss carryforwards, Spanish 106 - - - - - 106 - 4,179 subsidiaries Tax loss carryforwards, international 535 - - - - - 535 - - subsidiaries Deductions and credits, SEMA 4,185 1,008 - - - - 4,185 1,008 - Others (note 2.3) 2,450 2,450 1,528 - - - 2,450 2,450 1,528
Other 54 306 2,271 (24) - - 38 306 2,271 Total assets/liabilities 17,721 16,106 14,999 (828) (897) (993) 16,893 15,209 14,006
143 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
The companies forming the Group have recognised tax credits in respect of loss carryforwards and deductions pending application which relate almost entirely to the Parent of the tax group, Solaria Energía y Medio Ambiente, S.A. Details of these tax credits by year of origination, tax base and classification between current and non-current in accordance with estimated recovery periods are as follows:
Thousands of euros
Year Amount Maturity originated
Tax loss carryforwards 2008 923 2023 Deductions 2009 1,008 2004 Deductions 2010 3,177 2025
In accordance with Spanish tax legislation, losses declared may be carried forward to be offset against profits of the fifteen subsequent accounting periods, the amount being distributed as considered appropriate. Losses are offset when the income tax declarations are filed, without prejudice to the taxation authorities’ powers of inspection.
Due to the different possible interpretations of the prevailing tax legislation, additional tax liabilities could arise in the event of inspection. However, basing their conclusions on an independent expert’s report on certain transactions, the directors of the Parent company consider it unlikely that there will be an outflow of resources that could significantly affect these annual accounts.
Balances included under public entities (see notes 11 and 19) are as follows:
Thousands of euros
2010 2009
Debtor Creditor Debtor Creditor
VAT 14,313 64 22,615 680 Personal income tax - 4,491 - - Social Security - 457 - 288 Tax withheld on interest 995 - 443 299 Other - 97 - - 15,308 5,109 23,058 1,267
144 21. INCOME AND EXPENSES a. Revenues
Details of revenues are included in segment reporting (see note 5).
The Group’s revenues for 2010, distributed by country, are as follows:
Thousands of euros 2010
Spain 37,497 Italy 109,814 Greece 1,015 Germany 11,185 Brazil 1,788 France 36 161,335
Almost all the Group’s revenues for 2009 were generated in Spain, with Euros 10 million generated in other countries. b. Raw materials and consumables used
Details of goods for resale, raw materials and other supplies are as follows:
Thousands of euros
2010 2009
Purchases of raw materials and others 217,729 14,351 Change in inventories (19,765) (1,723) 197,964 12,628
145 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
c. Other expenses
Details of other expenses at 31 December 2010 and 2009 are as follows:
Thousands of euros
2010 2009
Leases and royalties 1,329 766 Repairs and maintenance 582 192
Independent professional services 1,297 2,145
Bank services 960 746
Insurance premiums 409 797
Advertising 2,047 2,276
Utilities 959 705
Other 6,451 6,113
14,034 13,740
d. Grants taken to income
During 2010 the Company recognised income of Euros 532 thousand for grants received from different awarding bodies, as detailed in note 18 (Euros 940 thousand at 31 December 2009).
e. Personnel expenses
Details of these personnel costs are as follows:
Thousands of euros
2010 2009
Wages and salaries 19,015 12,356
Social security payable by the Company 4,453 2,910
23,468 15,267
146 The average headcount of the Group during 2010 and 2009, distributed by category, is as follows:
2010 2009
Engineers 49 28
Graduates 40 39
Factory personnel 639 438
728 505
At 31 December 2010 and 2009 the distribution by gender of Parent company personnel and directors is as follows:
2010 2009
Female Male Female Male
Directors - 5 - 5
Engineers 6 53 4 20
Graduates 15 31 19 44
Factory personnel 207 485 158 241
228 574 181 310
The Company has no pension or similar obligations with personnel. f.Finance income and expense Thousands of euros
2010 2009
Income from bank interest 936 444
Exchange gains 1,000 708
1,936 1,152
Interest payments (3,732) (3,402)
Changes in fair value – derivative financial instruments (609) (593)
Exchange losses (1,634) (1,100)
(5,975) (5,095)
Finance loss (4,039) (3,942)
147 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
g. Foreign currency transactions
Foreign currency transactions amounted to Euros 148 thousand in 2010 (Euros 85 thousand in 2009).
22. CONTINGENCIES
Management of the Parent company considers that neither the Company nor any member of the board of directors or management are involved in any legal actions, lawsuits or civil, criminal or administrative proceedings of an amount that could significantly affect the annual accounts and/or the financial position or profitability of the Company.
However, at 31 December 2010 the Group is involved in the following legal proceedings:
a. Ordinary procedure filed in Madrid by Solaria Energía y Medio Ambiente, S.A. against Sociedad de Actividades Diversas Inmobiliarias y Agrarias, S.L. and twelve other entities, to claim an amount for partial non-payment on the sale of a photovoltaic solar plant.
b. Claim filed in Madrid by Fotovoltaica Los Navalmorales, S.L. against Solaria Energía y Medio Ambiente, S.A. for modules sold by the Company to the claimant. The Company has filed a counterclaim for breach of contract (see note 2.3).
148 23.RELEVANT INFORMATION REGARDING THE BOARD OF DIRECTORS AND SENIOR MANAGEMENT
The directors of the Parent company have accrued wages and salaries amounting to Euros 1,455 in 2010 (Euros 1,704 thousand in 2009). Additionally, the remuneration payable to the directors for their attendance at board meetings in 2010 totals Euros 450 thousand (Euros 483 thousand in 2009).
The Group has not extended any advances or loans to members of the board of directors, nor has it undertaken any commitments to them in the form of pension plans, retirement benefits, life insurance policies or special termination benefits. The Company has no pension or similar obligations with management personnel, nor has it extended to them any advances, loans, retirement bonuses, life insurance policies or special termination benefits. All senior management personnel are also members of the board of directors.
For the purposes of complying with article 229 of the revised Spanish Companies Act, these notes to the annual accounts include information relating to interests and positions held by members of the board of directors of Solaria Energía y Medio Ambiente, S.A. in other companies with similar or complementary statutory activities to that of the Company.
The relevant interests of the members of the board of directors of the Company and related parties in the capital of entities with identical, similar or complementary statutory activities to those of the Company and its Group, and of which Solaria has been informed, are detailed below, indicating the positions held or the duties carried out in these companies:
Director (*) Name of the company % Office or duties Percentage of ownership
Enrique Díaz-Tejeiro Gutiérrez DTL Corporación, S.L 40% Joint director
Arturo Díaz-Tejeiro Larrañaga DTL Corporación, S.L. 20% Joint representative
Miguel Díaz-Tejeiro Larrañaga DTL Corporación, S.L. 20% Joint director
Enrique Díaz-Tejeiro Larrañaga DTL Corporación, S.L. 20% Joint director
Iñigo Sagardoy Simón - - -
Manuel Azpilicueta Ferrer - - -
(*) The percentage of ownership and office held by each director, or by parties related to them, are presented in the same line as their name.
During 2010 and 2009, neither the directors nor related parties have carried out any transactions with the Group that were not ordinary business or at arm’s length.
149 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
24. EARNINGS PER SHARE
a. Basic
Basic earnings per share are calculated by dividing the profit attributable to Solaria’s shareholders by the weighted average number of ordinary shares in circulation during the year, excluding own shares acquired by Solaria and held in its portfolio (see note 15). Details are as follows:
Thousands of euros
2010 2009
Profit attributable to shareholders 6.504 298
Weighted average number of ordinary shares in circulation 99.545.669 99.660.078
Basic earnings per share (Euros per share) 0,065 0,003
b. Diluted
Diluted earnings per share are calculated by adjusting the profit for the year attributable to the shareholders of Solaria and the weighted average number of ordinary shares in circulation for the inherent diluting effects of potential ordinary shares.
At 31 December 2010 and 2009, no instruments have been issued that could potentially dilute ordinary shares. Consequently, basic earnings per share are equal to the diluted earnings per share.
150 25. BALANCES AND TRANSACTIONS WITH RELATED PARTIES a. Parent company
The shares of Solaria Energía y Medio Ambiente, S.A. are quoted on the Madrid, Barcelona, Valencia and Bilbao stock exchanges through the electronic trading system. The main and controlling shareholder of Solaria Energía y Medio Ambiente, S.A. is DTL Corporación, S.L., which holds 62.42% of Company shares. DTL Corporación, S.L. is owned by the Díaz-Tejeiro family. Instalaciones Díaz Tejeiro, S.L. is a related company. b. Transactions and balances with related parties
The main transactions carried out by the Group with related parties during 2010 are as follows:
• During 2009 the Group signed two contracts for the sale of solar plants, including the licences and permits to operate these plants, with its Parent company Solaria DTL Corporación, S.L. These contracts amounted to Euros 6,221 thousand, as explained in notes 1 and 13.
• The offices located at calle Velázquez 47, Madrid, which were occupied by the Parent company from January to June 2009, and the registered offices at calle Princesa 2, Madrid, from which it has run its operations since July 2009, are owned by Solaria DTL Corporación, S.L. The Parent company has paid an amount of Euros 629 thousand for the lease of these offices, in accordance with the contracts signed between the parties (Euros 412 thousand at 31 December 2009).
• The Parent company signed development and construction contracts for photovoltaic plants for which it recognised sales of Euros 49,359 thousand at 31 December. 2010. 50% of this amount was eliminated in the consolidation process.
Details of balances with related parties are as follows: Thousands of euros
2010 2009
Trade receivables DTL Corporación, S.L. 167 1,404
Magacela Solar 1, S.L. 24 554
Serre UTA Srl - 3,775
Técnicas Ambientales del Norte S.L. 3 -
194 5,733
151 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
26. OTHER INFORMATION
a. Audit Frees
At the general meeting held on 30 June 2009 the shareholders agreed to the appointment of KPMG Auditores, S.L. as external auditors of the Company for the present year and the next two years.
KPMG Auditores, S.L. rendered professional services to the Group during the years ended 31 December 2010 and 2009, charging the following fees and expenses:
Thousands of euros
2010 2009
Audit services 148 125
Other services 24 25
172 150
The amounts reflected in the table above comprise the total fees for services rendered in 2010 and 2009, irre- spective of the date of invoice.
b. Environment
The Group takes environmental protection laws into account when carrying out its operations and believes that it substantially complies with these laws and maintains procedures designed to encourage and guarantee compliance.
During 2010 and 2009, the Group has not made any environmental investments nor has it incurred any expenses for the protection or improvement of the environment or considered it necessary to recognise any provision for liabilities and charges of an environmental nature as it has no contingencies relating to the protection or improvement of the environment and no environmental liabilities.
Consequently, the directors consider that no significant contingencies exist in relation to the protection and improvement of the environment, and therefore no provisions for environmental liabilities and charges were recognised in 2010 or 2009.
152 c. Bank guarantees
The Group has contingent liabilities for bank and other guarantees relating to its normal business operations amounting to Euros 17,398 thousand at 31 December 2010 (Euros 38,612 thousand at 31 December 2009). The directors of the Parent company do not expect any significant liabilities to arise from these guarantees. d. Guarantees
1. Warranties for turnkey contracts
The Parent company warranties against defects and problems relating to the execution and completion of the construction of photovoltaic plants, provided that these are directly attributable to Solaria. The warranty covers a three-year period from the date of final delivery of the photovoltaic plant.
The guarantee assumed by the Parent company with respect to the products and materials supplied for the construction of the plants is covered and limited by the warranty granted by the manufacturers of the materials concerned.
2. Operating and maintenance contract warranties
Every five years the electricity generated by the photovoltaic plants sold is measured, and if the commitment has not been met the Parent company will pay for the amount not generated up to the guaranteed 90% output level.
3. Warranties included in module sale contracts
The Parent company offers all customers a standard warranty certificate for the photovoltaic modules covering material and manufacturing defects and guaranteeing a specified capacity.
During the first three years the Parent company guarantees that its modules will be free from material or manufacturing defects that impede normal functioning under proper usage, installation and maintenance conditions. If this is not the case, the Company will replace or repair the defective module.
From the date the module is sold, the Parent company guarantees a minimum output based on the technical specifications of the agreement and will deliver modules for the equivalent of the lost capacity, repairing or replacing units as follows:
153 ANNUAL REPORT 2010
CONSOLIDATED ANNUAL ACCOUNTS
Years since the supply date Guaranteed output capacity
Up to 25 years 80%
Up to 10 years 90%
The Parent company considers that no liabilities will arise as a result of the warranties extended given that historical experience shows that no significant payments have been made for this item, or are expected in the future. Consequently, no provision has been recognised in this respect (see note 2.5 (c)).
e. Temporary workforce restructuring plan
On 21 January 2010, the Company submitted a request to the labour authority of La Rioja to implement a temporary workforce restructuring plan affecting 34 (of 39) employee contracts at the Fuenmayor factory. In the first week of February, an agreement was approved by the employees and ratified by the trade union representatives in the Company. The labour authority approved this agreement, which entered into force on 25 February 2010. On 18 May 2010, due to the increase in the Company’s manufacturing activity, 100% of the employees affected by the aforementioned agreement resumed their normal working hours.
On 5 August 2009, the relevant labour authority approved the Company’s request to temporarily suspend 403 factory employee contracts at Solaria’s work centre in Puertollano (Ciudad Real). This suspension was established for a total of 10 months. On 20 May 2010, due to the increase in the Company’s manufacturing activity, 100% of the employees affected by the aforementioned agreement resumed their normal working hours. The measures requested by the Company were approved by the majority of employees at their general assembly and subsequently ratified by the trade union representatives within the Company.
27. SUBSEQUENT EVENTS
No significant events have occurred since 31 December 2010.
154 155 156 ANNUAL ACCOUNTS APPENDIXES
157 ANNUAL REPORT 2010
ANNUAL ACCOUNT APPENDIXES
Information on Subsidiaries at 31 December 2010 and 2009 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)
Thousands of euros Carrying amount (*)
Investee Tax offices % % Cost Share Reserves Profit/ Prior Total Direct Indirect Capital (loss) for years’ ownership ownership 2010 (*) losses
Planta Solar Puertollano 3, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - 0 (2) 1
Planta Solar Puertollano 4, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - (3) (2) (2)
Planta Solar Puertollano 5, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 3 0 - 6
Planta Solar Puertollano 6, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 40 1,346 (64) 1,325
Planta Solar Puertollano 7, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta Solar Puertollano 8, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - 516 (22,626) (22,107)
Planta Solar Puertollano 9, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta Solar Puertollano 10, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - (20) (17)
Planta FV 1, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - 66 - 69
Planta FV 2, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 3, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 4, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 5, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 6, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 7, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 8, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 9, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 10, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 11, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 12, S,L, C/ Princesa nº 2, Madrid 1 100% - 3 3 --- -- 3
Planta FV 13, S,L, C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
(**) Information included in the unaudited financial statements at 31 December 2009. (*) Companies jointly controlled with third parties. This Appendix forms an integral part of note 1 to the consolidated annual accounts, in conjunction with which it should be read.
158 Thousands of euros
Valor en libros Investee Tax offices % % Cost Share Reserves Profit/ Prior Total Direct Indirect Capital (loss) for years’ ownership ownership 2010 (*) losses
Planta FV 14, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 15, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 16, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 17, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 18, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Solaria Energía Generación C/ Princesa nº 2, Madrid 100% - 1,228 1,228 - (17) - 1,211 Renovable, S.L.U. Fondo Solaria Aleph FCR Plaza de la Lealtad nº4, - 50% - 1,226 15 (43) - 1,198 Madrid Elassona Solar Energía 2 Mesogion Avenue, Athens - 50% - 149 - (92) - 57 LLC Serre UTA, S.r.l Cagliaria,Via Monastir snc. - 50% - 5 - - - 5 Italia Solaria Energía Proyectos C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3 Internacionales, S.L.U. Globasol Villanueva 1, S.L. C/ Princesa nº 2, Madrid - 100% 4,950 3 13 53 - 69
Solaria Deustchland Basler Strabe 115,79115 100% - 27 25 - (44) - (19) GmbH Freiburg im Breisgau Solaria Italia SRL Largo F. Richini 6, Milan 100% - 10 10 - (49) - (39)
Solaria Francia SAS Inmeuble Plaza 93, Rue de 100% - 60 60 - (13) - 47 la Villete 69003, Lyon Sudero s.r.o. Praha 1 klimentská 1216/46 10% 90% 1,234 8 1,198 (173) - 1,033
L-Contact Cej s.r.o. Praha 1 klimentská 1216/46 10% 90% 1,843 8 74 (69) - 13
Solaria Stalldorf GmbH Prinzregentenstr 11 - 100% 27 27 - - - 27 Munchen Marche Energia S.r.l. Via 6 Bocaccio 15/A, Milan - 100% 1,660 10 - - - 10
Venusia S.r.l. Piazzañe Accursio 14, Milan - 50% 1,282 5 - - - 5
Solaria Brasil Alameda Santos 2224, ------55% 180 161 4 4 (123) ------42 Conjunto 82, Sao Paulo TOTAL 12,582
(**) Information included in the unaudited financial statements at 31 December 2009. (*) Companies jointly controlled with third parties. This Appendix forms an integral part of note 1 to the consolidated annual accounts, in conjunction with which it should be read.
159 ANNUAL REPORT 2010
ANNUAL ACCOUNT APPENDIXES Thousands of euros
Carrying amount (*)
Investee Tax offices % % Cost Share Reserves Profit/ Prior Total Direct Indirect Capital (loss) for years’ ownership ownership 2010 (*) losses
Planta Solar Puertollano 3, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 10 -15 - -2
Planta Solar Puertollano 4, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - -5 - -2
Planta Solar Puertollano 5, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta Solar Puertollano 6, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 40 -18 -46 -21
Planta Solar Puertollano 7, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta Solar Puertollano 8, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - 50 -22,676 -22,623
Planta Solar Puertollano 9, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta Solar Puertollano 10, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - -20 - -17
Planta FV 1, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 2, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 3, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 4, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 5, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 6, S.L. C/ Princesa nº 2, Madrid - 100% 3 3 - - - 3
Planta FV 7, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 8, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 9, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 10, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 11, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 12, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 -- - - 3
Planta FV 13, S.L. C/ Princesa nº 2, Madrid 100% - 3 3 - - - 3
Planta FV 14, S.L. C/ Princesa nº 2, Madrid 100% - 3 --- 3
160 Thousands of euros
Carrying amount (*)
Investee Tax offices % % Cost Share Reserves Profit/ Prior Total Direct Indirect Capital (loss) for years’ ownership ownership 2010 (*) losses
Planta FV 15, S.L. C/ Princesa nº 2, 100% - 3 3 - - - 3 Madrid Planta FV 16, S.L. C/ Princesa nº 2, 100% - 3 3 - - - 3 Madrid Planta FV 17, S.L. C/ Princesa nº 2, 100% - 3 3 - - - 3 Madrid Planta FV 18, S.L. C/ Princesa nº 2, 100% - 3 3 - - - 3 Madrid Solaria Energía Generación C/ Princesa nº 2, 100% - 1,228 1,228 - (17) - 1,211 Renovable, S.L.U. Madrid Fondo Solaria Aleph FCR Plaza de la Lealtad nº4, - 50% - 1,226 15 (43) - 1,198 Madrid Elassona Solar Energía LLC 2 Mesogion Avenue, - 50% - 149 - (92) - 57 Athens Serre UTA, S.r.l Cagliaria,Via Monastir - 50% - 5 - - - 5 snc. Italia Solaria Energía Proyectos C/ Princesa nº 2, 100% - 3 3 - - - 3 Internacionales, S.L.U. Madrid Globasol Villanueva 1, S.L. C/ Princesa nº 2, 100% - 4,950 3 13 53 - 69 Madrid Solaria Deustchland GmbH Basler Strabe 100% - 27 25 - (44) - -19 115,79115 Freiburg im Breisgau Solaria Italia SRL Largo F. Richini 6, Milan 100% - 10 10 - (49) - -39
Solaria Francia SAS Inmeuble Plaza 93, Rue 100% - 60 60 - (13) - 47 de la Villete 69003, Lyon TOTAL 6,356
(**) Information included in the unaudited financial statements at 31 December 2009. (*) Companies jointly controlled with third parties. This Appendix forms an integral part of note 1 to the consolidated annual accounts, in conjunction with which it should be read.
161 ANNUAL REPORT 2010
ANNUAL ACCOUNT APPENDIXES
Details of the key indicators of Joint Ventures at 31 December 2010 and 2009 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)
Thousands of euros
2010
Current Non-current Current Non-current Revenue Expenses Name assets assets liabilities liabilities
Solaria Aleph FCR 453 16,372 7,503 - 204 337 Elassona Solar Energía, LLC 45 956 57 581 18 15 Serre UTA, s.r.l. 16,504 69 3,937 11,500 275 44 Solaria Brasil 18 70 9 - 16 191 17,020 14,470 11,497 12,081 513 587
Thousands of euros
2009
Current Non-current Current Non-current Revenue Expenses Name assets assets liabilities liabilities
Solaria Aleph FCR 1.163 5 12 - - 30 Elassona Solar Energía, LLC 57 1.254 25 - - 64 Serre UTA, s.r.l. 148 4.815 5.513 - - - 1.368 6.074 5.550 - - 94
This Appendix forms an integral part of note 4.3 to the consolidated annual accounts, in conjunction with which it should be read.
162 163 164 CONSOLIDATED DIRECTOR’S REPORT
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CONSOLIDATED DIRECTOR’S REPORT 31 DECEMBER 2010 (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)
CHANGES IN THE COMPOSITION OF THE GROUP
In 2007 the consolidated Group did not yet exist, and consequently all the information provided for that year relates to the Parent. The group formed in 2008 has continued to grow throughout 2009 and 2010.
At 31 December 2010 the Group is formed by the following companies:
Fully-owned subsidiaries - direct interests:
Planta Solar Puertollano 3, S.L.U., Planta Solar Puertollano 4, S.L.U., Planta Solar Puertollano 5, S.L.U., Planta Solar Puertollano 7, S.L.U., Planta Solar Puertollano 8, S.L.U., Planta Solar Puertollano 9, S.L.U., Planta Solar Puertollano 10, S.L.U., Planta FV 1, S.L.U., Planta FV 2, S.L.U., Planta FV 3, S.L.U, Planta FV 4, S.L.U., Planta FV 5, S.L.U., Planta FV 6, S.L.U., Planta FV 7, S.L.U., Planta FV 8, S.L.U., Planta FV 9, S.L.U., Planta FV 10, S.L.U., Planta FV 11, S.L.U., Planta FV 12, S.L.U., Planta FV 13, S.L.U., Planta FV 14, S.L.U., Planta FV 15, S.L.U., Planta FV 16, S.L.U., Planta FV 17, S.L.U., Planta FV 18, S.L.U., Solaria Energía Generación Renovable S.L.U., Solaria Energía Proyectos Internacionales S.L.U., Solaria Italia S.R.L, Solaria France S.A.S. and Solaria Deutschland GmbH.
Fully-owned subsidiaries – indirect interests:
Globasol Villanueva 1, S.L., Planta Solar Puertollano 6, S.L.U., Solaria Stalldorf GmbH and Marche Energia, S.r.l.
90%-owned subsidiaries – indirect interests:
Sudero S.R.O. and L-Contact Cej. S.R.O. (the remaining 10% is owned through the Parent company).
166 50%-owned subsidiaries – direct interests:
Solaria Aleph Generación FCR, Elassona Solar Energía LLC, Serre UTA, S.r.l. and Venusia, S.r.l.
55%-owned subsidiaries – indirect interests:
Solaria Brasil-Comercializaçao Fornecimento Productos e Soluçoes Energeticas Ltda.
As in 2009, in 2010 there has been considerable movement in the Solaria Group’s investment portfolio, reflecting the combined effect of the following factors: (i) the internationalisation of the lines of business that commercialise solar modules and carry out projects for the development and commercialisation of photovoltaic plants, and (ii) the extension of the subgroup specialised in power generation. i. Solaria Energía Generación Renovable, S.L.U.:
The principal activity of this company, which was incorporated as “Planta FV 19 S.L.U” (FV 19) and changed its name to the present one in 2009, is the acquisition of interests in entities engaged in the development and operation of photovoltaic plants.
On 13 May 2010, this company acquired a 90% interest in the Czech company Sudero S.R.O., with the Parent company Solaria Energía y Medio Ambiente, S.A. purchasing the remaining 10%. Sudero, S.R.O. holds the necessary licenses, permits and authorisations for the development, construction and operation of a photovoltaic solar plant with a nominal capacity of 4.54 MWp located in the district of Benatky nad Jizerou (Czech Republic).
On 1 June 2010, this company acquired a 90% interest in the Czech company L-Contact Cej S.R.O., with the Parent company Solaria Energía y Medio Ambiente, S.A. purchasing the remaining 10%. L-Contact Cej, S.R.O. holds the necessary licenses, permits and authorisations for the development, construction and operation of a photovoltaic solar plant with a nominal capacity of 2.534 MWp located in the district of Cejetice (Czech Republic).
On 9 July 2010, this company acquired 100% of the shares of the Italian company Marche Energía, S.r.l., which holds the necessary licenses, permits and authorisations for the development, construction and operation of five photovoltaic solar plants with a total nominal capacity of 5 MWp located in the region of Marche (Italy).
With the objective of reorganising the shareholder structure of the Solaria Group, on 28 July 2010 the Parent company Solaria Energía y Medio Ambiente, S.A. increased the share capital of the subsidiary Solaria Energía Generación Renovable, S.L.U. through a non-monetary contribution of 100% of the shares of the subsidiary Globasol Villanueva 1, S.L.U., which owns a photovoltaic solar plant with a nominal capacity of 11 MWp in the municipal district of Villanueva de la Serena (Badajoz).
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On 2 September 2010, this subsidiary acquired 100% of the shares of the German company Solaria Stalldorf Gmbh, which holds the necessary licenses, permits and authorisations for the development, construction and operation of a photovoltaic solar plant with a nominal capacity of 6.1 MWp located in the state of Bavaria (Germany).
With the same objective of reorganising the shareholder structure of the Solaria Group, on 29 December 2010 the Parent company Solaria Energía y Medio Ambiente, S.A. increased the share capital of the subsidiary Solaria Energía Generación Renovable, S.L.U. through a nonmonetary contribution of 100% of the shares of the subsidiary Planta Solar Puertollano 6, S.L.U., which owns a photovoltaic solar plant with a nominal capacity of 9.9 MWp in the municipal district of Fuenmayor (La Rioja).
2. Fondo Solaria Aleph Generación F.C.R.:
This Fund was incorporated on 12 November 2009, jointly owned in equal amounts by Solaria Energía Generación Renovable, S.L.U. and a venture capital management company.
The Fund has committed equity of Euros 30 million (including opening equity) which will be applied to the investments planned over an established period of three years commencing from its development. The statutory activity of the Fund is the acquisition of interests in entities that develop and subsequently operate photovoltaic plants in the USA and Europe. With the contribution of the shareholders and the external financing obtained to develop the photovoltaic plants, the Fund has an investment potential amounting to a nominal installed capacity of up to 50MW.
The Fund signed a collaboration agreement with the Company whereby the latter is the sole supplier of photovoltaic modules to the plants in which the Fund invests. Furthermore, the Company has a right of first refusal to construct the aforementioned photovoltaic plants. In 2009 the Fund acquired the Italian company Serre UTA, S.r.l., which built a rooftop solar installation that commenced power generation activity in 2010.
On 27 July 2010, the Fund acquired 100% of the shares of the Italian company Venusia, S.r.l. Venusia S.r.l. which owns the necessary licences, permits and authorisations for the development, construction and operation a photovoltaic solar plant with a nominal capacity of 8,026 MWp, located in the region of Lazio (Italy).
168 3. Elassona LLC.:
In 2009 this 50%-owned investee was incorporated by the Solaria Group in Greece. Elassona LLC carries out its power generation activity through a plant with a nominal installed capacity of 400 kW.
4. Solaria Energía Proyectos Internacionales, S.L.U.:
This company, originally incorporated as Planta FV 20, S.L., changed its name to the present one in 2009. Its statutory activity remains unchanged.
On 18 November 2009 the Parent company Solaria Energía y Medio Ambiente, S.A. signed a strategic agreement with the Chairman of the private group Fairway Logística e Transporte Ltda. (Fairway), and the Vice-chairman of the Business Association of the State of Sao Paulo (FIESP). The purpose of this agreement is to develop business opportunities in Brazil’s energy sector for the design, installation and operation of photovoltaic plants using crystalline technology and for the sale of photovoltaic equipment.
On 9 February 2010, Solaria Energía Proyectos Internacionales, S.L.U. acquired 55% of the shares of the Brazilian company Solaria Brasil-Comercializaçao Fornecimento Productos e Soluçoes Energeticas LTDA.
On 9 November 2010, Solaria Brasil signed an intention agreement with Companhia Energetica de Minas Gerais (CEMIG), the largest integrated electricity company in Brazil and listed on the Sao Paulo and New York stock exchanges. This collaboration, in which the Group will contribute its knowledge of photovoltaic technology and CEMIG its experience in the Brazilian energy market, will commence with a joint venture in 2011 to construct a 3 MW photovoltaic plant in the state of Minas Gerais, in what will be the largest network-connected photovoltaic energy installation in Brazil.
INTERNATIONALISATION
In 2009 the Solaria Group set in motion an international expansion plan to break into new markets, incorporating the aforementioned international companies in Italy, Germany, France and Greece.
During 2010 the internationalisation process continued with the Group entering the Czech Republic and Brazil. At 31 December 2010 international revenues amounted to approximately 73% of total revenues, compared with 7% the prior year.
Parent company management considers that this expansion will continue over the next twelve months, estimating that the levels of revenue generated outside the Spanish market will increase in 2011. The primary targets of this sales drive will be, in addition to the aforementioned countries, Europe (UK, Belgium, Bulgaria, Romania and the Balkan states), ,America (Peru, Chile, Colombia and USA), Africa (Morocco and Algeria) and Asia (Saudi Arabia, Turkey, China and India, Israel).
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FINANCIAL REPORT
Revenues for the year total Euros 161 million, representing an 81% increase compared with the prior year and demonstrating the positive performance and future potential of the Solaria Group.
Module sales constituted the main component of turnover for 2010, amounting to Euros 109 million and representing approximately 67% of total sales. 76% of module sales for the year were made in Italy and Germany, demonstrating the international expansion of the Group. The projects line has also performed positively in terms of revenues, with a contribution of Euros 38 million from projects carried out in Italy. Power generation, with a contribution of Euros 14 million, temporarily occupies third place in the proportional distribution between lines of business. Taking into account that construction of photovoltaic plants with a capacity of approximately 25 MWp was completed in the last quarter of 2010 (including their connection and the allocation of tariffs), the revenues generated by this line of business can be expected to multiply in 2011.
The different programmes implemented to contain and optimise costs have enabled the Company to increase EBITDA by Euros 19 million and PBT by Euros 6 million compared with 2009, despite the global economic climate of stagnation and crisis. Despite the exponential growth in manufacturing activity, required to cover the significant demand seen by the Group’s lines of business, other operating expenses have remained in line with 2009 figures (increasing only 2%). Personnel expenses are up approximately 54% due to the considerable additional human resources required (the average headcount is up by 223 employees compared with 2009). At 31 December 2010 the Group’s headcount totals 802 employees.
The depreciation/amortisation charge for 2010 amounts to approximately Euros 9 million, a direct consequence of the increase in the volume of fixed assets that entered into service during the year.
The net financial expense totals Euros 4 million, up approximately 2% compared with 2009. This figure is highly relevant taking into account the significance of the growth in activity and the investments made by the Group in 2010.
Both profit as a percentage of sales and profit as a percentage of total assets have increased significantly compared with the prior year (by 46% and 100%, respectively).
170 Non-current assets, which total Euros 224 million, have increased slightly compared to 2009. During 2010 the Group carried out investments in the purchase and development of the SAP integrated system, which will be implemented in the first few months of 2011.
At 31 December 2010 inventories amount to Euros 136 million due to the growth in activity which has increased the capacity of the Puertollano and Fuenmayor factories and the volume of assets relating to projects in progress and photovoltaic plants (with the latter two items totalling Euros 76 million). Notable in this regard are the vertical integration of the production processes and the improvement in the Group’s cost structure.
At 31 December 2010 the Group presents working capital of Euros 86 million, compared with the Euros 41 million with which it closed the prior year, demonstrating the robustness of the Group’s expansion process.
The level of leverage increased in 2010 as a result of the Group’s efforts to carry out the aforementioned activities. On 28 July 2010, Solaria Energía Medio Ambiente, S.A. contracted financing for its solar plant “Villanueva 11 MW”, receiving Project Finance of Euros 26 million. This solar plant is subject to the tariff set forth in Royal Decree 661/2007 and was financed by Dexia Sabadell and Caixanova.
On 14 October 2010, the fund Solaria Aleph Generación F.C.R., which is 50%-owned by Solaria Energía Medio Ambiente, S.A., contracted financing for its solar plant “Sardinia 5.8 MW” (Serre Uta 1 Srl), receiving Project Finance of Euros 23 million. This solar plant, located in the Italian town of Uta (Cerdeña) is a greenhouse rooftop installation. This project was financed by Banca Infrastrutture e Sviluppo (BIIS) of the Intesa San Paolo Group.
On 14 October 2010, Solaria Energía Medio Ambiente, S.A. contracted financing for its two solar plants located in the Czech Republic, “N. Bohemia 4.5 MWp” (Sudero s.r.o.) and “S. Bohemia 2.5 MWp” (L-Contact Cej, s.r.o.), receiving Project Finance of CZK 588 million (approximately Euros 23.5 million). Both solar plants were financed by Ceskoslovenska Obchodni Banka, A.S. (CSOB).
Finally, and despite the distribution of dividends carried out by the Group to reward the trust shown by its shareholders, equity has increased by 1.4% compared with the figures for 2009.
Pursuant to the agreement by the shareholders at their annual general meeting held on 30 June 2010, the directors partially executed the fourth agreement adopted at the aforementioned meeting to return contributions made by the Parent company’s shareholders with a charge to the share premium account, in an amount of two Euro cents per share. These reimbursements of contributions were made in 2010.
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ACTIVITIES R&D
Technological innovation by the Group during 2010 has been focused on product development at the factory manufacturing photovoltaic solar cells. Work has also been carried out to develop new machines for producing modules that will improve quality control levels.
OWN SHARE
At 31 December 2010, the Parent company Solaria Energía y Medio Ambiente, S.A. holds a total of 733,033 shares amounting to Euros 1,146 thousand. In 2009, 1,462,163 shares were held valued at Euros 5,016 thousand. In accordance with the programme to repurchase Parent company shares, authorised by the shareholders at the general meeting held on 30 June 2010 and announced by the board of directors (at the meeting held on 29 July 2010), a total of 450,500 Parent company shares were acquired on the stock markets, as per the following details:
• 2 August: purchase of 15,000 shares at an average price of Euros 1.63 per share. • 3 August: purchase of 7,798 shares at an average price of Euros 1.65 per share. • 4 August: purchase of 18,000 shares at an average price of Euros 1.79 per share. • 5 August: purchase of 18,202 shares at an average price of Euros 1.76 per share. • 6 August: purchase of 13,000 shares at an average price of Euros 1.72 per share. • 9 August: purchase of 15,000 shares at an average price of Euros 1.75 per share. • 10 August: purchase of 16,000 shares at an average price of Euros 1.74 per share. • 11 August: purchase of 18,500 shares at an average price of Euros 1.70 per share. • 12 August: purchase of 15,587 shares at an average price of Euros 1.64 per share. • 13 August: purchase of 12,913 shares at an average price of Euros 1.66 per share.
172 • 16 August: purchase of 15,800 shares at an average price of Euros 1.68 per share. • 17 August: purchase of 16,954 shares at an average price of Euros 1.69 per share. • 18 August: purchase of 20,224 shares at an average price of Euros 1.68 per share. • 19 August: purchase of 6,361 shares at an average price of Euros 1.67 per share. • 20 August: purchase of 15,661shares at an average price of Euros 1.68 per share. • 30 August: purchase of 10,000 shares at an average price of Euros 1.59 per share. • 31 August: purchase of 19,205 shares at an average price of Euros 1.60 per share. • 1 September: purchase of 14,671 shares at an average price of Euros 1.62 per share. • 2 September: purchase of 16,124 shares at an average price of Euros 1.63 per share. • 3 September: purchase of 15,000 shares at an average price of Euros 1.64 per share. • 20 September: purchase of 22,027 shares at an average price of Euros 1.63 per share. • 21 September: purchase of 11,973 shares at an average price of Euros 1.63 per share. • 22 September: purchase of 15,574 shares at an average price of Euros 1.63 per share. • 23 September: purchase of 10,171 shares at an average price of Euros 1.62 per share. • 24 September: purchase of 15,255 shares at an average price of Euros 1.64 per share. • 27 September: purchase of 15,201 shares at an average price of Euros 1.63 per share. • 28 September: purchase of 18,295 shares at an average price of Euros 1.62 per share. • 29 September: purchase of 25,000 shares at an average price of Euros 1.57 per share. • 30 September: purchase of 7,504 shares at an average price of Euros 1.57 per share. • 1 October: purchase of 9,000 shares at an average price of 1.54 per share.
Pursuant to the agreement adopted by the shareholders of Solaria Energía y Medio Ambiente, S.A. at the ordinary general meeting held on 30 June 2010, the board of directors agreed to reduce the share capital of the Parent company by redeeming own shares.
The corresponding deed recording the reduction in share capital was filed at the Mercantile Registry of Madrid on 14 September 2010. 1,440,635 own shares were redeemed, thereby reducing share capital in an amount of Euros 14,406.35, and giving rise to the redrafting of article 5 of the Company’s articles of association, relating to share capital, which was valued at Euros 997,060.32, comprising 99,706,032 ordinary shares of a single series and with a par value of Euros 0.01 each, fully paid.
The reduction in share capital was carried out with a charge tovoluntary reserves and did not entail the reimbursement of any contributions, as the Parent company itself was the owner of the redeemed shares and the objective of the transaction was to redeem own shares.
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OUTLOOK FOR THE GROUP
The Group is currently focused on expanding and developing its business to achieve the strategic objectives that will position it as a leading company in the national and international solar energy market.
The Group’s principal objectives are as follows:
• To consolidate, optimise and profit from Solaria’s position throughout the value chain of the photovoltaic solar energy market. The Group plans to achieve this objective by means of the following:
• Focusing closely on turnkey solar plant projects, participating in the entire management process, from the procurement of licences to the start-up of the solar plants.
• Continuing with the aforementioned international expansion of the Company.
• Promoting the turnkey projects line of business through the operation and maintenance of both Group- owned solar plants and plants owned by third parties.
• Increasing the production of solar cells to reduce exposure to fluctuations in the price of raw materials and obtaining savings on transaction costs throughout the photovoltaic value chain, reducing dependence on suppliers in terms of purchase prices or changes in production capacity and securing greater control over the quality of own products.
• Increasing the production of photovoltaic modules as well as the Group’s market share in the photovoltaic solar sector.
174 MAIN PERCEIVED RISK
Market risk
The fall in demand in Spain caused by the regulatory changes following the approval of Royal Decree 1578/2008 led to a drop in activity that has affected the external sale of photovoltaic modules and the development of new turnkey projects.
Although the outlook is favourable considering the 348 MW awarded between the first three licences extended, very few developers have commenced works or acquired photovoltaic modules. Recovery in demand may remain uncertain in the immediate future due to the reduction in tariffs for ground-level plants and the difficulty of obtaining financing. The decision to implement the aforementioned temporary workforce restructuring plan was due to the current state of the photovoltaic market.
Through its internationalisation process, Solaria seeks to reduce its dependence on its traditional market and to implement its proven business model in countries that have proven more receptive to photovoltaic energy.
Raw material price risk
The main raw materials used by the Company in its production processes are monocrystalline and polycrystalline silicon cells. The fall in demand and the international economic crisis have led the Group to renegotiate its delivery and payment terms with its suppliers. The Group negotiates terms through its purchasing department on a short-term basis to minimise both raw material price risk and currency risk.
Liquidity risk
In a complex scenario such as the present, in which external financing is increasingly costly and hard to obtain, the Group ensures its solvency and flexibility through non-current loans and available cash.
The Group has sufficient financing to meet all its obligations.
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Capital management
The Company’s capital management objectives are to safeguard sustainable growth, provide sufficient returns to shareholders and maintain an optimal share capital structure.
The Group is not subject to rigid capital management criteria, and due to its financial solidity it is able to adopt the most appropriate solution for optimal management at any given time.
The Group’s activities are exposed to various financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk, and liquidity risk. The Group’s global risk management programme focuses on uncertainty in the financial markets and aims to minimise potential adverse effects on the Group’s profits by using derivatives to hedge currency risk and interest rate risk.
Risk management is controlled by the finance department of the Parent company. This department identifies, evaluates and mitigates financial risks in close collaboration with the Group’s operational units.
Risks related to financial instruments
a. Market risk
1. Currency risk
The Group operates internationally and is therefore exposed to currency risks when operating with foreign currencies, especially with regard to the US Dollar. Exchange rate risk arises from commercial transactions, mainly derived from purchases of foreign machinery and raw materials.
The finance department has established procedures which require hedging the currency risk of all operations carried out by the Group in foreign currency due in a period over 30 days, provided that this is recommended in light of the prevailing market conditions at the date of the transaction.
The non-Euro currency in which the Group currently operates is the US Dollar.
2. Price risk
The Group is exposed to market price risk on raw materials. Management controls this risk by considering the market conditions prevailing at the date of the transaction and signing fixedprice contracts.
176 3. Cash flow interest rate risk
As the Group does not have a considerable amount of remunerated assets, income and cash flows from operating activities are not significantly affected by fluctuations in market interest rates.
Interest rate risk arises from non-current loans and borrowings. Borrowings at variable interest rates expose the Group to cash flow interest rate risks. The Solaria Group contracts derivatives to hedge interest rate risk on loans with a variable interest rate. All of the Group’s bank borrowings at variable interest rates are denominated in Euros.
The Group manages interest rate risks in cash flows through variable to fixed interest rate swaps. These interest rate swaps convert variable interest rates on borrowings to fixed interest rates.
The sensitivity of the Group’s profits to a positive or negative change of 10 interest-rate basis points is not significant. b. Credit risk
Credit risk arises from cash and cash equivalents, derivative financial instruments and guarantees with banks and financial institutions, as well as customers, including outstanding receivables and committed transactions. With regard to banks and financial institutions, transactions are only performed with institutions with high credit ratings, taking into account past experience and other factors. When there is no independent assessment of the customer’s credit rating, the finance department carries out an evaluation, considering the financial position of the customer, past experience and other factors. The Group does not extend noncurrent loans to its customers except in very exceptional circumstances. c. Liquidity risk
The Group applies a prudent policy to cover its liquidity risks, based on having sufficient cash and marketable securities as well as sufficient financing through credit facilities to settle market positions. Given the dynamic nature of its underlying business, the Parent company’s finance department aims to be flexible with regard to financing through drawdowns on contracted credit facilities.
Management monitors cash forecasts for the Group based on expected cash flows.
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Information regarding article 116 bis of the Securities Market Act
1. The structure of share capital, including securities that are not traded on a regulated European market, indicating, where applicable, the different classes of shares and for each class, the rights and obligations conferred and the percentage of share capital represented.
Pursuant to articles 5 and 6 of its articles of association, at 31 December 2010 the share capital of Solaria Energía y Media Ambiente, S.A. amounts to Euros 9,971 thousand and is represented by 99,706,032 bearer shares with a par value of Euros 0.01 each, distributed as follows:
2010 2009
Number of % of owership Number of % of owership shares shares
DTL Corporación, S.L. 62,235,544 62,42 62,235,544 61,53
Own shares 733,033 0,74 1,462,163 1,45
Electronic trading system 36,737,485 36,84 37,448,960 37,02
TOTAL 99,706,032 100 101,146,667 100
All shares are quoted on the four Spanish stock exchanges and are listed on the electronic trading system. These shares are freely transferable.
The quoted price of Parent company shares at 2010 year end was Euros 1.45 (Euros 2.52 at 31 December 2009).
All shares have the same voting and profit sharing rights. In accordance with article 30 of the Company’s articles of association, all shareholders owning at least 700 shares (or if this number of shares were greater than one thousandth of share capital, the lowest number of shares representing one thousandth) may attend the general shareholders’ meeting, provided that these shares are registered in the corresponding accounting record at least five days prior to the meeting, and that the shareholder brings with them, as required in the call, their attendance card or the document which legally accredits them as a shareholder.
178 2. Restrictions on the transfer of securities:
There are no restrictions on the transfer of securities. According to article 12 of the articles of association of Solaria Energía y Medio Ambiente, S.A., both shares and derived profit-sharing rights, including pre- emptive rights, are freely transferable by all legal means available.
As a listed company, acquisitions of significant interests have to be reported to the issuer and to the Spanish National Securities Market Commission, in accordance with article 53 of Securities Market Act 24 of 1988, article 23.1 of Royal Decree 1362 of 19 October 2007 and Circular 2 of 19 December 2007 of the Spanish National Securities Market Commission, which establish 3% of share capital or voting rights as the first notification threshold.
Furthermore, as a listed company, the acquisition of a percentage equal to or greater than 30% of the Company’s share capital or voting rights requires the preparation of a takeover bid in accordance with article 60 of Securities Market Act 24 of 1988.
3. Significant direct or indirect interests in share capital.
Interests in share capital are detailed above.
4. Restrictions on voting rights:
There are no restrictions on voting rights.
5. Shareholder agreements:
No shareholder agreements are in place.
6. Regulations applying to the appointment and removal of directors and modification of the Company’s articles of association.
6.1 The appointment and removal of directors is regulated by articles 38 to 40 of the Company’s articles of association and articles 17 to 21 of the regulations of the board of directors.
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Board of Directors
• The Company’s administration is entrusted to the board of directors, which comprises a minimum of four and a maximum of twelve directors who can be re-elected indefinitely.
• It is prohibited for those persons determined unsuitable under the terms established by Law 12 of 11 May 1995, as well as those persons classified as ineligible in article 124 of the Spanish Companies Act and other legal provisions (article 41 of the Company’s articles of association) to hold positions in the Company and, where applicable, perform the related duties.
Appointment of Board Members
• It is the responsibility of the shareholders to establish the number of directors. This should either be decided directly by express agreement or indirectly by opening up vacancies or appointing new members.
• The shareholders will, as far as possible, appoint a majority of external or non-executive directors to the board compared with executive directors.
• Similarly, as far as possible, within the aforementioned majority of external directors, the board will endeavour to appoint substantial shareholders or representatives of substantial shareholders with stable interests in the Company’s share capital (proprietary directors) and individuals of recognised prestige who are not related to any members of senior management personnel or substantial shareholders (independent directors).
• The directors will be appointed, subject to the prior report and proposal from the nomination and remuneration committee in the case of independent directors, by the shareholders at their general meeting or by the board of directors in accordance with the Spanish Companies Act.
• The board of directors will endeavour to elect candidates of established solvency, competence and experience, proceeding with particular caution with respect to those calls to fill the positions for independent directors considered in article six of these regulations.
• The board of directors cannot propose or appoint as an independent director any individual who holds an executive position in the Company or is a relative of any executive directors or senior management personnel of the Company.
180 Re-election
• Before proposing the re-election of a director to the shareholders at their general meeting, the board of directors will evaluate, in the absence of the individual in question, the quality of the work and the dedication to the position demonstrated by the candidate during the previous term.
Duration and co-optation
• Directors will carry out their position for a period of four years, after which they can be re-elected one or more times for periods of equal length.
• The appointment period for directors will expire when the general shareholders’ meeting following the end of their mandate has been held or the legal deadline for holding the general shareholders’ meeting that is to decide whether to approve the accounts for the previous financial year has passed.
• Co-opted directors shall hold their positions until the date of the first general shareholders’ meeting.
• Neither the directors nor their representatives can perform the role of director in companies which compete with the Company, except for positions which they may have in Group companies, without the express written consent of the Company’s shareholders, and without prejudice to article 127 ter of the Spanish Companies Act.
• The directors should tender their resignation to the shareholders at their general meeting, and formally resign if the board of directors consider it suitable, under the following circumstances:
a. When they no longer hold the executive positions associated with their appointment as board member.
b. When their continued presence on the board is incompatible with other duties or prohibited by law.
c. When they have been severely reprimanded by the board of directors for failing to comply with their obligations as board members.
d. When their continued service to the board could jeopardise the Company’s interests or when the reasons for which they were appointed no longer apply (for example, when a proprietary director sells their interest in the Company).
e. In the case of proprietary directors representing substantial shareholders, when the shareholder they represent sells their entire interest in the Company. This also applies to shareholders that reduce their share portfolio to a level which calls for a reduction in the number of external directors representing substantial shareholders.
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CONSOLIDATED DIRECTOR’S REPORT
• When, either due to dismissal or for other reasons, a board member abandons their position before the end of their term, they should explain the reasons in a letter sent to all members of the board.
6.2. Modification of the Company’s articles of association is subject to article 28 thereof.
General Meetings
• General, ordinary or extraordinary meetings will be considered quorate, at the first call, when the shareholders present or represented hold at least twenty-five per cent of subscribed share capital with voting rights. There is no specific quorum requirement at the second call.
• Shareholders with attendance rights who cast their votes remotely will be considered as present for the purposes of establishing the quorum of the meeting in question.
• Absences occurring after a quorum has been established for the general meeting will not affect the validity of the quorum.
Special majorities
• So that the shareholders present at a general, ordinary or extraordinary meeting can validly agree to issue bonds, increase or decrease share capital, execute a transformation, merger or demerger of the Company or, in general, effect any modification of the Company’s articles of association, at the first call, the shareholders present or represented must hold at least fifty per cent of the subscribed share capital with voting rights. At the second call the representation of twenty-five percent of this capital will be sufficient.
Modification of articles of association
Changes to the Company’s articles of association should be agreed by the shareholders at their general meeting and are subject to the following requirements:
a. That the board of directors or, where applicable, the shareholders presenting the proposal prepare a written report justifying the intended modification.
182 b. That the modifications considered be described in the call with due clarity, in addition to explaining the right of all shareholders to examine, at the registered offices of the Company, the full text of the modification proposed and the corresponding report, and to request the free issue or delivery of these documents.
c. That the agreement be adopted by the shareholders at their general meeting, in accordance with the Company’s articles of association.
d. In all cases, the agreement will be recorded in a public deed, which will be entered in the Mercantile Registry and published in its Official Gazette.
Shareholder powers
• The shareholders at their general meeting, as the ultimate decision-making body of the Company, are authorised to adopt all kinds of agreements relating to the Company and, in particular, to agree to share capital increases or reductions, the winding up, transformation, merger and demerger of the Company, the issuance of bonds and, in general, any modification of the Company’s articles of association (art. 5.(f) of the regulations governing general shareholders’ meetings )
7. The powers of the members of the board of directors and, in particular, those relating to the possibility of issuing or redeeming shares:
The Company has extended to the board members Mr. Arturo Díaz-Tejero Larrañaga and Mr. Miguel Díaz- Tejero Larrañaga extensive powers of representation and management, which enable them to attend to the ordinary concerns of the Company, with the exception of those that cannot be delegated by law. Statutes or regulations governing general shareholders’ meetings and meetings of the board of directors or its committees.
8. The significant agreements entered into by the Company and that will enter into force, be modified or terminated should the control of the Company change hands as the result of a takeover, and their effects, except when disclosure of this information would be seriously harmful to the Company. This exception will not be applied when the Company is legally required to publish this information:
The Company has not subscribed any significant agreements that will enter into force, be modified or terminated in the event that the control of the Company were to change hands as the result of a takeover.
9. Agreements between the Company and members of the board of directors, senior management personnel or employees regarding indemnities when these resign or are dismissed unfairly or if the labour relationship is ended due to a takeover:
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CONSOLIDATED DIRECTOR’S REPORT
FORMULATION OF THE CONSOLIDATED ANNUAL ACCOUNTS FOR 2010
At their meeting held on 22 February 2011, pursuant to the requirements of article 171.2 of the Revised Spanish Companies Act and article 37 of the Spanish Code of Commerce, the Directors of Solaria Energía y Medio Am- biente, S.A. authorise for publication the consolidated annual accounts comprising the consolidated statement of financial position, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows and the consolidated notes thereto, as well as the director’s Report for the year commenced 1 January 2010 and ended 31 December 2010. The consolidated annual accounts comprise the documents that precede this certification.
SIGANTORIES SIGANTURE
Mr. Enrique Díaz-Tejeiro Gutiérrez Chairman
Mr. Manuel Azpilicueta Ferrer Director
Mr. Iñigo Sagardoy Simón Director
Mr. José Arturo Díaz-Tejeiro Larrañaga Director
Mr. Miguel Díaz-Tejeiro Larrañaga Director
Mr. Manuel de Vicente-Tutor Rodríguez Non-executive secretary
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Calle Princesa, 2 28008 Madrid T 915 644 272 | F 915 645 440 www.solariaenergia.com