3rd quarter Consolidated Interim Report SolarWorld AG. infinitely valuable

Transcription

1 3rd quarter 2008 Consolidated Interim Report SolarWorld AG infinitely valuable

2 Integrated production Raw materials Wafers Solar cells Modules Trading Production and Production of crystal- Production of silicon- Hook-up of solar International processing of line solar wafers, the based solar cells for cells, placement of distribution of solar silicon. input material for solar cell production. use in solar power modules. connection socket and framing for use in power generation. SolarWorld modules and complete systems. Quarterly comparison of the consolidated income statements in k 4th quarter st quarter nd quarter rd quarter rd quarter /- in % Titel page: Solar module, the fourth production step in the value chain of the SolarWorld Group. Revenue from continued operations Changes in inventories of finished goods 219, , , , , ,283 7,779-17,629 7,611 14, Own work capitalized ,543.5 Other operating income 16,921 9,084 7,518 8,302 16, Cost of materials -98,763-87, , ,076-91, Personnel expenses -20,824-19,879-22,772-19,725-18, Amortization and depreciation -13,198-11,957-13,242-13,163-10, Other operating expenses -26,529-22,141-21,857-25,279-19, Operating result 60,879 42,861 75,663 90,790 54, Financial result -6,960-13,157-2,618-37,904-9, Earnings before taxes on income 53,919 29,704 73,045 52,886 44, Taxes on income -20,278-7,815-21,260-16,741-14, Earnings after taxes from , discontinued operations Consolidated net income 34,411 34,663 52,443 36,145 30,

3 Selected corporate indicators in k Financial indicators 3rd quarter 3rd quarter rd quarter 2007 Variation in % Revenues 238, , EBITDA 103,953 64, EBIT 90,790 54, EBIT in % of revenues 38.1% 33.5% 4.6%-points Consolidated net income 36,145 30, Financial indicators 1st to 3rd quarter as per as per Variation in % Revenues 665, , Share of foreign revenues 59.0% 47.9% 11.1%-points EBITDA 247, , EBIT 209, , EBIT in % of revenues 31.5% 29.4% 2.1%-points Capital employed (cut-off date)* 680, , ROCE** 30.8% 26.3% 4.5%-points Consolidated net income 123,251 78, Consolidated net income in % of revenues 18.5% 16.8% 1.7%-points Equity 812, , Equity ratio 40.3% 40.9% -0.5%-points Return on equity 15.2% 11.9% 3.3%-points Cash flow from current business activities 208, , Net liquidity*** 115, , Investments in intangible assets and in property, plant and equipment 178,741 83, Employees as per as per Variation in % Employees (cut-off date) 1,738 1, Thereof trainees (cut-off date) Personnel costs ratio 9.4% 11.5% -2.1%-points Revenues per capita (in k ) EBIT per capita (in k ) * Intangible assets and property, plant and equipment less accrued investment grants plus net current assets less short-term net liquidity ** EBIT/Capital employed *** Liquid funds and other financial assets less financial liabilities Due to the sale of 65 per cent of the shares in our subsidiary GPV at the beginning of the year 2008 the earnings of GPV are now carried separately in the Profit & Loss Statement according to IFRS 5 under the item discontinued operations. The result of the continued operations therefore exclusively includes the income and expenditure items that are comparable with our future business activities.

4 Indicators of the SolarWorld share ISIN (International Securities Identification Number) DE // WKN (Wertpapier-Kenn-Nummer) Prime Standard/TecDAX at at Number of shares million million Market capitalization 3.3 billion 4.5 billion Trading volume (12 months) 11.0 billion 10.2 billion Position in TecDAX by trading volume (free float, 12 months) 2 1 Position in TecDAX by free float market capitalization 3 2 Earnings per share in the first nine months of the year Opening price at beginning of year Closing price per 30 September Development in per cent since beginning of year -30% +70% SolarWorld Group s indicators Revenues by regions in million

5 Table of contents TO OUR SHAREHOLDERS 2 LETTER BY THE CHAIRMAN 6 THE SOLARWORLD SHARE 3 RD QUARTER MARKET AND FRAMEWORK CONDITIONS 9 BUSINESS DEVELOPMENT 12 EARNINGS, FINANCE AND ASSET SITUATION 16 RESEARCH AND DEVELOPMENT 17 MATERIAL RELATED PARTY TRANSACTIONS 17 SUPPLEMENTARY REPORT 18 OPPORTUNITIES AND RISKS 19 FORECAST REPORT INTERIM 24 INTERIM FINANCIAL STATEMENTS FINANCIAL STATEMENTS 3 RD QUARTER 2008 Legend >>> Jump marks >>> Cross references to pages in the Consolidated Interim Report/Group Annual Report 19 Forecast report The content of this report was printed using luxo-satin paper, produced from sustainable managed forests.

6 LETTER BY THE CHAIRMAN Dipl.-Ing. Frank H. Asbeck Chief Executive Officer/CEO The financial crisis has hit the world economy hard! Yet: Perhaps we are at a turning point. The Russian scientist Nikolai Kondratieff already described the phenomenon of the long-wave economic cycles in the twenties of the last century. He recognized that due to the shortage of certain goods new products and services were exploited. In terms of energy policy we are precisely at this point today! Against the backdrop of the worldwide population growth and the fossil energy resources getting scarcer our vision at SolarWorld is now more appropriate and more important than ever before. We are relying on technologies that are safe for the future and we are successful in doing so. We just proved that once again with our strong operating performance in the 3rd quarter of We were able to improve our profitability and increase our EBIT margins. We are expecting to not only meet but even exceed the overall forecast for the full year. I also see good future prospects for us in the American market, which can be expected to see a turning of the tide in energy policy after the presidential elections. I expect massive investments in renewable energies. That is what we will benefit from: Because already today SolarWorld is the largest producing solar technology group on the North American continent. We reached the 2

7 milestones along the way in as little as just over two years: the take-over of the Shell solar activities in the middle of 2006, the acquisition of a silicon wafer production facility from the Komatsu Group in the spring of 2007 and then, on 17 October 2008, the inauguration of our factory at Hillsboro/ Oregon which impressed me no end. When, a year and a half ago, I walked through the corridors of the then newly acquired factory in Hillsboro there was indeed a good infrastructure there, but I found only dark and deserted production rooms without any people or machines. Four weeks ago, on the day of the inauguration, I entered the factory again and what I saw this time made me really proud: a wafer and cell production facility equipped with the most advanced production plants and more important than the machines populated by highly motivated and highly qualified employees. In as little as a year and a half we managed to build the largest and certainly also the most modern solar cell production facility in the USA! That we were able to go this route so quickly and so successfully is something we owe above all to our employees who work tirelessly for our vision of SolarWorld all around the world. Together we have managed to pool and to pass on expert know-how and competences. We succeeded in engineering a knowledge transfer from our German production site in Freiberg to our new US location an exchange of knowledge that does not only bring us added value in economic terms but also in human terms. Our old and our new employees have grown together during the time of the build-up so that I can now say wholeheartedly: Welcome Hillsboro to the SolarWorld Familiy! And just as we welcome Hillsboro the Hillsboro site and the State of Oregon have welcomed us SolarWorld. We are seeing an extraordinary enthusiasm for solar energy and for our company. Governor Ted Kulongoski did not only come out fairly and squarely in favor of our Green Technology. He and others also supported us on the spot with excellent site conditions. For that I would like to say a big thank you! I am certain that with our newly opened factory in Hillsboro we are proceeding in the right direction. We will continue along this route, together with our employees, worldwide, at all our locations, unperturbed by any financial crises. The future remains exciting and we will go our way together. At a speed that will neither take our breath away nor make us stumble. I look forward to this together with you. With sunny greetings Dipl.-Ing. Frank H. Asbeck Chairman and CEO of SolarWorld AG 3

8 For optimum performance Jens Neubert I Operator/Deputy Shift Manager Deutsche Cell, cell production INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION Freiberg I Germany Solar power points the way to the future: Thanks to highly efficient solar cells the SolarWorld products generate consistently stable returns.

9 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT

10 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION I. THE SOLARWORLD SHARE Capital market Stock exchanges under pressure. The global financial crisis triggered by credit defaults in the US mortgage business worth billions continued to have a firm grip on worldwide capital markets in the 3rd quarter. As a result of the banking crisis, shareholders did not just sell their financial stocks but massively divested their exposures in all sectors. The marked nervousness of investors was reflected in strong volatility over the entire period under review. The US Dow Jones Industrial Index lost four per cent in the 3rd quarter and was quoted at 10,850 points on 30 September a loss of 18 per cent since the beginning of the year. In Europe, the EuroSTOXX slipped by nine per cent to 3,038 points in the 3rd quarter (minus 31 per cent since January). DAX, the central German index, lost 8.8 per cent to 5,831 points, down by 27.5 per cent since the beginning of the year. TecDAX, the technology index, also fell to 686 points, down by eleven per cent in the quarter under review and 30 per cent since the beginning of the year. Market and framework conditions 7 The listed solar stocks did not escape this development, although the financial crisis only directly affects companies requiring fresh capital or new credits. Additional pressure was created by uncertainty in the sector caused by the absence of a political decision on the exact design of the feed-in compensation scheme in Spain and the US by the end of the quarter under review. After reliable new framework parameters were adopted by the central governments of both countries at the end of September, stock prices picked up again slightly. Development of the SolarWorld share compared to TecDAX and DAX 6

11 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT SolarWorld stocks show stable performance. In the market environment characterized by strong uncertainty, the SolarWorld AG stocks proved to be relatively stable in the 3rd quarter. At a closing price of as per 30 September, they were three per cent easier as against the beginning of the quarter. NAI, the nature stock index, recorded a loss of 19 per cent within that period. As per the closing date for the quarter under review, the stocks had lost almost 30 per cent of their value since the beginning of the year due to the financial crisis. The SolarWorld stocks defended their leading position in the TecDAX. Measured in terms of the market capitalization of all technology stocks, they ranked third in September, just as in August. In terms of sales, they continued to occupy the second position, as before. 18 Opportunities and risks Shareholder structure and capital stock. The group s capital stock is divided into 111,720,000 no-par value bearer shares with an imputed nominal value of 1. The shareholder structure did not change on the previous quarter as per the cut-off date, 30 September International Investor Relations. We have established high standards for the quality of our capital market communication and engage in consistent optimization by means of permanent demand and market analyses as well as intensive dialogue with investors and shareholders. At the annual contest of manager magazine, awarding prizes to the annual reports of the key German stock corporations, SolarWorld s annual group report for 2007 took second position among the 30 TecDAX companies in September (previous year: third position). As before, we maintained contact with investors and analysts in the 3rd quarter. In addition to conferences and road shows in the US and Europe we took part in videoconferences and meetings at our locations. The studies conducted by prestigious banking institutions constitute valuable sources of information for our shareholders. Current recommendations by selected financial analysts are: Buy (UBS Deutschland AG, 28 October 2008); Buy (Bank Sal. Oppenheim jr. & Cie. AG, 3 November 2008); Buy (Citigroup Corp., 3 November 2008); Buy (WestLG AG, 3 November 2008); Hold (Commerzbank AG, 3 November 2008); Buy (Cheuvreux SA, 4 November 2008); Buy (Deutsche Bank AG, 4 November 2008). Shareholder structure as of cut-off date 30 September 2008 II. MARKET AND FRAMEWORK CONDITIONS General market environment In the 3rd quarter, the world economy was restrained by the international financial crisis. The background to this crisis is the large number of insolvencies of major financial and insurance companies in the US and Europe, causing an increase uncertainty, a reduction in investors propensity to invest and consumer restraint. Overall, however, the real economy proved more stable than had been expected in many instances. Thus, gross domestic product (GDP) in Germany grew by two per cent year-on-year in the 1st half of 2008 according to the German Institute for Economic Research (DIW), although it had declined from the 1st to the 2nd quarter. The German labour market also continued to pick up until September. The positive aspects also include the reduction in the inflation rate caused by declining energy prices. 7

12 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION In the wake of the financial crisis, oil prices also came under heavy pressure. While a record price of around 150 US dollars had to be paid for one barrel of oil (Brent) in July, the price fell to 100 US dollars as at the end of the quarter. However, at that level the price of crude oil was still up 20 per cent year-on-year. The decline did not yet affect gas and electricity prices. On the contrary: Gas customers in Germany were faced with price increases of more than ten per cent in some cases in the summer. As before, the prices of all energies were considerably up year-on-year in the 3rd quarter. Development of the international solar market Following the adoption of the amendment of the German Renewable Energies Act (EEG) in the 2nd quarter, which enhanced reliability, the solar market in Germany continued to show a positive development in the 3rd quarter. Demand was buoyant so that some market analysts expect newly installed capacity of up to 1,750 MW for 2008 (forecast by the European Photovoltaic Industry Association EPIA: 1,500 MW). Spain experienced a genuine boom in the 3rd quarter against the backdrop of the expiration of the subsidy program as per 29 September According to the preliminary information of the Spanish national energy commission CNE (Comisión Nacional de Energía), newly installed capacity totaled around 900 MW in the period from January to end of September Installed capacity has thus doubled after only nine months compared with the overall year 2007 (450 MW). The CNE expects total installed solar power capacity in Spain to account for around 1,800 MW by the end of At the end of September, the Spanish government adopted Real Decreto 1578/2008, a new bill governing future subsidies for solar power. This move helped to calm the sector down. According to the new royal decree, the feed-in compensation rate for rooftop systems of up to 2 MW will decline by around 25 per cent as against the old scheme to 0.34 cents per kwh, while the compensation for open-field systems with a maximum output of 10 MW will decline to 0.32 cents per kwh. The rate for large systems thus exceeds the previously discussed level (0.29 cents/kwh). For 2009, the new compensation framework will apply to a maximum newly installed capacity of 500 MW, including 267 MW for rooftop systems and 233 MW for large systems. The compensation may be reduced on a quarterly basis if the number of actually installed systems in the quarter should exceed the quarterly rate. The maximum reduction will be ten per cent per annum. Should the compensation be reduced, the number of subsidized systems will be proportionally increased in the subsequent year. The solar markets in Italy and France continued to show dynamic growth. According to the electricity company GSE (Gestori dei Servici Elettrici), the monthly installation rate in Italy stands at around 10 MW. From January to September, newly installed solar power output in Italy rose to around 100 MW. In the US the Congress has paved the way for reliable growth of the solar market in the next few years. The Renewable Energy Tax Credit, adopted alongside the 700-billion-dollar package to cushion the financial crisis, entails the extension of the national tax discounts for the purchase of new solar power systems by an additional eight years. At the same time, the previous limit under which purchases of systems were tax deductible up to 2,000 US dollars was eliminated. As a result, both private individuals but also companies and utilities will be able to claim a tax deduction for investments in solar power plants. These measures will be partly financed by means of changes in the taxation of the oil and gas industry. 8

13 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT The solar market in South Korea continued to be set on a growth path. The basis of the positive trend is a large array of funding mechanisms such as tax credits, direct subsidies and feed-in compensation. Japan world market leader in the solar industry until the end of the nineties worked to develop a new national funding strategy for solar power to motivate in particular industry and trade to invest in new solar power systems. Effects of the framework conditions on business development The financial crisis currently does not impact our operating business activities. On the contrary, we benefited from positive framework parameters, e.g. in Spain, the US and Germany, not least due to our early market entry in core markets outside of Germany and our long-term customer relations. 18 Opportunities and risks III. BUSINESS DEVELOPMENT IN THE 3RD QUARTER OF 2008 Group-wide expansion of international business. The group s foreign sales as a proportion of total sales rose to 50 (3rd quarter 2007: 40) per cent in the 3rd quarter. This ratio comprises sales in all markets outside of Germany in the wafer, cell, module and kit/systems business. In the first nine months of the year it stood at 59 (3rd quarter 2007: 48) per cent. Sales in our foreign markets grew by 74 per cent within that period. The disproportionate growth proves that we have pursued the right approach with our international sales strategy. We also managed to increase sales in the more highly developed and thus more mature German market, although sales growth was more moderate at 11 per cent. Unchanged group structure. Compared with the previous quarter, the legal group structure of the SolarWorld Group did not change in the 3rd quarter of Start of industrial silicon production. SolarWorld consistently strengthens its business at the beginning of the solar value chain. Thus, e.g., Evonik Degussa GmbH and SolarWorld AG started off industrial solar silicon production on 8 August 2008 by Joint Solar Silicon GmbH & Co. KG (JSSI), their joint venture based in Rheinfelden/Germany. The reactors of the separation systems thus started operation as scheduled in the 3rd quarter. Industrial production will start with an initial nominal year-end output of 850 tons. The joint venture uses a unique production process to produce solargrade silicon from monosilane under the brand name Sunsil. The particular benefit of the new process is that it consumes around 90 per cent less energy compared with traditional silicon production. Other raw materials activities on schedule. In our SolarMaterial division, the processing capacity available to recycle raw materials was fully utilized in the first nine months of the year. More than 800 tons of silicon were recycled. Thanks to an intensification of the control of incoming goods, improvements of analysis processes and the use of new processing technologies, a broader range of recycling materials can now be used for silicon recycling. As a result, the average content of products produced by SolarMaterial in crystallization also rose year-on-year. Besides raw materials recycling we are also testing the use of new raw materials from purified metallurgical silicon. The development of a pilot plant for this process is progressing in line with plans. 9

14 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION Capacity expansion Production Increase in production capacity decrease in costs. In the 3rd quarter the expansion of our wafer capacity at the Freiberg/Germany production site progressed according to plan. By the end of the year, SolarWorld will achieve nominal production capacity of 500 MW at that site. The construction work in Freiberg s Industrial Park East has also progressed swiftly since the start of construction on 7 July. With the new production facility we will be able to achieve a further significant reduction in our costs and our cost of materials since an IT-supported test system will soon render intermediate storage superfluous and reduce material throughput times (just-in-time material input). In the module segment we will also increase our nominal production capacity in Freiberg by the end of the year from 120 to 140 MW. The required work on the production line progressed smoothly in the 3rd quarter. The optimization process will thus be completed on schedule in the forthcoming quarter. In the 2nd half of the year, the production facilities at the Hillsboro site in the US started operation on schedule. Following the successful test runs for the wafering process in the 2nd quarter, the test phase was also operated smoothly for crystallization and cell production in the 3rd quarter. The new production facility was officially inaugurated on 17 October. By the end of 2008, the plant will reach a nominal year-end capacity of 100 MW each in mono-crystalline wafer and cell production. In Camarillo/USA the planned capacity of 100 MW in module production was already fully available in the 3rd quarter. In the 2nd half of the year, the focus will now be on a standardization of the workflows and the further optimization of the facility. All measures required to this end were already initiated in the 3rd quarter. Modules also to be supplied from South Korea in future. Our joint venture SolarWorld Korea Ltd. pushed the expansion of capacity in module production further ahead in the 3rd quarter. Production ramp-up is planned for the 4th quarter of In the 1st half of 2008, we already secured our raw material supplies for the first module production as of 2009 by signing a 7-year long-term contract between our joint venture and the Korean wafer producer Nexolon Co. Ltd. Order book development 13 Expansion of external wafer business. Apart from securing raw materials and expanding our international capacity, we also concluded further long-term contracts for the sale of solar wafers worth 350 million US dollars in the period under review. The wafers will be supplied to customers in Germany and China. These contracts will secure long-term utilization in the first expansion stage (250 MW) of our new wafer production facility in the recently developed industrial park in Freiberg/Germany. Stable upward trend in the module and kit business. In the first nine months of 2008 our module and kit business grew again, by 42 per cent to 489 (previous year: 344) million. We successfully continued our internationalization strategy and posted a sales share of 61 (previous year: 44) per cent in the trading business with modules and kits outside of Germany. This sales share clearly shows that we have embarked on the right road with our consistent commitment to solid customer relationships and the sustainable positioning of our brand in foreign markets, too. One of the milestones in this quality and brand campaign was the certification of our sales subsidiary in Singapore SolarWorld Asia Pacific PTE Ltd. according to the international quality management standard ISO 9001 in September In the trading business, our core markets in the first nine months of 2008 were Germany and Spain, followed by the US and South Korea. 10

15 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT In Germany the business development of SolarWorld s trading segment was positive again in the 3rd quarter. Negotiations for sales of modules and kits for 2009 have also started off successfully. In Spain very attractive feed-in compensation rates applied to power produced by solar systems until the end of September This created above-average demand in the 3rd quarter. Although the Spanish market is characterized by domestic suppliers, we recognized the strategic importance of our local sales presence in due time and promoted our activities in the market. As a result, we managed to more than double our sales in Spain year-on-year. We were well positioned in the Spanish market for large-scale systems. With a consortium comprising Deutsche Bank AG, the Spanish ecoenergias and Solarparc AG, SolarWorld completed the construction of a solar power plant on schedule in the 3rd quarter. With this solar park with a capacity of 30 MWp in Extremadura, the autonomous community in the south-west of Spain, we demonstrated our technical skills in the large-scale systems business. Thanks to the use of solar tracking technology, the solar park will generate around 57 million kwh of climate-friendly power annually given the favorable radiation conditions in the region: Sufficient electricity to fully supply more than 16,000 Spanish households. The solar power plant thus compensates the emission of 38,500 tons of CO 2 annually. 8 Development of the international solar market The US remained the second most important foreign market for SolarWorld, behind Spain. We managed to increase sales by more than 50 per cent year-on-year in the first nine months. A particular asset for us is that we have had both a distribution branch and the full capacity of our modernized module production in Camarillo/California available since the 3rd quarter. In our key sales region in the US market, this creates significant cost savings due to improvements in logistics processes. Behind Spain, Italy was our second most important foreign market in Europe. In the 3rd quarter we achieved sales growth of around 50 per cent in that country. In the new markets France, Greece, the Czech Republic and Belgium the SolarWorld AG positioned itself successfully. Thus, we were able to multiply our sales in the trading business year-on-year in these countries. In Asia, which includes our major sales market South Korea, we are benefiting from persistently strong demand. In the first nine months of 2008 our trading sales in Asia more than doubled on a year-on-year basis. Presence on the trade fairs in the target markets. In the 3rd quarter, SolarWorld was again represented at some key energy shows and exhibitions in its target markets. The key solar event in Europe was the 23rd European Photovoltaic Solar Energy Conference and Exhibition in Valencia/Spain. With more than 30,000 visitors and representatives from more than 85 countries, the exhibition was an ideal forum for us to present this year s product innovations to an international trade audience. We also used the accompanying trade congress as a forum to exchange information about questions related to research and development in the solar sector. The American market is SolarWorld s key non-european sales market. We used the solar exhibition Intersolar North America to strengthen our market position and expand our customer relationships. Innovative products proving their worth. Our latest product innovations Suntub, Suntrol and Suntrac already met with strong interest at trade shows in the 1st half of the year. They subsequently proved their worth in the 3rd quarter in the final test phases conducted under real-life conditions. The assembly system Suntub will make the installation of modules possible on flat roofs in the future without opening the skin of the roof. Market launch will take place in the 4th quarter. In addition, the lower ballast on the roof and the better back ventilation of our product offer an 11

16 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION advantage over competitive systems in the marketplace. Suntrol, the new display unit, will show the operators of solar power plants the yield, total output and CO 2 savings of their solar power system. Our new tracking system for large-scale plants, Suntrac, also showed a convincing performance in the tests carried out in the 3rd quarter. The system ensures that the incidence angle of the sunlight remains optimal throughout the course of the day by means of a sensor-supported module tracking mechanism. IV. EARNINGS, FINANCE AND ASSET SITUATION Earnings situation Development of sales and earnings Group sales rose by 47.2 per cent or 76.4 million to (previous year: 161.9) million year-onyear in the 3rd quarter of 2008 and by 41.6 per cent to (previous year: 470.0) million in the first nine months. The year-on-year growth in sales revenues in the 3rd quarter mainly resulted from the increase of 56 million in sales revenues in the trading segment. At sales revenues growth of 42.2 per cent or 145 million, the trading segment again contributed essentially to the growth in group sales in the first nine months. The group-wide share of foreign sales rose significantly year-on-year by 11 percentage points to 59 (previous year: 48) per cent. In the 3rd quarter, the SolarWorld Group increased its earnings before interest and taxes (EBIT) by 67.4 per cent or 36.6 million year-on-year to 90.8 (previous year: 54.2) million. In the first nine months, earnings grew by 71.3 to million. Earnings before interest, taxes, depreciation and amortisation (EBITDA) climbed by 39.6 to million year-on-year in the 3rd quarter and by 80.8 million to (previous year: 166.9) million in the first nine months. The EBIT margin increased by 4.6 percentage points to 38.1 (previous year: 33.5) per cent in the 3rd quarter. Opportunities and risks 18 Group net profit rose by 18.1 per cent or 5.5 to 36.1 (previous year: 30.6) million in the 3rd quarter and by 56.3 per cent or 44.4 to (previous year: 78.8) million in the first three quarters. This growth results in particular from the positive development of the operating business, the reduction in the tax burden in Germany and the proceeds from the sale of 65 per cent of the shares in Gällivare PhotoVoltaic AB totalling 13.4 million. In the 3rd quarter, group net profit was impacted by negative financial results of million. Earnings for the current year and the previous year s reference period include income from the expenditure grants agreed in the context of the acquisitions made in These expenditure grants affected profit or loss in the 2nd quarter of 2008 for the last time. For a better assessment of the operating performance of the SolarWorld Group EBIT and group net profit were adjusted for these special one-off effects for the 3rd quarter and for the first nine months of

17 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT EBIT adjusted for the expenditure grants amounted to (previous year: 43.2) million in the 3rd quarter and to (previous year: 115.2) million in the first nine months. This represents a year-on-year increase of 47.6 and 87.5 million respectively. The underlying EBIT margin rose in the first nine months to 30.5 (previous year: 24.5) per cent. Underlying group net profit including the proceeds from the sale of the 65 per cent share in GPV grew by 11.4 million to 36.1 (previous year: 24.7) million in the 3rd quarter of 2008 and by 53.1 million to (previous year: 64.9) million in the first nine months of Order book development With the conclusion of new long-term delivery contracts in the 3rd quarter of 2008, orders on hand of the SolarWorld Group by 2018 rose to 7 billion in the wafer segment alone. By the end of the year we expect a further increase. The continuously growing order book of SolarWorld proves our safe competitive position in the high-margin wafer business. At the same time, however, the well-filled order books also document the wide acceptance and quality of our wafer brand Solsix. Development of major P&L items In the first three quarters, the materials cost ratio stood at 46.7 per cent, down from 50.1 per cent in the previous year. In the first three quarters, staff costs totalled 62.4 (previous year: 54.2) million. The rise in staff costs is attributable to the continuous new recruitments in the framework of our corporate growth. The staff cost ratio, on the other hand, stands at 9.4 per cent, falling below the 2007 level of 11.5 per cent due to productivity enhancements. Depreciation rose by 9.5 million to 38.4 (previous year: 28.9) million year-on-year in the first three quarters. This increase is driven by the continuous investments in the expansion of our production capacity. Other operating expenses grew by 15.7 million to 69.3 (previous year: 53.6) million year-on-year in the first three quarters of 2008 due to the rise in business volume and the start-up costs in the framework of the expansion of production capacity. The expenditure ratio, in contrast, declined to 10.4 (previous year: 11.4) per cent. Other operating income declined by 15.4 million to 24.9 (previous year: 40.3) million. The decrease mainly resulted from the development of the expenditure grants, which declined by 16.2 million to 6.6 (previous year: 22.8) million. The last time they affected earnings was in the 2nd quarter of The financial result amounts to (previous year: -9.9) million in the 3rd quarter and (previous year: -16.0) million for the first nine months. In the 3rd quarter, the financial result was influenced by changes in credit risks of around 30 million. 13

18 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION Financial situation Financing analysis Equity rose by million to million as against 31 December The equity ratio stood at 40.3 (31 December 2007: 40.6) per cent as at 30 September In the 3rd quarter of 2008, an additional long-term loan of 75.0 million was taken up to finance capacity expansion at the Freiberg site. Financial liabilities thus total (31 December 2007: 641.2) million as at the balance sheet date, of which 95.3 per cent are non-current. The investment grants and allowances carried under non-current liabilities amounted to 70.3 (31 December 2007: 54.9) million as at the balance sheet date. These public funds for the expansion of our production capacities were accrued on the liabilities side of the balance sheet and will be written back through profit and loss over the period of utilization of the subsidized investments. The increase in other non-current liabilities of 27.9 million to (31 December 2007: 188.4) million is mainly attributable to the increase in down-payments for long-term wafer delivery contracts. Investment analysis Investments in intangible assets and capital expenditure amounted to 72.6 (previous year: 22.3) million in the 3rd quarter of 2008 and (previous year: 83.8) million in the first nine months. A focus of the investment activities was on the expansion of the integrated cell and wafer production at the Hillsboro site where 32.3 million were invested in the 3rd quarter, with 93.3 million invested in the first nine months. Investments in the further expansion of wafer production by Deutsche Solar AG at the Freiberg location totaled 21.7 million in the 3rd quarter and 56.0 million in the first nine months. Further investments were made in order to expand the infrastructure for research and development activities at the Freiberg site. Investments in the shareholdings Joint Solar Silicon GmbH & Co. KG, RGS Development B.V., Scheuten SolarWorld Solicium GmbH, measured at equity, and the newly formed SolarWorld Korea Ltd. totaled 15.6 (previous year: 2.7) million in the first nine months of the year. Liquidity analysis Free liquidity (liquid funds and other financial assets) amounted to (31 December 2007: 792.9) million as at the balance sheet date. The amounts of cash and cash equivalents of (31 December 2007: 263.9) million contained in these liquid funds mainly comprised overnight money and fixed term deposits. In addition, capital market products worth (31 December 2007: 529.0) million were held on the balance sheet date. For more details see VIII. Opportunities and risks. The cash flow from operating activities of (previous year: 165.6) million was primarily influenced by the operating result, the increase in the working capital and the income taxes paid amounting to 48.2 million. 14

19 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT The cash flow from investing activities of (previous year: ) million was characterized by the payments made for investments in fixed assets of (previous year: -85.1) million and the payments received from investments. Moreover, investment grants of 23.1 million and the sale of the shares (65 per cent) in Gällivare PhotoVoltaic AB of 12.8 million were included in the cash flow from investing activities. The cash flow from financing activities amounted to 24.0 (previous year: 498.5) million in the first nine months. It was mainly driven by a financial credit of 75 million taken up. In addition, it also comprised the current interest payments of 24.7 million and the repayments of financial credits of 14.0 million and the dividend payments of 15.6 million distributed in the 2nd quarter. Asset situation Asset structure analysis The balance sheet total rose by million to 2,014.5 (31 December 2007: 1,704.5) million as against 31 December The increase in non-current assets of million to million is attributable to the rise in property, plant and equipment caused by the expansion investments and the first-time recognition of 35 per cent of the shares in GPV under shareholdings measured at equity. The working capital rose by 10.1 per cent to million as against 31 December This development is above all attributable to an increase in down-payments carried under inventories of 87.9 million to (31 December 2007: 246.6) million. Other receivables and assets grew by 5.7 million to 9.3 million as against 31 December 2007, while other current liabilities rose by 28.4 million to 68.1 million. Employees As per 30 September 2008, SolarWorld employed 1,738 staff worldwide (previous year: 1,388). Including temporary staff, 2,254 people worked for our group worldwide. Our headcount has therefore gone up by 252 persons since the beginning of the year. Group headcount as per 30 September 2008 Employees as per 30 September 2008 Employees as per 30 September /- absolute Germany 1,168* 965** +203 USA Rest of world 20 22*** -2 Total 1,738 1,388*** +350 * incl. 84 trainees ** incl. 67 trainees *** In order to enhance comparability, the previous year s figures were adjusted for the headcount of GPV. 15

20 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION Our human resources activities and strategy in the first nine months of the year were characterized in particular by our corporate growth. In Germany, more than 165 new employees were hired, primarily for production in Freiberg. Although the German labor market can hardly cover the demand for skilled labor, we have managed to recruit a sufficient number of highly skilled engineers, technical and commercial staff to expand our production site in Freiberg as well as our site in Bonn. The consistently sustainable orientation of our group has paid off, since this is a particular asset for highly skilled and committed candidates seeking employment. We also focus on training and thus the promotion of in-house junior staff. The number of trainees rose substantially year-on-year by 25 per cent. At the end of the 3rd quarter we employed a total of 84 (3rd quarter 2007: 67) trainees. A further success of our human resources activities in Germany was that in the 3rd quarter we managed to complete the negotiations with the industrial trade union for mining, chemistry, energy (IG BCE) and sign a long-term collective agreement until 2010 for the German site in Freiberg. In Hillsboro/US our human resources activities in the 3rd quarter focused entirely on the forthcoming commissioning of production at the beginning of October. The focus was thus on training schemes for the operators, the establishment of the performance teams and the introduction of the shift system. At the same time, human resources management coordinated a transfer of knowledge and intercultural exchange with our existing production facility in Freiberg so that the experience and knowledge gained can be incorporated in the future growth processes at both sites. This is particularly important for SolarWorld, since the group will continue to expand its production capacity primarily in Europe and the US. In the 3rd quarter of 2008, there were no changes in the composition of Executive Board or Supervisory Board. V. RESEARCH AND DEVELOPMENT Expansion of research centre. The expansion of the new technical center at the Freiberg/Germany production site continued swiftly in the 3rd quarter. The wafer technical center is to be completed by the end of 2008, with operation to start successively as from At the same time, the construction work for the solar cell and module technical center started. It will be available as of mid Locating the two facilities close to our production plant, we have dovetailed our research and development activities even more closely with production workflows. The technical center facilities are key elements of Freiberg s future research center since they form the interface between group-wide research and local state-of-the-art production. They enable us to develop new technologies and processes on a pilot scale all the way to production. We will thus be able to test innovations and optimization processes on our own lines in future. Group management report 2007/ Research and development, p. 74 ff. With regard to the individual research and development projects spanning the value chain in the fields of quality leadership, productivity growth, securing raw material supplies and eco-efficiency, we refer to the chapter on Research and development in the group management report for

21 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT VI. MATERIAL RELATED PARTY TRANSACTIONS In the first nine months of the year SolarWorld Group acquired module production services worth 11,468 k from Gällivare PhotoVoltaic AB and silicon worth 1,836 k from Joint Solar Silicon GmbH & Co. KG. For an intermediate financing of a project SolarWorld AG provided a guaranty of 12,667 k for the benefit of Solarparc AG. In the first nine months of the year Solarparc AG paid a total of 293 k for guaranty commission and interest for intermediate financing measures to SolarWorld AG. The SolarWorld Group rendered services worth 943 k to its not fully consolidated subsidiaries. Apart from that there were no related party transactions that had a material effect on earnings, finance and net worth position of the SolarWorld Group. VII. SUPPLEMENTARY REPORT Events of particular importance and their repercussion Buy-back of treasury stock initiated. On 8 October 2008 the Executive Board of SolarWorld AG decided to make use of the authorization to acquire treasury stock. According to the resolution passed by the Annual General Meeting on 21 May 2008 the company is authorized to buy back treasure stock of up to 10 per cent of the capital stock of the company and to use this for all the purposes mentioned in the resolution. The authorization is limited in time to the close of business on 21 November Start of production in Hillsboro/USA. After all the test phases in crystallization, wafer and cell production could be completed successfully at the Hillsboro manufacturing site the starting pistol was fired for our new wafer and cell production in the USA on 17 October within the framework of an official inauguration ceremony. This means that in the year 2009 the nominal production capacities of 100 MW each will be available to us in the cell and the wafer segment. As we are geographically so close to the important sales market of North America we are now well prepared to benefit from the dynamic growth of this market. In addition, we can expand our international growth out of this location also in the direction of Asia. 15 MW solar park established in South Korea. In mid-october we completed a 15 MW solar power station for our South Korean partner SolarPark Engineering Co. Ltd. in Gochang/South Korea. With the construction of this power station we could further consolidate our market position in the Asian region. What is more, we also reconfirmed our position as one of the strongest solar companies in the strategically important South Korean market. Yet, SolarWorld Korea Ltd. will also benefit from our strong presence in Asia and from the successful cooperation with our South Korean joint venture partner. 17

22 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION Overall management statement on the economic situation at the time of reporting SolarWorld AG s management continues to come to a positive assessment of the group s economic situation. This assessment is based on the consolidated financial statements for 2007 and the earnings, finance and asset situation for the first nine months of 2008 as outlined above. The assessment has also taken account of the business development until the time of preparing the present interim management report. The profitable expansion of our business has continued consistently since the end of the period under review. We therefore do not expect a significant adverse impact on our operating business activities due to the effects of the financial crisis. VIII. OPPORTUNITIES AND RISKS During the 3rd quarter and afterwards the situation on the international financial markets worsened. Out of this situation opportunities as well as risks arise for SolarWorld AG. Our group had already secured its growth by raising credit funds. A potential credit crunch does therefore not have an impact on us. This gives the SolarWorld AG a good position in the market. Due to the high position in cash and other financial instruments SolarWorld has on the other side an exposure to capital markets and credit risks in respect to financial institutions. As of September 30, 2008 SolarWorld AG owns the following financial assets: 1. Demand deposits towards German financial institutions amounting to 484 million. 2. Securitized receivables towards financial institutions amounting to 265 million that are accounted for with a value of 230 million. These receivables include a promissory note from an international commercial bank. An assessment of the credit risk or the market value of this promissory note is not possible at the moment. SolarWorld AG therefore devalued this promissory note with a nominal value of 32.5 million down to zero. 3. Investment funds: DB Platinum IV Corporate Cash 46.2 million Oppenheim ABS Fonds 40.2 million Oona Solutions Corporate Volatility Cash 25.7 million DWS Institutional Money Plus 2.8 million In the 3rd quarter no additional major changes to the risks comprehensively described in the Risk Report in the 2007 Annual Group Report have occurred. Overall the risks are controllable and the continued existence of the SolarWorld Group is not in jeopardy at the time of the present report. Group management report 2007/ Forecast report/opportunities, p. 104 ff. With regard to the opportunities arising from the development of framework parameters and the company s internal opportunities we refer you to the Annual Report for

23 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT IX. FORECAST REPORT Expected macroeconomic environment Despite the predominant impact the financial crisis will have on the world economy in the medium term, too, economic experts expect the world economy to continue to grow, if slower than originally expected. According to a forecast published by the Institute for World Economy (IfW) in October, the world economy will grow by 2.5 per cent in 2008 and 1.8 per cent in This growth will be driven by robust production and demand, in particular in China, Russia and India. However, the experts also expect the US economy to grow some despite the crisis by 1.6 per cent in 2008 and 1.0 per cent in For the Euro zone, in contrast, the IfW expects stagnation for 2009, with slight growth forecast for the German economy by 0.2 per cent. Inflation rates are expected to remain low. Oil prices are expected to show strong volatility. Most analysts expect a sideways movement in the range of 80 to 100 US dollars per barrel. Further declines in oil prices are improbable given the persistently tight fundamental data including e.g. the increasing worldwide record demand for oil expected in spite of the financial crisis. In the framework of the declining oil prices, final customers are expected to see a slight drop in gas and power prices in 2009; however, prices will remain at a high level. Expected development of the solar market Germany will remain the world s largest solar sales market in 2009 despite the eight per cent reduction in feed-in compensation rates. Observers expect the market to grow in the double-digit range. EPIA European Photovoltaic Industry Association expects Germany to achieve grid parity in Should this scenario come true, the German solar market is expected to show dynamic growth in the medium and long term, too. Spain has significantly increased its solar growth targets with the new royal decree on the funding of the domestic solar market. Its previous target was to achieve 371 MW by However, this target was already exceeded last year. A new target of 3,000 MW has now been established. By 2020, installed capacity in Spain is even to grow to 10,000 MW. The government thus underpins the leading role it attaches to solar energy in the planned expansion of climate-friendly power generation. The Spanish government expects the accumulated solar power output to total 1,800 MW by the end of the year. This corresponds to a newly installed capacity of around 1,200 MW in the current year. The solar markets in Italy and France will also continue to show a positive development in the next few quarters. For 2008, double-digit growth rates are expected for each of these markets. EPIA expects the volume of newly installed solar power capacity in Italy to account for 150 MW in 2008 and 300 MW in In Greece the Feed-In Act should be amended in the 4th quarter. This amendment is to eliminate existing bureaucratic obstacles and accelerate the approval process for the installation of solar systems. These simplifications may help to offset any potential declines in rates. 19

24 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION In the US around 400 (2007: 260) MW of newly installed capacity is expected for the current year. The recent improvements in the overall framework may lead to faster growth in Further stimuli might be triggered by the outcome of the presidential elections. Both candidates want to achieve ratification of the Kyoto Protocol. Renewable energies would then play a key role in the implementation of the Protocol. Should the Democratic candidate win the elections, the solar sector might be additionally boosted since this candidate has explicitly announced the promotion of renewable energies. California will remain the key US state for solar energy, currently accounting for more than 60 per cent of the total US-wide newly installed solar power output. Feed-in compensation rates in South Korea will decline as of October 2008 but will remain attractive in an international comparison. Market growth might thus at least double in 2009 and again be in an upper double-digit range. EPIA expects newly installed capacity of 100 to 150 (2007: 50) MW in 2008, followed by a further increase to 300 MW in Growth is expected to be additionally boosted by a planned act obliging utilities in South Korea to include a specific minimum portion of renewable energies in power production (Renewable Portfolio Standard RPS) as of An initial renewable energies share of five per cent has been planned to apply to the power mix. Japan, the previously largest worldwide solar market, is expected to recover some of it growth dynamic. In the framework of the implementation of a new funding program, EPIA expects newly installed solar power output of 200 to 300 MW. According to government plans, the total installed solar power capacity is to be increased to 4.8 GW by 2010 (2007: 1.7 GW). Future business development Business development in the 3rd quarter of Capacity expansion production At our site in Freiberg/Germany we will have a nominal capacity of 500 MW annually available in the wafer segment by the beginning of Continuing our expansion in the new Industrial Park East in Freiberg, we will increase our capacity to 750 MW by the end of We are planning to reach a total of 1 GW at that site by the end of For each year, this capacity will be fully available in the subsequent year. Due to the strong demand in the external wafer business we are focusing in particular on this segment. As a result, the expansion of our cell and module capacity in Freiberg will be considerably more moderate than in the wafer segment. In the cell segment, we will fully utilize our capacity of 160 MW in For 2009 this capacity is planned to be further expanded to 200 MW. Our Freiberg-based module production will reach a nominal capacity of 140 MW by the end of We will realize our capacity expansion in cell and module production by means of a further optimization of our logistics processes and the technical improvement of existing production workflows. Business development in the 3rd quarter of Our SolarMaterial division, which recycles silicon, is working full steam to increase its capacity in order to support the expansion of wafer capacity in the SolarWorld Group via the recycling of materials. To this end, we will carry out some technical improvements in the production processes of our recycling plants and remove some capacity bottlenecks over the next few years. In US we will reach annual nominal capacity of 100 MW each in wafer, cell and module production by the end of the year. We have planed a further expansion of our production capacity for wafers and cells to 250 MW each in Hillsboro/USA by the end of

25 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT Our new production site in South Korea is expected to launch module production as early as in the 4th quarter of 2008 and successively reach its initial capacity of 120 MW. The further expansion of capacity will depend on market developments in particular in the Asian region. We currently expect a doubling of capacity to 240 MW by mid In the trading segment for modules and kits we expect our significant growth to continue in With the adoption of the new acts for the funding of solar energy in Germany as well as Spain and the US the legal framework for our core markets has been established for the next few years. The associated long-term planning certainty will stimulate the markets. Thanks to the clear legal framework, SolarWorld will be able to achieve further growth and higher sales both in our national and international trading business. 8 Consolidated interim report for the 1st half of 2008, p. 9 Development of the international solar market Future employment growth. Since we intend to further expand our group-wide capacity and reinforce our worldwide sales operations, we will continue to recruit new staff at our production and sales sites. With the first stage of our production expansion project at the Freiberg site alone we are planning to create around 300 additional jobs in Germany by the end of Human Resources/ Annual Report for 2007/Employees Future development, p. 102 ff. Above all, our group will also require highly skilled, committed staff to achieve solid growth. We will therefore continue and reinforce our brand strategy SolarWorld as an employer which we have already successfully launched. This selective branding of our top quality and attractiveness as an employer will in particular give us access to a highly motivated group of persons who will help to shape the future growth of our group and push solar energy further ahead throughout the world. This is one of the reasons why we consider human resources development as one of the key management tasks. Expected sales and earnings development The forecast made for the fiscal year under review assumes EBIT (earnings before interest and tax) growth of 25 to 30 per cent based on underlying EBIT 2007 of 171 million. In terms of sales, the forecast for the current fiscal year is a group-wide increase of 25 to 30 per cent. After the current sales and earnings development as of the cut-off date of 30 September 2008 has become known we expect to exceed the forecast for the fiscal year Group management report 2007/ Anticipated earnings development, p. 103 Group management report 2007/ Anticipated sales development, p. 103 Overall statement by the Executive Board on the anticipated development of the group Due to the vertical integration of the value chain of our business and our international positioning we will continue to be able to defend and expand our leading position, even in the light of an intensification of competition in the market. We primarily focus on organic growth. We will use the financial strength of our business to remain independent from individual banks. We will take advantage of the adoption of a reliable legal framework in key international solar markets and the associated positive development in these markets in order to boost our sales and earnings by continuing to expand our international sales and distribution activities in our core markets. 21

26 For equal opportunities Thoko Nkomo I Head of the John Wesley Community Center, Public viewing station Sun-TV INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION Johannesburg I South Africa Solar power makes independent: Stand-alone solar plants can give access to modern media thus supplying information from all over the world even in remote regions.

27 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT

28 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION X. INTERIM FINANCIAL STATEMENTS Consolidated income statement in k Revenue incl. discontinued operations 665, , Revenue from discontinued operations 0-8, Revenue from continued operations 665, , Changes in inventories of finished goods and work in process -2,239-1, Own work capitalized 1, Other operating income 24,904 40, Cost of materials -309, , Personnel expenses -62,376-54, Amortization and depreciation -38,362-28, Other operating expenses -69,277-53, Operating result from continued operations 209, , Financial result -53,679-16, Income from continued operations before taxes on income 155, , Taxes on income -45,816-44, Income from continued operations 109,819 77, Income after taxes from discontinued operations 13,432 1, Consolidated net income 123,251 78, Earnings per share a) Weighted average number of shares outstanding (in 1000) 111, ,720 b) Income from continued operations (in ) c) Income from discontinued operations (in ) d) Consolidated net income (in )

29 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT Consolidated income statement for the 3rd quarter 2008 in k 3rd quarter rd quarter Revenue incl. discontinued operations 238, , Revenue from discontinued operations 0-2, Revenue from continued operations 238, , Changes in inventories of finished goods and work in process 7,611 14, Own work capitalized Other operating income 8,302 16, Cost of materials -106,076-91, Personnel expenses -19,725-18, Amortization and depreciation -13,163-10, Other operating expenses -25,279-19, Operating result from continued operations 90,790 54, Financial result -37,904-9, Income from continued operations before taxes on income 52,886 44, Taxes on income -16,741-14, Income from continued operations 36,145 29, Income after taxes from discontinued operations Consolidated net income 36,145 30, Earnings per share a) Weighted average number of shares outstanding (in 1000) 111, ,720 b) Income from continued operations (in ) c) Income from discontinued operations (in ) d) Consolidated net income (in )

30 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION Balance sheet in k Assets A. Noncurrent assets 595, ,725 I. Intangible assets 33,142 32,675 II. Property, plant and equipment 498, ,602 III. Investments measured at equity 37,267 21,630 IV. Deferred tax assets 26,584 18,818 B. Current assets 1,418,797 1,270,011 I. Inventories 457, ,053 II. Trade receivables 88, ,922 III. Current income tax assets 31,083 9,180 IV. Other receivables and assets 9,318 3,589 V. Other financial assets 347, ,995 VI. Liquid funds 483, ,862 VII. Prepaid expenses and deferred charges 1,236 1,410 C. Assets held for sale ,730 2,014,498 1,704,466 Equity and liabilities A. Equity 812, ,546 I. Subscribed capital 111, ,720 II. Capital reserve 296, ,489 III. Other reserves 3,049-10,180 IV. Accumulated profits 401, ,517 B. Noncurrent liabilities 1,006, ,266 I. Noncurrent financial liabilities 681, ,722 II. Accrued investment grants 70,307 54,925 III. Noncurrent provisions 20,540 20,195 IV. Other noncurrent liabilities 216, ,405 V. Deferred tax liabilities 17,921 15,019 C. Current liabilities 195, ,384 I. Current financial liabilities 33,792 20,443 II. Trade payables 51,798 32,306 III. Income tax liabilities 37,067 15,171 IV. Current provisions 4,520 2,679 V. Deferred income VI. Other current liabilities 68,107 39,700 D. Liabilities of assets held for sale 0 3,270 2,014,498 1,704,466 26

31 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT Changes in equity statement in k Other reserves Subscribed capital Capital reserve Exchange reserve IAS 39 reserve Accumulated profits Total as per , ,349-1, , ,321 Capital increase 55,860-55,860 0 Differences from currency translations Consolidated net income -11,553-11, , ,256 Dividend distribution -11,172-11,172 Hedge reserve changes 3,694 3,694 as per , ,489-13,482 3, , ,546 Differences from currency translations Consolidated net income 9,899 9, , ,251 Dividend distribution -15,641-15,641 Hedge reserve changes 3,330 3,330 as per , ,489-3,583 6, , ,385 27

32 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION Cash flow statement in k Income before tax 169, ,225 + Amortization and depreciation 38,362 29,405 -/+ Financial result 53,679 16,005 +/- Loss/Profit from retirement of assets Gain from sale of consolidated companies -13, Reversal of accrued investment grants -7,695-6,060 = Cash flow from operating result 240, ,974 -/+ Increase/decrease of prepayments and customer advances (balance) -47,857-32,200 -/+ Increase/decrease of inventories (devoid of prepayments) -19,574 7,012 -/+ Increase/decrease of securities (categorized as trading) 14,208 82,824 -/+ Increase/decrease other net assets 45,774-9,999 = Cash flow from operating activities 232, ,611 + Interest received 23,693 9,433 - Taxes on income paid -48,164-55,436 = Cash flow from current business activities 208, ,608 - Cash outflow for asset investments -190,028-85,149 + Cash inflow from investment grants 23,077 2,773 + Cash inflow from the disposal of assets 7, /- Cash inflow/outflow from financial investments 117, ,527 +/- Cash inflow/outflow for the sale/acquisition of consolidated companies 12,799 2,465 = Cash flow from investment activities -28, ,945 + Cash inflow from borrowings 78, ,157 - Cash outflow for redemption of borrowings -14,004-61,968 - Interest paid -24,721-13,488 - Cash outflow due to distribution -15,641-11,172 = Cash flow from financing activities 24, ,529 +/- Net changes in cash and cash equivalents 203,769 67,192 +/- Exchange rate effects on cash and cash equivalents 1,873-1,998 + Cash and cash equivalents at the beginning of the period 265, ,253 = Cash and cash equivalents at the end of the period 471, ,447 28

33 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT Notes to the consolidated interim financial statements 1. Accounting according to International Financial Reporting Standards (IFRS) Pursuant to Article 4 of Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards SolarWorld AG is obliged to apply the international accounting standards adopted in accordance with Articles 2, 3 and 6 of said Regulation. These interim financial statements as per September 30, 2008 have accordingly also been prepared in accordance with IAS 34. These consolidated interim financial statements have not been subjected to a review or audit by an auditor. 2. Accounting and valuation methods In preparing the interim financial statements and establishing the comparative figures for the previous year the same consolidation principles and accounting and valuation methods as in the 2007 consolidated financial statements have been in principle applied. A detailed description of these methods has been published in the Notes to the 2007 Annual Report which can be reviewed in and downloaded from the Internet under 3. Group of consolidated companies In comparison with the last annual financial statements the group of consolidated companies has changed due to the sale of 65 per cent of the shares of Gällivare PhotoVoltaic AB, Gällivare/ Sweden (GPV). The remaining shares of GPV are from now on accounted for under investments measured at equity. Thus, the group of consolidated companies essentially consists of the following subsidiaries: > Deutsche Cell GmbH, Freiberg/Saxony, Germany > Deutsche Solar AG, Freiberg/Saxony, Germany > Go!Sun GmbH & Co. KG, Bonn, Germany > Solar Factory GmbH, Freiberg/Saxony, Germany > SolarWorld Africa (Pty.) Ltd. (formerly SunGrid (Pty.) Ltd.), Johannesburg, South Africa > SolarWorld Asia Pacific PTE Ltd., Singapore, Singapore > SolarWorld California Inc., Camarillo, USA > SolarWorld Ibérica SL, Madrid, Spain > SolarWorld Industries America LLC, Camarillo, USA > SolarWorld Industries America LP, Camarillo, USA > SolarWorld Industries America Services Inc., Camarillo, USA > SolarWorld Industries Deutschland GmbH, Munich, Germany > SolarWorld Industries Schalke GmbH, Gelsenkirchen, Germany > SolarWorld Innovations GmbH, Freiberg/Saxony, Germany > SolarWorld Properties Inc., Hillsboro, USA > Sunicon AG, Freiberg/Saxony, Germany Directly or indirectly SolarWorld AG holds a 100 per cent stake in all these companies. 29

34 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION 4. Other financial assets and debts The other financial assets include financial instruments of the categories Receivables (175,000 k ; previous year: 25,000 k ), held for trading (Trading) (2,817 k ; previous year: 16,973 k ) and financial assets designated as at fair value through profit and loss (FVTPL) (167,693 k ; previous year: 487,111 k ). The financial result disclosed in the Consolidated Income Statement includes the net gains and losses from financial instruments of the categories Trading (286 k ; previous year: 2,413 k ) and FVTPL (-42,330 k ; previous year: -4,116 k ). Besides the interest income net gains and losses contain gains and losses from the valuation as well as the sale of financial instruments. Net gains and losses of the category FVTPL include an amount of about -30 million (previous year: 0 k ) that is attributable to changes in credit risks. The financial instruments measured at amortized costs ( Receivables ) account for interest income amounting to 3,599 k (previous year: 246 k ). 5. Post-end-of-quarter events of particular importance After September 30, 2008 there were no events of particular importance. 30

35 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT Information on business segments from to in million Wafer Cell Module Trade Eliminations Consolidated Sales from continued operations External sales Inter-segment sales Total sales Earnings from continued operations Segment earnings Unallocated income 1 Unallocated expenses -8 Earnings before interest and tax (EBIT) 209 Financial result -53 Income taxes -46 Net profit from continued operations 110 Information on business segments from to in million Wafer Cell Module Trade Eliminations Consolidated Sales from continued operations External sales Inter-segment sales Total sales Earnings from continued operations Segment earnings Unallocated income 4 Unallocated expenses -1 Earnings before interest and tax (EBIT) 138 Financial result -16 Income taxes -45 Net profit from continued operations 77 31

36 INDICATORS LETTER BY THE CHAIRMAN THE SOLARWORLD SHARE MARKET AND FRAMEWORK CONDITIONS BUSINESS DEVELOPMENT EARNINGS, FINANCE AND ASSET SITUATION Financial calendar November 2008 Publication Consolidated Interim Report 3rd Quarter 2008 Press release; Presentation on SolarWorld website Analysts conference call; 4:00 pm 32

37 INTERIM FINANCIAL STATEMENTS RESEARCH AND DEVELOPMENT MATERIAL RELATED PARTY TRANSACTIONS SUPPLEMENTARY REPORT OPPORTUNITIES AND RISKS FORECAST REPORT The Consolidated Interim Report 3rd quarter 2008 is also available in German. The German and the English version can be downloaded as PDF files from our homepage SolarWorld AG, Investor Relations Department Kurt-Schumacher-Str , Bonn, Germany Tel.: Fax:

38 Design: Kreativ Konzept, Bonn [ Photos: Sandra Schuck SolarWorld AG Kurt-Schumacher-Straße 12-14, D Bonn Tel.: , Fax: -99 SolarWorld. And EveryDay is a SunDay.