phoenix Solar at a glance 03 Group structure 04 letter to our shareholders 05 phoenix Solar share 06

Transcription

1 Interim Report January to June 2012

2 Contents 02 contents To Our Shareholders phoenix Solar at a glance 03 Group structure 04 letter to our shareholders 05 phoenix Solar share Interim Management Report summary and overview 10 1 Business activity and framework conditions 11 2 Summary of business developments in the reporting period 15 3 Results of operations, cash flows and financial position 18 4 Events after the reporting date 23 5 Report on opportunities and risks 23 6 Forecast report Consolidated Financial Statements consolidated income statement 30 consolidated statement of comprehensive income 30 consolidated balance sheet 31 consolidated statement of changes in equity 33 consolidated cash flow statement Selected explanatory notes a. General information 35 B. Recognition, measurement and consolidation methods 35 c. Selected notes to the consolidated income statement 38 d. Selected notes to the consolidated statement of financial position 40 e. Seasonal factors 44 F. Segment report 44 G. Significant events after the interim reporting date 47 affirmation by the legally authorised representatives 48 review report further Information Financial calendar 50 editorials and contact 51

3 Phoenix Solar at a glance 03 Phoenix Solar at a glance Company profile Phoenix Solar AG, which has its headquarters in Sulzemoos near Munich, is a leading international photovoltaic system integrator. The Group develops, plans, builds and operates large-scale photovoltaic plants and is a specialist wholesaler for turnkey photovoltaic power plants, solar modules and accessories. With sales operations throughout the whole of Germany and subsidiaries on three continents, the company has sold solar modules with a peak power of more than one gigawatt since it was first founded. The shares of Phoenix Solar AG (ISIN DE000A0BVU93) are listed on the Regulated Market (Prime Standard) of the Frankfurt Stock Exchange. Financial Figures 01/01/ /06/ /01/ /06/2011 Change Revenues and results Revenues 84, , % Domestic 24,966 72, % International 59,409 68, % Overall performance 86, , % EBIT - 14,100-26, % In % of revenues (EBIT margin) % % % Consolidated net income for the period - 16,501-21, % Orders on hand 143,11 311, % Balance sheet 1 Total assets 121, , % Equity 38, , % Equity ratio % 31.6 % 46.1 % % Return on equity % % % % Employees 1 Employees 2 heads % Revenues per capita % Phoenix Solar share 1 No-par bearer shares units 7,372,700 7,372, % Closing price % Market capitalisation 11, , % Earnings per share Basic % Diluted % 1 At the end of the period 2 Average employee number, including part-time and temporary staff 3 Full-time equivalent

4 GROUP STRUCTURE 04 GROUP STRUCTURE Locations and holdings as per 30/06/2011 Subsidiaries 100 % Phoenix Solar SAS Lyon, France 100 % Phoenix Solar E.P.E. Athen, Greece 100 % Phoenix Solar S.r.l. Rom, Italy 75 % Phoenix Solar Sdn Bhd Kuala Lumpur, Malaysia 70 % Phoenix Solar L.L.C. Muscat, Oman Phoenix Solar AG Sulzemoos, Germany 75 % 100 % Phoenix Solar Pte Ltd Singapore Phoenix Solar S.L. Madrid, Spain 100 % Phoenix Solar Inc. New Castle, DE, USA 100 % Phoenix Solar Fonds Verwaltung GmbH Sulzemoos, Germany 100 % Phönix SonnenFonds GmbH & Co. KG D4 Sulzemoos, Germany Other holdings 100 % 21 special purpose entities (see Notes B) 31.2 % Phönix SonnenFonds GmbH & Co. KG B1 Sulzemoos, Germany

5 Letter to our Shareholders 05 Letter to our Shareholders We ve done it! On May 11 we were able to announce the signing of a new financing agreement with our syndicate banks. After months of uncertainty, this has given Phoenix Solar AG a sound financial footing again with clear prospects. The new financing, which has a term through to 31 March 2014, is a reflection of the banks confidence in our business model, and gives us the opportunity of concentrating again more strongly on our operations. In the first half-year, our efforts were devoted to restructuring our organisation and the refinancing negotiations. The political debate on further cuts to the feed-in tariffs for solar power in Germany caused a temporary delay to these negotiations and uncertainty among our customers and suppliers. Against this backdrop, we reaped less benefit from the dynamic development in the German market than originally hoped OR expected. This is also reflected in the results of the first six months. Consequently, consolidated revenues, which stood at EUR 84.4 million, fell considerably short of the year-earlier figure of EUR million. EBIT, however, developed better in a year-on-year comparison, achieving a satisfactory level of EUR million, up from EUR million in the previous year. The improvement in the result is attributable to the punctilious implementation of our restructuring which had been largely implemented by the end of the first half-year. The internationalisation of the Phoenix Solar Group is making pleasingly successful progress. In the first half-year, for instance, more than 70 percent of revenues were generated through international business, which is a significant increase compared with the approximately 49 percent achieved a year ago. The foreign subsidiaries of Phoenix Solar AG are playing an increasingly important role in this development. Whereas the share of international business was still around 20 percent in the first half of 2011, by the end of the first six months of 2012 it had reached an impressive 43 percent. Following the expiry of the transitional periods under the German Renewable Energies Act (EEG) at the end of June, we are currently feeling noticeable reluctance on the part of our customers in Germany to buy. This is compounded by the holiday season in Europe in July and August. As investing in a photovoltaic system is still an attractive option, we anticipate that the European market will pick up momentum again at the end of the holiday season and contribute to a positive revenues and earnings trend in the second half of the year. Against this backdrop, the Executive Board of Phoenix Solar AG affirmed its guidance for achieving revenues ranging from EUR 210 to 240 million and an EBIT of between EUR -25 and -19 million in the financial year We view 2012 as a year of transition dedicated to fully implementing our restructuring plan which will enable us to lay the foundations for profitable growth in the years ahead. With sunny greetings, Dr. Andreas Hänel (Chief Executive Officer)

6 PHOENIX SOLAR SHARE 06 PHOENIX SOLAR SHARE Stock market environment After a positive start to the year, the international stock markets saw a substantial correction in the second quarter. The threat of Greece s exit from the eurozone, Spain s banking crisis, compounded by disappointing economic data in the euro area and a slowdown in the expansion of the US and China caused great uncertainty among investors. Having posted a growth of around 18 percent in the first quarter, the DAX shed almost all its gains over the year within a period of only two months. After a hesitant upswing in June, the index closed the first half-year with an increase of just under 9 percent. The MDAX, SDAX and the TecDAX technology index also mirrored this trend. The greatest burden in evidence on the stock markets from the euro crisis was reflected by the EuroSTOXX 50. The index had fallen almost 10 percent below the level at the start of the year and, after a slight recovery towards mid-year, closed with a deficit of around 1 percent. By the end of the six-month period, the Dow Jones had gained 4 percent. With solar equities already unable to participate in the upswing on the stock markets in the first quarter, share prices came under more pressure as the year progressed from persistent uncertainty about the cuts to feed-in tariffs in Germany and considerable curtailments to subsidies promoting solar energy in other European countries and in the US. Photovoltaic Global 30, the sector s index, slumped to a new record low over the course of the year. Share price performance The share of Phoenix Solar AG was also unable to decouple from this trend and, by the end of six months, had lost 35.2 percent. An additional burden emanated from delays to financing negotiations, reported in April in an ad hoc release, and the subsequent postponement to 15 May of the 2011 Annual Report and the report on the first quarter of Against the backdrop of the accelerating process of market consolidation, driven by more insolvencies of well-known solar companies, the share fell to its lowest point of EUR 0.63 on 18 April, having peaked at EUR 3.53 on 10 February. Price performance of the Phoenix Solar share versus the TecDAX (01/01/ 30/06/2012) % /01/ /01/ /02/ /02/ /03/ /03/ /04/ /04/ /05/ /05/ /06/ /06/ /06/2011 Highest price (10/02/2011): 3.53 Lowest price (18/04/2011): 0.63 Phoenix Solar share TecDAX The market capitalisation of Phoenix Solar AG came to EUR 11.8 million on 30 June 2012 (31 December 2011: EUR 15.6 million). In terms of its trading volume, the share s daily turnover averaged 93,325 units in the first six months of 2012.

7 PHOENIX SOLAR SHARE 07 Shareholder structure In the first half of 2012, we received a number of notifications submitted pursuant to Section 21 para. 1 of the German Securities Trading Act (WpHG) in which shareholders indicated that their holdings had reached, exceeded or fallen below the statutory thresholds. The shareholder structure as per 30 June 2012, and as known to Phoenix Solar AG, is shown below: Shareholder structure as of 30/06/ % Executive Board and Supervisory Board % Further free float According to the definition of Deutsche Börse AG 100 percent of the shares in Phoenix Solar AG are in free float. Investor Relations Investor relations work in the second quarter focused on the financing negotiations with the syndicate banks, progress made in restructuring Phoenix Solar AG and the development of business against the backdrop of further cuts in feed-in tariffs and growing pressure from the consolidation in the solar industry. The Executive Board discussed the results of the 2011 financial year and the first quarter of 2012 on the occasion of a telephone conference with financial analysts on 15 May. Meetings with financial analysts at Munich s Intersolar Trade Fair from 13 to 15 June showed the uninterrupted interest of the capital markets in the future of the solar industry and of Phoenix Solar AG despite the currently poor sentiment prevailing in the market. At the Annual General Meeting of Shareholders of Phoenix Solar AG, which took place on 21 June in Fürstenfeldbruck, all items on the agenda were adopted respectively with majorities of more than 90 percent of the voting rights represented.

8 PHOENIX SOLAR SHARE 08 Key data 2011 Q Q Q Number of shares 1 units 7,372,700 7,372,700 7,372,700 7,372,700 Market capitalisation 1 15,851,305 10,248,053 11,796, ,179,075 Closing price (Xetra) Highest price Lowest price units 14,711,365 4,333,023 11,852,215 3,928,676 Trading volume 212,995,316 10,840,110 19,962,618 72,261, Earnings per share At the end of the period 2 Basic earnings per share 3 Diluted earnings per share Share fact sheet International Securities Identification Number (ISIN) DE000A0BVU93 Securities indent. number (Sec. ident. no.) a0bvu9 Symbol PS4 Class of shares no-par bearer shares Number of shares as per 30/06/ units Share capital on 30/06/ Transparency level prime Standard Market segment regulated Market Stock exchanges xetra, Frankfurt am Main (Prime Standard), Munich (M:access), Stuttgart, Berlin, Düsseldorf, Hamburg, Hanover Sector/sub-sector Industrial Products & Services/Renewable Energies Indizes cdax, DAX International Mid 100, Prime All Share, Technology All Share, diverse sector and sub-sector indices of Deutsche Börse AG, Photovoltaic Global 30 Index End of the financial year 31 December Accounting standards IFRS Commencement of stock market listing 18/11/2004 Designated Sponsor hsbc Trinkaus & Burkhardt AG

9 Interim Management Report to the Interim Financial Statements according to IFRS for the Reporting Period from 1 January to 30 June 2012 of Phoenix Solar Aktiengesellschaft, Sulzemoos Summary and overview 10 1 Business activity and framework conditions 11 2 Summary of business developments in the reporting period 15 3 Results of operations, cash flows and financial position 18 4 Events after the reporting date 23 5 Report on opportunities and risks 23 6 Forecast report 26

10 Interim Management Report 10 SUMMARY AND OVERVIEW The political debate concerning the future subsidisation of photovoltaic electricity, in combination with the company s difficult situation due to the restructuring and refinancing, provoked uncertainty among our customers and suppliers, with the result that Phoenix Solar AG s second-quarter revenues were somewhat weaker than expected. This development affected the German market in particular, but also the international markets of Italy, Spain and Asia. Phoenix Solar generated consolidated revenues of EUR 46.5 million in the second quarter of 2012, 57.1 percent less than the corresponding year-ago figure (Q2 2011: EUR million). Both segments experienced revenue declines: Components & Systems of minus 73.4 percent and Power Plants of minus 24.6 percent. The corporate restructuring plan that was begun in the fourth quarter of 2011 has been implemented with firm resolve and nearly all of the targeted measures have been completed in the meantime. On 11 May 2012, Phoenix Solar entered into a new financing agreement, with a term until 31 March The 25 MW solar farm in Kazanlak (Bulgaria) ordered by Bosch Solar Energy was completed on 26 June. However, it was not possible to secure the old feed-in remuneration rate, which expired as of 30 June 2012, because the Bulgarian authorities took full advantage of the discretionary time allowed to them for granting an operating permit (the date of which was decisive for securing the feed-in rate), contrary to our expectations. The operating permit for the Kazanlak solar farm was not issued until 2 July By reason of the contractual agreements in effect, the second-quarter result was weighed down by a significant, negative non-recurring effect related to this development. With regard to the Components & Systems segment, the Executive Board of Phoenix Solar AG expects that the market will pick up again in early September, after the European vacation season is over, and that the segment will generate considerably higher revenues in the second half of the year, compared to the first half. For the Power Plants segment, on the other hand, the Executive Board expects that the market environment will continue to be difficult, due to subsidy restrictions and a further decrease in subsidised feed-in rates. For the full year 2012, the Executive Board of Phoenix Solar AG still expects that the company will generate revenues of EUR 210 to EUR 240 million and EBIT of EUR -25 to EUR -19 million. Due to the restructuring measures and the Group s new financing package, among other factors, EBIT will be burdened by a number of non-recurring effects.

11 Interim Management Report 11 1 BUSINESS ACTIVITY AND FRAMEWORK CONDITIONS 1.1 GROUP STRUCTURE, MANAGEMENT AND STRATEGY Phoenix Solar is a leading European and globally active supplier of photovoltaic systems. The parent company Phoenix Solar AG has its headquarters in Sulzemoos, near Munich. Corporate functions such as Corporate Strategy & Business Development, Global Sales, Marketing, Finance, Personnel and Organisational Development, Controlling & Internal Audit, Procurement, Logistics and Engineering & Innovation, among others, are centrally managed from this location. Besides the parent company, the Group comprises ten subsidiaries and 21 project companies, which are fully consolidated in the consolidated financial statements of Phoenix Solar AG. Phoenix Solar develops, plans, builds and operates large photovoltaic power plants as a manufacturerindependent photovoltaic systems vendor. The company is also a specialised wholesaler of complete solar power systems, solar modules and accessories. By virtue of this business model, Phoenix Solar covers the full range of grid-connected photovoltaic system sizes, from roof-top systems with a peak output of one kilowatt (kwp) on private homes to large-scale power plants in the double-digit multi-megawatt range. Through its operating subsidiaries, Phoenix Solar AG is currently represented on three continents. In Europe, it operates in France, Italy, Spain, Greece, Bulgaria, Turkey and the Benelux countries, in some cases through its own subsidiaries, aside from its home market of Germany. For six years, the company s activity in the growth regions of Southeast Asia has been performed and coordinated through its subsidiary in Singapore. In addition, a new subsidiary was formed in Malaysia in 2010, in order to capture a larger share of the dynamic market growth in that region. Furthermore, the Group operates in the growing solar power markets of the Persian Gulf region through a subsidiary formed in Oman in And the U.S. market has been served by a subsidiary in San Ramon, California, since By reason of the company s withdrawal from the Australian solar power market, the subsidiary in Australia was closed in March 2012, in accordance with plan. The company was finally dissolved in April The activities of Phoenix Solar AG are organisationally divided into the two complementary segments of Components & Systems and Power Plants. Aside from supplying individual components for photovoltaic power plants, the Components & Systems segment also develops customised system solutions and provides planning support, logistical services and other services such as training and marketing support, for example. The customers of this segment include resellers and installation companies (including electrical installation companies), retailers and wholesalers of electrical products, heating and sanitation companies, roofers and solar power specialists. In its Power Plants segment, Phoenix Solar handles the necessary planning and turnkey construction of photovoltaic systems, including the subsequent operational management and maintenance. Aside from private individuals, the customers of Phoenix Solar include retail companies, industrial companies and trade companies. Other targeted customers primarily include institutional investors, which are either seeking to set up investment fund models or to hold large-scale photovoltaic plants in their own investment portfolios.

12 Interim Management Report 12 The overriding goal of the Phoenix Solar Group is to increase the company s value on a systematic and sustainable basis. For the purpose of managing, overseeing and monitoring the company s construction projects and sales activities, the Group employs an integrated Management Information System (MIS), which includes customary elements like the Statement of Financial Position, Income Statement, Cash Flow Statement and Segment Report, but also other key indicators that are used specifically to manage the business of the integrated segments. The key indicators used to manage the Group are revenues, earnings before interest and taxes (EBIT) and the EBIT margin (ratio of EBIT to revenues). In addition, the key indicators used to manage the business of the segments are aggregated and monitored on the Group level. Phoenix Solar AG pursues the strategic objective of continuously expanding its position as an internationally leading supplier of photovoltaic systems technology, one that is not bound to specific manufacturers. Phoenix Solar strives to become more independent of government subsidies, so as to counter the risks associated with its current dependence on such subsidies. The Group seeks to achieve this goal primarily through cost reductions and innovations in the planning and construction of photovoltaic systems, through the use of new technologies, selective participation in new business models and increased internationalisation. 1.2 RESTRUCTURING AND NEW FINANCING In connection with the restructuring program adopted by the company s Executive Board in the fourth quarter of 2011, the entire business model of Phoenix Solar AG was subjected to an in-depth review by external consultants, who confirmed its fundamental viability. The restructuring plan, which is designed to substantially optimise the company s cost structure, organisational structure and risk structure, as well as its internal processes, was implemented in large part by the end of the first half of It formed the basis for the new financing package agreed with the financing banks on 11 May The financing package, which consists of cash and guarantee lines of credit, has a total volume of EUR 132 million, which is enough to completely finance the company s operating activities until 31 March 2014, based on the current business plan. The centrepiece is a new syndicated loan agreement with a volume of approximately EUR 100 million and a term until 31 March The covenants stipulated in the agreement reflect standard market practices. The considerably lower credit volume compared to the previous financing agreement essentially reflects the company s significantly lower revenue expectations amid the currently difficult market, which is undergoing a consolidation. The overriding goal of the restructuring plan that has been pursued since the fourth quarter of 2011 is to find a cost and capacity basis that reflects the drastically reduced level of revenues, while still preserving all the capabilities required in particular to conduct business in the two operating segments of Components & Systems and Power Plants. The new cost level so achieved is meant to minimise the vulnerability of earnings to a further decrease in revenues, while also ensuring that future increases in revenues will have a quick and positive effect on the company s earnings. Furthermore, the company s structures, processes and capacities should be both highly efficient and flexible enough to take advantage of opportunities in the solar power market, including opportunities that may arise from pursuing new business models.

13 Interim Management Report 13 The main levers of the restructuring concept and the progress achieved at the end of the first half of 2012 are described below: to lower personnel expenses and other operating expenses by almost 50 percent, or by approximately EUR 30 million from the 2011 level. About 90 percent of the personnel capacity adjustments required to achieve the goal of reducing the company s global workforce to 230 (31 December 2011: 409) were completed by the end of the first half. Due to restructuring costs and the adjustment period required to reach the new cost level, only a portion (albeit a considerable portion) of these savings will be realised in The program s full effect will be felt in considerable progress was made in the first half towards the goal of completely redesigning the company s structures and processes, in order to achieve a substantial increase in efficiency; these measures should be completed by 30 September redesign of supply chain processes and supplier management, in order to achieve greater flexibility with regard to quantities and prices and to largely avoid devaluation risks. An important first step in this direction was achieved in that the company successfully renegotiated a long-term supply contract, in a manner that gives the company much more flexibility. Phoenix Solar is no longer bound by firm purchasing commitments. the measures aimed at improving control mechanisms in the management of subsidiaries, project management and cost management were implemented completely by the end of the first half of continued pursuit of the internationalisation and growth strategy, with particular emphasis on the United States and Asia, and other focused measures to expand the company s international business. Now that a new financing package has been successfully negotiated and the internal measures have been largely completed, the company will now focus on specific activities in this area. target costing for the system costs of power plant projects, with the goal of reducing costs by around 20 percent compared to the end of About half of the measures planned in this regard were completed by the end of the first half of A project organisation, which will be subject to close monitoring concerning the individual measures to be implemented, will be installed to implement the restructuring program. Monthly steering committee meetings will ensure that all affected parties receive comprehensive information and will be able to take appropriate action to correct discernible variances. 1.3 GENERAL ECONOMIC CONDITIONS In contrast to the first quarter, the second quarter of 2012 was characterised by considerable continuity of fundamental economic data. In the euro zone, however, current perceptions and future expectations for economic conditions dimmed appreciably, particularly due to the worsening debt crisis in the crisisplagued countries of southern Europe. Based on early estimates, the gross domestic product (GDP) of the euro zone contracted by 0.9 percent from the corresponding figure for the second quarter of last year. Euro zone GDP growth had been nil in the first quarter. Based on early estimates, German GDP expanded by slightly less than 1.0 percent in the second quarter; thus, the German economy continued to perform better than the overall euro zone economy. Nonetheless, the rate of GDP growth in Germany was about 0.2 percentage points less than it had been in the first quarter. Compared to the second quarter of last year, U.S. GDP expanded at an estimated rate of 2.2 percent in the second quarter of 2012, which was about equal to GDP growth in the first quarter. Thus, the economic recovery continued in the United States, albeit on a low level. However, the unemployment rate has been persistently high and the rate of employment growth in the United States slowed further, in a continuation of the trend observed in the first quarter.

14 Interim Management Report 14 Economists anticipate that China s GDP growth will continue to slow. The country s second-quarter GDP growth is estimated to be 7.8 percent (after 8.1 percent in the first quarter). Stagnating exports and a slowdown in domestic investment both contributed to the slowing rate of economic growth in China. Second-quarter GDP estimates are not yet available for individual euro zone countries; based on the forecasts for the full year 2012, however, it can be assumed that the developments varied from country to country. Based on early estimates, economic output is believed to have contracted in Greece, Spain and Italy, while the economies of Germany and France are thought to have experienced small growth DEVELOPMENTS IN THE PHOTOVOLTAIC SECTOR The photovoltaic sector experienced growing demand, compared to the first quarter, and continued strong pressure on prices and profit margins in the second quarter of Based on the latest market analyses conducted by the sector experts of Solarbuzz and the latest unconfirmed market numbers from Germany, the volume of the European market expanded by around 10 percent to an estimated peak capacity of 4.8 gigawatts (GWp). The long-observed trend of falling prices for photovoltaic modules continued in the second quarter, although the price decline was less pronounced, due to the fact that manufacturing capacities for photovoltaic cells and modules have been substantially reduced. According to the sector platform Pvxchange, photovoltaic module prices declined by up to 8.5 percent, depending on the origin and technology of the modules, in the months of April and May. Amorphous and micro-crystalline thin-film modules were exposed to the greatest price pressure. But even the prices of crystalline photovoltaic modules from China fell by a total of almost 7 percent in the same two months. Chinese tier-2 manufacturers in particular continued to lower their prices in order to place their products in the market, while tier-1 manufacturers did not need to lower their prices as much. Due to the on-going market consolidation pressure, some photovoltaic companies reported negative operating results and plant closures and some filed for bankruptcy.

15 Interim Management Report 15 2 SUMMARY OF BUSINESS DEVELOPMENTS IN THE REPORTING PERIOD 2.1 GENERAL DEVELOPMENTs PROCUREMENT MARKET The procurement strategy of the Phoenix Solar Group as a manufacturer-independent systems supplier is geared to keeping a generally balanced product portfolio in stock. Because most of these products can be used by both the Power Plants segment and the Components & Systems segment, procurement volumes can be optimised and sales opportunities can be flexibly managed, generating synergistic benefits for both operating segments. Phoenix Solar works with prestigious, internationally leading manufacturers of solar modules and inverters. We expanded the company s product offering by introducing a new solar power system for self-consumption. By cooperating with suppliers that maintain adequate module inventories in Europe, we were able to keep the company s own inventories on a low level, while also being able to respond quickly to inquiries. In addition, we reached agreements with some of the company s module suppliers to adjust the prices of current purchase orders and warehouse stocks in the event of falling market prices. In anticipation of rising demand towards the end of the third quarter, we took further steps to improve the deliverability of components. SALES MARKET GERMANY After the strong demand registered in the first quarter, the photovoltaic market first slowed appreciably at the beginning of the second quarter of According to the German Federal Networks Agency, power plants with a total peak output of more than 1,200 megawatts (MWp) were installed in March 2012, due to anticipatory effects; by contrast, the increase in installed capacity fell to about 360 MWp in April 2012, according to the German Federal Networks Agency. The anticipatory effects in the first quarter resulted from the debate concerning German solar power subsidies in connection with the enactment of amendments to the Renewable Energy Sources Act (EEG), which lasted until only recently. All draft versions of the amended law involved considerable reductions, which were to take effect as of 1 April After the new amended version of the EEG was published, new installed photovoltaic capacity rose considerably in June, to a peak capacity of approximately 1,800 MWp, based on early, unconfirmed estimates. After the amended EEG passed by the Bundestag (the lower house of the German parliament) in March was rejected by the Bundesrat (the upper house of the German parliament) and sent to the mediation committee in May, an agreement was reached by that committee on the future system of photovoltaic subsidies in June. Later in the same month, this agreement was accepted by the Bundestag and the Bundesrat later and it will therefore take effect retroactively from 1 April The following aspects of the amended law are especially noteworthy. As expected, remuneration rates will be subjected to a one-time reduction; however, a new system size class will be introduced for roof-top photovoltaic systems with peak capacities of between 10 and 40 kilowatts (kwp), the remuneration for which will be 18.5 euro-cents per kilowatt-hour (euro-cent/kwh) of photovoltaic electricity fed into the grid. Small system sizes of up to 10 kwp are exempted from the market integration model. Starting 1 April 2013, only 90 percent of the annual electricity fed into the grid by systems ranging in size from 10 to 1,000 kwp (inclusive) will be remunerated. With regard to the remuneration rates for solar field systems, the size limitation of 10 megawatts (MWp) of peak output will remain in effect, for now. However, the German federal government has announced that it will issue a statutory order that will establish a remuneration arrangement for photovoltaic systems located on conversion areas with peak capacities of more than 10 MWp. As a particularly relevant provision, a fixed target of 52 gigawatts (GWp) of peak output

16 Interim Management Report 16 was set for the total new installed photovoltaic capacity eligible for German government subsidies, along with an annual target range of 2.5 to 3.5 GWp for new installed capacity. If the annual volume of new capacity installation lies outside of this target range, rate adjustments will take effect in the form of a breathing lid. When the capacity expansion target is reached, photovoltaic electricity will no longer be subsidised in Germany, although the preference given to feed-in power from photovoltaic systems is supposed to be preserved. This new legislation basically assures continued subsidisation and thus further progress towards the goal of full competitiveness of photovoltaic electricity. It remains to be seen whether and to what extent the market control mechanisms stipulated in the law will stabilise the market and lead to positive industrial policy developments for the photovoltaic sector in Germany. SALES MARKET INTERNATIONAL Once again, the development of international photovoltaic markets was extremely mixed in the second quarter of Due to factors such as the continually worsening subsidy conditions, the considerable uncertainty regarding future photovoltaic subsidies and financing shortfalls for photovoltaic projects, the international markets of France, Spain and Greece stagnated. By contrast, the Italian market practically boomed, due to anticipatory effects ahead of the upcoming rate reductions under the new subsidy program Conto Energia V. Furthermore, the trade conflict between the United States and China on the subject of photovoltaic modules intensified considerably. A strong market signal was sent by Japan, where new feedin rates for electricity generated from renewable energy sources were announced in the middle of the year. In Italy, all the funds provided under the Conto Energia IV subsidy program, in the total amount of EUR 6 billion, have been used up since July The successor program Conto Energia V was the subject of intense political debate in the second quarter. Despite the substantial cuts compared to the predecessor program, this new program, which has since been enacted and will take effect in August 2012, still provides attractive subsidy conditions, at least in certain segments of the market. Furthermore, the introduction of a 45-day transitional arrangement from the old subsidy program to the new one guarantees investment security for photovoltaic plants. The new program will provide new photovoltaic subsidies totalling EUR 700 million. Nonetheless, market observers worry that this amount could be used up already prior to the end of the transitional period on 27 August, as a result of anticipatory effects and a stricter registration requirement for additional system classes. It remains to be seen whether and under what conditions additional subsidies will be provided under a successor program. The market situation in Spain is still difficult, due to the moratorium on subsidies for electricity from renewable energy sources, which remains in effect. The introduction of a net-metering rule, which industry experts had initially expected to happen in May, did not take effect in the second quarter of At the present time, it cannot be said with certainty whether and when such a rule might be introduced in the future. According to an announcement by the French regulatory authority CRE, the subsidised feed-in rates for newly installed photovoltaic plants have been reduced by anywhere from 2.6 to 9.5 percent, depending on the plant segment, from the subsidised feed-in rates that were applicable in the first quarter. Despite these cuts, however, the remuneration rates for plants with a system size of less than 100 kwp are still attractive, so that the market outlook, particularly in the segment of residential roof-top systems, is still positive. In Greece, the photovoltaic market continued to perform well, although growth was impeded by financing shortfalls related to the high level of public debt.

17 Interim Management Report 17 After an earlier, initially provisional protective tariff on solar cells produced in China, the U.S. Commerce Department raised the provisional tariffs substantially in May Thus, solar imports from China are subject to tariffs ranging from 31 to 250 percent. The exact tariff depends on the specific company, based on the extent of government support it receives and its willingness to cooperate with U.S. authorities, according to the evaluation of the Commerce Department. The Chinese solar industry and government responded immediately, in that four major Chinese photovoltaic manufacturers announced, also in May 2012, the formation of an industry association, the Solar Energy Promotion Alliance (SEPA). This association will work to improve cooperation among Chinese photovoltaic manufacturers for the purpose of developing the home market of China. In addition, China filed a complaint against U.S. punitive tariffs with the World Trade Organisation (WTO) in May. In June, the Japanese government enacted new feed-in rates for electricity generated from photovoltaic technology, wind and biomass. Starting 1 July 2012, photovoltaic electricity will be purchased for an attractive feed-in rate equal to euro-cent/kwh. For plants with system sizes of 10 kilowatts or more, the grid feed-in rates will remain in effect for 20 years; for smaller plants, they will remain in effect for 10 years. These new subsidies are part of an at least partially revised energy policy, following the nuclear catastrophe of Fukushima in March 2011, which aims to make Japan less dependent on fossilfuel and nuclear energy sources. 2.2 IMPORTANT EVENTS IN THE REPORTING PERIOD RESTRUCTURING AND NEW FINANCING On 11 May 2012, Phoenix Solar entered into a new financing agreement, with a term until 31 March The restructuring program has proceeded according to plan and was implemented in large parts by the end of the first half. COMPLETION OF THE KAZANLAK SOLAR FARM (BULGARIA) Under the agreement with Bosch Solar Energy AG, Phoenix Solar AG was obligated to complete 25 MWp of the solar farm in Kazanlak (Bulgaria), which was originally planned for 50 MWp, and to secure the grid feed-in remuneration rate applicable in Bulgaria until 30 June The timely completion of the 25 MWp was confirmed by way of the ACT 16 inspection process on 26 June Thus, the company met the conditions for obtaining an operating permit for the solar farm by 30 June 2012, which was the prerequisite for securing the old feed-in remuneration rate. Contrary to our expectations, however, the Bulgarian authorities took full advantage of the discretionary time allowed to them for granting an operating permit, which they did not issue until 2 July Therefore, the feed-in rate applicable until 30 June 2012 will no longer apply, based on currently available information; instead, a feed-in rate that is about 50 percent less will apply as of 1 July Based on the contractual terms and conditions applicable to the construction of the solar farm, it was necessary to write down the value of the project rights for Kazanlak, among other steps. The fact that the old feed-in rate could not be secured, despite the completion of the solar farm, gave rise to a negative non-recurring effect in the single-digit millions in the second quarter, because the protest filed against the operating permit issued on 2 July 2012 is thought to have little chance of success. By reason of the agreements concluded with Bosch Solar, Phoenix Solar had reversed most of the impairment losses recognised in respect of these project rights, as well as the work performed already in 2011 and the provisions for onerous contracts, which had also been recognised in 2011, in the first quarter of At that time, Phoenix Solar believed that the project would be completed on time and therefore the old feed-in remuneration rate would be secured. With respect to the new financing, the possible failure to secure the old feed-in remuneration rate had been taken into consideration in the form of different business plans and covenant structures, so that the stability of the financing package is not endangered by this development.

18 Interim Management Report 18 3 RESULTS OF OPERATIONS, CASH FLOWS AND FINANCIAL POSITION 3.1 RESULTS OF OPERATIONS The political debate concerning the future subsidisation of photovoltaic electricity, in combination with the company s difficult situation due to the restructuring and refinancing, provoked uncertainty among our customers and suppliers, with the result that Phoenix Solar AG s second-quarter revenues were somewhat weaker than expected. These circumstances impacted the German market in particular, but also the international markets of Italy, Spain and Asia. The drop in revenues was not completely offset by the substantially lower costs. As a result, Phoenix Solar generated an EBIT of EUR million in the second quarter of 2012 (Q2 2011: EUR -9.4 million). As mentioned above, however, this EBIT was also weighed down by a significant, negative non-recurring effect related to the Kazanlak project. The EBIT for the first half of 2012 amounted to EUR million (H1 2011: EUR million). 3.2 ANALYSIS OF REVENUES At EUR 46.5 million, the consolidated revenues of the Phoenix Solar Group in the second quarter of 2012 were less than the corresponding year-ago figure (Q2 2011: EUR million) by EUR 61.9 million or 57.1 percent. The Components & Systems segment generated revenues of EUR 19.2 million (Q2 2011: EUR 72.2 million), indicative of a 73.4 percent decrease from the corresponding year-ago figure. The EUR 27.3 million in revenues generated by the Power Plants segment was 24.6 percent less than the corresponding year-ago figure (Q2 2011: EUR 36.2 million). Thus, the Components & Systems segment contributed 45.6 percent (Q2 2011: 66.6 percent) and the Power Plants segment contributed 54.4 percent (Q2 2011: 33.4 percent) of the Group s total revenues in the second quarter of In geographical terms, domestic revenues accounted for 29.6 percent (Q2 2011: 58.2 percent) and international revenues accounted for 70.4 percent (Q2 2011: 41.8 percent) of total revenues. The Group s foreign subsidiaries (excluding the parent company s international activities) contributed 43.2 percent (Q2 2011: 11.6 percent) of the Group s total revenues in the second quarter of In the first six months of 2012, the Phoenix Solar Group generated total revenues of EUR 84.4 million, reflecting a decrease of EUR 56.4 million or 40.1 percent from the corresponding year-ago figure (H1 2011: EUR million). Compared to the first half of last year, the revenues of the Components & Systems segment declined by 56.8 percent to EUR 38.5 million (H1 2011: EUR 89.2 million) and those of the Power Plants segment declined by 10.9 percent to EUR 45.9 million EUR (H1 2011: EUR 51.5 million). In the first half of 2012, international revenues accounted for 70.4 percent (H1 2011: 48.7 percent) and the foreign subsidiaries accounted for 43.0 percent (H1 2011: 19.7 percent) of total revenues. 3.3 SITUATION OF ORDERS As of 30 June 2012, orders on hand amounted to EUR million, reflecting a decrease of EUR million or 54.0 percent from the corresponding year-ago figure (30 June 2011: EUR million). (Unrealised orders on hand amounted to EUR 36.4 million.) Orders on hand in the Components & Systems segment amounted to EUR 8.3 million (30 June 2011: EUR 68.3 million) and those in the Power Plants segment amounted to EUR million (30 June 2011: EUR million). In both segments, the decrease resulted primarily from the generally uncertain state of the photovoltaic market in Europe.

19 Interim Management Report DEVELOPMENT OF KEY ITEMS IN THE INCOME STATEMENT CHANGES IN INVENTORY The amount of EUR 2.4 million (H1 2011: EUR 0.3 million) presented as changes in inventory, which reflects the increases or decreases in the volume of orders in progress, pertained to the project companies Bâtisolaire in France and Horus in Italy. OTHER OPERATING INCOME The other operating income in the amount of EUR 1.2 million (H1 2011: EUR 5.8 million) was mainly composed of income from the reversal of insurance payments and the reversal of litigation provisions. The total other operating income earned in the first half of 2012 was substantially less (by EUR 4.6 million) than the corresponding year-ago figure. In this respect, it should be noted that the year-ago comparison figure included a total amount of EUR 4.8 million from the reversal of provisions, electricity income and the reduction of general value adjustments. PURCHASED GOODS AND SERVICES/GROSS PROFIT At EUR 47.2 million, the cost of purchased goods and services in the second quarter of 2012 was 55.4 percent less than the corresponding year-ago figure (Q2 2011: EUR million). In relation to revenues, Phoenix Solar generated a negative gross profit of EUR -0.7 million; in relation to the total operating performance, the company generated a negative gross profit of EUR -0.3 million. The above-mentioned effects related to the Kazanlak project were the main reasons for the negative gross profit. At EUR 77.2 million, the cost of purchased goods and services in the first six months of 2012 was 46.2 percent less than the corresponding year-ago figure (H1 2011: EUR million). In relation to revenues, Phoenix Solar generated a negative gross profit of EUR -7.2 million (H1 2011: EUR -2.6 million), corresponding to a gross profit margin of 8.5 percent; in relation to the total operating performance, the company generated a gross profit of EUR 9.6 million (H1 2011: EUR -2.3 million), corresponding to a gross profit margin of 11.1 percent. PERSONNEL EXPENSES The workforce reduction that was initiated already in 2011 in connection with the restructuring of the Phoenix Solar Group continued in the first half of Since the beginning of the current financial year, a total of 162 workers have left the company, leaving 251 employees (including Executive Board members and temporary workers) as of 30 June 2012; of that number, 228 were permanent employees. The Phoenix Solar Group had 427 employees as of 30 June As a result of the workforce reduction, the Group s personnel expenses amounted to EUR 6.6 million in the second quarter of 2012, reflecting a 9.6 percent decrease from the corresponding year-ago figure (Q2 2011: EUR 7.2 million). At EUR 12.7 million, the Group s personnel expenses for the first six months of 2012 were 11.2 percent less than the corresponding year-ago figure (H1 2011: EUR 14.3 million). Despite these cuts, the ratio of personnel expenses to revenues rose to 15.1 percent (H1 2011: 10.2 percent), due to the lower level of revenues. DEPRECIATION AND AMORTISATION The depreciation and amortisation charged against property, plant and equipment and intangible assets in the first half of 2012 amounted to EUR 1.0 million (H1 2011: EUR 0.6 million). The substantial increase over the corresponding year-ago figure resulted mainly from the scheduled amortisation of ERP software since 1 July 2011.

20 Interim Management Report 20 OTHER OPERATING EXPENSES The positive effects of the rigorously implemented cost reduction measures associated with the restructuring projects of the Phoenix Solar Group were also reflected in the other operating expenses for the first six months of 2012, which were reduced by 23.0 percent from the corresponding year-ago figure (H1 2011: EUR 14.8 million) to EUR 11.4 million. Above all, significant reductions were achieved in the categories of legal counsel expenses (EUR 0.6 million), outbound freight (EUR 0.9 million) and personnel acquisition expenses, as well as the cost of freelancers (EUR 0.6 million). EARNINGS BEFORE INTEREST AND TAXES (EBIT) By reason of the considerable decrease in revenues, which could only be partially offset by cost reductions, the EBIT for the second quarter of 2012 was negative, at EUR million (Q2 2011: EUR -9.4 million). In the first six months of 2012, Phoenix Solar generated a negative EBIT of EUR million (H1 2011: EUR million), indicative of a 46.3 percent improvement over the corresponding figure for the first half of FINANCIAL RESULT The financial result of EUR -1.9 million for the first half of 2012 (H1 2011: EUR -1.5 million) was 26.7 percent less than the corresponding year-ago figure. Financial income fell to EUR 0.06 million (H1 2011: EUR 0.3 million), while financial expenses rose to EUR 2.0 million (H1 2011: EUR 1.8 million). TAX RATE The reported income tax expenses for the first half of 2012 amounted to EUR 0.5 million (H1 2011: EUR -6.7 million), corresponding to a tax rate of 2.8 percent (H1 2011: 24.0 percent). CONSOLIDATED PROFIT/LOSS The Phoenix Solar Group generated a consolidated loss of EUR million in the second quarter of 2012 (Q2 2011: EUR -8.2 million). Although the second-quarter loss was greater than the corresponding loss for the second quarter of last year, the consolidated loss for the first half of 2012, at EUR million, was EUR 4.5 million less than the consolidated loss incurred in the first half of last year (H1 2011: EUR million). Based on 7.4 million average shares outstanding, the basic earnings per share came to EUR (H1 2011: EUR -2.86). Because no significant diluting factors were in effect as of 30 June 2012, the basic earnings per share are essentially the same as the diluted earnings per share. 3.5 DEVELOPMENT OF THE BUSINESS SEGMENTS COMPONENTS & SYSTEMS (DOMESTIC AND INTERNATIONAL) After a surprisingly good first quarter, market demand in the period from April to June 2012 was initially weaker, especially in Germany, but then recovered appreciably in the further course of the second quarter. In view of the further decline in prices for corresponding modules to a level that even the Asian manufacturers cannot afford, and the announcement of further subsidy cuts, many investments were delayed in the expectation of more favourable conditions in the future. Despite a slight rise in revenues in the Components & Systems segment towards the end of the second quarter, second-quarter revenues in total remained well below the level of the first quarter of The Components & Systems segment generated total revenues of EUR 19.2 million in the second quarter of 2012, reflecting a decrease of 73.4 percent from the corresponding year-ago figure (Q2 2011: EUR 72.2 million). The development of the French market was also very subdued, due to falling market prices. The continuing political debate nearly brought the Spanish photovoltaic market to a complete halt. Due to the on-going restructuring of the Group s national subsidiary in Italy, Phoenix Solar was able to participate in the positive development of the Italian market only to a limited degree. By contrast, some very posi-

21 Interim Management Report 21 tive signals came out of Greece, where many of the promised feed-in remuneration rates are valid only to a limited extent and many investors are showing great interest in sustainable investments, given the current situation in Greece. With regard to the Components & Systems segment, the Executive Board of Phoenix Solar AG expects that the market will pick up again after the end of the European vacation season in early September, leading to substantially higher revenues in the second half, compared to the first half of Orders on hand Q2/2012 m Q2/2011 m Orders on hand, C&S consolidated Share of total orders on hand 5.8 % 21.9 % thereof domestic thereof international The unrealised orders on hand of the C&S segment amounted to EUR 8.3 million. POWER PLANTS (DOMESTIC AND INTERNATIONAL) The Power Plants segment generated revenues of EUR 27.3 million in the second quarter of 2012, reflecting a decrease of 24.6 percent from the corresponding year-ago figure (Q2 2011: EUR 36.2 million). In Germany, the Power Plants segment completed two smaller solar-field projects and secured the feedin remuneration rates in effect as of 30 June With regard to international markets, the Power Plants segment focused on the completion of the 25 MWp solar farm in Kazanlak (Bulgaria). Timely completion was confirmed upon acceptance by way of the ACT 16 inspection process on 26 June The Power Plants segment also completed construction of the associated transformer sub-station, designed for an output of up to 50 MWp, by the end of June. In France, a 24-MWp project that had been completed at the end of 2011 was connected to the local power grid in May 2012, according to schedule. The second-quarter result of the Power Plants segment was weighed down by a substantial, negative non-recurring effect related to the Kazanlak project. In the second half of 2012, Phoenix Solar expects that the market environment for the Power Plants segment will be as tough as before, due to subsidy restrictions and further cuts in subsidised feed-in remuneration rates. Orders on hand Q2/2012 m Q2/2011 m Orders on hand, PP consolidated Share of total orders on hand 94.2 % 78.1 % thereof domestic thereof international The unrealised orders on hand of the PP segment amounted to EUR 28.1 million. 3.6 FINANCIAL POSITION AND CASH FLOWS STRUCTURE OF ASSETS AND CAPITAL As of 30 June 2012, the total assets of the Phoenix Solar Group amounted to EUR million, which was EUR 22.2 million less than the corresponding figure at year-end 2011 (31 December 2011: EUR million).

22 Interim Management Report 22 The noncurrent assets of EUR 11.3 million were slightly less, by EUR 1.0 million, than the corresponding figure at year-end 2011 (31 December 2011: EUR 12.3 million). This decrease resulted mainly from scheduled amortisation and depreciation of intangible assets and property, plant and equipment. At EUR million, current assets were EUR 21.2 million less than the corresponding figure at year-end 2011 (31 December 2011: EUR million). Most of this decrease occurred in the item of inventories, which fell by EUR 15.8 million to EUR 40.1 million (31 December 2011: EUR 55.9 million). Furthermore, receivables due from customers (receivables under long-term construction contracts and trade receivables) fell by EUR 8.8 million to EUR 37.8 million (31 December 2011: EUR 46.6 million). In countervailing developments, advance payments made on account of orders rose by EUR 1.0 million to EUR 2.0 million (31 December 2011: EUR 1.0 million) and the category of other assets (financial and non-financial) rose by EUR 4.1 million to EUR 22.4 million (31 December 2011: EUR 18.3 million). At EUR 38.5 million, the Group s equity as of 30 June 2012 was EUR 16.3 million less than the corresponding figure at year-end 2011 (31 December 2011: EUR 54.8 million), due to the consolidated loss for the reporting period. Consequently, the equity ratio declined from 38.1 percent to 31.6 percent, despite the now lower amount of total assets. The noncurrent liabilities and provisions of EUR 2.2 million were nearly unchanged from the corresponding figure at year-end 2011 (31 December 2011: EUR 2.5 million). By contrast, the current liabilities and provisions of EUR 81.0 million were less than the corresponding figure at year-end 2011 (31 December 2011: EUR 86.6 million) by a total of EUR 5.6 million. Among the main factors contributing to this development, financial liabilities rose by EUR 15.3 million to EUR 40.0 million (31 December 2011: EUR 24.7 million) and liabilities due to suppliers (liabilities under long-term construction contracts and trade payables) fell by EUR 0.8 million to EUR 25.5 million (31 December 2011: EUR 26.3 million). On the other hand, tax liabilities declined by EUR 7.3 million to EUR 0.6 million (31 December 2011: EUR 7.9 million), while current provisions fell by EUR 6.1 million to EUR 3.8 million (31 December 2011: EUR 9.9 million) and other non-financial liabilities fell by EUR 7.2 million to EUR 6.6 million (31 December 2011: EUR 13.8 million). CASH FLOW FROM OPERATING ACTIVITIES The cash flow from operating activities amounted to EUR million in the first half of 2012 (H1 2011: EUR -5.3 million). Operating cash flow was reduced mainly by cash outflows for the consumption of provisions in the amount of EUR 12.7 million, advance payments rendered in the amount of EUR 0.9 million and income taxes paid in the amount of EUR 7.5 million. Cash inflows resulted from the change in inventories, in the amount of EUR 11.6 million, and from the change in liabilities, in the amount of EUR -1.4 million. CASH FLOW FROM INVESTING ACTIVITIES The Group s investing activities led to a cash outflow of EUR 0.2 million (H1 2011: EUR 1.4 million). In connection with the restructuring plan, the Group imposed a near-complete moratorium on new capital expenditures, starting in CASH FLOW FROM FINANCING ACTIVITIES In the first half of 2012, the cash flow from financing activities amounted to EUR 12.6 million (H1 2011: EUR 22.6 million). The change resulted mainly from cash inflows resulting from the increased utilisation of short-term credit lines.

23 Interim Management Report 23 4 EVENTS AFTER THE REPORTING DATe In July 2012, Phoenix Solar AG was released from longer-term contractual module purchasing commitments, by mutual agreement with the corresponding suppliers. 5 REPORT ON OPPORTUNITIES AND RISKS As an internationally active company, the Phoenix Solar Group is exposed to a considerable number of opportunities and risks. The opportunities associated with the Group s future development are presented in the Annual Report 2011, along with detailed information on the risk portfolio of Phoenix Solar. Based on the current status of information, no significant changes have occurred in that respect since the Annual Report POLICY ON OPPORTUNITIES AND RISKS The goal of our risk policy is to ensure the continued operation of the Phoenix Solar Group as a going concern and to systematically and sustainably increase the company s value. In accordance with these basic principles, business decisions are always made only on the basis of a detailed analysis and assessment of the associated risks. Because all business activity necessarily entails opportunities and risks, the Group s risk strategy covers both elements. In the areas of our core competence, therefore, we consciously take on manageable, assessable risks when the income to be generated by assuming such risks is appropriate. The Group avoids risks in all other areas, as a basic rule. Above all, no decision or action that would pose an existential risk to the Phoenix Solar Group may be taken. 5.2 RISK AND OPPORTUNITY MANAGEMENT SYSTEM The Group s risk and opportunity management system is designed to identify individual risks, present them in a transparent manner and determine ways of managing them appropriately. Aside from risks that would endanger the company s continued operation as a going concern, we also monitor those activities, events and developments that could have a significant influence on the Group s future business success. The corresponding goals and procedures and the division of responsibilities within the risk management system are documented in the Risk Management Handbook of Phoenix Solar AG. Insurance policies are maintained, to the extent they are available and economically tenable, to minimise the financial repercussions of a potential loss. The extent and amount of such insurance policies are reviewed on a regular basis. 5.3 SIGNIFICANT OPPORTUNITIES The biggest opportunities for the Phoenix Solar Group in financial year 2012 result from the restructuring measures that have been initiated. Wide-ranging cost-cutting measures and adjustments to our capacity, combined with far-reaching changes to our operating processes, organisational structure and governance mechanisms, will make a vitally important contribution to assuring the company s survival as a going concern. The amended version of the German Renewal Energy Sources Act (EEG) will create additional opportunities for new business models in the German photovoltaic market. Phoenix Solar AG is currently in the process of developing such business models and will proceed to establish them in the market, if they are

24 Interim Management Report 24 deemed to be viable after careful review. We also anticipate that photovoltaic technology will become attractive even without government subsidies in Southern Europe already in the near-term future, and in Germany in the medium-term future. When that happens, the uncertainties and restrictions related to subsidy conditions will no longer be relevant. The ensuing market environment will create opportunities for Phoenix Solar AG that cannot yet be fully evaluated at the present time. We will go on systematically applying our strategy of greater internationalisation. The focus in 2012 will be on the United States and Asia, where markets like India, Malaysia and Thailand continue to show considerable growth potential. In the future, global demand will no longer be concentrated in only a few large national markets, but will be supported by a large number of markets, including smaller new markets. New solar power markets will emerge around the world, including in such countries as Israel, Turkey and South Africa, for example. That trend will lessen the dependency on the subsidy laws of any one country. 5.4 SIGNIFICANT RISK AREAS In addition to the specific risks and opportunities described in the Annual Report 2011, to which express reference is made at this point, Phoenix Solar is exposed to the risks and opportunities described below, based on the current status of information. POLITICAL AND REGULATORY FACTORS The development of national photovoltaic markets will again be promoted or impeded in 2012 to varying degrees by the laws and regulations in force. In the case of laws designed to create long-term economies of scale, such as the German Renewable Energy Sources Act, every reduction in feed-in remuneration that cannot be offset by lower procurement prices leads to lower returns on new photovoltaic plants or reduced profit margins for the systems vendor, thereby diminishing the attractiveness of such plants for potential buyers. Unannounced, ever more frequent and radical changes in the legal framework decrease the stability of feed-in commitments. This could restrict further market growth or even cause markets to contract, which would endanger the continued operation of the company as a going concern. In order to mitigate the risks associated with dependencies on individual markets, the Phoenix Solar Group is systematically pursuing a strategy of internationalisation. By that means, the company is also countering the risks associated with the debates concerning the further structuring of the feed-in arrangements particularly under the German Renewable Energy Sources Act in the most important markets for Phoenix Solar AG at the present time: Germany, France and Greece. MARKET, COMPETITION AND EXTERNAL FACTORS The energy policy debates and reductions in solar power subsidies in a few key European markets such as Italy and Germany have created uncertainty among potential customers and investors alike. These developments have diminished the incentive to invest in photovoltaic plants. These circumstances led to a volatile development of the photovoltaic market, particularly in Germany, in the first half of After a strong first quarter, the market slowed appreciably at the beginning of the second quarter; after the new version of the Renewable Energy Sources Act (EEG) was published, the volume of new installed photovoltaic capacity in Germany rose considerably in June. The continued, pronounced reluctance of banks to extend project finance loans to potential investors in Italy, as well as in other southern European countries, further inhibited the expansion of business activity. The resulting delays in project execution and the absence of new project deals could therefore endanger the attainment of growth targets in these markets. In preparing its annual financial statements for 2011, Phoenix Solar made estimates regarding the development of sales prices and wrote down the value of existing inventories to reflect the expected market prices. The trend of falling prices continued in the first half of 2012, although at a less dramatic rate

25 Interim Management Report 25 and in line with the company s expectations. Should market developments arise in the future that are affected by other factors that were not known when the write-downs were taken, this may make it necessary to charge further write-downs, with consequences for the Group s operating results. Lengthier delays in the sales execution of large photovoltaic plants leading to delayed cash inflows would pose a risk to the liquidity management efforts of the Phoenix Solar Group. The Group counters such risks by means of active working capital management. RESTRUCTURING The rapid changes in the market environment, complete with much lower prices for solar modules and systems, will lead to considerable decreases in both revenues and earnings, even if sales volumes remain the same. As it can be assumed that sales prices will not rise in the coming years either, this development has been countered by optimising the business model. The Executive Board has worked with outside consultants to closely examine the business model, which resulted in its fundamental sustainability being confirmed. The restructuring plan includes wide-ranging changes to the organisational structure, processes, capacity and corporate governance mechanisms. Nevertheless, it cannot be guaranteed that these measures will yield the desired success within the timeframe envisaged. CORPORATE FINANCING As the centrepiece of the new financing package, a syndicated loan agreement involving a total credit amount of EUR 132 million was signed on 11 May The agreement has a term until 31 March It contains covenants that reflect standard market practices. If these covenants are not met, the syndicate would be entitled to terminate the credit lines. In this case, the company s survival as a going concern would be endangered. INTERNATIONAL EXPANSION The Phoenix Solar Group takes advantage of opportunities to establish a foothold in international markets through its worldwide network of subsidiaries, in order to reduce its dependence on Germany and to achieve its growth goals by generating a higher proportion of its business in international markets. The further expansion of the Phoenix Solar Group, including project development and the construction of photovoltaic power plants in foreign countries in particular, entails considerably higher risks than those associated with the Group s business in Germany. Such risks relate primarily to development expenses and times and to the completion of photovoltaic power plants. Especially in the case of increased activities in new markets, therefore, project delays and cost overruns compared to the original, deliberately conservative plans cannot be ruled out. Furthermore, the international expansion of the company s business entails higher risks arising from legal and political aspects. Generally speaking, there is also a risk that the potential of foreign markets could be misjudged, with the result that the company would become involved in foreign markets with very little potential. Such risks are difficult to assess and can lead to unforeseen cost burdens. 5.5 GENERAL ASSESSMENT OF THE GROUP S RISK SITUATION In the opinion of the Executive Board, the risks described above are manageable and the continued operation of the Phoenix Solar Group as a going concern was not endangered as of the time when the present report was prepared. That applies both to the individual companies and to the corporate group as a whole. The overall risk situation has not changed significantly since the end of 2011, although it is still not possible to reliably foresee the development of market conditions and prices. Based on the current status of information, we do not anticipate a fundamental increase or worsening of the risk situation described in this report in the further course of financial year 2012.

26 Interim Management Report 26 6 FORECAST REPORT 6.1 GENERAL MARKET CONDITIONS Most industry experts and associations are predicting continued growth for the worldwide photovoltaic market in 2012, albeit with considerable regional differences. Whereas only very little positive impetus can be expected in the European photovoltaic market, the Asian market in particular is expected to drive the growth of the photovoltaic industry in Given the high level of uncertainty concerning the future development of subsidy programs in key photovoltaic markets, it is practically impossible to offer concrete forecasts at the present time. Generally speaking, the industry will be affected by two opposite trends in On the one hand, the support for renewable energy sources among governments and populations will remain high, for reasons of environmental and climate protection; on the other hand, the unpredictably strong growth in practically all key markets of the last few years (such as Germany, Italy, Spain, France and the Czech Republic) has since been perceived by political decision-makers as a sign of over-heating. Some of these countries (such as Germany, for example) have already imposed considerable, unscheduled reductions in photovoltaic subsidy programs. Given the difficult market situation and the persistent supply glut, prices of modules and other system components such as inverters can be expected to continue falling. Not all market players will be able to achieve the necessary cost reductions and the necessary improvements in efficiency and flexibility. Therefore, the consolidation of the photovoltaic industry will continue or even accelerate. 6.2 NEW SALES MARKETS Due to the expectation of a more difficult market environment in the lead market of Germany, the company will work intensively to further advance the internationalisation of its business. In the effort to open up new sales markets, particular emphasis will be given to the Asian region and North America. 6.3 ANTICIPATED DEVELOPMENT OF UNIT SALES In the Components & Systems segment, we expect to generate considerably higher revenues in the second half of 2012, compared to the first half. Because price pressures will remain high, we expect that our profit margins will remain the same, at best. At the present time, however, it is extraordinarily difficult to offer an exact forecast of the political environment for photovoltaic energy in Europe over the course of Nonetheless, a growing number of smaller photovoltaic systems can be observed as a trend throughout Europe, which should guarantee a somewhat stable target market for the Components & Systems segment. The stability of this market will be further supported by the growing competitiveness of solar power, which will significantly enhance the appeal of self-consumption solutions. We expect that conditions in the Power Plants segment will continue to be difficult, due to subsidy restrictions and further cuts in subsidised tariffs. In our estimation, solar power plant construction in Germany and Europe will be subject to intensified competition and strong price pressure in the project business. According to our business plan, this factor coupled with a business policy geared more to risk avoidance and profit margins will lead to subdued revenues; and it will not be possible to offset any significant portion of this decrease in domestic revenues through the continued growth of international activities.

27 Interim Management Report ANTICPATED DEVELOPMENT OF REVENUES AND EARNINGS Overall, the Executive Board of Phoenix Solar AG still expects that the company will generate revenues in the range of EUR 210 million to EUR 240 million and an EBIT in the range of EUR -19 million to EUR -25 million in financial year This EBIT figure will be weighed down by a number of non-recurring effects related to the restructuring and the new financing. The company s earnings will also be burdened by various trailing costs, including costs related to the substantially reduced personnel capacities. In 2013, the Executive Board expects to generate revenues again in the range of EUR 280 million to EUR 310 million and an EBIT in the range from EUR -5 million to EUR 0 million. In order to ensure the achievement of these targets, the company will need to first implement a number of internal restructuring measures and then devote increased attention to sales in the second half, so that we can replenish the project pipeline for the next year, in particular. For the years 2012 and 2013, the Executive Board perceives additional revenue and earnings opportunities (as in the project business, for example), which are not reflected in the business plan. By the same token, the business plan does not incorporate various risks, particularly including unforeseeable changes in the current legislative framework and further reductions in grid feed-in tariffs in the key markets of Phoenix Solar AG. Given the known dynamism of the photovoltaic market, it is possible that future results will differ from the current expectations of the Executive Board of Phoenix Solar AG. Sulzemoos, 8 August 2012 Phoenix Solar Aktiengesellschaft The Executive Board Dr. Andreas Hänel (Chief Executive Officer) Dr. Bernd Köhler (Chief Financial Officer) Dr. Murray Cameron (Chief Operating Officer)

28 CoNSoLIDATED FINANCIAL STATEMENTS ACCoRDING To IFRS FoR ThE Period from 1 January until 30 June 2012 of PhoENIx SoLAR AKTIENGESELLSChAFT, SULZEMooS Consolidated income statement 29 Consolidated statement of comprehensive income 29 Consolidated balance sheet 30 Consolidated statement of changes in equity 32 Consolidated cash flow statement 33

29 CoNSoLIDATED FINANCIAL STATEMENTS 29 Consolidated Income Statement for the period from 1 January 2012 until 30 June 2012 in Notes C. 01/01/ /06/ /01/ /06/2011 Revenues (1) 84, ,772 Change in inventory of work in process (2) 2, Overall performance 86, ,121 Other operating income (4) 1,201 5,762 Cost of materials (3) 77, ,401 Personnel expenses (5) 12,648 14,332 Depreciation and amortisation Other operating expenses (6) 11,357 14,829 Operating result - 14,150-26,310 Result from associated companies EBIT - 14,100-26,273 Financial income Financial costs 2,005 1,845 Financial result (7) - 1,949-1,549 Consolidated net income before income taxes (EBT) - 16,049-27,822 Income taxes (8) 452-6,690 Consolidated net income for the period - 16,501-21,132 of which due to minority interest of which due to majority shareholders - 16,572-21,093 Earnings per share Earnings per share (basic) (9) Earnings per share (diluted) (9) Consolidated Statement of Comprehensive Income for the period from 1 January 2012 until 30 June 2012 in Notes D. 01/01/ /06/ /01/ /06/2011 Consolidated net income for the period - 16,501-21,132 Transactions associated with minority interests 0-19 Differences from currency translation Income taxes recognised directly under equity 0 0 Changes in value recognised directly under equity (15) Overall performance - 16,260-21,231 of which due to minority interest of which due to majority shareholders - 16,331-21,173

30 CoNSoLIDATED FINANCIAL STATEMENTS 30 Consolidated Balance Sheet as per 30 June 2012 Assets Notes C. & D. 30/06/ /12/2011 Noncurrent assets Intangible assets (10) 4,086 4,503 Goodwill Property, plant and equipment 2,782 3,197 Investments in associates Other participating interests Noncurrent receivables Deferred tax assets (8) 2,110 2,236 Noncurrent other financial assets (13) Total noncurrent assets 11,303 12,328 Current assets Inventories (11) 40,075 55,911 Prepayments 1,959 1,033 Receivables from long-term construction contracts (12) 15,548 14,995 Trade receivables 22,285 31,597 Current other financial assets (13) 10,725 10,629 Current other non-financial assets (14) 11,621 7,631 Current income tax assets (8) 2,721 3,367 Cash and cash equivalents 5,487 6,412 Total current assets 110, ,575 Total assets 121, ,903

31 CoNSoLIDATED FINANCIAL STATEMENTS 31 Liabilities and shareholders equity Notes C. & D. 30/06/ /12/2011 Equity Subscribed capital (15) 7,373 7,373 Capital reserve (15), (16) 64,582 64,528 Accumulated other equity (15) - 34,225-17,787 Share of majority shareholders in consolidated equity 37,730 54,114 Share of minority interest in consolidated equity Total equity 38,493 54,806 Noncurrent liabilities and provisions Noncurrent financial liabilities Noncurrent provisions 2,205 2,452 Deferred tax liabilities (8) 9 21 Total noncurrent liabilities and provisions 2,232 2,547 Current liabilities and provisions Current financial liabilities (17) 39,971 24,726 Liabilities from long-term construction contracts (12) 7,718 1,749 Trade payables (18) 17,819 24,531 Other financial liabilities (19) 4,522 4,038 Other non-financial liabilities (20) 6,589 13,763 Current provisions 3,744 9,861 Current income tax liabilities (8) 636 7,882 Total current liabilities and provisions 80,999 86,550 Total liabilities and shareholders equity 121, ,903

32 CoNSoLIDATED FINANCIAL STATEMENTS 32 Consolidated Statement of Changes in Equity for the period from 1 January 2012 until 30 June 2012 Notes D. Subscribed capital Capital reserve Accumulated other equity Share of majority shareholders in consolidated equity Share of minority interest in consolidated equity Total equity As per 1 January ,373 63,559 71, , ,445 Reserve for share options (15) (16) Difference from currency translation (15) Consolidated net income in ,093-21, ,132 As per 30 June ,373 64,298 50, , ,972 As per 1 January ,373 64,528-17,787 54, ,806 Reserve for share options (15) (16) Difference from currency translation (15) Change in companies to be consolidiated B Consolidated net income in ,572-16, ,501 As per 30 June ,373 64,582-34,225 37, ,493

33 CoNSoLIDATED FINANCIAL STATEMENTS 33 Consolidated Cash Flow Statement for the period from 1 January 2012 until 30 June 2012 Notes C. & D. 01/01/ /06/ /01/ /06/2011 Consoldiated income before income taxes - 16,049-27,822 Depreciation and amortisation Other non-cash income (-) and expenses (+) (including result from associated companies) 7,529 11,189 Profit/loss from disposal of intangible assets and equipments 39 4 Financial income (7) Financial costs (7) 2,005 1,845 Sub-total - 5,539-14,449 Increase/decrease in provisions (net of discounting effects and non-cash releases) - 6, Increase/decrease in inventories (11) 10,489 44,189 Increase/decrease in prepayments Increase/decrease in receivables from long-term construction contracts (12) ,615 Increase/decrease in trade receivables (excl. non-cash transactions) 8,059 4,239 Increase/decrease in assets (13), (14) - 1,672 6,777 Increase/decrease in liabilities (19), (20) - 7,794-47,718 Funds generated by operating activities - 4,298-2,009 Interest paid (7) - 1,569-1,922 Income taxes paid (8) - 7,473-1,334 Cash flow from operating activities - 13,340-5,265 Proceeds from disposal of intangible assets and equipment 4 5 Purchase of intangible assets and equipment (10) ,417 Cash flow from investing activities ,412 Payments in connection with financial liabilities (18) 15,189 22,343 Commision for syndicated loan agreement - 2,600 0 Interest income Cash flow from financing activities 12,628 22,592 Changes in cash and cash equivalents ,915 Currency-induced changes in cash and cash equivalents 0 0 Consolidation-related changes in cash and cash equivalents 0 0 Net change in cash and cash equivalents ,915 Cash and cash equivalents at the start of the period 6,412 9,588 Cash and cash equivalents at the end of the period 5,487 25,503 Increase/decrease in cash and cash equivalents ,915

34 Selected explanatory notes to the interim financial statements according to IFRS for the reporting period from 1 January to 30 June 2012 of Phoenix Solar Aktiengesellschaft, Sulzemoos A. General information 35 B. Recognition, measurement and consolidation methods 35 C. Selected notes to the consolidated income statement 38 D. Selected notes to the consolidated statement of financial position 40 E. Seasonal factors 44 F. Segment report 44 G. Significant events after the interim reporting date 47

35 Selected explanatory notes 35 A. GENERAL INFORMATION As at 30 June 2012, the Phoenix Solar Aktiengesellschaft Group (referred to hereinafter as the Phoenix Group) consisted of 32 companies with a total of 296 (PY: 415) employees. The parent company, which is also the highest-level parent company of the Group, is Phoenix Solar Aktiengesellschaft (referred to hereinafter as Phoenix Solar AG), with its head office at Hirschbergstraße 8 in Sulzemoos, Germany; it is registered in the Commercial Register of the Munich Local Court under the register number HRB The business object of the parent company comprises the development, production, sales, operation and administration of components and systems for generating energy from renewable energy sources, and the construction and maintenance of such components and systems. The parent company has been admitted for trading in the Prime Standard segment of Deutsche Börse AG, Frankfurt am Main, since 27 June As one of the stock exchange segments regulated by the European Union, the Prime Standard is meant for companies that also aim to attract international investors. As one of the conditions for listing in the Prime Standard, the company must prepare its financial statements according to the standards and interpretations issued by the International Accounting Standards Board (IASB), i.e., International Financial Reporting Standards (IFRS) and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), insofar as they have been endorsed by the European Union. On 13 March 2012, the IASB published amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards. The amendment prescribes how first-time adopters of IFRS should measure government loans with a below-market rate of interest at the transition date. Government loans entered into prior to the transition date may be measured in accordance with the previously applied valuation method. Thus, the valuation rules of IAS 20.10A in conjunction with IAS 39 only apply to government loans granted after the transition date. The amended version of IFRS 1 must be applied in financial years that begin on or after 1 January Earlier application is permitted. This amendment will have no effect on the accounting methods of the Phoenix Group. The financial statements are to be released for publication on 9 August The Executive Board will approve the release. b. RECOGNITION, MEASUREMENT AND CONSOLIDATION METHODS In accordance with the provisions of Section 37x of the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG), the half-yearly financial report of the Phoenix Group comprises a set of condensed consolidated financial statements and an interim management report for the Group. The condensed interim consolidated financial statements were prepared in accordance with the IFRS rules applicable to interim reporting as they are to be applied in the European Union. The interim management report for the Group was prepared in accordance with the applicable provisions of the WpHG.

36 phoenix solar ag Interim Report January to march 2012 Selected explanatory notes 36 The consolidated interim report as at 30 June 2012 was prepared in accordance with IAS 34. The Interpretations of the International Financial Reporting Interpretations Committee (IFRIC) to be applied in 2011 and the earlier Interpretations of the Standing Interpretations Committee (SIC) were observed. All comparison figures from the corresponding year-ago period were calculated on the basis of the same principles. With the exception of the methods described below, the main recognition, measurement and consolidation methods are the same as those applied for the consolidated financial statements as at 31 December Thus, the interim financial statements should be read in conjunction with the published consolidated financial statements as at 31 December In accordance with the principles of IAS 34 Interim Financial Reporting, tax expenses have been calculated on the basis of the effective tax rate expected for the full year. Tax effects arising in connection with extraordinary items are recognised in the quarter in which the underlying transaction occurred. In addition to Phoenix Solar AG as the parent company, the following companies were included in the consolidated group as at 30 June 2012: Subsidiaries Type of consolidation Equity / voting rights share Phoenix Solar S.L., Madrid, Spain Full consolidation 100 % Phoenix Solar S.r.l., Rome, Italy Full consolidation 100 % Phoenix Solar E.P.E., Athens, Greece Full consolidation 100 % Phoenix Solar SAS, Lyon, France Full consolidation 100 % Phoenix Solar Incorporated, New Castle/Delaware, USA Full consolidation 100 % Phoenix Solar Pte Ltd, Singapore, Singapore Full consolidation 75 % Phoenix Solar Sdn Bhd, Kuala Lumpur, Malaysia Full consolidation 75 % Phoenix Solar L.L.C., Muscat, Oman Full consolidation 70 % Phoenix Solar Fonds Verwaltung GmbH, Sulzemoos, Germany Full consolidation 100 % Phönix SonnenFonds GmbH & Co. KG D4, Sulzemoos, Germany Full consolidation 100 %

37 phoenix solar ag Interim Report January to march 2012 Selected explanatory notes 37 Project companies Type of consolidation Equity / voting rights share SOMI GmbH, Sulzemoos, Germany Full consolidation 100 % Exploris GmbH, Sulzemoos, Germany Full consolidation 100 % Aktena Solar 1 GmbH & Co.KG, Sulzemoos, Germany Full consolidation 100 % Aktena Solar 2 GmbH & Co.KG, Sulzemoos, Germany Full consolidation 100 % Aktena Solar 3 GmbH & Co.KG, Sulzemoos, Germany Full consolidation 100 % Aktena Solar 4 GmbH & Co.KG Sulzemoos, Germany Full consolidation 100 % Aktena Solar 5 GmbH & Co.KG, Sulzemoos, Germany Full consolidation 100 % Grundstücksgesellschaft Jocksdorf II GmbH Sulzemoos, Germany Full consolidation 100 % Trasse und Umspannwerk Jocksdorf II GmbH & Co. ohg, Sulzemoos, Germany Full consolidation 100 % Scarlatti Srl., Eppan an der Weinstrasse, Italy Full consolidation 100 % Horus S.r.l., Ragusa, Italy Full consolidation 100 % Plaxo Solar S.L., Madrid, Spain Full consolidation 100 % Abalia Solar S.L., Madrid, Spain Full consolidation 100 % Hexasolar S.L., Madrid, Spain Full consolidation 100 % Batisolaire 3 SAS, Carpiquet, France Full consolidation 100 % SP1 d.o.o., Ljubljana, Slovenia Full consolidation 100 % FE5 s.r.l., Milan, Italy Full consolidation 100 % Isla Solar S.r.l., Ragusa, Italy Full consolidation 51 % Energia ed Ambiente S.r.l., Ragusa, Italy Full consolidation 51 % Energia zero Emissione S.r.l., Ragusa, Italy Full consolidation 51 % MAS Solar S.r.l., Ragusa, Italy Full consolidation 51 % On 10 April 2012, the project holding company, BCI Kazanlyk Holding EOOD was sold along with the ten participating project companies, BCI Kazanlyk 1 to 10 EOOD, Bulgaria. In March 2012, the Australian subsidiary was closed as planned due to the withdrawal of Phoenix Solar AG from the Australian solar market. The French project company PSFR001 SARL, Strasbourg, France, was sold on 22 March 2012, following the execution of a larger photovoltaic project in the Haute-Loire region of France. The transferred formation capital of EUR 1 thousand minus the profits or losses of EUR 111 thousand generated until the deconsolidation date and the assumption of net liabilities in connection with the acquisition of project rights, in the amount of EUR 198 thousand is deemed to be a sales price mark-up. As in the prior period, the following company was included in the consolidated financial statements by application of the equity method: Company name Type of consolidation Equity / voting rights share Phönix SonnenFonds GmbH & Co. KG B1, Sulzemoos, Deutschland At-Equity 31.2 % The condensed consolidated financial statements consist of a consolidated income statement plus a consolidated statement of other comprehensive income, as well as the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated cash flow statement and condensed notes to the consolidated financial statements.

38 phoenix solar ag Interim Report January to march 2012 Selected explanatory notes 38 C. selelected NOTES TO THE CONSOLIDATED INCOME STATEMENT (1) REVENUES The revenues generated in the first half of 2012 were substantially lower, by EUR 56,397 thousand, than the corresponding figure for the first half of last year. By reason of the fact that the demand environment was extremely subdued, the Components & Systems segment generated decreased revenues of EUR 38,488 thousand in the first half of With revenues in the amount of EUR 45,887 thousand, the Power Plants segment did not start the first half of 2012 as successfully as the first half of 2011 and contributed less to consolidated revenues than in the previous year. The revenues and their breakdown by operating segments and regions are presented in the Segment Report of the present explanatory notes to the consolidated financial statements (see Section F.). (2) INCREASE OR DECREASE IN WORK IN PROGRESS This item presents the increase or decrease in inventories related to work in progress, for those projects that are not to be classified as customer-specific contract construction according to IAS 11. The recognition of such projects in the first half of financial year 2012 increased work in progress by EUR 2,447 thousand (PY: EUR 349 thousand). (3) PURCHASED GOODS AND SERVICES The purchased goods and services were EUR 66,226 thousand less than the corresponding year-ago figure. Although the ratio of purchased goods and services to total revenues developed in accordance with the revenue performance in the first half of 2012, the amount of purchased goods and services was influenced by a non-recurring effect in the amount of EUR 2,818 thousand arising from the legal and economic policy conditions in Bulgaria, so that it was necessary to reverse some of the necessary writedowns of capital expenditures and start-up costs in this region that had been charged as at 31 December Please refer to the management report for further information. This item also contained necessary value adjustments to the carrying amount of inventories, in the amount of EUR 5,052 thousand (PY: EUR 19,449 thousand). (4) OTHER OPERATING INCOME The other operating income comprised, among other things, insurance compensation payments in the amount of EUR 53 thousand; (PY: EUR 0 thousand), income from in-kind remuneration in the amount of EUR 107 thousand (PY: EUR 113 thousand), income from the reversal of process costs and outstanding project-related invoices in the amount of EUR 404 thousand (PY: EUR 1,273 thousand), and power grid feed-in remuneration attributable to the Phoenix Group in connection with project-related pilot operations or receivable in connection with the company s own operations in the amount of EUR 0 thousand (PY: EUR 2,013 thousand). (5) PERSONNEL EXPENSES Personnel expenses decreased significantly quarter-on-quarter by EUR 1,684 thousand and amounted to EUR 12,648 thousand as at the reporting date (PY: EUR 14,332 thousand). This reduction resulted

39 phoenix solar ag Interim Report January to march 2012 Selected explanatory notes 39 mainly from the restructuring measures, including workforce reductions, among other measures, that were initiated and successfully implemented in the fourth quarter of Since 1 July 2008, the company has offered all its employees a defined contribution pension plan based on salary deferral. The company makes matching payments on the contributions of the participating employees in accordance with the regulations of tax law and social security law. In this connection, expenses of EUR 57 thousand (PY: EUR 27 thousand) were recognised in the reporting year to date. (6) OTHER OPERATING EXPENSES Other operating expenses mainly relate to company-specific expenses such as outgoing freight, specific valuation allowances for receivables and legal and advisory expenses. (7) FINANCIAL RESULT The financial result can be mainly attributed to loan amounts utilized in the reporting period. (8) INCOME TAXES Deferred tax assets and liabilities in the amount of EUR 657 thousand and EUR 93 thousand, respectively (PY: EUR 465 thousand and EUR 1,679 thousand, respectively) were recognised in respect of the differences between the carrying amounts of assets and liabilities according to IFRS and their tax bases. In addition, deferred tax assets of EUR 1,896 thousand (PY: EUR 3,430 thousand) were recognised for losses generated in respect of temporary differences that are expected to reverse in the future; no deferred tax assets have yet been recognized in respect of tax losses amounting to EUR 26,581 thousand (PY: 0 thousand), which are based on taxable individual profits to be generated in the years 2012 to 2014, because the Group is currently undergoing a strategic reorganization and the business plans were being revised as at the reporting date. The management currently anticipates that such deferred tax assets will be recognized within the 2013 financial year. As at the reporting date, deferred taxes in the amount of EUR 83 thousand (PY: EUR 1,659 thousand) were presented on a net basis. After consolidation measures, deferred tax assets of EUR 2,110 thousand (PY: EUR 2,236 thousand) and deferred tax liabilities of EUR 9 thousand (PY: EUR 21 thousand) were recognised as of the reporting date. As in the prior year, no deferred taxes were recognised in respect of outside basis differences in the financial year to date because most of the subsidiaries did not possess distributable net assets as at the reporting date or the funds were meant to serve as internal financing of the respective subsidiaries; outside basis differences in the amount of EUR 3,324 thousand (PY: 3,241 thousand) were calculated as at 30 June (9) EARNINGS PER SHARE Because stock options have been issued, the diluted number of shares must also be determined. The calculation as of the reporting date is presented in the table below: Diluted number of shares 30/06/ /06/2011 Undiluted number of shares 7,372,700 7,372,700 Number of diluting options 0 0 Diluted number of shares 7,372,700 7,372,700 In accordance with IAS 33.66, the diluted and basic earnings per share are presented below the line item of consolidated profit or loss for the period.

40 phoenix solar ag Interim Report January to march 2012 Selected explanatory notes 40 D. selected NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (10) INTANGIBLE ASSETS The total intangible assets were EUR 417 thousand less than the corresponding year-ago figure. This decrease resulted entirely from the amortization of intangible assets. (11) INVENTORIES The inventories consisted mainly of trading stock (especially solar modules and inverters). Such items are recognised as assets within inventories only after the goods have been shipped by the supplier and the risk of ownership has passed to Phoenix Solar AG. As at 30 June 2012, goods in transit were capitalised as trading stock in the amount of EUR thousand (PY: EUR 0 thousand). The total amount presented as trading stock included value adjustments of EUR 30,731 thousand, including EUR 5,347 thousand in value adjustments that were recognized as expenses in the reporting period. The original cost of the inventories against which value adjustments were charged was EUR 47,885 thousand. (12) RECEIVABLES AND PAYABLES UNDER CONSTRUCTION CONTRACTS Receivables under long-term construction contracts are generally defined as customer orders that have not been fully completed yet. In accordance with IAS 11, the percentage-of-completion method is used to account for construction contracts, provided that certain conditions are met. Under this method, contract revenues and profits are recognised in the income statement in proportion to the stage of completion in the periods in which the work is performed. Thus, revenues under fixed-price construction contracts are recognised in proportion to the profits realised on the basis of the stage of completion. They are recognised in proportion to the ratio of the internal and external costs incurred at the reporting date to the total estimated costs of each contract (cost-to-cost method). In cases in which contract revenue cannot be estimated reliably (as in the case of advance expenditures in respect of anticipated contracts that have not yet been finalised, for example), revenues are recognised in the amount of costs incurred to the extent it can be expected that they will be covered by contract revenues (zero-profit method). They are presented as receivables or payables under longterm construction contracts. In cases when the accumulated work performed (contract costs incurred and profits recognised) exceeds the amount of down payments received, the corresponding amount is recognised as an asset. Anticipated contract losses are recognised in full; in determining such losses, due consideration is given to discernible risks. As at the reporting date, gross receivables under long-term construction contracts were recognised in the amount of EUR 39,231 thousand (PY: EUR 99,436 thousand). Most of the receivables relate to projects from foreign European countries. For the period from 1 January to 30 June 2012, contract revenues were recognised in the amount of EUR 33,985 thousand (PY: EUR 90,424 thousand), contract costs in the amount of EUR 42,154 thousand (PY: EUR 81,809 thousand) and losses in the amount of EUR 7,148 thousand (PY: profits of EUR 8,615 thousand). The results include foreign currency effects in the amount of EUR 25 thousand. Losses in the amount of EUR 605 thousand (PY: EUR 1,060 thousand) were recognised as expenses for contracts that are expected to be completed with a negative margin.

41 phoenix solar ag Interim Report January to march 2012 Selected explanatory notes 41 Down payments of EUR 104,912 thousand (PY: EUR 84,045 thousand) were collected on account of contracts and other down payments of EUR 4,341 thousand (PY: EUR 3,205 thousand) were requested. Commitments under long-term construction contracts were recognised in the amount of EUR 7,717 thousand (PY: EUR 1,749 thousand) to account for down payments collected that exceeded the corresponding project stage of completion. Including requested and recognisable down-payments and partial invoices, the total presented amount of EUR 18,545 thousand (PY: EUR 14,995 thousand) breaks down as follows: Carrying amounts 30/06/ /12/2012 Receivables under long-term construction contracts, including partial invoices adequate for the stage of completion 11,207 13,115 Plus requested, recognisable partial invoices 4,341 1,880 Amount presented in the Statement of Financial Position 15,548 14,995 Borrowing costs of EUR 441 thousand (PY: EUR 2,116 thousand) were calculated as project costs in connection with long-term construction contracts based on an unchanged interest rate of 3.4 to 3.5 percent. As at 30 June 2012, the total order book for the Group amounted to EUR million (PY: EUR 311 million). The available order book, which corresponds to orders on hand as at the reporting date less the already completed portion of the contract, amounts to EUR 36.4 million (PY: EUR million). (13) OTHER FINANCIAL ASSETS Current other financial assets break down mainly to the following line items: Prepayments, accrued revenues and other prepaid expenses. (14) OTHER NON-FINANCIAL ASSETS In connection with the increased inventories, the Group has accumulated larger amounts of sales tax refund claims totalling EUR 9,353 thousand (PY: EUR 7,631 thousand). In the periodic tax return filings, these refund claims are set off against the sales tax liabilities incurred in the ordinary course of business. (15) EQUITY For information on changes in equity, please refer to the Statement of Changes in Equity. As at 30 June 2012, the company s share capital was unchanged at EUR 7,372.7 thousand. It is divided into 7,372,700 (previous year: 7,372,700) no-par bearer shares (common shares), and was fully paid in as at the reporting date for the consolidated financial statements. The currency translation reserve is the only component of equity resulting from transactions and changes in measured value that is to be recognised directly in equity. The decrease in accumulated other equity as a result of changes in the consolidated group relates mainly to the deconsolidation of project company PSFR001 and Kazanlyk Holding EOOD.

42 phoenix solar ag Interim Report January to march 2012 Selected explanatory notes 42 Capital Management The ownership of all of Phoenix Solar AG s existing and future trading stock was transferred to the syndicate manager (collateral trustee) in an agreement dated 20 June 2012 as part of the syndicate agreement entered into on 11 May In addition, all receivables were assigned during the course of a global assignment for the benefit of the syndicate manager. The assignment and/or the transfer of ownership serves the collateralisation of the immediate and complete settlement of all collateralised liabilities. The Group companies Phoenix Solar Inc. and Phoenix Solar M.E.P.E. have assumed, as guarantors, liability in the event of default on the part of Phoenix Solar AG within the framework of a guarantee agreement. (16) STOCK OPTION PLAN The annual general meeting of 7 July 2006 adopted a Stock Option Plan for members of the Executive Board, members of the management of the Group companies and selected executives and other key personnel of the company. To that end, a Conditional Capital of EUR 553 thousand was created. By virtue of this authorisation, the Executive Board of Phoenix Solar AG established a Stock Option Plan on 10 September 2007 ( Stock Option Plan 2006, also referred to as SOP 2006 ), under which, as at the reporting date, a total of 340,350 stock options of Phoenix Solar AG were granted in five tranches to members of the Executive Board, members of the management of the Group companies and other key personnel. As at the reporting date, 135,550 stock options had expired due to resignations and 18,000 had been exercised. As at the reporting date, therefore, there remained 186,800 stock options, which can be exercised only if the beneficiary is employed by the company or a Group company and the employment relationship has not been terminated by either party with valid effect at the time of exercising the stock options. The Stock Option Plan was discontinued by resolution of the annual general meeting in Because the expenses are distributed over the period from the grant date to the expiration of the vesting period, expenses of EUR 54 thousand (PY: EUR 739 thousand) were recognised as share-based compensation in the first half of financial year Other transactions with the Group s related parties correspond to those described in the 2011 annual report. (17) CURRENT FINANCIAL LIABILITIES In consideration of the non-project-related supply agreements for solar modules, inventories are financed partially by means of drawdowns from the available credit facilities extended by the bank syndicate. Furthermore, the credit facilities extended by the bank syndicate serve to finance working capital, meaning that the funds are used for the temporary financing of start-up costs in the power plants business. As a general rule, these credit facilities are to be drawn down only on a short-term basis. The interest rates range between 3.9 and 4.7 percent p.a. (PY: 2.6 and 3.5 percent p.a.). (18) TRADE PAYABLES Trade payables are measured at the repayment amount. Due to the short-term payment terms of these liabilities, this amount is equivalent to their fair value. All trade payables are due in one year or less.

43 phoenix solar ag Interim Report January to march 2012 Selected explanatory notes 43 (19) OTHER FINANCIAL LIABILITIES The Phoenix Solar Group is exposed to interest rate risks in connection with the financing of working capital. The company has not entered into interest rate hedging transactions as at the reporting date to hedge the resulting cash flow risk. The change in this item from the corresponding year-ago figure resulted mainly from the recognition of deferred income items in respect of project revenues that are subject to conditions and advance payments received from customers. (20) OTHER NON-FINANCIAL LIABILITIES Due to the growing internationalisation of the company s business, sales tax liabilities have been incurred in European countries to a greater extent than before. The sales tax liabilities of the preceding financial year were settled. Otherwise, this item comprises social security withholding amounts to be transferred, as well as mostly short-term other liabilities due to employees. (21) CONTINGENT LIABILITIES AND OTHER FINANCIAL COMMITMENTS There were no contingent assets or contingent liabilities as at 30 June 2012 (and also none as at the year-ago reporting date). As at 30 June 2012, firm orders for purchased materials amounted to EUR 22,916 thousand (PY: EUR 18,644 thousand). There are purchase commitments for materials until 2014 arising from master agreements with manufacturers for photovoltaic modules. Minimum purchase commitments based on volume and at arm s length terms have been agreed with one solar module supplier under a total volume contract for 160 MW with 10 MW planned respectively for 2012, 25 MW for 2013, and the remaining volume for 2014; a pricing plan is applied for the difference between the minimum committed volumes and the total volume, whereby the Phoenix Solar Group has the option of placing released quantities at arm s length terms. If the module manufacturer rejects the demand for delivery, the Phoenix Solar Group has the option of crediting the released quantities to the outstanding contingent of the master agreement. In July 2012, Phoenix Solar AG was able to terminate long-term contractual obligations to purchase modules as a result of mutual agreements. Please also refer to the report on significant events after the reporting date in the management report. The Group is subject to financial commitments in the total amount of EUR 5,703 thousand (PY: EUR 6,324 thousand) under various rental and leasing agreements. Of that total, an amount of EUR 1,270 thousand (PY: EUR 1,521 thousand) is due in less than one year, EUR 2,343 thousand (PY: EUR 2,590 thousand) is due in one to five years and EUR 2,090 thousand (PY: EUR 2,213 thousand) is due in more than five years.

44 phoenix solar ag Interim Report January to march 2012 Selected explanatory notes 44 E. SEASONAL FACTORS The business of companies operating in the photovoltaic sector is subject to strong seasonal fluctuations. As a general tendency, the results of the last two quarters are higher than those of the first two quarters of a given financial year. As a result of the growing internationalisation of the company s business, which allows for a global scope of action, seasonal restrictions are becoming less relevant to the company s business, depending on the distribution of profits earned. Regional weather conditions and national legislative initiatives related to renewable energies, along with the specific implementation of those initiatives in the form of remuneration rates for power grid feeds and graduated rate decreases or production limits, for example, exerted a greater influence on the ordinary business operations of the company. F. SEGMENT REPORT The Group Executive Board is the responsible governing body that makes decisions about the allocation of resources to the operating segments of the phoenix group and assesses their performance. In accordance with the principles of the management approach, the Management Information System (MIS) of the Group Executive Board forms the basis for identifying the relevant operating segments. The MIS is based on the recognition and measurement regulations of the IASB, both originally and with respect to the data of the operating performance parameters of each operating segment. The relevant managerial indicators for each operating segment include revenues, earnings before interest, income or expenses from associated companies and income taxes (segment profit or loss). The Group is managed via the two operating segments Power Plants and Components & Systems. The principal activities are sub-divided as follows: power Plants: Planning, distribution, construction and maintenance of photovoltaic plants components & Systems: Distribution of trading stock The operating profit or loss is segmented on the basis of cost accounting reports. The revenues of the Power Plants segment are based exclusively on project-related work, so that they also include the corresponding pro-rated profits recognised as of the reporting date. The breakdown of the other indicators to be segmented by principal activities is conducted with regard to the Power Plants and Components & Systems segments through the application of an allocation key that is generally derived on a uniform basis from revenues or total operating performance. Whenever a cost allocation based on the specific cost of goods sold is required, a key is applied on the basis of the materials and work used in the cost of goods sold. The segment information for these operating segments is presented below:

45 phoenix solar ag Interim Report January to march 2012 Selected explanatory notes 45 For the period from 1 January 2012 to 30 June 2012 according to IFRS: Power Plants Components & Systems Other Consolidation Group Segment profit or loss statement External revenues 45,887 38, ,375 Inter-segment revenues Segment revenues 45,887 38, ,375 Segment profit or loss - 9,871-4, ,149 Income from associated companies EBIT - 14,100 Financial result - 1,949 Net consolidated income before taxes for the period - 16,049 Income tax expenses 452 Net consolidated income for the period - 16,501 of which attributable to non-controlling interests - 71 of which attributable to controlling shareholders - 16,572 Other information Capital expenditures Depreciation and amortisation Non-cash expenses 4,266 3, ,967 Non-cash income Assets Segment assets 54,568 43, ,019 Shares in associated companies Non-assigned assets 23,705 Consolidated assets 121,724

46 phoenix solar ag Interim Report January to march 2012 Selected explanatory notes 46 For the period from 1 January 2011 to 30 June 2011 according to IFRS: Power Plants Components & Systems Other Consolidation Group Segment profit or loss statement External revenues 51,531 89, ,772 Inter-segment revenues Segment revenues 51,531 89, ,772 Segment profit or loss - 6,277-20, ,310 Income from associated companies EBIT - 26,273 Financial result - 1,549 Net consolidated income before taxes for the period - 27,822 Income tax expenses 6,690 Net consolidated income for the period - 21,132 of which attributable to non-controlling interests - 39 of which attributable to controlling shareholders - 21,093 Other information Capital expenditures ,417 Depreciation and amortisation Non-cash expenses 4,302 7, ,891 Non-cash income Assets Segment assets 86, , ,610 Shares in associated companies Non-assigned assets 28,363 Consolidated assets 264,391

47 phoenix solar ag Interim Report January to march 2012 Selected explanatory notes 47 The revenues of the Group were divided among the following regions: Revenues by region 2012 Germany 24,966 72,169 EU excluding Germany 58,645 66,732 Other 765 1,871 Total 84, , The non-current assets were divided among the regions as follows: Non-current assets by region Germany 8,717 8,626 EU excluding Germany Other Total 9,127 9,238 G. significant EVENTS AFTER THE INTERIM REPORTING DATE In July 2012, Phoenix Solar AG was able to terminate long-term contractual obligations to purchase modules as a result of mutual agreements. Sulzemoos, 8 August 2011 Phoenix Solar Aktiengesellschaft The Executive Board Dr. Andreas Hänel (Chief Executive Officer) Dr. Bernd Köhler (Chief Financial Officer) Dr. Murray Cameron (Chief Operating Officer)

48 phoenix solar ag Interim Report January to march 2012 Affirmation by the legally authorised representatives 48 Affirmation by the legally authorised representatives To the best of our knowledge, we hereby affirm that, pursuant to the generally accepted accounting principles for interim reporting, the interim consolidated financial statements give a true and fair view of the assets, financial position and the results of operations of the Phoenix Group, and that the interim management report gives a true and fair reflection of the development of the Phoenix Group s business, including its performance and situation, as well as describing the material opportunities and risks inherent in the prospective development of the Group during the remainder of the fiscal year. Sulzemoos, 8 August 2012 Phoenix Solar Aktiengesellschaft The Executive Board Dr. Andreas Hänel (Chief Executive Officer) Dr. Bernd Köhler (Chief Financial Officer) Dr. Murray Cameron (Chief Operating Officer)

49 phoenix solar ag Interim Report January to march 2012 Review Report 49 Review Report To Phoenix Solar Aktiengesellschaft, Sulzemoos We have reviewed the condensed consolidated interim financial statements comprising the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and selected explanatory notes and the interim group management report of Phoenix Solar Aktiengesellschaft for the period from January 1 to June 30, 2012 which are part of the half-year financial report pursuant to (Article) 37w WpHG ( Wertpapierhandelsgesetz : German Securities Trading Act). The preparation of the condensed consolidated interim financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent Company s Board of Managing Directors. Our responsibility is to issue a review report on the condensed consolidated interim financial statements and on the interim group management report based on our review. We conducted our review of the condensed consolidated interim financial statements and the interim group management report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot express an audit opinion. Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. We are bound by duty to point out that there are risks which endanger the existence of the company. These are detailed in section 5.4 General assessment of the group s risk situation, subsection Group Financing of the Group Management Report. There it is explained that the Company s liquidity depends on the Group being able to fulfill the covenant obligations as indicated in the company planning projections and on which the loan agreement is based. Any breach of covenants may lead the bank syndicate to exercise its extraordinary termination right for the credit lines. Munich, August 8, 2012 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Dr. Henning Hönsch Wirtschaftsprüfer (German Public Auditor) dietmar Eglauer wirtschaftsprüfer (German Public Auditor)

50 Financial calendar 50 Financial calendar 09/08/ /11/2012 Q2 Report/Interim Figures as per 30/06/2012 Q3 Report/Interim Figures as per 30/09/2012 The updated financial calendar can be viewed on the Phoenix Solar AG website under This report is also available in German. Both versions are available for download on the Internet. This is an English translation of the German original. Only the German version is binding.

51 Editorials and contact 51 Editorials and contact publisher Phoenix Solar AG Hirschbergstrasse 8 D Sulzemoos Investor relations Jutta Stolp Tel. +49 (0) Fax +49 (0) j.stolp@phoenixsolar.de concept and design RED, Munich/ Krailling, Germany FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements on future developments which are based on management s current assessments. Words such as anticipate, assume, believe, estimate, expect, intend, can/could, plan, project, forecast, should and similar terms are indicative of such forward-looking statements. Such statements are subject to certain risks and uncertainties, which are mainly outside the sphere of influence of Phoenix Solar AG, but which have an impact on the business activities, the success, the business strategy and the result. These risks and factors of uncertainty include, for instance, climatic changes, changes in the state subsidisation of photovoltaics, the introduction of competitor products or technologies of other companies, the dependency on suppliers and the price development of solar modules, the development of the planned internationalisation of business activities, fierce competition and rapid technology change in the photovoltaic market. If one of these or other factors of uncertainty or risks should occur, or if the assumptions underlying the statement should prove incorrect, the actual results may diverge substantially from the results in these statements or implicit indications. Phoenix Solar AG does not have the intention, nor will it undertake any obligation to update forward-looking statements on an on-going basis or at a later point in time, as this is entirely dependent on circumstances prevailing on the day of their release..

52 Making energy together Phoenix Solar AG Hirschbergstrasse Sulzemoos, Germany Phone +49 (0) Fax +49 (0) kontakt@phoenixsolar.de