Valoe Corporation Interim Report 1 January 2018 - 30 June 2018

Valoe Corporation                                                  Interim Report                            29 August 2018

VALOE CORPORATION INTERIM REPORT 1 January 2018 – 30 June 2018

SUMMARY

• In December 2017 the company resolved on a directed share issue in which the company offered up to 10,000,000 new shares in the company for subscription to all the creditors of the company who at the time of subscription hold indisputable receivable amounting to at least EUR 25,000 from the company. The subscription price for the new shares could be paid in cash or by set-off against indisputable receivables the subscriber had from the company. In total 8,721,077 new shares were acceptably subscribed in the offering ended in the reporting period in January 2018. Thus, the company collected in the offering in total approximately EUR 859,000 new capital before fees and costs and the indebtedness of the company decreased in total approximately by EUR 9,257,000.
• On 19 April 2017 Valoe entered into a convertible note facility agreement with Bracknor Investment concerning a funding arrangement of up to EUR 3,000,000 in convertible loan notes the that will be accompanied by share subscription warrants.  By the end of the reporting period the company has withdrawn a total of EUR 1.15 million from the financing facility. Since the end of the reporting period the company has withdrawn another EUR 0.25 million from the Bracknor Investment’s financing commitment.
• In April 2018 Valoe and ForUs Capital Oy signed delivery contracts totalling ca. EUR 0.45 million. The contracts are part of the framework agreement between Valoe and ForUs Capital Oy, disclosed on 7 August 2017, on delivering solar power plants worth a total of ca. EUR 4 million to Finland. ForUs Capital sells electricity generated by the solar power plants to its own partners. The total value of the binding delivery contracts with ForUs Capital Oy signed by the end of the reporting period totals ca. EUR 1.6 million. Valoe has been delivering the orders since the autumn 2017 and the rest of the power plants ordered by the end of the reporting period will be delivered by the end of November 2018.
• In April 2018 Valoe issued a convertible bond of MEUR 1.0 at the most in order to strengthen the company’s capital structure and to purchase a cell production line from Megacell S.r.l., under liquidation. The subscription price was EUR 0.55 per share. The convertible bond was issued in deviation from the shareholders' pre-emptive subscription rights to the parties separately approved by the Board of Directors. The loan period shall expire on 31 May 2021 on which date the convertible bond shall expire to be repayable in its entirety in accordance with the terms of the loan. An annual interest of eight (8) percent shall be paid to the capital of the Convertible Bond. The subscription period of the shares under the convertible bond begun from the subscription of the convertible bond and shall expire on 31 May 2021.  The Convertible Bond was fully subscribed. During the subscription period of the Convertible Bond new investments of EUR 0.9 million was paid in cash.  Out of the subscriptions, a total of EUR 0.1 million was paid by setting the subscription price off against the subscribers’ receivables from the company. Despite the aforesaid financial arrangements, pursuant to the estimates available to the company, the company’s financing situation and working capital situation continue to be tight in 2018.
• During the reporting period Valoe made significant investments in its research and development. In April 2018 Valoe introduced Chrome II, a new glass-glass solar module including Valoe’s own MWT (Metal Wrap Through) cell, on the market.  Further, in April 2018 Valoe announced that it has purchased a solar cell production line from Italian Megacell S.r.l.; under liquidation, and that the company has signed a cooperation agreement with Soli Tek Cells JSC, a solar cell manufacturer based in Lithuania. The cell production line Valoe purchased from Italy has been transferred to Soli Tek Cells JSC’s premises in Lithuania.  In May 2018 Valoe disclosed that it has signed a development and technology transfer agreement with German ISC Konstanz. The purchase of the cell production line from Italy and the cooperation agreements with both SoliTek and ISC Konstanz support Valoe’s objective to develop, for Valoe’s modules, an IBC (Interdigidated Back Contact) cell and a bifacial cell BiSoN also based on n-type silicon cell and IBC technology ZEBRA as well as to modify Valoe’s current module structure in a way where the features of IBC and BiSoN can be utilized in the best possible way. Additionally, Valoe and ISC Konstanz have agreed on licensing the abovementioned cell types to Valoe and its future manufacturing partners.
• On the reporting period January – June 2018, the net sales of Valoe Group, under the IFRS standards, was EUR 0.5 million (in 2017 EUR 0.2 million). The EBIT was EUR -1.3 million (EUR -1.3 million), the profit for the period was EUR -2.1 million (EUR -2.7 million), undiluted earnings per share were EUR -0.15 (EUR -0.62) and the EBITDA ca. EUR -0.7 million (EUR -0.7 million).
• Valoe’s Asian customer has ongoing negotiations on arranging financing for a factory delivery in Asia worth EUR 26.5 million. Valoe will enter the order in its order book only after the customer has secured financing for the factory project.
• Valoe will not disclose financial guidance for the financial year 2018.
• More information on principle activities and events during and after the reporting period can be found in the stock exchange releases published on Valoe’s website at www.valoe.com. The Interim Report has been drawn up in compliance with the IAS 34 Interim Financial Reporting standard. In the Interim Report Valoe has applied the same accounting principles as in its Annual Report 2017. The Interim Report has not been audited.

FINANCIAL DEVELOPMENT JANUARY – JUNE 2018

In December 2017 the company resolved on a directed share issue in which the company offered up to 10,000,000 new shares in the company for subscription to all the creditors of the company who at the time of subscription hold indisputable receivable amounting to at least EUR 25,000 from the company. The subscription price for the new shares could be paid in cash or by set-off against indisputable receivables the subscriber had from the company. In total 8,721,077 new shares were acceptably subscribed in the offering ended in January 2018. Thus, the company collected in the offering in total approximately EUR 859,000 new capital before fees and costs and the indebtedness of the company decreased in total approximately by EUR 9,257,000.

In April 2018 Valoe issued a convertible bond of MEUR 1.0 at the most in order to strengthen the company’s capital structure and to purchase a cell production line from Megacell S.r.l., under liquidation. The subscription price was EUR 0.55 per share. The convertible bond was issued in deviation from the shareholders' pre-emptive subscription rights to the parties separately approved by the Board of Directors. The loan period shall expire on 31 May 2021 on which date the convertible bond shall expire to be repayable in its entirety in accordance with the terms of the loan. An annual interest of eight (8) percent shall be paid to the capital of the Convertible Bond. The subscription period of the shares under the convertible bond begun from the subscription of the convertible bond and shall expire on 31 May 2021.  The Convertible Bond was fully subscribed. During the subscription period of the Convertible Bond new investments of EUR 0.9 million was paid in cash.  Out of the subscriptions, a total of EUR 0.1 million was paid by setting the subscription price off against the subscribers’ receivables from the company. Despite the aforesaid financial arrangements, pursuant to the estimates available to the company, the company’s financing situation and working capital situation continue to be tight in 2018.

In April Valoe and ForUs Capital Oy signed delivery contracts totalling ca. EUR 0.45 million. The contracts are part of the framework agreement between Valoe and ForUs Capital Oy, disclosed on 7 August 2017, on delivering solar power plants worth a total of ca. EUR 4 million to Finland. ForUs Capital sells electricity generated by the solar power plants to its own partners. The total value of the binding delivery contracts with ForUs Capital Oy signed by the end of the reporting period totals ca. EUR 1.6 million. Valoe has been delivering the orders since the autumn 2017 and the rest of the power plants ordered by the end of the reporting period will be delivered by the end of November 2018.

Valoe has a product development loan from Business Finland (prev. Tekes) in the amount of EUR 4.1 million out of which the company had withdrawn a total of EUR 2.3 million by the end of the reporting period. Since the end of the reporting period the company has withdrawn EUR 0.3 million. As per the date of this Interim Report there is still a total of EUR 1.5 million to be withdrawn.

Although the profit and loss effects of the Ethiopian project was removed from Valoe’s books during the financial year 2016, the Ethiopian project is continued in terms of operations and the company will resume recognizing revenue based on percentage of completion when the performance obligations under the IAS have been satisfied. Valoe sees that one of the most important requirements is the opening of a EUR 9.5 million Irrevocable Letter of Credit in a bank approved by Valoe or a significant cash payment from the customer. The company may need to pledge a security for cash payment, as usual in export business.

Valoe’s Asian customer has ongoing negotiations on arranging financing for a factory delivery in Asia worth EUR 26.5 million. Valoe will enter the order in its order book only after the customer has secured financing for the factory project. However, the financing negotiations are ongoing, and the outcome is not yet known. Further, Valoe has ongoing sales negotiations for several other production plants.

The following financials include Valoe Group’s operations. The figures in brackets are comparison figures for the corresponding period in 2017, unless stated otherwise. The profit and loss effects of the Ethiopian project have been removed from the figures for the corresponding period in 2017. During the financial year 2017, the company reported the continuing operations and the discontinued operations separately. Since the beginning of the reporting period, the company does not report them in its profit and loss statement as there have been no discontinued operations neither during the reporting period nor during the corresponding period. However, there are liabilities related to the discontinued operations in the balance sheet.  

April – June 2018:

- Valoe Group’s net sales increased 189.8 percent to EUR 0.5 million (In 2017: EUR 0.2 million).
- EBITDA was EUR -0.3 million (EUR -0.2 million).
- Operating profit was EUR -0.6 million (EUR -0.5 million).
- The profit before taxes was EUR -1.0 million (EUR -1.3 million).
- Profit for the period was EUR -1.0 million (EUR -1.3 million).
- Undiluted earnings per share were EUR -0.07 (EUR -0.29).

January – June 2018:

- Valoe Group’s net sales increased 136.7 percent to EUR 0.5 million (In 2017: EUR 0.2 million).
- EBITDA was EUR -0.7 million (EUR -0.7 million).
- Operating profit was EUR -1.3 million (EUR -1.3 million).
- The profit before taxes was EUR -2.1 million (EUR -2.7 million).
- Profit for the period was EUR -2.1 million (EUR -2.7 million).
- Undiluted earnings per share were EUR -0.15 (EUR -0.62).

The operating profit excluding one-off other operating income was EUR -1.3 million (EUR -1.6 million).

MANAGING DIRETOR’S REPORT

During the reporting period, Valoe’s net sales increased by 136.7 percent compared to the corresponding period last year. Although the net sales is low, the company’s management finds the development of its financial result promising. Additionally, the company’s gross margin was positive on the reporting period, which was especially positive turn. Thus, the company’s management believes that the profitability improves as the volume increases. Based on the company’s order book and market outlook Valoe’s management trusts the growth will continue in the next quarters. The company’s current growth is based on increased sales in the very competitive solar power plant market in Finland. According to Valoe’s view the company can improve its profitability significantly thanks to the company’s new products and developing production technology. Further, the profitability is expected to grow as the proportion of technology sales increases in the future.    

The most significant events on the reporting period included the purchase of the cell production line from Megacell S.r.l.; establishment of cooperation with the Lithuanian Solitek; and transfer of the cell production equipment to Vilnius, Lithuania, and to Mikkeli, Finland. In the future, the cell production equipment facilitates process development at the Mikkeli factory enabling standard polycrystalline cells to be transformed into back contact cells, IBC cell development that continues in Vilnius, and later cell production too.

The development project Valoe is doing in cooperation with ISC Konstanz is the biggest individual R&D effort in Valoe’s history. Valoe’s objective is to finish the work ISC Konstanz and Megacell S.r.l. started and to introduce an IBC cell that is the most competitive in the global market for Valoe and its partners already during 2019. According to Valoe’s information, only few companies in the world, e.g. Korean LG and American Sunpower, use similar technology in their production for the moment.   

At the annual exhibition, Intersolar Europe, Valoe presented preliminary information on the company’s new solar modules that are based on the IBC technology and will be launched in the market during 2019.

Due to substantial investments the company’s working capital situation has been very tight during the reporting period and from time to time also after that. There will be no major improvement in the situation before a share issue that is planned to take place late 2018.

Valoe’s new IBC cell based back contact technology has offered Valoe new business opportunities since the technology was first introduced in June 2018. The new module technology gives Valoe a competitive edge as the company negotiates with new potential manufacturing partners. Valoe’s management trusts that it will have an opportunity to license the IBC technology also to today’s leading manufacturers lacking the IBC technology. 

In Ethiopia, the company has continued supporting its manufacturing partner to withdraw the financing granted for Valoe’s delivery. The prerequisites for the Ethiopian project have not changed and the operating environment for solar energy production continues to be favourable. Valoe’s partner has shown exceptional persistence and is still fully committed to the project. Both the local government and its energy company have promised their support for Valoe as well as for the project. Valoe still trusts that the project will be completed as a result of long-term work.

Valoe Focuses on Product Development

It is Valoe’s objective that the energy produced by Valoe’s solar modules shall be the greenest as well as the cheapest energy on the market. Valoe is aiming at developing a module with a lifespan of more than hundred years. Although such a module does not yet exist, Valoe chooses its components with a view to extending a module’s operational lifetime. Valoe never purchases cheaper components at the cost of their lifecycle.

With regard to cell technology, Valoe was, during 2017, able to lay foundations for development that enabled Valoe to introduce a glass-glass polycrystalline module, Chrome II, with back contact cells developed by the company on the market.

In May 2018 Valoe signed a cooperation agreement with one of the leading solar energy institutes in Europe, German ISC Konstanz, on developing and licensing n-type IBC (Interdigitated Back Contact) cells. Valoe was able to start the development cooperation with ISC Konstanz after Valoe purchased the required equipment and machinery from Megacell S.r.l., under liquidation, from Italy in April 2018. During 2018 Valoe’s cell development will reach a new level as the reassembly of the production lines transferred to Mikkeli, Finland, and Vilnius, Lithuania, commences. Production deliveries of new n-type IBC cells start during 2019 after R&D phase. 

The objective of Valoe’s R&D is to develop, for Valoe’s modules, an n-type IBC cell representing the next generation after the p-type cells and an n-type bifacial cell BiSoN as well as a solar module structure where the features of the aforementioned cells can be utilized in the best possible way.

Thanks to Valoe’s long-term back contact technology development, the company is one of the best positioned companies to enhance the advantages of IBC cells. Valoe views that in the near future the company’s IBC back contact cells will be utilized in several special applications e.g. in the automotive industry and in integrated solar systems for buildings.  

Valoe’s objective is to reach efficiency level of 23 % in its IBC based modules. Should Valoe meet its goals, the company’s module will be one of the most efficient modules in the world. According to the studies (ITRPV), demand for this kind of modules continues growing and the global market share of modules including IBC cells is rising at least until 2027. At the Intersolar Europe held in Germany in June 2018, Valoe presented preliminary information on the company’s new solar modules that are based on IBC cells. The modules will be introduced to the market during 2019. Valoe Chrystal Twin, the flagship model of this product family is a bifacial module whose 60-cell version generates solar power from both sides reaching capacity of ca. 450 Wp under optimal conditions. The pricing of the product enables competitive installations even in the biggest and the most competitive solar parks.  The very high module efficiency gives the product competitive edge in the European and US markets where installation costs cover bigger and bigger part of the total costs of a solar park.   

With respect to the development of solar power plants, Valoe is planning to pilot a concept for a solar power plant operating on a 24-hour basis.  An ability to provide an overall solution for implementing solar electricity will be one of Valoe’s most important assets as the company’s customers and manufacturing partners evaluate who would be the best suppliers and technology partners in the future.     

The Finnish Market Is Growing - Valoe Increases the Volume of Its Production

Although the developing markets, especially in Africa, are the most important ones for Valoe’s future, the Finnish solar electricity market is becoming more and more important for Valoe. In Finland, the solar electricity business has just started to grow. There are several very active solar energy companies and prices of solar power investments have dropped significantly. Low prices have attracted new customers who have made their decision based on the price of a solar system. However, well-informed customers rely their purchase decision on the price of produced electricity per kilowatt-hour. Estimated lifespan of a solar power plant should also be taken into account besides investment cost.

During the autumn 2017 Valoe signed a remarkable agreement with ForUs Capital Oy on delivering several solar power plants in Finland. The first power plants were delivered to the sites during the autumn 2017 and the rest of the power plants ordered so far will be delivered by the end of November 2018. As the deliveries pursuant to the contracts between ForUs Capital and Valoe are now starting to materialize Valoe has during the reporting period taken action to increase its capacity at the company’s factory in Mikkeli.

VALOE’S STRATEGY

Valoe operates in industries applying clean energy technology and provides products, applications and services worldwide. Based on Valoe’s strategy the company has the following four service and product concepts:

1. SALES AND SUPPLY OF PHOTOVOLTAIC MODULES AND SYSTEMS

Sales of modules and small photovoltaic systems are probably Valoe’s most visible but in terms of revenue potential the smallest product group. All Valoe’s PV modules are manufactured at the company’s factory in Mikkeli for the time being. They are mainly delivered to the company’s distributors and future manufacturing partners. Further, the company sells and provides solar power plants and systems to its customers in Finland and abroad. Valoe has enhanced the sale of its modules and solar systems in Finland by building sales channels for its products systematically.

Current capacity of the company’s Mikkeli factory is designed to annually produce PV modules worth max EUR 6 – 8 million at the current market prices. Based on the positive market outlook, Valoe has taken actions to increase its production capacity at its factory in Mikkeli, Finland.

Valoe’s modules have passed all the tests commonly used for solar modules and included in the test programme Valoe ordered from the German testing and research institute, Fraunhofer ISE. Having these test results, Valoe can more easily and faster get specific local certifications, if required in Valoe’s target market areas.  

2. DEVELOPMENT AND SALES OF PRODUCTION LINES AND RELATED COMPONENTS

Manufacturers operating in the developing markets are typical investors for new module manufacturing production lines. These Valoe’s potential customers are now manufacturers of traditional H-patterns modules. According to the information available to Valoe many of the manufacturers are going to start manufacturing next generation back contact modules. In most cases these customers have use their own module manufacturing recipe and need only single equipment or production lines. Valoe estimates that typical price of single equipment or a production line for back contact modules is EUR 4 – 8 million. A single production equipment costs EUR 0.3 – 1.0 million.

3. MANUFACTURING PARTNER NETWORK

The cornerstone of Valoe’s strategy is to sign manufacturing partnership agreements or technology licensing agreements with solar module manufacturers who as newcomers on the market would commit themselves to Valoe’s production technology and to using components designed for Valoe’s back contact technology. Valoe provides a partner with a turnkey delivery project; secures availability of components for a partner either by manufacturing components by itself or by procuring required components from elsewhere; and as a technology partner commits itself to minority shareholding in a manufacturing company. Manufacturing partners pursued by Valoe operate mainly on developing markets and produce solar energy modules for local and nearby markets. Value of a typical turnkey plant delivery is more than ten million euros. Valoe signed its first manufacturing partnership agreement with Ethiopian LS Corp in 2016. However, the technology delivery based on the agreement has not yet been executed as per the date of this Interim Report.

On the basis of the early stages of the Ethiopian project, Valoe has gained valuable information on costs and profitability for future solar plant deliveries and projects. Valoe’s manufacturing plant concept, equipment, technology and deliveries are standardized and with the experience gained in the first project the profitability of the following project deliveries can be expected to be good. Further, each delivered manufacturing plant or production line generates to Valoe continuous profitable business through component sales. Valoe’s objective is that only Valoe’s components are used at the manufacturing plants and production lines Valoe has delivered. The product certificates Valoe has applied for on behalf of a customer are valid only if the customer uses components approved by Valoe. Based on Valoe’s experience, the availability of the components is limited elsewhere for the moment.

Valoe’s growth strategy is based on signing new manufacturing partnership agreements. Valoe is aiming to sign at least 10 manufacturing partnership contracts in the next five years. After achieving this amount of partnerships, Valoe’s partnership network is so wide that even the biggest solar module manufacturers will not remarkably benefit from the advantage of economies of scale e.g. in raw materials purchases compared to Valoe’s network.

4. MODULE COMPONENTS SALES MAINLY TO MANUFACTURING PARTNERS

Special components, mainly for Valoe’s manufacturing partners, are the most important part in Valoe’s strategy and most remark- able in terms of net sales potential. Valoe’s first component is Conductive Back Sheet (CBS) that has been developed by Valoe and is one of the most important components in a module. One normal size module production plant using back contact technology needs approximately 300,000 – 500,000 conductive back sheets in a year when operating at full capacity. Based on current estimation, considering price level in the near future, each production line will annually require back sheets worth approximately 5 – 11 million Euros. Typically, component deliveries to manufacturing partners can commence, at the earliest, about 12 months from the signing of the manufacturing partnership agreement.

Valoe provides its manufacturing partners also with IBC cells manufactured by Valoe and other special components. According to the company’s estimation, the annual volume of cells that a full-size module factory might purchase from Valoe could be approx. EUR 25 – 30 million.  Other components may include other manufacturers’ smart components, components for storing energy and software for power management and electricity invoicing.

In the long run Valoe will include technologies related to energy storages and fuel cells as well as technologies increasing general usage of solar electricity in the company’s offering. With regard to the expertise in these technologies Valoe will cooperate with its technology partners.   

MARKET CONDITIONS

The prices of solar modules decreased by ca. 70 percent during 2010 – 2012. The prices of low- and middle-priced modules decreased by ca. 30 percent again in 2016 and 2017. Intense price competition followed by decrease in production costs of solar energy and decrease in domestic sales in China in 2018 cut prices outside China, which has led to rapid increase in solar electricity production around the world generating even stronger growth in the solar business.

The competitiveness of the solar electricity, compared to the fossil fuels and other renewable energy sources, will continue increasing faster and faster. Already during 2018, the solar electricity is estimated to be the cheapest form of electricity.

Valoe is prepared for its competitors introducing their own back contact modules and other innovations in the near future. The companies that will succeed in price competition will continue decreasing the prices of their standard products based on sales volumes and increasing production capacity and will continue worldwide price war. Valoe believes that innovative companies capable of continuously developing next generation technologies will succeed in the future business environment. Valoe trusts it will be one of these companies.

According to Valoe’s view, the prices of low-end modules will unlikely rise. Thus, Valoe is focusing on developing production technology for next generation modules. In the high-end price categories ’s price reduction has not been remarkable. Valoe views that the most favourable markets for the company are the markets with incomplete or malfunctioning electricity grid, e.g. in Africa but also in Asia and South America. Valoe trusts that it has better possibilities to succeed if it is a part of the solar electricity value chain including solar electricity storages and smart grids.

According to the information available to Valoe there is only one major automation manufacturer, besides Valoe, in the market who provides its customers with turnkey production capacity for back contact modules. Valoe is aware that besides this automation manufacturer, there are companies developing production capacity for a similar application. However, according to Valoe’s knowledge, it is the only back contact manufacturer with major existing mass production capacity for the moment.

Valoe provides production technology to all companies interested in back contact modules, e.g. large and often national solar energy projects; module subcontractors; and original equipment manufacturers. Valoe views that local production will increase significantly in the near future. However, Valoe is not aiming at becoming a local manufacturer but always seeks for a local partner and an investor.  Valoe is responsible for production technology, product quality and development. Local investors and partners are responsible for project funding as well as marketing and product sales.

COMPETITION AND VALOE’S ROADMAP

Continuously decreasing prices have brought many of the H-type module manufacturers into problems or even bankruptcy. The financial results of several world’s biggest Chinese manufacturers have turned negative. Based on the market activities it seems that the current path is coming to an end in terms of price as well as technology. Valoe does not believe in increase in prices but estimates that there will be several new and better technologies in the near future. In the technological competition, Valoe finds itself to be well positioned thanks to the research and development the company has made in back contact technology for many years.

Valoe is planning to introduce completely new and in terms of performance more competitive products in the market enabling production of solar electricity at market price. The objective can be achieved by extending the lifetime of a module and increasing a module’s efficiency.

The better efficiency of next generation IBC (Interdigitated Back Contact) cells can be utilized with Valoe’s technology. The company’s goal is, with the funding from Business Finland (prev. Tekes), to actively take part in this development and expand the company’s special component expertise in IBC cells. In April 2018 Valoe took a major step in IBC cell development as the company purchased a production line designed for cell development from Italian Megacell S.r.l.; under liquidation. Valoe trusts the company’s IBC cell is ready for mass production in 2019.

For the moment, the best price leaders in the market provide modules with a lifetime guarantee of 20 - 25 years. Valoe believes that in the near future it can manufacture modules with economic lifetime of 100 years.

During the recent years, smart modules and smart applications as well as monitoring systems have been included in small solar power plants especially. However, the smart components have not been very popular over the world mainly due to high price of the smart electronics, customers’ concern about durability of the electronics and likely increasing service need. Valoe follows closely the development of the electronics but in terms of the development of the company’s next module generations Valoe focuses on using mainly smart analog features. The advantage of smart analog features compared to digital ones is lower price and higher reliability in the field use over dozens of years.  

FINANCING

On 19 April 2017, Valoe entered into a convertible note facility agreement with Bracknor Investment (“Bracknor”) concerning a funding arrangement of up to EUR 3,000,000 in convertible loan notes (the "Convertible Notes") that will be accompanied by share subscription warrants (the "Warrants"). By the end of the reporting period Valoe has withdrawn a total of EUR 1.15 million from the Bracknor Investment’s financing commitment. Since the end of the reporting period the company has withdrawn another EUR 0.25 million from the financing facility. The detailed information and the terms of the Agreement can be found in the company’s stock exchange releases.

At the share issue ended in January 2018 Valoe collected in total approximately EUR 0.86 million new capital and the indebtedness of the company decreased in total approximately by EUR 9.3 million. Additionally, with the Convertible Bond I/2018 with subscription period ended on 25 May 2018 the company received new cash investments of EUR 0.9 million and a total of EUR 0.1 millioin was paid by setting the subscription price off against the subscribers’ receivables from the company.  As Valoe is making its strategic investments the company’s financing situation and working capital situation continue to be tight in 2018. 

During the reporting period, Valoe has increased its product development activities, which puts pressure on Valoe to find significant amount of new financing. Thus, the company will require significant amount of new financing in order to carry out its development projects as planned. In order to meet the financing needs, the company estimates it needs new capital from Bracknor Investment in 2018 out of which the company has withdrawn EUR 0.75 million by the date of this Interim Report. Further, the company contemplates to arrange a new share issue during 2018.

Additionally, the company has a product development loan from Business Finland (prev. Tekes) in the amount of EUR 4.1 million out of which the company had withdrawn a total of EUR 2.3 million by the end of the reporting period. After the end of the reporting period the company withdraw EUR 0.3 million from the loan. As per the date of this Interim Report there is still a total of EUR 1.5 million to be withdrawn. In case the Company manages to collect the intended amount of new capital in the arrangements described above, the company is able to perform its investment plan.

Considering the company’s minimum investment needs, available financing commitments as well as cashflow based on increased demand, the Board of Directors of Valoe views that the company has sufficient working capital at least for the next 12 months.

Cash flow from business operations before investments in January – June was EUR -1.3 million (EUR -1.8 million). Trade receivables at the end of the reporting period were EUR 0.2 million (EUR 0.02 million). Net financial items amounted to EUR 0.8 million (EUR 1.4 million). At the end of June, the equity ratio of Valoe Group was -55 percent (-103.8 %) and equity per share was EUR -0.43 (EUR -2.59). The equity ratio including capital loans was -3.2 percent (-11.7 %). At the end of the reporting period, the Group’s liquid assets totaled EUR 0.09 million.

Valoe’s financial and other risks have been handled in the item “Risk management, Risks and Uncertainties” of this Annual Report.

RESEARCH AND DEVELOPMENT

Valoe has boosted its research and development significantly. In 2017, Valoe’s focus was on the development project relating to cell development and optimization, funded by Business Finland (prev. Tekes). The project made good progress during the reporting period. Valoe develops other special components for solar modules, too, and monitors closely the projects of its technology partners aiming at developing technologies increasing utilization of solar energy.

The company’s another ambitious R&D objective is to develop a module with a lifespan of more than 100 years. Today the company expects its modules to operate ca. 40 years that is significantly longer than the lifespan of the modules of most of Valoe’s competitors. Valoes views that in field of green energy production extending products’ economic life cycle should be one of the most important objectives of development. The lifetime of a power plant has a direct effect on the price of produced electricity. The current market prices cannot be achieved by reducing only module prices, at least in the near future. However, it is possible to meet the objective by extending lifetime of a power plant, increasing efficiency and simultaneously keeping capital investments at a reasonable level.   

The energy produced by Valoe’s solar modules shall be the greenest as well as the cheapest energy in the market.

Valoe’s other research and development has mainly been concentrated on developing the production line concept. Equipment and machinery needed in automated module manufacturing process will increasingly be based on Valoe’s own innovations and be designed by Valoe. Valoe is aiming at protecting its innovations in all important geographical areas.

In terms of research and development, the major events during the reporting period and other major events have been described in more detail in the Managing Director’s Report in this Interim Report.

The Group’s research and development costs during the reporting period amounted to EUR 0.6 million (EUR 0.8 million) or 104.3 (368.4) percent of net sales.

INVESTMENTS

Gross investments in the continuing operations during January –June period amounted to EUR 2.0 million (EUR 0.1 million). The investments on the reporting period as well as on the corresponding period were mainly in development costs.

PERSONNEL

At the end of June 2018 the Group employed 21 (17) people, who all worked in Finland. During the reporting period the Group’s salaries and fees totaled EUR 0.6 million (EUR 0.6 million).

SHARES AND SHAREHOLDERS

At the end of the reporting period Valoe’s share capital amounted to EUR 80,000.00 and the number of shares was 15,490,513. The company has one series of shares, which confer equal rights in the company. On 30 June 2018 Valoe had in total 964,596 treasury shares.

The company had a total of 7,410 shareholders at the end of June 2018, and 12.99 percent of the shares were owned by foreigners. The ten largest shareholders held 74.53 percent of the company’s shares on 30 June 2018.

The largest shareholders on 30 June 2018

The members of the Board of Directors and the President and CEO, either directly or through companies under their control, held a total of 4,103,700 shares in the company on 30 June 2018, representing about 26.5 percent of the company’s shares. Additionally, the members of the Board of Directors and the President and CEO held a total of 377,500 options connected to the stock option scheme 2015. At the end of the period Iikka Savisalo, Valoe’s Managing Director, either directly or through companies under his control, held a total of 4,067,688 shares in the company and 132,500 options connected to the stock option scheme 2015.

The price of Valoe’s share varied between EUR 0.51 and 1.35 during the January – June period. The average price was EUR 0.78 and the closing price at the end of June EUR 0.60. A total of 3.9 million Valoe shares were traded at a value of EUR 3.0 million during the January – June period. The company’s market capitalization at the end of June stood at EUR 9.3 million.

SHARE ISSUE AUTHORIZATIONS IN FORCE

The Annual General Meeting 2018 resolved to authorize the Board of Directors ov Valoe to decide on a share issue with and/or without payment, either in one or in several occasions, including right to resolve on option rights and other rights entitling to shares pursuant to the Chapter 10, Section 1 of the Finnish Companies Act so that the number of new shares issued based on the authorization or number of shares issued based on option rights and other special rights entitling to the shares pursuant to the Chapter 10, Section 1 of the Finnish companies Act, would equal to the total maximum amount of 49,000,000 shares. The authorization may be used for important arrangements from the company’s point of view e.g. to strengthen the capital structure, to finance investments, for acquisitions and business transactions or other business arrangements, or to expand ownership structure, or for incentive plans, or for other purposes resolved by the Board involving a weighty financial reason for issuing shares or option rights or special rights entitling to shares pursuant to the Chapter 10, Section 1 of the Finnish Companies Act. The share issue may be executed by deviating from the shareholders’ pre-emptive subscription right provided the company has a weighty financial reason for that. The authorization is in force until 30 June 2019.

THE MAJOR EVENTS DURING THE REPORTING PERIOD

12 April 2018: VALOE CORPORATION RECEIVED A CA. EUR 0.45 MILLION ORDER FOR SOLAR POWER PLANTS. THE DELIVERY IS PART OF THE FRAMEWORK AGREEMENT WITH FORUS CAPITAL OY PUBLISHED ON  AUGUST 2017

On 7 August 2017 Valoe Corporation (”Valoe”) disclosed that it has signed a framework agreement with ForUs Capital Oy on delivering solar power plants worth a total of ca. EUR 4 million to Finland. ForUs Capital sells electricity generated by the solar power plants to its own partners. Under the framework agreement Valoe has previously received orders for solar power plants totaling ca. EUR 1.15 million. The company has published releases on the orders in August and December 2017. Part of the solar power plants have already been delivered and the rest of the deliveries will be made by the end of August 2018.

Valoe has signed a new delivery contract under the framework agreement worth a total of ca. EUR 0.45 million. Pursuant to the new contract Valoe will deliver the solar power plants to the sites owned by the City of Hanko and a property investment company called VVT Kiinteistösijoitus Oy by the end of November 2018. In the property owned by VVT Kiinteistösijoitus Oy one of the electricity consumers is XXL Sports Oy.

Other deliveries under the framework agreement are subject to governmental investment aid and securing final financing.

19 April 2018: VALOE ISSUES A CONVERTIBLE BOND

In order to strengthen Valoe Corporation's capital structure the company issues a convertible bond of MEUR 1.0 at the most. The convertible bond can be converted to max. 1,818,180 new shares of the company. The subscription price is EUR 0.55 per share.

The convertible bond is issued in deviation from the shareholders' pre-emptive subscription rights to the parties separately approved by the Board of Directors.

The minimum amount of subscription of the convertible bond shall be EUR 100,000.00 entitling the convertible bond holder to subscribe for 181,818 new shares of the company.

The loan period shall commence on the payment date and expire on 31 May 2021 on which date the convertible bond shall expire to be repayable in its entirety in accordance with the terms of the loan. The subscription period of the shares under the convertible bond shall begin from the subscription of the convertible bond and expire on 31 May 2021. 

The subscription period of the convertible bond shall expire on 11 May 2018 at 6:00 p.m. The board of directors of the company has the right to approve the subscriptions at any time during the subscription period. In the event the convertible bond shall be oversubscribed, the board of directors of the company shall resolve on the allocation between the subscribers.  The board of directors of the company has the right to discontinue the subscription period of the convertible bond at any time. The board of directors shall also have the right to decide on extending the subscription period.

The shareholders' pre-emptive subscription rights are deviated from in connection with the issue of convertible bond to secure financing required to strengthen the capital structure of the company cost effectively and considering the size of the financing. Thus, there is from the company's point of view a weighty financial reason to issue the special rights.

The company has one (1) class of shares.

20 April 2018: VALOE CORPORATION LAUNCHED A NEW SOLAR MODULE ON THE MARKET; INCREASES ITS PRODUCTION CAPACITY AND RECRUITS NEW PERSONNEL AT ITS FACTORY IN MIKKELI

Valoe Corporation introduced a new solar module, Chrome II, on the market. Valoe’s objective to develop a module with a lifespan of more than 100 years has been one of the cornerstones of desinging the new module. Chrome II is a glass-glass module with Valoe’s own MWT (Metal Wrap Through) cell.

During the last few months Valoe’s development has been focused on developing the company’s own polycrystalline cell and glass-glass module structure.  The new MWT cell has higher efficiency compared to the cells Valoe previously used. In the current market environment the availability of back contact cells has been limited and there has been a lot of variation in the quality and prices of the cells. Having own cells Valoe can keep better control of their quality, availablity and pricing. The new cell technology is implemented in the Chrome II modules. Further, the new cell technology improves the economic efficiency of module production. Valoe’s objective is to provide its customers with even more efficient and more economic solar systems.  

Valoe views that the solar energy market is growing fast in Finland too. The advance sales of the new Chrome II module has been good. In order to meet the growing demand Valoe is going to recruit 14 persons to Mikkeli.

20 April 2018: SUBSCRIPTION OF NEW SHARES IN VALOE CORPORATION

The Board of Directors of Valoe Corporation (the "Company") has resolved on 20 April 2018 to subscribe in total 1,500,000 new shares ("Subscribed Shares") in the share issue without consideration resolved by the Company on 16 October 2017.

The share subscription is conducted in order to implement a part of the financing arrangement between the Company and Bracknor Investment approved on 19 April 2017. The new shares may be used solely for the implementation of the financing arrangement so that the Company may issue the new shares held by it to Bracknor Investment when Bracknor investment subscribes shares on the basis of the convertible loans and warrants granted to it under the said financing arrangement. To the extent it is not necessary to issue new shares subscribed by the Company to Bracknor Investment, the Company shall annul the shares.

The new shares are of the same class as the Company’s other shares and entitle to the same shareholder rights as the Company’s old shares after their registration.

After the registration of the Subscribed Shares in the trade register, the total number of the shares in the Company is 15,490,513 shares of which 1,544,413 shares are held by the Company.

The Subscribed Shares are estimated to be registered in the trade register approximately on 25 April 2018 and the Company shall apply for the admission of the Subscribed Shares to public trading on the stock exchange list of Nasdaq Helsinki Ltd approximately on 26 April 2018.

23 April 2018: VALOE CORPORATION PURCHASES A SOLAR CELL PRODUCTION LINE. VALOE SIGNED A COOPERATION AGREEMENT WITH A LITHUANIAN COMPANY, SOLI TEK CELLS

Valoe purchases a solar cell production line from Italian Megacell S.r.l.; under liquidation.

Valoe’s objective is to use the cell production line for developing a solar cell that would leverage the benefits and qualities of Valoe’s own back contact module in the best possible way.  The production line is designed for developing high-efficient n-type silicon cells. Valoe is aiming at utilizing the production line for developing a next generation IBC (Interdigitated Back Contact) cell. An IBC cell’s efficiency and other features related to electricity generation are remarkably better compared to polycrystalline and monocrystalline cells commonly available on the market at the moment. The acquisition of the cell production line complements and accelerates Valoe’s solar cell development project funded by Business Finland (prev. Tekes).

Valoe has signed a cooperation agreement with Soli Tek Cells JSC (”SoliTek”). SoliTek is a solar cell manufacturer based in Lithuania. It belongs to the BOD Group which has both a solar cell plant and a module plant in Vilnius, Lithuania.

The cell production line Valoe purchased from Italy will be transferred to SoliTek’s premises, next to SoliTek’s cell production line.  The development work can be started much sooner as the required infrastructure is ready. Part of Megacell’s research and development equipment will be transferred to Valoe’s factory in Mikkeli where the company runs its solar module production.

3 May 2018: VALOE HAS SIGNED A DEVELOPMENT AND TECHNOLOGY TRANSFER AGREEMENT WITH ISC KONSTANZ

Valoe Corporation has signed a development and technology transfer agreement with International Solar Energy Research Center Konstanz e.V. based in Germany (ISC Konstanz).

The objective of the cooperation and technology transfer is to develop, for Valoe’s modules, an IBC cell that is based on n-type silicon cell BiSoN and IBC technology ZEBRA developed by ISC Konstanz, and a bifacial cell also based on the same technology as well as a solar module structure where the features of these cells can be utilized in the best possible way.

Additionally, Valoe and ISC Konstanz have agreed on licensing the aforementioned cell types to Valoe and its future manufacturing partners.

Having an n-type silicon cell and especially an IBC cell enables us to manufacture a solar module with significantly better qualities in terms of electricity generation compared to polycrystalline and monocrystalline cells, commonly available on the market at the moment. For example, ZEBRA based IBC cells can reach efficiency of more than 23 % which can in cell module produce more electricity than conventional 400 kWp standard module.

The features of a next generation IBC cell can be best utilized in back contact modules Valoe has been developing for several years unlike other module manufacturers.

Dr. Radovan Kopecek, CTO at ISC Konstanz and Managing Director of Advanced Cell Concepts: “We are very pleased to continue assisting you in developing ZEBRA further. Together with Valoe´s back contact module technology such a module using ZEBRA is very powerful at low costs. Valoe has, as one of the first companies in the world, developed a mass scale module manufacturing technology which makes the implementation of back contact solar cells into the module extremely simple, cost effective and with high yield. Further, Valoe’s technology makes it possible to use thinner solar cells. The PV market is now ready for such modules build on IBC cell technology for many new applications.”

On 23 April 2018 Valoe disclosed that it purchased a cell production line from Megacell S.r.l., under liquidation, and is going to transfer part of the line to Soli Tek Cells’ premises in Lithuania. The cell production line design was modified by ISC Konstanz to produce n-PERT cells. The production line has been previously used for commercialising the very BiSoN and ZEBRA technologies. Together with Soli Tek Cells’ existing production equipment and infrastructure one of the world’s most advanced cell production plant is available for Valoe’s use. Valoe believes it can provide the company’s partners with one of the world’s best module production recipe in terms of power and cost efficiency as the well acknowledged know-how and immaterial rights of ISC Konstanz are now available for Valoe.

Valoe’s objective is to have new IBC cells based modules ready for production during 2019. According to Valoe’s initial strategy the company’s modules will be manufactured by its manufacturing partners as Valoe continues its research and development as well as its own production at the company’s factory in Mikkeli at the capacity required to meet the demand in Finland.

28 April 2018: THE RESULT OF THE CONVERTIBLE BOND I /2018 OF VALOE CORPORATION

Valoe Corporation’s Convertible Bond I/2018 was fully subscribed and the company received subscriptions of EUR 1.00 million for the Convertible Bond I/2018.  During the subscription period of the Convertible Bond new investments of EUR 0.9 million was paid in cash.  Out of the subscriptions, a total of EUR 0.1 million was paid by setting the subscription price off against the subscribers’ receivables from the company.

The Board of Directors of Valoe has approved all subscriptions for the Convertible Bond.

One loan share of EUR 50.000 pursuant to the Promissory Note entitles the Promissory Note Holder to subscribe for 90.909 new shares. Based on the subscriptions made pursuant to the loan shares Valoe shall issue a maximum amount of 1,818,180 new Valoe shares. The loan period and the conversion period expire on 31 May 2021. 

8 June 2018: RESOLUTIONS AT VALOE'S ANNUAL GENERAL MEETING AND ORGANIZING OF THE BOARD OF DIRECTORS

Valoe Corporation's Annual General Meeting was held on 8 June 2018 in Mikkeli, Finland. The AGM approved the 2017 financial statements and discharged the members of the Board and the President and CEO from liability for the financial year 2017. According to the Board' proposal, it was resolved that no dividend for the financial year 2017 will be distributed. It was also resolved that the loss for the financial period that ended on 31 December 2017 will be entered in retained earnings.

It was decided that the Board of Directors will have three members. Industrial counsellor Hannu Savisalo, Ville Parpola and Iikka Savisalo continue as old Board members in the Board of Directors.

At its organizing meeting following the Annual General Meeting, Valoe's Board of Directors elected Hannu Savisalo as the Chairman and Ville Parpola as the Vice Chairman of the Board. The Board of Directors decided, due to the scope of the company's business, that it is not necessary to establish any separate Board committees.

The Annual General Meeting resolved that an annual remuneration of EUR 40,000 will be paid to the Chairman and to the Vice Chairman of the Board, and EUR 30,000 to the members of the Board of Directors. Further, travel costs will be paid to the Board members pursuant to the company’s travel policy.

Auditus Tilintarkastus Oy was elected as the company’s auditor and Heidi Pirttijoki, APA, as the responsible auditor.

The General Meeting resolved to authorize the Board of Directors to decide on a share issue with and/or without payment, either in one or in several occasions, including right to resolve on option rights and other rights entitling to shares pursuant to the Chapter 10, Section 1 of the Finnish Companies Act so that the number of new shares issued based on the authorization or number of shares issued based on option rights and other special rights entitling to the shares pursuant to the Chapter 10, Section 1 of the Finnish companies Act, would equal to the total maximum amount of 49,000,000 shares. The authorization may be used for important arrangements from the company’s point of view e.g. to strengthen the capital structure, to finance investments, for acquisitions and business transactions or other business arrangements, or to expand ownership structure, or for incentive plans, or for other purposes resolved by the Board involving a weighty financial reason for issuing shares or option rights or special rights entitling to shares pursuant to the Chapter 10, Section 1 of the Finnish Companies Act. The share issue may be executed by deviating from the shareholders' pre-emptive subscription right provided the company has a weighty financial reason for that. The authorization is in force until 30 June 2019.

THE MAJOR EVENTS AFTER THE REPORTING PERIOD

13 August 2018: VALOE CORPORATION NEGOTIATES ON REARRANGING THE OVERDUE CONVERTIBLE BOND 1/2015

The loan period of Valoe Corporation’s ("Valoe") Convertible Bond 1/2015, a capital loan, has expired on 1 August 2018. Considering the company’s current equity situation, the Convertible Loan cannot be repaid in accordance with the provisions regarding capital loans in the Finnish Companies Act. The overdue principal of the Convertible Bond 1/2015 totals ca. EUR 2.8 million out of which ca. 0.9 million is lent from the related parties and ca. EUR 1.9 million from other parties. Valoe negotiates on rearranging the Convertible Bond 1/2015 with the lenders.

RISK MANAGEMENT, RISKS AND UNCERTAINTIES

Valoe’s Board of Directors is responsible for the control of the company’s accounts and finances. The Board is responsible for internal control, while the President and CEO handles the practical arrangement and monitors the efficiency of internal control. Business management and control are taken care of using a Group-wide reporting and forecasting system.

The purpose of risk management is to ensure that any significant business risks are identified and monitored appropriately. The company’s business and financial risks are managed centrally by the Group’s financial department, and reports on risks are presented to the Board of Directors as necessary.

Due to the small size of the company and its business operations, Valoe does not have an internal auditing organization or an audit committee.

Pursuant to the estimates available to the company, the company’s financing situation and working capital situation continue to be tight in 2018. Considering the company’s minimum investment needs, available financing commitments as well as cashflow based on increased demand, the Board of Directors of Valoe views that the company has sufficient working capital at least for the next 12 months.

On 31 December 2017 the company had financing commitment in the amount of EUR 2.35 million from Bracknor Investment for the purposes of enhancing its cash position. Valoe cannot withdraw new capital from the commitment at once but only during longer time period. In order to meet the company’s financing needs Valoe estimates to withdraw in total EUR 2.0 million from the Bracknor Investment’s financing facility during 2018 out of which the company has withdrawn EUR 0.75 million during 2018, by the date of this Interim Report.

In order to cover its strategic investments, the company is planning to arrange a new share issue during 2018. However, the timing of a share issue is not yet decided. Additionally, the realization and the outcome of a share issue are not certain.

Valoe has a product development loan from Business Finland (prev. Tekes) in the amount of EUR 4.1 million out of which the company had withdrawn a total of EUR 2.3 million by the end of the reporting period. Since the end of the reporting period the company has withdrawn another EUR 0.3 million. As per the date of this Interim Report there is still a total of EUR 1.5 million to be withdrawn. In case the Company manages to collect the intended amount of new capital in the arrangements described above, the company is able to perform its investment plan.

Valoe’s objective is to achieve a strong market position as a provider of, in various geographical areas, locally produced high-quality photovoltaic modules. Achievement of the objectives involves risks. Even though Valoe's strategy and objectives are based on market knowledge and technical surveys, the risks are significant and it is not certain if the company reaches all or part of the targets set for it. Valoe's future outlook will be highly dependent on the company's ability to reach the targeted market position in the global photovoltaic module market as well as on the company's financing.

Valoe’s customer has ongoing negotiations on arranging financing for a factory delivery in Asia worth EUR 26.5 million. The realization of the project involves significant risks. The financing negotiations are ongoing and it is not yet certain if the project or even a part of it will be realized.

The module manufacturing plant order from Ethiopia involves business, financial, schedule and country risks that are typical of international equipment sales. The country risks include also slow decision process for financing arrangements. The payments relating to the project have not yet begun despite the binding financing agreements. However, Valoe’s customer, LS Corp, has commenced to withdraw some loan in local currency based on the abovementioned financial agreements and is building premises for the module manufacturing plant. The company follows very closely how the situation develops in Ethiopia and tries to support the customer in its negotiations by being present as often as possible.

The Agreement signed with ForUs Capital involves risks out of which the most remarkable risk relates to securing financing for the projects involved.

The developing markets can be unpredictable and operation in the markets involves many risks. When assessing the company, one shall be aware of the fact that the major part of the company’s operations take place in high-risk environment and consider carefully the effects of the risks on the investor’s own investment strategy.

The certain statements in this Interim Report and especially the non-binding estimations in Valoe’s strategy are targeted to the future and based on the management’s current estimations. They involve risks and uncertainty by their nature and may be affected by changes in general financial situation or business environment.

MARKET OUTLOOK

Valoe will not disclose financial guidance for the financial year 2018.

In Mikkeli, 29 August 2018

Valoe Corporation

Board of Directors

For more information:
CEO Iikka Savisalo, Valoe Corporation
Tel. +358 40 5216082
email: iikka.savisalo@valoe.com