Report by the Supervisory Board

Report by the Supervisory Board on the 2016 Fiscal Year

Dear Shareholders,


The 2016 fiscal year was a year of two halves for SolarWorld AG: In the first half of the year, the company posted a good performance and even achieved a positive operating result in the second quarter. However, the company did not continue this trend in the second half of the year. From mid-year, the international market for solar power products was hit unexpectedly by a sharp drop in prices, triggered by excess capacity in the Chinese domestic market. The resulting market distortions had a negative impact on the development of shipments, revenue, earnings and liquidity of the SolarWorld group. Although the company increased its shipments significantly and its consolidated revenue moderately, it did not achieve its forecast targets.

To adjust to the difficult market conditions and maintain competitiveness, the Management Board of SolarWorld AG implemented short-term operational measures intended to cut costs and generate liquidity. In addition, to complement these steps, a comprehensive strategic focusing plan for various core areas of the group was devised, which will be implemented from 2017 onward.

The Supervisory Board would like to thank the SolarWorld staff and management for their extraordinary effort and loyalty to the company.

Supervisory Activities of the Supervisory Board

The Supervisory Board again accompanied the Management Board in an advisory capacity during the past fiscal year and supervised its activities on the basis of written and verbal management reports. In addition, the chairman of the Supervisory Board maintained regular contact with the Management Board. The Management Board regularly informed the Supervisory Board about the following subjects: business policy; all issues relevant to the company's planning, including the financial, investment and HR planning; course of business; ongoing revenue, earnings and liquidity development; economic situation of the company and group, including risk situation and risk management; compliance within the group; strategic realignment of the group within the framework of the focusing process developed and implemented by the Management Board; as well as important decisions and transactions relating to the company and group. Reporting was made as and when appropriate, i.e. when specifically requested by the Supervisory Board, as well as regularly according to the rules of procedure issued by the Supervisory Board for the Management Board. The Supervisory Board also consulted external advisors, where necessary. As required by law as well as by the Articles of Association and the rules of procedure for the Management Board, the Supervisory Board was involved in all decisions of fundamental importance to the company.

Composition of the Supervisory Board

Since the Annual General Meeting (AGM) on June 2, 2015, the Supervisory Board of SolarWorld AG, pursuant to Section 97 German Stock Corporation Act (AktG) and the provisions of the German Co-determination Act, has comprised a total of twelve members – six shareholder representatives elected by the AGM plus six employee representatives.
The AGM of June 2, 2015, elected the shareholder representatives named below for a period of five years, i.e. until the conclusion of the AGM which decides on the 2019 fiscal year: Heiner Eichermüller, Dr. Khalid Klefeekh Al Hajri, Faisal M. Al Suwaidi, Dr. Andreas Pleßke, Jürgen Wild and Dr. Georg Gansen.
On November 28, 2016, Faisal M. Al Suwaidi left the Supervisory Board at his own request. The competent district court (Amtsgericht) appointed Daria Revina as new member of the Supervisory Board, effective November 29, 2016. Ms. Revina is currently working as Senior Business Support Specialist to the chairman and CEO of Qatar Solar Technologies and has more than twelve years' experience in the fields of energy, project development and government relations.
The six employee representatives Wolfgang Lemb, Gerald Voigt, Dr. Ute Mareck, Olaf Zirr, Albrecht Handke and Alexander Richter have been in office since the results of the elections were officially announced by the central election committee on October 5, 2015.
Dr. Georg Gansen is Chairman of the Supervisory Board and Gerald Voigt is its Deputy Chairman. 

Supervisory Board Meetings

In fulfilling its obligations, the Supervisory Board held a total of eleven meetings during the 2016 reporting period – on January 12, January 19, February 25, March 16, May 2, June 7, August 19, September 12, September 28, November 10 and December 22. The Supervisory Board meetings on January 19, March 16, September 12, September 28 and December 22 were held as telephone conferences. In addition, the Management Board regularly informed the Supervisory Board by telephone of any current issues. They also phoned ad hoc in preparation for or to follow up Supervisory Board meetings. All members of the Supervisory Board participated in all the respective board meetings, with the exception of Dr. Khalid Klefeekh Al Hajri on January 19, February 25, June 7 and September 12, Faisal M. Al Suwaidi on January 12 and 19, February 25, March 16, May 2, June 7 and November 10, Wolfgang Lemb on January 12, June 7 and September 28, Dr. Andreas Pleßke on January 19 and August 19, Alexander Richter on May 2, Gerald Voigt on January 19 and on September 28 and Jürgen Wild on September 28. In 2016, Mr. Al Suwaidi was increasingly involved in his main occupation as President of Research and Development at Qatar Foundation for Education, Science and Community Development and was therefore only able to attend less than half of the Supervisory Board meetings in the reporting period. Ultimately, this led to his decision to resign as a member of the Supervisory Board of SolarWorld AG at the end of November 2016.

Advisory and Auditing Priorities

The ongoing revenue, earnings and liquidity development as well as short- and medium-term liquidity forecasts for the company were explained to the Supervisory Board at all meetings and then discussed with the Management Board. These topics were dealt with in particular depth during monthly financial reporting conference calls with the Chief Financial Officer. The focus of the advisory and supervisory activities during the reporting period was on improving production processes, coordinating production and sales processes and the HR measures necessitated by the decline in revenue in the second half of the year. Other topics included developments in the individual national sales markets, the legal dispute with the U.S. silicon supplier Hemlock, the company's capital resources and the contractually agreed covenants.

On February 25, 2016, in the presence of the auditors, the Supervisory Board discussed the 2015 annual financial statements, the auditors' report and the auditors' mandate for the 2016 fiscal year.

Furthermore, in 2016 the audit committee of the Supervisory Board considered the recommendation for the appointment of the auditor for the 2017 fiscal year and had a call for tenders issued for this purpose.

Main topics in the individual Supervisory Board meetings

Topics prioritized in individual Supervisory Board meetings were:

On January 12, the budget for the 2016 fiscal year was presented and discussed.

The telephone conference on January 19 served the further analysis and subsequent approval of the budget for the 2016 fiscal year.

At the meeting on February 25, the draft versions of the consolidated financial statements and the annual financial statements for the 2015 fiscal year as well as the respective management reports were discussed with the auditor. BDO AG Wirtschaftsprüfungsgesellschaft, Bonn, presented the preliminary results of their audit and discussed these with the Supervisory Board. Another topic at this Supervisory Board meeting was the reorganization of the Management Board's responsibilities.

During the telephone conference on March 16, the annual financial statements for the 2015 fiscal year and the corresponding consolidated financial statements were adopted. The Supervisory Board also agreed to recommend that the AGM should mandate BDO AG Wirtschaftsprüfungsgesellschaft, Bonn, with the audit for the 2016 fiscal year.

The meeting on May 2 was designated for a discussion of the results for the first quarter of 2016. In addition, the Management Board informed about the status of the corporate audit and the joint venture Qatar Solar Technologies Q.S.C. The Supervisory Board furthermore decided on the reorganization of responsibilities on the Management Board and approved the sale of a stake in a real estate project.

The Supervisory Board meeting on June 7 was held immediately after the AGM of SolarWorld AG and served to follow up the points that were discussed and decided in that meeting. In addition, the Supervisory Board received report on the internal compliance organization and its findings.

At a further meeting on August 19, the results for the second quarter of 2016 were discussed. The Supervisory Board also gave its attention to the worsened national and international market situation and the resulting risk of breaching applicable covenants. The Supervisory Board obtained information about the personnel development in the group and discussed in which areas external experts could usefully support the Management Board.

The telephone conference on September 12 served to discuss the sale of a solar park from the company's asset portfolio.

The telephone conferences on September 28 and October 27 focused in each case on the development of revenue and profit or loss and the company's liquidity position in the wake of declining prices across the solar market. The Management Board and Supervisory Board discussed the planned counter-measures.

At the meeting on November 10, the Supervisory Board reviewed the results for the third quarter of 2016 along with the short-term measures to improve liquidity and reduce costs in the group. It also discussed the call for tenders that had been issued for the auditors' mandate for the coming fiscal years as well as the audit committee's recommendation regarding the mandate for 2017. The Management Board explained its long-term HR policy plans.

In the telephone conference on December 22, the Supervisory Board reviewed the main points of the “SolarWorld 2019” strategy with regard to the focusing of the business model and necessary HR measures.

 

Committees

Following expansion of the Supervisory Board from six to twelve members, a number of new committees were installed: business committee, human resources committee, mediation committee in accordance with Section 27 (3) German Co-determination Act, audit committee, technology and development committee and nomination committee.

The business committee is responsible for preparing Supervisory Board meetings and taking decisions in urgent matters. The human resources committee deals with Management Board matters. The mediation committee fulfills tasks assigned on the basis of Section 27 (3) Co-determination Act. The audit committee focuses on monitoring accounting, controlling, risk management and auditing. It is its responsibility to provide the Supervisory Board with a substantiated recommendation for the appointment of the auditor. As stated in the declaration of compliance with the German Corporate Governance Code (GCGC), no individual member of the Supervisory Board fulfills all the requirements of an expert in the field of accounting and internal control processes. Where appropriate, the Supervisory Board and the audit committee consult external experts to support their members in the execution of their duties. The technology and development committee deals with production technology, research and development and supply chain management. In the 2016 fiscal year, it dealt with i. a. the technology plan, production plans and development of the production sites, particularly Hillsboro, United States. The nomination committee proposes, if and when required, candidates for the Supervisory Board to the AGM.

Advisory and Auditing Activities on the 2016 Annual and Consolidated Financial Statements

The AGM appointed BDO AG Wirtschaftsprüfungsgesellschaft to audit the annual financial statements and consolidated financial statements of SolarWorld AG for the 2016 fiscal year as well as the management report for the fiscal year from January 1 to December 31, 2016. The Supervisory Board subsequently discussed and assigned the audit mandate.

The auditors reviewed the 2016 SolarWorld AG management report and the annual financial statements prepared according to the German Commercial Code (HGB) accounting rules and awarded the unqualified audit opinion. This status was also awarded to the consolidated financial statements and group management report prepared according to IFRS accounting rules. The auditors confirmed that the consolidated financial statements complied with the conditions required for exemption from preparing financial statements under German law. In addition, they also checked the early risk detection system at SolarWorld AG and determined that it fulfills the management responsibilities stipulated in the German Control and Transparency in Business Act (KonTraG).

The financial statements and auditor’s reports were presented to the Supervisory Board in good time. They were discussed in detail and checked in the presence of the auditor on February 25, 2017. The auditor reported on the audit procedure and the essential findings of the audit. The Supervisory Board recorded notes from the audit reports and discussed these with the Management Board.

On examination of the annual financial statements as at December 31, 2016, with the management report and the consolidated financial statements with the group management report, the Supervisory Board found no grounds for objection. The Supervisory Board accepted the auditors’ opinion and approved the respective documents on March 16, 2017. The annual financial statements of SolarWorld AG are thereby adopted.

Declaration of Compliance and Corporate Governance

Corporate governance plays a major role for the Supervisory Board. It presents its report on the topic together with the Management Board in the Corporate Governance Report, which is part of the Group Management Report.

In November 2016, the Supervisory Board and Management Board issued the annual declaration of compliance with the GCGC and published it on the company’s website.

The remuneration of Supervisory Board members is published in the Remuneration Report, which is part of the Group Management Report.

The Supervisory Board identified no conflicts of interest among its members in the 2016 fiscal year.
An examination of efficiency of the Supervisory Board as recommended by the GCGC was last performed during the 2013 fiscal year. No further efficiency review has been conducted since then due to changes in the composition of the Supervisory Board in 2014, 2015 and 2016. An examination of efficiency is on the agenda for the regular Supervisory Board meeting in May 2017.

Changes in the Management Board and the Supervisory Board

There were no personnel changes in the Management Board in 2016. The appointment of Colette Rückert-Hennen as a member of the Management Board of SolarWorld AG was extended until June 30, 2020. Jürgen Stein's contract as Chief Product Officer was extended until April 30, 2020. The conditions of employment for Management Board members are in line with the tasks at hand and the market and are in a balanced relation to the employment conditions of the other Management Board members.

Effective November 28, 2016, Faisal M. Al Suwaidi left the Supervisory Board at his own request. Effective November 29, 2016, Ms. Daria Revina was appointed by court order as new Supervisory Board member, provisionally until the next AGM of SolarWorld AG; which is expected to be held on July 3, 2017.

 

Bonn, March 22, 2017

The Supervisory Board

Dr. Georg Gansen
Chairman