SINGULUS
TECHNOLOGIES

Annual Report 2017

REPORT OF THE SUPERVISORY BOARD

TO THE SHAREHOLDERS OF SINGULUS TECHNOLOGIES AG

Dear shareholders,
The 2017 fiscal year was a challenging year for our Company, but one in which we managed to secure the financial headroom we need for SINGULUS TECHNOLOGIES AG and strengthen our leading position on the international competitive landscape in key areas.


SINGULUS TECHNOLOGIES AG is a provider of machinery and production facilities in the areas of vacuum thin-film deposition and plasma deposition, wet-chemical processes and thermal process technologies.

We were very successful in the Solar segment in the 2017 fiscal year. We have now established ourselves as the leading provider of the various machines used to manufacture thin-film solar modules based on CIGS technology. We are also gradually working towards a leading competitive position in the international market for high-efficiency crystalline solar cells. We use our experience in the fields of vacuum coating, plasma technology, wet-chemical and thermal process technologies to develop clear competitive advantages for our systems and offer these advantages to our customers. We believe that this will provide considerable growth potential for our Company in the medium term in an energy market which is experiencing growth across the globe and is focusing increasingly on photovoltaics as the energy resource of the future.

The strategy pursued by SINGULUS TECHNOLOGIES aims to exploit our core competences in process technology and engineering in order to tap into further markets by developing innovative machinery and system concepts.



We will be making targeted use of our core competences in surface modification and improvement in production facilities for the semiconductor industry, consumer goods, e.g. cosmetics, and the medical technology sector. We have developed solutions, are launching them on the markets and will be developing further innovative concepts and systems. Initial successes confirm that we are on the right track with our strategy and approach. This will increasingly translate into a competitive edge for us over the next few years, ensuring our success in the long term.

You will find further details on our Company's development in the management report.

The report of the Supervisory Board provides you with information on the focal points of the Supervisory Board’s work over the last fiscal year.

In the 2017 fiscal year, the Supervisory Board performed all of the duties for which it is responsible by law and in accordance with the Articles of Association and complied with the requirements set out in the rules of procedure for the Supervisory Board. The Supervisory Board provided regular advice to the Executive Board regarding the management of SINGULUS TECHNOLOGIES AG and monitored the work performed by the Executive Board on an ongoing basis. The Executive Board of SINGULUS TECHNOLOGIES AG involved the Supervisory Board in all key decisions and processes early on and informed if of all relevant transactions.

The Supervisory Board did not raise any objections regarding the management of the Company by the Executive Board of SINGULUS TECHNOLOGIES AG in the 2017 fiscal year at any time.

There were no changes in the composition of the Supervisory Board in the 2017 fiscal year.

SUPERVISORY BOARD MEETINGS IN 2017

A total of ten meetings of the Supervisory Board were held in the 2017 fiscal year: five face-to-face meetings and five conference calls. All members of the Supervisory Board participated in the following meetings.

  • Meeting on January 26, 2017
  • Conference call on March 6, 2017
  • Meeting on March 14, 2017
  • Conference call on May 10, 2017
  • Meeting on June 19, 2017
  • Conference call on August 8, 2017
  • Meeting on September 28, 2017
  • Conference call on November 6, 2017
  • Meeting on November 29, 2017
  • Conference call on December 6, 2017

ADVICE TO AND SUPERVISION OF THE EXECUTIVE BOARD BY THE SUPERVISORY BOARD


At its meetings, the Supervisory Board took a close look at business developments within SINGULUS TECHNOLOGIES AG in the 2017 fiscal year. The reports submitted by the Executive Board were based on key indicators showing developments in order intake, revenue and earnings. A particular emphasis was placed on ongoing reporting on the liquidity situation and equity development. Actual business developments in 2017 were compared against the Company's budget targets. All deviations were documented and any measures required to make corrections were discussed with the Executive Board. Further written and oral reports provided by the Executive Board, other employees, the Company's auditors and external consultants rounded off the reporting process.

The Executive Board and the Supervisory Board coordinated the further development of the Company's strategic orientation and discussed the implementation of this strategy at regular intervals. The necessary investment plans were analyzed and approved within the context of the strategy that had been adopted.

The Supervisory Board verified that the transactions discussed were lawful, expedient and proper, giving particular consideration to the Company's economic situation.

The Executive Board sent the Supervisory Board all interim reports, as well as the half-yearly financial report for the 2017 fiscal year in a timely manner prior to their publication. The Executive Board explained the reports and presented all key indicators and statements in detail. In particular, the Supervisory Board asked for detailed explanatory information on the income statement, the liquidity situation and the development of equity, as well as on other selected balance sheet items. The suggestions made by the Supervisory Board on the individual interim reports and the half-yearly financial report were implemented by the Executive Board.

Over the last fiscal year, the Supervisory Board was provided with regular information on the course of business and the Group's economic situation. The Supervisory Board received monthly reports from the Executive Board on current business developments in the individual segments, including developments in the market environment, as well as the order intake, order backlog and key financial indicators. The development in the equity of the SINGULUS TECHNOLOGIES Group and SINGULUS TECHNOLOGIES Aktiengesellschaft was addressed at all Supervisory Board meetings. The Company's liquidity was documented and monitored on an ongoing basis throughout the year. The Chairman of the Supervisory Board also discussed the Company's position and its further development at regular individual meetings held with the Executive Board. He then reported back to the other members of the Supervisory Board.

The Supervisory Board discussed and reviewed all transactions that were subject to its consent, as well as any transactions that required its involvement in the interests of the Company. These also included, in particular, new projects that involved expanding the Company's existing range of services. The Supervisory Board was directly involved in all decisions that were of material importance to the Company.

NOTIFICATION OF LOSS CORRESPONDING TO HALF OF THE SHARE CAPITAL OF SINGULUS TECHNOLOGIES AKTIENGESELLSCHAFT PURSUANT TO § 92 (1) AKTG


The Executive Board informed the Supervisory Board that a notification of loss pursuant to § 92 (1) of the German Stock Corporation Act (Aktiengesetz, AktG) had been made on September 21, 2017. In the interim financial statements prepared in accordance with the German Commercial Code (Handelsgesetzbuch, HGB) as of August 31, 2017, SINGULUS TECHNOLOGIES Aktiengesellschaft had reported a loss of EUR 16.7 million in the current fiscal year, which had eroded more than half of its share capital. Equity pursuant to the German Commercial Code amounted to EUR 3.7 million as of August 31, 2017, compared to EUR 20.4 million as of December 31, 2016. The loss was mainly the result of the delayed recognition of revenue under the German Commercial Code. Based on the principles set out in the German Commercial Code, revenue cannot be recognized until the final acceptance of the systems supplied. This was primarily due to the still outstanding acceptance of the systems for the first new factory in Bengbu, Province Anhui, for CIGS thin-film solar cells in China.

The Executive Board of SINGULUS TECHNOLOGIES Aktiengesellschaft then promptly convened an extraordinary general meeting to be held on November 29, 2017. The invitation to the extraordinary general meeting was published in the Federal Gazette (Bundesanzeiger) on October 2, 2017. At the extraordinary general meeting, the Executive Board explained the loss corresponding to half of the share capital, as well as the Company's position.

ECONOMIC SITUATION OF THE COMPANY


The Company was able to complete its operational and financial reorganization in the 2017 fiscal year.

At all of the meetings held in the 2017 fiscal year, the Executive Board provided the Supervisory Board with the latest analyses and data on the SINGULUS TECHNOLOGIES segments and made extensive information available on the various market segments.

The recovery in the solar market that had already been predicted in the 2016 fiscal year was confirmed in the 2017 fiscal year. All stages involved in the development and execution of the major order received in mid-2016 for production facilities for CIGS solar cells were discussed within the Supervisory Board, and the Executive Board informed the Supervisory Board of the ongoing talks with the customer. Construction of the systems for the first factory in Bengbu, Province Anhui, of the state-owned China National Building Materials, Beijing, China (CNBM) was largely completed in the current fiscal year, and work has now started on the test phase and the final acceptance of the machinery. The Executive Board is monitoring the project in detail at regular project management meetings. The Supervisory Board received reports on the project developments at all of its meetings.

The Executive Board also kept the Supervisory Board informed of the ongoing talks with the representatives of the customer CNBM. Given the delayed first prepayment for the second location in Meishan, Province Sichuan , the Executive Board received confirmation from CNBM, at a meeting involving the Executive Board and the customer in September 2017, that the funds for the outstanding prepayment were already available to the customer but had not yet been approved with definitive effect. Assurance was also given that construction of the factory in Meishan, Province Sichuan, would start shortly. The delayed prepayment, the associated delay in construction of the factory and the resulting delay in the planned revenue contributions meant that the forecast for the 2017 fiscal year had to be corrected. This correction was made in the ad hoc disclosure dated September 26, 2017.

CNBM has since started construction work on four production sites for CIGS thin-film solar modules in China, which are each to have a production capacity of 300 MW in the first phase of expansion. While the production buildings are currently still being constructed in three of these locations, the systems for the future production of the CIGS thin-film solar modules are already being commissioned on schedule in the first location in Bengbu, Province Anhui, CNBM had already commissioned the systems for one of the locations that is currently still under construction, in Meishan, Province Sichuan in the previous year as part of the ongoing major order. SINGULUS TECHNOLOGIES has received the first part of the next prepayment for this order at the end of February 2018. SINGULUS TECHNOLOGIES expects the orders for the two remaining locations that are under construction to be awarded in the near to medium term.

Within the context of the further expansion of its joint business activities with SINGULUS TECHNOLOGIES AG, CNBM is aiming to acquire a minority stake in SINGULUS TECHNOLOGIES AG. On January 2, 2018, CNBM informed our Company that it had signed purchase agreements on the acquisition of up to around 18% of the shares in SINGULUS TECHNOLOGIES AG. Ownership of the shares is scheduled to be transferred from the previous shareholders to CNBM (Closing) after the necessary approval has been obtained from the responsible antitrust authorities and the responsible Chinese government authorities. The Supervisory Board and the Executive Board see this as a positive development, because this major customer, as a corporation with global operations, will provide the Company with further stability and can help to promote growth in interesting markets.

In addition, the Executive Board provided the Supervisory Board with information on all other major solar projects and their status. Developments on the market for high-efficiency crystalline solar cells based on heterojunction technology (HJT) were a particular focal point. The Chinese government is promoting the local establishment of production capacities in photovoltaics for HJT. SINGULUS TECHNOLOGIES offers the market’s leading wet-chemical system for the production of these HJT cells, SILEX II, and has placed the second key production step on the market with GENERIS PVD. In the 2018 fiscal year, the Company plans to offer the third key production step for HJT with its PECVD system. Looking ahead to the future, the market for these high-efficiency cells is estimated to account for a volume of more than 20 GW a year. China is aiming to achieve a leading position in the global photovoltaics market in order to also use renewable energy sources to cover the rising levels of energy consumption both at home and abroad. At the same time, China is aiming to establish domestic development capacities for photovoltaics and promote mechanical and plant engineering in China. As a result, the plans for the establishment of a joint venture with the two Chinese firms, Golden Concord Holdings Limited (GCL) and China Intellectual Electric Power Technology Co., Ltd. (CIE), were discussed with the Supervisory Board. The Supervisory Board approved these plans, and on October 13, 2017, SINGULUS TECHNOLOGIES announced that an agreement on the establishment of a joint venture with the Chinese companies GCL and CIE had been signed. GCL is one of the world’s largest solar energy companies; CIE has focused on the development of high-efficiency HJT solar cells. The joint venture aims to develop, optimize, build and distribute entire production lines for the manufacture of high-efficiency solar cells based on HJT. CIE and GCL will be further developing the process technology in the joint venture and aim to produce the high-efficiency solar cells themselves. SINGULUS TECHNOLOGIES will be acquiring a minority share in the joint venture, which will have its headquarters in China, and will be responsible for its mechanical engineering expertise. The plans for the establishment of SINGULUS TECHNOLOGIES' own distribution and service organization in China were also discussed and approved by the Supervisory Board.

The low production volumes for optical discs in the 2017 fiscal year give rise to expectations of a weak market for new Blu-ray disc production systems in the future as well. The slow introduction of the new Blu-ray disc format – Ultra HD Blu-ray – will not provide any impetus to speak of for new investments in the current fiscal year. Nevertheless, the ongoing service and replacement parts business for the systems sold in this segment in the past is still relatively stable.

The Supervisory Board was also provided with information on the challenges in the Semiconductor segment and discussed the further development of this segment with the Executive Board. The Executive Board demonstrated that there is growing interest in the SINGULUS TECHNOLOGIES' system technology in Asia, particularly in China. Further orders for ROTARIS chip development systems, in particular, were placed from the U.S. as well.

The Supervisory Board held in-depth discussions with the Executive Board on the need for structural transformation within the Company and discussed the strategic focus of the business activities of SINGULUS TECHNOLOGIES on new applications and business areas. The Executive Board presented the new fields of application, cosmetics and medical technology, to the Supervisory Board, providing information on the relevant technologies. In particular, the entry into the medical technology market was discussed in detail.

The medical sector, which is often referred to as part of the life sciences sector, is one of the most important growth markets of the future, not least in light of demographic change, the rising number of medical innovations, the establishment of healthcare systems in emerging markets and the increase in lifestyle-related diseases.

At the beginning of November 2017, SINGULUS TECHNOLOGIES announced that the Company had made a key strategic move into the fast-growing medical technology market, and it has already been awarded its first contract, worth more than EUR 10 million, for the sale of process equipment used to process contact lenses. The company has focused its processes on the high demands of the medical technology sector in terms of properties and functionality, meaning that it is focusing on product quality and the necessary manufacturing and processing procedures. This means that SINGULUS TECHNOLOGIES is already a globally reliable partner for international customers from the pharmaceuticals and healthcare industries.

SUPERVISORY BOARD MATTERS


No Supervisory Board elections were held in 2017.

The Supervisory Board again opted not to establish an audit, nomination or other Supervisory Board committee in the 2017 fiscal year, as the size of the Supervisory Board, which has three members, allows these duties to be performed in an appropriate manner during plenary Supervisory Board sessions. In this case, committees would not serve to boost efficiency, improve the manner in which complex matters are addressed or allow the Supervisory Board to better perform its duties in matters relating to accounting, risk management or the audit of the annual financial statements.

At its meeting held on September 28, 2017, the Supervisory Board performed its own efficiency review, which allowed it to identify and pass resolutions on corresponding improvements. The Supervisory Board also sought information and clarification on new legal provisions.

One focal point included information on the changes resulting from the Market Abuse Regulation, which came into force on 2016, in the areas of insider trading, ad hoc disclosures and directors' dealings. The Market Abuse Regulation creates uniform European regulations on capital market law that are also to be applied in a uniform manner. Regulations and guidelines published by ESMA (European Securities Market Association) are intended to ensure uniform application.

As a result of the financial market crisis, the EU adopted Directive 2014/56/EU amending the "Statutory Audit Directive" (Directive 2006/43/EC) and Regulation (EU) No 537/2014 on specific requirements regarding statutory audit of public-interest entities (and repealing Commission Decision 2005/909/ EC). In order to implement Directive 2014/56/EU at national level, the German Auditor Oversight Reform Act (Abschlussprüferaufsichtsreformgesetz, "APAReG") and the German Audit Reform Act (Abschlussprüfungsreformgesetz, "AReG"), which also contains provisions on the implementation of the directly applicable Regulation (EU) No 537/2014, came into force on June 17, 2016.

The above-mentioned provisions will have an impact, in particular, on the prior approval of non-audit services performed by the auditors of the financial statements or auditing firms for the audited company itself or its affiliated companies. They contain more stringent requirements for Supervisory Board/audit committee members and set out regulations governing aspects including the selection procedure and the requirements for appointing auditors of the financial statements or auditing firms, as well as for the performance of the audit itself.

The Supervisory Board discussed the consequences for SINGULUS TECHNOLOGIES AG and passed a resolution on amendments to the rules of procedure of the Supervisory Board and the Executive Board. At its meeting held on January 26, 2017, the Supervisory Board also adopted guidelines based on which certain types of non-audit services are generally approved and set up a central clearing department tasked with approving non-audit services before they are commissioned to ensure Group-wide adherence to the guidelines.

CONFLICTS OF INTEREST


In the past fiscal year, no members of the Executive Board or the Supervisory Board had any conflicts of interest requiring prompt disclosure to the Supervisory Board and notification to the Annual General Meeting.

SHAREHOLDINGS OF SUPERVISORY BOARD MEMBERS


Information on the shareholdings of Supervisory Board members is published both in the Annual Report and online (detailed information can be found on page 37 of the 2017 Annual Report).

CORPORATE GOVERNANCE


SINGULUS TECHNOLOGIES AG and its Supervisory Board are committed to the principles of proper and responsible corporate governance. The Executive Board and the Supervisory Board have published a declaration of conformity pursuant § 161 AktG and section 3.10 of the German Corporate Governance Code (the "Code"), according to which the Company adheres to the recommendations of the German Corporate Governance Code with the exception of the deviations set out and substantiated in the declaration. The declaration of conformity was published on the Company's website in January 2018. Detailed information as part of the Corporate Governance Report and the current declaration of conformity can be found on page 27 of the 2017 Annual Report.

EXECUTIVE BOARD MATTERS


At its meeting held on January 26, 2017, the Supervisory Board discussed and adopted target agreements for the 2017 fiscal year together with the Executive Board. The target agreements form the basis for the calculation of the variable salary components paid to the Executive Board members. At its meeting held on March 20, 2018, the Supervisory Board passed a resolution on the target achievement levels for both Executive Board members based on the annual figures. This involved the Supervisory Board evaluating all targets for each individual member and checking the corresponding target achievement levels. The Supervisory Board evaluated the performance of the Executive Board as a whole and expressed a positive view of the Executive Board's dedication, commitment and the quality of its results. At its meeting on January 26, 2017, the Supervisory Board of SINGULUS TECHNOLOGIES AG appointed the Company's Chief Executive Officer, Dr.-Ing. Stefan Rinck, to the Executive Board for a further five years and reappointed him as Chief Executive Officer. Dr.-Ing. Stefan Rinck accepted the appointment and will continue as the Company's Chief Executive Officer in the future.

RISK MANAGEMENT


SINGULUS TECHNOLOGIES AG is subject to the special requirements that an internal risk management system has to meet in accordance with the relevant provisions set out in the German Stock Corporation Act and the German Commercial Code. The corresponding monitoring system is adjusted to reflect the latest developments. The Supervisory Board considers the monitoring system of SINGULUS TECHNOLOGIES AG to be expedient and adequate and agrees with the Executive Board on all aspects of the risk assessment (the Risk Report can be found on page 80 of the 2017 Annual Report).

ANNUAL AND CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT REPORT


The audited annual financial statements of SINGULUS TECHNOLOGIES AG, the audited consolidated financial statements and the combined management report as of December 31, 2017 were addressed at the Supervisory Board meeting concerning the adoption of the annual financial statements, which was held on March 20, 2018. The Executive Board prepared the annual financial statements and the management report of SINGULUS TECHNOLOGIES AG for the 2017 fiscal year in accordance with the provisions of the German Commercial Code (HGB) and the German Stock Corporation Act (AktG). The consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS). The consolidated financial statements were supplemented by a corresponding Group management report, which was combined with the management report on the separate financial statements in accordance with § 315 (5) in conjunction with § 298 (2) sentence 1 HGB. KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), Frankfurt am Main, audited the annual financial statements and the consolidated financial statements, as well as the combined management report, including the accounts and issued an unqualified audit opinion.

The members of the Supervisory Board were provided with the audited financial statements, the combined management report and the audit reports prepared by KPMG in a timely manner so that they could perform a review. The meeting held on March 20, 2018 was also attended by the responsible auditors, who explained the results of the audit and answered any questions posed by the Supervisory Board members in detail.

The Supervisory Board discussed the annual financial statements, the consolidated financial statements, the combined management report and the audit results of the auditors further and did not find any grounds for objection. It also discussed the assumptions on which the forecast for the Company's continued existence as a going concern are based, as well as the conclusions drawn from this forecast by the Executive Board and KPMG. The Executive Board and the auditors present replied to any queries raised by members of the Supervisory Board, providing the level of detail required.

The Supervisory Board did not raise any objections regarding the annual financial statements of SINGULUS TECHNOLOGIES AG, the consolidated financial statements or the combined management report as of December 31, 2017, or regarding KPMG’s audit.

At its meeting held on March 20, 2018, the Supervisory Board approved the annual financial statements of SINGULUS TECHNOLOGIES AG, the consolidated financial statements and the combined management report prepared by the Executive Board. The annual financial statements have thus been adopted.

The Supervisory Board would like to thank the Executive Board and all employees for their considerable commitment in the 2017 fiscal year and wishes them every success for the 2018 fiscal year.

Kahl am Main, March 2018

Dr.-Ing. Wolfhard Leichnitz
Chairman of the Supervisory Board