Valoe Oyj - Annual Financial Report

THE AUDITORS’S REPORT OF VALOE

Valoe Corporation                                      Stock Exchange Release  
   15 May 2017 at 16.45 Finnish time 



THE AUDITORS’S REPORT OF VALOE


Valoe’s auditor has today given the following report for the company’s
Financial Statements for 2016. 



This document is an English translation of the Finnish auditor’s report. Only
the Finnish version of the report is legally binding. 

Auditor’s Report

To the Annual General Meeting of Valoe Oyj

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Valoe Oyj (business identity code
0749606-1) for the year ended 31 December, 2016. The financial statements
comprise the consolidated balance sheet, statement of comprehensive income,
statement of changes in equity, statement of cash flows and notes, including a
summary of significant accounting policies, as well as the parent company’s
balance sheet, income statement, statement of cash flows and notes. 

In our opinion

  -- the consolidated financial statements give a true and fair view of the
     group’s financial performance, financial position and cash flows in
     accordance with International Financial Reporting Standards (IFRS) as
     adopted by the EU
  -- the financial statements give a true and fair view of the parent company’s
     financial performance and financial position in accordance with the laws
     and regulations governing the preparation of financial statements in
     Finland and comply with statutory requirements.



Basis for Opinion

We conducted our audit in accordance with good auditing practice in Finland.
Our responsibilities under good auditing practice are further described in the
Auditor’s Responsibilities for the Audit of the Financial Statements section of
our report. 

We are independent of the parent company and of the group companies in
accordance with the ethical requirements that are applicable in Finland and are
relevant to our audit, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. 

We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion. 



Material uncertainty related to going concern basis

We would like to draw attention to the section Application of the going concern
assumption in the  Accounting Principles for consolidated financial statements
and to chapters in Note 29 Financial risk management. As described in the
above-mentioned sources, during the financial year 2016 and at the year- end
the company’s financial situation was very tight and its liquidity was low.
Notes 23 and 24 state that the Group’s overdue debts totaled EUR 5.0 million at
balance sheet date. The consolidated cash flow from operating activities was
negative in the financial years 2015 and 2016. 

Based on the assessment made presented in the Directors’ Report and the section
Application of the going concern assumption in the notes, management of the
company and the Board of Directors believe that the going concern basis is
appropriate in preparing the financial statements. The assessment is based on
the following: the company has been able to improve its financing situation by
drawing new borrowings in 2017 and by agreeing the deferral of existing
borrowings to fall due in 2018. If the EUR 0.7 million overdraft facility at
the Danske Bank due on 30 September 2017 cannot be repaid with the company’s
cash flow from operations or with other funding, the company trusts it can
reduce the amount of the debt enabling the extension of the debt. Furthermore,
the company has resolved it will not launch delivery projects in full until
project funding pursuant to a delivery agreement is available to the company. 

The financial statements have been prepared under the going concern assumption.
The company’s ability to continue as a going concern is dependent on the
development of its operations and cash flows, as well as on the company’s
efforts to settle the borrowings and other liabilities fallen due with its
creditors. In our opinion, the above-mentioned conditions indicate the
existence of a material uncertainty which may cast significant doubt upon Valoe
Corporation’s ability to continue as a going concern. 

In addition, we would like to draw attention to the fact that the capitalized
product development costs in the consolidated balance sheet total EUR 7.9
million. As described in the previous chapter, there could be material
uncertainty related to the company’s ability to continue as a going concern and
thus the carrying value of the development costs may not be supported. 

Our opinion has not been qualified by the matters described above.



Other matters

We were unable to express an opinion on the consolidated financial statements
and on the information on the consolidated financial statements presented in
the Directors’ Report for the financial year ended 31 December 2015. No
accounting records had been kept for the Beijing subsidiary for the financial
year 2015 for reasons described in the 2015 Director’s Report. As a result, we
were not able to verify the correctness of receivables, bank account or debt of
the Chinese subsidiary. We were not able to obtain sufficient appropriate audit
evidence on which to base our audit opinion, and consequently we will not
comment on the comparative information for the financial year 2015 in respect
of the consolidated financial statements and the information on the
consolidated financial statements presented in the Directors’ Report. 



The pro-forma financial statements referred to in the Directors’ Report and
note 30. Events after the end of the reporting period have not been subject to
audit. Our opinion on the financial statements does not cover the pro-forma
financial statements. 



Materiality

The scope of our audit was influenced by our application of materiality. The
materiality is determined based on our professional judgement and is used to
determine the nature, timing and extent of our audit procedures and to evaluate
the effect of identified misstatements on the financial statements as a whole.
The level of materiality we set is based on our assessment of the magnitude of
misstatements that, individually or in aggregate, could reasonably be expected
to have influence on the economic decisions of the users of the financial
statements. We have also taken into account misstatements and/or possible
misstatements that in our opinion are material for qualitative reasons for the
users of the financial statements. 



Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the financial statements of the current
period. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. 

We have also addressed the risk of management override of internal controls.
This includes consideration of whether there was evidence of management bias
that represented a risk of material misstatement due to fraud. 



THE KEY AUDIT MATTER  HOW THE MATTER WAS ADDRESSED IN THE AUDIT
---------------------------------------------------------------

Net Sales – revenue recognition criteria in the Ethiopian project               
(refer to Accounting Principles for consolidated financial statements)          
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- 
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The company has an order for a solar module  Our audit procedures comprised a   
 manufacturing plant and back contact         critical evaluation of both the   
 technology with a total sales price of EUR   report on revenue recognition     
 15.8 million. The purpose is that EUR 9.5    criteria prepared by the company  
 million of the sales price will be paid in   and the portion to be received in 
 cash to Valoe and the rest in shares in      shares. We assessed the report by 
 the manufacturing partner company,           reference to the criteria set     
 resulting in the Group having a 30 percent   under IAS 11 Construction         
 shareholding in the said company.            Contracts.                        
During the financial year 2016 the delivery  In order to consider the company’s 
 was accounted for as a long-term project,    financial capability to deliver   
 and the revenues were recognized based on    the project, we evaluated the     
 completion of a physical proportion of the   sources of finance available to   
 contract work. In the financial statements   the company, level of certainty   
 the accounting treatment was changed by      and sufficiency of project funding
 reversing the project revenue recognized,    to deliver the project and        
 as the sufficiently certain evidence         obtained an understanding of the  
 required under IAS 11 Construction           financing contract entered into by
 Contracts to support the expectation that    the manufacturing partner.        
 future project revenues will flow to the    We assessed the budget for the     
 company was absent. This uncertainty         project and the related margin    
 relates to ensuring the project funding,     analysis, as well as considered   
 where the key items include opening of       the principles followed in project
 irrevocable letter of credit and arranging   cost accounting and when applying 
 necessary counterguarantees.                 the percentage-of-completion      
In the consolidated financial statements      method, and related accounting    
 the project costs incurred up to the         methods. Furthermore, we met with 
 balance sheet date, amounting to EUR 1.0     management and the project leader 
 million, are included in the item Work in    to discuss the project            
 progress                                     development, obtained an          
under Inventories.                            understanding of the project      
                                              management tool used by the       
                                              company and assessed the          
                                              documentation prepared to evidence
                                              the physical proportion of the    
                                              contract work.                    





Capitalised development costs, EUR 7.9 million                                  
(refer to Accounting Principles for consolidated financial statements and notes 
 6 and 13)                                                                      
(refer to Accounting, measurement and accrual principles for the parent company 
 financial statements and note 15)                                              
--------------------------------------------------------------------------------
- 
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At the balance sheet date 31 December  We assessed the composition of           
 2016 the capitalised development       development costs and the capitalization
 costs were carried at EUR 7.9          criteria applied, original project plans
 million, which accounted for 75 per    and discussed the changes in plans with 
 cent of the consolidated total         the company representatives. Our audit  
 assets. The capitalized development    procedures also included agreeing the   
 costs of the parent company totaled    non- current asset register to the      
 EUR 8.9 million, representing 80 per   general ledger, assessing the           
 cent of the parent company’s total     appropriateness of the amortisation     
 assets.                                methods and testing amortisation        
Accounting for development costs        accounting.                             
 requires management use judgement     In addition, we discussed with company   
 and make assumptions that affect       representatives how development costs   
 carrying values and amortisation       are monitored and accounted for,        
 methods. The consolidated financial    assessed stages in a project and which  
 statements include development costs   criteria are used to consider project   
 amounting to EUR 1.7 million for       stages as being in progress or          
 which the amortisation has not         completed. These matters are critical   
 begun.                                 for commencing amortisation.            
Development costs have been tested     We analysed management estimates and     
 for impairment. Valoe determines       assumptions, upon which future cash flow
 recoverable amounts based on value     forecasts are based. We involved our own
 in use. Those calculations use         valuation specialists when assessing the
 discounted future cash flow            appropriateness of the assumptions used,
 forecasts in which management make     such as discount rates. We performed    
 judgments over certain key inputs,     audit procedures to examine the         
 for example net sales growth rate,     technical accuracy of the calculations. 
 dis-count rate, long-term growth      Furthermore, we considered the           
 rate and inflation rates.              appropriateness of the disclosures      
Given the high level of management      provided in respect of developments     
 judgement related to the forecasts     costs and impairment testing.           
 used, estimation uncertainty and the                                           
 significant carrying amounts                                                   
 involved, capitalized development                                              
 costs is considered a key                                                      
audit matter.                                                                   





Responsibilities of the Board of Directors and the Managing Director for the
Financial Statements 

The Board of Directors and the Managing Director are responsible for the
preparation of consolidated financial statements that give a true and fair view
in accordance with International Financial Reporting Standards (IFRS) as
adopted by the EU, and of financial statements that give a true and fair view
in accordance with the laws and regulations governing the preparation of
financial statements in Finland and comply with statutory requirements. The
Board of Directors and the Managing Director are also responsible for such
internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error. 

In preparing the financial statements, the Board of Directors and the Managing
Director are responsible for assessing the parent company’s and the group’s
ability to continue as a going concern, disclosing, as applicable, matters
relating to going concern and using the going concern basis of accounting. The
financial statements are prepared using the going concern basis of accounting
unless there is an intention to liquidate the parent company or the group or
cease operations, or there is no realistic alternative but to do so. 





Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance on whether the financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with good auditing practice will always detect
a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements. 

As part of an audit in accordance with good auditing practice, we exercise
professional judgment and maintain professional skepticism throughout the
audit. We also: 

  -- Identify and assess the risks of material misstatement of the financial
     statements, whether due to fraud or error, design and perform audit
     procedures responsive to those risks, and obtain audit evidence that is
     sufficient and appropriate to provide a basis for our opinion. The risk of
     not detecting a material misstatement resulting from fraud is higher than
     for one resulting from error, as fraud may involve collusion, forgery,
     intentional omissions, misrepresentations, or the override of internal
     control.
  -- Obtain an understanding of internal control relevant to the audit in order
     to design audit procedures that are appropriate in the circumstances, but
     not for the purpose of expressing an opinion on the effectiveness of the
     parent company’s or the group’s internal control.
  -- Evaluate the appropriateness of accounting policies used and the
     reasonableness of accounting estimates and related disclosures made by
     management.
  -- Conclude on the appropriateness of the Board of Directors’ and the Managing
     Director’s use of the going concern basis of accounting and based on the
     audit evidence obtained, whether a material uncertainty exists related to
     events or conditions that may cast significant doubt on the parent
     company’s or the group’s ability to continue as a going concern. If we
     conclude that a material uncertainty exists, we are required to draw
     attention in our auditor’s report to the related disclosures in the
     financial statements or, if such disclosures are inadequate, to modify our
     opinion. Our conclusions are based on the audit evidence obtained up to the
     date of our auditor’s report. However, future events or conditions may
     cause the parent company or the group to cease to continue as a going
     concern.
  -- Evaluate the overall presentation, structure and content of the financial
     statements, including the disclosures, and whether the financial statements
     represent the underlying transactions and events so that the financial
     statements give a true and fair view.
  -- Obtain sufficient appropriate audit evidence regarding the financial
     information of the entities or business activities within the group to
     express an opinion on the consolidated financial statements. We are
     responsible for the direction, supervision and performance of the group
     audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit. 

We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related
safeguards. 

From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the financial
statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our
report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication. 



Other Reporting Requirements

Other Information

The Board of Directors and the Managing Director are responsible for the other
information. The other information comprises information included in the report
of the Board of Directors and in the Annual Report, but does not include the
financial statements and our auditor’s report thereon. 

Our opinion on the financial statements does not cover the other information.

In connection with our audit of the financial statements, our responsibility is
to read the other information identified above and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. With respect to the report of the Board of Directors, our
responsibility also includes considering whether the report of the Board of
Directors has been prepared in accordance with the applicable laws and
regulations. 

In our opinion, the information in the report of the Board of Directors is
consistent with the information in the financial statements and the report of
the Board of Directors has been prepared in accordance with the applicable laws
and regulations. 

If, based on the work we have performed on the report of the Board of Directors
and in the Annual Report, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have nothing to
report in this regard. 



Interim report for the period 1 January – 30 June 2016

We refer to the Securities Market Act, Chapter 7, section 8, subsection 2 and
state that in preparing the 2016 financial statements the company decided to
reverse the revenues recognised from the Ethiopian project, affecting net sales
and related expenses respectively both in the consolidated and parent company’s
financial statements. This matter is to be considered when assessing the
compliance of the consolidated interim report for the period 1 January - 30
June 2016 with the related rules and regulations. 



Remark

The company’s equity is negative in the financial statements. In our opinion,
the Board of Directors of the company has not at once made a register
notification on the loss of share capital to the Trade Register as required
under the Limited Liability Companies Act (Chapter 20, section 23). Our opinion
has not been qualified by this matter. 



Helsinki, 15 May 2017

KPMG OY AB



[Signed]

Petri Kettunen

Authorised Public Accountant, KHT



In Mikkeli 15 May 2017



Valoe Corporation
Board of Directors



For more information:

Iikka Savisalo, President and CEO,
Valoe Corporation
Tel. +358 40 521 6082,
email: iikka.savisalo@valoe.com





Distribution:

NASDAQ OMX, Helsinki
Main media
www.valoe.com





Valoe Corporation specializes in the clean energy, especially in photovoltaic
solutions. Valoe provides automated production technology for solar modules
based on the company’s own technology; production lines for modules; solar
modules and special components for solar modules. Valoe's head office is
located in Mikkeli, Finland.