99.99%
99.999%
99.9999%
99.99999%
pure and simple
2008
Annual Report
2
2008 annual rEport
About 5N Plus
Launched in June 2000 following a management buyout, 5N Plus is today a fully
integrated refiner and producer of highly purified metals and compounds, offering
closed-loop recycling solutions to its customers. 5N Plus draws its name from the
purity of its products, 99.999% (5 nines or 5N) and more, which consist primarily of
tellurium, cadmium, selenium and related compounds such as cadmium telluride
(CdTe). Used as starting materials required in the growth of semiconducting
crystals, these products find applications in specialized technologies such as
solar modules, radiation detectors, thermoelectric coolers, infrared lenses and
optical and electronic storage media.
5N Plus is a public company listed on the Toronto Stock Exchange under the
symbol “VNP” (VNP-TSX). Headquartered in Montreal (Canada), the Company
employs some 148 people at its two state-of-the-art production facilities located
in Montreal and Eisenhüttenstadt (Germany).
Summary
5N Plus at a Glance
Message to Shareholders
Products and Markets
Commitment to Growth
New 5N PV GmbH Facility
Sustainability
Management’s Discussion and Analysis
Consolidated Financial Statements
Corporate Information
4
8
10
14
16
18
20
36
56
2008 annual rEport
3
5N Plus at a Glance
pure and Simple
5N Plus is a producer of high purity metals and compounds for electronic
applications. The Company strives to tailor its products to the requirements of
its customers and to provide means for sustainability through customer-oriented
recycling solutions. Purity is the key characteristic in all of 5N Plus products,
ensuring performance levels which simply cannot be attained in any other way.
Key Supplier to the Solar Module Market
Products from 5N Plus find uses in a number of electronic materials market
segments including medical imaging and photovoltaics. 5N Plus is a key supplier
of CdTe and cadmium sulphide (CdS), the essential components of CdTe thin-film
solar modules, the leading low cost solar module technology. With a stable source
of critical materials and long-term supply agreements with key customers, the
highly purified metals and compounds provided by 5N Plus contribute to increase
the sustainability of products that impact our everyday lives.r
thE Strong dEMand For thIn-FIlM Cdte photovoltaIC ModulES Should
ContInuE to drIvE 5n pluS’ aCCElEratEd growth. FurthEr dEvElopMEnt oF
othEr End MarKEtS Should provIdE For InCrEaSEd dIvErSIFICatIon.
International Focus
During its 2008 fiscal year, 5N Plus entered into a major international expansion
project aimed at building and commissioning a new facility in Eisenhüttenstadt,
Germany. Operated by 5N Plus’ wholly owned subsidiary 5N PV GmbH, this new
state-of-the-art facility is operational since July 29, 2008. With both manufacturing
and recycling capabilities, it provides for improved services to the Company’s
European customer base and offers opportunities for expansion in overseas
markets. Overcoming the challenges of operating in a foreign country with
different regulations and customs, 5N Plus will greatly benefit from this overseas
expansion which strengthens its international focus.
4
2008 annual rEport
Execution
– Net proceeds of $76 million were raised during the year following 5N Plus’
successful initial public offering (IPO) and a subsequent new issue of shares,
providing financial means for sustainable growth.
– The Eisenhüttenstadt plant was built and commissioned within the expected
budget and schedule, which included achieving commercial operations by
July 31, 2008.
– 32 consecutive quarters of positive net earnings, culminating in the best year
ever for 5N Plus in 2008.
– 5N Plus obtained its ISO 9001 and ISO 14001 certifications in fiscal year 2008,
which further illustrates its commitment towards quality and environmental
sustainability, providing peace of mind for customers and end users alike.
developing Materials and processes for the Future
With its team of skilled researchers and engineers, 5N Plus is well positioned
to tailor products to the requirements of its customers. Processes and products
are constantly being improved to optimize cost efficiency and performance.
Complete control on the overall purification cycle from raw materials all the way
to the ultra high purity products required enables the 5N Plus team to develop
materials and processes for the future.
2008 annual rEport
5
unique profile… Enabling vision
A key supplier to the solar module market, 5N Plus also has a stronghold
on all other markets it services. Today, the firm has a number of long-term
supply agreements with key customers providing for a significant proportion
of predictable revenues, and agreements with several suppliers ensuring a stable
supply of critical raw materials. Using its integrated processing facilities, 5N Plus
also has the ability to provide customers with recycling solutions tailored to best
meet their requirements. With its experienced management team and highly skilled
employees, the Company is thus well positioned to take on the growth challenges
that lay ahead and ensure that today’s vision becomes reality:
to grow togEthEr
In an EnvIronMEntally rESponSIblE way, through
InnovatIon and produCt ExCEllEnCE, rESultIng FroM EMployEE Know-how
and CoMMItMEnt, EnablIng 5n pluS to bECoME thE lEadIng produCEr oF hIgh
purIty MatErIalS.
6
2008 annual rEport
Financial and operational highlights
Sales
[ In millions of Canadian dollars ]
EdItba
[ In millions of Canadian dollars ]
31.0
21.9
13.8
35
30
25
20
15
10
5
0
12.5
7.2
2.2
14
12
10
8
6
4
2
0
2006
2007
2008
2006
2007
2008
net Earnings
[ In millions of Canadian dollars ]
Shareholders’ Equity
[ In millions of Canadian dollars ]
7.8
8
7
6
5
4
3
2
1
0
3.6
0.8
91.6
100
80
60
40
20
0
4.0
7.6
2006
2007
2008
2006
2007
2008
2008 annual rEport
7
Message to Shareholders
Dear Shareholders,
Our last fiscal year, which marked our debut as a publicly traded company, was outstanding
in many ways with the achievement of several milestones, all of which are expected to have
a long-lasting impact on our future.
First and foremost was the completion in December 2007 of our IPO, a process that allowed
us to raise gross proceeds of $34.5 million, strengthening our balance sheet and increasing
our visibility. This timely decision provided the key financial flexibility that will allow us to
seize existing growth opportunities while diversifying internationally.
Strongly supported by our solid relationship and long-term supply agreements with key
customers including First Solar, the leading low cost provider of solar modules using
thin-film CdTe photovoltaic technology, proceeds from the IPO were primarily invested in
building and commissioning a new state-of-the-art facility in Eisenhüttenstadt (Germany),
which is operational since July 29, 2008. This $14.6 million facility enables us to double our
existing capacity for the production of CdTe and to provide additional flexibility to serve
our expanding customer base, thus strengthening our position as the main producer
of CdTe. We also invested more than $3 million to refurbish sections of the Montreal facility
to better complement our new German operations.
True to our mission of meeting customer requirements both in terms of supply and
environmental sustainability, our Eisenhüttenstadt facility also enables complete recycling
of both cadmium and tellurium from various solar module manufacturing residues.
We believe this closed-loop recycling approach will give us a significant first-mover
advantage while further stabilizing our sources of critical raw materials.
Germany’s long-standing tradition of environmental friendliness combined with its very
influential position within the European community and the Group of Eight (G8) provided
a perfect and complementary showcase to our North-American operations. Therefore,
we consider a great achievement to have succeeded in meeting Germany’s stringent
qualification and environmental compliance standards. For 5N Plus and its shareholders this
means that we could now most likely contemplate growth opportunities anywhere in the
world, in perfect harmony not only with our mission but also with our environmental values.
8
2008 annual rEport
FroM lEFt to rIght:
JaCquES l’éCuyEr
and dEnnIS wood
Mostly propelled by solar applications,
the demand for high purity materials and
compounds is expected to continue to
grow, as will the need to recycle end
products when their useful lives expire.
Accordingly, we stand to benefit from our
unique integrated supplier business model
with dedicated recycling capacities.
With strong sales, a sequence of 32 conse-
cutive quarters of positive net earnings and
$59.6 million of liquidities at the end of our
fiscal year, following the issuance in April
2008 of four million new shares for additional gross proceeds of $46.2 million, we are now
in an excellent position to continue to grow both organically, as we have done in the past,
but also through selective and opportunistic value-creating acquisitions.
On a final note, we wish to warmly thank our dedicated employees at 5N Plus for their
contribution to the Company’s success and also welcome our 42 new employees now
working at our German facility. 5N Plus has put together, for the benefit of its shareholders,
a formidable team of highly skilled professionals headed by a largely independent and
distinctive Board of Directors, all of whom have the resources, the will and the commitment
to live up to the challenge of bringing 5N Plus to the next level, namely to become the
leading producer of high purity materials.
Our future has never looked so bright. The IPO has given us the means to attract, retain
and motivate some of the industry’s best talents while providing the financial flexibility
to pursue growth. The success we anticipate with our German facility should further
strengthen the excellent relationships we enjoy with existing customers while providing
opportunities to attract new ones and take advantage of our market-leading position.
JACQUES L’ÉCUYER
President and Chief Executive Officer
5N Plus Inc.
DENNIS WOOD
Chairman of the Board of Directors
5N Plus Inc.
2008 annual rEport
9
Products and Markets
5N Plus products are used in a broad range of electronic applications ranging from
solar modules to X-ray medical imaging devices, and from portable refrigerators
to optics for carbon dioxide (CO2) lasers. Focussing on specialty metals including
tellurium, cadmium and selenium and on related compounds, 5N Plus is the
leading producer and supplier of these products to the electronics industry.
typical 5n plus products
End Markets
Standard applications
Thin-film photovoltaics
Solar modules based on CdTe
Base elements
(tellurium, cadmium,
selenium and zinc)
in purities ranging from
99.999% to 99.99999%
Related compounds
including CdTe and CdS
Radiation detectors
X-ray medical imaging cameras
Electronic and Optical storage
Computer memory (PRAM)
Thermoelectric coolers
DNA thermal cyclers
Infrared lenses and detectors
Optics for CO2 laser
10
2008 annual rEport
Cdte and CdS for thin-Film photovoltaic Modules
Photovoltaic generated energy is considered to be one of the most promising
sources of renewable energy for meeting the world’s growing electricity needs. The
photovoltaic market is thus expected to grow at a rate of nearly 50% per year over
the next five years, to the extent where by 2011, in selected countries, new photo-
voltaic installations will represent between 10% and 15% of the annual addi tions
of electricity generating capacity… exceeding those of coal or nuclear energy.
5n pluS’ ExpoSurE to thE photovoltaIC MarKEt IS SubStantIal
through ItS FlagShIp produCtS Cdte and CdS and ItS lEadErShIp
In tErMS oF MarKEt SharE.
With CdTe thin-film photovoltaic module technology leading the way in terms
of cost efficiency, this market has the potential to bring tremendous growth and
momentum for 5N Plus. 5N Plus has positioned itself as the preferred supplier
to customers active in this market, entering into long-term supply agreements
guaranteeing minimum revenues for the next few years.
historical data and Forecast of global pv-Module pr oduction
[ In gigawatts ]
Compound annual growth rate: > 50%
25
20
15
10
5
0
20.5
15.1
10.2
1.7
2.6
6.1
4.0
2005
2006
2007
2008F
2009F
2010F
2011F
2008 annual rEport
11
ultra high purity Cadmium, tellurium and Zinc for radiation detectors
Solid-state detectors based on cadmium zinc telluride (CZT) have the potential
to replace existing scintillator-based technologies such as radiation detectors.
Providing for improved performance, smaller size and greater tolerance to
environmental conditions, these detectors are being introduced in medical
imaging modalities like nuclear medicine and radiography. They are also being
used and considered in security and industrial applications for nuclear safeguards,
scanning devices and various inspection systems. Driven by requirements for
superior and reliable performance, this market is well suited for 5N Plus’ highest
purity products.
SubStantIal growth oF thE radIatIon dEtECtor MarKEt IS ExpECtEd aS CZt
dEtECtorS arE gradually bEIng
IntroduCEd and dEployEd
In MEdICal
IMagIng and SECurIty applICatIonS, lEadIng to an InCrEaSIng dEMand For 5n
pluS produCtS.
tellurium for praM Computer Memory...
Optical storage of electronic data is a well-established technology in common
use. Alloys of high purity metals including tellurium, germanium and antimony
are required in the production of a thin layer into which data is stored and erased
for read/write (RW) compact disks and DVDs. Recently, applications of this
technology have served to develop the next generation of random access memory
(RAM) used in computers and other electronic equipment. This new generation
of RAM, known as PRAM, is now being produced by a few major semiconductor
companies and stands to become the widely accepted standard, replacing flash
memory. As a result, demand for 5N Plus high purity tellurium in this market
is expected to increase significantly.
12
2008 annual rEport
… and thermoelectric Coolers (tEC)
TEC are solid-state cooling devices with uses in a number of highly specialized
applications including laser temperature stabilization and DNA thermal cyclers.
Relying on an alloy composed primarily of tellurium, bismuth and antimony, such
devices are also widely used in portable refrigerators. 5N Plus products, especially
tellurium, are sold extensively into this market.
Zinc and Selenium for Co2 laser optics
Zinc selenide (ZnSe) has become the material of choice for CO2 laser optics since
the early 1980s. With the increasing penetration of CO2 lasers in various military
and industrial settings, demand for ZnSe-based optics has grown steadily
over the years. 5N Plus supplies zinc (Zn) and selenium (Se) into this market,
the demand for which is expected to continue along its steady growth curve for
the foreseeable future.
2008 annual rEport
13
Commitment to Growth
With an annual compounded growth rate in sales of 50% over the last three
years and an even larger increase in profitability, 5N Plus has demonstrated its
ability to grow. Driven primarily by increasing demand for solar-related products,
5N Plus has positioned itself to take advantage of further expansion of this market,
as existing CdTe solar module manufacturers increase capacity and a number
of new companies begin production. 5N Plus also expects significant growth
in other areas, including the radiation detector market, which should translate
into an increasing demand for 5N Plus products.
5n pluS waS ranKEd 18 th on thE 2008 lISt oF quEbEC’S 20 FaStESt-growIng
CoMpanIES publIShEd by thE hIgh proFIlE l ’aCtualIté MagaZInE.
5N Plus’ objective is to maintain its leading position in the rapidly-expanding
markets it currently serves as well as leverage its competitive strengths to diversify
its product offering and enter into new electronic materials market segments. To do
this, 5N Plus’ highest level strategy includes investments in both training and R&D
aimed at developing advantages in terms of competencies, technology and costs.
thIS paSt yEar alonE, 5n pluS rECruItEd nEw SpECIalIZEd EMployEES, InCrEa SIng
ItS worKForCE by MorE than 30% at ItS MontrEal hEad quartErS FaCIlIty.
Specific elements of 5N Plus’ business strategy include organic growth via an
expansion of its production capabilities, such as what was done in the case of
5N Plus’ new Eisenhüttenstadt facility; intensification of its recycling activities
as 5N Plus aims to play an increasing role in the solar module life cycle; and
a diversification of its product offering.
5n pluS IntEndS to lEvEragE ItS KEy CoMpEtEnCIES In rEFInIng SEMI ConduCtor
MatErIalS, and ItS MarKEt poSItIon to dEvElop nEw pro duCt lInES. 5n pluS
bElIEvES that opportunItIES ExISt For aCCrEtIvE aCquI SI tIonS that wIll EnablE
It to rapIdly Expand ItS produCt portFolIo.
14
2008 annual rEport
2008 annual rEport
15
New 5N PV GmbH Facility
5N Plus’ new German facility in Eisenhüttenstadt, owned and operated by its
5N PV GmbH subsidiary, is located in an industrial estate ideally suited for both
recycling and the production of CdTe. 5N Plus acquired 11,000 square meters
of land that provide the necessary space for future expansion.
The commissioning of this new facility, which is operational since July 29, 2008,
constitutes an important milestone for 5N Plus as it aims to take advantage of
new overseas opportunities. Strategically located in Germany where support for
the photovoltaic industry is significant, the new plant enables the Company
to address in the best possible way requirements from its European customers
including First Solar GmbH and Calyxo GmbH, a subsidiary of Q-Cells AG, one of
the world’s largest producers of crystalline silicon solar cells. This manufacturing
facility enables 5N Plus to double its total production capacity of CdTe for solar
applications to reach levels of 200 MT per year, as well as actively participate
through its recycling capacities in the product life cycle. The financial benefits of this
$14.6 million investment are expected to be quite significant and should be reflected,
once the plant is operated at full capacity, by substantial increases in sales.
5n pv gmbh Eisenhüttenstadt Facility technical data
date of commissioning
July 29, 2008
area
4,000 square meters, 43,000 square feet
primary manufacturing capacity
100 MT of CdTe
Facility also has closed-loop recycling capabilities as well as facilities for the production
of other products including CdS
number of employees
grants
total cost
42
$4.1 million
$14.6 million
thIS FIrSt IntErnatIonal ExpanSIon IS ExpECtEd to bE thE bEnChMarK For
Many othErS aS thErE arE ClEar advantagES In bEIng StratEgICally loCatEd
nEar CuStoMEr SItES, ESpECIally whEn thE FInanCIal and opEratIonal rISKS
Can bE MItIgatEd through long-tErM Supply agrEEMEntS.
16
2008 annual rEport
2008 annual rEport
17
Sustainability
5N Plus believes that sustainability of the corporation is closely linked to
its corporate values which are an integral part of daily operations and form the
backbone of the Company’s culture. As a corporation, 5N Plus encourages all
employees to act in accordance with these fundamental values which guide
all of its business activities.
Focus on Customers, aiming to meet and exceed expectations with
product offerings leading to long-lasting and trustworthy relationships.
5n pluS haS EntErEd Into a nuMbEr oF long-tErM Supply agrEEMEntS
wIth KEy CuStoMErS InCludIng FIrSt Solar, thE lEadIng produCEr
oF Cdte thIn-FIlM photovoltaIC ModulES.
Promotion of Health and Safety considerations in an effort aimed
at reducing risks and ensuring a safe and sound work environment.
In thE laSt FISCal yEar, 5n pluS rEportEd rECord-lEvEl pErForManCE
StandardS In tErMS oF hEalth and SaFEty, aS It addEd 336 dayS to ItS
CuMulatIvE nuMbEr oF ConSECutIvE dayS wIthout InCurrIng any
loSS-oF-tIME aCCIdEnt, For a total oF 911 ConSECutIvE dayS.
Commitment, as 5N Plus aims to create a stimulating work environment
in which teamwork and solidarity are highly valued.
aS part oF thE dECEMbEr 2007 Ipo, all pErManEnt EMployEES wErE
gIvEn optIonS to purChaSE CoMMon SharES oF thE CoMpany. ovEr
50% oF EMployEES arE SharEholdErS.
18
2008 annual rEport
Integrity, as 5N Plus pledges to meet the highest level standards both in terms of business
relationships and corporate governance.
at 5n pluS, EvEryonE “walKS thE talK”. ManagEMEnt and EMployEES StrIvE to KEEp
onE’S word, abIdE by thE law, only proMISE what thEy Can dElIvEr and trEat EvEryonE
wIth rESpECt.
Promotion of Excellence, as 5N Plus strives to develop world-class levels of competencies
in all of its activities.
In thE laSt FISCal yEar, 5n pluS obtaInEd ItS ISo 9001 and ISo 14001 CErtIFICatIonS,
IlluStratIng thE CoMpany’S CoMMItMEnt to thE hIghESt lEvElS oF qualIty and
EnvIronMEntal StandardS.
Reduction of 5N Plus’ Environmental Footprint, as it works actively to promote initiatives
aimed at responsible resource management, recycling and the reduction of greenhouse
emissions. In addition to its customer-oriented recycling programs, 5N Plus has implemented
practices aimed at reducing waste generation, water and energy consumption and intends
to intensify its efforts in this area over the coming years. 5N Plus also actively encourages
recycling of domestic waste in the work environment and the use of bicycles to commute.
5n pluS IS a CoMMIttEd partnEr oF thE CIty oF MontrEal SuStaInablE dEvElopMEnt
prograM. In thE laSt FISCal yEar 2008, thE CoMpany’S InvolvEMEnt InCludEd thE ElIMInatIon
oF unnECESSary Motor vEhIClE IdlIng and MEaSurES aIMEd at rEduCIng urban hEat SpotS.
5n pluS waS alSo rEwardEd For ItS proMotIon oF bICyClE CoMMutIng praCtICES by vélo-
québEC, whEn It waS rECognIZEd aS thE MoSt bICyClE-FrIEndly buSInESS In quEbEC.
2008 annual rEport
19
5N PLUS INC.
Management’s Discussion
and Analysis
Fourth Quarter and Year Ended
May 31, 2008
Management’s Discussion and Analysis
Scope of Financial Management’s analysis
This Management’s Discussion and Analysis (“MD&A”) of the operating results and the financial position is intended
to assist readers in understanding 5N Plus Inc. (the “Company”), its business environment and future prospects.
This MD&A should be read in conjunction with the Company’s audited consolidated financial statements and the
accompanying notes for the fiscal year ended May 31, 2008. Information contained herein includes any significant
developments to August 11, 2008, the date on which this MD&A was approved by the Company’s Board of Directors.
All amounts are expressed in Canadian dollars. The financial information included in this MD&A is based on the
Company’s accounting policies that are in compliance with Canadian generally accepted accounting principles
(“GAAP”). Unless otherwise indicated, the terms “we”, “us” and “our” as used herein refer to the Company together
with its subsidiary.
The preparation of consolidated financial statements requires the Company’s management to make estimates and
judgments that affect the amounts recorded as assets, liabilities, shareholders’ equity, sales and expenses. These
assumptions are revised on a regular basis by the Company, based on historical results and new events.
The Company’s management is responsible for maintaining appropriate control systems, procedures and information
systems, thereby ensuring that the information it discloses is reliable and complete. The Company applies financial
information disclosure rules and takes the necessary actions to comply with new accounting standards when they
come into force. The Company also applies the standards set by the capital markets regulatory authorities.
During the fiscal year, on October 1, 2007, 5NPlus Inc. and 6367909 Canada Inc., both held by the same shareholders
with identical interests, amalgamated. The new entity arising from this amalgamation operates under the name
5N Plus Inc. Accordingly, comparative figures reflect this amalgamation.
non-gaap Measures
In this MD&A, the Company’s management uses certain measures which are not in accordance with GAAP and cannot
be formally presented in financial statements. These include EBITDA, gross profit and gross profit ratio, working
capital, and current ratio. EBITDA means earnings before financing costs, interest income, income taxes, depreciation
and start-up costs. Gross profit means sales less cost of goods sold, and gross profit ratio means gross profit divided
by sales. Working capital means current assets minus current liabilities, and current ratio means current assets
divided by current liabilities. The definitions of these non-GAAP measures used by the Company may differ from those
used by other companies.
Forward-looking Statements and disclaimer
Certain statements in this MD&A may be forward-looking. Forward-looking statements are based on the best estimates
available to the Company at the time and involve known and unknown risks, uncertainties or other factors that may
cause the Company’s actual results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking statements. In evaluating these statements,
the reader should consider various factors, including the risks outlined under the heading “Risk Factors” in this MD&A.
The reader is warned against giving undue reliance on these forward-looking statements.
Corporate overview and business
5N Plus Inc. draws its name from the purity of its products, 99.999% (five nines or 5N) and more. We have our head
office in Montreal, Québec, and develop and produce high-purity metals and compounds for electronic applications and
provide our customers with recycling solutions. We are an integrated producer with both primary and secondary refining
capabilities. We focus on specialty metals such as tellurium, cadmium and selenium and on related compounds such as
cadmium telluride and cadmium sulphide. Our products are critical precursors in a number of electronic applications,
including the rapidly-expanding solar (thin-film photovoltaic) market, for which we are a major supplier of cadmium
telluride (CdTe), and the radiation detector market.
2008 annual rEport
21
Management’s Discussion and Analysis
Significant Events
Initial Public Offering
In the third quarter of the fiscal year (specifically, on December 20, 2007), we completed our initial public offering
(“IPO”) and secondary offering for total proceeds of $66,515,403, including the proceeds from the exercise in full of
an over-allotment option by the underwriters of the IPO. This allowed us to raise $34,500,000 ($31,417,006 net of
the underwriters’ commission and issue expenses) by issuing 11,500,000 common shares from treasury and allowed
II-VI Incorporated, a selling shareholder, to sell all of its shares of the Company for $32,015,403 ($29,934,402 net of
the underwriters’ commission). These changes are reflected in the current balance sheet.
Bought Deal Equity Financing
In the fourth quarter (specifically, on April 29, 2008), we issued 4 million common shares from treasury on a bought-
deal basis and raised gross proceeds of $46,200,000 ($44,147,461 net of the underwriters’ commission and issue
expenses). These changes are reflected in the current balance sheet.
business Strategy
Our goal is to accelerate the growth of our cadmium, selenium and tellurium metals and compounds business in order
to meet the increasing demand for these products, in particular in the photovoltaic and medical imaging markets.
In doing so, our objective is to maintain our leading position in these rapidly-expanding markets and leverage our
competitive strengths to diversify our product offering and enter into new electronic-materials market segments.
To accomplish this, our highest-level strategy includes investments in both training and research and development,
to develop advantages in terms of competencies, technology and costs.
highlights of the fourth quarter and of the fiscal year ended May 31, 2008
We intend to become the world’s leading producer of high purity materials. In 2008, we executed on some of the most
important components of our strategy by improving sales and profitability, strengthening operational performance,
adding financial strength and flexibility, and building and commissioning a new German operation.
The increase in sales and profitability was substantial throughout the year and follows a general trend of rapid growth
closely linked to the photovoltaic, and to a lesser extent radiation detector, markets. Net earnings, EBITDA and sales
all reached record levels in the fourth quarter and the fiscal year.
– Net earnings for the fourth quarter were $3,178,621 or $0.08 per share, representing a 160% increase over net
earnings of $1,222,428 or $0.04 per share for the fourth quarter of the previous fiscal year. For the fiscal year, net
earnings were $7,766,137 or $0.22 per share, representing an increase of 117.3% over net earnings of $3,574,082
or $0.12 per share for the previous fiscal year.
– EBITDA for the fourth quarter was $4,646,476 representing an increase of 86.7% over EBITDA of $2,488,087 for the
fourth quarter of the previous fiscal year. EBITDA reached $12,481,760 for the fiscal year, an increase of 73.3% over
EBITDA of $7,202,310 for the previous fiscal year.
– Sales for the fourth quarter were $9,423,908, representing an increase of 43.9% over sales of $6,549,412 for the
fourth quarter of the previous fiscal year. Sales for the fiscal year were $30,972,941, an increase of 41.4% compared
to sales of $21,897,240 for the previous fiscal year.
– Operational performance was outstanding throughout the year as we increased production throughput at our Montreal
facility, to meet the growing requirements of our customers, while improving efficiency and reducing costs.
22
2008 annual rEport
Management’s Discussion and Analysis
– Cash flow from operating activities, excluding changes in non-cash working capital items, increased to $3,552,457
for the quarter and $9,880,266 for the fiscal year. This compares to $1,553,438 and $4,738,467 for the corresponding
periods of the previous fiscal year.
In terms of financial strength and flexibility, there was a significant change in the competitive landscape as a result
of our successful IPO, which closed on December 20, 2007 and allowed us to raise substantial net proceeds to support
our investment program. The IPO was followed in the fourth quarter by a new bought-deal equity financing, to further
strengthen our balance sheet and enable us to more aggressively implement our growth plans.
– Shareholders’ equity significantly increased during the fourth quarter and the fiscal year, reaching $91,553,930 at year
end, up from $7,546,467 at the end of the previous fiscal year. During the fourth quarter, we raised $46,200,000 through
the issuance of 4 million common shares, which resulted in net proceeds of $44,147,461 (net of issue expenses). This
followed the closing of our IPO which occurred during the third quarter of the fiscal year, resulting in net proceeds to us
of $31,417,006 (net of issue expenses).
– Cash and cash equivalents totalled $59,576,743 at year end, compared to $1,526,932 at the end of the previous
fiscal year.
During the year, we successfully built and pre-commissioned a new production facility in Eisenhüttenstadt, Germany.
This new facility, which has been operational since July 29, 2008, enables us to double our production capacity for
CdTe and plays an active role in the recycling of solar module manufacturing residues. The facility currently employs
42 people, many of whom have been trained in Montreal or in Germany by personnel from our Montreal facility. This
investment is one of many which have been made during the year to increase and upgrade production capacities.
– During the fiscal year, we invested $14,383,791 to build and commission our Eisenhüttenstadt facility and $3,178,784
to upgrade and expand the capabilities of our Montreal facility, for a total investment in capital expenditures
of $17,562,575.
Selected annual Information
(all numbers are in Canadian dollars)
Sales
EBITDA1
Net earnings
Net earnings per common share
Basic
Diluted
Dividend per common share
Total assets
Total debt2
Shareholders’ equity
2008
2007
2006
$ 30,972,941
$ 21,897,240
$ 13,800,498
$ 12,481,760
$ 7,202,310
$ 2,247,511
$ 7,766,137
$ 3,574,082
$
767,815
$
$
$
0,22
0.21
0.034
$
$
$
0.12
0.11
0.003
$
$
$
0.03
0.02
0.003
$108,334,189
$ 17,363,037
$ 15,062,509
$ 6,786,312
$ 5,618,270
$ 8,567,471
$ 91,553,930
$ 7,546,467
$ 3,995,096
1. EBITDA means earnings before financing costs, interest income, income taxes, depreciation and start-up costs.
2. Includes bank overdraft, bank loan, capital lease obligations, long-term debt and other long-term liabilities, including their related current portion.
2008 annual rEport
23
Management’s Discussion and Analysis
quarterly Financial data
(all numbers are in Canadian dollars)
2008
2007
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Sales
$ 9,423,908
$ 8,358,817
$ 6,795,743
$ 6,394,473
$ 6,549,412
$ 5,554,737
$ 4,889,938
$ 4,903,153
Gross profit
$ 5,615,838
$ 4,454,138
$ 3,276,379
$ 2,977,434
$ 3,106,722
$ 2,135,263
$ 2,110,620
$ 1,781,270
EBITDA
$ 4,646,476
$ 3,423,415
$ 2,318,111
$ 2,093,758
$ 2,488,087
$ 1,767,318
$ 1,553,343
$ 1,393,562
Net earnings
$ 3,178,621
$ 2,268,712
$ 1,219,548
$ 1,099,256
$ 1,222,428
$ 798,073
$ 867,255
$ 686,326
Earnings per share
Basic
Diluted
$
$
0.08
0.08
$
$
0.06
0.06
$
$
0.04
0.04
$
$
0.04
0.03
$
$
0.04
0.04
$
$
0.03
0.02
$
$
0.03
0.03
$
$
0.02
0.02
results of operations
Introduction
Our sales are generated through the development and production of high-purity metals and compounds which
are used in various electronic applications, including solar cells, radiation detectors, infrared optics and systems,
thermoelectric and optical storage. We also provide recycling services to our customers where residues from their
manufacturing operations are refined and converted back into a usable product. We have one reportable segment,
namely refining and recycling of metals.
Our customer base includes manufacturers of thin-film solar cells, original equipment manufacturers (OEM), and Tier
1 and 2 suppliers which provide consumables, components or sub-assemblies. Our customers are located primarily
in the United States, Europe, Israel and Asia. Three customers accounted for 81% of our sales during the quarter and
80% during the fiscal year.
Sales, gross profit, net Earnings and Earnings per Share
(all numbers are in Canadian dollars unless otherwise stated)
Summary
three months ended May 31
twelve months ended May 31
2008
2007
Increase
2008
2007
Increase
Sales
Gross profit
Gross profit ratio
Net earnings
$ 9,423,908
$ 6,549,412
43.9%
$ 30,972,941
$ 21,897,240
$ 5,615,838
$ 3,106,722
80.8%
$ 16,323,789
$ 9,133,875
41.4%
78.7%
59.6%
47.4%
52.7%
41.7%
$ 3,178,621
$ 1,222,428
160.0%
$ 7,766,137
$ 3,574,082
117.3%
Earnings per share
$
0.08
$
0.04
$
0.22
$
0.12
24
2008 annual rEport
Management’s Discussion and Analysis
Sales for the fourth quarter reached a record level of $9,423,908, up by 43.9% over sales of $6,549,412 for the
corresponding period of the previous fiscal year. For the fiscal year, sales reached $30,972,941, representing a 41.4%
increase over sales of $21,897,240 for the previous fiscal year. This increase in sales is mainly attributable to an
increase in sales to the photovoltaic (solar module) and radiation detector markets. Sales to other markets were
relatively stable.
Gross profit reached $5,615,838 in the fourth quarter and $16,323,789 for the fiscal year, corresponding to gross-
profit ratios of 59.6% and 52.7%, respectively. This compares with gross profit of $3,106,722 and $9,133,875 for
the corresponding periods of the previous fiscal year and respective gross profit ratios of 47.4% and 41.7%. These
improvements in both gross profit and gross profit ratio continue to reflect increased sales and general improvements
in efficiency, scalability and production throughput, as well as an increase in our custom-refining or “tolling” volumes,
where we incur no cost for raw materials.
Net earnings for the fourth quarter also reached a record level of $3,178,621 ($0.08 per share), representing a 160%
increase over net earnings of $1,222,428 ($0.04 per share) for the fourth quarter of the previous fiscal year. For the
fiscal year, net earnings were $7,766,137 ($0.22 per share) representing a 117.3% increase over net earnings of
$3,574,082 ($0.12 per share) for the previous fiscal year. Earnings per share are calculated based on a weighted
average number of common shares outstanding of 42,934,783 for the last quarter, and 35,308,641 for the fiscal year.
Earnings per share for the previous fiscal year are calculated based on a weighted average number of common shares
of 29,635,954.
This increase in net earnings is the result of an increase in gross profit combined with reduced financial expenses,
and interest income generated during the third and fourth quarters from the investment of funds raised during the IPO
and bought-deal equity financing. These positively-contributing factors were only partially offset by increased selling,
administrative, research and development and depreciation expenses. We also recognised a future income tax asset
of $74,826 in the fourth quarter and $219,826 for the fiscal year for expenses incurred in setting up our new German
plant, which decreased overall income tax expense. We continued to capitalize in the fourth quarter, as we had done
in the third quarter, most of the start-up costs associated with our German plant. Amounts capitalized were $660,490
in the fourth quarter and $821,008 for the fiscal year.
Selling and administrative and research and development Expenses
(all numbers are in Canadian dollars unless otherwise stated)
Summary
three months ended May 31
twelve months ended May 31
2008
2007
2008
2007
Selling and Administrative expenses
$
903,514
$
388,686
$ 2,911,797
$ 1,266,697
Percentage of sales for the period
9.6%
5.9%
9.4%
5.8%
Research and Development expenses
$
65,848
$
229,949
$
930,232
$
664,868
(net of tax credits)
Percentage of sales for the period
0.7%
3.5%
3.0%
3.0%
Selling and administrative expenses were $903,514 or 9.6% of sales for the fourth quarter, and $2,911,797 or 9.4%
of sales for the fiscal year. This compares with selling and administrative expenses of $388,686 and $1,266,697 for
the corresponding periods of the previous fiscal year, representing respectively 5.9% and 5.8% of sales. The current
level of selling and administrative expenses is more consistent with that of publicly-traded companies and reflects
additions to our management team and increased legal, auditing and consulting fees.
2008 annual rEport
2008 annual rEport
25
25
Net earnings
PLUS:
Income taxes
Financial expenses
& Interest income
Depreciation
Management’s Discussion and Analysis
Research and development expenses, net of tax credits, were $65,848 or 0.7% of sales in the fourth quarter compared
to $229,949 or 3.5% of sales for the fourth quarter of the previous fiscal year. For the fiscal year, research and
development expenses, net of tax credits, reached $930,232 or 3.0% of sales, which is greater than the expenses
of $664,868 or 3.0% of sales incurred during the previous fiscal year. The decrease in the fourth quarter is associated
with minor adjustments to the research and development credit rate. Overall, research and development expenses
increased during the fiscal year primarily because of expenses incurred during the first quarter, which were made
to increase our product offering for the radiation-detector market and develop and optimize the associated processes.
reconciliation of EbItda and net Earnings
(all numbers are in Canadian dollars unless otherwise stated)
Summary
three months ended May 31
twelve months ended May 31
2008
2007
Increase
2008
2007
Increase
$ 3,178,621
$ 1,222,428
160.0%
$ 7,766,137
$ 3,574,082
117.3%
1,294,472
620,696
3,383,161
1,774,000
(395,861)
297,737
243,404
233,138
Expensed start-up costs
271,507
168,421
(183,708)
1,048,886
666,446
869,974
467,284
317,808
EBITDA
$ 4,646,476
$ 2,488,087
86.7%
$ 12,481,760
$ 7,202,310
73.3%
EBITDA was $4,646,476 for the fourth quarter of fiscal 2008, an increase of 86.7% when compared with EBITDA
of $2,488,087 for the corresponding period of the previous fiscal year. EBITDA for the fiscal year was $12,481,760,
an increase of 73.3% when compared to EBITDA of $7,202,310 for the previous fiscal year. EBITDA increased
at a lower rate than net earnings for both the quarter and the fiscal year because it was not positively impacted by the
recognition of the future income tax asset, reduced financing expenses and interest income.
Financial Expenses, Depreciation, Start-up Costs and Income Taxes
Following the IPO, we paid back substantially all of our debt and generated interest income of $250,682 in the fourth
quarter, for a total of $419,901 during the fiscal year, from the investment of the net proceeds raised during the IPO
and the bought-deal equity financing. The combined financial expenses and interest income thus netted a gain of
$395,861 for the fourth quarter, as we also incurred a foreign exchange gain of $202,271 in the quarter and $124,710
for the fiscal year. This compares favourably with expenses of $243,404 and $666,446 for the corresponding periods
of the previous fiscal year.
Depreciation for the quarter increased by 27.7%, to $297,737 from $233,138, and increased for the fiscal year by
20.6%, to $1,048,886 from $869,974. Expensed start-up costs for the quarter were $271,507 and $467,284 for the
fiscal year. We also capitalized in the third and fourth quarters certain of the start-up costs associated with our new
German facility. In the previous fiscal year, a period in which no start-up costs were capitalized, we expensed start-up
costs of $168,421 in the fourth quarter and $317,808 for the entire year.
26
2008 annual rEport
Management’s Discussion and Analysis
Income taxes were $1,294,472 for the fourth quarter and $3,383,161 for the fiscal year. These figures correspond
to effective tax rates of 28.9% and 30.3%, respectively. This compares with income taxes of $620,696 and $1,774,000
for the corresponding periods of the previous fiscal year, representing effective tax rates of 33.6% and 33.2%,
respectively. The decrease in our effective tax rate is attributable to the recognition of our future income tax assets
in both the fourth quarter and fiscal year.
liquidity and Capital resources
(all numbers are in Canadian dollars, except for current ratio)
Balance Sheet
Working capital
Current ratio
Property, plant and equipment
Total assets
Total debt
Shareholders’ equity
Working Capital and Current Ratio
as at
May 31, 2008
May 31, 2007
$
71,921,979
$
2,026,457
7.34
1.36
21,220,889
$
108,334,189
6,786,312
$
$
9,669,876
17,363,037
5,618,270
91,553,930
$
7,546,467
$
$
$
$
Our working capital and current ratio increased substantially during the fiscal year as a result of the successful IPO
and bought-deal equity financing. Working capital increased to $71,921,979 on May 31, 2008 from $2,026,457 on
May 31, 2007 and the current ratio increased to 7.34 from 1.36. The main balance sheet items having a material
impact on the working capital and the observed changes included cash, accounts receivable, inventories and future
income tax assets, as well as accounts payable and accrued liabilities, income taxes and current portion of long term
debt liabilities, with cash and cash equivalents being the dominant factor.
As at May 31, 2008, our cash position was $59,576,743, primarily as a result of the net proceeds from the IPO
and bought-deal equity financing. Accounts receivable continued to rise and totalled $10,164,562 compared to
$2,550,370 as at May 31, 2007. This is explained by an increase in trades accounts receivable, which is somewhat
correlated with increasing sales levels, a substantial increase in commodity taxes, related to increasing purchases
of raw materials and capital expenditures, and the inclusion of outstanding amounts related to the subsidy provided
to our German subsidiary by the German authorities. Inventories also increased substantially compared to May 31,
2007 levels, to $12,727,564 from $3,307,810, primarily as a result of an increase in our raw-materials inventory, as
we aim to further strengthen our supply chain. Increases in both inventories and capital expenditures led to increases
in accounts payable and accrued liabilities, which increased to $7,486,227 as at May 31, 2008 from $2,299,279
as at May 31, 2007.
Future Income Taxes
At May 31, 2008, future income taxes represented a net asset position of $1,365,861 compared to a net liability
of $793,000 in 2007. The change of approximately $2.2 million is largely attributable to expenses related to the
two issuances of the Company shares which are accounted for as a reduction of retained earnings for accounting
purposes but generally deductible for tax purposes on a straight-line basis over a five-year period, and to the recognition
of a non-taxable grant receivable which is accounted for as a reduction of the related property, plant and equipment
for accounting purposes.
2008 annual rEport
27
Management’s Discussion and Analysis
Losses carried forward future income tax assets are associated with taxes on expenses incurred in setting up the new
German facility. These amounted to $74,826 in the fourth quarter and $219,826 for the fiscal year.
Property, Plant and Equipment and Deferred Costs
Property, plant and equipment increased by $17,562,575 from May 31, 2007 to May 31, 2008. Of this amount,
$14,383,791 was related to the new German facility and the associated land and $3,178,784 for capital expenditures
made at the Montreal facility to improve capacity and plant efficiency. We also capitalized deferred costs of $821,008
which correspond to the start-up costs incurred in the fiscal year and related to the German facility. We intend
to continue capitalizing start-up costs moving forward until the plant is fully operational.
Total Debt and Deferred Revenue
Debt increased during the fourth quarter as we contracted a new loan of $5,000,000. Total debt as at May 31, 2008
was $6,786,312, up from $5,618,270 one year earlier. During the first quarter of the fiscal year, we contracted a new
loan of $3,400,000, which was paid back in the third quarter of the fiscal year with the net proceeds of the IPO. We also
received during the year a subsidy of €540,000 by a German company which was granted to our German subsidiary
5N PV GmbH to promote employment in the city of Eisenhüttenstadt, and on the basis that the subsidiary will create
a given number of full-time jobs over the next three years. This subsidy is recognized as deferred revenue. A letter
of credit for the same amount was issued in favour of the German company in the event that 5N PV GmbH is not able
to comply with the terms of this agreement. As of May 31, 2008, an amount of €23,542 was recognized as revenues.
Shareholders’ Equity
Shareholders’ equity stood at $91,553,930 or 84.5% of total assets on May 31, 2008. This compares with $7,546,467
or 43.5% of total assets on May 31, 2007. This substantial increase is the result of the net proceeds raised during the
IPO and bought-deal equity financing as well as strong net earnings throughout the fiscal year.
Cash Flow
The following table provides an overview of our cash flows for the periods indicated:
(all numbers are in Canadian dollars)
Operating activities1
Add:
three months ended May 31
twelve months ended May 31
2008
2007
2008
2007
$ 3,552,457
$ 1,553,438
$ 9,880,266
$ 4,738,467
Net change in non-cash working capital items
(7,174,822)
(204,605)
(11,290,220)
Operating activities (total)
Financing activities
Investing activities
(3,622,365)
1,348,833
(1,409,954)
49,738,474
371,744
76,297,401
(2,601,626)
(6,439,436)
(668,895)
(16,837,636)
(1,663,474)
1,281,836
6,020,303
Net Increase in cash and cash equivalents
$ 39,676,673
$ 1,051,682
$ 58,049,811
$ 1,755,203
1. Before net change in non-cash working capital items
28
2008 annual rEport
Management’s Discussion and Analysis
Cash flow from operating activities before changes in non-cash working capital items for the quarter ended May 31,
2008 was $3,552,457, an increase of 128.7% compared to $1,553,438 for the corresponding quarter in the previous
fiscal year. For the fiscal year, cash flow from operating activities before changes in non-cash working capital items
was $9,880,266, an increase of 108.5% compared to $4,738,467 for the previous fiscal year. These increases reflect
higher net earnings for the fiscal year compared to the previous fiscal year. Net working capital requirements continued
to increase and were significantly higher in both the quarter and fiscal year than in the corresponding periods of the
previous fiscal year. This increase results from substantial increases in inventory levels, in particular raw materials and
accounts receivable, both of which were only partially offset by an increase in accounts payable.
Cash flow from financing activities reached $49,738,474 in the fourth quarter following the issuance in April 2008 of
four million common shares from treasury for additional gross proceeds of $46,200,000 ($44,225,061 net of the issue
expenses). For the fiscal year, cash flow from financing activities reached $76,297,401 as a result of the successful
IPO ($31,417,006 net of the issue expenses) combined with the subsequent bought-deal new issue of common shares
from treasury. We also have $3,784,595 available under our $5,046,800 credit line.
Cash consumed in investing activities continued to be substantial as we invested in our new German facility, which
became operational in July 2008, and in the Montreal facility. Total investments reached $6,439,436 for the quarter and
$16,837,636 for the fiscal year, compared to investments of $668,895 and $1,663,474 for the corresponding periods
of the previous fiscal year.
Our cash position improved by $39,676,673 for the fourth quarter and by $58,049,811 for the fiscal year. Our cash
position on May 31, 2008 was $59,576,743, which compares favourably with the cash position of $1,526,932 on
May 31, 2007. We believe that this amount of cash combined with the available credit facilities and cash generated
from operations will be sufficient to fund our working capital requirements and expected capital expenditures in both
Germany and Montreal, as well as enable us to execute our growth plan.
Contractual obligations
The following table summarizes our principal contractual obligations for our normal business operations as at May 31, 2008:
payment due by period in thousands
of Canadian dollars
Long-term debt
Other long-term liabilities
Operating leases
Purchase obligations
2009
2010
2011
2012
2013
thereafter
total
$
579
$
550
$
500
$
500
$
500
$ 2,497
$ 5,126
270
662
1,186
128
585
-
-
584
-
-
584
-
-
182
-
-
15
-
398
2,612
1,186
$ 2,697
$ 1,263
$ 1,084
$ 1,084
$
682
$ 2,512
$ 9,322
As at May 31, 2008, the Company had placed orders with suppliers for the purchase of fixed assets of $1,186,184.
The Company’s German subsidiary is commited to a number of conditions in its supply agreement with First Solar.
These conditions include the date of commencement of commercial production of the new German facility, minimum
quantities of products to be sold to First Solar and certain recycling obligations. At this date, we have met all of our
contractual obligations.
2008 annual rEport
29
Management’s Discussion and Analysis
related party transactions
In the normal course of our activities, we concluded the following transactions with II-VI Incorporated, which was
a shareholder of the Company until December 20, 2007, under terms and conditions agreed upon by the parties:
(all numbers are in Canadian dollars)
Sales
Purchases
Interest expense
years ended May 31
2008
2007
1,129,323
$
1,517,395
28,698
19,179
$
$
106,633
35,842
$
$
$
off-balance Sheet agreements
Other than operating leases, there were no off-balance sheet agreements as at May 31, 2008.
deferred Costs
Since December 1, 2007 the expenditures incurred during the start-up period of the new German subsidiary have been
deferred and will be amortized on a straight-line basis over 24 months upon commencement of commercial operations.
order backlog
The backlog of orders expected to translate into sales within the next twelve months strengthened during the
quarter and reached $30,174,000 on May 31, 2008, 77.6% higher than the corresponding backlog of $16,992,000
on May 31, 2007.
Subsequent Events
5N PV GmbH Eisenhüttenstadt Facility
As of July 29, 2008, our German facility is operational and we have met both our cost objectives and schedule.
Financial Instruments
On June 9, 2008, the Company concluded a foreign currency forward contract totalling €4,500,000 at an average
conversion rate of 1.58. This foreign currency forward contract of €500,000 by month will be effective from September 15,
2008 until May 15, 2009.
30
2008 annual rEport
Management’s Discussion and Analysis
Comparative Figures
Certain figures previously reported on for 2007, have been reclassified to conform with the current year’s presentation.
governance
Disclosure Controls and Procedures
The Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of the Company’s disclosure
controls and procedures for financial year ended May 31, 2008. Based on that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures
were effective as at May 31, 2008 to provide reasonable assurance that material information relating to the Company
would be made known to them by others within the Company.
Internal Control over Financial Reporting
The Chief Executive Officer and the Chief Financial Officer have designed internal control over financial reporting (“ICFR”)
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
in accordance with Canadian GAAP. There were no changes in our internal controls over financial reporting during fiscal
year 2008 that have materially affected, or are likely to materially affect, our internal controls over financial reporting.
Critical accounting Estimates
Use of Estimates
The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Significant areas requiring the use of management estimates include estimating the useful lives
of long-lived assets, as well as assessing the recoverability of accounts receivable, research tax credits and future
income taxes. Reported amounts and note disclosure reflect the overall economic conditions that are most likely
to occur and anticipated measures to be taken by management. Actual results could differ from those estimates.
Changes in accounting policies
On June 1, 2007, we adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 1530,
“Comprehensive Income”, CICA Handbook Section 3251, “Equity”, CICA Handbook Section 3855, “Financial
Instruments - Recognition and Measurement”, CICA Handbook Section 3861, “Financial Instruments - Disclosure
and Presentation”, and CICA Handbook Section 3865, “Hedges”. These new CICA Handbook Sections, which apply
to fiscal years beginning on or after October 1, 2006, provide comprehensive requirements for the recognition and
measurement of financial instruments, as well as standards on when and how hedge accounting may be applied.
Handbook Section 1530 also establishes standards for reporting and displaying comprehensive income. Comprehensive
income is defined as the change in equity from transactions and other events from non-shareholder sources. “Other
comprehensive income” refers to items recognized in comprehensive income, but that are excluded from net income
calculated in accordance with generally accepted accounting principles.
2008 annual rEport
2008 annual rEport
31
31
Management’s Discussion and Analysis
Under these new standards, all financial instruments are classified into one of the following five categories: held
for trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets, or other financial
liabilities. All financial instruments, including derivatives, are included on the consolidated balance sheet and are
measured either at fair market value with the exception of loans and receivables, investments held-to-maturity and
other financial liabilities, which are measured at amortized cost. Subsequent measurement and recognition of changes
in fair value of financial instruments depend on their initial classification. Held-for-trading financial investments
are measured at fair value and all gains and losses are included in net income in the period in which they arise.
Available-for-sale financial instruments are measured at fair value with revaluation gains and losses included in other
comprehensive income until the assets are removed from the balance sheet.
The standards also require derivative instruments to be recognized as either assets or liabilities measured at their
fair value unless exempted from derivative treatment as a normal purchase and sale. Certain derivatives embedded
in other contracts must also be measured at fair value. All changes in the fair value of derivatives are recognized
in earnings unless specific hedge criteria are met, which requires that a company must formally document, designate
and assess the effectiveness of transactions that receive hedge accounting.
The adoption of standards of Sections 1530, 3251, 3855, 3861 and 3865 had no significant impact on the audited
combined consolidated financial statements for the year ended May 31, 2008.
Future accounting Standards
The CICA published the following new sections that apply to our interim and annual financial statements beginning
on or after June 1, 2008.
– Section 1400, “General Standards on Financial Statement Presentation”, has been amended to include requirements
to assess and disclose an entity’s ability to continue as a going concern.
– Section 1535, “Capital Disclosures”, establishes standards for disclosing information about an entity’s capital and how
it is managed. It describes the disclosure of the entity’s objectives, policies and processes for managing capital as well
as summary quantitative data on the elements included in the management of capital. The section seeks to establish
whether the entity has complied with capital requirements and if not, the consequences of such non-compliance.
– Section 3031, “Inventories”, provides guidance on the determination of cost and the subsequent recognition as an
expense, including any write-down to net realizable value. The standard also permits the reversal of previous write-
downs when there is a subsequent increase in the value of inventories. Finally, the standard provides guidance on
the cost formulas that are used to assign costs to inventories and requires the consistent use of inventory policies
by type of inventory with similar nature and use.
– Section 3862, “Financial Instruments - Disclosures”, describes the required disclosures to evaluate the significance
of financial instruments for the entity’s financial position and performance as well as the nature and extent of risks
arising from financial instruments to which the entity is exposed and how the entity manages those risks.
– Section 3863, “Financial Instruments - Presentation”, establishes standards for the presentation of financial
instruments and non-financial derivatives. It details the presentation of standards described in Section 3861,
“Financial Instruments - Disclosure and Presentation”.
We have concluded that these new standards will not significantly impact our future financial position or results
of operations.
June 1, 2011, will be the changeover date from Canadian GAAP to International Financial Reporting Standards (“IFRS”)
for us. As of today, we have not evaluated the impact of these new standards.
32
2008 annual rEport
Management’s Discussion and Analysis
Financial Instruments
Credit Risk
We are exposed to a credit risk with our accounts receivable. We have entered into an agreement with Export
Development Canada (“EDC”) pursuant to which EDC partially insures the risk of loss. In addition, management
evaluates each account individually and considers that no provision for doubtful accounts is necessary under
current circumstances.
Interest Rate Risk
We are exposed to a risk of interest rate fluctuations on our bank loan and certain long-term liabilities. However,
a change of 1% would not materially affect our net earnings, retained earnings and cash flows.
Currency Risk
Currency translation and transaction risk may negatively affect our net sales, cost of sales and gross margins, and
could result in significant exchange losses. We report our financial results in Canadian dollars, while more than 97%
of our sales are denominated in foreign currencies. We also incur most of our costs in the local currency, which
means the Canadian dollar for our Montreal facility and the Euro for our new German manufacturing facility. Although,
the purchases of raw materials are denominated in U.S. dollars, thus reducing exchange rate fluctuations, we are
subject to currency translation risk which can negatively impact our sales and operating margins. Management has
implemented a policy for managing foreign exchange risk against the relevant functional currency. We manage foreign
exchange by entering into various foreign-exchange forward contracts when deemed appropriate.
Fair Value
The carrying value of cash and cash equivalents, temporary investments, accounts receivable, long-term loans,
accounts payable and long-term debt approximates their fair value due to their short term to maturity or because they
are at rates that do not vary significantly from current market rates.
risk Factors
We are subject to a number of risk factors which may limit our ability to execute our strategy and achieve our long-term
growth objectives. These include:
Market Acceptance and Reliance on Thin-Film and Photovoltaic Technologies
We depend on market acceptance of our customers’ products and the technology associated therewith. Any delay
or failure by our customers to successfully penetrate their respective markets could lead to a reduction in our sales
and operating margins. Most of our products are sold either into emerging markets or alternatively in existing markets,
in which they are used to manufacture replacement products intended to represent new and improved technologies.
If our customers are unable to meet the performance and cost targets required for commercial viability, their products
are subject to regulations which limit their use, or the new or improved technology associated with their products
proves unsuitable for widespread adoption, it may have an adverse effect on our sales and operating margins.
Price Risk
We are exposed to a risk of fluctuations in market prices for metals. To reduce this risk, we have signed agreements
with set prices for certain customers and raw materials suppliers.
2008 annual rEport
33
Management’s Discussion and Analysis
Sources of Supply
We may not be able to secure the critical tellurium and selenium feedstock on which we depend for our operations.
In particular, tellurium supply is essential to the production of CdTe. We currently procure our raw materials from
a number of suppliers with whom we have had long-term commercial relationships. The loss of any one of these
suppliers or a reduction in the level of deliveries to us may reduce our production capacity and impact deliveries to
customers. This would in turn negatively impact our sales, net margins and may lead to liabilities with respect to our
supply contracts.
Reliance on Major Customers
For the year ended May 31, 2008, 80% of our sales were made to three customers. The loss of, or a decrease in the
amount of business from these customers could significantly reduce our net sales and harm our operating results.
Environmental Regulations
Our operations involve the use, handling, generation, processing, storage, transportation, recycling and disposal
of hazardous materials and are subject to extensive environmental laws and regulations at the national, provincial,
local and international level. These environmental laws and regulations include those governing the discharge of
pollutants into the air and water, the use, management and disposal of hazardous materials and wastes, the clean-up
of contaminated sites and occupational health and safety. We have incurred and will continue to incur capital expenditures
in order to comply with these laws and regulations. In addition, violations of, or liabilities under, environmental laws or
permits may result in restrictions being imposed on our operating activities or in our being subject to substantial fines,
penalties, criminal proceedings, third party property damage or personal injury claims, clean-up costs or other costs.
While we believe that we are currently in compliance with applicable environmental requirements, future developments
such as the implementation of new, more stringent laws and regulations, or the discovery of currently unknown
environmental conditions may require expenditures that could have a material adverse effect on our business, results
of operations and financial condition.
Competition
The forecasted growth in demand for high-purity metals, especially those used by the solar power industry, is expected
to attract more metal refiners into this industry and increase competition. Competition could arise from new low-
cost metal refiners or from certain of our customers who could decide to integrate backward. We may not be able
to compete with lower-cost competitors who operate in developing countries. Our operations are currently based
in Canada and Europe. While the labour component of our cost structure remains relatively small, it may be difficult for
us to compete on equal footing with competitors based in developing countries. Although we believe that proximity to our
customers’ operations is an important competitive advantage because of environmental and recycling considerations,
our competitors may gain market share, which could have an adverse effect on our sales and operating margins,
should we not be able to compensate for the volume lost to our competition.
Dependence on Key Personnel
We are dependent on the services of our senior management team and the loss of any member of this team could
have a material adverse effect on us. Our future success also depends on our ability to retain key employees and
attract, train, retain and successfully integrate new talent into our management and technical teams. Recruiting and
retaining talented personnel, particularly those with expertise in the electronic materials industry, refining technology
and cadmium, tellurium- and selenium-based compounds, is vital to our success and may prove difficult.
34
2008 annual rEport
Management’s Discussion and Analysis
Business Interruptions
We may incur losses resulting from business interruptions. In many instances, especially those related to our long-
term contracts, we have contractual obligations to deliver product in a timely manner. Any disruption in our activities
which leads to a business interruption could harm customers’ confidence level and lead to the cancellation of our
contracts and legal recourse against us. Although we believe that we have taken the necessary precautions to avoid
business interruptions and carry business interruption insurance, we could still experience interruptions which would
adversely impact our financial results.
Protection of Intellectual Property
Protection of our proprietary processes, methods and other technologies is critical to our business. We rely almost
exclusively on a combination of trade secrets and employee confidentiality agreements to safeguard our intellectual
property. We have deliberately chosen to limit our patent position to avoid disclosing valuable information. Failure
to protect and monitor the use of our existing intellectual property rights could result in the loss of valuable technologies
and processes.
risks related to the new german Manufacturing Facility
Option to First Solar to Purchase the German Manufacturing Facility
As described in our prospectus dated December 12, 2007, filed in connection with our IPO, one of our supply
agreements with First Solar Inc. contains a “call” option under which First Solar Inc. may, if we are unable to comply
with our contractual obligations, purchase all of our equity interest in our German subsidiary. As a result, we may be
obligated to sell the German subsidiary for a fixed price, which would adversely impact our growth prospects and have
a material adverse effect on our results of operations.
In addition, the fact that the purchase option may be triggered upon a change of control adversely affecting First Solar Inc.
could reduce our attractiveness for potential take-over bids and business combinations, correspondingly affecting our
share price. It could also limit our ability to raise funds through the issuance of additional common shares, depending
on the level of dilution resulting therefrom.
outstanding Share data
As at the date hereof, there are 45,500,000 common shares of the Company issued and outstanding.
additional Information
Our common shares trade on the Toronto Stock Exchange (TSX) under the ticker symbol “VNP”. Additional information
relating to the Company, including the Company’s annual information form is available under the Company’s profile
on SEDAR at www.sedar.com.
2008 annual rEport
35
5N PLUS INC.
Consolidated Financial Statements
Years ended May 31, 2008 and 2007
Summary
Management’s Report
Auditors’ Report
Consolidated Statements of Earnings
Consolidated Statements of Retained Earnings
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
37
38
39
39
40
41
42
Consolidated Financial Statements
Management’s report to the Shareholders of 5n plus Inc.
The accompanying consolidated financial statements are the responsibility of the management of 5N Plus Inc.,
and have been reviewed by the Audit Committee and approved by the Board of Directors.
The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in Canada and include certain estimates that reflect management’s best judgment.
Management is also responsible for all other information included in this Annual Report and for ensuring that this
information is consistent with the Company’s consolidated financial statements and business activities.
The Management of the Company is responsible for the design, establishment and maintenance of appropriate internal
controls and procedures for financial reporting, to ensure that financial statements for external purposes are fairly
presented in conformity with generally accepted accounting principles. Such internal controls systems are designed
to provide reasonable assurance on the reliability of the financial information and the safeguarding of assets.
External auditors have free and independent access to the Audit Committee, which is comprised of outside independent
directors. The Audit Committee, which meets regularly throughout the year with members of management reviews the
consolidated financial statements and recommends their approval to the Board of Directors.
The consolidated financial statements have been audited by KPMG LLP.
SIGNED:
SIGNED:
Jacques l’écuyer
President and Chief Executive Officer
Christian dupont, Ca
Chief Financial Officer
Montreal, Canada
August 11, 2008
2008 annual rEport
37
Consolidated Financial Statements
auditors’ report to the Shareholders of 5n plus Inc.
We have audited the consolidated balance sheets of 5N Plus Inc. as at May 31, 2008 and 2007 and the consolidated
statements of earnings, retained earnings and cash flows for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position
of the Company as at May 31, 2008 and 2007 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
SIGNED:
KPMG LLP
Chartered Accountants
Montreal, Canada
July 18, 2008
38
2008 annual rEport
Consolidated Statements of Earnings
years ended May 31
(in Canadian dollars)
Sales
Cost of goods sold
Gross profit
Expenses
Selling and administrative
Research and development
Financial (note 15)
Interest income
Depreciation of property, plant and equipment (note 5)
Earnings before undernoted items
Start-up costs, new plant
Earnings before income taxes
Income taxes
Current
Future
Net earnings
Earnings per share (note 18)
Basic
Diluted
2008
2007
$
30,972,941
$
21,897,240
14,649,152
16,323,789
2,911,797
930,232
236,193
(419,901)
1,048,886
4,707,207
11,616,582
467,284
11,149,298
3,395,315
(12,154)
3,383,161
7,766,137
0.22
0.21
$
$
$
12,763,365
9,133,875
1,266,697
664,868
666,446
-
869,974
3,467,985
5,665,890
317,808
5,348,082
1,540,000
234,000
1,774,000
3,574,082
0.12
0.11
$
$
$
Weighted average number of common shares (note 18)
Basic
Diluted
35,308,641
36,884,776
29,635,954
31,909,531
the accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Retained Earnings
years ended May 31
(in Canadian dollars)
(in Canadian dollars)
2008
2008
Retained earnings, beginning of year
$
6,466,347
$
Net earnings
Dividends
Share issue expenses, net of income taxes of $ 1,492,199
Excess of purchase price over stated value of shares purchased
by the Company (note 11)
Retained earnings, end of year
7,766,137
(1,000,000)
(3,643,334)
(66,050)
the accompanying notes are an integral part of these consolidated financial statements.
2008 annual rEport
39
2007
2007
2,966,345
3,574,082
(74,080)
-
-
$
9,523,100
$
6,466,347
Consolidated Balance Sheets
as at May 31
(in Canadian dollars)
assets
Current assets
Cash and cash equivalents
Accounts receivable (note 3)
Inventories (note 4)
Prepaid expenses
Future income taxes (note 13)
Property, plant and equipment (note 5)
Grant receivable (note 16)
Future income taxes (note 13)
Deferred start-up costs
Other assets
liabilities and Shareholders’ Equity
Current liabilities
Bank loan (note 6)
Accounts payable and accrued liabilities (note 7)
Income taxes payable
Current portion of long-term debt (note 8)
Current portion of other long-term liabilities (note 9)
Future income taxes (note 13)
Long-term debt (note 8)
Other long-term liabilities (note 9)
Deferred revenue (note 10)
Future income taxes (note 13)
Shareholders’ Equity
Share capital (note 11)
Contributed surplus (note 12)
Retained earnings
2008
2007
$
59,576,743
$
10,164,562
12,727,564
348,504
456,325
83,273,698
21,220,889
2,053,377
909,536
821,008
55,681
1,526,932
2,550,370
3,307,810
203,944
-
7,589,056
9,669,876
-
-
-
104,105
$
108,334,189
$
17,363,037
$
1,262,205
$
7,486,227
1,754,114
578,922
270,251
-
11,351,719
4,547,028
127,906
753,606
-
16,780,259
81,788,694
242,136
9,523,100
91,553,930
1,040,000
2,299,605
1,105,695
538,060
539,565
40,000
5,562,925
3,236,393
264,252
-
753,000
9,816,570
998,338
81,782
6,466,347
7,546,467
$
108,334,189
$
17,363,037
Commitments (note 17)
Subsequent event (note 21)
the accompanying notes are an integral part of these consolidated financial statements.
on behalf of the board:
SIGNED:
SIGNED:
Jacques l’écuyer, director
Jean-Marie bourassa, director
40
2008 annual rEport
Consolidated Statements of Cash Flows
years ended May 31
(in Canadian dollars)
Cash flows from operating activities
Net earnings
Adjustments for:
Future income taxes
Depreciation of property, plant and equipment
Loss (gain) on disposal of property, plant and equipment
Other amortizations
Deferred revenue
Stock-based compensation
net changes in non-cash working capital items
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Income taxes
Cash flows from financing activities
Net change in bank loan
Net change in other assets and long-term liabilities
Increase in long-term debt, net of related financial expenses
Repayment of long-term debt
Deferred financing fees
Purchase of shares
Issuance of shares, net of issue expenses of $5,135,533
Dividends paid
Grants - property, plant and equipment
Cash flows from investing activities
Additions to property, plant and equipment
Proceeds from disposal of property, plant and equipment
Deferred start-up costs
Deposits
Net increase in cash and cash equivalents
Cash and cash equivalents (bank overdraft), beginning of year
2008
2007
$
7,766,137
$
3,574,082
(12,154)
1,048,886
38,766
33,027
753,606
251,998
9,880,266
(6,073,430)
(9,419,754)
(144,560)
3,555,078
792,446
(1,409,954)
222,205
(405,660)
8,400,000
(7,045,610)
(64,990)
(70,063)
75,644,793
(1,000,000)
616,726
76,297,401
234,000
869,974
(7,020)
16,681
-
50,750
4,738,467
98,150
(253,727)
(155,594)
379,341
1,213,666
6,020,303
(1,090,000)
28,443
-
(1,659,178)
(10,500)
-
945
(74,080)
202,744
(2,601,626)
(16,004,152)
(1,695,839)
-
(821,008)
(12,476)
(16,837,636)
58,049,811
1,526,932
16,845
-
15,520
(1,663,474)
1,755,203
(228,271)
1,526,932
Cash and cash equivalents, end of year
$
59,576,743
$
Supplementary information
Property, plant and equipment not paid and included in accounts
payable and accrued liabilities
Interest paid
Income taxes paid (recovered)
$
$
$
1,715,915
301,515
2,105,015
$
$
$
-
460,396
(107,587)
the accompanying notes are an integral part of these consolidated financial statements.
2008 annual rEport
41
Notes to Consolidated Financial Statements
(In Canadian dollars)
1. Company reorganization
On October 1, 2007, 5NPlus Inc., and 6367909 Canada Inc. both held by the same shareholders with identical
ownership interests, amalgamated. The new entity arising from this amalgamation operates under the name of 5N Plus
Inc. (“the Company”). Accordingly, the comparative figures reflect this amalgamation. 5N Plus Inc. became a public
company during an initial public offering (“IPO’’) on December 20, 2007.
2. Significant accounting policies
These consolidated financial statements have been prepared in accordance with Canadian generally accepted
accounting principles (“GAAP”).
a) Consolidated financial statements
These consolidated financial statements include the accounts of 5N Plus Inc. and the wholly-owned subsidiary
5N PV GmbH. All significant intercompany transactions and balances have been eliminated.
b) Cash and cash equivalents
Cash and cash equivalents consists of cash on hand and balances with banks as well as all highly liquid short-term
investments with original maturities of three months or less. They are accounted for at their estimated fair value which
approximates cost.
c) Inventories
Raw materials are valued at the lower of cost and replacement value, cost being determined under the average cost
method. Finished goods are valued at the lower of cost and net realizable value, cost being determined under the average
cost method and representing the value of raw materials, direct labour and a reasonable proportion of factory overhead.
d) property, plant and equipment
Property, plant and equipment are recorded at cost. Equipment under capital leases is recorded at the discounted
value of minimum rental payments. Depreciation is calculated under the straight-line method at the following
annual rates:
Buildings
Leasehold improvements
Production equipment
Automotive equipment
Furniture and office equipment
Computer equipment
periods
25 years
10 to 20 years
10 years
10 years
3, 5 and 10 years
3 years
42
2008 annual rEport
Notes to Consolidated Financial Statements
(In Canadian dollars)
e) deferred costs
Since December 1, 2007, the expenditures incurred during the start-up period of our new German subsidiary are deferred
and will be amortized on a straight-line basis over twenty-four months upon commencement of commercial operations.
f) Impairment and disposal of long-lived assets
Long-lived assets, including property, plant and equipment and intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an
asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount
of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount of which
the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately
presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and
would no longer be depreciated. The assets and liabilities of a disposed group classified as held-for-sale would
be presented separately in the appropriate asset and liability sections of the balance sheet.
g) revenue recognition
Under the terms of the agreements entered into with customers, the Company produces and sells a range of metals
and compounds that have to meet specific requirements. The Company considers that all the material risks and
advantages inherent in ownership are transferred to these customers at the time of their receipt of the products or
delivery in accordance with the terms of the agreements.
h) research and development
Research expenditures are expensed as incurred. They include a reasonable proportion of indirect costs. Development
expenditures are deferred when they meet the capitalization criteria provided for by Canadian GAAP, and it is considered
reasonably certain that future advantages will be realized. As at May 31, 2008 and 2007, no development expenses
were deferred.
i) Foreign exchange
Foreign-denominated monetary assets and liabilities are translated into Canadian dollars at the exchange rates
prevailing at the balance sheet date. Non-monetary foreign-denominated assets and liabilities are translated at the
exchange rates prevailing on the transaction date. Foreign-denominated revenues and expenses are translated at the
exchange rate in effect on the transaction date. Foreign exchange gains and losses are included in the determination
of earnings.
The foreign subsidiary is considered an integrated foreign operation and is translated using the temporal method.
Accordingly, gains and losses are accounted for in earnings.
j) Income taxes
Income taxes are provided for using the liability method. Under this method, differences between the accounting and
the income tax bases of the Company’s assets and liabilities are recorded using the substantially enacted tax rates
anticipated to be in effect when the tax differences are expected to reverse. A valuation allowance is recorded against
any future tax asset if it is more likely than not that the asset will not be realized.
2008 annual rEport
43
Notes to Consolidated Financial Statements
(In Canadian dollars)
k) guarantees
In the normal course of business, the Company enters into various agreements that may contain features that meet
the definition of a guarantee. A guarantee is defined to be a contract (including an indemnity) that contingently requires
the Company to make payments to a third party based on (i) changes in an underlying interest rate, foreign exchange
rate, equity or commodity instrument, index or other variable that is related to an asset, a liability or an equity security
of the guaranteed party, (ii) failure of another party to perform under an obligating agreement, or (iii) failure of another
party to pay its indebtedness when due.
A liability is recorded when the Company considers probable that a payment relating to a guarantee has to be made
to the other party of the contract or agreement.
l) Stock-based compensation and other stock-based payments
The Company accounts for the cost of stock-based compensation awards granted to employees and non-employees
using the estimated average fair value method based on the Black-Scholes model. Under this method, compensation
costs are calculated at their fair value on the grant date and are expensed over the period of acquisition of the awards.
m) Earnings per share
Basic earnings per share are determined using the weighted average number of common shares outstanding during
the fiscal year. Diluted earnings per share are computed in a manner consistent with basic earnings per share, except
that the weighted average shares outstanding are increased to include additional shares from the assumed exercise of
options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding options
and warrants were exercised, and that the proceeds from such exercises were used to acquire shares of common
stock at the average market price during the reporting year. The dilutive effect of the convertible notes is reflected
in diluted earnings per share by application of the “if-converted” method, if dilutive. Under the if-converted method,
convertible notes are assumed to have been converted at the beginning of the period (or at time of issuance, if later) and
the resulting common shares are included in the denomination for purposes of calculating diluted earnings per share.
n) government assistance
Government assistance, consisting of research tax credit and grants, is recorded as a reduction of the related expense
or cost of the asset acquired. Government grants are recognized when there is reasonable assurance that the Company
has met the requirements of the approved grant program. Research tax credits are recorded when there is reasonable
assurance that they will be realized.
o) use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Significant areas requiring the use of management estimates include estimating the useful lives of long-lived
assets, as well as assessing the recoverability of accounts receivable, research tax credits and future income taxes.
Reported amounts and note disclosure reflect the overall economic conditions that are most likely to occur and
anticipated measures to be taken by management. Actual results could differ from those estimates.
44
2008 annual rEport
Notes to Consolidated Financial Statements
(In Canadian dollars)
p) Changes in accounting policies
On June 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section
1530, “Comprehensive Income”, CICA Handbook Section 3251, “Equity”, CICA Handbook Section 3855, “Financial
Instruments - Recognition and Measurement”, CICA Handbook Section 3861, “Financial Instruments - Disclosure
and Presentation”, and CICA Handbook Section 3865, “Hedges”. These new CICA Handbook Sections, which apply
to fiscal years beginning on or after October 1, 2006, provide comprehensive requirements for the recognition and
measurement of financial instruments, as well as standards on when and how hedge accounting may be applied.
Handbook Section 1530 also establishes standards for reporting and displaying comprehensive income. Comprehensive
income is defined as the change in equity from transactions and other events from non-shareholder sources. “Other
comprehensive income” refers to items recognized in comprehensive income, but that are excluded from net income
calculated in accordance with generally accepted accounting principles.
Under these new standards, all financial instruments are classified into one of the following five categories: held
for trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial
liabilities. All financial instruments, including derivatives, are included in the consolidated balance sheet and are
measured either at fair market value with the exception of loans and receivables, investments held-to-maturity and
other financial liabilities, which are measured at amortized cost. Subsequent measurement and recognition of changes
in fair value of financial instruments depend on their initial classification. Held-for-trading financial investments are
measured at fair value and all gains and losses are included in net income in the period in which they arise.
Available-for-sale financial instruments are measured at fair value with revaluation gains and losses included in other
comprehensive income until the assets are removed from the balance sheet.
The standards also require derivative instruments to be recorded as either assets or liabilities measured at their
fair value unless exempted from derivative treatment as a normal purchase and sale. Certain derivatives embedded
in other contracts must also be measured at fair value. All changes in the fair value of derivatives are recognized
in earnings unless specific hedge criteria are met, which requires that a company must formally document, designate
and assess the effectiveness of transactions that receive hedge accounting.
The adoption of standards of Sections 1530, 3251, 3855, 3861 and 3865 had no significant impact on the consolidated
financial statements for the year ended May 31, 2008.
q) Future accounting changes
The CICA published the following new sections that apply to the Company’s interim and annual financial statements
relating to fiscal years beginning on or after June 1, 2008.
a) Section 1400, “General Standards on Financial Statement Presentation”, has been amended to include requirements
to assess and disclose an entity’s ability to continue as a going concern.
b) Section 1535, “Capital Disclosures”, establishes standards for disclosing information about an entity’s capital and how
it is managed. It describes the disclosure of the entity’s objectives, policies and processes for managing capital as well
as summary quantitative data on the elements included in the management of capital. The section seeks to establish
whether the entity has complied with capital requirements and if not, the consequences of such non-compliance.
2008 annual rEport
45
Notes to Consolidated Financial Statements
(In Canadian dollars)
c) Section 3031, “Inventories”, provides guidance on the determination of cost and the subsequent recognition as
an expense, including any write-down to net realizable value. The standard also permits the reversal of previous
write-downs when there is a subsequent increase in the value of inventories. Finally, the standard provides guidance
on the cost formulas that are used to assign costs to inventories and requires the consistent use of inventory
policies by type of inventory with similar nature and use.
d) Section 3862, “ Financial Instruments - Disclosures”, describes the required disclosures to evaluate the significance
of financial instruments for the entity’s financial position and performance as well as the nature and extent of risks
arising from financial instruments to which the entity is exposed and how the entity manages those risks.
e) Section 3863, “Financial Instruments - Presentation”, establishes standards for the presentation of financial
instruments and non-financial derivatives. It details the presentation of standards described in Section 3861, “Financial
Instruments - Disclosure and Presentation”.
The Company has concluded that these new standards will not significantly impact the Company’s future financial
position or its results of operations.
June 1, 2011 will be the changeover date from Canadian GAAP to International Financial Reporting Standards (“IFRS”)
for us. As of today, we have not evaluated the impact of these new standards.
3. accounts receivable
Trade accounts receivable
Commodity taxes
Grant receivable (note 16)
Other
4. Inventories
Raw materials
Finished goods
2008
2007
$
6,380,487
$
2,239,884
2,203,808
1,540,760
39,507
165,757
-
144,729
$
10,164,562
$
2,550,370
2008
9,809,207
2,918,357
12,727,564
$
$
$
$
2007
1,856,925
1,450,885
3,307,810
46
2008 annual rEport
Notes to Consolidated Financial Statements
(In Canadian dollars)
5. property, plant and Equipment
Land
Building
Leasehold improvements
Production equipment
Automotive equipment
Furniture and equipment
Computer equipment
Construction project
Less: Grants and Government assistance (note 16)
Furniture and equipment under capital leases
Land
Building
Leasehold improvements
Production equipment
Automotive equipment
Furniture and equipment
Computer equipment
Construction project
Furniture and equipment under capital leases
2008
Accumulated
depreciation
Cost
Net book value
$
534,380
$
-
$
4,497,408
1,355,026
8,567,120
47,441
107,336
402,381
13,430,327
(4,125,371)
43,179
398,714
252,007
2,781,503
33,820
24,936
104,674
-
-
42,684
534,380
4,098,694
1,103,019
5,785,617
13,621
82,400
297,707
13,430,327
(4,125,371)
495
$
24,859,227
$
3,638,338
$
21,220,889
2007
Accumulated
depreciation
Cost
Net book value
$
470,796
$
-
$
3,353,651
955,109
7,142,012
37,764
72,197
183,223
78,737
43,179
214,871
175,538
2,064,943
27,092
16,462
133,072
-
34,814
470,796
3,138,780
779,571
5,077,069
10,672
55,735
50,151
78,737
8,365
$
12,336,668
$
2,666,792
$
9,669,876
Depreciation of property, plant and equipment presented in the consolidated statement of earnings relates to the
following activities:
Cost of goods sold
Administrative expenses
Research and development expenses
2008
$
985,931
$
57,061
5,894
$
1,048,886
$
2007
813,331
50,941
5,702
869,974
2008 annual rEport
47
Notes to Consolidated Financial Statements
(In Canadian dollars)
6. bank loan
The Company has a Canadian line of credit available up to $3,500,000 at the Bank’s prime rate plus 0.4% and a line
of credit in euros up to €1,000,000 at the interbank offered rate plus 2.5%.
The Canadian line of credit is secured by accounts receivable, inventories and all the other assets and the line of credit
in euros is secured by assets in Germany.
7. accounts payable and accrued liabilities
Trade accounts payable and accrued liabilities
Salaries and vacations
8. long-term debt
2008
6,641,201
845,026
7,486,227
$
$
2007
1,814,106
485,499
2,299,605
$
$
2008
2007
Loan at the lender’s floating rate less 1.40%, repayable commencing
June 17, 2008 in 120 monthly installments of $41,667, principal only,
secured by a building.
$
4,997,107
$
-
Loan, effective interest rate of 5%, repayable until April 2010
in semi-annual installments of $24,967.
99,843
149,765
Loan, 6.8%, repayable until September 2008 in monthly installments
of $5,825 principal and interest, secured by production equipment
of a net book value of $204,807.
29,000
93,075
Loan reimbursed during the year which was secured by a building and
personal guarantees of two shareholders in the amount of $273,000.
Loan reimbursed during the year which was secured by a building and
personal guarantees of two shareholders in the amount of $45,000.
Notes payable to shareholders paid during the year, prime rate
of the BDC plus 0.25%, convertible into Class A shares at the price
of $11 per share as of April 2008.
Loan, 6.61%, reimbursed during the year which was secured by,
property plant and equipment.
Current portion of long-term debt
-
-
-
-
5,125,950
(578,922)
$
4,547,028
$
Installments to be paid over the next fiscal years ended May 31 are as follows:
2009
2010
2011
2012
2013
thereafter
$
$
$
$
$
$
48
2008 annual rEport
2,803,875
207,500
300,000
220,238
3,774,453
(538,060)
3,236,393
578,922
549,921
500,000
500,000
500,000
2,497,107
Notes to Consolidated Financial Statements
(In Canadian dollars)
The Company is required to maintain certain ratios in order to comply with the respective loan agreements.
As of May 31, 2008, the Company complied with the terms and conditions of the loans.
9. other long-term liabilities
Deposit received from a customer, effective interest rate of 5%,
repayable in U.S. dollars, at the rate of $70 per kilogram of sales
made to this customer until April 2010.
$
279,593
$
428,491
2008
2007
Deposit received from a customer, effective interest rate of 5%,
repayable in U.S. dollars by May 2009.
Deposits received from other customers
Other
Total
Current portion
10. deferred revenue
118,038
-
526
398,157
(270,251)
$
127,906
$
230,029
138,990
6,307
803,817
(539,565)
264,252
Our 5N PV GmbH wholly-owned German subsidiary received €540,000 from a German company for the creation
of new jobs. This deferred income will be amortized over a three-year period in conjunction with the creation of new
jobs at our German plant. A letter of credit for the same amount was issued in favor of the German company in the
event that 5N PV GmbH is not able to comply with the terms of this agreement. As of May 31, 2008, an amount
of €23,542 was recognized as revenue.
11. Share Capital
authorized
An unlimited number of common shares, with no par value, participating, entitling the holder to one vote per share.
An unlimited number of Class B shares, with no par value, non-participating, without voting rights and retractable
at an amount determined according to a formula taking into account the Company’s income and net book value.
Issued and fully paid
Common shares
Outstanding as at May 31, 2007 and 2006
Issuance of shares following the IPO
Issuance of shares following a bought deal
Issuance of shares following the conversion of Class B shares
Outstanding as at May 31, 2008
Class B shares
Outstanding as at May 31, 2006
Issuance of shares pursuant to options
Outstanding as at May 31, 2007
Issuance of shares pursuant to options
Repurchases from shareholders
number
amount
29,635,954
$
963,756
11,500,000
4,000,000
364,046
45,500,000
182,909
68,591
251,500
135,181
(22,635)
$
$
34,500,000
46,200,000
124,938
81,788,694
18,231
16,351
34,582
94,369
(4,013)
Conversion of Class B shares in common shares
(364,046)
(124,938)
Outstanding as at May 31, 2008
-
$
-
2008 annual rEport
49
Notes to Consolidated Financial Statements
(In Canadian dollars)
The number of common shares and Class B shares outstanding and the weighted average number of common shares,
basic and diluted outstanding as well as the calculation of net earnings per basic and diluted shares were adjusted
retroactively taking into consideration the stock split following the IPO.
a) Share issue
During the year ended May 31, 2008, the Company issued 135,181 Class B shares (68,591 for the year ended May 31,
2007) for a cash consideration of $2,726 ($945 for the year ended May 31, 2007) upon the exercise of stock options.
The amount previously recorded in contributed surplus of $91,644 ($15,406 in 2007) relating to these exercised options
has been reclassified into share capital.
b) repurchases from shareholders
The Company purchased 22,635 Class B shares for a cash consideration of $70,063 of which $66,050 was recorded
as a reduction of retained earnings and $4,013 as a reduction of share capital.
c) Stock option plan
In October 2007, the Company introduced a new stock option plan for directors, officers and employees. The maximum
number of common shares that can be issued upon the exercise of options granted is equal to 10% of the aggregate
number of common shares issued and outstanding from time-to-time. The maximum period during which an option
may be exercised is ten years from the date of the grant. On December 20, 2007 the Company granted 1,042,200
options at a price of $3.00 per option. Options vest at a rate of 25% (100% for the directors) per year, beginning one
year following the grant date of the options.
Compensation costs related to these granted stock options on December 20, 2007 were computed using the
Black-Scholes option valuation model using the following assumptions: expected volatility; 72%, dividend; nil, risk
free interest rate; 4.25% (4.00% for the directors), expected life; 3.5 years (one year for the directors). The related
stock-based compensation cost of $242,136 (including $106,175 for the directors) for the period of twelve months
ending May 31, 2008 was recorded as an expense and as an increase to the contributed surplus.
The weighted average fair value of the options granted during the year was $1.42.
As at May 31, 2007
Granted
Cancelled
Exercised
As at May 31, 2008
Stock-based compensation cost is allocated as follows:
Cost of goods sold
Selling and administrative expenses
Research and development expenses
Stock options
weighted average
exercise price
10,750
$
1,042,200
(9,700)
(10,750)
1,032,500
$
2008
59,839
$
163,897
28,262
251,998
$
$
$
0.26
3.00
(3,00)
(0.26)
3.00
2007
19,107
15,567
16,076
50,750
50
2008 annual rEport
Notes to Consolidated Financial Statements
(In Canadian dollars)
12. Contributed surplus
years ended May 31
Opening balance
Compensation costs related to stock options
Options exercised
Closing balance
13. Income taxes
2008
81,782
$
251,998
(91,644)
242,136
$
2007
46,438
50,750
(15,406)
81,782
$
$
The following table reconciles the difference between the statutory tax rate and the effective tax rate used by the
Company in the determination of net income:
Statutory tax rate
Increase (decrease) resulting from:
Non-deductible expenses
Change in future income tax balances due to a change in
enacted tax rates
Effect of non-recognition (recognition) of losses of a foreign
subsidiary for the year ended May 31, 2007
Non-taxable research and development tax credits
Difference of rate applicable to the foreign subsidiary, small
business deduction and other
2008
31.3%
0.8
(0.3)
(0.8)
(0.2)
(0.5)
30.3%
2007
32.0%
0.3
(0.4)
1.9
(0.4)
(0.2)
33.2%
The tax effects of significant items comprising the Company’s net future income tax balances are as follows:
Future income tax assets
Losses carried forward
Property, plant and equipment
Share issue expenses
Other
Valuation allowance
Future income tax liabilities
Property, plant and equipment
Investment tax credits
Other
2008
2007
$
219,825
$
135,000
798,536
1,348,172
21,828
2,388,361
-
2,388,361
(919,104)
(83,500)
(19,896)
(1,022,500)
-
-
-
135,000
(96,000)
39,000
(742,000)
(66,000)
(24,000)
(832,000)
(793,000)
Net future income tax assets (liabilities)
$
1,365,861
$
2008 annual rEport
51
Notes to Consolidated Financial Statements
(In Canadian dollars)
The current and long-term future income tax assets and liabilities are as follows:
Future income tax assets
Short-term
Long-term
Future income tax liabilities:
Short-term
Long-term
2008
2007
$
456,325
$
909,536
1,365,861
-
-
-
$
1,365,861
$
-
-
-
(40,000)
(753,000)
(793,000)
(793,000)
14. Financial Instruments:
a) Credit risk and significant customers
The Company is exposed to a credit risk with its accounts receivable. The Company has entered into an agreement
with Export Development Canada (“EDC”) pursuant to which EDC insures the risk of loss of up to 90% of the
accounts receivable of certain customers in the event of non-payment, up to a maximum of $1,500,000. In addition,
management evaluates each account individually and considers that no provision for doubtful accounts is necessary
under the circumstances.
Three customers represented approximately the following percentages of sales and accounts receivable:
years ended May 31
Percentage of sales
as at May 31
Percentage of accounts receivable
b) Interest rate risk
2008
80%
2008
64%
2007
73%
2007
70%
The Company is exposed to a risk of interest rate fluctuations on the bank loan and certain long-term liabilities.
However, a change of 1% would not materially affect the Company’s net earnings, retained earnings and cash flows.
A loan of $99,843 included in the long-term debt bears a fixed interest rate. The risk of exposure to interest rate
fluctuations is therefore limited.
c) price risk
The Company is exposed to a risk of fluctuations in market prices for metals. To reduce this risk, it has signed
agreements with set prices for certain customers and raw materials suppliers.
52
2008 annual rEport
Notes to Consolidated Financial Statements
(In Canadian dollars)
d) Exchange risk
The Company makes approximately 97% of its sales and 100% of its raw materials purchases in foreign currencies.
Accordingly, certain assets, liabilities, revenues and expenses are exposed to currency rate fluctuations. As at May 31,
2008, it was anticipated that the following assets and liabilities would be realized, recoverable or payable as follows:
Cash
Accounts receivable
Bank loan
Accounts payable and accrued liabilities
e) Fair value
Euros
949,440
566,183
869,092
897,820
u.S. dollars
1,615,352
5,369,097
-
3,264,612
Fair value estimates are made at a specific point in time, using available information about the financial instrument.
These estimates are subjective in nature and often cannot be determined with precision.
The Company has determined that the carrying value of its short-term financial assets and liabilities, including cash,
accounts receivable and other receivables, as well as accounts payable and accrued liabilities, approximates their fair
value because of the relatively short period to maturity of these instruments.
The fair value of the long-term debt and deposits received from a customer at variable interest rates approximates
their carrying value because rates vary in relation with the market conditions.
The fair value of the long-term debt and obligations under capital leases at fixed interest rates approximates their
carrying value as the Company’s borrowing terms and conditions reflect current market conditions.
The fair value of long-term debt and other long-term liabilities received, without interest, approximated their carrying
value as at May 31, 2008 and was estimated at $990,000 as at May 31, 2007 (carrying value of $1,108,000).
15. Financing Expenses
years ended May 31
Interest and bank charges
Foreign exchange (gain) loss
Interest on long-term debt
Amortization of deferred charges
16. government assistance
2008
$
90,599
$
(124,710)
258,259
12,045
$
236,193
$
2007
88,202
162,001
401,743
14,500
666,446
During the years ended May 31, 2008 and 2007, the Company recorded research and development tax credits amounting
to $499,079 and $430,000 respectively. These tax credits are subject to review and approval from taxation authorities.
During the years ended May 31, 2008 and 2007, the Company received grants from Investissement Québec totaling
$85,492 and $202,744, respectively. These grants were recorded as a reduction of property, plant and equipment.
During the year ended May 31, 2008, the Company recorded, in its German subsidiary, two grants received from
the tax authorities and economic support groups totaling $4,125,371, of which an amount of $531,234 was paid
to 5N PV GmbH. A balance of $3,594,137 remains outstanding of which the current portion amounts to $1,540,760.
The remaining $2,053,377 is recorded as a long-term receivable and is expected to be received during fiscal year
ending May 31, 2010.
2008 annual rEport
53
Notes to Consolidated Financial Statements
(In Canadian dollars)
17. Commitments
a) The Company rents certain premises and equipment under the
terms of operating leases expiring in May 2012 for the premises
with options to renew and June 2013 for the equipment. Future
minimum payments excluding operating costs for the next years are
as follows:
2009
2010
2011
2012
2013
thereafter
$
662,030
584,166
584,166
584,166
182,114
15,176
$
2,611,818
b) As at May 31, 2008, the Company had placed orders with suppliers for the purchase of fixed assets in the aggregate
amount of $1,186,184.
c) The Company’s German subsidiary is committed to a number of conditions in its supply agreement with First Solar. These
conditions include the date of commencement of commercial production of the new German facility, minimum quantities
of products to be sold to First Solar and certain recycling obligations. In the event the Company is unable to fulfill these
conditions within the prescribed time frame, the Company could be forced to transfer the ownership of its German facility
to First Solar for a consideration approximating the Company’s acquisition cost of the new German facility.
18. Earnings per Share
years ended May 31
numerator
Net earnings
denominator
2008
2007
$
7,766,137
$
3,574,082
Weighted average number of common shares
35,308,641
29,635,954
Effect of dilutive securities
Stock options
Convertible notes
Earnings per share
Basic
Diluted
19. related party transactions
321,319
1,254,816
36,884,776
-
2,273,577
31,909,531
$
$
0.22
0.21
$
$
0.12
0.11
In the normal course of its activities, the Company has concluded the following transactions with a corporate
shareholder which was until December 20, 2007 under terms and conditions agreed upon between the parties:
years ended May 31
Sales
Purchases
Interest expenses
as at May 31
Accounts receivable
Accounts payable and accrued liabilities
54
2008 annual rEport
2008
1,129,323
28,698
19,179
2008
-
-
$
$
$
$
$
2007
1,517,395
106,633
35,842
2007
216,917
52,761
$
$
$
$
$
Notes to Consolidated Financial Statements
(In Canadian dollars)
20. Segment information
The Company has only one reportable segment, namely refining and recycling of metals.
years ended May 31
geographical information
Sales to customers located in the following geographical areas
United States
Europe
Asia
Canada
Other countries
2008
2007
$
15,526,294
$
15,283,537
12,521,891
634,251
979,822
1,310,683
3,314,200
1,118,738
191,239
1,989,526
$
30,972,941
$
21,897,240
Sales are allocated based on the country of origin of the customer with whom the agreement has been signed.
as of May 31
2008
2007
Property, plant and equipment in the following countries
Canada
Germany
21. Subsequent event
Financial instruments
$
$
11,501,758
9,719,131
21,220,889
$
$
9,410,632
259,244
9,669,876
On June 9, 2008, the Company concluded a foreign currency forward contract totaling €4,500,000 at an average
conversion rate of 1.58. This foreign currency forward contract of €500,000 by month will be effective from September 15,
2008 until May 15, 2009.
22. Comparative Figures
Certain figures, previously reported on for 2007, have been reclassified to conform with the current year’s presentation.
2008 annual rEport
55
Corporate Information
Stock Exchange
5N Plus is listed on the Toronto Stock Exchange,
under the symbol VNP.TSX
Transfer Agent and Registrar
Computershare Investor Services Inc.
Auditors
KPMG LLP
Head Office
4405, Garand Street
Montreal (Québec) H4R 2B4
Annual Meeting
The annual shareholders meeting will be held on
Wednesday, October 8, 2008 at 10:00 AM
Novotel Hotel
2599, Alfred-Nobel Blvd.
Montreal (Québec)
For more information, please contact:
Investor Relations
5N Plus Inc.
4405, Garand Street
Montreal (Québec) H4R 2B4
T: 514-856-0644
F: 514-856-9611
invest@5nplus.com
Si vous souhaitez obtenir une copie en français
de ce rapport annuel, communiquez avec :
Relations avec les investisseurs
5N Plus inc.
4405, rue Garand
Montréal (Québec) H4R 2B4
Aussi disponible à l’adresse :
www.5nplus.com
56
2008 annual rEport
Design & Production: Enigma Communications Inc.
Printing: PDI.
This annual report is printed on HannoArt paper, certified by the Forest Stewardship Council (FSC).
F P O
Cert no. XXX-XXX-XXXX
5N Plus Inc.
4405, Garand Street
Montreal, Québec
H4R 2B4 (Canada)
www.5nplus.com
5N PV GmbH
Oderlandstrasse 104
D-15890
Eisenhüttenstadt
Germany