pure and
simple
2 0 0 9
annual
report
table
oF
contents
Vision
5n Plus at a glance
Financial and oPerational highlights
letter to shareholders
Products and markets
management’s rePort
consolidated Financial statements
notes to consolidated
Financial statements
corPorate inFormation
1
2
3
4
6
12
27
33
49
5n Plus is a Fully integrated Producer and closed-looP recycler oF highly PuriFied metals
and comPounds, that customers use in a range oF electronic aPPlications, including
solar Power cells and medical deVices. 5n Plus draws its name From the Purity oF its
Products — 99.999%, or 5 nines and more — which consist Primarily oF tellurium, cadmium,
selenium and related comPounds such as cadmium telluride (cdte). the comPany emPloys
nearly 150 PeoPle and oPerates two state-oF-the-art Production Facilities in montréal,
canada, and in eisenhüttenstadt, germany. 5n Plus is listed on the toronto stock
exchange (VnP-tsx).
1
vision
to grow together in an enVironmentally
resPonsible way, through the innoVation
and Product excellence made Possible
by our emPloyees’ know-how and
commitment, thereby enabling 5n Plus
to become the world’s leading Producer
oF high-Purity materials.
5n Plus 2009 annual rePort
Purity
deFines our
Products.
success
deFines our
business.
▪ celebrated our german plant’s
first full year in operation as an
unqualified success
▪ extended advantageous supply
contract with world’s leading thin-
film solar cell maker to July 2013
▪ grew commanding market
position with all cdte-based thin-
film solar cell manufacturers
▪ signed and maintained long-
term agreements with leading
raw material suppliers around
the world
Customer focus: our goal is to exceed
customer expectations by delivering
outstanding services and products shaped by
the customer’s needs. to achieve this, we have
the confidence and resourcefulness to propose
solutions that establish lasting relationships
of trust.
Commitment: transforming our vision
into reality is possible only through the
commitment and effort of our employees.
we therefore aim to develop a stimulating
work environment that values teamwork
and excellence.
Continuous improvement: we promote
excellence in everything we do, with the
ultimate goal of being recognized as the
industry leader. we therefore continually seek
to improve our skills, along with the quality
of our products and services.
with a view to expanding its offerings, winning
new markets and further upgrading the
quality of its products and services, 5n Plus
also operates two labs, one in montréal and
another in eisenhüttenstadt.
Recycling solutions strengthen
customer relationships
as a fully integrated metal refiner, 5n Plus
is uniquely equipped to provide customers
with recycling solutions for their unwanted
material and for finished products that have
reached their end of life. in today’s business
environment, this is a key competitive
advantage — particularly as most of our
customers are in the rapidly-growing solar
cell manufacturing sector. given this sector’s
environmental sensitivities, coupled with
increasing regulation over the use and disposal
of certain metals, the customer’s need to
secure long-term solutions for recovering and
reusing these materials is significant. this
capability enables 5n Plus to add significant
value to its customer relationships.
5n Plus values
the purity that drives our approach to quality
control also underpins our conduct in the
workplace — how we deal with colleagues and
customers. 5n Plus’ values have been integral
to our operations from the very start, and
continue to define who we are.
5n Plus
at a glance
Purity is the defining characteristic of 5n Plus
specialty metals — defining not just our
products, but equally how we do business.
to provide the level of purity our customers
demand, we conduct primary and secondary
refining at two production centres, which are
strategically located close to major markets
in north america and europe.
our 58,000 sq. ft. (5,400 sq. metres) montréal
plant, which also houses our head office,
has an annual cdte production capacity of
125 tonnes. meanwhile our german plant,
situated in the heart of europe’s burgeoning
solar cell industry, has an annual cdte
production capacity of 100 tonnes, and a
cadmium sulfide (cds) capacity of 10 tonnes.
this new 43,000 sq. ft. (4,000 sq. metres)
facility, owned and operated by our subsidiary
5n PV gmbh, recently celebrated its first full
year in operation.
5n Plus 2009 annual rePort
3
Record-setting profits and growth
5n Plus has posted 36 consecutive quarters of profit since its founding, and a compound annual
growth rate of 78% in sales, 142% in earnings and 116% in ebitda since 2007. the backlog at
year-end stands at 52 million dollars.
financial
and
operational
highlights
sales
(in millions of canadian dollars)
69.4
31.0
21.9
ebitda
(in millions of canadian dollars)
31.4
11.3
6.7
40
30
20
10
0
2007
2008
2009
2007
2008
2009
net earnings
(in millions of canadian dollars)
20.9
7.2
3.6
shareholders’
equity
(in millions of canadian dollars)
112.4
91.0
7.5
125
100
75
50
25
0
2007
2008
2009
2007
2008
2009
80
60
40
20
0
25
20
15
10
5
0
Health and safety: employee health and
safety guides all our operations. we act
responsibly to minimize risks and promote
prevention, with the goal of continually
improving our health and safety performance.
Integrity: we adhere to the highest standards
of integrity, which means keeping our word,
complying with the letter and spirit of the law,
and treating every person with whom we do
business with respect and dignity.
Sustainable development: we encourage
individual and corporate initiatives that help
to protect the environment. this includes
promoting — both internally and with clients
and suppliers — the recycling of products and
industrial waste, and setting objectives that
reduce our environmental footprint.
5n Plus 2009 annual rePort
in Pure and simPle terms,
we turned in another
stellar year.
we are pleased to report that 5n Plus
had another successful year, with record
profits and growth fuelled, in part, by our
new german plant’s successful operation.
despite the global economic slowdown, our
momentum remains unchecked, and for two
reasons. we continue to lead our markets by
providing customers with the solutions they
need. and we continue to serve the solar
power industry, which is bucking general
economic trends.
in the united states, the new administration
has declared its commitment to energy
security and earmarked significant funds,
along with incentives, to stimulate the
development of alternative energy sources.
meanwhile europe remains the global hotbed
for solar power, with germany occupying
the environmental, political and economic
vanguard on the continent and among the g8.
5n Plus has established a critical beachhead
in this market and with key customers. closer
to home, ontario’s green energy act, modeled
on an existing german program, is a north
american first, giving homeowners financial
incentives to install rooftop solar power
systems. 5n Plus is therefore well positioned
on both continents to participate in the
alternative energy revolution.
Solar modules now below $1/watt
For some time, a module cost of us$1 per
watt has been the holy grail in solar power
generation. indeed, at this point, solar panels
can provide means for electricity generation
5n Plus 2009 annual rePort
which is competitive with more conventional
sources. thin-film technologies, which
5n Plus serves, have already crossed this
threshold, which should give major impetus
to this solution’s economic viability and
therefore influence industry, government
and public opinion.
as the leading supplier to the global cost
leader in this market, 5n Plus is ideally
positioned. indeed, during the past year we
extended our contract with the world’s leading
thin-film solar cell make to July 2013, giving
us stable and predictable income from which
to plan growth.
capturing new business
while one u.s.-based manufacturer dominates
the solar cell market we serve, other north
american and european companies are
coming on board. we’re well placed to capture
new business from these entrants, which
include calyxo, abound solar, Primestar solar
and arendi. 5n Plus has three strategic
advantages: First, we already command
the lion’s share of this market and have
an unblemished reputation for quality and
purity. our technological legacy, stretching
back to 1993, represents first-mover status.
second, we’re an integrated supplier, so we
can offer closed-loop recycling. this adds
significant value for customers, who need
recycling solutions in an increasingly
regulated environment. third, we have mature
relationships with raw material suppliers
around the world. in addition, following
extensive r&d, we have developed highly
efficient manufacturing processes that
provide us with what we believe are significant
cost advantages.
Broadening our product portfolio
in order to further diversify our revenue
streams, we’re actively looking beyond
the thin-film cdte solar cell market. For
example, we’re investing in r&d to capture
market share in the emerging copper indium
diselenide (cis) solar cell industry. and we
continue to command the leading market
share in specialized applications that require
high purity metals in the medical, military,
industrial and automotive sectors. at the
same time, we’re continuing to explore new
applications and products that leverage 5n
Plus’ core competencies.
committed to growth
with a strong balance sheet that includes
$65 million in cash, 5n Plus is well positioned
to implement its growth strategy through
5
letter to
shareholders
organic growth and strategic acquisitions.
minimal investments would enable us to
double capacity at both plants, providing
us with a distinctive and high-value growth
platform. our german plant has given us
invaluable overseas experience and could
well usher in further global expansion
to serve customers in other regions.
at the same time, we are careful to exercise
discipline in evaluating potential candidates
for acquisition. these candidates must meet
several criteria, including financial accretion,
readiness for rapid integration within 5n Plus
and compatibility with our core competencies
and business model.
an exciting future
to a great extent, we owe our remarkable
trajectory of growth over 9 years to the drive
and dedication of our employees. we thank
them for their invaluable contributions over
the past year, and look forward to growing
together in the years ahead. we are also
fortunate to have attracted exceptional talent
to our board of directors, and would like to
thank them for their insights and judgment.
this is a remarkable company, supported
by remarkable people who have achieved
a track record of unbroken success. we
possess a proven business model, a growing
global footprint, and strong relationships
with customers and suppliers. given these
extraordinary assets, we look forward to an
exciting future indeed.
JacqueS l’ÉcuyeR
President and chief executive officer
DenniS WooD
chairman of the board of directors
5n Plus 2009 annual rePort
5N Plus is focused oN
deliveriNg higher quality
Products to its customers,
aloNg with develoPiNg
Products for New markets.
Products and markets
5N Plus eNgiNeers use
advaNced techNiques iN
state-of-the-art cleaN
rooms to achieve high
levels of Purity. Primary
refiNiNg yields 4N Purity,
aNd secoNdary refiNiNg
betweeN 5N aNd 7N Purity.
the solar cell iNdustry,
the largest sector we
serve, demaNds these
tyPes of Purity level.
5n Plus 2009 annual rePort
concentrate / by-Product
PRIMARY
REFINING
electrowinning / chemical purification
99.99% metal
Product
SEcoNdARY
REFINING
distillation / Zone refining
99.999% and above
Product
SYNTHESIS
solution growth / vapor growth
alloys / compounds / 99.995% and above
Product
7
while stable For 2009, the market For solar cells is Forecasted to
grow at a strong rate annually oVer the next Few years. in some
countries new solar cell installations will rePresent 10% to 15%
oF annual additions oF electricity generating caPacity — exceeding
those oF coal or nuclear energy. 5n Plus is a key suPPlier to the
Fastest-growing segment oF this market.
compounds
cadmium
telluride
cdte is a semiconductor
that enables the efficient
conversion of solar energy
into electricity. cadmium
telluride is also used to
manufacture nuclear radiation
detectors for medical use.
Zinc
telluride
Znte is a translucent
semiconductor used in leds
for optoelectronics and
also in thin-film solar cells
as well as in terahertz
radiation detectors.
cadmium
sulfide
in a thin layer, cds is a critical
component of cadmium
telluride (cdte) and copper
indium gallium selenide
(cigs) solar cells.
cadmium zinc
telluride
cdZnte is used to
manufacture high resolution
nuclear radiation detectors
(x-ray and gamma ray)
that do not require cooling.
in the markets 5n Plus serves, the ability to
conduct primary and secondary metal refining
under one roof is an uncommon attribute that
gives us a strong competitive edge. since we
can accept complex and low-grade feedstocks
for refining, we have far greater latitude in the
types of raw material we’re able to process.
more critically for customers, we can recycle
their manufacturing by-products and spent
solar cells to extract and reuse high-value
metals. in today’s environmentally sensitive
era, when companies must protect their
“green” credentials with regulators, the public
and partners, 5n Plus’ recycling solution
is significant. indeed, many companies are
expected to have disposal and recycling plans
in place in order to gain regulatory approval.
5n Plus’ unique ability to recycle enriches
our customer relationships and enables us to
establish strong business partnership.
our markets
thin-film photovoltaics
manufacturers of thin-film solar cells (also
called photovoltaics, or PVs) account for
some three-quarters of 5n Plus’ business
and represent the industry’s fastest-growing
segment, with large multi-acre installations
in place across europe. we currently have
a long-term supply agreement with the
world’s largest low-cost manufacturer of
cdte solar cells.
however, more than 30 companies have
announced entry or expansion into this market,
and global thin-film capacity is forecasted
to grow from the 400 megawatts it was
in 2007 to over 3,000 megawatts by 2011.
several technologies will account for this
growth, for which 5n Plus could develop
commercial strategies.
what’s fuelling the growth of thin-film
technology? these cells consume far less raw
material than conventional alternatives (hence
“thin film”), and their manufacture , which
can be thought as continuous and scalable
permits greater process integration leading to
a significantly lower production cost.
Radiation detectors
solid-state x-ray and gamma-ray detectors
that use ultra-high purity cadmium, tellurium
and zinc, supplied by 5n Plus, represent a
clear advance over previous technologies.
they offer enhanced performance,
smaller size and a greater tolerance to
environmental conditions.
5n Plus 2009 annual rePort
deliveriNg Product
excelleNce is just the
start. we also take Pride
iN our ability to adaPt a
Product to the customer’s
sPecific Need.
5n Plus 2009 annual rePort
while these detectors have a number of
industrial and security applications, medical
imaging and nuclear medicine represents the
largest potential growth markets. the heavily
regulated medical field, with its exacting
standards for reliability and quality control,
is perfectly aligned with 5n Plus’ own high
standards for purity and quality.
infrared lenses and detectors
generating growing demand in the military
and industrial sectors, co₂ lasers require
specialized optics for which we supply the
essential zinc and selenium. industry forecasts
for these types of lasers — particularly those
based on zinc selenide (Znse) — indicate
strong demand.
thermoelectric coolers
these advanced solid-state cooling devices
find a wide range of applications in the military,
medical, telecommunications, industrial and
automotive sectors. For example, automakers
use high-efficiency thermoelectric coolers to
augment air conditioning by cooling driver and
passenger seats. customers who produce
thermoelectric coolers typically buy alloys of
tellurium, bismuth, antimony and selenium.
optical data storage
manufacturers of read/write cds and dVds
use high purity antimony and tellurium
supplied by 5n Plus. an equally promising
market lies in an emerging random access
memory (ram) technology now being
developed for electronic data storage for
computers and other equipment. known
as Pram, and using tellurium supplied by
5n Plus, this new solid-state technology
is poised to overtake flash memory as the
industry standard.
it’s simPle, really. 5n Plus has caPtured dominant share in
eVery market it serVes because oF the Purity oF its Products,
the resPonsiVeness oF its serVice, and the know-how oF
its PeoPle. Purely and simPly, this is how we succeed.
9
pure
metals
tellurium
cadmium
Bismuth
high-purity tellurium is
an essential component
in the manufacturing
of cadmium telluride
(cdte) solar cells and
thermoelectric devices.
cadmium is used in solar
applications (cdte, cds)
and in cdZnte for nuclear
radiation detectors (x-ray,
gamma ray).
bismuth is used in
the manufacturing of
thermoelectric devices
(bismuth telluride and
bismuth antimonide) for
cooling systems and the
automotive industry.
Selenium
Zinc
antimony
selenium is used in
compounds such as
cigs and cis for the
photovoltaic solar
industry and is also used
for thermoelectric devices.
high-purity zinc is used
to synthesize certain
semiconductors such
as cdZnte, a preferred
material for infrared
substrates and nuclear
radiation detectors.
antimony combined with
tellurium is used in the
manufacturing of read/
write cds and dVds.
Pure and simPle.
strong and growing.
TYPIcAl 5N PluS PRoducTS
Base elements (tellurium, cadmium, selenium and zinc)
in purities ranging from 99.999% to 99.99999%
Related compounds
including cdte and cds
ENd
MARkETS
thin-film
photovoltaics
radiation
detectors
electronic and
optical storage
thermoelectric
coolers
infrared lenses
and detectors
STANdARd
APPlIcATIoNS
solar modules
based on cdte
x-ray medical
imaging cameras
computer memory
(Pram)
dna thermal cyclers
optics for co₂ laser
5n Plus 2009 annual rePort
more thaN half our
emPloyees have takeN the
oPPortuNity to become
share holders. this sPeaks
to their commitmeNt, Pride
aNd coNfideNce iN 5N Plus.
5n Plus 2009 annual rePort
how we deal with the
enVironment, our emPloyees
and communities is equally
Pure and simPle.
a sense of our responsibility to act as good
corporate citizens has been part of our culture
from the start. it’s important to us, as it is to
our customers. Fully endorsing the concept
of material stewardship, 5n Plus believes its
environmental responsibility extends well
beyond the mere shipment of products.
this is why our ability to recycle is so
important. according to brookhaven national
laboratory in the united states, “recycling
the [cdte] modules at the end of their useful
life completely resolves any environmental
concerns.” our integrated supply chain means
that customers are assured of total product
life cycle management for their cadmium and
cadmium telluride. the product remains in a
closed loop.
clearly, others are taking note — and not
just customers. in recognition of our efforts
on behalf of clients, and for our in-house
environmental programs, 5n Plus has been
listed this year in the Jantzi-Maclean’s
Corporate Social Responsibility Report:
50 Most Socially Responsible Corporations.
we’re also listed in Corporate Knights
Magazine’s Diversity Issue: Cleantech 2008
11
5n Plus’ ability to recycle materials adds signiFicant Value For
customers — esPecially today, as enVironmental regulations
ProliFerate. 5n Plus is iso 14001 and iso 9001 certiFied. as a member
oF the PV cycle association, 5n Plus has contributed to the
deVeloPment oF an industry-wide Voluntary take-back agreement,
which Promotes recycling oF PV modules at the end oF their liFe.
recycling
cycle
mining ReSiDueS
RaW mateRialS
5n PluS
HigH PuRity metal
PRoDuct
enD of PRoDuction
PRoceSS ReSiDueS
PRoDuct enD
of life cycle
could otherwise be disposed of. we’re
also working to raise our profile and play a
more prominent role in solar cell recycling.
this is clearly the most cost-effective and
responsible way of dealing with spent
solar modules.
our own house in order
For the people of 5n Plus, our commitment to
the customer’s environmental efforts begins
at “home.” this means working in our plants
and offices, as well as in the community, to
reduce our carbon footprint along with our
energy consumption and use of potable water.
we encourage our employees to reduce engine
idling and to commute by bike every day.
Top 10. the cleantech group’s cleantech
index has consistently outperformed the
nasdaq composite.
in 2009, 5n Plus was also honored with
the ecosustainable Production and design
competition award, presented by the chamber
of commerce and industry of st-laurent,
in partnership with the centre d’expertise
sur les matières résiduelles. the award
recognizes how 5n Plus tailors its recycling
solutions to its customer’s needs, and is open
to “montréal-based companies seeking to
reduce pollution and waste at the source, in
their manufacturing processes and when
transporting their goods, as well as at the end
of the products’ life cycle.”
we have garnered much recognition, but we
could and must do more. currently, we are
working to further improve our recovery rates
for metals, and our r&d staff is exploring
ways to recover as well other metals, which
5n Plus 2009 annual rePort
management’s
report
this management’s report 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 management’s report should be read while referring to the company’s
audited consolidated financial statements and accompanying notes for the fiscal year ended may 31, 2009. information contained herein includes
any significant developments to august 12, 2009, the date on which the management’s report was approved by the company’s board of directors.
the financial information presented in this management’s report is based on the company’s accounting policies that are in compliance with
canadian generally accepted accounting principles (“gaaP”). it also includes some figures that are not performance measures consistent with
gaaP. information regarding these non-gaaP financial measures is provided under the heading non-gaaP measures of this management’s report.
all amounts are expressed in canadian dollars. unless otherwise indicated, the terms “we”, “us” and “our” as used herein refer to the company
together with its subsidiaries.
notice Regarding forward-looking Statements
certain statements in this management’s report may be forward-looking within the meaning of securities legislation. 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. as a result, we cannot guarantee
that any forward-looking statements will materialize. Forward-looking statements can generally be identified by the use of terms such
as “may”, “should”, “would”, “believe”, “expect”, or any terms of similar nature. except as required under applicable securities legislation,
management does not undertake to update these forward-looking statements as a result of new information, future events or other
changes. in evaluating these statements, the reader should consider various factors, including the risks outlined under the heading risks
and uncertainties in this management’s report. 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 (“cdte”) and cadmium sulphide (“cds”). 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 cdte and the
radiation detector market.
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. increasing shareholder value remains a priority and we are well positioned to
implement our growth strategy through organic growth and strategic acquisitions.
5n Plus 2009 annual rePort
13
management’s
report
Highlights of the fourth quarter and fiscal year 2009
▪ net earnings for the fourth quarter were $5,708,451 or $0.13 per share, representing a 111.2% increase over net earnings of $2,703,068 or
$0.06 per share for the fourth quarter of the previous fiscal year. For the fiscal year ended may 31, 2009, net earnings were at a record level
of $20,868,124 or $0.46 per share, representing an increase of 190.8% over net earnings of $7,175,011 or $0.20 per share for the previous
fiscal year.
▪ ebitda1 for the fourth quarter was $8,576,126, representing an increase of 119% over ebitda of $3,916,750 for the fourth quarter of the
previous fiscal year. ebitda reached a record level of $31,409,878 for the fiscal year ended may 31, 2009, an increase of 177.5% over ebitda
of $11,318,178 for the previous fiscal year.
▪ sales for the fourth quarter were $18,057,223, representing an increase of 91.6% over sales of $9,423,908 for the fourth quarter of the
previous fiscal year. sales for the fiscal year ended may 31, 2009 were at a record level of $69,373,117, an increase of 124.0% compared to
sales of $30,972,941 for the previous fiscal year. the backlog 1 of orders expected to translate into sales over the following twelve months
stood at $52,224,368 at the fiscal year end which represents a 73.1% increase over its level of $30,174,000 at the end of the previous
fiscal year.
▪ cash flow from operating activities was $4,965,655 for the quarter and $16,239,645 for the fiscal year ended may 31, 2009. this compares
with a cash consumption of $3,519,086 and $2,163,317 for the corresponding periods of the previous fiscal year. cash and cash equivalents
increased by $5,489,787 during the fiscal year to $65,066,530 as at may 31, 2009, up from $59,576,743 as at may 31, 2008. shareholders’
equity also increased during the fiscal year to $112,368,764 as at may 31, 2009 up from $90,962,804 one year earlier.
▪ Fourth quarter results were in line with those of the previous two quarters and complete a record breaking 2009 fiscal year which was
transformational for 5n Plus in many respects, including from an operational standpoint, fiscal 2009 being the year in which we completed
our international expansion and successfully commissioned our new german facility in eisenhüttenstadt. this $18,155,298 investment was
completed on time and within budget.
Selected financial information
years ended may 31
consolidated results
sales
ebitda
net earnings
net earnings per common share
basic
diluted
dividend per common share
Balance sheet data
total assets
long-term debt
shareholders’ equity
2009
2008
2007
$
$
$
$
$
$
$
$
$
69,373,117
31,409,878
20,868,124
0.46
0.45
–
128,168,856
3,997,923
112,368,764
$
$
$
$
$
$
$
$
$
30,972,941
11,318,178
7,175,011
0.20
0.19
0.034
107,743,063
4,674,934
90,962,804
$
$
$
$
$
$
$
$
$
21,897,240
6,722,501
3,574,082
0.12
0.11
0.003
17,363,037
3,500,645
7,546,467
1 see non-gaaP measures
5n Plus 2009 annual rePort
management’s
report
2009 Selected quarterly financial information
(unaudited)
sales
gross profit 1
ebitda
net earnings
earnings per share
basic
diluted
backlog
1 see non-gaaP measures
2008 Selected quarterly financial information
(unaudited)
sales
gross profit
ebitda
net earnings
earnings per share
basic
diluted
backlog
q4
18,057,223
8,496,616
8,576,126
5,708,451
0.13
0.12
52,224,368
q4
9,423,908
5,615,838
3,916,750
2,703,068
0.06
0.06
30,174,000
$
$
$
$
$
$
$
$
$
$
$
$
$
$
q3
19,150,195
9,840,268
8,012,408
5,189,673
0.11
0.11
52,024,064
q3
8,358,817
4,454,138
3,179,710
2,153,139
0.06
0.06
29,300,000
$
$
$
$
$
$
$
$
$
$
$
$
$
$
q2
18,135,824
9,230,178
8,798,520
5,875,610
0.13
0.13
54,722,363
q2
6,795,743
3,276,379
2,220,574
1,219,548
0.04
0.04
22,200,000
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2009
q1
14,029,875
7,631,824
6,022,824
4,094,390
0.09
0.09
53,646,727
2008
q1
6,394,473
2,977,434
2,001,144
1,099,256
0.04
0.03
24,423,498
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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. one
customer accounted for 78% of our sales during the quarter and 78% during the fiscal ended may 31, 2009.
5n Plus 2009 annual rePort
15
management’s
report
Sales, gross Profit, net earnings and earnings per Share
sales
gross profit
gross profit ratio 1
net earnings
earnings per share (basic)
1 see non-gaaP measures
three months ended may 31
twelve months ended may 31
2009
2008
increase
2009
2008
$ 18,057,223
$ 9,423,908
$ 8,496,616
$ 5,615,838
47.1%
59.6%
91.6%
51.3%
$ 69,373,117
$ 30,972,941
$ 35,198,886
$ 16,323,789
50.7%
52.7%
increase
124.0%
115.6%
$ 5,708,451
$ 2,703,068
111.2%
$ 20,868,124
$ 7,175,011
190.8%
$
0.13
$
0.06
$
0.46
$
0.20
sales for the fourth quarter ended may 31, 2009 reached $18,057,223 up by 91.6% over sales of $9,423,908 for the corresponding period of the
previous fiscal year. For the fiscal year ended may 31, 2009, our sales reached a record level of $69,373,117 representing an increase of 124.0%
over sales of $30,972,941 for the previous fiscal year. this increase in sales is attributable primarily to an increase in sales of cdte to the
photovoltaic market. sales into other markets were relatively stable. For the fourth quarter and fiscal year 2009, sales into the photovoltaic market
represented 78% of total sales. this compares with 72% and 68% for the corresponding periods of the previous year. these increases in sales
are primarily associated with an increase in the volumes of product sold following the commissioning and ramping-up of our new german facility
to meet the increasing demand for these solar grade products from our customers. the average selling price for these products also increased
contributing to a further increase in our sales following a reduction in the relative amounts of custom refining or “tolling” where we incur no cost
for raw materials. during fiscal 2009, the devaluation of the canadian dollar in relation to the u.s. dollar and to the euro had a significant favorable
impact on the company’s sales.
gross profits reached $8,496,616 in the fourth quarter and $35,198,886 for fiscal year ended may 31, 2009, corresponding to gross profit ratios
of 47.1% and 50.7% respectively. this compares with gross profits of $5,615,838 and $16,323,789 for the corresponding periods of the previous
fiscal year and respective gross profit ratios of 59.6% and 52.7%. the increase in gross profit results from an increase in sales volume and the
positive impact of the foreign currency exchange rates. gross profit ratio decreased for both the quarter and the fiscal year when compared to the
corresponding periods of the previous fiscal year as a result of a sizeable reduction in the relative amounts of “tolling”. this decrease was partially
offset by general improvements in efficiency, scalability and production throughput throughout the year. gross profit at our new german facility
was in line with expectations and the gross profit ratio similar to our montreal facility.
net earnings were $5,708,451 ($0.13 per share) representing a 111.2% increase over net earnings of $2,703,068 ($0.06 per share) for the fourth
quarter of the previous fiscal year. For the fiscal year, net earnings were $20,868,124 ($0.46 per share) representing a 190.8% increase over net
earnings of $7,175,011 for the previous fiscal year ($0.20 per share). earnings per share are calculated based on a weighted average number of
common shares outstanding of 45,515,577 for the last quarter and 45,505,213 for the fiscal year ended may 31, 2009. earnings per share for
the corresponding periods of the previous fiscal year are calculated based on a weighted average number of common shares of 42,934,783 and
35,308,641 respectively. net earnings increased in both the quarter and the fiscal year ended may 31, 2009 primarily as a result of an increase in
gross profit. Foreign exchange gains net of income taxes also contributed representing 27% of the quarter’s net earnings (5% in the previous fiscal
year) and 11% of the fiscal year end net earnings (1% in the previous fiscal year). the significance of the foreign exchange gain in the quarter is
largely related to the mark to market of several foreign currency forward contracts, most of which were entered into during the fourth quarter.
5n Plus 2009 annual rePort
management’s
report
during the fourth quarter of the fiscal year ended may 31, 2009, the company retroactively adopted the recently issued recommendations of the
canadian institute of chartered accountants (“cica”) section 3064 “goodwill and intangible assets”. as a result, all of the german facility start-up
expenses which had previously been capitalized were expensed leading to the following changes in net earnings in the year ended may 31, 2009,
and in fourth quarter and year ended may 31, 2008 as shown in the table below.
Restated net earnings
net earnings
deferred start-up costs
amortization of deferred start-up costs
income taxes
Restated net earnings
three months ended may 31
twelve months ended may 31
2009
2008
2009
2008
$
5,708,451
$
3,178,621
$
20,833,848
$
7,766,137
–
–
–
(660 ,490)
–
184,937
(505,319)
552,925
(13,330)
(821,008)
–
229,882
$
5,708,451
$
2,703,068
$
20,868,124
$
7,175,011
Selling and administrative and Research and Development expenses
selling and administrative expenses
Percentage of sales for the period
research and development expenses (net of tax credits)
Percentage of sales for the period
three months ended may 31
twelve months ended may 31
$
$
2009
1,670,869
9.3%
423,277
2.3%
$
$
2008
903,514
9.6%
65,848
0.7%
$
$
2009
5,277,745
7.6%
1,241,142
1.8%
$
$
2008
2,911,797
9.4%
930,232
3.0%
selling and administrative expenses were $1,670,869 or 9.3% of sales for the fourth quarter, and $5,277,745 or 7.6% of sales for the fiscal year
ended may 31, 2009. this compares with selling and administrative expenses of $903,514 and $2,911,797 for the corresponding periods of the
previous fiscal year, representing respectively 9.6% and 9.4% of sales. selling and administrative expenses were higher in the fourth quarter than in
the previous quarters of the current fiscal year primarily because of higher consulting fees related to various acquisition projects. when compared
to the corresponding periods of the previous fiscal year selling and administrative expenses were higher due to increases in salaries, related mainly
to additions to our management team at our new german facility, travel expenses and consulting fees. as a percentage of sales, current levels of
selling and administrative expenditures were consistent with anticipated levels although somewhat higher in the fourth quarter of the fiscal year
ended may 31, 2009 because of the increase in consulting fees. when compared to the corresponding periods of the previous fiscal year, the selling
and administrative expenses as a percentage of sales were lower primarily because of the much larger sales in fiscal 2009 when compared to
fiscal 2008.
research and development expenses, net of tax credits, were $423,277 or 2.3% of sales in the fourth quarter, which is higher than those of
the fourth quarter of the previous fiscal year which stood at $65,848 or 0.7% of sales. For the fiscal year ended may 31, 2009, research and
development expenses, net of tax credits, reached $1,241,142 or 1.8% of sales, which is higher than the research and development expenses of
$930,232 or 3.0% of sales incurred during the same period of the previous fiscal year. as a percentage of sales, current levels of research and
development expenses are lower than targeted levels which are closer to the ones encountered in fiscal year ended may 31, 2008.
5n Plus 2009 annual rePort
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management’s
report
Reconciliation of eBitDa
net earnings
add (deduct):
income taxes
Financial expenses and interest income
depreciation and amortization
three months ended may 31
twelve months ended may 31
2009
2008
increase
2009
2008
$ 5,708,451
$ 2,703,068
111.2%
$ 20,868,124
$ 7,175,011
increase
190.8%
2,345,056
1,109,535
(78,822)
601,441
(193,590)
297,737
9,128,634
3,153,279
(741,432)
(58,998)
2,154,552
1,048,886
eBitDa
$ 8,576,126
$ 3,916,750
119.0%
$ 31,409,878
$ 11,318,178
177.5%
ebitda increased by 119% for the fourth quarter of fiscal year 2009 when compared with the corresponding period of the previous fiscal year
reaching $8,576,126 up from $3,916,750. ebitda for the fiscal year ended may 31, 2009 increased by 177.5% up from $11,318,178 to $31,409,878.
the ebitda increases over the periods considered stem from increased sales as well as general improvements in efficiency, scalability,
production throughput, and the positive impact of the foreign currency exchange rate which represented 25% of ebitda during the quarter ended
may 31, 2009 and 11% for the current fiscal year.
Financial Expenses, Interest Income, Depreciation and amortization and Income Taxes
the combined financial expenses and interest income netted a gain of $78,822 for the fourth quarter of the current fiscal year and of $741,432 for
the fiscal year ended may 31, 2009. this compares with a gain of $193,590 for the fourth quarter of the previous fiscal year and of $58,998 for the
fiscal year ended may 31, 2008. this is largely the result of the interest income of $122,565 and $1,118,881 generated during the fourth quarter
and fiscal year ended may 31, 2009 which results from the placement of funds raised during the initial public offering and the bought-deal equity
financing. these funds having been raised in the third and fourth quarters of the previous fiscal year only began yielding interest income in the
corresponding period of the previous fiscal quarter.
depreciation and amortization expenses for the quarter ended may 31, 2009 increased to $601,441, up from $297,737 in the fourth quarter of the
previous fiscal year. For the fiscal year ended may 31, 2009 depreciation and amortization expenses increased to $2,154,552 up from $1,048,886
in the previous fiscal year. this follows the sizeable increase in our depreciable asset base which went from $15,554,271 (property, plant and
equipment with the exception of net construction project) as at may 31, 2008 to $31,948,188 as at may 31, 2009 as we commissioned and began
production at our new german facility in august 2008.
income taxes were $2,345,056 for the fourth quarter ended may 31, 2009 compared with $1,109,535 for the fourth quarter of the previous fiscal
year. these figures correspond to effective tax rates of 29.12% and 29.10% respectively. For the fiscal year ended may 31, 2009 income taxes
were of $9,128,634 and the effective tax rate of 30.4%. this compares with income taxes of $3,153,279 and an income tax rate of 30.5% for the
corresponding period of the previous fiscal year.
liquidity and capital Resources
working capital 1
current ratio 1
Property, plant and equipment
total assets
total debt 1
shareholders’ equity
1 see non-gaaP measures
2009
90,558,261
9.5
26,178,423
128,168,856
4,589,570
112,368,764
$
$
$
$
$
as at may 31
2008
72,151,861
7.4
21,220,889
107,743,063
6,786,312
90,962,804
$
$
$
$
$
5n Plus 2009 annual rePort
management’s
report
Working capital and current ratio
working capital increased to $90,558,261 on may 31, 2009 up from $72,151,861 on may 31, 2008 in spite of having made significant capital
expenditures during the current fiscal year bringing our net property, plant and equipment assets to $26,178,423 up from $21,220,889. this is
primarily the result of strong cash flow generation during the period considered. the current ratio increased from 7.4 to 9.5.
as at may 31, 2009, our cash position was of $65,066,530 up from $59,576,743 on may 31, 2008 as we managed to offset through strong cash flow
generation the significant increases in inventory levels and capital expenditures, over half of which were related to our new german facility. raw-
materials inventory levels rose by $8,374,416, as we continued to further strengthen our supply chain, and finished goods increased by $5,952,980,
reflecting the relative decrease in tolling volumes and the corresponding increase in average unit cost, for a total inventory increase of $14,327,396.
strengthening of our inventory levels continues to remain an important component of our strategy aimed at ensuring that we can address the
anticipated growing requirements for solar grade products.
Property, plant and equipment
of the $7,140,343 of capital expenditures incurred during the fiscal year ended may 31, 2009, $3,896,276 was associated with our new german
facility and $3,244,067 for our montreal facility. this compares with capital expenditures of $17,720,067 incurred during the previous fiscal year.
the level of capital expenditures has been steadily decreasing since July 29, 2008, date at which our new german facility became operational, and
totaled $1,014,632 ($104,033 of which at our german facility) during the fourth quarter ended may 31, 2009.
reconciliation of capital expenditures and cash flows from investing activities:
additions to property, plant and equipment
$
1,014,632
$
7,518,331
$
7,140,343
$
17,720,067
three months ended may 31
twelve months ended may 31
2009
2008
2009
2008
additions to property, plant and equipment
not paid and included in accounts payable
and accrued liabilities:
beginning of the period
end of the period
deposits
307,257
(192,453)
–
–
(1,715,915)
(23,470)
1,715,915
(192,453)
(3,001)
–
(1,715,915)
12,476
cash flows from investing activities
$
1,129,436
$
5,778,946
$
8,660,804
$
16,016,628
Total debt and deferred revenue
total debt decreased from $6,786,312 to $4,589,570 during fiscal year ended may 31, 2009 as we reduced our foreign currency denominated
bank loans and paid off $578,105 of our long term debt. deferred revenue is associated with a subsidy of 540 000 euros provided to our german
subsidiary 5n PV gmbh to promote employment in the city of eisenhüttenstadt. as at may 31, 2009, an amount of $115,986 ($34,352 in the
fourth quarter) was recognized as revenues.
Shareholders’ equity
shareholders’ equity was at $112,368,764 or 87.7% of total assets on may 31, 2009. this compares favorably with $90,962,804 or 84.4% of total
assets on may 31, 2008 further illustrating the contribution of the strong net earnings during the current fiscal year considered. on June 1, 2008,
the company has considered its subsidiary to be self-sustaining. accordingly, foreign exchange gains and losses arising from the translation
of the foreign subsidiary’s accounts into canadian dollars are deferred and reported as accumulated other comprehensive income (loss) in the
consolidated statements of comprehensive income.
5n Plus 2009 annual rePort
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management’s
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cash flows
operating activities
Financing activities
investing activities
effect of changes in foreign currency exchange
three months ended may 31
twelve months ended may 31
2009
2008
2009
2008
$
4,965,655
$
(3,519,086)
$
16,239,645
$
(2,163,317)
(756,927)
(1,129,436)
(200,325)
48,935,874
(5,778,946)
38,831
(2,257,973)
(8,660,804)
168,919
76,297,401
(16,016,628)
(67,645)
increase in cash and cash equivalents
$
2,878,967
$
39,676,673
$
5,489,787
$
58,049,811
cash flow from operating activities generated $4,965,655 in the quarter and $16,239,645 for the fiscal year ended may 31, 2009 which compares
favorably to cash consumed by operating activities for the corresponding periods of the previous fiscal year of $3,519,086 and $2,163,317
respectively. these increases in cash flow from operations are primarily due to higher net earnings which were only partially offset by non-cash
working capital requirements resulting primarily from an increase in inventories.
Financing activities required cash of $756,927 during the fourth quarter and $2,257,973 for the year ended may 31, 2009 and reflected primarily
the repayment of the foreign currency denominated bank loans and scheduled installments on our long term debt. this compares with cash
generation from financing activities of $48,935,874 and $76,297,401 for the corresponding periods of the previous fiscal year resulting mainly from
the proceeds of our iPo which netted $31,417,006 combined with net proceeds of $44,147,461 for the issuance of four million common shares in
april 2008.
cash consumed in investing activities decreased to $1,129,436 during the fourth quarter down from $5,778,946 for the fourth quarter of the
previous fiscal year where we invested in the construction of our new german facility. For the fiscal year ended may 31, 2009 investing activities
required cash of $8,660,804 and approximately half of these investments were associated with the final stages of construction of our new german
facility. this compares with $16,016,628 for the corresponding period of the previous fiscal year where most of these expenses were associated
with the initial stages of construction of the very same facility.
our cash position increased by $2,878,967 in the fourth quarter and by $5,489,787 during the fiscal year considered to reach a level of
$65,066,530 as at may 31, 2009. this compares with cash increases of $39,676,673 and $58,049,811 for the corresponding periods of the previous
fiscal year. we are very confident that this amount of cash combined with the cash flow from our operations will be sufficient to fund our working
capital and capital expenditure requirements, and enable us to aggressively pursue our growth plan including acquisition opportunities.
the company does not hold any commercial papers. consequently, it has not been affected by the asset-backed commercial papers crisis.
Share capital
Authorized
the company has an unlimited number of common shares, with no par value, participating, and entitling the holder to one vote per share.
the company has an unlimited number of preferred shares which may be issued in one or more series with specific terms, privileges and
restrictions to be determined for each class by the board of directors.
Issued and fully paid
common shares
outstanding as at may 31, 2008
issued on exercises of options
outstanding as at may 31, 2009
number
45,500,000
20,225
45,520,225
5n Plus 2009 annual rePort
management’s
report
Normal course issuer bid
on december 2, 2008 the company announced its intention to repurchase for cancellation up to 2,275,000 common shares over the twelve-month
period starting on december 4, 2008 and ending on december 3, 2009, representing 5% of 5n Plus’ issued and outstanding common shares. the
purchases by the company will be effected through the facilities of the toronto stock exchange and will be made at the market price of the
common shares at the time of the purchase. during in the financial year ended may 31, 2009 no common shares were repurchased.
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. For the fiscal year ended
may 31, 2009 the company granted 466,430 options for a total of 1,439,055 granted options.
under the stock option plan, a total of 3,110,945 common shares remained authorized for issuance as at may 31, 2009.
order Backlog
the backlog of orders which are expected to translate into sales within the next 12 months was of $52,224,368 as at may 31, 2009 which is 73.1%
higher than the corresponding backlog of $30,174,000 as at may 31, 2008.
off-Balance Sheet arrangements
the company has certain off-balance sheet arrangements, consisting of leasing certain premises and equipment under the terms of
operating leases.
the company’s germany subsidiary is committed to a number of conditions in its supply agreement with its major client. the reader will find more
details related to this agreement in note 18 c) to the consolidated financial statements as well as in the risks and uncertainties section of this
management’s report.
the company is exposed to currency risk on sales of canadian-made products in us dollars and in euros therefore periodically enters into foreign
currency forward contracts to protect itself against currency fluctuation. the reader will find more details related to these contracts in note 13 to
the consolidated financial statements as well as in the risks and uncertainties section of this management’s report.
contractual obligations
the following table summarizes our principal contractual obligations for our normal business operations as at may 31, 2009:
Payment due by period
total debt and interest
leases
Purchase obligations
2010
2011
2012
2013
2014
thereafter
total
$
710,992
$
607,477
$
593,226
$
578,975
$
564,724
$ 2,116,744
$ 5,172,138
640,268
239,321
610,268
610,268
208,216
–
–
–
17,351
–
–
–
2,086,371
239,321
$ 1,590,581
$ 1,217,745
$ 1,203,494
$
787,191
$
582,075
$ 2,116,744
$ 7,497,830
5n Plus 2009 annual rePort
21
management’s
report
accounting Policies
the accounting policies are in accordance with those used in the preparation of the audited consolidated financial statements as at may 31, 2008,
with the exception of the accounting changes listed below.
Changes in accounting policies
on June 1, 2008, the company adopted the following sections of the cica handbook:
i.
ii.
iii.
iv.
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. the cash and cash equivalents have been classified as available-for-sale assets.
the company does not carry any loans receivable, and its accounts receivable and grant receivable are measured at amortized cost, which
approximates cost. the company’s accounts payable and accrued liabilities, income taxes payable and the long-term debt have been classified
as other financial liabilities and are, therefore, measured at amortized cost.
v.
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 adoption of these new standards did not significantly impact the company’s financial position or its results of operations.
on march 1, 2009, the company adopted the following accounting policies:
vi.
the emerging issues committee (“eic”) issued eic-173 “credit risk and the fair value of financial assets and financial liabilities”, which requires
that the fair value of financial instruments, including derivative financial instruments, takes into account the counterparties’ credit risk for
assets and the company’s credit risk for liabilities.
5n Plus 2009 annual rePort
management’s
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the adoption of these new standards did not significantly impact the company’s financial position or its results of operations.
vii. in January 2008, the cica issued section 3064 “goodwill and intangible assets”, which replaces section 3062 “goodwill and others
intangible assets”, and results in the withdrawal of section 3450 “research and development costs”, and emerging issues committee
abstract 27 “revenues and expenditures during the Pre-operating Period”, and amendments to accounting guideline no 11 “enterprises in
the development stage”. the standard provides guidance on the recognition of intangible assets in accordance with the definition of an asset
and the criteria for asset recognition as well as clarifying the application of the concept of matching revenues and expenses, whether these
assets are separately acquired or internally developed. this standard applies to interim and annual financial statements relating to fiscal
years beginning on or after october 1, 2008. the company has adopted retroactively this accounting standard to the company’s consolidated
statement of earnings for the year ended may 31, 2008 and the main impacts are:
consolidated statement of earnings
start-up costs
earnings before income taxes
income taxes
net earnings
consolidated balance sheet
current assets — Future income taxes
deferred start-up costs
retained earnings
increase
(decrease)
821,008
(821,008)
(229,882)
(591,126)
229,882
(821,008)
(591 126)
$
$
$
$
$
$
$
Future changes in accounting policies
i.
in 2005, the accounting standards board of canada announced that accounting standards in canada are to converge with international
Financial reporting standards (“iFrs”). in may 2007, the cica published an updated version of its “implementation Plan for incorporating
international Financial reporting standards” into canadian gaaP. this plan includes an outline of the key decisions that the cica will need to
make as it implements the strategic Plan for publicly accountable enterprises that will converge canadian gaaP with iFrs. in February 2008,
the cica confirmed the change over date from current canadian gaaP to iFrs to be January 1, 2011. while iFrs uses a conceptual framework
similar to canadian gaaP, there are significant differences in accounting policies which must be addressed. the company is currently
evaluating the impact of these new standards.
ii.
in January 2009, the cica approved three new accounting standards handbook section 1582, “business combinations”, section 1601,
“consolidated Financial statements”, and section 1602, “non-controlling interests”.
section 1582 replaces former section 1581 “business combinations” and establishes standards for the accounting of a business combination.
section 1582 provides the canadian equivalent to iFrs 3 — “business combinations. section 1582 requires additional use of fair value
measurements, recognition of additional assets and liabilities, and increased disclosure for the accounting of a business combination and that
acquisition costs will be recognized as expenses.
sections 1601 and 1602 replace former section 1600, “consolidated Financial statements”. section 1601 establishes standards for the
preparation of consolidated financial statements and section 1602, which converges with the requirements of international accounting
standard 27 (“ias 27”), “consolidated and separate Financial statements”, establishes standards for accounting of a non-controlling interest
resulting from a business acquisition, recognized as a distinct component of shareholders’ equity. net income will present the allocation
between the controlling and non-controlling interests.
all three standards are effective at the same time canadian public companies will have adopted iFrs, for fiscal year beginning on or after
January 1, 2011. as of today, we have not evaluated the impact of these new standards.
5n Plus 2009 annual rePort
23
management’s
report
critical accounting Policies
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.
Risks and uncertainties
the company is subject to a number of risk factors which may limit our ability to execute our strategy and achieve our long-term growth objectives.
management analyses these risks and implements strategies in order to minimize their impact on the company’s performance.
Reliance on major customer
For the year ended may 31, 2009, 78% of our sales were made to one customer. the loss of, or a decrease in the amount of business from this
customer, could significantly reduce our net sales and harm our operating results.
Credit risk
the company is exposed to credit risk that is mainly associated with its accounts receivable the company concluded an agreement with export
development canada (edc) which stipulates that edc will assume a portion of risk loss for certain clients in the event of non-payment, up to a
maximum of $1,500,000 per year. the company does not require additional guarantee or other securities from its clients in regard to its accounts
receivable. however, credit is granted only to clients after a credit analysis is performed. the company conducts ongoing evaluations of its clients
and establishes provisions for doubtful accounts, should an account be considered not recoverable. one costumer represented 79% of accounts
receivable as at may 31, 2009.
Interest rate risk
the company’s level of debt is currently low, and bears interest at floating rate. should its indebtedness increase, the company’s policy would be
to limit its exposure to interest rate risk variations by ensuring that a reasonable portion of the debt is at fixed rates. management does not believe
that the impact of interest rate fluctuations will be significant on its operating results
Price risk
the company is exposed to a risk of fluctuations in market prices for metals. this risk is managed by adequately forecasting and scheduling the
acquisition of inventories to meet its fixed price contractual obligations to its customers. Financial instruments do not expose the company to raw
material price risks.
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 most 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. the company manages the foreign exchange risk by entering into various foreign
exchange forward contracts.
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.
5n Plus 2009 annual rePort
management’s
report
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 our deliveries to customers. this would in turn negatively impact our sales, net margins and may lead to liabilities with respect to our
supply contracts.
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, for 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.
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 more aggressive enforcement policies, 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 in 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 will be 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 our 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.
5n Plus 2009 annual rePort
25
management’s
report
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 our
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.
Option to First Solar to purchase our German manufacturing facility
one of our supply agreements with First solar contains a “call” option under which First solar may, if we are unable to comply with our contractual
obligations, purchase all of our equity interests in our german subsidiary. as a result, we may be obligated to sell our german subsidiary for a fixed
price, which would adversely impact our growth prospects and have an adverse material 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 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 therefore.
as at may 31, 2009, the company complied with the terms and conditions of the agreement.
Disclosure controls and Procedures
the company’s management is responsible for establishing and 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 once they come into force. the company also applies the standards set by the
capital markets regulatory authorities. the chief executive officer and the chief Financial officer together with management, after evaluating the
effectiveness of the company’s internal control systems, procedures and information systems as of may 31, 2009 concluded that the company’s
internal control systems, procedures and information systems were effective. the evaluation was performed in accordance with the committee of
sponsoring organizations of the treadway commission (coso) control framework adopted by the company.
Internal control over financial reporting
the chief executive officer and the chief Financial officer are responsible for establishing and maintaining appropriate internal controls 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. the chief executive officer and the chief Financial officer together with management, after evaluating the
effectiveness of the company’s internal control over financial reporting as of may 31, 2009 concluded that the company’s internal control over
financial reporting was effective.
5n Plus 2009 annual rePort
management’s
report
non-gaaP measures
in this management’s report, the company’s management uses certain measures which are not in accordance with gaaP. non-gaaP measures
are useful supplemental information but may not have a standardized meaning according to gaaP. these non-gaaP measures include ebitda,
gross profit and gross profit ratio, working capital and current ratio and total debt.
ebitda means earnings before financing costs, interest income, income taxes, depreciation and amortization and is presented on a consistent basis
from period to period. we use ebitda, because we believe it is a meaningful measure of the operating performance of our ongoing business without
the effects of certain expenses. the definition of this non-gaaP measure used by the company may differ from that used by other companies.
gross profit is a financial measure equivalent to the sales excluding cost of sales. gross profit ratio is displayed as a percentage of sales.
working capital is a measure that shows us how much cash we have available for the growth of our company. we use it as an indicator of our
financial strength and liquidity. we calculate it by taking current assets and subtracting current liabilities.
total debt is a measure we use to monitor how much debt we have and calculate it by taking our total long-term debt and including the current
portion. we use it as an indicator of our overall indebtedness.
backlog is also a non-gaaP measure that represents the expected value of orders we have received but have not yet executed and that are
expected to translate into sales within the next 12 months.
comparative figures
certain comparative figures have been reclassified to conform to the current period presentation.
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.
5n Plus 2009 annual rePort
consolidated
financial
statements
27
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
montréal, canada
august 12, 2009
5n Plus 2009 annual rePort
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, 2009 and 2008 and the consolidated statements of earnings,
comprehensive income, changes in shareholders’ equity and cash flows for each of 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 audits.
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, 2009 and 2008 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
montréal, canada
July 24, 2009
* ca auditor permit no 13381
5n Plus 2009 annual rePort
consolidated
financial
statements
consolidated Statements of earnings
years ended may 31
(in canadian dollars)
sales
cost of sales (note 12)
gross profit
expenses
selling and administrative
depreciation of property, plant and equipment (note 4)
research and development
Foreign exchange gain (note 14)
Financial (note 15)
interest income
earnings before undernoted items
start-up costs, new plant (note 1 (q) (vii))
earnings before income taxes
income taxes (note 11)
current
Future
net earnings
earnings per share (note 19)
basic
diluted
weighted average number of common shares (note 19)
basic
diluted
the accompanying notes are an integral part of these consolidated financial statements.
consolidated Statements of comprehensive income
years ended may 31
(in canadian dollars)
net earnings
other comprehensive income (loss), net of income taxes:
unrealized loss on translating financial statements of self-sustaining foreign operation
comprehensive income
the accompanying notes are an integral part of these consolidated financial statements.
29
2009
2008
(restated)
$
69,373,117
$
30,972,941
34,174,231
35,198,886
5,277,745
2,154,552
1,241,142
(3,441,588)
377,449
(1,118,881)
4,490,419
30,708,467
711,709
29,996,758
7,727,016
1,401,618
9,128,634
20,868,124
0.46
0.45
$
$
$
14,649,152
16,323,789
2,911,797
1,048,886
930,232
(124,710)
360,903
(419,901)
4,707,207
11,616,582
1,288,292
10,328,290
3,395,315
(242,036)
3,153,279
7,175,011
0.20
0.19
$
$
$
45,505,213
45,876,122
35,308,641
36,884,776
2009
2008
(restated)
$
20,868,124
$
7,175,011
(343,467)
20,524,657
$
–
$
7,175,011
5n Plus 2009 annual rePort
consolidated
financial
statements
consolidated Statements of changes in Shareholders’ equity
years ended may 31
(in canadian dollars)
Share capital (note 10)
beginning of period
issuance of shares pursuant to options
issuance of shares following the iPo
issuance of shares following a bought-deal
repurchases from shareholders
end of period
contributed surplus
beginning of period
compensation costs related to stock options
options exercised
end of period
accumulated other comprehensive income
beginning of period
translation from the temporal method to the current rate method (note 1(c))
unrealized foreign currency translation loss for the period
end of period
Retained earnings
beginning of period
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
end of period
Shareholders’ equity
the accompanying notes are an integral part of these consolidated financial statements.
2009
$
81,788,694
$
93,220
–
–
–
2008
(restated)
998,338
94,369
34,500,000
46,200,000
(4,013)
$
81,881,914
$
81,788,694
$
$
$
$
242,136
588,209
(32,545)
797,800
–
232,419
(343,467)
(111,048)
$
$
$
$
81,782
251,998
(91,644)
242,136
–
–
–
–
$
8,931,974
$
6,466,347
20,868,124
–
–
–
$
$
29,800,098
112,368,764
$
$
7,175,011
(1,000,000)
(3,643,334)
(66,050)
8,931,974
90,962,804
5n Plus 2009 annual rePort
consolidated
financial
statements
consolidated Balance Sheets
as at may 31
(in canadian dollars)
assets
current assets
cash and cash equivalents
accounts receivable (note 2)
inventories (note 3)
Prepaid expenses and deposits
Foreign currency forward contracts (note 14)
Future income taxes (note 11)
Property, plant and equipment (note 4)
grant receivable (note 17)
Future income taxes (note 11)
other assets
liabilities and shareholders’ equity
current liabilities
bank loan (note 5)
accounts payable and accrued liabilities (note 6)
income taxes payable
current portion of long-term debt (note 7)
current portion of other long-term liabilities (note 8)
Future income taxes (note 11)
long-term debt (note 7)
other long-term liabilities (note 8)
deferred revenue (note 9)
Future income taxes (note 11)
Shareholders’ equity
share capital (note 10)
contributed surplus
accumulated other comprehensive income
retained earnings
31
2009
2008
(restated)
$
65,066,530
$
59,576,743
6,702,197
27,054,960
516,391
1,685,076
249,958
101,275,112
26,178,423
–
662,639
52,682
10,164,562
12,727,564
348,504
–
686,207
83,503,580
21,220,889
2,053,377
909,536
55,681
$
128,168,856
$
107,743,063
$
–
$
6,791,675
3,021,632
549,922
41,725
311,897
10,716,851
3,997,923
–
641,618
443,700
1,262,205
7,486,227
1,754,114
578,922
270,251
–
11,351,719
4,547,028
127,906
753,606
–
15,800,092
16,780,259
81,881,914
797,800
(111,048)
29,800,098
112,368,764
81,788,694
242,136
–
8,931,974
90,962,804
$
128,168,856
$
107,743,063
commitments (note 18)
the accompanying notes are an integral part of these consolidated financial statements.
on behalf of the board:
signed
JacqueS l’ÉcuyeR
director
signed
Jean-maRie BouRaSSa
director
5n Plus 2009 annual rePort
consolidated
financial
statements
consolidated Statements of cash flows
years ended may 31
(in canadian dollars)
cash flows from operating activities
net earnings
adjustments for:
Future income taxes
Foreign exchange (gain) loss on cash and cash equivalents
unrealized gain on derivative financial instruments
depreciation of property, plant and equipment
other amortizations
loss on disposal of property, plant and equipment
deferred revenue
stock-based compensation
net change in non-cash working capital items
accounts receivable
inventories
Prepaid expenses and deposits
accounts payable and accrued liabilities
income taxes payable
cash flows from financing activities
net change in bank loan
net change in other long-term liabilities
repayment of long-term debt
issuance of shares
increase in long-term debt, net of related financial expenses
deferred financing fees
Purchase of shares
dividends paid
grants — property, plant and equipment
cash flows from investing activities
additions to property, plant and equipment
deposits
effect of changes in foreign exchange rates on cash and cash equivalents
net increase in cash and cash equivalents
cash and cash equivalents, beginning of period
cash and cash equivalents, end of period
Supplementary information
Property, plant and equipment not paid and included in accounts payable and accrued liabilities
interest paid
income taxes paid
the accompanying notes are an integral part of these consolidated financial statements.
5n Plus 2009 annual rePort
2009
2008
(restated)
$
20,868,124
$
7,175,011
1,401,618
(168,919)
(1,685,076)
2,154,552
84,525
–
(115,986)
588,209
(242,036)
67,645
–
1,048,886
33,027
38,766
753,606
251,998
23,127,047
9,126,903
6,107,602
(14,438,064)
(165,501)
323,341
1,285,220
16,239,645
(1,384,111)
(356,432)
(578,105)
60,675
–
–
–
–
–
(2,257,973)
(8,663,805)
3,001
(8,660,804)
168,919
5,489,787
59,576,743
65,066,530
192,453
278,088
6,111,194
$
$
$
$
(6,073,430)
(9,419,754)
(144,560)
3,555,078
792,446
(2,163,317)
222,205
(405,660)
(7,045,610)
75,644,793
8,400,000
(64,990)
(70,063)
(1,000,000)
616,726
76,297,401
(16,004,152)
(12,476)
(16,016,628)
(67,645)
58,049,811
1,526,932
59,576,743
1,715,915
301,515
2,105,015
$
$
$
$
notes to
consolidated
financial
statements
33
1. Summary of significant accounting policies
these consolidated financial statements are expressed in canadian dollars and have been prepared in accordance with canadian generally
accepted accounting principles (“gaaP”).
a. Basis of consolidation
these consolidated financial statements include the accounts of 5n Plus inc. and its wholly-owned subsidiaries. all significant intercompany
transactions and balances have been eliminated.
b. 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.
c. Foreign currency translation
Foreign-denominated monetary assets and liabilities are translated into canadian dollars at the exchange rates prevailing at the year end. 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.
as of June 1, 2008, following the commencement of the commercial operations of the company’s german subsidiary, the company performed
a reassessment of the classification criteria described in section 1651 of the canadian institute of chartered accountants (“cica”) handbook
“Foreign currency translation” of the subsidiary. based on the new circumstances, the company has now classified its foreign subsidiary as a self
sustaining entity. the impact of the change from the temporal method to the current rate method resulted, as at June 1, 2008, in an adjustment
of $232,419. this amount has been applied as an increase in property, plant and equipment and as an increase in shareholders’ equity under the
caption accumulated other comprehensive income.
d. 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 90 days or less. they are accounted for at their estimated fair value which approximates cost.
Inventories
e.
raw materials are valued at the lower of cost and net realizable value, cost being determined using 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.
From time to time, when substantially all of the required raw materials are in inventory, the company may choose to enter into long-term sales
contracts a fixed price. the quantity of raw materials required to fulfill these contracts are then specifically assigned the average cost of the raw
material at the time the contract was executed.
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
1. Summary of significant accounting policies (continued)
f. 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
Impairment and disposal of long-lived assets
g.
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.
h. 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.
revenue also includes sales from custom refining activities. under the terms of the agreements, all the material risks and advantages inherent in
ownership are transferred to these customers at the time of their receipt of the refining products or delivery in accordance with the terms of the
agreements and therefore revenue is recognized.
i. 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, 2009 and 2008, no development expenses were deferred.
Income taxes
j.
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.
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
35
1. Summary of significant accounting policies (continued)
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 directors 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 denominator 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. Financial instruments
Financial assets and liabilities are recognized on the consolidated balance sheet at fair value and their subsequent measurement depends of their
classification, as described in note 13. the classification depends on the objectives set forth when the financial instruments were purchased or
issued, their characteristics and their designation by the company.
Following is a summary of the accounting policy the company has elected to apply to each of its categories of financial instruments:
assets/liabilities
cash and cash equivalents
trade accounts receivable
accounts payable and accrued liabilities
long-term debt
category
held-for-trading
loans and receivables
other liabilities
other liabilities
measurements
Fair value
amortized cost
amortized cost
amortized cost
the amortized cost is established using the effective interest method. the company has elected to account for transaction costs related to the
issuance of the financial instruments as a reduction of the carrying value of the related financial instruments. since the credit facility includes
a line of credit and a loan term, the costs related to the issuance of these financial instruments are presented as a reduction of the financial
instrument it relates to. transaction costs are amortized using the straight-line method over the expected life of the facilities.
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
1. Summary of significant accounting policies (continued)
p. Derivative instruments
Freestanding derivative instruments are utilized by the company to manage market risk against the volatility in foreign exchange rates in order
to minimize their impact on the company’s results and financial position. the most frequently used derivative instruments by the company are
forward foreign currency contracts. these instruments are carried at fair value at each balance sheet date. short-term and long-term derivative
assets have been included as part of accounts receivable and other assets, respectively. short-term and long-term derivative liabilities have been
included as part of accounts payable and accrued liabilities, and deferred gains and other long-term liabilities, respectively.
q. Changes in accounting policies
on June 1, 2008, the company adopted the following sections of the cica handbook:
i.
ii.
iii.
iv.
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. the cash and cash equivalents have been classified as available-for-sale assets.
the company does not carry any loans receivable, and its accounts receivable and grant receivable are measured at amortized cost, which
approximates cost. the company’s accounts payable and accrued liabilities, income taxes payable and the long-term debt have been classified
as other financial liabilities and are, therefore, measured at amortized cost.
v.
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 adoption of these new standards did not significantly impact the company’s financial position or its results of operations.
on march 1, 2009, the company adopted the following accounting policies:
vi.
the emerging issues committee (“eic”) issued eic-173 “credit risk and the fair value of financial assets and financial liabilities”, which requires
that the fair value of financial instruments, including derivative financial instruments, takes into account the counterparties’ credit risk for
assets and the company’s credit risk for liabilities.
the adoption of these new standards did not significantly impact the company’s financial position or its results of operations.
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
37
1. Summary of significant accounting policies (continued)
vii. in January 2008, the cica issued section 3064 “goodwill and intangible assets”, which replaces section 3062 “goodwill and others
intangible assets”, and results in the withdrawal of section 3450 “research and development costs”, and emerging issues committee
abstract 27 “revenues and expenditures during the Pre-operating Period”, and amendments to accounting guideline no 11 “enterprises in
the development stage”. the standard provides guidance on the recognition of intangible assets in accordance with the definition of an asset
and the criteria for asset recognition as well as clarifying the application of the concept of matching revenues and expenses, whether these
assets are separately acquired or internally developed. this standard applies to interim and annual financial statements relating to fiscal
years beginning on or after october 1, 2008. the company has adopted retroactively this accounting standard to the company’s consolidated
financial statements for the year ended may 31 2008 and the main impacts are:
consolidated statement of earnings
start-up costs
earnings before income taxes
income taxes
net earnings
consolidated balance sheet
current assets — Future income taxes
deferred start-up costs
retained earnings
increase (decrease)
$
$
$
$
$
$
$
821,008
(821,008)
(229,882)
(591,126)
229,882
(821,008)
(591,126)
r. Future changes in accounting policies
i.
in 2005, the accounting standards board of canada announced that accounting standards in canada are to converge with international
Financial reporting standards (“iFrs”). in may 2007, the cica published an updated version of its “implementation Plan for incorporating
international Financial reporting standards” into canadian gaaP. this plan includes an outline of the key decisions that the cica will need to
make as it implements the strategic Plan for publicly accountable enterprises that will converge canadian gaaP with iFrs. in February 2008,
the cica confirmed the change over date from current canadian gaaP to iFrs to be January 1, 2011. while iFrs uses a conceptual framework
similar to canadian gaaP, there are significant differences in accounting policies which must be addressed. the company is currently
evaluating the impact of these new standards.
ii.
in January 2009, the cica approved three new accounting standards handbook section 1582, “business combinations”, section 1601,
“consolidated Financial statements”, and section 1602, “non-controlling interests”.
section 1582 replaces former section 1581 “business combinations” and establishes standards for the accounting of a business combination.
section 1582 provides the canadian equivalent to iFrs 3 — “business combinations. section 1582 requires additional use of fair value
measurements, recognition of additional assets and liabilities, and increased disclosure for the accounting of a business combination and that
acquisition costs will be recognized as expenses.
sections 1601 and 1602 replace former section 1600, “consolidated Financial statements”. section 1601 establishes standards for the
preparation of consolidated financial statements and section 1602, which converges with the requirements of international accounting
standard 27 (“ias 27”), “consolidated and separate Financial statements”, establishes standards for accounting of a non-controlling interest
resulting from a business acquisition, recognized as a distinct component of shareholders’ equity. net income will present the allocation
between the controlling and non-controlling interests.
all three standards are effective at the same time canadian public companies will have adopted iFrs, for fiscal year beginning on or after
January 1, 2011. as of today, we have not evaluated the impact of these new standards.
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
2. accounts receivable
as at may 31
trade accounts receivable
commodity taxes
grant receivable (note 17)
other
allowance for doubtful accounts
chronological history of trade accounts receivable:
current
0 to 30 days overdue
31 to 60 days overdue
61 to 120 days overdue
3. inventories
as at may 31
raw materials
Finished goods
4. Property, plant and equipment
land
buildings
leasehold improvements
Production equipment
rolling stock
Furniture and equipment
computer equipment
5n Plus 2009 annual rePort
2009
$
3,826,686
$
417,073
2,518,930
39,508
(100,000)
6,702,197
$
2008
6,380,487
2,203,808
1,540,760
39,507
–
$
10,164,562
2009
2008
$
3,327,781
$
6,154,326
301,225
1,915
195,765
157,556
39,009
29,596
$
3,826,686
$
6,380,487
2009
18,183,623
8,871,337
27,054,960
$
$
2008
9,809,207
2,918,357
12,727,564
$
$
as at may 31, 2009
accumulated
depreciation
cost
$
534,632
$
–
$
11,425,865
1,545,668
17,266,938
47,441
278,802
848,842
824,312
335,958
4,259,315
39,093
89,995
221,092
net
book value
534,632
10,601,553
1,209,710
13,007,623
8,348
188,807
627,750
$
31,948,188
$
5,769,765
$
26,178,423
notes to
consolidated
financial
statements
4. Property, plant and equipment (continued)
land
buildings
leasehold improvements
Production equipment
rolling stock
Furniture and equipment
computer equipment
construction project
39
as at may 31, 2008
accumulated
depreciation
cost
$
534,380
$
–
$
4,497,408
1,355,026
8,567,120
47,441
150,515
402,381
9,304,956
398,714
252,007
2,781,503
33,820
67,620
104,674
–
net
book value
534,380
4,098,694
1,103,019
5,785,617
13,621
82,895
297,707
9,304,956
$
24,859,227
$
3,638,338
$
21,220,889
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
5. Bank loan
2009
$
2,002,747
$
145,141
6,664
2008
985,931
57,061
5,894
$
2,154,552
$
1,048,886
on october 10, 2008, a credit facility of $25,000,000 was granted to the company including an increase of capital clause which would permit,
under certain conditions, to increase the credit to $30,000,000. this credit facility is composed of two tranches, consisting of a bank credit of
$7,500,000 which is guaranteed by accounts receivable and inventories, and a seven-year term loan in the amount of $17,500,000, repayable in
quarterly installments, which will be used for business and fixed assets acquisitions. this credit facility bears interest at prime rate plus 0.0%
to 0.50% based upon a financial ratio calculation.
6. accounts payable and accrued liabilities
trade accounts payable and accrued liabilities
salaries and vacations
commodity taxes
$
2009
5,336,845
1,324,469
130,361
2008
$
6,641,201
845,026
–
$
6,791,675
$
7,486,227
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
7. long-term debt
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.
$
4,497,923
$
4,997,107
loan, effective interest rate of 5%, repayable until april 2010 in semi-annual
2009
2008
installments of $24,967.
loan, 6.8%, reimbursed in september 2008
current portion of long-term debt
installments to be paid over the next fiscal years ended may 31 are as follows:
2010
2011
2012
2013
2014
thereafter
49,922
–
4,547,845
(549,922)
3,997,923
$
99,843
29,000
5,125,950
(578,922)
$
4,547,028
$
$
$
$
$
$
549,922
500,000
500,000
500,000
500,000
1,997,923
the company is required to maintain certain ratios in order to comply with the respective loan agreements. as of may 31, 2009, the company
complied with the terms and conditions of the loans.
8. other long-term liabilities
2009
2008
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.
$
41,725
$
deposit received from a customer, effective interest rate of 5%, repaid in 2009.
other
current portion
9. Deferred revenue
–
–
41,725
(41,725)
–
$
$
279,593
118,038
526
398,157
(270,251)
127,906
the wholly-owned german subsidiary 5n PV, received in 2008 €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 is not able to comply with the terms of this agreement. an amount of
$115,986 ($34,352 in 2008) was recognized as revenue in 2009.
5n Plus 2009 annual rePort
41
notes to
consolidated
financial
statements
10. Share capital
Authorized
an unlimited number of common shares, with no par value, participating, are entitling the holder to one vote per share.
an unlimited number of preferred shares may be issued in one or more series with specific terms, privileges and restrictions to be determined
for each class by the board of directors.
Issued and fully paid
common shares
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
issuance of shares pursuant to options
outstanding as at may 31, 2009
class B shares
outstanding as at may 31, 2007
issuance of shares pursuant to options
repurchases from shareholders
conversion of class b shares in common shares
outstanding as at may 31, 2008
$
$
$
number
29,635,954
11,500,000
4,000,000
364,046
45,500,000
20,225
45,520,225
251,500
135,181
(22,635)
(364,046)
–
$
amount
963,756
34,500,000
46,200,000
124,938
81,788,694
93,220
81,881,914
34,582
94,369
(4,013)
(124,938)
–
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 for the year ended may 31, 2008 were adjusted retroactively
taking into consideration the stock split following the iPo.
Normal course issuer bid
on december 2, 2008 the company announced its intention to repurchase for cancellation up to 2,275,000 common shares over the twelve-month
period starting on december 4, 2008 and ending on december 3, 2009, representing 5% of 5n Plus’ issued and outstanding common shares.
the purchases by the company will be effected through the facilities of the toronto stock exchange and will be made at the market price of the
common shares at the time of the purchase. in the financial year ended may 31, 2009 no common shares were repurchased.
Stock option plan
during the year ended may 31, 2009, 20,225 shares were issued under the stock option Plan for a cash consideration of $60,675 (135,181 class b
shares for a cash consideration of $2,725 in 2008). the amount previously recorded in contributed surplus of $32,545 ($91,644 in 2008) relating to
these exercised options has been reclassified into share capital.
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. For the year ended
may 31, 2009 the company granted 466,430 options (1,042,200 on december 20, 2007) at a weighted average price of $5.42 per option
($3.00 per option on december 20, 2007). options vest at a rate of 25% (100% for the directors) per year, beginning one year following the grant
date of the options.
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
10. Share capital (continued)
the following presents the assumptions used to establish the fair value assigned to the options issued using the black-scholes valuation model:
expected volatility
dividend
risk-free interest rate
risk-free interest rate (directors)
expected life
expected life (directors)
Fair value — weighted average of options issued
beginning of period
granted
cancelled
exercised
end of period
stock-based compensation cost is allocated as follows:
cost of goods sold
selling and administrative expenses
research and development expenses
11. income taxes
2009
stock
option
weighted average
exercise price
1,032,500
466,430
(39,650)
(20,225)
1,439,055
$
$
$
$
$
3.00
5.42
3.00
3.00
3.78
2009
68%
none
2.50%
2.25%
3.5 years
1 year
2.46
stock
option
10,750
1,042,200
(9,700)
(10,750)
1,032,500
2009
133,276
370,254
84,679
588,209
$
$
2008
72%
none
4.25%
4.00%
3.5 years
1 year
1.42
2008
weighted average
exercise price
$
$
$
$
$
$
$
0.26
3.00
3.00
0.26
3.00
2008
59,839
163,897
28,262
251,998
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:
income taxes at statutory tax rates
$
9,268,998
30.9 %
$
3,259,848
non-deductible items
non-taxable research and development tax credits
difference of tax rates applicable to a foreign subsidiary
Prior years’ tax adjustments and assessments
effect of recognition of losses of a foreign subsidiary
217,935
(83,221)
(112,232)
(162,846)
–
0.7 %
(0.3) %
(0.4) %
(0.5) %
90,641
(27,234)
(51,536)
(29,454)
(88,986)
$
9,128,634
30.4 %
$
3,153,279
2009
2008
31.6 %
0.9 %
(0.3) %
(0.5) %
(0.3) %
(0.9) %
30.5 %
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
11. income taxes (continued)
the tax effects of significant items comprising the company’s net future income tax assets balances are as follows:
43
future income tax assets
inventories
Property, plant and equipment
share issue expenses
deferred loss
others
future income tax liabilities
Property, plant and equipment
non-taxable research and development tax credits
unrealized foreign exchange gain
future income tax assets
the current and long-term future income tax asset and liabilities are as follows:
future income tax assets
short-term
long-term
future income tax liabilities
short-term
long-term
net future income tax assets
12. cost of sales
2009
249,958
662,639
1,051,210
–
62,586
2,026,393
(1,263,303)
(93,380)
(512,710)
(1,869,393)
157,000
2009
249,958
662,639
912,597
311,897
443,700
755,597
157,000
$
$
$
$
$
$
$
$
$
$
2008
–
798,536
1,348,172
449,707
21,828
2,618,243
(919,104)
(83,500)
(19,896)
(1,022,500)
1,595,743
2008
686,207
909,536
1,595,743
–
–
–
1,595,743
$
$
$
$
$
$
$
$
$
$
the following table presents the reconciliation of the cost of sales reflected in earnings to the inventory amount charged to expense during
the period:
cost of sales
depreciation of property, plant and equipment related to the transformation of inventories
inventory amount charged to expense
2009
34,174,231
2,002,747
36,176,978
$
$
2008
14,649,152
985,931
15,635,083
$
$
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
13. financial instruments
Risk management policies and processes
in the normal course of its operations, the company is exposed to credit risk, liquidity and financing risk, interest rate risk as well as price risk and
currency risk. management analyses these risks and implements strategies in order to minimize their impact on the company’s performance.
Credit risk and significant customer
the company has a conservative approach with regard to the management of its cash and cash equivalents. the investment Policy stipulates that
the funds have to be 100% guaranteed and allocated among three recognized financial institutions, and finally the President and chief executive
officer, and the chief Financial officer jointly authorize the type and terms of the investments.
the company is exposed to credit risk that is mainly associated with its accounts receivable, which is the risk that a client will not be able to pay
amounts in full when due. the company considers its credit risk to be limited for the following reasons:
a)
b)
the company concluded an agreement with export development canada (“edc”) which stipulates that edc will assume a portion of risk loss
for certain clients in the event of non-payment, up to a maximum of $1,500,000 per year.
the company does not require additional guarantee or other securities from its clients in regards to its accounts receivable. however, credit is
granted only to clients after a credit analysis is performed. the company conducts ongoing evaluations of its clients and establishes provisions
for doubtful accounts, should an account be considered not recoverable.
c)
one customer represented approximately 78% (67% in 2008) of sales in the fiscal year 2009 and 79% of accounts receivable as at
may 31, 2009 (54% in 2008).
Liquidity and financing risk
the company makes use of short and long-term financing at several financial institutions. should a significant decrease in cash and cash
equivalents occur, the company could make use of these facilities.
the following are the contractual maturities of financial liabilities as at may 31, 2009:
accounts payable and accrued liabilities
$ 6,791,675
$ 6,791,675
$ 6,791,675
$
–
$
–
$
–
long-term debt
other long-term liabilities
4,547,845
5,130,413
41,725
41,725
335,223
41,725
334,044
607,477
3,853,669
–
–
$ 11,381,245
$ 11,963,813
$ 7,168,623
$
334,044
$
607,477
$ 3,853,669
carrying
amount
contractual
cash flows
0 to 6
months
6 to 12
months
12 to 24
months
after
24 months
contractual cash flows include interest charges.
Interest rate risk
the issuance of 4,000,000 common shares in april 2008 generated gross proceeds of $46,200,000. therefore, the company’s level of debt is
currently low, and bears interest at floating rate. should its indebtedness increase, the company’s policy would be to limit its exposure to interest
rate risk variations by ensuring that a reasonable portion of the debt is at fixed rates. management does not believe that the impact of interest rate
fluctuations will be significant on its operating results. a 0.50% fluctuation of interest rate of on every $10,000,000 in cash and cash equivalents
would annually impact interest income by $50,000.
Price risk
the company is exposed to a risk of fluctuations in market prices for metals. this risk is managed by adequately forecasting and scheduling the
acquisition of inventories to meet its fixed price contractual obligations to its customers. Financial instruments do not expose the company to raw
material price risks.
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
45
13. financial instruments (continued)
Currency risk
the company is exposed to currency risk on sales of canadian-made products in us dollars and in euros. the company considers currency risk to
be limited for the following reasons:
a.
b.
c.
d.
on november 20, 2008, the company concluded a foreign currency forward contract totaling €4,500,000 at an average conversion rate
of 1.59. this foreign currency forward contract of €250,000 per month is effective from december 15, 2008 until may 14, 2010. For the year
ended may 31, 2009 the company recorded a gain in the amount of $87,194 in regard to this foreign currency exchange contract.
on october 9, 2008, the company concluded a foreign currency forward contract totaling us$6,000,000 at an average conversion rate of
1.135. this foreign currency forward contract of us$500,000 per month is effective from november 3, 2008 until october 30, 2009. For the
year ended may 31, 2009 the company recorded a loss in the amount of $199,451 in regard to this foreign currency exchange contract.
on march 19, 2009, the company concluded a foreign currency forward contract totaling €5,300,000 at an average conversion rate of 1.64.
this foreign currency forward contract of €150,000 up to €350,000 by month is effective from april, 1, 2009 until February 28, 2011. For the
year ended may 31, 2009 the company recorded a gain in the amount of $542,020 in regard to this foreign currency exchange contract.
on march 27, 2009, the company concluded a foreign currency forward contract totaling us$7,050,000 at an average conversion rate of
1.227. this foreign currency forward contract of us$250,000 up to us$350 000 by month will be effective from september, 1, 2009 until
august 31, 2011. For the year ended may 31, 2009 the company recorded a gain in the amount of $962,937 in regard to this foreign currency
exchange contract.
e.
in terms of raw material purchases, prices are mainly denominated in us dollars. the company’s purchases represent a partial natural hedge
against sales in us dollars.
as at may 31, 2009, the company had the following exposure on:
Financial assets and liabilities measured at amortized costs:
cash and cash equivalents
accounts receivable
receivable from the wholly-owned subsidiary
Payable from the wholly-owned subsidiary
accounts payable and accrued liabilities
other long-term liabilities
total exposure from above
scenario of the canadian dollar exchange rate fluctuation with regard to gross amount at risk:
exchange rate as at may 31, 2009
impact on net earnings based on a fluctuation of five cents in the canadian dollar exchange rate
$
usd
eur
1,755,567
2,212,613
731,941
–
(2,674,443)
(73,551)
1,952,127
378,446
12,000
2,605,309
(1,306)
–
–
2,994,449
cdn / usd
1.0961
66,860
$
cdn / eur
1.5484
135,598
amounts above do not include the wholly-owned subsidiary accounts balance as it is using the euro as functional currency. however, intercompany
account balances in euros are included in these amounts.
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
13. financial instruments (continued)
Fair value
the company has determined that the carrying value of its short-term financial assets and liabilities, including cash and cash equivalents, 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 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, 2009
and as at may 31, 2008.
14. foreign exchange gain
Foreign exchange gain related to operations
realized gain on derivative financial instruments
unrealized gain on derivative financial instruments
15. financial expenses
interest and bank charges
interest on long-term debt
amortization of deferred expenses
2009
1,523,887
232,625
1,685,076
3,441,588
2009
112,560
195,732
69,157
377,449
$
$
$
$
$
$
$
$
2008
124,710
–
–
124,710
2008
90,599
258,259
12,045
360,903
16. capital management
the company is not subject to any external restrictions on its capital.
the company’s objectives when managing capital are:
▪ to maintain a flexible capital structure, this optimizes the cost of capital at acceptable risk;
▪ to sustain future development of the company, including research and development activities, expansion of existing facilities or construction of
new facilities and potential acquisitions of complementary businesses or products; and
▪ to provide the company’s shareholders an appropriate return on their investment.
the company defines its capital as shareholders’ equity.
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
47
16. capital management (continued)
shareholders’ equity of the company amounted to $112,368,764 and $90,962,804 as at may 31, 2009 and as at may 31, 2008, respectively. the
increase reflects principally the net earnings recorded in the year ended may 31, 2009.
the company manages its capital structure based on the relationship between the net debt and capital. net debt represents the sum of short-term
and long-term financial debt, for both current and long-term portions, net of cash and cash equivalents.
since the completion of the share issuances during the year ended may 31, 2008, the company has maintained capital in excess of its current
needs and has invested such capital in cash and cash equivalents in order to maintain/retain the maximum flexibility to take advantage of
acquisition or expansion opportunities.
17. government assistance
during the years ended may 31, 2009 and 2008, the company recorded research and development tax credits amounting to $423,603 and
$499,079 respectively. these tax credits are subject to review and approval from taxation authorities.
during the years ended may 31, 2009 and 2008, the company received grants from investissement québec totalling $0 and $85,492, 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 totalling $4,125,371, of which an amount of $2,518,930 remains outstanding as at may 31, 2009 ($3,594,137 as at may 31, 2008),
is recorded as a short-term receivable ($1,540,760 as a short-term receivable and $2,053,377 as a long-term receivable in 2008) and is expected
to be received during fiscal year ending may 31, 2010.
18. commitments
a.
the company rents certain premises and equipment under the terms of operating leases expiring in may 2012 for premises with options to
renew and June 2013 for the equipment. the rental expenses related to operating leases for the year ended may 31, 2009 were $701,833.
Future minimum payments excluding operating costs for the next years are as follows:
2010
2011
2012
2013
2014
$
640,268
610,268
610,268
208,216
17,351
$
2,086,371
b.
c.
as at may 31, 2009, the company had placed orders with suppliers for the purchase of fixed assets in the aggregate amount of
$239,321 ($1,186,184 as at may 31, 2008).
the company’s germany subsidiary is committed to a number of conditions in its supply agreement with First solar. in addition to the start-up
of the german plant by august 2008, which did occur, these conditions include the supply of minimum quantities of products 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’ acquisition cost.
5n Plus 2009 annual rePort
notes to
consolidated
financial
statements
19. earnings per share
as at may 31
numerator
net earnings
Denominator
2009
2008
$
20,868,124
$
7,175,011
weighted average number of common shares
45,505,213
35,308,641
effect of dilutive securities
stock options
convertible notes
earnings per share
basic
diluted
20. Segment information
370,909
–
45,876,122
321,319
1,254,816
36,884,776
$
$
0.46
0.45
$
$
0.20
0.19
the company has only one reportable segment, namely refining and recycling of metals.
Geographical information
sales are allocated based on the country of origin of the customer with whom the agreement has been signed.
sales to customers located in the following geographical areas:
united states
europe
asia
canada
other countries
years ended may 31
Property, plant and equipment in the following countries:
canada
germany
as at may 31
2009
2008
$
40,559,556
$
15,526,294
20,774,725
6,431,033
1,591,612
16,191
12,521,891
634,251
979,822
1,310,683
$
69,373,117
$
30,972,941
2009
2008
$
$
13,424,454
12,753,969
26,178,423
$
$
11,501,758
9,719,131
21,220,889
21. comparative figures
certain comparative figures have been reclassified to conform to the current period presentation.
5n Plus 2009 annual rePort
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
4385 garand street
montreal, québec
h4r 2b4
annual meeting
the annual shareholders meeting will be held
on thursday, october 8, 2009 at 10:00 a.m.
mccord museum
J. armand bombardier amphitheatre
690 sherbrooke street west
montreal, québec
For more information, please contact:
inVestor relations
5n Plus inc.
4385 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.
4385, rue garand
montréal (québec)
h4r 2b4
aussi disponible à l’adresse :
www.5nplus.com
Cert no. SGS-COC-2844
Printed in canada
design: www.ardoise.com
www.5nplus.com
5n PV gmbh
oderlandstrasse 104
d-15890
eisenhüttenstadt
germany
5n Plus inc.
4385 garand street
montreal, québec
h4r 2b4
canada