2014 ANNUAL REPORT
5N5N PLUSSPECIALTY METALS AND CHEMICALSMORE THAN PRODUCTS+ UNITED STATES GERMANY BELGIUM ENGLAND LAOS CHINA MALAYSIA CANADA BELGIUM UNITED STATES GERMANY BELGIUM ENGLAND TABLE OF
CONTENTS
1 Our Vision
2 Message to Shareholders
5 Management’s Discussion and Analysis
25 Consolidated Financial Statements
34 Notes to Consolidated Financial Statements
69 Corporate Information
5N5N 1
SUSTAINABLE
GROWTH THROUGH
INNOVATION AND
PRODUCT EXCELLENCE.
OURVISION5N5N PLUS + 2014 ANNUAL REPORT 2
Dear Shareholders,
This has been another important year for the company with significant
improvements in financial performance and important progress towards our
stated objectives of positioning ourselves throughout the value chain. Combined
with record sales of bismuth metals and chemicals, the launch of our metal
powder business and several new product initiatives including compounds for
battery material applications, the mining industry and the solar module market,
there is much to be proud of as we reach our 15th year of existence.
A YEAR OF ACCOMPLISHMENTS
For all practical purposes, profitability reached
We launched or increased sales of several new
products, most of which organically driven, for
a five-year high with revenues increasing by 10%
markets as diverse as batteries, solar modules… with
over 2013 figures, to 508 million dollars, led by
renewed interest in our product for the CIGS based
strong bismuth sales which reached a record level
modules… catalysts and the mining industry.
for a second consecutive year. Demand for bismuth
continues to grow in several industrial applications
such as coatings and pigments driven primarily by the
requirements for lead-free products.
Financial flexibility was greatly increased during
the year as we issued a convertible debenture and
renewed our credit facilities. We also increased
our management bandwidth while simplifying
We also saw several positive developments in the
our organizational structure, as we aim to further
solar industry where our main customer in this
improve efficiency and execution with the intent of
market, First Solar, made important announcements
cost differentiation by leveraging our footprint of
in the year including another record conversion
assets worldwide and our technical and research and
efficiency level, and a 25 year multi-million dollar
development investments.
agreement with Apple which will be purchasing
annually 130 MW of electricity produced from First
Solar CdTe solar modules. First Solar modules are
VALUE CHAIN STRATEGY
Our strategy implies gradually positioning ourselves at
becoming increasingly complex from a materials
all levels of the value chain from primary sourcing all
standpoint. We are positioning ourselves to increase
the way up to value-added products.
our product offering and we announced during the
year the renewal and extension of our exclusive supply
agreements with this customer.
On one hand, we therefore aim to expand our custom
refining activities to encompass primary sourcing
opportunities. The bismuth feedstock offtake
5N5N PLUS + 2014 ANNUAL REPORT MESSAGETO SHAREHOLDERS 3
agreement that we have entered into and announced
In our metal powders business, we acquired the
in October 2013 is clearly in line with this objective,
technology from AM&M which was rebranded 5N Plus
just as the corresponding significant investments that
Micro Powders, assembled a technical, commercial
we have made this year into our Laos facility to treat
and production team and successfully launched the
this material. Despite some production delays, we
business. Further investments are ongoing as we
have laid the foundation of what we expect will be a
aim to develop a full fledge industrial capacity in
long term strategic asset for the Company.
2015, which should enable a step change increase
On the other, we are pursuing two main value-added
business opportunities, namely semiconductor
substrates and metal powders, both of which saw
important developments during the year.
VALUE CHAIN STRATEGY
INCREASE LEVEL
OF INTEGRATION
INCREASE VALUE
OF PRODUCTS
PRIMARY
PRODUCERS
CORE
5N PLUS
REFINING
ACTIVITIES
VALUE-ADDED
PRODUCTS
In our semiconductor business, we are positioning
in production and sales levels. Our metal powders
will be targeting the electronic packaging and the
additive manufacturing or 3D printing markets, both
of which are rapidly expanding and require a robust
supply chain for high quality and cost effective fine
metal powders.
Overall we aim through this supply chain strategy
to become fully integrated, hence reducing our
vulnerability to metal price fluctuations and further
enhancing our competitive position.
A TURBULENT AND
INCREASINGLY CHINESE
LANDSCAPE
Minor metals have been subject to important price
ourselves to fully leverage this industrial and
fluctuations over the last few years, a trend further
technological platform and expand into other material
enhanced by the growing impact of several metal
systems beyond germanium substrates. To facilitate
exchanges in China, where many of the metals we
this transition, we chose to acquire during the year
deal with are traded. Bismuth for example has close
all of the minority interest in Sylarus which was
to double in price over an 18-month period before
rebranded 5N Plus Semiconductors. We were also
seeing its value be cut in half during the last 6 months.
able to make significant technical and commercial
Other metals that we are involved in have or are also
progress, although the latter is still well below
likely to see their price fluctuate in a similar fashion,
long-term expectations, especially following recent
leading, together with an increasingly competitive
developments in the concentrator photovoltaic cell
landscape, to volatility in our financial performance.
market, which negatively impacted our germanium
substrate product line. Regardless, we remain hopeful
that this business will contribute to our bottom line, as
we overcome these short term pains and expand into
other materials systems including III-V and II-VI, and
will be an important component of our value-added
product portfolio.
5N5N PLUS + 2014 ANNUAL REPORT 4
In this respect, the influence of China, through supply
Another important contributor to our growth strategy
and demand dynamics and the advent of these new
involves our research & development efforts in which
metal exchanges, continues to be of significance.
we are increasingly investing. With key deliverables,
China is the largest producer of bismuth, indium,
besides continuous improvement of current
gallium and germanium worldwide and it is also an
operations, being closely associated with our value
important producer of tellurium and selenium. This
chain strategy, our R&D teams are defining an exciting
comes as no surprise as many of these metals are
growth roadmap that holds great promises.
by-products of base metal refining, and contained
at trace levels in the base metal concentrates
which are increasingly being processed in China. In
terms of demand, China is also likely to play an
increasingly significant role as growth of the Chinese
Our ability to grow is again perhaps best appreciated
by looking at our track record over the last five years
enabling us once again to be amongst the Deloitte
Fast 500™ for a fifth consecutive year.
semiconductor industry is likely to gradually increase
And our commitment to continue building a
domestic sales of metals such as indium, gallium
sustainable business, best illustrated by our growing
and germanium which are closely associated with
workforce, our continuing capital investments and
electronics. With over 150 employees in China and
our willingness to invest in both new products and
close relationships with several Chinese suppliers and
activities as well as in existing ones to maintain our
customers alike, we remain well positioned to capture
competitive advantage and generate value.
new opportunities and mitigate the impact of any
negative market developments there.
POSITIONNING OURSELVES FOR
SUSTAINABLE GROWTH
We continue to implement measures aimed at
providing means for sustainable growth. In addition
to our value chain strategy such measures include
improving operational efficiency, cost leadership and
fully leveraging our footprint of assets worldwide. We
believe that there is room for further improvement
in these areas, with a corresponding impact on value
creation and growth.
On behalf of our employees and our management
team, let me thank you again for your confidence and
support. We remain more than ever confident on our
ability to provide sustainable long-term value to all of
our shareholders as we execute on our strategy.
Jacques L’Ecuyer
President and Chief
Executive Officer
5N PLUS + 2014 ANNUAL REPORT Management’s Discussion and Analysis
5
This Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations is intended to
assist readers in understanding 5N Plus Inc. (the “Company” or “5N Plus”), its business environment, strategies,
performance and risk factors. This MD&A should be read in conjunction with the audited consolidated financial statements
and the accompanying notes for the year ended December 31, 2014. This MD&A has been prepared in accordance with
the requirements of the Canadian Securities Administrators.
Information contained herein includes any significant developments to February 24, 2015, the date on which the MD&A
was approved by the Company’s board of directors. Unless otherwise indicated, the terms “we”, “us” “our” and “the group”
as used herein refer to the Company together with its subsidiaries.
The “Q4 2014” and the “Q4 2013” refer to the three‐month periods ended December, 2014 and 2013. All amounts in this
MD&A are expressed in U.S. dollars, and all amounts in the tables are in thousands of U.S. dollars, unless otherwise
indicated. All quarterly information disclosed in this MD&A is based on unaudited figures.
Non‐IFRS Measures
This MD&A also includes certain figures that are not performance measures consistent with IFRS. These measures are
defined at the end of this MD&A under the heading Non‐IFRS Measures. Please note that the comparatives periods have
been restated to reflect a change in the EBITDA definition, see Selected Data Information section.
Notice Regarding Forward‐Looking Statements
Certain statements in this MD&A may be forward‐looking within the meaning of applicable securities laws. Forward‐looking
information and 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. Factors of uncertainty and risk that might result in such differences include the risks related to the
possible failure to realize anticipated benefits of acquisitions and investments, credit, liquidity, interest rate, inventory
pricing, commodity pricing, currency fluctuation, fair value, source of supply, environmental regulations, competition,
dependence on key personnel, business interruptions, protection of intellectual property, international operations,
collective agreements and being a public issuer. A description of the risks affecting the Company’s business and activities
appears under the heading “Risk and Uncertainties” of this MD&A. Forward‐looking statements can generally be identified
by the use of terms such as “may”, “should”, “would”, “believe”, “expect”, the negative of these terms, variations of them
or any similar terms. No assurance can be given that any events anticipated by the forward‐looking information in this
MD&A will transpire or occur, or if any of them do so, what benefits that 5N Plus will derive therefrom. In particular, no
assurance can be given as to the future financial performance of 5N Plus. The forward‐looking information contained in
this MD&A is made as of the date hereof and the Company has no obligation to publicly update such forward‐looking
information to reflect new information, subsequent or otherwise, unless required by applicable securities laws. The reader
is warned against placing undue reliance on these forward‐looking statements.
5N PLUS + 2014 ANNUAL REPORT
6
Management’s Discussion and Analysis
Overview
5N Plus is the leading producer of specialty metal and chemical products. Fully integrated with closed‐loop recycling
facilities, the Company is headquartered in Montreal, Quebec, Canada and operates manufacturing facilities and sales
offices in several locations in Europe, the Americas and Asia. 5N Plus deploys a range of proprietary and proven technologies
to produce products which are used in a number of advanced pharmaceutical, electronic and industrial applications. Typical
products include purified metals such as bismuth, gallium, germanium, indium, selenium and tellurium, inorganic chemicals
based on such metals and compound semiconductor wafers. Many of these are critical precursors and key enablers in
markets such as solar, light‐emitting diodes and eco‐friendly materials.
Reportable Segments
The Company has two reportable segments, namely Electronic Materials and Eco‐Friendly Materials. Corresponding
operations and activities are managed accordingly by the Company’s key decision makers. Segmented operating and
financial information, labelled key performance indicators, are available and used to manage these business segments,
review performance and allocate resources. Financial performance of any given segment is evaluated primarily in terms of
revenues and Adjusted EBITDA which is reconciled to consolidated numbers by taking into account corporate income and
expenses.
The Electronic Materials segment operates in North America, Europe and Asia. The Electronic Materials segment
manufactures and sells refined metals, compounds and alloys which are primarily used in a number of electronic
applications. Typical end‐markets include photovoltaics (terrestrial and spatial solar energy), light emitting diodes (LED),
displays, high‐frequency electronics, medical imaging and thermoelectrics. Main products are associated with the following
metals: cadmium, gallium, germanium, indium and tellurium. These are sold either in elemental or alloyed form as well as
in the form of chemicals and compounds. Revenues and earnings associated with recycling services and activities provided
to customers of the Electronic Materials segment are also included in the Electronic Materials segment and management
of such activities is the responsibility of the Electronic Materials executive team.
The Eco‐Friendly Materials segment is so labelled because it is mainly associated with bismuth, one of the very few heavy
metals which have no detrimental effect on either human health or in the environment. As a result, bismuth is being
increasingly used in a number of applications as a replacement for more harmful metals and chemicals. The Eco‐Friendly
Materials segment operates in North America, Europe and Asia. The Eco‐Friendly Materials segment manufactures and
sells refined bismuth and bismuth chemicals, low melting point alloys as well as refined selenium and selenium chemicals.
These are used in the pharmaceutical and animal‐feed industry as well as in a number of industrial applications including
coatings, pigments, metallurgical alloys and electronics. Management of such activities is the responsibility of the Eco‐
Friendly Materials executive team.
Corporate expenses associated with the head office and unallocated selling, general and administrative expenses (SG&A)
together with financial expenses (revenues) have been regrouped under the heading Corporate.
5N PLUS + 2014 ANNUAL REPORT
7
Management’s Discussion and Analysis
Highlights of Q4 2014 and Fiscal Year 2014
EBITDA1 reached $39.4 million during the year compared to $63.9 million in 2013 (or $18.7 million excluding the $45.2
million gain realised following the MCP Group S.A. (“MCP”) litigation settlement). Adjusted EBITDA1 increased to $35.0
million in 2014 compared to $30.4 million in 2013. EBITDA and Adjusted EBITDA were respectively of $4.0 million and
$5.7 million in the fourth quarter of 2014 compared to $6.8 million and $7.9 million for the fourth quarter of 2013.
Revenues for 2014 reached $508.2 million up from $459.0 million in 2013. Revenues for the fourth quarter of 2014
reached $114.8 million, down from $119.4 million for the fourth quarter of 2013.
Net earnings for fiscal year 2014 were $10.7 million compared to $42.8 million in 2013 which included the positive
impact of the MCP litigation settlement (or a loss of $2.4 million excluding the $45.2 million gain realised following the
MCP litigation settlement). Net loss for the fourth quarter of 2014 reached $2.5 million, compared to net earnings of
$1.6 million for the fourth quarter of 2013.
Net debt1 stood at $84.0 million, up from September 30, 2014 and up from $58.3 million as at December 31, 2013.
Bookings1 increased to $130.8 million in the quarter up from $101.3 million in the previous quarter. This compares
with bookings of $156.1 million in the fourth quarter of 2013. Backlog1 as at December 31, 2014 stood at $153.2 million,
up from $137.2 million in the previous quarter and down from $170.1 million one year ago.
On April 3, 2014, 5N Plus announced that it had acquired the remaining 33.33% ownership interest in its subsidiary
Sylarus Technologies, LLC, located in St. George, Utah, and had changed its name to 5N Plus Semiconductors LLC.
On May 5, 2014, 5N Plus announced that it had completed the acquisition of all of the issued and outstanding shares in
the capital of AM&M Advanced Machine and Materials Inc. (“AM&M”).
On May 29, 2014, 5N Plus announced that it had entered into new supply agreements with First Solar, Inc., the world’s
leading thin‐film solar module manufacturer, covering First Solar’s compound semiconductor needs until March 31,
2019.
On June 26, 2014, 5N Plus announced the closing of its offering of CA$60.0 million of convertible unsecured
subordinated debentures and that the underwriters had purchased an additional CA$6.0 million.
On August 7, 2014, 5N Plus announced the closing of a senior secured multi‐currency revolving credit facility of $125.0
million maturing in August 2018 (with an additional $25.0 million accordion feature) to replace its existing $100.0 million
senior secured revolving facility.
On November 13, 2014, the Company was named for a fifth consecutive year as one of Canada’s fastest growing
technology companies in the Deloitte Technology Fast 50TM based on the percentage of revenue growth over five years.
5N Plus' increase in revenues of 581% from 2009 to 2013 resulted in a number 23 ranking. The Company was also
ranked 179 on Deloitte’s Technology Fast 500TM, a
list of the 500 fastest growing technology, media,
telecommunications, life sciences and clean technology companies in North America.
Deloitte Technology Fast 50TM program
The Company ended the year 2014 close to its highest level in terms of profitability as it reached record EBITDA (excluding
the impact of the MCP litigation settlement realized in 2013), despite a relatively soft fourth quarter. The year was mainly
characterized by strong demand for most of the Company’s products with bismuth sales reaching a record level for a second
consecutive year. Demand for the solar products was also high as one of the Company’s main customers continues to
make significant progress in terms of efficiency and costs demonstrating the overall competitiveness of the CdTe
technology over other technologies and its ability to penetrate unsubsidized markets. This was recently highlighted by
Apple’s decision to enter into a 25‐year commercial power purchase agreement, the largest of its kind, for 130 MW of
electricity produced using CdTe solar cells. Sales of other products were in line with expectations with important advances
having been made during the year in the semiconductor substrate business where the Company is now fully qualified with
both of the main US based suppliers of space solar cells.
1 See Non‐IFRS Measures
5N PLUS + 2014 ANNUAL REPORT
8
Management’s Discussion and Analysis
The Company experienced however a relatively soft fourth quarter with demand being negatively impacted by significant
underlying commodity price volatility. This is especially true for bismuth and gallium, the pricing of which has been under
severe downward pressure following latest developments at the Fanya Metal Exchange which has forced the Company to
record inventory impairment charges of $5.3 million in the quarter. The Company expects demand to recover in the first
quarter although pricing volatility may continue. The Company’s bookings and backlog increases recorded in the fourth
quarter reflect this to a large extent with lower dollar figures being essentially associated with decreases in selling prices,
following latest trends in underlying commodity prices, but not sales volumes. Similarly, should such pricing trends
continue, the Company expects inventory dollar figures to come down together with its debt level as average unit pricing
decreases.”
The Company improved its financial flexibility in 2014, through the issuance of a convertible debenture and the renewal of
its credit facility, enabling the Company to continue making progress in several strategic initiatives aimed at strengthening
its position throughout the entire value chain. This included, on one hand, additional investments in the Laos facility with
the intent of expanding the primary refining capabilities and providing an efficient footprint for the treatment of the
bismuth feedstock produced in Vietnam; and on the other, investments aimed at expanding its value‐added product
portfolio by fully leveraging its industrial and technological platform in the semiconductor substrate business and by
acquiring the AM&M business and technology as the Company intends to rapidly position itself in the metal powder
business.
The Company estimates that current underlying commodity pricing volatility is likely to continue to weigh on its financial
performance but remains cautiously optimistic about future demand and its ability to grow as the Company executes its
strategic plan. To its employees, the Company would like to thank them for their dedication and hard work in what has
turned out to be a record year in many respects despite the competitive landscape the Company operates in. To its
stakeholders and shareholders, the Company would like to thank them as well for their continuing confidence and support.
50TM program is a ranking of Canada’s 50 fastest growing technology companies for technological innovation,
entrepreneurship, rapid growth and leadership, based on the percentage of revenue growth over five years. 5N Plus’ percent
revenue growth of 581% from 2009 to 2013 resulted in a 23rd place ranking.
Deloitte Technology Fast 50TM program is a ranking of Canada’s 50 fastest growing technology companies for
technological innovation, entrepreneurship, rapid growth and leadership, based on the percentage of revenue growth over
five years. 5N Plus’ percent revenue growth of 581% from 2009 to 2013 resulted in a 23rd place ranking.
5N PLUS + 2014 ANNUAL REPORT
9
2013
$
459,012
428,637
30,375
10,182
(45,188)
4,068
‐
‐
(2,590)
63,903
8,524
10,686
44,693
4,338
(2,425)
1,913
42,780
$0.51
$0.51
Q4 2014
$
114,781
109,124
5,657
5,251
‐
1,178
‐
(1,368)
(3,425)
4,021
2,860
2,546
(1,385)
(2,237)
3,305
1,068
(2,453)
($0.03)
($0.04)
Q4 2013
$
119,416
111,474
7,942
‐
‐
569
‐
‐
525
6,848
1,779
2,419
2,650
132
880
1,012
1,638
$0.02
$0.02
2014
$
508,195
473,150
35,045
5,251
‐
1,952
(1,312)
(7,179)
(3,111)
39,444
8,769
11,148
19,527
4,875
3,979
8,854
10,673
$0.13
$0.05
Management’s Discussion and Analysis
Summary of Results
Revenues
Operating expenses
Adjusted EBITDA1
Impairment of inventory
Gain related to the settlement of the purchase price of MCP
Litigation and restructuring costs
Gain on disposal of property, plant and equipment
Change in fair value of debenture conversion option
Foreign exchange and derivative (gain) loss
EBITDA1 2
Interest on long‐term debt, imputed interest and other interest expense
Depreciation and amortization
Earnings (loss) before income taxes
Income tax (recovery) expense
Current
Deferred
Net (loss) earnings
Basic (loss) earnings per share
Diluted (loss) earnings per share
Revenues by Segment
Electronic Materials Segment
Eco‐Friendly Materials Segment
Total revenues
Q4 2014
$
41,898
72,883
114,781
Q4 2013
$
46,264
73,152
119,416
% Change
(9%)
‐
(4%)
2014
$
169,367
338,828
508,195
2013
$
179,368
279,644
459,012
% Change
(6%)
21%
11%
Revenues for fiscal year 2014 increased by 11% compared to the prior fiscal year to $508.2 million versus $459.0 million in
fiscal year 2013. Revenues for the Electronic Materials segment decreased by 6% compared to 2013 while the Eco‐Friendly
Materials segment achieved an increase of more than 21% supported by better volumes and average prices.
Revenues decreased by 4% compared to the prior year quarter. Revenues in Q4 2014 for the Electronic Materials segment
reached $41.9 million, lower from $46.3 million in Q4 2013, negatively impacted by prices. Eco‐Friendly Materials segment
revenues reached $72.9 million, similar to the prior year quarter, with better prices mitigating lower volumes than prior
year quarter.
Net earnings (loss) and Adjusted net earnings
Net (loss) earnings
Basic net (loss) earnings per share
Reconciling items:
Impairment of inventory
Litigation and restructuring costs
Change in fair value of debenture conversion option
Gain related to the settlement of the purchase price of MCP
Income taxes on taxable items above
Adjusted net earnings1
Basic adjusted net earnings per share1
Q4 2014
$
(2,453)
($0.03)
5,251
1,178
(1,368)
‐
(1,361)
1,247
$0.01
Q4 2013
$
1,638
$0.02
‐
569
‐
‐
(139)
2,068
$0.02
2014
$
10,673
$0.13
5,251
1,952
(7,179)
‐
(61)
10,636
$0.13
2013
$
42,780
$0.51
10,182
4,068
‐
(45,188)
(1,002)
10,840
$0.13
In 2014, Adjusted net earnings1 reached $10.6 million compared to $10.8 million for the prior fiscal year. Net earnings for
fiscal year 2014 reached $10.7 million compared to $42.8 million in 2013, impacted by the MCP litigation settlement of
$45.2 million in the second quarter of 2013. This is partially offset by the positive change in fair value of debenture
conversion option and lower inventory impairment charge recorded this year compared to last year.
1 See Non‐IFRS Measures
2 The comparative periods have been restated to reflect a change in the EBITDA1 definition
5N PLUS + 2014 ANNUAL REPORT
10
Management’s Discussion and Analysis
In Q4 2014, Adjusted net earnings1 decreased by $0.8 million from $2.1 million to $1.2 million compared to the same period
last year. Net loss reached $2.5 million in Q4 2014 compared to net earnings of $1.6 million for the same period last year.
The decrease in net earnings compared to prior year quarter is mainly explained by an inventory impairment charge of $5.3
million as well as restructuring costs partially offset by a positive change in fair value of debenture conversion option of
$1.4 million.
Adjusted EBITDA
Electronic Materials
Eco‐Friendly Materials
Corporate
Adjusted EBITDA1
Q4 2014
Q4 2013
% Change
2014
2013
% Change
4,853
3,106
(2,302)
5,657
4,006
6,474
(2,538)
7,942
21%
(52%)
(9%)
(29%)
23,642
22,167
(10,764)
35,045
22,466
16,285
(8,376)
30,375
5%
36%
29%
15%
For fiscal year 2014, Adjusted EBITDA1 amounted to $35.0 million compared to $30.4 million for 2013. The Adjusted EBITDA
improved mainly from an increase in average selling prices, volumes, and settlement of an insurance claim received in Q3
2014, net of higher labor costs, utilities and logistic costs. Adjusted EBITDA for the Electronic Materials segment increased
by $1.2 million at $23.6 million with an Adjusted EBITDA margin1 of 14% compared to 13% in 2013. Adjusted EBITDA for
the Eco‐Friendly Materials segment increased to $22.2 million compared to $16.3 million last year with an adjusted EBITDA
margin of 7% compared to 6% in 2013.
In Q4 2014, Adjusted EBITDA amounted to $5.7 million compared to $7.9 million for the same period a year ago. The
Adjusted EBITDA decreased mainly from lower volumes compared to the same period a year ago. Adjusted EBITDA for the
Electronic Materials segment increased by $0.8 million at $4.9 million achieving an Adjusted EBITDA margin of 12%
compared to 9% for the prior year quarter. Adjusted EBITDA for the Eco‐Friendly Materials segment decreased to $3.1
million compared to $6.5 million in Q4 2013 with an Adjusted EBITDA margin of 4% compared to 9% for the prior year
quarter.
Impairment Charges
Electronic Materials
Eco‐Friendly Materials
Impairment of inventories
Q4 2014
Q4 2013
856
4,395
5,251
‐
‐
‐
2014
856
4,395
5,251
2013
150
10,032
10,182
An inventory impairment charge of $5.3 million mainly on bismuth and gallium was recorded in 2014 compared to a charge
of $10.2 million in 2013, reflecting the expected net realized value of year‐end inventories following recent decline in
commodity prices impacting our industry.
Bookings and Backlog
Electronic Materials
Eco‐Friendly Materials
Total
Q4 2014
$
83,676
69,483
153,159
BACKLOG1
Q3 2014
$
79,753
57,430
137,183
Q4 2013
$
80,382
89,691
170,073
Q4 2014
$
45,821
84,936
130,757
BOOKINGS1
Q3 2014
$
37,259
63,999
101,258
Q4 2013
$
54,337
101,800
156,137
Q4 2014 vs Q3 2014
Overall the backlog1 as at December 31, 2014 stood at $153.2 million, higher than the previous quarter following the
renewal pattern of most contracts which generally occurs in the fourth quarter or in the first quarter of the year.
Backlog as at December 31, 2014, for the Electronic Materials segment stood at $83.7 million increasing by $3.9 million, or
5%, over the backlog of Q3 2014. The backlog for the Eco‐Friendly Materials segment stood at $69.5 million, an increase
of $12.1 million or 21%, over the backlog of Q3 2014.
Bookings1 for the Electronic Materials segment increased by $8.6 million to $45.8 million compared to Q3 2014. Bookings
for the Eco‐Friendly Materials segment increased by $20.9 million or 33%, from $64.0 million in Q3 2014 to $84.9 million
in Q4 2014.
1 See Non‐IFRS Measures
5N PLUS + 2014 ANNUAL REPORT
Management’s Discussion and Analysis
11
Q4 2014 vs Q4 2013
Backlog as at December 31, 2014 increased by $3.3 million for the Electronic Materials segment and decreased by $20.2
million for the Eco‐Friendly Materials segment compared to the previous year quarter.
Bookings for the Electronic Materials segment decreased by $8.5 million, and by $16.9 million for the Eco‐Friendly Materials
segment compared to the previous year quarter.
Expenses
Depreciation and amortization
SG&A
Litigation and restructuring costs
Financial (revenues) expenses
Income tax expense
Total expenses
Q4 2014
$
2,546
8,639
1,178
(1,933)
1,068
11,498
Q4 2013
$
2,419
8,607
569
2,304
1,012
14,911
% Change
5%
‐%
107%
(184%)
6%
(23%)
2014
$
11,148
36,922
1,952
(1,521)
8,854
57,355
2013
$
10,686
36,066
4,068
5,934
1,913
58,667
% Change
4%
2%
(52%)
(126%)
363%
(2%)
Depreciation and Amortization
Depreciation and amortization expenses in Q4 2014 and 2014 amounted to $2.5 million and $11.1 million respectively,
compared to $2.4 million and 10.7 million for the same periods of 2013.
SG&A
For Q4 2014 and 2014, SG&A expenses were $8.6 million and $36.9 million respectively, compared to $8.6 million and
$36.1 million for the same periods of 2013. Variation is mostly explained by additional wages and professional expenses.
Litigation and Restructuring costs
The Company recorded litigation and restructuring costs of $1.2 million and $2.0 million for Q4 2014 and 2014 respectively
compared to $0.6 million and $4.1 million for the same periods a year ago. On a fiscal year basis, the decrease is mainly
due to lower expenses to attorney’s and other professional fees for legal proceedings and employee severance costs.
Financial Expenses
Financial revenues for Q4 2014 amounted to $1.9 million compared to financial expenses of $2.3 million for the same
period last year. The positive variance is mainly due to higher gain on foreign exchange and derivative of $4.0 million and
the positive change in the fair value of the debenture conversion option of $1.4 million partially offset by higher interest
expenses, either imputed or from debt.
For 2014, financial revenues amounted to $1.5 million compared to financial expenses of $5.9 million for the same period
last year. Positive change in fair value of the debenture conversion option of $7.2 million combined with a higher gain on
foreign exchange and derivative of $0.5 million are partially offset by higher interest expenses, either imputed or from
debt.
Income Taxes
For Q4 2014 and 2014, income tax expense was $1.1 million and $8.9 million, respectively, representing an effective tax
rate of 77% and 45% respectively. Effective tax rate is higher in Q4 2014 compared to the same quarter of 2013 mainly due
to the losses carried forward for which no deferred tax asset was recognized in Q4 2014. Effective tax rate is higher for
2014 at 45% compared to 2013 mainly due to the fact that 2013 was impacted by a non‐taxable gain on settlement of the
MCP litigation which was reflected as a reduction of the acquisition price, and losses carried forward for which no deferred
tax asset was recognized in 2014.
5N PLUS + 2014 ANNUAL REPORT
12
Management’s Discussion and Analysis
Liquidity and Capital Resources
Funds from operations1
Net changes in non‐cash working capital items
Operating activities
Investing activities
Financing activities
Effect of foreign exchange rate changes on cash and
cash equivalents related to operations
Net increase (decrease) in cash and cash equivalents
Q4 2014
$
4,030
(8,019)
(3,989)
(4,529)
11,268
Q4 2013
$
9,043
372
9,415
(3,755)
3,510
% Change
(55%)
(2,256%)
(142%)
21%
221%
(261)
2,489
(382)
8,788
(32%)
(72%)
2014
$
17,592
(34,765)
(17,173)
(15,753)
24,121
(845)
(9,650)
2013
$
20,033
27,930
47,963
(11,748)
(22,410)
(913)
12,892
% Change
(12%)
(224%)
(136%)
34%
(208%)
(7%)
(175%)
For Q4 2014, cash consumed by operating activities was $4.0 million compared to cash generated by operation of
$9.4 million for the same period last year. The decrease is mainly attributable to higher inventory and accounts receivable.
Investing activities consumed $4.5 million in Q4 2014 compared to $3.8 million in the same period a year ago. This increase
is explained by an increase in acquisition of property, plant and equipment and intangible assets.
Financing activities generated $11.3 million in Q4 2014 compared to $3.5 million in the same period a year ago. This
increase is mainly explained by additional borrowing under the credit facility.
For 2014, cash consumed by operating activities was $17.2 million compared to cash generated of $48.0 million in 2013.
This decrease in 2014 is mainly attributable to the inventory and accounts receivable increases. Investing activities
consumed $15.8 million compared to $11.7 million in 2013. This increase is explained by an increase in acquisition of
property, plant and equipment and intangible assets and by the acquisition of AM&M partially offset by the proceeds of
disposition of real estate property recorded in Q1 2014. Cash generated by financing activities amounted to $24.1 million
compared to cash consumed of $22.4 for the same period a year ago. This increase is mainly associated with the issuance
of convertible debentures net of fees in Q2 2014 partially offset by repayment of long‐term debt.
Working Capital
Inventories
Other current assets
Current liabilities
Working capital1
Working capital current ratio1
As at December 31, 2014
$
204,454
93,100
(67,992)
229,562
4.38
As at December 31, 2013
$
174,374
97,233
(86,861)
184,746
3.13
The increase in working capital1 is mainly due to higher anticipated demand and its impact on inventory and by a
reclassification from trade and accrued liabilities to other liabilities following new agreements with a supplier. The current
level was impacted by average commodity pricing during the year and by the last quarter activities.
Net Debt
Bank indebtedness
Long‐term debt including current portion
Convertible debentures
Total Debt
Cash and cash equivalents and restricted cash
Net Debt1
As at December 31, 2014
$
975
51,823
46,101
98,899
(14,892)
84,007
As at December 31, 2013
$
10,462
72,785
‐
83,247
(24,917)
58,330
Total debt increased by $15.7 million to $98.9 million as at December 31, 2014, compared to $83.2 million as at
December 31, 2013. The increase of debt is due to the increase in working capital.
Net debt after taking into account cash and cash equivalents and restricted cash increased by $25.7 million, from $58.3
million as at December 31, 2013 to $84.0 million as at December 31, 2014.
1 See Non‐IFRS Measures
5N PLUS + 2014 ANNUAL REPORT
13
Management’s Discussion and Analysis
Available Short‐Term Capital Resources
Cash and cash equivalents
Available bank indebtedness
Available revolving credit facility
Available short‐term capital resources
As at December 31, 2014
$
12,777
650
79,976
93,403
As at December 31, 2013
$
22,427
12,912
11,980
47,319
The Company believes that funds from operations1, combined with its available short‐term capital resources of $93.4
million as at December 31, 2014 will enable it to support its growth, its working capital needs and its planned capital
expenditures.
Funds from Operations
Funds from operations1
Net acquisition of PPE and intangible assets
Working capital changes
Issuance of common shares
Settlement of the purchase price of MCP
Others
Total movement in net debt1
Net debt1, beginning of period
Net debt1, end of period
Q4 2014
$
4,030
(4,484)
(8,019)
‐
‐
333
(12,170)
(8,140)
(75,867)
(84,007)
Q4 2013
$
9,043
(3,768)
372
‐
‐
(457)
(3,853)
5,190
(63,520)
(58,330)
2014
$
17,592
(14,221)
(34,765)
164
‐
5,553
(43,269)
(25,677)
(58,330)
(84,007)
2013
$
20,033
(11,615)
27,930
‐
45,188
(3,319)
58,184
78,217
(136,547)
(58,330)
For Q4 2014 and 2014, funds from operations decreased to $4.0 million and $17.6 million respectively, compared to $9.0
million and $20.0 million for the same periods of 2013. The decrease was mainly attributable to unfavorable working capital
changes.
Net debt1 to annualized adjusted EBITDA ratio
Annualized funds from operations1 to net debt (%)
Q4 2014
3.7
19.2
Q4 2013
1.8
62.0
2014
2.4
20.9
2013
1.9
34.3
Net debt to annualized adjusted EBITDA ratio for 2014 was 2.4 compared to 1.9 for 2013, with Q4 2014 at 3.7 versus 1.8
in Q4 2013. Annualized funds from operations to net debt represented 20.9% for 2014 and 34.3% for 2013, with Q4 2014
at 19.2% of our net debt compared to 62.0% for the same period last year.
Share Information
Issued and outstanding shares
Stock options potentially issuable
Convertible debentures potentially issuable
As at February 24, 2015
83,979,657
1,388,760
9,777,777
As at December 31, 2014
83,979,657
1,702,100
9,777,777
1 See Non‐IFRS Measures
5N PLUS + 2014 ANNUAL REPORT
14
Management’s Discussion and Analysis
Stock Option Plan
On April 11, 2011, the Company adopted a new stock option plan replacing the previous plan (the “Old Plan”), in place
since October 2007, with the same features as the Old Plan with the exception of a maximum number of options granted
which cannot exceed 5,000,000. The aggregate number of shares which could be issued upon the exercise of options
granted under the Old Plan could not exceed 10% of the issued shares of the Company at the time of granting the options.
Options granted under the Old Plan may be exercised during a period not exceeding ten years from the date of grant. The
stock options outstanding as at December 31, 2014 may be exercised during a period not exceeding six years from their
date of grant. Options vest at a rate of 25% (100% for directors) per year, beginning one year following the grant date of
the options. Any unexercised options will expire one month after the date a beneficiary ceases to be an employee, director
or officer and one year for retired directors.
The following table presents information concerning all outstanding stock options:
Outstanding, beginning of year
Granted
Cancelled
Exercised
Expired
Outstanding, end of year
Exercisable, end of year
Number of
options
1,637,951
352,000
(206,463)
(71,388)
(10,000)
1,702,100
1,192,918
2014
Weighted average
exercise price
CA$
4.19
3.99
4.16
2.46
7.80
4.21
4.37
Number of
options
1,585,448
546,939
(141,386)
‐
(353,050)
1,637,951
1,001,826
2013
Weighted average
exercise price
CA$
4.67
2.39
5.55
‐
3.00
4.19
4.94
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 and contractual obligations in the normal course of business.
The Company is exposed to currency risk on sales in Euro and other currencies and 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 Notes 17 and 25 of the audited consolidated financial statements for the year ended December 31, 2014.
The contractual maturities of the Company’s financial liabilities as at December 31, 2014 are as follows:
Bank indebtedness
Trade and accrued liabilities
Long‐term debt
Convertible debentures
Long‐term payable (including in other liabilities)
Total
Carrying amount
$
975
60,286
51,823
46,101
12,577
171,762
1 year
$
1,030
60,286
3,224
3,263
‐
67,803
2‐3 years
$
4‐5 years Beyond 5 years
$
$
‐
‐
5,136
6,527
15,064
26,727
‐
‐
52,837
61,635
‐
114,472
‐
‐
‐
‐
‐
‐
Total
$
1,030
60,286
61,197
71,425
15,064
209,002
Commitments
In September 2014, the Company signed a loan agreement with one of its suppliers for the construction of manufacturing
equipment in Asia. The loan bears an interest rate of 8.5%, and is guaranteed by the supplier’s corporate entity. Under this
agreement, the total amount can reach up to $7 million upon achievement of certain milestones. The initial tranche was
disbursed on October 15, 2014. As at December 31, 2014, the amount receivable under the loan is $1.8 million. Each
tranche is to be reimbursed on a monthly basis over a term of 12 months starting after each drawdown.
In the normal course of business, the Company contracted letters of credit for an amount of up to $0.4 million as at
December 31, 2014.
5N PLUS + 2014 ANNUAL REPORT
Management’s Discussion and Analysis
15
The Company rents certain premises and equipment under the terms of operating leases. Future minimum payments,
following recent contractual lease renewals, excluding operating costs are as follows:
Within one year
After one year but not more than five years
Total commitments
2014
$
2,881
5,100
7,981
2013
$
2,265
3,635
5,900
Contingencies
In the normal course of operations, the Company is exposed to events that could give rise to contingent liabilities or assets.
As at February 24, 2015, the Company was not aware of any significant events that would have a material effect on its
consolidated financial statements, except for the following.
In 2013, the Company settled its case with the former shareholders of MCP thereby prohibiting further related action by
either party involved in the settlement. As of the date hereof, the Company does not believe that it is probable that an
outflow of resources, which could be material to the consolidated financial statements, will be required by the Company
following potential third party claims pertaining to actions or events related to the alleged breaches of representations and
warranties by the former shareholders of MCP.
Governance
As required by Multilateral Instrument 52‐109 of the Canadian Securities Administrators («MI 52‐109 »), 5N Plus has filed
certificates signed by the Chief Executive Officer and the Chief Financial Officer that, among others, attest to the design of
the disclosure controls and procedures and the design and effectiveness of internal control over financial reporting.
Disclosure Controls and Procedures
The Chief Executive Officer and the Chief Financial Officer have designed disclosure controls and procedures, or have
caused them to be designed under their supervision, in order to provide reasonable assurance that:
material information relating to the Company has been made known to them; and
information required to be disclosed in the Company’s filings is recorded, processed, summarized and reported
within the time periods specified in securities legislation.
An evaluation was carried out, under the supervision of the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the Company’s disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that the disclosure controls and procedures are effective.
Internal Control over Financial Reporting
The Chief Executive Officer and the Chief Financial Officer have also designed internal controls over financial reporting
(ICFR), or have caused them to be designed under their supervision, in order to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
IFRS.
Based on their evaluation carried out to assess the effectiveness of the Company’s internal control over financial reporting,
the Chief Executive Officer and the Chief Financial Officer have concluded that the internal control over financial reporting
was designed and operated effectively as at December 31, 2014, using the Internal Control – Integrated Framework (2013
Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO 2013
Framework”).
Changes in Internal Control over Financial Reporting
No changes were made to our internal controls over financial reporting during fiscal year ended December 31, 2014 that
have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
5N PLUS + 2014 ANNUAL REPORT
16
Management’s Discussion and Analysis
Accounting Policies and Changes
The Company established its accounting policies and methods used in the preparation of its audited consolidated financial
statements for the fiscal year 2014 in accordance with IFRS. The Company’s significant accounting policies are described
in Note 2 of the December 31, 2014 audited consolidated financial statements. The key assumptions and basis for estimates
that management has made under IFRS, and their impact on the amounts reported in the consolidated financial statements
and notes, remain substantially unchanged from those described in the Company’s audited consolidated financial
statements for the fiscal year ended December 31, 2013.
Changes in Accounting Policies
On January 1, 2014, the Company applied the new standard described below.
IFRS Interpretations Committee Interpretation 21, “Levies”, provides guidance on accounting for levies in accordance with
the requirements of IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”. The interpretation defines a levy as
an outflow from an entity imposed by a government in accordance with legislation and confirms that a liability for a levy is
recognized only when the triggering event specified in the legislation occurs. The Company has applied IFRIC 21 on a
retrospective basis in compliance with the transitional requirements of IFRIC 21. The application of IFRIC 21 did not have
any impact to the consolidated financial statements.
Future Changes in Accounting Policies
The following standards have been issued but are not yet effective:
In May 2014, the IASB issued IFRS 15, “Revenues from Contracts with Customers”, to specify how and when to recognize
revenue as well as requiring the provision of more information and relevant disclosure. IFRS 15 supersedes IAS 18,
“Revenue”, IAS 11, “Construction Contracts”, and other revenue‐related interpretations. The standard will be effective on
January 1, 2017 for the Company with earlier adoption permitted. The Company is currently evaluating the impact of this
standard on its consolidated financial statements.
In July 2014, the IASB amended IFRS 9, “Financial Instruments”, to bring together the classification and measurement,
impairment and hedge accounting phases of the IASB’s project to replace IAS 39, “Financial Instruments: Recognition and
Measurement”. The standard supersedes all previous versions of IFRS 9 and will be effective on January 1, 2018 for the
Company with earlier application permitted. The Company is currently evaluating the impact of this standard on its
consolidated financial statements.
Significant Management Estimation and Judgment in Applying Accounting Policies
The following are significant management judgments used in applying the accounting policies of the Company that have
the most significant effect on the consolidated financial statements.
Estimation Uncertainty
When preparing the consolidated financial statements, management undertakes a number of judgments, estimates and
assumptions about recognition and measurement of assets, liabilities, revenues and expenses. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected.
Information about the significant judgments, estimates and assumptions that have the most significant effect on the
recognition and measurement of assets, liabilities, revenues and expenses are discussed below.
Impairment of Non‐Financial Assets
An impairment loss is recognized for the amount by which an asset’s or Cash Generating Units (“CGU”), carrying amount
exceeds its recoverable amount, which is the higher of fair value less cost of disposal and value in use.
5N PLUS + 2014 ANNUAL REPORT
17
Management’s Discussion and Analysis
To determine value in use, management estimates expected future cash flows from each asset or CGU and determines a
suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected
future cash flows, management makes assumptions about future operating results. These assumptions relate to future
events and circumstances. The actual results may vary, and may cause significant adjustments to the Company’s assets in
future periods. In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to
market risk and the appropriate adjustment to asset‐specific risk factors.
Inventories
Inventories are measured at the lower of cost and net realizable value, with cost determined on the average cost method.
In estimating net realizable values, management takes into account the most reliable evidence available at the time the
estimates are made. The Company’s core business is subject to changes in foreign policies and internationally accepted
metal prices which may cause selling prices to change rapidly. The Company evaluates its inventories using a group of
similar items basis and considers expected future prices as well as events that have occurred between the consolidated
statement of financial position date and the date of completion of the consolidated financial statements. Net realizable
value held to satisfy a specific sale contract is measured at the contract price.
Debenture conversion option
The convertible debentures issued by the Company included conversion and early redemption options, which are
considered as Level 3 financial instruments. The derivative is measured at fair value through profit and loss, and its fair
value must be measured at each reporting period, with subsequent changes in fair value recorded in the statement of
earnings. A derivative valuation model is used and includes assumptions, to estimate the fair value. Detailed assumptions
used in the model to determine the fair value of the embedded derivative, upon inception and as at December 31, 2014,
are provided in the note 13 of the 2014 consolidated financial statements of the Company.
Income Taxes
The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the
worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax
determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of
whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were
initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in
which such determination is made.
The Company has deferred income tax assets that are subject to periodic recoverability assessments. Realization of the
Company’s deferred income tax assets is largely dependent upon its achievement of projected future taxable income and
the continued applicability of ongoing tax planning strategies. The Company’s judgment regarding future profitability may
change due to future market conditions, changes in tax legislation and other factors that could adversely affect the ongoing
value of the deferred income tax assets. These changes, if any, may require the material adjustment of these deferred
income tax asset balances through an adjustment to the carrying value thereon in the future. This adjustment would reduce
the deferred income tax asset to the amount that is considered to be more likely than not to be realized and would be
recorded in the period such a determination was to be made.
Related Party Transactions
The Company’s related parties are its joint ventures, directors and executive members. Transactions with these related
parties are described in Notes 9, 10, 24 and 27 in the 2014 consolidated financial statements of the Company.
Financial Instruments and Risk Management
Fair Value of financial instruments
A detailed description of the methods and assumptions used to measure the fair value of the Company financial
instruments and their fair value are discussed in Note 17 – Categories of Financial Assets and Financial Liabilities in the
2014 consolidated financial statements of the Company.
5N PLUS + 2014 ANNUAL REPORT
18
Management’s Discussion and Analysis
The fair value of the derivative financial instruments was as follows:
Assets (Liabilities)
December 31, 2014
Debenture conversion option
Interest rate swap
Foreign exchange forward contracts
Derivative forward contracts
Warrants
Total
$
(2,093)
‐
‐
147
‐
(1,946)
December 31, 2013
$
‐
(2,588)
(1,468)
955
(181)
(3,282)
Interest Rate Risk
Interest rate risk refers to the risk that future cash flows will fluctuate as a result of changes in market interest rates. The
Company’s policy is to limit its exposure to interest rate risk fluctuation by ensuring that a reasonable portion of its bank
advance, long‐term debt and convertible debentures are at fixed rate. The Company is exposed to interest rate fluctuations
on its revolving credit facility, which bears a floating interest rate. A 1% increase/decrease in interest rate would not have
a significant impact on the Company’s net earnings.
Currency Risk
The Company’s sales are primarily denominated in U.S. dollars whereas a portion of its operating costs are realized in local
currencies, such as Euros, Canadian dollars and Pounds Sterling. Even though the purchases of raw materials are
denominated in U.S. dollars, which reduce to some extent exchange rate fluctuations, we are subject to currency translation
risk which can negatively impact our results. 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.
Foreign exchange forward contracts are described in Note 17 in the 2014 consolidated financial statements of the
Company.
The Company had the following currency exposures on December 31, 2014:
Cash and cash equivalents
Restricted cash
Accounts receivable
Bank indebtedness
Trade and accrued liabilities
Long‐term debt
Convertible debentures
Net financial (liabilities) assets
CA$
$
256
‐
1,083
‐
(2,884)
‐
(46,101)
(47,646)
EUR
$
3,896
2,089
14,729
‐
(14,046)
(61)
‐
6,607
GBP
$
724
29
2,358
‐
(2,514)
‐
‐
597
RMB
$
1,864
16
8,640
(975)
(3,491)
‐
‐
6,054
Other
$
264
‐
649
‐
(697)
‐
‐
216
The following table shows the impact on earnings before income tax of a one‐percentage point strengthening or weakening
of foreign currencies against the US dollar as at December 31, 2014 for the Company’s financial instruments denominated
in non‐functional currencies:
1% Strengthening
Earnings (loss) before tax
1% Weakening
Earnings (loss) before tax
CA$
$
(476)
476
EUR
$
66
(66)
GBP
$
6
(6)
RMB
$
61
(61)
Other
$
2
(2)
Credit Risk
Credit risk corresponds to the risk of loss due to the client’s inability to fulfill its obligations with respect to trade and other
receivables as well as contracts. The Company has a large number of clients and is no longer dependent on a specific client.
The Company has a credit policy that defines standard credit practices. This policy dictates that all new customer accounts
be reviewed prior to approval and establishes the maximum amount of credit exposure per customer. The creditworthiness
and financial well‐being of the customer are monitored on an ongoing basis.
5N PLUS + 2014 ANNUAL REPORT
19
Management’s Discussion and Analysis
The Company establishes an allowance for doubtful accounts as determined by management based on its assessment of
collection; therefore, the carrying amount of accounts receivable generally represents the maximum credit exposure. As
at December 31, 2014 and 2013, the Company had an allowance for doubtful accounts of $0.1 million and $0.2 million
respectively. The provision for doubtful accounts, if any, will be included in SG&A expenses in the consolidated statements
of earnings, and will be net of any recoveries that were provided for in prior periods.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company
manages liquidity risk through the management of its capital structure. It also manages liquidity risk by continually
monitoring actual and projected cash flows, taking into account the Company’s sales and receipts and matching the
maturity profile of financial assets and financial liabilities. The Board of Directors reviews and approves the Company’s
annual operating and capital budgets, as well as any material transactions out of the ordinary course of business, including
proposals on acquisitions and other major investments. Under the terms of its credit facility, the Company is required to
satisfy certain restrictive covenants. In order to comply with these covenants, the Company has prepared, and will need to
execute on, its budgeted EBITDA and cash flow estimates. Management believes that the assumptions used by the
Company in preparing its budgets are reasonable and that it is not likely that the financial covenants on the credit facility
during a certain period will be violated in the next 12 months. However, risk remains. Successful achievement of these
budgeted results is dependent on stability in the price of metals and other raw materials, the reduction of debt due to the
optimization of the Company’s working capital and the continued viability and support of the Company’s banks.
Risks and Uncertainties
The Company is subject to a number of risk factors which may limit its ability to execute its strategy and achieve its long‐
term growth objectives. Management analyses these risks and implements strategies in order to minimize their impact on
the Company's performance.
Possible Failure to Realize Anticipated Benefits of Acquisitions and Investments
There is a risk that some of the expected benefits will fail to materialize, or may not occur within the time periods
anticipated by management. The realization of such benefits may be affected by a number of factors, many of which are
beyond our control. These factors include achieving the benefits of investments and any future acquisitions that we may
complete and will depend in part on successfully consolidating functions and integrating operations, procedures and
personnel in a timely and efficient manner, as well as our ability to realize the anticipated growth opportunities and
synergies from combining the acquired businesses and operations with ours. The integration of acquired businesses
requires the dedication of substantial management effort, time and resources which may divert management’s focus and
resources from other strategic opportunities and from operational matters during this process. The integration process
may result in the loss of key employees, significant expenses and the disruption of ongoing business, customer and
employee relationships that may adversely affect our ability to achieve the anticipated benefits of these acquisitions and
investments.
International Operations
We operate in a number of countries, including China and Laos, and, as such, face risks associated with international
business activities. We could be significantly affected by such risks, which include the integration of international
operations, challenges associated with dealing with numerous legal systems, the potential for volatile economic and labor
conditions, political instability, expropriation, and changes in taxes, tariffs and other regulatory costs. Although we operate
primarily in countries with relatively stable economic and political climates, there can be no assurance that our business
will not be adversely affected by the risks inherent in international operations.
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
5N PLUS + 2014 ANNUAL REPORT
20
Management’s Discussion and Analysis
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. Former MCP’s facility in Tilly, Belgium completed corrective measures under
a remediation plan as a result of industrial legacy at this site, which has been in industrial use for more than 100 years. The
remediation performed has been approved and audited by local authorities and the Company is expecting full compliance
confirmation in the near term.
Competition Risk
We are the leading producer of specialty metal and chemical products and have a limited number of competitors, none of
which are as fully integrated as we are or have a similar range of products. Accordingly, they have limitation to provide the
same comprehensive set of services and products as we do. However, there can be no guarantee that this situation will
continue in the future and competition could arise from new low‐cost metal refiners or from certain of our customers who
could decide to backward integrate. The forecasted growth in demand for our main products may attract more metal
refiners into this industry and increase competition. Although we believe that our operations and our commercial network
are important competitive advantages, greater competition could have an adverse effect on our revenues and operating
margins if our competitors gain market share and we are unable to compensate for the volume lost to our competition.
Commodity Price Risk
The price we pay for, and availability of, various inputs fluctuates due to numerous factors beyond our control, including
economic conditions, currency exchange rates, global demand for metal products, trade sanctions, tariffs, labor costs,
competition, over capacity of producers and price surcharges. Fluctuations in availability and cost of inputs may materially
affect our business, financial condition, results of operations and cash flows. To the extent that we are not able to pass on
any increases, our business, financial condition, results of operations and cash flows may be materially adversely affected.
Sources of Supply
We may not be able to secure the critical raw material feedstock on which we depend for our operations. 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 some of our supply contracts.
Protection of Intellectual Property
Protection of our proprietary processes, methods and other technologies is important 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.
Inventory Price Risk
The Company monitors its risk associated with the value of its inventories in relation to the market price of such inventories.
Because of the highly illiquid nature of many of its inventories, we rely on a combination of standard risk measurement
techniques, such as value at risk as well as a more empirical assessment of the market conditions. Decisions on appropriate
physical stock levels are taken by considering both the value at risk calculations and the market conditions.
5N PLUS + 2014 ANNUAL REPORT
21
Management’s Discussion and Analysis
Business Interruptions
We may incur losses resulting from business interruptions. In many instances, especially those related to our long‐term
contracts, we have contractual obligations to deliver product in a timely manner. Any disruption in our activities which
leads to a business interruption could harm 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.
Dependence on Key Personnel
The Company relies on the expertise and know‐how of its personnel to conduct its operations. The loss of any member of
our senior management team could have a material adverse effect on us. Our future success also depends on our ability to
retain and attract our key employees, train, retain and successfully integrate new talent into our management and technical
teams. Recruiting and retaining talented personnel, particularly those with expertise in the specialty metals industry and
refining technology is vital to our success and may prove difficult. We cannot provide assurance that we will be able to
attract and retain qualified personnel when needed.
Collective Agreements
A portion of our workforce is unionized and we are party to collective agreements that are due to expire at various times
in the future. If we are unable to renew these collective agreements on similar terms as they become subject to
renegotiation from time to time, this could result in work stoppages or other labour disturbances, such as strikes, walkouts
or lock‐outs, potentially affecting our performance.
Risks Associated with Public Issuer Status
The Company’s shares are publicly traded and, as such, it is subject to all of the obligations imposed on "reporting issuers"
under applicable securities laws in Canada and all of the obligations applicable to a listed company under stock exchange
rules. Direct and indirect costs associated with public company status have escalated in recent years and regulatory
initiatives under consideration may further increase the costs of being public in Canada. Those costs could have a negative
effect on the Company’s financial results. Another risk associated with a public issuer status is the disclosure of key
Company information as compared to privately owned competitors.
Non‐IFRS Measures
In this Management’s Report, the Company’s management uses certain measures which are not in accordance with IFRS.
Non‐IFRS measures are useful supplemental information but may not have a standardized meaning according to IFRS.
Backlog 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 twelve months. Bookings represents the value of orders received during the period
considered and is calculated by adding revenues to the increase or decrease in backlog for the period considered. We use
backlog to provide an indication of expected future revenues, and bookings to determine our ability to sustain and increase
our revenues.
EBITDA means net earnings (loss) before interest expenses (income), income taxes, depreciation and amortization. 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‐IFRS measure used by the Company may differ from that used by
other companies.
EBITDA margin is defined as EBITDA divided by revenues.
Adjusted EBITDA means EBITDA as defined above before impairment of inventories, litigation and restructuring costs, gain
related to the settlement of the purchase price of MCP, gain on disposal of property, plant and equipment, change in fair
value of debenture conversion option, foreign exchange and derivatives loss (gain). We use adjusted EBITDA because we
believe it is a meaningful measure of the operating performance of our ongoing business without the effects of inventory
write‐downs. The definition of this non‐IFRS measure used by the Company may differ from that used by other companies.
Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenues.
5N PLUS + 2014 ANNUAL REPORT
22
Management’s Discussion and Analysis
Adjusted net earnings means the net earnings (loss) before the effect of charge and reversal of impairment related to
inventory, PPE and intangible assets, impairment of goodwill, litigation and restructuring costs, change in fair value of
debenture conversion option, settlement of purchase price and acquisitions costs net of the related income tax. We use
adjusted net earnings (loss) because we believe it is a meaningful measure of the operating performance of our ongoing
business without the effects of unusual inventory write‐downs and property plant and equipment and intangible asset
impairment charges, litigation and restructuring costs, change in fair value of debenture conversion option, the settlement
of purchase price and acquisition costs. The definition of this non‐IFRS measure used by the Company may differ from that
used by other companies.
Basic adjusted net earnings (loss) per share means adjusted net earnings (loss) divided by the weighted average number of
outstanding shares. We use basic adjusted net earnings (loss) per share because we believe it is a meaningful measure of
the operating performance of our ongoing business without the effects of unusual inventory write‐downs and property
plant and equipment and intangible asset impairment charges, litigation and restructuring costs, change in fair value of
debenture conversion option, the settlement of purchase price and acquisition costs per share. The definition of this non‐
IFRS measure used by the Company may differ from that used by other companies.
Funds from operations means the amount of cash generated from operating activities before changes in non‐cash working
capital balances related to operations. This amount appears directly in the consolidated statements of cash flows of the
Company. We consider funds from operations to be a key measure as it demonstrates the Company’s ability to generate
cash necessary for future growth and debt repayment.
Net debt or net cash is a measure we use to monitor how much debt we have after taking into account cash and cash
equivalents and restricted cash. We use it as an indicator of our overall financial position, and calculate it by taking our
total debt, including the current portion, and subtracting cash and cash equivalents and restricted cash.
Working capital is a measure of liquid assets that is calculated by taking current assets and subtracting current
liabilities. Given that the company is currently indebted, we use it as an indicator of our financial efficiency and aim to
maintain it at the lowest possible level.
Working capital ratio is calculated by dividing current assets by current liabilities.
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 + 2014 ANNUAL REPORT
23
Management’s Discussion and Analysis
Selected Data Information
The following table provides selected quarterly financial information for the years 2012 through to 2014.
(in thousands of United States dollars except per share amounts)
Fiscal 2014
Revenues
EBITDA1 2
Adjusted EBITDA1
Net earnings (loss) attributable to equity holders of 5N Plus
Basic earnings (loss) per share attributable to equity holders of 5N Plus
Net earnings (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Adjusted net earnings (loss)1
Basic adjusted net earnings (loss) per share1
Funds from operations1
Backlog1
Fiscal 2013
Revenues
EBITDA1 2
Adjusted EBITDA1
Net earnings (loss) attributable to equity holders of 5N Plus
Basic earnings (loss) per share attributable to equity holders of 5N Plus
Net earnings (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Adjusted net earnings (loss)1
Basic adjusted net earnings (loss) per share1
Funds from operations1
Backlog1
Fiscal 2012
Revenues
EBITDA1 2
Adjusted EBITDA1
Net earnings (loss) attributable to equity holders of 5N Plus
Basic earnings (loss) per share attributable to equity holders of 5N Plus
Net earnings (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Adjusted net earnings (loss)1
Basic adjusted net earnings (loss) per share1
Funds from operations1
Backlog1
Q1
Q2
Q3
Q4
Total
142,379
11,178
10,501
4,655
$0.06
4,519
$0.05
$0.05
4,916
$0.06
6,806
187,330
118,389
12,121
10,115
5,371
$0.06
5,538
$0.07
$0.07
6,296
$0.08
4,608
166,290
162,235
14,707
16,867
4,972
$0.07
4,891
$0.07
$0.07
5,250
$0.07
11,236
215,588
136,597
11,524
10,816
4,436
$0,05
4,436
$0.05
$0.05
4,303
$0.05
5,774
150,363
112,637
38,008
6,543
34,185
$0.41
34,281
$0.41
$0.41
959
$0.01
1,560
153,277
140,076
(22,012)
5,594
(21,922)
($0.29)
(22,062)
($0.30)
($0.30)
(1,911)
($0.03)
(407)
188,982
114,438
12,721
8,071
4,172
$0.05
4,171
$0.05
($0.01)
170
$‐
982
137,183
108,570
6,926
5,775
1,083
$0.01
1,323
$0.02
$0.02
1,517
$0.02
4,822
133,352
120,744
8,662
9,001
1,218
$0.02
1,275
$0.02
$0.02
648
$0.01
10,320
162,323
114,781
4,021
5,657
(2,451)
($0.03)
(2,453)
($0.03)
($0.04)
1,247
$0.01
4,030
153,159
119,416
6,848
7,942
2,022
$0,02
1,638
$0.02
$0.02
2,068
$0.02
9,043
170,073
128,620
(223,440)
6,395
(212,006)
($2.71)
(211,953)
($2.70)
($2.70)
(6,880)
($0.08)
4,243
165,790
508,195
39,444
35,045
10,812
$0.13
10,673
$0.13
$0.05
10,636
$0.13
17,592
153,159
459,012
63,903
30,375
42,661
$0.51
42,780
$0.51
$0.51
10,840
$0.13
20,033
170,073
551,675
(222,083)
37,857
(227,738)
($2.91)
(227,849)
($2.91)
($2.91)
(2,893)
($0.04)
25,392
165,790
(in thousands of United States dollars)
EBITDA – previous definition
Litigation and restructuring costs
Gain related to the settlement of MCP purchase price
Gain on disposal of property, plant and equipment
Impairment of intangible assets and goodwill
Impairment of property, plant and equipment
Reversal of impairment of property, plant and equipment
Foreign exchange and derivatives loss (gain)
EBITDA – current definition
(in thousands of United States dollars)
Balance Sheet Data
Total assets
Net debt (net cash)1
Retirement benefit obligation
Shareholders’ equity
Q4 2013
$
7,942
(569)
‐
‐
‐
‐
‐
(525)
6,848
Q3 2013
$
5,775
(255)
‐
‐
‐
‐
‐
1,406
6,926
Q2 2013
$
(3,639)
(2,233)
45,188
‐
‐
‐
‐
(1,308)
38,008
Q1 2013
$
10,115
(1,011)
‐
‐
‐
‐
‐
3,017
12,121
Q4 2012
$
(18,122)
(932)
‐
‐
(165,507)
(39,239)
‐
360
(223,440)
Q3 2012
$
9,001
(464)
‐
‐
‐
‐
932
(807)
8,662
Q2 2012
$
(20,474)
(908)
‐
‐
‐
‐
‐
(630)
(22,012)
Q1 2012
$
16,867
(478)
‐
‐
‐
‐
‐
(1,682)
14,707
2014
$
399,531
84,007
16,928
196,443
2013
$
365,240
58,330
15,887
190,052
2012
$
385,396
136,547
16,667
144,955
1 See Non‐IFRS Measures
2 The comparative periods have been restated to reflect a change in the EBITDA1 definition
5N PLUS + 2014 ANNUAL REPORT
24
5N PLUS + 2014 ANNUAL REPORT 25
5N PLUS INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(Figures in thousands of United States dollars)
5N PLUS + 2014 ANNUAL REPORT 26
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.
These consolidated financial statements and related notes have been prepared by management in
conformity with International Financial Reporting Standards and necessarily include amounts
based on management’s informed judgments and estimates.
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.
Management 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 International Financial Reporting Standards. Such
internal control systems are designed to provide reasonable assurance on the reliability of the
financial information and the safeguarding of assets.
The Company’s external auditors have free and independent access to the Audit Committee, which
is comprised of 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 PricewaterhouseCoopers LLP.
SIGNED
Jacques L’Ecuyer
President and Chief Executive Officer
SIGNED
Richard Perron
Chief Financial Officer
Montréal, Canada
February 24, 2015
5N PLUS + 2014 ANNUAL REPORT
27
February 24, 2015
Independent Auditor’s Report
To the Shareholders
of 5N Plus Inc.
We have audited the accompanying consolidated financial statements of 5N Plus Inc., which comprise the
consolidated statements of financial position at December 31, 2014 and 2013 and the consolidated
statements of earnings, comprehensive income, changes in equity and cash flows for the years then ended,
and the related notes, which comprise a summary of significant accounting policies and other explanatory
information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l.
1250 René-Lévesque Boulevard West, Suite 2800, Montréal, Quebec, Canada H3B 2G4
T: +1 514 205 5000, F: +1 514 876 1502, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., an Ontario limited liability partnership.
5N PLUS + 2014 ANNUAL REPORT 28
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of 5N Plus Inc. as at December 31, 2014 and 2013 and its financial performance and its cash
flows for the years then ended in accordance with International Financial Reporting Standards.
1 CPA auditor, CA, public accountancy permit No. A116853
5N PLUS + 2014 ANNUAL REPORT
5N PLUS INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Figures in thousands of United States dollars)
ASSETS
Current
Cash and cash equivalents
Restricted cash
Accounts receivable (Note 5)
Inventories (Note 6)
Income tax receivable
Derivative financial assets (Note 17)
Other current assets
Total current assets
Property, plant and equipment (Note 7)
Intangible assets (Note 8)
Deferred tax asset (Note 16)
Investment accounted for using the equity method (Note 9)
Other assets (Note 10)
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Current
Bank indebtedness (Note 12)
Trade and accrued liabilities (Note 11)
Income tax payable
Derivative financial liabilities (Note 17)
Long-term debt due within one year (Note 12)
Total current liabilities
Long-term debt (Note 12)
Convertible debentures (Note 13)
Deferred tax liability (Note 16)
Retirement benefit obligation (Note 14)
Derivative financial liabilities (Note 17)
Other liabilities (Note 15)
Total non-current liabilities
Total liabilities
Shareholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
Commitments and contingencies (Note 23)
The accompanying notes are an integral part of these consolidated financial statements.
29
As at
December 31,
2014
$
As at
December 31,
2013
$
12,777
2,115
72,391
204,454
2,705
147
2,965
297,554
68,261
15,728
11,037
316
6,635
101,977
399,531
975
60,286
6,064
-
667
67,992
51,156
46,101
3,111
16,928
2,093
15,711
135,100
203,092
196,443
(4)
196,439
399,531
22,427
2,490
60,616
174,374
8,455
955
2,290
271,607
59,614
13,143
13,387
444
7,045
93,633
365,240
10,462
65,016
3,660
3,284
4,439
86,861
68,346
-
1,600
15,887
953
1,064
87,850
174,711
190,052
477
190,529
365,240
5N PLUS + 2014 ANNUAL REPORT 30
5N PLUS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Figures in thousands of United States dollars, except per share information)
Revenues
Cost of sales (Note 27)
Selling, general and administrative expenses (Note 27)
Other expenses (income), net (Note 27)
Share of loss from joint ventures (Note 9)
Operating earnings
Gain on disposal of property, plant and equipment
Financial expenses (revenues)
Interest on long-term debt
Imputed interest and other interest expense
Changes in fair value of debenture conversion option (Note 17)
Foreign exchange and derivative gain
Earnings before income tax
Income tax expense (Note 16)
Current
Deferred
Net earnings for the year
Attributable to:
Equity holders of 5N Plus Inc.
Non-controlling interest
Earnings per share attributable to equity holders of 5N Plus Inc. (Note 21)
Basic earnings per share
Diluted earnings per share
The accompanying notes are an integral part of these consolidated financial statements.
For the
year ended
December 31,
2014
$
For the
year ended
December 31,
2013
$
508,195
445,673
36,922
8,778
128
491,501
16,694
1,312
5,465
3,304
(7,179)
(3,111)
(1,521)
19,527
4,875
3,979
8,854
10,673
10,812
(139)
10,673
0.13
0.13
0.05
459,012
405,114
36,066
(32,854)
59
408,385
50,627
-
5,935
2,589
-
(2,590)
5,934
44,693
4,338
(2,425)
1,913
42,780
42,661
119
42,780
0.51
0.51
0.51
5N PLUS + 2014 ANNUAL REPORT
5N PLUS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Figures in thousands of United States dollars, except per share information)
31
Net earnings for the year
Other comprehensive income (loss)
Items that may be reclassified subsequently to the
consolidated statements of earnings
Net changes in cash flow hedges
Effective portion of changes in fair value of cash flow hedges
Reclassification to consolidated statements of earnings
Income taxes
Currency translation adjustment
Items that will not be reclassified subsequently to the consolidated statements
of earnings
Remeasurement of retirement benefit obligation
Income taxes
Other comprehensive income (loss)
Comprehensive income for the year
Attributable to equity holders of 5N Plus Inc.
Attributable to non-controlling interests
The accompanying notes are an integral part of these consolidated financial statements.
For the
year ended
December 31,
2014
$
For the
year ended
December 31,
2013
$
10,673
42,780
560
(184)
(111)
265
(57)
208
(3,365)
1,043
(2,322)
(2,114)
8,559
8,698
(139)
1,282
(385)
(242)
655
291
946
1,337
(414)
923
1,869
44,649
44,530
119
5N PLUS + 2014 ANNUAL REPORT
9
3
4
,
6
9
1
$
l
a
t
o
T
y
t
i
u
q
e
3
1
3
,
5
4
1
0
8
7
,
2
4
5
5
6
1
9
2
3
2
9
9
4
6
,
4
4
7
6
5
9
2
5
,
0
9
1
Attributable to equity holders of the Company
Contributed
surplus
$
9
1
1
-
-
-
9
1
1
Accumulated
other
comprehensive
loss
$
-
7
7
4
Total
shareholders’
equity
$
Non-
controlling
interests
$
Deficit
$
32
5N PLUS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Figures in thousands of United States dollars, except number of shares)
$
l
a
t
o
T
y
t
i
u
q
e
9
2
5
,
0
9
1
3
7
6
,
0
1
)
7
5
(
5
6
2
)
2
2
3
,
2
(
9
5
5
,
8
4
6
1
7
3
2
For the year ended December 31, 2014
-
-
-
$
-
n
o
N
s
t
s
e
r
e
t
n
i
Balances at beginning of year
g
n
i
l
l
o
r
t
n
o
c
)
9
3
1
(
7
7
4
-
-
)
9
3
1
(
)
0
5
0
,
3
(
)
2
4
3
(
$
l
a
t
o
T
y
t
i
u
q
e
Net earnings for the year
y
Other comprehensive income (loss)
n
a
p
m
o
C
e
Total comprehensive income (loss)
h
t
Net changes in cash flow hedges
Currency translation adjustment
Remeasurement of retirement benefit obligation
’
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5N PLUS + 2014 ANNUAL REPORT
5N PLUS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Figures in thousands of United States dollars)
33
Operating activities
Net earnings for the year
Adjustments to reconcile net earnings to cash flows
Depreciation of property, plant and equipment and amortization
of intangible assets
Amortization of other assets
Amortization of deferred revenues (Note 15)
Share-based compensation expense
Deferred income tax
Share of loss from joint ventures (Note 9)
Gain related to the settlement of the purchase price of MCP Group SA (Note 27)
Impairment of inventories (Note 6)
Gain on disposal of property, plant and equipment
Imputed interest
Retirement benefit obligation (Note 14)
Change in fair value of debenture conversion option (Note 17)
Unrealized gain on non-hedge financial instruments
Unrealized foreign exchange (gain) loss on assets and liabilities
Funds from operations before the following
Net change in non-cash working capital balances related to operations (Note 19)
Cash flows (used in) from operating activities
Investing activities
Business acquisitions, net of cash acquired (Note 4)
Additions to property, plant and equipment (Notes 7 and 19)
Proceeds on disposal of property, plant and equipment
Additions of intangible assets (Note 8)
Restricted cash
Cash flows used in investing activities
Financing activities
Repayment of long-term debt
Proceeds from the issuance of long-term debt
Issue expenses related to long-term debt
Proceeds from the issuance of convertible debentures, net of transaction costs (Note 13)
Net (decrease) increase in bank indebtedness
Issuance of common shares
Financial instruments – net
Increase in other liabilities
Purchase of a subsidiary’s non-controlling interest including transaction costs (Note 4)
Cash flows from (used in) financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
For the
year ended
December 31,
2014
$
For the
year ended
December 31,
2013
$
10,673
42,780
11,148
732
(427)
668
3,979
128
-
5,251
(1,312)
1,575
(143)
(7,179)
(2,892)
(4,609)
17,592
(34,765)
(17,173)
(1,525)
(13,611)
2,174
(2,784)
(7)
(15,753)
(101,305)
80,343
(1,915)
58,062
(9,487)
164
23
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(3,050)
24,121
(845)
(9,650)
22,427
12,777
10,686
2,017
-
567
(1,769)
59
(45,188)
10,182
-
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(847)
1,546
20,033
27,930
47,963
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245
(797)
(133)
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(25,186)
-
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2,448
-
328
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(22,410)
(913)
12,892
9,535
22,427
Supplemental information(1)
Income tax recovered
Interest paid
(2,779)
5,715
(7,636)
5,472
(1) Amounts (recovered) paid for interest and income tax were reflected as cash flows from operating activities in the consolidated statements of cash flows.
The accompanying notes are an integral part of these consolidated financial statements.
5N PLUS + 2014 ANNUAL REPORT
34
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
NOTE 1 – NATURE OF ACTIVITIES
5N Plus Inc. (“5N Plus” or the “Company”) is a Canadian-based international company. 5N Plus is a producer of
specialty metal and chemical products. Fully integrated with closed-loop recycling facilities, the Company’s head office
is located at 4385 Garand Street, Saint-Laurent, Quebec (Canada) H4R 2B4. The Company operates manufacturing
facilities and sales offices in several locations in Europe, the Americas and Asia. The Company’s shares are listed on
the Toronto Stock Exchange (“TSX”). 5N Plus and its subsidiaries represent the “Company” mentioned throughout
these consolidated financial statements. The Company has two reportable business segments, namely Electronic
Materials and Eco-Friendly Materials.
These consolidated financial statements were approved by the Board of Directors on February 24, 2015.
NOTE 2 – SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all periods presented, unless otherwise stated.
Basis of preparation
The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting
principles as set forth in Part 1 of the Chartered Professional Accountants of Canada (CPA Canada) Handbook –
Accounting, which incorporates International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”). The consolidated financial statements have been prepared under the historical
cost convention, except for derivative financial instruments.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise its judgment in the process of applying the Company’s accounting policies.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant
to the consolidated financial statements, are also further disclosed in this note, in the Significant management estimation
and judgment in applying accounting policies section.
a) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Company has control. Control exists when
the Company is exposed to, or has the rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through the power over the entity.
The subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are
deconsolidated from the date that control ceases.
5N PLUS + 2014 ANNUAL REPORT 35
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
The following table includes the principal subsidiaries which significantly impact the results or assets of the
Company:
5N Plus Inc.
5N PV Gmbh
5N Plus Lübeck Gmbh
5N Plus UK Limited
5N Plus Belgium SA
5N Plus Asia Limited
5N Plus Wisconsin Inc
Country of incorporation
Canada
Germany
Germany
United Kingdom
Belgium
Hong Kong
United States
% Equity interest
2013
2014
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The US dollar is the functional currency of all those subsidiaries.
Intercompany transactions, balances, income and expenses on transactions between group companies are
eliminated. Profits and losses resulting from intercompany transactions that are recognized in assets are also
eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the
policies adopted by the Company.
b) Joint ventures
A joint venture is a contractual agreement whereby the Company agrees with other parties to undertake an
economic activity that is subject to joint control, i.e. strategic financial and operating decisions relating to the joint
venture’s activities require the unanimous consent of the parties sharing control. Investments in joint ventures are
accounted for using the equity method. The share of income (loss) of joint ventures is recognized in the consolidated
statement of earnings and the share of other comprehensive income (loss) of joint ventures is included in other
comprehensive income (loss).
Foreign currency translation
a) Functional and presentation currency
The Company’s functional and presentation currency is the US dollar. Functional currency is determined for each
of the Company’s entities, and items included in the financial statements of each entity are measured using that
functional currency.
b) Transactions and balances
Monetary assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rate at
the reporting date. Non-monetary assets and liabilities, and revenue and expense items denominated in foreign
currencies are translated into the functional currency using the exchange rate prevailing at the dates of the respective
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized
in consolidated statement of earnings.
Foreign exchange gains and losses are presented in the consolidated statement of earnings within “foreign exchange
and derivative loss (gain)”.
5N PLUS + 2014 ANNUAL REPORT
36
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
c) Foreign operations
Assets and liabilities of subsidiaries that have a functional currency other than US dollar are translated from their
functional currency to US dollars at exchange rates in effect at the reporting date. The resulting translation
adjustments are included in the currency translation adjustment in other comprehensive income (loss). Revenue
and expenses are translated at the average exchange rates for the period.
Segment reporting
The Company operates two principal segments: Electronic Materials and Eco-Friendly Materials. Discrete operating
and financial information is available for these segments and is used to determine the operating performance of each
segment and to allocate resources.
The Electronic Materials segment is associated with the following metals: cadmium, gallium, germanium, indium and
tellurium. These are sold as elements, alloys, chemicals and compounds.
The Eco-Friendly Materials segment manufactures and sells refined bismuth and bismuth chemicals and low melting-
point alloys as well as refined selenium and selenium chemicals.
Corporate expenses associated with the head office and unallocated selling, general and administrative expenses
together with financing costs and foreign exchange and derivative loss (gain) have been regrouped under the heading
“Corporate and unallocated”.
Each operating segment is managed separately as each of these service lines requires different technologies, resources
and marketing approaches. The financial information of the recycling and trading of complex material is allocated to
the two main segments. All intersegment transactions between the Electronic Materials and the Eco-Friendly Materials
segments have been eliminated on consolidation.
Revenue recognition
Revenue comprises the sale of manufactured products and the rendering of services and is measured at the fair value of
the sale of manufactured products, net of value-added tax, and estimated customer returns and allowances at the time
of recognition. The estimates of fair value are based on the Company’s historical experience with each customer and
the specifics of each arrangement.
Revenue from the sale of manufactured products is recognized when the risks and rewards of ownership have been
transferred to the buyer (which generally occurs upon shipment) and collectibility of the related receivables is
reasonably assured. Revenue is recognized when (i) it can be measured reliably; (ii) it is probable that the economic
benefits associated with the transaction will flow to the Company; and (iii) the costs incurred or to be incurred can be
measured reliably. Revenue from custom refining activities is recognized when services are rendered.
5N PLUS + 2014 ANNUAL REPORT 5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
Property, plant and equipment
Property, plant and equipment are recorded at cost, net of accumulated depreciation, accumulated impairment losses
and subsequent reversals, if applicable. Property, plant and equipment are depreciated using the straight-line method
over their estimated useful lives, taking into account any residual values. Useful lives are as follows:
37
Land
Building
Production equipment
Furniture
Office equipment
Rolling stock
Leasehold improvements
Period
Not depreciated
25 years
10 years
3 to 10 years
3 to 10 years
3 to 10 years
Over the term of the lease
However, “major overhauls and replacements” are capitalized to the consolidated statement of financial position as a
separate component, with the replaced part or previous overhaul derecognized from the statement. Maintenance and
repairs are charged to expense as incurred.
Construction in progress is not depreciated until the assets are put into use. Costs are only capitalized if they are directly
attributable to the construction or development of the assets.
Residual values, method of depreciation and useful life of the assets are reviewed annually and adjusted if appropriate.
Leases
Leases are classified as finance leases if the Company bears substantially all risks and rewards of ownership of the
leased asset. At inception of the lease, the related asset is recognized at the lower of fair value and the present value of
the minimum lease payments, and a corresponding amount is recognized as a finance lease obligation. Lease payments
are split between finance charges and the reduction of the finance lease obligation to achieve a constant proportion of
the capital balance outstanding. Finance charges are charged to net earnings (loss) over the lease term.
All other leases are classified as operating leases. Operating lease payments are recognized as an expense on a straight-
line basis over the lease term.
Intangible assets
Intangible assets acquired separately are recorded at cost, net of accumulated amortization, accumulated impairment
losses and reversals, if applicable. Intangible assets acquired through a business combination are recognized at fair
value at the date of acquisition. Intangible assets are amortized on a straight-line basis over their useful lives according
to the following annual terms:
Customer relationships
Technology
Trade name and non-compete agreements
Software
Intellectual property
Development costs
Period
10 years
5 years
2 to 5 years
5 years
10 years
Not exceeding 10 years
5N PLUS + 2014 ANNUAL REPORT
38
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
Impairment of non-financial assets
Non-financial assets with finite lives are tested for impairment whenever events or changes in circumstances indicate
that their carrying amounts may not be recoverable. In addition, non-financial assets that are not amortized are subject
to an annual impairment assessment. Any impairment loss is recognized for the amount by which the asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of
disposal and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (CGUs). The Company evaluates impairment losses for potential reversals
when events or changes in circumstances warrant such consideration.
Financial instruments
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the
instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have
been transferred and the Company has transferred substantially all risks and rewards of ownership.
Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial
position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on
a net basis, or realize the asset and settle the liability simultaneously.
All financial instruments are required to be measured at fair value on initial recognition.
Measurement in subsequent periods depends on the classification of the financial instrument. At initial recognition, the
Company classifies its financial instruments in the following categories depending on the purpose for which the
instruments were acquired:
a) Financial assets at fair value through profit or loss
A financial asset is classified in this category if acquired principally for the purpose of selling or repurchasing in
the short term. Derivatives are also included in this category unless they are designated as hedges.
Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs are
expensed in the consolidated statement of earnings. Financial assets at fair value through profit or loss are classified
as current assets except for the portion expected to be realized or paid beyond twelve months of the consolidated
statements of financial position date, which is classified as non-current asset.
b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market.
Loans and receivables are recognized initially at the amount expected to be received, less, when material, a discount
to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized
cost using the effective interest method less a provision for impairment. Loans and receivables are included in
current assets, except for instruments with maturities greater than twelve months after the end of the reporting
period, which are classified as non-current assets.
c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in
any of the other categories.
5N PLUS + 2014 ANNUAL REPORT 39
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
Available-for-sale financial assets are recognized initially at fair value plus transaction costs and are subsequently
carried at fair value. Gains or losses arising from changes in fair value are recognized in other comprehensive
income (loss). When an available-for-sale asset is sold or impaired, the accumulated gains or losses are moved
from accumulated other comprehensive income (loss) to the consolidated statement of earnings.
Available-for-sale financial assets are classified as non-current assets, unless the investment matures within twelve
months, or management expects to dispose of them within twelve months.
d) Financial liabilities at amortized cost
Financial liabilities at amortized cost are initially recognized at the amount required to be paid, less, when material,
a discount to reduce the payables to fair value. Subsequently, they are measured at amortized cost using the effective
interest method.
Financial liabilities are classified as current liabilities if payment is due within twelve months. Otherwise, they are
presented as non-current liabilities.
The Company has classified its financial instruments as follows:
Category
Financial instrument
Financial assets and liabilities at fair value through
profit and loss
Loans and receivables
Financial liabilities at amortized cost
Derivative financial assets and liabilities
Cash and cash equivalents
Restricted cash
Accounts receivable
Other current assets
Loan receivable from a related party
Bank indebtedness
Trade and accrued liabilities
Long-term debt
Convertible debentures
Long-term payable
Transaction costs
Transaction costs related to financial instruments that are not classified as assets and liabilities at fair value through
profit or loss, are recognized in consolidated statement of financial position as an adjustment to the cost of the financial
instrument upon initial recognition and amortized using the effective interest rate method. Fees paid on the
establishment of loan facilities are recognized as deferred costs under non-current assets and are amortized over the
term of the facility.
Impairment of financial assets
At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. A
financial asset is impaired and impairment losses are incurred only if there is objective evidence of impairment as a
result of one or more events that occurred after initial recognition (a “loss event”) and that loss event has an impact on
the estimated cash flows of the financial assets that can be reliably estimated. If such evidence exists, the Company
recognizes an impairment loss, as follows:
5N PLUS + 2014 ANNUAL REPORT
40
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
a) Financial assets carried at amortized cost
The impairment loss is the difference between the amortized cost of the loan or receivable and the present value of
the estimated future cash flows, discounted using the instrument’s original effective interest rate. The carrying
amount of the asset is reduced by this amount either directly or indirectly through the use of an allowance account.
Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of
the loss decreases and the decrease can be related objectively to an event occurring after the impairment was
recognized.
Impairment losses as well as reversals are recognized in the consolidated statement of earnings.
b) Available-for-sale financial assets
The impairment loss is the difference between the original cost of the asset and its fair value at the measurement
date, less any impairment losses previously recognized in the consolidated statement of earnings. This amount
represents the cumulative loss in accumulated other comprehensive income that is reclassified to the consolidated
statement of earnings. Impairment losses on available-for-sale financial assets may not be reversed.
Derivative financial instruments and hedging activities
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently
remeasured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative
is designated as a hedging instrument and, if so, the nature of the item being hedged. The Company designates certain
derivatives as hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast
transaction (cash flow hedge).
The fair values of various derivative instruments used for hedging purposes are disclosed in Note 17.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity
of the hedged item is more than twelve months and as a current asset or liability when the remaining maturity of the
hedged item is less than twelve months. Trading derivatives are classified as a current asset or liability.
The Company applies cash flow hedge accounting to certain foreign exchange forward contracts and interest-rate
derivatives entered into to hedge forecasted transactions. In a cash flow hedge relationship, the portion of gains or losses
on the hedging item that is determined to be an effective hedge is recognized in other comprehensive income (loss),
while the ineffective portion is recorded in consolidated statement of earnings. The amounts recognized in other
comprehensive income (loss) are reclassified in consolidated statement of earnings as a reclassification adjustment
when the hedged item affects net earnings.
Embedded derivatives
Embedded derivatives, which include debenture conversion option, are recorded at fair value separately from the host
contract when their economic characteristics and risks are not clearly and closely related to those of the host contract.
Subsequent changes in fair value are recorded in financial expenses in the consolidated statement of earnings.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits.
Restricted cash
Restricted cash represents restricted cash held to secure certain liabilities of the Company.
5N PLUS + 2014 ANNUAL REPORT 41
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost includes all expenditures directly attributable
to the manufacturing process as well as suitable portions of related production overheads based on normal operating
capacity. Costs of ordinarily interchangeable items are assigned using weighted average cost. Net realizable value is
the estimated selling price in the ordinary course of business less costs of completion and any applicable selling
expenses. When the circumstances that previously caused inventories to be written down below cost no longer exist or
when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the
amount of the impairment is reversed (i.e. the reversal is limited to the amount of the original impairment) so that the
new carrying amount is the lower of the cost and the revised net realizable value.
From time to time, when substantially all required raw materials are in inventory, the Company may choose to enter
into long-term sales contracts at fixed prices. The quantity of raw materials required to fulfill these contracts is
specifically assigned, and the average cost of these raw materials are accounted for separately throughout the duration
of the contract.
Income taxes
The tax expense for the year comprises current and deferred tax. Tax is recognized in the consolidated statement of
earnings, except to the extent that it relates to items recognized in other comprehensive income (loss) or directly in
equity. In which case, the tax is also recognized in other comprehensive income (loss) or directly in equity,
respectively.
a) Current tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date
of the consolidated statement of financial position in the countries where the Company and its subsidiaries operate
and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate
on the basis of amounts expected to be paid to the tax authorities.
b) Deferred tax
Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred
tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not
accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income
tax is determined using tax rates (and laws) that are enacted or substantively enacted at the date of the consolidated
statement of financial position and are expected to apply when the related deferred income tax asset is realized or
the deferred income tax liability is settled.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be used.
Deferred income tax is provided for on temporary differences arising on investments in subsidiaries and joint
ventures, except for deferred income tax liability where the timing of the reversal of the temporary difference is
controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable
future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes
levied by the same taxation authority on either the same taxable entity or different taxable entities where there is
an intention to settle the balances on a net basis.
5N PLUS + 2014 ANNUAL REPORT 42
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
Provisions
A provision is recognized when the Company has a present legal or constructive obligation as a result of past events; it
is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably
estimated. Restructuring provisions comprise lease termination penalties and employee termination payments.
Provisions are not recognized for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an
outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a
pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.
The increase in the provision due to passage of time is recognized as interest expense.
Research and development expenses
Research expenses are charged to the consolidated statement of earnings in the period they are incurred. Development
expenses are charged to the consolidated statement of earnings, except for those that meet the following criteria and are
capitalized: the feasibility of the product has been established, management intends to manufacture the product and has
the capacity to use or sell it, the future economic benefits are likely to occur, the market for the product is defined, and
the Company has the resources to complete the project and can reliably measure development costs. Research and
development expenses charged to the consolidated statement of earnings for the year are included under other expenses
(income), net.
Employee future benefits
The Company contributes to a defined benefit pension plan. The significant policies related to employee future benefits
are as follows:
The cost of pension and other post-retirement benefits earned by employees is actuarially determined using the
projected benefit method pro-rated on service, market interest rates and management’s best estimate of expected
plan investment performance, retirement ages of employees and expected health care costs;
Fair value is used to value the plan assets for the purpose of calculating the expected return on plan assets; and
Actuarial gains and losses arising from experience adjustment and changes in actuarial assumptions are charged
or credited to equity in other comprehensive income (loss) in the period in which they arise.
Share-based payments
The fair value of the equity-settled share-based payment plan is determined using the Black-Scholes model on the grant
date. Measurement inputs include the share price on the measurement date, the exercise price of the instrument, expected
volatility, weighted average expected life of the instrument, expected dividends, expected forfeiture rate, and the risk-
free interest rate. The impact of service and non-market vesting conditions is not taken into account in determining fair
value. The compensation expense of the equity-settled awards is recognized in the consolidated statement of earnings
over the graded vesting period, where the fair value of each tranche is recognized over its respective vesting period.
For cash-settled share-based payment plans, the compensation expense is determined based on the fair value of the
liability incurred at each reporting date until the award is settled. The fair value of the liability is measured using the
Black-Scholes model, taking into consideration the terms and conditions attached to each grant and the extent to which
the employees have rendered service to date.
5N PLUS + 2014 ANNUAL REPORT 43
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
Earnings per share
Basic earnings per share is calculated by dividing net earnings for the period attributable to equity owners of the
Company by the weighted average number of common shares outstanding during the period.
Diluted earnings per share assume the conversion, exercise or contingent issuance of securities only when such
conversion, exercise or issuance would have a dilutive effect on the income per share. The treasury stock method is
used to determine the dilutive effect of the warrants and share options and the if-converted method is used for
convertible debentures.
Significant management estimation and judgment in applying accounting policies
The following are significant management judgments used in applying the accounting policies of the Company that
have the most significant effect on the consolidated financial statements.
Estimation uncertainty
When preparing the consolidated financial statements, management undertakes a number of judgments, estimates and
assumptions about recognition and measurement of assets, liabilities, revenues and expenses. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which
the estimates are revised and in any future periods affected.
Information about the significant judgments, estimates and assumptions that have the most significant effect on the
recognition and measurement of assets, liabilities, revenues and expenses are discussed below.
Impairment of non-financial assets
An impairment loss is recognized for the amount by which an asset’s or CGU’s carrying amount exceeds its recoverable
amount, which is the higher of fair value less cost of disposal and value in use.
To determine value in use, management estimates expected future cash flows from each asset or CGU and determines
a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected
future cash flows, management makes assumptions about future operating results. These assumptions relate to future
events and circumstances. The actual results may vary and may cause significant adjustments to the Company’s
assets in future periods. In most cases, determining the applicable discount rate involves estimating the appropriate
adjustment to market risk and to asset-specific risk factors (Notes 7 and 8).
Inventories
Inventories are measured at the lower of cost and net realizable value, with cost determined using the average cost
method. In estimating net realizable values, management takes into account the most reliable evidence available at the
time the estimates are made. The Company’s core business is subject to changes in foreign policies and internationally
accepted metal prices which may cause future selling prices to change rapidly. The Company evaluates its inventories
using a group of similar items basis and considers expected future prices as well as events that have occurred between
the consolidated statement of financial position date and the date of the completion of the consolidated financial
statements. Net realizable value for inventory to satisfy a specific sales contract is measured at the contract price.
Debenture conversion option
The convertible debentures issued by the Company included conversion and early redemption options, which are
considered as Level 3 financial instruments. The derivative is measured at fair value through profit or loss, and its fair
value must be measured at each reporting period, with subsequent changes in fair value recorded in the consolidated
statement of earnings. A derivative valuation model is used, and includes assumptions, to estimate the fair value.
Detailed assumptions used in the model to determine the fair value of the embedded derivative, upon inception and as
at December 31, 2014, are provided in note 13.
5N PLUS + 2014 ANNUAL REPORT 44
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
Income taxes
The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the
worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax
determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of
whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that
were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the
period in which such determination is made.
The Company has deferred income tax assets that are subject to periodic recoverability assessments. Realization of the
Company’s deferred income tax assets is largely dependent on its achievement of projected future taxable income and
the continued applicability of ongoing tax planning strategies. The Company’s judgments regarding future profitability
may change due to future market conditions, changes in tax legislation and other factors that could adversely affect the
ongoing value of the deferred income tax assets. These changes, if any, may require a material adjustment of these
deferred income tax asset balances through an adjustment to the carrying value thereon in the future. This adjustment
would reduce the deferred income tax asset to the amount that is considered to be more likely than not to be realized
and would be recorded in the period such a determination was to be made.
5N PLUS + 2014 ANNUAL REPORT 45
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
NOTE 3 – CHANGES IN ACCOUNTING POLICIES AND FUTURE CHANGES IN
ACCOUNTING POLICIES
Changes in accounting policies
On January 1, 2014, the Company applied the new standard described below.
IFRS Interpretations Committee Interpretation 21, “Levies”, provides guidance on accounting for levies in accordance
with the requirements of IAS 37, “Provisions, Contingent Liabilities and Contingent Assets”. The interpretation defines
a levy as an outflow from an entity imposed by a government in accordance with legislation and confirms that a liability
for a levy is recognized only when the triggering event specified in the legislation occurs. The Company has applied
IFRIC 21 on a retrospective basis in compliance with the transitional requirements of IFRIC 21. The application of
IFRIC 21 did not have any impact to the consolidated financial statements.
Future changes in accounting policies
The following standards have been issued but are not yet effective:
In May 2014, the IASB issued IFRS 15, “Revenues from Contracts with Customers”, to specify how and when to
recognize revenue as well as requiring the provision of more information and relevant disclosure. IFRS 15 supersedes
IAS 18, “Revenue”, IAS 11, “Construction Contracts”, and other revenue-related interpretations. The standard will be
effective on January 1, 2017 for the Company with earlier adoption permitted. The Company is currently evaluating the
impact of this standard on its consolidated financial statements.
In July 2014, the IASB amended IFRS 9, “Financial Instruments”, to bring together the classification and measurement,
impairment and hedge accounting phases of the IASB’s project to replace IAS 39, “Financial Instruments: Recognition
and Measurement”. The standard supersedes all previous versions of IFRS 9 and will be effective on January 1, 2018
for the Company with earlier application permitted. The Company is currently evaluating the impact of this standard
on its consolidated financial statements.
NOTE 4 – BUSINESS ACQUISITIONS
Purchase of a subsidiary’s non-controlling interests
On April 3, 2014, the Company acquired for an amount of $2,975 the remaining 33.33% ownership interest in its
subsidiary, Sylarus Technologies LLC, a germanium substrate supplier, and changed its name to 5N Plus
Semiconductors LLC. As a result, Sylarus became a wholly owned subsidiary of the Company. The consideration paid
and the related transaction costs have been recorded in equity.
Acquisition of AM&M Advanced Machine and Materials Inc.
On May 5, 2014, the Company acquired all of the issued and outstanding shares in the capital of AM&M Advanced
Machine and Materials Inc. (“AM&M”) for a total consideration of $2,290 (CA$2,517), mostly representing a
technology. AM&M is a Kanata, Ontario based corporation specialized in manufacturing micron-sized metallic
powders which can be used in a variety of electronic markets, including solder powders, silver-based powders and CIGS
powders. The total consideration includes amounts outstanding to be paid up to May 2015 and a contingent
consideration.
5N PLUS + 2014 ANNUAL REPORT 46
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
NOTE 5 – ACCOUNTS RECEIVABLE
Gross trade receivables
Allowance for doubtful accounts
Trade receivables
Sales taxes receivable
Other receivables
Total accounts receivable
2014
$
62,537
(104)
62,433
6,319
3,639
72,391
2013
$
54,008
(218)
53,790
4,413
2,413
60,616
All of the Company’s accounts receivable are short term. The net carrying value of accounts receivable is considered a
reasonable approximation of fair value. The Company reviews all amounts periodically for indications of impairment
and the amounts impaired have been provided for as an allowance for doubtful accounts.
The Company’s exposure to credit risks and impairment losses related to accounts receivable is disclosed in Note 25.
Most of the accounts receivable are pledged as security for the revolving credit facility (Note 12).
NOTE 6 – INVENTORIES
Raw materials
Finished goods
Total inventories
2014
$
54,219
150,235
204,454
2013
$
45,356
129,018
174,374
For the year ended December 31, 2014, a total of $386,025 of inventories was included as an expense in cost of sales
(2013 – $373,548). This includes $5,251 of impairment of inventories ($4,395 for the Eco Friendly Materials segment
and $856 for the Electronic Materials segment) (2013 – $10,182 [$10,032 for the Eco-Friendly Materials segment and
$150 for the Electronic Materials segment]).
For the year ended December 31, 2014, a total of $6,100 previously written down was recognized as a reduction of
expenses in cost of sales ($2,160 for the Eco-Friendly Materials segment and $3,940 for the Electronic Materials
segment) (2013 – $25,627 [$19,623 for the Eco-Friendly Materials segment and $6,004 for the Electronic Materials
segment]).
The majority of inventories are pledged as security for the revolving credit facility (Note 12).
5N PLUS + 2014 ANNUAL REPORT 5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT
47
Net book value at December 31, 2012
Additions
Disposals
Depreciation
Effect of foreign exchange and others
Net book value at December 31, 2013
Additions
Disposals
Business acquisition
Depreciation
Effect of foreign exchange and others
Net book value at December 31, 2014
As at December 31, 2013
Cost
Accumulated depreciation
Net book value
As at December 31, 2014
Cost
Accumulated depreciation
Net book value
Land and
buildings
$
22,662
1,187
(41)
(1,297)
93
22,604
1,346
(651)
-
(1,046)
78
22,331
27,140
(4,536)
22,604
27,056
(4,725)
22,331
Production
equipment
$
30,083
9,498
(182)
(4,676)
(65)
34,658
14,318
(172)
66
(5,885)
(145)
42,840
Furniture, office
equipment and
rolling stock
$
1,497
621
(22)
(925)
1
1,172
826
(39)
-
(864)
34
1,129
44,016
(9,358)
34,658
55,404
(12,564)
42,840
3,060
(1,888)
1,172
2,986
(1,857)
1,129
Leasehold
improvements
$
1,306
-
-
(124)
(2)
1,180
907
-
-
(162)
36
1,961
1,952
(772)
1,180
2,826
(865)
1,961
Total
$
55,548
11,306
(245)
(7,022)
27
59,614
17,397
(862)
66
(7,957)
3
68,261
76,168
(16,554)
59,614
88,272
(20,011)
68,261
Depreciation has not started on $9,480 (mainly production equipment) because those assets are not ready for
intended use.
Most of the property, plant and equipment are pledged as security for the revolving credit facility (Note 12).
5N PLUS + 2014 ANNUAL REPORT 48
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
NOTE 8 – INTANGIBLE ASSETS
Customer
relationships
$
Technology
$
Trade name and
non-compete
agreements
$
Software,
intellectual
property and
development costs
$
Net book value at December 31, 2012
Additions
Amortization
Net book value at December 31, 2013
Additions
Disposals and others
Business acquisition
Amortization
Net book value at December 31, 2014
As at December 31, 2013
Cost
Accumulated amortization
Net book value
As at December 31, 2014
Cost
Accumulated amortization
Net book value
8,630
-
(1,048)
7,582
-
-
-
(1,040)
6,542
10,458
(2,876)
7,582
10,458
(3,916)
6,542
3,763
-
(1,157)
2,606
-
-
3,026
(1,164)
4,468
5,625
(3,019)
2,606
8,651
(4,183)
4,468
1,645
-
(372)
1,273
-
(10)
-
(260)
1,003
3,062
(1,789)
1,273
2,992
(1,989)
1,003
1,972
797
(1,087)
1,682
2,784
(24)
-
(727)
3,715
4,503
(2,821)
1,682
7,160
(3,445)
3,715
Total
$
16,010
797
(3,664)
13,143
2,784
(34)
3,026
(3,191)
15,728
23,648
(10,505)
13,143
29,261
(13,533)
15,728
Amortization has not started on $2,945 (mainly development costs) because those assets are not yet ready for
intended use.
5N PLUS + 2014 ANNUAL REPORT
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
NOTE 9 – INVESTMENT ACCOUNTED FOR USING THE EQUITY METHOD
49
Beginning of year
Share of loss from joint ventures
End of year
2014
$
444
(128)
316
2013
$
503
(59)
444
The following summarizes financial information of Ingal Stade GmbH (“Ingal”), in which the Company holds a 50%
interest.
Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities due to venturers
Total revenues
Total net loss
NOTE 10 – OTHER ASSETS
Deferred costs
Deposit
Loan receivable from a related party (Notes 9 and 24)
Other
Total other assets
NOTE 11 – TRADE AND ACCRUED LIABILITIES
Trade payables
Accrued liabilities
Total trade and accrued liabilities
2014
$
3,918
3,554
69
6,761
6,035
(256)
2014
$
2,426
86
3,259
864
6,635
2013
$
4,808
4,726
854
7,716
9,713
(118)
2013
$
1,243
106
4,014
1,682
7,045
2014
$
47,791
12,495
60,286
2013
$
54,556
10,460
65,016
5N PLUS + 2014 ANNUAL REPORT 50
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
NOTE 12 – BANK INDEBTEDNESS AND LONG-TERM DEBT
a) Bank indebtedness
The Company has credit lines with financial institutions in China. These credit lines are guaranteed by certain
assets of the Company in China.
The Chinese renminbi (“RMB”) credit line bears interest at 50% of the RMB base rate.
Contractual
Currency
RMB
10,000
6,000
2014
Reporting
Currency
US$
1,625
975
Contractual
Currency
RMB
155,000
63,911
2013
Reporting
Currency
US$
23,374
10,462
Facility available
Amount drawn
b) Long-term debt
Senior secured revolving facility of $125,000 with a syndicate of banks, maturing in
August 2018(1)
Senior secured revolving facility of $100,000 with a syndicate of banks, maturing in
August 2015 (refinanced)(1)
Unsecured balance of holdback to the former shareholders of MCP for an amount of €2,500.
The holdback was paid in April 2014
Term loan, non-interest bearing, repayable under certain conditions, maturing in 2023. If the
loan has not been repaid in full by the end of 2023, the balance will be forgiven(2)
Other loans
Less: Current portion of long-term debt
2014
$
51,095
-
-
657
71
51,823
667
51,156
2013
$
-
68,020
3,448
733
584
72,785
4,439
68,346
(1)
In August 2014, the Company signed a senior secured multi-currency revolving credit facility of $125,000 maturing in August 2018 to replace its existing
$100,000 senior secured revolving facility maturing in August 2015. At any time, the Company has the option to request that the credit facility be expanded
to $150,000 through the exercise of an additional $25,000 accordion feature, subject to review and approval by the lenders. This revolving credit facility
can be drawn in US dollars, Canadian dollars or Hong Kong dollars. Drawings bear interest at either the Canadian prime rate, US base rate, Hong Kong
base rate or LIBOR, plus a margin based on the Company’s senior consolidated debt to EBITDA ratio. The facility is subject to covenants. As at December
31, 2014, the Company has met all covenants.
In addition, in August 2014, the Company’s subsidiary in Belgium entered into a bi-lateral credit facility of 5,000 Euros which is coterminous with the
new senior secured multi-currency revolving credit facility, and guaranteed by the same security pool. This bi-lateral facility can be drawn in Euros or US
dollars and bears interest at similar rates as the revolving credit facility. No amount was used as at December 31, 2014.
(2) The term loan is classified as short-term debt since these amounts could become payable on demand.
In order to comply with these covenants, the Company has prepared and will need to execute on its budgeted EBITDA
and cash flow estimates. Management believes that the assumptions used by the Company in preparing its budgets are
reasonable and that it is not likely that the financial covenants will be violated in the next twelve months.
5N PLUS + 2014 ANNUAL REPORT
51
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
NOTE 13 – CONVERTIBLE DEBENTURES
In June 2014, the Company issued convertible unsecured subordinated debentures for CA$60,000 (US$55,266) and an
additional over-allotment option for CA$6,000 (US$5,580) for a total of CA$66,000 (US$60,846). The convertible
unsecured subordinated debentures bear interest at a rate of 5.75% per annum, payable semi-annually on June 30 and
December 31, commencing on December 31, 2014. The convertible debentures are convertible at the holder’s option
into the Company’s common shares at a conversion price of CA$6.75 per share, representing a conversion rate of 148.1
common shares per CA$1,000 principal amount of convertible debentures. The convertible debentures will mature on
June 30, 2019 and may be redeemed by the Company, in certain circumstances, after June 30, 2017.
The debenture conversion option was recorded as a derivative liability (Note 17). In accordance with IFRS, an obligation
to issue shares for a price that is not fixed in the Company’s functional currency must be classified as a derivative
liability and measured at fair value, with changes recognized in change in fair value of debenture conversion option in
the consolidated statement of earnings.
The fair value of the debenture conversion option, which consists of the holder’s conversion option subject to the
Company’s early redemption options, was estimated based on a methodology for pricing convertible bonds using partial
differential equations (PDE), with the following assumptions: risk-free interest rate of 2.00%; average expected
volatility of 40%; expected dividend per share of nil; entity-specific credit spread, and expected life of 5 years. As a
result, the initial fair value of the liability representing the debenture conversion option for the two tranches of the
issuance of the debenture was estimated at CA$10,484 (US$9,666). Assumptions were reviewed in the valuation as at
December 31, 2014, and remained the same except for the expected life of 4.5 years.
NOTE 14 – RETIREMENT BENEFIT OBLIGATION
The Company operates a defined pension plan in Germany based on employee pensionable earnings and length of
service. Former general and senior managers had been provided with direct benefit commitments. Employees had been
provided with indirect benefit commitments via the Unterstützungseinrichtung der HEK GmbH e.V. Such promises had
been made for employees with entry date of December 31, 1993 or earlier.
Present value of unfunded obligations
Movement in the defined benefit obligation is as follows:
Beginning of year
Current service cost
Interest cost
Effect of foreign exchange
Benefits paid
Actuarial losses (gains)
End of year
The principal actuarial assumptions as at year ended were as follows:
Discount rate
Salary growth rate
Pension growth rate
2014
$
16,928
2014
$
15,887
81
508
(2,181)
(732)
3,365
16,928
2014
2.0%
2.0%
2.0%
2013
$
15,887
2013
$
16,667
94
509
689
(734)
(1,338)
15,887
2013
3.4%
2.0%
2.0%
5N PLUS + 2014 ANNUAL REPORT
52
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
The sensitivity of the defined benefit obligation to changes in assumptions is set out below. The effects on each plan of
a change in an assumption are weighted proportionately to the total plan obligations to determine the total impact for
each assumption presented.
Discount rate
Salary growth rate
Pension growth rate
Life expectancy
Change in
assumption
0.50%
0.50%
0.50%
Impact on defined benefit obligation
Increase in
assumption
(6.86)%
0.59%
6.10%
Decrease in
assumption
7.70%
(0.57)%
(5.58)%
Increase
by 1 year
in assumption
4.04%
Decrease
by 1 year
in assumption
(3.59)%
The weighted average duration of the defined benefit obligation is 14.47 years (2013 – 13.50 years).
Expected maturity analysis of undiscounted pension liability:
Less than a year
Between 1 and 5 years
Over 5 years
Total
Expected contributions to pension benefit plans for year ending December 31, 2015 are $685.
Long-term
payable
$
Deferred
revenues
$
-
-
-
-
12,821
-
12,821
10
215
(161)
64
2,694
(427)
2,331
NOTE 15 – OTHER LIABILITIES
As at December 31, 2012
Additions
Utilized
As at December 31, 2013
Additions
Utilized
As at December 31, 2014
NOTE 16 – INCOME TAX
Current tax:
Current tax for the year
Adjustment in respect of prior years
Total current tax
Deferred tax:
Recognition and reversal of temporary differences
Total deferred tax
Income tax expense
2014
$
686
2,868
19,696
23,250
Other
$
1,550
224
(774)
1,000
145
(586)
559
2014
$
4,975
(100)
4,875
3,979
3,979
8,854
2013
$
762
3,196
22,792
26,750
Total
$
1,560
439
(935)
1,064
15,660
(1,013)
15,711
2013
$
4,744
(406)
4,338
(2,425)
(2,425)
1,913
5N PLUS + 2014 ANNUAL REPORT
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
A reconciliation of income taxes at Canadian statutory rates with the reported income taxes is as follows:
Earnings before income tax
Canadian statutory income tax rates
Income tax on earnings at Canadian statutory rate
Increase (decrease) resulting from:
Unrecorded losses carried forward
Non-deductible expenses (non-taxable gain) for tax purposes(1)
Benefits arising from a financing structure
Non-deductible (taxable) foreign exchange
Effect of difference of foreign tax rates compared to Canadian tax rates
Prior year adjustments
Other
Total income tax expense
2014
$
19,527
26.9%
5,253
2,658
(207)
(598)
1,832
(293)
162
47
8,854
53
2013
$
44,693
26.9%
12,038
1,405
(11,044)
(938)
171
527
(162)
(84)
1,913
(1) The effective tax rate for the year ended December 31, 2013, is mainly affected by the gain related to the settlement of the purchase price of MCP, which
decreases the effective rate by 26.33%.
The Company’s applicable tax rate is the Canadian combined rates applicable in the jurisdiction in which the Company
operates.
The analysis of deferred tax assets and deferred tax liabilities is as follows:
Deferred tax assets:
To be recovered within 12 months
To be recovered after 12 months
Deferred tax liabilities:
To be settled within 12 months
To be settled after 12 months
Deferred tax assets (liabilities), net
Movement in the deferred income tax amounts is as follows:
Beginning of year
Tax charge relating to components of other comprehensive income (loss)
Charged (credited) to consolidated statement of earnings
Business acquisition
End of year
2014
$
1,666
9,371
-
(3,111)
7,926
2014
$
11,787
932
(3,979)
(814)
7,926
2013
$
2,313
11,074
-
(1,600)
11,787
2013
$
10,018
(656)
2,425
-
11,787
5N PLUS + 2014 ANNUAL REPORT
54
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
$
The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same
l
a
t
jurisdiction, is as follows:
o
e
T
m
a
s
7
8
3
,
3
1
7
3
0
,
1
1
0
5
6
,
2
1
l
a
t
o
T
2
3
6
,
2
1
1
1
,
3
0
0
6
,
1
0
3
$
)
8
3
1
,
9
(
Inventories
$
)
Intangible
1
3
assets
7
,
8
$
(
Loss carry
forward
$
Retirement
benefit
obligation
$
Others
$
Total
$
Offset by
jurisdiction
Total
$
$
-
-
-
-
515
-
515
8,243
(966)
-
7,277
(1,655)
-
5,622
1,012
3,932
19,539
(6,889)
12,650
1,545
(414)
2,143
(353)
1,043
2,833
(1,054)
(242)
2,636
(429)
(111)
2,096
3,642
(656)
22,525
(3,689)
932
19,768
(9,138)
13,387
(8,731)
11,037
Inventories
$
58
Intangible
assets
$
4,480
Convertible
debentures
$
-
1,556
1,614
-
(465)
1,149
(204)
4,276
814
294
5,384
Others
$
1,296
(456)
840
-
Total
$
9,521
1,217
10,738
814
Offset by
jurisdiction
$
(6,889)
Total
$
2,632
(9,138)
1,600
-
-
-
1,859
1,859
(314)
526
290
11,842
(8,731)
3,111
30
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y
b
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s
f
f
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o
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r
u
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n
Deferred tax assets
i
h
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i
$
)
9
8
8
,
6
(
)
8
3
1
,
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(
)
1
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(
l
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of earnings
w
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As at December 31, 2012
s
e
Charged (credited) to consolidated statements
c
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)
a
9
9
$
l
3
8
a
Charged to comprehensive income (loss)
5
6
b
,
,
9
3
f
As at December 31, 2013
1
(
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Charged (credited) to consolidated statements
n
2
i
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t
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Credited (charged) to comprehensive income (loss)
,
s
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f
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As at December 31, 2014
o
of earnings
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(
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6
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i
Deferred tax liabilities
t
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d
R
i
s
n
As at December 31, 2012
o
3
c
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Charged (credited) to consolidated statements
4
r
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,
8
n
c
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As at December 31, 2013
g
s
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k
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Charged (credited) to consolidated statements of
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s
t
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earnings
u
5
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s
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As at December 31, 2014
a
t
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w
n
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d
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w
r
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f
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5
5
6
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2
2
6
,
5
7
7
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,
7
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6
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(
5
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-
-
-
-
-
-
-
$
3
4
7
,
1
-
0
7
5
3
1
3
,
2
7
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2
3
,
2
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e
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n
I
$
9
0
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4
7
4
5
,
3
-
6
5
1
,
8
)
4
7
7
,
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-
2
8
3
,
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t
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p
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l
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p
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u
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$
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plant and
9
b
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8
t
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e
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$
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f
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,
9
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h
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9
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8
3
7
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0
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1
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-
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-
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9
5
8
,
1
2
4
8
,
1
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6
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5
9
5
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$
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b
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r
u
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a
$
0
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4
,
4
e
l
b
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g
n
a
t
n
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plant and
equipment
$
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4
1
8
6
7
2
,
4
)
4
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(
321
4,008
-
4
9
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5
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1
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(
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(1,084)
2,924
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(
5N PLUS + 2014 ANNUAL REPORT
55
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
Deferred tax assets of $5,332 (2013 – $13,387), included in the consolidated statements of financial position, are
dependent on projection of future taxable profits for entities that have suffered a loss in the current period.
Deferred income tax liabilities have not been recognized for the withholding tax and taxes that would be payable on the
unremitted earnings of certain subsidiaries. Such amounts are permanently reinvested. Unremitted earnings totalled
$49,691 as at December 31, 2014 (2013 – $40,448).
As at December 31, 2014, the Company had the following operating tax losses available for carryforward for which no
deferred tax benefit has been recorded in the account.
United Kingdom
Belgium
United States
Laos
Peru
China
Total
$
24,813
4,916
25,212
83
339
8,641
64,004
Expiry
No limit
No limit
2031–2033
No limit
2015–2016
2018–2019
NOTE 17 – CATEGORIES OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Fair value
All financial assets classified as loans and receivables, as well as financial liabilities classified as other liabilities, are
initially measured at their fair values and subsequently at their amortized cost using the effective interest method. All
financial assets and financial liabilities classified as held for trading are measured at their fair values. Gains and losses
related to periodic revaluations are recorded in net earnings.
The Company has determined that the fair value of its short-term financial assets and financial liabilities, including cash
and cash equivalents, restricted cash, accounts receivable, bank indebtedness and trade and accrued liabilities
approximates their carrying value due to the short-term maturities of these instruments.
As at December 31, 2014 and 2013, the fair value of long-term debt approximates its carrying value and is calculated
using the present value of future cash flows at the year-end rate for similar debt with similar terms and remaining
maturities.
As at December 31, 2014, the fair value of the convertible debentures including the debenture conversion option, as
quoted on the market, is CA$57,585 (US$49,517). The fair value of a long-term payable approximates its carrying value
and is estimated based on discounted cash flow using current interest rates for instruments with similar terms and
remaining maturities.
The following table presents financial assets and financial liabilities measured at fair value in the consolidated statements
of financial position in accordance with the fair value hierarchy. This hierarchy groups financial assets and financial
liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and
financial liabilities. The fair value hierarchy has the following levels:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2:
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Level 3:
31
5N PLUS + 2014 ANNUAL REPORT
56
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
The convertible debentures are included in Level 1 and the long–term payable is included in Level 3.
The level in which the financial asset or financial liability is classified is determined based on the lowest level of
significant input to the fair value measurement. The financial assets and financial liabilities measured at fair value
in the consolidated statements of financial position are grouped into the fair value hierarchy as follows as at
December 31:
December 31, 2014
Financial assets (liabilities)
Derivative forward contracts
Debenture conversion option (Note 13)
Total
December 31, 2013
Financial assets (liabilities)
Interest rate swap
Foreign exchange forward contracts
Derivative forward contracts
Warrants
Total
Derivative assets and liabilities
Level 1
$
Level 2
$
Level 3
$
-
-
-
147
-
147
-
(2,093)
(2,093)
Level 1
$
Level 2
$
Level 3
$
-
-
-
(181)
(181)
(2,588)
(1,468)
955
-
(3,101)
-
-
-
-
-
As at December 31, 2014 and 2013, the Company has derivative financial instruments which relate to the following:
Interest rate swap to fix the interest rate on part of its revolving credit facility;
Foreign exchange forward contracts to sell US dollars in exchange for Euros or Canadian dollars; and to sell Euros
in exchange for US dollars, related to hedge strategies;
Derivative forward contracts to sell precious metals at a fixed price;
Debenture conversion option; and
Warrants.
Assets (liabilities)
Debenture conversion option (Note 13) (1)
Interest rate swap(2)
Foreign exchange forward contracts(3)
Derivative forward contracts(4)
Warrants(5)
Total
2014
$
(2,093)
-
-
147
-
(1,946)
2013
$
-
(2,588)
(1,468)
955
(181)
(3,282)
(1) This instrument is classified as a Level 3 financial instrument, since the implied volatility is an unobservable input. The change in fair value of debenture
conversion option of $7,179 (2013 – nil) was recognized in the consolidated statement of earnings as at December 31, 2014. An increase of 5% in the
volatility would have increased the fair value of the debenture conversion option by $587 and a decrease of 5% would have decreased the fair value of the
debenture conversion by $1,217.
(2) The interest rate swap has a nominal value of $100,000 commencing in January 2013 and ending in August 2015. Under this swap, the Company will pay
a fixed interest rate of 1.82%. The Company received $1,700 when entering into this forward starting interest rate swap in September 2011. This amount
forms part of the fair value that is recorded as a long-term liability. The Company initially designated this contract as a cash flow hedge of anticipated
variable payments of interest on a nominal amount of $100,000 of the revolving line of credit, and the change in its fair value was recorded in the consolidated
statement of comprehensive income. On September 4, 2012, the Company repaid part of its credit facility and de-designated $30,000 of nominal value of
the swap. In August 2014, following the refinancing of its credit facility (Note 12), the Company terminated the interest rate swap.
32
5N PLUS + 2014 ANNUAL REPORT 57
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
(3) The foreign exchange contracts are to cover projected Euro surpluses and Canadian dollar requirements. As at December 31, 2013, the contracts were as
follows:
The Company entered into twelve monthly foreign exchange collar contracts in June 2013, effective from July 2013 to June 2014, to sell US dollars in
exchange for Canadian dollars. The six remaining contracts covering January to June 2014 were amended in December 2013. Under these collars, if the
US$/CA$ rate is between 0.9950 and 1.0700, a monthly nominal amount of $750 is exchanged at the rate of 1.0700. If the US$/CA$ rate is higher than
1.0700, a monthly nominal amount of $1,500 is exchanged at the rate of 1.0700. If the US$/CA$ rate is below 0.9950, no nominal amount is exchanged
and the monthly contract is terminated.
The Company entered into six monthly foreign exchange collar contracts in December 2013, effective from July 2014 to December 2014, to sell US
dollars in exchange for Canadian dollars. Under these collars, if the US$/CA$ rate is below $1.0620, a monthly nominal amount of $750 is exchanged
at the rate of 1.0620. If the US$/CA$ rate is between 1.0620 and 1.1100, no nominal amount is exchanged. If the US$/CA$ rate is above 1.1100, a
monthly nominal amount of $1,500 is exchanged at the rate of 1.0700.
The Company entered into twelve monthly foreign exchange collar contracts in October 2013, effective from January 2014 to December 2014, to sell
Euros in exchange for US dollars. Under these contracts, if the Euro/US$ rate is between 1.2750 and 1.4025, a monthly nominal amount of $3,000 is
exchanged at the rate of 1.4025. If the Euro/US$ rate is higher than 1.4025, a monthly nominal amount of $6,000 is exchanged at the rate of 1.4025. If
the Euro/US$ rate is below 1.2750, no nominal amount is exchanged, and the monthly contract is terminated.
The Company entered into a foreign exchange synthetic collar contract in December 2013, maturing on December 15, 2014, to sell Euros in exchange
for US dollars, in order to cover its expected excess Euro cash flows in the first quarter of fiscal year 2015. Under this contract, the Company bought a
put for 12,000 Euros at 1.3025 Euro/US$, and sold a call on 18,000 Euros at 1.3625 Euro/US$.
(4)
In February 2014, the Company entered into two derivative forward contracts to sell silver at a fixed price to cover purchases of materials containing the
precious metal. The first contract fixed the price at $21.83 per ounce as at August 5, 2014 and its nominal value was approximately $1,900. The second
contract fixes the price at $20.86 per ounce as at February 3, 2015 and its nominal value is approximately $2,200. Gains or losses on these derivative forward
contracts are recorded as part of the cost of sales. In May 2014, the Company entered into two new derivative forward contracts in opposite position in order
to crystallize its gain and to neutralize the impacts in the consolidated statement of earnings. As at September 30, 2014, the first contract and the contract in
the opposite position matured.
(5) On June 6, 2012, the Company issued 6,451,807 warrants, which expired on June 6, 2014. The warrants were recorded as a derivative liability. In accordance
with IFRS, an obligation to issue shares for a price that is not fixed in the Company’s functional currency and that does not qualify as a rights offering to
all shareholders of that class must be classified as a derivative liability and measured at fair value. Gains or losses on these warrants are recorded in foreign
exchange and derivative loss (gain).
Interest rate swap: Estimated by discounting expected future cash flows using period-end interest rate yield curves;
Foreign exchange forward contracts: Estimated by discounting expected future cash flows using period-end currency rate;
The following methods were used to estimate fair value:
Derivative forward contracts: Estimated by discounting expected future cash flows using period-end market price of the precious metal (silver);
Debenture conversion option: Refer to Note 13 for details valuation models; and
Warrants: Fair value based on the TSX closing price. The ticker symbol of the publicly traded warrants is VNP.WT.
NOTE 18 – OPERATING SEGMENTS
The following tables summarize the information reviewed by the Company’s management when measuring
performance:
For the year ended December 31, 2014
Segment revenues(3)
Adjusted EBITDA(1) (4)
Interest on long-term debt, imputed interest and
other interest expense
Litigation and restructuring costs
Impairment of inventories (Note 6)
Change in fair value of debenture conversion option
Foreign exchange and derivative loss (gain)(2)
Gain on disposal of property, plant and equipment
Depreciation and amortization
Earnings (loss) before income tax
Capital expenditures
Eco-Friendly
Materials
$
338,828
22,167
Electronic
Materials
$
169,367
23,642
Corporate
and unallocated
$
-
(10,764)
-
1,109
4,395
-
-
(748)
2,783
14,628
9,137
-
652
856
-
-
(564)
8,205
14,493
4,298
8,769
191
-
(7,179)
(3,111)
-
160
(9,594)
176
Total
$
508,195
35,045
8,769
1,952
5,251
(7,179)
(3,111)
(1,312)
11,148
19,527
13,611
33
5N PLUS + 2014 ANNUAL REPORT 58
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
For the year ended December 31, 2013
Segment revenues(3)
Adjusted EBITDA(1) (4)
Interest on long-term debt and other interest expense
Litigation and restructuring costs
Impairment of inventories (Note 6)
Gain related to the settlement of the purchase price of MCP
Foreign exchange and derivative loss (gain)(2)
Depreciation and amortization
Earnings before income tax
Capital expenditures
As at December 31, 2014
Eco-Friendly
Materials
$
279,644
16,285
-
1,080
10,032
-
-
3,957
1,216
6,776
Electronic
Materials
$
179,368
22,466
-
441
150
-
-
6,569
15,306
4,287
Corporate
and unallocated
$
-
(8,376)
8,524
2,547
-
(45,188)
(2,590)
160
28,171
-
Eco-Friendly
Materials
$
Electronic
Materials
$
Corporate
and unallocated
$
Total assets excluding the following:
Investment accounted for using the equity method
Deferred tax asset
187,116
-
7,831
192,865
316
3,206
8,197
-
-
As at December 31, 2013
Total assets excluding the following:
Investment accounted for using the equity method
Deferred tax asset
Eco-Friendly
Materials
$
154,309
-
9,451
Electronic
Materials
$
189,397
444
3,936
Corporate
and unallocated
$
7,703
-
-
Total
$
459,012
30,375
8,524
4,068
10,182
(45,188)
(2,590)
10,686
44,693
11,063
Total
$
388,178
316
11,037
Total
$
351,409
444
13,387
(1) Earnings before income tax, depreciation and amortization, financial expense (revenues), litigation and restructuring costs, impairment of
inventories, gain related to the settlement of the purchase price of MCP and gain or loss on disposal of property, plant and equipment.
(2) The foreign exchange and derivative loss (gain) excludes the loss (gain) on foreign exchange forward contracts on US$/CA$ recorded as part of
wages and salaries and the loss (gain) on derivative forward contracts to sell silver metal recorded as part of cost of goods sold.
(3) The total revenues of $37,866 (2013 – $42,416) from the recycling and trading of complex materials is allocated to the Eco-Friendly materials and
Electronic materials segments.
(4) The total adjusted EBITDA of $7,363 (2013 – $8,644) from the recycling and trading of complex materials is allocated to the Eco-Friendly materials
and Electronic materials segments.
34
5N PLUS + 2014 ANNUAL REPORT 5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
The geographic distribution of the Company’s revenues based on the location of the customers for the years ended
December 31, 2014 and 2013, and the identifiable non-current assets as at December 31, 2014 and 2013 are summarized
as follows:
59
Revenues
Asia
China
Japan
Other(1)
Americas
United States
Other
Europe
France
Germany
United Kingdom
Other(1)
Other
Total
Non-current assets (other than deferred tax assets)
Asia
Hong Kong
Other(1)
United States
Canada
Europe
Belgium
Germany
Other
Total
(1) None exceeding 10%
2014
$
47,802
11,114
94,964
99,281
14,207
31,456
77,814
22,400
90,498
18,659
508,195
2014
$
6,367
18,494
6,918
19,434
10,049
24,485
5,193
90,940
2013
$
50,578
7,633
94,274
82,764
19,982
27,668
66,611
22,628
79,264
7,610
459,012
2013
$
8,510
11,295
5,973
16,857
7,832
24,371
5,408
80,246
For the year ended December 31, 2014, one customer represented approximately 10.59% (2013 – 11.58%) of the
revenues, and is included in the Electronic Materials revenues.
NOTE 19 – SUPPLEMENTAL CASH FLOW INFORMATION
Net change in non-cash working capital balances related to operations consists of the following:
Decrease (increase) in assets:
Accounts receivable
Inventories
Income tax receivable
Other current assets
Increase in liabilities:
Trade and accrued liabilities
Income tax payable
Net change
2014
$
(11,765)
(34,249)
5,639
921
2,285
2,404
(34,765)
2013
$
28,104
(14,263)
10,235
466
1,945
1,443
27,930
35
5N PLUS + 2014 ANNUAL REPORT 60
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
The consolidated statements of cash flows exclude or include the following transactions:
a) Excluded additions unpaid at end of year:
Additions to property, plant and equipment
b) Included additions unpaid at beginning of year:
Additions to property, plant and equipment
c) Excluded a reclassification from trade and accrued
liabilities to other liabilities following new agreements with a supplier
NOTE 20 – SHARE CAPITAL
Authorized:
2014
$
5,423
1,637
8,941
2013
$
1,637
1,394
-
An unlimited number of common shares, participating, with no par value, entitling the holder to one vote per share;
and
An unlimited number of preferred shares, issuable in one or more series with specific terms, privileges and
restrictions to be determined for each class by the Board of Directors. As at December 31, 2014 and 2013, no
preferred shares were issued.
On November 17, 2014, the Toronto Stock Exchange has approved the Company’s normal course issuer bid. Under this
normal course issuer bid, the Company has the right to purchase for cancellation, from November 19, 2014 to November
18, 2015, a maximum of 4,691,230 common shares, representing 10% of the publicly-held common shares. No common
shares were repurchased as at December 31, 2014.
NOTE 21 – EARNINGS PER SHARE
The following table reconciles the numerators and denominators used for the computation of basic and diluted earnings
per share:
Numerators
Net earnings attributable to equity holders of 5N Plus Inc.
Dilutive effect:
Convertible debentures
Net earnings attributable to equity holders of 5N Plus Inc. adjusted for
dilution effect
Net earnings for the period
Dilutive effect:
Convertible debentures
Net earnings for the period adjusted for dilution effect
Denominators
Basic weighted average number of shares
Dilutive effect:
Stock options
Convertible debentures
Diluted weighted average number of shares
2014
$
10,812
(6,294)
4,518
10,673
(6,294)
4,379
2014
83,948,943
210,242
5,258,564
89,417,749
2013
$
42,661
-
42,661
42,780
-
42,780
2013
83,908,269
67,123
-
83,975,392
36
5N PLUS + 2014 ANNUAL REPORT
61
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
As at December 31, 2014, a total number of 1,042,510 stock options were excluded from the diluted weighted average
number of shares due to their anti-dilutive effect because of the Company’s stock price. The same applies to the warrants
which expired on June 6, 2014.
As at December 31, 2013, a total number of 1,629,951 stock options and a total number of 6,451,807 warrants were
excluded from the diluted weighted average number of shares due to their anti-dilutive effect because of the Company’s
stock price.
NOTE 22 – SHARE-BASED COMPENSATION
As at December 31, 2014, the Company had the following share-based compensation plans.
Stock Option Plan
On April 11, 2011, the Company adopted a new stock option plan replacing the previous plan (the “Old Plan”), in place
since October 2007, with the same features as the Old Plan with the exception of a maximum number of options granted
which cannot exceed 5,000,000. The aggregate number of shares which could be issued upon the exercise of options
granted under the Old Plan could not exceed 10% of the issued shares of the Company at the time of granting the options.
Options granted under the Old Plan may be exercised during a period not exceeding ten years from the date of grant.
The stock options outstanding as at December 31, 2014 may be exercised during a period not exceeding six years from
their date of grant. Options vest at a rate of 25% (100% for directors) per year, beginning one year following the grant
date of the options. Any unexercised options will expire one month after the date a beneficiary ceases to be an employee,
director or officer and one year for retired directors.
Restricted Share Unit Plan
On June 7, 2010, the Company adopted a Restricted Share Unit (“RSU”) Plan to complement the stock option plan.
The RSU Plan enables the Company to award to eligible participants phantom share units that vest after a three-year
period. The RSU is settled in cash and is recorded as a liability. The measurement of the compensation expense and
corresponding liability for these awards is based on the fair value of the award, and is recorded as a charge to selling,
general and administrative (“SG&A”) expenses over the vesting period of the award. At the end of each financial
period, changes in the Company’s payment obligation due to changes in the market value of the common shares on the
TSX are recorded as a charge to SG&A expenses. For the year ended December 31, 2014, the Company granted
281,000 RSUs (2013 – 190,000), 12,478 of RSUs were paid (2013 – 26,720) and 124,127 RSUs were cancelled (2013 –
nil). As at December 31, 2014, 387,155 RSUs were outstanding (2013 – 242,760).
Stock Appreciation Rights Plan
On June 7, 2010, the Company adopted a Restricted Share Unit for Foreign Employees plan (the “RSUFE Plan”) which
was slightly amended on November 7, 2012 by the Company to become the Stock Appreciation Rights plan (the “SAR
Plan”) which replaced the RSUFE Plan. The SAR Plan enables the Company to award eligible participants phantom
stock options to foreign directors, officers and employees. SARs usually have a six year term and vest equally over a
four-year period at an annual rate of 25% per year beginning one year following the SARs grant date. The amount of
cash payout is equal to the sum of the positive differences between the volume weighted average trading price of the
common shares of the Company on the TSX in the last twenty (20) trading days immediately preceding the exercise date
and the grant price of each SAR redeemed.
At the end of each financial period, changes in the Company’s payment obligations due to changes in the market value
of the common shares on the TSX are recorded as an expense. For the year ended December 31, 2014, the Company
granted 230,000 SARs (2013 – 15,000), 48,197 of SARs were paid (2013 – 51,816) and 80,000 SARs were cancelled
(2013 – 24,878). As at December 31, 2014, 217,640 SARs were outstanding (2013 – 115,837).
37
5N PLUS + 2014 ANNUAL REPORT 62
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
Deferred Share Unit Plan
On May 7, 2014, the Company adopted a Deferred Share Unit Plan (the “DSU Plan”) which enables the Company to
provide Board directors and key officers and employees designated by the Board with phantom share units to enhance
the Company's ability to attract and retain individuals with the right combination of skills and experience to serve on the
Company’s Board or as Company’s executives. DSUs vest entirely at their date of grant and become payable in cash
upon termination of services of a director or designated officer or employee with the Company. The amount of cash
payout is equal to the volume weighted average trading price of the common shares of the Company on the TSX on the
twenty (20) trading days immediately preceding the date of payment of the DSU. For the year ended December 31, 2014,
the Company granted 122,878 DSUs. As at December 31, 2014, 122,878 DSUs were outstanding (2013 – nil).
The following table presents information concerning all outstanding stock options:
2014
Weighted
average
exercise
price
CA$
4.19
3.99
4.16
2.46
7.80
4.21
4.37
Number
of options
1,637,951
352,000
(206,463)
(71,388)
(10,000)
1,702,100
1,192,918
Number
of options
1,585,448
546,939
(141,386)
-
(353,050)
1,637,951
1,001,826
Outstanding, beginning of year
Granted
Cancelled
Exercised
Expired
Outstanding, end of year
Exercisable, end of year
The outstanding stock options as at December 31, 2014 are as follows:
Maturity
January and December 2015
June 2016
June and September 2017
April and November 2018
May 2019
March to August 2020
Exercise price
High
CA$
5.47
4.91
8.64
3.61
2.20
4.29
Low
CA$
5.25
4.87
8.50
2.22
2.20
3.33
2013
Weighted
average
exercise
price
CA$
4.67
2.39
5.55
-
3.00
4.19
4.94
Number of
options
305,000
143,624
212,889
329,837
368,750
342,000
1,702,100
The fair value of stock options at the grant date was measured using the Black-Scholes option pricing model. The
historical share price of the Company’s common shares is used to estimate expected volatility, and government bond
rates are used to estimate the risk-free interest rate. The following table illustrates the inputs used in the average
38
5N PLUS + 2014 ANNUAL REPORT
63
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
measurement of the fair values of the stock options at the grant date granted during the years ended December 31, 2014
and 2013:
Expected stock price volatility
Dividend
Risk-free interest rate
Expected option life
Fair value – weighted average of options issued
2014
60%
None
1.33%
4 years
CA$1.88
2013
59%
None
1.10%
4 years
CA$1.00
The following table shows the share-based compensation expense recorded in the consolidated statements of earnings
for the years ended December 31, 2014 and 2013:
Expense
Stock options
SARs
RSUs
DSUs
Total
2014
$
237
26
144
261
668
2013
$
567
15
148
-
730
The following table shows the carrying amount and the intrinsic value of the share-based compensation liabilities:
Liability
RSUs
SARs
DSUs
Total
2014
$
313
74
261
648
2013
$
182
128
-
310
NOTE 23 – COMMITMENTS AND CONTINGENCIES
Commitments
In September 2014, the Company signed a loan agreement with one of its suppliers for the construction of manufacturing
equipment in Asia. The loan bears an interest rate of 8.5%, and is guaranteed by the supplier’s corporate entity. Under
this agreement, the total amount can reach up to $7,000 upon achievement of certain milestones. The initial tranche was
disbursed on October 15, 2014. As at December 31, 2014, the amount receivable under the loan is $1,840. Each tranche
is to be reimbursed on a monthly basis over a term of 12 months starting after each drawdown.
The Company rents certain premises and equipment under the terms of operating leases. Future minimum payments
excluding operating costs are as follows:
Within one year
After one year but not more than five years
Total commitments
2014
$
2,881
5,100
7,981
2013
$
2,265
3,635
5,900
In the normal course of business, the Company contracted letters of credit for an amount of up to $439 as at December 31,
2014.
39
5N PLUS + 2014 ANNUAL REPORT 64
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
Contingencies
In the normal course of operations, the Company is exposed to events that could give rise to contingent liabilities or
assets. As at the date of issue of the consolidated financial statements, the Company was not aware of any significant
events that would have a material effect on its consolidated financial statements, except for the following.
In 2013, the Company settled its case with the former shareholders of MCP, Group SA (“MCP”) thereby prohibiting
further related action by either party involved in the settlement. As of the date hereof, the Company does not believe that
it is probable that an outflow of resources, which could be material to the consolidated financial statements, will be
required by the Company following potential third party claims pertaining to actions or events related to the alleged
breaches of representations and warranties by the former shareholders of MCP (“Vendors”).
NOTE 24 – RELATED PARTY TRANSACTIONS
The Company’s related parties are its joint venture, directors and executive members.
Unless otherwise stated, none of the transactions incorporates special terms and conditions and no guarantees were given
or received. Outstanding balances are settled in cash.
Ingal, a 50% joint venture, supplies gallium metal to other companies of the group. During the year ended December 31,
2014, the Company purchased $2,790 worth of gallium from Ingal (2013 – $4,850).
As at December 31, 2014, the Company has a loan receivable from Ingal of $3,259 (€2,684) (2013 – $4,014 [€2,911])
(Note 10).
NOTE 25 – FINANCIAL RISK MANAGEMENT
In the normal course of operations, the Company is exposed to various financial risks. These risk factors include market
risk (currency risk, interest rate risk and other price risk), credit risk and liquidity risk.
Market risk
Market risk is the risk that changes in market price, such as foreign exchange rates, equity prices and interest rates, will
affect the Company’s net earnings or the value of financial instruments.
The objective of market risk management is to mitigate exposures within acceptable limits, while maximizing
returns.
(i) Foreign currency risk
Foreign currency risk is defined as the Company’s exposure to a gain or a loss in the value of its financial instruments
as a result of fluctuations in foreign exchange rates. The Company is exposed to foreign exchange rate variability
primarily in relation to certain sale commitments, expected purchase transactions and debt denominated in a foreign
currency. In addition, these operations have exposure to foreign exchange rates primarily through cash and cash
equivalents and other working capital accounts denominated in currencies other than their functional currencies.
40
5N PLUS + 2014 ANNUAL REPORT 5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
The following table summarizes in US dollar equivalents the Company’s major currency exposures as at December 31,
2014:
65
Cash and cash equivalents
Restricted cash
Accounts receivable
Bank indebtedness
Trade and accrued liabilities
Long-term debt
Convertible debentures
Net financial assets (liabilities)
CA$
$
256
-
1,083
-
(2,884)
-
(46,101)
(47,646)
EUR
$
3,896
2,089
14,729
-
(14,046)
(61)
-
6,607
GBP
$
724
29
2,358
-
(2,514)
-
-
597
RMB
$
1,864
16
8,640
(975)
(3,491)
-
-
6,054
2014
Other
$
264
-
649
-
(697)
-
-
216
The following table shows the impact on earnings before income tax of a one-percentage point strengthening or
weakening of foreign currencies against the US dollar as at December 31, 2014 for the Company’s financial instruments
denominated in non-functional currencies:
1% Strengthening
Earnings before tax
1% Weakening
Earnings before tax
CA$
$
(476)
476
EUR
$
GBP
$
RMB
$
Other
$
66
(66)
6
(6)
61
(61)
2
(2)
Occasionally, the Company will enter into foreign exchange forward contracts to sell US dollars in exchange for
Canadian dollars, Euros, Hong Kong dollars and British pounds sterling. These contracts would hedge a portion of
ongoing foreign exchange risk on the Company’s cash flows since much of its non-US dollar expenses outside China
are incurred in Canadian dollars, Euros, Hong Kong dollars and British pounds sterling. The Company will also enter
into foreign exchange contracts to sell Euros for US dollars.
(ii) Interest rate risk
Interest rate risk refers to the risk that future cash flows will fluctuate as a result of changes in market interest rates.
The Company’s policy is to limit its exposure to interest rate risk fluctuation by ensuring that a reasonable portion
of its bank advance, long-term debt and convertible debentures are at fixed rate. The Company is exposed to interest
rate fluctuations on its revolving credit facility, which bears a floating interest rate. A 1% increase/decrease in
interest rates would not have a significant impact on the Company’s net earnings.
(iii) Other price risk
Other price risk is the risk that fair value or future cash flows will fluctuate because of changes in market prices,
other than those arising from interest rate risk or currency risk. The Company is exposed to other price risk with
respect to the underlying risks of the held-for-trading financial instruments included in the consolidated statements
of financial position.
Credit risk
Credit risk refers to the possibility that a customer or counterparty will fail to fulfill its obligations under a contract and,
as a result, create a financial loss for the Company. The Company has a credit policy that defines standard credit practice.
This policy dictates that all new customer accounts be reviewed prior to approval and establishes the maximum amount
of credit exposure per customer. The creditworthiness and financial well-being of the customer are monitored on an
ongoing basis.
41
5N PLUS + 2014 ANNUAL REPORT
66
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
The Company establishes an allowance for doubtful accounts as determined by management based on its assessment
of collection; therefore, the carrying amount of accounts receivable generally represents the maximum credit
exposure. As at December 31, 2014 and 2013, the Company has an allowance for doubtful accounts of $104 and $218
respectively. The provision for doubtful accounts, if any, is included in selling, general and administrative expenses
in the consolidated statement of earnings, and is net of any recoveries that were provided for in prior periods.
Counterparties to financial instruments may expose the Company to credit losses in the event of non-performance.
Counterparties for derivative and cash transactions are limited to high credit quality financial institutions, which are
monitored on an ongoing basis. Counterparty credit assessments are based on the financial health of the institutions and
their credit ratings from external agencies. As at December 31, 2014, no financial assets are past due except for trade
receivables. The aging analysis of the latter two categories of trade receivables is as follows:
Up to 3 months
More than 3 months
2014
$
23,174
738
23,912
The following table summarizes the changes in the allowance for doubtful accounts for trade receivables:
Beginning of year
Provision for impairment
Unused amounts reversed
End of year
2014
$
218
-
(114)
104
2013
$
20,889
625
21,514
2013
$
168
50
-
218
Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional
cash.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The
Company manages liquidity risk through the management of its capital structure. It also manages liquidity risk by
continually monitoring actual and projected cash flows, taking into account the Company’s sales and receipts and
matching the maturity profile of financial assets and financial liabilities. The Board of Directors reviews and approves
the Company’s annual operating and capital budgets as well as any material transactions out of the ordinary course of
business, including proposals on acquisitions and other major investments.
The following table reflects the contractual maturity of the Company’s financial liabilities as at December 31, 2014:
Bank indebtedness
Trade and accrued liabilities
Long-term debt
Convertible debentures
Long-term payable (including in other liabilities)
Total
Carrying
amount
$
975
60,286
51,823
46,101
12,577
171,762
1 year
$
1,030
60,286
3,224
3,263
-
67,803
2-3
years
$
-
-
5,136
6,527
15,064
26,727
4-5
years
Beyond
5 years
$
-
-
52,837
61,635
-
114,472
$
-
-
-
-
-
-
2014
Total
$
1,030
60,286
61,197
71,425
15,064
209,002
42
5N PLUS + 2014 ANNUAL REPORT
67
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
NOTE 26 – CAPITAL MANAGEMENT
The Company’s objective when managing capital is to safeguard its ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
In order to maintain or adjust the capital structure, the Company may amend the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Company requires the approval of its lenders on some of the capital transactions such as the payment of dividends
and capital expenditures over a certain level.
The Company monitors capital on the basis of the debt-to-equity ratio. This ratio is calculated as net debt divided by
total equity. Net debt is calculated as total borrowings (comprising bank indebtedness, long-term debt and convertible
debentures in the consolidated statement of financial position) less cash and cash equivalents and restricted cash. Total
equity is the equity attributable to equity holders of 5N Plus Inc. in the consolidated statement of financial position.
Debt-to-equity ratios as at December 31, 2014 and 2013 are as follows:
Bank indebtedness
Long-term debt including current portion
Convertible debentures
Total debt
Less: Cash and cash equivalents, and restricted cash
Net debt
Shareholders’ equity
Debt-to-equity ratio
2014
$
975
51,823
46,101
98,899
(14,892)
84,007
196,443
43%
2013
$
10,462
72,785
-
83,247
(24,917)
58,330
190,052
31%
43
5N PLUS + 2014 ANNUAL REPORT 68
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands of United States dollars)
NOTE 27 – KEY MANAGEMENT COMPENSATION AND EXPENSES BY NATURE
Key management compensation
Key management includes directors (executive and non-executive) and certain senior management. The compensation
expense paid or payable to key management for employee services is as follows:
Key management compensation
Wages and salaries
Share-based compensation
Total
Expenses by nature
Wages and salaries(1)
Share-based compensation expense
Depreciation of property, plant and equipment and amortization
of intangible assets
Amortization of other assets
Research and development, net of tax credit
Litigation and restructuring costs
Impairment of inventories
Gain related to the settlement of the purchase price of MCP(2)
2014
$
5,162
652
5,814
2014
$
41,200
668
11,148
732
3,343
1,952
5,251
-
2013
$
4,427
636
5,063
2013
$
39,525
730
10,686
2,017
3,758
4,068
10,182
(45,188)
(1) Includes gain on foreign exchange forward contracts related to US$/CA$ (Note 17)
(2) In 2013, the Company entered into a full and final settlement agreement with the Vendors, which were all former shareholders of MCP, in relation
to a dispute. The Company acquired MCP from the Vendors on April 11, 2011. The Company filed a counterclaim in arbitration proceeding
against the Vendors, as it estimated that the Vendors had breached the representation and warranties of the acquisition agreement.
44
5N PLUS + 2014 ANNUAL REPORT 5N PLUS + 2014 ANNUAL REPORT
STOCK EXCHANGE
5N Plus is listed on the Toronto
Stock Exchange, under the symbol VNP.
TRANSFER AGENT AND REGISTRAR
Computershare Investor Services Inc.
AUDITORS
PricewaterhouseCoopers LLP
HEAD OFFICE
4385 Garand Street
Montreal, Quebec
H4R 2B4
ANNUAL MEETING
The annual shareholders meeting will be
held on Wednesday, May 6, 2015 at 10:30 a.m.
Club Saint-James
1145 Union Avenue
Montreal, Quebec
For more information, please contact:
INVESTOR RELATIONS
5N Plus Inc.
4385 Garand Street
Montreal, Quebec
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
Printed in Canada
100%
5NCORPORATE INFORMATION 5N Plus Inc.
4385 Garand Street
Montreal, Quebec
H4R 2B4
Canada
www.5nplus.com
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