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Critical,
Valued and
Trusted
2021 Annual Report
Enabling Performance™
Mission
To be critical to our customers,
valued by our employees and
trusted by our shareholders.
Vision
To enable critical industries
through essential products based
on advanced material technology.
Values
Commitment
Continuous improvement
Customer focus
Health and safety
Integrity
Sustainable development
→ Revenues
(in millions)
→ Adjusted EBITDA1
(in millions)
$196.0
$177.2
$210.0
2019
2020
2021
$22.0
$28.8
$28.2
→ Net Earnings
(in millions)
→ ROCE1
(in percentage)
$1.8
$2.2
2019
2020
2021
$3.1
8.2%
9.5%
14.4%
2019
2020
2021
2019
2020
2021
1 Ajusted EBITDA is a non-IFRS financial measures and Return on Capital Employed (ROCE) is a non-IFRS ratio. See Non-IFRS
Measures in this document for more information.
All amounts expressed in U.S. dollars unless otherwise indicated.
Content
2 Chair Letter
10 Sustainability
4 CEO Letter
12 Financial Performance
6 Our Business Model
8 Our Customers’ End
Products
14 Management’s Discussion
and Analysis
42 Consolidated Financial
Statements
54 Notes to Consolidated
Financial Statements
91 Board of Directors and
Executive Committee
92 Corporate Information
5N Plus is a leading global producer of specialty semiconductors and performance materials. We deploy proprietary and proven technologies to develop and manufacture advanced materials that are often core components of our customers’ products.
→ Leading global supplier of semiconductor compounds in renewable
energy and for imaging and security with a vertically integrated
value chain
→ Leading global provider of solar cells for the space industry
→ Strategic industrial partner and critical materials supplier to
governments and agencies around the world
→ Leading global supplier of bismuth-based active pharmaceutical
ingredients
→ R&D, manufacturing facilities and commercial centers strategically
located around the globe close to resources, suppliers and
customers
→ ISO-certified operations committed to high standards in health and
safety, quality, energy, environmental and resource management
AZUR
ACQUISITION
COMPLETION
850 employees on 3 continents
→
HEAD OFFICE
Montréal (Canada)
Trumbull (USA)
St. George (USA)
Tilly (Belgium)
Lübeck (Germany)
Eisenhüttenstadt (Germany)
Heilbronn (Germany)
Commercial Activities
Manufacturing
Research & Development
Shangyu (China)
Hong Kong (China)
Ventiane (Laos)
Kulim (Malaysia)
1
5N PLUS | 2021 ANNUAL REPORTIn late 2021, 5N Plus was pleased to complete the strategic acquisition of Germany-based Azur, the global leader in the development and manufacturing of multijunction solar cells based on III-V compound semiconductor materials, welcoming a highly skilled workforce, a strong platform of technologies and a well established portfolio of business. Positioning 5N Plus
for Growth
in Key Markets
2
5N PLUS | 2021 ANNUAL REPORTOver the last several years, 5N Plus has been diligently executing its corporate strategy, strengthening its business mix and tapping into new and larger markets, to meaningfully grow revenue in our target markets and create long-term value. The continued oversight of this strategic plan was a key priority for your Board of Directors in 2021, along with an ongoing commitment to maintaining high governance standards.Today, 5N Plus has a growing and resilient business with a greater proportion of revenues coming from lower-volatility, higher value-added products and end markets. This is reflected in the Company’s 40% revenue growth in 2021 and solid underlying performance in the context of an ongoing pandemic. In late 2021, 5N Plus completed the acquisition of Germany-based AZUR, significantly strengthening its value chain, competitive capabilities and addressable market in critical semiconductor materials. The Board supported management throughout the acquisition process and continues to monitor its integration. This transaction was an important step in the right direction to position 5N Plus for further growth. While our near-term priority is to ensure the successful integration of this new business, 5N Plus expects to continue to accelerate its growth trajectory in the coming years – both organically and through acquisitions. The Board and management are fully aligned on strategy and deliverables in this regard. Our engagement in corporate strategy reflects our strong conviction in the Company’s long-term potential as a critical supplier to key industries, as well as our commitment to high governance standards as stewards of the Company on behalf of shareholders.
Committed to high governance
standards
The Board’s composition and the standards
by which we govern ourselves and the
Company are critical factors in our
effectiveness.
The Board is comprised of a group of
highly capable individuals with a relevant
mix of experience, skills and perspectives.
We are committed to ensuring that board
composition and director profiles remain
in alignment with the needs of the business.
We are also committed to enhancing board
diversity as board renewal opportunities
arise, in recognition of the added value we
believe this will bring to our deliberations.
In 2021, the Board undertook several
initiatives to ensure that our governance
practices meet the highest standards, all
of which will be reflected in our 2022 proxy
statement. This included a comprehensive
review of director and executive
compensation and the composition of our
comparator group, as well as an update
of our Board charters and corporate
governance guidelines. We continue to
regularly assess the Board’s and individual
director performance and are committed to
maintaining committees entirely composed
of and chaired by independent directors,
among other governance best practices.
As part of our risk management
Upon Arjang’s departure, the Board
responsibilities, the Board is also paying
appointed board member since 2020 and
close attention to Environmental, Social
seasoned business executive Gervais
and Governance (ESG) factors, including
Jacques as Interim CEO, effective
those related to climate change. Sustainable
December 1, 2021. Following a Board-led
development is a longstanding core
candidate evaluation process, we were
value at 5N Plus and important to all our
pleased to announce Gervais’s permanent
stakeholders, including our customers, many
appointment to the position in March
of whom are critical to the climate transition.
2022. The leadership transition has been
In February 2022, we were deeply
saddened by the loss of fellow director
James T. Fahey, after a courageous battle
with cancer. James made invaluable
contributions to our deliberations since
seamless, and the Board has full confidence
in Gervais and the management team in
place to lead 5N Plus and to ensure the
continued execution of its business and
strategic plans.
joining our Board in 2014 as an independent
Unlocking more value
director, and we will miss both his wisdom
Looking ahead, your Board will continue
and his friendship. The Board is actively
to be diligent in tracking the company’s
recruiting to fill this vacancy as well as
progress in the execution of its growth
to continue to enhance its capabilities
plans and in ensuring that management has
and diversity.
CEO succession
In late 2021, Arjang Roshan stepped
down as President and Chief Executive
Officer (CEO) of 5N Plus after a nearly
six-year mandate during which 5N Plus
made important progress on its strategic
roadmap. On behalf of the Board, I would
the tools at its disposal to seize the best
opportunities and to drive organic growth
through our diversified, and increasingly
value-added business mix and expanding
markets. At 5N Plus, the future is bright,
and we are committed to propelling our
growth to create sustainable, long-term
value for all our stakeholders.
like to sincerely thank Arjang for his
In conclusion, I wish to express our sincere
contributions during his tenure.
thanks to our employees around the world
for their dedication and many contributions
in 2021. We also thank our customers for
their trust in us, and our shareholders
for their confidence and support.
Sincerely,
Luc Bertrand
Chair of the Board
3
5N PLUS | 2021 ANNUAL REPORT Engaged
for Growth
4
5N PLUS | 2021 ANNUAL REPORTIn 2021, 5N Plus generated significant revenue growth while also making important progress in our pursuit of external growth with the strategic acquisition of AZUR. This was achieved while navigating the second year of the pandemic, and in the context of increasing global supply chain challenges and other inflationary pressures. Our accomplishments over the last year speak to the underlying strength of our business and both the unique and strategic role we play in the many critical industries we serve.Our ability to satisfy strong customer demand was also made possible by the tireless efforts deployed by our people in what remained a complex environment. Our 850 employees spanning three continents continue to do an outstanding job ensuring the health, safety and well-being of colleagues, while maintaining operational excellence and outstanding customer service globally. For this, and on behalf of the Board and management, I must sincerely thank each and every one of our team members.A critical semiconductor value chain poised for growth Our recent acquisition of AZUR provides 5N Plus with a highly competitive specialty semiconductor value chain and meaningfully expands our product portfolio in large and expanding target markets. In many ways, the AZUR transaction has transformed our positioning in this critical sector. 5N Plus is a vertically integrated specialty semiconductor company and now the largest provider of space solar cells. Already a strategic partner and critical materials supplier to key customers in this sector, this acquisition will deepen our value chain – from the procurement and closed-loop management of critical materials to finished epitaxy engineered substrates. It also significantly expands our addressable market and ability to serve leading agencies and governmental bodies around the world.“The talent and commitment of our employees, the quality of our assets and our contributions to society motivate me and make me optimistic about the future. At 5N Plus, we continue to demonstrate our unwavering commitment to our mission: to be critical to our customers, valued by our employees, and trusted by our shareholders.” Gervais Jacques, President and CEO
With the completion of the AZUR
As the leading global supplier of bismuth-
transaction occurring only two months prior
based active pharmaceutical products, we
to fiscal year-end, our annual specialty
benefited from strong demand for active
semiconductor segmented results, which
pharmaceutical ingredients and health
now bring together all related activities,
compounds over the last year. Our ability to
do not yet reflect AZUR’s full contribution.
expand in this market and satisfy customer
In 2021, our space business generated a
demand has been enabled by the process
significant proportion of our revenues in this
technology investments made in 2019 and
segment. Renewable energy products also
2020, which improved the efficiency and
remain a key market with strong volume,
flexibility of our operations as well as the
supported by strategic and longstanding
quality and consistency of our products.
customer relationships, despite lower
contributions last year.
In 2021, we also entered into a strategic
agreement with Microbion, a clinical-stage
To better grasp what AZUR brings to the
pharmaceutical company developing
table, we must look at 5N Plus’s backlog
novel treatments for rare and serious
at year end, which represented 221 days
diseases. This minority investment will
of annualized revenue, 47 days higher than
allow us to tap into a new class of active
at the end of the third quarter of 2021. This
pharmaceutical ingredients, an attractive
provides a good indication of the growth
sector in which we continue to seek
ahead and the immediate value AZUR
opportunities to expand.
A clear focus on growth from
value-added businesses
Over the past several years, 5N Plus has
worked diligently to reposition its business
towards higher value-added activities, and
towards large and expanding markets.
We have made important progress in this
regard and the acquisition of AZUR is proof
that we are on track to meet our objectives
and focused on the right markets.
In the near term, our priority is to ensure a
seamless integration of AZUR and to unlock
the full potential of our vertically integrated
specialty semiconductor value chain. We
must also continue to drive organic growth
in our fields of leadership, while also seizing
external opportunities to accelerate our
growth in our target markets.
As I look ahead, I do so with confidence
that 5N Plus is engaged for growth and
well-positioned to continue seizing the right
opportunities. Our dedication to our mission
is clear, and we will continue to invest in
our people, to be a strategic partner to our
customers, and to create long-term value
for our shareholders.
brings to 5N Plus.
In 2021, 5N Plus also announced a
significant investment in its Montreal
campus, with the support of the Quebec
government, to expand the development
and manufacturing of critical and strategic
materials in Canada. This includes
materials containing tellurium for advanced
II-VI semiconductor compounds and
engineered powders, which will further
reinforce our ability to serve the renewable
energy market.
A comprehensive portfolio
of performance materials
A longstanding commitment to
sustainable development
In parallel to the execution of our strategic
priorities, our commitment to improving
our performance in terms of health and
safety, quality, energy, environmental and
resource management remains unwavering.
We are proud of our progress, and we will
Sincerely,
continue to invest in our facilities in 2022 to
minimize the environmental impact of our
manufacturing activities.
Sustainability is also deeply ingrained in
our business model – from the recycling of
degraded metal resources to our role as
Gervais Jacques
President and CEO
A large proportion of our revenue growth
a materials supplier, to serving industries
in 2021 was supported by strong demand in
critical to the climate transition. We look
our performance materials segment, which
forward to continuing to report on our
brings together our activities in the health
sustainable development initiatives, with
and pharmaceutical, catalytic and extractive
the publication of our first comprehensive
materials and other industrial applications.
ESG report by the end of 2022, to keep the
market abreast of our progress, risks and
market opportunities.
5
5N PLUS | 2021 ANNUAL REPORT A Critical Role
in Key Industries
OUR POSITION IN THE SUPPLY CHAIN
1
→ → →
3
2
4
Our upstream
suppliers
We buy degraded
resources containing
low grades of
critical metals.
→ Secondary streams
→ Smelters by-products
→ Customer by-products
Our upstream
business
We extract the critical
metals through our
recycling and refining
process.
→ Refined products,
including tellurium and
bismuth, for our down-
stream business
Our downstream business
We use our downstream refined products or
commercial grade metals to develop and manufacture
advanced materials utilizing unique and proprietary
process technologies.
5N Plus
→ High purity metals
and compounds
→ Specialty chemicals
→ Semiconductor wafers
AZUR
→ Space solar cells
→ Engineered substrates
St. George
Utah, USA
Customer
Montréal
Québec, Canada
Heilbronn
Baden-Württemberg,
Germany
6
5N PLUS | 2021 ANNUAL REPORT5N Plus takes an integrated, lifecycle approach to materials management and recycling. We are fully certified, with robust environmental and health and safety systems in place. We have expertise and unique technologies in the recovery, treatment and valuation of degraded resources. From the extraction of critical metals to the manufacturing
of ultra-pure materials, the operational scope and technical
expertise of 5N Plus is deep. Our business model enables
us to transform refined and commercial grade metals into
value-added materials used in a broad range of applications
essential to our way of life.
5
Our markets
Our enabling materials serve a broad range of markets,
many of which are expanding thanks to our extended
value chain with the acquisition of AZUR, as we expand our
addressable market and as next generation applications
are developed in partnership with various customers.
→ Health and pharmaceutical
→ Security and sensing
→ Industrial chemicals and alloys
→ Medical imaging
→ Satellite
→ Renewable energy
→ Automotive
→ Extractive metallurgy
→ High power electronics
(future market)
7
5N PLUS | 2021 ANNUAL REPORT
Critical Materials
for Our Customers
The specialty metals, chemicals and
advanced materials we produce are essential
to countless consumer and industrial
products – on earth and in space. While
we may not make anything you own, our
ultra-pure materials can be found in many
of the products all around us, from key
components for satellite and solar panel
manufacturing, to the ingredients in some
of the products in your medicine cabinet,
among many other applications.
8
5N PLUS | 2021 ANNUAL REPORTUnderlying our broad product portfolio is our focused expertise, proven proprietary technologies and broad array of processes, including bismuth and tellurium refining and the production of metals and alloys of 99.9999% purity or more. We serve customers who operate in critical industries and are often leaders in their field. With world-class R&D capabilities and manufacturing operations, we are constantly enhancing our processes, developing new products, or accelerating their path to market to address the needs of our customers. Here are a just a few
examples of where
you can find our
enabling materials:
9
5N PLUS | 2021 ANNUAL REPORTSatellites → 5N Plus is a preferred supplier of high purity, dislocation free, electrically uniform germanium wafers to produce ultra high efficiency land-based and space solar cells essential to satellite power generation and concentrated photovoltaic systems. Our germanium wafers are currently in orbit powering commercial and defense satellites around the globe. With the acquisition of AZUR, we have a vertically integrated specialty semiconductor value chain extending from material refining to epitaxy growth, also a key component to solar cell manufacturing and performance. As the world’s largest provider of space solar cells, AZUR is recognized for its exclusive and sophisticated metal-organic vapour phase epitaxy process.Medical imaging → Our specialty semiconductor materials, made of cadmium, tellurium and zinc of the very highest purity, are used to manufacture radiation detector chips in medical sensing and imaging devices, as well as in security and defense applications. 5N Plus is also actively developing the next generation of sensing and imaging utilizing photon counting detector (PCD) technology. Currently undergoing qualification trials, this technology significantly lowers radiation exposure while enhancing diagnostic accuracy through improved imaging.Industrial chemicals and alloys → Bismuth is an incredibly versatile metal because it is non-toxic to human health or the environment and is often used as a replacement for lead in industrial applications. For example, bismuth-based pigments are widely used to manufacture yellow paints, as an alternative to yellow chrome and cadmium-based pigments – whether for traffic signs, indoor decorations or as automotive paints.Renewable energy → We are the leading supplier of engineered semiconductor compounds for thin-film renewable energy industry applications. Our cadmium telluride high-purity compounds are used to make the black thin-film modules used on solar panels, which enable the conversion of solar energy into electricity. Today, gigawatts of solar panels incorporating 5N Plus materials are installed in utility-scale projects, generating renewable energy to consumers worldwide.Health and pharmaceutical applications → Bismuth, of which we are the world’s largest supplier, is widely used as an active pharmaceutical ingredient for the treatment of stomach ulcers and other discomforts associated with the gastrointestinal tract. Over-the-counter antacids contain bismuth, as do some antibiotic creams and cosmetics products. We sell bismuth in various forms, including chemicals and pure metals, and have the certifications required to supply bismuth products to FDA and GMP standards. Sustainability
At Our Core
From the recycling of metal resources
integral to our operations to our role
supplying critical materials, sustainability
is part of who we are as a company. We are
cognizant of the importance of managing our
operations responsibly and to contributing
positively to society.
→ Process Water Consumed
(m3/year)
-19%
326,020
336,394
276,970
262,969
2018
2019
2020
2021
→ CO2 from Natural Gas
(tonnes/year)
+1%
1,598
1,565
1,469
1,612
2018
2019
2020
2021
→ Electrical Consumption
(MWh/year)
+18%
26,661
29,924
27,877
31,453
2018
2019
2020
2021
10
5N PLUS | 2021 ANNUAL REPORTWe understand the stakes and are committed to improving our performance in terms of health and safety, product quality, energy, environmental and resource management. We are also actively evaluating our direct and indirect climate risks, both from an environmental and socio-economic perspective and determined to continually enhance our disclosure and transparency in this regard. Our sustainability focus areas reflect the key topics that are significant to our business and our stakeholders. Protecting our natural environmentThe specialty metals we produce require resources and energy, and we are proud to lead in recycling solutions that contribute to reducing waste going to landfills and to responsibly manage our resources. As we enhance our capabilities and performance across key metrics, we are focused on our facilities, communities and customers, many of whom are critical to the climate transition. While we have made significant progress over the last several years and play a critical role in key industries, we continue to invest in our operations to further improve our environmental performance and our ability to manufacture sustainable products. 66%
of Montréal site employees
are first- or second-generation
Canadians
→ Standardized Work-Related
Incident Rate
-23%
26.7
2018
24.9
2019
17.5
2020
20.5
2021
11
5N PLUS | 2021 ANNUAL REPORTSocial responsibility At 5N Plus, we are committed to the health and safety of our people and to fostering a strong work culture that reflects our values. We support our communities and are proud of the positive contributions that many of the products we enable have on the broader society, from renewable energy to medical imaging.Health and safety are of the utmost importance. Our employees go through rigorous and ongoing training, and our facilities regularly undergo safety audits. We actively review examples of past incidents, common health and safety risks and our procedures, to ensure best practices are in place across our operations. As a fair and reputable employer committed to diversity and inclusion, 5N Plus also maintains a strong belief that in addition to benefiting from a safe work environment, all workers deserve to be treated justly and have the right to work in a supportive environment, as reflected in Global Corporate Harassment-Free Workplace Policy. Strong corporate governanceIntegrity is one of our key values and we are steadfast in our commitment to conducting ourselves ethically and adhering to high standards of governance as reflected in our company-wide policies.Our Code of Business Conduct, applicable to directors, executive officers and employees around the globe, outlines our expectations in this regard and must be acknowledged annually by all employees. It is also supported by our Whistleblower Policy, which ensures employees, officers, directors, agents, consultants, suppliers, and partners can hold 5N Plus accountable while remaining protected against reprisals or victimization.As stewards of the Company, our Board of Directors is committed to ensuring that we have the right policies in place and that our governance practices meet the highest standards. In addition to strategic oversight, risk management and other key areas of examination, the Board is also committed to ensuring that sustainability principles remain ingrained in the company’s everyday practices and decision-making. Looking aheadSustainability is at the core of our long-term strategy, and we look forward to providing our stakeholders with more transparency into our processes and operations with the publication of our first comprehensive ESG report, set to be released in 2022. Supported by a comprehensive climate change assessment and an ongoing review of our sustainability practices, the report is being developed in accordance with the Global Reporting Initiative’s (GRI) Core Sustainability Reporting Standards and in alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). It will provide 5N Plus with key metrics to track progress and achievements moving forward. 2021 Financial
Performance
In 2021, 5N Plus delivered significant
revenue growth, confirming the underlying
strength of our business, as well as the
unique and strategic role we play in many
critical industries.
12
1 Adjusted EBITDA and backlog are non-IFRS financial measures. See Non-IFRS Measures in this document
for more information.
5N PLUS | 2021 ANNUAL REPORTOur revenue growth, supported by higher demand for our performance materials, and the acquisition of AZUR, was independent of any price adjustments made to mitigate cost increases from ongoing supply chain pressures. Adjusted EBITDA1 was slightly lower compared to 2020, largely due to inflation associated with international freight and consumables globally. Following the acquisition of AZUR, the Company repositioned certain products and applications between its two main segments to better reflect its main operating and product activities and renamed its reportable segments: Specialty Semiconductors and Performance Materials. OutlookIn many ways, the AZUR transaction has transformed 5N Plus’s positioning in the critical specialty semiconductor sector. Looking at 5N Plus’s backlog1 at year end, which represented 221 days of annualized revenue or 47 days higher than at the end of the third quarter, provides a good indication of the immediate value AZUR brings to 5N Plus and the growth potential ahead.Mindful of inflation and its impact on our businesses, we continue to be disciplined, focused and methodical in addressing these ongoing challenges to support our growth across both reportable segments. Our near-term priority is to ensure the successful integration of AZUR while also continuing to accelerate our growth trajectory in the coming years, both organically and through acquisitions.
→
→
Specialty Semiconductors
Renewable Energy Materials
Space Materials
Imaging Materials
→ Leading global supplier of
II-VI semiconductor compounds
to makers of leading thin-
film photovoltaic solar power
generating technologies
→ Preferred supplier of germanium
wafers for the production of ultra-
high efficiency solar cells
→ With the acquisition of AZUR,
5N Plus is now the largest global
provider of space solar cells
→ One of only two companies
qualified to supply large-scale
engineered substrates for
space applications
→ Leading global supplier of
semiconductor products for
imaging and security, for
applications ranging from earth
imaging, medical imaging to
infrared imaging
Operating in North America and Europe, this segment is consistent with the former Electronic Materials
segment and integrates the products and operations of AZUR, bringing together our full specialty
semiconductor value chain, which opens future business opportunities and access to new markets for
5N Plus. Products from this segment are sold as either in semiconductor compounds, semiconductor
substrates, ultra-high purity metals, epitaxial semiconductor substrates and solar cells.
Performance Materials
Health and
Pharmaceutical Materials
III
Industrial Materials
Catalytic and
Extractive Materials
→ Leading global supplier of bismuth-
→ Leading global producer of
based active pharmaceutical
ingredients
specialty metal and chemical
products for electro-deposition
applications and pigments
→ Producer of engineered powders
for advanced applications
→ Leading global supplier of metallic
nitrates to the gold mining and
petrochemical industries
Operating in North America, Europe and Asia, and similar to the former Eco-Friendly Materials segment,
this segment manufactures and sells products such as active pharmaceutical ingredients, animal feed
additives, and specialized chemicals and alloys. It now also includes all our commercial grade metals and
engineered powders, some of which were formerly in our Electronic Materials segment.
13
5N PLUS | 2021 ANNUAL REPORT Management’s
Discussion
and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
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, 2021. This MD&A has been prepared in accordance with
the requirements of the Canadian Securities Administrators.
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.
Information contained herein includes any significant developments until February 22, 2022, 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.
“Q4 2021” and “Q4 2020” refer to the three-month periods ended December 31, 2021 and December 31, 2020
respectively, and “FY 2021” and “FY 2020” refer to the years ended December 31, 2021 and December 31, 2020
respectively.
Non-IFRS Measures
This MD&A also includes certain figures that are not performance measures consistent with the International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. These measures are defined at
the end of this MD&A under the heading “Non-IFRS Measures”.
Adjustment of Comparatives Results
Certain comparative results in this MD&A have been adjusted to reflect a change in our Reporting Segments identified.
Please refer to the “Reporting Segment” 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
associated with our growth strategy, credit, liquidity, interest rate, litigation, inventory pricing, commodity pricing,
currency fluctuation, fair value, source of supply, environmental regulations, competition, dependence on key personnel,
business interruptions, changes to backlog, protection of intellectual property, international operations including China,
international trade regulations, collective agreements, being a public issuer, systems, network infrastructure and data
failure, interruption and breach, global economic conditions, COVID-19, business acquisitions, environmental, social and
governance (ESG) considerations, as well as market price of the common shares. A description of the risks affecting the
Company’s business and activities appears under the heading “Risk and Uncertainties” of this MD&A dated February 22,
2022.
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.
14
5N Plus ▪ Management’s Discussion and Analysis ▪ 1
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Overview
5N Plus is a leading global producer of specialty semiconductors and performance materials. The Company’s ultra-pure
materials often form the core element of its customers’ products. These customers rely on 5N Plus’s products to enable
performance and sustainability in their own products. 5N Plus deploys a range of proprietary and proven technologies
to develop and manufacture its products. The Company’s products enable various applications in several key industries,
including renewable energy, security, space, pharmaceutical, medical imaging, and industrial. Headquartered in
Montréal, Québec, 5N Plus operates R&D, manufacturing and commercial centers in strategically located facilities
around the world including Europe, North America and Asia.
Vision, Mission and Values
The Company’s vision is to enable critical industries through essential products based on advanced material technology
and 5N Plus’s aim is to propel the growth of these markets by developing and manufacturing advanced materials to
enable product performance.
The Company’s mission is to be critical to its customers, valued by its employees and trusted by its shareholders. The
Company’s core values are integrity, commitment and customer development, with an emphasis on sustainable
development, continuous improvement, and health and safety.
Reporting Segments
Following the acquisition of AZUR SPACE Solar Power GmbH (AZUR) on November 5, 2021, and the subsequent
integration of its activities within the Company’s operations, 5N Plus deemed it appropriate to reposition certain
products and applications between its two reportable segments and to rename these accordingly.
The Company has two new reportable segments: Specialty Semiconductors and Performance Materials. Corresponding
operations and activities are managed accordingly by the Company’s key decision makers. Segmented operating and
financial information and 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 EBITDA1, which are reconciled to consolidated numbers considering
corporate income and expenses.
The Specialty Semiconductors segment operates in North America and Europe and is similar to the former Electronic
Materials segment, and integrates the products and operations of AZUR since November 5, 2021. The segment
manufactures and sells products used in several applications such as renewable energy, space satellites and imaging.
Typical end markets include photovoltaics (terrestrial and spatial solar energy), medical imaging, infrared imaging,
optoelectronics and advanced electronics. These products are sold either as semiconductor compounds, semiconductor
wafers, ultra high purity metals, epitaxial semiconductor substrates and solar cells. Revenues and earnings associated
with recycling services and activities provided to Specialty Semiconductors customers are captured in this segment.
The Performance Materials segment operates in North America, Europe and Asia and is similar to the former Eco-Friendly
Materials segment. The segment manufactures and sells products that are used in several applications in pharmaceutical
and healthcare, industrial, and catalytic and extractive. Main products are sold as active pharmaceutical ingredients,
animal feed additives, specialized chemicals, commercial grade metals, alloys and engineered powders. All commercial
grade metal and engineered powder sales have been regrouped under Performance Materials. Revenues and earnings
associated with recycling services and activities provided to Performance Materials customers are captured in this
segment.
Corporate expenses associated with the head office and unallocated selling, general and administrative expenses
(SG&A), together with financial expenses (income), are grouped under “Corporate”.
1 See Non-IFRS Measures
2 ▪ 5N Plus ▪ Management’s Discussion and Analysis
15
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Highlights of Q4 2021 and FY 2021 – A Growing and Resilient Business
The Company completed the year delivering strong results despite unfavorable global business conditions and
established a unique specialty semiconductors platform with the strategic acquisition of AZUR, thereby strengthening
our value chain, competitive capabilities and opening new business opportunities for the future.
In 2021, the Company delivered significant revenue growth over last year, notwithstanding AZUR, confirming the
underlying strength of our business, as well as the unique and strategic role we play in the many critical industries we
serve. Following the acquisition of AZUR, the Company renamed its disclosed segments to Specialty Semiconductors and
Performance Materials. The 2021 growth in revenue is independent of any price adjustments underway to mitigate cost
increases due to ongoing supply chain challenges.
The Company’s results in 2021 were largely impacted by incremental costs associated with international freight and
consumables impacting businesses globally. Adjusting for these factors, Adjusted EBITDA1 for both the fourth quarter
and full year would have surpassed Adjusted EBITDA generated in 2020. Mindful of inflation and its impact on our
businesses, we continue to be disciplined, focused and methodical in addressing these ongoing challenges while
supporting our continued growth.
All amounts are expressed in U.S. dollars.
Financial Highlights
Revenue in Q4 2021 increased by 40%, reaching $64.6 million, compared to $46.2 million for the same period last
year, and $210.0 million for FY 2021, compared to $177.2 million last year. Both periods were supported by higher
demand for our Performance Materials and the acquisition of AZUR.
Adjusted EBITDA1 in Q4 2021 reached $10.1 million, compared to $6.5 million for the same period last year,
supported by the acquisition of AZUR mitigating significant cost increases for international freight and consumables.
Adjusted EBITDA for FY 2021 was $28.2 million, compared to $28.8 million, impacted by an unfavorable sales mix and
significant cost increases for international freight, consumables and energy, partially mitigated by revenue growth.
On December 31, 2021, the backlog1 represented 221 days of annualized revenue, 47 days higher than the previous
quarter. Bookings1 in Q4 2021 reached 175 days, compared to 133 days for the same period last year.
Annualized Return on Capital Employed (“ROCE”)1 reached 9.5% in 2021, compared to 14.4% at the end of 2020.
Net debt1 stood at $80.1 million on December 31, 2021, from $10.2 million at the end of last year, the increase
reflecting the acquisition of AZUR on November 5, 2021.
Summary of Key 2021 Developments
On January 12, 2021, 5N Plus announced that it entered into a strategic agreement and made an equity investment
in Montana-based Microbion Corporation, aimed at furthering the development of its new class of antibiotic and
antibiofilm drugs. Under the terms of the agreement, 5N Plus is responsible for the manufacturing of bismuth-based
active pharmaceutical ingredients in Microbion’s family of drug products under development.
On March 24, 2021, 5N Plus announced the renewal of its $79.0 million senior secured multi-currency, revolving and
syndicated credit facility. The agreement includes a contingent option to expand the facility to $124.0 million. The
renewed credit facility has a two-year term, bearing interest and a margin based on the Company’s senior
consolidated debt to EBITDA1 ratio. In addition to its contingent option, 5N Plus can exercise a $30.0 million accordion
feature, increasing the facility’s total size to $154.0 million, subject to lender approval.
1 See Non-IFRS Measures
16
5N Plus ▪ Management’s Discussion and Analysis ▪ 3
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
On March 30, 2021, 5N Plus announced that it entered into an agreement with AZUR pursuant to which 5N Plus
would acquire all of the issued and outstanding shares of AZUR (the “Transaction”), subject to the customary closing
conditions, including regulatory approvals. The Transaction would allow 5N Plus to develop a highly competitive value
chain spanning from procurement of strategic materials to finished epitaxy engineered substrates.
On June 2, 2021, 5N Plus announced an investment of $8.5 million in its Montreal campus to expand the development
and manufacturing of critical and strategic materials, including those containing tellurium for advanced II-VI
semiconductor compounds and engineered powders. The investment has received provincial funding from the
Ministère de l’Économie et de l'Innovation du (Ministry of Economy and Innovation) and the Ministère de l’Énergie
et des Ressources Naturelles (Ministry of Energy and Natural Resources), comprising approximately a third of the
investment. This investment will not only ensure competitive and reliable access to critical products, it will also
decrease the Company’s carbon footprint per unit of production for II-VI materials, reduce consumption of chemical
reagents as well as processed water and solid by-product generation.
On October 19, 2021, 5N Plus announced a long-term agreement with Samsung Electronics Co. (“Samsung”) to supply
engineered substrates based on II-VI semiconductor materials for the detector core of the next generation of medical
imaging devices. The detector is based on Photon Counting Detector (“PCD”) technology and will be incorporated
into computed tomography (“CT”) by Samsung’s subsidiary NeuroLogica Corp., located in Danvers, Massachusetts.
On November 5, 2021, 5N Plus acquired all of the issued and outstanding shares of AZUR for a total purchase price
of 50.1 million euros, subject to post-closing adjustments, in exchange for 6.5 million shares of 5N Plus, issued from
the treasury at 12.4 million euros, along with a cash payment of 37.7 million euros. Furthermore, 5N Plus financed
working capital and equipment loans of 23.8 million euros. The cash portion of the Transaction was funded through
the Company’s liquidity and senior debt facility.
On December 1, 2021, Mr. Arjang Roshan stepped down as the Company's President and Chief Executive Officer, and
Gervais Jacques was appointed interim President and Chief Executive Officer, a seasoned business executive who
brings decades of leadership experience managing global businesses. Mr. Jacques, a member of the Board of 5N Plus
since May 2020, will act as the Interim President and Chief Executive Officer until a permanent appointment is made,
which is expected to be on or before the Company’s 2022 annual general meeting of shareholders.
In connection with our acquisition of AZUR on November 5, 2021, we are required, under Part 8 of National Instrument
51-102 – Continuous Disclosure Obligations, to prepare and file a “Business Acquisition Report” (BAR) which
requires, among other things, the conversion of AZUR’s annual audited financial statements from German GAAP to IFRS,
and an audit of such financial statements under International Standards on Auditing (ISA) for the fiscal years 2019 and
2020.
As the closing of the acquisition of AZUR was only confirmed towards the end of fiscal year 2021 for both the Company
and AZUR, the priority was placed on the audit and reporting of fiscal year 2021, to timely consolidate and report AZUR’s
financial results from November 5, 2021 to December 31, 2021 per IFRS in the consolidated accounts. As a result of the
sizeable workload and resourcing constraints associated with the conversion of AZUR’s audited 2019 and 2020 annual
financial statements from German GAAP to IFRS and the subsequent audit under ISA, it was concluded that it would not
be possible to complete the audit of the 2019 and 2020 IFRS Financial Statements in due time to meet the filing deadline
of the BAR. The Company has advised the applicable securities regulatory authorities of the situation, and expects that
beginning on February 28, 2022, the Company will be listed as being in default by applicable securities regulatory
authorities until the BAR is filed. The Company and external parties involved in supporting the effort, including advisors
and AZUR’s external auditors, are working diligently to finalize the preparation and thereafter complete the audit of the
2019 and 2020 IFRS Financial Statements so that the BAR can be filed at the earliest possible date. The Company currently
expects to be in a position to file the BAR during the month of April 2022. AZUR is also regularly filing their audited
German GAAP statutory financial statements to the German Federal Gazette (“Bundesanzeiger”) as they become
available and due. The Company otherwise confirms that the business integration of AZUR is progressing well, and there
is no other information that has not been generally disclosed in respect thereof.
4 ▪ 5N Plus ▪ Management’s Discussion and Analysis
17
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
Outlook
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
The acquisition of AZUR provides 5N Plus with a highly competitive specialty semiconductor value chain and meaningfully
expands our product portfolio in large and expanding target markets thereby transforming our positioning in this critical
sector. This is reflected in 5N Plus’s backlog1 at year end, which represented 221 days of annualized revenue at year end,
47 days higher than the previous period. This provides a good indication of the immediate value AZUR brings to 5N Plus
and the growth ahead.
Our near-term priority is to ensure the successful integration of AZUR, while also continuing to accelerate the Company’s
growth trajectory in 2022, both organically and through acquisitions.
1 See Non-IFRS Measures
18
5N Plus ▪ Management’s Discussion and Analysis ▪ 5
5N PLUS | 2021 ANNUAL REPORT
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Summary of Results
(in thousands of U.S. dollars, except per share amounts)
Revenue
Adjusted operating expenses1*
Adjusted EBITDA1
Impairment of inventories
Impairment of non-current assets
Share-based compensation recovery (expense)
Litigation and restructuring (costs) income, net
Foreign exchange and derivative loss
EBITDA1
Interest on long-term debt, imputed interest and other interest expense
Depreciation and amortization
Earnings (loss) before income taxes
Income tax expense
Current
Deferred
Net earnings (loss)
Basic earnings (loss) per share
Diluted earnings(loss) per share
Management’s Discussion and Analysis
Q4 2021
$
64,556
(54,470)
10,086
-
-
460
(1,644)
(1,080)
7,822
1,164
4,364
2,294
1,446
(132)
1,314
980
$0.01
$0.01
Q4 2020
$
46,230
(39,687)
6,543
(2,411)
-
(867)
-
(1,035)
2,230
770
2,651
(1,191)
439
1,234
1,673
(2,864)
($0.03)
($0.03)
FY 2021
$
209,990
(181,751)
28,239
-
-
(689)
(2,144)
(418)
24,988
3,713
12,535
8,740
5,580
50
5,630
3,110
$0.04
$0.04
FY 2020
$
177,192
(148,401)
28,791
(2,411)
(4,934)
(1,801)
5,577
(2,798)
22,424
3,490
11,725
7,209
3,385
1,638
5,023
2,186
$0.03
$0.03
*Excluding impairment of inventories, share-based compensation expense, litigation and restructuring (costs) income, net, impairment of non-current assets, and
depreciation and amortization.
Revenue by Segment and Adjusted Gross Margin
(in thousands of U.S. dollars)
Specialty Semiconductors
Performance Materials
Total revenue
Cost of sales
Impairment of inventories
Depreciation included in cost of sales
Adjusted Gross margin1
Adjusted Gross margin percentage1
Q4 2021
$
30,160
34,396
64,556
(53,090)
-
Q4 2020
$
15,459
30,771
46,230
(39,241)
2,411
Change
95%
12%
40%
35%
(100%)
58%
29%
FY 2021
$
70,655
139,335
209,990
(171,214)
-
10,539
49,315
23.5%
FY 2020
$
57,640
119,552
177,192
(140,806)
2,411
10,064
48,861
27.6%
Change
23%
17%
19%
22%
(100%)
5%
1%
2,231
11,631
25.2%
Comparative results have been adjusted to reflect a change in our reporting segments
3,515
14,981
23.2%
Revenue in Q4 2021 increased by 40%, reaching $64.6 million, compared to $46.2 million in the same period last year,
favorably impacted by the contribution for an amount of $17.0 million of AZUR for the Specialty Semiconductors
segment, as well as higher demand for Performance Materials products.
Adjusted gross margin1 in Q4 2021 was $15.0 million, or 23.2%, compared to $11.6 million, or 25.2%, in Q4 2020,
impacted by inflation, notably for international freight and consumables. Adjusted gross margin in FY 2021 was
$49.3 million, or 23.5%, compared to $48.9 million, or 27.6%, in the previous year.
1 See Non-IFRS Measures
6 ▪ 5N Plus ▪ Management’s Discussion and Analysis
19
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Specialty Semiconductors Segment
Revenue in Q4 2021 increased by 95%, reaching $30.2 million, compared to $15.5 million in the same period last year,
favorably impacted by the contribution of AZUR. In FY 2021, revenue was $70.6 million, compared to $57.6 million in
FY 2020, for the same reasons mentioned above.
Adjusted gross margin1 in Q4 2021 was 29.5%, compared to 34.9% in Q4 2020. For FY 2021, Adjusted gross margin was
31.5%, compared to 42.3% in FY 2020, mainly explained an unfavorable sales mix and materially higher costs for
international freight and consumables.
Performance Materials Segment
Revenue in Q4 2021 increased by 12%, reaching $34.4 million, compared to $30.8 million in the same period last year,
favorably impacted by higher demand for Performance Materials products. In FY 2021, revenue was $139.3 million,
compared to $119.6 million in FY 2020, for the same reasons mentioned above.
Adjusted gross margin in Q4 2021 was 18.8%, compared to 20.7% in Q4 2020. For FY 2021, Adjusted gross margin was
19.8%, compared to 21.2% in FY 2020, mainly explain by significant increases for international freight and consumables
mitigating by higher volume, especially strong for Health and Pharma products.
Operating Earnings, EBITDA and Adjusted EBITDA
(in thousands of U.S. dollars)
Specialty Semiconductors
Performance Materials
Corporate
Adjusted EBITDA1
EBITDA1
Operating earnings
Q4 2021
$
8,304
5,159
(3,377)
10,086
7,822
4,538
Q4 2020
$
4,857
4,697
(3,011)
6,543
2,230
Change
71%
10%
12%
54%
251%
639%
FY 2021
$
18,817
18,957
(9,535)
28,239
24,988
12,871
FY 2020
$
21,329
17,037
(9,575)
28,791
22,424
13,497
Change
(12%)
11%
-%
(2%)
11%
(5%)
614
Comparative results have been adjusted to reflect a change in our reporting segments
Adjusted EBITDA1 in Q4 2021 reached $10.1 million, compared to $6.5 million in Q4 2020, supported by the acquisition
of AZUR mitigating significant cost increases of international freight and consumables in both segments. In FY 2021,
Adjusted EBITDA was $28.2 million, compared to $28.8 million in FY 2020, positively impacted by the solid performance
in Performance Materials and the same reasons mentioned above.
In Q4 2021, EBITDA1 was $7.8 million, compared to $2.2 million in Q4 2020. The increase is mainly explained by higher
Adjusted EBITDA and a positive impact from share-based compensation expense. In addition, $1.6 million was recorded
as restructuring costs this year, while last year the Company recorded an impairment of inventories of $2.4 million.
In FY 2021, EBITDA was $25.0 million, compared to $22.4 million in FY 2020. The increase is mainly explained by a
decrease in foreign exchange and derivatives loss, and lower share-based compensation expense against higher
restructuring costs this year, compared to higher net costs from impairment charges and litigation and restructuring
income in FY 2020.
In Q4 2021, operating earnings reached $4.5 million, compared to $0.6 million in Q4 2020 and $12.9 million in FY 2021,
compared to $13.5 million in FY 2020.
Specialty Semiconductors Segment
Adjusted EBITDA in Q4 2021 increased by $3.4 million to $8.3 million representing an Adjusted EBITDA margin1 of 28%
compared to 31% in Q4 2020. Adjusted EBITDA decreased by $2.5 million to $18.8 million in FY 2021 representing an
Adjusted EBITDA margin of 27% compared to 37% in FY 2020.
1 See Non-IFRS Measures
20
5N Plus ▪ Management’s Discussion and Analysis ▪ 7
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Performance Materials Segment
Adjusted EBITDA1 in Q4 2021 increased by $0.5 million to $5.2 million representing an Adjusted EBITDA margin1 of 15%
similar to Q4 2020. Adjusted EBITDA increased by $1.9 million in FY 2021 to $19.0 million, representing an Adjusted
EBITDA margin of 14% similar to FY 2020.
Net Earnings and Adjusted Net Earnings
(in thousands of U.S. dollars, except per share amounts)
Net earnings (loss)
Basic earnings per share (loss)
Reconciling items:
Impairment of inventories
Share-based compensation (recovery) expense
Litigation and restructuring costs (income), net
Impairment of non-current assets
Income tax recovery on taxable items above
Adjusted net earnings1
Basic adjusted net earnings per share1
Q4 2021
$
980
$0.01
-
(460)
1,644
-
(285)
1,879
$0.02
Q4 2020
$
(2,864)
($0.03)
2,411
867
-
-
(230)
184
$-
FY 2021
$
3,110
$0.04
-
689
2,144
-
(589)
5,354
$0.06
FY 2020
$
2,186
$0.03
2,411
1,801
(5,577)
4,934
(775)
4,980
$0.06
In Q4 2021, net earnings were $1.0 million, or $0.01 per share, compared to a net loss of $2.9 million or $0.03 per share
in Q4 2020. Adjusted net earnings1 increased by $1.7 million and were $1.9 million, or $0.02 per share, in Q4 2021,
compared to $0.2 million, or $nil per share, in Q4 2020.
In FY 2021, net earnings were $3.1 million, or $0.04 per share, compared to $2.2 million, or $0.03 per share, in FY 2020.
Adjusted net earnings increased by $0.4 million and were $5.4 million, or $0.06 per share, in FY 2021, compared to
$5.0 million, or $0.06 per share, in FY 2020.
Excluding the income tax recovery, the items reconciling Adjusted net earnings in Q4 2021 and FY 2021 are the share-
based compensation (recovery) expense and additional restructuring charges recorded this quarter related to a change
to senior executive management, as well as an amount recorded in Q3 2021 related to the decision initiated in Q3 2020
to close a subsidiary in Asia.
Impairment of Inventories
(in thousands of U.S. dollars)
Specialty Semiconductors
Performance Materials
Total
Q4 2021
$
-
-
-
Q4 2020
$
244
2,167
2,411
FY 2021
$
-
-
-
FY 2020
$
244
2,167
2,411
Following the expected net realizable value analysis as at December 31, 2020, an impairment of inventories of $2.4
million on specific products was recorded in Q4 2020. None was required as at December 31, 2021.
1 See Non-IFRS Measures
8 ▪ 5N Plus ▪ Management’s Discussion and Analysis
21
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Backlog and Bookings
(in thousands of U.S. dollars)
Specialty Semiconductors
Performance Materials
Total
Q4 2021
$
94,363
60,454
154,817
BACKLOG1
Q3 2021
$
41,343
55,338
96,681
Q4 2020
$
35,568
60,025
95,593
Q4 2021
$
83,180
39,512
122,692
BOOKINGS1
Q3 2021
$
17,574
25,766
43,340
Comparative results have been adjusted to reflect a change in our reporting segments
(number of days based on annualized revenues) *
Specialty Semiconductors
Performance Materials
Weighted average
Comparative results have been adjusted to reflect a change in our reporting segments
* Backlog and bookings are also presented in number of days to normalize the impact of commodity prices.
Q4 2021
293
160
221
BACKLOG1
Q3 2021
240
144
174
Q4 2020
210
178
189
Q4 2021
258
105
175
BOOKINGS1
Q3 2021
102
67
78
Q4 2020
$
33,575
33,645
67,220
Q4 2020
198
100
133
Q4 2021 vs Q3 2021
Backlog1 on December 31, 2021, represented 221 days of annualized revenue, an increase of 47 days, or 27% over the
backlog on September 30, 2021. The contribution of AZUR represents 31% of the total value of the backlog as at
December 31, 2021, and was included in the bookings of Specialty Semiconductors in Q4 2021.
Backlog on December 31, 2021, for the Specialty Semiconductors segment, represented 293 days of annualized segment
revenue, an increase of 53 days, or 22%, over the backlog on September 30, 2021. The backlog for the Performance
Materials segment represented 160 days of annualized segment revenue, an increase of 16 days, or 11%, over the
backlog on September 30, 2021.
Bookings1 for the Specialty Semiconductors segment increased by 156 days, from 102 days in Q3 2021 to 258 days in
Q4 2021. Bookings for the Performance Materials segment increased by 38 days, from 67 days in Q3 2021 to 105 days
in Q4 2021. The renewal timing of long-term contracts mostly occurs in the first and fourth quarter of the year.
Q4 2021 vs. Q4 2020
Backlog on December 31, 2021, for the Specialty Semiconductors segment increased by 83 days, supported by the
contribution from AZUR and by the renewable energy sector. The Performance Materials segment decreased by 18 days,
compared to December 31, 2020, reaching 160 days, compared to 178 days in Q4 2020.
Bookings for the Specialty Semiconductors segment increased by 60 days, and by five days for the Performance Materials
segment, compared to the previous year quarter.
Expenses
(in thousands of U.S. dollars)
Depreciation and amortization
SG&A
Share-based compensation (recovery) expense
Litigation and restructuring costs (income), net
Impairment of non-current assets
Financial expense
Income tax expense
Total expenses
1 See Non-IFRS Measures
22
Q4 2021
$
4,364
7,025
(460)
1,644
-
2,244
1,314
16,131
Q4 2020
$
2,651
5,872
867
-
-
1,805
1,673
12,868
FY 2021
$
12,535
21,883
689
2,144
-
4,131
5,630
47,012
FY 2020
$
11,725
19,874
1,801
(5,577)
4,934
6,288
5,023
44,068
5N Plus ▪ Management’s Discussion and Analysis ▪ 9
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Depreciation and Amortization
Depreciation and amortization expenses in Q4 2021 and FY 2021 amounted to $4.4 million and $12.5 million,
respectively, compared to $2.7 million and $11.7 million for the same periods in 2020. The increases in Q4 2021 and
FY 2021 are mainly explained by the increase in property, plant and equipment (“PPE”), intangible assets and right-of-
use assets following the acquisition of AZUR in Q4 2021.
SG&A
SG&A expenses in Q4 2021 and FY 2021 were $7.0 million and $21.9 million, respectively, compared to $5.9 million and
$19.9 million for the same periods in 2020. The expenses in FY 2020 were positively impacted by lower travel and
consulting expenses, either avoided or delayed, due to the COVID-19 pandemic. The Company also recorded a reduction
in wages expense of $1.2 million in FY 2020, resulting from the Canada Emergency Wage Subsidy available in the context
of the COVID-19 pandemic.
Share-Based Compensation (Recovery) Expense
Share-based compensation recovery in Q4 2021 amounted to $0.5 million, compared to an expense of $0.9 million for
the same period of 2020. In FY 2021, share-based compensation expense amounted to $0.7 million, compared to
$1.8 million in FY 2020, reflecting the scheduled vesting of long-term incentive plans mitigated by the negative changes
in the Company’s share price initiated at the end of 2021. Furthermore, a reversal of certain share-based compensation
liabilities was recorded in Q4 2021 following the change in senior executive management.
Litigation and Restructuring Costs (Income)
In Q4 2021, the Company record an amount of $1.5 million following the announcement of a change to its senior
executive management.
In Q3 2020, the Company consolidated selected activities and closed one of its subsidiaries located in Asia following the
introduction of unfavorable business conditions and new local regulations preventing the site’s economic viability. A
provision for restructuring costs was recorded in Q3 2020 for an amount of $2.3 million and an additional $0.6 million in
FY 2021, consisting of severance and other costs related to the site closure.
Also, in Q3 2020, the Company recorded non-recurring income of $8.0 million from the settlement and termination of a
supply agreement, net of associated costs of $0.1 million.
Impairment of Non-current Assets
In Q3 2020, the Company recorded an impairment charge on non-current assets of $4.9 million, following the decision
to close a subsidiary located in Asia, as well as for specific production equipment related to the site affected by the
settlement and termination of a supply agreement.
Financial Expense
Financial expense in Q4 2021 amounted to $2.2 million, compared to $1.8 million in Q4 2020. The negative impact is
mainly due to the interest on long-term debt, imputed interest which are higher following the acquisition of AZUR, while
the loss in foreign exchange and derivatives was at similar levels for both periods.
In FY 2021, financial expense amounted to $4.1 million, compared to $6.3 million in FY 2020. The decrease is mainly due
to a lower loss in foreign exchange and derivatives recorded in FY 2021 compared to the same period last year, while
the interest on long-term debt increased in FY 2021 following the increase of the long-term debt following the acquisition
of AZUR during Q4 2021.
Income Taxes
The Company reported earnings before income taxes of $2.3 million in Q4 2021 and $8.7 million in FY 2021. Income tax
expenses in Q4 2021 and FY 2021 were $1.3 million and $5.6 million, respectively, compared to $1.7 million and
$5.0 million for the same periods in 2020. Both periods were impacted by deferred tax assets applicable only in certain
jurisdictions.
10 ▪ 5N Plus ▪ Management’s Discussion and Analysis
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Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Liquidity and Capital Resources
(in thousands of U.S. dollars)
before the following
Funds from operations1
Net changes in non-cash working capital items
Cash from Operating activities
Cash from Investing activities
Cash from (used in) Financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Q4 2021
$
5,604
(3,233)
2,371
(42,615)
42,922
107
2,785
Q4 2020
$
4,355
13,297
17,652
(2,338)
(6,050)
258
9,522
FY 2021
$
16,553
(6,283)
10,270
(49,929)
36,219
(570)
(4,010)
FY 2020
$
25,830
10,975
36,805
(8,461)
(8,804)
345
19,885
In Q4 2021, cash generated by operating activities amounted to $2.4 million, compared to $17.7 million in Q4 2020. In
FY 2021, cash generated by operating activities amounted to $10.3 million, compared to $36.8 million in FY 2020. The
decrease in FY 2021 is mainly due to lower contribution of funds from operating activities combined with a negative
change in non-cash working capital in FY 2021.
In Q4 2021, cash used in investing activities totaled $42.6 million compared to $2.3 million in Q4 2020, mainly attributed
to the acquisition of AZUR and the timing of additions to PPE. In FY 2021, cash used in investing activities totaled
$49.9 million, compared to $8.5 million in FY 2020, mainly attributed to the acquisition of AZUR and a minority equity
stake in Microbion Corporation, as well as the timing of additions to PPE.
In Q4 2021, cash generated from financing activities amounted to $42.9 million, compared to cash used in financial
activities of $6.1 million in Q4 2020. The increase of $49.0 million is mainly explained by the drawdown of the credit
facility to finance the acquisition of AZUR, net of repayment of equipment loans in AZUR.
In FY 2021, cash generated from financing activities amounted to $36.2 million, compared to cash used from financing
activities of $8.8 million in FY 2020. The increase of $45.0 million is explained by the new drawdown of the credit facility
to finance the acquisition of AZUR, net of repayment of equipment loans in AZUR. In FY 2021, the Company repurchased
and cancelled 249,572 common shares under its Normal Course Issuer Buyback (“NCIB”) program for an amount of $0.8
million, compared to 1,750,428 common shares for an amount of $2.2 million in FY 2020, mitigated by the issuance of
common shares for an amount of $0.6 million in FY 2021.
Working Capital
(in thousands of U.S. dollars)
Inventories
Other current assets
Current liabilities
Working capital1
Working capital current ratio1
As at December 31, 2021
$
95,526
99,996
(65,059)
130,463
3.01
As at December 31, 2020
$
67,139
83,756
(36,550)
114,345
4.13
The increase in working capital1 as compared to December 31, 2020, was mainly attributable to higher current liabilities
partially mitigated by higher inventory, reflecting the consolidation of AZUR combined with the current operations level,
and recent increases in metal notations observed since the beginning of the year, as well as a decrease in cash and cash
equivalents.
1 See Non-IFRS Measures
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MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Management’s Discussion and Analysis
Net Debt
(in thousands of U.S. dollars)
Bank indebtedness
Long-term debt including current portion
Total Debt1
Cash and cash equivalents
Net Debt1
As at December 31, 2021
$
-
116,000
As at December 31, 2020
$
-
50,109
116,000
(35,940)
80,060
50,109
(39,950)
10,159
Total debt1 increased by $65.9 million to $116.0 million, compared to $50.1 million on December 31, 2020, following the
drawdown from the credit facility to finance a portion of the acquisition of AZUR.
Net debt1, after considering cash and cash equivalents, increased by $69.9 million to $80.1 million on December 31,
2021, from $10.2 million on December 31, 2020.
Available Short-Term Capital Resources
(in thousands of U.S. dollars)
Cash and cash equivalents
Available bank indebtedness
Available revolving credit facility
Available short-term capital resources
As at December 31, 2021
$
35,940
-
33,000
68,940
As at December 31, 2020
$
39,950
1,533
54,000
95,483
In March 2021, the Company signed a senior secured multi-currency revolving credit facility of $79.0 million maturing
in April 2023 to replace its existing $79.0 million senior secured revolving facility maturing in April 2022. As a result of
the acquisition of AZUR in November 2021, the senior secured multi-currency revolving credit facility of $79.0 million
increased to $124.0 million. At any time, the Company has the option to request that the credit facility be expanded
through the exercise of an additional $30.0 million accordion feature, subject to lender approval. This revolving credit
facility can be drawn in U.S. dollars, Canadian dollars or Hong Kong dollars (up to $4.0 million). 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 net debt to consolidated EBITDA1 ratio. Under the terms of its credit facility, the Company is required to satisfy
certain restrictive covenants as to financial ratios. As at December 31, 2021, the Company had met all covenants.
In February 2019, the Company signed a five-year unsecured subordinated term loan with Investissement Québec. The
loan was disbursed in two tranches: the first tranche of $5.0 million on February 6, 2019 and the second tranche of $20.0
million on March 22, 2019. The two tranches of the term loan bear interest equivalent to the five-year U.S. dollar swap
rate plus a margin of 4.19%, which equals to 6.82% and 6.64%, respectively. Under the terms of the loan, the Company
is required to satisfy certain restrictive covenants as to financial ratios. As at December 31, 2021, the Company has met
all covenants.
Share Information
Issued and outstanding shares
Stock options potentially issuable
As at February 22, 2022
88,330,236
825,968
As at December 31, 2021
88,330,236
825,968
On November 5, 2021, in connection with the acquisition of AZUR, the Company issued 6,500,000 common shares at
an average price of $1.90 to finance the purchase.
1 See Non-IFRS Measures
12 ▪ 5N Plus ▪ Management’s Discussion and Analysis
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Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
On March 5, 2020, the TSX approved the Company’s NCIB. Under the NCIB, the Company had the right to purchase for
cancellation, from March 9, 2020 to March 8, 2021, a maximum of 2,000,000 common shares. In 2021, the Company
repurchased and cancelled 249,572 common shares at an average price of $3.24 (CA$4.10) for a total amount of $0.8
million applied against the equity. In March 2021, all approved shares had been repurchased and cancelled.
Restricted Share Unit and Performance Share Unit Plan
On November 4, 2015, the Company adopted a new Restricted Share Unit (“RSU”) and Performance Share Unit (“PSU”)
Plan (the “RSU & PSU Plan”) to replace the previous RSU Plan. The RSU & PSU Plan enables the Company to award eligible
participants: (i) phantom RSUs that vest no later than three years following the grant date; and (ii) phantom PSUs that
vest after certain periods of time, not exceeding three years, and subject to the achievement of certain performance
criteria as determined by the Board of Directors. Such plan provides for the settlement of RSUs and PSUs through either
cash or the issuance of common shares of the Company from treasury, for an amount equivalent to the volume weighted
average of the trading price of the common shares of the Company on the TSX for the five trading days immediately
preceding the applicable RSU vesting determination date or PSU vesting determination date.
In FY 2021, the Company granted 164,412 RSUs (2020 – 234,770), 413,710 RSUs were paid (2020 – 322,540) and
143,851 RSUs were forfeited (2020 – 41,250). On December 31, 2021, 342,259 RSUs were outstanding (2020 – 735,408).
In FY 2021, the Company granted nil PSUs (2020 – nil), 166,700 PSUs were paid (2020 – 168,300) and 230,000 were
cancelled (2020 – nil). On December 31, 2021, 200,000 PSUs were outstanding (2020 – 596,700).
Stock Option Plan
On April 11, 2011, the Company adopted a new stock option plan under which a maximum number of options granted
cannot exceed 5,000,000. Options granted under the Stock Option Plan may be exercised during a period not exceeding
ten years from the date of grant. The stock options outstanding on December 31, 2021, 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
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
Exercised
Forfeited
Expired
Outstanding, end of year
Exercisable, end of year
Number of options
2021
Weighted average
exercise price
CA$
Number of options
2020
Weighted average
exercise price
CA$
672,600
648,212
(428,678)
(66,166)
-
825,968
267,007
2.09
2.49
1.88
2.78
-
2.46
2.33
932,041
86,240
-
(133,681)
(212,000)
672,600
472,975
2.58
2.10
-
2.43
4.03
2.09
1.94
Off-Balance Sheet Arrangements
The Company has few off-balance sheet arrangements since most of the leases are recognized on the consolidated
statement of financial position following the adoption of the standard, IFRS 16 – Leases, as at January 1, 2019. Any off-
balance sheet arrangements consist of contractual obligations in the normal course of business.
The Company is exposed to currency risk on sales in Euro and other currencies as well as interest rate fluctuations on its
credit facility, and therefore may periodically enter into foreign currency forward contracts and interest rate or foreign
currency swap contracts to protect itself against interest rate and currency fluctuations. 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, 2021.
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MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
The following table reflects the contractual cash flows of the Company’s financial liabilities as at December 31, 2021:
Management’s Discussion and Analysis
(in thousands of U.S. dollars)
Trade and accrued liabilities
Long-term debt
Lease liabilities
Total
Carrying
amount
$
56,848
116,000
32,640
205,488
1 year
$
56,848
3,311
2,998
63,157
2 years
3 years
4 years
$
-
93,217
2,543
95,760
$
-
25,418
2,324
27,742
$
-
-
2,278
2,278
Over
5 years
$
-
-
26,756
26,756
Total
$
56,848
121,946
36,899
215,693
Commitments
As at December 31, 2021, in the normal course of business, the Company contracted letters of credit for an amount of
$1.0 million (2020 – $0.7 million).
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.
Acquisition of AZUR
On November 5, 2021, the Company acquired all of the issued and outstanding shares of AZUR for a purchase price of
50.1 million euros, subject to post-closing adjustments. The consideration transferred was comprised of 6.5 million
shares of 5N Plus, which were issued from the treasury at 12.4 million euros, along with a cash payment of 37.7 million
euros. Furthermore, the Company financed the working capital and equipment loans for an amount of 23.8 million euros.
The cash portion of the transaction is funded through the Company's liquidity and senior debt facility. Transaction fees
for an amount of $0.7 million for 2021 (2020 - $0.5 million) were expensed as incurred in the consolidated statement of
earnings.
Located in Heilbronn, Germany, AZUR is a global leader and develops and manufactures multi-junction solar cells based
on III-V compound semiconductor materials. The integration of AZUR will not only expand the Company's position within
renewable energy, but, through Canada's membership in the European Space Agency (ESA), will also establish 5N Plus
as a reliable and competitive supplier to the European and U.S. space programs.
To estimate the fair value of the intangible assets, management used the excess earnings method to value customer
relationships and the royalty relief method to value technology and trade names using discounted cash flow models.
Management developed significant assumptions related to revenue and gross margin forecasts, customer retention
rates, royalty rates and discount rates.
The tables below present the consideration paid and the Company’s preliminary assessment of the fair value of the
assets acquired and the liabilities assumed. The assessment of the fair values will be finalized after the values of the
assets and liabilities have been definitively determined.
Consideration transferred
Cash and cash equivalents
Consideration payable1)
Common shares issued
(in thousands of U.S. dollars)
$
34,301
9,158
14,249
57,708
1) This amount of $9.2 million or 8.0 million euros, held in escrow and recorded in Other current assets, will be released within 12 months in accordance with
the terms of the Share Purchase Agreement.
14 ▪ 5N Plus ▪ Management’s Discussion and Analysis
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Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Preliminary recognized amounts of identified assets acquired and liabilities assumed
Cash and cash equivalents
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Other assets
Goodwill
Total assets acquired
Trade and accrued liabilities
Long-term debt(1)
Employee benefit plan obligations
Lease liabilities
Other liabilities
Deferred tax liabilities
Total liabilities assumed
Total net assets
(in thousands d U.S. dollars)
$
1,017
8,342
21,394
256
31,128
21,626
32,144
5
13,841
129,753
12,197
27,396
2,673
21,626
1,059
7,094
72,045
57,708
1)
The long-term debt acquired was repaid in full on November 5, 2021.
For the 57-day period ended December 31, 2021, AZUR contributed $17.0 million of revenue and $2.3 million of net
earnings to the Company’s consolidated statement of earnings based on operations after the acquisition date. If the
acquisition of AZUR had been completed on January 1, 2021, the Company estimates that its consolidated revenues and
net earnings for the year would have totalled $261.0 million and $nil million respectively, inclusive of the additional
depreciation and amortization expenses recorded in reference to the preliminary purchased price allocation. AZUR
delivers products to its customers on a project basis creating an unequal distribution of revenue and profitability from
one period to another.
The preliminary amount recorded for goodwill is not deductible for tax purposes. The accounts receivable are presented
net of a loss allowance of $28 thousand.
Governance
As required by Multilateral Instrument 52-109 of the Canadian Securities Administrators (“MI 52-109”), 5N Plus will file
certificates signed by the Chief Executive Officer and the Chief Financial Officer that, among other things, attest to the
design of the disclosure controls and procedures and the design and effectiveness of internal controls over financial
reporting upon filing of the Corporation’s Annual Information Form.
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 of the effectiveness of the Company’s disclosure controls and procedures was carried out under the
supervision of the Chief Executive Officer and Chief Financial Officer. Based on this evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that the disclosure controls and procedures are effective.
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Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
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 ICFR, the Chief Executive Officer
and the Chief Financial Officer have concluded that the ICFR were designed and operated effectively using the Internal
Control – Integrated Framework (“2013 Framework”) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO 2013 Framework”).
In light of the COVID-19 pandemic and in compliance with the recommendations from public health authorities, the
Company implemented remote work arrangements. These new working arrangements may have an impact on the
performance of some internal controls. The Company will continually monitor and assess the effects of the COVID-19
pandemic on its ICFR. Management has reiterated the importance of internal controls and maintained frequent
communication across the organization at all levels.
Limitations on Scope of Design
The scope of design of the disclosure controls and procedures as well as the effectiveness of internal controls over
financial reporting excluded those of AZUR, which was acquired on November 5, 2021.
The preliminary amounts recognized for the assets acquired and liabilities assumed at the date of acquisition of AZUR
are described in note 4 of the audited consolidated financial statements for the year ended December 31, 2021.
AZUR’s contribution on Consolidated Financial Statements
Percentage
Revenues
Net earnings
Current assets
Non-current assets
Current liabilities
Non-current liabilities
8%
75%
19%
55%
25%
35%
Changes in Internal Control over Financial Reporting
No changes were made to the ICFR during the fiscal year ended December 31, 2021 that have materially affected, or are
reasonably likely to materially affect, the ICFR.
Adoption of New Accounting Standards and Future Changes in Accounting Policies
Adoption of new accounting standards
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform (Phase 2)
On January 1, 2021, the Company adopted the amendments regarding the Interest Rate Benchmark Reform (Phase 2)
which impact IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and measurement, IFRS 7 Financial
Instruments: Disclosures and IFRS 16 Leases. The Phase 2 amendments address issues that might affect financial
reporting after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates.
These amendments complement those issued in 2019 and focus on issues that might affect financial reporting during
the reform of an interest rate benchmark, including the effects of changes to contractual cash flows arising from the
replacement of an interest rate benchmark with an alternative benchmark rate. The amendments are effective for
annual periods beginning on or after January 1, 2021, with earlier application permitted. In adopting the amendments,
there has been no significant impact to the financial statements for the year ended December 31, 2021.
16 ▪ 5N Plus ▪ Management’s Discussion and Analysis
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Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Future Changes in Accounting Policies
The following standards have been issued but not yet effective:
IFRS 3 – Business combinations
In May 2020, the IASB issued amendments to IFRS 3 regarding its reference to the Conceptual Framework. With this
amendment, IFRS 3 will reference the current version of the Conceptual Framework rather than the Conceptual
Framework in effect at the time of IFRS 3’s development. The amendments to IFRS 3 also indicate that for the purposes
of identifying certain liabilities within the context of a business combination, the definition of a liability as per IAS 37 –
Provisions Contingent Liabilities and Contingent assets, shall supersede the definition within the Conceptual Framework.
The amendments are effective for annual periods beginning on or after January 1, 2022, with earlier application
permitted.
IAS 16 – Property, plant and equipment
In May 2020, the IASB issued amendments to IAS 16 regarding the accounting of Proceeds before Intended Use. Proceeds
received from the sale of items produced by property, plant and equipment (PPE) which is still being prepared for its
intended use cannot be deducted from the PPE’s cost. Instead proceeds must be immediately recognized in the
consolidated statement of earnings. The amendments are effective for annual periods beginning on or after
January 1, 2022, with earlier application permitted.
IFRS 9 – Financial Instruments
In May 2020, the IASB issued an amendment to IFRS 9 to clarify which fees should be considered for the purpose of
applying the derecognition test to a modified financial liability. The IASB clarified that only fees paid or received between
the borrower and the lender should be considered. The amendment is effective for annual periods beginning on or after
January 1, 2022, with earlier application permitted.
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
Non-financial assets are reviewed for an indication of impairment at each statement of financial position date upon the
occurrence of events or changes in circumstances indicating that the carrying value of the assets may not be recoverable
which requires significant judgement.
An impairment loss is recognized for the amount by which an asset’s or cash-generating unit’s carrying amount exceeds
its recoverable amount, which is the higher of fair value less cost of disposal and value in use.
An intangible asset and related equipment that are not yet available for their intended use and CGUs to which goodwill
is allocated are tested for impairment at least annually, which also requires significant judgement. To determine the
recoverable amount (value in use or fair value less cost to dispose of these assets), management estimates expected
future cash flows from the 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 for intangible and tangible assets not yet
available for their intended use and CGUs to which goodwill is allocated, management makes assumptions about future
operating results using the estimated forecasted prices obtained from various market sources. These key assumptions
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Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
relate to future events and circumstances. The actual results will vary and may cause 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.
By their nature, assets not yet available for intended use have a higher estimation uncertainty, as they depend on future
market development and the Company’s ability to commercialize and manufacture new products to realize forecasted
earnings. For example, new manufacturing processes may not be scalable to industrial level within expected timeframe
and new products might not receive sufficient market penetration. Management believes that the following assumptions
are the most susceptible to change and impact the valuation of these assets in time: a) expected significant growth of
the market for different metal products (demand), b) selling prices which have an impact on revenues and metal margins
(pricing), and c) the discount rate associated with new processes and products (after considering a premium over the
Company’s weighted average cost of capital (WACC) to reflect the additional uncertainty).
In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk
and to asset specific risk factors. Assets not yet available for intended use have a higher estimation uncertainty, since
they depend on future market information and the Company’s ability to finish the project and realize the budgeted
earnings. Management believes that the following assumptions are the most susceptible to change and therefore could
impact the valuation of the assets in the next year: metal prices which have an impact on revenues and metal margins
and the discount rate.
Inventories
Inventories are carried 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.
Business Combinations
The Company must make assumptions and estimates to determine the fair value of identifiable assets acquired and
liabilities assumed. These estimates are based on future events, forecasts of future cash flows, future operating costs,
future capital expenditures and estimated discount rates. Changes to the preliminary measurements of assets and
liabilities acquired may be retrospectively adjusted when new information is obtained until the final measurements are
determined within one year of the acquisition date.
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. Refer to note 16 of the 2021 audited
consolidated financial statements of the Company.
18 ▪ 5N Plus ▪ Management’s Discussion and Analysis
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Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Related Party Transactions
The Company’s related parties are its directors and executive members. Transactions with these related parties are
described in Note 24 in the 2021 audited 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’s financial
instruments and their fair value is discussed in Note 17 – Fair Value of Financial Instruments in the 2021 audited
consolidated financial statements of the Company.
The fair value of the derivative financial instruments was as follows:
(in thousands of U.S. dollars)
Indexed deposit agreement
Investment in equity instruments
Restricted investment
Interest rate swap agreement
2021
$
4,819
2,000
713
(109)
2020
$
5,950
-
790
(439)
Financial Risk Management
For a detailed description of the nature and extent of risks arising from financial instruments, and their related risk
management, refer to Note 25 of the 2021 audited consolidated financial statements of the Company.
Interest Rate
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 long-
term debt, made of subordinated debts 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 have an
impact of approximately $0.9 million on the Company’s net earnings on a twelve-month horizon based on the balance
outstanding on December 31, 2021.
In February 2020, the Company entered into an interest rate swap agreement with a major Canadian financial
institution to reduce its financial expense fluctuations on Libor rate on a portion of its credit facility. Under this interest
rate swap, the Company exchanges interest payments. The terms are such that on each interest payment date, the
Company will receive or pay the net difference between the fixed rate of 1.435% and its Libor rate on a notional amount
of $25.0 million.
Foreign Currency
The Company’s sales are primarily denominated in U.S. dollars whereas a portion of its operating costs are realized in
local currencies, such as Euros and Canadian dollars. Even though the purchases of raw materials are denominated in
U.S. dollars, which reduce to some extent exchange rate fluctuations, we are subject to currency translation risk which
can negatively impact our results. Management has implemented a policy for managing foreign exchange risk against
the relevant functional currency.
In addition, the Company will occasionally enter into foreign exchange forward contracts to sell US dollars in exchange
for Canadian dollars and Euros. These contracts would hedge a portion of ongoing foreign exchange risk on the
Company’s cash flows since much of its non-US dollar expenses are incurred in Canadian dollars and Euros. The Company
may also enter into foreign exchange contracts to sell Euros for US dollars. As at December 31, 2021, the Company had
no foreign exchange contracts outstanding.
32
5N Plus ▪ Management’s Discussion and Analysis ▪ 19
5N PLUS | 2021 ANNUAL REPORT
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
The following table summarizes
December 31, 2021:
in US dollar equivalents the Company’s major currency exposures as at
Management’s Discussion and Analysis
(in thousands of U.S. dollars)
Cash and cash equivalents
Accounts receivable
Other current assets
Other non-current assets
Trade and accrued liabilities
Long-term debt
Lease liabilities
Net financial assets (liabilities)
CA$
$
302
830
4,819
-
EUR
$
3,356
9,778
9,004
713
GBP
$
(53)
-
-
-
RMB
$
(4)
-
-
-
MYR
$
311
-
-
-
Other
$
23
199
-
-
(7,890)
(20,295)
(4,718)
(212)
(169)
(638)
-
(6,906)
(8,845)
-
(577)
1,979
-
-
-
-
-
-
(4,771)
(216)
142
-
(69)
(485)
For the Company’s subsidiaries with a functional currency other than the US dollar, their exposures of financial assets
and financial liabilities denominated in US dollars are $6.0 million and $4.5 million respectively with a net position of
$1,4 million. A variation in the exchange rate between the functional currencies of these subsidiaries and the US dollar
of five-percentage points does not result in a material impact.
The following table shows the impact on earnings before income tax of a five-percentage point strengthening or
weakening of foreign currencies against the US dollar as at December 31, 2021 for the Company’s financial instruments
denominated in non-functional currencies:
(in thousands of U.S. dollars)
5% Strengthening
5% Weakening
CA$
$
(442)
442
EUR
$
99
(99)
GBP
$
(239)
239
RMB
MYR
Other
$
(11)
11
$
7
(7)
$
(24)
24
Credit
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.
The outbreak of the COVID-19 is disrupting many sectors of the global economy and, consequently, many of the
Company’s customers. The Company has strengthened its strict controls on credit, including a tighter monitoring of
customers that are severely affected by the pandemic.
The Company applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected
credit loss allowance for trade receivables. The expected loss rates are based on the Company’s historical credit losses
experienced over the three-year period prior to the period end. The historical loss rates are then adjusted for current
and forward-looking information on macroeconomic factors affecting the Company’s customers. Historically, the
Company has not incurred any significant losses in respect of its trade receivables. Therefore, the loss allowance at
the end of each period and the change recorded for each period is insignificant.
As at December 31, 2021 and 2020, the Company had a loss allowance of $0.1 million. The loss allowance 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.
20 ▪ 5N Plus ▪ Management’s Discussion and Analysis
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5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Liquidity
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 will need to execute on its
EBITDA1 and cash flow estimates. Management believes that the assumptions used by the Company in preparing its
estimates are reasonable. However, risk remains. Successful achievement of these estimates 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.
Risk and Uncertainties
We are subject to a number of risk factors which may limit our ability to execute our strategy and achieve our long-term
growth objectives. Management analyses these risks and implements strategies in order to minimize their impact on the
Company's performance. The realization of the risks described in any of the following risk factors could have a material
adverse effect on the Company’s business, results of operations and financial condition.
COVID-19
Since January 2020, the gradual outbreak of the novel strain of the coronavirus, COVID-19 and its declaration as a
pandemic by the World Health Organization, has resulted in governments worldwide enacting emergency measures to
combat the spread of the virus. These measures have caused material disruption to businesses globally resulting in an
economic slowdown. While the Company has been able to mitigate the ongoing impact from the crisis, it is not possible
to reliably estimate the length, severity and long-term impact the global pandemic may have on the Company's financial
results, conditions and cash flows.
The COVID-19 pandemic may also have the effect of amplifying other risk and uncertainties described in this section.
Risks Associated with our Growth Strategy
5N Plus’ strategic plan is designed to enhance profitability while reducing earnings volatility, delivering quality growth
from both existing growth initiatives and future M&A opportunities. 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.
International Operations
We operate in a number of countries, including China, Laos and Malaysia, and, as such, face risks associated with
international business activities. We could be significantly affected by such risks, which include, but are not limited to,
the integration of international operations, challenges associated with dealing with numerous legal and tax systems, the
potential for volatile economic and labor conditions, political instability, foreign exchange, expropriation, changes in
taxes, 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.
1 See Non-IRFS Measures
34
5N Plus ▪ Management’s Discussion and Analysis ▪ 21
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
The following conditions or events could disrupt our supply chain, interrupt production at our facilities or those of our
suppliers or customers, increase our cost of sales and other operating expenses, result in material asset losses, or require
additional capital expenditures to be incurred:
fires, pandemics (including regional and global infectious diseases), extraordinary weather conditions, or
natural disasters, such as hurricanes, tornadoes, floods, tsunamis, typhoons, and earthquakes;
political instability, social and labor unrest, war, or terrorism;
disruptions in port activities, shipping and freight forwarding services;
interruptions in the availability of basic services and infrastructure, including power and water shortages;
changes in a specific country’s or region’s economic conditions, such as a recession;
new certification requirements; significant fluctuations in currency exchange rates; and
new trade barriers.
Our insurance programs do not cover every potential loss associated with our operations, including potential damage to
assets, lost profits, and liability that could result from the aforementioned conditions or events. In addition, our
insurance may not fully cover the consequences resulting from a loss event, due to insurance limits, sub-limits, or policy
exclusions. Any occurrence not fully covered by insurance could have a negative effect on our business.
Risks Related to China
The legal system in mainland China is a civil law system based on written statutes. Unlike common law systems, it is a
system in which decided legal cases have little precedential value. The legal system in mainland China evolves rapidly,
and the interpretations of many laws, regulations and rules may contain inconsistencies and their interpretation and
enforcement involve uncertainties. These uncertainties could limit the legal protections available to us. In addition, the
Company cannot predict the effect of future developments in the mainland Chinese legal system, including the
promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the pre-emption of
local regulations by national laws. Such unpredictability towards the Company's contractual, property (including
intellectual property) and procedural rights could adversely affect the Company's business and impede its ability to
continue operations. Furthermore, any litigation in mainland China may be protracted and result in substantial costs and
diversion of resources and management attention.
The mainland Chinese government exercises significant control over mainland China's economic growth through
strategically allocating resources, controlling the payment of foreign currency-denominated obligations, setting
monetary policy and providing preferential treatment to particular industries or companies. Any growth in the Chinese
economy may not continue and any slowdown may have a negative effect on our business. Any adverse changes in
economic conditions in mainland China, in the policies of the mainland Chinese government, or in the laws and
regulations in mainland China, could have a material adverse effect on the overall economic growth of mainland China.
Such developments could adversely affect the Company's business, lead to reduction in demand for its products and
adversely affect the Company's competitive position.
International Trade Regulations
We do business in a number of countries from various locations, and, as such, face risks associated with changes to
International trade regulations and policies. Such risks include, but are not limited to, barriers to or restrictions on free
trade, changes in taxes, tariffs and other regulatory costs. The current global political environment, including but not
limited to the stated positions of the U.S. administration towards China, and the United Kingdom leaving the European
Union on January 31, 2020, appear to favour increasing restrictions on trade. Such restrictions could have a negative
effect on our business if they were to limit our ability to export our products to markets in which we currently do business
or to import raw materials from our current suppliers. Conversely, it is possible that they could have a favourable effect
on our business if they were to inhibit competition in markets in which we do business without having an adverse effect
on our operations.
Although we operate primarily in countries with proximity to our customers and suppliers and with relatively stable
economic and political climates, there can be no assurance that our business will not be adversely affected by the risks
inherent to the changing international political landscape and its impact on global trade.
22 ▪ 5N Plus ▪ Management’s Discussion and Analysis
35
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
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. Failure to comply with such laws, regulations and permits can
have serious consequences, including damage to our reputation; stopping us from pursuing operations at one of our
facilities; being subject to substantial fines, penalties, criminal proceedings, third party property damage or personal
injury claims, clean-up costs or other costs; increasing the costs of development or production and litigation or regulatory
action against us, and materially adversely affecting our business, results of operations or financial condition. Future
changes in applicable environmental and health and safety laws and regulations could substantially increase costs and
burdens to achieve compliance or otherwise have an adverse impact on our business, results of operations or financial
condition.
We have incurred and will continue to incur capital expenditures in order to comply with environmental laws and
regulations. Exceedances in wastewater and air emissions generated by some Company facilities over the limits
prescribed in applicable laws and permits have been registered in the past. At such facilities, the Company is
collaborating with governmental authorities and implementing various measures including upgrading equipment to
ensure compliance. Management believes that dealing with these environmental compliance issues will not have a
material effect on the Company's earnings or competitive position during fiscal 2022. Future developments such as more
aggressive enforcement policies, the implementation of new, more stringent laws and regulations, or the discovery of
currently unknown environmental conditions may require expenditures that could have a material adverse effect on our
business, results of operations and financial condition.
Competition
We are a leading producer of specialty semiconductors and performance materials with a limited number of competitors,
few 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. 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
The price we pay for, and availability of, various inputs fluctuate due to numerous factors beyond our control, including
political and economic conditions, currency exchange rates, inflation or deflation, global supply and demand for metal
products, fluctuations in the value of the U.S. dollar and foreign currencies, speculative trading, 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. These fluctuations can be
unpredictable and can occur over short periods of time. 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.
In addition, supplemental supply-chain challenges created by the economic conjecture following the COVID-19 global
pandemic could negatively affect the Company’s general procurement through longer delays of transportation or
through an increase in prices to obtain supplies. This may adversely affect the business, financial condition and operating
results Company.
36
5N Plus ▪ Management’s Discussion and Analysis ▪ 23
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Protection of Intellectual Property
Protection of our proprietary processes, methods and other technologies is important to our business. We rely on
international patents as well as trade secrets and employee confidentiality agreements to safeguard our intellectual
property. We have deliberately chosen to limit our patent position for certain intellectual properties 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. There can be no assurance that our confidentiality agreements will
provide meaningful protection for our intellectual property rights or other proprietary information in the event of any
unauthorized use or disclosure or that we will be able to meaningfully protect our trade secrets.
Inventory Price
We monitor the risks associated with the value of our inventories in relation to the market price of such inventories.
Because of the highly illiquid nature of many of our 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.
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.
Changes to Backlog
The Company cannot guarantee that the revenues projected in its backlog will be realized. In addition, contract delays,
suspensions, terminations, cancellations, reductions in scope or other adjustments may occur from time to time due to
considerations beyond the Company’s control and may have an impact on the value of reported backlog with a
corresponding adverse impact on future revenues and profitability.
Dependence on Key Personnel
We rely on the expertise and know-how of our personnel to conduct our 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
execute succession plans, attract and retain 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, especially in light of the current
labor shortage affecting several markets in which we operate. If the Company is unable to recruit and retain additional
qualified personnel in the future, its business, financial condition and operating results could be adversely affected.
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 lockouts, potentially affecting our performance.
Litigation Risks
We may be subject to a variety of civil or other legal proceedings, with or without merit. Although the Company
establishes provisions for such litigation, there can be no assurance that the provisions for all claims correspond to the
settlement amount. A significant judgment against the Company or the imposition of a significant fine or penalty could
have a material adverse effect on its business, financial condition and results of operations.
24 ▪ 5N Plus ▪ Management’s Discussion and Analysis
37
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Environmental, Social and Governance (ESG) Considerations
Investors are increasingly placing a greater emphasis on ESG factors when assessing investment options. Future
investments made in the Company or future partnerships or business relations made with the Company may depend on
various (and sometimes subjective) ESG standards.
Risks related to Acquisitions
The Company has recently completed the acquisition of Azur and may from time to time acquire or propose to acquire
other companies. The Company’s inability to properly integrate acquired companies, unanticipated acquisition costs,
unforeseen delays and unknown liabilities associated with acquisitions, the potential loss of key employees following
acquisitions, challenges with the integration of new operations and new personnel, the diversion of management’s time
and focus from other business concerns, opportunities and operational matters to work on acquisitions or integrate
acquisitions, the loss of momentum in ongoing operations and disruptions to operations, possible inconsistencies in
procedures and policies among the combined companies, and the need to implement new accounting, information
technology, human resources or other administrative systems, may each materially and adversely affect the Company’s
business, results of operations or financial condition.
Systems, Network Infrastructure and Data Failure, Interruption and Breach
Our operations rely on information systems, communications technology, business and other technology applications,
including global and regional networks, complex server infrastructure and operating systems, in order to operate
properly. If we are unable to continually maintain our software and hardware, effectively upgrade our systems and
network infrastructure, and take other steps to improve the efficiency and protect our systems, the Company’s operation
systems could be interrupted or delayed. The same applies if our network, communication and operations systems are
damaged or interrupted by natural disasters, telecommunications failures, acts of war or terrorism, computer viruses,
sabotage, human errors, physical or electronic security breaches, or similar events or disruptions. The Company also
faces the threat of unauthorized system access, computer hackers, malicious code and organized cyber-attacks. The
COVID- 19 pandemic context with a significant number of employees working remotely contributes to an increase in
cyber-attack attempts. Although the Company has not experienced any material losses relating to cyberattacks or other
information security breaches in the past, there can be no assurance that the Company will not experience such losses
in the future due to the evolving nature of these threats.
Risks Associated with Public Issuer Status
Our shares are publicly traded and, as such, we are 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.
Another risk associated with a public issuer status is the disclosure of key Company information as compared to privately
owned competitors.
Global Economic Conditions
Current global economic conditions, which have been subject to increased volatility, may impact the Company's access
to public financing and its ability to obtain equity or debt financing on favourable terms.
Market Price of the Common Shares
The common shares of the Company trade on the Toronto Stock Exchange under the symbol ''VNP''. The market price of
securities of many companies experiences wide fluctuations from time to time that are not necessarily related to the
operating performance, underlying asset values or future growth prospects of such companies. There can be no
assurance that fluctuations in the price of the common shares of the Company will not occur.
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 orders the Company has received but have not yet executed and that are expected to
translate into sales within the next twelve months expressed in number of days. Bookings represent orders received
during the period considered, expressed in number of days, and are calculated by adding revenues to the increase or
decrease in backlog for the period considered divided by annualized year revenues. 5N Plus uses backlog to provide an
indication of expected future revenues in days, and bookings to determine its ability to sustain and increase its revenues.
38
5N Plus ▪ Management’s Discussion and Analysis ▪ 25
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
EBITDA means net earnings before interest expenses, income taxes, depreciation and amortization. 5N Plus uses
EBITDA because it believes it is a meaningful measure of the operating performance of its 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, share-based compensation expense
(recovery), impairment of non-current assets, litigation and restructuring costs (income), gain on disposal of property,
plant and equipment, foreign exchange and derivatives loss (gain). 5N Plus uses adjusted EBITDA because it believes it is
a meaningful measure of the operating performance of its 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.
Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenues.
Adjusted operating expenses means operating charges before impairment of inventories, share-based compensation
expense (income), impairment of non-current assets, litigation and restructuring costs (recovery), gain on disposal on
property, plant and equipment and depreciation and amortization. 5N Plus uses adjusted operating expenses to calculate
the Adjusted EBITDA. 5N Plus believes it is a meaningful measure of the operating performance of its ongoing business.
The definition of this non-IFRS measure used by the Company may differ from that used by other companies.
(in thousands of U.S. dollars)
Operating expenses
Impairment of inventories
Impairment of non-current assets
Share-based compensation recovery (expense)
Litigation and restructuring (costs) income, net
Depreciation and amortization
Adjusted operating expenses
Q4 2021
$
60,018
-
-
460
(1 644)
(4 364)
54,470
Q4 2020
$
45,616
(2 411)
-
(867)
-
(2 651)
39,687
FY 2021
$
197,119
-
-
(689)
(2 144)
(12 535)
181,751
FY 2020
$
163,695
(2 411)
(4 934)
(1 801)
5 577
(11 725)
148,401
Adjusted net earnings means the net earnings before the effect of charges of impairment related to inventory, PPE and
intangible assets, share-based compensation expense (recovery), litigation and restructuring costs (income), accelerated
depreciation, and gain on disposal of PPE, net of the related income tax. 5N Plus uses adjusted net earnings because it
believes it is a meaningful measure of the operating performance of its ongoing business without the effects of unusual
inventory write-downs, property plant and equipment and intangible asset impairment charges, share-based
compensation expense (recovery), litigation and restructuring costs (income), accelerated depreciation and gain on
disposal of PPE. The definition of this non-IFRS measure used by the Company may differ from that used by other
companies.
Basic adjusted net earnings per share means adjusted net earnings divided by the weighted average number of
outstanding shares. 5N Plus uses basic adjusted net earnings per share because it believes it is a meaningful measure of
the operating performance of its ongoing business without the effects of unusual impairment charges on inventories,
PPE and intangible asset, share-based compensation expense (recovery), litigation and restructuring costs (income),
accelerated depreciation and gain on disposal of property, plant and equipment. The definition of this non-IFRS measure
used by the Company may differ from that used by other companies.
Funds from (used in) 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. 5N Plus considers funds from (used in) operations to be a key measure as it demonstrates the
Company’s ability to generate the cash necessary for future growth and debt repayment.
Adjusted gross margin is a measure used to monitor the sales contribution after paying cost of sales, excluding
depreciation and inventory impairment charges. 5N Plus also expressed this measure in percentage of revenues by
dividing the gross margin value by the total revenue.
26 ▪ 5N Plus ▪ Management’s Discussion and Analysis
39
5N PLUS | 2021 ANNUAL REPORT
Management’s Discussion and Analysis
Net debt is calculated as total debt less cash and cash equivalents. Any introduced IFRS 16 reporting measures in
reference to lease liabilities are excluded from the calculation. 5N Plus uses this measure as an indicator of its overall
financial position.
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
(in thousands of U.S. dollars)
Bank indebtedness
Long-term debt including current portion
Lease liabilities including current portion
Subtotal Debt
Lease liabilities including current portion
Total Debt
Cash and cash equivalents
Net Debt
As at December 31, 2021
$
-
116,000
32,640
As at December 31, 2020
$
-
50,109
5,358
148,640
(32,640)
116 000
(35,940)
80,060
55,467
(5,358)
50 109
(39,950)
10,159
Return on Capital Employed (“ROCE”) is a non-IFRS financial measure, calculated by dividing the annualized Adjusted
EBIT by capital employed at the end of the period. Adjusted EBIT is calculated as the Adjusted EBITDA less depreciation
of PPE and amortization of intangible assets (adjusted for accelerated depreciation charge, if any). Capital employed is
the sum of accounts receivable, inventory, PPE, and intangibles (excluding intangible from Business acquisition) less
trade and accrued liabilities (adjusted for exceptional items). 5N Plus uses ROCE to measure the return on capital
employed, whether the financing is through equity or debt. In the view of the Company, this measure provides useful
information to determine if capital invested in the Company yields competitive returns. The usefulness of ROCE is limited
by the fact that it is a ratio and does not provide information as to the absolute amount of its net income, debt or equity.
It also excludes certain items from the calculation. Other companies may use a similar measure but calculate it
differently.
(in thousands of U.S. dollars)
Revenue
Adjusted operating expenses as previously defined
Adjusted EBITDA
Depreciation of property, plant and equipment
Amortization of intangible assets
Adjusted EBIT
Account receivables
Inventories
Property, plant and equipment
Intangible asset excluding intangible assets from business acquisition
Trade and accrued liabilities excluding consideration payable
Capital employed
ROCE
As at December 31, 2021
$
209,990
(181,751)
28,239
(8,969)
(1,802)
17,468
As at December 31, 2020
$
177,192
(148,401)
28,791
(8,805)
(1,469)
18,517
42,098
95,526
81,526
12,840
(47,844)
184,146
9.5%
30,110
67,139
53,191
9,668
(31,671)
128,437
14.4%
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, it uses it as an indicator of its financial efficiency and aims to
maintain it at the lowest possible level.
Working capital ratio is calculated by dividing current assets by current liabilities.
40
5N Plus ▪ Management’s Discussion and Analysis ▪ 27
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Management’s Discussion and Analysis
MMaannaaggeemmeenntt’’ss DDiissccuussssiioonn aanndd AAnnaallyyssiiss
Additional Information
5N Plus’s 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.
Selected Quarterly Financial Information
(in thousands of U.S. dollars, except per share
amounts)
Revenue
EBITDA1
Adjusted EBITDA1
Net earnings (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Adjusted net earnings (loss)1
Basic adjusted net earnings per share1
Funds from operations1
Backlog1
Dec 31,
2021
$
64,556
7,822
10,086
980
$0.01
$0.01
1,879
$0.02
5,604
221 days
Sept 30,
2021
$
50,839
5,105
5,537
(792)
($0.01)
($0.01)
(246)
$-
2,394
174 days
June 30,
2021
$
47,719
6,318
6,336
2,159
$0.03
$0.03
1,932
$0.02
3,656
199 days
March 31,
2021
$
46,876
5,743
6,280
763
$0.01
$0.01
1,789
$0.02
4,899
195 days
Dec 31,
2020
$
46,230
2,230
6,543
(2,864)
($0.03)
($0.03)
184
$-
4,355
189 days
Sept 30,
2020
$
39,872
7,450
7,744
2,709
$0.03
$0.03
1,955
$0.02
11,181
171 days
June 30,
2020
$
41,136
6,506
7,647
1,749
$0.02
$0.02
2,124
$0.03
5,520
202 days
March 31,
2020
$
49,954
6,238
6,857
592
$0.01
$0.01
717
$0.01
4,774
188 days
Net earnings are completely attributable to equity holders of 5N Plus Inc.
Selected Yearly Financial Information
As at and for the years ended December 31
(in thousands of U.S. dollars except per share amounts)
Revenue
EBITDA
Adjusted EBITDA
Net earnings
Basic earnings per share
Diluted earnings per share
Adjusted net earnings
Basic adjusted net earnings per share
Funds from operations
Backlog
Balance Sheet
Total assets
Total non-current liabilities
Net debt1
Shareholders’ equity
Net earnings are completely attributable to equity holders of 5N Plus Inc.
2021
$
209,990
24,988
28,239
3,110
$0.04
$0.04
5,354
$0.06
16,553
221 days
373,590
172,284
80,060
136,247
2020
$
177,192
22,424
28,791
2,186
$0.03
$0.03
4,980
$0.06
25,830
189 days
226,678
71,752
10,159
118,376
2019
$
195,971
19,051
21,950
1,785
$0.02
$0.02
3,875
$0.05
15,724
243 days
229,942
75,629
35,042
117,297
1 See Non-IFRS Measures
28 ▪ 5N Plus ▪ Management’s Discussion and Analysis
41
5N PLUS | 2021 ANNUAL REPORT
Management’s Report
to the Shareholders
of 5N Plus Inc.
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements and related notes have been prepared by management in conformity with
generally accepted accounting principles in Canada which incorporate International Financial Reporting Standards as
issued by the IASB (IFRS). Management is responsible for the selection of accounting policies and making significant
accounting judgements and estimates.
Management is also responsible for all other information included in the management’s discussion and analysis and
for ensuring that this information is consistent with the information contained in the consolidated financial
statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting which
includes those policies and procedures that provide reasonable assurance over the safeguarding of assets and over
the completeness, fairness and accuracy of the consolidated financial statements.
The Audit and Risk Management Committee, which is comprised entirely of independent directors, reviews the quality
and integrity of the Company’s financial reporting and provides its recommendations, in respect of the approval of
the financial statements, to the Board of Directors; oversees management’s responsibilities as to the adequacy of the
supporting systems of internal controls; provides oversight of the independence, qualifications, and appointment of
the external auditor; and, review audit, audit-related, and non-audit fees and expenses. The Board of Directors
approves the Company’s consolidated financial statements and management’s discussion and analysis disclosures
prior to their release. The Audit and Risk Management Committee meets with management, the internal auditors and
external auditors at least four times each year to review and discuss financial reporting, disclosures, auditing and
other matters.
The external auditors, PricewaterhouseCoopers LLP, conduct an independent audit of the consolidated financial
statements in accordance with Canadian generally accepted auditing standards and express their opinion thereon.
Those standards require that the audit is planned and performed to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The external auditors have unlimited access to
the Audit and Risk Management Committee and meet with the Committee on a regular basis.
(signed) Gervais Jacques__________________
Gervais Jacques
Interim President and Chief Executive Officer
(signed) Richard Perron____________________
Richard Perron
Chief Financial Officer
Montreal, Canada
February 22, 2022
42
5N Plus ▪ Consolidated Financial Statements
5N PLUS | 2021 ANNUAL REPORT
Independent auditor’s report
To the Shareholders of 5N Plus Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the financial position of 5N Plus Inc. and its subsidiaries (together, the Company) as at
December 31, 2021 and 2020, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2021 and 2020;
the consolidated statements of earnings for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l.
1250 René-Lévesque Boulevard West, Suite 2500, Montréal, Quebec, Canada H3B 4Y1
T: +1 514 205 5000, F: +1 514 876 1502
“PwC” refers to PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., an Ontario limited liability partnership.
43
5N PLUS | 2021 ANNUAL REPORT Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2021. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matters
How our audit addressed the key audit matters
Valuation of inventories
Our approach to addressing the matter included the
following procedures, among others:
Refer to note 2 – Summary of principal accounting
policies and note 6 – Inventories to the
consolidated financial statements.
Tested how management estimated the net
realizable value of inventories, which included
the following:
Tested the data used by management in
determining the net realizable value.
Evaluated the appropriateness of the
method of estimating net realizable value.
Evaluated the reasonableness of significant
assumptions used by management in the
calculation of net realizable value of
inventories, by comparing them to:
o Prices of similar products in the market
at the time the estimates are
made; and
o Expected future selling prices.
For a sample of inventory items, compared the
prior year estimates of inventory prices to their
actual selling prices during the year.
The carrying value of inventories on the
Company’s consolidated financial statements was
$96 million as at December 31, 2021. Inventories
are carried at the lower of cost and net realizable
value. In estimating net realizable value,
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. Management
applied judgment in estimating the net realizable
value of inventories, which involved the use of
significant assumptions, including the
consideration of prices of similar products in the
market at the time the estimates are made and
expected future selling prices.
We considered this a key audit matter due to the
magnitude of the inventory balance, the various
types of inventory items and the judgment made by
management in determining the net realizable
value of inventories, which in turn led to increased
audit effort in performing audit procedures.
44
5N PLUS | 2021 ANNUAL REPORT Key audit matters
How our audit addressed the key audit matters
Our approach to addressing the matter included the
following procedures, among others:
Tested how management estimated the
preliminary fair value of the intangible assets,
which included the following:
o Read the purchase agreement.
o
o
Tested the mathematical accuracy of the
discounted cash flow models.
Tested the underlying data used by
management in the discounted cash
flow models.
o Evaluated the reasonableness of significant
assumptions used by management related
to revenue and gross margin forecasts by
considering the past performance of the
acquired company AZUR SPACE Solar
Power GmbH, growth assumptions from
management’s four-year plan (2022–2025),
as well as third-party economic and
industry data.
o Professionals with specialized skill and
knowledge in the field of valuation assisted
in evaluating the appropriateness of
management’s excess earnings and royalty
relief methods and discounted cash flow
models, as well as certain significant
assumptions such as customer retention
rates, royalty rates and discount rates.
Valuation of intangible assets acquired in the
AZUR SPACE Solar Power GmbH business
combination
Refer to note 2 – Summary of principal accounting
policies, note 4 – Business combinations and
note 9 – Intangible assets to the consolidated
financial statements.
On November 5, 2021, the Company acquired
AZUR SPACE Solar Power GmbH for a total
consideration of $57.7 million. The preliminary fair
value of the identifiable assets acquired included
$32.1 million in intangible assets, which relate to
customer relationships, technology and trade
name. Management applied significant judgment in
estimating the preliminary fair value of the
intangible assets.
To estimate the preliminary fair value of the
intangible assets, management used the excess
earnings method to value customer relationships
and the royalty relief method to value technology
and trade name using discounted cash flow
models. Management developed significant
assumptions related to revenue and gross margin
forecasts, customer retention rates, royalty rates
and discount rates.
We considered this a key audit matter due to the
significant judgment by management in estimating
the preliminary fair value of the intangible assets,
including the development of significant
assumptions. This in turn led to a high degree of
auditor judgment, subjectivity and effort in
performing procedures and evaluating audit
evidence relating to the significant assumptions
used by management. The audit effort involved the
use of professionals with specialized skill and
knowledge in the field of valuation.
45
5N PLUS | 2021 ANNUAL REPORT Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis, which we obtained prior to the date of this auditor’s report, and the information,
other than the consolidated financial statements and our auditor’s report thereon, included in the annual
report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard. When we read the information, other
than the consolidated financial statements and our auditor’s report thereon, included in the annual report,
if we conclude that there is a material misstatement therein, we are required to communicate the matter to
those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial
reporting process.
46
5N PLUS | 2021 ANNUAL REPORT Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
47
5N PLUS | 2021 ANNUAL REPORT We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is
Marc-Stéphane Pennee.
/s/PricewaterhouseCoopers LLP1
Montréal, Quebec
February 22, 2022
1 CPA auditor, CA, public accountancy permit No. A123642
48
5N PLUS | 2021 ANNUAL REPORT 5N PLUS INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Consolidated Statements of Financial Position
(in thousands of United States dollars)
(in thousands of United States dollars)
Notes
December 31
2021
$
December 31
2020
$
5
6
16
17
7
8
9
11
16
10
12
16
17
13
8
13
16
14
17
8
15
35,940
42,098
95,526
5,054
16,904
195,522
81,526
32,198
40,474
13,841
7,007
3,022
178,068
373,590
56,848
5,615
109
-
2,487
65,059
116,000
7,645
17,231
-
30,153
1,255
172,284
237,343
136,247
373,590
39,950
30,110
67,139
5,440
8,256
150,895
53,191
5,047
9,668
-
6,789
1,088
75,783
226,678
31,671
3,328
-
109
1,442
36,550
50,000
-
17,202
439
3,916
195
71,752
108,302
118,376
226,678
Assets
Current
Cash and cash equivalents
Accounts receivable
Inventories
Income tax receivable
Other current assets
Total current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Goodwill
Deferred tax assets
Other assets
Total non-current assets
Total assets
Liabilities
Current
Trade and accrued liabilities
Income tax payable
Derivative financial liabilities
Current portion of long-term debt
Current portion of lease liabilities
Total current liabilities
Long-term debt
Deferred tax liabilities
Employee benefit plan obligations
Derivative financial liabilities
Lease liabilities
Other liabilities
Total non-current liabilities
Total liabilities
Equity
Total liabilities and equity
Commitments and contingencies (Note 23)
The accompanying notes are an integral part of these consolidated financial statements.
5N Plus ▪ Consolidated Financial Statements ▪ 1
49
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Consolidated Statements of Earnings
Years ended December 31
Years ended December 31
(in thousands of United States dollars, except per share information)
(in thousands of United States dollars, except per share information)
Revenue
Cost of sales
Selling, general and administrative expenses
Other expenses (income), net
Operating earnings
Financial expenses
Interest on long-term debt
Imputed interest and other interest expense
Foreign exchange and derivative loss
Earnings before income taxes
Income tax expense
Current
Deferred
Net earnings
Earnings per share
Basic earnings per share
Diluted earnings per share
Net earnings are completely attributable to equity holders of 5N Plus Inc.
The accompanying notes are an integral part of these consolidated financial statements.
Notes
27
27
27
8, 13
16
16
21
21
21
2021
$
209,990
171,214
21,883
4,022
197,119
12,871
2,865
848
418
4,131
8,740
5,580
50
5,630
3,110
0.04
0.04
0.04
2020
$
177,192
140,806
19,874
3,015
163,695
13,497
2,666
824
2,798
6,288
7,209
3,385
1,638
5,023
2,186
0.03
0.03
0.03
2 ▪ 5N Plus ▪ Consolidated Financial Statements
50
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Consolidated Statements of Comprehensive Income
Years ended December 31
Years ended December 31
(in thousands of United States dollars)
(in thousands of United States dollars)
Net earnings
Other comprehensive (loss) income
Items that may be reclassified subsequently to net earnings
Currency translation adjustment
Items that will not be reclassified subsequently to net earnings
Remeasurement of employee benefit plan obligations
Income taxes
Other comprehensive income
Comprehensive income
Comprehensive income is completely attributable to equity holders of 5N Plus Inc.
The accompanying notes are an integral part of these consolidated financial statements.
Notes
14
2021
$
3,110
(31)
(31)
814
(256)
558
527
3,637
2020
$
2,186
1,621
1,621
(858)
271
(587)
1,034
3,220
5N Plus ▪ Consolidated Financial Statements ▪ 3
51
5N PLUS | 2021 ANNUAL REPORT
Consolidated Statements of Changes In Equity
Years ended December 31
(in thousands of United States dollars, except per share information)
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4
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Consolidated Statements of Cash Flows
Years ended December 31
(in thousands of United States dollars)
Years ended December 31
(in thousands of United States dollars)
Notes
7
8
9
6
27
5, 25
22
16
8, 13
14
19
4
4
7, 19
9
17
7
4, 13
13
10
20
20
2021
$
3,110
8,969
1,764
1,802
253
-
-
3
(623)
50
336
(481)
171
982
217
16,553
(6,283)
10,270
(33,284)
(9,004)
(5,385)
(541)
(2,000)
285
(49,929)
(32,505)
71,000
(260)
(809)
646
(1,872)
19
36,219
(570)
(4,010)
39,950
35,940
2020
$
2,186
8,805
1,451
1,469
177
2,411
4,934
26
2,825
1,638
246
(443)
(64)
(585)
754
25,830
10,975
36,805
-
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(8,421)
(133)
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(8,461)
(10,000)
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(1,598)
-
(8,804)
345
19,885
20,065
39,950
2,493
2,790
3,103
2,908
Operating activities
Net earnings
Adjustments to reconcile net earnings to cash flows
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Amortization of other assets
Impairment of inventories
Impairment of non-current assets
Increase for loss allowance
Share-based compensation (recovery) expense
Deferred income taxes
Imputed interest
Employee benefit plan obligations
Loss (gain) on disposal of property, plant and equipment
Unrealized loss (gain) on non-hedge financial instruments
Unrealized foreign exchange loss on assets and liabilities
Funds from operations before the following :
Net change in non-cash working capital balances
Cash from operating activities
Investing activities
Acquisition of subsidiary, net of cash acquired
Cash outflows to cash held in escrow
Additions to property, plant and equipment
Additions of intangible assets
Acquisition of investment in equity instruments
Proceeds on disposal of property, plant and equipment
Cash used in investing activities
Financing activities
Repayment of long-term debt
Proceeds from issuance of long term debt
Deferred costs related to long-term debt
Common shares repurchased
Issuance of common shares
Principal elements of lease payments
Increase in Other liabilities
Cash 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
Supplemental information(1)
Income tax paid
Interest paid
(1) Amounts paid for income tax and interest 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 ▪ Consolidated Financial Statements ▪ 5
53
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
1. Nature of Activities
5N Plus Inc. (“5N Plus” or the “Company”) is a Canadian-based international company. 5N Plus is a leading global producer
of specialty semiconductors and performance materials. The Company’s ultra-pure materials often form the core element
of its customer products. These customers rely on 5N Plus’s products to enable performance and sustainability in their
own products. 5N Plus deploys a range of proprietary and proven technologies to develop and manufacture its products.
The Company’s products enable various applications in a number of key industries including renewable energy, security,
space, pharmaceutical, medical imaging, and industrial. The Company is headquartered at 4385 Garand Street, Montreal,
Quebec (Canada) H4R 2B4. The Company operates R&D, manufacturing and commercial centers in strategically located
facilities around the world including Europe, North America and Asia. The Company’s mission is to be critical to its
customers, valued by its employees and trusted by its shareholders. The Company’s core values focus on integrity,
commitment and customer development along with emphasis on sustainable development, continuous improvement,
health and safety. 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 Specialty Semiconductors and Performance Materials.
These consolidated financial statements were approved by the Board of Directors on February 22, 2022.
Since January 2020, the gradual outbreak of the novel strain of the coronavirus, COVID-19 and its declaration as a
pandemic by the World Health Organization, has resulted in governments worldwide enacting emergency measures to
combat the spread of the virus. These measures have caused material disruption to businesses globally resulting in an
economic slowdown. While the Company has been able to mitigate the on-going impact from the crisis, it is not possible
to reliably estimate the length, severity and long-term impact the global pandemic may have on the Company's financial
results, conditions and cash flows. The outbreak of the COVID-19 should be considered a risk factor.
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 International Financial Reporting Standards
as issued by the IASB (IFRS). The consolidated financial statements have been prepared under the historical cost
convention, except for derivative financial instruments which are recorded at fair value.
The preparation of consolidated 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.
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.
6 ▪ 5N Plus ▪ Consolidated Financial Statements
54
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
The following table includes the principal entities which significantly impact the results or assets of the Company:
5N Plus Inc.
5N PV GmbH
AZUR SPACE Solar Power GmbH (Note 4)
5N Plus Lübeck GmbH
5N Plus Belgium SA
5N Plus Asia Limited
5N Plus Wisconsin Inc.
Country of incorporation
Canada
Germany
Germany
Germany
Belgium
Hong Kong
United States
% Equity interest
2021
100%
100%
100%
100%
100%
100%
100%
2020
100%
100%
-
100%
100%
100%
100%
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.
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 date of the respective
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in
the consolidated statement of earnings.
Foreign exchange gains and losses are presented in the consolidated statement of earnings within “foreign exchange
and derivative gain (loss)”.
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.
Business combination
Business combinations are accounted for using the acquisition method. Under this method, the identifiable assets
acquired and liabilities assumed, including contingent liabilities, are recorded at their fair value at the date of acquisition.
The acquisition date is the date at which the Company obtains control over the acquiree, which is generally the date that
consideration is transferred and the Company acquires the assets and assumes the liabilities of the acquiree.
5N Plus ▪ Consolidated Financial Statements ▪ 7
55
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the
fair values of the assets at the acquisition date transferred by the Company, the liabilities incurred or assumed, including
contingent liabilities, and equity instruments issued by the Company in exchange for control of the acquiree. The excess
of the consideration transferred over the fair value of the net identifiable assets acquired is recorded as goodwill. Any
negative goodwill is recognized directly in the consolidated statement of earnings. Acquisition costs are expensed as
incurred in the consolidated statement of earnings.
Segment reporting
Following the acquisition of AZUR and the subsequent integration of its activities within the Company’s operations,
the Company deemed it appropriate to reposition certain products and applications between its two reportable
segments which resulted in a change in the two principal reportable segments from Electronic Materials and Eco-
Friendly to Specialty Semiconductors and Performance Materials. For the two new principal segments, Specialty
Semiconductors and Performance Materials, corresponding operations and activities are managed accordingly by the
Company’s key decision makers. Segmented operating, financial information and labelled key performance indicators are
available and used to manage these business segments, review performance and allocate resources.
The Specialty Semiconductors segment operates in North America and Europe and is similar to the former Electronic
Materials segment, and now integrating the products and operations of AZUR since November 5, 2021. The segment
manufactures and sells products used in several applications such as renewable energy, space satellites and imaging.
Typical end markets include photovoltaics (terrestrial and spatial solar energy), medical imaging, infrared imaging,
optoelectronics and advanced electronics. These products are sold either in semiconductor compounds, semiconductor
wafers, ultra high purity metals, epitaxial semiconductor substrates and solar cells. Revenues and earnings associated with
recycling services and activities provided to Specialty Semiconductors customers are captured in this segment.
The Performance Materials segment operates in North America, Europe and Asia, and is similar to the former Eco-Friendly
Materials segment. The segment manufactures and sells products that are used in several applications in pharmaceutical
& healthcare, industrial, and catalytic and extractive. Main products are sold as active pharmaceutical ingredients, animal
feed additives, specialized chemicals, commercial grade metals, alloys, and engineered powders. All commercial grade
metal and engineered powder sales have been regrouped under Performance Materials. Revenues and earnings
associated with recycling services and activities provided to Performance Materials customers are captured in this
segment.
Corporate expenses associated with the head office and unallocated selling, general and administrative expenses, together
with financing expenses 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 Specialty Semiconductors and the Performance 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 amounts
specified in the customer’s arrangement.
Sales of manufactured products are recognized when products are delivered to the customer, which is also the moment
when control of the products is transferred, and when there is no unfulfilled obligation that could affect the customer’s
acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of loss
have been transferred to the customer and has accepted the products in accordance with the sales contract. Revenue
from custom refining activities, often referred to as tolling, is recognized when services are rendered, at a point in time.
8 ▪ 5N Plus ▪ Consolidated Financial Statements
56
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
Accounts receivable are recognized when the products are delivered or services are rendered, as this is the point in time
that the consideration is unconditional because only the passage of time is required before the payment is due. The
Company does not expect to have any contracts where the period between the transfer of the promised products or
services to the customer and payment by the customer exceeds one year. As a consequence, the Company does not adjust
any of the transaction prices for the time value of money. Cash payments received or advances due pursuant to contractual
arrangements are recorded as deferred revenue until all of the foregoing conditions of revenue recognition have been
met.
Government grants
Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will
be received and the Company will comply with all attached conditions.
Grants that compensate the Company for a specific expense incurred are recognized in the consolidated statement of
earnings against the expenses.
Grants that are related to assets are recognized by deducting the grant from the carrying amount of the specific asset. The
grant is recognized in the consolidated statement of earnings over the life of a depreciable asset as a reduced depreciation
expense.
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:
Land
Building
Production equipment
Furniture
Office equipment
Rolling stock
Leasehold improvements
Period
Not depreciated
25 years
Up to 15 years
3 to 10 years
3 to 10 years
3 to 10 years
Over the term of the lease
Major overhaul and replacement are capitalized in the consolidated statement of financial position as a separate
component, with the replaced part or previous overhaul derecognized from the consolidated 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 recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available
for use by the Company. Assets and liabilities arising from a lease are initially measured on a present value basis.
5N Plus ▪ Consolidated Financial Statements ▪ 9
57
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
Right-of-use assets
Right-of-use assets are measured at cost comprising the following:
-
-
-
-
the amount of the initial measurement of lease liability;
any lease payments made at or before the commencement date less any lease incentives received;
any initial direct costs; and
estimated restoration costs.
The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.
Lease liabilities
Lease liabilities include the net present value of the following lease payments:
-
-
-
-
-
fixed payments (including in-substance fixed payments), less any lease incentives receivable;
variable lease payment that are based on an index or a rate;
amounts expected to be payable by the lessee under residual value guarantees;
the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the
lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds
necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the consolidated
statement of earnings over the lease period so as to produce a constant periodic rate of interest on the remaining balance
of the liability for each period.
Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an
expense in the consolidated statement of earnings. Short-term leases are leases with a lease term of 12 months or less.
Low-value assets comprise IT-equipment and small items of office furniture.
Extension options are included in a number of property and equipment leases across the Company. These terms are used
to maximise operational flexibility in terms of managing contracts. The majority of extension options held are exercisable
only by the Company and not by the respective lessor.
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
Software
Development costs
Backlog
10 ▪ 5N Plus ▪ Consolidated Financial Statements
58
Period
15 years
Not exceeding 15 years
10 years
5 years
Not exceeding 10 years
3 years
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
Goodwill
Goodwill represents the excess of the consideration transferred over the fair value of the identifiable net assets acquired in
a business combination and is initially measured at the acquisition date. Goodwill is subsequently carried at cost less any
accumulated impairment losses.
At the date of acquisition, goodwill is assigned to the cash-generating unit (CGU) or group of CGUs that is expected to
benefit from the synergies of the business combination. For the purposes of impairment testing, goodwill is allocated to
the Company’s operating segments, which is the level at which the chief operating decision maker monitors goodwill.
The CGU is tested for impairment annually, or more frequently when there is indication that the CGU may be impaired. If
the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the
goodwill allocated to the CGU and then, to reduce the carrying amounts of the other assets in the CGU on a pro-rata basis.
Any impairment loss is recognized in the consolidated statement of earnings. An impairment loss recognized for goodwill is
not reversed in subsequent periods.
Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets that have an indefinite useful life, such as goodwill, are not
subject to amortization and are tested annually for impairment or whenever indicators of impairment exist. Assets that
are subject to amortization are tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Assets that are not yet available for use are tested for impairment annually or
at any time if an indicator of impairment exists.
An impairment loss is recognized if the carrying amount of an asset or a cash-generating unit (CGU) exceeds its recoverable
amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less cost of disposal.
The recoverable amount is determined for an individual asset; unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups of assets. In such case, the CGU’s belonging asset is used to
determine the recoverable amount. Impairment losses are recognized in the consolidated statement of earnings.
The Company evaluates impairment losses for potential reversals at each reporting date. An impairment loss is reversed
if there is any indication that the loss has decreased or no longer exists due to changes in the estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss
had been recognized. Such reversal is recognized in the consolidated statement of earnings.
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.
Measurement
At initial recognition, the Company measures a financial asset or financial liability at its fair value plus or minus, in the case
of a financial asset or financial liability not at fair value through profit or loss (FVPL), transaction costs that are directly
attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs of financial assets or
financial liabilities carried at FVPL are expensed in the consolidated statement of earnings.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows
are solely payment of principal and interest.
5N Plus ▪ Consolidated Financial Statements ▪ 11
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Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
Measurement in subsequent periods depends on the classification of the financial instrument. The Company has classified
its financial instruments in the following categories depending on the purpose for which the instruments were acquired
and their characteristics.
Financial assets
Debt instruments
For the subsequent measurement, there are two measurement categories into which the Company classifies its debt
instruments:
-
-
Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent
solely payments of principal and interest are measured at amortized cost. Interest income from these financial
assets is included in finance income using the effective interest rate method. Any gain or loss arising on
derecognition is recognized directly in the consolidated statement of earnings and presented in other gains
(losses), together with foreign exchange gains and losses. Impairment losses are presented as separate line item
in the consolidated statement of earnings.
Fair value through profit or loss (FVPL): Assets that do not meet the criteria for amortized cost or fair value
through other comprehensive income (FVOCI) are measured at FVPL. A gain or loss on a debt investment that is
subsequently measured at FVPL is recognized in the consolidated statement of earnings and presented net within
other gains (losses) in the period in which it arises.
Investment in equity instruments
For the subsequent measurement, investments in equity instruments which the Company did not make an irrevocable
election to present in FVOCI are measured at FVPL. A gain or loss on an investment in equity instruments that is subsequently
measured at FVPL is recognized in the consolidated statement of earnings and presented net within Other expenses
(income) in the period in which it arises.
Financial liabilities
Financial liabilities are subsequently measured at amortized cost using the effective interest method, except for financial
liabilities at FVPL. Such liabilities, including derivatives that are liabilities, shall be subsequently measured at fair value.
The Company has classified its financial instruments as follows:
Category
Financial assets and liabilities at fair value through profit and loss
Financial assets and liabilities at amortized cost
Financial instrument
Other current assets
Derivative financial assets
Other assets
Derivative financial liabilities
Cash and cash equivalents
Accounts receivable
Trade and accrued liabilities
Long-term debt
Impairment
At each reporting date, the Company assesses, on a forward-looking basis, the expected credit losses associated with its
debt instruments carried at amortized cost. The impairment methodology applied depends on whether there has been a
significant increase in credit risk.
12 ▪ 5N Plus ▪ Consolidated Financial Statements
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Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
For trade receivables, the Company applies the simplified approach permitted by IFRS 9, which requires expected lifetime
losses to be recognized from initial recognition of the receivables (Note 25). The Company assumes that there is no
significant increase in credit risk for instruments that have a low credit risk.
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 Company will apply cash flow hedge accounting to certain foreign exchange forward contracts 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 the consolidated statement of earnings. The amounts recognized in other comprehensive income (loss) are
reclassified in the consolidated statement of earnings as a reclassification adjustment when the hedged item affects net
earnings.
For the year ended December 31, 2021 and 2020, the Company has no derivative financial instruments designated as a
hedging instrument.
Embedded financial liabilities derivatives
Embedded derivatives 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. For the year ended December 31, 2021 and 2020, the
Company has no embedded derivative.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand.
Inventories
Inventories are carried 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 fixed-price sales contracts. The quantity of raw materials required to fulfill these contracts is specifically
assigned, and the average cost of these raw materials is accounted for separately throughout the duration of the contract.
Income taxes
The tax expense for the year comprises current and deferred 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 expense is also recognized in other comprehensive income (loss) or directly in equity,
respectively.
5N Plus ▪ Consolidated Financial Statements ▪ 13
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Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
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 presented to provide impact of temporary differences arising on investments in subsidiaries,
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 be reversed 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.
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 mainly 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 assessment 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.
Restructuring provisions, consisting of severance and other related costs to sites closure, are recognized when a detailed
formal plan identifies the business or part of the business concerned, the location and number of employees affected,
detailed estimates of the associated costs, and an appropriate timelines which has been communicated to those affected
by it.
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Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
Research and development expenses
Research expenses are charged to the consolidated statement of earnings in the period they are incurred and are included
under other expenses. Development expenses which are directly attributable expenses, either internal or external, are
charged to the consolidated statement of earnings, except if the Company can demonstrate all of the following (in that
case capitalised as an intangible assets – development costs):
The technical feasibility of completing the intangible asset so that it will be available for use or sale;
Its intention to complete the intangible asset and use or sell it;
Its ability to use or sell the intangible asset;
-
-
-
- How the intangible asset will generate probable future economic benefits. Among other things, the Company can
demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it
is to be used internally, the usefulness of the intangible asset;
The availability of adequate technical, financial and other resources to complete the development and to use or
sell the intangible asset; and
Its ability to measure reliably the expenditure attributable to the intangible asset during its development.
-
-
Employee future benefits
The Company contributes to two defined benefit pension plans. 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 prorated on service, market interest rates and management’s best estimate of
expected plan investment performance, retirement age 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 change 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 compensation expense is calculated by
multiplying the number of units expected to vest with the fair value of one unit as of grant date based on the market price
of the Company’s common shares. Until the liability is settled, the Company re-mesures the fair value of the liability at the
end of each reporting period and at the date of settlement, with any changes in fair value recognized in the consolidated
statement of earnings.
Earnings per share
Basic earnings per share is calculated by dividing net earnings for the year by the weighted average number of common
shares outstanding during the year.
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 share options.
5N Plus ▪ Consolidated Financial Statements ▪ 15
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Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
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
Non-financial assets are reviewed for an indication of impairment at each consolidated statement of financial position
date upon the occurrence of events or changes in circumstances indicating that the carrying value of the assets may not
be recoverable, which requires significant judgement.
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.
An intangible asset and related equipment that are not yet available for their intended use and CGUs to which goodwill is
allocated are tested for impairment at least annually, which also requires significant judgement. To determine the
recoverable amount (value in use or fair value less cost to dispose of these assets), management estimates expected future
cash flows from the 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 for intangible and tangible assets not yet available for
their intended use and CGUs to which goodwill is allocated, management makes assumptions about future operating
results using the estimated forecasted prices obtained from various market sources. These key assumptions relate to
future events and circumstances. The actual results will vary and may cause 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.
By their nature, assets not yet available for intended use have a higher estimation uncertainty, as they depend on future
market development and the Company’s ability to commercialize and manufacture new products to realize forecasted
earnings. For example new manufacturing processes may not be scalable to industrial level within expected timeframe
and new products might not receive sufficient market penetration. Management believes that the following assumptions
are the most susceptible to change and impact the valuation of these assets in time: a) expected significant growth of the
market for different metal products (demand), b) selling prices which have an impact on revenues and metal margins
(pricing), and c) the discount rate associated with new processes and products (after considering a premium over the
Company’s weighted average cost of capital (WACC) to reflect the additional uncertainty).
Inventories
Inventories are carried 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.
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Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
Business Combination
The Company must make assumptions and estimates to determine the fair value of identifiable assets acquired and
liabilities assumed. These estimates are based on future events, forecasts of future cash flows, future operating costs,
future capital expenditures and estimated discount rates. Changes to the preliminary measurements of assets and
liabilities acquired may be retrospectively adjusted when new information is obtained until the final measurements are
determined within one year of the acquisition date.
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 (Note 16).
3. Adoption of New Accounting Standards and Future Changes in Accounting Policies
Adoption of new accounting standards
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform (Phase 2)
On January 1, 2021, the Company adopted the amendments regarding the Interest Rate Benchmark Reform (Phase 2)
which impact IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and measurement, IFRS 7 Financial
Instruments: Disclosures and IFRS 16 Leases. The Phase 2 amendments address issues that might affect financial reporting
after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates. These
amendments complement those issued in 2019 and focus on issues that might affect financial reporting during the reform
of an interest rate benchmark, including the effects of changes to contractual cash flows arising from the replacement of
an interest rate benchmark with an alternative benchmark rate. The amendments are effective for annual periods
beginning on or after January 1, 2021, with earlier application permitted. In adopting the amendments, there has been no
significant impact to the financial statements for the year ended December 31, 2021.
Future Changes in accounting policies
The following standards have been issued but not yet effective:
IFRS 3 – Business combinations
In May 2020, the IASB issued amendments to IFRS 3 regarding its reference to the Conceptual Framework. With this
amendment, IFRS 3 will reference the current version of the Conceptual Framework rather than the Conceptual
Framework in effect at the time of IFRS 3’s development. The amendments to IFRS 3 also indicate that for the purposes of
identifying certain liabilities within the context of a business combination, the definition of a liability as per IAS 37 –
Provisions Contingent Liabilities and Contingent assets, shall supersede the definition within the Conceptual Framework.
The amendments are effective for annual periods beginning on or after January 1, 2022, with earlier application permitted.
5N Plus ▪ Consolidated Financial Statements ▪ 17
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Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
IAS 16 – Property, plant and equipment
In May 2020, the IASB issued amendments to IAS 16 regarding the accounting of Proceeds before Intended Use. Proceeds
received from the sale of items produced by property, plant and equipment (PPE) which is still being prepared for its
intended use cannot be deducted from the PPE’s cost. Instead proceeds must be immediately recognized in the
consolidated statement of earnings. The amendments are effective for annual periods beginning on or after
January 1, 2022, with earlier application permitted.
IFRS 9 – Financial Instruments
In May 2020, the IASB issued an amendment to IFRS 9 to clarify which fees should be considered for the purpose of
applying the derecognition test to a modified financial liability. The IASB clarified that only fees paid or received between
the borrower and the lender should be considered. The amendment is effective for annual periods beginning on or after
January 1, 2022, with earlier application permitted.
4. Business Combination
On November 5, 2021, the Company acquired all of the issued and outstanding shares of AZUR SPACE Solar Power GmbH
(AZUR) for a purchase price of 50.1 million euros, subject to post-closing adjustments. The consideration transferred was
comprised of 6.5 million shares of 5N Plus, which were issued from the treasury at 12.4 million euros, along with a cash
payment of 37.7 million euros. Furthermore, the Company financed the working capital and equipment loans for an
amount of 23.8 million euros. The cash portion and the working capital of the transaction are funded through the
Company's liquidity and senior debt facility. Transaction fees for an amount of $666 for 2021 (2020 - $490) were expensed
as incurred in the consolidated statement of earnings.
Located in Heilbronn, Germany, AZUR develops and manufactures multi-junction solar cells based on III-V compound
semiconductor materials. The integration of AZUR will not only expand the Company's position within renewable energy,
but, through Canada's membership in the European Space Agency (ESA), will also establish 5N Plus as a supplier to the
European and U.S. space programs.
To estimate the fair value of the intangible assets, management used the excess earnings method to value customer
relationships and the royalty relief method to value technology and trade names using discounted cash flow models.
Management developed significant assumptions related to revenue and gross margin forecasts, customer retention rates,
royalty rates and discount rates.
The tables below present the consideration paid and the Company’s preliminary assessment of the fair values of the assets
acquired and the liabilities assumed. The assessment of the fair values will be finalized after the values of the assets and
liabilities have been definitively determined.
Consideration transferred
Cash and cash equivalents
Consideration payable(1)
Common shares issued
$
34,301
9,158
14,249
57,708
1)
This amount of 7,950 euros, held in escrow and recorded in Other current assets, will be released within 12 months in accordance with the terms of the Share
Purchase Agreement (Note 12).
18 ▪ 5N Plus ▪ Consolidated Financial Statements
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Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
Preliminary recognized amounts of identified assets acquired and liabilities assumed
Cash and cash equivalents
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Other assets
Goodwill
Total assets acquired
Trade and accrued liabilities
Long-term debt(1)
Employee benefit plan obligations
Lease liabilities
Other liabilities
Deferred tax liabilities
Total liabilities assumed
Total net assets
$
1,017
8,342
21,394
256
31,128
21,626
32,144
5
13,841
129,753
12,197
27,396
2,673
21,626
1,059
7,094
72,045
57,708
1)
The long-term debt acquired was repaid in full on November 5, 2021.
For the 57-day period ended December 31, 2021, AZUR contributed $17,034 of revenue and $2,342 of net earnings to the
Company’s consolidated statement of earnings based on operations after the acquisition date. If the acquisition of AZUR
had been completed as of January 1, 2021, the Company estimates that its consolidated revenues and net earnings for the
year would have totalled $260,990 and $nil respectively, inclusive of the additional depreciation and amortization
expenses recorded in reference to the preliminary purchased price allocation. Azur delivers products to its customers on
a project basis creating an unequal distribution of revenue and profitability from one period to another.
The amount recorded for goodwill is not deductible for tax purposes. The accounts receivable are presented net of a loss
allowance of $28.
5. Accounts Receivable
Gross trade receivables
Loss allowance (Note 25)
Trade receivables
Sales taxes receivable
Other receivables
Total accounts receivable
2021
$
35,014
(149)
34,865
3,508
3,725
42,098
2020
$
23,374
(146)
23,228
2,377
4,505
30,110
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’s exposure to credit risks and the calculation of the loss allowance related to accounts receivable are
disclosed in Note 25.
Most of the accounts receivable are pledged as security for the revolving credit facility (Note 13).
5N Plus ▪ Consolidated Financial Statements ▪ 19
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Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
6.
Inventories
Raw materials
Finished goods
Total inventories
2021
$
30,845
64,681
95,526
2020
$
21,272
45,867
67,139
For the year ended December 31, 2021, a total of $94,881 of inventories was included as an expense in cost of sales (2020 –
$74,352). In 2020, this includes $2,411 of impairment of inventories ($244 for the Specialty Semiconductors segment and
$2,167 for the Performance Materials segment).
For the year ended December 31, 2021, a total of $815 previously written down was recognized as a reduction of expenses
in cost of sales concurrently with the related inventories being sold ($169 for the Specialty Semiconductors segment and
$646 for the Performance Materials segment). For the year ended December 31, 2020, no amount previously written
down was recognized as a reduction of expenses in cost of sales concurrently with the related inventories being sold.
The majority of inventories are pledged as security for the revolving credit facility (Note 13).
7. Property, Plant and Equipment
Net book value as at December 31, 2019
Additions
Disposals
Depreciation
Impairment (Note 27)
Effect of foreign exchange and others
Net book value as at December 31, 2020
Business combination (Note 4)
Additions
Disposals
Depreciation
Effect of foreign exchange and others
Net book value as at December 31, 2021
As at December 31, 2020
Cost
Accumulated depreciation
Net book value
As at December 31, 2021
Cost
Accumulated depreciation
Net book value
Furniture,
office
equipment and
rolling stock
$
2,797
602
-
(884)
(9)
12
2,518
472
429
-
(1,263)
350
2,506
Production
equipment
$
36,786
7,069
(29)
(6,652)
(3,936)
23
33,261
28,874
6,971
(456)
(6,334)
(1,460)
60,856
Leasehold
improvements
$
1,327
119
-
(237)
-
-
1,209
1,782
15
-
(421)
(6)
2,579
67,813
(34,552)
33,261
100,973
(40,117)
60,856
4,088
(1,570)
2,518
5,116
(2,610)
2,506
3,453
(2,244)
1,209
5,244
(2,665)
2,579
Land and
buildings
$
17,680
394
-
(1,032)
(989)
150
16,203
-
290
-
(951)
43
15,585
23,591
(7,388)
16,203
23,916
(8,331)
15,585
Total
$
58,590
8,184
(29)
(8,805)
(4,934)
185
53,191
31,128
7,705
(456)
(8,969)
(1,073)
81,526
98,945
(45,754)
53,191
135,249
(53,723)
81,526
As at December 31, 2021, property, plant and equipment that were not depreciated until ready for their intended use
amounted to $14,418 (2020 ─ $7,017) (mainly production equipment).
Most of the property, plant and equipment are pledged as security for the revolving credit facility (Note 13).
20 ▪ 5N Plus ▪ Consolidated Financial Statements
68
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
8. Leases
Right-of-use assets
Net book value as at December 31, 2019
Additions
Depreciation
Net book value as at December 31, 2020
Business combination (Note 4)
Additions
Modification to lease contracts
Depreciation
Effect of foreign exchange and others
Net book value as at December 31, 2021
As at December 31, 2020
Cost
Accumulated depreciation
Net book value
As at December 31, 2021
Cost
Accumulated depreciation
Net book value
Lease liabilities
Current portion
Non-current portion
Total lease liabilities
Buildings
$
5,239
209
(1,092)
4,356
21,559
-
7,402
(1,413)
(361)
31,543
6,324
(1,968)
4,356
34,923
(3,380)
31,543
Amounts recognized in the consolidated statements of earnings:
Interest on lease liabilities(1)
Income from sub-leasing right-of-use assets(2)
Expenses relating to short-term leases(3)
Expenses relating to leases of low-value assets, excluding short-term leases of low-value
assets(3)
Included in financial expenses.
Included in other expenses (income), net.
Included in cost of sales and selling, general and administrative expenses.
(1)
(2)
(3)
Production
equipment
$
468
43
(155)
356
-
27
-
(145)
-
238
Office equipment
and rolling stock
$
343
196
(204)
335
67
217
5
(206)
(1)
417
632
(276)
356
619
(381)
238
635
(300)
335
790
(373)
417
2021
$
2,487
30,153
32,640
2021
$
336
(33)
251
284
Total
$
6,050
448
(1,451)
5,047
21,626
244
7,407
(1,764)
(362)
32,198
7,591
(2,544)
5,047
36,332
(4,134)
32,198
2020
$
1,442
3,916
5,358
2020
$
246
-
188
273
5N Plus ▪ Consolidated Financial Statements ▪ 21
69
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
9.
Intangible Assets
Net book value as at December 31, 2019
Additions
Disposals and others
Amortization
Net book value as at December 31, 2020
Business combination (Note 4)
Additions
Amortization
Effect of foreign exchange and others
Net book value as at December 31, 2021
As at December 31, 2020
Cost
Accumulated amortization
Net book value
As at December 31, 2021
Cost
Accumulated amortization
Net book value
Customer
relationship
$
-
-
-
-
-
15,971
-
(166)
-
15,805
-
-
-
15,971
(166)
15,805
Trade name,
software,
development costs
and others
$
9,239
133
14
(1,250)
8,136
6,274
541
(1,288)
(66)
13,597
Technology
$
1,751
-
-
(219)
1,532
9,899
-
(348)
(11)
11,072
2,189
(657)
1,532
12,077
(1,005)
11,072
13,153
(5,017)
8,136
19,799
(6,202)
13,597
Total
$
10,990
133
14
(1,469)
9,668
32,144
541
(1,802)
(77)
40,474
15,342
(5,674)
9,668
47,847
(7,373)
40,474
As at December 31, 2021, intangible assets that were not depreciated until ready for their intended use amounted to
$1,963 (2020 ─ $nil). The category of development costs which includes capitalized costs of $14,367 (2020 - $10,625),
primarily consists of internally generated intangible assets.
10. Other Assets
Deferred costs
Investment in equity instruments
Other(1)
Total other assets
1)
Includes a restricted investment of $713 (2020 - $790) which is valued at fair value through profit or loss (Note 17).
11. Goodwill
Net book value as at December 31, 2020
Business combination (Note 4)
Net book value as at December 31, 2021
2021
$
305
2,000
717
3,022
2021
$
-
13,841
13,841
2020
$
298
-
790
1,088
2020
$
-
-
-
Goodwill recognized as part of the acquisition of AZUR on November 5, 2021 is allocated to the Specialty Semiconductor
segment. For the purposes of the Company’s annual goodwill impairment test, AZUR is considered as its own CGU. Based
on the result of this test, no impairment charges are required. The recoverable amount was determined based on the
CGU’s value in use which was calculated by using a discounted cash flow (DCF) approach.
22 ▪ 5N Plus ▪ Consolidated Financial Statements
70
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
The key assumptions used for the purposes of the DCF are outlined below:
-
-
Cash flows: Estimated cash flows were projected based on actual operating results from internal sources as well
as industry and market trends. The first year of the four-year projection period was forecasted by Management.
The extended three-year period was calculated using the 2017-2022 Compound Annual Growth Rate for the
revenues.
Terminal growth rate: A terminal growth rate of 5.0% is used to extrapolate the Company’s projection and it was
determined using the industry expectation and market trends.
- Discount rate: Cash flows are discounted using pre-tax discount rate which is estimated based on the historical
industry average weighted-average cost of capital. The discount rate used is 7.4%.
12. Trade and Accrued Liabilities
Trade payables
Accrued liabilities(1)
Consideration payable (Note 4)
Total trade and accrued liabilities
2021
$
32,212
15,632
9,004
56,848
2020
$
11,926
19,745
-
31,671
(1) As at December 31, 2021, an amount of $258 was still outstanding with respect to the provision of $1,349 outstanding as at December 31, 2020.
13. Bank Indebtedness and Long-Term Debt
a) Bank indebtedness
During the year ended December 31, 2021, the Company terminated its Chinese renminbi (RMB) credit line which the
Company held with a financial institution in China as at December 31, 2020.
Facility available
Amount drawn
b) Long-term debt
Contractual
Currency
RMB
-
-
2021
Reporting
Currency
US$
-
-
Contractual
Currency
RMB
10,000
-
2020
Reporting
Currency
US$
1,533
-
Senior secured revolving facility of $124,000 with a syndicate of banks, maturing in April 2023(1)
Unsecured subordinated term loan, maturing in March 2024(2)
Term loan, repaid in full in March 2021
Less current portion of long-term debt
2021
$
91,000
25,000
-
116,000
-
116,000
2020
$
25,000
25,000
109
50,109
109
50,000
(1)
In March 2021, the Company signed a senior secured multi-currency revolving credit facility of $79,000 maturing in April 2023 to replace its existing $79,000
senior secured revolving facility maturing in April 2022. As a result of the acquisition of AZUR in November 2021, the senior secured multi-currency revolving
credit facility of $79,000 increased to $124,000. At any time, the Company has the option to request that the credit facility be expanded through the exercise
of an additional $30,000 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 (up to $4,000). 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 net debt to consolidated EBITDA ratio. Under the terms of its credit facility, the Company is required to satisfy certain
restrictive covenants as to financial ratios. As at December 31, 2021, the Company had met all covenants.
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
In February 2020, the Company entered into an interest rate swap agreement with a major Canadian financial institution to reduce its financial expense
fluctuations on Libor rate on a portion of its credit facility (Note 17).
(2)
In February 2019, the Company signed a five-year unsecured subordinated term loan with Investissement Québec. The loan was disbursed in two tranches:
the first tranche of $5,000 on February 6, 2019 and the second tranche of $20,000 on March 22, 2019. The two tranches of the term loan bear interest
equivalent to the 5-year US dollar swap rate plus a margin of 4.19%, which equals to 6.82% and 6.64% respectively. Under the terms of the loan, the Company
is required to satisfy certain restrictive covenants as to financial ratios. As at December 31, 2021, the Company has met all covenants.
5N Plus ▪ Consolidated Financial Statements ▪ 23
14. Employee Benefit Plan Obligations
71
The Company operates two defined pension plans in Germany based on employee pensionable earnings and length of
service.
Unfunded defined benefit plan
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 an entry date of December 31, 1993 or earlier.
Funded defined benefit plan
The pension obligations are via a pension fund with commitments to old-age, disability and survivors’ pension to managers
as well as employees. Such promises had been made for employees with an entry date of December 31, 2007 or earlier.
Vesting of benefits is being determined by the employers’ pension-plan act (Gesetz über die Verbesserung der
betrieblichen Altersversorgung). The pension scheme is fully funded by two absolute return strategies funds at Generali
Pensionsfond AG. These investment funds have quoted prices in active markets.
Fair value of plan assets
Present value of funded obligation
Present value of net obligation for funded obligation
Present value of unfunded obligation
Present value of net obligations
Movement in the defined benefit obligations is as follows:
Beginning of year
Business combination (Note 4)
Current service cost
Interest cost
Effect of foreign exchange
Benefits paid
Actuarial (gains) losses
End of year
Movement in plan assets is as follows:
Unfunded
Funded
Unfunded
17,202
$
-
89
147
(1,308)
(722)
(683)
14,725
$
-
5,782
-
10
(93)
(34)
(90)
5,575
9
15,398
15,398
$
-
80
183
1,389
(706)
858
17,202
2021
$
3,069
5,575
2,506
14,725
17,231
2021
Total
$
17,202
5,782
89
157
(1,401)
(756)
(773)
20,300
Return on plan assets, excluding amounts included in interest income
Beginning of year
Business combination (Note 4)
Interest income
Pension benefits paid
Effect of foreign exchange
End of year
24 ▪ 5N Plus ▪ Consolidated Financial Statements
2020
$
-
-
-
17,202
17,202
2020
Total
$
-
80
183
1,389
(706)
858
17,202
2021
$
-
3,109
5
41
(34)
(52)
3,069
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
Notes to Consolidated Financial Statements
(2)
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
In February 2019, the Company signed a five-year unsecured subordinated term loan with Investissement Québec. The loan was disbursed in two tranches:
the first tranche of $5,000 on February 6, 2019 and the second tranche of $20,000 on March 22, 2019. The two tranches of the term loan bear interest
equivalent to the 5-year US dollar swap rate plus a margin of 4.19%, which equals to 6.82% and 6.64% respectively. Under the terms of the loan, the Company
is required to satisfy certain restrictive covenants as to financial ratios. As at December 31, 2021, the Company has met all covenants.
14. Employee Benefit Plan Obligations
The Company operates two defined pension plans in Germany based on employee pensionable earnings and length of
service.
Unfunded defined benefit plan
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 an entry date of December 31, 1993 or earlier.
Funded defined benefit plan
The pension obligations are via a pension fund with commitments to old-age, disability and survivors’ pension to managers
as well as employees. Such promises had been made for employees with an entry date of December 31, 2007 or earlier.
Vesting of benefits is being determined by the employers’ pension-plan act (Gesetz über die Verbesserung der
betrieblichen Altersversorgung). The pension scheme is fully funded by two absolute return strategies funds at Generali
Pensionsfond AG. These investment funds have quoted prices in active markets.
Fair value of plan assets
Present value of funded obligation
Present value of net obligation for funded obligation
Present value of unfunded obligation
Present value of net obligations
Movement in the defined benefit obligations is as follows:
Beginning of year
Business combination (Note 4)
Current service cost
Interest cost
Effect of foreign exchange
Benefits paid
Actuarial (gains) losses
End of year
Movement in plan assets is as follows:
Unfunded
$
17,202
-
89
147
(1,308)
(722)
(683)
14,725
Funded
$
-
5,782
-
10
(93)
(34)
(90)
9
5,575
Beginning of year
Business combination (Note 4)
Interest income
Return on plan assets, excluding amounts included in interest income
Pension benefits paid
Effect of foreign exchange
End of year
24 ▪ 5N Plus ▪ Consolidated Financial Statements
2021
$
3,069
5,575
2,506
14,725
17,231
2021
Total
$
17,202
5,782
89
157
(1,401)
(756)
(773)
20,300
Unfunded
$
15,398
-
80
183
1,389
(706)
858
17,202
2020
$
-
-
-
17,202
17,202
2020
Total
$
15,398
-
80
183
1,389
(706)
858
17,202
2021
$
-
3,109
5
41
(34)
(52)
3,069
72
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
The principal actuarial assumptions as at December 31 were as follows:
Discount rate
Salary growth rate
Pension growth rate
Unfunded
1.2%
2.0%
1.8%
2021
Funded
1.2%
2.0%
2.0%
2020
Unfunded
0.9%
2.0%
1.8%
Assumptions regarding mortality are based on mortality tables “Richttafeln 2018 G” by Prof. Dr. Klaus Heubeck as
biometrical basis in accordance with age of earliest retirement by law RV-Altersgrenzenanpassungsgesetz, dated April 20,
2007 for the unfunded defined benefit plan and with age of earliest retirement by 65 years for the funded defined benefit
plan.
The sensitivity of the defined benefit obligations 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.
Impact on defined benefit obligations
Change in assumption
Increase in assumption
Decrease in assumption
Discount rate
Salary growth rate
Pension growth rate
Unfunded
0.50%
0.50%
0.50%
Funded
0.50%
0.50%
0.50%
Unfunded
(6.19%)
0.38%
6.51%
Funded
(7.61%)
-%
6.51%
Unfunded
6.90%
(0.37%)
(5.96%)
Funded
8.63%
-%
(5.94%)
Life expectancy
Increase by 1 year
in assumption
Decrease by 1 year
in assumption
Unfunded
4.48%
Funded
4.17%
Unfunded
(3.93%)
Funded
3.67%
The weighted average duration of the unfunded and funded defined benefit obligations are 13.03 years
(2020 – 13.69 years) and 16.13 years.
Though its defined benefit pension plans, the Company is exposed to a number of risks, the most significant of which are
detailed below:
Specific to employee benefit obligations, the Company is mainly exposed to economic and demographic risks such as salary
inflation and changes in life expectancy. The plans’ obligations are to provide benefits for the duration of the life of its
members, therefore, increases in life expectancy will result in an increase in the plans’ liabilities. In addition, the obligations
are impacted by the discount rate.
Defined benefit pension plan assets are invested in order to meet funded pension obligations. The ability of the Company’s
fund assets to meet employee benefit obligations is subject to market risk such as foreign currency risk, interest rate risk,
and other price risk. Credit risk also affects plan assets, as they are partially comprised of investments in bonds. The default
of a bond issuer would decrease plan assets and the Company’s corresponding ability to meet employee benefit
obligations.
5N Plus ▪ Consolidated Financial Statements ▪ 25
73
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
Expected maturity analysis of undiscounted pension liability:
Less than a year
Between 1 and 5 years
Over 5 years
Total
Unfunded
$
693
2,794
13,954
17,441
Funded
$
189
806
5,887
6,882
2021
Total
$
882
3,600
19,841
24,323
Unfunded
$
755
3,072
15,732
19,559
Expected contributions to pension benefit plans for the year ending December 31, 2022 are $882.
15. Other Liabilities
Beginning of year
Business combination (Note 4)
Increase in liabilities
Utilized
Effect of foreign exchange
End of year
16. Income Taxes
Current tax:
Current tax for the year
Adjustment in respect of prior years’ estimates
Total current tax
Deferred tax:
Recognition and reversal of temporary differences
Adjustment in respect of prior years’ estimates
Total deferred tax
Income tax expense
2021
$
195
1,059
19
-
(18)
1,255
2021
$
5,309
271
5,580
826
(776)
50
5,630
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 expense (non-taxable gain) for tax purposes
Non-deductible (non-taxable) foreign exchange
Effect of difference of foreign tax rates compared to Canadian tax rates
Withholding tax on group dividend
Adjustment in respect of prior years’ estimates
Other
Income tax expense
2021
$
8,740
26.5%
2,316
553
622
1,599
1,048
-
(505)
(3)
5,630
2020
Total
$
755
3,072
15,732
19,559
2020
$
195
-
-
-
-
195
2020
$
3,106
279
3,385
1,474
164
1,638
5,023
2020
$
7,209
26.5%
1,910
1,964
199
(241)
141
600
443
7
5,023
The Company’s applicable tax rate is the Canadian combined rates applicable in the jurisdiction in which the Company
operates.
26 ▪ 5N Plus ▪ Consolidated Financial Statements
74
5N PLUS | 2021 ANNUAL REPORT
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Years ended December 31
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75
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
Movement in the deferred income tax amounts is as follows:
Beginning of year
Business combination
Tax charge relating to components of other comprehensive income (loss)
Credited to consolidated statement of earnings
Impact of foreign exchange
End of year
2021
$
6,789
(7,094)
(256)
(50)
(27)
)
(638)
2020
$
8,156
-
271
(1,638)
-
6,789
Deferred tax assets of $3,161 (2020 – $nil), 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
$41,329 as at December 31, 2021 (2020 - $25,592).
As at December 31, 2021, the Company had the following operating tax losses available for carry forward for which no
deferred tax benefit has been recorded in the accounts:
Belgium
United States
Hong Kong
China
$
49,495
29,516
7,901
1,148
Expiry
No limit
No limit
No limit
2022-2026
As at December 31, 2021, the Company had other deductible temporary differences of $375 for which no deferred tax
benefit has been recorded (2020 – $353).
17. Fair Value of Financial Instruments
The fair value of a financial instrument is determined by reference to the available market information at the reporting
date. When no active market exists for a financial instrument, the Company determines the fair value of that
instrument based on valuation methodologies as discussed below. In determining assumptions required under a
valuation model, the Company primarily uses external, readily observable market data inputs. Assumptions or inputs
that are not based on observable market data incorporate the Company’s best estimates of market participant
assumptions, and are used when external data is not available. Counterparty credit risk and the Company’s own credit
risk are taken into account in estimating the fair value of all financial assets and financial liabilities.
The following assumptions and valuation methodologies have been used to measure fair value of financial instruments:
-
-
-
-
-
The fair value of its short-term financial assets and financial liabilities, including cash and cash equivalents,
accounts receivable, cash held in escrow and trade and accrued liabilities approximates their carrying value due
to the short-term maturities of these instruments;
The fair value of its investment in equity is determined using significant unobservable inputs such as the best
information available.
The fair value of its restricted investment is determined using the expected mortality of life, present value of the
estimated future cash flows and estimated discount rates. Assumptions are based on market conditions prevailing
at each reporting date.
The fair value of derivative instruments, which include the indexed deposit agreement and the interest rate swap,
is calculated as the present value of the estimated future cash flows using an appropriate interest rate yield curve,
foreign exchange rate and the stock price. Assumptions are based on market conditions prevailing at each
reporting date. Derivative instrument reflect the estimated amount that the Company would receive or pay to
settle the contracts at the reporting date; and
The fair value of long-term debt is estimated based on discounted cash flows using current interest rate for
instruments with similar terms and remaining maturities.
28 ▪ 5N Plus ▪ Consolidated Financial Statements
76
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
The carrying values which approximates the fair values of financial instruments, by class, are as follows as at December
31, 2021 and 2020:
As at December 31, 2021
Financial assets
Cash and cash equivalents
Accounts receivable
Other current assets
Other non-current assets
Total
Financial liabilities
Trade and accrued liabilities
Long-term debt
Derivative financial liabilities
Total
As at December 31, 2020
Financial assets
Cash and cash equivalents
Accounts receivable
Other current assets
Other non-current assets
Total
Financial liabilities
Trade and accrued liabilities
Current portion of long-term debt
Long-term debt
Derivative financial liabilities
Total
At fair value
through profit
or loss
$
At amortized
cost
$
Financial
liabilities at
amortized
cost
$
-
-
4,819
2,713
7,532
-
-
109
109
35,940
42,098
9,004
-
87,042
-
-
-
-
At fair value
through profit
or loss
$
At amortized
cost
$
-
-
5,950
790
6,740
-
-
-
439
439
30,950
30,110
-
-
61,060
-
-
-
-
-
-
-
-
-
56,848
116,000
-
172,848
Financial
liabilities at
amortized
cost
$
-
-
-
-
-
31,671
109
50,000
-
81,780
Carrying
value
Total
$
35,940
42,098
13,823
2,713
94,574
56,848
116,000
109
172,957
Carrying
value
Total
$
30,950
30,110
5,950
790
67,800
31,671
109
50,000
439
82,219
5N Plus ▪ Consolidated Financial Statements ▪ 29
77
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
Fair value hierarchy
The fair value hierarchy reflects the significance of the inputs used in making the measurements and has the following
levels:
-
-
-
Level 1:
Level 2:
Level 3:
Quoted prices (unadjusted) in active markets for identical assets or liabilities;
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).
The following table presents the financial instruments, by level, which are recognized at fair value in the consolidated
statements of financial position:
As at December 31, 2021
Financial assets (liabilities)
At fair value through profit or loss
Indexed deposit agreement (Note 22)(1)
Investment in equity instruments (Note 10)(2)
Restricted investment (Note 10)(3)
Interest rate swap agreement (Note 13)(4)
Total
As at December 31, 2020
Financial assets (liabilities)
At fair value through profit or loss
Indexed deposit agreement (Note 22)(1)
Restricted investment (Note 10)(3)
Interest rate swap agreement (Note 13) (4)
Level 1
$
-
-
-
-
-
Level 1
$
-
-
-
-
Level 2
$
4,819
-
-
(109)
4,710
Level 2
$
5,950
-
(439)
5,511
Level 3
$
-
2,000
713
-
2,713
Level 3
$
-
790
-
790
Total
(1)
(2)
(3)
(4)
In June 2017, the Company entered into an indexed deposit agreement with a major Canadian financial institution to reduce its income exposure to
fluctuations in its share price relating to the DSU, PSU, RSU and SAR programs. Pursuant to the agreement, the Company receives the economic benefit
of share price appreciation while providing payments to the financial institution for the institution’s cost of funds and any share price depreciation. The
net effect of the indexed deposit partly offset movements in the Company’s share price impacting the cost of the DSU, PSU, RSU and SAR programs. As at
December 31, 2021, the indexed deposit agreement recorded under other current assets, covered 2,571,569 common shares of the Company.
In January 2021, the Company acquired a minority equity stake in Microbion Corporation (Microbion) for an amount of $2,000 recorded in Other assets
(Note 10).
The fair value of the restricted investment is recorded in Other assets (Note 10).
In February 2020, the Company entered into an interest rate swap agreement with a major Canadian financial institution to reduce its financial expense
fluctuations on Libor rate on a portion of its credit facility (Note 13). Under this interest rate swap, the Company exchanges interest payments. The terms
are such that on each interest payment date, the Company will receive or pay the net difference between the fixed rate of 1.435% and its Libor rate on a
notional amount of $25,000.
30 ▪ 5N Plus ▪ Consolidated Financial Statements
78
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
18. Operating Segments
Following the acquisition of AZUR (Note 4) and the subsequent integration of its activities within the Company’s
operations, the Company deemed it appropriate to reposition certain products and applications between the
segments which resulted in a change in reportable segments. Accordingly, the Company has adjusted the previously
reported segment information for the year ended December 31, 2020.
The following tables summarize the information reviewed by the entity’s chief operating decision maker when
measuring performance:
Specialty Semiconductors
Performance Materials
Total revenue
Specialty Semiconductors
Performance Materials
Corporate and unallocated
Adjusted EBITDA(1)
Interest on long-term debt, imputed interest and
other interest expense
Share-based compensation expense
Litigation and restructuring costs (income), net (Note 27)
Foreign exchange and derivative loss
Impairment of inventories (Note 6)
Impairment of non-current assets (Note 27)
Depreciation and amortization
Earnings before income tax
2021
$
70,655
139,335
209,990
18,817
18,957
(9,535)
28,239
3,713
689
2,144
418
-
-
12,535
8,740
2020
adjusted
$
57,640
119,552
177,192
21,329
17,037
(9,575)
28,791
3,490
1,801
(5,577)
2,798
2,411
4,934
11,725
7,209
(1) Earnings before income tax, depreciation and amortization, impairment of inventories, impairment of non-current assets, share-based compensation
expense, litigation and restructuring costs (income), net and financial expense.
Capital expenditures
Specialty Semiconductors
Performance Materials
Total
Assets excluding the deferred tax asset
Specialty Semiconductors
Performance Materials
Corporate and unallocated
Total
2021
$
595
4,790
5,385
2021
$
189,022
146,111
31,450
366,583
2020
adjusted
$
1,447
6,974
8,421
2020
adjusted
$
56,864
133,298
29,727
219,889
5N Plus ▪ Consolidated Financial Statements ▪ 31
79
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
The geographic distribution of the Company’s revenues based on the location of the customers for the years ended
December 31, 2021 and 2020, and the identifiable non-current assets as at December 31, 2021 and 2020 are summarized
as follows:
Revenues
Asia
China
Japan
Other(1)
Americas
United States
Other(1)
Europe
Germany
Belgium
Netherlands
France
Other(1)
Other
Total
(1) None exceeding 10%
Non-current assets (other than deferred tax assets)
Asia(1)
United States
Canada
Europe
Belgium
Germany
Total
(1) None exceeding 10%
2021
$
10,531
4,545
24,056
66,077
19,206
29,738
11,229
9,945
6,285
23,931
4,447
209,990
2021
$
7,850
12,836
25,176
8,631
116,568
171,061
2020
$
7,526
3,423
35,325
57,143
13,804
18,577
7,043
5,772
5,708
18,560
4,311
177,192
2020
$
9,629
13,673
15,606
9,652
20,434
68,994
For the year ended December 31, 2021, one customer represented approximately 19% (2020 – 28%) of revenues of which
13% (2020 – 18%) is within the Specialty Semiconductors segment and 6% (2020 – 10%) is within the Performance
Materials Segment.
19. Supplemental Cash Flow Information
a) Net change in non-cash working capital balances related to operations consists of the following:
(Increase) decrease in assets:
Accounts receivable
Inventories
Income tax receivable
Other current assets
Increase (decrease) in liabilities:
Trade and accrued liabilities
Income tax payable
Net change
32 ▪ 5N Plus ▪ Consolidated Financial Statements
80
2021
$
(3,649)
(6,993)
386
(9,560)
11,246
2,287
(6,283)
2020
$
(1,659)
13,817
(7)
167
(1,297)
(46)
10,975
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
b) The reconciliation of assets/liabilities arising from financing activities consists of the following:
December 31
2020
$
50,109
439
5,358
Cash flows
$
38,495(1)
-
(1,872)
Imputed
interest
$
-
-
336
Non-Cash changes
Foreign
exchange
movement
$
-
-
(459)
Fair value
changes
$
-
(330)
-
Non-cash
working
capital
$
27,396(1)
-
29,277(2)
December 31
2021
$
116,000
109
32,640
55,906
36,623
336
(459)
(330)
56,673
148,749
December
31 2019
$
55,107
-
6,236
Cash flows
$
(5,000)
-
(1,598)
Imputed
interest
$
-
-
246
Non-Cash changes
Foreign
exchange
movement
$
2
-
26
Fair value
changes
$
-
439
-
Non-cash
working
capital
$
-
-
448
December
31 2020
$
50,109
439
5,358
61,343
(6,598)
246
28
439
448
55,906
Long-term debt
Interest rate swap
Lease liabilities
Total net liabilities from
financing liabilities
Long-term debt
Interest rate swap
Lease liabilities
Total net liabilities from
financing liabilities
(1)
(2)
Includes an amount of $27,396 following the acquisition of AZUR which was repaid in full on November 5, 2021 (Note 4).
Includes an amount of $21,626 following the acquisition of AZUR (Note 4).
c) The consolidated statements of cash flows exclude or include the following transactions:
Excluded additions unpaid at end of the year:
Additions to property, plant and equipment
Included additions unpaid at beginning of year:
Additions to property, plant and equipment
Excluded share issuance related to the acquisition of AZUR (Note 4)
20. Share Capital
2021
$
3,095
775
14,249
2020
$
775
1,012
-
Authorized:
-
-
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, 2021 and 2020, no
preferred shares were issued.
On November 5, 2021, in connection with the acquisition of AZUR (Note 4), the Company issued 6,500,000 common shares
at an average price of $1.90 to finance the purchase.
On March 5, 2020, the TSX approved the Company’s normal course issuer bid (NCIB). Under this NCIB, the Company had
the right to purchase for cancellation, from March 9, 2020 to March 8, 2021, a maximum of 2,000,000 common shares.
5N Plus ▪ Consolidated Financial Statements ▪ 33
81
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
In 2021, the Company repurchased and cancelled 249,572 common shares at an average price of $3.24 for a total amount
of $809. An amount of $17 has been applied against share capital, and an amount of $792 has been applied against the
deficit.
In 2020, the Company repurchased and cancelled 1,750,428 common shares at an average price of $1.26 for a total amount
of $2,206. An amount of $126 has been applied against share capital, and an amount of $2,080 has been applied against
the deficit.
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 for the year
Denominators
Basic weighted average number of shares
Dilutive effect:
Stock options
Diluted weighted average number of shares
2021
$
3,110
2021
2020
$
2,186
2020
82,636,023
82,431,659
151,297
82,787,320
36,380
82,468,039
As at December 31, 2021, a total number of 79,152 stock options was excluded from the diluted weighted average number
of shares due to their anti-dilutive effect because of the Company’s stock price.
As at December 31, 2020, a total number of 301,600 stock options was excluded from the diluted weighted average
number of shares due to their anti-dilutive effect because of the Company’s stock price.
22. Share-Based Compensation
Restricted Share Unit and Performance Share Unit Plan
On November 4, 2015, the Company adopted a new Restricted Share Unit (“RSU”) and Performance Share Unit (“PSU”)
Plan (the “RSU & PSU Plan”) to replace the previous RSU Plan, for the purpose of enhancing the Company's ability to attract
and retain talented individuals to serve as employees, officers and executives of the Company and its affiliates and
promoting a greater alignment of interests between such employees, officers and executives and the shareholders of the
Company. The RSU & PSU Plan enables the Company to award eligible participants: (i) phantom RSUs that vest no later
than three years following the grant date; and (ii) phantom PSUs that vest after certain periods of time, not exceeding
three years, and subject to the achievement of certain performance criteria as determined by the Board of Directors. Such
plan provides for the settlement of RSUs and PSUs through either cash or the issuance of common shares of the Company
from treasury, for an amount equivalent to the volume weighted average of the trading price of the common shares of
the Company on the TSX for the five trading days immediately preceding the applicable RSU vesting determination date
or PSU vesting determination date.
In the case of a participant’s termination by the Company for cause or as a result of a voluntary resignation by the
participant before the end of a performance cycle, all RSUs and PSUs will be forfeited immediately as of the date on which
the participant is advised of his termination or resigns.
In the case of a participant’s termination by the Company other than for cause, if such participant is deemed to be on long-
term disability or if such participant retires before the end of a performance cycle, the number of RSUs which will vest at
such event will be prorated based on the number of months worked at the end of the performance cycle and all PSUs will
be forfeited immediately.
34 ▪ 5N Plus ▪ Consolidated Financial Statements
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5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
In the case of a participant’s death before the end of a performance cycle, the number of RSUs which will vest will be
prorated based on the number of months worked at the end of the fiscal year preceding the participant’s death and all
PSUs will be forfeited immediately.
The maximum number of common shares which may be issued under the RSU & PSU Plan is 5,000,000. Common shares
in respect of RSUs or PSUs to be settled through the issuance of common shares but that have been forfeited, cancelled
or settled in cash shall be available for RSUs or PSUs to be granted thereafter pursuant to this plan. No RSUs or PSUs to be
settled through the issuance of common shares may be granted to any participant unless the number of common shares:
(a) issued to "Insiders" within any one-year period; and (b) issuable to "Insiders" at any time, under the plan, or when
combined with all of the Company's other security-based compensation arrangements, could not exceed 10% of the total
number of issued and outstanding common shares, respectively.
For the year ended December 31, 2021, the Company granted 164,412 RSUs (2020 – 234,770), 413,710 RSUs were paid
(2020 – 322,540) and 143,851 RSUs were forfeited (2020 – 41,250). As at December 31, 2021, 342,259 RSUs were
outstanding (2020 – 735,408).
For the year ended December 31, 2021, the Company granted nil PSUs (2020 – nil), 166,700 PSUs were paid (2020 –
168,300) and 230,000 were cancelled (2020 – nil). As at December 31, 2021, 200,000 PSUs were outstanding (2020 –
596,700).
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, 2021, the Company granted
1,116,244 SARs (2020 – 450,542), 364,499 SARs were paid (2020 – nil), nil SARs were expired (2020 – 35,000) and 678,813
SARs were forfeited (2020 – nil). As at December 31, 2021, 1,330,632 SARs were outstanding (2020 – 1,257,700).
Deferred Share Unit Plan
On May 7, 2014, the Company adopted a Deferred Share Unit (“DSU”) 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 (with the exception of the 400,000
DSUs granted to the Company’s CEO on March 2, 2016 which vested on March 2, 2019) and become payable in cash upon
termination of services of a director, 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 of the twenty (20)
trading days immediately preceding the date of payment of the DSU.
For the year ended December 31, 2021, the Company granted 220,073 DSUs (2020 – 289,454) and 650,000 DSUs were
paid (2020 – 318,939). As at December 31, 2021, 1,574,968 DSUs were outstanding (2020 – 2,004,895).
5N Plus ▪ Consolidated Financial Statements ▪ 35
83
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
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 Stock Option Plan may be exercised during a period not exceeding ten years from the date of
grant. The stock options outstanding as at December 31, 2021 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
Exercised
Forfeited
Expired
Outstanding, end of year
Exercisable, end of year
Number
of options
672,600
648,212
(428,678)
(66,166)
-
825,968
267,007
2021
Weighted average
exercise price
CA$
2.09
2.49
1.88
2.78
-
2.46
2.33
The outstanding stock options as at December 31, 2021 are as follows:
February 2023
February 2024
March 2025
March 2026
May 2027
December 2027
Exercise price
Low
CA$
1.75
2.71
3.43
2.10
3.38
2.42
High
CA$
1.75
2.71
3.43
2.10
3.38
2.42
Number
of options
932,041
86,240
-
(133,681)
(212,000)
672,600
472,975
2020
Weighted average
Exercise price
CA$
2.58
2.10
-
2.43
4.03
2.09
1.94
Number of options
Exercisable
Outstanding
63,000
26,374
15,470
12,163
-
150,000
267,007
63,000
35,165
30,940
48,651
48,212
600,000
825,968
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 measurement of the fair values of the stock options at the
grant date granted during the years ended December 31, 2021 and 2020:
Expected stock price volatility
Dividend
Risk-free interest rate
Expected option life
Fair value – weighted average of options issued
36 ▪ 5N Plus ▪ Consolidated Financial Statements
84
2021
48%
None
1.24%
4 years
CA$0.96
2020
44%
None
1.10%
4 years
CA$0.74
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
The following table shows the share-based compensation expense recorded in the consolidated statements of earnings
for the years ended December 31, 2021 and 2020:
Expense
RSUs
PSUs
SARs
DSUs
Stock options
Indexed deposit
Total
2021
$
432
(552)
(331)
(320)
148
1,312
689
2020
$
635
312
479
1,334
65
(1,024)
1,801
In June 2017, the Company entered into an indexed deposit agreement to reduce its earnings exposure on the fluctuation
in the Company’s share price since this has an effect on the evaluation of the DSU, PSU, RSU and SAR plans. The fair value
of this indexed deposit is recorded under other current assets. Any further change in the fair value is recorded against the
share-based compensation expense (Note 17).
The following amounts were recorded:
Liability
RSUs
PSUs
SARs
DSUs
Total
Intrinsic value of vested units
23. Commitments and Contingencies
Commitments
2021
$
433
-
455
2,957
3,845
4,469
2020
$
1,167
994
1,046
4,522
7,729
5,668
As at December 31, 2021, in the normal course of business, the Company contracted letters of credit for an amount of
$953 (2020 – $699).
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.
24. Related Party Transactions
The Company’s related parties are its directors and executive members.
Unless otherwise stated, none of the transactions incorporated special terms and conditions and no guarantees were given
or received. Outstanding balances are settled in cash.
5N Plus ▪ Consolidated Financial Statements ▪ 37
85
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
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:
Wages and salaries
Share-based compensation and others (Note 22)
Total
25. Financial Risk Management
2021
$
3,597
(914)
2,683
2020
$
2,482
2,504
4,986
In the normal course of operations, the Company is exposed to various financial risks. These risk factors include market
risk (foreign 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.
a) 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, certain local operating expenses
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.
The following table summarizes
December 31, 2021:
in US dollar equivalents the Company’s major currency exposures as at
Cash and cash equivalents
Accounts receivable
Other current assets
Other non current assets
Trade and accrued liabilities
Long-term debt
Lease liabilities
Net financial assets (liabilities)
CA$
$
302
830
4,819
-
(7,890)
-
(6,906)
(8,845)
EUR
$
3,356
9,778
9,004
713
(20,295)
-
(577)
1,979
GBP
$
(53)
-
-
-
(4,718)
-
-
(4,771)
RMB
$
(4)
-
-
-
(212)
-
-
(216)
MYR
$
311
-
-
-
(169)
-
-
142
2021
Other
$
23
199
-
-
(638)
-
(69)
(485)
For the Company’s subsidiaries with a functional currency other than the US dollar, their exposures of financial assets and
financial liabilities denominated in US dollars are $5,966 and $4,542 respectively with a net position of $1,424. A variation
in the exchange rate between the functional currencies of these subsidiaries and the US dollar of five-percentage points
does not result in a material impact.
38 ▪ 5N Plus ▪ Consolidated Financial Statements
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5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
The following table shows the impact on earnings before income tax of a five-percentage point strengthening or weakening
of foreign currencies against the US dollar as at December 31, 2021 for the Company’s financial instruments denominated
in non-functional currencies:
5% Strengthening
5% Weakening
CA$
$
(442)
442
EUR
$
99
(99)
GBP
$
(239)
239
RMB
$
(11)
11
MYR
$
7
(7)
Other
$
(24)
24
The Company will occasionally enter into foreign exchange forward contracts to sell US dollars in exchange for Canadian
dollars and Euros. 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 are incurred in Canadian dollars and Euros. The Company may also enter into
foreign exchange contracts to sell Euros for US dollars. As at December 31, 2021, the Company has no foreign exchange
contracts outstanding.
b)
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 long-term debt, made of subordinated debts 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
have an impact of approximately $910 on the Company’s net earnings on a twelve-month horizon based on the
balance outstanding on December 31, 2021.
In February 2020, the Company entered into an interest rate swap agreement with a major Canadian financial
institution to reduce its financial expense fluctuations on Libor rate on a portion of its credit facility (Note 13). Under
this interest rate swap, the Company exchanges interest payments. The terms are such that on each interest
payment date, the Company will receive or pay the net difference between the fixed rate of 1.435% and its Libor
rate on a notional amount of $25,000.
c) 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.
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.
The outbreak of the COVID-19 is disrupting many sectors of the global economy and, consequently, some of the Company’s
customers. The Company has strengthened its strict controls on credit, including a tighter monitoring of customers that
are severely affected by the pandemic.
The Company applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected
credit loss allowance for trade receivables.
5N Plus ▪ Consolidated Financial Statements ▪ 39
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5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
The expected loss rates are based on the Company’s historical credit losses experienced over the three-year period
prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on
macroeconomic factors affecting the Company’s customers. Historically, the Company has not incurred any significant
losses in respect of its trade receivables. Therefore, the loss allowance at the end of each period and the change
recorded for each period is insignificant.
The past due receivables are as follows:
Current
More than 30 days past due
More than 60 days past due
Gross carrying amount
Loss allowance
Total trade receivables
The following table summarizes the changes in the loss allowance for trade receivables:
Beginning of year
Increase during the year
Trade receivables written off during the year as uncollectible
Unused amounts reversed
End of year
2021
$
33,838
413
763
35,014
(149)
34,865
2021
$
146
119
-
(116)
149
2020
$
23,093
230
51
23,374
(146)
23,228
2020
$
120
29
(3)
-
146
The loss allowance 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.
Amounts charged to the loss allowance account are generally written off when there is no reasonable expectation of
recovery.
Counterparties to financial instruments may also 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, therefore no impairment loss was identified as at December 31, 2021.
40 ▪ 5N Plus ▪ Consolidated Financial Statements
88
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
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 cash flows of the Company’s financial liabilities as at December 31, 2021:
Carrying
amount
$
56,848
116,000
32,640
205,488
1 year
$
56,848
3,311
2,998
63,157
2 years
$
-
93,217
2,543
95,760
3 years
$
-
25,418
2,324
27,742
4 years
$
-
-
2,278
2,278
Over
5 years
$
-
-
26,756
26,756
2021
Total
$
56,848
121,946
36,899
215,693
Trade and accrued liabilities
Long-term debt
Lease liabilities
Total
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.
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 long-term debt in the consolidated statement of financial
position) less cash and cash equivalents. Any introduced IFRS 16 reporting measures in reference to lease liabilities are
excluded from the calculation.
Debt-to-equity ratios as at December 31, 2021 and 2020 are as follows:
Long-term debt including current portion
Total debt
Less: Cash and cash equivalents
Net debt
Shareholders’ equity
Debt-to-equity ratio
2021
$
116,000
116,000
(35,940)
80,060
136,247
59%
2020
$
50,109
50,109
(39,950)
10,159
118,376
9%
In 2021, the debt-to-equity ratio is higher following the increase in the debt required for the acquisition of AZUR (Note 13).
5N Plus ▪ Consolidated Financial Statements ▪ 41
89
5N PLUS | 2021 ANNUAL REPORT
5N PLUS INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31
Years ended December 31
(in thousands of United States dollars, unless otherwise indicated)
(in thousands of United States dollars, unless otherwise indicated)
27. Expenses by Nature
Expenses by nature include the following:
Wages and salaries(1)
Share-based compensation expense (Note 22)
Impairment of inventories (Note 6)
Depreciation of property, plant and equipment (Note 7)
Impairment of non-current assets (Note 7)(2) (3)
Depreciation of right-of-use assets (Note 8)
Amortization of intangible assets (Note 9)
Amortization of other assets
Loss (gain) on disposal of property, plant and equipment
Research and development, net of tax credit(1)
Litigation and restructuring costs (income), net(2) (3) (4)
2021
$
40,353
689
-
8,969
-
1,764
1,802
253
171
736
2,144
2020
$
34,535
1,801
2,411
8,805
4,934
1,451
1,469
177
(64)
1,930
(5,577)
(1)
Reduced wages and salaries by an amount of $1,166 for the year ended December 31, 2020 resulting from the Canada Emergency Wage Subsidy.
There is no outstanding balance of deferred income or receivable related to this grant as at December 31, 2020.
Reduced research and development, net of tax credit by an amount of $1,590 for the year ended December 31, 2021 resulting from research
and development subsidies. There is no outstanding balance of deferred income or receivable related to this grant as at December 31, 2021.
(2) During the third quarter of 2020, the Company recorded an impairment charge on non-current assets of $2,512 ($989 for Land and buildings
and $1,523 for Production equipment), included in Specialty semiconductors segment, to reflect the assessment of the carrying value related to
the planned closure of one of the Company's subsidiary situated in Asia. This decision was taken solely due to unfavorable business conditions
arising from abrupt changes in the regulatory environment and inconsistent enforcement practices.
In addition, a provision for restructuring costs was recorded in accordance with IAS 37 “Provision, contingent liabilities and contingent assets”
for an amount of $610 during 2021, compared to an amount of $2,339 during 2020. This provision consists of severances and other related costs
to site closure.
(3) During the third quarter of 2020, the Company recorded a non-recurring income of $8,000 resulting from a deed of termination of an offtake
agreement with a supplier, net of associated costs of $84. At the same time, the Company recorded an impairment charge on non-current assets
of $2,422 to reflect the assessment of the carrying value of some production equipment related to the site affected by this termination
agreement.
(4) During the fourth quarter of 2021, the Company recorded a charge of $1,534 following the announcement of a change to its senior executive
management for which a balance of $94 is outstanding as at December 31, 2021.
42 ▪ 5N Plus ▪ Consolidated Financial Statements
90
5N PLUS | 2021 ANNUAL REPORT
Board of
Directors
Luc Bertrand
Chairman of the Board
Jean-Marie Bourassa
Chairman of the Audit and
Risk Management Committee
Gervais Jacques
Director
Nathalie Le Prohon
Chair of the Governance and
Compensation Committee
Executive
Committee
Gervais Jacques
President and Chief Executive Officer
Richard Perron
Chief Financial Officer
Jürgen Heizmann
Executive Vice President,
Specialty Semiconductors
Paul Tancell
Executive Vice President,
Performance Materials
91
5N PLUS | 2021 ANNUAL REPORT Corporate
Information
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
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
92
5N PLUS | 2021 ANNUAL REPORT 100%
5N Plus Inc.
4385 Garand Street
Montréal, Quebec, Canada
H4R 2B4
Enabling Performance™
www.5nplus.com
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