5N Plus
Annual Report 2022

Plain-text annual report

Enabling Performance™ Building on our Momentum Critical, Valued and Trusted 2022 Annual Report Content Why Invest in 5N Plus Message from the Chair Message from the CEO Segment Overview Sustainability Management’s Discussion and Analysis Management’s Responsibility for Financial Reporting Independent Auditor’s Report Consolidated Financial Statements Board of Directors and Executive Committee Corporate Information 2 4 6 8 10 12 40 41 46 90 91 5N Plus (TSX:VNP) is a leading global producer of specialty semiconductors and performance materials. Our ultra- pure materials often form the core element of our customers’ products. We create critical materials that enable various applications in critical industries, including for the renewable energy, security, space and medical imaging sectors under our Specialty Semiconductors segment, and for the health and pharmaceutical, as well as industrial sectors under Performance Materials. 1 5N PLUS | 2022 ANNUAL REPORTWhy Invest in 5N Plus 1 2 Market leading global supplier of value- added products to leading customers in high-growth industries → Leading supplier of specialty semiconductor compounds for renewable energy → Leading supplier of solar cells for space industry → Leading supplier of engineered semiconductor substrates and ultra-high purity materials to sensing and imaging industries → Leading supplier of bismuth- based active pharmaceutical ingredients → Industrial partner and supplier to governments and agencies around the world Integrated manufacturer of advanced materials utilizing unique and proprietary process technologies → Highly specialized producer of high-purity metals and compounds that often form core components of customer end-products → R&D, manufacturing facilities → Operating in stable markets and commercial centres strategically located around the globe close to suppliers and customers → Strong technological platform and skillset enabling first- to-market advantage and continuous improvements 3 Effective commercialization strategy → Focused on securing → Streamlined product long-term value-added partnerships with leading customers in high-growth markets portfolio with growing emphasis on higher value-added specialty semiconductors and performance materials 4 Financial discipline 5 Committed to sustainable development → Strong balance sheet → Invest in operations in line → Disciplined approach to with demand and ramp up of commercial agreements potential acquisitions and/or entering new end markets → ISO-certified operations committed to high standards in health and safety, quality and sustainability → Closed-loop resources management approach → Provider of essential materials for applications critical to the decarbonization and the energy transition 2 5N PLUS | 2022 ANNUAL REPORTMission Vision To be critical to our customers, valued by our employees and trusted by our shareholders. 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) 2 . 4 6 2 $ . 8 8 2 $ . 2 8 2 $ 0 . 0 3 $ . 0 0 1 2 $ 2 . 7 7 1 $ Backlog1 (number of days of last quarter annualized revenue) 3 5 2 1 2 2 9 8 1 2020 2021 2022 2020 2021 2022 2020 2021 2022 800 Employees on Three Continents North America HEAD OFFICE Canada Montréal United States Bridgeport St. George Europe Germany Eisenhüttenstadt Heilbronn Lübeck Commercial Activities Manufacturing Research & Development Asia China Hong Kong Shangyu Laos Ventiane Malaysia Kulim 1 Adjusted EBITDA and backlog are non-IFRS financial measures. See Non-IFRS Measures section in this document for more information. All amounts in this document are experessed in U.S. dollars unless otherwise indicated. 3 5N PLUS | 2022 ANNUAL REPORT4 5N PLUS | 2022 ANNUAL REPORT On the Right Path to Unlock Future Growth The year 2022 was a productive year for 5N Plus. Under new leadership, the Company integrated AZUR after it was acquired in late 2021, signed significant commercial agreements, further streamlined the Company’s product mix and made steady progress on its sustainability roadmap. As stewards of the Company on behalf of shareholders, the Board has full confidence in the senior management team and its ability to capitalize on opportunities for growth, underpinned by strong strategic execution. As a Board, we remain committed to ensuring high standards of governance and are highly engaged in the oversight of the Company’s long-term strategy.Luc Bertrand Chair of the Board The right talent executing on our strategy enterprise risk management. We have also remained engaged with, Gervais Jacques was appointed to the role of interim President and and supportive of, management in the advancement of the Company’s CEO on December 1, 2021 and was permanently appointed to the role sustainability agenda, notably with the publication of the Company’s in March of 2022. The Board is pleased with the Executive Committee’s first comprehensive Sustainability Report. strong leadership and the progress the Company is making in the execution of its strategy. We take our responsibility for improved governance at the Board and executive level very seriously, which includes continually evaluating The Executive Committee was also further strengthened last fall Board composition to ensure it is best aligned with the objectives of with the addition of Roland Dubois as Chief Commercial Officer and the Company, while maintaining independence and improving upon Executive Vice President of Specialty Semiconductors. Ensuring that diversity. Following an extensive search process which began in 2022, we can attract and retain top talent, as well as succession planning for in early 2023, we were pleased to welcome Blair Dickerson as an key roles, remains an ongoing Board priority. independent director. Ms. Dickenson brings a wealth of experience Through continuing economic and market challenges, the Company’s Executive Committee moved ahead decisively as a team by securing strategic supply agreements and commercial partnerships with Rio Tinto, Sierra Space and First Solar, among others. The team also took and expertise in the natural resources sector, communications, public affairs and public policy work. With the addition of Ms. Dickerson, the Board has surpassed its diversity objective of having at least 30% female representation on the Board by 2025. action to exit less attractive and more commoditized business lines and Looking ahead, we will continue to be diligent in tracking the invested in our operations to expand our presence in high-growth end Company’s progress on the execution of its growth strategy. Our role markets, like renewable energy and space power. These actions expand is to guide management as it capitalizes on opportunities through a the Company’s presence in its target markets, ensure that we have the diversified, value-added business mix and expands in the right markets right product mix and focus for the future and demonstrate 5N Plus’ to create long-term value for all stakeholders. resilience and ability to adapt as it positions itself for further growth. On behalf of the Board, I would like to express our gratitude to all A sustainable business fueled by growth our employees and management for their commitment to the success The Board and management are aligned when it comes to the need of the Company and to all our shareholders for your continued trust to have a sustainable business model as part of its future growth and and support. conducting business in an ethical and responsible manner. Sincerely, To that end, we continue to work with management to enhance our disclosure of Environmental, Social and Governance (ESG) matters and make improvements in all areas, particularly on those over which we have direct control. In 2023, we intend to officially integrate ESG oversight and responsibility to the Board’s Governance and Compensation Committee, which is in addition to the Audit and Risk Management Committee’s oversight of climate risks, part of our Luc Bertrand Chair of the Board 5 5N PLUS | 2022 ANNUAL REPORTLast year marked my first full year as CEO and I am pleased Strong Partnerships and the Right Product Mix with what we have been able to accomplish as a team, Operationally, our sights remained fixed on ensuring commercial particularly in the context of continuing headwinds and market excellence in every sector we serve. The year 2022 also marked challenges. Revenues reached $264.2 million, representing a the completion of the integration of AZUR, which we acquired in 26% year-over-year increase, and Adjusted EBITDA1 came in at November 2021. Through AZUR, we signed a ten-year extension $30 million, at the high end of our 2022 guidance range. These to an exclusive teaming arrangement with Sierra Space, a results were supported by both our Specialty Semiconductors leading U.S. based commercial space company at the forefront and Performance Materials segments, and the team’s ability to of space innovation and commercialization. The commercial remain agile in a dynamic environment. relationship further establishes 5N Plus as the clear partner in Our financial performance is a testament to our rigorous focus on increasing volumes and structurally improving our costs and high-end space solar cell technology and speaks to what can be accomplished as one team. product mix to be better positioned for the long term. We enter Our long-time relationship with First Solar has reached an 2023 with strong momentum, well-positioned for continued unprecedented level as reflected in the renewal of our contract. growth in our key sectors of activity, as illustrated by our We increased the volume for the supply of semiconductor historically high backlog1 at year end. materials associated with the manufacturing of thin-film photovoltaic modules by 35% in 2023 and over 100% in 2024, compared to 2022 levels. Related to First Solar, we also reached a commercial agreement with Rio Tinto to source the tellurium produced at its Kennecott copper operation in Utah, which began last December. The tellurium refined at our Montréal facility is primarily used for the manufacturing of thin-film photovoltaic modules by First Solar, and for ultra-high purity semiconductor substrates for the security and medical imaging markets at our Utah facility. 1 Adjusted EBITDA and backlog are non-IFRS financial measures. See Non-IFRS Measures section in this document for more information. All amounts in this document are expressed in U.S. dollars unless otherwise indicated. 6 5N PLUS | 2022 ANNUAL REPORT Building on our MomentumLooking back on 2022, we at 5N Plus are proud of how we continued to execute on our strategy for growth in value-added end markets. We remain at the forefront of our field as a critical supplier to critical industries around the globe and a genuine differentiator and partner of choice in the field of speciality semiconductors.Gervais Jacques President and CEO Further to that, we recently completed investments in Montréal to Our focused strategy strengthens our Company and positions us expand the development and manufacturing of critical materials, for the future, as we capitalize on our momentum for further growth including those containing tellurium for advanced II-VI semiconductor fueled by our strategic partnerships. In Specialty Semiconductors, compounds. We will continue to invest in our operations to increase we expect unprecedented demand and high growth in sectors our production capacity to meet the needs of our clients. like renewable energy and space solar power to be sustained and Finally, in late 2022, we exited the extractive and catalytic sector with the divestiture of our manufacturing facility in Tilly, Belgium, in line with our strategy to improve our product mix and reduce exposure to more commoditized end markets. This also marked the completion of our strategic review process which served to reinforce our focus on value-added products. supported by growing demand in both North America and Europe. We also expect significant growth in medical imaging applications in the next three to five years, supported by the introduction of photon counting detectors to replace scintillator technology, allowing significantly lower radiation and improved image enhancing diagnostic accuracy. In Performance Materials, we expect that our focus on the right sectors and the investments made in the business We are also proud of the work we completed in 2022 with respect will enable us to expand our product mix in attractive end markets. to establishing and setting our sustainability framework. In early 2023, we published our inaugural comprehensive Sustainability Report, simultaneous with this Annual Report. In the Sustainability Report, we outline our commitment to and progress in contributing to a sustainable economy through the critical sectors we serve As we look ahead, we are invested to meet customer demand and are ready to unlock the full potential of our strategy supported by our commercial excellence mindset and investments in value-added and high-growth markets. and enable. Going forward, our goal is to further minimize our I am grateful to our Board for their guidance, oversight and support environmental footprint and impact, as we continue to contribute to in my first official year as CEO and to our entire team for their the communities in which we are present. dedication and professionalism as we refocused our strategy, A Focused Strategy for A High-Growth Future As we move away from more commoditized business lines and invest in innovative specialty semiconductors and performance materials, we will continue to develop value-added partnerships leveraging our brought AZUR into the fold, delivered on commercial excellence and selectively invested in our sustainable growth. I am extremely excited by the prospects ahead in 2023 and beyond to drive more growth and value for our employees, our customers and our shareholders. unique expertise in enabling critical industries. As an example, we Sincerely, are making further developments in our imaging technology business with strategic partnerships, as well as in active pharmaceutical ingredients, such as through our investment in Microbion, which is a longer-term endeavour on which we are progressing. Gervais Jacques President and CEO 7 5N PLUS | 2022 ANNUAL REPORTEnabling Products and Growing Markets As a leading global producer of specialty semiconductors and performance materials, we create critical materials that enable a wide variety of technologies and products essential to people’s daily lives. Our world-class R&D and manufacturing capabilities as well as our technical expertise and proprietary processes enable us to transform metals into value-added specialty materials that form the core of our customers’ products. 8 5N PLUS | 2022 ANNUAL REPORT Specialty Semiconductors Through our Specialty Semiconductors segment, we sell semiconductor compounds, semiconductor wafers, ultra-high purity metals, epitaxial semiconductor substrates and solar cells, primarily derived from from cadmium, zinc, germanium, indium, antimony and tellurium. Performance Materials Through our Performance Materials segment, we sell bismuth and bismuth-based chemicals, trace element premixes, as well as optical and low melting point alloys. This segment is strongly associated with bismuth, which is non-toxic and possesses anti-microbial activity, and is used in several applications as a replacement for more harmful metals and chemicals. Products are primarily sold as active pharmaceutical ingredients, animal feed additives, specialized chemicals, commercial grade metals and alloys. Renewable Energy Space Our engineered semiconductor compounds are used to make the black thin-film photovoltaic modules on solar panels enabling the conversion of solar energy into electricity. Today, gigawatts of solar panels incorporating our materials are installed in utility-scale projects, generating renewable power for consumers worldwide. Our high-purity germanium wafers and epitaxial semiconductor substrates are used to produce ultra- high efficiency photovoltaic solar cells for satellite power generation and concentrated photovoltaic systems. Our enabling materials are currently in orbit powering commercial and defense satellites around the globe, as well as incorporated in next- generation energy storage infrastructure on land. Imaging and Sensing Made of cadmium, tellurium and zinc of the very highest purity, our materials are used to manufacture radiation detector chips used in medical, infrared and earth imaging applications in the medical, security and defense industries, helping to reduce patient exposure to x-rays and keeping nations safe. Health and Pharmaceutical Non-toxic to human health or the environment and with anti-microbial properties, our bismuth products are used as active pharmaceutical ingredients in over-the- counter antacids, antibiotic creams and cosmetics products. Industrial Our alloys are used in aviation for work-holding applications where dimensional stability and low temperature are critical characteristics. Bismuth is used as a replacement for lead in other industrial applications, like coatings and pigments, and is in electronics, optics and glass. We also produce pre-mixes containing trace elements of iodine, selenium and cobalt for animal feed. 9 5N PLUS | 2022 ANNUAL REPORTEnabling a Sustainable Future At 5N Plus, sustainable development is at the core of our growth strategy. We aim to extend our position in the circular economy, enable innovative technology and be a critical supplier to sectors essential to a sustainable future. Internally, our sustainability programs aim to reduce our ecological footprint and ensure we maintain sustainable procurement practices. We consider ourselves optimally positioned in three areas to support our communities and environment: Leading the Sustainable Economy, Supplying the Renewable Energy Community Responsibility Minimizing our Environmental Industry and Enabling New Technology We give back to our communities and Footprint and Impact Solar energy is one of the most important invest in their development. We have From our supply chain to our products, components required for transitioning provided books and reading materials we are constantly looking to improve. the world to a decarbonized economy. to communities in need and coordinated Currently, we are initiating two circular We are proud to be a leading supplier community tree planting events. We are economy studies to investigate more of semiconductor materials for the committed to maintaining our reputation as renewable and local raw material sources manufacturing of thin-film solar power a great place to work, a trusted supplier and and our mineral recycling program spans generating technologies for terrestrial and valued member of the community. three continents. We are early adopters of space power generation. In new technologies, sustainable procurement programs and we support pharmaceuticals and medical focus on reducing waste, proudly ensuring technology developments by providing thoughtful circular supply chains. materials needed for new medical imaging devices, which reduce x-ray exposure, and investing in novel class pharmaceuticals, among other critical sectors. We continued to work diligently throughout 2022 on the development of our sustainability approach. As a result, in early 2023, guided by the Global Reporting Initiative (GRI) framework and the recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD), among other frameworks, we published our first comprehensive Sustainability Report. We continue to mindfully plan our path forward to further integrate our approach to sustainability into our business model, while engaging with our stakeholders and keeping them informed of our progress. We invite you to consult our inaugural Sustainability Report, available at www.5nplus.com. 10 5N PLUS | 2022 ANNUAL REPORT2022 Sustainability Highlights ~25GW of solar power equivalent in the world has been enabled by 5N Plus technology to date 1 30% reduction in process water consumption over five years 40% female representation on the Board of Directors 3 100% of process water is recycled at our facilities in Eisenhüttenstadt and Shangyu 65% reduction in work-related incidents since 2018 #1 supplier of bismuth 2-based active pharmaceutical ingredients, representing 80% of global demand 1 27% female staff across the global office We have the ISO 50001 standard in two sites in Germany, an energy management methodology that aims to improve energy performance Our sodium nitrate containing wastewater in Lübeck is used for odor reduction (organic wastewater, against anaerobic digestion in the sewers) 4,220 hours of EHS training provided in 2022 1 Based on management estimates 2 See Performance Materials on page 9 3 Since February 23, 2023 11 5N PLUS | 2022 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,  2022,  based  on  International  Financial  Reporting Standards (‘’IFRS’’) as issued by the International Accounting Standards Boards, unless otherwise stated. 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  21,  2023,  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 2022” and “Q4 2021” refer to the  three‐month periods ended December 31, 2022 and December 31, 2021, respectively. “FY 2022” and “FY 2021” refer to  the years ended December 31, 2022 and December 31, 2021, respectively.   Non‐IFRS Measures  This MD&A contains certain non‐IFRS financial measures and ratios, which do not have a standard meaning under IFRS  and, therefore, may not be comparable to similar measures presented by other issuers. Such non‐IFRS measures and  ratios include backlog, bookings, EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted operating  expenses, Adjusted net earnings, Basic adjusted net earnings, Adjusted gross margin, total debt, net debt, working capital  and working capital ratio.  For  definitions,  further  information  and  reconciliation  of  these  measures  to  the  most  directly  comparable  measures  under IFRS, see the “Non‐IFRS Measures” 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 interest rate,  foreign currency, credit, liquidity, global economic conditions, crisis and climate change management, international operations  including China, environmental regulations, social and governance (ESG) considerations, safety and hazards, prolonged armed  conflict in Ukraine, COVID‐19, availability and retention of qualified employees, collective agreements, litigation, our growth  strategy,  competition,  commodity  price,  sources  of  supply,  protection  of  intellectual  property,  inventory  price,  business  interruptions, changes in backlog, acquisitions, systems, network infrastructure and data failure, 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 21, 2023.  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.  12 5N Plus   ▪   Management’s Discussion and Analysis   ▪   1   5N PLUS | 2022 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’ 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’ 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  repositioned  certain  products  and  applications  between its two reportable segments effective in the fourth quarter of 2021.  Since  then,  the  Company  has  the  following  two  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.   Operating  in  North  America  and  Europe,  the  Specialty  Semiconductors  segment  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  13 5N PLUS | 2022 ANNUAL REPORT                    Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   Q4 and FY 2022 Highlights – Building on our Momentum  Q4 and FY 2022 Highlights – Building on our Momentum  Fiscal  2022  was  an  important  chapter  in  the  history  of  5N  Plus.  Executing  on  its  strategy,  the  Fiscal  2022  was  an  important  chapter  in  the  history  of  5N  Plus.  Executing  on  its  strategy,  the  Company  made  significant  progress  and  is  now  well‐positioned  to  build  on  its  momentum  and  Company  made  significant  progress  and  is  now  well‐positioned  to  build  on  its  momentum  and  market leadership in the promising sectors in which it operates, as illustrated by its historically  market leadership in the promising sectors in which it operates, as illustrated by its historically  high backlog as at December 31, 2022.  high backlog as at December 31, 2022.  All amounts are expressed in U.S. dollars.  All amounts are expressed in U.S. dollars.  FY 2023 and FY 2024 Adjusted EBITDA1 guidance is presented in the Outlook section.  FY 2023 and FY 2024 Adjusted EBITDA1 guidance is presented in the Outlook section.  Against the backdrop of geo‐political and macro‐economic challenges, the Company responded swiftly to inflationary  Against the backdrop of geo‐political and macro‐economic challenges, the Company responded swiftly to inflationary  and energy related cost pressures, quickly implementing the first wave of its commercial excellence program to mitigate  and energy related cost pressures, quickly implementing the first wave of its commercial excellence program to mitigate  the negative impact of inflation on product margins. This resulted in a sequential improvement of consolidated adjusted  the negative impact of inflation on product margins. This resulted in a sequential improvement of consolidated adjusted  gross margins1 from 21.9% for Q1 2022 to 26.7% in Q4 2022. The Company continues to approach partnerships and  gross margins1 from 21.9% for Q1 2022 to 26.7% in Q4 2022. The Company continues to approach partnerships and  product development opportunities with discipline.  product development opportunities with discipline.  During  the  year,  the  Company  renewed  and  increased  its  supply  agreement  with  First  Solar,  for  the  supply  of  During  the  year,  the  Company  renewed  and  increased  its  supply  agreement  with  First  Solar,  for  the  supply  of  semiconductor  materials  associated  with  the  manufacturing  of  thin‐film  photovoltaic  (PV)  modules,  further  semiconductor  materials  associated  with  the  manufacturing  of  thin‐film  photovoltaic  (PV)  modules,  further  strengthening  its  leadership  in  renewable  energy.  Under  the  new  agreement,  the  Company’s  supply  volumes  will  strengthening  its  leadership  in  renewable  energy.  Under  the  new  agreement,  the  Company’s  supply  volumes  will  increase by 35% in 2023 and over 100% in 2024, compared to 2022 levels, in line with First Solar’s own growth plans.  increase by 35% in 2023 and over 100% in 2024, compared to 2022 levels, in line with First Solar’s own growth plans.  Through its subsidiary AZUR, 5N Plus signed a ten‐year extension to an exclusive teaming arrangement with Sierra Space,  Through its subsidiary AZUR, 5N Plus signed a ten‐year extension to an exclusive teaming arrangement with Sierra Space,  a leading U.S.‐based commercial space company, to produce a new solar cell for use in the production of Sierra Space’s  a leading U.S.‐based commercial space company, to produce a new solar cell for use in the production of Sierra Space’s  unique  Space  Solar  Surface  Mount  Technology  solar  array  systems.  Sales  to  Sierra  Space  are  anticipated  to  reach  unique  Space  Solar  Surface  Mount  Technology  solar  array  systems.  Sales  to  Sierra  Space  are  anticipated  to  reach  $10 million  in  2023  and  over  $20 million  in  2024,  incremental  to  the  current  sales.  The  commercial  relationship  $10 million  in  2023  and  over  $20 million  in  2024,  incremental  to  the  current  sales.  The  commercial  relationship  entrenches 5N Plus as a trusted partner in a sector experiencing rapidly accelerating demand which is expected to exceed  entrenches 5N Plus as a trusted partner in a sector experiencing rapidly accelerating demand which is expected to exceed  current available capacity. AZUR is uniquely positioned to supply both North America and Europe. In 2022, the Company  current available capacity. AZUR is uniquely positioned to supply both North America and Europe. In 2022, the Company  completed its integration of AZUR, which was acquired in November 2021.  completed its integration of AZUR, which was acquired in November 2021.  In December  2022,  the  Company  exited  the  manufacturing  of  low  margin  extractive  and  catalytic  products  with  the  In  December  2022,  the  Company  exited  the  manufacturing  of  low  margin  extractive  and  catalytic  products  with  the  divestiture of its Tilly, Belgium operations to a third party, thereby completing the strategic review of its operations. On  divestiture of its Tilly, Belgium operations to a third party, thereby completing the strategic review of its operations. On  a  forward‐looking  basis,  exiting  this  business  is  expected  to  provide  incremental  Adjusted  EBITDA1  contribution  to  a  forward‐looking  basis,  exiting  this  business  is  expected  to  provide  incremental  Adjusted  EBITDA1  contribution  to  consolidated results and support more favourable net working capital levels.  consolidated results and support more favourable net working capital levels.  By  year  end,  the  Company  completed  its  St‐Laurent  project  (Montréal,  Canada),  expanding  the  development  and  By  year  end,  the  Company  completed  its  St‐Laurent  project  (Montréal,  Canada),  expanding  the  development  and  manufacturing  of  critical  minerals  for  advanced  II‐VI  based  semiconductor  compounds.  For  this  facility,  by‐products  manufacturing  of  critical  minerals  for  advanced  II‐VI  based  semiconductor  compounds.  For  this  facility,  by‐products  sourced from Rio Tinto’s copper operations from its Kennecott, Utah copper operation started late December 2022, part  sourced from Rio Tinto’s copper operations from its Kennecott, Utah copper operation started late December 2022, part  of  a  strategic  commercial  agreement  with  Rio  Tinto  announced  in  May  2022  to  secure  a  North  American  supply  of  of  a  strategic  commercial  agreement  with  Rio  Tinto  announced  in  May  2022  to  secure  a  North  American  supply  of  tellurium.  tellurium.  Financial Highlights  Financial Highlights   Revenue in Q4 2022 reached $61.0 million, compared to $64.6 million for the same period last year. The decrease is   Revenue in Q4 2022 reached $61.0 million, compared to $64.6 million for the same period last year. The decrease is  primarily attributable to the phase out and divestiture of the Tilly, Belgium operations. Revenue increased by 26% to  primarily attributable to the phase out and divestiture of the Tilly, Belgium operations. Revenue increased by 26% to  $264.2 million in FY 2022, compared to $210.0 million last year, supported by the acquisition of AZUR and higher  $264.2 million in FY 2022, compared to $210.0 million last year, supported by the acquisition of AZUR and higher  demand for renewable energy in Specialty Semiconductors, as well as for pharmaceutical and health in Performance  demand for renewable energy in Specialty Semiconductors, as well as for pharmaceutical and health in Performance  Materials.   Materials.   1 See Non‐IFRS Measures  1 See Non‐IFRS Measures  14 5N Plus   ▪   Management’s Discussion and Analysis   ▪   3   5N Plus   ▪   Management’s Discussion and Analysis   ▪   3   5N PLUS | 2022 ANNUAL REPORT                                            Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss  Adjusted EBITDA1 in Q4 2022 reached $6.7 million, compared to $10.1 million for the same period last year, due to  AZUR  realizing  the  majority of  its  2021  annual Adjusted EBITDA  in the months  following  its  acquisition.  Adjusted  EBITDA for FY 2022 reached $30.0 million, achieving the high end of the Company’s FY 2022 guidance, compared to  $28.2 million last year, despite the negative impact of the Russia/Ukraine conflict in Q1 2022, rising inflation and the  winding down and divestiture of the Tilly, Belgium operations.   In Q4 2022, the Company recorded a loss on divestiture of $7.8 million on the winding down and divestiture of the  Tilly, Belgium operations completed in December 2022, as well as a $3.2 million in litigation and restructuring costs,  mainly attributable to the same transaction.   On December 31, 2022, the backlog1 represented 253 days of annualized revenue, 61 days higher than the previous  quarter, and 32 days higher than the same period last year. The increase in the backlog is attributable to favourable  negotiations of long‐term contracts under Specialty Semiconductors.   Net debt1 stood at $78.3 million on December 31, 2022, down from $80.1 million at the end of the prior year.  Outlook  Under its Specialty Semiconductors segment, 5N Plus continues to be the only viable global supplier, outside China, of  ultra‐high purity semiconductor compounds used in a wide range of critical technologies essential to people’s lives. With  unprecedented demand for applications, such as terrestrial renewable energy and space solar power, the Company is  well‐positioned to unlock the full potential of its enhanced product offering and is investing in its operations to meet  exceptional customer demand in the years to come.   The Company is uniquely positioned to play a significant role in the new Photon Counting Detectors technology for CT  scan, which is set to revolutionize medical imaging in the medium‐term. The Company also continues to explore other  potential market opportunities for its specialty semiconductor products in namely the defence and security sectors.  Under Performance Materials, management expects its health and pharmaceutical products to continue providing high  profitability and consistent cashflows. The Company will continue to focus on the right sectors to expand the segment’s  product mix in attractive end markets.  The Company will continue to implement operational optimization initiatives, where appropriate, to bring incremental  benefits to 5N Plus in support of organic growth, while remaining opportunistic regarding M&As.  Given its investments in high‐growth potential opportunities, with unprecedented demand in key end markets and a  simplified  business  and  product  mix,  management  expects  its  projected  Adjusted  EBITDA1  range  to  be  between  $35 million and $40 million for FY 2023, with a higher contribution in the second half of the year, and between $45 million  and $50 million for FY 2024.  Looking ahead, 5N Plus is focused on meeting customer demand and building on its momentum to reap the full potential  of  its  strategy,  supported  by  its  commercial  excellence  program  and  investments  in  value‐added  and  high‐growth  markets.  1 See Non‐IFRS Measures  4   ▪   5N Plus   ▪   Management’s Discussion and Analysis  15 5N PLUS | 2022 ANNUAL REPORT                          Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   Q4 and FY 2022 Highlights – Building on our Momentum  Summary of Results  Fiscal  2022  was  an  important  chapter  in  the  history  of  5N  Plus.  Executing  on  its  strategy,  the  (in thousands of U.S. dollars, except per share amounts)  FY 2021  Company  made  significant  progress  and  is  now  well‐positioned  to  build  on  its  momentum  and  $  market leadership in the promising sectors in which it operates, as illustrated by its historically  Revenue  209,990  Adjusted operating expenses1*  (181,751)  high backlog as at December 31, 2022.  Adjusted EBITDA1  28,239  Impairment of inventories  ‐  All amounts are expressed in U.S. dollars.  Share‐based compensation recovery (expense)   (689)  (2,144)  Litigation and restructuring costs  FY 2023 and FY 2024 Adjusted EBITDA1 guidance is presented in the Outlook section.  Impairment of non‐current assets  ‐  Loss on divestiture of subsidiary  ‐  Against the backdrop of geo‐political and macro‐economic challenges, the Company responded swiftly to inflationary  Loss on disposal of assets held for sale  ‐  and energy related cost pressures, quickly implementing the first wave of its commercial excellence program to mitigate  Foreign exchange and derivative gain (loss)  (418)  EBITDA1  the negative impact of inflation on product margins. This resulted in a sequential improvement of consolidated adjusted  24,988  gross margins1 from 21.9% for Q1 2022 to 26.7% in Q4 2022. The Company continues to approach partnerships and  Interest on long‐term debt, imputed interest and other interest expense  3,713  Depreciation and amortization  12,535  product development opportunities with discipline.  8,740  FY 2022  $  264,223  (234,195)  30,028  ‐  (999)  (3,823)  (12,478)  (7,834)  (216)  (42)  4,636  5,192  17,732  (18,288)  Q4 2022  $  61,042  (54,337)  6,705  ‐  171  (3,210)  ‐  (7,834)  ‐  497  (3,671)  716  4,051  (8,438)  Q4 2021  $  64,556  (54,470)  10,086  ‐  460  (1,644)  ‐  ‐  ‐  (1,080)  7,822  1,164  4,364  2,294  Current  Deferred  During  the  year,  the  Company  renewed  and  increased  its  supply  agreement  with  First  Solar,  for  the  supply  of  5,580  semiconductor  materials  associated  with  the  manufacturing  of  thin‐film  photovoltaic  (PV)  modules,  further  50  strengthening  its  leadership  in  renewable  energy.  Under  the  new  agreement,  the  Company’s  supply  volumes  will  5,630  increase by 35% in 2023 and over 100% in 2024, compared to 2022 levels, in line with First Solar’s own growth plans.  3,110  6,865  (2,154)  4,711  (22,999)   43  (335)  (292)  (8,146)  1,446  (132)  1,314  980  Net (loss) earnings   (Loss) earnings before income taxes  Income tax expense (recovery)  Basic (loss) earnings per share  Diluted (loss) earnings per share  Through its subsidiary AZUR, 5N Plus signed a ten‐year extension to an exclusive teaming arrangement with Sierra Space,  a leading U.S.‐based commercial space company, to produce a new solar cell for use in the production of Sierra Space’s  unique  Space  Solar  Surface  Mount  Technology  solar  array  systems.  Sales  to  Sierra  Space  are  anticipated  to  reach  *Excluding  impairment  of  inventories,  share‐based  compensation  recovery  (expense),  litigation  and  restructuring  costs,  impairment  of  non‐current  assets,  loss  on  $10 million  in  2023  and  over  $20 million  in  2024,  incremental  to  the  current  sales.  The  commercial  relationship  divestiture of subsidiary, loss on disposal of assets held for sale, and depreciation and amortization.  entrenches 5N Plus as a trusted partner in a sector experiencing rapidly accelerating demand which is expected to exceed  Revenue by Segment and Adjusted Gross Margin   current available capacity. AZUR is uniquely positioned to supply both North America and Europe. In 2022, the Company  completed its integration of AZUR, which was acquired in November 2021.  ($0.09)  ($0.09)  ($0.26)  ($0.26)  $0.04  $0.04  $0.01  $0.01  (in thousands of U.S. dollars)  Change  Change  Q4 2022  $  31,951  29,091  61,042  (47,909)  Q4 2021  $  30,160  34,396  64,556  (53,090)  FY 2022  $  121,918  142,305  264,223  (215,715)  FY 2021  $  70,655  139,335  209,990  (171,214)  (10%)  9%  73%  2%  26%  26%  3,515  14,981  23.2%  3,155  16,288  26.7%  6%  (15%)  (5%)  (10%)  In December  2022,  the  Company  exited  the  manufacturing  of  low  margin  extractive  and  catalytic  products  with  the  Specialty Semiconductors   divestiture of its Tilly, Belgium operations to a third party, thereby completing the strategic review of its operations. On  Performance Materials  a  forward‐looking  basis,  exiting  this  business  is  expected  to  provide  incremental  Adjusted  EBITDA1  contribution  to  Total revenue  Cost of sales   consolidated results and support more favourable net working capital levels.  Depreciation included in cost of sales  Adjusted gross margin1  Adjusted gross margin percentage1   By  year  end,  the  Company  completed  its  St‐Laurent  project  (Montréal,  Canada),  expanding  the  development  and  manufacturing  of  critical  minerals  for  advanced  II‐VI  based  semiconductor  compounds.  For  this  facility,  by‐products  sourced from Rio Tinto’s copper operations from its Kennecott, Utah copper operation started late December 2022, part  Revenue in Q4 2022 decreased by 5%, reaching $61.0 million, compared to $64.6 million for the same period last year.  of  a  strategic  commercial  agreement  with  Rio  Tinto  announced  in  May  2022  to  secure  a  North  American  supply  of  The decrease is primarily attributable to the phase out, initiated earlier in the year, of the Company’s extractive and  tellurium.  catalytic  products  manufactured  in  Tilly,  Belgium,  and  its  divestiture  in  late  December  2022,  recorded  under  Performance Materials. In FY 2022, revenue increased by 26%, reaching $264.2 million, compared to $210.0 million in  Financial Highlights  FY 2021, supported by the acquisition of AZUR completed in November 2021, higher demand from renewable energy  under Specialty Semiconductors, as well as pharmaceutical and health under Performance Materials.   Revenue in Q4 2022 reached $61.0 million, compared to $64.6 million for the same period last year. The decrease is  primarily attributable to the phase out and divestiture of the Tilly, Belgium operations. Revenue increased by 26% to  Adjusted  gross  margin1  in  Q4  2022  was  favourably  impacted  by  the  product  mix  and  the  Company’s  commercial  $264.2 million in FY 2022, compared to $210.0 million last year, supported by the acquisition of AZUR and higher  excellence program launched earlier this year aimed at rapidly mitigating the negative impact of inflation on product  demand for renewable energy in Specialty Semiconductors, as well as for pharmaceutical and health in Performance  margins. The Adjusted gross margin reached $16.3 million, or 26.7%, compared to $15.0 million, or 23.2%, in Q4 2021.  Materials.   In FY 2022, Adjusted gross margin was also favourably impacted by higher volumes and the acquisition of AZUR, reaching  $62.7 million, or 23.7%, compared to $49.3 million, or 23.5%, in FY 2021.   14,208  62,716  23.7%  10,539  49,315  23.5%  35%  27%  1 See Non‐IFRS Measures  1 See Non‐IFRS Measures  16 5N Plus   ▪   Management’s Discussion and Analysis   ▪   3   5N Plus   ▪   Management’s Discussion and Analysis   ▪   5   5N PLUS | 2022 ANNUAL REPORT                                                               Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss Specialty Semiconductors Segment  Revenue in Q4 2022 increased by 6%, reaching $32.0 million, compared to $30.2 million in Q4 2021. In FY 2022, revenue  reached  $121.9 million,  compared  to  $70.7 million  in  FY  2021,  supported  by  higher  demand  over  and  above  the  contribution from AZUR.  Adjusted gross margin1 in Q4 2022 was 31.0%, compared to 29.5% in Q4 2021. In FY 2022, Adjusted gross margin was  28.1%, compared to 31.5% in FY 2021, mainly explained by inflation.  Performance Materials Segment  Revenue in Q4 2022 reached $29.1 million, compared to $34.4 million in Q4 2021, impacted by the phase out, initiated  earlier in the year, of the Company’s extractive and catalytic products manufactured in Tilly, Belgium, and its divestiture  in late December 2022. In FY 2022, revenue reached $142.3 million, compared to $139.3 million in FY 2021, favourably  impacted by product mix and price increases, primarily in pharmaceutical and health sectors.   Adjusted gross margin in Q4 2022 was 22.5%, compared to 18.8% in Q4 2021, favourably impacted by product mix and  price increases to mitigate inflation. In FY 2022, Adjusted gross margin was 20.4%, compared to 19.8% in FY 2021.  Operating (Loss) Earnings, EBITDA and Adjusted EBITDA  (in thousands of U.S. dollars)  Specialty Semiconductors  Performance Materials  Corporate  Adjusted EBITDA1  EBITDA1  Operating (loss) earnings    Q4 2022  $  5,690  3,997  (2,982)  6,705  (3,671)  (8,219)  Q4 2021  $  8,304  5,159  (3,377)  10,086  7,822  4,538   Change  (31%)  (23%)  (12%)  (34%)  (147%)  (281%)  FY 2022  $  24,318  17,277  (11,567)  30,028  4,636  (13,054)  FY 2021  $  18,817  18,957  (9,535)  28,239  24,988  12,871   Change  29%  (9%)  21%  6%  (81%)  (201%)  Adjusted EBITDA1 in Q4 2022 reached $6.7 million, a decrease of $3.4 million, compared to $10.1 million in the same  period last year. Adjusted EBITDA decreased by $2.6 million under Specialty Semiconductors, mainly explained by AZUR’s  better balanced quarterly Adjusted EBITDA contribution throughout FY 2022 compared to in FY 2021 when most of the  contribution  was  realized  in  Q4  2021  following  their  acquisition  in  November  2021.  Under  Performance  Materials,  Adjusted  EBITDA  decreased  by  $1.2 million,  mainly  impacted  by  inflation,  and  the  phase  out  and  divestiture  of  the  Company’s low‐margin product manufacturing activities in Tilly, Belgium. For more information, see the “Divestiture of  5N Belgium SA” section.  Adjusted EBITDA for FY 2022 reached $30.0 million, compared to $28.2 million last year, despite the negative impact of  the  Russia/Ukraine  conflict  in  Q1  2022,  rising  inflation  and  the  winding  down  and  divestiture  of  the  Tilly,  Belgium  operations. Corporate incurred additional expenses related to the integration of AZUR, other corporate projects and  the impact of inflation.  In Q4 2022, EBITDA1 was negative $3.7 million, compared to $7.8 million in Q4 2021. The decrease of $11.5 million is  mainly explained by a decrease in Adjusted EBITDA of $3.4 million mentioned above, a loss on divestiture of a subsidiary  of $7.8 million and $1.6 million in litigation and restructuring costs.  In  FY 2022,  EBITDA  was  $4.6 million,  compared  to  $25.0 million  in  FY  2021.  While  the  Adjusted  EBITDA  increase  by  $1.8 million, this increase did not compensate for the elements mentioned above and for the impairment on non‐current  assets of $5.4 million recorded earlier in the year to reflect the assessment of the carrying value of intangible assets  impacted  by  the  Russia/Ukraine  conflict.  In  addition  to  the  loss  on  divestiture  recorded  in  Q4  2022,  the  Company  recorded an impairment on non‐current assets of $7.1 million in Q3 2022 following the Company’s intention to exit the  manufacturing of low margin extractive and catalytic products in Tilly, Belgium.   1 See Non‐IFRS Measures  6   ▪   5N Plus   ▪   Management’s Discussion and Analysis  17 5N PLUS | 2022 ANNUAL REPORT                        Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   Q4 and FY 2022 Highlights – Building on our Momentum  In  Q4 2022,  operating  loss  amounted  to  $8.2 million,  compared  to  operating  earnings  of  $4.5 million  in  Q4 2021.  In  FY 2022,  operating  loss  amounted  to  $13.1 million,  compared  to  operating  earnings  of  $12.9 million  in  FY 2021.  The  Fiscal  2022  was  an  important  chapter  in  the  history  of  5N  Plus.  Executing  on  its  strategy,  the  decreases are mainly explained by the same reasons mentioned above.  Company  made  significant  progress  and  is  now  well‐positioned  to  build  on  its  momentum  and  market leadership in the promising sectors in which it operates, as illustrated by its historically  Specialty Semiconductors Segment  high backlog as at December 31, 2022.  Adjusted EBITDA1 in Q4 2022 decreased by $2.6 million to $5.7 million, representing an Adjusted EBITDA margin1 of 18%,  compared to 28% in Q4 2021 due to the recognition timing of R&D subsidies and other income. Adjusted EBITDA in  All amounts are expressed in U.S. dollars.  FY 2022 increased by $5.5 million to $24.3 million, representing an Adjusted EBITDA margin of 20%, compared to 27%  for the same period in 2021, which was favourably impacted by the contribution timing from AZUR.  FY 2023 and FY 2024 Adjusted EBITDA1 guidance is presented in the Outlook section.  Performance Materials Segment  Adjusted EBITDA in Q4 2022 decreased by $1.2 million to $4.0 million representing an Adjusted EBITDA margin of 14%,  Against the backdrop of geo‐political and macro‐economic challenges, the Company responded swiftly to inflationary  compared to 15% in Q4 2021. Adjusted EBITDA in FY 2022 decreased by $1.7 million to $17.3 million, representing an  and energy related cost pressures, quickly implementing the first wave of its commercial excellence program to mitigate  Adjusted EBITDA margin of 12%, compared to 14% in FY 2021.   the negative impact of inflation on product margins. This resulted in a sequential improvement of consolidated adjusted  gross margins1 from 21.9% for Q1 2022 to 26.7% in Q4 2022. The Company continues to approach partnerships and  Net (Loss) Earnings and Adjusted Net Earnings (Loss)  product development opportunities with discipline.  (in thousands of U.S. dollars, except per share amounts)  Q4 2022  $  (8,146)  ($0.09)  During  the  year,  the  Company  renewed  and  increased  its  supply  agreement  with  First  Solar,  for  the  supply  of  semiconductor  materials  associated  with  the  manufacturing  of  thin‐film  photovoltaic  (PV)  modules,  further  strengthening  its  leadership  in  renewable  energy.  Under  the  new  agreement,  the  Company’s  supply  volumes  will  increase by 35% in 2023 and over 100% in 2024, compared to 2022 levels, in line with First Solar’s own growth plans.  Net (loss) earnings   Basic (loss) earnings per share  Reconciling items:  Share‐based compensation (recovery) expense   Litigation and restructuring costs  Impairment of non‐current assets  Loss on divestiture of subsidiary  Loss on disposal of assets held for sale  Income tax recovery on taxable items above  Adjusted net earnings (loss)1  Basic adjusted net earnings per share1  689  (171)  Through its subsidiary AZUR, 5N Plus signed a ten‐year extension to an exclusive teaming arrangement with Sierra Space,  2,144  3,210  a leading U.S.‐based commercial space company, to produce a new solar cell for use in the production of Sierra Space’s  ‐  ‐  unique  Space  Solar  Surface  Mount  Technology  solar  array  systems.  Sales  to  Sierra  Space  are  anticipated  to  reach  ‐  7,834  $10 million  in  2023  and  over  $20 million  in  2024,  incremental  to  the  current  sales.  The  commercial  relationship  ‐  ‐  (589)  (595)  entrenches 5N Plus as a trusted partner in a sector experiencing rapidly accelerating demand which is expected to exceed  5,354  2,132  current available capacity. AZUR is uniquely positioned to supply both North America and Europe. In 2022, the Company  $0.06  $0.02  completed its integration of AZUR, which was acquired in November 2021.  999  3,823  12,478  7,834  216  (2,618)  (267)  $‐  (460)  1,644  ‐  ‐  ‐  (285)  1,879  $0.02  FY 2022  $  (22,999)  ($0.26)  Q4 2021  $  980  $0.01  FY 2021  $  3,110  $0.04  In Q4 2022, net loss was $8.1 million or $0.09 per share, compared to net earnings of $1.0 million or $0.01 per share in  In December  2022,  the  Company  exited  the  manufacturing  of  low  margin  extractive  and  catalytic  products  with  the  Q4 2021. Adjusted net earnings1 were $2.1 million or $0.02 per share in Q4 2022, compared to $1.9 million or $0.02 per  divestiture of its Tilly, Belgium operations to a third party, thereby completing the strategic review of its operations. On  share in Q4 2021.  a  forward‐looking  basis,  exiting  this  business  is  expected  to  provide  incremental  Adjusted  EBITDA1  contribution  to  consolidated results and support more favourable net working capital levels.  In FY 2022, net loss was $23.0 million or $0.26 per share, compared to net earnings of $3.1 million or $0.04 per share in  FY 2021.  Adjusted  net  loss  was  $0.3 million  or  $nil per  share  in  FY 2022,  compared  to  Adjusted  net  earnings  of  By  year  end,  the  Company  completed  its  St‐Laurent  project  (Montréal,  Canada),  expanding  the  development  and  $5.4 million or $0.06 per share, in FY 2021.   manufacturing  of  critical  minerals  for  advanced  II‐VI  based  semiconductor  compounds.  For  this  facility,  by‐products  sourced from Rio Tinto’s copper operations from its Kennecott, Utah copper operation started late December 2022, part  Excluding income tax recovery, the items reconciling to Adjusted net earnings (loss) in Q4 2022 and FY 2022 were share‐ of  a  strategic  commercial  agreement  with  Rio  Tinto  announced  in  May  2022  to  secure  a  North  American  supply  of  based compensation (recovery) expense, litigation and restructuring costs, an impairment of non‐current assets, a loss  tellurium.  on divestiture of  subsidiary  and  a  loss  on disposal  of  assets  held  for  sale.  For  more  information,  see  the “Expenses”  section.  Financial Highlights  Backlog and Bookings    Revenue in Q4 2022 reached $61.0 million, compared to $64.6 million for the same period last year. The decrease is  BACKLOG1  primarily attributable to the phase out and divestiture of the Tilly, Belgium operations. Revenue increased by 26% to  Q3 2022  $264.2 million in FY 2022, compared to $210.0 million last year, supported by the acquisition of AZUR and higher  $  demand for renewable energy in Specialty Semiconductors, as well as for pharmaceutical and health in Performance  104,336  Materials.   35,054  139,390  BOOKINGS1  Q3 2022  $  71,013  23,959  94,972  Specialty Semiconductors  Performance Materials  Total  Q4 2022  $  57,325  33,648  90,973  Q4 2022  $  129,710  39,611  169,321  Q4 2021  $  83,180  39,512  122,692  Q4 2021  $  94,363  60,454  154,817  (in thousands of U.S. dollars)  Comparative results have been adjusted to reflect a change in our reporting segments  1 See Non‐IFRS Measures  1 See Non‐IFRS Measures  18 5N Plus   ▪   Management’s Discussion and Analysis   ▪   3   5N Plus   ▪   Management’s Discussion and Analysis   ▪   7   5N PLUS | 2022 ANNUAL REPORT                                                                   MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss Management’s Discussion and Analysis (number of days based on annualized revenues) *  Specialty Semiconductors  Performance Materials  Weighted average  * Backlog and bookings are also presented in number of days to normalize the impact of commodity prices.  Q4 2022  370  124  253  Q4 2021  293  160  221  Q4 2022  164  106  136  BACKLOG1  Q3 2022  297  93  192  BOOKINGS1  Q3 2022  202  64  131  Q4 2021  258  105  175  Q4 2022 vs. Q3 2022  Backlog1 on December 31, 2022, represented 253 days of annualized revenue, an increase of 61 days, or 32%, over the  backlog on September 30, 2022. The increase in the backlog is mainly attributable to favourable negotiations of long‐ term contracts under Specialty Semiconductors, confirming the near‐term growth potential in renewable energy and  space applications.  Backlog on December 31, 2022, for Specialty Semiconductors represented 370 days of annualized revenue an increase  of  73 days,  or  25%,  over  the  backlog  on  September  30,  2022.  The  backlog  for  Performance  Materials  represented  124 days of annualized revenue, an increase of 31 days, or 33%, over the backlog on September 30, 2022. The increase  under Performance Materials is mainly associated with the timing of the renewal of key contracts, usually occurring in  the fourth quarter of the year.  Bookings1  for  Specialty  Semiconductors  decreased  by  38 days,  from  202 days  in  Q3 2022  to  164 days  in  Q4 2022.  Bookings for Performance Materials increased by 42 days, from 64 days in Q3 2022 to 106 days in Q4 2022. Bookings are  calculated by adding revenues to the increase or decrease in backlog for the period divided by annualized revenues. As  such, the increase or decrease in bookings is attributable to the same factors as the increase or decrease in backlog.   Q4 2022 vs. Q4 2021  Backlog on December 31, 2022, for Specialty Semiconductors increased by 77 days, largely attributable to favourable  negotiations  of  long‐term  contracts  under  Specialty  Semiconductors,  confirming  the  near‐term  growth  potential  in  renewable energy and space applications. The backlog for Performance Materials decreased by 36 days, compared to  December 31, 2021, reaching 124 days, compared to 160 days in Q4 2021. The decrease is mainly associated with the  Company’s divestiture of its Tilly, Belgium operations.  Following the acquisition of AZUR in Q4 2021, the integration of its backlog led to a higher than usual increase in bookings  and  mainly  explained  the  decrease  of  94  days  in  bookings  for  Specialty  Semiconductors  in  Q4  2022.  Bookings  for  Performance Materials increased by 1 day 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  Impairment of non‐current assets  Loss on divestiture of subsidiary  Loss on disposal of assets held for sale  Financial expense   Income tax (recovery) expense   Total expenses   Q4 2022  $  Q4 2021  $  4,051  7,183  (171)  3,210  ‐  7,834  ‐  219  (292)  22,034  4,364  7,025  (460)  1,644  ‐  ‐  ‐  2,244  1,314  16,131  FY 2022  $  17,732  28,565  999  3,823  12,478  7,834  216  5,234  4,711  81,592  FY 2021  $  12,535  21,883  689  2,144  ‐  ‐  ‐  4,131  5,630  47,012  1 See Non‐IFRS Measures  8   ▪   5N Plus   ▪   Management’s Discussion and Analysis  19 5N PLUS | 2022 ANNUAL REPORT                                 Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   Depreciation and Amortization  Depreciation  and  amortization  expenses  in  Q4 2022  and  FY 2022  amounted  to  $4.1 million  and  $17.7 million,  respectively, compared  to $4.4 million  and  $12.5 million,  respectively, for  the  same  periods  in  2021.  The  increase  in  FY 2022 is 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 2022 and FY 2022 were $7.2 million and $28.6 million, respectively, compared to $7.0 million and  $21.9 million, respectively, for the same periods in 2021. The increases are mainly explained by the acquisition of AZUR  in Q4 2021, inflation impacting various expenses and the lifting of restrictions related to COVID‐19.   Share‐based Compensation (Recovery) Expense  Share‐based  compensation  recovery  in  Q4 2022  amounted  to  $0.2 million,  compared  to  $0.5 million  in  Q4 2021.  In  FY 2022, share‐based compensation expense amounted to $1.0 million, compared to $0.7 million in FY 2021.   Litigation and Restructuring Costs  In  Q4  2022  and  FY  2022,  the  Company  recorded  litigation  and  restructuring  costs  of  $3.2  million  and  $3.8  million,  respectively. These include $2.6 million related to the divestiture of a subsidiary, $0.4 million for the site closure in Asia,  $0.2 million due to a change to its senior executive management recorded in Q2 2022, and $0.4 million for the settlement  of a contract by mutual agreement recorded in Q1 2022.  In  FY  2021,  the  Company  recorded  a  charge  of  $1.5  million  following  the  announcement  of  a  change  to  its  senior  executive management as well as a provision for restructuring costs of $0.6 million which consisted of severance and  other related costs related to the site closure in Asia.   Impairment of Non‐Current Assets  In  Q3 2022,  the  Company  recorded  an  impairment  of  non‐current  assets  of  $7.1 million  ($2.4 million  for  buildings,  $4.6 million  for  machinery  and  $0.1 million  for  furniture  and  fixtures),  under  its  Performance  Materials  segment,  to  reflect the assessment of the carrying value of PPE following its intention to halt production at its manufacturing facility  in Tilly, Belgium.   In  Q1 2022,  the  Company  recorded  an  impairment  of  non‐current  assets  of  $5.4 million ($5.1 million  for  customer  relationships  and  $0.3 million  for  other  intangibles)  under  its  Specialty  Semiconductors  segment,  to  reflect  the  assessment of the carrying value of intangible assets due to the impact of the Russia/Ukraine conflict on the Company’s  Russia‐based  customer  relationships.  The  Company’s  initial  assumptions  regarding  future  cashflows  from  these  customers are no longer supported given the international sanctions in place against Russia and the uncertainty related  to, and the unknown duration of, the Ukraine/Russia conflict.  Loss on Divestiture of Subsidiary  In Q4 2022, the Company divested its 100% interest in 5N Belgium SA and recognized a loss on divestiture of $7.8 million.  For more information, see the “Divestiture of 5N Belgium SA” section.  Loss on Disposal of Assets Held for Sale  In Q3 2022, the Company recorded a loss of $0.2 million on the disposal of assets held for sale. The asset, previously  presented  as  held  for  sale  within  the  Specialty  Semiconductors  segment,  pertains  to  a  building  reclassification  of  $3.0 million in Q2 2022. The reclassification was related to the planned relocation of operations to Canada from one of  the Company’s subsidiaries in Asia, announced in the third quarter of 2020.  Financial Expense   Financial  expense  in  Q4 2022  amounted  to  $0.2 million,  compared  to $2.2 million  in  Q4 2021.  The  positive  impact  is  mainly due to interest income earned following the recent settlement of an international tax arbitration between two  jurisdictions where the Company operates, a gain of foreign exchange and derivatives mitigated by higher interest on  long‐term debt and imputed interest following the acquisition of AZUR, as well as a significant increase in interest rates  in the second half of FY 2022.   20 5N Plus   ▪   Management’s Discussion and Analysis   ▪   9   5N PLUS | 2022 ANNUAL REPORT                    Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss In  FY 2022,  financial  expense  amounted  to  $5.2 million,  compared  to  $4.1 million  in  FY 2021.  The  negative  impact  is  mainly due to the same reasons mentioned above, with the exception of a lower loss on foreign exchange and derivatives  recorded in FY 2022 compared to FY 2021.   Income Taxes  The Company reported a loss before income taxes of $8.4 million in Q4 2022 and $18.3 million in FY 2022. Income tax  recovery in Q4 2022 and income tax expense in FY 2022 was $0.3 million and $4.7 million, respectively, compared to  income  tax  expense  of  $1.3 million  and  $5.6 million,  respectively,  in  the  same  periods  in  2021.  Both  periods  were  impacted by deferred tax assets applicable only in certain jurisdictions.  Liquidity and Capital Resources  (in thousands of U.S. dollars)   Funds from operations before the following  Net changes in non‐cash working capital items   Cash from operating activities  Cash used in investing activities  Cash (used in) from financing activities  Effect of foreign exchange rate changes on cash and cash equivalents   Net increase (decrease) in cash and cash equivalents   Q4 2022  $  5,478  7,927  13,405  (8,895)  (2,308)  317  2,519  Q4 2021  $  5,604  (3,233)  2,371  (42,615)  42,922  107  2,785  FY 2022  $  13,498  10,243  23,741  (18,994)  2,409  (405)  6,751  FY 2021  $  16,553  (6,283)  10,270  (49,929)  36,219  (570)  (4,010)  In  Q4 2022,  cash  generated  by  operating  activities  amounted  to  $13.4 million,  compared  to  $2.4 million  in  Q4 2021  positively impacted by the realization of working capital held at Tilly, Belgium prior to the divestiture. In FY 2022, cash  generated  by  operating  activities  amounted  to  $23.8 million,  compared  to  $10.3 million  in  FY 2021.  The  increase  in  FY 2022 was due to the positive changes in non‐cash working capital.   In Q4 2022, cash used in investing activities totaled $8.9 million, compared to $42.6 million in Q4 2021. In FY 2022, cash  used  in  investing  activities  totaled  $19.0 million,  compared  to  $49.9 million  in  FY 2021,  of  which  $42.3  million  was  attributable  to  the  acquisition  of  AZUR  and  $2.0  million  to  the  acquisition  of  a  minority  equity  stake  in  Microbion  Corporation.  In contrast, cash used in investing activities in FY 2022 is mainly attributed to the timing of additions to  PPE,  such  as  the  St‐Laurent  project  (Montréal,  Canada),  partially  mitigated  by  the  proceeds  of  $2.8 million  from  the  disposal of assets held for sale in Q3 2022.   In Q4 2022, cash used in financing activities amounted to $2.3 million, compared to cash from financing of $42.9 million  in Q4 2021. In FY 2022, cash generated by financing activities amounted to $2.4 million, compared to $36.2 million in  FY 2021, mainly explained by the difference in the net drawdown of the credit facility during the periods. In FY 2021, the  Company made a significant drawdown of the credit facility to finance the acquisition of AZUR, net of repayment of  equipment loans in AZUR.  Working Capital  (in thousands of U.S. dollars)  Inventories  Other current assets  Current liabilities  Working capital1  Working capital current ratio1  As at December 31, 2022  $  86,254  100,908  (62,846)  124,316  2.98  As at December 31, 2021  $  95,526  99,996  (65,059)  130,463  3.01  The decrease of $6.1 million in working capital1, as compared to December 31, 2021, was mainly attributable to the  divestiture of Tilly, Belgium at the end of FY 2022, net of higher other current assets and lower current liabilities for the  remaining operations.  1 See Non‐IFRS Measures  10   ▪   5N Plus   ▪   Management’s Discussion and Analysis  21 5N PLUS | 2022 ANNUAL REPORT                       Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   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, 2022  $  ‐  121,000  As at December 31, 2021  $  ‐  116,000  121,000  (42,691)  78,309  116,000  (35,940)  80,060  Total  debt1  stood  at  $121.0 million  on  December  31,  2022,  from  $116.0 million  at  the  end  of  last  year,  following  a  drawdown of $10.0 million in Q2 2022 and reimbursements of $2.5 million in Q3 2022 and in Q4 2022 related to the  credit facility.   Net debt1, after considering cash and cash equivalents, decreased by $1.8 million to $78.3 million on December 31, 2022,  from $80.1 million on December 31, 2021.  Available Short‐Term Capital Resources  (in thousands of U.S. dollars)  Cash and cash equivalents  Available revolving credit facility   Available short‐term capital resources  As at December 31, 2022  $  42,691  As at December 31, 2021  $  35,940  28,000  70,691  33,000  68,940  In June 2022, the Company signed a senior secured multi‐currency revolving credit facility of $124.0 million maturing  in April 2026 to replace its existing $124.0 million senior secured revolving facility maturing in April 2023. 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  review  and  approval  by  the  lenders.  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, U.S. base rate, Hong Kong base rate or SOFR, 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, 2022 and December 31, 2021, the Company had met all  covenants.   In February 2019, the Company signed a five‐year 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,  2022  and  December 31,  2021,  the  Company had met all covenants.    Share Information   Issued and outstanding shares  Stock options potentially issuable  As at February 21, 2023  88,330,236  1,598,938  As at December 31, 2022  88,330,236  1,598,938  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  1 See Non‐IFRS Measures  22 5N Plus   ▪   Management’s Discussion and Analysis   ▪   11   5N PLUS | 2022 ANNUAL REPORT                      Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss 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  2022,  the  Company  granted  95,881  RSUs  (2021  –  164,412),  146,549  RSUs  were  paid  (2021  –  413,710)  and  13,110 RSUs  were  forfeited  (2021  –  143,851).  On  December  31,  2022,  278,481  RSUs  were  outstanding  (2021  –  342,259).  In FY 2022, the Company granted nil PSUs (2021 – nil), nil PSUs were paid (2021 – 166,700) and 200,000 were cancelled  (2021 – 230,000). On December 31, 2022, nil PSUs were outstanding (2021 – 200,000).  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, 2022, may be exercised during a period  not exceeding six years from their date of grant. Unless the Board of Directors decides otherwise at its sole discretion,  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  Outstanding, end of year  Exercisable, end of year  Number of options  825,968  772,970  ‐  ‐  1,598,938  457,749  2022  Weighted average  exercise price  CA$  2.46  1.33  ‐  ‐  1.91  2.41  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  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 euros 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 19 and 27 of the audited consolidated financial statements for the year ended  December 31, 2022.   The following table reflects the contractual cash flows of the Company’s financial liabilities as at Dec 31, 2022:  (in thousands of U.S. dollars)  Trade and accrued liabilities   Long‐term debt  Lease liabilities  Total  Carrying  amount  $  40,200  121,000  30,402  191,602  1 year  $  40,200  7,836  2,770  50,806  2 years  $  ‐  31,584  2,601  34,185  3 years  $  ‐  6,166  2,494  8,660  4 years  $  ‐  98,055  2,451  100,506  Over  5 years  $  ‐  ‐  24,834  24,834  Total  $  40,200  143,641  35,150  218,991  12   ▪   5N Plus   ▪   Management’s Discussion and Analysis  23 5N PLUS | 2022 ANNUAL REPORT                                          Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   Commitments  As at December 31, 2022, in the normal course of business, the Company contracted letters of credit for an amount of  $0.9 million ($1.0 million as at December 31, 2021).  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 and  the  working  capital  of the  transaction  were  funded  through  the  Company's  liquidity and senior debt facility. Transaction fees for an amount of $0.3 million for 2022 (2021 ‐ $0.7 million and 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 has not only expanded the Company's position  within renewable energy, but has also established 5N Plus as a reliable and competitive supplier to the European and  U.S. space programs through Canada's membership in the European Space Agency (ESA).   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 final assessment of the fair values of the assets  acquired and liabilities assumed. As a result of finalizing its assessment, the Company has not restated the consolidated  statement of financial position as at December 31, 2021 as the adjustments were deemed not material. The Company  also determined that the net impact on net earnings as a result of these adjustments was not material for the year ended  December 31, 2021, and, as such, were accounted for in the consolidated statement of (loss) earnings for the year ended  December 31, 2022.  Consideration transferred  Cash and cash equivalents  Consideration payable (1)  Common shares issued  $  34,301  9,158  14,249  57,708  (1)  This amount of 8.0 million euros held in escrow and recorded in Other current assets, is expected to be released within 12 months in accordance with the  terms of the Share Purchase Agreement.  24 5N Plus   ▪   Management’s Discussion and Analysis   ▪   13   5N PLUS | 2022 ANNUAL REPORT                        MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss Management’s Discussion and Analysis Identified assets acquired and liabilities assumed  (in thousands of U.S. dollars)  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  Current portion of deferred revenue  Long‐term debt(1)  Employee benefit plan obligations  Lease liabilities  Deferred revenue  Other liabilities  Deferred tax liabilities  Total liabilities assumed  Total net assets  Preliminary  $  1,017  8,342  21,394  256  31,128  21,626  32,144  5  13,841  129,753  7,291  4,906  27,396  2,673  21,626  ‐  1,059  7,094  72,045  57,708  Adjustments  $  ‐  1,057  (1,057)  ‐  4,993  (938)  (973)  ‐  (2,016)  1,066  ‐  (1,294)  ‐  ‐  (938)  2,011  216  1,071  1,066  ‐  Final  $  1,017  9,399  20,337  256  36,121  20,688  31,171  5  11,825  130,819  7,291  3,612  27,396  2,673  20,688  2,011  1,275  8,165  73,111  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 as of January 1, 2021, the Company estimates that its consolidated revenues  and  net  earnings  for  the  year  ended  December  31,  2021  would  have  totalled  $261.0  million  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 thousand.  Divestiture of 5N Belgium SA  On December 19, 2022, the Company divested its 100% interest in 5N Plus Belgium SA, previously included within its  Performance  Materials  segment,  and  recognized  a  loss  on  divestiture  of  $7.8  million.  The  decision  to  cease  the  production of lower margin products used in catalytic and extractive applications was made following a strategic review  of the Company’s legacy operations. As part of the transaction, a provision of $2.6 million, of which 2.0 million euros or  $2.1 million is held in escrow, was recorded under Litigation and Restructuring costs to support the new owners to ensure  site compliance with most recent environmental standards and other related costs. Prior to the divestiture, the Company  recorded an impairment charge of $7.1 million on PPE following the announcement of its intention to halt production at  its manufacturing facility in Tilly, Belgium.  If the divestiture of 5N Belgium SA had been completed as of January 1, 2022, the consolidated Adjusted EBITDA1 would  have  been  higher  by  approximately  $2.0  million,  and  revenue  under  Performance  Materials  segment  lower  by  $39.3 million.  1 See Non‐IFRS Measures  14   ▪   5N Plus   ▪   Management’s Discussion and Analysis  25 5N PLUS | 2022 ANNUAL REPORT                        Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   Governance  As required by Multilateral Instrument 52‐109 of the Canadian Securities Administrators (“MI 52‐109”), 5N Plus has filed  certificates signed by the Chief Executive Officer and the Chief Financial Officer that, among other things, attest to the  design of the disclosure controls and procedures and the design and effectiveness of internal controls over financial  reporting.  Disclosure Controls and Procedures  The Chief Executive Officer and the Chief Financial Officer have designed disclosure controls and procedures, or have  caused them to be designed under their supervision, in order to provide reasonable assurance that:   Material information relating to the Company has been made known to them; and   Information required to be disclosed in the Company’s filings is recorded, processed, summarized and reported  within the time periods specified in securities legislation.  An  evaluation  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.  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”).  Changes in Internal Control over Financial Reporting  No changes were made to the ICFR during the fiscal year ended December 31, 2022 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 3 – Business combinations  On  January  1,  2022,  the  Company  adopted  the  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.  In  adopting  the  amendments,  there  has  been  no  significant  impact  to  the  financial  statements for the year ended December 31, 2022.  26 5N Plus   ▪   Management’s Discussion and Analysis   ▪   15   5N PLUS | 2022 ANNUAL REPORT                  Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss IAS 16 – Property, plant and equipment  On  January  1,  2022,  the  Company  adopted  the  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. In adopting the amendments, there has been no significant  impact to the financial statements for the year ended December 31, 2022.  IFRS 9 – Financial Instruments  On January 1, 2022, the Company adopted the amendment to IFRS 9 which clarifies 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. In adopting the amendments, there has been  no significant impact to the financial statements for the year ended December 31, 2022.  Future Changes in accounting policies  The following standards have been issued but not yet effective:  IAS 1 – Presentation of Financial Statements  In January 2020, the IASB issued amendments to IAS 1 to clarify its requirements for the presentation of liabilities in the  statement  of  financial  position.  The  amendments  are  effective  from  annual  reporting  periods  beginning  on  or  after  January  1,  2024.  The  Company  is  currently  evaluating  the  impact  of  the  amendments  on  its  consolidated  financial  statements.  Significant Management Estimation and Judgment in Applying Accounting Policies  The following are significant management judgments used in applying the accounting policies of the Company that have  the most significant effect on the consolidated financial statements.  Estimation uncertainty  When preparing the consolidated financial statements, management undertakes a number of judgments, estimates and  assumptions about recognition and measurement of assets, liabilities, revenues and expenses. Estimates and underlying  assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which  the estimates are revised and in any future periods affected.  Information about the significant judgments, estimates and assumptions that have the most significant effect on the  recognition and measurement of assets, liabilities, revenues and expenses are discussed below.  Impairment of non‐financial assets  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 cash‐generating unit’s (“CGU") carrying amount  exceeds its recoverable amount, which is the higher of fair value less cost of disposal and value in use.  16   ▪   5N Plus   ▪   Management’s Discussion and Analysis  27 5N PLUS | 2022 ANNUAL REPORT                Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   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. 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 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.  Refer  to  note  18  of  the  2022  audited  consolidated financial statements of the Company.  28 5N Plus   ▪   Management’s Discussion and Analysis   ▪   17   5N PLUS | 2022 ANNUAL REPORT              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 26 in the 2022 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  19  –  Fair  Value  of  Financial  Instruments  in  the  2022  audited  consolidated financial statements of the Company.  The fair value of the financial instruments was as follows:  (in thousands of U.S. dollars)  Indexed deposit agreement  Investment in equity instruments  Restricted investment  Interest rate swap agreement  2022  $  5,517  2,000  620  ‐  2021  $  4,819  2,000  713  (109)  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 27 of the 2022 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  is  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 $1.0 million on the Company’s net earnings on a twelve‐month horizon based on the balance  outstanding on December 31, 2022.  Foreign Currency   The Company’s sales are primarily denominated in U.S. dollars whereas a portion of its operating costs are realized in  local currencies, such as euros and Canadian dollars. Even though the purchases of raw materials are denominated in  U.S. dollars, which reduce to some extent exchange rate fluctuations, we are subject to currency translation risk which  can negatively impact our results. Management has implemented a policy for managing foreign exchange risk against  the relevant functional currency.    In addition, the Company will occasionally enter into foreign exchange forward contracts to sell U.S. dollars in exchange  for  Canadian  dollars  and  euros.  These  contracts  would  hedge  a  portion  of  ongoing  foreign  exchange  risk  on  the  Company’s cash flows since much of its non‐US dollar expenses are incurred in Canadian dollars and euros. The Company  may also enter into foreign exchange contracts to sell euros for U.S. dollars. As at December 31, 2022, the Company had  no foreign exchange contracts outstanding.  18   ▪   5N Plus   ▪   Management’s Discussion and Analysis  29 5N PLUS | 2022 ANNUAL REPORT                  Management’s Discussion and Analysis The  following  table  summarizes  in  U.S.  dollar  equivalents  the  Company’s  major  currency  exposures  as  at  December 31, 2022:  MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   (in thousands of U.S. dollars)  Cash and cash equivalents  Accounts receivable  Other current assets  Other non‐current assets  Trade and accrued liabilities  Lease liabilities  Net financial assets (liabilities)  CA$  $  686  513  EUR  $  4,164  4,707  5,517  10,613  ‐  620  GBP  $  14  ‐  ‐  ‐  (10,834)  (16,175)  (317)  (6,033)  (10,151)  (339)  3,590  ‐  (303)  HKD  $  21  ‐  ‐  ‐  (199)  (171)  (349)  MYR  $  156  1  ‐  ‐  (219)  ‐  (62)  Other  $  9  128  ‐  ‐  (149)  ‐  (12)  For the Company’s subsidiaries with a functional currency other than the U.S. dollar, their exposures of financial assets  and financial liabilities denominated in U.S. dollars are $6.8 million and $0.6 million, respectively, with a net position of  $6.3 million. A strengthening or weakening in the exchange rate between the functional currencies of these subsidiaries  and the U.S. dollar of five‐percentage points results in a decrease or increase of $0.3 million to earnings before income  tax.  The  following  table  shows  the  impact  on  earnings  before  income  tax  of  a  five‐percentage  point  strengthening  or  weakening of foreign currencies against the U.S. dollar as at December 31, 2022 for the Company’s financial instruments  denominated in non‐functional currencies:  (in thousands of U.S. dollars)  5% Strengthening  5% Weakening  CA$  $  (508)  508  EUR  $  179  (179)  GBP  $  (15)  15  HKD  MYR  Other  $  (17)  17  $  (3)  3  $  (1)  1  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 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, 2022 and 2021, 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  (loss)  earnings  and  is  net  of  any  recoveries that were provided for in prior periods.  30 5N Plus   ▪   Management’s Discussion and Analysis   ▪   19   5N PLUS | 2022 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  In the normal course of business, 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.  We  identify  these  risks  and  implement  strategies  in  order  to  minimize their impact on the Company's performance. The Audit Committee together with the Corporate Internal Audit  and  site  leadership  teams  have  the  mandate  to  review  all  business  risks  semi‐annually.  The  risks  and  risk  reduction  measures are presented to the Audit Committee and the Board of Directors on an ongoing basis. 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.   Risks and uncertainties not presently known to the Company or that the Company currently considers as not material  could become material in the future or impair its business operations or cause a decline in the price of shares.   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. The Company operates in a  volatile  economic  environment.  As  a  result,  if  unemployment,  interest  or  inflation  rates  fluctuate  substantially  or  increase to significant levels, they could have an impact on the Company’s operating activities, financial position and  profitability. In addition, the Company is exposed to market risk related to the current global inflationary situation, as  the  various  environmental,  social,  political,  economic  and  health  factors  had  significant  consequences  on  the  world  economy. In order to reduce inflation, several central banks are now tightening their monetary policies, which has an  impact on interest rates, foreign currency exchange rates and economic development. The risks of recession in one or  several of the countries where the Company operates are growing and could have an adverse impact on the Company’s  net earnings, financial position or cash flows.  Crisis and Climate Change Management  Unexpected events including geopolitical crises, pandemic and epidemic outbreaks, catastrophes, and natural disasters,  such as extreme and increasingly frequent weather‐related disasters linked to climate change, could have a negative  impact on the continuation of the Company's operations as well as its suppliers.   International Operations  We operate in several countries, including China and Laos, and as such, face risks associated with international business  activities.  We  could  be  significantly  affected  by  such  risks,  which  include,  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  20   ▪   5N Plus   ▪   Management’s Discussion and Analysis  31 5N PLUS | 2022 ANNUAL REPORT                Management’s Discussion and Analysis 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:  MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss            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;  the invasion of Ukraine by Russia;   new trade barriers; and  change to legal, political, social, cultural, tax or other regulatory requirements.  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.  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.   32 5N Plus   ▪   Management’s Discussion and Analysis   ▪   21   5N PLUS | 2022 ANNUAL REPORT          Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss 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 2023. 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.   Environmental, Social and Governance (ESG) Considerations  The Company could be subject to growing stakeholder expectations as it relates to ESG factors, including from investors,  who 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 ESG  standards.   Safety Risks and Hazards  The Company’s health, safety and wellbeing systems, processes and policies are aimed at reducing risks to employees,  subconsultants  and  others;  however,  work  sites  can  put  employees  and  others  in  proximity  with  large  equipment,  moving  vehicles,  dangerous  processes  or  highly  regulated  materials  in  challenging  or  remote  locations  which  may  increase the risk to health and safety. Failure to implement or follow appropriate safety procedures by the Company or  others  could  result  in  personal  injury,  illness  or  loss  of  life  to  people,  or  environmental  and  other  damage  to  the  Company’s property or the property of others.  Prolonged Armed Conflict in Ukraine  In February 2022, Russian military forces invaded Ukraine; the invasion is being actively resisted by Ukrainian military  personnel and the people of Ukraine, and the outcome of the ongoing conflict is uncertain at this time. Although AZUR  had sales in Russia in the past, the amount of such sales is not material to the Company as a whole. A prolonged armed  conflict in Ukraine or an expansion of the armed conflict to other European countries could have a negative effect on  the European and global economies. As well, Russia is a major exporter of oil and natural gas. Any disruption of supplies  of oil and natural gas from Russia could have a significant adverse effect on the European and world economies. All the  foregoing factors could potentially have a negative impact on the Company’s sales and results of operations.  COVID‐19  The worldwide outbreak of a disease, a virus including the COVID‐19 pandemic or any other contagious disease could  have an adverse impact on the Company’s operations, operating results and financial position. While it is sudden, its  impact  on  economic  cycles  can  give  rise  to  unfavourable  temporary  disruptions  in  the  market  where  the  Company  operates as well as on its internal structure, such as plant closures, shortages of raw materials and labour, and in supply  chains and distribution channels.  Availability and Retention of Qualified Employees  We rely on the expertise and know‐how of our personnel to conduct our operations. The loss of any member of our  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.  22   ▪   5N Plus   ▪   Management’s Discussion and Analysis  33 5N PLUS | 2022 ANNUAL REPORT          Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   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.  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.  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 limitations 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 of the Company.  34 5N Plus   ▪   Management’s Discussion and Analysis   ▪   23   5N PLUS | 2022 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.   Acquisition Risk  The Company completed the acquisition of AZUR in November 2021 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.   24   ▪   5N Plus   ▪   Management’s Discussion and Analysis  35 5N PLUS | 2022 ANNUAL REPORT              Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   Executive Management consultations are held regularly to monitor the progress of various cybersecurity projects, review  Executive Management consultations are held regularly to monitor the progress of various cybersecurity projects, review  Executive Management consultations are held regularly to monitor the progress of various cybersecurity projects, review  Executive Management consultations are held regularly to monitor the progress of various cybersecurity projects, review  significant incidents and review various security‐related performance indicators. Executive Management reports on its  significant incidents and review various security‐related performance indicators. Executive Management reports on its  significant incidents and review various security‐related performance indicators. Executive Management reports on its  significant incidents and review various security‐related performance indicators. Executive Management reports on its  work to the members of the Board of Directors on a biannual basis. The Corporate IT function sets up and coordinates  work to the members of the Board of Directors on a biannual basis. The Corporate IT function sets up and coordinates  work to the members of the Board of Directors on a biannual basis. The Corporate IT function sets up and coordinates  work to the members of the Board of Directors on a biannual basis. The Corporate IT function sets up and coordinates  prevention, detection, and remediation measures in the area of cybersecurity. Cybersecurity measures include, among  prevention, detection, and remediation measures in the area of cybersecurity. Cybersecurity measures include, among  prevention, detection, and remediation measures in the area of cybersecurity. Cybersecurity measures include, among  prevention, detection, and remediation measures in the area of cybersecurity. Cybersecurity measures include, among  others,  setting  up  strong  controls  with  respect  to  systems  access,  implementing  information  security  awareness  others,  setting  up  strong  controls  with  respect  to  systems  access,  implementing  information  security  awareness  others,  setting  up  strong  controls  with  respect  to  systems  access,  implementing  information  security  awareness  others,  setting  up  strong  controls  with  respect  to  systems  access,  implementing  information  security  awareness  programs, and hiring specialized firms to carry out occasional intrusion tests.   programs, and hiring specialized firms to carry out occasional intrusion tests.   programs, and hiring specialized firms to carry out occasional intrusion tests.   programs, and hiring specialized firms to carry out occasional intrusion tests.   Although the Company has not experienced any material losses relating to cyberattacks or other information security  Although the Company has not experienced any material losses relating to cyberattacks or other information security  Although the Company has not experienced any material losses relating to cyberattacks or other information security  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  breaches in the past, there can be no assurance that the Company will not experience such losses in the future due to  breaches in the past, there can be no assurance that the Company will not experience such losses in the future due to  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.  the evolving nature of these threats.  the evolving nature of these threats.  the evolving nature of these threats.  Market Price of Common Shares  Market Price of Common Shares  Market Price of Common Shares  Market Price of Common Shares  The common shares of the Company are traded on the Toronto Stock Exchange under the symbol ''VNP''. The market  The common shares of the Company are traded on the Toronto Stock Exchange under the symbol ''VNP''. The market  The common shares of the Company are traded on the Toronto Stock Exchange under the symbol ''VNP''. The market  The common shares of the Company are traded 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  price of securities of many companies experiences wide fluctuations from time to time that are not necessarily related  price of securities of many companies experiences wide fluctuations from time to time that are not necessarily related  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  to the operating performance, underlying asset values or future growth prospects of such companies. There can be no  to the operating performance, underlying asset values or future growth prospects of such companies. There can be no  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.  assurance that fluctuations in the price of the common shares of the Company will not occur.  assurance that fluctuations in the price of the common shares of the Company will not occur.  assurance that fluctuations in the price of the common shares of the Company will not occur.  Non‐IFRS Measures  Non‐IFRS Measures  Non‐IFRS Measures  Non‐IFRS Measures  In this Management’s Report, certain non‐IFRS measures are used. The Company’s management believes that these non‐ In this Management’s Report, certain non‐IFRS measures are used. The Company’s management believes that these non‐ In this Management’s Report, certain non‐IFRS measures are used. The Company’s management believes that these non‐ In this Management’s Report, certain non‐IFRS measures are used. The Company’s management believes that these non‐ IFRS  measures  provide  useful  information  to  investors  regarding  the  Company’s  financial  condition  and  results  of  IFRS  measures  provide  useful  information  to  investors  regarding  the  Company’s  financial  condition  and  results  of  IFRS  measures  provide  useful  information  to  investors  regarding  the  Company’s  financial  condition  and  results  of  IFRS  measures  provide  useful  information  to  investors  regarding  the  Company’s  financial  condition  and  results  of  operations as they provide additional key metrics of its performance. These non‐IFRS measures are not recognized under  operations as they provide additional key metrics of its performance. These non‐IFRS measures are not recognized under  operations as they provide additional key metrics of its performance. These non‐IFRS measures are not recognized under  operations as they provide additional key metrics of its performance. These non‐IFRS measures are not recognized under  IFRS, do not have any standardized meaning prescribed under IFRS and may differ from similarly named measures as  IFRS, do not have any standardized meaning prescribed under IFRS and may differ from similarly named measures as  IFRS, do not have any standardized meaning prescribed under IFRS and may differ from similarly named measures as  IFRS, do not have any standardized meaning prescribed under IFRS and may differ from similarly named measures as  reported by other issuers, and accordingly may not be comparable. These measures should not be viewed as a substitute  reported by other issuers, and accordingly may not be comparable. These measures should not be viewed as a substitute  reported by other issuers, and accordingly may not be comparable. These measures should not be viewed as a substitute  reported by other issuers, and accordingly may not be comparable. These measures should not be viewed as a substitute  for the related financial information prepared in accordance with IFRS.  for the related financial information prepared in accordance with IFRS.  for the related financial information prepared in accordance with IFRS.  for the related financial information prepared in accordance with IFRS.  Backlog represents the expected orders the Company has received, but has not yet executed, and that are expected to  Backlog represents the expected orders the Company has received, but has not yet executed, and that are expected to  Backlog represents the expected orders the Company has received, but has not yet executed, and that are expected to  Backlog represents the expected orders the Company has received, but has 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  translate into sales within the next twelve months, expressed in number of days. Bookings represent orders received  translate into sales within the next twelve months, expressed in number of days. Bookings represent orders received  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  calculated  by  adding  revenues  to  the  increase  or  during  the  period  considered,  expressed  in  number  of  days,  and  calculated  by  adding  revenues  to  the  increase  or  during  the  period  considered,  expressed  in  number  of  days,  and  calculated  by  adding  revenues  to  the  increase  or  during  the  period  considered,  expressed  in  number  of  days,  and  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  decrease in backlog for the period considered, divided by annualized year revenues. 5N Plus uses backlog to provide an  decrease in backlog for the period considered, divided by annualized year revenues. 5N Plus uses backlog to provide an  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.   indication of expected future revenues in days, and bookings to determine its ability to sustain and increase its revenues.   indication of expected future revenues in days, and bookings to determine its ability to sustain and increase its revenues.   indication of expected future revenues in days, and bookings to determine its ability to sustain and increase its revenues.   EBITDA means net earnings (loss) before interest expenses, income taxes, depreciation and amortization. 5N Plus uses  EBITDA means net earnings (loss) before interest expenses, income taxes, depreciation and amortization. 5N Plus uses  EBITDA means net earnings (loss) before interest expenses, income taxes, depreciation and amortization. 5N Plus uses  EBITDA means net earnings (loss) 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  EBITDA because it believes it is a meaningful measure of the operating performance of its ongoing business, without the  EBITDA because it believes it is a meaningful measure of the operating performance of its ongoing business, without the  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  effects of certain expenses. The definition of this non‐IFRS measure used by the Company may differ from that used by  effects of certain expenses. The definition of this non‐IFRS measure used by the Company may differ from that used by  effects of certain expenses. The definition of this non‐IFRS measure used by the Company may differ from that used by  other companies.  other companies.  other companies.  other companies.  EBITDA is reconciled to the most comparable IFRS measure:  EBITDA is reconciled to the most comparable IFRS measure:  EBITDA is reconciled to the most comparable IFRS measure:  EBITDA is reconciled to the most comparable IFRS measure:  (in thousands of U.S. dollars)  (in thousands of U.S. dollars)  (in thousands of U.S. dollars)  (in thousands of U.S. dollars)  Net (loss) earnings   Net (loss) earnings   Net (loss) earnings   Net (loss) earnings   Interest on long‐term debt, imputed interest and other interest expense  Interest on long‐term debt, imputed interest and other interest expense  Interest on long‐term debt, imputed interest and other interest expense  Interest on long‐term debt, imputed interest and other interest expense  Income taxes (recovery) expense  Income taxes (recovery) expense  Income taxes (recovery) expense  Income taxes (recovery) expense  Depreciation and amortization  Depreciation and amortization  Depreciation and amortization  Depreciation and amortization  EBITDA  EBITDA  EBITDA  EBITDA  EBITDA margin is defined as EBITDA divided by revenues.  EBITDA margin is defined as EBITDA divided by revenues.  EBITDA margin is defined as EBITDA divided by revenues.  EBITDA margin is defined as EBITDA divided by revenues.  Q4 2022  Q4 2022  Q4 2022  Q4 2022  $  $  $  $  (8,146)  (8,146)  (8,146)  (8,146)  716  716  716  716  (292)  (292)  (292)  (292)  4,051  4,051  4,051  4,051  (3,671)  (3,671)  (3,671)  (3,671)  Q4 2021  Q4 2021  Q4 2021  Q4 2021  $  $  $  $  980  980  980  980  1,164  1,164  1,164  1,164  1,314  1,314  1,314  1,314  4,364  4,364  4,364  4,364  7,822  7,822  7,822  7,822  FY 2022  FY 2022  FY 2022  FY 2022  $  $  $  $  (22,999)  (22,999)  (22,999)  (22,999)  5,192  5,192  5,192  5,192  4,711  4,711  4,711  4,711  17,732  17,732  17,732  17,732  4,636  4,636  4,636  4,636  FY 2021  FY 2021  FY 2021  FY 2021  $  $  $  $  3,110  3,110  3,110  3,110  3,713  3,713  3,713  3,713  5,630  5,630  5,630  5,630  12,535  12,535  12,535  12,535  24,988  24,988  24,988  24,988  Adjusted EBITDA means Operating earnings (loss) as defined before the effect of impairment of inventories, share‐based  Adjusted EBITDA means Operating earnings (loss) as defined before the effect of impairment of inventories, share‐based  Adjusted EBITDA means Operating earnings (loss) as defined before the effect of impairment of inventories, share‐based  Adjusted EBITDA means Operating earnings (loss) as defined before the effect of impairment of inventories, share‐based  compensation  expense  (recovery),  litigation  and  restructuring  costs,  impairment  of  non‐current  assets,  loss  on  compensation  expense  (recovery),  litigation  and  restructuring  costs,  impairment  of  non‐current  assets,  loss  on  compensation  expense  (recovery),  litigation  and  restructuring  costs,  impairment  of  non‐current  assets,  loss  on  compensation  expense  (recovery),  litigation  and  restructuring  costs,  impairment  of  non‐current  assets,  loss  on  divestiture of subsidiary, loss on disposal of assets held for sale and depreciation and amortization. 5N Plus uses adjusted  divestiture of subsidiary, loss on disposal of assets held for sale and depreciation and amortization. 5N Plus uses adjusted  divestiture of subsidiary, loss on disposal of assets held for sale and depreciation and amortization. 5N Plus uses adjusted  divestiture of subsidiary, loss on disposal of assets held for sale and depreciation and amortization. 5N Plus uses adjusted  EBITDA because it believes it is a meaningful measure of the operating performance of its ongoing business without the  EBITDA because it believes it is a meaningful measure of the operating performance of its ongoing business without the  EBITDA because it believes it is a meaningful measure of the operating performance of its ongoing business without the  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  effects of certain expenses. The definition of this non‐IFRS measure used by the Company may differ from that used by  effects of certain expenses. The definition of this non‐IFRS measure used by the Company may differ from that used by  effects of certain expenses. The definition of this non‐IFRS measure used by the Company may differ from that used by  other companies.   other companies.   other companies.   other companies.   Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenues.  Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenues.  Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenues.  Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenues.  5N Plus   ▪   Management’s Discussion and Analysis   ▪   25   5N Plus   ▪   Management’s Discussion and Analysis   ▪   25   5N Plus   ▪   Management’s Discussion and Analysis   ▪   25   5N Plus   ▪   Management’s Discussion and Analysis   ▪   25   36 5N PLUS | 2022 ANNUAL REPORT                                                                                MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss Adjusted EBITDA and Adjusted EBITDA margin are reconciled to the most comparable IFRS measure:  Management’s Discussion and Analysis (in thousands of U.S. dollars)  Revenues  Operating expenses  Operating (loss) earnings   Share‐based compensation (recovery) expense  Litigation and restructuring costs  Impairment of non‐current assets  Loss on divestiture of subsidiary  Loss on disposal of assets held for sale  Depreciation and amortization  Adjusted EBITDA  Adjusted EBITDA margin  Q4 2022  $  61,042  (69,261)  (8,219)  (171)  3,210  ‐  7,834  ‐  4,051  6,705  11.0%  Q4 2021  $  64,556  (60,018)  4,538  (460)  1,644  ‐  ‐  ‐  4,364  10,086  15.6%  FY 2022  $  264,223  (277,277)  (13,054)  999  3,823  12,478  7,834  216  17,732  30,028  11.4%  FY 2021  $  209,990  (197,119)  12,871  689  2,144  ‐  ‐  ‐  12,535  28,239  13.4%  Adjusted operating expenses means operating expenses before impairment of inventories, share‐based compensation  expense (recovery), litigation and restructuring costs, impairment of non‐current assets, loss on divestiture of subsidiary,  loss on disposal of assets held for sale and depreciation and amortization. 5N Plus uses adjusted operating expenses to  calculate  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.   Adjusted operating expenses are reconciled to the most comparable IFRS measure:  (in thousands of U.S. dollars)  Operating expenses  Share‐based compensation recovery (expense)   Litigation and restructuring costs  Impairment of non‐current assets  Loss on divestiture of subsidiary  Loss on disposal of assets held for sale  Depreciation and amortization  Adjusted operating expenses  Q4 2022  $  Q4 2021  $  69,261  171  (3,210)  ‐  (7,834)  ‐  (4,051)  54,337  60,018  460  (1,644)  ‐  ‐  ‐  (4,364)  54,470  FY 2022  $  277,277  (999)  (3,823)  (12,478)  (7,834)  (216)  (17,732)  234,195  FY 2021  $  197,119  (689)  (2,144)  ‐  ‐  ‐  (12,535)  181,751  Adjusted net earnings (loss) means the net earnings (loss) before the effect of impairment of inventory, share‐based  compensation  expense  (recovery),  litigation  and  restructuring  costs,  impairment  of  non‐current  assets,  loss  on  divestiture of subsidiary and loss on disposal of assets held for sale, net of the related income tax. 5N Plus uses adjusted  net earnings (loss) because it believes it is a meaningful measure of the operating performance of its ongoing business  without the effects of unusual expenses or income. The definition of this non‐IFRS measure used by the Company may  differ from that used by other companies.   Basic adjusted net earnings (loss) per share means adjusted net earnings (loss) divided by the weighted average number  of outstanding shares. 5N Plus uses basic adjusted net earnings (loss) per share because it believes it is a meaningful  measure of the operating performance of its ongoing business without the effects of unusual expenses or income. The  definition of this non‐IFRS measure used by the Company may differ from that used by other companies.   26   ▪   5N Plus   ▪   Management’s Discussion and Analysis  37 5N PLUS | 2022 ANNUAL REPORT              Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss   Adjusted net earnings (loss) and Basic adjusted net earnings (loss) are reconciled to the most comparable IFRS measures:  (in thousands of U.S. dollars, except per share amounts and     number of shares)  Q4 2022  Q4 2021  FY 2022  FY 2021  Net (loss) earnings    Basic (loss) earnings per share  Reconciling items:  Share‐based compensation (recovery) expense   Litigation and restructuring costs  Impairment of non‐current assets  Loss on divestiture of subsidiary  Loss on disposal of assets held for sale  Income tax recovery on taxable items above  Adjusted net earnings (loss)  Basic weighted average number of shares  Basic adjusted net earnings per share  $  (8,146)  ($0.09)  (171)  3,210  ‐  7,834  ‐  (595)  2,132  88,330,236  $0.02  $  980  $0.01  (460)  1,644  ‐  ‐  ‐  (285)  1,879  88,330,236  $0.02  $  (22,999)  ($0.26)  999  3,823  12,478  7,834  216  (2,618)  (267)  $  3,110  $0.04  689  2,144  ‐  ‐  ‐  (589)  5,354  88,330,236  $‐  88,330,236  $0.06  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.  Adjusted Gross margin is reconciled to the most comparable IFRS measure:  (in thousands of U.S. dollars)  Total revenue  Cost of sales   Gross margin  Depreciation included in cost of sales  Adjusted Gross margin  Adjusted Gross margin percentage  Q4 2022  $  61,042  (47,909)  13,133  3,155  16,288  26.7%  Q4 2021  $  64,556  (53,090)  11,466  3,515  14,981  23.2%  FY 2022  $  264,223  (215,715)  48,508  14,208  62,716  23.7%  FY 2021  $  209,990  (171,214)  38,776  10,539  49,315  23.5%  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.  Total debt and Net debt are reconciled to the most comparable IFRS measure:  (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, 2022  $  ‐  121,000  30,402  As at December 31, 2021  $  ‐  116,000  32,640  151,402  (30,402)  121,000  (42,691)  78,309  148,640  (32,640)  116,000  (35,940)  80,060  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.  38 5N Plus   ▪   Management’s Discussion and Analysis   ▪   27   5N PLUS | 2022 ANNUAL REPORT                              Management’s Discussion and Analysis MMaannaaggeemmeenntt’’ss  DDiissccuussssiioonn  aanndd  AAnnaallyyssiiss Working capital is reconciled to the most comparable IFRS measure:  (in thousands of U.S. dollars)  Inventories  Other current assets excluding inventories  Current assets  Current liabilities  Working capital  Working capital current ratio  As at December 31, 2022  $  86,254  100,908  187,162  (62,846)  124,316  2.98  As at December 31, 2021  $  95,526  99,996  195,522  (65,059)  130,463  3.01  Additional Information  5N Plus’ 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)  Dec 31,  2022   Sept 30,  2022  Revenue  EBITDA1  Adjusted EBITDA1  Net (loss) earnings  Basic (loss) earnings per share  Diluted (loss) earnings per share  Adjusted net earnings (loss)1   Basic adjusted net earnings (loss) per share1  Funds from operations  Backlog1  61,042  (3,671)  6,705  (8,146)  ($0.09)  ($0.09)  2,132  $0.02  5,478  253 days  66,372  1,751  9,114  (6,968)  ($0.08)  ($0.08)  520  $‐  2,055  192 days  June 30,  2022  $  72,388  6,739  8,583  (2,130)  ($0.02)  ($0.02)  (997)  ($0.01)  3,165  140 days  March 31,  2022  $  64,421  (183)  5,626  (5,755)  ($0.07)  ($0.07)  (1,922)  ($0.02)  2,800  196 days  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  Net (loss) 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 (loss) earnings   Basic (loss) earnings per share  Diluted (loss) earnings per share  Adjusted net (loss) earnings   Basic adjusted net earnings per share  Funds from operations  Backlog  Balance Sheet  Total assets  Total non‐current liabilities   Net debt1  Shareholders’ equity  Net (loss) earnings are completely attributable to equity holders of 5N Plus Inc.  2022  $  264,223  4,636  30,028  (22,999)  ($0.26)  ($0.26)  (267)  $‐  13,498  253 days  347,985  172,363  78,309  112,776  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  1 See Non‐IFRS Measures  28   ▪   5N Plus   ▪   Management’s Discussion and Analysis  39 5N PLUS | 2022 ANNUAL REPORT                                                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 reviews 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 auditor 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 President and Chief Executive Officer (signed) Richard Perron____________________ Richard Perron Chief Financial Officer Montreal, Canada February 21, 2023 40 5N Plus ▪ Consolidated Financial Statements 5N PLUS | 2022 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, 2022 and 2021, 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, 2022 and 2021; the consolidated statements of (loss) earnings for the years then ended; the consolidated statements of comprehensive (loss) 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 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, an Ontario limited liability partnership. 41 5N PLUS | 2022 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, 2022. 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 matter How our audit addressed the key audit matter Valuation of inventories Refer to note 2 – Summary of principal accounting policies and note 6 – Inventories to the consolidated financial statements. The carrying value of inventories on the Company’s consolidated financial statements was $86.2 million as at December 31, 2022. 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. Our approach to addressing the matter included the following procedures, among others:  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 o prices of similar products in the market at the time the estimates are made; and 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. 42 5N PLUS | 2022 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 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. 43 5N PLUS | 2022 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. 44 5N PLUS | 2022 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, Canada February 21, 2023 1 CPA auditor, public accountancy permit No. A123642 45 5N PLUS | 2022 ANNUAL REPORTConsolidated Statements of Financial Position (in thousands of United States dollars) 5N PLUS INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands of United States dollars) 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 deferred revenue Current portion of lease liabilities Total current liabilities Long-term debt Deferred tax liabilities Employee benefit plan obligations Lease liabilities Deferred revenue Other liabilities Total non-current liabilities Total liabilities Equity Total liabilities and equity Commitments and contingencies (Note 25) The accompanying notes are an integral part of these consolidated financial statements. Notes December 31 2022 $ December 31 2021 $ 5 6 18 7 8 9 10 11 18 12 13 18 19 16 9 14 18 15 9 16 17 42,691 32,872 86,254 5,488 19,857 187,162 77,951 30,082 31,563 11,825 6,002 3,400 160,823 347,985 40,200 8,780 - 11,730 2,136 62,846 121,000 6,959 11,643 28,266 2,354 2,141 172,363 235,209 112,776 347,985 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 46,454 5,615 109 10,394 2,487 65,059 116,000 7,645 17,231 30,153 - 1,255 172,284 237,343 136,247 373,590 46 5N Plus ▪ Consolidated Financial Statements ▪ 1 5N PLUS | 2022 ANNUAL REPORT 5N PLUS INC. CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS Years ended December 31 (in thousands of United States dollars, except per share information) Consolidated Statements of (Loss) Earnings Years ended December 31 (in thousands of United States dollars, except per share information) Revenue Cost of sales Selling, general and administrative expenses Other expenses (income), net Operating (loss) earnings Financial expenses Interest on long-term debt Imputed interest and other interest (income) expense Foreign exchange and derivative loss (Loss) earnings before income taxes Income tax expense (recovery) Current Deferred Net (loss) earnings (Loss) earnings per share Basic (loss) earnings per share Diluted (loss) earnings per share Net (loss) earnings are completely attributable to equity holders of 5N Plus Inc. The accompanying notes are an integral part of these consolidated financial statements. Notes 29 29 29 14 18 18 23 23 23 2022 $ 264,223 215,715 28,565 32,997 277,277 (13,054) 5,466 (274) 42 5,234 (18,288) 6,865 (2,154) 4,711 (22,999) (0.26) (0.26) (0.26) 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 2 ▪ 5N Plus ▪ Consolidated Financial Statements 47 5N PLUS | 2022 ANNUAL REPORT Consolidated Statements of Comprehensive (Loss) Income Years ended December 31 (in thousands of United States dollars) 5N PLUS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME Years ended December 31 (in thousands of United States dollars) Net (loss) earnings Other comprehensive (loss) income Items that may be reclassified subsequently to net (loss) earnings Currency translation adjustment Notes Items that will not be reclassified subsequently to net (loss) earnings Remeasurement of employee benefit plan obligations Income taxes 15 Other comprehensive (loss) income Comprehensive (loss) income Comprehensive (loss) income is completely attributable to equity holders of 5N Plus Inc. The accompanying notes are an integral part of these consolidated financial statements. 2022 $ (22,999) (3,657) (3,657) 4,159 (1,300) 2,859 (798) 2021 $ 3,110 (31) (31) 814 (256) 558 527 (23,797) 3,637 5N Plus ▪ Consolidated Financial Statements ▪ 3 48 5N PLUS | 2022 ANNUAL REPORT $ l a t o T y t i u q e 7 4 2 , 6 3 1 ) 8 9 7 ( ) 9 9 9 , 2 2 ( ) 7 9 7 , 3 2 ( $ t i c i f e D ) 7 2 2 , 2 2 2 ( - ) 9 9 9 , 2 2 ( ) 9 9 9 , 2 2 ( 6 2 3 - $ s s o l ) 9 8 1 , 5 ( - ) 8 9 7 ( ) 8 9 7 ( - - - - 6 2 3 $ l s u p r u s 9 5 6 , 2 4 3 r e h t o l d e t a u m u c c A e v i s n e h e r p m o c d e t u b i r t n o C - - - - e r a h S l a t i p a c $ 4 0 0 , 1 2 - - - - r e b m u N s e r a h s f o 6 3 2 , 0 3 3 , 8 8 ) n o i t a m r o f n i e r a h s r e p t p e c x e , s r a l l o d s e t a t S d e t i n U f o s d n a s u o h t n i ( 2 2 0 2 ) 4 2 e t o N ( n o i t a s n e p m o c d e s a b - e r a h S s s o l e v i s n e h e r p m o c r e h t O r a e y e h t r o f s s o l t e N s s o l e v i s n e h e r p m o C i r a e y f o g n n n i g e b t a s e c n a a B l 6 7 7 , 2 1 1 ) 6 2 2 , 5 4 2 ( ) 7 8 9 , 5 ( 5 8 9 , 2 4 3 4 0 0 , 1 2 6 3 2 , 0 3 3 , 8 8 r a e y f o d n e t a s e c n a a B l Y T I U Q E N I S E G N A H C F O S T N E M E T A T S D E T A D I L O S N O C 1 3 r e b m e c e D d e d n e s r a e Y . C N I S U L P N 5 Consolidated Statements of Changes In Equity Years ended December 31 (in thousands of United States dollars, except per share information) $ l a t o T y t i u q e 6 7 3 8 1 1 , 7 2 5 0 1 1 3 , 7 3 6 3 , ) 9 0 8 ( 6 4 6 8 4 1 9 4 2 4 1 , - 0 1 1 3 , 0 1 1 3 , - - - ) 2 9 7 ( - 7 2 5 7 2 5 - - - - - - - - - ) 1 9 2 ( 8 4 1 $ t i c i f e D , ) 5 4 5 4 2 2 ( $ s s o l ) 6 1 7 5 ( , $ l s u p r u s 2 0 8 2 4 3 , r e h t o l d e t a u m u c c A e v i s n e h e r p m o c d e t u b i r t n o C - - - e r a h S l a t i p a c $ 5 3 8 5 , - ) 7 1 ( 7 3 9 9 4 2 4 1 , 7 4 2 6 3 1 , , ) 7 2 2 2 2 2 ( ) 9 8 1 5 ( , 9 5 6 2 4 3 , 4 0 0 , 1 2 r e b m u N s e r a h s f o 1 2 0 2 , 0 3 1 1 5 6 1 8 , - - - - , ) 2 7 5 9 4 2 ( 8 7 6 8 2 4 , 0 0 0 , 0 0 5 6 , , 6 3 2 0 3 3 8 8 , . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T r a e y f o d n e t a s e c n a a B l ) 4 2 e t o N ( n o i t a s n e p m o c d e s a b - e r a h S s n o i t p o k c o t s f o e s i c r e x E s t n e m e t a t S l i a i c n a n F d e t a d i l o s n o C ▪ l s u P N 5 ▪ 4 49 ) 2 2 e t o N ( d e l l e c n a c d n a d e s a h c r u p e r s e r a h s n o m m o C ) 2 2 d n a 1 2 s e t o N ( s e r a h s f o e c n a u s s I e m o c n i e v i s n e h e r p m o c r e h t O r a e y e h t r o f i s g n n r a e t e N e m o c n i e v i s n e h e r p m o C i i r a e y f o g n n n g e b t a s e c n a a B l 5N PLUS | 2022 ANNUAL REPORT Consolidated Statements of Cash Flows Years ended December 31 (in thousands of United States dollars) 5N PLUS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31 (in thousands of United States dollars) Operating activities Net (loss) earnings Adjustments to reconcile net (loss) 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 non-current assets Increase on loss allowance Loss on divestiture of a subsidiary Share-based compensation expense (recovery) Deferred income taxes Imputed interest Employee benefit plan obligations Loss on disposal of assets held for sale (Gain) loss on disposal of property, plant and equipment Unrealized (gain) loss on non-hedge financial instruments Unrealized foreign exchange (gain) loss on assets and liabilities Funds from operations before the following : Net change in non-cash working capital balances Cash from operating activities Investing activities Acquisition of subsidiary, net of cash acquired Divestiture of a subsidiary, net of cash divested 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 assets held for sale 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 financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net increase (decrease) 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 Notes 8 9 10 12 4, 8, 10, 29 5, 27 4 24 18 9 15 29 21 4 4 4 8, 21 10 12 29 8 4, 14 14 12 22 22 21 17 2022 $ (22,999) 11,717 2,702 3,313 260 12,478 3 7,834 1,893 (2,154) 605 (403) 216 (13) (1,003) (951) 13,498 10,243 23,741 - (2,652) (2,123) (16,062) (993) - 2,816 20 (18,994) (5,000) 10,000 (732) - - (2,999) 1,140 2,409 (405) 6,751 35,940 42,691 3,745 5,360 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 2,493 2,790 (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 50 5N PLUS | 2022 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 Years ended December 31 (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 21, 2023. In February 2022, Russian military forces invaded Ukraine; the invasion is being actively resisted by Ukrainian military personnel and the people of Ukraine, and the outcome of the ongoing conflict remains uncertain at this time. Although AZUR SPACE Solar Power GmbH (AZUR), a subsidiary of the Company, had sales in Russia in the past, the amount of such sales is not material to the Company as a whole. A prolonged armed conflict in Ukraine or an expansion of the armed conflict to other European countries could have a negative effect on the European and global economies. As well, Russia is a major exporter of oil and natural gas. Any disruption of supplies of oil and natural gas from Russia could have a significant adverse effect on the European and world economies. All of the foregoing factors could potentially have a negative impact on the Company’s sales and results of operations. 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 51 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (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(1) 5N Plus Asia Limited 5N Plus Wisconsin Inc. Country of incorporation Canada Germany Germany Germany Belgium Hong Kong United States % Equity interest 2022 100% 100% 100% 100% - 100% 100% 2021 100% 100% 100% 100% 100% 100% 100% (1) On December 19, 2022, the Company divested its investment in 5N Plus Belgium SA. The revenues and expenses of this investment from January 1, 2022 until the date of disposition have been included within the Company’s consolidated statement of (loss) earnings. See note 4 for additional information. 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 (loss) earnings. Foreign exchange gains and losses are presented in the consolidated statement of (loss) earnings within “foreign exchange and derivative 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 (loss) income. 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 52 5N PLUS | 2022 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 Years ended December 31 (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 (loss) earnings. Acquisition costs are expensed as incurred in the consolidated statement of (loss) earnings. Segment reporting Following the acquisition of AZUR and the subsequent integration of its activities within the Company’s operations, the Company repositioned certain products and applications between its two reportable segments, effective in the fourth quarter of 2021. 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 specified location, the risks of loss have been transferred to the customer and the customer 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 53 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (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. Deferred revenue is recognized by the company as a non-current liability in relation to long-term revenue contracts with customers which involve performance obligations which are satisfied over time rather than at a point in time. The amount of which is expected to be realized within one year is recorded within the heading “Current portion of deferred revenue”. Cash payments received or advances due pursuant to contractual arrangements related to the sale of goods are also recorded as deferred revenue until all of the foregoing conditions of revenue recognition have been met. The Company does not expect to have any contractual arrangements whereby the cash payment or advance is received more than one year before the underlying goods are delivered and therefore these advances are also presented within the heading “Current portion of deferred revenue”. 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 (loss) 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 (loss) 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. 5N Plus ▪ Consolidated Financial Statements ▪ 9 54 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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. 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 (loss) 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 (loss) 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. 10 ▪ 5N Plus ▪ Consolidated Financial Statements 55 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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 Goodwill Period 15 years Not exceeding 15 years 10 years 5 years Not exceeding 10 years 3 years 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 (loss) 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 to which the asset belongs is used to determine the recoverable amount. Impairment losses are recognized in the consolidated statement of (loss) 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 (loss) earnings. 56 5N Plus ▪ Consolidated Financial Statements ▪ 11 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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 (loss) earnings. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. 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 (loss) 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 (loss) earnings. Fair value through profit or loss (FVPL): Assets that do not meet the criteria for amortized cost or fair value through other comprehensive (loss) 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 (loss) 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 (loss) earnings and presented net within “Other expenses (income), net” 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. 12 ▪ 5N Plus ▪ Consolidated Financial Statements 57 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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 Indexed deposit agreement (Note 7) Derivative financial assets Investment in equity instrument (Note 12) Restricted investment (Note 12) Derivative financial liabilities Cash and cash equivalents Accounts receivable Cash held in escrow (Note 7) 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. 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 27). 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 (loss) income, while the ineffective portion is recorded in the consolidated statement of (loss) earnings. The amounts recognized in other comprehensive (loss) income are reclassified in the consolidated statement of (loss) earnings as a reclassification adjustment when the hedged item affects net earnings. For the year ended December 31, 2022 and 2021, 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 (loss) earnings. For the year ended December 31, 2022 and 2021, the Company has no embedded derivative. Cash and cash equivalents Cash and cash equivalents comprise cash on hand. 5N Plus ▪ Consolidated Financial Statements ▪ 13 58 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Cash held in escrow Cash held in escrow represents cash which is restricted pursuant to a contractual arrangement and is held in a separate bank account. Cash held in escrow is presented within “Other current assets”. 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 which comprises current and deferred tax is recognized in the consolidated statement of (loss) earnings, except to the extent that it relates to items recognized in other comprehensive (loss) income or directly in equity. In which case, the tax expense is also recognized in other comprehensive (loss) income or directly in equity, respectively. a) Current tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date of the consolidated statement of financial position in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. b) Deferred tax Deferred income tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that are enacted or substantively enacted at the date of the consolidated statement of financial position and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be used. Deferred income tax is 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. 14 ▪ 5N Plus ▪ Consolidated Financial Statements 59 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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. Research and development expenses Research expenses are charged to the consolidated statement of (loss) earnings in the period they are incurred and are included under “Other expenses (income), net”. Development expenses which are directly attributable expenses, either internal or external, are charged to the consolidated statement of (loss) 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 (loss) income in the period in which they arise. 5N Plus ▪ Consolidated Financial Statements ▪ 15 60 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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 (loss) 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 (loss) earnings. Earnings per share Basic (loss) earnings per share is calculated by dividing net (loss) earnings for the year by the weighted average number of common shares outstanding during the year. Diluted (loss) 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. 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. 16 ▪ 5N Plus ▪ Consolidated Financial Statements 61 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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. 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 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 18). 62 5N Plus ▪ Consolidated Financial Statements ▪ 17 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 3. Adoption of New Accounting Standards and Future Changes in Accounting Policies Adoption of new accounting standards IFRS 3 – Business combinations On January 1, 2022, the Company adopted the 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. In adopting the amendments, there has been no significant impact to the financial statements for the year ended December 31, 2022. IAS 16 – Property, plant and equipment On January 1, 2022, the Company adopted the 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. In adopting the amendments, there has been no significant impact to the financial statements for the year ended December 31, 2022. IFRS 9 – Financial Instruments On January 1, 2022, the Company adopted the amendment to IFRS 9 which clarifies 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. In adopting the amendments, there has been no significant impact to the financial statements for the year ended December 31, 2022. Future Changes in accounting policies The following standards have been issued but not yet effective: IAS 1 – Presentation of Financial Statements In January 2020, the IASB issued amendments to IAS 1 to clarify its requirements for the presentation of liabilities in the statement of financial position. The amendments are effective for annual reporting periods beginning on or after January 1, 2024. The Company is currently evaluating the impact of the amendments on its consolidated financial statements. 4. Business Combination and Divestiture of Subsidiary 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 were funded through the Company's liquidity and senior debt facility. Transaction fees for an amount of $266 for 2022 (2021 - $666 and 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 has not only expanded the Company's position within renewable energy, but, through Canada's membership in the European Space Agency (ESA), has also established 5N Plus as a supplier to the European and U.S. space programs. 18 ▪ 5N Plus ▪ Consolidated Financial Statements 63 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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 final assessment of the fair values of the assets acquired and the liabilities assumed. As a result of finalizing its assessment, the Company has not restated the consolidated statement of financial position as at December 31, 2021 as the adjustments were deemed not material. The Company also determined that the net impact on the net earnings as a result of these adjustments was not material for the year ended December 31, 2021, and as such, they were accounted for in the consolidated statement of (loss) earnings for the year ended December 31, 2022. 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, is expected to be released within 12 months in accordance with the terms of the Share Purchase Agreement (Notes 7 and 13). 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 Current portion of deferred revenue Long-term debt(1) Employee benefit plan obligations Lease liabilities Deferred revenue Other liabilities Deferred tax liabilities Total liabilities assumed Total net assets Preliminary $ 1,017 8,342 21,394 256 31,128 21,626 32,144 5 13,841 129,753 7,291 4,906 27,396 2,673 21,626 - 1,059 7,094 72,045 57,708 Adjustments $ - 1,057 (1,057) - 4,993 (938) (973) - (2,016) 1,066 - (1,294) - - (938) 2,011 216 1,071 1,066 - Final $ 1,017 9,399 20,337 256 36,121 20,688 31,171 5 11,825 130,819 7,291 3,612 27,396 2,673 20,688 2,011 1,275 8,165 73,111 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 ended December 31, 2021 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. 5N Plus ▪ Consolidated Financial Statements ▪ 19 64 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) The amount recorded for goodwill Is not deductible for tax purposes. The accounts receivable are presented net of a loss allowance of $28. Divestiture of Subsidiary On December 19, 2022, the Company divested its 100% interest in 5N Plus Belgium SA, previously included within its Performance Materials segment, and recognized a loss on divestiture of $7,834. The decision to cease the production of lower margin products used in catalytic and extractive applications was made following a strategic review of the Company’s legacy operations. As part of the transaction, a provision of $2,594 was recorded under Litigation and Restructuring to support the new owners to ensure site compliance with most recent environmental standards and for other related costs, of which 2.0 million euros or $2,133 is held in escrow. Prior to the divestiture, the Company recorded an impairment charge of $7,092 on Property, plant, and equipment (Note 7) following the intention to halt production at its manufacturing facility in Tilly, Belgium. These expenses are presented within the consolidated statement of (loss) earnings within Other expenses (income), net. 5. Accounts Receivable Gross trade receivables Loss allowance (Note 27) Trade receivables Sales taxes receivable Other receivables Total accounts receivable 2022 $ 26,255 (152) 26,103 3,265 3,504 32,872 2021 $ 35,014 (149) 34,865 3,508 3,725 42,098 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 27. Most of the accounts receivable are pledged as security for the revolving credit facility (Note 14). 20 ▪ 5N Plus ▪ Consolidated Financial Statements 65 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 6. Inventories Raw materials Finished goods Total inventories 2022 $ 28,436 57,818 86,254 2021 $ 30,845 64,681 95,526 For the year ended December 31, 2022, a total of $118,643 of inventories was included as an expense in cost of sales (2021 – $94,881). For the year ended December 31, 2022, a total of $1,464 previously written down was recognized as a reduction of expenses in cost of sales concurrently with the related inventories being sold ($22 for the Specialty Semiconductors segment and $1,442 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). The majority of inventories are pledged as security for the revolving credit facility (Note 14). 7. Other current assets Cash held in escrow (Note 4) Indexed deposit agreement Prepaids and others Total other current assets 2022 $ 10,613 5,517 3,727 19,857 2021 $ 9,004 4,819 3,081 16,904 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 the 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, 2022, the indexed deposit agreement covered 2,571,569 common shares of the Company. 66 5N Plus ▪ Consolidated Financial Statements ▪ 21 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 8. Property, Plant and Equipment Net book value as at December 31, 2020 Business combination (Note 4) Additions Disposals Depreciation Transfer between categories Effect of foreign exchange Net book value as at December 31, 2021 Business combination (Note 4) Additions Disposals Reclassification to assets held for sale (Note 29) Depreciation Impairment Transfer between categories Effect of foreign exchange Net book value as at December 31, 2022 As at December 31, 2021 Cost Accumulated depreciation Net book value As at December 31, 2022 Cost Accumulated depreciation Net book value Construction in progress and production equipment $ 33,261 28,874 6,971 (456) (6,334) (402) (1,058) 60,856 4,638 14,818 (3) - (8,940) (4,599) (2,363) (1,735) 62,672 Furniture, office equipment and rolling stock $ 2,518 472 429 - (1,263) 376 (26) 2,506 - 378 - - (1,304) (119) 10 (52) 1,419 Land and buildings $ 16,203 - 290 - (951) - 43 15,585 - 86 (4) (3,032) (764) (2,374) 1,597 (150) 10,944 Leasehold improvements $ 1,209 1,782 15 - (421) 26 (32) 2,579 355 14 - - (709) - 756 (79) 2,916 23,916 (8,331) 15,585 18,823 (7,879) 10,944 100,973 (40,117) 60,856 110,068 (47,396) 62,672 5,116 (2,610) 2,506 5,135 (3,716) 1,419 5,244 (2,665) 2,579 6,275 (3,359) 2,916 Total $ 53,191 31,128 7,705 (456) (8,969) - (1,073) 81,526 4,993 15,296 (7) (3,032) (11,717) (7,092) - (2,016) 77,951 135,249 (53,723) 81,526 140,301 (62,350) 77,951 During the third quarter of 2022, the Company recorded an impairment of non-current assets of $7,092, included in the Performance Materials segment, to reflect the assessment of the carrying value of property, plant and equipment following the intention to halt production at its manufacturing facility in Tilly, Belgium. Consequently, the Company’s projections regarding the future cashflows from the property, plant and equipment of Tilly were minimal. The impairment charges are recognized under Other expenses within the consolidated statement of (loss) earnings (Note 4). As at December 31, 2022, property, plant and equipment that were not depreciated until ready for their intended use amounted to $19,911 (2021 ─ $14,418) (mainly production equipment). Most of the property, plant and equipment are pledged as security for the revolving credit facility (Note 14). 22 ▪ 5N Plus ▪ Consolidated Financial Statements 67 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 9. Leases Right-of-use assets 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 Business combination (Note 4) Additions Modification to lease contracts Divestiture of subsidiary (Note 4) Depreciation Effect of foreign exchange and others Net book value as at December 31, 2022 As at December 31, 2021 Cost Accumulated depreciation Net book value As at December 31, 2022 Cost Accumulated depreciation Net book value Lease liabilities Current portion Non-current portion Total lease liabilities Buildings $ 4,356 21,559 - 7,402 (1,413) (361) 31,543 (938) 2,300 198 - (2,364) (1,167) 29,572 34,923 (3,380) 31,543 35,319 (5,747) 29,572 Amounts recognized in the consolidated statements of earnings: Imputed interest(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) 68 Production equipment $ 356 - 27 - (145) - 238 - 107 - (55) (128) (4) 158 Office equipment and rolling stock $ 335 67 217 5 (206) (1) 417 - 290 - (140) (210) (5) 352 619 (381) 238 305 (147) 158 790 (373) 417 509 (157) 352 2022 $ 2,136 28,266 30,402 2022 $ 605 (123) 188 312 Total $ 5,047 21,626 244 7,407 (1,764) (362) 32,198 (938) 2,697 198 (195) (2,702) (1,176) 30,082 36,332 (4,134) 32,198 36,133 (6,051) 30,082 2021 $ 2,487 30,153 32,640 2021 $ 336 (33) 251 284 5N Plus ▪ Consolidated Financial Statements ▪ 23 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 10. Intangible Assets Net book value as at December 31, 2020 Business combination (Note 4) Additions Amortization Effect of foreign exchange Net book value as at December 31, 2021 Business combination (Note 4) Additions Divestiture of subsidiary (Note 4) Amortization Impairment Effect of foreign exchange Net book value as at December 31, 2022 As at December 31, 2021 Cost Accumulated amortization Net book value As at December 31, 2022 Cost Accumulated amortization Net book value Customer relationship $ - 15,971 - (166) - 15,805 (423) - - (742) (5,123) - 9,517 15,971 (166) 15,805 10,425 (908) 9,517 Trade name, software, development costs and others $ 8,136 6,274 541 (1,288) (66) 13,597 (3,534) 993 (66) (1,320) (263) (129) 9,278 Technology $ 1,532 9,899 - (348) (11) 11,072 2,984 - - (1,251) - (37) 12,768 12,077 (1,005) 11,072 15,023 (2,255) 12,768 19,799 (6,202) 13,597 15,465 (6,187) 9,278 Total $ 9,668 32,144 541 (1,802) (77) 40,474 (973) 993 (66) (3,313) (5,386) (166) 31,563 47,847 (7,373) 40,474 40,913 (9,350) 31,563 In 2022, the Company recorded an impairment of non-current assets of $5,386, included in the Specialty Semiconductors segment, to reflect the assessment of the carrying value of intangible assets impacted by the invasion of Ukraine by Russia, more precisely in reference to Russia based customers. The Company’s initial assumptions regarding the timing of future cashflows from these customers can no longer be supported given the uncertainty associated with recent international sanctions against Russia, and the unknown duration of the conflict. The impairment charges are recognized under Other expenses within the consolidated statement of (loss) earnings. As at December 31, 2022, intangible assets that were not depreciated until ready for their intended use amounted to $812 (2021 ─ $1,963). The category of development costs which includes capitalized costs of $10,798 (2021 - $14,367), primarily consists of internally generated intangible assets. 24 ▪ 5N Plus ▪ Consolidated Financial Statements 69 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 11. Goodwill Net book value as at December 31, 2021 Business combination (Note 4) Net book value as at December 31, 2022 2022 $ 13,841 (2,016) 11,825 2021 $ - 13,841 13,841 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. 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 three years of the five-year projection period was forecasted by Management. The extended two-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; and - 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 9.9%. 12. Other assets Deferred costs Investment in equity instruments Restricted investment and other Total other assets 2022 $ 777 2,000 623 3,400 2021 $ 305 2,000 717 3,022 In January 2021, the Company acquired a minority equity stake in Microbion Corporation (Microbion) for an amount of $2,000. The Company also owns a restricted investment of $620 (2021 - $713) which is valued at fair value through profit or loss. 13. Trade and Accrued Liabilities Trade payables Accrued liabilities(1) Consideration payable (Note 4) Total trade and accrued liabilities 2022 $ 14,281 17,440 8,479 40,200 2021 $ 22,116 15,334 9,004 46,454 (1) As at December 31, 2022, an amount of $nil was still outstanding with respect to the provision of $258 outstanding as at December 31, 2021. Provisions of $2,869 were taken in 2022, of which $2,675 was still outstanding as at December 31, 2022. 70 5N Plus ▪ Consolidated Financial Statements ▪ 25 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 14. Long-Term Debt Senior secured revolving facility of $124,000 with a syndicate of banks, maturing in April 2026 Subordinated term loan, maturing in March 2024 Less current portion of long-term debt 2022 $ 96,000 25,000 121,000 - 121,000 2021 $ 91,000 25,000 116,000 - 116,000 Senior secured revolving facility In June 2022, the Company signed a senior secured multi-currency revolving credit facility of $124,000 maturing in April 2026 to replace its existing $124,000 senior secured revolving facility maturing in April 2023. 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 SOFR, 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, 2022, the Company had met all covenants. Subordinated term loan In February 2019, the Company signed a five-year 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, 2022, the Company has met all covenants. 15. 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 26 ▪ 5N Plus ▪ Consolidated Financial Statements 2022 $ 2,363 3,425 1,062 10,581 11,643 2021 $ 3,069 5,575 2,506 14,725 17,231 71 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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 End of year Unfunded $ 14,725 - 58 165 (862) (655) (2,850) 10,581 Funded $ 5,575 - - 63 (350) (177) (1,686) 9 3,425 Movement in plan assets is as follows: 2022 Total $ 20,300 - 58 228 (1,212) (832) (4,536) 14,006 Unfunded $ 17,202 - 89 147 (1,308) (722) (683) 14,725 Funded $ - 5,782 - 10 (93) (34) (90) 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 The principal actuarial assumptions as at December 31 were as follows: 2022 $ 3,069 - 34 (377) (177) (186) 2,363 Discount rate Salary growth rate Pension growth rate Unfunded 4.2% 2.5% 2.3% 2022 Funded 4.2% 2.5% 2.0% Unfunded 1.2% 2.0% 1.8% 2021 Total $ 17,202 5,782 89 157 (1,401) (756) (773) 20,300 2021 $ - 3,109 5 41 (34) (52) 3,069 2021 Funded 1.2% 2.0% 2.0% 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. 72 5N Plus ▪ Consolidated Financial Statements ▪ 27 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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 (4.93%) 0.26% 4.38% Funded (5.77%) -% 5.12% Unfunded 5.40% (0.26%) (4.07%) Funded 6.39% -% (4.74%) Life expectancy Increase by 1 year in assumption Decrease by 1 year in assumption Unfunded 3.77% Funded 3.21% Unfunded (3.35%) Funded (2.88%) The weighted average duration of the unfunded and funded defined benefit obligations are 10.29 years and 12.10 years (2021 – 13.03 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. Expected maturity analysis of undiscounted pension liability: Less than a year Between 1 and 5 years Over 5 years Total Unfunded $ 676 2,796 14,140 17,612 Funded $ 186 786 5,378 6,350 2022 Total $ 862 3,582 19,518 23,962 Unfunded $ 693 2,794 13,954 17,441 Funded $ 189 806 5,887 6,882 Expected contributions to pension benefit plans for the year ending December 31, 2023 are $862. 16. Deferred revenue Current portion of deferred revenue Non-current portion of deferred revenue Total deferred revenue 2022 $ 11,730 2,354 14,084 2021 Total $ 882 3,600 19,841 24,323 2021 $ 10,394 - 10,394 For the year ended December 31, 2022, $5,605 (2021 - $2,016) of revenue was realized in relation to the deferred revenue balance outstanding at the beginning of the year. 28 ▪ 5N Plus ▪ Consolidated Financial Statements 73 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 17. Other Liabilities Beginning of year Business combination (Note 4) Divestiture of subsidiary (Note 4) Increase in liabilities Effect of foreign exchange End of year 18. 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 2022 $ 1,255 - (195) 1,140 (59) 2,141 2022 $ 7,213 (348) 6,865 (2,446) 292 (2,154) 4,711 A reconciliation of income taxes at Canadian statutory rates with the reported income taxes is as follows: (Loss) earnings before income tax Canadian statutory income tax rates Income tax on (losses) 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 2022 $ (18,288) 26.5% (4,846) 3,268 3,670 1,868 299 522 (56) (14) 4,711 2021 $ 195 1,059 - 19 (18) 1,255 2021 $ 5,309 271 5,580 826 (776) 50 5,630 2021 $ 8,740 26.5% 2,316 553 622 1,599 1,048 - (505) (3) 5,630 The Company’s applicable tax rate is the Canadian combined rates applicable in the jurisdiction in which the Company operates. 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 (charged) to consolidated statement of earnings Impact of foreign exchange End of year 2022 $ (638) (1,071) (1,300) 2,154 (102) ) (957) 2021 $ 6,789 (7,094) (256) (50) (27) (638) 5N Plus ▪ Consolidated Financial Statements ▪ 29 74 5N PLUS | 2022 ANNUAL REPORT e m a s e h t n i h t i w s e c n a l a b f o g n i t t e s f f o e h t n o i t a r e d i s n o c o t n i g n i k a t t u o h t i w , r a e y e h t g n i r u d s e i t i l i b a i l d n a s t e s s a x a t e m o c n i d e r r e f e d n i t n e m e v o m e h T ) d e t a c i d n i e s i w r e h t o s s e n u l , s r a l l o d s e t a t S d e t i n U f o s d n a s u o h t n i ( S T N E M E T A T S I L A C N A N I F D E T A D I L O S N O C O T S E T O N 1 3 r e b m e c e D d e d n e s r a e Y . C N I S U L P N 5 Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 7 0 0 7 , ) 0 0 8 3 ( , 2 0 0 , 6 ) 5 2 0 , 3 ( $ - l a t o T $ ) 1 5 7 1 ( , y b t e s f f O n o i t c i d s i r u j 5 4 6 7 , ) 0 0 8 3 ( , 9 5 9 , 6 ) 5 2 0 , 3 ( $ l a t o T 9 8 7 6 , $ ) 1 5 7 1 ( , y b t e s f f O n o i t c i d s i r u j l a t o T $ 0 4 5 8 , 6 7 4 2 , 4 7 ) 7 2 ( ) 6 5 2 ( ) 3 2 3 ( 7 0 8 0 1 , ) 5 5 ( ) 0 0 3 , 1 ( ) 2 0 1 ( 7 2 0 , 9 $ l a t o T 1 5 7 1 , 0 7 5 9 , 4 2 1 ) 3 2 3 ( 1 7 0 , 1 5 4 4 1 1 , ) 9 0 2 , 2 ( 4 8 9 , 9 - $ 5 0 1 1 , s r e h t O ) 5 4 2 ( - ) 7 2 ( 3 3 8 ) 9 4 ( 4 6 2 - ) 2 0 1 ( 6 4 9 s r e h t O $ 0 4 - 6 2 6 6 - - 5 9 1 6 1 t i f e n e b n o i t a g i l b o t n e m e r i t e R d r a w r o f y r r a c s s o L s t e s s a l e b i g n a t n I s e i r o t n e v n I , y t r e p o r P d n a t n a p l t n e m p u q e i $ 6 1 8 0 6 3 4 , - ) 1 6 4 ( ) 6 5 2 ( - 9 5 4 4 , ) 9 7 3 ( ) 0 0 3 , 1 ( - 0 8 7 , 2 s t e s s a $ 6 6 5 0 7 5 9 , ) 8 6 ( - 1 7 0 , 1 8 6 0 0 1 , ) 5 5 1 , 2 ( 4 8 9 , 8 l e b i g n a t n I $ 5 3 0 6 6 1 , 1 8 1 2 , - - ) 4 7 2 ( 6 7 8 3 , ) 9 8 7 ( - - $ 7 0 3 - - - - - - - - 7 0 3 - $ 8 5 0 1 , ) 4 3 6 ( - - - 4 2 4 9 6 9 - - s e i r o t n e v n I t n e m p u q e i , y t r e p o r P d n a t n a p l 3 1 8 , 2 7 0 3 3 9 3 , 1 $ - - - 6 2 4 6 2 4 ) 6 6 ( ) 7 4 3 ( 3 1 - $ 5 4 1 1 , ) 0 6 2 ( - 5 8 8 ) 7 5 2 ( 8 9 1 6 2 8 - $ 5 7 6 1 , ) 7 6 7 ( - - - 8 0 9 ) 0 2 1 ( - - 8 8 7 s t n e m e t a t S l d e t a d i l o s n o c o t d e t i d e r c ) d e g r a h C ( i s g n n r a e f o s t n e m e t a t s e m o c n i e v i s n e h e r p m o c o t d e t i d e r C ) 4 e t o N ( i y r a d i s b u s f o e r u t i t s e v i D e g n a h c x e n g e r o f i f o t c e f f E 1 2 0 2 , 1 3 r e b m e c e D t a s A ) 4 e t o N ( n o i t a n b m o c i s s e n i s u B 0 2 0 2 , 1 3 r e b m e c e D t a s A s t e s s a x a t d e r r e f e D : s w o l l o f s a s i , n o i t c i d s i r u j d e t a d i l o s n o c o t d e t i d e r c ) d e g r a h C ( i s g n n r a e f o s t n e m e t a t s e m o c n i e v i s n e h e r p m o c o t d e t i d e r C e g n a h c x e n g e r o f i f o t c e f f E 2 2 0 2 , 1 3 r e b m e c e D t a s A ) 4 e t o N ( n o i t a n b m o c i s s e n i s u B 0 2 0 2 , 1 3 r e b m e c e D t a s A s e i t i l i b a i l x a t d e r r e f e D d e t a d i l o s n o c o t ) d e t i d e r c ( d e g r a h C i s g n n r a e f o s t n e m e t a t s ) 4 e t o N ( i y r a d i s b u s f o e r u t i t s e v i D ) 4 e t o N ( n o i t a n b m o c i s s e n i s u B 1 2 0 2 , 1 3 r e b m e c e D t a s A d e t a d i l o s n o c o t ) d e t i d e r c ( d e g r a h C i s g n n r a e f o s t n e m e t a t s 2 2 0 2 , 1 3 r e b m e c e D t a s A i a i c n a n F d e t a d i l o s n o C ▪ l s u P N 5 ▪ 0 3 75 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Deferred tax assets of $nil (2021 – $3,161), 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 $43,260 as at December 31, 2022 (2021 - $41,329). As at December 31, 2022, 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 $ 14,956 35,193 8,992 713 Expiry No limit No limit No limit 2023-2027 As at December 31, 2022, the Company had other deductible temporary differences of $440 for which no deferred tax benefit has been recorded (2021 – $375). 19. 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 finan cial 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. 76 5N Plus ▪ Consolidated Financial Statements ▪ 31 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) The carrying values which approximate the fair values of financial instruments, by class, are as follows as at December 31, 2022 and 2021: As at December 31, 2022 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 Total 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 At fair value through profit or loss $ At amortized cost $ Financial liabilities at amortized cost $ - - 5,517 2,620 8,137 - - - 42,691 32,872 10,613 - 86,176 - - - At fair value through profit or loss $ At amortized cost $ - - 4,819 2,713 7,532 - - 109 109 35,940 42,098 9,004 - 87,042 - - - - - - - - - 40,200 121,000 161,200 Financial liabilities at amortized cost $ - - - - - 46,454 116,000 - 162,454 Carrying value Total $ 42,691 32,872 16,130 2,620 94,313 40,200 121,000 161,200 Carrying value Total $ 35,940 42,098 13,823 2,713 94,574 46,454 116,000 109 162,563 32 ▪ 5N Plus ▪ Consolidated Financial Statements 77 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (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, 2022 Financial assets At fair value through profit or loss Indexed deposit agreement (Note 7) Investment in equity instruments (Note 12) Restricted investment (Note 12) Total As at December 31, 2021 Financial assets (liabilities) At fair value through profit or loss Indexed deposit agreement (Note 7) Investment in equity instruments (Note 12) Restricted investment (Note 12) Interest rate swap agreement (Note 14) (1) Level 1 $ - - - - Level 1 $ - - - - - Level 2 $ 5,517 - - 5,517 Level 2 $ 4,819 - - (109) 4,710 Level 3 $ - 2,000 620 2,620 Level 3 $ - 2,000 713 - 2,713 Total (1) 78 In February 2020, the Company entered into an interest rate swap agreement, which matured in April 2022, with a major Canadian financial institution to reduce its financial expense fluctuations on Libor rate on a portion of its credit facility (Note 14). Under this interest rate swap, the Company exchanged interest payments. The terms were such that on each interest payment date, the Company received or paid the net difference between the fixed rate of 1.435% and its Libor rate on a notional amount of $25,000. 5N Plus ▪ Consolidated Financial Statements ▪ 33 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 20. Operating Segments 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 (Note 29) Foreign exchange and derivative loss Impairment of non-current assets (Note 29) Loss on divestiture of subsidiary (Notes 4 and 29) Loss on disposal of assets held for sale (Note 8) Depreciation and amortization (Loss) earnings before income tax 2022 $ 121,918 142,305 264,223 24,318 17,277 (11,567) 30,028 5,192 999 3,823 42 12,478 7,834 216 17,732 (18,288) 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 (1) (Loss) earnings before income tax, depreciation and amortization, impairment of non-current assets, share-based compensation expense, loss on disposal of assets held for sale, loss on divestiture of subsidiary, litigation and restructuring costs and financial expense. Capital expenditures Specialty Semiconductors Performance Materials Corporate and unallocated Total Assets excluding the deferred tax assets Specialty Semiconductors Performance Materials Corporate and unallocated Total 2022 $ 10,038 5,944 80 16,062 2022 $ 180,473 129,901 31,609 341,983 2021 $ 595 4,790 - 5,385 2021 $ 189,022 146,111 31,450 366,583 34 ▪ 5N Plus ▪ Consolidated Financial Statements 79 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (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, 2022 and 2021, and the identifiable non-current assets as at December 31, 2022 and 2021 are summarized as follows: Revenues Asia China Japan Other(1) Americas United States Other Europe Germany Belgium Netherlands France Other(1) Other Total (1) None exceeding 10% Non-current assets (other than deferred tax assets) Asia United States Canada Europe Belgium Germany Total 2022 $ 10,815 4,453 27,139 95,517 19,911 41,314 7,276 9,604 13,831 29,587 4,776 264,223 2022 $ 3,411 13,590 29,156 - 108,664 154,821 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 For the year ended December 31, 2022, one customer represented approximately 17% (2021 – 19%) of revenues of which 14% (2021 – 13%) is within the Specialty Semiconductors segment and 3% (2021 – 6%) is within the Performance Materials Segment. 21. Supplemental Cash Flow Information a) Net change in non-cash working capital balances related to operations consists of the following: Decrease (increase) in assets: Accounts receivable Inventories Income tax receivable Other current assets (Decrease) increase in liabilities: Trade and accrued liabilities Income tax payable Deferred revenue Net change 80 2022 $ 5,364 2,435 (437) (427) (1,691) 3,169 1,830 10,243 2021 $ (3,649) (6,993) 386 (9,560) 6,604 2,287 4,642 (6,283) 5N Plus ▪ Consolidated Financial Statements ▪ 35 5N PLUS | 2022 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 Years ended December 31 (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 2021 $ 116,000 109 32,640 Cash flows $ 5,000 - (2,999) Imputed interest $ - - 605 Non-Cash changes Foreign exchange movement $ - - (1,617) Fair value changes $ - (109) - Non-cash working capital $ - - 1,773(1) December 31 2022 $ 121,000 - 30,402 148,749 2,001 605 (1,617) (109) 1,773 151,402 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(2) - 29,277(1) December 31 2021 $ 116,000 109 32,640 55,906 36,623 336 (459) (330) 56,673 148,749 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 ($938) in 2022 and an amount of $21,626 in 2021 following the acquisition of AZUR (Note 4). Includes an amount of $27,396 following the acquisition of AZUR which was repaid in full on November 5, 2021 (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) 22. Share Capital 2022 $ 2,329 3,095 - 2021 $ 3,095 775 14,249 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, 2022 and 2021, 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. 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. 36 ▪ 5N Plus ▪ Consolidated Financial Statements 81 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 23. Earnings per Share The following table reconciles the numerators and denominators used for the computation of basic and diluted (loss) earnings per share: Numerators Net (loss) earnings for the year Denominators Basic weighted average number of shares Dilutive effect: Stock options Diluted weighted average number of shares 2022 $ (22,999) 2022 2021 $ 3,110 2021 88,330,236 82,636,023 - 88,330,236 151,297 82,787,320 As at December 31, 2022, a total number of 1,598,938 stock options was excluded from the diluted weighted average number of shares due to their anti-dilutive effect due to net loss for the year. 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. 24. 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. 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. 82 5N Plus ▪ Consolidated Financial Statements ▪ 37 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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, 2022, the Company granted 95,881 RSUs (2021 – 164,412), 146,549 RSUs were paid (2021 – 413,710) and 13,110 RSUs were forfeited (2021 – 143,851). As at December 31, 2022, 278,481 RSUs were outstanding (2021 – 342,259). For the year ended December 31, 2022, the Company granted nil PSUs (2021 – nil), nil PSUs were paid (2021 – 166,700) and 200,000 were cancelled (2021 – 230,000). As at December 31, 2022, nil PSUs were outstanding (2021 – 200,000). 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, 2022, the Company granted 171,025 SARs (2021 – 1,116,244), 200,000 SARs were paid (2021 – 364,499) and 377,500 SARs were forfeited (2021 – 678,813). As at December 31, 2022, 924,157 SARs were outstanding (2021 – 1,330,632). 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. Unless the Board of Directors decides otherwise at its sole discretion, DSUs vest entirely at their date of grant and become payable in cash upon termination of services of a director, or termination of employment of an officer or employee. 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, 2022, the Company granted 476,152 DSUs (2021 – 220,073) and 348,277 DSUs were paid (2021 – 650,000). As at December 31, 2022, 1,702,843 DSUs were outstanding (2021 – 1,574,968). 38 ▪ 5N Plus ▪ Consolidated Financial Statements 83 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (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, 2022 may be exercised during a period not exceeding six years from their date of grant. Unless the Board of Directors decides otherwise at its sole discretion, 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: 2022 Number of options Weighted average exercise price Outstanding, beginning of year Granted Exercised Forfeited Outstanding, end of year Exercisable, end of year 825,968 772,970 - - 1,598,938 457,749 The outstanding stock options as at December 31, 2022 are as follows: February 2023 February 2024 March 2025 March 2026 May 2027 December 2027 March 2028 May 2028 Exercise price Low CA$ 1.75 2.71 3.43 2.10 3.38 2.42 2.27 1.23 CA$ 2.46 1.33 - - 1.91 2.41 High CA$ 1.75 2.71 3.43 2.10 3.38 2.42 2.27 1.23 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 Number of options Exercisable Outstanding 63,000 35,165 23,205 24,326 12,053 300,000 - - 457,749 63,000 35,165 30,940 48,651 48,212 600,000 72,970 700,000 1,598,938 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, 2022 and 2021: Expected stock price volatility Dividend Risk-free interest rate Expected option life Fair value – weighted average of options issued 84 2022 53% None 2.59% 4 years CA$0.57 2021 48% None 1.24% 4 years CA$0.96 5N Plus ▪ Consolidated Financial Statements ▪ 39 5N PLUS | 2022 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 Years ended December 31 (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, 2022 and 2021: Expense RSUs PSUs SARs DSUs Stock options Indexed deposit agreement (Note 7) Total The following amounts were recorded: Liability RSUs SARs DSUs Total Intrinsic value of vested units 25. Commitments and Contingencies Commitments 2022 $ 202 - 244 1,121 326 (894) 999 2022 $ 375 562 3,906 4,843 4,015 2021 $ 432 (552) (331) (320) 148 1,312 689 2021 $ 433 455 2,957 3,845 4,469 As at December 31, 2022, in the normal course of business, the Company contracted letters of credit for an amount of $883 (2021 – $953). 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. 26. 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. 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 24) Total 40 ▪ 5N Plus ▪ Consolidated Financial Statements 2022 $ 1,995 1,677 3,672 2021 $ 3,597 (914) 2,683 85 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 27. Financial Risk Management 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 sales 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, 2022: 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 Lease liabilities Net financial assets (liabilities) CA$ $ 686 513 5,517 - (10,834) (6,033) (10,151) EUR $ 4,164 4,707 10,613 620 (16,175) (339) 3,590 GBP $ 14 - - - (317) - (303) HKD $ 21 - - - (199) (171) (349) MYR $ 156 1 - - (219) - (62) 2022 Other $ 9 128 - - (149) - (12) 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 $6,848 and $597 respectively with a net position of $6,251. A strengthening or weakening in the exchange rate between the functional currencies of these subsidiaries and the US dollar of five-percentage points results in a decrease or increase of $313 to earnings before income tax. The following table shows the impact on earnings before income tax of a five-percentage point strengthening or weakening of foreign currencies against the US dollar as at December 31, 2022 for the Company’s financial instruments denominated in non-functional currencies: 5% Strengthening 5% Weakening 86 CA$ $ (508) 508 EUR $ 179 (179) GBP $ (15) 15 HKD $ (17) 17 MYR $ (3) 3 Other $ (1) 1 5N Plus ▪ Consolidated Financial Statements ▪ 41 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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, 2022, 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 is 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 $960 on the Company’s net earnings on a twelve-month horizon based on the balance outstanding on December 31, 2022. 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 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. 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 2022 $ 24,152 192 1,911 26,255 (152) 26,103 2021 $ 33,838 413 763 35,014 (149) 34,865 42 ▪ 5N Plus ▪ Consolidated Financial Statements 87 5N PLUS | 2022 ANNUAL REPORT Notes to Consolidated Financial Statements Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 5N PLUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) 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 2022 $ 149 3 - - 152 2021 $ 146 119 - (116) 149 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, 2022. 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, 2022: Carrying amount $ 40,200 121,000 30,402 191,602 1 year $ 40,200 7,836 2,770 50,806 2 years $ - 31,584 2,601 34,185 3 years $ - 6,166 2,494 8,660 4 years $ - 98,055 2,451 100,506 Over 5 years $ - - 24,834 24,834 2022 Total $ 40,200 143,641 35,150 218,991 Trade and accrued liabilities Long-term debt Lease liabilities Total 28. 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. 5N Plus ▪ Consolidated Financial Statements ▪ 43 88 5N PLUS | 2022 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 Years ended December 31 (in thousands of United States dollars, unless otherwise indicated) Debt-to-equity ratios as at December 31, 2022 and 2021 are as follows: Long-term debt including current portion Total debt Less: Cash and cash equivalents Net debt Shareholders’ equity Debt-to-equity ratio 29. Expenses by Nature Expenses by nature include the following: Wages and salaries Depreciation of property, plant and equipment (Note 8) Depreciation of right-of-use assets (Note 9) Amortization of other assets (Note 12) Other expenses (income), net Amortization of intangible assets (Note 10) Share-based compensation expense (Note 24) Loss (gain) on disposal of property, plant and equipment Loss on disposal of assets held for sale (Note 8)(1) Loss on divestiture of subsidiary (Note 4) Impairment of non-current assets (Notes 4, 8 and 10) Research and development, net of tax credit(2) Litigation and restructuring costs (income), net(3) Other income 2022 $ 121,000 121,000 (42,691) 78,309 112,776 69% 2022 $ 55,107 11,717 2,702 260 3,313 999 (13) 216 7,834 12,478 4,638 3,823 (291) 2021 $ 116,000 116,000 (35,940) 80,060 136,247 59% 2021 $ 40,353 8,969 1,764 253 1,802 689 171 - - - 736 2,144 (1,520) (1) A loss of $216 on the disposal of assets held for sale was recorded in 2022 within “Other expenses (income), net” within the consolidated statement of (loss) earnings. The asset, which was previously presented as held for sale within the Specialty Semiconductors segment, pertains to a reclassification from buildings for an amount of $3,032 in 2022. The reclassification relates to the planned relocation of operations from Canada of one of the Company’s subsidiaries situated in Asia, announced in the third quarter of 2020. (2) Reduced research and development, net of tax credit by an amount of $3,667 for the year ended December 31, 2022 resulting from research and development subsidies. There is an outstanding receivable related to this grant as at December 31, 2022 for an amount of $1,460 included within Accounts receivable. 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. (3) In 2022, the Company recorded litigation and restructuring costs. The main costs are as follows: - Costs related to the divestiture of a subsidiary of $2,594 (Note 4); - Change in senior executive management for an amount of $241; - Settlement of a contract by mutual agreement for an amount of $372; and - Costs related to site closure in Asia for an amount of $358. During 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 was outstanding as at December 31, 2021. In addition, a provision for restructuring costs was recorded for an amount of $610 during 2021. This provision consisted of severances and other related costs to site closure. 44 ▪ 5N Plus ▪ Consolidated Financial Statements 89 5N PLUS | 2022 ANNUAL REPORT Board of Directors Luc Bertrand Chair of the Board Jean-Marie Bourassa Chair of the Audit and Risk Management Committee Blair Dickerson Director Gervais Jacques Director Nathalie Le Prohon Chair of the Governance and Compensation Committee Executive Committee Roland Dubois Chief Commercial Officer and Executive Vice President, Specialty Semiconductors Gervais Jacques President and Chief Executive Officer Richard Perron Chief Financial Officer Paul Tancell Executive Vice President, Performance Materials 90 5N PLUS | 2022 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 100% T R O P E R L A U N N A 2 2 0 2 | S U L P N 5 → A D A N A C N I D E T N R P I 5N Plus Inc. 4385 Garand Street Montréal, Quebec, Canada H4R 2B4 Enabling Performance™ www.5nplus.com 

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