10 August 2012

5N Plus’ revenue falls 14% in Q2

5N Plus Inc of Montreal, Quebec, Canada, a producer of specialty metal and chemical products, has reported results for second-quarter 2012, with numbers for the comparable period to end-May 2011 restated to reflect changes resulting from the implementation of IFRS (International Financial Reporting Standards) and the adoption of the US dollar as the firm’s functional and reporting currency.

5N Plus focuses on specialty high-purity metals such as tellurium, cadmium, selenium, germanium, indium and antimony and also produces related II-VI semiconducting compounds such as cadmium telluride (CdTe), cadmium sulphide (CdS) and indium antimonide (InSb) as precursors for the growth of crystals for electronic applications, including solar photovoltaic, radiation detector and infrared markets. In addition, in mid-April 2011, 5N Plus paid $317m to acquire MCP Group SA of Tilly, Belgium, a producer and distributor of bismuth and bismuth chemicals (with a 50% global market share) as well as other specialty metals (including gallium, indium, selenium and tellurium).

5N Plus’ revenue for second-quarter 2012 of $140.1m was up 15% on $122m for the quarter to end-May 2011, but down 14% on $162.2m last quarter.

“In our Electronic Materials business unit, although sales of gallium and indium products were somewhat softer than in the previous quarter, partly because of the relocation of some of the production activities previously located at our Fairfield offices [in Connecticut, formerly MCP], sales to our main customers for solar products increased and we also made progress in our germanium-related activities,” says president & CEO Jacques L’Ecuyer. “In our Eco-Friendly Materials business unit, we continued to increase market share, with strong sales of bismuth-related products in a market which is continuing to grow, as efforts to replace lead accelerate,” he adds.

“Unfortunately, these positive developments were overshadowed from an earnings and revenue standpoint by two main factors,” continues L’Ecuyer. “On the one hand, the quarter was characterized by sharp decreases in the prices of almost all of our underlying commodities, especially in the back-end of the quarter, which led to decreases in average selling prices and further impairment charges on our inventories at the end of the quarter. On the other hand, we also sold to our main customer in the solar market [CdTe PV module maker First Solar Inc of Tempe, AZ, USA] at lower margins than normal, such sales having been made from previously impaired units in accordance with the terms of our new agreement with the customer,” he adds. “Both factors severely impacted our earnings and revenue levels, providing a somewhat distorted picture of the company's overall performance.” 

Excluding impairment charges, adjusted net earnings yielded a loss of $2.1m. This compares with net earnings of $5m last quarter and $8.5m for the quarter to end-May 2011. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $5.6m, compared with $16.9m last quarter and $20m in the quarter to end-May 2011.

“We saw relatively strong demand for most of our products during the quarter, which enabled us to continue reducing working capital and debt levels through significant cash flow generation,” says L’Ecuyer. During Q2, net debt was cut by $56.4m to $175.8m. Total debt fell by $90.5m to $187.6m.

During the quarter, the backlog of orders expected to translate into sales over the following 12 months fell from $215.6m to $189m.

“We believe a more appropriate assessment would be that we are holding our ground and doing better than most of our competitors in a challenging environment,” says L’Ecuyer. “We expect earning levels to be more reflective of the company's actual performance once both the underlying commodity pricing stabilizes and the inventory of impaired units has been used up, especially with respect to our contract with our main customer in the solar market,” he adds.  

On 6 June, the firm issued 12,903,613 stock units for net proceeds of $37.1m. “Our decision to further strengthen our balance sheet through an equity raise of CDN$40m on 6 June 2012 was largely determined by the relative uncertainty in the global economic environment and the company’s exposure to the solar and European markets,” says L’Ecuyer. “Regardless of its short-term impact, we are confident that this financing will deliver long-term shareholder value by enabling us to execute more effectively on our strategic growth plan, which calls for further deleveraging and redeployment of capital into less volatile and higher-value-added opportunities. The current year is thus key in many respects as we gradually transition the entire company towards this business model and complete the full integration of former MCP activities, realigning the company towards greater sustainability in our commercial practices and greater efficiencies throughout the group,” he adds. 

“Current outlook for the rest of the year and corresponding financial performance will be largely determined by underlying commodity pricing and the performance of the European economy,” cautions L’Ecuyer. “We remain committed to a further reduction in our working capital requirements and a corresponding decrease in our debt levels. Although we may continue to experience short-term volatility in our financial performance, we are confident that our company remains well positioned to continue growing.”

Tags: 5N Plus

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