5N Plus Inc. (VNP) Earnings Call Transcript & Summary

Hello, and welcome to 5N Plus Inc. Annual Meeting 2020. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Luc Bertrand, Chairman of 5N Plus Inc. Mr. Bertrand, the floor is yours.

Thank you. [Foreign Language] Welcome to this first virtual Annual Meeting of 5N Plus. My name is Luc Bertrand, I'm the Chair of the company. And the Board has given me the responsibility of being the Chairman of this assembly today. [Foreign Language] The first part of this meeting will be conducted in French. And Arjang Roshan, the President and CEO of 5N Plus, will make a presentation in English. Shareholders can ask questions either in English or in French. [Foreign Language]

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[Foreign Language] I'll now call upon Arjang to discuss 5N Plus' results for the fiscal year ended December 31, 2019, and the most recent developments. Arjang?

[Foreign Language] Good morning, ladies and gentlemen. Once again, you're exposed to my painful French, as I speak the language, poorly. It's a pleasure to be with you this morning. I believe you have access to a 14-page presentation, which comes with this meeting and is listed on the meeting site. I will not go through the presentation page by page. But what I will do is I will refer to certain pages in the document. This morning, I will try, in a short time, to cover three topics: a quick review of the key elements influencing our performance in 2019; our growth businesses; and lastly, the situation with respect to COVID-19 and beyond. Considering the fact that we were positioning our growth businesses for market introduction in 2019, we knew that the year was going to be difficult. Aligned with this expectation, we anticipate lower earnings in 2019 as compared to the year prior, 2018. And we called 2019 as staging year. What we -- and I would say most of the industry did not anticipate were the significant and rapid deterioration of minor metal notations. In certain cases, reaching levels not seen in decades. I'd like to refer you to Page 7 with the title Our Business Model. Here, you will find a pictogram showing our business model. Since launching our strategic plan 5N21, one of the changes we've made to our business model is to procure much more of the metals we need from complex feed using our refining assets and competencies rather than what we were doing before, which was purchasing them as commodity metal. This approach has been actually very successful, more so than we had originally anticipated and has materially contributed to our adjusted EBITDA. On Page 9, you will see that the impact from the metal notations, reaching levels not seen in many decades, have essentially 2 adverse impact on our EBITDA. There is a short-term transient impact, and this is mainly due to the fact that the sales price of the product, which contains these metals, adjust much quicker than the inventory value of the commodity. This results in a temporary margin contraction, and much of that is behind us. As of today, our inventory is basically in line with market price. The longer-term adverse impact that comes from this -- from metals reaching these levels are the fact that some of our suppliers have decided to withhold their complex feed waiting for more favorable pricing regimes. This has essentially resulted in us not having enough feed to put into our refining activities. And as such, our refining activities are running at suboptimal conditions. Now remember, I said that our upstream activity is a newly created activity, which toward the end of the plan, we had anticipated that it would contribute as much as 20% to our adjusted EBITDA. So as long as the metal notations remain down here and presumably as long as these suppliers continue to not offer the feed that we need for our refining and recycling activities, we basically will have to go to the open market and purchase the metals we need for our business as commercial-grade metal. Now the good news is these metals are very much readily available. The market -- the price that we pay is not -- it doesn't put us at any disadvantage. It is market price. But obviously, the impact is that there's opportunity loss because before this, we were actually bringing metal through our refining activities to market at a discount. Moving to Page 10. You'll see that despite having a challenging year in 2019, 5N Plus was able to deliver 11% adjusted EBITDA on about $200 million worth of sales, all numbers in U.S. dollars. Perhaps what is even more encouraging is the real proof that our strategic plan is working. As you will see on the slide, the company's earnings volatility has been reduced by more than 50%. To add a bit of humor, I would say that what used to put 5N plus in the emergency room today only results in a headache. Moving to our second topic. A critical part of our plan is to develop new businesses and more differentiated activities leading to pricing power for our company. To support this, over the past few years, we've invested on a number of growth initiatives, such as specialty semiconductors, engineered powders, feed additives, extracted and catalytic materials. On Page 11, you will see the contribution from these activities. Revenue contribution from these businesses have increased from 6% in 2016 to about 17% of the total revenue in 2019. We're certainly making progress, and our aim is to certainly do more on this front. Also on Page 11, we're providing an example of what we mean by a differentiated product. A -- what you're seeing is a 5N plus detector in a CT scanner, with only 10% of the normal radiation. And you can see that this is able to generate image that is superior to today's technology. At 10% in today's technology, you virtually have -- you can't see anything in that image. So this is not only improving diagnosis in the future -- patients, but also improving safety and sustainability of these devices. So we're very much excited about the prospect of this technology, and we have more examples of this in other lines that we're working on. The last topic that I would like to discuss is I would like to provide you with some updates on COVID-19. On Page 12 of our presentation, we have highlighted some of the actions our company has taken to address the new challenges caused by this pandemic. Thus far, 3 of our plants across the globe have faced temporary shutdowns due to unilateral orders by the local governments. All of these plants are now back to work. In addition, 5 of our plants have been designated as essential businesses based on the criticality of the materials they produce in the current environment. We're happy to be a part of this effort and do our part with the larger -- within the larger global ecosystem. The measures we have taken thus far are aimed at protecting our people, and the continuity of supply for all of our customers, many of whom have been also designated as essential businesses and producers of critical materials in this fight against COVID-19. This month, we released our results for the first quarter of 2020. Our earnings for the quarter was 22% higher than the same period last year. Obviously, we will have to see if and how the current pandemic will impact our business for the year. Going forward, we will remain focused on growing our earnings. I must say that I'm delighted that over the past few years, 5N Plus has invested time and resources on improving its fundamentals. I know working on fundamentals is not something that grabs headlines and can be viewed as boring. However, when a crisis, like the current pandemic, occurs, it is exactly the very element which determines which businesses will emerge and thrive and which will suffer. I have no doubt that the work that we have done over the past few years will pay dividend and believe we are well positioned to not only navigate through the current global pandemic, but most importantly, emerge stronger and more competitive than ever before. At this time, we're ready for your questions.

Okay. Thank you, Arjang. [Foreign Language]

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[Foreign Language] This concludes the question period of the meeting as there are no questions that were provided on the platform. [Foreign Language] And before adjourning this meeting, on behalf of the Board and the management, I wish to express our sincere appreciation and heartfelt thanks to Jennie and Don for their commitment and dedication to the governance and affairs of 5N during their respective tenures on the Board. Your contributions were most appreciated, and we wish you health and success in your future endeavors. [Foreign Language] Thank you all for joining us. Hopefully, we will all be in person next year together. We appreciate your support. [Foreign Language]

Thank you.

This concludes the meeting. You may now disconnect.