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Executives

Jean Mayer - VP, Legal Affairs & Corporate Secretary

Jacques L'Écuyer - President & CEO

David Langlois - CFO

Analysts

Rupert Merer - National Bank Financial

John Safrance - Cantor Fitzgerald

Ian Tharp - CIBC World Markets

Michael Goldberg - Stonecap Securities

Justin Wu - GMP Securities

5N Plus, Inc. (OTC:FPLSF) Q1 2013 Earnings Call May 14, 2013 8:00 AM ET

Operator

Good morning. My name is Geri and I will be your conference operator today. At this time, I would like to welcome everyone to the 5N Plus Q1 Earnings Announcement Conference Call. All lines have been placed on-mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

[Foreign Language]

Jean Mayer

Good morning everyone and thank you for joining us today for the presentation of the 5N Plus financial results for the first quarter ended March 31, 2013. I am Jean Mayer, Vice President, Legal Affairs and Corporate Secretary of the company and also in charge of Investor Relations.

Before reviewing in more detail our first quarter results, I would like to mention that we issued yesterday our financial statements for this period together with our MD&A. If you have not been able to get a copy of these documents, I invite you to do so by accessing our website at 5nplus.com or the SEDAR website at sedar.com where these documents are posted. Earlier this morning, we have also posted on our website a presentation on our first quarter results that you may find helpful during this call.

Joining me this morning is Jacques L'Écuyer, our President and Chief Executive Officer and David Langlois, our Chief Financial Officer; whom will be reviewing our financial statements and whom will be available to answer questions during the Q&A period.

Now during this call, Mr. L'Écuyer, Mr. Langlois and I will be making forward-looking statements which are subject to the usual cautionary remarks. More specifically, these statements are based on the best estimates available to the company at this time and involve known and unknown risks, uncertainties or other factors that may cause the company's actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Those are the factors that cause our actual results to differ materially from those discussed or implied in our forward-looking statements. Please refer to the risk factors described in our Management’s Discussion and Analysis and our Annual Information Form.

In the analysis of our last quarter results, you will note that we use and discuss certain non-GAAP measures including EBITDA, or earnings before interest, tax, depreciation and amortization as well as gross profit, gross profit ratio, working capital, current ratio, bookings, backlog and funds from operations which we believe provide meaningful information to investors. We will also be using in our discussions financial measures, best to reflect the performance of the company, higher premium income expenses related to our inventory and fixed and intangible assets. These include adjusted net earnings, adjusted net earnings per share, adjusted EBITDA and adjusted gross profit. The definitions of these non-GAAP measures used by the company may differ from those used by other companies. For further information on the use of these non-GAAP measures please refer to our Management’s Discussion and Analysis.

5N Plus is the leading producer of specialty metal and chemical products, fully integrated with closed-loop recycling facilities. The company is headquartered in Montreal, Quebec, Canada and operates manufacturing facilities and sales offices in several locations in Europe, the Americas and Asia. 5N Plus deploys a range of proprietary and proven technology to produce products which are used in a number of pharmaceutical, electronic and industrial applications. Typical products include purifying metals such as bismuth, gallium, germanium, indium, selenium and tellurium, inorganic chemicals based on such metals and compound semiconductor wafers. Many of these are critical precursors and key enablers in markets such as solar, light emitting diodes and eco friendly materials.

I would now like to turn the conference to Jacques for a discussion of the first quarter results.

Jacques L'Écuyer

Well, thank you Jean and good morning everyone. So we managed to return to profitability in this first quarter with earnings and EBITDA recovering reflecting overall healthy demand for most of our products. This was accomplished despite a business environment which does remain somewhat challenging both in terms of demand as well as in terms of pricing, because of underlying commodity trends; culture trends and also despite cost that we incurred during the quarter in the restructuring of the portion of the business which is a subject of the dispute with the former shareholders and directors of MCP.

The quarter was characterized by positive net earnings, strong cash flow and a further reduction in our net debt levels, which now stands at $125 million. Revenues, bookings and backlog were all negatively impacted by lower underlying commodity pricing, but we're otherwise very much in line with volumes for the first quarter of previous fiscal year. I would therefore like to thank our employees for our performance in this first quarter for which they are largely responsible through their dedication and hard work.

Overall, volumes of products sold remained roughly at 97% of Q1 2012 figures with selling price falling by 25% and weighted average commodity pricing down by 33% with respect to the corresponding period of the previous fiscal year. The decrease in revenue was primarily due to the decrease in underlying commodity pricing as we maintain or even expanded market share in most metals that we deal with.

Quarter-over-quarter backlog and bookings were typical at year-end contract renewal patterns with a slight decrease in bookings and the stable backlog levels. In our Electronic Materials business unit, demand remained strong for our solar grade and LED related products. The pricing environment is however considerably different than in the previous disclosure following amendments to our contract with our main solar customer, the new terms of which coming into effect in Q2 2012 and the significant decrease in the price of gallium over 2012. This accounts for the decrease in revenues and bookings with respect to Q1 2012; although the book-to-bill ratio remained approximately constant in both periods. Backlog decreased following the expected pattern of annual contract renewals.

Recent announcements by our main customer in the solar industry are very encouraging showing a decisive roadmap for significant improvements in conversion efficiency; such improvements are based on a series of contemplated developments in terms of materials in which we plan to play an active and important role. This anticipated program in terms of conversion efficiency clearly illustrates that the candid solar technology is far from being mature and that it continues to promise significant advantages over competing technologies.

We are also making steady progress in terms of establishing our footprint in Korea and now expect to have production capabilities thereby year-end which will be aimed at the LED industry. Finally, in the Electronic Materials and solar subsidiary performed well in the quarter as we shipped the record number of germanium substrates.

In our Eco-Friendly Materials business units sales of bismuth was strong which is expected as customers’ replenish their stocks following year-end. Sales of low melting-point alloys were also strong. Bookings increased slightly on a quarter-over-quarter basis following usual year-end renewal patterns of yearly contracts with book-to-bill ratios at approximately the same levels as one year earlier.

Overall, in much the same way in our Electronic Materials business unit, bookings, backlog and revenues were negatively impacted by decreases in underlying commodity pricing, but were otherwise in terms of volumes very much in line with those of the previous fiscal year. This clearly confirms that we are maintaining or increasing our dominant market share as the current market remains soft.

We continue to focus on improving efficiency and reducing costs throughout the organization. From an operational of standpoint this employs closing of our [trail] operations specific measures for our European operations and efforts worldwide to further reduce SG&A and overall production expenses. Cost reductions will continue to remain throughout the year as strong focus of the company as we aim to compete complete more effectively worldwide.

Our growth plan cost more value added products which includes putting a greater emphasis on developing recycling opportunities as well as increasing our business in Asia leveraging our assets there together with our international platform. We therefore expect to further develop our recently commissioned operations in Malaysia in Lao as well as our soon to be operations in Korea, together with our production activities in China.

Overall, we continue to remain cautiously optimistic about the coming quarters although we expect challenging market conditions to more slightly continue to prevail throughout the year, we believe that further significant reductions in underlying commodity pricing is now unlikely. We therefore remain confident on our ability to deliver long term shareholder value as we continue to execute on our growth plan.

I would now like to turn the conference to David for the financial review. David.

David Langlois

Yeah, thank you, John. [Foreign Language] Good morning everyone. In terms of revenue in Q1 2013 it increased by 27% as compared to the prior year quarter. Revenues in Q1 2013 in the Electronic Materials segment decreased by 34% and reached $48.4 million, down from $73.4 million in Q1 2012. The Eco-Friendly Materials segment’s revenue decreased by 21% and reached $70 million, down from $88.9 million. Revenues were negatively impacted by the decrease in average selling price which dropped by approximately 25% in the quarter when compared to that of corresponding period of the previous fiscal year as a result of decreases in underwriting commodity pricing, combined with the new condition of the contract with our main customer in the solar industry.

In terms of EBITDA, in Q1 2013 EBITDA and adjusted EBITDA amounted to $10.1 million compared to $16.9 million in Q1 2012. Cost reduction initiatives were offset by lower level of -- attributable to fully valued investor earnings resulting from decreasing trend in the underlying commodity pricing. EBITDA was also negatively impacted by the restructuring of a portion of the business which is subject of a dispute with former shareholders and directors of NCP.

EBITDA and adjusted EBITDA for Q1 2013 for the Electronic Materials business unit decreased to $7.1 million by 34.1% compared to $10.8 million in Q1 2012 and EBITDA margin was 15% and unchanged from the prior year quarter. EBITDA and adjusted EBITDA in Q1 2013 for the Eco-Friendly Materials business units decreased to $5.1 million compared to $10.1 million in Q1 2012 and EBITDA margin was 7.2% as opposed to 11.3% in the same period a year ago.

Despite the previously noted decline in EBITDA, adjusted net earnings and net earnings growth in Q1 2013 were $6.3 million or $0.08 per share and $5.5 million or $0.07 per share respectively. The increases reflect the combined effect of decreases in amortization and depreciation expenses, implementation of cost reduction programs throughout the second half of 2012, and a recorded gain of foreign exchange and derivatives in Q1 2013, partially offset by the costs incurred in the restructuring of the portion of the business subject to the legal proceeding.

Backlog as of March 31, 2013 remained approximately constant on a quarter-over-quarter basis at $166.3 million following the expected yearly renewal patterns for most contracts. The backlog for the Electronic Materials segments stood at $92.8 million, a decrease of $7.9 million and $41 million over the back half of the prior quarter and a year ago respectively. The backlog for the Eco-Friendly Materials segments stood at $73.5 million, an increase of $8.3 million over the backlog of the prior quarter and a decrease of $8.5 million over the backlog a year ago.

The company recorded litigation and restructuring costs of $1 million in the second quarter, mainly related to the legal proceeding and attorney’s fees as compared to $0.5 million in Q1 2012 in employee severance costs a year ago. Financial expenses decreased to $0.3 million for Q1 2013 compared to $4.7 million for Q1 2012 due to foreign exchange and derivatives gains of $3 million in Q1 2013 and lower debt level.

For Q1 2013 income tax was $0.4 million compared to $1.7 million for Q1 2012, representing effective tax rate of 7% and 26% respectively. Effective income tax rate is lower in Q1 2013 due to non-taxable foreign exchange gains, lower carry forward loss -- losses carry forward for which no deferred tax assets was recognized and benefits arising from [financing] structures. During the quarter, the company continued to reduce its net debt which amounted to $125.8 million as of March 31, 2013 compared to $136.5 million as of December 31, 2012.

This concludes our prepared comments and we're now ready for the question period. Operator, please proceed.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Rupert from National Bank. Your line is now open.

Rupert Merer - National Bank Financial

You mentioned the Korean expansion plan in your prepared comments. Can you give us some more color on the opportunity, for example what products you expect to manufacture and [how] do you see opportunity?

Jacques L'Écuyer

Essentially we're targeting the LED industry, so basically our gallium based products and we're already selling products either directly or indirectly in Korea, meaning that the end users being [Transom LT] are important customers of either ourselves directly or our own customers. And so we believe that if we want to be successful, we need to have some kind of footprints in Asia and more specifically in Korea and also Taiwan, which is extremely promising from the LED standpoint. So we are already I guess active there, but we just feel that we need to be present with an actual footprint. So this is our plan and we will be happy to share more details with you when we basically have this finalize our arrangements with our partners there.

Rupert Merer - National Bank Financial

And then looking at your capital structure, what's your plan going forward, do you anticipate continue that production from here or are you looking at other uses of capital?

Jacques L'Écuyer

Well, if you look at our working capital in the quarter, it remained approximately constant. You haven't seen a sizable decrease in inventories and so we are basically I think where we want to be in terms of working capital. So essentially, what we have done is the EBITDA that we have generated has been used to refund the debt. Of course we do have plans for growth as well and some investments. So I think our debt is probably at a level which is not too far from where we believe it's going to be for the rest of this year, but that might be ways for us to squeeze at little bit additional debt out of the resistant. But I think we are pretty much where we want to be.

Rupert Merer - National Bank Financial

I will get back in the queue. Thank you.

Operator

Your next question comes from the line of John from Cantor. Your line is now open.

John Safrance - Cantor Fitzgerald

Just a follow-up on Rupert's question on Korea, can you maybe quantify the P&L impact from the expected incremental cost of operating that facility?

Jacques L'Écuyer

I think it's a little bit difficult for us, I think it involves at this point it's probably a bit premature. As I mentioned, we are already active in Korea through our production capabilities elsewhere within the group. So short term I am not sure it's going to have a big impact. We just feel that we want to be successful in this business. We really need to have a footprint. So I think we are probably looking at 24 months horizon before this starts really having a significant impact, but certainly short term impact I think is likely to be small. This being said, it’s not impossible that with the fact that we now have a capability in Korea starting early in 2014 that we might be able to capture more important portion of the business there or elsewhere in the world, but that is difficult for us to quantify at this point. So I think it’s really more of a strategic move and the P&L impact for this year and next year is probably manageable.

John Safrance - Cantor Fitzgerald

We have seen fairly stable at least some of the published indexes on money matter fair stable in Q1 so far with the exception of selenium standing out and fairly severe sell-off there. Is there any potential you think in this quarter for write down given work assuming prices stay flat from here or are you really comfortable with where your inventories are?

Jacques L'Écuyer

Let David answer that.

David Langlois

Yes, I don't think we can expect writes-down in the selenium drop during Q2. The inventories are well priced right now. So we are quite unless there is a significant additional reduction in selenium price, but we don't expect revenue write down in Q2.

John Safrance - Cantor Fitzgerald

Okay. And sort of looking back since you have acquired them CP, it seems your sequential EBITDA performance tends to mere the quarter ending month of inventory; I guess implying perhaps EBITDA can benefit from intervening and replacing units that you sold in the quarter versus not doing so, I guess. Is that a fair assessment and how do you see that playing going forward?

Jacques L'Écuyer

I'm not absolutely sure I completely understand that question. John can you repeat that?

John Safrance - Cantor Fitzgerald

Sure. If you track your ending quarter months of inventory against your EBITDA performance in the same quarter, typically what we've seen is if you end the quarter with a higher number of months your EBITDA tends to track upwards and so I am just wondering if there's anything that we can infer out of that if that's a trend that we would expect to see continue?

Jacques L'Écuyer

Well, you know I think what you've seen in 2012 is probably not very typical of what should be our performance. If you look at 2012, we were unable for most of the year to replenish our stocks with market pricing units; unit price at the market whatever the market price was at the time simply because we were largely decreasing our stock levels. So I think moving forward in 2013 you've seen our inventory come down significantly and I think we are pretty much balanced now mainly that whatever we sell we need to purchase and so I think the impact of these changes in the pricing of the underlying commodity is going to be less severe for us moving forward than it was in 2012.

So with respect to the patterns in terms of our EBITDA numbers and correlating to our inventory numbers, but I think got to be a little bit careful, I would not consider 2012 because of what I just said and also because there were important changes at least in one of our contracts in the solar industry and very severe drop in the pricing of metals which was to some extent unanticipated and certainly gallium that probably stands out on that front you know it started off in 2012 close to 900 and it finished the year on the 280-300.

So I mean, I don't think you are going to see that or at least we hope you are not going to see that kind of, those kind of changes moving forward and that's less the fact that you know we are replenishing our stock now more or less in correlation with what we sell, so again I think you should see less of all this impact. So I am not sure that answers completely your questions, but I guess my point is making you want to be very careful with any pattern that you would imply out of the 2012 figures because I think that was a fairly uncritical year and a very difficult year for us in terms of managing our working capital.

Operator

Your next question comes from the line of Ian from CIBC World Markets.

Ian Tharp - CIBC World Markets

So two questions if I could just following up on Korea as well, I wonder Jacques if you could talk to any CapEx you expect for the Korean establishing operations there for 2014 production?

Jacques L'Écuyer

I think we can certainly comment on that, I think what we plan on doing is basically having a partner in Korea and so ultimately I think the CapEx we are likely to incur are going to be relatively insignificant given the arrangement that we are trying to set up with our partner in Korea. So certainly less $1 million, there is no doubt about that and so we will, but again we’ll be happy to share more detail with you when we basically finalize everything, but it's definitely not going to be a significant expansion of the capital expenditure largely because of the way that we set this up.

Ian Tharp - CIBC World Markets

And then moving on to the EBITDA margins as certainly an uptick kind of quarter-on-quarter, I think 5% adjusted in Q4, 8.5% this quarter, and if I may, we're in I guess, a bit of stable pricing environment on the commodity side quarter-on-quarter. So I wonder if I could get a sense of how your efficiencies, operating efficiencies internally have changed maybe over the last year in the background behind all of the gyration in commodity prices, where you might see in a stable pricing environment your margins trending in 2013?

David Langlois

So Ian, first of all, I guess there is really two points to answer your question. So number one is of course, as you mentioned, as we have mentioned as well very extensively, we are aiming to improve overall operational efficiency throughout the group and we think this will enable us to further reduce what we call our non-material costs, if you want and this stems from the fact that you know when you think about it MCP was really the result of the merger between Sidech and MCP and then there was the acquisition by 5N Plus. You know, rather than having a well distributed network of facilities throughout the world which are operating very well and very effectively, we ended up with a let’s say a footprint of facilities in the world which was really the result of these transactions more so than the result of a well product.

So when we talk about the improving efficiency I think we are looking at the various sides that we have and basically trying to be organized in our activities in a way which is more consistent with first of all where we think the business is going and second of all what we think we should be a normal efficiency from a “Standard Manufacturing Company”. And so going from there, we have announced that we will be closing our (inaudible) facility consolidating the activities that we are doing there and other sites and we have also discussed some of our plans for Europe and clearly there will be some changes in our European footprints as we move along. I don't think we have been very vocal as to what this slide, but clearly that’s part of our efficiency improvement plan and that’s going to carry out for most of 2013. So I don't think you will see the full benefit of those measures in 2013, I think you will see most of them starting to really kick-in in 2014 instead of 2013.

So that’s on one side, and so on the other side, you are right, in this first quarter we seen a relatively stable pricing environment of course we are coming off a fourth quarter where we have taken significant write-downs which really means that most of the units that we have in our inventories are fully priced meaning that they are very closed to their net realizing values. So despite of this we did still, I think reasonably well in the first quarter, because we were able to replenish our stocks in a way which is more consistent with our joint patterns. So I think looking at the figures in the first quarter is probably not a bad indicator of where we think we might be for the remaining quarters of this year. Again, this is provided, there is no further significant changes in the pricing environment; I think we can do better moving forward once we have really made all of improvement.

Okay, so I don't know if that answer is your question, but I think 2013 you’ll probably not be, you’ll probably won't be seeing all of the improvements that we basically being able to capture all of the savings that we are implementing largely because we view this as a transition year. But having said that provided the pricing environment remains relatively constant, I think what you have seen in the first quarter is probably not too far off from what we will expect in the remaining quarters of the year, with the possible exception of the fourth quarter which tends to be a little bit soft from a selling standpoint largely because many of our customers towards the year end diminish their stocks and so whatever we have lost in the fourth quarter, we typically make up at least from the volume standpoint in the first quarter. So I guess that gives you a little bit of a feel. Certainly we think we can do better once we've implemented all of these cost improvements, but we don't expect that to really kick in, in 2013.

Operator

Your next question comes from the line of Rupert from National Bank. Your line is now open.

Rupert Merer - National Bank Financial

The arbitration process to the former shareholders of NCP, you haven't said very much and I know you can't say very much, but can you give us a sense of your outlook for the timeline on the process if anything change there and would you anticipate your legal costs will remain at the current rate?

Jacques L'Écuyer

So maybe I can let Jean to that. Jean?

Jean Mayer

Yes Rupert Well nothing much has changed since the last webcast I guess which was about six only month and a half ago, but I mean yes as you mentioned we generally discuss much details on this. As you know we are in arbitration and civil proceedings currently with former shareholders and directors of NCP.

With regard to costs, I mean going forward, we don't expect -- well I certainly don't expect to have as much costs being reported, I mean so this has been -- this has started in I guess November. So I mean going forward I think it’s going to be a steady unless there is a settlement and there is going to be a steady flow of cost obviously legal costs, but I guess I could say that there I guess the bulk of it is behind us. But obviously we feel we should expect some costs, I mean obviously going forward which are not minimal but I don't expect to have much per quarter as we've had in the last quarter.

Rupert Merer - National Bank Financial

Then on the restructuring costs, the costs you might expect to come out of closure of trail, should we expect to see an uptick in that cost over the next couple of quarters or should we be thinking about those costs?

David Langlois

I think for trailing and you know moving up trail, the moving will not cost, it’s going to be not significant in terms of earnings for sure, it’s going to imply some CapEx which will also be, will not be significant less of $1 million in terms of CapEx. And in terms of costs, I think they were mostly part of Q1 and were insignificant.

Operator

Your next question comes from the line of Michael from Stonecap Securities.

Michael Goldberg - Stonecap Securities

Just a question on the backlog that was flat quarter-over-quarter at a time of the year when you guys say customers typically replenish orders. I am just wondering how much of that is due to lower metals pricing and how much of that is due to lower volumes than you expected?

Jacques L'Écuyer

Yeah, so I guess there's a slide there where we kind of report revenues and where we also report the decrease in selling prices and the decrease in the underlying commodity pricing. So I think on that slide we are showing that there's a decrease of approximately 33%. Of course this is a weight average depending a little bit on our mix of anticipated going, in this case of actual sales and for the backlog, it’s anticipated sales, but I think that gives you a pretty good idea.

So if you look at that and then you compare our backlog with respect to what it was a year ago and I think that’s what you should look at. I think you will find that those numbers pretty much add up. And so I guess the point we're trying to make is basically it’s essentially all related to pricing and has really nothing to do with volumes as far as we're concerned.

Michael Goldberg - Stonecap Securities

So I understand compared to a year ago, but how about quarter-over-quarter when pricing has been relatively flat and your backlog was also relatively flat?

Jacques L'Écuyer

So if you look Q4 and you compare Q4 to Q1, it's basically very similar and so that’s really pretty much, it's maybe a little bit better even than we would have expected because typically we renew year-end contracts at the end of the year, so in the fourth quarter but of course there is a little bit of spillover in the following year depending on exactly when we renew the contract, it's either in December, November, but sometimes it's also in January or February. So I think it's pretty consistent. We would certainly expect unless there is a rise in the commodity pricing than our backlog at the end of the second quarter is going to now be below at the current level.

And again you have to remember how we -- we're going to make a few assumptions when we calculate this backlog. First of all, it's a 12-month backlog and then we must make assumptions as to what the selling price is going to be during the next 12 months and so what we typically do is we use the pricing at end of the reported period as a proxy for the pricing that it's going to be for the next 12 months. So on that basis, I think it's pretty consistent. You can always argue that in Q3 with respect Q4, the trend isn’t perfect, but I think overall it’s pretty consistent, you have seen a bit of bump in Q4 with respect to Q3 and then Q1 is pretty similar to Q4, which is probably a little bit better really than anticipated and what we would forecast is that Q2 is going to be below Q1 numbers.

Michael Goldberg - Stonecap Securities

And just one more question, can you give us any idea of the contribution of your largest customer for revenue and backlog in Q1?

Jacques L'Écuyer

Well, I don't think we have seen any significant changes there, so our main customers still represent somewhere between 10% and 12% of revenues and from a backlog perspective, it's pretty consistent as well. So may be a little bit higher on the backlog because of course our main customer is part of a longer-term contract and so the typical pattern of renewals in this case is somewhat different than say in the normal former [FCP] business which is typically a little bit more spotty or quarterly or quarter-over-quarter basis and stuff like that. But I would say I don't really think there has been any significant change, I think the exact number in terms of a revenue standpoint is 11.8% in the first quarter and we would say from the backlog perspective, it's may be 1% or 2% up above that, but certainly less than 15% in both cases.

Operator

(Operator Instructions) Your next question comes from the line of Justin from GMP Securities. Your line is now open.

Justin Wu - GMP Securities

My first question is on the margins and it sounds like most of the margin improvement was the function of just lower raw material cost or your inventory cost, but I was wondering if mix -- the product mix has had an impact on your margin?

Jacques L'Écuyer

I think that is very good question, I am not sure we’ve got the level of granularity that maybe you would be looking forward and I am not sure we want to comment this specifically on that, but I think we can say that the product mix in the first quarter was not significantly different than what we would expect in a so-called normal quarter. I think if we want to get into the details because for example we report on our business sales, but of course up sell a lot of different business products, some of which are higher margins than others. And so when I say maybe we don't have all the level of details that you are looking for, that is what I mean.

But I think overall when we look at our business sales, volumes sales on and so forth, I think it’s a reasonably typical quarter, so a little bit skewed on the positive side, but nothing outstanding from that standpoint. So I don't really think that this quarter was favor than duly because of a very favorable product mix. The other thing you have to remember is that our inventories are fully valued and so that is also very relevant in this case. When we revalue our inventories, we revalue them at net realizable value and we have to make some assumptions as to what is going to be our mix of sales moving forward.

So for example if we revalue our business sales and our business products and we expect to have, I don't know 50% of our business product sales in the future to be based on higher value products. We write down to the net realizable value assuming whatever that price is times 50% and so on and so forth. So it’s not strictly speaking just looking at the product mix, you also have to look at what we've written down, the values of our stocks and we are coming off a very sizeable write down again in the fourth quarter of 2012. So again I think there's nothing unusual and we haven't really had any significant advantage in this first quarter because of product mix.

Justin Wu - GMP Securities

And so in terms of value add, you kind of talk about wanting to grow value add whether it’s like gallium substrates or (inaudible) type of business, I am wondering how much of your business would you kind of classify as value add today and given the kind of investments that you are making in recycling and gallium etcetera, how much of that could be paid by 2015?

Jacques L'Écuyer

Yeah. I'd certainly say that when you talk about more value add, we are looking at a three to five year plan and so I think what you are going to see is gradually us evolve from leveraging our platform in terms of our dominant market share and most of the metals that we deal with but try and so we are not saying we want to shy away from that, but what we are saying is we want to try to leverage that and build on that value add portfolio.

I definitely would argue that today we are not where we want to be and without being too specific, I would say that our plans over the next three to five years is certainly to I would say triple whatever value-added components we have today with respect to what it’s going to be in three to five year horizon. And so I think some of that is going to be organic, but clearly we are also going to be looking at acquisition opportunities there. I think you saw a little bit premature at this point, but clearly we think that if we want to be serious about this, we will need to also make some acquisitions in the future.

Operator

There are no further questions at this time and I will turn the call back over to the presenters.

Jacques L'Écuyer

Okay, well, thank you very much. Jean, do you want to say a few words. If not, I will conclude the call. So thank you very much everyone for being with us this morning. I think we are very pleased by this first quarter after a very difficult 2012 and we are certainly looking forward to the rest of 2013 and we will be happy to discuss our second quarter results towards the end of July, early August. Thank you very much.

Jean Mayer

Thank you all.

Operator

This concludes today's conference call. You may now disconnect.

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Source: 5N Plus' CEO Discusses Q1 2013 Results - Earnings Call Transcript
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