Q4 2020 Luxfer Holdings PLC Earnings Call
Good morning, My name is Lori and I'll be your conference operator today welcome to luck first 2024th quarter and full year earnings Conference call.
<unk> have been placed on mute after the Speakers' remarks, there will be a question and answer session now I will turn the call over to Heather from Lux for Heather. Please go ahead.
Thank you Laurie welcome to luxury <unk> fourth quarter, and full year 'twenty and 'twenty earnings call. We're happy to have you with us today.
And Heather Harding Lux first Chief Financial Officer, and with me today is our load Mascara look first chief Executive Officer on today's call. We will provide details on our fourth quarter and full year 'twenty and 'twenty performance as outlined in the press release issued yesterday.
Today's webcast is accompanied by a presentation that can be accessed at Lux for Dot com. Please note any references to non-GAAP financials are reconciled in the appendix of this presentation.
Before we begin a friendly reminder, that any forward looking statements made about the company's expected financial results are subject to future risks and uncertainties. Please refer to the safe Harbor statement on slide two of today's presentation for further details.
And I'll, let me turn the call over to evoke.
Thanks, Heather and welcome everyone. Thank.
Thank you all for joining us today.
To start with I want to thank our employees for their continued focus on serving their customers, while managing the inherent challenges of the pandemic.
I am grateful to all of them for delivering strong cash and margin performance throughout the year, while maintaining steadfast adherence to safety protocols.
Continued to navigate the Covid pandemic.
I want to highlight that as part of our transformation plan, we intend to divest the majority of our aluminium operations, including Super phone.
We are in active dialogue with potential acquirers for these valuable assets and plan to complete the transaction over the next 12 months.
The divestment of these businesses would lead to about 200 of our employees switching to a new employer and I want to personally thank each and every one of them for their years of service to Luxor.
I appreciate the patience and dedication of these employees as we work through this process, while continuing to focus on our customers first.
Given our intention to divest these operations.
All the numbers and our press release and presentation exclude the results of these operations as per the accounting guideline for discontinued operations.
Before I review our results I want to highlight three key messages.
First we delivered solid Q4 earnings.
While some of our end markets remain challenged we experienced sequential improvement and sales. Despite typical Q4 seasonality and we realized growth and several new products.
Second we generated strong cash flow further bolstering our already robust balance sheet.
This gives us greater opportunity as we invest and on organic growth enablers and pursue potential inorganic opportunities.
Third we executed our transformation plan with cost savings exceeding expectations, while making meaningful progress on initiatives to drive growth through portfolio changes new product development and commercial excellence.
I will provide more details on these teams and our CFO Heather Harding.
And then review our financial performance and greater depth.
Now please turn to slide three for a summary of our fourth quarter financial results.
During the fourth quarter total sales of $82 $1 million were fairly flat on a year over year basis.
And we saw sequential improvement of five 7% from Q3.
Fourth quarter, adjusted EBITDA of $13 $8 million increased 21%, primarily driven by cost actions.
Our adjusted diluted EPS for the fourth quarter was 27.
And increase of 35% from the prior year.
Full year core sales declined 11, 3% to $324 $8 million as our sales were negatively impacted by the pandemic.
Our full year, adjusted EBITDA of $53 $9 million.
97% and the resulting adjusted EPS was $1 and <unk>.
Down 30%.
Our cash flow and 2020.
Increased significantly as we generated $41 $3 million of free cash flow.
Reversal from the 2019 outflow of $8 1 million.
The cash flow improvement was driven by lean working capital improvement and significantly lower restructuring cash outlay.
Strong cash flow enabled us to reduce our net debt to $51 $9 million compared to net debt of $81 $2 million at the end of 2019, while we also returned $13 $6 million back to shareholders as dividends.
Our net debt to EBITDA ratio improved to one times at the end of the year.
Our balance sheet remains strong.
Financial and strategic flexibility.
Now please turn to slide four and overview of how we are strategically reshaping our product portfolio.
After a thoughtful review of our portfolio of businesses and.
And the future trajectory of Luxor, we have concluded that it is in the best interest of our shareholders employees and customers to divest most of our aluminium assets.
This will enable us to focus our strategic efforts and capital to grow the company.
The remaining portfolio has strong margin and growth profile with a narrow focus on high performance magnesium alloys zirconium.
And their conium catalyst and high pressure composite gas cylinders.
This divesture will impact three of our gas cylinder operations and.
<unk>, our Super farm location and UK.
And our aluminium cylinder operation and Graham North Carolina, and our Super from location in the U S.
We are in active discussions with potential buyers for these value, but operations and back to close the transaction in 2021.
The remaining gas and under sites are involved and the manufacturing of innovative cylinders composite cylinders and systems.
All of which are integral part of <unk> future growth profile.
Financially the discontinued operations reduces luxury revenue by 14% book has negligible impact on our profit for 2020.
Our profit margin and our return on invested capital both increased by 200 basis points.
The revised gas cylinder segment represents 44% of total lots for sales and 40% of total loss of profit at the end of the year 2020.
Within the gas and inter segment, one third of our sales were from <unk> and hydrogen storage products, which represent a significant growth opportunity for us.
And these changes.
<unk> management focus on driving organic growth and acquisitions to accelerate shareholder value creation.
Please turn to slide five four and update on our transformation plan.
We are successfully executing our transformation strategy with discipline and are creating incremental value for our shareholders.
The simplification phase has expanded our investor base.
By streamlining our financial reporting and governance, while strengthening our balance sheet.
Our operations have also been substantially simplified and post divestment of the aluminium operations Luxor will have 10 core operating sites.
<unk> two over 20 operating sites three years ago.
As part of the transformation plan, we have established a high performance culture with a focus on continuous improvement.
Our productivity projects are on track to deliver $24 million and cost savings by the end of the year. In addition to reducing our historical annual capital spend by $6 million.
The high performance culture, and lower fixed cost helped us navigate the COVID-19 pandemic and positions us well to benefit from future recovery.
Now the focus of our transformation plan is to drive growth.
Both organically and through value creating acquisitions.
We have laid the groundwork for successful organic growth by rebuilding our new product pipeline and by establishing commercial excellence.
In addition, our <unk> business excellence standard toolkit, and healthy balance sheet enable us to generate value through bolt on acquisitions.
Please turn to slide six to review progress on our new product development process.
A core component of <unk> business Excellence standard toolkit.
And towards new product introduction process based on lean continuous improvement and customer first.
While progress was slower in 2020 due to Covid. Our efforts are gaining traction as evidenced by eight point increase and our revenue from new products from 9% to 17% over the past three years.
We expect this number to continue improving and we are targeting new products introduced in the past five years to make up over 20% of our revenue by 2022.
Examples of our new products contributing to growth. This year include our nanotechnology based zirconium solution for gas particulate filters.
Our innovative self heating unitize group rations.
And our recently introduced non limited life cylinders for European medical applications.
Two accelerate new product introduction and momentum we are increasing.
And investment with plans to further strengthen the technology team and leadership at all our business units.
Somewhat to our recent growth investments have been and the idea of alternative fuels, such as <unk> and hydrogen.
As discussed in greater detail on slide seven.
Post divestment of the aluminium operation, 33% of gas cylinder segment and 15% of total lots for sales will come from and alternative fuel cylinders used for CMG and hydrogen storage.
Our sales of alternative fuel cylinders has been growing at an annual key growth of about 20% for the past three years due to share gains and industry growth.
The industry growth projections for the near term remains robust driven by wider adoption of hydrogen and CMG and.
And we are confident and our strong competitive value proposition.
Our focus remains on heavier vehicles, such as city buses and commercial truck fleets.
And this target segment.
And from traditional diesel too low and zero emission vehicles is driving rapid growth.
<unk> has a long established position in this industry and.
And currently serves as and market from our state of the Oxford, <unk>, and California, Canada, U K and China.
We will continue investing to expand our capability and capacity for these lightweight high performance type three and type four gas cylinders.
Our new product pipeline include type for hydrogen storage products to meet demand for this rapidly growing and user market.
While the drive towards clean environment and emission is fueling the growth of alternative fuel. It is not the only global Mega trend that is enabling growth for luxury products and solutions.
Please turn to slide eight four and overview of other global Mega trends that are shaping lots force future growth.
The three mega trends shaping <unk> future growth, our light weighting and safe and healthy lifestyle and clean environment and emissions.
Let force historic growth has been driven by the trend towards light weighting and we believe that this trend will continue for many more years.
Our magnesium alloys play a critical role and reducing the weight of key high temperature high performance aerospace and industrial components.
We are also the world leaders and lightweight high pressure composite cylinders for CBA and other similar applications.
The lighter nature of our product enabled firefighters and first responders to be ergonomically safe, while carrying sufficient oxygen for the difficult tasks.
Safe and healthy lifestyle is also shaping our growth profile as demand growth for healthier meals ready to eat using a clean restructure and heater technology.
Additionally, our zirconium products used in pharmaceuticals, and water treatment applications and our portable medical oxygen cylinders also benefit from the global trend towards safe and healthy lifestyle.
In addition to shipping the growth of our alternative fuel products, the mega trend towards clean environment and emissions is also accelerating the growth of our auto catalyst product line.
Part of our auto catalyst product line. He is our newly introduced gas particulate filtration product, which is being adopted and multiple platforms to meet the increasingly stringent environmental regulations.
As a result, we believe that our auto catalyst content per vehicle will continue increasing for the foreseeable future.
Now, let me turn the call over to Heather Harding <unk>, Chief financial officers for detail on our fourth quarter and full year financials.
Thanks, Luke and good morning, everyone again, thanks, everybody for joining us first I'd like to review our sales performance by end market on slide nine.
And as a reminder, our sales can be classified into three key end user markets Defense first response, and health care transportation, which is a combination of alternative fuel aerospace and automotive and general industrial.
And the defense first response, and health care and market quarterly sales declined by 3%.
We saw increased demand for our disaster relief products, but that was offset by a decline and our products for first responders firefighters and medical personnel.
Sales and transportation grew 20% and the fourth quarter driven by strong demand for hydrogen and compressed natural gas products. We also experienced growth and our auto catalyst products driven by industry recovery and the wider adoption of gas particulate filtration we.
And it's an aerospace was offset by growth from other product lines.
Sales and the general industrial end market declined, 11%, which is a meaningful sequential improvement from the 21% decline in Q3.
The sales decline was broad based and impacted most of our industrial products.
However, we were encouraged by the sequential improvement and sales and order rate.
Now please turn to slide 10 per a summary of our fourth quarter P&L results.
As a reminder, all of the information presented today exclude the results of discontinued operations. We have provided detailed with restatement activity and the appendix of this presentation and in our 8-K filing.
Fourth quarter sales of $82 1 million were fairly flat to prior year.
With favorable FX and price offsetting volume declines.
Growth and transportation fueled by alternative fuel sales was offset by the COVID-19 impact and industrial products.
Consolidated adjusted EBITDA for the quarter of $13 8 million improved 21, 1% versus the prior year.
The volume decline the company executed on the transformation plan and delivered approximately $3 million of net cost reductions and the quarter.
Overall, we made great progress on cost savings in 'twenty, and 'twenty, finishing a challenging year with solid results.
Let's look at our product segment results on slide 11.
Elektron sales of $47 $2 million increased one three per cent from the prior year.
The sales growth was primarily due to stronger sales of defense meals ready to eat coupled with growth and auto catalysis products.
EBITDA increased 24, 7% to $9 1 million due to higher sales performance and net cost savings realization.
Gas cylinder segment sales declined two 2% to $34 9 million with Covid and negatively impacted industrial products, while alternative fuel posted double digit growth.
Despite the sales decline EBITDA is $4 7 million increased 14, 6% from the prior year as cost reductions offset the lower sales volume.
Now, let's turn to slide 12 for an update on the financial impacts of the transformation plan, although discussed earlier.
Our focus on cost reductions and waste elimination has resulted in $21 $5 million of net cost savings through the end of 'twenty and 'twenty, which represents the third full year of our transformation plan.
In addition to cost reductions with smaller manufacturing footprint and reduced our annual operating capital requirements by approximately $6 million from historical levels further improving our cash generation.
We are confident we will deliver the remaining two and a half million dollars and savings from our committed 24 million of net cost reductions in 'twenty and 'twenty one.
We then expect to continue our ongoing lean manufacturing focus, including automation projects with a goal to delivering on 2% annual cost productivity.
Now, let's look at our key balance sheet and cash flow and metrics on slide 13.
We ended the fourth quarter with a stronger balance sheet, our net debt improved to $51 $9 million, leading to a net debt to EBITDA ratio of one time.
We improved fourth quarter operating working capital of $71.8 million with the resulting operating working capital as a percentage of sales of 21, 9%, which was better than our prior year and level of 23, 2%.
Going forward, we've targeted and the operating working capital as a percentage of sales range of 20% to 22%.
We generated $41 $3 million and free cash flow per the year, using approximately 4 million and cash for restructuring activities related to our transformation plan.
On a trailing 12 month basis, we delivered 15, 2% ROIC from adjusted earnings.
Our balance sheet is solid we're generating significant free cash flow and we remain well positioned for strong cash conversion going forward.
Let's take a look at our longer term performance metrics on slide 14.
For 'twenty and 'twenty, our topline growth average, 3% from 2016 to 2019 due.
Due to the Covid impact in 'twenty and 'twenty, our revenue performance over the past four years is flat.
However, our cost reduction efforts are a primary driver of the 4% annual EBITDA growth over the same time period.
Resulting EPS has grown over 10% per year with an average EBITDA margin over 17%.
These results show the favorable impact of our transformation plan and have delivered and as markets recover and we returned to growth in 'twenty and 'twenty. One we were well positioned to create additional value for our shareholders.
And I would like to review, our capital allocation priorities and slide 15.
We generate strong cash and expect to average 100% conversion to net income.
And great financial position with a strong balance sheet and ample liquidity to take further steps to drive profitable growth.
And strategically evaluating our business portfolio and identifying inorganic options to drive additional shareholder value.
Our first capital allocation priority will be creating value through internal execution.
Which includes funding new product innovation and talent development.
We have funded our transformational cost savings initiatives with a cash outlay of approximately $37 million through the end of 'twenty and 'twenty.
And we expect to spend and the remaining $11 million of cash in 'twenty and 'twenty one.
We expect to return to a normal capital spending range of $10 million to $12 million in 'twenty and 'twenty, one which is higher than our 8 million and 'twenty and 'twenty spend but lower than our historical $18 million average.
Next we remain open to strategic acquisitions to supplement our organic growth.
Our focus will be on businesses that meet our established strategic filters and financial criteria.
Lastly, we will continue to return cash to shareholders via dividend.
As a reminder, we have paid out over $93 million and dividends in 2013, including $3 4 million and the fourth quarter.
We're maintaining our current dividend program and we're pleased to announce our board has authorized a $25 million share repurchase plan.
As noted in our press release went from.
And guidance for 'twenty and 'twenty, one and you can see our key assumptions on slide 16.
The 'twenty 'twenty, one we expect full year revenue growth of 3% to 9%, which includes approximately three to four per cent a favorable currency impact.
The British pound and continues to strengthen versus the dollar.
We expect defense first response and health care products to grow mid single digits with strong.
MRE and military sales.
Transportation products are expected to grow low double digits.
And by alternative fuel, including hydrogen and <unk>.
New products, such as gas particulate filtration.
We expect industrial products will grow mid single digits.
This delivers EPS and a range of $1 five $2 25.
Looking at the timing within the year, we expect the first quarter will be sequentially flat to Q4 of 'twenty and 'twenty given the current currency profile and some disruptions from Brexit.
We will continue our execution on cash and it initiatives targeting 100% free cash flow conversion for the full year excluding restructuring.
Given our typical seasonality, our Q1 and free cash flow is weaker than other quarters.
And with our strong balance sheet, we remain confident and our ability to successfully navigate through this recovery here and be well positioned to capture growth.
Now I'll turn the call back over to evoke for a wrap up.
Thank you Heather.
Before I wrap up I wanted to update you on our ESG efforts as we published our first ESG report after our last earnings call in November 2020.
This report highlighted key stakeholder interest, including our environmental goals, social statistics and Billboard.
And structure.
We realize that non financial reporting is important to our stakeholders and we are committed to providing transparency around our sustainability activities.
As a result of our recent efforts our ESG scores from ISS have improved significantly over the past few months.
Our environmental score has improved from nine two for our social score has improved from six to one while our governance score remained at a strong too.
Please turn to slide 19 for a wrap up.
Let me wrap up by recapping that we serve attractive niche markets with proprietary products and technology.
Our transformation plan has delivered results and will continue to make a positive impact for the next few years.
After the transformation plan is complete we have plenty of runway to create even more shareholder value by deploying the luxury business excellence standard toolkit to drive operational improvements and to accelerate growth.
Once again I want to thank all our employees around the world for safely operating our facilities, while maintaining our commitment to always putting our customers first.
Thank you for listening we will now take questions.
Thank you at this time I would like to inform everyone. If you'd like to ask a question. Please press Star then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue press. The pound key our first question comes from the line of Chris Moore of CJS Securities.
Hey, good morning, guys.
And Chris.
Yes, maybe just start with alternative fuel, obviously, a very exciting area.
Just trying to get a feel for you know.
How competitive this market is a worthington and it sounds like just announced the product that they are.
They're going to.
You and and hydrogen space.
You do you are there a couple of people that you see.
Regularly or just you know kind of your thoughts on that competitiveness.
Sure. So I think from our perspective, we are very focused on heavy vehicles.
And there are a lot of competition and the lighter vehicles and the smaller cylinder space.
And then the heavy vehicle and I think it's a they can our position is pretty strong.
Not really want to talk about like and our competition, but I would say hexagon and Worthington.
Great companies, who offer similar products in certain markets of ours, and our differentiating value proposition is that we have been in this industry. A very long time have made both stride three and type four products.
Our.
Reliability and our long term reputation is a huge asset.
<unk> choose.
Where to buy their products from also our focus narrow focus on heavy trucks and buses.
Very very helpful to us versus our competition.
So we do see competition, there probably be more but it's a very exciting industry and we really like our position here.
Got it helpful.
And switched and commodity prices have been very volatile recently.
Key inputs, I guess aluminum and magnesium and.
So it's sort of caught saying and some rare earth minerals.
Any.
Concerns, there and and how does your supply chain overall look like.
We liked and lower commodity prices versus higher so from that perspective, yeah. There's some.
Watching that we do constantly but overall you know our.
Standard operating mechanism is that we are able to pass on.
Higher commodity pricing within thought off and all 60, and 90 day delayed timeframe.
And while.
The enemy.
Aluminum prices has taken off.
And I think over from the back away and we think they are still and a manageable range.
Zirconium and you know we have a fairly.
And the long supply chain and very well established sourcing methods.
And on Magnesia, and we typically do back to back locking based on our contracts with governments and others.
So yeah, I mean, we watch it constantly we would maintain our view of that.
Over a.
Three to six months timeframe.
Inflation versus pricing would continue to offset each other.
So they.
And then we'll keep watching but no immediate concerns yeah of course.
Got it.
Last one from me is is there any <unk> in your fiscal 'twenty one guidance.
We put us well, a small amount which are kind of similar to what we had in 2020, we're not baking any growth and four <unk> and 2021.
Got it and I appreciate it I'll jump back in line.
And Chris.
Your next question comes from the line of Craig Irwin of Roth Capital Partners.
Good morning, and thanks for taking my questions.
So what I wanted.
And look and Heather.
Wanted to start with transportation are right. The 19, 5% growth in the fourth quarter of 'twenty is a is a strong number.
And you you do say that.
Oh field, which was double digit growth.
But maybe can you can you and help us understand a little bit about what drove that strength there.
And there may be a channel fill from the the particular product for automotive catalysis that thank you.
Launching this year.
Was there was there something else maybe that outperformed and narrow that gave you such a strong result.
We think that's a sustainable and.
Not any specific factor. So there was no inventory fill or anything else that we think we drove back.
And I don't keep in mind that in Q.
Q4 19.
19.
We did have some disruption related to one of our customers and alternative fuels.
But they can all day long.
I just drove our operating with one alternative fuel.
Okay excellent. So then you know over the course of 'twenty 'twenty, one and I think you guided for a mid single digit growth from that segment can you maybe help us understand the the contribution that you're expecting from that the new.
Particularly it's product.
And just likely to be a material contribution will we see sort of you know.
More than a 10 or $20 million uplift to.
Catalysis revenue.
You know how much proportionately is the content per vehicle increase and are we seeing a potential double 15% and 25 per cent and any color you can offer.
Sure. So the largest driver of growth for 2021, Craig will remain alternative fuels and that's the one that gives us the confidence of guiding it didn't kind of channel.
Double digit range for transportation in 2021 day.
Content per vehicle for gas particulate filtration and auto catalyst.
Is increasing and the range of 20% to 25% no its not double but we do expect that to add too.
Good numbers in 2021, especially given that 2020 was a really bad ear for automotive.
But if I take a step back I mean, both of these products, including the autocad.
To calculate gas particulate filtration and our new type four hydrogen cylinders and obviously continued traction on our key store products for <unk> and hydrogen.
All three will contribute meaningfully, but alternative fuel and hydrogen will be the number one driver.
Excellent.
I wanted to ask a question about.
Some of the content on your slide number seven and bright future capabilities.
You're pointing to new opportunities and Asia, you've done a tremendous job getting down to 10 facilities from 'twenty over the last couple of years.
Restoring the growth profile and and the profitability of the company.
Can you maybe talk about.
Where you are and the in the decision process on and potentially building something and Asia.
And.
Is this and this is gonna be.
Strictly CMG and and hydrogen.
As you suggest and the slide or are there maybe maybe other opportunities.
And you know any any capex related to this in your guidance for this year.
Yeah, Great question, Craig appreciate it so we've been in China for Awhile, but recently started composite cylinder manufacturing in China and.
And that's what we highlighted on slide seven.
All.
Right now our focus remain all our composite cylinder and market <unk>.
Moving CBA and kind of including.
Aviation, including alternative fuels.
And we are just starting on that.
Jody.
Maintaining our focus on heavy vehicles that we have done in the past.
There is a capex requirement and a large portion of the Capex guidance, we gave will land up going to alternative fuel just like it did in 2020, but it's all baked in our current numbers nothing incremental beyond that and that's because you know we have capacity globally that we can move around.
And capability that we can deploy.
And as needed.
Understood. Congratulations on the strong result, I'll hop back in the queue.
Thanks, Craig.
Your next question comes from the line of market share Apachean of B Riley Securities.
Hi, good morning.
And thanks for taking my question here.
Morningstar cash.
Yeah. So just wanted to quickly touch on the divestments.
The aluminum.
Product lines, and including Super for them I think if I look at the.
Discontinued sales ops volume, a little over $50 million for this year and.
Very small kind of EBITDA contribution.
Yes, as we strip out this.
Why and business line from from the financials and we look at the business going forward can you maybe help us understand what the incremental contribution margin will be.
So format as if you were at.
To to have divested that business.
As we think about sales growth.
And operating leverage on your infrastructure.
Hey, good morning, talking together I'll take that one so you know when you look at our mix certainly at the local mentioned you know we the new gas cylinder segment I think represented about 44 per cent of our sales and the total company.
Going forward, obviously, the elektron margin will drop to around that 30 per cent or some level and we would expect gas cylinder sales to drop through from.
Approximately around 25% growth going forward, obviously with discontinued ops there would've been some profitability that would've been included you know price in 'twenty and 'twenty one when we built our original budget sometime ago. So we'd expect that that's probably and that $2 million range that but that will not occur and I can tell.
Oh and operation.
Great. Thanks for that I guess.
Points about also is how does the free cash flow profile.
Change kind of.
Excluding the discontinued ops and looking at the business.
Going forward. It does that improve does that stay similar just kind of help us understand that.
Yeah, and when I think about the free cash flow certainly you know you can see and our statement there was a minimal impact from from the discontinued ops in terms of free cash flow. So moving forward you know our guidance remains the same we still expect to convert 100% of our net income excluding restructuring and it really doesn't.
<unk>, that's that profile much going forward.
Got it and and I think.
You mentioned building the business organically and through some value creating acquisitions, maybe if you can help us understand the areas Youre looking at are there certain end markets.
That you believe you need to go out and buy versus build on your own and and if you can maybe comment on potential geographies that you think you might need to fill holes and just any color there would be extremely helpful.
Sure and there's a broad range of opportunities we are targeting when it looks at acquisition I think the strategic filters as laid out by hand or are all of the right one and.
And to answer your question more directly sour Krish and I mean, obviously, we're looking to improve our growth profile. So we would look for acquisitions and fund.
Areas, such as alternative fuels, we're thinking and if you believe we can get additional capabilities and capacities.
At the appropriate valuation and that would be something we'd look at.
Clearly Asia.
The market remains.
Geographical expansion opportunity for us given how little of our sales currently go in that region. So we look at that as a greenfield versus brownfield or an acquisition. So I think that remains the priority for us and then finally and I think like aerospace and defense I know, it's in a tough spot right now.
But we are in the business for long term and we remain confident that.
There is something and the appropriate valuation given the market sentiment and the <unk>.
Appropriate synergies that come to us, we wouldn't shy away from that either.
We can try and focus on things, where we can create operating synergies things that improve our growth profile.
During like at all.
Growth driven by Megatrends growth driven by geographic expansion, but it's a broad basket and.
And then kind of pleased with how quickly the M&A market is rebounding.
Compared to what it was last year.
Yeah.
Got it that's super helpful and I think just to piggyback on the point you made regarding aerospace and defense it seems like.
That's an area of opportunity given the specialty materials that that industry consumes and.
Would you say that there's a particular maybe products that could.
Be attractive or add to your capabilities that you and certainly don't have I mean is that more of like a material.
A particular type of materials and specialty that you'd like to buy or further bolster.
Yeah.
We have very strong position and something like magnesium, which is a niche material small market size, but very strong position. If we looked at similar thing whether it's getting into composites, whether it's getting into other speciality.
Metal alloys that would be our focus so while I won't go down the periodic table, yet and it can always be looking at niche materials alloys composites that.
Allow us to leverage our existing position and aerospace.
Fantastic. Thank you I'll hop back into queue.
Thanks Rakesh.
Your next question comes from the line of Michael <unk> of Keybanc capital markets.
Hey, you look and how theyre good morning.
Hey, good morning, first I wanted to get your.
Spectation on defense going forward and.
And what changes you've seen from the New administration I know its early on and generally a lumpy business as well, but wanted to get any color on what you've seen there, thus far and maybe expectations going forward.
Yeah, Michael I'll I'll I'll start on that one you know typically for US you know ignoring anyone's personal politics were certainly glad the election and behind us and it's obviously more certainty and frankly and our experience typically you know post election years tend to be a little better in terms of military.
And sales so that's partly you know.
Some of our thinking and when we gave our guidance in terms of you know kind of mid single digits I think on defense and first responder sales. So that's sort of our view and defense you know post the new administration, it's hard to say you know depending on policies and all kinds of other legislative actions, but at this point, we typically like the ear after an election compared to two election day.
Option.
Got it and then what were the primary drivers of the cylinders revenue declined year over year. Despite the growth that you mentioned and.
Alternative fuels there.
And a lot of the public document.
And the cylinders still go into what I would call it.
Discretionary and medical are up so where.
And where we had elective procedures getting delayed last year. So I mean, there was clearly an impact of that there's also a lot that still goes into industrial where they.
And they can afford and speciality industrial gases and Douglas flow as well so those would have and the two primary drivers and even if CBA, but you would see from others was slightly lower given the firefighters and others. They put their budget towards other activities that have that immediately fight COVID-19 or to upgrade their equipment.
And concerning I would say it was just driven by the macro conditions last year.
Okay, and then one more question on value if I could.
I know that.
Right before the the oil collapsed last year, you were rolling out some new new products targeted at freshwater applications and the Permian.
I'm just wondering did you see did you begin to see sales there before we saw the oil price collapsed and all the capex budgets being slashed.
Or is that not something that was very meaningful and 2020.
We did see good penetration for the new product actually it was very successful and all the field trials and and can we remain very confident of our market.
Value proposition in that sector.
The recent sales that we have had although at a low level are more geared towards our new products and more geared towards the Permian basin versus the back and which is better and historical presence has been.
We have further invested in our thinking on maintained and increased investment and business development and that area now.
Now given how badly we were born that the oil price and the fracking collapse from 18 to 19 and the 19 to 20.
We don't want a beacon and the upside yet on that but you know what.
Oil price 60, and a lot more confident about future and a solid back and I was when it goes negative pen so.
We just want to make sure we do the right thing day.
And our customers and maintain a strong strong value proposition here.
Got it and then just lastly from me can you breakout how much automotive business makes up your transportation silo.
Yeah, I can I can take that one so it used to be you know certainly.
You know pre divestment and everything like that that.
And it was a third a third a third almost pretty evenly split and our transportation segment between F Aero and auto now I would say.
You know automotive is certainly more like.
20 per Simons here, so it's quite a bit lower given the given the divestment activity.
Got it that's helpful. Thank you.
And encore recording of this conference call will be available and about two hours telephone numbers to access the recording will be available on the Lux for web site at Www Dot luck for Dot com.
And for joining us today. The next regularly scheduled call will be in April of 'twenty 'twenty, one when the company discusses its 2021 first quarter financial results. You may now disconnect your lines and have a wonderful day.
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