Q1 2021 Luxfer Holdings PLC Earnings Call
Good morning, My name is Lori and I'll be your conference operator today welcome to lock first 2021 first quarter earnings conference call. All lines 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 <unk> first quarter 2021 earnings call. We're happy to have you with us today I'm, Heather Harding <unk>, Chief Financial Officer, and with me today is the low Mascara lobsters, Chief Executive Officer.
On today's call, we will provide details on our first quarter 2021 performance as outlined in the press release issued yesterday.
Today's webcast.
Our contention that can be accessed debt Luxor dotcom.
Note that any references to non-GAAP financials are reconciled in the appendix of the presentation.
Also all the numbers in our press release and presentation exclude the results of our aluminum forming businesses that had been classified as discontinued operations based on accounting guidelines.
Now 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 now let me turn the call over to Luke.
Thanks, Heather and welcome everyone.
I wanted to start with my appreciation of our employees for their continued focus on serving customers, while maintaining steadfast adherence to safety protocols as we navigate the COVID-19 pandemic.
Thanks to the hard work of our leaders and employees, we delivered record margins and strong cash flow in the first quarter of 2021.
Let me begin by highlighting three key developments during the quarter.
First we delivered solid Q1 earnings and EBITDA margin of more than 20%. Despite the pandemic some negative sales impact.
Conversion of these strong earnings into cash.
Altered in a net debt to EBITDA ratio of 0.7, the lowest level in the past eight years.
Second we meaningfully upgraded our portfolio by acquiring structural composite industries to increase our presence in aerospace and alternative fuel applications, such as C N G and hydrogen storage.
With the addition of Sci alternative fuel now makes up 20% of locks force total revenues.
Third we achieved our long term transformation cost reduction goal ahead of schedule by delivering a total of $31 million in cash savings.
<unk> $25 million in P&L savings and $6 million in capital spend reductions.
We also continued to simplify our portfolio by completing the divestiture of a gram aluminium plant, which was part of the previously announced discontinued operations.
I will provide more details on these teams before our CFO Heather Harding reviews, our financial performance in greater depth.
Now please turn to slide three for a summary of our first quarter financial results.
During the first quarter total sales of $85 $2 million decreased three 6% year over year as the pandemic continued to negatively impact our industrial product sales.
First quarter, adjusted EBITDA of $17 $7 million increased 12%, primarily driven by productivity improvements.
Our adjusted diluted EPS was <unk> 39 for the quarter, an increase of 15% from the prior year.
Our Q1 cash flow was driven by lean working capital improvements as we generated $13 $8 million of free cash flow.
So from the 2020 outflow of $7 million.
This strong cash flow enabled us to reduce our net debt to $41 million compared to net debt of $92 million at the end of Q1 last year.
This reduction was in addition to the $13 $6 million of dividends, we returned to shareholders during the past 12 months.
As mentioned earlier.
Our net debt to EBITDA ratio improved to 0.7 times at the end of the quarter.
Our balance sheet remains strong, providing us with significant financial and strategic flexibility.
Now please turn to slide four for an overview of our recent acquisition structural composites industries or Sci.
On March 15th lots for acquired structural composite industries from Worthington for approximately $20 million in cash.
We are excited to welcome the 150 Sci employees into the lots for family and remain committed to putting customers first while we generate significant value for lots for shareholders.
<unk> was founded in 1971 and has significant market presence and aerospace.
N G hydrogen transportation and storage and other niche applications.
<unk> proprietary technology is frequently specified in mission critical applications.
Given its strong reputation and long history of quality and performance.
Examples of these critical applications include carbon fiber composite cylinders for transporting and storing hydrogen and compressed natural gas.
Our lightweight cylinders for inflation and breathing applications in aircrafts.
And compressed gas storage for defense vehicles and spacecraft.
The Sci acquisition meets all our strategic criteria and will be accretive to earnings in 2022 and beyond.
In 2021, we expect the acquisition to be dilutive to EPS by about 15% given the impact of short term losses.
We will be investing in Sci.
And our alternative fuel products, such as type for 350 bar hydrogen cylinders to ensure long term growth and profitability.
In addition to financial benefits the Sci acquisition.
So provides us with compelling strategic benefits as outlined on slide five.
About half of Sci sales are from high growth alternative fuel end market, which has been an ongoing growth driver for <unk>, given increasing demand for C N G and hydrogen solutions.
Adding sei's technology manufacturing capability and customer base to less force existing presence strengthens our market position.
Let's force increased scale and school will enable us to capture a higher share of this fast growing end market.
S. C. I also had a strong presence in the aerospace end market, where our consolidated presence will better position <unk> for growth recovery.
In addition to increasing our presence in aerospace and alternative fuel end markets. The Sci acquisition will also allow <unk> to better serve niche applications and critical customers in SBA and other end markets.
One of the benefits of this acquisition is the proximity of Sci's manufacturing location to lapse force largest composite cylinder manufacturing location in Riverside, California.
This proximity will enable looks forward to share expertise and talent and optimize manufacturing capacity to better serve customers, while generating $5 million to $7 million in total synergies.
Given the Sci acquisition and discontinuation of the majority of our aluminium farming operations.
Our gasoline the portfolio is simpler and less dependent on lower margin cyclical passenger automotive guidance.
Alternative fuel now makes up 40% of gas cylinder segment sales with significant growth potential due to increased demand for hydrogen and <unk> solutions.
For an overview of Lux force simplified portfolio, please turn to slide six.
Lots for simplified portfolio consists of three core product lines high.
High performance magnesium alloys special.
Speciality zirconium catalyst and high pressure composite cylinders.
This is a significant simplification compared to the past and is going to drive greater focus on generating growth.
Weighted new products and by improving customer service.
As a reminder, portfolio simplification was driven by the divestment of over $100 million in revenue and multiple consolidation projects over the past three years.
We sold non core product lines and locations to improve our growth profile and profitability outlook.
The three product lines manufactured in about 10 core locations our position in higher growth end markets.
And offer differentiated value propositions to our customers in niche applications.
We will continue to report our financial results in two segments electronic gasoline enders.
As we create greater value for our shareholders through growth and productivity.
Please turn to slide seven for an overview of future growth drivers.
Growth looks for is enabled by five key factors that include growth talent portfolio positioning.
<unk> excellent new products and bolt on acquisitions.
We continue to make progress on laying a solid growth foundation.
Our recent accomplishments include increasing revenue from new products from 9% to 17% over the past three years, while continuing to refresh innovation talent and the project pipeline.
Other recent accomplishments include changing the portfolio's growth profile through divestment of underperforming slow growth businesses, while bolting on businesses with better growth profiles, such as our previously mentioned acquisition of structural composite of industries as well as ASM speciality metrics.
We have plenty of future improvement opportunities to accelerate growth in our portfolio. These include geographic expansion to penetrate fast growth regions further increasing revenue from new products.
And completing more bolt on acquisitions.
Now, let me turn the call over to Heather Harding for details on our transformation plan savings and fourth quarter financials.
Hello, and good morning to everyone before I review, the first quarter financial results I will start with a summary of our cost reduction efforts from five eight.
We are very pleased to announce the completion of the cost reduction component of our transformation plan.
We executed our planned actions and realized more than $4 million of net cost savings in the first quarter, bringing our total P&L savings to $25 million.
This focus over the past three years has positioned the company well for the future with a lower fixed cost structure fewer manufacturing locations.
Now, let's focus on working capital and.
In addition, we reduced our annual capital requirements by $6 million from historic levels through facility rationalization, resulting in $31 million of total cash savings over the past three years.
Going forward, we expect to continue our focus on lean manufacturing, including automation projects with the goal of delivering around 2% annual manufacturing cost productivity.
Ongoing capital requirements are expected to be between $10 million to $12 million annually.
Now, let's review the first quarter financial results with a look at our sales performance by end market on slide nine.
As a reminder, our sales can be classified into three key end user markets Defense first response from health care transportation, which is a combination of alternative fuel aerospace and automotive and general industrial.
And the defense first response and health care end market sales increased by 2% from the first quarter versus the same quarter last year.
All significant increased demand for disaster relief products and a recovery in military sales.
Sales and transportation grew 10, 8% in the first quarter driven by strong demand for hydrogen in compressed natural gas products.
We also experienced growth in our auto catalyst products, driven by industry recovery and wider adoption of gas particulate filtration.
And aerospace products also returned to growth in the quarter versus the same period last year.
Sales in the general industrial end market declined 18, 9% in the quarter.
Relative to the prior year, the single largest impact what's the timing of new product stocking orders in Q1 of 2020 outs.
Outside of these orders current year overall industrial products continued to be impacted by COVID-19 and certain applications, such as packaging and foodservice and.
In addition, industrial product shipments in Q1 of 2021 were negatively impacted by transportation and supply disruptions.
Given the improved order rate during the first quarter, we remain optimistic about the continued industrial recovery over the coming quarters.
Now please turn to slide 10 for a summary of our first quarter P&L results.
First quarter sales of $85 $2 million declined three 6% from the prior year.
With favorable FX contribution of $3 four per cent and price trends more than offset by volume declines.
The Sci acquisition net of $1 2 million to first quarter sales.
Growth within the transportation end market driven by alternative fuel sales.
All set by the COVID-19 impacts within the general industrial market.
Consolidated adjusted EBITDA of $17 7 million per the quarter improved 12% versus the prior year.
The volume decline the company delivered more than $4 million of net cost savings in the quarter due to its previously communicated transformation plan overall, we made great progress in the quarter as we expanded sales in key end markets and delivered strong profitability and cash.
Now, let's look at the products segment results on slide 11.
Elektron sales of $49 million decreased four three per cent from the prior year.
Sales decline was primarily due to the COVID-19 impact on industrial magnesium products.
Despite the volume decline EBITDA increased around 1% you the net cost savings realization in the quarter.
Gas cylinder segment sales declined two seven per cent to $36 2 million.
COVID-19 continue to negatively impact industrial products, while alternative fuel posted strong double digit growth.
Despite the sales decline.
EBITDA of $6 million with 43% higher than the prior year.
Cost savings offset the lower sales volume.
Now, let's review, our key balance sheet and cash flow metrics on slide 12.
We ended the first quarter with a stronger balance sheet, our net debt position improved to $41 $2 million, leading to a net debt to EBITDA ratio of <unk> seven times, our lowest level since 2013.
First quarter operating working capital finished at $71 $9 million or 21 four per cent of sales.
Which is a significant improvement over prior year's 24, 5% level and was a key contributor to our $13 $8 million free cash flow generation.
Going forward, we've targeted in operating working capital range of 20% to 22% of sales.
On a trailing 12 month basis.
We delivered 16, 2% ROIC from adjusted earnings.
Our balance sheet remained solid we were generating a significant amount of free cash flow.
We are well positioned for strong free cash flow conversion going forward.
I'd like to review our capital allocation priorities on slide 13.
Well look reviewed the compelling benefits from our recent Sci acquisition.
This demonstrates our disciplined approach to capital allocation, using our strategic acquisition filters and identifying potential candidates.
With our strong cash from excellent financial position with ample liquidity to take further steps to drive profitable growth.
This includes strategically evaluating our business portfolio and identifying organic and inorganic options to drive additional shareholder value.
As a reminder, our first capital allocation priority.
It's to create value from internal execution, which includes funding of new product innovation and talent development.
The remainder of the year, we expect to spend $16 million to $20 million in restructuring cash.
Which includes the remaining transformation plan cash outlay, what's fun for Sci integration.
We expect to spend approximately 10 to 12 million per capital expenditures in 2021.
Which is an increase from our $8 million of 2020 spend that was negatively impacted by COVID-19.
Next we remain open to strategic acquisitions to supplement our organic growth.
And finally, we will return cash to shareholders via dividends as a reminder, we have paid out $96 million in dividends since 2013, including $3 4 million in the first quarter and we are maintaining our current dividend program.
We did not buy back shares in the first quarter, but intend to repurchase shares over the remainder of this year.
Now I'd like to review, our updated 2021 guidance on slide 14.
Our 2021 guidance announced in February what the dollar five to $1 25 for the year. We now expect earnings per share to be $1 10 to $1 30.
Most importantly, this revised guidance now includes the first year impact of our recent Sci acquisition.
Which we estimate to be approximately 15 cents dilutive.
As the low can mentioned earlier, we will execute our synergy plans are $5 million to $7 million and expect the acquisition to become accretive in 2022.
We expect full year 2021 revenues to grow between 10% to 15%.
This range includes approximately 3% to 4% of a favorable currency benefit.
And acquisition revenues of $20 million to $25 million.
We expect defense first response and health care products to grow in the mid single digits based in part on strong MRE in military sales.
Transportation products are expected to grow by double digits, driven by alternative fuel, including hydrogen new products, such as gas particulate filtration and the Sci acquisition.
We expect industrial products to grow in the mid single digits for the full year due to ongoing recovery.
We will continue our execution on cash management initiatives targeting 100% free cash flow conversion for the full year excluding restructuring.
We remain confident in our ability to successfully navigate through the recovery this year and be well positioned to capture growth.
Now I'll turn the call back over to a low for a wrap up.
Thank you Heather.
Let me conclude by reviewing the global growth strength shaping our portfolio on slide 15.
The three mega trend shaping let's force future growth our light weighting.
Safe and healthy lifestyle.
And a clean environment, including clean emissions.
Look for historic growth has been driven by a demand for light weighting.
We believe that this trend will continue for many more years.
Our magnesium alloys play a critical role in reducing the weight of key high temperature high performance.
Aerospace and industrial components.
We are also the world leaders in lightweight high pressure composite cylinders for CBA and other applications.
The lighter nature of our products enabled firefighters and first responders to be ergonomically safe wildcards sufficient oxygen for the difficult task.
A desire for a safe and healthy lifestyle also shapes, our growth profile as demand growth for healthier meals ready to eat using a flameless ration heaters technologically in defense and emergency response application.
Additionally, sales of our zirconium products used in pharmaceutical and water treatment applications.
And our portable medical oxygen cylinders also benefit from the global trend towards safe and healthy lifestyles.
The mega trend towards a clean environment and lower emissions has fueled growth of our alternative fuel products and is also accelerating the growth of our auto catalyst product line.
For example, our newly introduced gas particulate filtration product is being adopted and multiple platforms to meet increasingly stringent environmental regulations.
As a result, we believe that our auto catalyst content per vehicle will continue increasing for the foreseeable future.
Next I wanted to update you on our ESG efforts on slide 16.
We published our force ESG report in November 2020.
Since then we have been busy making further improvements across the company to meet or exceed our ESG commitments.
<unk>, 22% reduction in carbon dioxide equivalent emissions.
10% reduction in freshwater usage and 20% reduction in waste to landfill.
Recent investments to improve our environmental footprint.
<unk> initiative to reduce energy demand increase use of recycling to reduce waste and upgrades to our manufacturing processes to make them more carbon dioxide friendly.
As we continue our ESG journey, we are finding new opportunities to reduce and recycled waste that is also generating cost savings.
For example, our St. Louis facility installed a new capability to separate waste oil from ground magnesia, allowing us to both recycled materials and generate additional cost savings.
We are proud of our significant progress on our ESG initiatives, which have resulted in improvements in our third party ESG ratings from agencies such as ISS.
Now please turn to slide 17 for a recap on how we are building the foundation for our company's long term success.
For tops to remember.
<unk> serves attractive niche markets with proprietary products and technology.
Our transformation plan has delivered results by simplifying our businesses.
Using our cost structure and reshaping our portfolio towards higher growth.
The final phase of the transformation plan that will take place over the next few years will focus on accelerating growth and delivering margin expansion.
We have plenty of runway to create additional shareholder value by deploying the luxury business excellence standard toolkit to drive operational improvement and accelerate our growth.
Once again I want to thank all our employees around the world for safely operating our facilities during the pandemic, while always putting our customers first.
Thank you for listening we will now take questions.
Thank you at this time I would like to remind 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.
First question comes from the line of Chris Moore of CJS Securities.
Hey, good morning, guys. Thanks for taking a few questions.
Uh-huh monarch right. So good morning.
You guys have made significant progress on multiple fronts.
Just hoping to focus maybe a little bit more on the growth strategy specifically.
Is there kind of a reasonable expectation in terms of organic growth over the next three to five years, you know from a from a number or a range standpoint that you guys talk about internally.
Chris That's a great question because the next phase of our transformation plan is focused on accelerating growth.
Historically, we have talked about our company being a GDP plus type growth profile.
I think with the current momentum our own clean emissions and alternative fuels.
We expect our transportation end user segment to grow much faster than that.
Then.
Lot of this depends on the macro for the industrial and defense should also get positive tailwind.
We don't give out a number at this stage, Chris, but we do expect a growth profile to be better than we had previously expected.
Simply because of the momentum from the three end user market and our new products and the Sci acquisition, which for them.
Creases, our position in alternative fuels with hydrogen and CMG, both of which continued to grow rapidly.
Got it that's helpful.
Along the similar vein do you need to ramp R&D significantly in order to.
Really keep pushing new product revenue.
I think from our Air Force perspective, we are looking to increase our investments in R&D and that's been consistent for.
For the past few years last year with COVID-19 a lot of those activities did not.
We can make much progress. So yes, we are increasing I wouldn't use the word significantly.
We used less than 1% of our revenue in R&D.
Would we look to double that over the next few years, yes, but it's not going to be much more than that.
So it would be 2% or less of our total spin or a long range planning period Chris.
Got it.
Its helpful and last one from me just.
And a little bit more on Sci in terms of the mix of the business. It looks like it's roughly half alternative fuel in half.
On aerospace.
I think you talked about a 10% EBITDA margins you know a couple of years out so.
It is can you do better than that I would think that C. N G and hydrogen are or will be above that is the aerospace the piece that that's that's lower how do you look at that.
Yeah, no, we clearly aspire to be more than that Chris I think at this stage. If you look at our total synergies of $5 million to $7 million.
This year losses, which are probably going to be around $4 million, we easily get to above 10% over the next couple of years that assumes no recovery and growth in aerospace and other niche applications.
Anthony I think the revenue breakdown is roughly about half alternative fuel.
Quarter of aerospace in quarter of various niche applications. So I think because we are.
Aerospace recovery perspective, and continued growth in alternate fuel.
That will come up to our overall composite cylinder margin profile, which as you know is higher than 10% share.
Okay I appreciate it I'll jump back in line. Thanks, guys. Thanks, Chris.
Your next question comes from the line of Craig Irwin of Roth Capital Partners.
And congratulations on the strong results.
Okay.
Hello.
Sure.
Your EBITDA margins at electron where were.
Particularly strong this quarter.
Two.
Go back to a number that was higher we'd have to go back something like three years to a defined strongest performance can you talk about.
You know, what's driving that specifically in the quarter.
Was there anything maybe onetime in nature or is this.
The result of the repositioning and restructuring you've done over the last couple of years.
And more sort of business mix and momentum.
With the products you are selling now.
Heather do you want to start on that.
Yeah. Good morning, Craig its it's good to speak with you I would say as I think through the margins and some other items that you highlighted primarily it is really a result that some other repositioning and in a lot of the work we've done on cost reduction there weren't any.
Real significant one timers.
In the results and we certainly as we talked about we saw nice growth in aerospace you know as we said that returned to growth some of that would've been in that segment of course, and then some of our other businesses within.
The Elektron segment.
Continue to really realize the benefits of that cost reduction.
Mentor them and all the efforts we've been we've been doing over the past three years.
Excellent excellent and just to continue on the on the theme of the cost reductions.
$4 million and a cheap savings this quarter. That's that's an impressive result, I think the last time you had savings like that was just the funding under the program. When I guess you were picking the low hanging fruit can you maybe give us a little bit of detail about where that came from and is it possible that we see additional savings later on the share where you.
Could exceed the total forecast savings from the total from the from the overall program.
Yes.
Well certainly with the $4 million this year as we highlighted in the presentation. We've already exceeded the 24 million right. So we're currently kind of life to date sitting at $25 million.
So from that perspective, we're very pleased as we continue to look forward in time will there continue to be some cost savings yes.
I certainly don't expect debt you know this particular level will continue every quarter you know there will be as a local mentioned investments that are required.
And certainly you know we're very pleased with the performance we had this quarter.
In terms of where it came from when you look we do highlight the two segments in the back of the presentation, but it was pretty equal right. You know in terms of the split between gas cylinders in elektron. They were gas cylinders was slightly more but they were each around two $2 million. So that's also I think important to note that our cost reduction plans, which really you know what.
Compass, a full you know full.
Full acceptance by the entire enterprise and I think you'll see that when you look at the cost reduction mix between the two segments, which was as I said fairly equal.
So.
That would be my response correct.
Understood. Thank you. So then a low cost one of the.
One other key things over the next couple of years is where youre able to get to on your margin expansion I understand the reticence to respond to a growth rate question.
Non control the markets and things are improving but you know I guess visibility is better but not as good as everyone wants them.
But you know margins you've really demonstrated.
Excellent so as far as being able to operate.
And improve and and manage the mix et cetera.
How would you how would you look at a potential margin target over the next.
A couple of years I mean can you see several hundred basis points in margin expansion as you as you sort of moved from mix into higher growth higher margin products and there's luxor has potential to be a 30% plus gross margin company.
Craig that's a.
Very futuristic question net ads.
I think.
Three years earlier, we were talking about would look for it we'll get to them.
Teens margin and then we talked about getting to 20% margin and listen reactor day at 20th margin in our force team is to hold that.
We look at it one quarter doesn't make a trend so.
We are going to work really hard to make sure we hold and exceed this level.
Given the shift in portfolio given the strong cost reduction effort fewer factories, and frankly, a huge focus on sort of lean working capital and using the 80 20 principle to shape our portfolio skews I think we are confident we will.
Be able to hold the current number.
Aspirational do we aspire for higher.
Absolutely, yes, but when we commit to a number that's much higher not yet and our focus is to complete the.
Integration.
It's tough as you know, we talked about delivers $5 million to $7 million and overall synergies.
We want to make sure we capture growth in hydrogen and make the appropriate investments for that which is a good margin I know great growth business for us.
And the only reason we called an end to the transformation plan cost savings as we had committed to achieving a total numbers going forward I expect.
Net margin expansion with 2% manufacturing cost productivity.
Yeah.
Let's see weighted because in the long term, but I think I'd imagine, obviously still reluctant to commit to a much higher number yet.
Understood understood and then maybe you can correct me, but I believe that one of the gaps in your portfolio.
At least on the tank side is the.
The opportunity for hydrogen hauler products.
Some of the high pressure hydrogen tank.
Trucks right.
Can you comment about sort of what it might take for you to add those to the portfolio and given that there are now five green hydrogen plants in development by plug with the first one.
Supposed to commission fairly soon.
It looks like Theres going to be.
Third party purchasing the green hydrogen from these plants and obvious an obvious need for some of these hydrogen haulers just to sort of avoid the incremental cost of liquefaction.
What do you think about that as a product opportunity do you already serve it.
And.
Do you see long term growth there.
It's a very exciting opportunity for us we do see long term growth there Craig I mean, youre right I mean, no green hydrogen as the wave of the future.
Totally believe in that and work with our customers whether that we customers named by you and others.
There is a small GAAP in our portfolio and I referenced earlier in my transcript, we all working on a type four 350 bar product Doctor would essentially fill that gap and then it just a matter of coming up with a custom sizes are required for that market.
So we already have the core technology, it's a matter of getting the right D O T certifications and approvals to enter that market. So we remain committed to it and we are.
On our way to get there.
Excellent.
Last question if I may.
Before I hop back in the queue. So Europe automotive catalysis opportunity. It is exciting for the growth that you're seeing incremental content per vehicle.
What is the potential increase there if you could maybe frame out for US are we seeing a 50% increase in content per vehicle potentially.
Doubling.
How does this fit together as sort of the available opportunity per vehicle over the next couple of years.
Sure. So in dollar terms, if you think about.
Well I guess I answered in the percentage terms. So yes, we look at it.
40% to 50% increase in our content per vehicle and.
So our auto cat business.
From where it is and remember last year of other slow year because of COVID-19 and hardly any production going on in Q2 Q3 timeframe. We do look at that business growing to 30% to 50% in the near future and that content.
Increases very good what we are also excited about and they can have higher standards for emissions in the U S. Because today almost all of the market for that product is outside the U S. Given some of the U S emission requirements are still lagging, but with the California regulations having.
Having a higher chance of becoming more on the federal level. We are excited about just higher emission standards in the U S and in expanding the market.
To be on just the euro and other markets today.
Great well, thanks for taking my questions and congratulations again on the impressive results.
Thanks, Craig.
Your next question comes from the line of market share Apachean of B Riley Securities.
Hi, Good morning look in other thanks for taking my question here.
What makes our cash.
Hey, just wanted to touch firstly on the Sci acquisition I think you mentioned about a $4 million loss for this first year here and what's your synergy is probably getting to let's call. It a million so $3 million of accretion next year on $20 million to $25 million in sales.
Is it right to think about the margin profile of that business. Eventually looking like the margins we're seeing in your gas cylinders business today or do you think with the combined.
Hi portfolio in your portfolio you can eventually get to better fixed cost absorption and therefore better margins that we're seeing in gas cylinders today.
Yeah. Good morning, Chuck is I'll I'll start on that one.
Certainly we're very excited about the addition of this acquisition and as we talked about.
It will be on this journey here to deliver the $5 million to $7 million of synergies.
And I expect that to you know to turn accretive to us and in 2022 and we as we look ahead you know part of the reason that we thought through the compelling benefits and you just our strategic filter is when we looked at this I think.
Youre thinking about it correctly there there are potential opportunities right as we think about.
Growth additional you know opportunities.
Opportunities are.
Virginia fixed cost and so we're going to work through that but our main focus right now wherever these next 18 24 months is to work on this initial synergy plan and deliver those five to seven.
Great. Thanks for that other than as I kind of think about it.
The divestiture of the aluminum product lines, and I think divesting Super form is still pending.
Would it be correct to think that the entire portfolio in gas cylinders is now wholly composite or are there are certain aluminum lines that are lingering.
I'll take that one sockets you know there are a small amount of aluminium products that are made in factories that are shared factories. Those are typically a high quality aluminium alloys like <unk> used in applications such as medical oxygen.
But the majority of our whereas the vast majority of our sales are now in the composites, which include both type two type three.
Another new type four cylinders. So there is a small amount of type one P around dominium, mostly focus on medical oxygen.
And as far as kind of the growth rates of that small piece of business. That's left is that comparable to kind of what youre seeing in composite and therefore, you're holding onto it or is there a different kind of game plan.
After you've digested Sci.
We obviously want to make sure we focus on digesting the Sci business, we like the medical oxygen business, it's a speciality alloy, where we have differentiated value proposition.
Net to our.
<unk> in that space.
Because these are shared location, while the growth profile is probably not as good as alternative fuel and other areas. It's still a very good business. Good ROIC.
And not worth for us to kind of look at separating just that piece house. So for now I think our transition is complete.
No thanks for that.
And just wanted to touch on the timeline for divesting Super form, but any thoughts on kind of the timeline here and then maybe how much cash this could potentially bring to the balance sheet.
Sure Heather.
Go ahead Ed.
Talk to you sorry, I'll take that one.
We're still committed to divesting the remaining operations by you know during this year. So by the by the end of 2021, and our current expectation is somewhere between five and $10 million.
Mhm.
Okay, no that sounds good and then just kind of come.
Coming back onto the Elektron Division.
That's been historically pretty high margin business are really kind of niche applications going on there right and as you remix the entire portfolio both on the gas cylinders fronts and as we kind of see in the elektron side.
At what point do you think that.
The two portfolios look very different from one another and.
Are there any strategic actions that may come about or do you think it's finding well to run the two different businesses with the different growth trajectories and margins and capital requirements kind of together under one roof.
Our focus our cases to create.
Value for our shareholders and maximize that value and so from that perspective, we remain open to broader strategic moves, but we are very pleased with how far the improvement on both segments have com over the past few years.
From a growth profile and margin profile.
You can do from our perspective will remain open to other broader strategic opportunities that could further enhance shareholder value.
They're both great businesses as you mentioned.
They both work in advanced material they both have.
Good Rois sheet.
Still has slightly better or worse than the others, but.
But the growth profile.
Hydrogen and CMG is also very exciting so I would never say never but we had to do this spot.
To make sure that recaptured all the total opportunities, which there is still significant runway for us to continue doing but if there are broader external opportunities will remain open to that as long as it creates more shareholder value.
That's all from me ill hop back in the queue.
Okay.
Once again, if you'd like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Phil Gibbs of Keybanc capital markets.
Hey, look and how theyre good morning.
Hey, good morning, Amy.
Yeah morning from.
Good okay.
From your one time to $1 30 in terms of earnings can you give an implied EBITDA within within that framework and then also implied DNA for the year I know, there's lots of moving pieces. So just trying to square and on what Youre trying to communicate for that.
Yeah, so when I I'll take that one sales. So when I think about first of all DNA is around $13 $5 million and you're right. There are some moving pieces with regards to that.
But it's around $13 $5 million is what were what we were anticipating in terms of EBIT down the 110 to 230 would imply EBITDA somewhere between call. It let's say 56 days to 63 somewhere in that range is kind of how we're.
Thinking about it.
Okay. That's helpful.
And then your cash restructuring costs that you outlined in your deck of about $18 billion.
At the midpoint, how much of that $18 million from the.
Sci integration.
Right. So if you think about the transformation plan, we had call. It 11 ish. It could be 12, 11 or 12 left from that you know that the former transformation plan. So the rest then would be that Sci integrations with the midpoint, we're talking around call that seven ish something like that.
Seven from Sci, you're saying, yes.
Okay.
Yeah, and the cadence of of the losses the 15th.
I talked to a low class night, I think you said about a penny in the first quarter, but how does that split.
For the rest of the year.
Yeah.
So.
If I think about how that splits for the rest of the year I would tell you it's pretty evenly split between Q2, three and four at disappointment slightly heavier in two and three but it's I don't know that it's meaningful so I would say from a modeling perspective, you could almost divide by three just about.
Okay and my last I appreciate that and the last question you said aerospace.
<unk> up.
In terms of topline year over year does this include.
Defense.
And then aerospace commentary or is that just purely commercial any anything there would be appreciated. Thank you.
Okay.
I think we do separate aerospace and defense, especially if it comes to the overall portfolio.
So I think from aerospace.
We are starting to see signs of recovery and that's driven by.
Our focus is more on helicopters as you know our fixed wing our focus is much lower and I think that's been showing signs of recovery from the anchorage.
Military in a post election, and as the government looks to replenish many of their stocks and from both for <unk> and <unk>.
That's going to get back to more normal levels quicker. So I think defense, we expect the rebound could be faster than we expect in aerospace, but both showing good signs of recovery zone.
Thanks, everyone I appreciate it.
Yes.
An encore recording of this conference call will be available in about two hours telephone numbers to access the recording will be available on the Lux for website at www Dot locks for Dot com. Thank you for joining US today. The next regularly scheduled call will be in July of 2021, when the company discusses.
It's 2021 second quarter financial results and deluxe for our conference call.
Yes.
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