Luxfer Holdings PLC Q1 2023 Earnings Call

Good morning, My name is Melinda I'll be your conference operator today welcome to Luxe first first quarter or twenty-two twenty-three your earnings conference call.

All lines had been placed on mute.

After the speakers prepared remarks hold a question and answer session.

Now I will turn the call over to Mike <unk>, Vice President of Investor Relations and business development from luck, Sir Mike. Please go ahead.

Thank you Melinda welcome everyone to look first first quarter of 2023 earnings call with me today is Amy Butcher, <unk>, Chief Executive Officer, and Steve Webster <unk>, Chief Financial Officer at today's call. We will provide details of our first quarter performance.

In the press release issued yesterday.

Today's webcast is accompanied by a presentation that can be accessed at Luxor Dot com. Please note any references to non-GAAP financial.

Can solve the appendix of the presentation.

Well, we begin a friendly reminder, that any forward looking statements made about the company is expected financial results are subject to future risks and uncertainties. We undertake no obligation to update any forward looking statements whether as a result of new information future events or otherwise please refer to the safe Harbor statement on flight two up today's presentation prefer.

The details.

Now I will turn the call over to Andy for somebody to come out on the corner in our outlook. After what Steve will provide details about financial results in 2023 guidance.

Well then I'll for some additional comments before Q&A Eddie Please go ahead.

Thank you, Mike and welcome everyone. These tend to slide three.

I'm pleased to share with you details about this cool so performance.

<unk> continues to drive hard for our customers and to execute effectively in a challenging environment.

These efforts helped us to deliver adjusted EPS of 20 cents in line without really outlines expectations.

Hey, It was increased 4.4%, we spoke to business segments, posting constant courtesy sales growth.

Transportation, and generally industrial sectors, where you're doing that sales volumes and profit performance.

Seeing increasing signs of macroeconomic softness in these areas without all the books, though a year that'd be yeah.

She probably destocking is whether it's such a delight in alternative fuels.

We are we not seeing additional pass through initiatives to offset higher input costs.

We demonstrated important progress at gas cylinders on this front.

So we see incremental weakness in select portions of our business.

Main confidence in achieving sequentially higher E. P S.

Well now I'd like to turn to slide full supervisor and updates on our business segment outlook.

We expect us off the outlook for certain if our end markets over the balance of the year. Although this is all set spike helpful secular tailwinds in other areas.

The multi year recovery ongoing in aerospace and automotive continues to bring positives, especially with commercial and military aircraft products that.

The demand for Sepa's cylinders football places and medical oxygen cylinders, the health care remains films the gas cylinders.

We're also taking advantage of opportunities for growth and that chemical kids and on you you G. R. A group Russian offerings as well as strongly the mountains and use the conium products, we did elektron.

But at the same time, we're seeing a greater number of challenges in other areas.

Ah so volatile supply chain backdrop with the last few years.

Now see customer Destocking is it growing headwind across our business, particularly in oil and gas were flattening and fucking activity is having an impact.

An alternative fuels, we've seen slowing in several anticipated projects.

And we continue to see something mountains in Europe , some magnesium foods retracing plates and uneven I'm solarge industrial gas cylinders, which erupted capitalized investments.

Importantly, we are progressing on a number of key internal efforts that will support Ah 20 twenty-three profit goes.

Together with our customer partners. We've progressed the qualification of alternative supplies magnesium the countermeasure flares amid the continuing and extended U S magnesium production outage.

Oh rules, we've exceeded our expectations for shipments of military flag materials in Q1.

Even gas cylinders were not just cost pass through adventures to recoup materials inflation boosted the status of this year until they put the first.

Combined with efforts in queue wanted to reduce fixed costs, but more than $1 billion annually food actions planned in upcoming courses will also help to improve much and didn't they basically segments.

Turning to the supply chain, we are seeing improved availability in general however, the pricing of select materials continues to rise, including carbon fibre well others have sustained pricing well above historic levels, such as basic chemicals in aluminum.

We have successfully introduced additional sources of supply to leverage both volume and price. Although this has also increased our inventory holding.

So the operating environment is trying to do it incrementally tougher for like especially since our last update we remain focused on delivering a knee and long term business objectives with a continued emphasis on profitable growth, including investments and talent and the infrastructure.

Thief will discuss that guidance for 2023 after reviewing more specifics about his I Q1 performance Steve.

Thanks Sandy.

On slide five is a summary of a sales results buying market.

I'm pleased to report that we generated yeah, right, but yeah. It sounds great for 4% during the quarter.

Defense fast response, and health cash sales, great, 32% driven by robust millet treat the mountains as we saw in the fourth quarter.

That was a magnesium alloy spit defense aerospace and chemical kits, both increased while that's C. B, a medical oxygen and syconium pharmaceutical applications also contribution to sales growth and they sat in marketing category.

Transportation sales decreased 10%.

We continue to benefit from the ongoing recovery in the aerospace and automotive market says Andy mentioned Magna.

Magnesium alloys for commercial aerospace and syconium, Altec catalysis materials moved higher how.

However, after realizing accelerating sales in the prior two quarters alternative fuel cells slowed which was disappointing but not entirely surprising given the unevenness inherent in this early stage market.

Generally industrial sales declined 8% with mixed performance by product type.

So can you mock sites and chemical catalysis, both still growing demand.

However, these games with more than offset by contraction, the oil and gas and magnesium photoengraving tight.

We discussed the backdrop for these categories are not practical.

We are pleased with the resilience demonstrated by several key areas of our product portfolio and the additional gains in some secular growth and markets realized during the quarter.

Police tend to slide six for somebody about consolidated first quarter financial results.

Basketball at the sales of $101.3 million increased $4.3 million from the prior year.

This growth was driven by $10 million a price action to address rising input costs, partially offset by I'd first fall even mix as well as foreign exchange headwinds.

Consolidated adjusted EBITDA of $11.3 billion in quotes a woman decreased $4.8 million from a prior yeah.

Why do you mix negatively impacted out performance by $1.7 million on a year over year basis with foreign exchange, a partial positive offset of zero point $8 million.

Gross related head counts investment and higher legal expenses as disgusting alcohol to fall cool, Oh, sorry, with juice profit for the period.

We remain focused on the dressing pass through friends inputs cost inflation, I mean, acting efficiency gains to best navigate the current demand environment.

Now, let's turn to our segment results on slide seven.

Elektron sales of $59.8 million increased 10% from a year ago. The game driven by all further pushed to pass through inflation, partially offset by volume mix of zero point $9 million and <unk>.

Foreign exchange headwinds.

How 'bout that electrons EBITDAR at $8.8 million decreased by 34% largely due to volume and mix as well as the impact of legal and other costs.

It sounds recovery of inflationary costs during 20 twenty-two inevitably make year over year comparisons challenging for this segment.

Gas cylinder sales of $41.5 million decreased 2% due to adverse impacts if $1.5 million from foreign exchange and $2.5 million from fall, you mix, which offset to $3.1 million positive impacts on cost pass through.

EBITDA of $2.5 million contracted 7% from $2.7 million in the prior yeah, d'you largely to the impact of volume mix.

Encouragingly cost pass through fully offset inflation in the cool to demonstrating traction effort to turn around and ultimately restore margins in this business.

We also benefited from the implementation of fixed cost savings initiatives with additional cost action planned in the coming quarters.

That would like to discuss Ah updated 2023 outlook on slide eight.

I haven't seen that the mountain picture, Andy detailed earlier with our internal asked that same deficiency. We continue to target 2023 full year adjusted EPS of $1.50 to $1.35.

That we allow it all kind of 2023 protection for sales growth to 4% to 7% down from 6% to 10% in our prior cool, we're focusing on margin and cost control to achieve already passed objectives.

We expect EPS to accelerate to the mid twenties cent range in quota too.

We are all set bringing increased focus on cash generation.

While we are maintaining a 100 per cent Gulf adjusted free test play conversion, they see somewhat challenged by ongoing pressure on inventory, which impacted catch performance in the first quarter.

That said a quota on cash outflow does reflect typical seasonal norms for our business and we expect significant sequential improvement going forward.

Despite the make cyclical backdrop, we're maintaining our growth related capex plans, which are supported by a full year profit expectations and our sound capital position.

Furthermore, I'm pleased to confirm that we achieved a successful buyouts by U S defined benefit pension planning cool too the $2.3 million.

Less than the $3.5 million, we outlined previously.

Also related to the balance sheet I want to highlight that we plan to repay all $25 million private placement loans you in June of this year with proceeds from a 125 million dollar revolver.

Pro forma for this anticipated loan repayment, we would hold nearly $60 million immediate liquidity, which remains robust relative to our cats, who are planning on the evolving macro environment.

I look forward to updating you about progress to not only deliver on our profits objectives. That's a further invest positioning our business for long term growth.

I would like to hand, the cold back over to Andy Andy.

Thank you Steve I will now she has some additional details on the implementation of the Luxor business system. Please tend to slide nine.

Doing a cute voelkel, we outline we outlined the sustainability segments of the luck so business system today.

Today, I would like to discuss strategy deployment. Another key segments of the model, which you will remember optimize these are internal processes the customer focus unprofitable growth.

We have refreshed annual approach to a multiyear strategic planning process to ensure alignment without profitable growth objectives.

Well, a customer thirst and innovation continued to form the cornerstones of our strategy. We've incorporated the balanced scorecard, so to ensure regular advancement of our progress towards ought to tell the ETS skull.

This effort also and shows that we maximize the potential of the tailwind benefiting our business such as the inflation reduction Act.

This new approach is being rolled out across all our businesses and is enabling us to quickly and flexibly deploy resources to the optimal growth areas.

Maintaining a talented team also remains absolutely critical in our efforts to execute on our strategic aims. So I want to quickly highlights I'd like some management development program on slide 10.

We launched this activity as part of an overall program to further strengthen not promising talent base across Luxor.

This initiative will help 20 of our many high performing junior employees accelerate that professional development well also executing specific projects to bring benefits to our organization.

These team members, who met for a joint session in Manchester last week will provides an important resource and not drive for sustained profitable growth.

Now, let's conclude by refreshing briefly on luxe as strong position for value creation.

He still has a slight 11.

<unk> mission to help to create a safe clean and energy efficient world continues to resonate strongly with all stakeholders and he's helping to attract and retain customers employees and capital partners.

During the quarter some of our recently introduced prolix and healthcare defense and clean energy generation.

Help to offset some of the cyclical weakness in the general industrial and transportation markets.

These premium offerings bring a long runway of commercial opportunity ahead.

Together with our investment in further innovation and talent to drive growth.

Well positioned for value creation.

We remain confidence in the bright future ahead of us.

Now I would like to turn the cold back to the operator to begin the Q&A session. Belinda. Please go ahead.

Thank you at this time, if you'd like to ask a question. Please press. The Star then why not on your catch downtown.

You may remove yourself from the queue at any time by pressing star and cute.

Once again that is star.

And one to ask a question.

Briefly to assemble the queue.

[laughter].

Can we take our first question from.

My call last shot with Keybanc capital markets. Please go ahead.

Hey, good morning, good morning like eight.

I wanted to start asking about the split between price and value them as it relates to your guidance.

Previously said the constitution would be roughly a 50 50 split but that verbiage was removed from from guidance now should.

Should we expect it to be predominantly price driven going forward or what the the value contribution that you're expecting within your guidance.

Yes things so that the the question on that this is this is Andy the reduction in the in the revenue guidance comes up from the from the volume expectations.

Notably the general industrial sectors, but partially upset all set by that strength, we talked about and defense first response and health Cat. So way that said most cases Micah, we expect to hold up price pricing goals, and especially to make progress in a in a in gas cylinders. So at the top end of 4% to 7% there is.

There's likely some growth for us perhaps not the lower end.

Low continuation of the softening and some of the markets over the last two months may make the low ratings, perhaps more more likely but with buoyed by the opportunities that we see in our defense and fast response in health care.

As well as some of the clean energy products.

And then on the legal check what exactly was that if you could provide some more detail and and maybe the magnitude and if there's any potential that that might repair going forward.

So yes, Michael it's safe here I'll take that yeah. The the legal cost is is entirely related to the the matzo that we referred to an upright cold which is is is disclosed in 10-K and 10-Q now so it's the same situation and the level of spend is very much in line with Ah what.

We we saw last quarter and and also the expectation we have going forward. So around about a million dollars of of legal costs in the quarter.

Got it and and then lastly for me you wanted to ask on raw material availability, where are you seeing movements, what's what's been the most challenging for you whether it's carbon fibre magnesium or does your county or any other raw materials.

Any any color there would be great. Thank you.

So you've hit the big three of them with a carbon fibre magnesium and Kevin young and all of those we're now seeing good availability and all of those we've introduced secondary support sources of supply. So as I pleased with the device availability that we do continue to see some smaller areas, where there's some some discomfort.

U S as in supply from time to time, so how I made all kevlar reply about occasionally some of the basic materials. So I didn't think with through some of the supply chain difficult is entirely but but very much improved especially on the big three.

Great. Thank you.

Once again, if you'd like to signal for a question that is star one and we move on to chit more with yes. Please go ahead.

Hi, good morning, Thanks for taking the question.

What to ask about the the swelling.

Expand on that and <unk>.

Longer term and then I think you alluded to some.

Identify.

As well, maybe you could talk about magnitude there.

Yes, Thanks, a chip welcome to the the call, let's start with an alternative fuels, you'll remember cause that sales into alternative fuel up all about providing clean new energy sources are compressed natural gas and ER and ER and hydrogen for transporting boat quantities of fuel and secondly, storing those fields.

Vehicles and the slower area for us in Q1 is spending that folks gas transport there were a number of projects in North America, and Asia that gave us a boost in in 2022 now we're looking for those follow on programs and give it some opportunities in Europe .

And then on the vehicle side there was some delays on the approvals of some of the newer vehicles, but we're actually seeing really decent sales and most of the traditional areas and Ah for each by the upcoming launch of.

New Lodge at these C N G engine.

And generally are generally we look for alternative fuel to strengthen quite considerable considerably now as we as we progress through the yet.

On the on the cost side of the the business. We have two specific projects to reduce fixed costs empowered us we've previously announced the simplification of our footprint in consolidating from three sites into what two we expect that will be complete by the end of the year, while they end up Pomona. We've also introduced.

Some significant structural changes to that California plants that will allow us to operate more cost effectively.

You got it that's very helpful. Maybe.

Maybe.

But.

Partially related on the account investment you talked about and and some of the Ah refresh on strategic development.

Maybe you can expand on that you reference are getting getting ready for where opportunities may arise inflation reduction act and things like that maybe expand on it. Thanks.

Yeah. So so so as you know as the last 12 years 12 months, we've been emphasizing this program of a profitable growth and I'm very pleased in the in the first quarter about the strong sales that we saw in defense first response and and in health care. So we have been pushing some extra resolve is not.

Just into research and development and engineering, but also to a sales and business development, particularly in the electoral part of the business and we're starting to see some of the benefits from that.

[laughter].

Thank you for joining us today. The next regularly scheduled call will be in late July when the company discusses its second quarter 20 twenty-three financial results This and select start conference call.

Mmm.

Uh-huh.

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