Q4 2024 Luxfer Holdings PLC Earnings Call

So long, everyone!

Please stand by, we're about to begin.

Bo: Good morning, everyone. My name is Bo and I will be your conference operator today. Welcome to Luxfer's fourth quarter and full year 2024 earnings conference call. All lines have been placed on mute. After the speaker's prepared remarks, we will hold a question and answer session.

Speaker Change: Now, I will turn the call over to Mr. Kevin Grant, Vice President of Investor Relations and Business Development at Luxfer. Kevin, please go ahead.

Speaker Change: Thank you, Bo, and good morning, everyone. Welcome to Luxford's fourth quarter and full year 2024 earnings conference call. This morning we'll be reviewing Luxford's financial results for the fourth quarter ended December 31st, 2024.

Speaker Change: I'm pleased to be joined today by Andy Butcher, our Chief Executive Officer, and Steve Webster, our Chief Financial Officer. Today's webcast is accompanied by a presentation that can be accessed at Luxford.com. Please note any references to non-GAAP financials are reconciled in the appendix of the presentation.

Speaker Change: 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. We undertake no obligations to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Speaker Change: Please refer to the Safe Harbor Statement on slide 2 of today's presentation for further details.

Speaker Change: During today's call, we'll be providing adjusted fourth quarter and full year 2024 financial results, excluding graphic arts business and legal recoveries or expenses from both 2024 and 2023.

Now let me introduce Luxford's CEO, Andy Butcher.

please turn to slide 3. Andy, please go ahead.

Andy Butcher: Thank you, Kevin. And good morning, everyone. Thank you for joining us.

Andy Butcher: I'd like to start by expressing my sincere appreciation to all Luxor associates for their extraordinary efforts throughout 2024.

all while positioning Luxfer for sustainable long-term success.

Andy Butcher: Q4 was especially pleasing, with elevated revenues and gross margins, strong adjusted earnings per share of 29 cents, and very significant cash generation.

Andy Butcher: Overall, 2024 was pivotal for Luxfer as we sharpened our focus on core competencies and took decisive steps to enhance operational efficiencies.

Andy Butcher: This sale remains on track for completion in the first half of 2025, enabling us to streamline our portfolio and concentrate on higher margin opportunities.

Andy Butcher: We strengthened our manufacturing operations in 2024 by securing raw material supplies and we finalized additional long-term agreements with customers.

Andy Butcher: We also remain attentive in assessing market conditions to maximise future shareholder value.

Andy Butcher: I want to briefly remind you of some of the specific achievements of 2024.

We executed on our new SCBA cylinder contracts.

Andy Butcher: navigated strong second-half cyclical demand in both our flameless Russian heaters and our powders businesses, completed the sale of our Lakehurst property and benefited from critical operational consolidations.

Andy Butcher: In particular, the amalgamation of our powders facilities has already driven higher efficiency and performance and the simplification of our gas cylinders operations at one of our U.S. manufacturing sites has led to positive momentum.

Andy Butcher: All these operational improvements directly contributed to delivering adjusted EBITDA margin of 13.7% for the fall year, demonstrating our strong financial and operational execution.

Andy Butcher: However, the strategic initiatives undertaken in 2024 have positioned us to remain flexible and responsive. Our deep industry expertise, ongoing investments in R&D and commitment to delivering high quality specialised products will be critical as we address potential headwinds.

Andy Butcher: While external variables remain a factor, we have confidence in our ability to execute on new commercial opportunities and position Luxfer for sustainable long-term success.

Andy Butcher: With that, I'll hand the call over to Steve, who will provide a more detailed review of our financials and share our 2025 guidance. Steve? Thanks Andy and good morning everyone. Now let's turn to slide 4.

Steve Webster: In the fourth quarter, we delivered strong results. Sales were $96 million with gross profit of $22.5 million, yielding a 23.4% gross margin.

Steve Webster: Adjusted EBITDA came in at $13.8 million, with a 14.4% margin, while adjusted EPS rose to 29 cents, up 61% year-over-year.

Steve Webster: Cash flow from operations was significant at $25.7m and net debt was reduced to $41m, marking a reduction of $28.9m in 2024.

Steve Webster: Looking at the sales bridge, revenue growth was driven by defence demand in Electron, including significant pull-ins of 2025 orders totalling over $3 million, while minor FX headwinds and softer alternative fuel volumes in gas cylinders provided a partial offset.

Steve Webster: Turning to the profit bridge, adjusted EBITDA improved from $9.5 million to $13.8 million, aided by net deflation and favourable volume and mix.

Steve Webster: We were particularly pleased with the EBITDA margin increase to 14.4%, which underscores the success of our cost and restructuring efforts.

Steve Webster: Adjusted EPS was $0.99, while free cash flow reached $47.7 million.

Steve Webster: benefiting from lower cash tax or ongoing focus on working capital management.

Steve Webster: as well as the impact of two non-recurring items being the recovery of historic legal costs and the proceeds of the land sale.

Steve Webster: You can find these financials along with full year bridges in the appendix.

Steve Webster: Now let's turn to slide 5 for a detailed review of Electron's fourth quarter financial performance.

Steve Webster: In the fourth quarter, Electron delivered robust performance with sales rising 31.6% year-over-year to $47.5 million.

Steve Webster: This uplift was propelled by strong demand for defence materials, especially MREs and flares, as well as ongoing growth in transportation sales for our automotive alloy.

Steve Webster: While underlying sales dipped from the third quarter, the early 2025 order pull-ins helped offset some seasonal slowing in other end markets.

Steve Webster: Transportation sales increased overall, although automotive catalysis continued to face headwinds from competitive pressures and market weakness.

Meanwhile, General Industrial remained subdued, reflecting broader macro softness.

Steve Webster: Justed EBITDA increased to $9.4 million, representing a 19.8% margin, up significantly from the prior year, and marking our fourth consecutive quarter of margin expansion.

Steve Webster: These gains were primarily driven by increased sales volumes and optimised product mix.

Steve Webster: Turning briefly to the fall year, Electron delivered further margin expansion supported by cost discipline and favourable product mix in key end markets.

Steve Webster: This performance highlights our ongoing commitment to driving sustainable profit improvement through operational efficiencies and targeted capital deployment.

Steve Webster: Now, please turn to slide 6 for a detailed review of Gas Cylinder's fourth quarter financial results.

Steve Webster: Compared to a particularly strong prior year, Defence first response and healthcare demand overall was relatively flat.

Steve Webster: Adjusted EBITDA came in at $4.4 million, representing a 9.1% margin, down 350 basis points from Q4 last year, largely due to unfavourable mix and lower production leverage.

Steve Webster: Now please turn to slide seven for full year 2025 guidance.

Steve Webster: As we enter 2025, economic uncertainties persist, but we remain focused on innovation and operational efficiencies from the Lux for Business system, positioning us to maintain margins and drive long-term profitability.

Steve Webster: While we anticipate revenue to remain flat compared to 2024, we project adjusted EPS in the range of 95 cents to $1.05, and adjusted EBITDA between $48 million and $52 million.

Steve Webster: Discipline cost management and product mix optimization should support margin expansion over time.

Steve Webster: We remain committed to a strong balance sheet and expect free cash flow of $20 million to $25 million, reflecting the absence of 2024's one-time legal recovery and land sale benefits alongside higher cash taxes and increased investments in efficiency and growth opportunities.

Steve Webster: Our plan is to keep full year net debt to EBITDA around 0.7 times, while maintaining current dividend and share buyback levels.

Steve Webster: Despite macroeconomic uncertainties, we are confident that our strategic focus, operational discipline and commitment to innovation position Luxfer for long-term value creation.

Steve Webster: Now I'd like to turn the call back to Andy for further comments on the outlook for 2025.

Andy Butcher: Thanks, Steve. Before we move on to the next slide, I firstly want to provide additional context on how we see 2025 shaping up.

Andy Butcher: We anticipate relatively unchanged business performance over the full year, with some near-term headwinds. Within clean energy, market dynamics remain mixed. While Europe remains committed to hydrogen adoption, the pace of new programme launches has slowed, leading to softer demand in the short term.

Andy Butcher: In addition, zirconium autocatalysis continues to face pressure from lower-cost competitors, and the adoption of CNG-powered engines in North America is sluggish and has attracted new competitive cylinder capability, delaying our anticipated growth in that segment.

Andy Butcher: As a result of this, as well as the previously mentioned pull-forward of Q1 2025 orders into Q4 2024, we do expect this year's Q1 earnings to be softer than those in last year's first quarter.

Andy Butcher: Despite those temporary near-term headwinds, though, our core business remains strong. Electron continues to benefit from consistent demand for flameless ration heaters and other defence applications, reinforcing this arena's role as a steady contributor to growth.

Andy Butcher: This brings me to an important point. While the near-term environment in clean energy is mixed, we continue to invest in the right technologies to be ready when demand accelerates.

Please turn to slide 8.

Andy Butcher: One of the ways we're ensuring long-term success is through the Luxfer Business System, which continues to drive innovation, operational excellence and strategic execution across our business. A key example of this is our progress in hydrogen transportation solutions.

Andy Butcher: By applying principles such as lean operations, standardized processes, and data-driven decision-making, we've successfully developed our GSTOR Go Hydrosphere trailers and our GSTOR Pro Bundle cylinder packs.

Andy Butcher: These next generation modules have now cleared a critical step toward commercialization in Europe, gaining key certifications for bulk hydrogen storage.

Andy Butcher: Meanwhile, our GSTORGO HydroSphere design reduces cylinder count and overall weight, translating into safer, more efficient transport as hydrogen adoption scales.

Andy Butcher: We've already seen initial customer interest, reinforcing our confidence in the long-term revenue opportunities for these innovations.

Andy Butcher: I am pleased to confirm that we have recently completed, on schedule, the manufacture of our first 40-foot module in our expanded UK facility, as seen on this slide.

Andy Butcher: hitting an important milestone in our clean energy journey and demonstrating how we bring advanced products to market efficiently and effectively.

Andy Butcher: Looking ahead, these award-winning next-generation transportation modules have the potential to be a key enabler of hydrogen adoption as the market evolves.

Andy Butcher: Supported by the discipline and agility of the Luxfer Business System, our clean energy strategy positions us to succeed in this space as the transition gains momentum in the coming years.

Andy Butcher: First, we continue to execute with discipline during 2024, driving strong cash generation and reinforcing our financial foundation.

Andy Butcher: This stability allows us to invest in strategic initiatives while maintaining flexibility to adapt to evolving market conditions.

Andy Butcher: Second, we advance clean energy innovation, securing critical European certifications for our GSTORGO hydrosphere trailers, reinforcing our ability to serve the evolving hydrogen economy as demand develops.

Andy Butcher: Third, our focus on operational excellence continued to deliver results. We posted sustained margin improvements, demonstrating the efficiency and discipline embedded in our operations.

Andy Butcher: Fourth, we made significant strategic progress capitalising on our facility consolidations and remaining on track to complete the sale of our graphic arts business in the first half of 2025, allowing us to sharpen our focus on core growth areas.

Andy Butcher: Finally, as we enter 2025, we remain well positioned to navigate macroeconomic uncertainties.

Andy Butcher: With a continued focus on innovation, disciplined execution and strategic investments, we are confident in our ability to create long-term value for both our customers and shareholders.

Andy Butcher: These achievements reflect our commitment to strengthening Luxembourg for the future, balancing near-term execution with long-term opportunity.

Andy Butcher: With that, I'd like to turn the call back to the operator for the Q&A session.

Bo, please go ahead.

Speaker Change: Thank you very much, Mr. Butcher. Ladies and gentlemen, at this time, if you do have any questions or comments, simply press star 1, and if you find your question has been addressed, you may remove yourself from the queue by pressing star 2. Once again, star 1 for questions, and we'll go to Steve Farazani at Sidoti. Steve, please go ahead.

Steve Farazani: Good morning, Andy. Steve, thanks for so much color around what clearly was an eventful 2024 for Luxfer.

Speaker Change: I did want to start by asking about the financial impact of the pull forward in Q4. Obviously it was much better than our expectations, but I'm just trying to figure out the impact on 2025 and your guidance and how much the financial impact was on Q4.

Speaker Change: Good morning Steve. Yes, thank you. We are very pleased with 2024 and particularly Q4. The two specific pull-forwards that we've quantified in our release at $3.4 million were both in defence and both initiated by customers.

Speaker Change: There's been a strong award from the U.S. government under MRE, Meals Ready to Eat 45, and so a pull forward was initiated by both the food packers and the military, such that some of that was shipped in 2024.

Speaker Change: The second was a Flares power export order. Those two together are the $3.4 million. Separately, we also identified some pull-forwards and overstocking at alternative fuel customers in CNG, although we've not quantified that.

Speaker Change: Can you talk a little bit about how that CNG market is developing? Certainly we're hearing 2025 is probably going to be more of a test phase year, but there is a new truck manufacturer being added.

Speaker Change: Tell us your take on how 2025 develops for CNG and then any change in your long-term outlook for that market.

Speaker Change: For example, preliminary Class VIII truck orders in January were down 15% year-on-year, and within that, conversion to CNG by new fleet operators I would describe as measured, careful, thoughtful, initial trials. Nevertheless, as you mentioned, we've now seen three of the truck OEM brands.

Speaker Change: offering trucks with the X15N CNG engine. So, we've projected our related cylinder sales to be quite light in early 2025 and strengthening somewhat as we move later into the year.

Excellent. Thank you. Thank you.

Thanks, Rick Keller. Updates on the Graphic Arts sale.

Steve Farazani: Yeah, thanks Steve, I'll take that. As I said, I think last quarter we were expecting to complete the sale in the first half of this year. Andy's confirmed that in the prepared remarks.

Steve Farazani: I'm pleased to say that we're actually working on an exclusive basis with Abaya, we're quite excited, they'll be a good fit for Graphic Arts. They're working through their diligence now, and as I say, we're on track for a first half close.

Steve Farazani: Excellent. Thanks for that. Another question everyone's getting asked this quarter.

Steve Farazani: We have put some data in the risk section of our 10k about the relatively minimal impact on our third-party sales, certainly in respect of those countries where that have been highly prominent, such as Canada, Mexico, China.

Steve Farazani: I suppose there is a potential for it to spread further, so between the U.S. and Europe and the U.K. Clearly we have manufacturing operations in the U.K. and the U.K. electron business will export into the U.S.

Speaker Change: Okay, that's helpful. And then if I could get one more in, you talked about elevated CapEx in 2025. Can you provide any detail, any specific projects you want to mention?

Speaker Change: I'm very pleased with the cash generation for the business that has been supporting that.

Thanks so much, Andy. Thanks, Steve.

Speaker Change: Thank you, and it appears we have no further questions at this time. I'd like to turn things back to CEO Andy Butcher for any closing comments.

Andy Butcher: Thank you Bo and thank you for joining us today everyone. As we reflect on 2024 it's clear that the strategic initiatives we've undertaken are delivering meaningful results.

Looking ahead, 2025 presents both opportunities and challenges.

Andy Butcher: I'd like to once again thank our associates around the globe for their hard work and dedication. They are the driving force behind Lux's success.

Andy Butcher: Thank you. This does conclude Luxfer's Q4 2024 earnings call. A recording of this conference call will be available in about two hours. A link to a recording of this webcast will be available on the Luxfer website at www.luxfer.com. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.

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