Luxfer Holdings PLC — Q1 2019 Form 10-Q
Business context and period. Luxfer is a global manufacturer of engineered materials and products, reported through Gas Cylinders and Elektron. This unaudited quarter ended March 31, 2019; comparisons are with Q1 2018. Amounts are in U.S. dollars unless noted.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Net sales | $120.4 million | $119.7 million |
| Gross profit / margin | $30.1 million / 25.0% | $30.3 million / 25.3% |
| Operating income (loss) | $(1.1) million | $12.8 million |
| Net income (loss) | $(3.8) million; $(0.14) per share | $9.9 million; $0.37 per share |
| Adjusted EBITDA (non-GAAP) | $18.5 million | $19.2 million |
| Operating cash flow | $(7.8) million | $8.3 million |
| Capital expenditures | $3.2 million | $1.3 million |
- Adjusted net income, a non-GAAP measure, was $11.2 million versus $10.0 million; adjusted diluted EPS was $0.40 versus $0.37. These figures exclude specified items, including restructuring and acquisition costs.
- At March 31, cash and cash equivalents were $14.2 million; total debt was $92.6 million, including $11.3 million drawn on the revolving facility and $7.6 million of overdrafts. Current and non-current debt were $7.6 million and $85.0 million, respectively.
- Total current assets were $196.5 million and current liabilities $102.2 million. Committed banking facilities were $150 million. The company reported compliance with debt covenants.
- Total assets were $423.8 million and shareholders’ equity $179.8 million. The company paid $3.4 million in dividends during the quarter ($0.125 per ordinary share); a further $0.125-per-share dividend was declared after quarter-end.
Changes versus the prior comparable period
- Sales rose 0.6%, but gross margin fell 0.3 percentage points and the company moved from $9.9 million net income to a $3.8 million net loss.
- Gas Cylinders sales declined 1.5% to $58.4 million and adjusted EBITDA fell 25% to $4.5 million. Management cited lower SCBA and aluminum cylinder sales and productivity challenges at the French operation.
- Elektron sales increased 2.6% to $62.0 million and adjusted EBITDA increased 6.1% to $14.0 million, supported by zirconium-based catalysis products and improved mix.
- Operating cash flow shifted from $8.3 million provided to $7.8 million used, primarily amid higher receivables and inventory. Financing provided $11.2 million, including net borrowing drawdowns; cash increased $0.4 million during the quarter.
- Total debt increased from $77.1 million at year-end 2018 to $92.6 million. Cash was $14.2 million, compared with $13.8 million at year-end.
Outlook, management commentary and risks
- Management expects restructuring actions to contribute to further margin growth in 2019 and anticipates approximately $20 million of capital expenditures for the full year. No specific revenue or earnings guidance was provided.
- The $9.0 million restructuring charge was predominantly associated with the planned closure of the Gas Cylinders French site; $8.9 million related to that segment. The company expects further restructuring costs during 2019. The restructuring liability was $11.9 million at quarter-end.
- Acquisition-related costs of $4.6 million included a $3.5 million termination payment and professional and legal fees relating to the aborted Neo Performance Materials acquisition.
- The reported effective tax rate was negative 131.3%, adversely affected by non-deductible acquisition and restructuring expenses; the adjusted effective tax rate was 20.0% versus 23.7%.
- Management cited material and other cost inflation, which it seeks to mitigate through productivity improvements and selling-price increases. Other risks include demand and economic conditions, raw-material and currency fluctuations, debt service and covenants, customer and supplier relationships, product liability, and production interruptions.
- The company said Brexit-related risks disclosed previously remained applicable after the EU deferred the UK’s exit date to October 31, 2019. It reported no material change in market risk and no material pending legal proceedings. A claim related to a 2014 cylinder rupture was not expected by management to have a material financial impact.
Important facts for investors to verify
- Whether the French site closure proceeds as planned, the remaining restructuring costs, and whether anticipated cost savings improve Gas Cylinders margins.
- Whether operating cash flow recovers as receivables and inventory rise, and how that affects borrowing and liquidity.
- Whether Elektron’s growth offsets ongoing weakness and productivity issues in Gas Cylinders and graphic arts.
- The full-year capital spending outlook, debt levels, covenant headroom, and future dividend capacity.
- The final costs and strategic implications of the abandoned Neo Performance Materials acquisition, and developments in the disclosed product-liability claim and Brexit-related risks.