Luxfer Holdings plc — Q2 2021 Form 10-Q
Reporting period: 13-week quarter ended June 27, 2021; year-to-date figures cover the first half of 2021. Unaudited results are presented in U.S. dollars. Continuing operations exclude aluminum businesses classified as discontinued operations.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $99.0m | $76.6m | $184.2m | $165.0m |
| Gross profit / margin | $25.9m / 26.2% | $18.0m / 23.5% | $51.1m / 27.7% | $42.1m / 25.5% |
| Operating income / margin | $11.5m / 11.6% | $5.8m / 7.6% | $22.6m / 12.3% | $14.8m / 9.0% |
| Continuing-operations net income | $11.9m | $4.6m | $20.5m | $11.8m |
| Total net income | $11.0m | $4.1m | $25.5m | $10.3m |
| Adjusted EBITDA | $17.3m | $10.6m | $35.0m | $26.4m |
| Operating cash flow | Not separately provided | Not separately provided | $24.4m | $9.5m |
Q2 diluted EPS was $0.39 ($0.42 from continuing operations), compared with $0.15 total and $0.16 from continuing operations a year earlier. First-half diluted EPS was $0.91 total, including $0.73 from continuing operations; the total included a $7.1m after-tax disposal gain from discontinued operations.
Q2 sales rose 29.2% and first-half sales rose 11.6%, reflecting recovery from pandemic-affected 2020 demand, $4.5m of favorable foreign-exchange impact in Q2 ($7.5m for the first half), and the SCI acquisition. Gross-margin expansion reflected cost-reduction measures and improved volumes. Q2 adjusted EBITDA increased 63% sequentially, according to management; first-half adjusted EBITDA was up 32.6% year over year.
Elektron Q2 sales were $52.5m, up 34.3%, and adjusted EBITDA was $12.0m versus $5.3m. Gas Cylinders sales were $46.5m, up 24.0%, while adjusted EBITDA remained $5.3m; its margin declined to 11.4% from 14.1%, partly due to adverse mix and losses at recently acquired SCI.
Balance sheet, debt and liquidity
- At June 27, cash was $10.1m and restricted cash was $0.2m, versus $1.5m cash at year-end 2020. Total debt was $49.6m, down from $53.4m; management reported net debt of $39.5m and net debt/EBITDA of 0.6x, versus 1.0x at year-end.
- The $100m revolving credit facility was undrawn at quarter-end; the company reduced its size from $150m during Q2. The facility expires July 31, 2022, and management expected a replacement facility to be in place by Q3 2021. The company reported compliance with debt covenants.
- First-half investing cash flow was a net outflow of $2.3m, including $20.6m of proceeds from the U.S. aluminum cylinder business sale, $19.3m for SCI, and $3.6m of capital expenditures. Financing cash outflow was $13.6m, including $6.8m of dividends, $4.4m of net debt repayment and $0.9m for share repurchases.
- Current assets were $166.3m and current liabilities $78.0m. Receivables and inventories increased from year-end, to $57.5m and $77.3m, respectively.
Material changes, outlook and risks
- Luxfer acquired Structural Composites Industries on March 15, 2021, for $19.3m cash to expand composite-cylinder offerings for CNG and hydrogen-related opportunities. Purchase-price allocation remained under review.
- The U.S. aluminum gas cylinder business was sold in Q1; a Q2 working-capital adjustment reduced proceeds to $20.6m and the first-half disposal gain to $7.1m. Management expected sales of the Superform businesses in 2021. These businesses reported first-half discontinued-operation losses of $2.1m.
- No quantitative earnings or revenue guidance was provided. Management described the recovery as strong but cautioned that COVID-19 remained prevalent in some markets and that raw-material and labor availability, international-travel restrictions, and uncertainty about a return to normal conditions could affect operations and cash flows. Facility suspensions or reduced operations remained possible.
- The reported first-half effective tax rate was 7.7%, versus 19.0%, primarily reflecting a $2.2m deferred-tax benefit from the enacted U.K. tax-rate increase to 25% from April 2023. The adjusted effective tax rate was 20.1%, versus 18.4%.
- First-half restructuring charges were $1.6m, including costs related to the planned closure of the French cylinder operation and planned divestiture of a small Canadian Magtech facility. A $1.1m charge related to settlement of a California labor-code class action; payment was expected during 2021 with no further income-statement charge anticipated.
- The filing describes product-injury and waste-site-explosion lawsuits; management did not expect either matter to have a material impact. It also reported no material subsequent events, no material changes in market risk or previously disclosed risk factors, and effective disclosure controls.
Key facts for investors to verify
- Progress and final terms of the replacement revolving credit facility, and continued covenant compliance.
- SCI integration, acquired-business profitability, and Gas Cylinders margins as sales recover.
- Completion, timing and proceeds from the planned Superform divestitures.
- Working-capital needs and exposure to raw-material, labor and COVID-related supply or demand disruptions.
- Cash realization of the California settlement and developments in the other disclosed litigation matters.
- Whether reported earnings growth is sustained apart from the disposal gain and the deferred-tax benefit.