Luxfer Holdings plc — Q1 2024 Form 10-Q
Reporting period: Quarter ended March 31, 2024; comparative quarter ended April 2, 2023. Amounts are in U.S. dollars unless noted. Luxfer is a global industrial materials and gas-containment company, reporting Gas Cylinders, Elektron and Graphic Arts as continuing-operation segments; Superform is reported as discontinued operations.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $89.4 million | $101.3 million |
| Gross profit / margin | $18.4 million / 20.6% | $21.1 million / 20.8% |
| Operating income / margin | $4.9 million / 5.5% | $7.1 million / 7.0% |
| Net income from continuing operations | $2.8 million | $0.5 million |
| Net income, including discontinued operations | $2.7 million | $0.5 million |
| Adjusted EBITDA | $8.8 million | $11.3 million |
| Operating cash flow, including discontinued operations | $3.7 million provided | $14.4 million used |
Revenue declined 11.7% year over year (12.4% excluding favorable foreign exchange). Sales fell in Elektron and Graphic Arts, partly offset by growth in Gas Cylinders. Gas Cylinders sales rose 9.4% to $45.4 million and adjusted EBITDA increased to $4.1 million from $2.5 million. Elektron sales declined 28.1% to $37.7 million and adjusted EBITDA fell to $6.4 million from $9.5 million. Graphic Arts sales declined 14.9% to $6.3 million; its adjusted EBITDA loss widened to $1.7 million from $0.7 million.
Cash and cash equivalents were $6.8 million at quarter-end, plus $0.3 million restricted cash. Total debt was $78.4 million, up from $72.2 million at December 31, 2023, including $25.0 million of notes due 2026, $53.5 million drawn on the revolving facility and $0.3 million overdraft. The company reported $71.5 million undrawn on its revolving credit facility and compliance with debt covenants. Inventory was $88.9 million, down from $95.9 million at year-end. Capital expenditures were $1.4 million; dividends paid were $3.5 million ($0.13 per ordinary share).
Changes, drivers and unusual items
- Lower demand and customer destocking affected magnesium powders, zirconium products, chemical response kits and magnesium aerospace products. Alternative-fuel and SCBA cylinder sales, Oil and Gas sales, and MRE products provided offsets.
- Gross margin decreased 0.2 percentage points amid higher material and labor costs, particularly in Graphic Arts; contract renegotiations and manufacturing efficiencies supported margins in Gas Cylinders and Elektron.
- Q1 2023 included a $9.2 million U.S. pension settlement charge. The comparison therefore benefits from its absence in 2024; Q1 2024 included a $0.3 million U.K. pension credit.
- Luxfer is pursuing a 2024 sale of Graphic Arts, classified as held-for-sale but not discontinued operations. Superform is classified as discontinued operations, with a sale expected in 2024. Combined held-for-sale assets were $27.8 million and liabilities were $8.0 million at March 31.
- Restructuring charges were $0.7 million versus $0.3 million. Disposal-related costs of $0.2 million related to the planned Graphic Arts sale. Other income included a $0.2 million insurance recovery for legal costs; a further $1.3 million was received in April and is expected to be reflected in Q2.
Outlook, risks and controls
The filing provides no specific numerical earnings or revenue guidance. Management expects some input-cost pressures to ease in 2024, citing falling magnesium purchase prices, while noting uncertainty around the scale and timing of cost changes. Priorities include completing the Graphic Arts divestiture, renewing Gas Cylinders contracts to enable inflation pass-through, cost control, productivity, selected investment and cash and working-capital management. Management noted macroeconomic uncertainty, especially in general industrial markets, and continuing cost and demand risks.
Two lawsuits related to a 2018 waste-site explosion remain ongoing. The company says it believes it is not liable, is defending the claims with insurers, and does not expect a material impact; insurance coverage for potential liability and reasonable defense costs has been established. Disclosure controls were reported ineffective at quarter-end because a previously identified material weakness had not been fully remediated. Remediation work continued, but management said the new controls require further operation and testing. Management nevertheless stated that the financial statements fairly present the company’s financial position and results in accordance with U.S. GAAP.
Important facts for investors to verify
- Whether the sales and adjusted EBITDA declines in Elektron and Graphic Arts persist, and whether announced cost and margin actions deliver results.
- Progress, timing and financial terms of the Graphic Arts and Superform sales, including any effects on reported cash flows and held-for-sale balances.
- Debt growth, interest costs and liquidity: the revolving facility carried a 7.87% weighted-average rate in Q1, and the company drew a net $10.6 million on borrowings.
- Whether management remediates and tests the material weakness sufficiently to conclude disclosure controls are effective.
- Developments in the ongoing litigation and any additional insurance recoveries.