Luxfer Holdings plc — Q2 2022 Form 10-Q
Business context and reporting period. Luxfer manufactures engineered materials and products for defense and emergency response, healthcare, transportation, and general industrial markets. The second quarter ended June 26, 2022; year-to-date figures cover the first half of 2022. Results are unaudited and presented in U.S. dollars.
Financial performance
| Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Net sales | $109.5 million | $99.0 million | $206.5 million | $184.2 million |
| Gross profit / margin | $25.7 million / 23.5% | $25.9 million / 26.2% | $49.9 million / 24.2% | $51.1 million / 27.7% |
| Operating income | $12.6 million | $11.5 million | $23.2 million | $22.6 million |
| Continuing-operations net income | $9.6 million | $11.9 million | $17.3 million | $20.5 million |
| Total net income | $9.3 million | $11.0 million | $16.9 million | $25.5 million |
| Diluted EPS, continuing operations | $0.35 | $0.42 | $0.62 | $0.73 |
| Adjusted EBITDA, non-GAAP | $16.9 million | $17.3 million | $33.0 million | $35.0 million |
- Sales increased 10.6% in Q2 and 12.1% in H1 year over year. Excluding foreign-exchange headwinds, management reported growth of 15.0% and 15.2%, respectively. Price pass-through for input-cost inflation contributed approximately 13.1% to Q2 and 12.2% to H1 sales growth.
- Gross margin declined 2.7 percentage points in Q2 and 3.5 points in H1, as material, labor, and supply-chain costs were not fully offset by pricing. Operating income rose 9.6% in Q2 and 2.7% in H1, while adjusted EBITDA declined in H1.
- Q2 income from continuing operations fell 19.3%; H1 fell 15.6%. Higher effective taxes contributed: the H1 effective tax rate was 22.1%, versus 7.7% in 2021, which benefited from a one-time U.K. deferred-tax credit. H1 2021 total net income also included a $7.1 million gain on disposal of discontinued operations.
- Segment results: Q2 Gas Cylinders sales were $46.1 million (down 0.9%) and adjusted EBITDA $3.7 million (down 30.2%). Elektron sales were $63.4 million (up 20.8%) and adjusted EBITDA $13.2 million (up 10.0%). Margin pressure affected both segments.
Cash flow, balance sheet, and liquidity
- H1 operating cash flow was negative $6.8 million, compared with positive $24.4 million in H1 2021. Management attributed the outflow principally to working-capital investment, including inventory built to protect against supply disruption. Receivables increased to $75.2 million from $57.8 million and inventories to $104.7 million from $90.5 million at year-end.
- H1 investing cash flow was positive $0.8 million, including $3.7 million of proceeds from a building sale; capital expenditures were $2.9 million. Financing cash flow was positive $6.0 million, including $18.1 million of net borrowing, offset in part by $7.0 million of dividends and $3.7 million of share repurchases. Cash, cash equivalents, and restricted cash totaled $5.5 million at quarter-end.
- Debt was $75.9 million, up from $59.6 million at December 31, 2021; cash net of reported cash equivalents implies net debt of approximately $70.6 million. The $100 million committed facility had $26.8 million drawn and $73.2 million undrawn; an additional $50 million uncommitted accordion was available. The company reported compliance with debt covenants. The $25 million loan notes due in 2023 were expected to be classified as current in Q3 2022.
- Total assets were $396.2 million and shareholders’ equity $205.5 million at June 26, 2022. A $0.13-per-share dividend was declared after quarter-end, payable August 4, 2022.
Material changes, outlook, and risks
- Management said supply-chain disruption, raw-material inflation (including magnesium, aluminum, and carbon fiber), labor availability, and energy and transport cost increases were expected to continue at least through H2 2022. It expected to source sufficient materials and pass on most cost increases, but described the outlook and the timing and scale of further cost increases as highly uncertain. A magnesium supplier’s force majeure remained in place; the company reported securing alternative sources for affected inputs.
- The Ukraine conflict and related sanctions were not expected to have a significant direct impact: Luxfer had no direct operations in the region and sales to Russia and Ukraine together were typically less than 1% of revenue. Management said alternative magnesium sources were available.
- Operating priorities included organic growth and new products, supply continuity and margin protection, employee safety and talent, ESG investment, and stronger working-capital performance. The filing provides no quantitative earnings or revenue guidance.
- Luxfer expected to sell its Superform U.S. aluminum superplastic-forming business in 2022; its results remain classified as discontinued operations. H1 2022 discontinued operations recorded a $0.4 million net loss.
- Restructuring charges were $1.7 million in H1, including costs related to the closure of Luxfer Gas Cylinders France and Elektron production-facility consolidation. A lawsuit related to a 2018 third-party waste-site explosion remained outstanding; management said it did not believe Luxfer was liable and did not expect a material impact. The filing reported no material subsequent events, no material change in market risks, and no material change in previously disclosed risk factors.
Key facts for investors to verify
- Whether pricing and productivity can recover gross margins as inflation and supply-chain costs persist.
- Whether working-capital investment converts to operating cash flow, particularly given higher inventories and receivables.
- Gas Cylinders’ profitability, including SCI acquisition-related losses and performance in alternative-fuel and aluminum cylinders.
- Debt refinancing and covenant headroom as the $25 million 2023 notes approach maturity, alongside borrowing needs and interest costs.
- Progress and timing of the Superform sale, restructuring actions, and the outcome or financial effect, if any, of the waste-site litigation.