Luxfer Holdings PLC — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; U.S. GAAP, U.S. dollars. The filing also provides unaudited quarterly results. Luxfer is a global specialty materials and high-pressure gas-cylinder manufacturer, with Elektron and Gas Cylinders segments.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Continuing net sales | $374.1 million | $324.8 million | +15.2% |
| Gross profit / margin | $96.0 million / 25.7% | $80.9 million / 24.9% | Margin +0.8 points |
| Operating income / margin | $36.2 million / 9.7% | $28.5 million / 8.8% | +27.0% |
| Continuing net income | $30.0 million | $20.8 million | +44.2% |
| Diluted EPS from continuing operations | $1.07 | $0.74 | Up |
| Adjusted EBITDA | $63.4 million | $53.9 million | Up |
| Cash from continuing operating activities | $26.0 million | $49.3 million | Down |
Total net income was $29.9 million, including a $6.6 million gain on disposal of businesses and a $6.7 million loss from discontinued operations. Adjusted net income was $36.2 million and adjusted diluted EPS was $1.29; these are non-GAAP measures and should be read alongside GAAP results.
Cash and cash equivalents were $6.2 million at year-end (plus $0.2 million restricted cash). Debt was $60.8 million before $1.2 million of unamortized issuance costs: $50.0 million of fixed-rate notes due in 2023 and 2026 and $10.8 million drawn on the revolving facility. The new $100 million revolving facility matures in 2026, with $89.2 million available at year-end. The company reported compliance with debt covenants. Operating cash flow included an approximately $12.7 million special U.K. pension contribution; inventory rose to $90.5 million from $68.8 million.
Investing cash flow was a net use of $5.0 million, including $9.1 million of capital expenditure, $19.3 million for the SCI acquisition and $23.4 million of proceeds from business disposals. Financing cash use was $16.1 million, including $13.6 million of dividends and $6.4 million of share repurchases. The company paid $0.50 per share in dividends for 2021; a further $3.4 million dividend was paid in February 2022.
Material changes and business developments
- Revenue recovery from COVID-affected 2020 volumes, the SCI acquisition, and favorable foreign exchange drove growth. Full-year sales remained about 7% below 2019; fourth-quarter like-for-like sales returned to growth versus the pre-pandemic 2019 level.
- Gas Cylinders sales rose 25.7% to $178.3 million, including $24.9 million from SCI. Adjusted EBITDA rose 6.6% to $22.7 million, but margin declined to 12.7% from 15.0%, reflecting SCI losses and input-cost inflation not fully recovered through pricing.
- Elektron sales rose 7.1% to $195.8 million; adjusted EBITDA rose 24.8% to $40.7 million, with margin improving to 20.8% from 17.8% on volume recovery, productivity and mix.
- The U.S. aluminum gas-cylinder business was sold in March 2021 and Superform U.K. in September 2021. Superform U.S. remained held for sale at year-end; management expected a sale within 12 months.
- Fourth-quarter continuing sales were $98.7 million versus $82.1 million a year earlier, while operating income fell to $5.5 million from $8.4 million and continuing net income to $3.5 million from $6.6 million. The filing attributes pressure in the year-end period in part to inflation and supply constraints.
Outlook, risks and unusual items
Management expects material and energy inflation, labor availability issues, and transport and supply constraints to continue into 2022. It intends to pass cost increases through to customers, but notes timing differences and the possibility that pricing will not fully offset costs. 2022 priorities include organic growth and new products, continuity of supply, margin protection, cash generation and working-capital discipline. Planned 2022 capital expenditure was approximately $10 million. No specific revenue or earnings guidance was provided.
- Supply concentration and input exposure: China supplies about 80% of global magnesium, and Luxfer buys approximately 40% of its magnesium from China. Two critical Elektron suppliers declared force majeure in 2021. The company also relies on major aluminum and carbon-fiber suppliers.
- Pension exposure: the U.K. plan reported a $13.7 million accounting surplus at year-end after a special contribution and favorable market movements; the earlier plan-specific valuation showed a £12.2 million deficit. A pension wind-up could expose the company to a much larger buyout deficit. The U.S. pension-plan buyout was expected to complete in 2023.
- Other risks include cyclical end markets, customer concentration in Gas Cylinders, foreign exchange, debt covenants and floating-rate borrowings, product liability, environmental compliance, and geopolitical or regulatory disruption. The Boise waste-disposal explosion litigation remained unresolved; management did not expect it to have a material impact. A separate cylinder-related civil case was ongoing, although the court found the company representative not guilty.
- 2021 unusual items included $6.2 million of restructuring charges, principally French-site closure costs; $1.5 million of SCI-related acquisition costs; and $1.1 million to settle a California labor-law class action. The company also recorded a $6.6 million net gain on business disposals.
The independent auditor gave an unqualified opinion on the financial statements and internal controls. Pension-obligation valuation was identified as a critical audit matter. SCI, acquired during 2021, was excluded from management’s internal-control assessment and the auditor’s internal-control audit; it represented approximately 6% of year-end assets and 7% of annual revenue.
Investor verification priorities
- Check whether price increases and supply actions offset inflation, and whether working capital and operating cash flow recover after the 2021 inventory build and pension payment.
- Assess SCI’s path to profitability and the sustainability of Gas Cylinders margins after the acquisition.
- Verify the timing and proceeds of the expected Superform U.S. sale and the remaining held-for-sale balances.
- Monitor debt maturities, revolver usage and covenant headroom, alongside dividends and repurchases.
- Track U.K. pension funding and the U.S. plan buyout, plus the outcome of the remaining litigation and environmental contingencies.
- Compare reported GAAP earnings with adjusted measures and review the assumptions behind pension liabilities and other significant estimates.