Luxfer Holdings PLC — FY2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; filed March 9, 2020. The filing also reports fourth-quarter results. Luxfer is a global engineered-materials manufacturer operating through its Elektron and Gas Cylinders segments.
Financial performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $443.5 million | $487.9 million |
| Gross profit / margin | $108.0 million / 24.4% | $122.1 million / 25.0% |
| Operating income / margin | $12.4 million / 2.8% | $30.0 million / 6.1% |
| Net income / diluted EPS | $3.1 million / $0.11 | $25.0 million / $0.90 |
| Adjusted EBITDA (non-GAAP) | $68.1 million | $79.6 million |
| Operating cash flow | $5.8 million | $63.2 million |
| Capital expenditures | $13.9 million | $13.9 million |
Sales fell 9.1%, while operating income declined 58.7% and net income declined 87.6%. Results included $25.9 million of restructuring charges, $5.0 million of impairment charges, $2.5 million of environmental remediation costs, and a 73.6% effective tax rate. Management’s adjusted net income was $39.8 million and adjusted diluted EPS was $1.43; these are non-GAAP measures and exclude significant items.
Segments: Gas Cylinders sales decreased 6.1% to $223.6 million; adjusted EBITDA was $23.3 million, broadly flat. Elektron sales decreased 12.0% to $219.9 million; adjusted EBITDA declined 20.3% to $44.8 million. Lower SoluMag sales, industrial weakness, and divestiture of the Czech recycling business weighed on Elektron.
Fourth quarter: Sales were $99.5 million, versus $110.9 million in Q4 2018. Operating income was $1.7 million versus a $13.1 million operating loss; net loss was $2.4 million versus an $8.5 million net loss. Q4 2019 included $5.2 million of impairment charges and $1.6 million of restructuring charges.
Liquidity, debt, and capital
- Year-end cash and cash equivalents were $10.2 million, down from $13.8 million. Operating cash flow was only $5.8 million, including approximately $20 million of restructuring cash outlays.
- Gross borrowings were $92.5 million: $75.0 million of fixed-rate notes due in 2021, 2023, and 2026, plus $17.5 million drawn on the revolving credit facility. Reported debt, net of issuance costs, was $91.4 million.
- The $150 million revolving facility had $132.5 million available at year-end and matures in 2022. The company reported covenant compliance through December 31, 2019.
- Shareholders’ equity was $174.4 million, compared with $184.3 million a year earlier. Dividends paid were $13.6 million, or $0.50 per share; a further $3.4 million dividend was paid in February 2020.
- The U.K. defined-benefit pension plan had a $30.5 million accounting deficit; total pension and other retirement benefit liabilities were $35.2 million. Annual deficit-reduction payments of £4.1 million were agreed with trustees, subject to review after the 2021 valuation.
Material changes, outlook, and risks
- Management said full-year results were below expectations. Sales were pressured by a 62% decline in SoluMag, industrial-market softness, lower European luxury-auto demand, and $9.5 million of adverse foreign-exchange effects. Czech business divestiture reduced sales by $8.3 million.
- Restructuring charges rose to $25.9 million, including $20.1 million related to the French Gas Cylinders site closure. Further closure costs were expected in 2020. The company also scaled down production at a Magtech site.
- Management’s 2020 priorities were productivity and growth recovery, lean manufacturing and faster product innovation, further fixed-cost reductions, and improved operating cash generation. No quantified earnings or sales guidance was provided.
- Key exposures include cyclical end-markets, raw-material and utility prices, customer and supplier concentration, foreign exchange, pension funding, debt and covenant constraints, regulatory and environmental compliance, and operational interruptions. The filing noted potential supply-chain disruption from the emerging COVID-19 outbreak.
- A material weakness in financial-reporting controls arose after implementation of a new ERP system at Luxfer MEL Technologies. Management and the auditor concluded internal control over financial reporting was ineffective at year-end; remediation was underway. The financial statements received an unqualified audit opinion.
- The company recorded $2.5 million for removal of legacy naturally occurring radioactive material at its Manchester site, expected to finish in Q2 2020, with no significant additional costs anticipated. No material legal proceedings were pending; a claim concerning a 2014 cylinder rupture was not expected to have a material impact.
Most important facts for investors to verify
- Whether sales and margins stabilize, particularly in SoluMag, industrial markets, Superform, and European luxury automotive.
- Actual cash generation after restructuring outlays, working-capital changes, dividends, and planned 2020 capital expenditures of approximately $15 million.
- Progress and final cost of the French closure and other restructuring, and whether anticipated savings are realized.
- Remediation of the ERP-related material weakness and whether subsequent reporting periods show effective controls.
- Debt maturities, revolver usage, covenant headroom, pension contributions, and the sustainability of dividends given low 2019 operating cash flow.
- Exposure to currency movements, aluminum and other input costs, and any COVID-related supply, production, or demand effects.