Luxfer Holdings PLC Price & Performance (LXFR)

During today's call, we will be providing adjusted fourth quarter and full year 2024 financial results excluding graphic arts business, and legal recoveries or expenses from both 2024 and 2023 Now let me introduce Luxford's CEO, Andy Butcher. Andy, please go ahead. Good morning, everyone. Thank you for joining us. I'd like to start by expressing my sincere appreciation for their extraordinary efforts throughout 2024. Dedication enabled us to achieve solid margin improvements despite a slight decline in revenue to generate robust cash flow to reduce our net leverage significantly and to continue to return meaningful capital to shareholders through dividends. All while positioning Luxfer for sustainable long term success. Q4 was especially pleasing with elevated revenues and gross margins, strong adjusted earnings per share of $0.29 and very significant cash generation. Overall, 2024 was pivotal for Luxfer Luxfer. As we sharpened our focus on core competencies and took decisive steps to enhance operational efficiencies, A strategic review in late twenty twenty three identified key initiatives including the planned sale of our graphic arts business, which no longer aligns with our margin and profitability targets, This sale remains on track for completion in the first half of twenty twenty five enabling us to streamline our portfolio and concentrate on higher margin opportunities.

We strengthened our manufacturing operations in 2024 by securing raw material supplies and we finalized additional long term agreements with customers. We also remain attentive in assessing market I want to briefly remind you of some of the specific achievements of 2024. We executed on our new SCBA cylinder contracts, navigated strong second half cyclical demand in both our flameless Russian heaters and our powders businesses, completed the sale of our Lakehurst property and benefited from critical operational consolidations. In particular, the amalgamation of our powders facilities has already driven higher efficiency and performance. And the simplification of our gas cylinders operations at one of our U. S. Manufacturing sites has led to positive momentum. All these operational improvements directly contributed to delivering adjusted EBITDA margin of 13.7% for the full year. Demonstrating our strong financial and operational execution. As we enter 2025, we remain mindful of ongoing macroeconomic uncertainties. Evolving trade policies and changing tariffs, which could create demand and cost pressures, However, the strategic initiatives undertaken in 2024 have positioned us to remain flexible and responsive. Our deep industry expertise, ongoing investments in R and D, and commitment to delivering high quality specialized products will be critical we address potential headwinds external variables remain a factor, we are confident in our ability to execute on new commercial opportunities and position Luxfer for sustainable long term success.

With that, I'll hand the call over to Steve who'll provide a more detailed review of our financials and share our 2025 guidance. Steve?

Thanks, Andy, and good morning, everyone. Now let's turn to Slide four. In the fourth quarter, we delivered strong results. Sales were $96,000,000 with gross profit of $22,500,000 yielding a 23.4% gross margin. Adjusted EBITDA came in at $13,800,000 or 14.4% margin, adjusted EPS rose to $0.29 up 61% year over year. Cash flow from operations was significant at $25,700,000 And net debt was reduced to $41,000,000 marking a reduction of $28,900,000 in 2024. Looking at the sales bridge, revenue growth was driven by defense demand in Electron. Including significant pull ins of twenty twenty five orders totaling over $3,000,000 While minor FX headwinds and softer alternative fuel volumes in gas cylinders provided a partial offset. Turning to the profit bridge. Improved from $9,500,000 to $13,800,000 aided by net deflation and favorable volume and mix. We were particularly pleased with the EBITDA margin increase to 14.4 which underscores the success of our cost and restructuring efforts. For the full year, sales totaled $362,300,000 with adjusted EBITDA of $49,800,000 at a 13.7% margin.

Adjusted EPS was $0.99 while free cash flow reached $47,700,000 benefiting from lower cash tax our ongoing focus on working capital management as well as the impact of two non recurring items being the recovery of historic legal costs, and the proceeds of the land sale. You can find these financials along with full year bridges in the appendix. Now let's turn to Slide five, a detailed review of Electron's fourth quarter financial In the fourth quarter, Electron delivered robust performance with sales rising 31.6% year over year to four This uplift was propelled by strong demand for defense materials especially MREs [indiscernible] as well as ongoing growth in transportation sales for our automotive alloy. While underlying sales ditched from the third quarter, the early twenty twenty five order pull ins helped offset some seasonal slowing in other end markets. Transportation sales increased overall although automotive catalysis continued to face headwinds from competitive pressures and market weakness. Meanwhile, General Industrial remained subdued reflecting broader macro softness. [indiscernible] Adjusted EBITDA increased to $9,400,000 representing a 19.8% margin up significantly from the prior year. And marking our fourth consecutive quarter of margin expansion. These gains were primarily driven by increased sales volumes and optimized product mix.

Turning briefly to the full year, Electron delivered further margin expansion supported by cost discipline and favorable product mix in key end markets. This performance highlights our ongoing commitment to driving sustainable profit through operational efficiencies and targeted capital deployment. Now please turn to Slide six for a detailed review of Gas Cylinders fourth quarter financial results. Gas Cylinders ended the fourth quarter with $48,500,000 in sales, down about 6% year over year. But up 14% from Q3 reflecting sequential gains across most lines Compared to a particularly strong prior year, defense versus sponsored healthcare demand overall was relatively flat. General industrial also remained stable. While transportation was weighed down by weaker alternative fuel sales in North America. Partly offset by stronger aerospace revenues as well as increased hydrogen mobility demand in Europe. Adjusted EBITDA came in at $4,400,000 representing a 9.1% margin down three fifty basis points from Q4 last year.

Largely due to unfavorable mix lower production leverage. Despite the margin pressure, contractual pricing improvements and operational efficiencies at our North America facilities helped mitigate the impact. For the full year, sales were essentially flat. With higher SCBA demand offset by a weaker alternative fuel market [indiscernible] Nonetheless, we saw margin improvement from contractual renegotiations and leaner operations. Going forward, [indiscernible] with long term profitable growth coming from its alternative fuel segments.

Now please turn to Slide seven for full year 20 As we enter 2025, economic uncertainties persist. But we remain focused on innovation and operational efficiencies from the Luxfer business system. Positioning us to maintain margins and drive long term profitability While we anticipate revenue to remain flat compared to 2020 we project adjusted EPS in the range of $0.95 to $1.05 and adjusted EBITDA between $48,000,000 and $52,000,000 Disciplined cost management and product mix optimization should support margin expansion over time We remain committed to a strong balance sheet and expect free cash flow of $20,000,000 to $25,000,000 reflecting the absence of twenty twenty four's one time legal recovery and land sale benefits, alongside higher cash taxes and increased investments in efficiency and growth opportunities. Our plan is to keep full year net debt to EBITDA around 0.7 while maintaining current dividend and share buyback levels. [indiscernible] Despite macroeconomic uncertainties, we are confident that our strategic focus, operational discipline and commitment to innovate position Luxfer for long term value creation. Now I'd like to turn the call back to Andy for further comments on the Thanks, Sidi. Before we move on to the next slide, I firstly want to provide additional context how we see 2025 shaping up.

We anticipate relatively unchanged business performance over the full year. With some near term headwinds. Within Clean Energy, while Europe remains committed to hydrogen adoption the pace of new program launches has slowed. Leading to softer demand in the short term.

In addition, zirconium autocatalysis continues to face pressure from lower cost competitors. And the adoption of CNG powered engines in North America is sluggish. And has attracted new competitive cylinder capability delaying our anticipated growth in that segment. As a result of this, as well as the previously mentioned pull forward of Q1 twenty twenty five orders, into Q4 twenty twenty four, do expect this year's Q1 earnings to be softer than those in last year's first quarter. [indiscernible] Despite those temporary near term headwinds though, our core business remains strong. [indiscernible] continues to benefit from consistent demand for flameless Russian heaters and other defense applications. Reinforcing this arena's role as a steady contributor to growth. At the same time, we maintain a strong market position in SCBA, where first responder and municipal agency funding has to date proved provided baseline stability Aerospace margins and volumes continue to improve. As we navigate these disciplined focus on execution, operational efficiency and long term growth opportunities. This brings me to an important point. While the near term environment in clean energy is mixed, we continue to invest in the right technologies to be work ready when demand accelerates. Please turn to Slide eight.

One of the ways we are ensuring long term success through the Luxfer business system, which continues to drive innovation, operational excellence, and strategic execution across our business. A key example of this is our progress in hydrogen transportation solutions. All near term hydrogen market adoption remains measured, we believe this sector will grow significantly over time as global investments in clean energy infrastructure continue. By applying principles such as lean operations, standardized processes and data driven decision making we've successfully developed our G Store Go HydroSphere trailers and our GStor Pro bundle cylinder packs. These next generation modules have now cleared a critical step toward commercialization in Europe gaining key certifications for bulk hydrogen storage. Our GStor Pro bundle significantly outperformed [indiscernible] storing a substantially greater amount of hydrogen in a lighter footprint. Meanwhile, [indiscernible] reduced its cylinder count and overall weight translating into safer, more efficient transport as hydrogen adoption scales. We've already seen initial customer interest reinforcing our confidence in the long term revenue opportunities for these innovations. I am pleased to confirm that we have recently completed on schedule, the manufacture of our first 40 foot module in our expanded UK facility as seen on this slide hitting an important milestone in our clean energy journey and demonstrating how we bring advanced products to market efficiently and effectively.

Looking ahead, these award winning next generation transportation modules have the potential to be a key enabler of hydrogen adoption as the market evolves. Supported by the discipline and agility of the Luxfer business system our clean energy strategy position Transition gains momentum in the coming years. As we close today's presentation, I want to take a few moments to summarize our progress in 2024 and how Luxury is positioned for long term Luxfer. Please turn to Slide nine. First, we continued to execute with discipline during 2024. Driving strong cash generation and reinforcing our financial foundation. This stability allows us to invest in strategic initiatives while maintaining flexibility to adapt to evolving market conditions. Second, we advanced clean energy innovation securing critical European certifications for our G Storko HydroSphere trailers. Reinforcing our ability to serve the evolving hydrogen economy as demand develops. Third, our focus on operational excellence continues to deliver results. We posted sustained margin improvements demonstrating the efficiency and discipline embedded in our operations we made significant strategic progress remaining on track to complete the sale of our Graphic Arts business in the first half of twenty twenty five. Allowing us to sharpen our focus on core growth areas.

Finally, as we enter 2025, we remain well positioned to navigate macroeconomic uncertainties. With a continued focus on innovation, disciplined execution, strategic investments return value for both our customers and shareholders. These achievements reflect our commitment to strengthening Luxfer for the future balancing near term execution opportunity With that, I'd like to turn the call back to the operator for the Q and A session. [indiscernible] please go ahead. Thank you very much, Mr. Butcher.

And we'll go to Steve Farazani at Sidoti. Steve, please go ahead. Good morning, Andy, Steve. Thanks for so much color with clearly was an eventful 2024 for Luxfer Luxfer. I did want to start by asking about the financial impact of the pull forward in Q4, obviously, was much better than our expectations.

But I'm just trying to figure out the impact on 2025 and your guidance and and how much the financial impact was on Q4? Good morning, Steve. Yes, thank you. We are very pleased with 2024 and particularly Q4. The two specific pull forwards that we've quantified in our release at $34,000,000 were both in defense and both initiated by customers The largest was related to flameless Russian heaters There's been a strong award from the U. S. Government under MRE Mills Ready to Eat 45, And so a pull forward was initiated by both the food packers and the military such that some of that was shipped in 2024. The second was a flares powered export order. Those two together are the $33,400,000.0 Separately, we also identified some pull forwards and overstocking at alternative fuel customers in CNG, although we've not quantified that.

Okay.

Can you talk a little bit about how that CNG market is developing Certainly, we're hearing 2025 is probably going to be more of a test phase year but there is a new truck manufacturer being added. Tell us your take on how 2025 develops for CNG and then any change in your long term outlook for that market? Yes.

So I think that's all right. All correct, Steve. Despite the current slowing, I would say the potential growth in CNG in North America remains very, very exciting. Overall, Class eight truck miles decline in 2025 There's a reduced fleet expansion and some high inventory levels For example, preliminary Class eight truck orders in January were down 15% year on year and within that conversion to CNG by new fleet operators, I would describe as measured, careful, thoughtful, initial trials Nevertheless, as you mentioned, we've now seen three of the truck OEM brands offering trucks with the X15N CNG engine. So we've projected our related cylinder sales to be quite light in early twenty twenty five and strengthening somewhat as we move later into the year. I guess the key takeaway is that this mark But we've even approved lightweight product. It's been used by one of the major system providers. And we do expect to benefit as the market develops.

Excellent. Thanks for that color. Updates on the graphic art sale?

Yes. Thanks, Steve. I'll take that. As I said, I think last quarter, we were expecting to complete the sale in the first half of this year. Andy has confirmed that in the prepared remarks. I'm pleased to say that we're actually working on an exclusive basis with a buyer. We're quite excited that will be a good fit graphic arts. They're working through their diligence now. And as I say, we're on track for a first half close. Excellent. Thanks for that. Another question everyone is getting asked this quarter. Tariff impact, is that embedded in your guidance? And how do you given the current structure, which can change how you think tariffs tariffs can impact Luxfer Luxfer?

Yes, I'll take that one as well, Steve. So yes, I mean, clearly, it's a very fast moving situation, trade policy hasn't fully developed, neither have the responses that may entail. We have put some data in the risk section of our 10 ks about the relatively minimal impact on our third party sales. Certainly in respect of those countries where that have been highly prominent such as Canada, Mexico, China. And it's relatively minimal. We're talking about sort of $20,000,000 $25,000,000 of sales either way. So that's small. I suppose there is a potential for spread further, so between The U. S. And Europe and The UK. Clearly we have manufacturing operations in The UK and so The UK electron business. Export into The U. S. Silanders tends to go the other way. So that could have a financial impact if we were unable to pass on those costs. That said, not significantly concerned about it at the moment, Steve.

Okay. That's helpful. And then just if I could get one more in, you talked about elevated CapEx in 2025. Can you provide any detail, any specific project want to mention Thanks, Steve. This is Andy. Yes, we were very pleased with our cash generation in 2024, both the under underlying cash generation from the businesses as well as some of those special projects that Steve talked about. So we we're projecting CapEx somewhere in the region of 30% to 40% higher this year. And we have a whole basket of projects related to that. Some of them are around growth and cost reduction, some around infrastructure and maintenance and restructuring. So we've got a nice basket of of small but important capital investments rather than any one or two prominent significant ones. But very pleased with the cash generation in the business last year that's supporting that. Great.

Thank you. And it appears we have no further questions at this time. I'd like to turn things back to CEO, Andy Butcher for any closing comments.

Thank you, Beau, and thank you for joining us today, everyone. As we reflect on 2024, clear that the strategic initiatives we've undertaken are delivering meaningful results. Our focus on operational excellence combined with innovation and disciplined execution, has positioned us to navigate an uncertain macro economic environment with confidence. Looking ahead, 2025 presents both opportunities and challenges. We remain committed to delivering value for our customers, shareholders and employees by staying agile improving efficiencies, investing in key growth areas like clean energy, and maintaining our financial strength. I'd like to once again thank our associates around the globe for their and dedication They are the driving force behind Luxa's success We are excited about the path ahead and look forward to updating you on our progress in the coming quarters. Thank you for your continued support and confidence in Luxfer Luxfer.

Thank you. This does conclude Luxfer's Q4 twenty twenty four earnings call. A recording of this conference call will be available in about two hours. A link to our recording of this webcast will be available on the Luxfer website at wwwluxfer.com Luxfer. Thanks so much for joining us everyone and we wish you all a great day.