Luxfer Holdings PLC

Good morning. My name is Lori, and I'll be your conference operator today. Welcome to Luxfer's 2020 Fourth Quarter and Full Year Earnings Conference Call. All lines have been placed on mute. After the speaker's remarks, there will be a question and answer session. Now, I will turn the call over to Heather from Luxfer. Heather, please go ahead.

Thank you, Lori. Welcome to Luxfer's Fourth Quarter and Full Year 2020 Earnings Call. We're happy to have you with us today. I'm Heather Harding, Luxfer's Chief Financial Officer, and with me today is Alok Mascara, Luxfer's Chief Executive Officer. On today's call, we will provide details on our fourth quarter and full year 2020 performance as outlined in the press release issued yesterday. Today's webcast is accompanied by a presentation that can be accessed at luxfer.com. Please note, any references to non-GAAP financials are reconciled in the appendix of this presentation. Now, before we begin, a friendly reminder that any forward-looking statements made about the company's expected financial results are subject to future risks and uncertainties. Please refer to the safe harbor statement on slide two of today's presentation for further details. Now, let me turn the call over to Alok.

Thanks, Heather, and welcome, everyone. Thank you all for joining us today. To start with, I want to thank our employees for their continued focus on serving their customers while managing the inherent challenges of the pandemic. I am grateful to all of them for delivering strong cash and margin performance throughout the year, while maintaining steadfast adherence to safety protocols as we continue to navigate the COVID pandemic. I want to highlight that as part of our transformation plan, we intend to divest the majority of our aluminum operations, including SuperFARM. We are in active dialogue with potential acquirers for these valuable assets and plan to complete the transaction over the next 12 months. The divestment of these businesses would lead to about 200 of our employees switching to a new employer, and I want to personally thank each and every one of them for the years of service to Luxfer. I appreciate the patience and dedication of these employees as we work through this process while continuing to focus on our customers first. Given our intention to divest these operations, all the numbers in our press release and presentation exclude the results of these operations as per the accounting guidelines for discontinued operations. Before I review our results, I want to highlight three key messages. First, we delivered solid Q4 earnings. While some of our end markets remain challenged, we experienced sequential improvement in sales despite typical Q4 seasonality, and we realized growth in several new products. Second, we generated strong cash flow, further bolstering our already robust balance sheet. This gives us greater opportunity as we invest in organic growth enablers and pursue potential inorganic opportunities. Third, we executed our transformation plan with cost savings exceeding expectations while making meaningful progress on initiatives to drive growth through portfolio changes, new product development, and commercial excellence. I will provide more details on these themes, and our CFO, Heather Harding, will then review our financial performance in greater depth. Now, please turn to slide three for a summary of our fourth quarter financial results. During the fourth quarter, total sales of $82.1 million were fairly flat on a year-over-year basis, and we saw sequential improvement of 5.7% from Q3. Fourth quarter adjusted EBITDA of $13.8 million increased 21%, primarily driven by cost actions. Our adjusted diluted EPS for the fourth quarter was 27 cents, an increase of 35% from the prior year. Full-year core sales declined 11.3% to $324.8 million as our sales were negatively impacted by the pandemic. Our full-year adjusted EBITDA of $53.9 million declined 19.7% and the resulting adjusted EPS was $1.03, down 30%. Our cash flow in 2020 increased significantly as we generated $41.3 million of free cash flow, a reversal from the 2019 outflow of $8.1 million. The cash flow improvement was driven by lean working capital improvements and significantly lower restructuring cash outlay. Strong cash flow enabled us to reduce our net debt to $51.9 million compared to net debt of $81.2 million at the end of 2019, while we also returned $13.6 million back to shareholders as dividends. Our net debt to EBITDA ratio improved to one time at the end of the year. Our balance sheet remains strong financial and strategic flexibility. Now, please turn to slide four for an overview of how we are strategically reshaping our product portfolio. After a thoughtful review of our portfolio of businesses and the future trajectory of Luxfer, we have concluded that it is in the best interest of our shareholders, employees, and customers to divest most of our aluminum assets. This will enable us to focus our strategic efforts and capital to grow the company. The remaining portfolio has strong margins and growth profile with a narrow focus on high performance magnesium alloys, zirconium catalyst, and high pressure composite gas cylinders. This divestiture will impact three of our gas cylinder operations, including our SuperFarm location in UK, our aluminum cylinder operation in Graham, North Carolina, and our SuperFarm location in the U.S. We are in active discussions with potential buyers for these valuable operations and plan to close the transaction in 2021. The remaining gas cylinder sites are involved in the manufacturing of innovative cylinders, composite cylinders and systems, all of which are integral part of LuxForce's future growth profile. Financially, the discontinued operations reduces LuxForce revenue by 14%, but has negligible impact on our profits for 2020. Our profit margin and our return on invested capital both increased by 200 basis points. The revised gas cylinder segment represents 44% of total LuxForce sales and 40% of total LuxForce profits at the end of the year 2020. Within the gas cylinder segment, one-third of our sales were from CNG and hydrogen storage products, which represents a significant growth opportunity for us. As a result of these changes, there will be increased management focus on driving organic growth and acquisitions to accelerate shareholder value creation. Please turn to slide five for an update on our transformation plan. We are successfully executing our transformation strategy with discipline and are creating incremental value for our shareholders. The simplification phase has expanded our investor base by streamlining our financial reporting and governance while strengthening our balance sheet. Our operations have also been substantially simplified and post divestment of the aluminum operations, Luxfer will have 10 core operating sites compared to over 20 operating sites three years ago. As part of the transformation plan, we have established a higher performance culture with a focus on continuous improvements. Our productivity projects are on track to deliver $24 million in cost savings by the end of the year, in addition to reducing our historical annual capital spend by $6 million. The high performance culture and lower fixed cost helped us navigate the COVID pandemic and positions as well to benefit from future recovery. Now, the focus of our transformation plan is to drive growth, both organically and through value creating acquisitions. We have laid the groundwork for successful organic growth by rebuilding our new products pipeline and by establishing commercial excellence. In addition, Our LuxFor Business Excellence Standard Toolkit and healthy balance sheet enable us to generate value through bolt-on acquisitions. Please turn to slide six to review progress on our new product development process. A core component of LuxFor Business Excellence Standard Toolkit is a disciplined, tool-based new product introduction process based on lean continuous improvement and customer first. While progress was slower in 2020 due to COVID, our efforts are gaining traction as evidenced by eight point increase in our revenue from new products from 9% to 17% over the past three years. We expect this number to continue improving and we are targeting new products introduced in the past five years to make up over 20% of our revenue by 2022. Examples of our new products contributing to growth this year include our nanotechnology-based zirconium solution for gas particulate filters, our innovative self-heating unitized group rations, and our recently introduced non-limited life cylinders for European medical applications. To accelerate new product introduction momentum, we are increasing talent investment with plans to further strengthen the technology team and leadership at all our business units. Some of our recent growth investments have been in the area of alternative fuel, such as CNG and hydrogen, which is discussed in greater detail on slide seven. Post-investment of the aluminum operation, 33% of gas cylinder segment and 15% of total Lux for sales will come from our alternative fuel cylinders used for CNG and hydrogen storage. Our sales of alternative fuel cylinders have been growing at an annual CAGR of about 20% for the past three years due to share gain and industry growth. The industry growth projections for the near term remains robust, driven by wider adoption of hydrogen and CNG, and we are confident in our strong competitive value proposition. Our focus remains on heavier vehicles such as city buses and commercial truck fleets. In this target segment, conversion from traditional diesel to low and zero emission vehicles is driving rapid growth. Luxfor has a long established position in this industry and currently serves its in-market from our state of the art facilities in California, Canada, UK, and China. We will continue investing to expand our capability and capacity for these lightweight, high-performance Type III and Type IV gas cylinders. Our new product pipeline includes Type IV hydrogen storage products to meet demand for this rapidly growing end-user market. While the drive towards clean environment and emissions is fueling the growth of alternative fuel, it is not the only global megatrend. that is enabling growth for Luxfer products and solutions. Please turn to slide eight for an overview of other global megatrends that are shaping Luxfer's future growth. The three megatrends shaping Luxfer's future growth are light weighting, safe and healthy lifestyle, and clean environment and emissions. Luxfer's historic growth has been driven by the trend towards light weighting, and we believe that this trend will continue for many more years. Our magnesium alloys play a critical role in reducing the weight of key high-temperature, high-performance aerospace and industrial components. We are also the world leaders in lightweight, high-pressure composite cylinders for SCBA and other similar applications. The lighter nature of our product enables firefighters and first responders to be ergonomically safe while carrying sufficient oxygen for their difficult tasks. Safe and healthy lifestyle is also shaping our growth profile as demand grows for healthier meals ready to eat using our flame-based ration heater technology. Additionally, our zirconium products used in pharmaceuticals and water treatment applications and our portable medical oxygen cylinders also benefit from the global trend towards safe and healthy lifestyle. In addition to shaping the growth of our alternative fuel products, the mega trend towards clean environment and emissions is also accelerating the growth of our autocatalyst product line. Part of our autocatalyst product line is our newly introduced gas particulate filtration product, which is being adopted in multiple platforms to meet the increasingly stringent environmental regulations. As a result, we believe that our autocatalyst content per vehicle will continue increasing for the foreseeable future. Now, let me turn the call over to Heather Harding, Luckford's Chief Financial Officer, for detail on our fourth quarter and full-year financials.