Luxfer Holdings PLC

Good morning. My name is Lori, and I'll be your conference operator today. Welcome to Luxfer's 2021 first quarter 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 first quarter 2021 earnings call. We're happy to have you with us today. I'm Heather Harding, Luxor's Chief Financial Officer, and with me today is Alok Mascara, Luxor's Chief Executive Officer. On today's call, we will provide details on our first quarter 2021 performance as outlined in the press release issued yesterday. Today's webcast is a simplified presentation that can be accessed at Luxor.com. Please note that any references to non-GAAP financials are reconciled in the appendix of the presentation. Also, All the numbers in our press release and presentation exclude the results of our aluminum forming businesses that have been classified as discontinued operations based on accounting guidelines. 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. I want to start with my appreciation of our employees for their continued focus on serving customers while maintaining steadfast adherence to safety protocols as we navigate the COVID-19 pandemic. Thanks to the hard work of our leaders and employees, we delivered record margins and strong cash flow in the first quarter of 2021. Let me begin by highlighting three key developments during the quarter. First, we delivered solid Q1 earnings and EBITDA margin of more than 20% despite the pandemic's negative sales impact. Conversion of these strong earnings into cash resulted in a net debt to EBITDA ratio of 0.7, the lowest level in the past eight years. Second, We meaningfully upgraded our portfolio by acquiring structural composite industries to increase our presence in aerospace and alternative fuel applications such as CNG and hydrogen storage. With the addition of SEI, alternative fuel now makes up 20% of LuxForce total revenues. Third, we achieved our long-term transformation cost reduction goal ahead of schedule by delivering a total of $31 million in cash savings, including $25 million in P&L savings and $6 million in capital spend reductions. We also continued to simplify our portfolio by completing the divestiture of a Graham aluminum plant, which was part of the previously announced discontinued operations. I will provide more details on these themes before our CFO, Heather Harding, reviews our financial performance in greater depth. Now, please turn to slide three for a summary of our first quarter financial results. During the first quarter, total sales of $85.2 million decreased 3.6% year over year as the pandemic continued to negatively impact our industrial product sales. First quarter adjusted EBITDA of $17.7 million increased 12%, primarily driven by productivity improvements. Our adjusted diluted EPS was 39 cents for the quarter, an increase of 15% from the prior year. Our Q1 cash flow was driven by lean working capital improvements as we generated $13.8 million of free cash A reversal from the 2020 outflow of $7 million. This strong cash flow enabled us to reduce our net debt to $41 million compared to net debt of $92 million at the end of Q1 last year. This reduction was in addition to the $13.6 million of dividends we returned to shareholders during the past 12 months. As mentioned earlier, Our net debt to EBITDA ratio improved to 0.7 times at the end of the quarter. Our balance sheet remains strong, providing us with significant financial and strategic flexibility. Now, please turn to slide four for an overview of our recent acquisition, Structural Composites Industries, or SCI. On March 15th, Luxfor acquired Structural Composite Industries from Worthington for approximately $20 million in cash. We are excited to welcome the 150 SCI employees into the Luxfor family and remain committed to putting customers first while we generate significant value for Luxfor shareholders. SCI was founded in 1971 and has significant market presence in aerospace CNG, hydrogen transportation and storage, and other niche applications. SEI's proprietary technology is frequently specified in mission-critical applications given its strong reputation and long history of quality and performance. Examples of these critical applications include carbon fiber composite cylinders for transporting and storing hydrogen and compressed natural gas, Lightweight Cylinders for Inflation and Breathing Applications in Aircrafts and Compressed Gas Storage for Defense Vehicles and Spacecrafts. The SCI acquisition meets all our strategic criteria and will be accretive to earnings in 2022 and beyond. In 2021, we expect the acquisition to be dilutive to EPS by about 15 cents given the impact of short-term losses. We will be investing in SCI and our alternative fuel products such as Type IV 350 bar hydrogen cylinders to ensure long-term growth and profitability. In addition to financial benefits, the SCI acquisition also provides us with compelling strategic benefits as outlined on slide five. About half of SCI sales are from high-growth alternative fuel end market, which has been an ongoing growth driver for Luxfer, given increasing demand for CNG and hydrogen solutions. Adding SCI's technology, manufacturing capability, and customer base to Luxfer's existing presence strengthens our market position. Luxfer's increased scale and scope will enable us to capture higher share of this fast growing end market. SEI also has a strong presence in the aerospace end market where our consolidated presence will better position Luxfer for growth recovery. In addition to increasing our presence in aerospace and alternative fuel end markets, the SEI acquisition will also allow Luxfer to better serve niche applications and critical customers in SCBA and other end markets. One of the benefits of this acquisition is the proximity of SCI's manufacturing location to Luxfer's largest composite cylinder manufacturing location in Riverside, California. This proximity will enable Luxfer to share expertise and talent and optimize manufacturing capacity to better serve customers while generating $5 to $7 million in total synergies. Given the SCI acquisition and discontinuation of the majority of our aluminum forming operations, our gas cylinder portfolio is simpler and less dependent on lower margin cyclical passenger automotive products. Alternative fuel now makes up 40% of gas cylinder segment sales with significant growth potential due to increased demand for hydrogen and CNG solutions. For an overview of LuxForce Simplified Portfolio, please turn to slide six. LuxForce Simplified Portfolio consists of three core product lines, high performance magnesium alloys, speciality zirconium catalyst, and high pressure composite cylinders. This is a significant simplification compared to the past and is going to drive greater focus on generating growth by innovative new products and by improving customer service. As a reminder, portfolio simplification was driven by the divestment of over $100 million in revenue and multiple consolidation projects over the past three years as we sold non-core product lines and locations to improve our growth profile and profitability outlook. The three product lines manufactured in about 10 core locations are positioned in higher growth and markets and offer differentiated value propositions to our customers in niche applications. We will continue to report our financial results in two segments, electron and gas cylinders, as we create greater value for our shareholders through growth and productivity. Please turn to slide seven for an overview of future growth drivers. Growth at Luxor is enabled by five key factors that include growth talent, portfolio positioning, commercial excellence, new products, and bolt-on acquisitions. We continue to make progress on laying a solid growth foundation. Our recent accomplishments include increasing revenue from new products from 9% to 17% over the past three years while continuing to refresh innovation talent and the project pipeline. Other recent accomplishments include changing the portfolio's growth profile through divestment of underperforming slow growth businesses while bolting on businesses with better growth profile such as our previously mentioned acquisition of structural composite industries as well as ESM speciality metals. We have plenty of future improvement opportunities to accelerate growth in our portfolio. These include geographic expansion to penetrate fast growth regions, further increasing revenue from new products, and completing more bolt-on acquisitions. Now, let me turn the call over to Heather Harding for details on our transformation plan savings and first quarter financials.