Luxfer Holdings PLC

Good morning. My name is Shelby and I will be your conference operator today. Welcome to Luxfer's fourth quarter 2022 earnings conference call. All lines have been placed on mute. After the speaker's prepared remarks, we will hold a question and answer session. Now I will turn the call over to Mike Gaydon, Vice President of Investor Relations and Business Development from Luxfer. Mike, please go ahead.

Thank you, Shelby. Welcome, everyone, to Luxfer's fourth quarter 2022 earnings call. With me today is Andy Butcher, Luxfer's chief executive officer, and Steve Webster, Luxfer's chief financial officer. On today's call, we will provide details of our fourth quarter and full year 2022 performance as detailed 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 the presentation. 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. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Please refer to the Safe Harbor Statement on slide two of today's presentation for further details. Now I will turn the call over to Andy for his summary comments on the quarter and our outlook, after which Steve will provide details of our financial results and 2023 guidance. Andy will then provide a longer-term view before Q&A. Andy, please go ahead.

Thank you, Mike, and welcome, everyone. Please turn to slide three. I'm pleased to share with you highlights of our fourth quarter performance, which includes growth in sales and in adjusted EPS. the Luxor team once again stepped up to deliver for our customers, in turn helping us to realize full year earnings per share in line with guidance. I'm grateful for our team's ongoing focus and dedication. I'm particularly pleased to report that volume growth accelerated in quarter four to $9 million, with both Electron and Gas Cylinders posting their best volumetric performance of the year. This strong quarter four reinforces our confidence in our long-term plans for profitable growth. We saw higher input costs once again during the quarter, and we continued taking actions to pass through these changes wherever allowed by contract, including additional increases at gas cylinders. Overall, though, higher costs and some operational disruptions limited the profit uplift from our incremental sales. Our executional focus helps us to translate our higher sales and earnings into expanded free cash flow, and the $15.9 million generated in quarter four exceeded our expectations. Looking ahead, we're seeing softness in European demand and areas where customers are destocking. However, we're also driving important orders in some of our focus areas of growth, including aerospace, defense, and hydrogen vehicle systems. I would now like to turn to slide four to provide a brief update on the encouraging secular growth trends driving our business. During the fourth quarter, gas cylinders posted its best alternative fuel performance of the year. Capitalizing on increasing interest in green energy, we executed successfully on elevated demand for our lightweight composite cylinders for the bulk gas transportation of both hydrogen and CNG. Additionally, A step up in passenger car manufacturing, coupled with ongoing stringent particular emissions regulations, is fueling demand for our autocatalysis zirconium products. The multi-year recovery in commercial aerospace continues, driving sales of our lightweight magnesium alloys, along with our in-cabin oxygen and inflation cylinders. We are also encouraged by the improvements in the supply chain for SCBA safety products, as well as the opportunities we see in healthcare for both our electron and gas cylinder segments. Against this background, I will now outline some of the key drivers of our 2023 outlook on slide five. We see a mixed outlook for our end markets in 2023, but nevertheless, we continue to expect overall volume growth. Sustained recovery in aerospace and automotive markets remains a notable tailwind for our transportation offerings. We are seeing ongoing demand in first response for our SCBA cylinders. While in defense, we anticipate higher aerospace, flameless Russian heater, and chemical kit sales. Alternative fuels will continue to be choppy. We anticipate hydrogen vehicle systems growing incrementally through the year, although lower requirements for bulk gas products. Some of our industrial offerings are seeing softness, particularly in Europe, and notably we're experiencing some transitory destocking by customers. However, we expect the secular drivers of our business to more than offset these isolated cyclical pressures as the year develops. We're working on several important initiatives to ensure our success amid key developments in the supply chain. U.S. Magnesium LLC, the U.S. domestic source for raw magnesium, remains in force majeure, and the facility is not currently supplying magnesium. We've made good progress with efforts to qualify an additional source of supply for the U.S. military. Indeed, that work is successfully concluded for flameless ration heaters and well advanced for military flares. While this has been completed, we expect lower military flare sales in Q1 and early Q2 before resumption of a more normalized cadence over the rest of the year. In gas cylinders, we continue to address the inflation seen in raw materials, most notably carbon fiber. As part of this effort, we initiated further cost pass-throughs as of January 1st. We're now permitted by contract. We are also working to remove additional fixed costs in this part of the business. We have already taken action during Q1, which will save more than $1 million annually while we work to recover margins. More broadly, we continue to see improving conditions across the supply chain. However, input cost inflation continues for several key materials, The cost of basic chemicals used in the electron segment continues to increase, for example, and energy costs remain elevated. Combined, these demands, supply chain and pricing dynamics, as well as our efforts to address and counter these impacts, suggest a low Q1 with quarterly EPS improving thereafter. Steve will discuss guidance shortly. First, though, starting with details on our fourth quarter financial performance.