Luxfer Holdings PLC

Good morning. My name is Melinda. I'll be your conference operator today. Welcome to Luxfer's first quarter 2023 earnings conference call. All lines have been placed on mute. After the speaker's prepared remarks, we'll 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, Melinda. Welcome, everyone, to Luxfor's first quarter 2023 earnings call. With me today is Andy Butcher, Luxfor's chief executive officer, and Steve Webster, Luxfor's chief financial officer. On today's call, we will provide details of our first quarter performance, as reported in the press release issued yesterday. Today's webcast is accompanied by a presentation that can be accessed at Luxfor.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 offer some additional comments 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 details of our first quarter performance. Our team at Luxa continues to drive hard for our customers and to execute effectively in a challenging environment. These efforts helped us to deliver adjusted EPS of 20 cents in line with our earlier outlined expectations. Sales increased 4.4% with both business segments posting constant currency sales growth. Transportation and general industrial sectors weighed on our sales volumes and profit performance we are seeing increasing signs of macroeconomic softness in these areas without order books lower year over year, impacted by destocking as well as project delays in alternative fuels. We are enacting additional pass-through initiatives to offset higher input costs. We demonstrated important progress at gas cylinders on this front. Though we see incremental weakness in select portions of our business, we remain confident in achieving sequentially higher EPS. I would now like to turn to slide four to provide an update on our business segment outlook. We expect a softer outlook for certain of our end markets over the balance of the year, although this is offset by hopeful secular tailwinds in other areas. The multi-year recovery ongoing in aerospace and automotive continues to bring positives, especially with commercial and military aircraft products. The demand for SCBA cylinders for firefighters and medical oxygen cylinders for healthcare remains firm for gas cylinders. We are also taking advantage of opportunities for growth in our chemical kits and our new UGRE group ration offerings, as well as stronger demand for new zirconium products within Electron. At the same time, we're seeing a greater number of challenges in other areas. After a volatile supply chain backdrop of the last few years, we now see customer destocking as a growing headwind across our business, particularly in oil and gas, where flattening in fracking activity is having an impact. In alternative fuels, we've seen slowing in several anticipated projects, and we continue to see soft demand in Europe for magnesium photo engraving plates and uneven demand for large industrial gas cylinders, which are often a capitalised investment. Importantly, we are progressing on a number of key internal efforts that will support our 2023 profit goals. Together with our customer partners, we've progressed the qualification of alternative supply of magnesium for countermeasure flares amid the continuing and extended US magnesium production outage. Overall, we have exceeded our expectations for shipment of military flare materials in Q1. In gas cylinders, we enacted cost pass-through measures to recoup materials inflation, both at the start of this year and on April 1st. Combined with efforts in Q1 to reduce fixed costs by more than $1 million annually, further actions planned in upcoming quarters will also help to improve margins in this business segment. Turning to the supply chain, we are seeing improved availability in general. However, the pricing of select materials continues to rise, including carbon fibre, while others have sustained pricing well above historic levels, such as basic chemicals and aluminum. We have successfully introduced additional sources of supply to leverage both volume and price, although this has also increased our inventory holding. Though the operating environment has trended incrementally tougher for Luxfer since our last update, we remain focused on delivering our near and long-term business objectives with a continued emphasis on profitable growth, including investments in talent and infrastructure. Steve will discuss our guidance for 2023 after reviewing more specifics about our Q1 performance.