Luxfer Holdings PLC

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Good morning. My name is Nikki and I will be your conference operator today. Welcome to Luxfer's first quarter 2026 conference call. At this time, 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 Kevin Grant, Vice President of Investor Relations and Business Development at Luxfer. Kevin, please go ahead.

Thank you, Nikki, and good morning, everyone. Welcome to Luxford's first quarter conference call. This morning we'll be reviewing Luxford's financial results for the first quarter ended March 29, 2026. I'm pleased to be joined today by Andy Butcher, our Chief Executive Officer, and Steve Webster, our Chief Financial Officer. Today's webcast is accompanied by a presentation that can be accessed at Luxford.com. Please note any references in 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 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. During today's call, we'll be providing adjusted first quarter 2026 financial results, excluding the graphics arts business, which was divested in 2025. Now, let me introduce Luxford CEO, Andy Butcher. Please turn to slide three. Andy, please go ahead.

Thank you, Kevin, and good morning, everyone. Thank you for joining us. We delivered a strong start to 2026 with performance in the quarter demonstrating disciplined execution across the business and financial results a little ahead of the expectations we outlined coming into the year. As we indicated previously, 2026 includes variability across certain end markets. Although that dynamic was evident in the first quarter, we delivered adjusted earnings per share of 27 cents, up 17% year over year. along with adjusted EBITDA of $12.3 million and margins of 14.7%. This signifies the strengthened earnings power of the portfolio and the ability to sustain profitability at current volume levels. Within Electron, although timing dynamics drove lower volumes, demand across core areas remains intact with continued momentum in aerospace and defence. we also continue to advance our optimisation initiatives, including the powdered Saxenberg Centre of Excellence, enabling us to maintain strong margins. In gas cylinders, pricing and continued advancement of operational execution drove stronger year-over-year results. Our optimisation programme announced last year remains on track, with key milestones progressing as planned, and we expect to realise increasing benefits from these actions. Through the performance we have seen and improved visibility through the remainder of the year, we have the confidence to raise our full year 2026 earnings guidance, increasing our adjusted diluted earnings per share to a midpoint of $1.17. As we look beyond 2026, we are increasingly confident in the momentum of the business and the drivers supporting a step up in performance in 2027. improving visibility across our end markets, and the progress we are making on our operational initiatives position us well for a meaningful acceleration in earnings. We remain mindful of the broader geopolitical environment, but we see clear reasons for confidence based on specific drivers building across the business, including continued strength in aerospace and defense, the expected uplift in the FCBA replacement cycle, and the expansion into higher value applications, such as SPACE, supported by new product introductions. With that, I'll ask Steve to walk through the first quarter financial results and our updated outlook in more detail. Thanks, Andy, and good morning, everyone. Let's turn to slide four for a review of our first quarter 2026 consolidated financial results. Turning to our top line, adjusted sales were $83.9 million, down 7.3%, consistent with the trends outlined earlier. Despite the lower sales level, adjusted EBITDA increased to $12.3 million, up 8.8% year-over-year, with adjusted EBITDA margin of 14.7%, an improvement of 220 basis points. As shown on the bridge, lower volumes created a headwind in the quarter due to timing dynamics discussed earlier. This was partially offset by pricing actions across the business, which outpaced inflation and supported strong margin performance. Importantly, we benefited from lower operating costs, along with early savings from our riverside consolidation initiative within gas cylinders. Adjusted earnings per share was $0.27, up 17% year over year, demonstrating strong operating performance. From a cash flow perspective, cash from operations was an outflow of $4.1 million in the quarter, primarily driven by working capital, including inventory levels supporting our footprint optimization programs and the timing of receivables. Net debt at quarter end was $42.9 million, resulting in leverage of approximately 0.8 times, maintaining balance sheet strength and financial flexibility. Overall, the quarter reinforces the resilience of the business and robust execution. With that, let's turn to slide five for a closer look at Electron's first quarter 2026 results. Sales for the quarter were $42.1 million, down 14.8% year-over-year, attributable to lower volumes across certain end markets. This was largely driven by zirconium applications within industrial markets, with some customer overstocking, along with the timing of high-end automotive wheels consistent with the off-cycle dynamics we outlined previously. This was partially offset by continued strength in aerospace and improvements in certain defense-related applications. Despite the lower sales, gross profit year-over-year was $14.7 million, with gross margin increasing to 34.9%, up more than 500 basis points. Adjusted EBITDA was $8.5 million, with an adjusted EBITDA margin in excess of 20%. Pricing actions in the period exceeded higher input costs, which, along with continued operational discipline across the segment, resulted in significant productivity improvements compared to the prior year. Overall, Electron delivered strong margin performance despite lower volumes, driven by pricing and operational execution, and we expect stronger revenues as well as continued progress across the segment's operational initiatives as we move through the remainder of the year. With that, let's turn to slide six for our gas cylinders first quarter 2026 results. Sales for the quarter were $41.8 million, up 1.7% year over year. Performance was driven by broadly stable volumes across the segment, continued strength in higher margin specialty industrial applications, and modest improvement in alternative fuels. This was partially offset by lower volumes in aerospace related to our plant relocation. and seasonally slower SCBA demand, including the impact of the partial federal shutdown. Despite the relatively stable sales level, gross profit increased to $7.2 million, with gross margins improving to 17.2%, up 360 basis points year over year. Adjusted EBITDA was $3.8 million, representing strong growth, with EBITDA margins of 9.1% and improvement of 280 basis points. This performance was driven by pricing discipline across the business, which exceeded higher input costs, along with continued operational execution, including some early benefit from the relocation of the Pomona operation. Overall, gas cylinders delivered margin expansion despite modest volume headwinds in the first quarter, and we expect continued margin enhancement throughout the year. Looking further ahead, we see multiple growth levers for gas cylinders, including the SCBA replacement cycle, as well as space exploration as an emerging opportunity, with activity developing across a range of customers and programs. Let's now move to slide seven for an overview of our 2026 guidance update. We have raised our full year earnings guidance based on the start to the year and improved visibility across the business. For the full year, we are now projecting our revenue in the range of $355 million to $370 million, while increasing our adjusted EBITDA to $52 million to $56 million, and adjusted earnings per share to $1.12 to $1.22. The first quarter came in modestly ahead of our internal expectations, and together with improving demand trends and visibility for the remainder of the year, supports the updated guidance, including an implied midpoint of $1.17, while continuing to reflect a measured view of the broader macroeconomic environment. From a revenue perspective, the outlook continues to include timing dynamics in certain end markets, particularly within Electron, which we expect to improve through the year. At the same time, we continue to see strength in aerospace and defence, supporting margin resilience and earnings progression. Within gas cylinders, demand trend remains constructive, with continued strength in specialty industrial applications and emerging opportunities in areas such as space exploration supporting longer-term growth. We are making good progress on our productivity and optimization initiatives, which remain on track, with benefits expected to build through the second half of the year. Free cash flow guidance remains unchanged at $20 million to $25 million, reflecting ongoing investment in CapEx improvement programs and elevated inventory levels supporting our footprint consolidation initiatives. Given current geopolitical uncertainty, we are proactively monitoring global events, as well as domestic tariff activity. To date, we have observed no impact on demand, and we have been successful in passing through increased costs. Overall, our updated guidance reflects a strong start to the year, improved visibility, and a balanced view of the operating environment. With that, I will turn the call back to Andy to provide additional perspective on the outlook beyond 2026. Thank you, Steve. Please turn to slide 8. As we look beyond 2026, it is helpful to start with where we are today. At the midpoint of our updated guidance, we are operating at approximately $1.17 of adjusted earnings per share, with improved margins and a portfolio that continues to perform well despite near-term timing dynamics in certain markets. From that base, we see a clear and credible path to a meaningful step up in earnings in 2027, supported by a number of drivers already underway, starting with Electron, the business will continue to benefit from strong and growing aerospace and defence demands, driven by the increasing use of precisely engineered magnesium alloys, where lightweighting remains a key priority. Recent wins, including a new European aerospace defence application, reinforce our confidence in this trajectory. We are also seeing increasing momentum in the adoption of both of our Magtech heater solutions, with interest building across a broader set of international markets, as well as continued expectation for domestic flameless Russian heater add-on order in 2027. This is complemented by the expected recovery in high-end automotive applications as prior off-cycle dynamics normalize. This reflects timing within the end customer portfolio with updated vehicle platforms and configuration options that incorporate our high-performance magnesium components. In addition, we continue to make progress with a number of new product development applications and specialty platforms, including areas such as passive chemical detection and medical field emergency solutions, where we are seeing growing customer interest. Taken together, we expect Electron to deliver steady mid- to high-single-digit sales growth year on year, supporting a meaningful uplift in contribution to overall 2027 earnings. Turning to gas cylinders, we expect the return of the SCBA replacement cycle, including next-generation cylinders and larger municipal upgrades, as a significant portion of the installed base moves into a more active replacement phase. This represents a multi-year incremental opportunity for the segment. Within aerospace, demand continues to be supported by commercial field rates and program outlooks from large OEMs, providing a clear and visible growth profile as aircraft production levels increase. We are also seeing new momentum in space exploration applications, where our products are being specified across an expanding range of programs and platforms. along with hydrogen bulk gas, this is an area of higher growth within the portfolio, with activity expanding across multiple customers as the market continues to scale. Taken together, we expect gas cylinders to deliver a stronger rate of sales growth, contributing to the overall step-up in earnings. Finally, across operations, we are progressing the productivity and optimization initiatives announced at the end of 2025, including footprint actions and our Centre of Excellence programmes. These initiatives are expected to be largely completed by the end of 2026, with the benefits carrying into 2027. We expect these actions to contribute significant incremental EBITDA, supporting improved efficiency and margin expansion, as previously noted. Given the strength of these underlying drivers and the visibility we're building across the business, we see a clear and credible path to robust double-digit earnings growth in 2027. This significant uplift reflects the progression from our 2026 base, supported by volume recovery, specific growth in higher value applications, and the full realization of our operational initiatives. Overall, we feel good about the momentum in the business and the opportunities ahead. Please turn to slide nine. Before we take questions, let me briefly summarize the key highlights from the quarter. We delivered a strong start to 2026 with solid earnings growth and margin expansion driven by disciplined execution across the business. We have raised full year earnings guidance based on clear visibility with stronger revenues in the quarters ahead and improvements supported by operational enhancements and pricing. We see a clear and credible path to a meaningful step up in earnings in 2027 supported by specific multiple drivers already underway. And we remain focused on executing our strategic review process with the objective of maximizing shareholder value. Overall, we are encouraged by the direction of the business and the opportunities ahead as we move through 2026 and position for a step up in performance in 2027. I will now turn the call back to the operator for questions. Nikki, please go ahead.

Thank you. If you would like to ask a question, please press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star and 1 to ask a question. We'll take our first question from Steve Firasani with Sidoti. Please go ahead. Your line is open. Steve Firasani, Sidoti, Please go ahead. Your line is open.

Steve Firasani, Sidoti, Morning, Andy. Morning, Steve. Appreciate the detail on the call. Certainly very appreciative of the very early outlook on 2027. That's exceptionally helpful. I guess, Andy, the two big surprises to me are the strength in the electron margins and the fact that you're able to grow gas cylinders year over year, given the issues that you had outlined previously that were going to impact Gen Q1. So I just wanted to walk through those two specifically. Very rare to see that kind of margin improvement segment-wise that we saw in electron when revenue was declining. Can you walk us through the pieces on that? What drove such significant margin improvement? Looks like the highest quarterly margin you've had in that segment since I have to go back to it looks like 2022.

Yes, thank you, Steve. We were very pleased with our Q1 and the performance in both the units. In our assessment also, it was a very nice result in Electron. So we saw strong demand coming through in aerospace and defense, a nice mix of higher value products. We saw strong operational performance across most of the facilities, and that led to margins pushing above 20% despite the low values. So much to be pleased about there, especially overcoming that impact of the temporary softness in automotive high-performance wheels. We should see higher revenues now coming through in upcoming quarters, and that's helped us raise our guidance. So another nice result for Electron. And then in cylinders, Yes, revenues held up nicely, in fact, slightly higher. So cylinders Q1 profitability significantly ahead of the prior year quarter run rates. Some of the positives to highlight on the revenue line were around specialty products, demand for the specialty gas cylinder range, for example, some incremental profit coming through from space. and then continued pricing improvements versus inflation were helpful on the margin line uh along with the uh the relocation of the pomona to riverside operations so a nice result for cylinders also what was the surprise to you um coming into that you saw in the quarter in terms of of volume um you you pointed out a couple times special specialty gas cylinders

How much of that semiconductor, which we think is going to have a really nice couple of years here, is that the key driver there, or was it mixed?

Yes, so two key elements to the gas cylinder's success on the specialty range. That is indeed related to semiconductors. Larger cylinders are used to store expensive premium gases for the semiconductor market. And then we also have a range of smaller cylinders that gets used in the calibration market for testing cylinders and for monitoring the testing sensors and for monitoring the performance of them. So yes, it was a nice period for specialty gas. We also saw a little uptick in the CNG market, which was a slight surprise. I don't necessarily think I can yet point to a long-term trend of improvements in clean energy, but that will come through at some point. And it was nice to see those slightly higher volumes there.

Got it. Got it. Update on the Saxenberg facility. Where are you with that?

Yes, so in terms of the move to Saxenburg, that's the second of our relocation activities. So all of the atomization of powders and preparation of powders that was being done in Saxenburg in Tamaqua has now moved across to our Saxenburg facilities. We do continue to run down our stock in Intermacqua and that will continue for at least another couple of months as we ramp up in Saxenburg. So that project is on track and will be completed by the end of the year. We're more advanced with the first of our moves. That's in our cylinders business from Pomona to Riverside. The operations have now ceased in Pomona. And since the start of the year, we've been ramping up production in Riverside. And all of those lines are now operational, albeit that we're still waiting for some product approvals to be completed. So we don't see the full benefits from that move until later in the year.

Got it. I guess for Steve, I think you noted the higher working capital part of that was the relocation. Should we see inventory levels coming down and be more of a benefit as the year goes on?

Yes, I think that's a fair comment. So, first of all, I mean, in terms of the cash being a modest outflow in the quarter, I mean, that's not unusual for quarter one. That often happens. But yes, inventory has ticked up to $100 million, which is up about $8 million higher than it was at year end. That is linked to holding higher levels for the two projects. I'd also say there's some pricing coming through in terms of certain materials, which in turn has an upward pressure on the inventory value. Very confident we'll be able to pass those on ultimately through price, so no concern there. But yes, it should come down. Our OWC is around about 30% of revenue at the end of last year. I think it was at 25, 26. And I would expect to get close to that as we get towards the end of the year, yeah, this year.

Excellent. That's helpful. Turning to the 2027 outlook, this is very helpful to us. Can you walk through sort of What, because the earnings growth this year is pretty much predicated on margin improvement, but it sounds like in 2027, you see a real top line contributor. Andy, this early on, what gives you that confidence to put this out there and any particular areas you want to point out?

Yes, thank you. I'm glad that was helpful because we have heard from a number of shareholders over the last two months but they want to hear more clearly from us about the medium-term growth and earnings drivers. And the improved visibility in 2026 is also now giving us clearer insight into 2027. So to refer back to slide 8, we can see some of those laid out and why overall we anticipate at least high single-digit sales growth in 2027. I want to emphasize first the strong outlook for our overall defense and aerospace segments, whether it's for alloys, flares, heaters, chemical kits, or commercial aviation, demand is robust and we'll see growth overall in 2027. And then perhaps to provide extra color on three areas where we strongly expect there'll be tailwinds in 2027. Firstly, Steve, there's this multi-year replacement cycle coming for SCBA that begins to impact in 2027. The major players in the industry are planning for this now. The cylinders and sets age out and need replacing. Some of the largest municipalities in the country are looking to replace and upgrade. One of them we know is in open discussions on this already for up to 10,000 sets. Secondly, I'd like to talk to Flameless Russian Heaters, which we're increasingly confident will grow in 2027, internationally and domestically. There are positive buying signals that suggest an add-on order will lift domestic demand early next year. And we're currently quoting on four pieces of international business, an unprecedented level. And thirdly, Normalised demand for magnesium alloy for those high performance automotive wheels is scheduled to return around quarter four of this year as model years roll over. We've recently learned that the uptake rate on the magnesium special option has increased in 2026, so we're actually seeing some recovery here coming in already. And of course we have new product development and space as part of the picture as well. Now, there will always be some surprises and headwinds, but suffice it to say there's a good understanding we have of all of this, and you combine it with the benefits of our operational excellent work, and that enables us to say we expect robust double-digit earnings growth in 2027.

Extremely helpful. And talking about the surprises or uncertainties, you know, you're watching geopolitical developments. We all are. But when I look at your end markets, you know, not a lot of them should be impacted by elevated oil prices. Am I thinking about that right? At least from a demand standpoint.

Yes, you are. We're, of course, like everyone, conscious of the geopolitical situation and any wider macroeconomic consequences, and we'll continue to monitor this closely. But right now, we're not seeing anything concerning from a demand perspective. Indeed, we're seeing some indications of a future uplift related to certain defense products. Now, as Steve mentioned, we are seeing some inflationary costs come through on some materials. We see that on both metals and chemicals. But where we have customer contracts, we have quarterly pass-through adjusters, and we're seeing good acceptance of price changes, both within those and on our spot order basis. And as you suggest, our product portfolio in general is biased away from consumer products, tends to be rather resilient in the face of uncertainties. Overall, not a big factor for us right now.

Great. If I could squeeze one last one in. On your final slide, you noted an active strategic review. Active might have been newly added, or maybe I'm misreading it in terms of where this, can you give any comments around the strategic review?

I'll just remind people that there were three conclusions associated with our strategic review in 2024. The sale of the graphic arts business, which is now complete, enhancing the performance of gas cylinders and electron, and maintaining full strategic optionality. So with respect to the third, strategic optionality, we do maintain our view that gas cylinders and electron have no material strategic synergies, and we're continuously assessing performance and market conditions to maximise shareholder value. Over recent months, we have continued our readiness preparations. That's including work with various third parties, including investment banking and strategic growth advisors. But turning back to enhancing gas cylinders and electron, We've made strong progress over the last quarters, and I've talked in detail in my prepared remarks about how we're executing opportunities for both profitable growth and cost reductions as we move forward.

Great. Thanks, Andy. Thanks, Steve.

Thank you. There are no more questions in the queue. At this time, I will turn the call over to CEO Andy Butcher for final remarks.

Thank you, Nicky. Luxor is well positioned with a resilient earnings profile and a trajectory for growth in 2027. We are executing with discipline and building momentum across the business, supported by improving end market demand and continued operational progress. The actions we have taken over the past several quarters are gaining traction and positioning the business for a meaningful step up in performance. I want to thank our associates for their continued performance and commitment. Thank you for your continued support.

Thank you. This concludes Luxfer's first quarter 2026 earnings call. A recording of this conference call will be available in about two hours. A link to a recording of this webcast will be available on the Luxfer website at www.luxfer.com. Thank you all for your participation. You may now disconnect.