LXFR - Earnings call transcript Q4 2019

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Operator

Good morning. My name is Lori, and I will be your conference operator today. Welcome to Luxfer 2019 Fourth Quarter Earnings Conference Call. All lines have been placed on mute. After the speaker's remarks, there will be a question-and-answer session.

the to turn Luxfer. Reid] will I call [Mary over from Now, please ahead. Mary, go

Unidentified Company Representative

the Lori. as fourth our provide us fourth Thank call. to Officer; we today Welcome you, Luxfer's will Chief Maskara, Officer. outlined to Reid]. with yesterday. XXXX press Executive you quarter On is [Mary call, Alok We're Heather release quarter our have all Financial issued I'm details with Harding, in on today. and And performance me Chief happy earnings XXXX today's

webcast a accessed reconciled presentation. any non-GAAP Today's is that this company can are at references via be financials in presentation of note the appendix luxfer.com. Please to

Before of the uncertainties. further risks we statements and reminder financial today's forward-looking details. refer to any made company's Slide to presentation future begin, Please about for X a results friendly that expected are subject

over let Alok. to the turn Now, me call

Alok Maskara

you, everyone. Thank Welcome Mary.

transformation and for CFO, quarter During on our year the this our details outlook provide and of call, financial Luxfer XXXX. fourth fiscal After overview of I performance provide provide update an Harding, an will plan. an that, the performance will ongoing Heather our

States industrial turn conditions results were soft XXXX Slide in X. financial Please reflection of the Luxfer's quarter the to fourth and United Europe. macro

the non-core declined X%. Our impact of total Czech sales, excluding the recycling divesture,

margin fourth EBITDA of sales impact gross to lower to declined offset $XX.X XX% fully million, cost Our the quarter unable as we were with reductions.

XX% impact was Czech to fourth decreased down year, look the adjusted When X.X%, quarter sales, the $X.XX, total declined million. and recycling diluted of for EPS the Our full at $XX.X XX%. divesture, EBITDA excluding we

$X.XX, and $X.XX. versus earnings year XX% XXXX yet adjusted per diluted share, or was which down is XX% $X.XX, full XXXX EPS, For up versus or earnings per XXXX share

of of Our balance ratio shape. quarter, a end year. resulting cash sheet in in generated million net flow We debt-to-EBITDA times of great the X.X at the free in $XX.X fourth the strong remained

at capital the invested Our return finished year XX.X%. on

continue we on to control. and within execution our our in confident issues results deliver are We transformative

second half by Our results driven financial year. XXXX the were of conditions the in challenging macro

As positioned much that results. has plan conditions believe deliver to the improve, we better macro transformation our us

the business environment X. Slide impacting macro Let's review on our

As defense, a healthcare, and equal response and industrial. can approximately into be classified sales three markets: first reminder, end our transportation, current

For our came and healthcare markets. defense, the first from year, XX% of sales response end

As in a reminder, declined replenishment has release growth U.S., in multiple annual products, the two of sales, sales XX.X% Sales hurricanes for market certification delays disaster XXXX. lower the in in strong this last this market in land in following issues this negatively the end slightly of resulting end timing there end Since margin decline Europe. XXXX in in exiting in market XXXX. related half no the SCBA included our fire The sales of oxygen in cylinder end large total large from sales hurricanes years, was because the extinguisher and also this to impacted of second were market by XXXX. NFPA impact the lower medical sales

about this market. term optimistic of remain prospects long the growth end We

weakness the election decontamination our government offset during we manufactured election weaker U.S. any While are the products typically end this presidential Cincinnati in currently U.S for to recent is the expecting year the from market facility. years, award by be

passenger of XX% fuel alternative year, the of and from which trucks For end aerospace, auto. our consists came the and transportation sales market, buses,

this divested divestiture. market. the serving quarter business end the in As auto here German excludes the was the impact second Czech that of a numbers passenger presented was reminder, The recycling

trucks and sales in exclude If in double segment Superform to due digits for we X.X%, growth were the grew fuel buses. as than sales passenger decline, XXXX, in decline the offset more For public for strong European luxury the alternative than in grew sales XXXX, to this sales Superform more alternative fuels auto.

We XXXX. trend to in expect this continue

Finally, industrial XXXX broad-based U.S our in impacted sales XX% have by and been both sale the the negatively where came from slowdown market end Europe. industrial of

compete For we sales. product pushing in XXXX, end total de-stocking SoluMag industrial to manufacturing of the sales weakness ISM. lines declined X.X%, gain at are the which decline for XX% share includes XXXX, our in ongoing SoluMag With a industrial offset in

difficult We the in are environment. likely of to current experience the year-over-year first half comparison XXXX given

and product gains of However, our in we in to Art micro share our confident strive Magtech to remain Catalyst, the will weakness lines. strength value the offset Graphic proposition and

growth to Slide for the fuel our differentiated the Now, growth how diameter, chemical the a review we and and past recent are our military developed of successes for two to profitable our capacity X, to technical space, lines alternative lightweight the alternative weakness. and kit product used of for U.S. large over purposes. hydrogen. capability have Two we In and please fuel driving decontamination for offset advanced years, in manufacturing in supplied compressed enhanced include turn macro gas testing natural cylinders growth

controls and assembly in to provide systems increased integrated customers cylinders. have our we system addition, In our our technology bus with Europe using

have with the more and years to two new line sales skills, past Our manufacturing than enabled this double over to technical product the us excellence, combined sales three of years.

fleet across expect or hydrogen-based world legacy continue to with cities groups continue environmentally friendly to We replace vehicle. as the bus the CNG

can Waste CNG we invest in environmentally Management also trucks. companies friendly benefit UPS, addition, and like when In Amazon.com

military, HeaterMeals. capability the industrial response which kits, response customers. kits using chemical management and our production manufactured Flameless and used testing processes proprietary and emergency have applications. and Heaters Cincinnati are manufactures for increased products also response we our expanded These materials at decontamination These newly chemical Ration agencies by raw U.S. facility, For are

kits for strong recent for We fulfill And deliver incremental as we sales, military. proposition we are chemicals XXXX, to these from value products. expecting award U.S. a these have

next are and recurring years. three awards these of the Some to likely renew five deliver revenues for to

two More differentiated excellence, are examples, by these innovation, growth commercial talent. and broadly, driving increasing beyond we building

process product of that Luxfer's allows new us have part we faster. introduced products introduction new disciplined As to a business deliver excellence, more

past new above to the now XX% in XX% our As approximately total is at a XX% by We aim XXXX. revenue increase five introduced, XXXX. compared products these sales in of number years, this to from result of changes,

As part and better using database targeting to standardized of sales salesforce.com. sales pricing. our our us and digitized commercial decisions This excellence, for process end-user global make and we understand standardization needs have allows driving

In have started process Net addition, retention customer and using we Promoter Score growth. drive to increase

Promoter Our current XX% a Score which since Net is is XXXX. about XX%, roughly increase

to by to expect add XX XXXX. score We points the

our to Building individuals well our the as is succession growth very workforce. talented us aging planning important base for for accelerate as given of

on-boarded roles. And as currently customers, customers to are new We to our new XX are getting XX a operational talent more and manufacturing applications. our the we've To new add of talent. result, also in as new stronger improve pursue new or their service we leaders company to

team a the always Our is has puts newly core first, lean does which customer one of mindset, strengthened values. our

Overall, update productivity our and Now, II, years In great we our an focused I, launched on which continue make ago. completed to substantially please turn on for culture initiatives. plan and X transformation have transformation we plan. simplification, as was execute our especially on Slide two Phase we delivered to enhancement strides XXXX, we Phase in

and III, We have continuous into Phase which also focused improvement. growth on is moved

our unprofitable simplifying joint our divesting As addition two portfolio of and to small we loss have part by businesses, I, ventures. market exited have capital three in Phase structure, also simplified making

pay-for-performance to we have plan in across II, Phase our of part Board, the company. refreshing implemented addition As

culture our vast for to refresh of our accountability recently putting and also training have We the our completed first. majority values, reemphasize employees including X,XXX always customer

savings million savings Regarding in XXXX million the $X in transformation XXXX. benefits in the cost and in of plan, $X delivered we

cumulative Going forward, we reduce million expect $XX reduction achieve by of costs our further by $X to million cost and XXXX, XXXX. goal in

the side, investment with our consolidation XXXX largest France. On occurred associated facility a in of and outflow the of in cash is

attractive million been continues by another X-year on significant a $X $XX invest in to to to bottom transformation million million million have followed the in payback expect and have to line. impact plan XXXX. $XX making Luxfer’s We $X Overall, XXXX an

turn positive plan Please from There Slide the in X outcomes of performance. initiated our to transformation several highlight are XXXX. for long-term

and macro and in grow on X% oil to continue segments. challenging gas revenues We despite especially the organic trends, industrial average

grown go-to-market XX% approach. an that I term expanded have average of past our With FX enhancement cost years. headwind over pleased to our innovation achievement unrelenting This due year per been on period. our two key during each ROIC the adjusted two XX% all annual higher growth and The growth were commitment to we than Overall, and an almost same financial of over they EBITDA, metrics; and adjusted has are significantly X%, performance. on annual and long our focus the by past proud is in a though have even years. am of through EBITDA ROIC the are margin resulting EPS We basis revenue, over EPS XXXX, our organic

Officer, let our Now, over Chief to financial current turn for Harding, on the me Luxfer's details Heather results. call Financial

Heather Harding

quarter reviewing Slide everyone. and good Alok, Thanks, fourth million, reported quarter financial by I'm results to morning, on XX.X%. X. of going declined $XX.X sales Fourth start

impact the sales recycling in the core of Czech Excluding X%, relative XXXX. declined divestiture, the fourth quarter to

feel customer and continued we to confident decline, the now is sales that SoluMag destocking complete.

the quarter the $X.X delivered of reductions impact company $XX.X executing million net was million year our full liabilities. legal $X.X declines, $X.X million year. and transformation This legacy related for costs the $X.X XX.X%, or to EBITDA the brings million, volume to on from despite reductions of total net cost in cost million. prior of adjusted Consolidated continued the Despite down the plan

gross unit ERP consequence For fairly an the identified weakness margin internal of an in a profit remained one We in implementation QX. quarter, material XX.X%. at flat as control business

actively taking issue. the are steps We to remediate

financial to results Item and the financial impact Form our More in However, filed the was with be contained no our there financial is financial fairly XX-K cash condition, SEC. XA statements represent flows. and in information

on summary demand EBITDA Slide divestiture. X.X%, the million the activity decline. with year to $XX.X Full of at SoluMag Superform products. of lower sales for million primarily due and excluding sales full lower look to $XXX.X This the Let's luxury industrial declined impact sales of declines performance XX.X%, demand primarily auto Czech year weaker declined due the coupled X.

offset of and price cost can higher the offset $X.X actions effects. inflationary pressures You the of million see most reductions unfavorable

Elektron at XX. Now sales Elektron results look XX.X%. million on quarter the declined our $XX.X In Slide segment, fourth of let's segment

offsets kits EBITDA divested Czech to due recycling X.X%. XX.X%. the decline industrial response $X.X including declined partial and $X.X growth Excluding sales for with million SoluMag, in core powders. declined accounts chemical primarily Elektron of million or The is in million, Segment lower military $X.X business, activity, from which sales,

products. from decline of by impacted quarter. the SoluMag was million cost higher margin sales the the reductions quarter, For lower leverage the in volume Elektron $X delivered net the of

declined the to and The for in industrial sales volume cylinders Cylinder the decline segment turn lower aluminum Gas results XX. $XX.X due on segment to Cylinder declined let's Slide Now X.X% Net to million. sales is million Superform Strong fuel cylinders. legal XX.X%. $X.X growth partially alternative quarter products, partially to initiatives in cost EBITDA offset by related adjusted offset continued costs legacy year-over-year execution on liabilities. Fourth of reduction

sheet. sheet million Slide Let's look flow of year-end free flow our XX. cash We our a was the cash ended $X debt the for in totaled balance key $XX.X at ratio delivered $XX.X the times. We quarter on and million end million in and net-debt-to-EBITDA strong XXXX Net at using restructuring quarter with balance X.X cash for metrics of approximately activities.

for cash full As amount to million, and approximately XXXX. this costs in totaled the a spend $XX.X expect we half reminder, of year restructuring

our in line was sequential we and in made improvement spend restructuring working performance. with capital modest Our expectations,

earnings working capital adjusted to of basis, further XXXX. ROIC trailing performance We delivered improve strong a to our XX-month in execute XX.X%. continuing we a from On are initiatives

and we remains balance cash XXXX. positioned in attractive flow Our solid, well free are for sheet

free So little flow XX. on cash more about let's Slide talk a

in As consumed you latest We year. $XX to for cash this our restructuring free plan. from million almost of our graph a X-year XXXX was tough can cash flow see of transformation performance,

$X.X capital In negative addition, for in made free execute it working full resulted million. our year challenging flow conditions cash of reported plan. macro This volatile to us

to stronger market activities our spend million current we past $XX expect working to environment. million capital For as have return to to on coincide with and restructuring the XXXX, generation we realigned will $XX improvements

to remained challenging like on XX. I'd the elements various macro current of conditions global market So in concerns. broader from to XXXX, environment Clearly, guidance of terms review Slide

of million. For $XXX $XXX to we revenue million projecting are XXXX,

We segment in new as products expect stability to first realize the defense offset overall anticipated and election responder softness. year

continued anticipate products fuel segment, Superform offset strength alternative the Within to weakness. and we transportation

lastly, industrial weak And the revenues we lower be given expect demand. to

our second that the is the into situation very the would guidance Coronavirus fluid, not year. disruption assuming extend half of the While

of our annual XXXX, $XX to to to to As we cost plan we uncertainty resulting with from flow on QX between challenging $XX our cash we million for XX% expected and restructuring We transformation to million Therefore, given be adjusted including EBITDA deliver approximately $X.XX continue We in levels million approximately with first to $XX cautious down million, the our free deliver planning, to between million plan, EPS $XX $XX remain expect our volatility. outlook $X million to million adjusted In $X.XX. year. is of reduction. EPS the half cash for the of year a the of prior activities. expect XX% current adjusted $XX

However, transformation to share execute to and time, plan during reduction, cash will deliver tough drive continue generation. this gains, our we higher cost

the call turn Alok wrap-up. I'll Now over for back to a

Alok Maskara

Thank you, Heather.

me end and technology. on markets solve XX Slide we Let wrap-up recapping attractive that with products by proprietary niche

the drive business transformation to improvement years. of has next After is have Luxfer to transformation delivered more the positive continuous results standard deploying to and impact plenty growth runways will and the value few a in continue toolkit we Our excellence productivity. make create plan by plan shareholder complete, for

thank and meaningful for customer hard first. for on transformation listening. our putting I and want the around work our always to their Thank employees progress plan all world our you

will We questions. take now

Operator

[Operator first Our you. the Thank question of Instruction] Securities. Chris of Moore line CJS from comes

Chris Moore

Maybe of out, your is little your moving kind -- there? thoughts in mid-term can what's little terms talk bit thinking we a about of just Superform further forward

Alok Maskara

Sure. sales plan we getting so Ferrari used in I back don't facing a think, and them. because all the like contracts well. I controls, gone working cost to slow of And they large and turnaround strides pricing that China our of in have customers we our structure big others, be are renegotiating been Recently, lose money that's some significant made their and one on have we mean, on at McLaren, looking great there, quite markets. some

despite So the because again the cost lower business structure. is challenging now become

we a serve we'll stabilize same now, remains, to goal making and with appropriately, that for the given focus and customers and the continuously improve the on Our for overall are where our time the profitability want at dynamics we market.

Chris Moore

switch maybe it. just to SoluMag second. Got for a And Helpful.

your how is XXXX? into of much SoluMag of kind is built Just current -- for SoluMag your guide thoughts,

Alok Maskara

I making $X we were between assumption. Sure. update. expecting with the which Currently, $XX growth. consistent million If, is think that's year to expecting, I that at we remain mean, to when we gave number we’re in flat. a not SoluMag, prudent any ended QX what million And We're

complete. are confident We and that that are confident there's the downside, destocking is no further we

Chris Moore

Got it.

spread for On we Or million looking the loaded? $X year. was that relatively more the this Is DoD evenly? that that how back-half kits, at about talked point? Is that this

Alok Maskara

Chris. more There's back-half loaded,

impact Given the start-up and the given the demand pattern, it’s going to second all on have larger half.

Chris Moore

terms buyback of for And that be something that? you it. in sounds in share the and that's something approval it Got May you'd question timeframe, shareholder -- from prospective, like last like a looking need

Alok Maskara

have approval, first we won't after we’ll restructuring Yes, our the again second cash think because approval schedule, the And like half either. in any the EGM that week in typically the of is and June. flow get buyback for look a need process once we cash start well I which from share with for works that,

Operator

comes of B.Riley Sarkis of line FBR. from the next question Sherbetchyan Your

Sarkis Sherbetchyan

taking for here. question Thanks my

guidance on -- the slide there. detail the all for So thanks

$XX quick year $XX for Just impact a $XX the flow the the $XX you Does out free of to on had the million one restructuring for that to the million cost? cash called include think year. I million million. cash of

Heather Harding

Yes, it does.

million $XX guidance. to million to in $XX $XX $XX million inclusive the the is So million

Sarkis Sherbetchyan

XXXX, as that? how that And as do capital to we the free any And number? additional flow relates assumptions how about far working cash for think

Heather Harding

Right.

operating on finished -- we XX.X%. a year the with we slides. our working finished metric we have It's at the -- capital. year called So our And

somewhere fully back into our is entitlement improve assumption. around that in believe of current we us our think when about to part should gets free while it move that. that flow XX% you cash way get We And the think way XXXX, expect As don't initiatives be all XX%. us I how your to should building we target, the to

Sarkis Sherbetchyan

more understand relate you Understood. help towards And maybe does inventory? that Can that? us

Heather Harding

primary and in our is it's from volatility moves market last right. going efforts improvement especially some facility really some is improvement performance focused we've The inventory and the the softness XXXX. year the of you're driver, into we around year saw prior inventory. where, area with deterioration of and Yes, Certainly, the where

Sarkis Sherbetchyan

it's pick if on end-market real-time, mentioned that markets or challenging? you the I softer brain additive and fuel products offset are think year. of can to the year be And this What of given alternative either of trends end Alok, response other success I which the the election seeing the might you called real-time kind your more are some you for of out certainly and you're some spending, with kits kind chemical potentially seeing feel an from the defense

Alok Maskara

I around you've uncertain. other noise the quite probably mean, given heard Coronavirus, it's all companies, from

�� So globally, right industrial, if an now. is ISM from not it's like it's I but just stabilizing obviously, take stable like up being

So don't around but I numbers to we own about are some feel. think into softness They that's maintained their weaker. come that defense, know and what of something would the taken election all sentiments year’s February XX, customers March be the the of occur. into concerned we've it's sales I out, seem In will China. typical numbers that

finally that of decontamination the signs over and our no kits products will remain pattern weakness bullish seen on that new have fuel. take are in And any offset like alternative transportation, confident there. reversing. And we we We

could alternative capacity more be after, while the bullish. so we fuel Superform more to capabilities, So And technical continue to invest good. continues in trend auto challenging, luxury be remain and

out around is Coronavirus. what all sentiments the unknowns here the are and might things think with turn, especially where I hesitancy our around all

Sarkis Sherbetchyan

link side. your of back kind that. EPS And up wanted Thanks to this for just to

it on. you've of all the $X.XX low like sounds So this the kind you've $X.XX top commented on considered on range, and range, that

versus to low-end high-end to does of range? the it what take So that the go

Alok Maskara

we are delivering improves in one reduce uncertainty the the think second half execution thing internal on controlling external I macro confident the range The reflects simply -- on of do all is in they half. we our or and the commitments. our whether our macro, second

the here think Sarkis. that's biggest uncertainty probably I

Operator

[Operator Instructions] Your of next Phil question KeyBanc. the comes of from line Gibbs

Phil Gibbs

Just and in know China, buy what the you we just impacts, lot sell talk raw those I Alok, your Corona a mean, and then little materials of obviously bit are? into from I can China. terms Elektron about of a you

have this the your about to of some to China? might talking trying we in I'm more of actually you customers? production the have a direct regionally and in true impacts just for Or are impact mean, you've sales Or your supply I outside So up square China fact got some are deferring is what chain. difficulty? that you So, because of your disruptions uniqueness

Alok Maskara

absolutely. Yes,

think, think Coronavirus right, about impact. as buckets, we think in this three I of Phil, you So as the I it,

Let's the is for direct easiest take one us, sales. which

Our less X% is direct China of sales in sales. our than

but there, impact some it's expect really be going not much we So easier. to

The second sales. aspect is indirect

luxury we something supply customer six to there them some of if and Europe, to a are to factories weeks. supply So in shutting China, weaknesses four for they they’re automotive their facing and

impact also does multinational across larger includes big That the board. us that So customers. customers, or large industrial,

coming come going chains orders their our near-term we going some is the understand but or can't we Third making U.S. range exact in it more that, many understand buckets ingredients we buy which we say healthy to That’s get just a They've products is materials might raw the of up China. We from hence, right? So is us. even be place impact the assumptions, bit to have And material because where the it an a and a it. on think and in of fully like broad out our look calling raw a it us very impact was will China. sales, on a suppliers China. turns is that's of we product. lot be, at which also where we buy pipeline, from only don't based tell for fulfillment delayed one, our It's of three supply land what's for supply time and it. of quite impact of different to me the in shortage I immediate in of guidance. at hard It from kind just back with

Philip Gibbs

of how was be just seasonality QX of strong with terms relative in we probably part less seasonality Should subdued. because first starts to should issues? year the that being in In pretty normal QX the of that year. the these XQ know than anticipate impact QX I the the and

Alok Maskara

referenced have going We Yes. because of compared probably that to XX% it’s project. is down weak. the think last basis, disruption think the right And I On be bearing think Heather to be now. XX% brunt that's our an QX to EPS I may quite year, in

Philip Gibbs

mentioned $X Okay. was in -- And your a you QX, from impact I then one deck. $X.X remarks think had in million was what in There that's or and the call you to your slide also to? And legacy million call split segments. What between the recurring? accrual some going this like to something would is be liability It tied that that. something it, was

Alok Maskara

XXXX payments were two an caught received and not we fair the we XXXX, think That's we from are put simply but reserve a for mobile bankruptcy were had guess, some we had to that behind we on in that. before the we based faced it There -- I that. on customer bankruptcy. challenges ruling to way recurring. it's appeal, half We a our going adverse on about and thought legal We Well, issue reserve recently, ongoing us. had off-guard, is and required on customer time that be separate clearly But incidents. the post-bankruptcy. are of and don't had that should the Back book

again, got was to not which, prudent it where, a Again, is we fault. a in incident liability to at to Second product was book a related like an back reserve. one thought product stage XXXX, our

be it settle reason. don't to all confident don't that for from things, doing right costs. why prudent Phil. recurring, numbers and we should at book no, think but are same we that opportunity either time, the to our exclude result potential But those avoid -- are And the the We we given legal

Phil Gibbs

reserving have are that the Did you potential with on? you against associated have just cash this? a outflow you Or it may

Alok Maskara

had paid simply result legal On in both a on number those fees, year. But the expensed some the earlier incident, cylinder QX cases. but is in were we the

Operator

At are for Alok you. time to call closing maskara turn Thank this further comments. now the no there will I questions.

Alok Maskara

you for Thank joining us it. all in for continued and today, interest your Appreciate Luxfer.

Operator

An Luxfer will of call in will Telephone access this two website the on numbers www.luxfer.com. be encore recording be conference at available about available recording hours. to

Thank of will the joining for first you us conference be XXXX company its financial today. This The call. in next call discusses quarter regularly scheduled results. the Luxfer's when May XXXX, ends

Luxfer (LXFR) 5 Mar 202019 Q4 Earnings call transcript