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2: EX-31.1 Certification -- §302 - SOA'02 HTML 26K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 26K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 22K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 22K
11: R1 Cover HTML 76K
12: R2 Condensed Consolidated Statements of Income HTML 140K
(Unaudited)
13: R3 Condensed Consolidated Statements of Comprehensive HTML 49K
Income (Unaudited)
14: R4 Condensed Consolidated Statements of Comprehensive HTML 24K
Income (Unaudited) (Parenthetical)
15: R5 Condensed Consolidated Balance Sheets (Unaudited) HTML 150K
16: R6 Condensed Consolidated Balance Sheets (Unaudited) HTML 36K
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17: R7 Condensed Consolidated Statements of Cash Flows HTML 139K
(Unaudited)
18: R8 Condensed Consolidated Statements of Changes in HTML 119K
Equity (Unaudited)
19: R9 Basis of Presentation and Responsibility for HTML 28K
interim Financial Statements
20: R10 Earnings per share HTML 63K
21: R11 Net Sales HTML 62K
22: R12 Restructuring HTML 47K
23: R13 Acquisition and disposal related costs HTML 24K
24: R14 Other charges HTML 23K
25: R15 Supplementary balance sheet information HTML 68K
26: R16 Goodwill and other identifiable intangible assets HTML 57K
27: R17 Debt HTML 61K
28: R18 Discontinued Operations HTML 73K
29: R19 Income Taxes HTML 27K
30: R20 Share Plans HTML 43K
31: R21 Shareholders' Equity HTML 55K
32: R22 Segmental Information HTML 190K
33: R23 Commitments and Contingencies HTML 27K
34: R24 Subsequent Events HTML 24K
35: R25 Basis of Presentation and Responsibility for HTML 31K
interim Financial Statements (Policies)
36: R26 Earnings per share (Tables) HTML 61K
37: R27 Net Sales (Tables) HTML 59K
38: R28 Restructuring (Tables) HTML 47K
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40: R30 Goodwill and other identifiable intangible assets HTML 62K
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48: R38 Restructuring - Additional Information (Details) HTML 38K
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50: R40 Restructuring - Reserve (Details) HTML 30K
51: R41 Acquisition and disposal related costs - HTML 29K
Additional Information (Details)
52: R42 Other charges (Details) HTML 24K
53: R43 Supplementary balance sheet information - Schedule HTML 98K
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54: R44 Goodwill and other identifiable intangible assets HTML 33K
- Schedule of Goodwill (Details)
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56: R46 Goodwill and other identifiable intangible assets HTML 49K
- Schedule of Intangible Assets (Details)
57: R47 Debt - Schedule of Debt Outstanding (Details) HTML 45K
58: R48 Debt - Additional Information (Details) HTML 33K
59: R49 Debt - Schedule of Maturities of Company's Debt HTML 55K
(Details)
60: R50 Discontinued Operations - Results of Discontinued HTML 48K
Operations (Details)
61: R51 Discontinued Operations - Additional Information HTML 47K
(Details)
62: R52 Discontinued Operations - Assets and Liabilities HTML 54K
(Details)
63: R53 Discontinued Operations - Cash Flows (Details) HTML 24K
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Expense (Details)
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Reportable Segment (Details)
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73: R63 Segmental Information - Reconciliation of HTML 44K
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(Exact Name of Registrant
as Specified in Its Charter)
iEngland and Wales
i98-1024030
State
or Other Jurisdiction of Incorporation or Organization
I.R.S. Employer Identification No.
i8989 North Port Washington Road, Suite 211,
iMilwaukee,
iWI, i53217
Address of principal executive offices
Registrant’s telephone number, including area code: i+1i414-i269-2419
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iOrdinary Shares, nominal value £0.50 each
iLXFR
iNew
York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYesx No o
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYesx No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
o
iAccelerated
Filer
x
Non-accelerated filer
o
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ix
The
number of shares outstanding of Registrant’s only class of ordinary stock on iSeptember 25, 2022, was i27,208,641.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Third
Quarter
Year-to-date
In millions, except share and per-share data
2022
2021
2022
2021
Net sales
$
i100.2
$
i91.2
$
i306.7
$
i275.4
Cost
of goods sold
(i77.0)
(i70.1)
(i233.6)
(i203.2)
Gross
profit
i23.2
i21.1
i73.1
i72.2
Selling,
general and administrative expenses
(i10.3)
(i10.6)
(i32.5)
(i33.9)
Research
and development
(i1.0)
(i1.3)
(i3.5)
(i2.9)
Restructuring
charges
(i0.3)
(i0.5)
(i2.0)
(i2.1)
Acquisition
and disposal related costs
i—
(i0.6)
(i0.3)
(i1.5)
Other
charges
i—
i—
i—
(i1.1)
Operating
income
i11.6
i8.1
i34.8
i30.7
Interest
expense
(i1.0)
(i0.8)
(i2.7)
(i2.4)
Defined
benefit pension credit
i0.2
i0.6
i0.9
i1.8
Income
before income taxes
i10.8
i7.9
i33.0
i30.1
Provision
for income taxes
(i2.3)
(i1.9)
(i7.2)
(i3.6)
Net
income from continuing operations
i8.5
i6.0
i25.8
i26.5
Net
loss from discontinued operations, net of tax
(i0.5)
(i0.7)
(i0.9)
(i2.8)
(Loss)
/ gain on disposition of discontinued operations, net of tax
i—
(i0.5)
i—
i6.6
Net
(loss) / income from discontinued operations
$
(i0.5)
$
(i1.2)
$
(i0.9)
$
i3.8
Net
income
$
i8.0
$
i4.8
$
i24.9
$
i30.3
Earnings
/ (loss) per share1
Basic from continuing operations
$
i0.31
$
i0.22
$
i0.94
$
i0.96
Basic
from discontinued operations2
$
(i0.02)
$
(i0.04)
$
(i0.03)
$
i0.14
Basic
$
i0.29
$
i0.17
$
i0.91
$
i1.09
Diluted
from continuing operations
$
i0.31
$
i0.21
$
i0.93
$
i0.94
Diluted
from discontinued operations2
$
(i0.02)
$
(i0.04)
$
(i0.03)
$
i0.14
Diluted
$
i0.29
$
i0.17
$
i0.90
$
i1.08
Weighted
average ordinary shares outstanding
Basic
i27,295,862
i27,722,472
i27,403,844
i27,718,874
Diluted
i27,525,314
i28,033,732
i27,652,886
i28,072,155
See
accompanying notes to condensed consolidated financial statements
1The calculation of earnings per share is performed separately for continuing and discontinued operations. As a result, the sum of the two in any particular period may not equal the earnings-per-share amount in total.
2The loss per share for discontinued operations in the Third Quarter of 2022 and 2021 and year-to-date of 2022 has not been diluted, since the incremental shares included in the weighted-average number of shares outstanding would have been anti-dilutive.
1
LUXFER
HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Third Quarter
Year-to-date
In
millions
2022
2021
2022
2021
Net income
$
i8.0
$
i4.8
$
i24.9
$
i30.3
Other
comprehensive (loss) / income
Net change in foreign currency translation adjustment, net of tax
(i12.5)
(i2.1)
(i22.5)
(i0.1)
Pension
and post-retirement actuarial gains, net of $i0.1, $i0.2,
$i0.3 and $i0.5
tax, respectively
i0.3
i0.7
i1.0
i2.1
Other
comprehensive (loss) / income, net of tax
(i12.2)
(i1.4)
(i21.5)
i2.0
Total
comprehensive (loss) / income
$
(i4.2)
$
i3.4
$
i3.4
$
i32.3
See
accompanying notes to condensed consolidated financial statements
2
LUXFER HOLDINGS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September
25,
December 31,
In millions, except share and per-share data
2022
2021
Current assets
Cash and cash equivalents
$
i11.2
$
i6.2
Restricted
cash
i0.3
i0.2
Accounts
and other receivables, net of allowances of $i0.7 and $i0.8, respectively
i66.1
i57.8
Inventories
i111.6
i90.5
Current
assets held-for-sale
i9.1
i8.5
Total
current assets
$
i198.3
$
i163.2
Non-current
assets
Property, plant and equipment, net
$
i75.0
$
i87.5
Right-of-use
assets from operating leases
i22.9
i12.6
Goodwill
i62.5
i69.7
Intangibles,
net
i12.4
i13.7
Deferred
tax assets
i7.1
i8.0
Investments
and loans to joint ventures and other affiliates
i0.3
i0.4
Pensions
and other retirement benefits
i13.9
i13.7
Total
assets
$
i392.4
$
i368.8
Current
liabilities
Short-term debt
$
i25.0
$
i—
Accounts
payable
i27.9
i31.7
Accrued
liabilities
i32.6
i28.2
Taxes
on income
i7.8
i3.0
Current
liabilities held-for-sale
i4.9
i1.4
Other
current liabilities
i12.6
i19.6
Total
current liabilities
$
i110.8
$
i83.9
Non-current
liabilities
Long-term debt
$
i61.8
$
i59.6
Pensions
and other retirement benefits
i2.3
i1.9
Deferred
tax liabilities
i2.7
i2.7
Other
non-current liabilities
i19.5
i11.6
Total
liabilities
$
i197.1
$
i159.7
Commitments
and contingencies (Note 15)
Shareholders' equity
Ordinary shares of £ii0.50/
par value; authorized ii40,000,000/ shares for
2022 and 2021; issued and outstanding ii28,944,000/ for
2022 and 2021
$
i26.5
$
i26.5
Deferred
shares of £ii0.0001/ par value; authorized issued and
outstanding iiiiii761,835,318,444/////
shares for 2021
i—
i149.9
Additional
paid-in capital
i220.6
i70.9
Treasury
shares
(i16.2)
(i9.6)
Own
shares held by ESOP
(i0.9)
(i1.1)
Retained
earnings
i121.8
i107.5
Accumulated
other comprehensive loss
(i156.5)
(i135.0)
Total
shareholders' equity
$
i195.3
$
i209.1
Total
liabilities and shareholders' equity
$
i392.4
$
i368.8
See
accompanying notes to condensed consolidated financial statements
3
LUXFER HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Year-to-date
In
millions
2022
2021
Operating activities
Net income
$
i24.9
$
i30.3
Net
loss / (income) from discontinued operations
i0.9
(i3.8)
Net
income from continuing operations
$
i25.8
$
i26.5
Adjustments
to reconcile net income to net cash (used) / provided by operating activities
Depreciation
i9.8
i10.5
Amortization
of purchased intangible assets
i0.6
i0.7
Amortization
of debt issuance costs
i0.4
i0.3
Share-based
compensation charges
i1.8
i2.2
Deferred
income taxes
i0.5
(i2.2)
Gain
on disposal of property, plant and equipment
(i0.2)
i—
Defined
benefit pension credit
(i0.9)
(i1.8)
Defined
benefit pension contributions
i—
(i4.6)
Changes
in assets and liabilities
Accounts and other receivables
(i13.6)
(i10.2)
Inventories
(i29.6)
(i5.4)
Current
assets held-for-sale
(i3.8)
(i1.6)
Other
current assets
i—
i0.4
Accounts
payable
i3.5
i9.6
Accrued
liabilities
i5.5
i8.6
Current
liabilities held-for-sale
i3.5
(i1.0)
Other
current liabilities
(i1.9)
i0.7
Other
non-current assets and liabilities
(i4.6)
i1.4
Net
cash (used) / provided by operating activities - continuing
(i3.2)
i34.1
Net
cash provided by operating activities - discontinued
i—
i—
Net
cash (used) / provided by operating activities
$
(i3.2)
$
i34.1
Investing
activities
Capital expenditures
$
(i5.2)
$
(i5.6)
Proceeds
from sale of property, plant and equipment
i3.7
i—
Proceeds
from sale of businesses and other
i—
i23.7
Acquisitions,
net of cash acquired
i—
(i19.3)
Net
cash used by investing activities - continuing
(i1.5)
(i1.2)
Net
cash used by investing activities - discontinued
i—
i—
Net
cash used by investing activities
$
(i1.5)
$
(i1.2)
Financing
activities
Net drawdown / (repayment) of long-term borrowings
$
i31.7
$
(i4.4)
Repurchase
of deferred shares
(i0.1)
i—
Repurchase
of own shares
(i6.9)
(i2.8)
Share-based
compensation cash paid
(i1.4)
(i1.9)
Dividends
paid
(i10.6)
(i10.2)
Net
cash provided / (used) by financing activities
$
i12.7
$
(i19.3)
Effect
of exchange rate changes on cash and cash equivalents
(i2.9)
i0.1
Net
increase
$
i5.1
$
i13.7
Cash,
cash equivalents and restricted cash; beginning of year
i6.4
i1.5
Cash,
cash equivalents and restricted cash; end of the Third Quarter
i11.5
i15.2
Supplemental
cash flow information:
Interest payments
$
i2.8
$
i2.5
Income
tax payments, net
i2.2
i5.2
See
accompanying notes to condensed consolidated financial statements
4
LUXFER HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
See
accompanying notes to condensed consolidated financial statements
6
LUXFER HOLDINGS PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. iiBasis
of Presentation and Responsibility for interim Financial Statements/
We prepared the accompanying unaudited condensed consolidated financial statements of Luxfer Holdings PLC and all wholly-owned, majority owned or otherwise controlled subsidiaries on the same basis as our annual audited financial statements. We condensed or omitted certain information and footnote disclosures normally included in our annual audited financial statements, which we prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Our quarterly financial statements should
be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021. As used in this report, the terms "we,""us,""our,""Luxfer" and "the Company" mean Luxfer Holdings PLC and its subsidiaries, unless the context indicates another meaning.
In the opinion of management, our financial statements reflect all adjustments, which are only of a normal recurring nature, necessary for the fair statement of financial statements for interim periods in accordance with U.S. GAAP and with the instructions to Form 10-Q in Article 10 of Securities and Exchange Commission (SEC) Regulation S-X.
The preparation
of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates, and any such differences may be material to our financial statements.
iOur fiscal year ends on December 31. We report our interim quarterly periods on a 13-week quarter basis, ending on a Sunday. The Third Quarter 2022, ended on September 25,
2022, and the Third Quarter 2021, ended on September 26, 2021.
Basic earnings per share are computed by dividing net income or loss for the period by the weighted-average number of ordinary shares outstanding, net of treasury shares and shares held in ESOP. Diluted earnings per share are computed by dividing net income or loss for the period by the weighted average number of ordinary shares outstanding and the dilutive ordinary shares equivalents.
i
Basic and diluted earnings per share were calculated as follows:
Third
Quarter
Year-to-date
In millions except share and per-share data
2022
2021
2022
2021
Basic earnings:
Net
income from continuing operations
$
i8.5
$
i6.0
$
i25.8
$
i26.5
Net
(loss) / income from discontinued operations
(i0.5)
(i1.2)
(i0.9)
i3.8
Net
income
$
i8.0
$
i4.8
$
i24.9
$
i30.3
Weighted
average number of £ii0.50/ ordinary shares:
For
basic earnings per share
i27,295,862
i27,722,472
i27,403,844
i27,718,874
Dilutive
effect of potential common stock
i229,452
i311,260
i249,042
i353,281
For
diluted earnings per share
i27,525,314
i28,033,732
i27,652,886
i28,072,155
Earnings
/ (loss) per share using weighted average number of ordinary shares outstanding(1):
Basic earnings per ordinary share for continuing operations
$
i0.31
$
i0.22
$
i0.94
$
i0.96
Basic
(loss) / earnings per ordinary share for discontinued operations
(i0.02)
(i0.04)
(i0.03)
i0.14
Basic
earnings per ordinary share
$
i0.29
$
i0.17
$
i0.91
$
i1.09
Diluted
earnings per ordinary share for continuing operations
$
i0.31
$
i0.21
$
i0.93
$
i0.94
Diluted
(loss) / earnings per ordinary share for discontinued operations
(i0.02)
(i0.04)
(i0.03)
i0.14
Diluted
earnings per ordinary share
$
i0.29
$
i0.17
$
i0.90
$
i1.08
(1)
The calculation of earnings per share is performed separately for continuing and discontinued operations. As a result, the sum of the two in any particular period may not equal the earnings-per-share amount in total
/
In the third quarter of 2022 and 2021 and year-to-date 2022, basic average shares outstanding and diluted average shares outstanding were the same for discontinued operations because the effect of potential shares of common stock was anti-dilutive since the Company generated a net loss from discontinued operations.
.
8
3. iNet
Sales
i
Disaggregated sales disclosures for the quarter and year-to-date ended September 25, 2022, and September 26, 2021, are included below and in Note 14, Segmental Information.
Third
Quarter
2022
2021
In millions
Gas Cylinders
Elektron
Total
Gas Cylinders
Elektron
Total
General industrial
$
i7.0
$
i31.0
$
i38.0
$
i7.6
$
i21.6
$
i29.2
Transportation
i17.9
i11.3
i29.2
i19.7
i11.4
i31.1
Defense,
First Response & Healthcare
i18.5
i14.5
i33.0
i18.3
i12.6
i30.9
$
i43.4
$
i56.8
$
i100.2
$
i45.6
$
i45.6
$
i91.2
Year-to-date
2022
2021
In
millions
Gas Cylinders
Elektron
Total
Gas Cylinders
Elektron
Total
General industrial
$
i23.7
$
i90.1
$
i113.8
$
i23.3
$
i69.0
$
i92.3
Transportation
i53.9
i40.4
i94.3
i50.7
i35.1
i85.8
Defense,
First Response & Healthcare
i54.3
i44.3
i98.6
i54.3
i43.0
i97.3
$
i131.9
$
i174.8
$
i306.7
$
i128.3
$
i147.1
$
i275.4
/
The
Company’s performance obligations are satisfied at a point in time. With the reclassification of our Superform business as discontinued operations, none of the Company's revenue from continuing operations is satisfied over time. As a result, the Company's contract receivables, contract assets and contract liabilities are included within current assets and liabilities held-for-sale.
4. iRestructuring
The
$i0.3 million (2021: $i0.5 million) and $i2.0
million restructuring charges (2021: $i2.1 million) in the third quarter and first nine months of 2022, respectively, included $i0.3 million (2021: $i0.3 million)
and $i1.8 million (2021: $i1.0 million), respectively, of further costs associated with the closure of Luxfer Gas Cylinders France, and was largely legal and professional fees. In addition $i0.2 million
of costs were incurred in the second quarter of 2022 relating to one-time employee termination benefits in the Elektron division in relation to the consolidation of production facilities in the Magnesium Powders operations.
The first nine months of 2021 also includes $i0.9 million primarily of one-time employee termination benefits in the Elektron division, largely in relation to the divestiture of our small Luxfer Magtech production facility in Ontario, Canada.
iRestructuring-related
costs by reportable segment were as follows:
Third Quarter
Year-to-date
In
millions
2022
2021
2022
2021
Severance and related costs
Gas Cylinders
$
i0.3
$
i0.5
$
i1.8
$
i1.1
Elektron
i—
i—
i0.2
i1.0
Total
restructuring charges
$
i0.3
$
i0.5
$
i2.0
$
i2.1
/
9
4. Restructuring
(continued)
i
Activity related to restructuring, recorded in Other current liabilities in the consolidated balance sheets is summarized as follows:
In
millions
2022
Balance at January 1,
$
i11.7
Costs incurred
i2.0
Cash
payments and other
(i9.8)
Balance at September 25,
$
i3.9
/
5. iAcquisition
and disposal related costs
On March 15, 2021the Company completed the acquisition of the Structural Composites Industries LLC (SCI) business of Worthington Industries, Inc., based in Pomona, California, for $i19.3 million cash consideration. The acquisition of SCI strengthens Luxfer’s composite cylinder offerings and aligns with recent investment
to enhance our alternative fuel capabilities to capitalize on the growing compressed natural gas (CNG) and hydrogen opportunities.
Acquisition-related costs of $i0.3 million in the first nine months of 2022 and $i1.5 million
in the first nine months of 2021 represent transitional costs and professional fees incurred in relation to the SCI acquisition.
6. iOther charges
There were ino
other charges in the first nine months of 2022. Other charges of $i1.1 million in the first nine months of 2021 relates to the settlement of a class action lawsuit in the Gas Cylinders segment in relation to an alleged historic violation of the Californian Labor Code, concerning a Human Resources administration matter.
10
7. iiSupplementary
balance sheet information/
September 25,
December 31,
In millions
2022
2021
Accounts
and other receivables
Trade receivables
$
i54.0
$
i45.8
Related
parties
i0.1
i0.1
Prepayments
and accrued income
i6.5
i8.5
Derivative
financial instruments
i0.7
i0.1
Deferred
consideration
i1.0
i1.0
Other
receivables
i3.8
i2.3
Total
accounts and other receivables
$
i66.1
$
i57.8
Inventories
Raw
materials and supplies
$
i44.1
$
i39.3
Work-in-process
i41.8
i26.7
Finished
goods
i25.7
i24.5
Total
inventories
$
i111.6
$
i90.5
Property,
plant and equipment, net
Land, buildings and leasehold improvements
$
i56.8
$
i64.6
Machinery
and equipment
i241.1
i266.3
Construction
in progress
i8.8
i8.4
Total
property, plant and equipment
i306.7
i339.3
Accumulated
depreciation and impairment
(i231.7)
(i251.8)
Total
property, plant and equipment, net
$
i75.0
$
i87.5
Other
current liabilities
Restructuring provision
$
i3.9
$
i11.7
Short
term provision
i1.0
i0.2
Derivative
financial instruments
i0.7
i0.1
Operating
lease liability
i4.5
i3.0
Advance
payments
i2.5
i4.6
Total
other current liabilities
$
i12.6
$
i19.6
Other
non-current liabilities
Contingent liabilities
$
i0.6
$
i1.8
Operating
lease liability
i18.8
i9.8
Other
non-current liabilities
i0.1
i—
Total
other non-current liabilities
$
i19.5
$
i11.6
11
8.
iGoodwill and other identifiable intangible assets
i
Changes in goodwill during the first nine months ended September 25, 2022, were as
follows:
The
weighted-average interest rate on the revolving credit facility was i3.60% for the Third Quarter of 2022 and i1.70% for the full-year 2021.
12
9. Debt
(continued)
iThe maturity profile of the Company's debt, excluding unamortized issuance costs and discounts, is as follows:
In
millions
2022
2023
2024
2025
2026
Thereafter
Total
Loan
Notes due 2023
i—
i25.0
i—
i—
i—
i—
i25.0
Loan
Notes due 2026
i—
i—
i—
i—
i25.0
i—
i25.0
Revolving
credit facility
i—
i—
i—
i—
i37.6
i—
i37.6
Total
debt
$
i—
$
i25.0
$
i—
$
i—
$
i62.6
$
i—
$
i87.6
/
Loan
notes due and shelf facility
The Note Purchase Agreement and Private Shelf Agreement requires us to maintain compliance with a minimum interest coverage ratio and a leverage ratio. We have been in compliance with the covenants under the Note Purchase and Private Shelf Agreement throughout all of the quarterly measurement dates from and including September 30, 2014, to September 25, 2022.
The Loan Notes due 2023 and 2026, the Shelf Facility and the Note Purchase and Private Shelf Agreement are governed by the law of the State of New York.
Senior Facilities Agreement
During the first nine months of 2022, we drew down net $i31.7
million on the Revolving Credit Facility and the balance outstanding at September 25, 2022, was $i37.6 million, and at December 31, 2021, was $i10.8
million, with $i62.3 million undrawn at September 25, 2022.
We have been in compliance with the covenants under the Senior Facilities Agreement throughout all of the quarterly measurement dates from and including September 30, 2011, to September 25, 2022.
10. iDiscontinued
Operations
Our Superform aluminum superplastic forming business operating in the U.S. was historically included in the Gas Cylinders segment. As a result of our decision to exit non-strategic aluminum product lines, we have reflected the results of operations of this business as discontinued operations in the Condensed Consolidated Statements of Income for all periods presented. We expect the sale of our Superform business to occur in 2022.
The assets and liabilities of the Superform business have been presented within assets held-for-sale and liabilities held-for-sale in the consolidated balance sheets for 2022 and 2021.
In 2021, our Superform U.K. business was also disclosed within assets and liabilities held-for-sale. The business was sold in September 2021.
i
Results
of discontinued operations in the first nine months of 2022 and 2021 were as follows:
Third Quarter
Year-to-date
In
millions
2022
2021
2022
2021
Net sales
$
i1.8
$
i4.9
$
i5.5
$
i19.5
Cost
of goods sold
(i1.7)
(i4.7)
(i4.9)
(i20.4)
Gross
profit/(loss)
$
i0.1
$
i0.2
$
i0.6
$
(i0.9)
Selling,
general and administrative expenses
(i0.1)
(i1.4)
(i0.5)
(i3.1)
Restructuring
charges
i—
i—
(i0.3)
i—
Acquisition
and disposal related costs
(i0.7)
i—
(i0.9)
i—
Operating
loss
$
(i0.7)
$
(i1.2)
$
(i1.1)
$
(i4.0)
Tax
credit
i0.2
i0.5
i0.2
i1.2
Net
loss
$
(i0.5)
$
(i0.7)
$
(i0.9)
$
(i2.8)
/
13
10. Discontinued
Operations (continued)
Our U.S. aluminum gas cylinder business was sold in March 2021 for $i21.0 million. During 2021, $i0.8 million
of working capital adjustments were made, resulting in final proceeds of $i20.2 million.
In the Third Quarter of 2021, the Company also recorded a $i0.1 million
loss on the sale of the Superform U.K business resulting in a total $i0.5 million loss on disposition in the quarter and $i6.6 million
gain on disposition in the year.
The assets and liabilities classified as held-for-sale related to discontinued operations were as follows:
Held-for-sale assets
September 25,
December 31,
In millions
2022
2021
Right-of-use-assets
from operating leases
$
i2.8
$
i—
Inventory
i3.0
i2.7
Accounts
and other receivables
i2.1
i2.1
Held-for-sale
assets
$
i7.9
$
i4.8
Held-for-sale
liabilities
Accounts payable
i1.1
i0.5
Accrued
liabilities
i0.5
i0.1
Other
liabilities
i0.2
i—
Lease
Liabilities
i3.1
i0.8
Held-for-sale
liabilities
$
i4.9
$
i1.4
Also
included within assets held-for-sale in 2022 are land and buildings valued at $i1.2 million, and an additional $i3.7 million
in 2021, within our Elektron Segment.
The depreciation and amortization, capital expenditures and significant non-cash items were as follows:
Third Quarter
Year-to-date
In
millions
2022
2021
2022
2021
Cash flows from discontinued operating activities:
Depreciation
$
i—
$
i0.1
$
i—
$
i0.4
Cash
balances are swept into the treasury entities at the end of each day, these sweeps are recorded within operating cash flows in the statements of cash flows.
11. iIncome Taxes
We manage our affairs so that we are centrally managed and controlled in the United Kingdom (“U.K.”) and therefore have our tax residency in the U.K. The provision for income taxes consists of provisions
for the U.K. and international income taxes. We operate in an international environment with operations in various locations outside the U.K. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.
The effective income tax rate on continuing operations for the first nine months ended September 25, 2022, was i21.8%, compared to i12.0% for
the first nine months ended September 26, 2021. The 2021 rate was impacted by a $i2.8 million deferred tax credit as a result of the enacted increase in the U.K. tax rate from 19% to 25% from April 2023.
/In
March 2022, we issued our annual share-based compensation grants under the Luxfer Holdings PLC Long-Term Umbrella Incentive Plan. The total number of awards issued was approximately i167,400 and the weighted average fair value of options granted in 2022 was estimated to be $i17.82
per share.
Also in March 2022, approximately i17,000 awards were granted based on the achievement of total shareholder return targets from the period January 1, 2019 to December 31, 2021. i50%
of these awards vested immediately upon grant, with the remaining i50% vesting in March 2023.
In May 2022, approximately i19,000
additional awards were granted under the Luxfer Holdings PLC Long-Term Umbrella Incentive Plan. The fair value of options granted was estimated to be $i15.00 per share.
In June 2022, we issued our annual share-based compensation grants under the Luxfer Holdings PLC Non-Executive Directors' Equity Incentive Plan. The total number of awards issued was i26,295
and the weighted-average fair value of options granted was estimated to be $i15.50 per share.
iThe
following table illustrates the assumptions used in deriving the fair value of share options granted during 2022 and the year-ended December 31, 2021:
2022
2021
Dividend yield (%)
i2.27
i2.27
Expected
volatility range (%)
i42.80 - i59.03
i42.80
- i59.03
Risk-free interest rate (%)
i0.04
- i0.24
i0.04
- i0.24
Expected life of share options range (years)
i0.50
- i4.00
i0.50
- i4.00
Forfeiture rate (%)
i5.00
i5.00
Weighted
average exercise price ($)
$i1.00
$i1.00
Model
used
Black-Scholes & Monte-Carlo
Black-Scholes & Monte-Carlo
/
The expected life of the share options is based on historical data and current expectations, and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome.
15
13. iShareholders'
Equity
Dividends paid and proposedi
Third
Quarter
Year-to-date
In millions
2022
2021
2022
2021
Dividends declared and paid during the year:
Interim
dividend declared January 4 2021, and paid February 4, 2021 ($i0.125 per ordinary share)
$
—
$
—
$
—
$
i3.4
Interim
dividend declared April 5 2021, and paid May 5, 2021 ($i0.125 per ordinary share)
—
—
—
i3.4
Interim
dividend declared July 6 2021, and paid August 4, 2021 ($i0.125 per ordinary share)
—
i3.4
—
i3.4
Interim
dividend declared January 4 2022, and paid February 2, 2022 ($i0.125 per ordinary share)
—
—
i3.4
—
—
Interim
dividend declared March 10 2022, and paid May 4, 2022 ($i0.130) per ordinary share)
—
—
i3.6
—
Interim
dividend declared July 5 2022, and paid August 3, 2022 ($i0.130) per ordinary share)
i3.6
—
i3.6
—
$
i3.6
$
i3.4
$
i10.6
$
i10.2
In
millions
2022
2021
Dividends declared and paid after the quarter end (not recognized as a liability at the quarter end):
Interim dividend declared October 5, and to be paid November 3, 2021 ($i0.125
per ordinary share)
$
—
$
i3.4
Interim dividend declared October 4, and to be paid November 2, 2022 ($i0.130
per ordinary share)
i3.6
—
$
i3.6
$
i3.4
/
In
July 2022 the Company made a payment of $i0.1 million to cancel the entirety of deferred shares held, $i149.8 million
was reallocated to additional paid-in capital to reflect the capital reduction in deferred shares.
16
14. iSegmental Information
We classify our operations into itwo
core business segments, Gas Cylinders and Elektron, based primarily on shared economic characteristics for the nature of the products and services; the nature of the production processes; the type or class of customer for their products and services; the methods used to distribute their products or provide their services; and the nature of the regulatory environment. The Company has ifour identified business units, which aggregate into the itwo
reportable segments. Luxfer Gas Cylinders forms the Gas Cylinders segment, and Luxfer MEL Technologies, Luxfer Magtech and Luxfer Graphic Arts aggregate into the Elektron segment. The Superform business unit used to aggregate into the Gas Cylinders segment, but is now recognized as discontinued operations. A summary of the operations of the segments is provided below:
Gas Cylinders segment
Our Gas Cylinders segment manufactures and markets specialized products using composites and aluminum, including pressurized cylinders for use in various applications including self-contained breathing apparatus (SCBA) for firefighters, containment of oxygen and other medical gases for healthcare, alternative fuel vehicles, and general industrial.
Elektron segment Our Elektron segment focuses
on specialty materials based primarily on magnesium and zirconium, with key product lines including advanced lightweight magnesium alloys with a variety of uses across a variety of industries; magnesium powders for use in countermeasure flares, as well as heater meals; photoengraving plates for graphic arts; and high-performance zirconium-based materials and oxides used as catalysts and in the manufacture of advanced ceramics, fiber-optic fuel cells, and many other performance products.
Other
Other primarily represents unallocated corporate expense and includes non-service related defined benefit pension cost / credit.
Management monitors the operating results of its reportable segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated by the chief operating decision maker,
who is responsible for allocating resources and assessing performance of the operating segments as the CEO, using adjusted EBITA(1) and adjusted EBITDA, which we defined as segment income and are based on operating income adjusted for share based compensation charges; loss on disposal of property, plant and equipment; restructuring charges; impairment charges; acquisition and disposal related gains and costs; other charges; depreciation and amortization; and unwind of the discount on deferred consideration.
1 Adjusted EBITA is adjusted EBITDA less depreciation
Unallocated assets and liabilities include those which are held on behalf of the Company and cannot be allocated to a segment, such as taxation, investments, cash, retirement
benefits obligations, bank and other loans and holding company assets and liabilities.
i
Financial information by reportable segment for the Third Quarter and year-to-date ended September 25, 2022, and September 26, 2021, is included in the following summary:
Net
sales
Adjusted EBITDA
Third Quarter
Year-to-date
Third Quarter
Year-to-date
In millions
2022
2021
2022
2021
2022
2021
2022
2021
Gas
Cylinders segment
$
i43.4
$
i45.6
$
i131.9
$
i128.3
$
i3.4
$
i5.4
$
i9.8
$
i16.7
Elektron
segment
i56.8
i45.6
i174.8
i147.1
i12.7
i8.4
i39.3
i32.1
Consolidated
$
i100.2
$
i91.2
$
i306.7
$
i275.4
$
i16.1
$
i13.8
$
i49.1
$
i48.8
Depreciation
and amortization
Restructuring charges
Third Quarter
Year-to-date
Third Quarter
Year-to-date
In millions
2022
2021
2022
2021
2022
2021
2022
2021
Gas
Cylinders segment
$
i1.2
$
i1.4
$
i3.8
$
i3.9
$
i0.3
$
i0.5
$
i1.8
$
i1.1
Elektron
segment
i2.1
i2.4
i6.6
i7.3
i—
i—
i0.2
i1.0
Consolidated
$
i3.3
$
i3.8
$
i10.4
$
i11.2
$
i0.3
$
i0.5
$
i2.0
$
i2.1
/
17
14. Segmental
Information (continued)
Total
assets
Capital expenditures
September 25,
December 31,
Third Quarter
Year-to-date
In millions
2022
2021
2022
2021
2022
2021
Gas
Cylinders segment
$
i131.0
$
i122.7
$
i0.4
$
i0.2
$
i0.8
$
i0.7
Elektron
segment
i213.1
i206.5
i2.1
i1.8
i4.7
i4.9
Other
i40.4
i34.8
i—
i—
i—
i—
Discontinued
operations
$
i7.9
$
i4.8
$
i—
$
i—
$
i—
$
i—
Consolidated
$
i392.4
$
i368.8
$
i2.5
$
i2.0
$
i5.5
$
i5.6
i
Property,
plant and equipment, net
September 25,
December 31,
In millions
2022
2021
U.S.
$
i42.2
$
i46.9
United
Kingdom
i28.8
i36.0
Canada
i2.9
i3.3
Rest
of Europe
i0.9
i1.0
Asia
Pacific
i0.2
i0.3
$
i75.0
$
i87.5
/iThe
following table presents a reconciliation of Adjusted EBITDA to net income from continuing operations:
Third Quarter
Year-to-date
In
millions
2022
2021
2022
2021
Adjusted EBITDA
$
i16.1
$
i13.8
$
i49.1
$
i48.8
Other
share-based compensation charges
(i0.9)
(i0.8)
(i1.8)
(i2.2)
Depreciation
and amortization
(i3.3)
(i3.8)
(i10.4)
(i11.2)
Gain
on disposal of property, plant and equipment
i—
i—
i0.2
i—
Restructuring
charges
(i0.3)
(i0.5)
(i2.0)
(i2.1)
Acquisition
and disposal related costs
i—
(i0.6)
(i0.3)
(i1.5)
Other
charges
i—
i—
i—
(i1.1)
Defined
benefits pension credit
i0.2
i0.6
i0.9
i1.8
Interest
expense, net
(i1.0)
(i0.8)
(i2.7)
(i2.4)
Net
income before income taxes from continuing operations
$
i10.8
$
i7.9
$
i33.0
$
i30.1
i
The
following tables present certain geographic information by geographic region for the Third Quarter ended September 25, 2022, and September 26, 2021:
Net
Sales(1)
Third Quarter
Year-to-date
2022
2021
2022
2021
$M
Percent
$M
Percent
$M
Percent
$M
Percent
United
States
$
i57.0
i56.8
%
$
i49.4
i54.2
%
$
i174.0
i56.8
%
$
i151.8
i55.1
%
U.K.
i4.6
i4.6
%
i6.5
i7.1
%
i16.0
i5.2
%
i17.5
i6.4
%
Germany
i4.4
i4.4
%
i5.1
i5.6
%
i15.3
i5.0
%
i13.2
i4.8
%
France
i1.8
i1.8
%
i2.6
i2.9
%
i6.7
i2.2
%
i9.3
i3.4
%
Italy
i2.5
i2.5
%
i3.5
i3.8
%
i8.4
i2.7
%
i9.5
i3.4
%
Top
five countries
$
i70.3
i70.1
%
$
i67.1
i73.6
%
$
i220.4
i71.9
%
$
i201.3
i73.1
%
Rest
of Europe
i6.7
i6.7
%
i4.9
i5.4
%
i19.1
i6.2
%
i19.0
i6.9
%
Asia
Pacific
i18.3
i18.3
%
i13.7
i15.0
%
i50.7
i16.5
%
i38.1
i13.8
%
Other
(2)
i4.9
i4.9
%
i5.5
i6.0
%
i16.5
i5.4
%
i17.0
i6.2
%
$
i100.2
$
i91.2
$
i306.7
$
i275.4
(1)
Net sales are based on the geographic destination of sale.
(2) Other includes Canada, South America, Latin America and Africa.
The Company also has a separate (uncommitted) bonding facility for bank guarantees, denominated in GBP sterling of £i0.5 million
or $i0.5 million (2021: £i0.6 million or $i0.9 million),
£i0.1 million ($i0.1 million) and £i0.1 million
($i0.2 million) was utilized at September 25, 2022, and December 31, 2021, respectively.
In November 2018, an explosion occurred at a third-party waste disposal and treatment site in Boise, Idaho, reportedly causing property damage, personal injury, and one fatality. We had contracted with a service company for removal and disposal of certain waste resulting from the magnesium powder manufacturing operations at the Reade facility in Lakehurst, New Jersey. We believe this service company, in turn, apparently contracted with the third-party disposal company, at whose facility the explosion occurred, for treatment and disposal of the waste. In November 2020, we were named as a defendant in ithree
lawsuits in relation to the incident - one by the third-party disposal company, one by the estate of the decedent, and one by an injured employee of the third-party disposal company. We do not believe that we are liable for the incident, have asserted such, and, therefore, do not currently expect this matter to have a material impact on the Company’s financial position or results of operations.
16. iSubsequent
Events
No material events.
19
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Information regarding forward-looking statements
This Interim Report on Form 10-Q contains certain statements, statistics and projections that are, or may be, forward-looking. These forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause our actual results of operations, financial condition, liquidity, performance, prospects, opportunities,
achievements or industry results, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or suggested by, these forward-looking statements. The accuracy and completeness of all such statements, including, without limitation, statements regarding our future financial position, strategy, plans and objectives for the management of future operations, is not warranted or guaranteed. These statements typically contain words such as "believes,""intends,""expects,""anticipates,""estimates,""may,""will,""should" and words of similar import. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the
expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove to be correct. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to, factors identified in "Business,""Risk factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," or elsewhere in this Interim Report, as well as:
•general economic conditions, or conditions affecting demand for the services offered by us in the markets in which we operate, both domestically and internationally, being less favorable than expected;
•worldwide economic and business conditions and conditions in the industries in
which we operate;
•post-pandemic impact of COVID-19 and future pandemics;
•fluctuations in the cost and / or availability of raw materials, labor and energy, as well as our ability to pass on cost increases to customers;
•currency fluctuations and other financial risks;
•our ability to protect our intellectual property;
•the amount of indebtedness we have incurred and may incur, and the obligations to service such indebtedness and to comply with the covenants contained therein;
•relationships with our customers and suppliers;
•increased
competition from other companies in the industries in which we operate;
•changing technology;
•our ability to execute and integrate new acquisitions;
•claims for personal injury, death or property damage arising from the use of products produced by us;
•the occurrence of accidents or other interruptions to our production processes;
•changes in our business strategy or development plans, and our expected level of capital expenditure;
•our ability to attract and retain qualified personnel;
•restrictions
on the ability of Luxfer Holdings PLC to receive dividends or loans from certain of its subsidiaries;
•climate change regulations and the potential impact on energy costs;
•regulatory, environmental, legislative and judicial developments; and
•our intention to pay dividends.
Please read the sections "Business" and "Risk factors" included within the 2021 Annual Report on Form 10-K and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Risk factors" of this Interim Report on Form 10-Q for a more complete discussion of the factors that could affect our performance
and the industries in which we operate, as well as those discussed in other documents we file or furnish with the SEC.
20
About Luxfer
Luxfer is a global manufacturer of highly-engineered industrial materials, which focuses on value creation by using its broad array of technical know-how and proprietary technologies. Luxfer's high-performance products are used in defense and emergency response, healthcare, transportation, and general industrial settings. For more information, visit www.luxfer.com.
Key trends and uncertainties
regarding our existing business
Update on ongoing challenging global macro environment and related impact on supply chain disruption
Demand from most end-markets we serve has continued to improve following the adverse impact of COVID-19
on volumes, notably in 2020. This sharp recovery in demand across the global macro environment has resulted in supply chain challenges characterized by significant increases in material cost inflation on key inputs (including magnesium, aluminum and carbon fiber), labor availability issues and energy and transport cost increases. Additionally, in the prior year we were faced with two critical suppliers of magnesium and zirconium respectively declaring force majeure, of which the former remains in place. The continuing conflict in Ukraine which has resulted in punitive sanctions against the Russian Federation
has further exacerbated the availability
and price of certain raw materials and energy supplies. In response to the supply chain disruption, we have been
successful in securing alternative sources of supply for key material inputs affected by force majeure.
Furthermore, in the majority of cases, we are able to pass through inflation to our customers. Currently, our
expectation is that the impact of material availability / inflation and energy cost inflation and labor and transport
constraints will continue into 2023; that we will be able to source sufficient material to meet demand and that in the majority of cases we expect to be able to pass on cost increases. However the outlook remains highly uncertain with both the size and timing of future cost increases difficult to predict.
Impact
of conflict in Ukraine
However the outlook remains highly uncertain with both the size and timing of future cost increases difficult to predict. The Russian invasion of Ukraine and ongoing military conflict which commenced on February 24, 2022, has resulted in massive displacement of the Ukrainian population and huge disruption to its economy. Wide ranging sanctions have been imposed on the Russian Federation by the international community, targeting individuals, banks, businesses, funds transfers and imports and exports and are expected to have a significant adverse impact on Russia's economy as well as on international businesses active in the region. The impact on Luxfer is not expected to be significant as we have no direct operations in the region, and our sales to Russia and Ukraine combined typically represent less than one percent of total revenue
by destination. Furthermore, neither country is a critical supplier of our raw material needs, and while Russia is a major global exporter of magnesium, we are able to source the metal from various alternative locations, including China, Israel, Turkey and the United States.
Operating objectives and trends
In 2022, we expect the following operating objectives and trends to impact our business:
•Organic growth initiatives with particular focus on revenue from new products;
•Actions to ensure continuity of supply of critical materials and services while safeguarding margins amid inflationary pressures;
•Proactive response on health and well-being
of employees, including continuous improvement on safety;
•Targeted improvements in ESG standing through investment in new projects;
•Continued focus on recruiting and developing talent and driving a high-performance culture; and
•Continued focus on operating cash generation leveraging our recent years' of restructuring activity and targeting strong working capital performance.
21
CONSOLIDATED RESULTS OF OPERATIONS
The consolidated results of operations for the Third Quarter of 2022 and 2021 of Luxfer
were as follows:
Third Quarter
% / point change
In
millions
2022
2021
2022 v 2021
Net sales
$
100.2
$
91.2
9.9
%
Cost
of goods sold
(77.0)
(70.1)
9.8
%
Gross profit
23.2
21.1
10.0
%
%
of net sales
23.2
%
23.1
%
0.1
Selling, general and administrative expenses
(10.3)
(10.6)
(2.8)
%
%
of net sales
10.3
%
11.6
%
(1.3)
Research and development
(1.0)
(1.3)
(23.1)
%
%
of net sales
1.0
%
1.4
%
(0.4)
Restructuring charges
(0.3)
(0.5)
(40.0)
%
%
of net sales
0.3
%
0.5
%
(0.2)
Acquisition
and disposal related costs
—
(0.6)
(100.0)
%
% of net sales
—
%
(0.7)
%
0.7
Operating
income
$
11.6
$
8.1
43.2
%
% of net sales
11.6
%
8.9
%
2.7
Net
interest expense
(1.0)
(0.8)
25.0
%
% of net sales
1.0
%
0.9
%
0.1
Defined
benefit pension credit
0.2
0.6
(66.7)
%
% of net sales
0.2
%
0.7
%
(0.5)
Income
before income taxes
$
10.8
$
7.9
36.7
%
% of net sales
10.8
%
8.7
%
2.1
Provision
for income taxes
(2.3)
(1.9)
21.1
%
Effective tax rate
21.3
%
24.1
%
(2.8)
Net
income from continuing activities
$
8.5
$
6.0
41.7
%
% of net sales
8.5
%
6.6
%
1.9
22
The
consolidated results of operations for the nine months of 2022 and 2021 of Luxfer were as follows:
Year-to-date
% / point change
In
millions
2022
2021
2022 v 2021
Net sales
$
306.7
275.4
11.4
%
Cost of goods sold
(233.6)
(203.2)
15.0
%
Gross
profit
73.1
72.2
1.2
%
% of net sales
23.8
%
26.2
%
(2.4)
Selling,
general and administrative expenses
(32.5)
(33.9)
(4.1)
%
% of net sales
10.6
%
12.3
%
(1.7)
Research
and development
(3.5)
(2.9)
20.7
%
% of net sales
1.1
%
1.1
%
—
Restructuring
charges
(2.0)
(2.1)
(4.8)
%
% of net sales
0.7
%
0.8
%
(0.1)
Acquisition
and disposal related costs
(0.3)
(1.5)
(80.0)
%
% of net sales
0.1
%
(0.5)
%
0.6
Other
charges
—
(1.1)
n/a
% of net sales
—
%
0.4
%
(0.4)
Operating
income
34.8
30.7
13.4
%
% of net sales
11.3
%
11.1
%
0.2
Net
interest expense
(2.7)
(2.4)
12.5
%
% of net sales
0.9
%
0.9
%
—
Defined
benefit pension credit
0.9
1.8
(50.0)
%
% of net sales
0.3
%
0.7
%
(0.4)
Income
from continuing operations
33.0
30.1
9.6
%
% of net sales
10.8
%
10.9
%
(0.1)
Provision
for income taxes
(7.2)
(3.6)
100.0
%
Effective tax rate
21.8
%
12.0
%
9.8
Net
income from continuing operations
$
25.8
$
26.5
(2.6)
%
% of net sales
8.4
%
9.6
%
(1.2)
23
Net
sales
Adjusting for foreign exchange headwinds of $4.9 million and $9.8 million, net sales have increased by 15.2% and 14.9% in the third quarter and first nine months of 2022 respectively. The passing through of material cost inflation, where not constrained by contract, accounted for approximately 14.6% and 13.0% of the increase in consolidated net sales in the third quarter and first nine months, respectively, of 2022 from 2021. Furthermore, there was a benefit in the quarter from:
•Increased sales of magnesium powders used in commercial applications;
•Increased demand for composite cylinders used in aerospace and medical applications, although constrained by historical contractual prices;
•Increased
sales of magnesium alloys, especially those used in aerospace applications; and
•Higher demand for our zirconium products particularly in industrial applications.
These increases were partially offset by:
•Unfavorable foreign exchange variances as highlighted above;
•Softening sales of flameless ration heaters ("FRH") and Chemical detection kits, and
•Alternative fuel cylinders down on strong quarter in prior year.
Further to the above, the first nine months of the year were also affected by:
•Increased sales of magnesium powders used
in military applications; and
•Higher demand for photo-engraving plates
Gross profit
The 2.4 percentage point decrease in gross profit as a percentage of sales in the first nine months of 2022 from 2021 was primarily the result of increased material and labor costs and other supply chain investments to overcome disruption, not fully covered by price increases, particularly in the Gas Cylinders Division.
The 0.1 percentage point increase in gross profit as a percentage of sales in the third quarter of 2022 from 2021 is a result of positive sales mix between the Elektron and Gas Cylinders Division offsetting the impact of fixed-priced contracts in the Gas Cylinders Division.
Selling,
general and administrative expenses ("SG&A")
SG&A costs as a percentage of sales in 2022 from 2021 has decreased by 1.3 percentage points and 1.7 percentage points in the quarter and first nine months respectively, largely due to the impact of price increases on revenue, as well as cost reduction programs effected in the prior year. We have also benefited from foreign currency translation of $1.0 million and $1.6 million in the quarter and first nine months respectively.
Research and development costs
Research and development costs as a percentage of sales decreased by 0.4 percentage points in the third quarter and remained flat for the first nine months of 2022 relative to 2021 respectively. The reduction in the quarter has brought the year-to-date spend in
line with the prior year. There has been a $0.1 million impact due to foreign exchange, accounting for half of the percentage point reduction.
Restructuring charges
The $0.3 million and $2.0 million restructuring charge in the third quarter and first nine months of 2022 relates predominantly to costs associated with the closure of Luxfer Gas Cylinders France, which ceased operations in 2019. There was $0.2 million recognized in the second quarter of 2022 relating to one-time employee termination benefits in the Elektron division in relation to the consolidation of production facilities in the Magnesium Powders operations.
The $0.5 million and $2.1 million restructuring charge in the third quarter and first nine months of 2021 included $0.3 million and $1.1 million respectively of further costs associated
with the announced closure of Luxfer Gas Cylinders France, and was largely legal and professional fees. The first nine months of 2021 also includes $0.9 million of one-time employee termination benefits in the Elektron division, largely in relation to the planned divestiture of our small Elektron production facility in Ontario, Canada.
24
Acquisition and disposal related costs
Net costs of $0.3 million incurred in the first nine months of 2022 and $0.6 million and $1.5 million in the third quarter and first nine months of 2021 respectively, represents amounts incurred in relation to the acquisition of Structural Composites Industries.
Other charges
Other
charges in the first nine months of 2021 relates to the settlement of a class action lawsuit in the Gas Cylinders segment in relation to an alleged historic violation of the Californian Labor Code, concerning an Human Resources administration matter.
Net interest expense
Net interest expense of $1.0 million in the third quarter of 2022 increased $0.2 million from $0.8 million in the third quarter 2021,due to combination of increased interest rates and higher drawings. Interest expense of $2.7 million in the first nine months of 2022 was also higher than the $2.4 million in the first nine months of 2021.
Defined benefit pension credit
The $0.4 million and $0.9 million decrease in defined benefit pension credit to $0.2
million and $0.9 million in the third quarter and first nine months of 2022 from $0.6 million and $1.8 million in 2021 is primarily due to the combined effect on the U.K. plan of lower projected asset returns and a higher inflation projection coupled with the weakening of the pound sterling.
Provision for income taxes
The movement in the statutory effective tax rate from 12.0% in 2021, to 21.8% in 2022, was primarily due to the impact of the enacted tax rate change in the U.K. in 2021, which is due to rise from 19% to 25% in April 2023. The subsequent increase in the value of deferred tax assets related to our defined benefit pension plan resulted in a credit of $2.2 million recorded in our tax charge in the second quarter of 2021. When stripping out the impact of this, as well as other less significant adjusting items, the adjusted effective
tax rate has increased to 21.5% in 2022 from 21.2% in 2021, largely as a result of jurisdictional profit mix.
25
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES
The following table of non-GAAP summary financial data presents a reconciliation of net income to adjusted net income for the periods presented, being the most comparable GAAP measure. Management believes that adjusted net income, adjusted earnings per share, adjusted EBITA and adjusted EBITDA are key performance indicators (KPIs) used by the investment community and that such presentation will enhance an investor’s understanding of the
Company's operational results. In addition, Luxfer's CEO and other senior management use these KPIs, among others, to evaluate business performance. However, investors should not consider adjusted net income and adjusted earnings per share in isolation as an alternative to net income and earnings per share when evaluating Luxfer's operating performance or measuring Luxfer's profitability.
Third
Quarter
Year-to-date
In millions except per share data
2022
2021
2022
2021
Net income from continuing operations
$
8.5
$
6.0
$
25.8
$
26.5
Accounting
charges relating to acquisitions and disposals of businesses:
Amortization on acquired intangibles
0.2
0.3
0.6
0.7
Acquisition
and disposal related costs
—
0.6
0.3
1.5
Defined benefit pension credit
(0.2)
(0.6)
(0.9)
(1.8)
Restructuring
charges
0.3
0.5
2.0
2.1
Other charges
—
—
—
1.1
Share-based
compensation charges
0.9
0.8
1.8
2.2
Other non-recurring tax items(1)
—
—
—
(2.2)
Income
tax on adjusted items
(0.1)
(0.4)
(0.7)
(1.8)
Adjusted net income
$
9.6
$
7.2
$
28.9
$
28.3
Adjusted
earnings per ordinary share
Diluted earnings per ordinary share
$
0.31
$
0.21
$
0.93
$
0.94
Impact
of adjusted items
0.04
0.05
0.12
0.07
Adjusted diluted earnings per ordinary share(2)
$
0.35
$
0.26
$
1.05
$
1.01
(1)
Other non-recurring tax items represents the impact of the enacted U.K. tax rate change (from 19% to 25% with effect from April 2023) on deferred tax assets related to our U.K. defined benefit pension plan.
(2) For the purpose of calculating diluted earnings per share, the weighted average number of ordinary shares outstanding during the financial year has been adjusted for the dilutive effects of all potential ordinary shares and share options granted to employees, except where there is a loss in the period, then no adjustment is made.
Third
Quarter
Year-to-date
In millions
2022
2021
2022
2021
Adjusted net income
$
9.6
$
7.2
$
28.9
$
28.3
Add
back:
Other non-recurring tax items
—
—
—
2.2
Income
tax on adjusted items
0.1
0.4
0.7
1.8
Provision for income taxes
2.3
1.9
7.2
3.6
Net
finance costs
1.0
0.8
2.7
2.4
Gain on disposal of PPE
—
—
(0.2)
—
Adjusted
EBITA
$
13.0
$
10.3
$
39.3
$
38.3
Depreciation
3.1
3.5
9.8
10.5
Adjusted
EBITDA
$
16.1
$
13.8
$
49.1
$
48.8
26
The following table presents a reconciliation for the adjusted effective tax rate, which management
believes is a KPI used by the investment community and that such presentation will enhance an investor’s understanding of the Company's operational results.
Third
Quarter
Year-to-date
In millions
2022
2021
2022
2021
Adjusted net income
$
9.6
$
7.2
$
28.9
$
28.3
Add
back:
Other non-recurring tax items
—
2.2
—
2.2
Income
tax on adjusted items
0.1
0.4
0.7
1.8
Provision for income taxes
2.3
1.9
7.2
3.6
Adjusted
income before income taxes
$
12.0
$
11.7
$
36.8
$
35.9
Adjusted provision for income taxes
2.4
4.5
7.9
7.6
Adjusted
effective tax rate
20.0
%
38.5
%
21.5
%
21.2
%
SEGMENT RESULTS OF OPERATIONS
The summary that follows provides a discussion of the results of operations of each of our two reportable segments (Gas Cylinders and Elektron). Both segments comprise various product offerings that serve
multiple end markets.
Adjusted EBITDA represents operating income adjusted for share based compensation charges; gain on disposal of property, plant and equipment, restructuring charges; acquisition and disposal related gains and costs; other charges; depreciation and amortization. A reconciliation to net income and taxes can be found in Note 14 to the condensed consolidated financial statements.
GAS CYLINDERS
The net sales and adjusted EBITDA for Gas Cylinders were as follows:
Third
Quarter
% / point change
Year-to-date
% / point change
In millions
2022
2021
2022 v 2021
2022
2021
2022 v 2021
Net
sales
$
43.4
$
45.6
(4.8)%
$
131.9
$
128.3
2.8%
Adjusted EBITDA
3.4
5.4
(37.0)%
9.8
16.7
(41.3)%
%
of net sales
7.8
%
11.8
%
(4.0)
7.4
%
13.0
%
(5.6)
Net sales
The 4.8% decrease in Gas Cylinders sales in the third quarter
of 2022 from 2021 was primarily the result of:
•Continued reduction in sales of aluminum products;
•Reduction in alternative fuel and SCBA cylinder sales; and
•$2.6 million FX headwind.
These decreases have been partially offset by:
•Increased demand for composite cylinders used in aerospace; and
•Improved sales of medical oxygen cylinders.
Net sales in Gas Cylinders are still being impacted by the fixed-price contracts in place across the Division.
The
first nine months of 2022 has benefited from $7.1 million of sales due to the acquisition of SCI at the end of the first quarter of 2021, which has positively impacted sales of cylinders used in aerospace and alternative fuels ("AF") applications.
Adjusted EBITDA
The 4.0 percentage point and 5.6 percentage point decrease in adjusted EBITDA for Gas Cylinders as a percentage of net sales in the third quarter and first nine months of 2022 relative to 2021 continue to be impacted by timing of contractually constrained cost pass-through, though improving. Cost reduction effort activities more than offset adverse foreign exchange impact.
27
ELEKTRON
The
net sales and adjusted EBITDA for Elektron were as follows:
Third
Quarter
% / point change
Year-to-date
% / point change
In millions
2022
2021
2022 v 2021
2022
2021
2022 v 2021
Net
sales
$
56.8
$
45.6
24.6%
$
174.8
$
147.1
18.8%
Adjusted EBITDA
12.7
8.4
51.2%
39.3
32.1
22.4%
%
of net sales
22.4
%
18.4
%
4.0
22.5
%
21.8
%
0.7
Net sales
The 24.6% and 18.8% increase in Elektron sales in the third quarter
and first nine months, respectively, of 2022 from 2021 was primarily the result of:
•Increased sales of magnesium powders used in commercial applications;
•Improved sales of zirconium products including catalysis and traditional oxides; and
•Increased demand for magnesium used in the aerospace market.
These increases were partially offset by a decrease in sales of flameless ration heaters, heater meals and chemical response kits supplied by Luxfer Magtech.
Net sales were also impacted by $2.3 million of FX headwinds.
Adjusted EBITDA
The 4.0 and 0.7
percentage point increase in adjusted EBITDA for Elektron as a percentage of net sales in the third quarter and first nine months respectively of 2022 from 2021 was primarily the result of the Division's ability to pass on the continued inflationary cost increases, as well as the benefit of positive foreign exchange variances.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements arise primarily from obligations under our indebtedness, capital expenditures, acquisitions, the funding of working capital and the funding of hedging facilities to manage foreign exchange and commodity purchase price risks. We meet these requirements primarily through cash flows from operating activities, cash deposits and borrowings under the Revolving Credit Facility and accompanying ancillary hedging facilities and the Loan Notes due, 2023 and 2026. Our principal
liquidity needs are:
•funding acquisitions, including deferred contingent consideration payments;
•capital expenditure requirements;
•payment of shareholder dividends;
•servicing interest on the Loan Notes, which is payable at each quarter end, in addition to interest and / or commitment fees on the Senior Facilities Agreement;
•working capital requirements, particularly in the short term as we aim to safeguard the business from supply chain constraints, as well as to achieve organic sales growth; and
•hedging facilities used to manage our foreign exchange risks.
From
time to time, we consider acquisitions or investments in other businesses that we believe would be appropriate additions to our business.
We believe that, in the long term, cash generated from our operations will be adequate to meet our anticipated requirements for working capital, capital expenditures and interest payments on our indebtedness. In the short term, we believe we have sufficient credit facilities to cover any variation in our cash flow generation. However, any major repayments of indebtedness will be dependent on our ability to raise alternative financing or to realize substantial returns from operational sales. Also, our ability to expand operations through sales development and capital expenditures could be constrained by the availability of liquidity, which, in turn, could impact the profitability of our operations.
We have been in compliance with the covenants
under the Loan Notes and the Senior Facilities Agreement throughout all of the quarterly measurement dates from and including September 30, 2011, to September 25, 2022.
28
Luxfer conducts all of its operations through its subsidiaries, joint ventures and affiliates. Accordingly, Luxfer's main cash source is dividends from its subsidiaries. The ability of each subsidiary to make distributions depends on the funds that a subsidiary receives from its operations in excess of the funds necessary for
its operations, obligations or other business plans. We have not historically experienced any material impediment to these distributions, and we do not expect any local legal or regulatory regimes to have any impact on our ability to meet our liquidity requirements in the future. In addition, since our subsidiaries are wholly-owned, our claims will generally rank junior to all other obligations of the subsidiaries. If our operating subsidiaries are unable to make distributions, our growth may slow, unless we are able to obtain additional debt or equity financing. In the event of a subsidiary's liquidation, there may not be assets sufficient for us to recoup our investment in the subsidiary.
Our
ability to maintain or increase the generation of cash from our operations in the future will depend significantly on the competitiveness of and demand for our products, including our success in launching new products. Achieving such success is a key objective of our business strategy. Due to commercial, competitive and external economic factors, however, we cannot guarantee that we will generate sufficient cash flows from operations or that future working capital will be available in an amount sufficient to enable us to service our indebtedness or make necessary capital expenditures.
Cash Flows
Operating activities
Cash used by operating activities was $3.2 million for the first nine months in 2022. It was primarily related to net income from operating activities offset by significant increases in working capital related to inventory
build to protect supply chain, and net of the following non-cash items: depreciation and amortization; share-based compensation charges; pension credit and net changes to assets and liabilities.
Cash provided by operating activities was $34.1 million in the first nine months of 2021. It was primarily related to net income from operating activities, net of the following non-cash items: depreciation and amortization; pension credit and net changes to assets and liabilities.
Investing activities
Net cash used by investing activities was $1.5 million for the first nine months off 2022, compared to net cash used for investing activities of $1.2 million in 2021.The movement was primarily due the $3.7 million cash received in relation to the sale of our previously held-for-sale building in the Elektron division and the $0.4 million reduction
in capital expenditures. In 2021, we also received net, $4.4 million from the divestiture of our U.S. aluminum gas cylinder facility in the U.S. and acquisition of SCI.
Financing activities
In the first nine months of 2022, net cash provided by financing activities was $12.7 million (2021: $19.3 million used for financing activities). We made net drawdown on our banking facilities of $31.7 million (2021: $4.4 million repayment) and dividend payments of $10.6 million (2021: $10.2 million), equating to $0.385 and $0.375 per ordinary share respectively. In addition, we paid out $1.4 million (2021: $1.9 million) in settling share based compensation and $6.9 million (2021: $2.8 million) in repurchasing our own shares as part of the share buyback program which equates to 350,000 shares (2021: 90,000 shares).
Capital
Resources
Dividends
We paid year-to-date dividends in 2022 of $10.6 million (2021: $10.2 million year-to-date), or $0.385 per ordinary share (2021: $0.375).
Any payment of dividends is also subject to the provisions of the U.K. Companies Act, according to which dividends may only be paid out of profits available for distribution determined by reference to financial statements prepared in accordance with the Companies Act and IFRS as adopted by the E.U., which differ in some respects from GAAP. In the event that dividends are paid in the future, holders of the ordinary shares will be entitled to receive payments in U.S. dollars in respect of dividends on the underlying ordinary shares in accordance with the deposit agreement. Furthermore, because we are a holding company, any dividend payments would depend on cash flows from our subsidiaries.
29
Authorized
shares
Our authorized share capital consists of 40.0 million ordinary shares with a par value of £0.50 per share.
Contractual obligations
The following summarizes our significant contractual obligations that impact our liquidity:
Payments
Due by Period
Total
Less than 1 year
1 – 3 years
3 – 5 years
After 5 years
(in $ million)
Contractual cash obligations
Loan
Notes due 2023
$
25.0
$
25.0
$
—
$
—
$
—
Loan Notes due 2026
25.0
—
—
25.0
—
Revolving
credit facility
37.6
—
—
37.6
—
Obligations under operating leases
33.3
5.5
11.1
7.3
9.4
Capital
commitments
0.9
0.9
—
—
—
Interest payments
17.2
3.8
6.8
6.6
—
Total
contractual cash obligations
$
139.0
$
35.2
$
17.9
$
76.5
$
9.4
Off-balance
sheet measures
At September 25, 2022, we had no off-balance sheet arrangements other than the two bonding facilities disclosed in Note 15.
NEW ACCOUNTING STANDARDS
See Note 1 of the Notes to Condensed Consolidated Financial Statements for information pertaining to recently adopted accounting standards or accounting standards to be adopted in the future.
CRITICAL ACCOUNTING POLICIES
We have adopted various accounting policies to prepare the consolidated financial statements in accordance with GAAP. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate
assumptions for calculating financial estimates. In our 2021 Annual Report on Form 10-K, filed with the SEC on February 24, 2022, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our consolidated financial statements.
30
Item 3. Quantitative and qualitative disclosures about market risk
There have been no material changes in
our market risk during the first nine months ended September 25, 2022. For additional information, refer to Item 7A of our 2021 Annual Report on Form 10-K, filed with the SEC on February 24, 2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer,
the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter ended September 25, 2022, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon their evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective, at a reasonable assurance level, as of the quarter ended September 25, 2022, to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated
to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 25, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART
II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in various lawsuits and is subject to various claims that arise in the normal course of business, the most significant of which are summarized in Note 15 (commitments and contingencies) to the consolidated financial statements in ITEM 1. In the opinion of management, the likelihood that the ultimate disposition of these matters will have a material adverse impact is remote.
Item
1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Item 1A. of our 2021 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
101 The financial statements from the Company’s Interim Report on Form 10-Q for the quarter and year ended ended September 25, 2022, formatted in XBRL: (i) Condensed Consolidated Statements of Income, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Equity, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
33
SIGNATURES
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.