Luxfer Group (NYSE:LXFR), a global materials technology
company, today issued its financial results for the three-month and
twelve-month periods ended December 31, 2014.
UNAUDITED FINANCIAL RESULTS FOR THE FOURTH QUARTER OF
2014
Results are summarized as follows:
Three-month periods
ended December 31,
Twelve-month periods
ended December 31,
2014 2013 2014
2013
Net revenue (excluding surcharge
below)
$123.1m
$115.0m
$487.3m
$472.9m
Rare earth chemical surcharge
$0.3m
$1.0m
$2.2m
$8.4m
Revenue $123.4m
$116.0m
$489.5m
$481.3m
Trading profit $10.7m $15.0m $44.8m
$59.2m
Trading margin
8.7%
12.9%
9.2%
12.3%
Operating profit $8.2m
$13.2m
$40.9m $56.5m Net income
$11.8m $8.8m $29.2m $34.1m
Earnings per share – basic 1 2
$0.44
$0.33
$1.09
$1.27
Adjusted net income 3
$8.6m $11.1m
$30.9m
$39.8m
Adjusted earnings per share – basic 2
$0.32 $0.41
$1.15 $1.48
Adjusted earnings per share – fully
diluted 2
$0.32 $0.40
$1.11 $1.42
Adjusted EBITDA 4
$15.8m $19.8m
$64.8m $76.6m
Adjusted EBITDA margin
12.8% 17.1%
13.2% 15.9%
Net cash inflow from operating activities
$16.0m $7.3m
$23.0m
$37.1m
Net debt (total debt less cash) $106.8m
$35.4m
$106.8m $35.4m
Total equity – book value (net
assets)
$175.4m $191.7m
$175.4m $191.7m
£0.50 ordinary shares outstanding –
weighted average
27.0m 26.8m
26.9m
26.8m
(1) Basic earnings per share is calculated by
dividing the profit attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding in the
period.
(2) Following the approval of a two-for-one
share split at the Annual General Meeting on May 29, 2014 and
change in ADR ratio on June 9, 2014, the nominal value of each
ordinary share is £0.50 and now represents 1 American Depositary
Share (ADS), resulting in the earnings per ordinary share being
equivalent to the earnings per ADS. The ADS are listed on the NYSE
under the ticker LXFR. Under IAS 33, the number of shares used in
the earnings per share calculations for the prior periods shown has
been adjusted to achieve comparability.
(3) Adjusted net income consists of net
income adjusted for the post tax impact of non-trading items,
including IAS 19 retirement benefits finance charge, certain
accounting charges relating to acquisitions and disposals of
businesses (comprising other income / (expense) from acquisitions
and disposals of businesses, the unwind of the discount on deferred
consideration from acquisitions and the amortization on acquired
intangibles), restructuring and other income / (expense), gain on
purchase of own debt and other share-based compensation charges. A
reconciliation to net income is disclosed in Note 4 to the
financial results “Reconciliation of non-GAAP measures”.
(4) Adjusted EBITDA is defined as profit for
the period before tax expense, finance income (which comprises
interest received and gain on purchase of own debt) and costs
(which comprises interest costs, IAS 19 retirement benefits finance
charges and the unwind of the discount on deferred consideration
from acquisitions), other income (expense) from acquisitions and
disposals of businesses, restructuring and other income /
(expense), gain on purchase of own debt, other share-based
compensation charges, depreciation and amortization and loss on
disposal of property, plant and equipment. A reconciliation to net
income is disclosed in Note 4 to the financial results
“Reconciliation of non-GAAP measures”.
ABOUT LUXFER GROUP
Luxfer is a global materials technology company specializing in
the design and manufacture of high-performance materials,
components and gas-containment devices for environmental,
healthcare, protection and specialty end-markets. Luxfer customers
include both end-users of its products and manufacturers that
incorporate Luxfer products into finished goods. For more
information, visit www.luxfer.com.
Luxfer Group is listed on the New York Stock Exchange, and its
American Depositary Shares (ADSs) trade under the symbol
“LXFR”.
CONTACTS
Investor and news agency communications should initially be
directed to Dan Stracner, Director of Investor Relations,
U.S. telephone number: +1 951 341 2375; email:
dan.stracner@luxfer.net.
LUXFER HOLDINGS PLC
FORWARD-LOOKING STATEMENTS
This report contains forward-looking
statements.
Examples of such forward-looking statements include, but are not
limited to:
(i) statements regarding the Group’s results of operations and
financial condition,
(ii) statements of plans, objectives or goals of the Group or
its management, including those related to financing, products or
services,
(iii) statements of future economic performance and
(iv) statements of assumptions underlying such statements. Words
such as “believes”, “anticipates”, “expects”, “intends”,
“forecasts” and “plans” and similar expressions are intended to
identify forward-looking statements but are not the exclusive means
of identifying such statements.
By their very nature, forward-looking statements involve
inherent risks and uncertainties, both general and specific, and
risks exist that the predictions, forecasts, projections and other
forward-looking statements will not be achieved. The Group cautions
that a number of important factors could cause actual results to
differ materially from the plans, objectives, expectations,
estimates and intentions expressed in such forward-looking
statements. These factors include, but are not limited to:(i)
future revenues being lower than expected; (ii) increasing
competitive pressures in the industry; (iii) 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; (iv) 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; (v) fluctuations in the price of raw
materials and utilities; (vi) currency fluctuations and hedging
risks; and (vii) worldwide economic and business conditions and
conditions in the industries in which we operate.
The Group cautions that the foregoing list of important factors
is not exhaustive. These factors are more fully discussed in the
sections “Forward-Looking Statements” and “Risk Factors” in our
annual report on Form 20-F for the year ended December 31, 2013,
filed with the U.S. Securities and Exchange Commission on March 31,
2014. When relying on forward-looking statements to make decisions
with respect to the Group, investors and others should carefully
consider the foregoing factors and other uncertainties and events.
Such forward-looking statements speak only as of the date on which
they are made, and the Group does not undertake any obligation to
update or revise any of them, whether as a result of new
information, future events or otherwise.
BUSINESS REVIEW
Summary of 2014
The Group’s IFRS revenue was $489.5m in 2014, up on $481.3m in
2013. Basic earnings per share for 2014 were $1.09 compared to
$1.27 for 2013.
The Group made important strategic advancements not only in
developing products for the future, but also in acquiring the two
companies that now comprise our new Luxfer Magtech business. This
acquisition strengthened our Elektron Division, enabling it to
maintain its adjusted EBITDA year on year (see divisional details
below) despite weakness in the important U.S. military market.
Luxfer Group’s Gas Cylinders Division faced trading difficulties
in key composite cylinder markets in 2014, mainly as a result of
external factors, including regulatory delays for customers in its
North American self-contained breathing apparatus (SCBA) business,
the division’s largest market. In addition, the alternative fuel
(AF) market, where we already had faced weaker demand and increased
competitive pressures, has been badly impacted by the fall in oil
price during the second half of the year.
Key points for each of our two divisions are:
Elektron Division:
The Elektron Division increased revenue to $230.6m from $219.7m.
Trading profit was down to $38.9m from $40.2m, and adjusted EBITDA
rose to $50.1m from $49.8m. See detailed financials later in this
report.
- The acquisitions that formed Luxfer
Magtech Inc. (LMI) have been successfully integrated into the
Elektron Division. Several attractive new product and
market-development opportunities are being explored, including
introducing Luxfer’s proprietary zirconium sorption technologies
directly into a new end-market: chemical agent
decontamination.
- The division reported a record year for
sales to the aerospace sector, including our patented magnesium
alloys.
- Trading conditions in the European
auto-catalysis market remained challenging in 2014 due to increased
competition and weakness in the European automotive market, but the
rare earth price spike, which brought severe competitive
challenges, has receded. Our zirconium business made good progress
in other developmental markets, posting larger sales for industrial
catalysts and sorption products.
- Demand for magnesium powders for
military countermeasure flares remained weak due to overstocking in
the U.S. market and defense cutbacks to align inventories to
peacetime requirements. In response, we laid off a number of
employees in our North American powder manufacturing
operations.
Gas Cylinders Division:
- Divisional revenue fell to $258.9m from
$261.6m, trading profit was down to $5.9m from $19m and adjusted
EBITDA was down to $14.7m from $26.8m. See detailed financials
later in this report.
- U.S. regulatory delays affected the
SCBA market throughout the year, with one of our key customers only
obtaining approval for their new breathing equipment very late in
2014—too late to have a material positive impact on the year. This
contributed to under-utilization of our production capacity, which
we have increased in expectation of a rising market, and excess
inventories, especially at Luxfer’s large composite cylinder
facility in California.
- Although we re-invigorated sales and
marketing efforts, won new customers globally, and improved our
large alternative fuel (AF) product offerings, competing in this
relatively new sector came with start-up costs and a
higher-than-usual degree of risk. Disappointingly, one customer
suffered delays in their major virtual pipeline project, which
resulted in impairment of their trade receivable of $8.5m to an
estimated recoverable amount of $6.5m in our year-end balance
sheet. A large number, however, of potential virtual pipeline
opportunities exist, and, despite the recent oil price decline,
this still appears to be a healthy sector.
- The fall in the price of oil has
impacted the outlook for vehicle conversions to CNG. We are working
on a plan to reduce the cost base of our AF production facilities
and to address the losses incurred by our AF business units in
2014.
- Significant AF product development
activity took place in 2014. In addition to working on tailoring a
variety of bulk gas transportation modules, we designed and
launched a new range of Type 4 (polymer-lined) cylinders, initially
for vehicular applications, and we developed specialty Type 3
(aluminum-lined) products for hydrogen. We also launched a line of
high-performance accessories, including proprietary valves and
pressure-relief devices (PRDs).
Strategic product development update:
Magnesium in aircraft interiors – After achieving our first
magnesium usage in commercial aircraft seating for a low-volume
niche project, we continued working with several seat manufacturers
towards establishing a route to market for our aerospace alloys.
Prototyping work advanced significantly in 2014 as weight-saving
possibilities were demonstrated against conventional aluminum
alloys. Further progress was made by the authorities towards
completing the process of regulatory acceptance, which should
result in simplifying the qualification of seating using our
alloys.
Synermag® bioabsorbable medical alloys – Our partner in the
biomedical industry reported good progress in 2014, beginning
further medical trials of in-body devices. In support of this
project, we have now qualified our medical production facilities to
the ISO13485 standard for manufacturer of medical devices.
SmartFlow® and Intelligent Oxygen System™ – We made steady
progress in 2014, freezing the design of the patented SmartFlow®
valve regulator to allow work to commence on the qualification of
our new, portable medical oxygen system featuring our
ultra-lightweight composite cylinder technology and SmartFlow®. We
expect to request CE (Conformité Européenne) approval for the
product in the latter part of 2015.
Alternative fuel (AF) containment – We launched a range of
Luxfer Type 4 (polymer-lined) composite cylinders, targeting a new
sector for Luxfer: the North American class 8 heavy-duty truck
market. Early in Q4 we made our first sales of our new 26-inch,
neck-mounted lightweight cylinders. We have also developed a range
of Luxfer-branded accessory equipment for CNG systems, including
in-house-developed proprietary CNG valves and pressure-release
devices that are now being marketed with our new cylinder range and
our bulk gas transportation modules (see below). Though we have won
new customers, we believe that the low oil price will continue
having a negative effect on truck conversions in the near term.
Bulk gas transportation – While our U.S. joint-venture partner
is successfully selling small and mid-sized modules, we have
improved and extended our product offering of larger
gas-containment modules in an effort to increase sales in that
sub-sector in North America. For other regions, we have also
developed new systems that we believe offer customers a better
package, including attractive engineering innovations and new
system benefits.
Financial review of the twelve-month period ended December 31,
2014
TWELVE MONTH PERIOD 2014 TWELVE MONTH PERIOD
2013 Gas Gas
Cylinders Elektron Group Cylinders
Elektron Group $M $M
$M $M $M $M
Revenue 258.9 230.6 489.5 261.6 219.7
481.3
Net revenue (excluding RE surcharge) 258.9
228.4 487.3 261.6 211.3 472.9
Trading profit
5.9 38.9 44.8
19.0 40.2 59.2
Return
on Sales % (Trading profit/Revenue) 2.3 %
16.9 % 9.2 % 7.3 % 18.3 %
12.3 %
Adjusted EBITDA(1) 14.7
50.1 64.8 26.8
49.8 76.6
Adjusted EBITDA margin
%
(Adjusted EBITDA/Revenue)
5.7 % 21.7 % 13.2
% 10.2 % 22.7 % 15.9 %
(1) With respect to Adjusted EBITDA for the
Group, a reconciliation to net income is disclosed in Note 4 to the
financial results “Reconciliation of non-GAAP measures” and with
respect to Adjusted EBITDA for the Gas Cylinders Division and
Elektron Division, a reconciliation to trading profit is disclosed
in Note 1 to the financial results “Revenue and segmental
analysis”.
Revenue:
- On an IFRS-reported basis, revenue for
the full year of 2014 was $489.5m compared to $481.3m for the same
period of 2013. FX translation differences for the year were a
$4.3m gain, and the rare earth surcharge, which decreased by $6.2m
to only $2.2m, is now being consolidated back into our normal
pricing structures for 2015. Acquisitions added $17.0m, and so
other revenue changes were a reduction of $7.1m.
- Elektron Division revenue was $230.6m
for 2014; adjusting out the rare earth surcharge, revenue was
$228.4m, up $17.1m from 2013. This net revenue included $14.7m from
Luxfer Magtech, acquired at the end of July 2014. FX translation
differences were a gain of $2.4m, and thus other changes in revenue
net out to $nil.
- It was a good year for sales of
magnesium aerospace alloys, and we won market share in magnesium
recycling.
- U.S. powder sales were down, impacted
initially by a production outage at one major customer’s facility
due to a serious accident, as well as market demand falling because
of an overstocked customer and high U.S. military inventories.
- Zirconium chemical sales started well
in 2014 with major sales of industrial catalysts in Q1. Over the
year, new product sales for ‘sorption’ chemical products improved,
but sales of autocatalysis products remained weak. Demand from the
oil and gas industry also fell and failed to meet growth
expectations.
- Gas Cylinders Division revenue was
$258.9m for 2014, down $2.7m on 2013. FX translation differences
were a gain of $1.9m, and acquisitions added a further $2.3m, with
other revenue changes being a reduction of $6.9m or 2.6%.
- Composite cylinder sales were down
12.3% or $15.8m, impacted by weaker demand for AF, SCBA, and
medical cylinders.
- Early in the year, widely documented
testing issues delayed U.S. regulatory approvals for new SCBA kits
for firefighters, affecting our customers’ sales and reducing
demand for Luxfer composite cylinders used by the major SCBA
manufacturers. It was only in last few weeks of the year that the
market returned to any semblance of normality. This contributed to
under-utilization of capacity and excess inventory levels, which
are now being reduced as sales improve.
- AF sales and margins suffered as a
result of weakened demand for CNG buses in Europe, increased
competition and, latterly, the sharp oil-price decrease deterring
new investments in CNG truck conversions.
- The European composite medical market
was also weaker due to tighter government spending and customers
seeking to reduce costs through better utilization of existing
cylinder assets.
- Aluminum cylinder sales improved, but
not enough to offset composite cylinder sales shortfalls. Aluminum
cylinder margins are generally lower than those generated by
composite cylinder sales.
Trading profit:
- Trading profit for 2014 was $44.8m
compared to $59.2m for 2013, down 24.3%. With a net contribution of
$1.7m from acquisitions, trading profits for our other businesses
were down $16.1m.
- Elektron Division 2014 trading profit
was $38.9m, down $1.3m on $40.2m for 2013.
- Acquisitions added $2.9m, and profits
from existing activities fell $4.2m.
- Profits were down primarily due to
weakness in the magnesium powders market.
- Investment in sales, marketing and
technical support for long-term strategic opportunities also
increased costs in the year.
- Depreciation and amortization costs
were $1.6m higher in 2014.
- Gas Cylinders Division 2014 trading
profit was $5.9m, down $13.1m from $19.0m in 2013. Acquired
operations incurred losses of $1.2m, and profits from existing
operations fell $11.9m.
- We incurred $3.1m of asset write-downs
in the AF business, with $2m relating to a major customer being
potentially unable to meet payments on Luxfer modules supplied for
a virtual pipeline contract, along with $1.1m in inventory write
downs.
- The fall in sales in the composite
cylinder side of the business had a major impact on profits.
- Under-utilization of composite cylinder
facilities also had a significant impact, combined with reducing
inventory levels in Q4 2014.
- Although some cost savings were
achieved later in the year, further cost-saving actions are
expected to increasingly reduce costs from Q2 2015 onwards.
Other income statement items
Group adjusted EBITDA (as reconciled to net income in Note 4 of
this release) for the twelve-month period was $64.8m compared to
$76.6m for the same period in 2013. The fall was all a result of
the weaker profit performance in the Gas Cylinders Division, with
Elektron Division adjusted EBITDA slightly ahead of 2013.
Restructuring and other expenses were $3.9m for the year, which
included the one-off cost of $2.0m for remediation of a historical
environmental issue at an Elektron plant in Q4 and $1.9m of
restructuring and other costs, mainly relating to cost-saving
initiatives in the Gas Cylinders Division. After these costs,
operating profit was $40.9m, down from $56.5m for the same period
in 2013.
Acquisitions and disposals resulted in a net credit of $4.5m.
This includes $1.8m of acquisition costs and a reduction to
contingent consideration of $6.3m. This related to the IFRS
requirement to debit or credit any re-measurements of contingent
consideration in relation to the acquisitions (post their
acquisition date) at December, 31, 2014. The contingent
consideration decreased and resulted in a credit due to Luxfer
Magtech missing a full-year (pre- and post- acquisition) profit
trigger, and at Luxfer Utah in the light of our revised
expectations of the demand for CNG cylinders.
Profit before tax for 2014 of $36.3m was down $10.4m on 2013.
Net income for 2014 was $29.2m, down $4.9m from 2013 or 14.4%.
These adjustments distorted the effective tax rate, reducing it
to 19.6% for 2014, compared to 27.0% for 2013, the net gain on
acquisitions and disposals not being taxable.
Adjusted net income (as reconciled to net income in Note 4 of
this release) for 2014 was $30.9m compared to $39.8m for the same
period in 2013. Tax adjustments included in the reconciliation were
$2.9m for 2014, and thus the underlying tax on the adjusted net
income was $10.0m or an effective rate of 24.0%. This compares to
tax adjustments of $2.2m in 2013 and an underlying rate on the
adjusted net income of 27.1%. The tax rate has improved as a result
of a larger proportion of taxable profits being in the U.K. in
2014.
Cash flow
Net cash inflow from operating activities for 2014 was $23.0m
compared to an inflow of $37.1m for the same period in 2013, with
the movement being attributable to lower profits in 2014 and a
larger working capital outflow compared to 2013. During the year we
built higher levels of working capital for demand that had been
anticipated but not realized, particularly in the AF and SCBA
markets in the Gas Cylinders business. 2014 was also higher as a
result of extended receivables in the Gas Cylinders Division in
relation to bulk gas transportation contracts. As demand improved
in some markets, however, we were able to start to reduce working
capital in Q4 2014.
Investing activities resulted in an outflow of $79.8m for 2014,
compared to $33.4m for 2013. The main reason for the increase was
$58.0m spent on acquisitions, notably for what is now Luxfer
Magtech in the Elektron Division.
Financing activities provided a cash inflow of $42.8m compared
to an outflow of $15.7m in 2013. We raised an additional $25m
through the issue of new loan notes and also drew down $35.2m on
our newly extended banking facilities. $10.8m of dividends were
declared and paid in both 2014 and 2013.
Net debt was $106.8m at the end of 2014, up from $35.4m for the
end of 2013, which was mainly due to funding the acquisitions
through debt. The ratio of net debt to adjusted EBITDA at the end
of 2014 was 1.6x compared to 0.5x at the end of 2013.
OUTLOOK
Our Elektron Division remains highly profitable, and with a full
year of contribution from our new Luxfer Magtech business (acquired
July 29, 2014), and the expectation of improved demand for military
powders and modest organic growth elsewhere, we expect an improved
result from Elektron even as we continue to invest in the final
stages of developing and commercializing our suite of new strategic
growth products.
While the SCBA regulatory delays and depressed military powder
sales that we suffered in 2014 are expected to improve in 2015,
growth in the AF sector depends in great measure on whether and
when oil prices rebound sufficiently to make the conversion to CNG
much more economically attractive, although for those that have
already invested, CNG remains a cheaper alternative to diesel. The
AF market is quite diversified and we expect customers that are
already committed to CNG fleets will continue to order CNG-powered
vehicles. The bulk gas transportation sector still offers major
opportunities, selling to gas utilities and logistics companies.
Low oil prices will most seriously impact sectors in which there is
a material capital cost to converting to natural gas and in which
payback arises from the price differential between diesel and
natural gas. Because natural gas prices have not fallen nearly as
much as diesel prices, the payback period has now been considerably
extended. This seems likely to slow the rate at which, for example,
class 8 trucks in North America are converted to run on natural
gas. With the dramatic reduction in oil and gas exploration, direct
sales of gas modules to that industry are likely to remain
depressed at least for the near term.
Because of increased AF competition and lower margins, we began
reducing overhead costs in this sector in 2014, and the oil-price
collapse has compelled us to accelerate these cost-saving programs.
We are now considering ways to streamline and consolidate our
mixture of organically-grown and acquired facilities to reconfigure
our AF business to enable it to withstand lower demand while also
retaining a capability to respond to any market recovery. Initial
benefits from our efforts to reduce overhead costs are expected to
accrue from Q2 2015, but the full process may take the balance of
the year as we work to preserve our capabilities and maintain
customer service levels.
Our attention to cost reduction will extend beyond the AF
business units as we pursue significant improvement in divisional
profitability with the objective of returning the Gas Cylinders
Division to at least 2012 levels of profitability in
2016. While low AF demand is likely to mean that the first
half of 2015 will remain difficult for our Cylinder business, with
a major effort on cost reduction, we still expect to improve the
trading result over that recorded in 2014.
The current strength of sterling against the euro, which has
declined 16% against sterling over the past 24 months, is starting
to squeeze profit margins on some of the sales from our U.K.
operations. We typically sell in the region of €40 million from the
U.K. into the Eurozone, and as the benefit of currency hedges (that
currently cover circa 60% of 2015 forecast sales in euros) entered
into a year or more ago mature, we are exposed to much less
favorable exchange rates. Gas Cylinders Division, selling mainly
aluminum cylinders priced in euros is more affected than Elektron.
Exports from the U.S. business units, largely composite cylinders,
into Europe tend to be priced in U.S. dollars, as most of the
competition also prices in dollars.
We plan to improve cash flow generation in 2015 by reducing
inventories across the Group, continuing the progress we made in
the latter part of 2014. Because of difficulties in the AF sector,
cylinder stocks at the end of 2014 were higher than planned, and
the recovery of one major debt ($8.5 million) had to be deferred.
Recovery is now unlikely until well into the second half of 2015,
and a $2m potential impairment has been recognized in our year-end
balance sheet.
Consequently, we have trimmed capital investment plans, and we
now expect 2015 expenditure to be in the range of $21m to $24m.
Based on improvements achieved in 2014 and our anticipated mix
of profits across the globe, we expect our effective tax rate to be
approximately 27% in 2015.
Because of the lag on cost-saving initiatives in Gas Cylinders
and weather-related production disruptions at several Elektron
facilities, we expect Q1 to be the weakest quarter in 2015. Planned
inventory reductions will also impact profit due to lower facility
utilizations.
We expect several of our strategic growth projects to make
significant progress during 2015, preparing the ground for
commercial sales in 2016 and beyond.
Fourth-quarter Results
FOURTH QUARTER 2014 FOURTH QUARTER 2013
Gas Gas Cylinders
Elektron Group Cylinders Elektron
Group $M $M $M
$M $M $M Revenue
65.0 58.4 123.4 64.1 51.9 116.0
Net revenue
(excluding RE surcharge) 65.0 58.1 123.1
64.1 50.9 115.0
Trading profit 0.9
9.8 10.7 4.8 10.2
15.0
Return on Sales % (Trading
profit/Revenue) 1.4 % 16.8 %
8.7 % 7.5 % 19.7 % 12.9 %
Adjusted EBITDA(1) 3.2
12.6 15.8 6.9 12.9
19.8
Adjusted EBITDA margin %
(Adjusted EBITDA/Revenue)
4.9 % 21.6 % 12.8
% 10.8 % 24.9 % 17.1 %
(1) With respect to adjusted EBITDA for the
Group, a reconciliation to net income is disclosed in Note 4 to the
financial results “Reconciliation of non-GAAP measures” and with
respect to adjusted EBITDA for the Gas Cylinders Division and
Elektron Division, a reconciliation to trading profit is disclosed
in Note 1 to the financial results “Revenue and segmental
analysis”.
Revenue:
- Group revenue for Q4 2014 at $123.4m
was $7.4m higher than Q4 2013. FX translation differences were an
adverse $3.4m. The rare earth chemical surcharge was only $0.3m as
a result of lower costs. The benefit to Q4 2014 from acquisitions
made in the year was $9.1m, with other revenue changes being a
$2.4m increase in Q4 2014 when compared to Q4 2013.
- Gas Cylinders revenue at $65.0m was
$0.9m higher than Q4 2013. FX translation differences were an
adverse $2.2 m. Acquisitions made in the year added $0.9m of
revenue in Q4 2014, and therefore other revenue changes were an
improvement of $2.2m or 3.5%.
- Superform revenues were improved,
mainly on tooling for new contracts.
- SCBA improved though sales were partly
met through selling cylinders from stock rather than from
production.
- Elektron revenue of $58.4m included
$0.3m of rare earth surcharges for Q4 2014 compared to $1m included
in the revenue of $51.9m for Q4 2013. Elektron’s net revenue at
$58.1m was $7.2m higher than Q4 2013. FX translation differences
were an adverse $1.2m. Acquisitions made in the year added $8.2m of
revenue in Q4 2014, and therefore other revenue changes were an
improvement of $0.2m.
- Magnesium recycling and commercial
alloy (non-aerospace) sales were stronger in Europe as a result of
winning new business.
- Demand for magnesium wrought, extruded
and sheet products improved.
- Zirconium chemical sales were in
general weaker, with European demand continuing to be lower than
2013.
- Demand for magnesium powders used in
countermeasures was also weaker, continuing on from prior quarters
in 2014.
Trading profit:
- Trading profit in Q4 2014 was down by
$4.3m to $10.7m from $15.0m in Q4 2013. The main reason was the
significant reduction in Gas Cylinders trading profit of $3.9m,
with Elektron being only slightly down by $0.4m.
- Gas Cylinders trading profit was down
$3.9m mainly as a result of losses in the alternative fuel side of
the business, with other areas of the division performing more
reasonably when compared to 2013:
- In the alternative fuel business, $3.1m
of provisions were made to write-down inventory and receivables.
This included a $2.0m provision against the recoverable amount on
the receivable for a large virtual pipeline contract, because the
customer has encountered financial difficulties due to engineering
delays in the commissioning of the pipeline infrastructure.
- In general, the oil-price drop in the
latter half of 2014 adversely affected our alternative fuel
business. Demand for U.S. heavy-duty truck conversions has been
impacted and although we managed some production and sales out of
our newly-commissioned Type 4 Utah facility, it generated a loss of
$0.3m in Q4 2014. The subdued demand and poorer outlook led to a
re-measurement of the contingent consideration payable on the Utah
acquisition and a credit to the income statement of $1.5m below
operating profit in “acquisitions and disposal costs.”
- The two largest SCBA customers in the
U.S. have now received approvals for their new kits, but to reduce
excess inventory we had a shut-down at our U.S. facility over the
year-end holiday period. The resulting under-utilization negatively
impacted profit by $1.1m.
- Some other net cost savings helped
offset these negative trading variances.
- Elektron trading profit was down $0.4m:
- Luxfer Magtech added $1.6m in Q4 2014,
net of amortization of acquired intangibles of $0.4m. The acquired
business’s profitability during 2014 was nevertheless slightly
below expectations, which led to $5.0m of contingent consideration
on the acquisition no longer being payable. This in turn has
resulted in $4.8m being credited back to the income statement below
operating profit in “acquisitions and disposal costs” reflecting
the estimated fair value of contingent consideration payable.
- The division’s profitability, excluding
the acquisition benefit, was down $2.0m in Q4 2014 compared to Q4
2013.
- Though sales were up in magnesium
recycling and commercial alloys, these are lower-margin areas of
the business.
- The weakness in sales in other
specialty areas of zirconium chemicals and countermeasures
continued to impact profit.
- We also incurred costs on various
strategic areas, including higher costs in relation to intellectual
property protection.
Other income statement items:
Gross profit was $28.1m for Q4 2014, $1.9m lower than $30.0m for
Q4 2013. The gross margin percentage was down from 25.9% to 22.8%.
This was a result of receivable and inventory write downs in the
Gas Cylinders Division, along with the cost of the
under-utilization of Gas Cylinders production facilities.
Distribution costs were similar for Q4 2014 to Q4 2013, but
administrative expenses continued to be higher at $15.6m for Q4
2014 compared to Q4 2013 of $13.2m, an increase of $2.4m. We
incurred $1.7 m additional costs as a result of the new
acquisitions, including the amortization of acquired intangibles.
The Elektron Division also incurred higher intellectual property
costs in the quarter and continued to incur costs on various
longer-term growth initiatives.
Restructuring and other expenses were $2.5m in Q4 2014. In the
quarter, we incurred a one-off $2.0m charge in relation to the
discovery and clean-up of a historical environmental contamination
at one of our Elektron Division facilities. We also charged $0.5m
in relation to restructuring costs of the Gas Cylinders
Division.
Group operating profit was $8.2m in Q4 2014 (Q4 2013:
$13.2m).
Adjusted EBITDA for the fourth quarter of 2014 was $15.8m, a
decrease of $4.0m or 20.2% from the $19.8m adjusted EBITDA for the
fourth quarter of 2013. The fall was mainly in relation to reduced
profits in the Gas Cylinders Division.
Operating profit to net income for the period
Acquisition and disposals activity resulted in a credit of
$6.3m, which related to the re-measurement of contingent
consideration payable on the acquisitions, as further explained
above in the divisional analysis. The credit reflects the
re-measurement from Q3 2014 to Q4 2014.
The net interest charge for Q4 2014 was in line with the prior
year at $1.6m (Q4 2013: $1.6m). The IAS 19 charge was $0.7m for Q4
2014 compared to $1.1m for Q4 2013.
Profit from operations before tax was $12.2m for Q4 2014 (Q4
2013: $10.5m) with Q4 benefitting from the credit due to a revision
of the consideration relating to the acquisitions. Tax expense was
$0.4m (Q4 2013: $1.7m), and the effective tax rate was 3.3% (Q4
2013: 16.2%). The exceptional credit on the acquisitions is not
taxable, being an IFRS accounting adjustment. Even excluding this
non-taxable credit, the charge is lower than the previous quarters
of 2014 due to a benefit from the utilization of U.K. tax loses and
the nature of the funding structure of the acquisitions. The
effective rate for the year on underlying adjusted net profits was
24%, and this is explained further above in the full-year
results.
Net income in the period was $11.8m (Q4 2013: $8.8m). Adjusting
for non-trading items (including IAS 19 retirement benefits finance
charge, certain accounting charges relating to acquisitions and
disposals of businesses, restructuring and other income /
(expense), gain on purchase of own debt and other share-based
compensation charges), adjusted net income in Q4 2014 was $8.6m (Q4
2013: $11.1m).
Unadjusted basic earnings per ADS for Q4 2014 was $0.44. Using
adjusted net income, basic earnings per ADS was $0.32. Fully
diluted adjusted earnings per ADS was also $0.32.
Cash flow and net debt
Net cash inflow from operating activities was $16.0m in Q4 2014
compared to an inflow of $7.3m in Q4 2013. Cash inflow from working
capital was $7.0m in Q4 2014 compared to an outflow of $5.5m in Q4
2013, this year-on-year swing of $12.5m reflecting significant
improvements made by the Group in reducing working capital balances
in the final quarter of the year.
Net cash used in investing activities was $7.3m in Q4 2014
compared to $13.3m in Q4 2013. Purchases of property, plant and
equipment resulted in a cash outflow of $6.3m in Q4 2014 (Q4 2013:
$10.1m). Purchases of intangible assets were $1.1m in Q4 2014 (Q4
2013: $2.3m). Net cash flow from investments in joint ventures in
Q4 2014 was an inflow of $0.1m (Q4 2013: $1.0m outflow). There was
a net cash inflow before financing of $8.7m in Q4 2014 compared to
an outflow of $6.0m in Q4 2013, which was mainly the result of the
working capital reductions noted above and lower capital
expenditure.
Cash flows from financing activities for Q4 2014 were a net
outflow of $9.1m compared to an outflow of $3.9m in Q4 2013. $1.7m
of interest was paid to debt-holders (Q4 2013: $1.3m), and $2.7m of
dividends were paid (Q4 2013: $2.7m) and in Q4 2014. $0.1m in
interest was received (Q4 2013: $0.1m). In Q4 2014, a repayment was
made of $4.7m on the revolving credit facilities (Q4 2013:
$nil).
Total cash flow movements were a net outflow of $0.4m in Q4 2014
compared to a $9.9m outflow in Q4 2013. We had $14.6m of cash and
cash equivalents as at December 31, 2014, compared to an equivalent
figure of $28.4m as at December 31, 2013. As at December 31, 2014,
net debt had increased to $106.8m from $35.4m as at December 31,
2013 mainly as a result of the draw down to fund the acquisition in
July 2014.
CONSOLIDATED INCOME STATEMENT FOR THE
THREE-MONTH AND TWELVE-MONTH PERIODS ENDED
DECEMBER 31, 2014 AND 2013
(UNAUDITED)
Three-month periods ended
December 31,
Twelve-month periods ended
December 31,
2014 2013
2014 2013
CONTINUING
OPERATIONS $M $M
$M
$M
REVENUE 123.4 116.0
489.5 481.3 Cost of sales
(95.3 ) (86.0 )
(376.6 )
(363.5 ) Gross profit
28.1 30.0
112.9 117.8
Distribution costs
(1.8 ) (1.8 )
(8.1
) (6.5 ) Administrative expenses
(15.6 ) (13.2
)
(59.7 ) (52.2 ) Share of results of joint venture
- -
(0.3 ) 0.1
TRADING
PROFIT 10.7 15.0
44.8 59.2 Restructuring and
other expense
(2.5 ) (1.8 )
(3.9 ) (2.7
)
OPERATING PROFIT 8.2 13.2
40.9
56.5 Acquisitions and disposals
6.3 -
4.5 (0.1 )
Finance income Interest received
0.2 0.1
0.5 0.3
Finance costs Interest costs
(1.8 ) (1.7 )
(6.6 ) (6.2 ) IAS 19R – retirement benefits finance
charge
(0.7 ) (1.1 )
(2.7 ) (3.8 )
Unwind of discount on deferred consideration from acquisitions
- -
(0.3 )
-
PROFIT ON OPERATIONS BEFORE
TAXATION 12.2 10.5
36.3 46.7 Tax expense
(0.4 ) (1.7 )
(7.1 ) (12.6 )
NET INCOME FOR THE PERIOD 11.8
8.8
29.2 34.1
Attributable to: Equity shareholders
11.8 8.8
29.2
34.1
NET INCOME FOR THE PERIOD
11.8 8.8
29.2 34.1 Accounting charges relating
to acquisitions and disposals of businesses Unwind of discount on
contingent consideration from acquisitions
- -
0.3 -
Acquisitions and disposals
(6.3 ) -
(4.5
) 0.1 Amortization on acquired intangibles
0.4 -
0.6 - IAS 19R – retirement benefits finance charge
0.7 1.1
2.7 3.8 Restructuring and other expense
2.5 1.8
3.9 2.7 Other share based compensation
charges
(0.1 ) 0.4
1.6 1.3 Tax thereon
(0.4 ) (1.0 )
(2.9 )
(2.2 )
ADJUSTED NET INCOME 8.6
11.1
30.9 39.8
CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME FOR THETHREE-MONTH AND TWELVE-MONTH PERIODS ENDED
DECEMBER 31, 2014 AND 2013
(UNAUDITED)
Three-month periods ended
December 31,
Twelve-month periods ended
December 31,
2014 2013
2014 2013
$M
$M
$M $M
Net income for the
period 11.8 8.8
29.2 34.1
Other
comprehensive income movements: Exchange differences on
translation of foreign operations
(5.1 ) 1.8
(10.8 ) 3.1 Fair value movements in cash flow
hedges
0.3 (0.7 )
1.4 (0.8 ) Transfers to income
statement on cash flow hedges
(0.2 ) 0.8
0.1 -
Exchange differences on translation of hedging reserve
0.2 -
0.2 - Deferred tax on cash flow hedges
(0.2 ) (0.1 )
(0.5 ) 0.1
Hedge accounting income adjustments 0.1 -
1.2
(0.7 )
Total hedge accounting and translation of foreign
operation movements (5.0 ) 1.8
(9.6 ) 2.4 Remeasurement of
defined benefit retirement plans
(10.3 ) 8.3
(35.4 ) 23.7 Deferred tax on retirement benefit
changes
3.1 (2.0 )
8.9
(9.1 )
Retirement benefit changes (7.2
) 6.3
(26.5 ) 14.6
Total other comprehensive income
movements for the period
(12.2 ) 8.1
(36.1
) 17.0
Total comprehensive income for the
period (0.4 ) 16.9
(6.9 ) 51.1
Attributed to:
Equity shareholders
(0.4 ) 16.9
(6.9 ) 51.1
UNAUDITED CONSOLIDATED BALANCE SHEET AS
OF
DECEMBER 31, 2014 AND AUDITED DECEMBER 31,
2013
December 31, December 31,
2014 2013
$M $M
ASSETS
Non-current assets Property, plant and equipment
143.8 137.9 Intangible assets
93.3 41.4 Investments
7.4 7.9 Deferred tax assets
19.2 15.8
263.7 203.0
Current assets Inventories
104.6 94.1 Trade and other receivables
73.6 68.6
Income tax receivable
2.1 2.0 Cash and short term deposits
14.6 28.4
194.9
193.1
Assets classified as held for sale
1.2 -
TOTAL ASSETS
459.8 396.1
EQUITY AND LIABILITIES
Ordinary share capital
25.3 25.3 Deferred share capital
150.9 150.9 Share
premium account
56.2 55.6 Retained earnings
308.8
317.3 Own shares held by ESOP
(0.4 ) (0.5 ) Other
capital reserves
3.7 2.6 Hedging reserve
0.9 (0.3 )
Translation reserve
(36.2 ) (25.4 ) Merger reserve
(333.8 ) (333.8 ) Capital and reserves
attributable to the Group’s equity holders
175.4
191.7 Total equity
175.4 191.7
Non-current liabilities Bank and other loans
121.4 63.8 Retirement benefits
90.9 67.6 Deferred tax
liability
2.0 5.5 Contingent consideration
2.6 -
Provisions
2.1 2.2
219.0 139.1
Current liabilities Trade and other payables
62.8
63.2 Current income tax liabilities
0.5 0.3 Provisions
2.1 1.8
65.4
65.3 Total liabilities
284.4
204.4
TOTAL EQUITY AND LIABILITIES
459.8 396.1
CONSOLIDATED CASH FLOW STATEMENT FOR THE
THREE-MONTH AND TWELVE-MONTH PERIODS ENDED DECEMBER 31, 2014 AND
2013
(UNAUDITED)
Three-month periods
ended December 31,
Twelve-month periods
ended December 31,
2014 2013
2014 2013
$M
$M
$M $M
RECONCILIATION OF CASH
FLOWS FROM OPERATING ACTIVITIES Net income for the period
11.8
8.8
29.2 34.1 Adjustments to reconcile net income for the period
to net cash from operating activities: Income taxes
0.9 1.3
7.1 9.6 Deferred income taxes
(0.5 ) 0.4
- 3.0 Depreciation and amortization
4.9 4.1
18.1 15.8 Charges on retirement benefit obligations
-
1.7
- 1.7 Share based compensation charges
(0.1
) 0.5
1.8 1.8 Loss on disposal of property, plant and
equipment
0.3 0.3
0.3 0.3 Net interest costs
1.6 1.6
6.1 5.9 IAS 19 finance charge
0.7 1.1
2.7 3.8 Unwind of discount on contingent consideration from
acquisitions
- -
0.3 - Acquisitions and disposals
(6.3 ) -
(4.5 ) 0.1 Share of results of
joint ventures
- -
0.3 (0.1 ) Changes in operating
assets and liabilities: Increase in assets classified as held for
sale
- -
(1.2 ) - Decrease/(increase) in
receivables
3.7 2.6
(7.8 ) 5.7 Decrease
/(increase) in inventories
8.7 (5.1 )
(8.5 )
(9.1 ) Decrease in payables
(5.4 ) (3.0 )
(1.9
) (11.2 ) Movement in retirement benefit obligations
(2.5 ) (3.4 )
(10.4 ) (11.4 ) Movement
in provisions
- (0.4 )
- (0.7 ) Acquisitions and
disposal costs paid
(0.1 ) -
(1.6 ) -
Income tax paid
(1.7 ) (3.2 )
(7.0 ) (12.2 )
NET CASH FLOWS FROM
CONTINUING OPERATING ACTIVITIES 16.0 7.3
23.0 37.1
CASH FLOWS
FROM INVESTING ACTIVITIES Purchases of property, plant and
equipment
(6.3 ) (10.1 )
(20.4 ) (24.2
) Purchases of intangible assets
(1.1 ) (2.3 )
(1.9 ) (2.3 ) Receipts from sales of property, plant
and equipment
- 0.1
- 0.1 Investment in Joint Venture
– equity funding
- -
- (2.5 ) Investment in Joint
Venture – (advance payment) / repayment of debt funding
-
(1.0 )
0.2 (4.5 ) Interest income received from Joint
Ventures
0.1 -
0.3 - Net cash flow on purchase of
businesses
- -
(58.0
) -
NET CASH USED IN INVESTING
ACTIVITIES (7.3 ) (13.3 )
(79.8 ) (33.4 )
NET CASH FLOW BEFORE
FINANCING 8.7 (6.0 )
(56.8
) 3.7
FINANCING ACTIVITIES Interest and
similar finance costs paid on banking facilities
(0.5
) (0.3 )
(1.3 ) (0.9 ) Interest paid on Loan
Notes due 2018
(1.0 ) (1.0 )
(4.0 )
(4.0 ) Interest paid on Loan Notes due 2021
(0.2 ) -
(0.2 ) - Dividends paid
(2.7 ) (2.7 )
(10.8 ) (10.8 ) (Repayment) / Draw down on banking
facilities
(4.7 ) -
35.2 - Issue of Loan Notes
due 2021
- -
25.0 - Repayment of banking facilities
and other loans
- -
(0.3 ) - IPO share issue
costs
- -
- (0.3 ) Purchase of shares from ESOP
- -
0.1 - Proceeds from issue of shares
- -
0.6 - Other interest received
0.1 0.1
0.2 0.3
Amendment to banking facilities – financing costs
- -
(1.5 ) - Issue of Loan Notes due 2021 – financing
costs
(0.1 ) -
(0.2
) -
NET CASH FLOWS (USED IN)/FROM FINANCING
ACTIVITIES (9.1 ) (3.9 )
42.8 (15.7 )
NET DECREASE IN CASH AND CASH
EQUIVALENTS (0.4 ) (9.9 )
(14.0 ) (12.0 ) Net decrease in cash and cash
equivalents
(0.4 ) (9.9 )
(14.0 ) (12.0
) Net foreign exchange differences
(0.4 ) 0.2
0.2 0.2 Cash and cash equivalents at beginning of period
15.4 38.1
28.4
40.2
Cash and cash equivalents at end of
period 14.6 28.4
14.6
28.4
1. Revenue and segmental analysis
For management purposes, the Group is organized into two
operational divisions, Gas Cylinders and Elektron. The tables below
set out information on the results of these two reportable
segments. Management monitors the operating results of its
divisions separately for the purpose of making decisions about
resource allocation and performance assessment. Segment performance
is evaluated by the chief operating decision maker based on trading
profit or loss (defined as operating profit or loss before
restructuring and other expense), and adjusted EBITDA, (defined as
profit for the period before tax expense, finance income and costs,
accounting charges relating to acquisitions and disposals of
businesses, IAS 19 retirement benefits finance charges,
restructuring and other income and expense, other share based
compensation charges, amortization and depreciation and profit or
loss on disposal of property, plant and equipment). For the
purposes of our divisional segmental analysis, IFRS8 requires the
use of “segment profit” performance measures that are used by our
chief operating decision maker. Trading profit is the “segment
profit” used to satisfy this requirement in the below analysis. All
inter-segment sales are made on an arm’s length basis.
REPORTING SEGMENTS:
Three-month period ended December 31, 2014
Three-month period ended December 31, 2013 Gas
Continuing Gas
Continuing Cylinders Elektron
Unallocated Activities Cylinders
Elektron Unallocated Activities
$M $M $M $M
$M $M $M $M
Revenue Segment Revenue 65.0 58.5 -
123.5 64.1 52.2 -
116.3 Inter-segment sales - (0.1 ) -
(0.1 ) - (0.3 ) -
(0.3 ) Sales to external customers
65.0
58.4 - 123.4 64.1 51.9 -
116.0 Result Adjusted EBITDA
3.2 12.6
- 15.8 6.9 12.9 - 19.8
Other share based compensation charges - 0.1
- 0.1
(0.2 ) (0.2 ) -
(0.4 ) Loss on disposal of property,
plant and equipment (0.2 ) (0.1 )
- (0.3 )
(0.1 ) (0.2 ) -
(0.3 ) Depreciation and amortization
(2.1 ) (2.8 ) -
(4.9 )
(1.8 ) (2.3 ) -
(4.1 )
Segment Result
0.9 9.8 - 10.7
4.8 10.2 - 15.0 Restructuring and other
income (expense) (0.5 ) (2.0 ) -
(2.5 ) (1.2 ) (0.5 ) (0.1 )
(1.8 ) Operating profit 0.4 7.8 -
8.2 3.6 9.7
(0.1 )
13.2 Acquisitions and disposals 1.5 4.8 -
6.3
- - -
- Net interest costs - - (1.6 )
(1.6 ) -
- (1.6 )
(1.6 ) IAS 19 finance charge - - (0.7 )
(0.7 ) - - (1.1 )
(1.1 ) Unwind of
discount on contingent consideration from acquisitions -
- -
- -
- -
-
Profit before tax 1.9 12.6 (2.3 )
12.2 3.6 9.7 (2.8 )
10.5 Tax expense (0.4 )
(0.4 ) (1.7 )
(1.7 ) Net income for the period
11.8
8.8 Other segment information
Segment assets 189.5 216.8 53.5
459.8 183.5 150.4 62.2
396.1 Segment liabilities (33.0 ) (25.1 )
(226.3 )
(284.4 ) (35.0 ) (22.3 )
(147.1 )
(204.4 ) Net
assets/(liabilities) 156.5 191.7 (172.8
)
175.4 148.5 128.1
(84.9 )
191.7 Capital expenditure:
Property, plant and equipment 1.6 5.1 -
6.7 6.3 3.5 -
9.8 Capital expenditure: Intangible assets 0.7
0.4 -
1.1 0.3
2.0 -
2.3
Twelve-month period ended December 31, 2014
Twelve-month period ended December 31, 2013 Gas
Continuing Gas Continuing Cylinders
Elektron Unallocated Activities
Cylinders Elektron Unallocated
Activities $M $M $M
$M $M $M $M $M Revenue
Segment Revenue 258.9 231.5 -
490.4 261.6 220.4
-
482.0 Inter-segment sales - (0.9 ) -
(0.9 ) - (0.7 )
-
(0.7 ) Sales to external customers
258.9
230.6 - 489.5 261.6 219.7
- 481.3 Result Adjusted EBITDA
14.7
50.1 - 64.8 26.8 49.8 -
76.6 Other share based compensation charges (0.8 ) (0.8 )
- (1.6 ) (0.6 ) (0.7 ) -
(1.3 )
Loss on disposal of property, plant and equipment (0.2 ) (0.1 )
- (0.3 ) (0.1 ) (0.2 ) -
(0.3 )
Depreciation and amortization (7.8 ) (10.3 ) -
(18.1
) (7.1 ) (8.7 ) -
(15.8 ) Segment
Result
5.9 38.9 - 44.8 19.0
40.2 - 59.2 Restructuring and other expense
(1.1 ) (2.6 ) (0.2 )
(3.9 ) (1.5 ) (0.7 ) (0.5 )
(2.7 ) Operating profit 4.8 36.3 (0.2 )
40.9
17.5 39.5 (0.5 )
56.5 Acquisitions and disposals 1.2 3.3 -
4.5 (0.1 ) - -
(0.1 ) Net interest costs - -
(6.1 )
(6.1 ) - - (5.9 )
(5.9 ) IAS 19
finance charge - - (2.7 )
(2.7 ) - - (3.8 )
(3.8 ) Unwind of discount on contingent consideration
from acquisitions (0.1 ) (0.2 ) -
(0.3
) - - -
- Profit before
tax 5.9 39.4 (9.0 )
36.3 17.4 39.5 (10.2 )
46.7 Tax
expense (7.1 )
(7.1 )
(12.6 )
(12.6 ) Net income for the period
29.2 34.1
Other segment information Segment assets 189.5 216.8
53.5
459.8 183.5 150.4 62.2
396.1 Segment liabilities
(33.0 ) (25.1 ) (226.3 )
(284.4 ) (35.0 ) (22.3 )
(147.1 )
(204.4 ) Net assets/(liabilities) 156.5
191.7 (172.8 )
175.4 148.5 128.1
(84.9 )
191.7 Capital expenditure: Property,
plant and equipment 8.2 12.3 -
20.5 13.3 10.2 -
23.5
Capital expenditure: Intangible assets 1.0 0.9 -
1.9 0.3 2.0 -
2.3
2. Calculation of net debt
Three-month periods ended December 31,
Twelve-month periods
ended December 31,
2014 2013
2014 2013
Net debt is
represented by: $M $M
$M $M
Non-current bank and other loans
(121.4 ) (63.8 )
(121.4 ) (63.8 ) Less: Cash and short term deposits
14.6 28.4
14.6
28.4 Net debt at the end of the period
(106.8 ) (35.4 )
(106.8 )
(35.4 )
3. Other expense items
a) Restructuring and other expense
Three-month periods Twelve-month
periods ended December 31, ended December 31,
2014 2013
2014 2013
$M
$M
$M $M Charged to Operating profit:
Rationalization of operations
(0.5 ) -
(1.7
) (0.5 ) Environmental costs
(2.0 ) -
(2.0 ) - I.P.O. related share based compensation
charges
- (0.1 )
(0.2 ) (0.5 ) Charges on
retirement benefit obligations
- (1.7 )
- (1.7 )
(2.5 )
(1.8 )
(3.9 ) (2.7 )
b) Acquisitions and disposals
Three-month periods
ended December 31,
Twelve-month periods
ended December 31,
2014 2013
2014 2013
$M $M
$M $M
Charged to Non-operating profit: Acquisition costs
- -
(1.8 ) (0.1 ) Re-measurement of contingent
consideration
6.3 -
6.3 -
6.3 -
4.5 (0.1 )
Rationalization of operations
For the three-month period ended December 31, 2014, $0.5 million
of costs have been incurred in relation to rationalization costs in
the Gas Cylinders Division (three-month period ended December 31,
2013: $nil). For the twelve-month period ended December 31, 2014,
$1.1 million and $0.6 million of costs have been incurred in
relation to rationalization costs in our Gas Cylinders Division and
our Elektron Division, respectively (twelve-month period ended
December 31, 2013: $0.3 million and $0.2 million,
respectively).
Environmental costs
For the three-month and twelve-month periods ended December 31,
2014, $2.0 million of additional costs were incurred in relation to
the remediation of an effluent pond contaminated with low-level
radioactive material in our Elektron Division. Upon planned removal
and safe disposal of normal effluent from one of our Elektron
sites, an unusual contamination of sludge waste was discovered that
did not relate to the current operations and most likely related to
historical contamination of raw materials from over 15 years ago.
The material was removed and safely disposed of in late 2014.
I.P.O.-related share-based compensation charges
For the three-month and twelve-month periods ended December 31,
2014, charges of $nil and $0.2 million, respectively, were
recognized in the income statement under IFRS 2 in relation to
share options granted as part of the initial public offering in
2012 (three-month and twelve-month periods ended December 31, 2013:
$0.1 million and $0.5 million, respectively).
Charges on retirement benefit obligations
In the three-month period and twelve-month periods ended
December 31, 2013, deferred members of the U.S. pension plans were
offered the option of a lump sum in respect of their benefits in
the plan. This partial settlement of the pension liabilities
resulted in a non-cash charge to the income statement of
$1.7million.
Acquisition costs
For the twelve-month period ended December 31, 2014, $1.5
million of costs have been incurred in relation to the acquisitions
of the assets and business of Truetech and Innotech Products
(“Luxfer Magtech.”).
For the twelve-month period ended December 31, 2014, $0.3
million of costs have been incurred in relation to the acquisition
of a small composite cylinder manufacturer and associated
production assets in Utah.
For the three-month and twelve-month periods ended December 31,
2014, a credit of $6.3 million has been recognized in the income
statement in relation to the re-measurement of deferred contingent
consideration arising from acquisitions. Of the $6.3 million, $4.8
million related to the Elektron Division and specifically to the
acquisition of Luxfer Magtech Inc. where an element of deferred
contingent consideration was no longer payable due to the acquired
business narrowly failing to achieve a profit trigger as at 31
December, 2014. In addition $1.5 million related to the Gas
Cylinders Division, being the acquisition of Luxfer Utah and a
subsequent reassessment of the potential profitability of this
acquisition in the light of our revised expectations for the demand
of CNG systems following the recent fall in oil prices.
For the twelve-month period ended December 31, 2013, $0.1m of
acquisition costs were incurred by the Gas Cylinders Division in
relation to the fair value accounting for the acquisition of
Dynetek Industries Limited.
4. Reconciliation of non-GAAP measures
The following table presents a reconciliation of adjusted net
income and adjusted EBITDA to net income for the period, the most
comparable IFRS measure.
Three-month periods Twelve-month
periods ended December 31, ended December 31,
2014 2013
2014 2013
$M
$ M
$ M $ M Net income for the period
11.8 8.8
29.2 34.1 Accounting charges relating
to acquisitions and disposals of businesses Unwind of
discount on contingent consideration from acquisitions
- -
0.3 - Acquisitions and disposals
(6.3 ) -
(4.5 ) 0.1 Amortization on acquired intangibles
0.4 -
0.6 - IAS 19 – retirement benefits finance
charge
0.7 1.1
2.7 3.8 Restructuring and other
expense
2.5 1.8
3.9 2.7 Other share based
compensation charges
(0.1 ) 0.4
1.6 1.3 Tax
thereon
(0.4 ) (1.0 )
(2.9 ) (2.2 ) Adjusted net income
8.6 11.1
30.9 39.8 Add back: Tax thereon
0.4 1.0
2.9 2.2 Tax expense
0.4 1.7
7.1
12.6 Interest costs (net)
1.6 1.6
6.1 5.9
Depreciation and amortization
4.9 4.1
18.1 15.8 Loss
on disposal of property, plant and equipment
0.3 0.3
0.3 0.3 Less: amortization on acquired intangibles
(0.4 ) -
(0.6 ) - Adjusted EBITDA
15.8 19.8
64.8
76.6
Management believes that adjusted net income and adjusted EBITDA
are key performance indicators (KPIs) used by the investment
community and that the presentation of these items will enhance an
investor’s understanding of our results of operations. These KPIs
are also used within Luxfer Group, by the CEO and other senior
management. Adjusted net income and adjusted EBITDA should not be
considered in isolation by investors as an alternative to net
income for the period, as an indicator of our operating performance
or as a measure of our profitability.
5. Earnings per share
The Group calculates earnings per share in accordance with IAS
33. Basic income per share is calculated based on the weighted
average common shares outstanding for the period presented. The
weighted average number of shares outstanding is calculated by
time-apportioning the shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the
weighted average number of ordinary shares outstanding during the
financial year have been adjusted for the dilutive effects of all
potential ordinary shares and share options granted to
employees.
Following the approval of a two-for-one share split at the
Annual General Meeting on May 29, 2014, the nominal value of each
ordinary share is £0.50 and now represents 1 American Depositary
Share (ADS), resulting in the earnings per ordinary share being
equivalent to the earnings per ADS.
The ADSs of Luxfer Holdings PLC are listed on the New York Stock
Exchange following an initial public offering on October 3, 2012.
The company’s £0.50 ordinary shares are not traded on any
recognized stock exchange. The Depository for the ADSs holds 1
£0.50 ordinary share for every 1 ADS traded, through American
Depositary Receipts.
Under IAS 33, the number of shares used in the earnings per
share calculations for the prior periods shown has been adjusted to
achieve comparability.
Management believe the use of non-GAAP financial measures such
as adjusted earnings per ADS more closely reflects the underlying
earnings per ADS performance.
Three-month periods Twelve-month periods
ended December 31, ended December 31, 2014
2013
2014 2013
$M $M
$M $M
Basic
earnings: Basic earnings attributable to ordinary shareholders
11.8 8.8
29.2 34.1
Adjusted earnings: Accounting charges relating to
acquisitions and disposals of businesses Unwind of discount on
contingent consideration from acquisitions
- -
0.3 -
Acquisitions and disposals
(6.3 ) -
(4.5
) 0.1 Amortization on acquired intangibles
0.4 -
0.6 - IAS 19 – retirement benefits finance charge
0.7
1.1
2.7 3.8 Restructuring and other expense
2.5 1.8
3.9 2.7 Other share based compensation charges
(0.1
) 0.4
1.6 1.3 Tax thereon
(0.4 ) (1.0 )
(2.9 )
(2.2
)
Adjusted earnings 8.6 11.1
30.9 39.8
Weighted average number of
£0.50 ordinary shares: For basic earnings per share
26,953,239 26,814,576
26,889,330 26,814,154 Exercise
of share options
660,221 1,262,796
846,463 1,232,248 For diluted earnings per
share
27,613,460 28,077,372
27,735,793
28,046,402
Earnings per share using
weighted average number of ordinary shares outstanding:
Basic Adjusted
$0.32 $0.41
$1.15 $1.48
Unadjusted
$0.44 $0.33
$1.09
$1.27
Diluted Adjusted
$0.32 $0.40
$1.11 $1.42 Unadjusted
$0.43 $0.31
$1.05 $1.22
Each £0.50 ordinary share represents one
American Depositary Share, as listed and quoted on the New York
Stock Exchange.
6. Retirement benefits
The principal defined benefit pension plan in the U.K. is the
Luxfer Group Pension Plan. The Group’s other arrangements are less
significant than the Luxfer Group Pension Plan, the largest being
the BA Holdings Inc Pension Plan in the United States.
The actuarial assumptions used to estimate the IAS 19 accounting
position of the Group’s defined benefit pension plans have been
updated for market conditions at December 31, 2014.
The discount rate for the U.K. plan has decreased by 1.0% per
annum from 4.5% at December 31, 2013, to 3.5% at December 31 2014.
Long-term inflation expectations have decreased by 0.5% per annum
from 3.4% at December 31, 2013 to 2.9% at December 31, 2014. The
combined effect of the changes has been to increase the projected
benefit obligation by approximately $42.3 million relative to that
expected. There have also been slightly higher-than-expected
returns on U.K. plan assets of $17.1 million, which, combined with
the change in the projected benefit obligation and the net
charges/contributions and translation impact of a positive $9.7
million, has led to the deficit on the U.K. plan increasing by
$15.5 million.
In the United States, the discount rate has decreased by 0.8%
from 4.9% at December 31, 2013 to 4.1% at December 31, 2014. Along
with adoption of mortality assumptions in line with the new
mortality tables published by the Society of Actuaries, this has
increased the projected benefit obligation by approximately $10.0
million relative to that expected. There were worse-than-expected
returns on U.S. plan assets of $0.1 million, which, combined with
the change in the projected benefit obligation and the net
charges/contributions of the scheme of a positive $2.2 million, has
led to the deficit on the U.S. plan increasing by approximately
$7.9 million.
The movement in the pension liability is shown below:
Three-month periods
ended December 31,
Twelve-month periods
ended December 31,
2014 2013
2014 2013
$M $M
$M $M Opening balance
85.5 74.9
67.6 96.7
Charged to the Income Statement
2.1 2.5
9.3 10.2 Cash
contributions
(3.9 ) (4.8 )
(17.0 )
(17.8 ) Charged / (Credited) to the Statement of Comprehensive
Income
10.3 (8.3 )
35.4 (23.7 ) Settlement charge
- 1.7
- 1.7 Exchange adjustments
(3.1 )
1.6
(4.4 ) 0.5 Closing balance
90.9 67.6
90.9 67.6
7. Dividends paid and proposed
Three-month periods
ended December 31,
Twelve-month periods
ended December 31,
2014 2013
2014 2013
$M
$M
$M $M Dividends declared and paid
during the period: Interim dividend paid February 6, 2013 ($0.10
per ordinary share) - - - 2.7 Interim dividend paid May 8, 2013
($0.10 per ordinary share) -
- - 2.7 Interim dividend paid
August 7, 2013 ($0.10 per ordinary share) - - - 2.7 Interim
dividend paid November 6, 2013 ($0.10 per ordinary share) - 2.7 -
2.7 Interim dividend paid February 5, 2014 ($0.10 per ordinary
share) - -
2.7 - Interim dividend paid May 7, 2014 ($0.10
per ordinary share) -
- 2.7 - Interim dividend
paid August 6, 2014 ($0.10 per ordinary share) -
-
2.7 - Interim dividend paid November 5, 2014 ($0.10
per ordinary share)
2.7 -
2.7 -
2.7 2.7
10.8 10.8
Three-month periods
ended December 31,
Twelve-month periods
ended December 31,
2014 2013
2014 2013
$M $M
$M $M Dividends proposed after December 31 (not
recognized as a liability as at December 31): Interim dividend paid
February 5, 2014 ($0.10 per ordinary share) - 2.7
- 2.7
Interim dividend proposed and payable February 4, 2015
($0.10 per ordinary share)
2.7 - 2.7 -
2.7 2.7
2.7 2.7
8. Share based compensation
Luxfer Holdings PLC Long-Term Umbrella Incentive Plan
(“LTIP”) and Luxfer Holdings PLC Non-Executive Directors Equity
Incentive Plan (“Director EIP”)
On March 21, 2014, 201,870 Restricted Stock Units and Options
over ADSs were granted under the LTIP, following the Annual General
Meeting on May 29, 2014, 12,517 Restricted Stock Units and Options
over ADSs were granted under the Director EIP. The total fair value
of the awards amounts to $1.6 million, of which $0.7 million has
been charged in the year ended December 31, 2014. A further $1.1m
of charges has been incurred during the year in relation to other
share based compensation schemes, included grants made in previous
years.
9. Acquisitions
On March 21, 2014 the Group acquired a business specializing in
the design and manufacture of composite cylinders and the
associated production assets in Utah, acquiring 100% of the voting
rights of the two legal entities that make up the business, Vexxel
Composites LLC and Hypercomp Engineering Inc (“Luxfer Utah”). This
provides our North American Gas Cylinders business with a facility
purpose-built for the design and manufacture of Type 4
(polymer-lined) composite cylinder products, which are being
targeted initially at the class 8 heavy-duty truck market, where an
increasing rate of conversion from diesel to CNG has been
occurring. We are continuing to develop further larger-diameter
Type 4 cylinders for growing alternative fuel markets to complement
our existing lightweight range of Type 3 (aluminum-lined) cylinder
products and systems.
On July 29, 2014, the Group closed the acquisition of the trade
and assets of two related businesses: Truetech Inc. and Innotech
Products Limited (“Luxfer Magtech”). The acquired businesses
produce magnesium-based flameless heating pads for self-heating
meals used by the U.S. military and emergency relief agencies; an
extensive line of self-heating meals, soups and beverages used by
military and civilian end-users; seawater desalinization kits,
chemical agent detection kits; and chemical decontamination
equipment. Truetech operates a manufacturing and warehousing
facility on a company-owned site in Riverhead, New York, and
Innotech operates a leased manufacturing, assembly and distribution
facility in Cincinnati, Ohio. The acquired businesses have been
combined within Luxfer Magtech Inc, a new wholly-owned subsidiary
of Luxfer Group, and operate as part of the Group’s specialty
materials Elektron Division. On closing, an initial consideration
of $59.3 million was paid, and with the acquired businesses having
$4 million of cash, the net cash cost was $55.3 million.
Provisional assessment of assets acquired and
liabilities
Luxfer Luxfer Total Utah Magtech
Group $M $ M $ M
Property, plant and equipment 1.1 7.2
8.3 Intangible assets
0.6 21.6
22.2 Cash and short term deposits 0.1 4.0
4.1 Inventories - 6.5
6.5 Trade and other receivables
0.4 1.5
1.9 Total assets
2.2 40.8
43.0 Trade and other payables (0.9 ) (2.8 )
(3.7 ) Provisions - (0.2 )
(0.2 ) Bank
and other loans (0.3 ) -
(0.3 )
Total liabilities (1.2 ) (3.0 )
(4.2 ) Net assets
acquired 1.0 37.8
38.8
Provisional identifiable net assets at fair value 1.0 37.8
38.8 Goodwill arising on acquisition 4.1 27.8
31.9 Gross purchase
consideration 5.1 65.6
70.7
Represented by: Amounts paid 2.8 59.3
62.1 Contingent
consideration liability 2.3 6.3
8.6 5.1
65.6
70.7
The table above represents the initial assessment of the fair
values of the assets acquired of the businesses at the date of
initial acquisition, which will be finalized during 2015.
Goodwill includes the fair value of the expertise of the
acquired workforce following the business combination and also the
synergies that are expected to arise.
9. Acquisitions (continued)
The contingent consideration for Luxfer Utah is linked into the
future profitability of the company, and substantially all of it
will be payable at March 31, 2017. The contingent consideration is
shown in the balance sheet as at December 31, 2014, at $1.0
million, following a remeasurement of contingent consideration at
the year-end based upon the estimated future cashflows and the
weighted probability of those cashflows being achieved, resulting
in a credit to the income statement of $1.5 million, net of an
unwind of discount on contingent consideration of $0.2 million. The
potential undiscounted future payment has been estimated at $1.3
million.
The contingent consideration for Luxfer Magtech is linked into
the future profitability of the company and will be payable
annually from 2015 to 2020. The contingent consideration is shown
in the balance sheet as at December 31, 2014, at $1.6 million,
following a remeasurement of contingent consideration at the
year-end based upon the estimated future cashflows and the weighted
probability of those cashflows being achieved, resulting in a
credit to the income statement of $4.8 million, net of an unwind of
discount on contingent consideration of $0.1 million. The potential
undiscounted future payment has been estimated at $2.3 million.
December 31, 2014 Luxfer Luxfer
Total Utah Magtech Group
$M $M $M Acquisition costs: Transaction
costs 0.3 1.5
1.8 0.3 1.5
1.8
December 31, 2014 Luxfer Luxfer
Total Utah Magtech Group
$M $M $M Net cashflow on purchase of
business: Included in net cashflows from investing
activities: Amounts paid 2.8 59.3
62.1 Cash acquired
(0.1 ) (4.0 )
(4.1 ) 2.7
55.3
58.0 Included in net cashflows from
operating activities: Acquisition costs 0.3 1.5
1.8
Less: accrued acquisition costs - (0.2 )
(0.2
) 0.3 1.3
1.6
Transaction costs for acquisitions were $1.8 million of which
$1.6 million is included in cashflows from operating activities
with the remainder provided for on the balance sheet and are
expected to be paid in 2015.
The post-acquisition contribution to revenue and profit before
tax for acquisitions was $17.0 million revenue and a profit of $1.7
million. Had the acquisitions occurred at the beginning of the
year, the contribution to revenue and profit before tax is
estimated to have been $37.5 million revenue and a profit of $5.3
million.
10. Amendment to banking facilities
On March 25, 2014, the Group amended its banking facilities. The
new arrangements provide an expanded $150 million of committed
revolving credit facilities, at slightly lower costs to previous
terms, and also provide up to an additional $50 million via a
standby accordion facility. The current facilities were due to
mature in early May 2015, but the amended facilities have been
extended to the end of April 2019. The cost of extending these
facilities was an additional $1.3 million commitment fee plus legal
costs of $0.2 million.
11. Loan notes due 2021 and shelf facility
On September 18, 2014, the Group issued through the Prudential
Insurance Company of America (“PRICOA”) loan notes for a sum of
$25m to investment funds managed by PRICOA. The loan notes carry a
fixed interest rate of 3.67% and are repayable in 2021. The new
arrangement also allows for a further $50 million of borrowing
through an uncommitted three-year shelf facility with PRICOA. The
cost associated with the new arrangement was an additional $0.2
million of legal costs with no arrangement fees payable. The loan
notes and the shelf facility are unsecured but subject to the same
group guarantees as the rest of our debt facilities.
Luxfer GroupDan Stracner, Director of Investor Relations+1 951
341 2375dan.stracner@luxfer.net
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