WASHINGTON, D.C. 20549
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.:
The number of shares outstanding of Registrant’s only class of ordinary stock on September 29, 2019,27, 2020, was 27,411,622.27,622,099.
Our quarterly financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018.2019. 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 of a normal recurring nature, necessary for presentation 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.
Our 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 2019,2020, ended on September 29, 2019,27, 2020, and the Third Quarter 2018,2019, ended on September 30, 2018.29, 2019.
None that will be material to the Company.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter | |
| | 2019 | | 2018 | |
| In millions | Gas Cylinders | Elektron | Total | | Gas Cylinders | Elektron | Total | |
| General industrial | $ | 10.1 |
| $ | 29.0 |
| $ | 39.1 |
| | $ | 13.4 |
| $ | 38.3 |
| $ | 51.7 |
| |
| Transportation | 20.8 |
| 11.9 |
| 32.7 |
| | 21.0 |
| 18.1 |
| 39.1 |
| |
| Defense and emergency | 17.8 |
| 11.5 |
| 29.3 |
| | 20.4 |
| 10.3 |
| 30.7 |
| |
| Healthcare | 5.5 |
| 0.5 |
| 6.0 |
| | 7.4 |
| 0.2 |
| 7.6 |
| |
| | $ | 54.2 |
| $ | 52.9 |
| $ | 107.1 |
| | $ | 62.2 |
| $ | 66.9 |
| $ | 129.1 |
| |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Year-to-date | |
| | 2019 | | 2018 | |
| In millions | Gas Cylinders | Elektron | Total | | Gas Cylinders | Elektron | Total | |
| General industrial | $ | 34.2 |
| $ | 88.1 |
| $ | 122.3 |
| | $ | 40.2 |
| $ | 99.3 |
| $ | 139.5 |
| |
| Transportation | 65.8 |
| 48.2 |
| 114.0 |
| | 57.3 |
| 55.2 |
| 112.5 |
| |
| Defense and emergency | 55.2 |
| 34.2 |
| 89.4 |
| | 62.3 |
| 38.4 |
| 100.7 |
| |
| Healthcare | 15.5 |
| 2.8 |
| 18.3 |
| | 22.1 |
| 2.2 |
| 24.3 |
| |
| | $ | 170.7 |
| $ | 173.3 |
| $ | 344.0 |
| | $ | 181.9 |
| $ | 195.1 |
| $ | 377.0 |
| |
3. Net Sales (continued)The Company’s performance obligations are satisfied over time as work progresses or at a point in time. Design and tooling arrangements are the only contracts for which sales are recognized over time. Sales from these sources combined accounted for less than 1% of the Company’s sales for the quarters ended and year-to-date ended September 29, 2019,27, 2020, and September 30, 2018.29, 2019. All consideration from contracts with customers is included in these amounts.
The following table provides information about contract receivables, contract assets and contract liabilities from contracts with customers:
| | | | | | | | | | | | | | | | | |
| In millions | September 27, 2020 | | December 31, 2019 | |
| Contract receivables | $ | 1.1 | | | $ | 1.7 | | |
| Contract assets | 0.2 | | | 1.3 | | |
| Contract liabilities | (0.2) | | | (0.5) | | |
|
| | | | | | | | | |
| In millions | September 29, 2019 | | December 31, 2018 | |
| Contract receivables | $ | 1.6 |
| | $ | 1.5 |
| |
| Contract assets | 1.6 |
| | 2.1 |
| |
| Contract liabilities | $ | (0.4 | ) | | $ | (1.1 | ) | |
Contract assets consist of $1.6$0.2 million accrued unbilled amounts relating to tooling revenue and are recognized in prepayments and accrued income in the condensed consolidated balance sheets. Of the $2.1$1.3 million contract assets recognized as of December 31, 2018, $1.62019, $1.2 million was billed to customers and transferred to receivables as of September 29, 2019.27, 2020.
Contract liabilities of $0.4$0.2 million consist of advance payments and billing above costs incurred and are recognized as other current liabilitiesin the condensed consolidated balance sheets.. Significant changes in contract liabilities balances during the period are as follows:
| | | | | | | | | | | |
| In millions | 2020 | |
| As at January 1, | $ | (0.5) | | |
| Net (payments received) / amounts billed | (0.6) | | |
| Net (costs incurred) / revenue recognized | 0.9 | | |
| As at September 27, | $ | (0.2) | | |
|
| | | | | |
| In millions | 2019 | |
| As at January 1, | $ | (1.1 | ) | |
| Payments received / amounts billed | (0.6 | ) | |
| Costs incurred / revenue recognized | 1.3 |
| |
| As at September 29, | $ | (0.4 | ) | |
4. Restructuring
During the Third Quarter of 2019 and the year ended December 31, 2018,2020 we initiated and continued execution of certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business. Initiatives duringThe $4.3 million restructuring charge in the Third Quarter of 2019 were2020 was predominantly in relation to($3.3 million) the result of further costs associated with the announced closure of theLuxfer Gas Cylinders segment's French site.France, including one-time employee benefit costs, and associated legal and professional fees. There iswas an expectation that further costs will be incurred during 2019.additional $1.0 million of one-time employee benefit expense resulting from actions to reduce our fixed cost-base in light of the COVID-19 pandemic.
Restructuring-related costs included within Restructuring charges in the Condensed Consolidated Financial Statements by reportable segment were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter | | | | Year-to-date | | | |
| In millions | | 2020 | | 2019 | | 2020 | | 2019 | |
| Severance and related costs | | | | | | | | | |
| Gas Cylinders segment | | $ | 3.4 | | | $ | 2.3 | | | $ | 6.8 | | | $ | 18.9 | | |
| Elektron segment | | 0.9 | | | 0.3 | | | 1.0 | | | 0.4 | | |
| Other | | 0 | | | 0 | | | 0.1 | | | 0 | | |
| | | $ | 4.3 | | | $ | 2.6 | | | $ | 7.9 | | | $ | 19.3 | | |
| Asset impairments | | | | | | | | | |
| Gas Cylinders segment | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0.6 | | |
| Elektron segment | | 0 | | | 0 | | | 0 | | | 4.4 | | |
| | | | | | | | | | |
| | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 5.0 | | |
| Total restructuring charges | | $ | 4.3 | | | $ | 2.6 | | | $ | 7.9 | | | $ | 24.3 | | |
|
| | | | | | | | | | | | | | | | | | |
| | | Third Quarter | | Year-to-date | |
| In millions | | 2019 | | 2018 | | 2019 | | 2018 | |
| Severance and related costs | | | | | | | | | |
| Gas Cylinders | | $ | 2.3 |
| | $ | — |
| | $ | 18.9 |
| | $ | 0.1 |
| |
| Elektron | | 0.3 |
| | 0.4 |
| | 0.4 |
| | 2.0 |
| |
| | | 2.6 |
| | 0.4 |
| | 19.3 |
| | 2.1 |
| |
| Asset impairments | | | | | | | | | |
| Gas Cylinders | | — |
| | — |
| | 0.6 |
| | — |
| |
| Elektron | | — |
| | 0.7 |
| | 4.4 |
| | — |
| |
| | | — |
| | 0.7 |
| | 5.0 |
| | — |
| |
| Total restructuring charges | | 2.6 |
| | 1.1 |
| | 24.3 |
| | 2.1 |
| |
4. Restructuring (continued)
Activity related to restructuring, recorded in Other current liabilities in the condensed consolidated balance sheets is summarized as follows:
| | | | | | | | | | | | | |
| In millions | 2020 | | | |
| Balance at January 1, | $ | 6.5 | | | | |
| Costs incurred | 7.9 | | | | |
| Cash payments and other | (5.0) | | | | |
| Balance at September 27, | $ | 9.4 | | | | |
|
| | | | | |
| In millions | 2019 | |
| Balance at January 1, | $ | 5.2 |
| |
| Costs incurred | 18.9 |
| |
| Cash payments | (21.3 | ) | |
| Balance at September 29, | $ | 2.8 |
| |
5. Acquisition and disposal related costsgains / (costs)
Acquisition and disposal relatedAcquisition-related costs of $0.2 million were incurred during the First Quarter of 2020 and represents amounts incurred in relation to M&A exploration activities net of a $0.1 million release of deferred contingent consideration.
In July 2020 we sold our 51% investment in Luxfer Uttam India Private Limited to our joint venture partner resulting in a gain on sale of less than $0.1 million.
The net $1.7 million have been incurred incharge for the first nine-months of 2019 (2018: nil).was in relation to a $2.9 million gain in the Second Quarter of 2019 related to the sale of Magnesium Elektron CZ s.r.o. This relates togain was offset by a $4.6 million charge in the First Quarter of 2019 in relation to a reimbursement of costs following the terminated Neo acquisition, partially offset by a $2.9acquisition.
6. Other income
Other income of $2.3 million gain fromfor the sale of Magnesium Elektron CZ s.r.o. in the SecondThird Quarter of 2019.2020 represents payments received from a European automotive customer for compensation in relation to a contribution of loss and product volumes relating to our Gas Cylinders segment.
|
| | | | | |
| In millions | 2019 | |
| Cash proceeds | $ | 5.9 |
| |
| Less: | | |
| Cash held in business | (1.3 | ) | |
| Purchase price adjustment | (0.2 | ) | |
| Net proceeds | $ | 4.4 |
| |
| Net assets less cash | (3.6 | ) | |
| Profit on disposal | $ | 0.8 |
| |
| Disposal costs | (0.4 | ) | |
| Realized translation gain on disposal | 2.5 |
| |
| Net profit on disposal | $ | 2.9 |
| |
6.7. Other charges
Other charges of $2.7 million incurred in the Third Quarter of 2019 iswere the result of the Company's decision to commence a project to remove low-level naturally occurring radioactive material (NORM) from a redundant building at its Manchester, UK site. The work represents remediation of a legacy environmental issue and is
expected to complete in the secondfirst quarter of 20202021 but with no significant further costs envisaged.
The charge is being disclosed separately on the face of the condensed consolidated income statement as the NORM was created during the Company's historic production process and the remediation is not indicative of the current trading performance of the Company.
8. Supplementary balance sheet information
| | | | | | | | | | | | | | | | | | | | |
| | | September 27, | | December 31, | |
| In millions | | 2020 | | 2019 | |
| Accounts and other receivables | | | | | |
| Trade receivables | | $ | 45.2 | | | $ | 52.4 | | |
| Related parties | | 0.1 | | | 2.7 | | |
| Prepayments and accrued income | | 6.4 | | | 6.7 | | |
| Derivative financial instruments | | 0.1 | | | 0.3 | | |
| Deferred consideration | | 0.5 | | | 0 | | |
| Other receivables | | 3.6 | | | 4.2 | | |
| Total accounts and other receivables | | $ | 55.9 | | | $ | 66.3 | | |
| Inventories | | | | | |
| Raw materials and supplies | | $ | 30.0 | | | $ | 33.4 | | |
| Work-in-process | | 26.4 | | | 32.2 | | |
| Finished goods | | 28.3 | | | 28.9 | | |
| Total inventories | | $ | 84.7 | | | $ | 94.5 | | |
| Other current assets | | | | | |
| Held-for-sale assets | | $ | 3.7 | | | $ | 3.9 | | |
| Income tax receivable | | 0.6 | | | 1.1 | | |
| Total other current assets | | $ | 4.3 | | | $ | 5.0 | | |
| Property, plant and equipment, net | | | | | |
| Land, buildings and leasehold improvements | | $ | 70.3 | | | $ | 68.1 | | |
| Machinery and equipment | | 285.5 | | | 287.7 | | |
| Construction in progress | | 6.9 | | | 8.9 | | |
| Total property, plant and equipment | | 362.7 | | | 364.7 | | |
| Accumulated depreciation and impairment | | (270.4) | | | (265.8) | | |
| Total property, plant and equipment, net | | $ | 92.3 | | | $ | 98.9 | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Other current liabilities | | | | | |
| Contingent liabilities | | $ | 9.5 | | | $ | 6.6 | | |
| | | | | | |
| Derivative financial instruments | | 0.1 | | | 0 | | |
| Operating lease liability | | 3.0 | | | 3.3 | | |
| Other current liabilities | | 1.7 | | | 2.4 | | |
| Total other current liabilities | | $ | 14.3 | | | $ | 12.3 | | |
| Other non-current liabilities | | | | | |
| Contingent liabilities | | $ | 1.0 | | | $ | 0.9 | | |
| | | | | | |
| Operating lease liability | | 9.5 | | | 11.7 | | |
| Other non-current liabilities | | 0.1 | | | 0.2 | | |
| Total other non-current liabilities | | $ | 10.6 | | | $ | 12.8 | | |
|
| | | | | | | | | | |
| | | September 29, | | December 31, | |
| In millions | | 2019 | | 2018 | |
| Accounts and other receivables | | | | | |
| Trade receivables | | $ | 56.0 |
| | $ | 49.8 |
| |
| Related parties | | 3.3 |
| | 0.9 |
| |
| Prepayments and accrued income | | 9.1 |
| | 7.7 |
| |
| Derivative financial instruments | | — |
| | 0.1 |
| |
| Other receivables | | 4.7 |
| | 4.2 |
| |
| Total accounts and other receivables | | $ | 73.1 |
| | $ | 62.7 |
| |
| Inventories | | | | | |
| Raw materials and supplies | | $ | 31.8 |
| | $ | 30.5 |
| |
| Work-in-process | | 32.9 |
| | 33.1 |
| |
| Finished goods | | 31.5 |
| | 30.0 |
| |
| Total inventories | | $ | 96.2 |
| | $ | 93.6 |
| |
| Other current assets | | | | | |
| Held-for-sale assets | | $ | 3.9 |
| | $ | 10.7 |
| |
| Other current assets | | 2.0 |
| | — |
| |
| Total other current assets | | $ | 5.9 |
| | $ | 10.7 |
| |
| Property, plant and equipment, net | | | | | |
| Land, buildings and leasehold improvements | | $ | 67.6 |
| | $ | 73.3 |
| |
| Machinery and equipment | | 272.8 |
| | 286.0 |
| |
| Construction in progress | | 13.9 |
| | 10.1 |
| |
| Total property plant and equipment | | 354.3 |
| | 369.4 |
| |
| Accumulated depreciation and impairment | | (252.8 | ) | | (262.5 | ) | |
| Total property, plant and equipment, net | | $ | 101.5 |
| | $ | 106.9 |
| |
| Current maturities of long-term debt and short-term borrowings | | | | | |
| Overdrafts | | — |
| | 3.5 |
| |
| Total current maturities of long-term debt and short-term borrowings | | $ | — |
| | $ | 3.5 |
| |
| Other current liabilities | | | | | |
| Contingent liabilities | | $ | 6.8 |
| | $ | 5.3 |
| |
| Held-for-sale liabilities | | — |
| | 2.5 |
| |
| Operating lease liability | | 3.2 |
| | 3.5 |
| |
| Other current liabilities | | 1.8 |
| | 4.1 |
| |
| Total other current liabilities | | $ | 11.8 |
| | $ | 15.4 |
| |
| Other non-current liabilities | | | | | |
| Contingent liabilities | | $ | 1.2 |
| | $ | 0.8 |
| |
| Operating lease liability | | 12.0 |
| | 14.9 |
| |
| Other non-current liabilities | | 0.3 |
| | 0.5 |
| |
| Total other non-current liabilities | | $ | 13.5 |
| | $ | 16.2 |
| |
7.8. Supplementary balance sheet information (continued)
Held-for-sale assets and liabilities
| | | | | | | | | | | | | | | | | |
| Held-for-sale assets | September 27, | | December 31, | |
| In millions | 2020 | | 2019 | |
| Property, plant and equipment | $ | 3.7 | | | $ | 3.7 | | |
| Inventory | 0 | | | 0.2 | | |
| | | | | |
| Held-for-sale assets | $ | 3.7 | | | $ | 3.9 | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | |
| Held-for-sale assets | September 29, | | December 31, | |
| In millions | 2019 | | 2018 | |
| Property, plant and equipment | $ | 3.7 |
| | $ | 5.5 |
| |
| Inventory | 0.2 |
| | 2.9 |
| |
| Accounts and other receivables | — |
| | 2.3 |
| |
| Held-for-sale assets | $ | 3.9 |
| | $ | 10.7 |
| |
| | | | | |
| Held-for-sale liabilities | | | | |
| Accounts payable | $ | — |
| | $ | 2.5 |
| |
| Held-for-sale liabilities | $ | — |
| | $ | 2.5 |
| |
$3.7 million, (2018, $10.7 million) of theDuring 2018, a building within our Elektron Segment was classified as held-for-sale assets, relatepresented within other current assets. The building was part of a site closure announced in 2017 and was readily available for sale at December 31, 2018. As a result of delays, extended as a result of COVID-19, the site at Riverhead, NY is now expected to our Elektron segment, withbe sold during the remaining $0.2 million (2018, nil) relating to our Gas Cylinders segment. The first half of 2021 and is included within held-for-sale liabilities in 2018 relate to our Elektron segment.assets as of September 27, 2020 and December 31, 2019.
8.9. Goodwill and other identifiable intangible assets
Changes in goodwill during 2019,the first three-quarters ended September 27, 2020, were as follows:
|
| | | | | | | | | | | | | |
| In millions | Gas Cylinders | | Elektron | | Total | |
| At January 1, 2019 | $ | 26.3 |
| | $ | 41.3 |
| | $ | 67.6 |
| |
| Exchange difference | (0.8 | ) | | (0.4 | ) | | (1.2 | ) | |
| Balance at September 29, 2019 | $ | 25.5 |
| | $ | 40.9 |
| | $ | 66.4 |
| |
| | | | | | | | | | | | | | | | | | | | | | | |
| In millions | Gas Cylinders | | Elektron | | Total | |
| At January 1, 2020 | $ | 27.0 | | | $ | 41.8 | | | $ | 68.8 | | |
| | | | | | | |
| Exchange difference | (0.8) | | | (0.5) | | | (1.3) | | |
| Balance at September 27, 2020 | $ | 26.2 | | | $ | 41.3 | | | $ | 67.5 | | |
Identifiable intangible assets consisted of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 29, 2019 | | December 31, 2018 | |
| In millions | Gross | | Accumulated amortization | | Net | | Gross | | Accumulated amortization | | Net | |
| Customer relationships | $ | 13.4 |
| | $ | (4.5 | ) | | $ | 8.9 |
| | $ | 13.4 |
| | $ | (3.8 | ) | | $ | 9.6 |
| |
| Technology and trading related | 7.6 |
| | (3.1 | ) | | 4.5 |
| | 7.9 |
| | (2.9 | ) | | 5.0 |
| |
| | $ | 21.0 |
| | $ | (7.6 | ) | | $ | 13.4 |
| | $ | 21.3 |
| | $ | (6.7 | ) | | $ | 14.6 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 27, 2020 | | | | | | December 31, 2019 | | | | | |
| In millions | Gross | | Accumulated amortization | | Net | | Gross | | Accumulated amortization | | Net | |
| Customer relationships | $ | 13.4 | | | $ | (5.0) | | | $ | 8.4 | | | $ | 13.4 | | | $ | (4.6) | | | $ | 8.8 | | |
| Technology and trading related | 7.7 | | | (3.4) | | | 4.3 | | | 8.1 | | | (3.3) | | | 4.8 | | |
| | $ | 21.1 | | | $ | (8.4) | | | $ | 12.7 | | | $ | 21.5 | | | $ | (7.9) | | | $ | 13.6 | | |
Identifiable intangible asset amortization expense was $0.6 million and $0.9 million for the first three-quarters of 20192020 and 2018,2019 respectively.
Intangible asset amortization expense forduring the remainder of 20192020 and over the next five years is expected to be approximately $0.3 million in 2019, $1.1$0.1 million in 2020, $1.1$0.7 million in 2021, $1.1$0.7 million in 2022, $1.1$0.7 million in 2023, and $1.1$0.7 million in 2024.2024 and $0.7 million in 2025.
10. Debt
Debt outstanding was as follows:
| | | | | | | | | | | | | | | | | |
| In millions | September 27, 2020 | | December 31, 2019 | |
| | | | | |
| 3.67% Loan Notes due 2021 | $ | 25.0 | | | $ | 25.0 | | |
| 4.88% Loan Notes due 2023 | 25.0 | | | 25.0 | | |
| 4.94% Loan Notes due 2026 | 25.0 | | | 25.0 | | |
| Revolving credit facility | 0 | | | 17.5 | | |
| | | | | |
| Unamortized debt issuance costs | (0.3) | | | (1.1) | | |
| Total debt | $ | 74.7 | | | $ | 91.4 | | |
| Less current portion | $ | (25.0) | | | $ | 0 | | |
| Non-current debt | $ | 49.7 | | | $ | 91.4 | | |
|
| | | | | | | | | |
| In millions | September 29, 2019 | | December 31, 2018 | |
| 3.67% Loan Notes due 2021 | $ | 25.0 |
| | $ | 25.0 |
| |
| 4.88% Loan Notes due 2023 | 25.0 |
| | 25.0 |
| |
| 4.94% Loan Notes due 2026 | 25.0 |
| | 25.0 |
| |
| Revolving credit facility | 31.7 |
| | — |
| |
| Other - Bank overdraft | — |
| | 3.5 |
| |
| Unamortized debt issuance costs | (1.1 | ) | | (1.4 | ) | |
| Total debt | $ | 105.6 |
| | $ | 77.1 |
| |
| Less current portion | $ | — |
| | $ | (3.5 | ) | |
| Non-current debt | $ | 105.6 |
| | $ | 73.6 |
| |
Unamortized debt issuance costs of $0.5 million associated with the revolving credit facility have been reclassified into other receivables, presented within Accounts and other receivables, for the third quarter 2020 given the the balance of the facility is NaN.The weighted-average interest rate on the revolving credit facility was 2.39%2.16% for the first three-quartersThird Quarter of 20192020 and 3.58%2.47% for the full-year 2018.2019.
The maturity profile of the Company's debt, excluding unamortized issuance costs and discounts, is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total | |
| Loan Notes due 2021 | $ | — |
| | $ | — |
| | $ | 25.0 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 25.0 |
| |
| Loan Notes due 2023 | — |
| | — |
| | — |
| | — |
| | 25.0 |
| | — |
| | — |
| | 25.0 |
| |
| Loan Notes due 2026 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 25.0 |
| | 25.0 |
| |
| Revolving credit facility | — |
| | — |
| | — |
| | 31.7 |
| | — |
| | — |
| | — |
| | 31.7 |
| |
| Total debt | $ | — |
| | $ | — |
| | $ | 25.0 |
| | $ | 31.7 |
| | $ | 25.0 |
| | $ | — |
| | $ | 25.0 |
| | $ | 106.7 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In millions | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total | |
| Loan Notes due 2021 | $ | 0 | | | $ | 25.0 | | | $ | 0 | | | $ | — | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 25.0 | | |
| Loan Notes due 2023 | 0 | | | 0 | | | 0 | | | 25.0 | | | 0 | | | 0 | | | 0 | | | 25.0 | | |
| Loan Notes due 2026 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 25.0 | | | 25.0 | | |
| Revolving credit facility | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | |
| | | | | | | | | | | | | | | | | |
| Total debt | $ | 0 | | | $ | 25.0 | | | $ | 0 | | | $ | 25.0 | | | $ | 0 | | | $ | 0 | | | $ | 25.0 | | | $ | 75.0 | | |
Loan notes due and shelf facility
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 29, 2019.27, 2020.
The Loan Notes due 2021, 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 Third Quarter of 2019,2020, we drew down $3.5repaid $16.5 million on the Revolving Credit Facility and the balance outstanding at September 29, 2019,27, 2020, was $31.7 million,NaN, and at December 31, 2018,2019, was nil. We also repaid our bank overdraft of $7.2$17.5 million, resulting in a net repayment of $3.8with $150.0 million on the facility.undrawn at September 27, 2020, $132.5 million at December 31, 2019.
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 29, 2019.27, 2020.
10. Derivatives and financial instruments
The Company's financial instruments comprise bank and other loans, senior loan notes, derivatives, trade payables deferred and deferred contingent consideration. Other than derivatives, the main purpose of these financial instruments is to raise finance for the Company's operations. The Company also has various financial assets such as trade receivables and cash and cash equivalents, which arise directly from its operations.
Derivative financial instruments
We are exposed to market risk during the normal course of business from changes in currency exchange rates, interest rates and commodity prices such as aluminum prices. We manage exposures through a combination of normal operating and financing activities and through the use of derivative financial instruments such as foreign currency forward purchase contracts and aluminum forward purchase contracts. We do not use market risk-sensitive instruments for trading or speculative purposes. The Company had less than $0.1 million and $0.1 million derivative financial instruments disclosed within Accounts and other receivables as of September 29, 2019 and December 31, 2018, respectively. There were also less than $0.1 million and nil derivative financial instruments recorded in Other current liabilities at September 29, 2019, and December 31, 2018, respectively.
The fair value of forward foreign currency exchange contracts deferred in equity was a loss of $0.8 million and a loss of $0.8 million at September 29, 2019, and December 31, 2018, respectively. During the Third Quarter of 2019, $0.1 million was transferred to the Condensed Consolidated Income Statement.
Forward foreign currency exchange contracts
The Company incurs currency transaction risk whenever one of the Company's operating subsidiaries enters into either a purchase or sales transaction in a currency other than its functional currency. Currency transaction risk is reduced by matching sales and expenses in the same currency. The Company's U.S. operations have little currency exposure, as most purchases, costs and sales are conducted in U.S. dollars. The Company's U.K. operations are exposed to exchange transaction risks, mainly because these operations sell goods priced in euros and U.S. dollars, and purchase raw materials priced in U.S. dollars and its functional currency is GBP sterling. The Company also incurs currency transaction risk if it lends currency other than its functional currency to one of its joint venture partners.
At September 29, 2019, and December 31, 2018, the Company held various forward foreign currency exchange contracts designated as hedges in respect of forward sales for euros for the receipt of GBP sterling or euros. The Company also held forward foreign currency exchange contracts designated as hedges in respect of forward purchases for euros, U.S. and Canadian dollars by the sale of GBP sterling. The contract totals in GBP sterling and euros, range of maturity dates and range of exchange rates are disclosed below, with the value denominated in GBP sterling given that is the currency the majority of the contracts are held in.
|
| | | | | |
| | September 29, 2019 | |
| Sales hedges | | Euros | |
| Contract totals/£m | | 3.6 |
| |
| Maturity dates | | 11/19 to 12/19 |
| |
| Exchange rates | | €1.1221 to €1.1234 |
| |
|
| | | | | | | | | | |
| Purchase hedges | U.S. dollars | | Euros | | Canadian dollars | |
| Contract totals/£m | 5.9 |
| | 0.8 |
| | 5.9 |
| |
| Maturity dates | 09/19 to 12/19 |
| | 12/19 |
| | 09/19 to 10/19 |
| |
| Exchange rates | $1.2287 to $1.2424 |
| | $1.1205 |
| | $1.6213 to 1.6476 |
| |
|
| | | | | | | |
| | December 31, 2018 | |
| Sales hedges | U.S. dollars | | Euros | |
| Contract totals/£m | 4.8 |
| | 7.2 |
| |
| Maturity dates | 01/19 to 07/19 |
| | 01/19 to 07/19 |
| |
| Exchange rates | $1.2519 to $1.3419 |
| | €1.0949 to €1.1702 |
| |
|
| | | | | | | | | | | | | |
| Purchase hedges | U.S. dollars | | Euros | | Canadian dollars | | Czech koruna | |
| Contract totals/£m | 7.5 |
| | 1.7 |
| | 2.9 |
| | 0.1 |
| |
| Maturity dates | 01/19 to 07/19 |
| | 01/19 to 06/19 |
| | 01/19 to 03/19 |
| | 01/19 |
| |
| Exchange rates | $1.2609 to $1.3380 |
| | €1.1074 to €1.1221 |
| | $1.7039 to $1.7416 |
| | CZK 28.4490 |
| |
The above contracts are held in GBP sterling, therefore the analysis in the table has been given in GBP sterling to avoid any movements as a result of translation.
10. Derivatives and financial instruments (continued)
Fair value of financial instruments
The following methods were used to estimate the fair values of each class of financial instrument:
Cash at bank and in hand / overdrafts
The carrying value approximates to the fair value as a result of the short-term maturity of the instruments. Cash at bank and in hand are subject to a right to offset in the U.S.
Bank loans
Bank and other loans, excluding overdrafts, of $106.7 million were outstanding at September 29, 2019, and $75.0 million were outstanding at December 31, 2018. Bank and other loans are shown net of issue costs of $1.1 million and $1.4 million at September 29, 2019, and December 31, 2018, respectively, and are to be amortized to the expected maturity of the facilities. Of the bank and other loans outstanding, $31.7 million and none is variable interest rate debt and subject to floating interest rate risk, with the remainder being fixed rate debt, at September 29, 2019, and December 31, 2018, respectively.
Forward foreign currency exchange rate contracts
The fair value of these contracts was calculated by determining what the Company would be expected to receive or pay on termination of each individual contract by comparison to present market prices.
LME derivative contracts
During 2018 the fair value of these contracts has been calculated by valuing the contracts against the equivalent forward rates quoted on the LME. There were no LME derivative contracts in 2019.
Deferred contingent consideration
The deferred contingent consideration is in relation to the acquisition of Truetech and Innotech (Luxfer Magtech) in 2014 and is linked to the future profitability of the entity.
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
The fair values of the financial instruments of the Company at September 29, 2019, were analyzed using the hierarchy as follows:
|
| | | | | | | | | | | | | |
| In millions | Total | | Level 1 | | Level 2 | | Level 3 | |
| Interest bearing loans and borrowings: | | | | | | | | |
| Loan Notes due 2021 | (25.0 | ) | | — |
| | (25.0 | ) | | — |
| |
| Loan Notes due 2023 | (25.5 | ) | | — |
| | (25.5 | ) | | — |
| |
| Loan Notes due 2026 | (26.2 | ) | | — |
| | (26.2 | ) | | — |
| |
| Revolving Credit Facility | (31.7 | ) | | — |
| | (31.7 | ) | | — |
| |
| Other financial liabilities: | | | | | | | | |
| Lease liabilities | (15.2 | ) | | — |
| | (15.2 | ) | | — |
| |
| Deferred contingent consideration | (0.6 | ) | | — |
| | — |
| | (0.6 | ) | |
10. Derivatives and financial instruments (continued)
The following table presents the changes in Level 3 instruments for the Third Quarter ended September 29, 2019.
|
| | | | | |
| In millions | 2019 | |
| Balance at January 1, | $ | 0.9 |
| |
| Payments made during year | (0.5 | ) | |
| Unwind of discount on deferred consideration | 0.2 |
| |
| Balance at September 29, | $ | 0.6 |
| |
| Total losses for the period included in profit and loss for assets held at the end at September 29, | 0.2 |
| |
| Change in unrealized (gains) or losses for the period included in profit and loss for assets held at the end at September 29, | $ | 0.2 |
| |
11. Income taxesTaxes
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 for the 39-week period ended September 29, 2019,27, 2020, was 42.7%30.1%, compared to 22.8%42.7% for the 39-week period ended September 30, 2018.29, 2019. The 2020 tax rate has been affected by the reduction in the Canadian tax rate which is applied to deferred tax assets. However, there is no material change to our cash tax rate as a result of these items. The 2019 rate was adversely affected by the impact of non-deductible expenses related to the aborted acquisition of Neo Performance Materials and restructuring activities, partially offset by the non-taxable income in relation to the sale of our Czech business. We continue to actively pursue initiatives to reduce our effective tax rate.activities. The tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the U.S. Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. For 2018, the Company considered in its estimated annual effective tax rate additional provisions of the Act including changes to the deduction for executive compensation and interest expense, a tax on global intangible low-taxed income provisions (“GILTI”), the base erosion anti-abuse tax, and a deduction for foreign-derived intangible income. The Company has elected to treat tax on GILTI income as a period cost and has therefore included it in its annual estimated effective tax rate.
12. Pension plansShare Plans
The principal defined benefit pension plan in the U.K. is the Luxfer Group Pension Plan. The Company’s other arrangements are less significant than the Luxfer Group Pension Plan, the largest being the BA Holdings, Inc. Pension Plan in the U.S.
Components of net periodic benefit cost for our pension plans for the Third Quarter ended September 29, 2019, and September 30, 2018 were as follows:
|
| | | | | | | | | | | | | | | | |
| | Third Quarter | | Year-to-date | |
| In millions | 2019 | | 2018 | | 2019 | 2018 | |
| Net periodic benefit credit | | | | | | | |
| Interest cost | $ | 2.6 |
| | $ | 2.6 |
| | $ | 8.0 |
| $ | 7.9 |
| |
| Expected return on plan assets | (3.6 | ) | | (4.2 | ) | | (11.1 | ) | (12.8 | ) | |
| Amortization of: | | | | | | | |
| Net actuarial loss | 0.7 |
| | 0.7 |
| | 2.1 |
| 2.0 |
| |
| Prior service credit | (0.1 | ) | | (0.2 | ) | | (0.3 | ) | (0.4 | ) | |
| Net periodic benefit credit | $ | (0.4 | ) | | $ | (1.1 | ) | | $ | (1.3 | ) | $ | (3.3 | ) | |
| In respect of defined contribution plans | | | | | | | |
| Total charge for defined contribution plans | 1.1 |
| | 1.3 |
| | 3.5 |
| 3.9 |
| |
| Total charge for pension plans | $ | 0.7 |
| | $ | 0.2 |
| | $ | 2.2 |
| $ | 0.6 |
| |
In accordance with ASC 715, defined benefit credit is split in the condensed consolidated income statement, with $0.2 million (2018: $0.2 million) of expenses recognized within Selling, general and administrative expenses during the Third Quarter of 2019 and $0.4 million (2018: $0.6 million) year-to-date. A credit of $0.6 million (2018: $1.3 million) has also been recognized below Operating income in the condensed consolidated income statement during the Third Quarter of 2019, $1.7 million (2018: $3.9 million) year-to-date.
13. Share plans
Total share-based compensation expense for the Third Quarter and three-quarters ended September 29, 2019,27, 2020, and September 30, 2018,29, 2019, was as follows: |
| | | | | | | | | | | | | | | | |
| | Third Quarter | | Year-to-date | |
| In millions | 2019 | | 2018 | | 2019 | 2018 | |
| Total share-based compensation charges | $ | 0.6 |
| | $ | 1.2 |
| | $ | 4.0 |
| $ | 3.1 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter | | | | Year-to-date | | | |
| In millions | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Total share-based compensation charges | $ | 0.8 | | | $ | 0.6 | | | $ | 2.1 | | | $ | 4.0 | | |
| | | | | | | | | |
In March 2019,2020, 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 200,000130,000 and the weighted-averageweighted average fair value of options granted in 20192020 was estimated to be $17.70$11.30 per share.
In May 2019,2020, we issued additional share-based compensation grants under the Luxfer Holdings PLC Long-Term Umbrella Incentive Plan. The total number of awards issued was 2,000 and the weighted average fair value of options granted in 2020 was estimated to be $13.13 per share.
In June 2020, we issued our annual share-based compensation grants under the Luxfer Holdings PLC Non-Executive DirectorsDirectors' Equity Incentive Plan. The total number of awards issued was 27,280 and the weighted-average fair value of options granted was estimated to be $13.38 per share.
In September 2020, we issued additional share-based compensation grants under the Luxfer Holdings PLC Long-Term Umbrella Incentive Plan. The total number of awards issued was approximately 4,000 and the weighted-averageweighted average fair value of options granted was estimated to be $15.00$11.84 per share.
The following table illustrates the assumptions used in deriving the fair value of share options granted during 20192020 and the year-ended December 31, 2018,:2019:
|
| | | | | |
| | 2019 | | 2018 | |
| Dividend yield (%) | 4.00 | | 4.00 | |
| Expected volatility range (%) | 22.65 | | 22.65 - 35.77 | |
| Risk-free interest rate (%) | 0.12 | | 0.12 - 2.57 | |
| Expected life of share options range (years) | 1.00 - 4.00 | | 0.50 - 6.00 | |
| Weighted average exercise price ($) | $0.89 | | $0.65 | |
| Model used | Black-Scholes & Monte-Carlo | | Black-Scholes & Monte-Carlo | |
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | |
| Dividend yield (%) | 3.39 - 4.09 | | 2.10 | |
| Expected volatility range (%) | 36.48 - 56.28 | | 35.06 - 44.20 | |
| Risk-free interest rate (%) | 0.16 - 0.49 | | 0.74 - 2.52 | |
| Expected life of share options range (years) | 0.50 - 4.00 | | 0.50 - 4.00 | |
| Weighted average exercise price ($) | $1.00 | | $1.00 | |
| 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.
13. Shareholders' equityEquity
Dividends paid and proposed
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter | | | | Year-to-date | | | |
| In millions | 2020 | | 2019 | | 2020 | | 2019 | |
| Dividends declared and paid during the year: | | | | | | | | |
| Interim dividend paid February 6, 2019 ($0.125 per ordinary share) | $ | — | | | $ | — | | | $ | — | | | $ | 3.4 | | |
| Interim dividend paid May 1, 2019 ($0.125 per ordinary share) | — | | | — | | | — | | | 3.4 | | |
| Interim dividend paid August 7, 2019 ($0.125 per ordinary share) | — | | | 3.4 | | | — | | | 3.4 | | |
| Interim dividend paid February 5, 2020 ($0.125 per ordinary share) | — | | | — | | | 3.4 | | | — | | |
| Interim dividend paid May 6, 2020 ($0.125 per ordinary share) | — | | | — | | | 3.4 | | | — | | |
| Interim dividend paid August 5, 2020 ($0.125 per ordinary share) | 3.4 | | | — | | | 3.4 | | | — | | |
| | $ | 3.4 | | | $ | 3.4 | | | $ | 10.2 | | | $ | 10.2 | | |
| | | | | | | | | | | | | | | | | | | |
| In millions | 2020 | | 2019 | | | |
| Dividends declared and paid after the quarter end (not recognized as a liability at the quarter end): | | | | | | |
| Interim dividend declared October 3, and paid November 6, 2019: ($0.125 per ordinary share) | $ | — | | | $ | 3.4 | | | | |
| Interim dividend declared October 5, and to be paid November 4, 2020: ($0.125 per ordinary share) | 3.4 | | | — | | | | |
| | $ | 3.4 | | | $ | 3.4 | | | | |
14. Segmental Information
|
| | | | | | | | | | | | | | | | | |
| | Third Quarter | | Year-to-date | |
| In millions | 2019 | | 2018 | | 2019 | | 2018 | |
| Dividends declared and paid during the year: | | | | | | | | |
| Interim dividend paid February 7, 2018 ($0.125 per ordinary share) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3.4 |
| |
| Interim dividend paid May 2, 2018 ($0.125 per ordinary share) | — |
| | — |
| | — |
| | 3.3 |
| |
| Interim dividend paid August 1, 2018 ($0.125 per ordinary share) | — |
| | 3.3 |
| | — |
| | 3.3 |
| |
| Interim dividend paid February 6, 2019 ($0.125 per ordinary share) | — |
| | — |
| | 3.4 |
| | — |
| |
| Interim dividend paid May 1, 2019 ($0.125 per ordinary share) | — |
| | — |
| | 3.4 |
| | — |
| |
| Interim dividend paid August 7, 2019 ($0.125 per ordinary share) | 3.4 |
| | — |
| | 3.4 |
| | | |
| | $ | 3.4 |
| | $ | 3.3 |
| | $ | 10.2 |
| | $ | 10.0 |
| |
|
| | | | | | | | | |
| In millions | 2019 | | 2018 | |
| Dividends declared after the period, (not recognized as a liability as at the period end): | | | | |
| Interim dividend declared October 8, and paid November 7, 2018: ($0.125 per ordinary share) | $ | — |
| | $ | 3.3 |
| |
| Interim dividend declared October 3, and to be paid November 6, 2019: ($0.125 per ordinary share) | 3.4 |
| | — |
| |
| | $ | 3.4 |
| | $ | 3.3 |
| |
15. Segmental information
We classify our operations into two2 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 six5 identified business units, which aggregate into the two2 reportable segments. Luxfer Gas Cylinders and Luxfer Superform aggregate into the Gas Cylinders segment, and Luxfer MEL Technologies, Luxfer Magtech and Luxfer Graphic Arts and Luxfer Czech Republic(1) aggregate into the Elektron segment. In the first two quarters of 2019, prior to its divestiture, Luxfer Czech Republic also aggregated into the Elektron Segment. A summary of the operations of the segments is provided below:
Gas Cylinders segment
Our Gas Cylinders segment manufactures and markets specialized products using aluminum, titanium and carbon composites, 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. The segment also forms lightweight aluminum and titanium panels into highly complex shapes that are used mainly in the transportation industry.
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(2)1 and adjusted EBITDA, which we defineddefine as segment income and isare based on operating income adjusted for share-basedshare based compensation expense; qualifyingcharges; loss on disposal of property, plant and equipment; restructuring charges; impairment charges; acquisition and disposal related gains and costs; other charges; loss on disposal of property, plant and equipment; depreciation and amortization; and unwind of discount on deferred consideration.
1 Adjusted EBITA is adjusted EBITDA less depreciation
14. Segmental information Information (continued)
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.
Financial information by reportable segment for the Third Quarter and year-to-date ended September 29, 2019,27, 2020, and September 30, 2018,29, 2019, is included in the following summary:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net sales | | | Adjusted EBITDA | |
| | Third Quarter | | Year-to-date | | | Third Quarter | | Year-to-date | |
| In millions | 2019 | | 2018 | | 2019 | | 2018 | | | 2019 | | 2018 | | 2019 | | 2018 | |
| Gas Cylinders segment | $ | 54.2 |
| | $ | 62.2 |
| | $ | 170.7 |
| | $ | 181.9 |
| | | $ | 6.3 |
| | $ | 6.3 |
| | $ | 17.9 |
| | $ | 17.3 |
| |
| Elektron segment | 52.9 |
| | 66.9 |
| | 173.3 |
| | 195.1 |
| | | 10.4 |
| | 16.7 |
| | 37.5 |
| | 46.3 |
| |
| Consolidated | $ | 107.1 |
| | $ | 129.1 |
| | $ | 344.0 |
| | $ | 377.0 |
| | | $ | 16.7 |
| | $ | 23.0 |
| | $ | 55.4 |
| | $ | 63.6 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net sales | | | | | | | | Adjusted EBITDA | | | | | | | |
| | Third Quarter | | | | Year-to-date | | | | Third Quarter | | | | Year-to-date | | | |
| In millions | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | |
| Gas Cylinders segment | $ | 45.0 | | | $ | 54.2 | | | $ | 148.0 | | | $ | 170.7 | | | $ | 7.6 | | | $ | 6.3 | | | $ | 16.2 | | | $ | 17.9 | | |
| Elektron segment | 45.4 | | | 52.9 | | | 135.7 | | | 173.3 | | | 6.6 | | | 10.4 | | | 23.5 | | | 37.5 | | |
| Consolidated | $ | 90.4 | | | $ | 107.1 | | | $ | 283.7 | | | $ | 344.0 | | | $ | 14.2 | | | $ | 16.7 | | | $ | 39.7 | | | $ | 55.4 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Depreciation and amortization | | | Restructuring charges | |
| | Third Quarter | | Year-to-date | | | Third Quarter | | Year-to-date | |
| In millions | 2019 | | 2018 | | 2019 | | 2018 | | | 2019 | | 2018 | | 2019 | | 2018 | |
| Gas Cylinders segment | $ | 1.3 |
| | $ | 1.9 |
| | $ | 4.1 |
| | $ | 5.8 |
| | | $ | 2.3 |
| | $ | — |
| | $ | 19.5 |
| | $ | 0.1 |
| |
| Elektron segment | 2.3 |
| | 2.8 |
| | 7.2 |
| | 8.7 |
| | | 0.3 |
| | 1.1 |
| | 4.8 |
| | 2.0 |
| |
| Consolidated | $ | 3.6 |
| | $ | 4.7 |
| | $ | 11.3 |
| | $ | 14.5 |
| | | $ | 2.6 |
| | $ | 1.1 |
| | $ | 24.3 |
| | $ | 2.1 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Depreciation and amortization | | | | | | | | Restructuring charges | | | | | | | |
| | Third Quarter | | | | Year-to-date | | | | Third Quarter | | | | Year-to-date | | | |
| In millions | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | |
| Gas Cylinders segment | $ | 1.2 | | | $ | 1.3 | | | $ | 3.6 | | | $ | 4.1 | | | $ | 3.4 | | | $ | 2.3 | | | $ | 6.8 | | | $ | 19.5 | | |
| Elektron segment | 2.4 | | | 2.3 | | | 7.2 | | | 7.2 | | | 0.9 | | | 0.3 | | | 1.0 | | | 4.8 | | |
| Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.1 | | | 0 | | |
| Consolidated | $ | 3.6 | | | $ | 3.6 | | | $ | 10.8 | | | $ | 11.3 | | | $ | 4.3 | | | $ | 2.6 | | | $ | 7.9 | | | $ | 24.3 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total assets | | | Capital expenditures | |
| | September 29, | | December 31, | | | Third Quarter | | Year-to-date | |
| In millions | 2019 | | 2018 | | | 2019 | | 2018 | | 2019 | | 2018 | |
| Gas Cylinders segment | $ | 161.4 |
| | $ | 156.3 |
| | | $ | 0.5 |
| | $ | 0.8 |
| | $ | 2.9 |
| | $ | 1.5 |
| |
| Elektron segment | 203.2 |
| | 218.2 |
| | | 0.3 |
| | 3.3 |
| | 8.2 |
| | 6.4 |
| |
| Other | 37.8 |
| | 34.3 |
| | | — |
| | 0.1 |
| | — |
| | 0.1 |
| |
| | $ | 402.4 |
| | $ | 408.8 |
| | | $ | 0.8 |
| | $ | 4.2 |
| | $ | 11.1 |
| | $ | 8.0 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total assets | | | | | | Capital expenditures | | | | | | | |
| | September 27, | | December 31, | | | | Third Quarter | | | | Year-to-date | | | |
| In millions | 2020 | | 2019 | | | | 2020 | | 2019 | | 2020 | | 2019 | |
| Gas Cylinders segment | $ | 134.5 | | | $ | 156.0 | | | | | $ | 0.7 | | | $ | 0.5 | | | $ | 1.7 | | | $ | 2.9 | | |
| Elektron segment | 190.5 | | | 200.8 | | | | | 0.9 | | | 0.3 | | | 3.4 | | | 8.2 | | |
| Other | 34.6 | | | 33.5 | | | | | 0 | | | 0 | | | 0 | | | 0 | | |
| Consolidated | $ | 359.6 | | | $ | 390.3 | | | | | $ | 1.6 | | | $ | 0.8 | | | $ | 5.1 | | | $ | 11.1 | | |
|
| | | | | | | | | | |
| | | Property, plant and equipment, net | |
| | | September 29, | | December 31, | |
| In millions | | 2019 | | 2018 | |
| United States | | $ | 58.2 |
| | $ | 66.1 |
| |
| United Kingdom | | 38.3 |
| | 36.0 |
| |
| Rest of Europe | | 1.0 |
| | 1.1 |
| |
| Asia Pacific | | 0.3 |
| | 0.3 |
| |
| Other (3) | | 3.7 |
| | 3.4 |
| |
| | | $ | 101.5 |
| | $ | 106.9 |
| |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Property, plant and equipment, net | | | | | |
| | | September 27, | | December 31, | | | |
| In millions | | 2020 | | 2019 | | | |
| United States | | $ | 53.1 | | | $ | 57.3 | | | | |
| United Kingdom | | 34.2 | | | 36.7 | | | | |
| Canada | | 3.6 | | | 3.6 | | | | |
| France | | 1.1 | | | 1.0 | | | | |
| Asia Pacific | | 0.3 | | | 0.3 | | | | |
| | | $ | 92.3 | | | $ | 98.9 | | | | |
(1) The Luxfer Czech Republic business unit was sold at the end of the Second Quarter of 2019. Its results of operations are included within the 2018 figures and 2019 year-to-date figures.
(2) Adjusted EBITA is adjusted EBITDA less depreciation and loss on disposal of property, plant and equipment.
(3) Other includes Canada, South America, Latin America and Africa.
15.14. Segmental information Information (continued)
The following table presents a reconciliation of Adjusted EBITDA to net income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Third Quarter | | | | Year-to-date | | | |
| In millions | 2020 | | 2019 | | 2020 | | 2019 | |
| Adjusted EBITDA | $ | 14.2 | | | $ | 16.7 | | | $ | 39.7 | | | $ | 55.4 | | |
| Other share-based compensation charges | (0.8) | | | (0.6) | | | (2.1) | | | (4.0) | | |
| | | | | | | | | |
| Depreciation and amortization | (3.6) | | | (3.6) | | | (10.8) | | | (11.3) | | |
| Unwind discount on deferred consideration | 0 | | | (0.1) | | | 0 | | | (0.2) | | |
| Restructuring charges | (4.3) | | | (2.6) | | | (7.9) | | | (24.3) | | |
| Impairment charges | 0 | | | 0 | | | 0 | | | 0.2 | | |
| Acquisition and disposal related gains / (costs) | 0 | | | 0 | | | (0.2) | | | (1.7) | | |
| Other charges (2) | 0 | | | (2.7) | | | 0 | | | (2.7) | | |
| | | | | | | | | |
| Defined benefits pension credit | 1.1 | | | 0.6 | | | 3.3 | | | 1.7 | | |
| Interest expense, net | (1.2) | | | (1.3) | | | (3.5) | | | (3.5) | | |
| Provision for income taxes | (2.8) | | | (0.6) | | | (5.6) | | | (4.1) | | |
| Net income | $ | 2.6 | | | $ | 5.8 | | | $ | 12.9 | | | $ | 5.5 | | |
|
| | | | | | | | | | | | | | | | | |
| | Third Quarter | | Year-to-date | |
| In millions | 2019 | | 2018 | | 2019 | | 2018 | |
| Adjusted EBITDA | $ | 16.7 |
| | $ | 23.0 |
| | $ | 55.4 |
| | $ | 63.6 |
| |
| Other share-based compensation charges | (0.6 | ) | | (1.2 | ) | | (4.0 | ) | | (3.1 | ) | |
| Loss on disposal of property, plant and equipment | — |
| | (0.2 | ) | | — |
| | (0.2 | ) | |
| Depreciation and amortization | (3.6 | ) | | (4.7 | ) | | (11.3 | ) | | (14.5 | ) | |
| Unwind discount on deferred consideration | (0.1 | ) | | (0.2 | ) | | (0.2 | ) | | (0.5 | ) | |
| Restructuring charges | (2.6 | ) | | (1.1 | ) | | (24.3 | ) | | (2.1 | ) | |
| Fair value adjustment to held-for-sale assets | — |
| | — |
| | 0.2 |
| | — |
| |
| Acquisition and disposal related gains / (costs) | — |
| | — |
| | (1.7 | ) | | — |
| |
| Other charges (4) | (2.7 | ) | | — |
| | (2.7 | ) | | — |
| |
| Defined benefits pension mark-to-market gain | 0.6 |
| | 1.3 |
| | 1.7 |
| | 3.9 |
| |
| Interest expense, net | (1.3 | ) | | (1.2 | ) | | (3.5 | ) | | (3.7 | ) | |
| Provision for income taxes | (0.6 | ) | | (3.5 | ) | | (4.1 | ) | | (9.9 | ) | |
| Net income | $ | 5.8 |
| | $ | 12.2 |
| | $ | 5.5 |
| | $ | 33.5 |
| |
The following tables present certain geographic information by geographic region for the Third Quarter ended September 27, 2020, and Year-to-date, ended June 30, 2019 and July 1, 2018, respectively:September 29, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Sales(3) | | | | | | | | | | | |
| | Third Quarter | | | | | | Year-to-date | | | | | |
| | 2020 | | | 2019 | | | 2020 | | | 2019 | | |
| | $M | Percent | | $M | Percent | | $M | Percent | | $M | Percent | |
| United States | $ | 49.4 | | 54.7 | % | | $ | 58.0 | | 54.1 | % | | $ | 159.3 | | 56.1 | % | | $ | 182.4 | | 52.9 | % | |
| U.K. | 5.4 | | 6.0 | % | | 7.9 | | 7.4 | % | | 18.5 | | 6.5 | % | | 28.5 | | 8.3 | % | |
| France | 5.0 | | 5.5 | % | | 3.5 | | 3.3 | % | | 14.1 | | 5.0 | % | | 12.9 | | 3.8 | % | |
| Italy | 2.6 | | 2.9 | % | | 5.1 | | 4.8 | % | | 11.4 | | 4.0 | % | | 16.8 | | 4.9 | % | |
| Germany | 3.1 | | 3.4 | % | | 4.2 | | 3.9 | % | | 11.1 | | 3.9 | % | | 18.2 | | 5.3 | % | |
| Top five countries | $ | 65.5 | | 72.5 | % | | $ | 78.7 | | 73.6 | % | | $ | 214.4 | | 75.5 | % | | $ | 258.8 | | 75.2 | % | |
| Rest of Europe | 5.9 | | 6.5 | % | | 8.6 | | 8.0 | % | | 18.3 | | 6.5 | % | | 30.5 | | 8.9 | % | |
| Asia Pacific | 12.5 | | 13.8 | % | | 13.0 | | 12.1 | % | | 34.5 | | 12.2 | % | | 37.3 | | 10.8 | % | |
| Other (4) | 6.5 | | 7.2 | % | | 6.8 | | 6.3 | % | | 16.5 | | 5.8 | % | | 17.4 | | 5.1 | % | |
| | $ | 90.4 | | | | $ | 107.1 | | | | $ | 283.7 | | | | $ | 344.0 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Net Sales(5) | |
| | Third Quarter | | Year-to-date | |
| | 2019 | 2018 | | 2019 | 2018 | |
| | $M | Percent | $M | Percent | | $M | Percent | $M | Percent | |
| United States | $ | 58.0 |
| 54.1 | % | $ | 67.2 |
| 52.1 | % | | $ | 182.4 |
| 52.9 | % | $ | 195.4 |
| 51.8 | % | |
| U.K. | 7.9 |
| 7.4 | % | 13.1 |
| 10.1 | % | | 28.5 |
| 8.3 | % | 36.5 |
| 9.7 | % | |
| Germany | 4.2 |
| 3.9 | % | 10.6 |
| 8.2 | % | | 18.2 |
| 5.3 | % | 31.6 |
| 8.4 | % | |
| Italy | 5.1 |
| 4.8 | % | 6.9 |
| 5.3 | % | | 16.8 |
| 4.9 | % | 17.0 |
| 4.5 | % | |
| France | 3.5 |
| 3.3 | % | 3.9 |
| 3.0 | % | | 12.9 |
| 3.8 | % | 12.9 |
| 3.4 | % | |
| Top five countries | $ | 78.7 |
| 73.6 | % | $ | 101.7 |
| 78.8 | % | | $ | 258.8 |
| 75.2 | % | $ | 293.4 |
| 77.8 | % | |
| Rest of Europe | 8.6 |
| 8.0 | % | 7.7 |
| 6.0 | % | | 30.5 |
| 8.9 | % | 25.1 |
| 6.7 | % | |
| Asia Pacific | 13.0 |
| 12.1 | % | 14.3 |
| 11.1 | % | | 37.3 |
| 10.8 | % | 40.7 |
| 10.8 | % | |
| Other (6) | 6.8 |
| 6.3 | % | 5.4 |
| 4.2 | % | | 17.4 |
| 5.1 | % | 17.8 |
| 4.7 | % | |
| | $ | 107.1 |
|
| $ | 129.1 |
|
| | $ | 344.0 |
|
| $ | 377.0 |
|
| |
(4)(2) Other charges relates to an expense incurred in relation to the Company's decision to commence a project to remove low-level naturally occurring radioactive material.
(5)(3) Net sales are based on the geographic destination of sale.
(6)(4) Other includes Canada, South America, Latin America and Africa.
16. Leases
We have operating leases for buildings, vehicles and certain equipment. The majority of our leases have remaining lease terms of one to nine years, with one building having 54 years remaining.
The components of lease expense were as follows:
|
| | | | | | | | | | | | | | | | | |
| | Third Quarter | | Year-to-date | |
| In millions | 2019 | | 2018 | | 2019 | | 2018 | |
| Operating lease cost | $ | 1.0 |
| | $ | 1.0 |
| | $ | 3.2 |
| | $ | 2.9 |
| |
None of our leases were classified as finance leases in 2019 or 2018.
16. Leases (continued)
Supplemental cash flow information related to leases was as follows:
|
| | | | | | | | | | | | | | | | |
| | Third Quarter | | Year-to-date | |
| In millions | 2019 | | 2018 | | 2019 | 2018 | |
| Operating cash flows from operating leases | $ | 1.0 |
| | $ | 1.0 |
| | $ | 3.2 |
| $ | 2.9 |
| |
Supplemental balance sheet information related to leases was as follows:
|
| | | | | | | | | |
| | September 29, | | December 31, | |
| In millions | 2019 | | 2018 | |
| Operating leases | | | | |
| Operating lease right-of-use asset | $ | 15.1 |
| | $ | 18.4 |
| |
| | | | | |
| Other current liabilities | 3.2 |
| | 3.5 |
| |
| Other non-current liabilities | 12.0 |
| | 14.9 |
| |
| | $ | 15.2 |
| | $ | 18.4 |
| |
| | | | | |
| Weighted Average Remaining Lease Term (Years) | 3.6 |
| | 3.7 |
| |
| Weighted Average Discount Rate | 4.46 | % | | 4.46 | % | |
Future maturities of lease liabilities as of September 29, 2019 were as follows:
|
| | | | | | | |
| In millions | | | 2019 | |
| Remainder of 2019 | | | $ | 0.9 |
| |
| 2020 | | | 4.1 |
| |
| 2021 | | | 3.3 |
| |
| 2022 | | | 2.1 |
| |
| 2023 | | | 1.4 |
| |
| 2024 | | | 1.1 |
| |
| Thereafter | | | 9.2 |
| |
| Total lease payments | | | $ | 22.1 |
| |
| Less amount of lease payments representing interest | | | (6.9 | ) | |
| Total | | | $ | 15.2 |
| |
17.15. Commitments and contingenciesContingencies
Committed and uncommitted banking facilities
At September 29, 2019, and December 31, 2018, theThe Company had committed banking facilities of $150.0 million. million at September 27, 2020 and December 31, 2019. Of these committed facilities, 0thing was drawn at September 27, 2020, and $17.5 million at December 31, 2019.
The facilities were for providing loans and overdrafts, withCompany had a separate (uncommitted) facility for letters of credit which at September 29, 201927, 2020, was £1.0 million ($1.3 million) and December 31,2018,31, 2019, was £7.0£1.0 million ($8.91.3 million). Of the committed facilities, no loans were drawn and no lettersNone of creditthese were utilized at September 29,27, 2020 and December 31, 2019 ($3.5respectively.
The Company also has 2 separate (uncommitted) bonding facilities for bank guarantees; 1 denominated in GBP sterling of £4.5 million (2020: $5.7 million, 2019: $5.9 million), and nil1 denominated in USD of $1.5 million (2019: $0.4 million). Of that denominated in GBP, £1.2 million ( $1.5 million) and £1.6 million ($2.3 million) was utilized at September 27, 2020, and December 31, 2019, respectively. Of that dominated in USD, $0.8 million was utilized in September 27, 2020 and was fully utilized at December 31, 2018). 2019.
The Company also has a $4.0 million (December 31, 2019: NaN) separate bondingoverdraft facility for bank guarantees denominated in GBP sterling of £3.0 million ($3.8 million), of which GBP sterling of £1.0 million ($1.4 million)0ne was utilizeddrawn at September 29, 2019,27, 2020.
Capital commitments
At September 27, 2020, the Company had capital expenditure commitments of $0.8 million for the acquisition of new plant and December 31, 2018, respectively.equipment.
Inventory commitments
None
Contingencies
During February 2014, a cylinder was sold to a long-term customer and ruptured at one of their gas facilities. As a result of this rupture, three3 people were noted to have minor injuries such as loss of hearing. There was no major damage to assets of the customer. A claim was launched by the three people who were injured in the incident and a prosecutor has been appointed.incident. We hadhave reviewed our quality control checks from around the time which the cylinder was produced and no instances of failures werehave been noted. It has also been noted by the investigator that the customer has poor quality and safety checks. As a result, we do not believe that we are liable for the incident, and therefore, do not currently expect this case to have a material impact on the Company's financial position or results of operations.
In November 2018, a garbage truck, outfitted with a Compressed Natural Gas (“CNG”) fuel system containing the Company’s cylinders and valves, was involved in a fire and explosion at a maintenance garage. As a result of this fire and explosion, an employee of the garage suffered personal injury. Additionally, the force of the explosion caused property damage to the garage and garbage truck. As at September 29, 2019 it is too early to determine the exact cause of the fire and explosion and how liability would be apportioned if a lawsuit was initiated. The Company is insured for claims made for injury or damage caused by products sold with a $1.0 million deductible. The maximum potential exposure and impact to our results of operations is $1.0 million.
18.16. Subsequent eventsEvents
None.None material.
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;
•risks related to the impact of the global COVID-19 pandemic, such as the scope and duration of the outbreak, government actions and restrictive measures implemented in response, supply chain disruptions and other impacts to the business, and the Company’s ability to execute business continuity plans, as a result of the COVID-19 pandemic;
•worldwide economic and business conditions and conditions in the industries in which we operate;
•fluctuations in the cost of raw materials and utilities;
•currency fluctuations and other financial risks;
•our ability to remediate the material weakness in our internal controls over financial reporting;
•our ability to protect our intellectual property;
•the significant 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;
•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;
•regulatory, environmental, legislative and judicial developments; and
•our intention to pay dividends.
Please read the sections "Business,""Business" and "Risk factors,"factors" included within the 20182019 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.
About Luxfer
Luxfer is a global manufacturer of highly-engineered industrial materials, which focuses on value creation by using its broad array of technical knowhowknow-how and proprietary technologies. Luxfer's high-performance productsmaterials, components, and high-pressure gas containment devices are used in defense and emergency response, healthcare, transportation, and general industrial settings.applications. For more information, visit www.luxfer.com.
Key trends and uncertainties regarding our existing business
Impact of COVID-19 on operations
Luxfer’s top priority during this global pandemic is the health and well-being of our employees, customers, shareholders, and the communities in which we operate. The Company continues to monitor the COVID-19 situation closely, while simultaneously executing business continuity plans. These business continuity plans include, but are not limited to, (i) retooling operations to maintain social distance and maximize employee safety; (ii) increasing resources and efforts to satisfy demand from the most impactful parts of our business; (iii) expanding flexible work arrangements and policies, where practical, to maximize employee safety; (iv) increased monitoring of short-term cash flow, including measures to reduce costs and generate cash; and (v) providing regular updates to our shareholders, employees, customers, and suppliers in a transparent and timely manner.
At this time, Luxfer continues to operate all of its facilities, following trendstemporary closures at a small number of locations earlier in the year. However, due to weaker demand resulting from uncertain economic conditions, potential supply constraints, and uncertainties affectedthe continued spread of COVID-19, Luxfer has temporarily reduced capacity at certain facilities and has implemented additional cost saving programs, including headcount reductions as a direct response to the impact of the pandemic. As the situation evolves and if warranted, the Company may suspend or reduce operations at additional facilities.
Luxfer’s third quarter results continue to reflect the global macro environment resulting from the COVID-19 pandemic, including broad-based market weakness, which is especially evident in our financial performanceindustrial and transportation end-markets. Our industrial and transportation end-markets have declined 19.4% and 19.3%, respectively, in the third quarter of 2020 and 18.3% and 26.7%, respectively, in the first nine-months of 2019, and will likely impact our resultsnine months, relative to the same period in the future:
| |
• | Third-Quarter results were behind expectations as sales fell 17%, led by an 84% decline in sales of our Solumag® product line used in fracking operations and a general slowdown observed in our industrial end-market. Temporary inefficiencies in our Madison, Illinois Graphic Arts plant, due to disruption following storm-related flooding also negatively impacted sales.
|
Givenprior year. However, the industrial sales softness,Company has a strong balance sheet and access to an existing $150 million credit facility, which was not drawn on at the end of the third quarter following strong cash generation in the quarter. Furthermore, as our net debt to EBITDA ratio has fallen to 1.1x at the end of the third quarter (from 1.5x at the end of the second quarter), we are accelerating our cost savings initiativeshave identified no issues in relation to financial covenants nor availability of funding for continued operations. We continue to learn more about the impact of the COVID-19 pandemic, and increasing our growth focus on markets such as Defense.these assumptions and judgments may change over time.
We also continued along our transformation journey making solid progress with business restructuring initiatives aimed at further reducing our fixed cost structure while seeding revenue growth.
Operating objectives and trends
In 2019, our2020, we expect the following operating objectives and trends we expect to impact our business includebusiness:
•Proactive response to COVID-19 pandemic, including the following:health and well-being actions highlighted above, in addition to initiatives to stimulate demand for products, ensure continuity of supply and action focused cost saving programs;
We have converted from foreign private issuer status•Productivity acceleration and growth recovery as we progress towards a lean manufacturing process and increase focus on faster innovation;
•Leveraging delivered plant consolidation projects in our Gas Cylinders and Graphic Arts businesses to domestic issuer status, which requires us to comply with the U.S. SEC domestic reporting regime from January 1, 2019.
Improvement of the Gas Cylinder Segment with a project to consolidate the French operation into the U.K. and U.S tofurther reduce fixed costs.costs and safeguard competitiveness;
Focusing•Continued focus on developing global talent and implementing a high-performance culture.culture; and
Productivity acceleration•Improved operating cash generation with lower restructuring activity and growth recovery as we implement a lean manufacturing process and faster product innovation.stronger working capital performance.
CONSOLIDATED RESULTS OF OPERATIONS
The consolidated results of operations for the Third Quarter of 20192020 and 20182019 of Luxfer were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter | | | | | | % / point change | | | |
| In millions | | 2020 | | 2019 | | | | 2020 v 2019 | | | |
| Net sales | | $ | 90.4 | | | $ | 107.1 | | | | | (15.6) | % | | | |
| Cost of goods sold | | (72.1) | | | (81.9) | | | | | (12.0) | % | | | |
| Gross profit | | 18.3 | | | 25.2 | | | | | (27.4) | % | | | |
| % of net sales | | 20.2 | % | | 23.5 | % | | | | (3.3) | | | | |
| Selling, general and administrative expenses | | (9.8) | | | (11.8) | | | | | (16.9) | % | | | |
| % of net sales | | 10.8 | % | | 11.0 | % | | | | (0.2) | | | | |
| Research and development | | (1.0) | | | (1.5) | | | | | (33.3) | % | | | |
| % of net sales | | 1.1 | % | | 1.4 | % | | | | (0.3) | | | | |
| Restructuring charges | | (4.3) | | | (2.6) | | | | | 65.4 | % | | | |
| % of net sales | | 4.8 | % | | 2.4 | % | | | | 2.4 | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other income | | 2.3 | | | — | | | | | n/a | | | |
| % of net sales | | (2.5) | % | | — | % | | | | (2.5) | | | | |
| Other charges | | — | | | (2.7) | | | | | n/a | | | |
| % of net sales | | — | % | | 2.5 | % | | | | (2.5) | | | | |
| Operating income | | $ | 5.5 | | | $ | 6.6 | | | | | (16.7) | % | | | |
| % of net sales | | 6.1 | % | | 6.2 | % | | | | (0.1) | | | | |
| Net interest expense | | (1.2) | | | (1.3) | | | | | (7.7) | % | | | |
| % of net sales | | 1.3 | % | | 1.2 | % | | | | 0.1 | | | | |
| Defined benefit pension credit | | 1.1 | | | 0.6 | | | | | 83.3 | % | | | |
| % of net sales | | 1.2 | % | | 0.6 | % | | | | 0.6 | | | | |
| Income before income taxes and equity in net income of affiliates | | $ | 5.4 | | | $ | 5.9 | | | | | (8.5) | % | | | |
| % of net sales | | 6.0 | % | | 5.5 | % | | | | 0.5 | | | | |
| Provision for income taxes | | (2.8) | | | (0.6) | | | | | 366.7 | % | | | |
| Effective tax rate | | 51.9 | % | | 10.2 | % | | | | 41.7 | | | | |
| Income before equity in net income of affiliates | | $ | 2.6 | | | $ | 5.3 | | | | | (50.9) | % | | | |
| % of net sales | | 2.9 | % | | 4.9 | % | | | | (2.0) | | | | |
| Equity in income of unconsolidated affiliates (net of tax) | | — | | | 0.5 | | | | | n/a | | | |
| % of net sales | | — | % | | 0.5 | % | | | | (0.5) | | | | |
| Net income | | $ | 2.6 | | | $ | 5.8 | | | | | (55.2) | % | | | |
| % of net sales | | 2.9 | % | | 5.4 | % | | | | (2.5) | | | | |
|
| | | | | | | | | | | | | |
| | | Third Quarter | | | |
| In millions | | 2019 | | 2018 | | 2019 v 2018 | |
| Net sales | | $ | 107.1 |
| | $ | 129.1 |
| | (17.0 | )% | |
| Cost of goods sold | | (81.9 | ) | | (95.1 | ) | | (13.9 | )% | |
| Gross profit | | 25.2 |
| | 34.0 |
| | (25.9 | )% | |
| % of net sales | | 23.5 | % | | 26.3 | % | | (2.8 | ) | |
| Selling, general and administrative expenses | | (11.8 | ) | | (15.2 | ) | | (22.4 | )% | |
| % of net sales | | 11.0 | % | | 11.8 | % | | (0.8 | ) | |
| Research and development | | (1.5 | ) | | (2.0 | ) | | (25.0 | )% | |
| % of net sales | | 1.4 | % | | 1.5 | % | | (0.1 | ) | |
| Restructuring charges | | (2.6 | ) | | (1.1 | ) | | 136.4 | % | |
| % of net sales | | 2.4 | % | | 0.9 | % | | 1.5 |
| |
| Other expenses | | (2.7 | ) | | — |
| | n/a |
| |
| % of net sales | | 2.5 | % | | — | % | | 2.5 |
| |
| Operating income | | 6.6 |
| | 15.7 |
| | (58.0 | )% | |
| % of net sales | | 6.2 | % | | 12.2 | % | | (6 | ) | |
| Net interest expense | | (1.3 | ) | | (1.2 | ) | | 8.3 | % | |
| % of net sales | | 1.2 | % | | 0.9 | % | | 0.3 |
| |
| Defined benefit pension credit | | 0.6 |
| | 1.3 |
| | (53.8 | )% | |
| % of net sales | | 0.6 | % | | 1.0 | % | | (0.4 | ) | |
| Income before income taxes and equity in net income of affiliates | | 5.9 |
| | 15.8 |
| | (62.7 | )% | |
| % of net sales | | 5.5 | % | | 12.2 | % | | (6.7 | ) | |
| Provision for income taxes | | (0.6 | ) | | (3.5 | ) | | (82.9 | )% | |
| Effective tax rate | | 9.4 | % | | 22.3 | % | | (12.9 | ) | |
| Income before equity in net income of affiliates | | 5.3 |
| | 12.3 |
| | (56.9 | )% | |
| % of net sales | | 4.9 | % | | 9.5 | % | | (4.6 | ) | |
| Equity in income / (loss) of unconsolidated affiliates (net of tax) | | 0.5 |
| | (0.1 | ) | | n/a |
| |
| % of net sales | | 0.5 | % | | (0.1 | )% | | 0.6 |
| |
| Net income | | $ | 5.8 |
| | $ | 12.2 |
| | (52.5 | )% | |
| % of net sales | | 5.4 | % | | 9.5 | % | | (4.1 | ) | |
The consolidated results of operations for the three-quarters ended September 29, 201927, 2020 and September 30, 201829, 2019 of Luxfer were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year-to-date | | | | % / point change | |
| In millions | | 2020 | | 2019 | | 2020 v 2019 | |
| Net sales | | $ | 283.7 | | | 344.0 | | | (17.5) | % | |
| Cost of goods sold | | (222.1) | | | (257.7) | | | (13.8) | % | |
| Gross profit | | 61.6 | | | 86.3 | | | (28.6) | % | |
| % of net sales | | 21.7 | % | | 25.1 | % | | (3.4) | | |
| Selling, general and administrative expenses | | (34.4) | | | (42.6) | | | (19.2) | % | |
| % of net sales | | 12.1 | % | | 12.4 | % | | (0.3) | | |
| Research and development | | (2.6) | | | (4.5) | | | (42.2) | % | |
| % of net sales | | 0.9 | % | | 1.3 | % | | (0.4) | | |
| Restructuring charges | | (7.9) | | | (24.3) | | | (67.5) | % | |
| % of net sales | | 2.8 | % | | 7.1 | % | | (4.3) | | |
| Impairment charges | | — | | | 0.2 | | | (100.0) | % | |
| % of net sales | | — | % | | (0.1) | % | | 0.1 | | |
| Acquisition and disposal related costs | | (0.2) | | | (1.7) | | | (88.2) | % | |
| % of net sales | | 0.1 | % | | (0.5) | % | | 0.6 | | |
| Other income | | 2.3 | | | — | | | n/a | |
| % of net sales | | 0.8 | % | | — | % | | 0.8 | | |
| Other charges | | — | | | (2.7) | | | n/a | |
| % of net sales | | — | % | | 0.8 | % | | (0.8) | | |
| Operating income | | 18.8 | | | 10.7 | | | 175.7 | % | |
| % of net sales | | 6.6 | % | | 3.1 | % | | 3.5 | | |
| Net interest expense | | (3.5) | | | (3.5) | | | 0.0 | % | |
| % of net sales | | 1.2 | % | | 1.0 | % | | 0.2 | | |
| Defined benefit pension credit | | 3.3 | | | 1.7 | | | 94.1 | % | |
| % of net sales | | 1.2 | % | | 0.5 | % | | 0.7 | | |
| Income before income taxes and equity in net income / (loss) of affiliates | | 18.6 | | | 8.9 | | | 109.0 | % | |
| % of net sales | | 6.6 | % | | 2.6 | % | | 4.0 | | |
| Provision for income taxes | | (5.6) | | | (4.1) | | | 36.6 | % | |
| Effective tax rate | | 30.1 | % | | 46.1 | % | | (16.0) | | |
| Income / (loss) before equity in net income / (loss) of affiliates | | 13.0 | | | 4.8 | | | n/a | |
| % of net sales | | 4.6 | % | | 1.4 | % | | 3.2 | | |
| Equity in income / (loss) of unconsolidated affiliates (net of tax) | | (0.1) | | | 0.7 | | | n/a | |
| % of net sales | | — | % | | 0.2 | % | | (0.2) | | |
| Net income / (loss) | | $ | 12.9 | | | $ | 5.5 | | | n/a | |
| % of net sales | | 4.5 | % | | 1.6 | % | | 2.9 | | |
|
| | | | | | | | | | | | | |
| | | Year-to-date | | % / point change | |
| In millions | | 2019 | | 2018 | | 2019 v 2018 | |
| Net sales | | $ | 344.0 |
|
| $ | 377.0 |
| | (8.8 | )% | |
| Cost of goods sold | | (257.7 | ) |
| (279.1 | ) | | (7.7 | )% | |
| Gross profit | | 86.3 |
| | 97.9 |
| | (11.8 | )% | |
| % of net sales | | 25.1 | % | | 26.0 | % | | (0.9 | ) | |
| Selling, general and administrative expenses | | (42.6 | ) |
| (47.2 | ) | | (9.7 | )% | |
| % of net sales | | 12.4 | % | | 12.5 | % | | (0.1 | ) | |
| Research and development | | (4.5 | ) |
| (5.5 | ) | | (18.2 | )% | |
| % of net sales | | 1.3 | % | | 1.5 | % | | (0.2 | ) | |
| Restructuring charges | | (24.3 | ) |
| (2.1 | ) | | n/a |
| |
| % of net sales | | 7.1 | % | | 0.6 | % | | 6.5 |
| |
| Impairment credit | | 0.2 |
|
| — |
| | n/a |
| |
| % of net sales | | (0.1 | )% | | — | % | | (0.1 | ) | |
| Acquisition and disposal related costs | | (1.7 | ) |
| — |
| | n/a |
| |
| % of net sales | | 0.5 | % | | — | % | | 0.5 |
| |
| Other expense | | (2.7 | ) | | — |
| | n/a |
| |
| % of net sales | | 0.8 | % | | — | % | | 0.8 |
| |
| Operating income | | 10.7 |
| | 43.1 |
| | (75.2 | )% | |
| % of net sales | | 3.1 | % | | 11.4 | % | | (8.3 | ) | |
| Net interest expense | | (3.5 | ) |
| (3.7 | ) | | (5.4 | )% | |
| % of net sales | | 1.0 | % | | 1.0 | % | | — |
| |
| Defined benefit pension credit | | 1.7 |
|
| 3.9 |
| | (56.4 | )% | |
| % of net sales | | 0.5 | % | | 1.0 | % | | (0.5 | ) | |
| Income before income taxes and equity in net income of affiliates | | 8.9 |
| | 43.3 |
| | (79.4 | )% | |
| % of net sales | | 2.6 | % | | 11.5 | % | | (8.9 | ) | |
| Provision for income taxes | | (4.1 | ) |
| (9.9 | ) | | (58.6 | )% | |
| Effective tax rate | | 42.7 | % | | 22.8 | % | | 19.9 |
| |
| Income before equity in net income of affiliates | | 4.8 |
| | 33.4 |
| | (85.6 | )% | |
| % of net sales | | 1.4 | % | | 8.9 | % | | (7.5 | ) | |
| Equity in income of unconsolidated affiliates (net of tax) | | 0.7 |
|
| 0.1 |
| | 600.0 | % | |
| % of net sales | | 0.2 | % | | — | % | | 0.2 |
| |
| Net income | | $ | 5.5 |
| | $ | 33.5 |
| | (83.6 | )% | |
| % of net sales | | 1.6 | % | | 8.9 | % | | (7.3 | ) | |
Net sales
The 17.0%15.6% and 8.8%17.5% decrease in consolidated net sales in the third quarter and first nine-months,nine months, respectively, of 2020 from 2019 was heavily influenced by the economic downturn resulting from 2018the COVID-19 pandemic, with the adverse impact most pronounced across the industrial and transportation end markets, including:
•Decreased sales of magnesium aerospace alloys, zirconium catalysis materials and SoluMag® alloy in our Elektron Division;
•Decreased sales of photo-engraving plates in our Elektron Division;
•Lower Superform tooling and formed part sales, predominantly to European luxury automotive customers impacted by temporary facility shutdowns earlier in the year; and
•Decreased sales of aluminum cylinders for industrial use and lower sales of SCBA composite cylinders.
These decreases were primarily the result of:
| |
• | Lower sales of our proprietary SoluMag® alloy as a result of continuing destocking amid budgetary pressures affecting North American shale producers;
|
Lowerpartially offset by growth in sales in Luxfer Graphic Arts asthe third quarter of chemical response kits and heater meals in our North American facility continues its recovery following plant consolidation challenges and disruption as a result of storm-related flooding;Elektron Division.
$4.4 million revenue decline as a result of the divestiture of Elektron's magnesium Czech recycling business at the end of Q2;
Reduction inAlternative Fuels cylinder sales in the Gas Cylinders segment affecting Superform for European luxury automobiles and lower margin aluminum gas cylinders;Division returned to growth relative to the prior year.
Adverse foreign currency effects of $2.8 million in the quarter and $9.9 million for the first nine months.
Gross profit
The 2.83.3 and 0.93.4 percentage point decrease in gross profit as a percentage of sales in the third quarter and first nine-monthsnine months, respectively of 20192020 from 20182019 was primarily the result of adverse product sales mix and unfavorable foreign exchange movements. mix.
These adverse factors were partially offset by our continued effortthe impact of productivity improvements in Luxfer Gas Cylinders Europe, following closure of the French operation in 2019 and transfer of production to reduce production-based costs.the U.K. and U.S.A.
Selling, general and administrative expenses ("SG&A")
The 0.80.2 percentage point decreaseincrease in SG&A costs as a percentage of sales in the third quarter of 20192020 from 20182019 was primarily the result of the COVID led fall in revenue not being fully matched by cost saving activities.reductions.
SG&A as a percentage of sales was relatively unchanged in the first nine-months of 2020 from 2019.
Research and development costs
Research and development costs as a percentage of sales reduced by 0.3 and 0.4 percentage points in the third quarter and first nine months of 2020 relative to 2019 respectively as a result of project delays resulting from 2018.COVID.
Restructuring charges
The $4.3 million and $7.9 million restructuring charge in the third quarter and first nine months of 2020 was predominantly ($3.3 million and $6.5 million respectively) the result of further costs associated with the announced closure of Luxfer Gas Cylinders France, including one-time employee benefits and associated legal and professional fees. In addition we have incurred one-time employee benefit expense in relation to COVID-led cost saving programs largely affecting our Elektron Division, of $1.0 million and $1.2 million in the third quarter and first nine months of 2020 respectively.
The $2.6 million restructuring charge in the third quarter of 2019 was driven by $2.1 million of further costs associated with the announced closure of Luxfer Gas Cylinders France, including one-time employee benefits, ongoing site costs and legal and professional fees. In addition, restructuring charges include $0.5 million related to one-time employee benefits across sites in North America and the U.K in the Elektron and Gas Cylinders segment.
The$24.3 $24.3 million restructuring charge in the first nine-months of 2019 includes $18.7 million in relation to the closure of Luxfer Gas Cylinders France; $4.6 million related to asset write-downs and one-time employee benefits following the decision to scale down production at one of our Luxfer Magtech sites; and $1.0 million of
other simplification costs.
The $1.1 million and $2.1 million restructuring charge in the third quarter and first nine-months of 2018, respectively, was predominantly the result of of termination costs and a property impairment charge related to the rationalization of Elektron's Graphic Arts operations and severance costs in the Gas Cylinders segment.
Impairment charges
The impairment credit of $0.2 million in the first nine-monthsnine months of 2019 reflects a fair value adjustment to the held-for-sale assets in the Elektron segment.
Acquisition and disposal related gains / (costs)costs
Net costs of $0.2 million incurred in the first nine months of 2020 include amounts incurred in relation to M&A exploration activities net of a $0.1 million release of deferred contingent consideration.
In July 2020 we sold our 51% investment in Luxfer Uttam India Private Limited to the JV partner. Allowing for legal costs we generated a profit on disposal of less than $0.1 million.
Acquisition and disposal related costs in 2019 of $1.7 million relate to a $3.5 million reimbursement payment and $1.1 million of professional and legal fees incurred in connection with the terminated acquisition of Neo Performance Materials, occurring in the first quarter; offset in the second quarter by a $2.9 million gain on disposal of Elektron's magnesium recycling business in the Czech Republic.
Other income
Other income of $2.3 million for the Third Quarter of 2020 represents payments received from a European automotive customer for compensation in relation to contribution of loss and product volumes relating to our Gas Cylinders segment. This item has been included in adjusted net income and adjusted earnings per share as the compensation relates to a current customer and an existing line of business.
Other charges
The $2.7Other charges of $2.7 million other charges incurred in the third quarterThird Quarter of 2019 iswere the result of the Company's decision to commence a project to remove low-level naturally occurring radioactive material (NORM) from a redundant building at its Manchester, UK site. The work represents remediation of a legacy environmental issue and as such has been excluded from adjusted net income and adjusted earnings per share. It is expected to complete in the secondfirst quarter of 20202021 but with no significant further costs envisaged.
Net interest expense
The 5.4% reduction in net interest expense in the first nine-months of 2019 from 2018 was due to the reduction in the average debt balance in 2019 resulting in lower interest costs, following the repayment of $15.0 million private placement debt at maturity, in June 2018. Net interest expense in 2020 from 2019 decreased by $0.1 million in the third quarter and was flat in the first nine months of 2019 over 2018 remained flat at $1.3 million.the year.
Defined benefit pension credit
The $0.7$0.5 million and $2.2$1.6 million decreaseincrease in defined benefit pension credit to $1.1 million and $3.3 million in the third quarter and first nine-months respectivelynine months of 2020 from $0.6 million and $1.7 million in 2019 is primarily due to the combined effect on the U.K. plan of a reduction in the discount rate and lower inflation, partially offset by lower projected asset returns in 2019.returns.
Provision for income taxes
The movement in the statutory effective tax rate from 22.8%46.1% in 20182019, to 42.7%30.1% in 20192020, was primarily due to non-deductible restructuring activities in 2020 and 2019 and non-deductible expenses related to the aborted acquisition and restructuring activities.in the prior year. When stripping out the effect of these expenses, ourthe adjusted effective tax rate has fallenincreased to 23.1% in 2020 from 22.8% in 2018 to 19.0% in 2019.2019 largely as a result of tax rate changes affecting the valuation of net operating loss deferred tax assets.
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 | 2020 | | 2019 | | 2020 | | 2019 | |
| Net income | $ | 2.6 | | | $ | 5.8 | | | $ | 12.9 | | | $ | 5.5 | | |
| Accounting charges relating to acquisitions and disposals of businesses: | | | | | | | | |
| Unwind of discount on deferred consideration | — | | | 0.1 | | | — | | | 0.2 | | |
| Amortization on acquired intangibles | 0.2 | | | 0.3 | | | 0.6 | | | 0.9 | | |
| Acquisition and disposal related (gains) / costs | — | | | — | | | 0.2 | | | 1.7 | | |
| Defined benefit pension credit | (1.1) | | | (0.6) | | | (3.3) | | | (1.7) | | |
| Restructuring charges | 4.3 | | | 2.6 | | | 7.9 | | | 24.3 | | |
| Impairment charges | — | | | — | | | — | | | (0.2) | | |
| Other charges (1) | — | | | 2.7 | | | — | | | 2.7 | | |
| | | | | | | | | |
| Share-based compensation charges | 0.8 | | | 0.6 | | | 2.1 | | | 4.0 | | |
| | | | | | | | | |
| | | | | | | | | |
| Income tax on adjusted items | 0.1 | | | (1.5) | | | (0.4) | | | (3.8) | | |
| Adjusted net income | $ | 6.9 | | | $ | 10.0 | | | $ | 20.0 | | | $ | 33.6 | | |
| | | | | | | | | |
| Adjusted earnings per ordinary share | | | | | | | | |
| Diluted earnings per ordinary share | $ | 0.09 | | | $ | 0.21 | | | $ | 0.46 | | | $ | 0.20 | | |
| Impact of adjusted items | 0.16 | | | 0.15 | | | 0.26 | | | 1.01 | | |
| Adjusted diluted earnings per ordinary share(1) | $ | 0.25 | | | $ | 0.36 | | | $ | 0.72 | | | $ | 1.21 | | |
|
| | | | | | | | | | | | | | | | | |
| | Third Quarter |
| Year-to-date | |
| In millions except per share data | 2019 |
| 2018 |
| 2019 |
| 2018 | |
| Net income / (loss) | $ | 5.8 |
| | $ | 12.2 |
| | $ | 5.5 |
| | $ | 33.5 |
| |
| Accounting charges relating to acquisitions and disposals of businesses: |
| |
| |
| |
| |
| Unwind of discount on deferred consideration | 0.1 |
| | 0.2 |
| | 0.2 |
| | 0.5 |
| |
| Amortization on acquired intangibles | 0.3 |
| | 0.3 |
| | 0.9 |
| | 0.9 |
| |
| Acquisitions and disposals | — |
| | — |
| | 1.7 |
| | — |
| |
| Defined benefit pension credit | (0.6 | ) | | (1.3 | ) | | (1.7 | ) | | (3.9 | ) | |
| Restructuring charges | 2.6 |
| | 1.1 |
| | 24.3 |
| | 2.1 |
| |
| Impairment charges | — |
| | — |
| | (0.2 | ) | | — |
| |
| Other charges | 2.7 |
| | — |
| | 2.7 |
| | — |
| |
| Share-based compensation charges | 0.6 |
| | 1.2 |
| | 4.0 |
| | 3.1 |
| |
| Income tax on adjusted items | (1.5 | ) | | (0.3 | ) | | (3.8 | ) | | (0.6 | ) | |
| Adjusted net income | $ | 10.0 |
| | $ | 13.4 |
| | $ | 33.6 |
| | $ | 35.6 |
| |
| | | | | | | | | |
| Adjusted earnings per ordinary share | | | | | | | | |
| Diluted earnings per ordinary share | $ | 0.21 |
| | $ | 0.44 |
| | $ | 0.20 |
| | $ | 1.22 |
| |
| Impact of adjusted items | 0.15 |
| | 0.04 |
| | 1.01 |
| | 0.08 |
| |
| Adjusted diluted earnings per ordinary share | $ | 0.36 |
| | $ | 0.48 |
| | $ | 1.21 |
| | $ | 1.29 |
| |
(1) 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 | 2020 | | 2019 | | 2020 | | 2019 | |
| Adjusted net income | $ | 6.9 | | | $ | 10.0 | | | $ | 20.0 | | | $ | 33.6 | | |
| Add back: | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Income tax on adjusted items | (0.1) | | | 1.5 | | | 0.4 | | | 3.8 | | |
| Provision for income taxes | 2.8 | | | 0.6 | | | 5.6 | | | 4.1 | | |
| Net finance costs | 1.2 | | | 1.3 | | | 3.5 | | | 3.5 | | |
| Adjusted EBITA | $ | 10.8 | | | $ | 13.4 | | | $ | 29.5 | | | $ | 45.0 | | |
| | | | | | | | | |
| Depreciation | 3.4 | | | 3.3 | | | 10.2 | | | 10.4 | | |
| Adjusted EBITDA | $ | 14.2 | | | $ | 16.7 | | | $ | 39.7 | | | $ | 55.4 | | |
|
| | | | | | | | | | | | | | | | | |
| | Third Quarter | | Year-to-date | |
| In millions | 2019 | | 2018 | | 2019 | | 2018 | |
| Adjusted net income | $ | 10.0 |
| | $ | 13.4 |
| | $ | 33.6 |
| | $ | 35.6 |
| |
| Add back: |
| |
| |
| |
| |
| Income tax on adjusted items | 1.5 |
| | 0.3 |
| | 3.8 |
| | 0.6 |
| |
| Provision for income taxes | 0.6 |
| | 3.5 |
| | 4.1 |
| | 9.9 |
| |
| Net finance costs | 1.3 |
| | 1.2 |
| | 3.5 |
| | 3.7 |
| |
| Adjusted EBITA | $ | 13.4 |
| | $ | 18.4 |
| | $ | 45.0 |
| | $ | 49.8 |
| |
| Loss on disposal of PPE | — |
| | 0.2 |
| | — |
| | 0.2 |
| |
| Depreciation | 3.3 |
| | 4.4 |
| | 10.4 |
| | 13.6 |
| |
| Adjusted EBITDA | $ | 16.7 |
| | $ | 23.0 |
| | $ | 55.4 |
| | $ | 63.6 |
| |
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 | 2020 | | 2019 | | 2020 | | 2019 | |
| Adjusted net income | $ | 6.9 | | | $ | 10.0 | | | $ | 20.0 | | | $ | 33.6 | | |
| Add back: | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Income tax on adjusted items | (0.1) | | | 1.5 | | | 0.4 | | | 3.8 | | |
| Provision for income taxes | 2.8 | | | 0.6 | | | 5.6 | | | 4.1 | | |
| Adjusted income before income taxes | $ | 9.6 | | | $ | 12.1 | | | $ | 26.0 | | | $ | 41.5 | | |
| | | | | | | | | |
| Adjusted provision for income taxes | 2.7 | | | 2.1 | | | 6.0 | | | 7.9 | | |
| Adjusted effective tax rate | 28.1 | % | | 17.4 | % | | 23.1 | % | | 19.0 | % | |
|
| | | | | | | | | | | | | | | | | |
| | Third Quarter | | Year-to-date | |
| In millions | 2019 | | 2018 | | 2019 | | 2018 | |
| Adjusted net income | $ | 10.0 |
| | $ | 13.4 |
| | $ | 33.6 |
|
| $ | 35.6 |
| |
| Add back: | | |
| | | | | |
| Income tax on adjusted items | 1.5 |
| | 0.3 |
| | 3.8 |
| | 0.6 |
| |
| Provision for income taxes | 0.6 |
| | 3.5 |
| | 4.1 |
| | 9.9 |
| |
| Adjusted income before income taxes | $ | 12.1 |
| | $ | 17.2 |
| | $ | 41.5 |
| | $ | 46.1 |
| |
| Adjusted provision for income taxes | 2.1 |
| | 3.8 |
| | 7.9 |
| | 10.5 |
| |
| Adjusted effective tax rate | 17.4 | % | | 22.1 | % | | 19.0 | % | | 22.8 | % | |
The following table presents a reconciliation of net debt which management believes is a liquidity measure used by the investment community and that such presentation will enhance an investor's understanding of the Company's financial position.
|
| | | | | | | | | | |
| | | September 29, |
| | December 31, |
| |
| In millions | | 2019 |
| | 2018 |
| |
| Current maturities of long-term debt and short-term borrowings | | $ | — |
| | $ | 3.5 |
| |
| Long-term debt | | 105.6 |
| | 73.6 |
| |
| Total debt | | 105.6 |
| | 77.1 |
| |
| Add back: | | | | | |
| Cash and cash equivalents | | (11.9 | ) | | (13.8 | ) | |
| Net debt | | $ | 93.7 |
| | $ | 63.3 |
| |
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 qualifyingshare based compensation charges; loss on disposal of property, plant and equipment; restructuring charges; impairment charges; acquisition and disposal related gains /and costs; other charges; loss on disposal of property, plant and equipment; depreciation and amortization; share based compensation expense; and unwind of discount on deferred consideration. A reconciliation to net income and taxes can be found in Note 1514 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 | | 2019 | | 2018 | | 2019 v 2018 | | 2019 | | 2018 | | 2019 v 2018 | |
| Net sales | | $ | 54.2 |
| | $ | 62.2 |
| | (12.9 | )% | | $ | 170.7 |
| | $ | 181.9 |
| | (6.2 | )% | |
| Adjusted EBITDA | | 6.3 |
| | 6.3 |
| | — | % | | 17.9 |
| | 17.3 |
| | 3.5 | % | |
| % of net sales | | 11.6 | % | | 10.1 | % | | 1.5 |
| | 10.5 | % | | 9.5 | % | | 1.0 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter | | | | % / point change | | Year-to-date | | | | % / point change | |
| In millions | | 2020 | | 2019 | | 2020 v 2019 | | 2020 | | 2019 | | 2020 v 2019 | |
| Net sales | | $ | 45.0 | | | $ | 54.2 | | | (17.0) | % | | $ | 148.0 | | | $ | 170.7 | | | (13.3) | % | |
| Adjusted EBITDA | | 7.6 | | | 6.3 | | | 20.6 | % | | 16.2 | | | 17.9 | | | (9.5) | % | |
| % of net sales | | 16.9 | % | | 11.6 | % | | 5.3 | | | 10.9 | % | | 10.5 | % | | 0.4 | | |
Net sales
The 12.9%17.0% and 6.2%13.3% decrease in Gas Cylinders sales in the third quarter and first nine-months,nine months, respectively, of 20192020 from 20182019 was primarily the result of:of COVID-19 related disruption marked by temporary customer shutdowns, including:
Lower•Decreased sales of aluminum cylinders used in industrial applications;Superform tooling and formed parts;
•Decreased sales in Superform for European luxury automobiles;of composite and aluminum cylinders; and
Adverse foreign currency effects•Decreased sales of $1.6 millionSCBA composite cylinders.
Alternative Fuels cylinder sales have returned to growth in the third quarter and $5.2 million forrelative to the first nine months.
These are partially offset by continued strength in alternative fuel cylinder sales.
prior year.
Adjusted EBITDA
The 1.55.3 percentage point increase in adjusted EBITDA for Gas Cylinders as a percentage of net sales in the third quarter of 20192020 from 20182019 was primarily the result of:
•Received compensation in relation to a contribution of successfulloss and product volumes from an automotive customer; and
•Productivity improvements and cost saving initiatives.savings.
This was partially offset by adverse product mix.
Adjusted EBITDA as a percentage of net sales was relatively flat (0.4 percentage point increase) in the first nine months relative to the prior year.
ELEKTRON
The net sales and adjusted EBITDA for Elektron were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter | | % / point change | | Year-to-date | | % / point change | |
| In millions | | 2019 | | 2018 | | 2019 v 2018 | | 2019 | | 2018 | | 2019 v 2018 | |
| Net sales | | $ | 52.9 |
| | $ | 66.9 |
| | (20.9 | )% | | $ | 173.3 |
| | $ | 195.1 |
| | (11.2 | )% | |
| Adjusted EBITDA | | 10.4 |
| | 16.7 |
| | (37.7 | )% | | 37.5 |
| | 46.3 |
| | (19.0 | )% | |
| % of net sales | | 19.7 | % | | 25.0 | % | | (5.3 | ) | | 21.6 | % | | 23.7 | % | | (2.1 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Third Quarter | | | | % / point change | | Year-to-date | | | | % / point change | |
| In millions | | 2020 | | 2019 | | 2020 v 2019 | | 2020 | | 2019 | | 2020 v 2019 | |
| Net sales | | $ | 45.4 | | | $ | 52.9 | | | (14.2) | % | | $ | 135.7 | | | $ | 173.3 | | | (21.7) | % | |
| Adjusted EBITDA | | 6.6 | | | 10.4 | | | (36.5) | % | | 23.5 | | | 37.5 | | | (37.3) | % | |
| % of net sales | | 14.5 | % | | 19.7 | % | | (5.2) | | | 17.3 | % | | 21.6 | % | | (4.3) | | |
Net sales
The 20.9%14.2% and 11.2%21.7% decrease in Elektron sales in the third quarter and first nine-months,nine months, respectively, of 20192020 from 20182019 was primarily the result of:of COVID-19 related disruption to the industrial and transportation end markets, especially:
| |
• | Lower sales of our proprietary SoluMag® alloy ;
|
•Decreased sales of zirconium-based industrial catalysts;
•Decreased sales of automotive catalysts in the first nine months;
•Lower sales of other industrial products;SoluMag® alloy and magnesium aerospace alloys; and
$4.4 million revenue decline as a result•Lower sales of the divestiture of Elektron's magnesium Czech recycling business at the end of Q2; andphoto-engraving plates.
Adverse foreign currency effects of $1.2 million in the quarter and $4.7 million for the first nine months.
Adjusted EBITDA
The 5.35.2 and 4.3 percentage point decrease in adjusted EBITDA for Elektron as a percentage of net sales in the third quarter and first nine-months, respectively of 20192020 from 20182019 was primarily the result of adverse sales mix,the impact of COVID-19 related reduction in volumes more than offsetting associated cost saving measures. This was further impacted by lower SoluMagadverse product sales and temporary inefficiencies in our Madison, IL plant due to disruptions following unprecedented storm related flooding, partially offset by execution of cost-saving initiatives.mix.
The first nine-months 2.1 percentage point decrease over 2018 incorporates the third quarter factors above partially offset by the improved sales mix of the first quarter of 2019, which was driven by higher zirconium-based catalysis sales.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements arise primarily from obligations under our indebtedness, capital expenditures, acquisitions, the funding of working capital restructuring 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, 2021, 2023 and 2026. Our principal liquidity needs are:
•funding acquisitions, including deferred contingent consideration payments;
•capital expenditure requirements;
funding restructuring programs;
•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 achieve organic sales growth; and
•hedging facilities used to manage our foreign exchange and aluminum purchase price 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 29, 2019.27, 2020.
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 inprovided by operating activities was $13.6$36.7 million for the first nine-monthsyear-to-date in 2019.2020. It was primarily related to net income from operating activities, for the period, net of the following non-cash items: depreciation and amortization; asset impairment credit; other charges,amortization, pension contributions and net changes to assets and liabilities.
Cash provided byused in operating activities was $39.9$13.6 million in the first nine-monthsnine months of 2018.2019. It was primarily related to net incomeloss from operating activities, net of the following non-cash items: depreciation and amortization; asset impairment charges, pension contributions and net changes to assets and liabilities.
Investing activities
Net cash used for investing activities was $4.5$4.7 million for the first nine-months in 2019,nine months of 2020, compared to net cash used for investing activities of $7.9$4.5 million in 2018.2019. The movement was primarily due to $4.6 millionthe impact of proceeds received on the sale of our Czech business and $1.2 millionhigher proceeds from the sale of property, plant and equipment,businesses in 2019, partially offset by an increasea decrease in capital expenditures in the current year which were $6.0 million and $10.3 million, for the first nine-months of 2020, and $8.2 million, in 2019, and 2018, respectively. We anticipate capital expenditures for fiscal 20192020 to be around $15approximately $10 million.
Financing activities
In the first nine-monthsnine months of 2019,2020, net cash provided fromused for financing activities was $27.3 million (2019: $16.5 million (2018: $36.0 million outflow)inflow). We made net drawdownsrepayments on our banking facilities of $28.2$16.5 million (2018: $25.3(2019: $31.7 million repayment)drawdown) and dividend payments of $10.2 million (2018: $10.0(2019: $10.2 million)., equating to $0.375 per ordinary share. We also received $3.3$1.1 million (2018: $6.3(2019: $3.3 million) in relation to proceeds from sales of shares and paid out $4.3$1.3 million (2018: $7.0(2019: $4.3 million) in share-basedsettling share based compensation.
Capital Resources
Dividends
We paid year-to-date dividends in 20192020 of $10.2$10.2 million (2018: $10.0 million) (2019: $10.2 million year-to-date), or $0.375 per ordinary share.
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 U.S. 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.
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 2021 | $ | 25.0 |
| | $ | — |
| | $ | 25.0 |
| | $ | — |
| | $ | — |
| |
| Loan Notes due 2023 | 25.0 |
| | — |
| | — |
| | 25.0 |
| | — |
| |
| Loan Notes due 2026 | 25.0 |
| | — |
| | — |
| | — |
| | 25.0 |
| |
| Revolving credit facility | 31.7 |
| | — |
| | — |
| | 31.7 |
| | — |
| |
| Deferred contingent consideration | 0.6 |
| | — |
| | 0.6 |
| | — |
| | — |
| |
| Obligations under operating leases | 22.1 |
| | 4.0 |
| | 5.9 |
| | 2.7 |
| | 9.5 |
| |
| Capital commitments | 1.8 |
| | 1.8 |
| | — |
| | — |
| | — |
| |
| Obligations for environmental remediation | 2.1 |
| | 2.1 |
| | — |
| | — |
| | — |
| |
| Interest payments | 14.8 |
| | 3.4 |
| | 5.8 |
| | 3.4 |
| | 2.2 |
| |
| Total contractual cash obligations | $ | 148.1 |
| | $ | 11.3 |
| | $ | 37.3 |
| | $ | 62.8 |
| | $ | 36.7 |
| |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 2021 | $ | 25.0 | | | $ | 25.0 | | | $ | — | | | $ | — | | | $ | — | | |
| Loan Notes due 2023 | 25.0 | | | — | | | 25.0 | | | — | | | — | | |
| Loan Notes due 2026 | 25.0 | | | — | | | — | | | — | | | 25.0 | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Obligations under operating leases | 19.1 | | | 3.6 | | | 4.2 | | | 2.4 | | | 8.9 | | |
| Capital commitments | 0.8 | | | 0.8 | | | — | | | — | | | — | | |
| Purchase commitments | 1.0 | | | 0.6 | | | 0.4 | | | — | | | — | | |
| Interest payments | 11.4 | | | 3.4 | | | 4.6 | | | 2.5 | | | 0.9 | | |
| Total contractual cash obligations | $ | 107.3 | | | $ | 33.4 | | | $ | 34.2 | | | $ | 4.9 | | | $ | 34.8 | | |
| | | | | | | | | | | |
Off-balance sheet measures
At September 29, 2019,27, 2020, we had no off-balance sheet arrangements.arrangements other than the to 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 20182019 Annual Report on Form 10-K, filed with the SEC on March 11, 2019,9, 2020, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our consolidated financial statements. In addition to those disclosed, there is a critical accounting policy in relation to Leases, see Note 1 of the Notes to Condensed Consolidated Financial Statements.
Item 3. Quantitative and qualitative disclosures about market risk
There have been no material changes in our market risk during the quarterthree quarters ended September 29, 2019.27, 2020, except for the impact of COVID-19, which is addressed as a specific risk factor in ITEM-1A in Part II of this filing. For additional information, refer to Item 7A of our 20182019 Annual Report on Form 10-K, filed with the SEC on March 11, 2019.9, 2020.
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 29, 2019,27, 2020, 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 not effective at the reasonable assurance level, as of the endJune 28, 2020, as a result of the material weakness described in Item 9A of the Form 10-K filed with the SEC on March 9, 2020 not having been fully remediated by the second quarter of 2020.
Ongoing Remediation of Material Weakness in Internal Control over Financial Reporting
As previously described in Plan for Remediation of Material Weakness in Internal Control Over Financial Reporting of Item 9A of our Annual Report on Form 10-K for the fiscal year ended September 29,December 31, 2019 we began implementing a remediation plan to address the material weakness mentioned above. In line with the plan we have implemented enhanced controls to monitor and document privileged access to, and segregation of duties within, the ERP system; and have updated the design of certain process-level controls. However, the weakness will not be considered remediated until all the applicable controls have been implemented and seen to operate for a sufficient period of time.
In light of the material weakness, the Company performed additional analysis and other post-closing procedures to ensure that information required to be disclosed by usour consolidated financial statements are prepared 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 ouraccordance with generally accepted accounting principles. Our management, including our principal executiveChief Executive Officer and principalour Chief Financial Officer, has concluded that our consolidated financial officers, as appropriate to allow timely decisions regarding required disclosures.statements for the periods covered by and included in this Quarterly Report on Form 10-Q are fairly presented in all material respects in accordance with accounting principles generally accepted in the United States of America (GAAP) for the periods presented herein.
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 and annual period ended September 29, 2019,27, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
While we are involved from time to time in claims and legal proceedings that result from, and are incidental to, the conduct of our business including business and commercial litigation, employee and product liability claims, there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party, or of which any of their property is subject. It is possible, however, that an adverse resolution of an unexpectedly large number of such individual claims or proceedings could in the aggregate have a material adverse effect on results of operations for a particular year or quarter.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Item 1A. of our 20182019 Annual Report on Form 10-K, except that the U.K.'s exit ('Brexit') fromadverse impact of the European Union (E.U.)COVID-19 coronavirus outbreak has been further deferred by the E.U. until January 31, 2020, with the possibility of an earlier exit should that be approved by the U.K. parliament. However, thebecome more significant and widespread. The related risk factors under the caption "Our global operations expose us to economic conditions, potential tax costs, political risks"We depend upon our larger suppliers for a significant portion of our raw materials, and specific regulations in the countries in which we operate"a loss of one of these suppliers, or a significant supply interruption could negatively impact our financial performance" as previously disclosed in Item 1A. of our 20182019 Annual Report on Form 10-K relating to Brexit,COVID-19, remain applicable. In addition to the supply-side risks there are additional risks related to a fall in customer demand. We therefore highlight the following additional risk.
Our results of operations may be negatively impacted by the coronavirus disease pandemic In December 2019, the 2019 novel coronavirus disease (COVID-19) surfaced in Wuhan, China. In March 2020, the World Health Organization characterized the coronavirus ("COVID-19") a pandemic. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy, resulting in an economic downturn that could impact demand for our products and our ability to produce them. With many countries affected, there have been widespread disruptions from the temporary closure of third-party supplier and manufacturer facilities and interruptions in product supply. To date the outbreak has resulted in a decline in revenues and profitability as highlighted in Item 2, Management Discussion and Analysis of Financial Condition and Results of Operations. While there have been some positive indicators such as restrictive measures being reduced in many countries and the reopening of temporarily closed facilities, the future impact remains highly uncertain and cannot be predicted and there is no assurance that the outbreak will not have a material adverse impact on the future results of the Company. The extent of the impact will depend on future developments, including global and country-specific actions taken to contain the spread of the coronavirus.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 6. Exhibits
101 The Financial Statements listed infinancial statements from the Index to Financial Statements in Item 1 are filed as part of this QuarterlyCompany’s Interim Report on Form 10-Q.10-Q for the quarter ended September 27, 2020, 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.
(a)(2) Financial Statement Schedules
(a)(3) Exhibits
| |
101 | The financial statements from the Company’s Interim Report on Form 10-Q for the quarter ended September 29, 2019, 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. |
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.
| | | | | | | | | | | | | | |
| | | Luxfer Holdings plc | |
| | | (Registrant) | |
| | | | |
| | | Luxfer Holdings plc | |
| | | (Registrant) | |
| | | | |
| | | /s/Alok Maskara | |
| | | Alok Maskara | |
| | | Chief Executive Officer | |
| | | (Duly Authorized Officer) | |
| | | October 30, 201926, 2020 | |