Luxfer PLC(US:LXFR)2023-03-01 12:56Financial Performance - Consolidated net sales increased by 16.9% in 2022, reaching $423.4 million, after adjusting for foreign exchange headwinds of $13.9 million[170] - Gross profit as a percentage of sales decreased by 3.3 percentage points in 2022 to 22.4%, primarily due to increased material and labor costs[172] - Net income from continuing operations was $32.0 million in 2022, a 6.7% increase from $30.0 million in 2021[169] - Adjusted net income from continuing operations rose to $37.4 million in 2022, up from $36.2 million in 2021[187] Expenses and Costs - Research and development costs increased by 25.6% in 2022, reflecting a focus on new product investment and future growth capabilities[175] - Selling, general and administrative expenses (SG&A) as a percentage of sales decreased by 2.4 percentage points in 2022, benefiting from price increases and cost reduction programs[174] - The impact of material availability and inflation is anticipated to continue into 2023, with the expectation to pass on cost increases to customers[166] - Net interest expense increased to $3.9 million in 2022 from $3.1 million in 2021 due to higher interest rates and increased drawings[178] Taxation - The effective tax rate increased to 22.0% in 2022 from 15.3% in 2021[169] - The effective tax rate increased by 6.7 percentage points in 2022, primarily due to the U.K. tax rate change from 19% to 25%[183] Cash Flow and Financing - Cash provided by operating activities was $15.8 million in 2022, down from $26.0 million in 2021, with $10.0 million and $4.0 million spent on restructuring activities in those years respectively[210] - Net cash used for financing activities was $2.0 million in 2022, significantly lower than $16.1 million in 2021, with net drawdowns on borrowing facilities increasing to $24.8 million in 2022 from $6.4 million in 2021[217] - The company had drawn down $31.9 million under the Revolving Credit Facility (RCF) as of December 31, 2022, compared to $10.8 million at the end of 2021[223] Capital Expenditures - Capital expenditures in 2022 were $8.3 million, a decrease from $9.1 million in 2021, with anticipated capital expenditures for 2023 expected to be around $15 million[211] - As of December 31, 2022, the company had capital expenditure commitments of $1.4 million, slightly down from $1.5 million in 2021[237] Dividends - The company paid dividends of $14.2 million in 2022, an increase from $13.6 million in 2021, equating to $0.515 per ordinary share compared to $0.50 in 2021[232] Supply Chain and Material Costs - The company has successfully secured alternative sources of supply for key material inputs affected by supply chain disruptions[166] - The company utilizes fixed-price supply contracts to mitigate raw material price volatility, particularly for carbon fiber and magnesium-based products[265] - The company is exposed to commodity price risks, particularly for magnesium and zirconium, with substantial price increases noted in 2021 and 2022[265] Restructuring and Charges - The restructuring charges in 2022 were $1.9 million, a significant decrease from $6.2 million in 2021[176] Pension and Benefits - Defined benefit pension credit was $0.1 million in 2022, including a $3.0 million credit on the U.K. plan, offset by $2.9 million of losses on the U.S. plan[179] - The discount rate for U.K. pension plans was 4.80% in 2022, up from 1.90% in 2021, while the U.S. plans had a discount rate of 5.10% in 2022, compared to 2.70% in 2021[248] - A 0.1% increase in the discount rate for U.K. plans would increase the pension surplus by approximately $2.4 million and the projected 2023 income statement credit by $0.1 million[249] - The expected rate of return on U.K. plan assets was 5.60% in 2022, compared to 3.30% in 2021, while the U.S. plans had an expected return of 4.70% in 2022, up from 2.50% in 2021[255] Business Strategy and Growth - The company expects continued high activity on revenue growth initiatives and actions to ensure continuity of supply of critical materials in 2023[168] - The company anticipates organic sales growth, which will require increased working capital, particularly in the short term[209] - The company expects to increase investment in new products and technologies as part of its business strategy to enhance cash flow generation[208] Segment Performance - Gas Cylinders segment net sales increased by 3.0% to $183.7 million in 2022, driven by demand for composite cylinders, despite a $7.8 million foreign exchange headwind[192][193] - Adjusted EBITDA for Gas Cylinders decreased by 43.6% to $12.8 million in 2022, representing 7.0% of net sales[192][196] - Elektron segment net sales increased by 22.4% to $239.7 million in 2022, benefiting from material cost inflation pass-through[198][199] - Adjusted EBITDA for Elektron rose by 23.6% to $50.3 million in 2022, accounting for 21.0% of net sales[198][201] Compliance and Agreements - The company has maintained compliance with covenants under the Loan Notes and the Revolving Credit Facility since September 30, 2011[205] - The company has maintained compliance with the covenants under the Note Purchase Agreement and Senior Facilities Agreement throughout all quarterly measurement dates from September 30, 2011, to December 31, 2022[218][230] Legal and Contingencies - A loss contingency of $3.3 million has been recognized related to litigation and environmental liabilities from the closure of a French site[258] Goodwill and Impairment - Goodwill was tested for impairment qualitatively in Q3 2022 and 2021, showing no indicators of impairment, thus no quantitative review was required[244]