Luxfer Holdings PLC Q1 FY2021 Earnings Call

Good morning. My name is Laurie, and I will be your conference operator today. Welcome to Luxfer's 2021 First Quarter Earnings Conference Call. All lines have been placed on mute. After the speakers' remarks, there will be a question-and-answer session. Now, I will turn the call over to Heather from Luxfer. Heather, please go ahead.

Thank you, Laurie. Welcome to Luxfer's first quarter 2020 earnings call. We are happy to have you all with us today. I am Heather Harding, Luxfer's Chief Financial Officer, and with me today is Alok Maskara, Luxfer's Chief Executive Officer. On today's call, we will provide details on our first quarter 2021 performance as outlined in the press release issued yesterday. Today's webcast is accompanied by a presentation that can be accessed at luxfer.com. Please note any references to non-GAAP financials are reconciled in the Appendix of this presentation. Also, all the numbers in our press release and presentation exclude the results of aluminum forming businesses that have been classified as discontinued operations based on accounting guidelines. Now, before we begin, a friendly reminder that any forward-looking statements made about the Company's expected financial results are subject to future risks and uncertainties. Please refer to the Safe Harbor statement on Slide 2 of today's presentation for further details. Now, let me turn the call over to Alok.

Thanks, Heather, and welcome everyone. I want to start with my appreciation of our employees for their continued focus on serving customers while maintaining steadfast adherence to safety protocols as we navigate the Covid-19 pandemic. Thanks to the hard work of our leaders and employees, we delivered record margins and strong cash flow in the first quarter of 2021. Let me begin by highlighting three key developments during the quarter. First, we delivered solid Q1 earnings, and an EBITDA margin of more than 20% despite the pandemic's negative sales impact. The conversion of these strong earnings into cash resulted in a net debt to EBITDA ratio of 0.7, the lowest level in the past eight years. Second, we meaningfully upgraded our portfolio by acquiring Structural Composite Industries to increase our presence in aerospace and alternative fuel applications such as CNG and hydrogen storage. With the addition of SCI, alternative fuel now makes up 20% of Luxfer's total revenues. Third, we achieved our long-term transformation cost reduction goal ahead of schedule by delivering a total of $31 million in cash savings, including $25 million in P&L savings, and $6 million in capital spend reductions. We also continued to simplify our portfolio by completing the divestiture of the Graham aluminum plant, which was part of the previously announced discontinued operations. I will provide more details on these themes before our CFO, Heather Harding reviews our financial performance in greater depth. Now, please turn to slide 3 for a summary of our first quarter financial results. During the first quarter, total sales of $85.2 million decreased 3.6% year-over-year, as the pandemic continued to negatively impact our industrial product sales. First-quarter adjusted EBITDA of $17.7 million increased 12%, primarily driven by productivity improvements. Our adjusted diluted EPS was $0.39 for the quarter, an increase of 15% from the prior year. Our Q1 cash flow was driven by lean working capital improvements, as we generated $13.8 million of free cash flow compared to an outflow of $7 million in 2020. This strong cash flow enabled us to reduce our net debt to $41 million compared to net debt of $92 million at the end of Q1 last year. This reduction was in addition to the $13.6 million of dividends we returned to shareholders during the past 12 months. As mentioned earlier, our net debt to EBITDA ratio improved to 0.7x at the end of the quarter. Our balance sheet remains strong, providing us with significant financial and strategic flexibility.

Now please turn to slide 4 for an overview of our recent acquisition, Structural Composites Industries, or SCI. On March 15, Luxfer acquired Structural Composite Industries from Worthington for approximately $20 million in cash. We are excited to welcome the 150 SCI employees into the Luxfer family and remain committed to putting customers first while we generate significant value for Luxfer shareholders. SCI was founded in 1971 and has significant market presence in aerospace, CNG, hydrogen transportation and storage, and other niche applications. SCI's proprietary technology is frequently specified in mission-critical applications, given its strong reputation and long history of quality and performance. Examples of these critical applications include carbon fiber composite cylinders for transporting and storing hydrogen and compressed natural gas, lightweight cylinders for inflation and breathing applications in aircraft, and compressed gas storage for defense vehicles and spacecraft. The SCI acquisition meets all our strategic criteria and will be accretive to earnings in 2022 and beyond. In 2021, we expect the acquisition to dilute EPS by about $0.15, given the impact of short-term losses. We will be investing in SCI and our alternative fuel products such as Type 4, 350 bar hydrogen cylinders to ensure long-term growth and profitability. In addition to financial benefits, the SCI acquisition also provides us with compelling strategic benefits as outlined on slide 5. About half of SCI sales are from high-growth alternative fuel end markets, which have been ongoing growth drivers for Luxfer given the increasing demand for CNG and hydrogen solutions. Adding SCI's technology, manufacturing capability, and customer base to Luxfer's existing presence strengthens our market position. Luxfer's increased scale and scope will enable us to capture a higher share of this fast-growing end market. SCI also has a strong presence in the aerospace end market where our consolidated presence will better position Luxfer for growth recovery. In addition to increasing our presence in aerospace and alternative fuel end markets, the SCI acquisition will also allow Luxfer to better serve niche applications and critical customers in SCBA and other end markets.

One of the benefits of this acquisition is the proximity of SCI's manufacturing location to Luxfer's largest composite cylinder manufacturing location in Riverside, California. This proximity will enable Luxfer to share expertise and talent and optimize manufacturing capacity to better serve customers while generating $5 million to $7 million in total synergies. Given the SCI acquisition and the discontinuation of the majority of our aluminum forming operations, our gas cylinder portfolio is simpler and less dependent on lower margin cyclical passenger automotive products. Alternative fuels now make up 40% of gas cylinders segment sales, with significant growth potential due to increased demand for hydrogen and CNG solutions. For an overview of Luxfer's simplified portfolio, please turn to slide 6. Luxfer's simplified portfolio consists of three core product lines: high-performance Magnesium Alloys, Specialty Zirconium, Catalyst, and High-Pressure Composite Cylinders. This is a significant simplification compared to the past and is going to drive greater focus on generating growth through innovative new products and by improving customer service. As a reminder, portfolio simplification was driven by the divestment of over $100 million in revenue and multiple consolidation projects over the past three years, as we sold non-core product lines and locations to improve our growth profile and profitability outlook.

The three product lines are manufactured in about 10 core locations, our position in higher growth end markets offers differentiated value propositions to our customers in niche applications. We will continue to report our financial results in two segments, Elektron and Gas Cylinders, as we create greater value for our shareholders through growth and productivity. Please turn to slide 7 for an overview of future growth drivers. Growth of Luxfer is enabled by five key factors that include growth talent, portfolio positioning, commercial excellence, new products, and bolt-on acquisitions. We continue to make progress on laying a solid growth foundation. Our recent accomplishments include increasing revenue from new products from 9% to 17% over the past three years while continuing to refresh innovation, talent, and the project pipeline. Other recent accomplishments include changing the portfolio's growth profile through the divestment of underperforming slow growth businesses while bolting on businesses with a better growth profile, such as our previously mentioned acquisition of Structural Composite Industries, as well as ESM Specialty Metals. We have plenty of future improvement opportunities to accelerate growth in our portfolio. These include geographic expansion to penetrate fast-growth regions, further increasing revenue from new products, and completing more bolt-on acquisitions.

Now, let me turn the call over to Heather Harding for details on our transformation plan savings and first quarter financials.

Thanks, Alok, and good morning to everyone again. Before I review the first quarter financial results, I will start with a summary of our cost reduction efforts on slide 8. We are very pleased to announce the completion of the cost reduction component of our transformation plan. We executed our planned actions and realized more than $4 million of net cost savings in the first quarter, bringing our total P&L savings to $25 million. This focus over the past three years has positioned the company well for the future, with a lower fixed cost structure, fewer manufacturing locations, and a relentless focus on working capital. In addition, we reduced our annual capital requirements by $6 million from historic levels through facility rationalization, resulting in $31 million of total cash savings over the past three years. Going forward, we expect to continue our focus on aluminum manufacturing, including automation projects, with the goal of delivering around 2% annual manufacturing cost productivity. Ongoing capital requirements are expected to be between $10 million and $12 million annually. Now, let's review the first quarter financial results with a look at our sales performance by end market on slide 9. As a reminder, our sales can be classified into three key end user markets: Defense, First Response and Healthcare; Transportation, which is a combination of alternative fuel, aerospace, and automotive; and General Industrial. In the defense, first response, and healthcare end market, sales increased by 2% for the first quarter versus the same quarter last year. We saw significant increased demand for disaster relief products and a recovery in military sales. Sales in transportation grew 10.8% in the first quarter, driven by strong demand for hydrogen and compressed natural gas products. We also experienced growth in our auto catalyst products driven by industry recovery and wider adoption of gas particulate filtration. Sales of aerospace products also returned to growth in the quarter versus the same period last year. Sales in the general industrial end market declined 18.9% in the quarter. Relative to the prior year, the single largest impact was the timing of new product stocking orders in Q1 of 2020. Outside of these orders, current year overall industrial products continued to be impacted by COVID in certain applications, such as packaging and food service. In addition, industrial products shipments in Q1 of 2021 were negatively impacted by transportation and supply disruptions. Given the improved order rate during the first quarter, we remain optimistic about the continued industrial recovery over the coming quarters. Now please turn to slide 10 for a summary of our first quarter P&L results. First-quarter sales of $85.2 million declined 3.6% from the prior year, with favorable FX contributions of 3.4% in price trends, more than offsetting volume declines. The SCI acquisition adds $1.2 million to first quarter sales. Growth within the transportation end market driven by alternative fuel sales was offset by the COVID impact within the general industrial market. Consolidated adjusted EBITDA was $17.7 million for the quarter, improving 12% versus the prior year. Despite the volume decline, the company delivered more than $4 million of net cost savings in the quarter due to its previously communicated transformation plan. Overall, we made great progress in the quarter as we expanded sales in key end markets and delivered strong profitability and cash. Now let's look at the product segment results on slide 11. Elektron sales of $49 million decreased 4.3% from the prior year. The sales decline was primarily due to the COVID impact on industrial and magnesium products. Despite the volume decline, EBITDA increased around 1% due to net cost savings realization in the quarter. Gas Cylinders segment sales declined 2.7% to $36.7 million as COVID continued to negatively impact industrial products, while alternative fuel posted strong double-digit growth. Despite the sales decline, EBITDA of $6 million was 43% higher than the prior year with cost savings offsetting the lower sales volume. Now let's review our key balance sheet and cash flow metrics on slide 12. We ended the first quarter with a stronger balance sheet. Our net debt position improved to $41.2 million leading to a net debt to EBITDA ratio of 0.7x, our lowest levels since 2013. First quarter operating working capital finished at $71.9 million or 21.4% of sales, which is a significant improvement over the prior year's 24.5% level and was a key contributor to our $13.8 million free cash flow generation. Going forward, we've targeted an operating working capital range of 20% to 22% of sales. On a trailing 12-month basis, we delivered 16.2% ROIC from adjusted earnings. Our balance sheet remained solid through generating a significant amount of free cash flow. We are well positioned for strong free cash flow conversion going forward. I'd like to review our capital allocation priorities on slide 13. Alok reviewed the compelling benefits from our recent SCI acquisition. This demonstrates our disciplined approach to capital allocation using our strategic acquisition filters and identifying potential candidates. With our strong cash and excellent financial position, we have ample liquidity to take further steps to drive profitable growth. This includes strategically evaluating our business portfolio, and identifying organic and inorganic options to drive additional shareholder value. As a reminder, our first capital allocation priority is to create value through internal execution, which includes funding of new product innovation and talent development. For the remainder of the year, we expect to spend $16 million to $20 million in restructuring cash, which includes the remaining transformation plan cash outlay, plus funds for SCI integration. We expect to spend approximately $10 million to $12 million for capital expenditures in 2021, which is an increase from our $8 million of 2020 spent that was negatively impacted by COVID. Next, we remain open to strategic acquisitions to supplement our organic growth. And finally, we will return cash to shareholders via dividends. As a reminder, we have paid out $96 million in dividends since 2013, including $3.4 million in the first quarter, and we are maintaining our current dividend program. We did not buy back shares in the first quarter but intend to repurchase shares over the remainder of this year. Now I'd like to review our updated 2021 guidance on slide 14. Our 2021 guidance announced in February was $1.05 to $1.25 for the year. We now expect earnings per share to be $1.10 to $1.30. Most importantly, this revised guidance now includes the first-year impact of our recent SCI acquisition, which we estimate to be approximately $0.15 diluted. As Alok mentioned earlier, we will execute our synergy plans of $5 million to $7 million and expect the acquisition to become accretive in 2022. We expect full-year 2021 revenues to grow between 10% to 15%. This range includes approximately 3% to 4% of a favorable currency benefit and acquisition revenues of $20 million to $25 million. We expect defense, first response and healthcare products to grow in the mid-single digits, based in part on strong MRE and military sales. Transportation products are expected to grow by double digits driven by alternative fuel including hydrogen, new products such as gas particulate filtration, and the SCI acquisition. We expect industrial products to grow in the mid-single digits for the full year due to ongoing recovery. We will continue our execution on cash management initiatives targeting 100% free cash flow conversion for the full year excluding restructuring. We remain confident in our ability to successfully navigate through the recovery this year and be well positioned to capture growth.

Now I'll turn the call back over to Alok for a wrap-up. Thank you, Heather. Let me conclude by reviewing the global growth trends shaping our portfolio on slide 15. The three mega trends shaping Luxfer's future growth are lightweighting, a safe and healthy lifestyle, and a clean environment including clean emissions. Luxfer's historic growth has been driven by a demand for lightweighting. We believe that this trend will continue for many more years. Our magnesium alloys play a critical role in reducing the weight of key high-temperature high-performance, aerospace, and industrial components. We are also the world leaders in lightweight, high-pressure composite cylinders for SCBA and other applications. The lighter nature of our products enables firefighters and first responders to be ergonomically safe while carrying sufficient oxygen for their difficult tasks. A desire for a safe and healthy lifestyle also shapes our growth profile as demand grows for healthier meals ready to eat using our flameless ration heated technology in defense and emergency response applications. Additionally, sales of our Zirconium products used in pharmaceutical and water treatment applications, and our portable medical oxygen cylinders also benefit from the global trend towards safe and healthy lifestyles. The mega trend towards a clean environment and lower emissions is fueling the growth of our alternative fuel products and is also accelerating the growth of our auto catalyst product line. For example, our newly introduced gas particulate filtration product is being adopted in multiple platforms to meet increasingly stringent environmental regulations. As a result, we believe that our auto catalyst content per vehicle will continue to increase for the foreseeable future. Next, I wanted to update you on our ESG efforts on slide 16. We published our first ESG report in November 2020. Since then, we have been busy making further improvements across the company to meet or exceed our ESG commitments, including a 22% reduction in carbon dioxide equivalent emissions, a 10% reduction in fresh water usage, and a 20% reduction in waste to landfill. Recent investments to improve our environmental footprint include initiatives to reduce energy demand, increase the use of recycling to reduce waste, and upgrades to our manufacturing processes to make them more eco-friendly. As we continue our ESG journey, we are finding new opportunities to reduce and recycle waste that is also generating cost savings. For example, our St. Louis facility installed a new capability to separate waste oil from ground magnesium, allowing us to both recycle materials and generate additional cost savings. We are proud of our significant progress on our ESG initiatives, which have resulted in improvements in our third-party ESG ratings from agencies such as ISS. Now, please turn to slide 17 for a recap of how we are building the foundation for our company's long-term success. Four thoughts to remember: Luxfer serves attractive niche markets with proprietary products and technology. Our transformation plan has delivered results by simplifying our businesses, reducing our cost structure, and reshaping our portfolio towards higher growth. The final phase of the transformation plan that will take place over the next few years will focus on accelerating growth and delivering margin expansion. We have plenty of runways to create additional shareholder value by deploying the Luxfer Business Excellence standard toolkit to drive operational improvement and accelerate our growth. Once again, I want to thank all our employees around the world for safely operating our facilities during the pandemic, while always putting our customers first. Thank you for listening. We will now take questions.

Our first question comes from Chris Moore of CJS Securities.

Hey, good morning, guys. Thanks for taking a few questions. You guys have made significant progress on multiple fronts. Just hoping to focus maybe a little bit more on the growth strategy specifically, is there kind of a reasonable expectation in terms of organic growth over the next three to five years from a number or range standpoint that you guys talk about internally?

Chris, that's a great question because the next phase of our transformation plan is focused on accelerating growth. Historically, we have talked about our company having a GDP plus growth profile. I think with the current momentum around clean emissions and alternative fuel, we expect our transportation end-user segment to grow much faster than that. A lot of this depends on macroeconomic conditions, as the industrial and defense sectors should also receive positive tailwinds. I wouldn't give a specific number at this stage, Chris, but we do expect our growth profile to be better than we had previously expected, simply because of the momentum from the three end-user markets, our new products, and the SCI acquisition which further increases our position in alternative fuel with hydrogen and CNG, both of which continue to grow rapidly.

Got it, that's helpful. In one similar vein, do you need to ramp up R&D significantly in order to keep pushing new product revenue?

I think from our efforts perspective, we are looking to increase our investments in R&D. That has been consistent for the past few years. Last year, with COVID, a lot of those activities did not make much progress. So yes, we are increasing R&D. I wouldn't use the word significantly. We typically spend less than 1% of our revenue on R&D; would we look to double that over the next few years? Yes. But it won't be much more than that. I think it will still be around 2% or less of our total spend over a long-range planning period, Chris.

Got it. That's helpful. And the last one for me, just a little bit more on SCI. In terms of the mix of the business, it looks like it's roughly half alternative fuel and half aerospace. You mentioned 10% EBITDA margins a couple of years out; do you think you can do better than that? I would think that CNG and hydrogen will be above that. Is aerospace the piece that's lower, or how do you look at that?

Yes, no, we really aspire to be more than that, Chris. At this stage, if you look at our total synergies of $5 million to $7 million, this year's losses are likely around $4 million. We could easily reach about 10% over the next couple of years. That assumes no recovery in growth in aerospace and other niche applications. Currently, I think the revenue breakdown is roughly about half alternative fuel, a quarter of aerospace, and a quarter of various niche applications. As we integrate SCI's contributions, we believe it will align closer to our overall composite cylinder margin profile, which, as you know, is higher than 10%.

Our next question comes from a line of Craig Irwin of ROTH Capital Partners.

Good morning and congratulations on the strong result. Hi, Alok and Heather. Your EBITDA margins at Elektron were particularly strong this quarter. To go back to a number that was higher, we have to go back something like three years to find stronger performance. Can you talk about what's driving this specifically in the quarter? Was there anything one-time in nature, or is this the result of the repositioning and restructuring you've done over the last couple of years? Is it more related to business mix and momentum with the products you're selling now?

Heather, do you want to start on that?

Yes. Good morning, Craig, it's good to speak with you. I would say as I think through the margins, and some of the items that you highlighted, primarily, it is really a result of some of the repositioning and a lot of the work we've done on cost reductions. There weren't any significant one-time items in the results. We certainly, as we talked about, saw nice growth in aerospace. As we said, there were signs of growth in that segment contributing to our performance, and then some of our other businesses within the Elektron segment continue to really realize the benefits of that cost reduction momentum and all the efforts we've been doing over the past three years.

Excellent. And just to continue on the theme of the cost reductions, $4 million in achieved savings this quarter. That's an impressive result. I think the last time you had savings like that was just the front end of the program, when you're picking the low-hanging fruit. Can you maybe give us a little bit of detail about where that came from? And is it possible that we see additional savings later on this year where you could exceed the total forecast savings from the overall program?

Well, certainly with the $4 million this year, as we highlighted in the presentation, we've already exceeded the $24 million. So we're currently sitting at $25 million life-to-date. So from that perspective, we're very pleased. As we continue to look forward in time, will there continue to be some cost savings? Yes. I certainly don't expect this level to continue every quarter; there will be investments that are required. And certainly, we're very pleased with the performance we had this quarter. In terms of where the savings came from, when you look, we do highlight the two segments in the back of the presentation, but it was pretty equal; in terms of the split between gas cylinders and Elektron, they were each around $2 million. So that's also important to know that our cost reduction plans are fully embraced by the entire enterprise. I think you see that when you look at the cost reduction mix between the two segments, which was— as I said—fairly equal.

Understood, thank you. So then, Alok, one of the key things over the next couple of years is where you're able to get to on your margin expansion. I understand the reticence to respond to a growth rate question. You don't control the markets and things are improving, but I guess visibility is better, but not as good as everyone wants. But margins, you've really demonstrated excellence as far as operating and improving and managing the mix, etc. How would you look at a potential margin target over the next couple of years? I mean, can you see several hundred basis points in margin expansion as you sort of move the mix into higher growth, higher margin products? Does Luxfer have the potential to be a 30% plus gross margin company?

Craig, that's a very futuristic question. Three years ago, we were discussing whether Luxfer could ever achieve teen margins. Then we talked about getting to 20% margins. Today, we are at 20% margins. Our first aim is to maintain this level, as we look at it—one quarter doesn't define a trend. We will work hard to ensure we hold and exceed this level. Given the shift in the portfolio, strong cost reduction efforts, fewer factories, and a significant focus on lean working capital, I think we will be able to hold the current numbers. Aspirationally do we aspire for higher? Absolutely, yes. However, we will not commit to a number that much higher just yet. Our focus is to complete the SCI integration effectively, as you know we talked about delivering $5 million to $7 million in overall synergies. We want to make sure we capture growth in hydrogen and make the necessary investments for that, which is a good margin and a great growth business for us.

Understood. And then, maybe you can correct me, but I believe that one of the gaps in your portfolio, at least on the tank side, is the opportunity for hydrogen hauler products. Some of the high-pressure hydrogen tank trucks, right? Can you comment about what it might take for you to add those to the portfolio? Given that there are now five green hydrogen plants in development by plug, with the first one supposed to be commissioned fairly soon, there seems to be an obvious need for some of these hydrogen haulers to avoid the incremental cost of liquefaction. What do you think about that as a product opportunity? Do you already serve it? And do you see long-term growth there?

It's a very exciting opportunity for us. We do see long-term growth there, Craig. Green hydrogen is the wave of the future, and we totally believe in that. We work with our customers, as you noted. There is a small gap in our portfolio; I previously referenced working on a Type 4, 350 bar product that would fill that gap, and we are in the process of getting the right certifications and approvals to enter that market. We remain committed to it, and we're on our way to getting there.

Excellent. And last question, if I may, before I hop back in the queue, your automotive catalysis opportunity is exciting for the growth that you're seeing incremental content per vehicle. What is the potential increase there? If you could frame out for us, are we seeing a 50% increase in content per vehicle, potentially doubling? How does this fit together regarding the available opportunity per vehicle over the next couple of years?

Sure. In dollar terms, we look at it as a 40% to 50% increase in our content per vehicle for our auto catalyst business from where it is. Remember, last year was a slow year due to COVID, and there was hardly any production during Q2-Q3. We do expect that business to grow by 30% to 50% in the near future. This content increase is very positive. What we're also excited about is the higher standards for emission in the US, because today, almost all of the market for that product is outside the US, given that some of the US emission requirements are still lagging. With California regulations having a higher chance of becoming federal mandates, we are optimistic about increasing market share due to higher emission standards in the US and expanding the market beyond Europe and other regions.

Your next question comes from a line of Sarkis Sherbetchyan of B. Riley Securities.

Hi. Good morning, Alok and Heather. Thanks for taking my question here. Hey, just wanted to touch firstly on the SCI acquisition. You mentioned a $4 million loss for this first year, and with your synergies, probably getting to let's call it a $1 million to $3 million of accretion next year on $20 million to $25 million in sales. Is it right to think about the margin profile of that business eventually looking like the margins we're seeing in your gas cylinders business today? Or do you think, with the combined SCI portfolio and your portfolio, you can eventually get to better fixed cost absorption and therefore better margins than what we're seeing in gas cylinders today?

Yes, good morning, Sarkis. I'll start on that one. Certainly, we're very excited about the addition of this acquisition. We talked about being on this journey to deliver the $5 million to $7 million synergies and expect that to turn accretive to us in 2022. As we look ahead, part of the reason we thought through the compelling benefits when we looked at this. I think you're thinking about it correctly. There are potential opportunities as we think about additional growth and leveraging fixed costs. We'll work through that, but our main focus right now over these next 18 to 24 months is to work on our initial synergy plan and deliver the $5 million to $7 million.

Great, thanks for that, Heather. As I think about the divestiture of the aluminum product lines, and I think divesting Super Form is still pending. Would it be correct to think that the entire portfolio in gas cylinders is now wholly composite? Or are there certain aluminum lines that are lingering?

I'll take that one, Sarkis. There are a small number of aluminum products that are made in shared factories. These are typically high-quality aluminum alloys like L7X used in applications such as medical oxygen. But the majority of our sales are now in composites, which include both type two and type three cylinders, along with the new type four cylinders. There is a small amount of type one pure aluminum focused mostly on medical oxygen.

And as for the growth rates of that small piece of business that's left, is that comparable to what you're seeing in composite, and therefore you're holding onto it, or is there a different kind of game plan after you've digested SCI?

We want to ensure we focus on digesting the SCI business. We like the medical oxygen business; it's a specialty alloy where we have a differentiated value proposition compared to our competition in that space. While the growth profile may not align as closely with alternative fuel and other areas, it’s still a very good business with healthy ROIC, making it worthwhile to retain that piece for now.

No, thanks for that. And just want to touch on the timeline for divesting Super Form. Any thoughts on the timeline here? And maybe how much cash this could potentially bring to the balance sheet?

Yes, Sarkis. I'll take that one. We're still committed to divesting the remaining operations by the end of 2021, with our current expectation for cash proceeds somewhere between $5 million and $10 million.

Okay, that sounds good. And then just coming back onto the Elektron division. That's been a historically high-margin business, with really kind of niche applications going on there. As you've remixed the entire portfolio, both on the gas cylinders front and on the Elektron side, at what point do you think the two portfolios look very different from one another? Are there any strategic actions that may come about, or do you think it's feasible to run the two different businesses with the different growth trajectories, margins, and capital requirements under one roof?

Our focus, Sarkis, is to create value for our shareholders and maximize that value. From that perspective, we remain open to broader strategic moves. We're very pleased with the improvements both segments have realized over the past few years, both in growth and margin profiles. But we remain open to other broader strategic opportunities that could further enhance shareholder value. They are both robust businesses, as you mentioned; they both operate within advanced materials and have good ROIC, with one perhaps having slightly better ROS than the other. However, the growth profiles of hydrogen and CNG present exciting opportunities. There’s still significant internal opportunity to capture, and if any external opportunities can help enhance shareholder value, we will remain open to them.

Your next question comes from a line of Phil Gibbs of KeyBanc Capital Markets.

Hey, Alok and Heather, good morning. Can you hear me? Good. Okay. Your $1.10 to $1.30 in terms of earnings, can you give an implied EBITDA within that framework? And then also implied D&A for the year-end? I know there's lots of moving pieces, so just trying to square in on what you're trying to communicate for that?

Yes, so when I think about, first of all, D&A is around $13.5 million. And you're right; there are some moving pieces regarding that, but it's around $13.5 million is what we're anticipating. In terms of EBITDA, $1.10 to $1.30 would imply EBITDA somewhere between, call it, $56 million to $63 million, is kind of how we're thinking about it.

Okay, that's helpful. And then your cash restructuring costs that you outlined in your deck of about $18 million at the midpoint, how much of that $18 million is from the SCI integration?

Right. If you think about the transformation plan, we had about $11 million to $12 million from the former transformation plan. So the rest would be the SCI integration with the midpoint around $7 million.

Seven from SCI, you're saying?

Yes.

Okay. And the cadence of the losses, the $0.15. I talked to Alok last night; I think he said about $0.01 in the first quarter. But how does that split for the rest of the year?

If I think about how that splits for the rest of the year, it is pretty evenly split between Q2, Q3, and Q4 at this point, slightly heavier in Q2 and Q3. I don't know that it's meaningful, but you could almost divide by three for modeling purposes.

Okay, and then my—appreciate that. In the last question, you said aerospace comped up in terms of top line year-over-year. Does this include defense in that aerospace commentary, or is that purely commercial? Anything there would be appreciated. Thank you.

I think we do separate aerospace and defense, particularly in overall portfolio analysis. However, from aerospace, we are starting to see signs of recovery, driven by a focus on helicopters. Fixed-wing aerospace has been lower, but we're encouraged by the growth signs we're observing. Military sales are recovering as the government replenishes stocks for flares and MREs. We expect that recovery to be faster than in aerospace, but both areas are showing good signs.

An encore recording of this conference call will be available in about two hours. Telephone numbers to access the recording will be available on the Luxfer website at www.luxfer.com. Thank you for joining us today. The next regularly scheduled call will be in July of 2021 when the company discusses its 2021 second quarter financial results. This ends the Luxfer conference call.