Brian Purves - CEO Andy Beaden - Group Finance Director.

Martin Englert - Jeffries Phil Gibbs - KeyBanc Capital Markets.

Welcome to the Luxfer Group First Quarter Conference Call. We will first hear from Chief Executive, Brian Purves, who will provide a market overview for the quarter, followed by Group Financial Director, Andy Beaden, who will review the financial performance for the quarter. Brian will then return to sum up and offer an outlook.

After that, Brian and Andy will be glad to take your questions. We request that you initially ask only one question. After you have heard the answer, we will give you the opportunity for a follow-up question. If you would like to ask additional questions, our operator will be glad to place you back in line.

We will now turn the call over to Brian Purves..

Thank you. Good morning, ladies and gentlemen. And welcome to the Luxfer conference call on first quarter of 2015. Unusually, we are speaking to you from the U.S. being here on one of the frequent visits to our North American plants. So please forgive us if there is a time lag on the slides which also are being run from U.K.

On to Slide 4, there was much to be pleased about in trading performance during the first quarter with our 2014 problem areas not only in balancing on fuel being the main area of continuing concern, but with corrective actions already started in Nigeria.

The other sectors which caused us particular problems in 2014 are recovering with the important North American SCBA sector once again growing and the demand from U.S. Military powders improved. Unfortunately the large movement in exchange rates over the last few year between the U.S.

dollar, Pound Sterling and Euro are now a big factor in understanding the year-on-year tracking. Our new acquisition continues to perform well with $7.1 million in sales in the quarter and our adjusted fully diluted EPS of $0.25 was slightly ahead of expectations albeit still $0.03 below quarter one 2014.

We continue to walk through reduced working capital on quarter one cash generation was again improved. Turn to Slide 5, the North American market for SCBA gets set for a good year with improved trading in quarter one, but with our customers to our perception still ramping up to meet deferred demand.

When comparing with quarter one 2014, it is important to note that certain industrial catalyst orders fell into the first quarter last year. All those from non-development market are still intermittent. On this year, we expect our main orders to come in quarter two and quarter three.

We had some particular issues with a customer for aerospace alloys in quarter one that decreased sales but those are now resolved.

On Slide 6, partly due to the current oil price of diesel, our AF business has continued to struggle and a slide in our last call we have been working on ways to eliminate the operating losses caused by low sales while with the inability to expand the business as and when the market returns to growth, the timing which is depending to some extent on our recovery in the oil price.

When we return to fuel markets, we set a strong growth in 2012 and 2013. We invested in additional capacity including making two acquisitions in the sector.

When planning the Dana Tank purchase in late 2012, we had the intention to rationalize our manufacturing sites, but almost immediately all of our plants became very busy as the market demand rose rapidly. Since midst 2014 however, partly due to the collapse in the oil price, the alternative fuel market has been a problem for us.

We have no results to rationalize AF cylinder manufacturing from four plants down to two at Calgary and Riverside. Calgary has demonstrated a good ability to control costs in line with demand.

On the Riverside the AF plant is alongside our portable composite operation, one of the most efficient plants in the industry with the ability to share overhands on flat direct labor between the two operations.

Our Utah facility which hard to be intended as center of the Type 4 manufacturer has never been watchful and the labor force laid off since the end of March, so I’m not sure Germany employees were also laid off during quarter one, but this was not in itself sufficient to span the lawsuits and on Monday of this week we announced our intention to seize manufacturing at our German plant by the end of 2015.

This extended period is to ensure continuity of support to our customers and to allow time for our Canadian plant to achieve the necessary approvals to serve the markets and customers currently supplied from Germany.

In the last 18 months with the general weakness in the European bus market, Germany has become overly dependent on both cash modules where competition is fierce and the market is dependent on large intermittent contracts.

On Slide 7, our rationalization decisions have an impact on the quarter one results and we will help further financial implications, which we expect to be recorded in quarter two.

Manufacturing assets in Utah and Germany those are not being transferred to Calgary or Riverside and for which there is no immediate views, have been impaired in the quarter one balance sheet along with purchased goodwill and some inventory.

The cash cost mainly for severance payments are recorded as they are incurred or committed and so they are split between those two plays in quarter one and those that have been announced since the end of quarter one. While we expect the bulk of this cost to fall in quarter two, the actual cash expenditure will be spread over the balance of the year.

Slide 8, the consolidation of Type 4 cylinder production into Riverside will bring immediate gains quarter two onwards and despite the unhelpful market backdrop, our North American business is winning new customers for our recently launched Type 4 products. Overall the North American AF business Group is expected to be profitable quarter two onwards.

We are likely to continue losing money on AF in Europe during the balance of 2015 but our objective is to ensure that post rationalization we can at least breakeven at the current low level of sales and with some sales growth to be profitable in 2016.

We will not chase market share in the bulk of CNG gas containment market, but we will retain the capability to handle such contracts and to respond to market growth when it recommences as most observers believe that it will. Turning to the revenue slides, on Slide 9 on Elektron the cerium surcharge has disappeared from our pricing structure.

Stripping out the surcharge and also exchange rate moves, sales in the quarter are up by 9.6%, but this is entirely due to the Luxfer Magtech acquisition, which continues to do well. Underlying sales in the division are down by 2.8% on prior year.

This however is primarily due to strong first quarter sales with industrial catalysts last year, which are expected to come later in 2015. While magnesium alloy sales in the quarter are viewed as a temporary setback, but we do not expect it to be repeated. Encouragingly, sales of military powders are up than prior year.

Slide 10 in cylinders; cylinder business continue to have difficulties in quarter one, but this is now primarily in the alternative fuel business stream. Ignoring the impact of exchange rates no one alternative fuel revenues were up 9.8% over prior year. Alternative fuel sales in the quarter were only $5 million down from $12 million last year.

Slide 11 on selected growth projects, we continue to supply material and technical data to a number of aerospace seat manufacturers and we were encouraged by the appearance of prototype seat designs incorporating our Elektron alloys at the recent Aircraft Materials Export in Hamburg. On Type 4 cylinder the world market is weaker than desired.

We are generating strong interest in our lightweight designs and gradually winning the additional business that we need to make rationalized manufacture base profitable. Slide 12, on the Synermag bio-absorbable magnesium stents continue going forward locked mainly by our biotechnology partner continues towards CE approval at the end of 2016.

Our Zirconium sorption technology, the U.S. military appears very interested in our chemicals designed for decontamination and the recent tender document allowed our material as an alternative to more traditional materials. We still need to go through first-article testing, which we want to do once the contract is awarded.

Andy Beaden will now take you through some of the details on the quarter one results..

Thank you, Brian and welcome everyone to the call. Brian covered the divisional sales analysis and my first slide, Slide 14 shows how that consolidates into the Group revenue changes for Q1 2015.

Total revenue for Q1 2015 was $116.9 million with no separate rare earth chemical surcharge now required after further pulls in rare earth prices and this compares to $122.4 million net revenue for Q1 2014. FX translation was a negative $8.6 million. So adjusted for this underlying group revenue was in fact up $3.1 million.

Luxfer Magtech which was only acquired at the end of July added $7.1 million in the quarter but our AF revenues were also down in gas cylinders by exactly the same amount, $7.1 million when adjusted for FX. Therefore sales revenue in our non-AF businesses were up $3.1 million.

Slide 15 shows the trend in sales for Q1 2015 by geographic region, while sales in North America are well up with stronger certain say operated sales and the additional Luxfer Magtech sales. Asia- Pacific was unusually strong last year with large AF full gas transportation sales. The current level is more normalized. U.K.

was slightly stronger in Q1 2015, but the rest of Europe was weaker. Turning to the trading profits and adjusted EBITDA results on Slide 16, the Q1 2015 group trading profit was $10.5 million, being consistent with the last few quarters whist the AF business has been so weak and this compares to $12.3 for Q1 2014.

Elektron results of $9.2 million was down on last year's Q1 of $10.7 million. The levels of chromium sales did impact profits with different timings in the industrial catalyst sales from last year. FX changes also had a negative impact, in total, reducing profit by $0.9 million.

In magnesium, profits held better benefitting the addition of Luxfer Magtech, which offsets a slower start to the aerospace expected sales, which we now expect to pick up through the rest of 2015. Adjusted EBITDA for Elektron was $12.2 million compared to prior year of $13.3 million.

Trading profit for the first quarter of 2015 was $1.3 million down on the $1.6 million for Q1 2014. Most of this difference could be explained by FX differences, which were negative $0.2. However, last year, the AF businesses was profit making in Q1 2014, but now they have becomes loss making.

The delta and trading profit for AF from Q1 2014 to Q1 2015 is approximately a reduction of $2 million. Note that this was offset with improved results from our composite self-contained breathing apparatus business combined with some costs savings.

Q1 2015 group adjusted EBITDA was therefore $15.4 million compared to $16.9 to Q1 last year, the Elektron divisions EBITDA being to $12.2 and gas cylinders $3.2. Group's EBITDA margin was therefore 13.2% compared to 13.7% for Q1 2014.

Turning to the full income statements on Slide 17, gross margin was also lower with Q1 2015 at 22.3% versus 23.4% last year. This was mainly a result of the shift in AF profits and FX differences along with timing differences in the industrial catastrophe sales.

Distribution costs at $1.8 million Q1 2015 were $0.3 million lower in Q1 2014 mainly as a result of the lower exports to Asia-Pacific as a highlight in the sales assets.

Administrative expenses were also lower at $13.8 million for Q1 2015, compared to $14.5 million last year and this is after Luxfer Magtech, which was only acquired in July, so added in the quarter $1.6 million of additional costs and so the actual fall in other costs reflects quite significant cost savings.

Trading profit was $10.5 million as previously explained. In the quarter we have charged $8 million to restructuring and similar expenses. This all relates to restructuring of the AF businesses. Of the $8 million, $0.5 million are cash costs for the cost of lying off employees and the other $7.5 million relates to impairments of assets.

This includes $1.8 million of inventory, $2.1 million of property, plant and equipment and $3.6 million of intangibles. These all relating to the planned closure of German manufacturing factoring operations and the decisions to full Utah as we consolidate manufacturing in [Lowe's Canada] [ph] and Riverside with some assembly working in U.K.

In Q2 as part of this cost saving exercise, we expect to charge $3 million to $4 million of further cash related costs again under the rationalization and similar cost line item.

These types of costs, they are only recognized once the rationalization was announced, which was after Q1 2015 closed the objective being to generate cash savings per year of a similar value to the cash rationalization cost being incurred to lower the breakeven points of our AF operations.

Operating profit, which is after restructuring and other exceptional items is therefore $2.5 million for Q1, versus $12.3 million for Q1 2014, while we have no rationalization activity.

Further operating profits I have both broken out the elements of Forex finance charges being as follows, net interest which is $1.7 million in the quarter, $0.3 million higher results of the increased debt to finance Semantics acquisition.

The notional IAS 19 time benefit finance charge of $0.7, which is the same as last year, plus $0.1 for the unwinding of the discount to deferred consideration of Luxfer Magtech and this is effectively part of the overall acquisition costs.

In the appendices to this presentation it is worth noting that we disclose our non-GAAP reconciliations for adjusted EBITDA, adjusted net income and EPS and you can see on those that we strip out the figures for the restructuring costs, acquisitions and disposal items of IAS 19 finance charges.

In Q1 2015, we incurred a tax charge of $0.5 million, in fact of the restructuring cost of probably before tax was in fact nil. The actual underlying tax rates was 27% after you strip out the impact of the restructuring exceptional items.

The tax rate extortion was caused by the restructuring cost in Germany, which did not lead to a tax credit due to tax losses in Germany. The Q1 last year tax rate was $0.28.

Statutory net income for Q1 2015 was a loss of $0.5 million compared to $7.2 million profit for Q1 2014 while adjusted for the exceptional items and excluding the IAS 19 finance cost, Q1 2015 was an underlying net profit of $6.9 million compared to $8 million for Q1 2014.

Fully diluted adjusted EPS was therefore $0.25 for Q1 2015, which compares to $0.28 for Q1 2014 being $0.01 above the Wall Street consensus to Q1 2015. The next slide number 18 shows the consolidated balance sheet. It reconciles the key changes from December 2014 to March 2015.

Overall invested capital in the operating businesses was $267.9 million and to the pension deficits of $91 million as of 31 March, 2015. Pension deficits are practically the same as at the yearend 2014 with FX differences offsetting a small net increase as a result of lower discount rates.

Net debt which is debt minus cash was $105.8 million, slight reduction on the year-end provision of $106.8 million. FX difference is due to the stronger U.S. dollar, reduced net assets by $7.8 million and the rationalization activity reduced assets of further $6.4 million net of tax.

Book equity was $159.4 million, which is also providing for $2.7 million quarterly dividend, which was actually declared in late March last year it was declared in early April. Turning to cash flow on Slide 19, our operating cash flows in Q1 2015 were a positive $7.9 million, up from Q1 2014’s positive $1.3 million.

Working capital was an outflow in Q1 2015 mainly as a result of high receivables when compared to December 2014. This was due to increased sales in March 2015. Working capital still remains higher than planned due to excess inventory caused by the disruption in demand in various European and U.S. markets last year.

Actions continue in 2015 to reduce working capital further. Investment cash flows were a net spend of $2.8 million in the quarter. We invested $6 million in Q1 2014. CapEx in property funds and equipment at $2.5 million was low as we managed cash flow. Cash flow before financing was therefore an inflow of $5.1 million.

After paying dividend and net interest of $4.4, we generated net cash of $0.7 compared to an outflow of $9.9 million for Q1 2014. Cash at the end of the quarter was on the balance sheet was $15.7 million. Thank you and I’ll now hand you back to Brian to sum up..

Thank you, Andy.

Summarizing quarter one then, very different exchange rates from this time last year are complicating the reconciliation, but the underlying performance of our cylinder business is improving with North American SCBA returning to growth last but for the moment by continuing difficulties in our AF business, but decisive action has been taken to resolve that situation.

Especially the material side, the Group reported lower results from this time last year, but was mainly the entertaining issues on the important U.S. military market is looking stronger this year. Within the division, our new acquisition continues to perform as expected and overall our quarter one adjusted result was slightly ahead of expectations.

The outlook for 2015, Elektron remains highly profitable and once the tiny issues of the comparison in quarter one are behind us, we are currently on a full year of Luxfer Magtech results and an improved U.S. Military demand to improve results year-on-year.

A significant opportunity but once nearer term exists for our Zirconium based decontamination products. The weakness of the Euro is halting the profitability of our European cylinder business and is a challenge on top of our continuing lackluster Eurozone economy, with the North American side of the business, it’s visibly strengthening.

Alternative fuel losses are unlikely to be completely eliminated until later of this year, but building on the fact that non-AF revenues were strongly up in quarter one, we still expect to improve on the 2014 cylinder's trading results.

Turning to Slide 23, the principal headwinds of 2014 being the regulatory problems in the North American SCBA market and the customer difficulties in the military flair market have receded. We continue to focus on working capital and remain confident of improving our capital efficiency ratios over the course of the year.

The weakness of the alternative fuel market and some particular customer issues mean that we will be little slower to generate cash than previously indicated, but we also working towards a good operating cash flow performance this year.

With some key market pricing, we believe that we can drive an improvement in the profitability of most divisions over 2014 albeit by cylinders division by business from a lower starting point. We will be helped in this objective by cost reduction programs particularly in our alternative fuel business fleet.

Although unlikely to contribute much in the way of sales in 2015, we do expect to achieve further milestones on a number of our strategic growth projects. While the economic and business environment continues to be challenging, it is good to see two of our long-term key markets at last signs of an upturn.

Our actions to reduce the breakeven point of our alternative fuel manufacturing facilities, our plans to correct the economics of that business stream even in current market conditions and give us a relatively clean position on which to plan further improvements in 2016 and beyond. Thank you and we will now take questions..

[Operator Instructions] Your first question comes from the line of Martin Englert of Jeffries..

Hi good morning, everyone..

Good morning..

Can you talk about the degree of FX headwinds that you would expect in coming quarters here on the top line relative to how it was in 1Q here?.

Well, we indicated that we were fairly well hedged for 2015. So the goods exposure for 2016 are something that we will have to consider when the budgeting for 2016 as to the extent to which we have to put pricing into the marketplace to recover the situation, but Andy, do you want to….

Yes so you actually asked top line which is more distorted I guess the profitability because you got the translation impact, which you can see in the first quarter was $8.6 million maybe $9 million.

So looking at, that's caused by the movement in the dollar to primary the Sterling but also the Euro and if you look at the Sterling dollar rates, this quarter to a year ago, the average was about $1.50 million, I think it was $1.51 million and last year it was $1.66 million. So $0.15 movement and that caused nearly $9 million impact to the top line.

In terms of profitability, as Brian said the other exposures we got is actually making products in the U.K. and exporting it to Europe where the Sterling has strengthened to the Euro and that could easily cost us a $1 million a quarter and even more than that.

It’s 45 million Euros of sales a year, but at the moment we're about 60% to 65% hedged for this year and obviously we do have the ability to seek for prices up given it’s a transaction risk. Does that clear up enough for you..

Yes I think so.

It’s fair to assume though that it would be a continued headwind though in the subsequent quarters here relative to having -- how we saw it in Q1?.

I think it means that for example our revenue number is lower than I think the consensus where the profitability was up -- was online with the consensus and I think I explains some of the delta in the top line. So probably a bit of movement to R&D, the last time I tracked the Dollar Sterling rate was back in $1.56, $1.57….

Yes it’s touched $1.57..

Where the average is as Andy said for the first call was $1.51 or thereabout..

Okay.

And if I could one more within your guidance, I know last quarter you had spoke to improvement in the second half of the year and that sounds like you’re expecting an improved 2Q quarter-over-quarter, would it be fair to assume that you are expecting sequential improvement for the remaining quarters of the year here?.

Yes certainly we do expect the remaining three quarters of the year to be a good step up from Q1 and recent quarters. So we're looking really to meet the consensus and looking for some $0.29 to $0.30 a quarter on average.

I think it’s fair to say that we would expect the average in the second half to be high over in the second quarter, but we expect a good improvement in quarter two..

Okay. Thank you much..

Okay..

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

Good morning..

Hi Phil..

Hi Phil..

As far as the FX hit to the operating profit was that number over a $1 million year-on-year? I think you did a good job talking about what it was in the top line, but what was it in the bottom line?.

It was $1.1 million..

Okay.

Do those comparisons get easier as the year goes on or those comparisons get tougher in terms of the profit comparisons FX?.

It will get tougher to do with the exporting of goods which you make in the U.K. to Europe because the hedge is higher at the start of the year and lower at the end of the year. But as Brian just pointed out, helping it the other way is that Sterling does seem to be strengthening to the U.S. dollar.

So in this first quarter, Sterling was very weak to the U.S. quarter, I mean averaging $1.51 in some months, some areas below $1.50. So whereas if you assume the Euro, Sterling is $1.40 then that would get tougher for us as we go through the year because of the hedging. But you also got to look for the dynamic of the Dollar Sterling.

So I would expect it to get tougher, but at the same time as Brian has said, we would be putting cost savings through and expecting those to come through to help on the other side..

Yes the main exposures as Andy said is to our U.K. operations which make in Sterling, buy in Dollars and export in Euros. We buy very little in Euros. So we’re hedged about 60% this year, Andy..

Yes..

And only about 25% in 2016 at the moment..

Right, yes..

So our task really is to make sure the time went 2016 that we covered that to the extent that we can in pricing and in the meantime had to cut cost where we can in the U.K. operations to hold margins, but it is quite significant hit but has been factored into the guidance..

Yes..

Okay.

And then on the alternative fuel side, fair to say that you lost maybe about a $1 million in the quarter given though year-on-year profit change that you talked about?.

Yes maybe a little bit more, it was a fairly small profit quarter one last year..

Okay. So you’ll be coming out of that as the year progresses. In terms of Elektron we should be expecting the chemical piece to pick up nicely as well as the aerospace on the magnesium front as….

Yes, we think aerospace should be back to normal quarter two onwards. The chemical we are certainly expecting to get good orders in quarter two which we hope they're already in the system really.

The quarter three which I mentioned earlier that could end up in quarter four but expiring quarter three, quarter four but certainly quarter two looks strong and the bounce in the Euro that's in quarter one. It’s just that, that business at the moment is driven by occasional quite large orders and it happens in 2014.

We did lot of orders in quarter one and this year we're certainly going to get some in quarter two and we expect orders in quarter three and four..

Okay. Terrific, thanks so much..

Okay..

[Operator Instructions] Your next question comes from the line of [Ron] [ph] of Credit Suisse..

Good morning, guys..

Good morning..

Hi..

Just want to touch on European demand weak in Q1, just wondering currently, current trends kind of showing the same thing as Q1 or are you seeing any pick-up in any particular areas there just any color on that would be helpful, thanks..

Our European market has been pretty flat for quite some time. There is some commentary in the local press I got the Eurozone as starting to show signs of activity, but really from our perspective, we’re not seeing that at the moment. It’s still pretty flat. I would say it’s relatively stable and flat but not we’ve seen much signs of an upturn..

Okay.

And then just one more, just on the rationalization efforts, have you guys ever quantified the benefits that will come from that and just the timing on when you guys could see those possible benefits?.

Well the rough indication Andy gave on the way through was that basically on the cash cost, we expect that to pay back in a little over a year, approximately 15 months. So if we're paying $3 million in cash expenses, we would expect to generate getting towards $3 million per annum of savings, once those are fully implemented.

So we do get some of that payback right away because of the expenditure made in quarter one and the planned reduction in the workforce in Germany will be progressive, but some of it will expand going the way through to the end of the year.

So the full benefit will be achieved until we enter 2016, but we should get some benefit -- we certainly get benefit in North America Q2 onwards and we should progress the benefit in Euro, but with the big benefit coming when we actually manage to shut internal manufacturing facility at the end of the year and moving to 2016.

We could in theory do it a little faster but it does take time to transfer approvals or get new approvals for customer designs and for the regulatory designs and wanted to that we don’t lose the market and lose customers just by doing the fractionalization is not the intention to withdraw from the market.

We want to retain as much as we can in the customer base and so we’re taking our time to make sure we do it properly and don’t disrupt the customers..

Okay. Thanks for the color..

Okay..

Thank you. I’ll now turn the call to Brian Purves for any other additional or closing remarks..

Is it worth just seeing if there is any other questions?.

[Operator Instructions] I’m showing no further questions at this time..

Okay. Well thank you, ladies and gentlemen and we look forward to talking to you to sometime in early August on the quarter two results..

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 Group’s website at www.luxfer.com. Thank you. You may now disconnect your lines and have a wonderful day..