Brian Purves - CEO Andy Beaden - Group Finance Director.

Lee Sandquist - Credit Suisse Phil Gibbs - KeyBanc Capital Management Jonathan Sacks - Stonehill Capital Garo Norian - Palisade Capital.

Welcome to the Luxfer Group’s First Quarter Conference Call. We will first hear from Luxfer Chief Executive, Brian Purves, who will provide an overview, 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’ve heard the answer we will give you the opportunity for a follow-up question. If you’d like to ask additional questions, our operator will be glad to place you back in line. Thank you for your cooperation.

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 the first quarter of 2016. My apologies for the state of my voice, I have managed to come down with a cold just in time for the start of the English summer. My commiseration to the individuals tasked with transcribing this call.

Anyway, moving on to slide 4, as previously forecast we delivered improved profitability in the first quarter and have reiterated our outlook for a 5% to 10% improvement in trading profit over the year. Adjusted fully diluted EPS of $0.30 was $0.05 above quarter one last year.

Q1 revenue remained compressed but the mix of sales were stronger due to progress with several new product initiatives, partially offsetting some continuing weak end markets. Slide 5, encouragingly the important North American SCBA sector remains strong and growing.

Our rationalized alternative fuel business was profitable in the quarter with overall trading profit for gas cylinders doubling compared to prior year. Our zirconium catalyst business generated strong sales of industrial catalysts offsetting the continued weak demand from the automotive sector.

We achieved additional sales of our new SoluMag product for the oil and gas industry helping to offset the continuing lower demand for aerospace alloys from helicopter manufacturers and compressed military spending. The situation for these weaker end markets does appear to have bottomed out presumably as stocks have got back into balance.

Half of the revenue reduction year-over-year came from reduced activity in lower margin areas, magnesium recycling and commercial alloys. So the stronger mix of sales resulted in an improved operating margin.

Looking at the revenue slides and cylinders first after adjusting for exchange rate movements, the cylinder business revenues in quarter one are up 3% on prior year. Unlike recent quarters, sales of our alternative fuel cylinders and systems are now up on prior year.

Sales of our aluminum cylinders are downhill with our European markets for these cylinders remaining weak. Also lower press at our Graham plant in North Carolina is now performing better. We are still suffering some after effects in the marketplace from supply difficulties that we had last year.

Aluminum cylinder tend on average to be lower margin than composite and overhead costs are being reduced, so the average division operating margin improved. Superform’s revenue were also a little lower than the prior year but this is mainly due to the timing of vehicle projects with some existing ones finishing a little earlier than budgeted.

Turning to Elektron, I'm stripping out last year's remaining surcharge and also exchange rate movements, underlying sales are down in the quarter by nearly 14% from prior year. The large single reduction is from the relatively low margin Czech recycling operation and as little impact on profitability.

The other issues are low sales of automotive catalyst material and the continuing lower demand from helicopter makers and the defense customers generally. These areas are not getting any worse than in the latter part of 2015 they just continue to be lower than historically.

These shortfalls were partly offset by strong sales of industrial catalyst material and further sales of our new SoluMag alloy for the oil and gas industry introduced at the end of quarter three last year. We have sold over $2 million worth of this new alloy since launching it.

On other items, the now redundant Redditch site which was once home to BA Tubes Limited which we discovered in 2000 have been contaminated and has since been a perennial item on our listed environment issues.

After extending negotiations, we sold the property in quarter one to a specialist buyer who will remediate the land and sell it on for development. The consideration of $3 million while received is approximately $2 million over book value and we recorded that profit in quarter one.

Slide 9, we were back in the market at the start of January and spent $6 million buying in lots of our shares in the following eight weeks. Our last purchase was in the 2nd of March and the average purchase price was $10.14.

It appears likely that the downstream elements of Molycorp [indiscernible] Chapter 11 soon under the ownership of Oaktree Capital. The process of pursuing Molycorp’s European and Chinese subsidiaries over infringement of our G4 process patent continues.

Unfortunately, the court process may take some time, so we will only report on developments in future reports. Solvay, the Belgian French chemical company issued a press release last month stating that they had won two patent cases against Molycorp in Germany over infringement of certain of Solvay’s compositional patents in the same automotive area.

We've included slide 10 because we wanted to be able to report that the restructuring of our alternative fuel business has been successful. The operating losses have been eliminated and the alternative fuel business has own new customers over the last 12 months and is now profitable.

The closed German site was returned to the landlord before the end of the quarter. Slide 11 and updating on strategic growth projects. I attended the Hamburg Aircraft Interiors Expo last month and we had a very busy stand. The prototype aircraft seat displayed on our stand recently passed the FAA mandated 16G crash test.

Another important milestone on the path of persuading the seat manufacturers to adopt our alloys were structural components. Most of our effort is now directed towards expanding our capabilities to provide the alloy in whichever form the industry needs to make switch into our material both easy and cost effective.

We were delighted to be able during the quarter to name our biotechnology partner for the first time. The German headquartered BIOTRONIK is one of the world's leading manufacturers of cardio and endovascular implants. We’re hopeful that they will announce soon a date for the launch of their magnesium scaffold product based on our SynerMag alloy.

Modifications to our innovative medical oxygen delivery system now branded IOS have been completed and the devices again undergoing testing for CE marking. We anticipate IOS which is designed for frail category home oxygen therapy patients be on sale later this year.

In this area, we have reviewed our new portable oxygen concentrator to our European customers and have been encouraged by the positive response. We officially launched our second-generation or Gen 2 Type 4 cylinders at the ACT Conference at Long Beach on 2nd of May.

The new design has a unique interface between the liner and the boss and is much lighter than even our own previous range. We have shipped over $1 million of the new product already.

We remain committed to the long-term future of CNG as a viable alternative to traditional oil-based fuels and have chosen to continue developing our product advantage during the current pause in oil prices.

The recent rise in the price of oil well not yet large enough to material affect the economics of light weighting and alternative fuels is useful to remind customers that oil will not always be cheap.

And the US government is doing its bit by retrospectively reinstating a credit of $0.50 per diesel gallon equivalent on the use of CNG as opposed to diesel. Andy Beaden will now take you through some of the details in the quarter one results..

$3 million through the sale of the Redditch property; $1.1 million through our US Luxfer GTM JV repaying part of its funding as well as interest on the back of improved trading. CapEx spend was $3.4 million, leading to net cash inflow before financing of $3.7 million, much closer to the $5.1 million generated in Q1 2015.

In the quarter, we increased the dividend by 25% to $3.4 million a quarter and reported had Luxfer shares of $6 million. Interest payments were $1.5 million, down $0.2 million from Q1 2015 with various treasury funding movements, cash and cash equivalents rose by $12.3 million. Thank you. I will now hand you back to Brian..

Thank you, Andy. Summarizing quarter one then, the profitability of our cylinder business has markedly improved underpinned by growth in North American SCBA market or our completed rationalization program and new business won in the remaining AF market.

The Elektron division is seeing increased sales of new products, but still has a few key sectors running below par, with sales of aerospace alloys down for the reasons given earlier and our auto cat sales remaining down. While those sectors remain weak, they do at least appear to have stabilized.

Although our sales revenue was down in the quarter, the sales mix was stronger and costs have been reduced, so operating margin is higher and absolute profitability has improved by 12% the operating profit level. Our adjusted Q1 EPS was well above consensus and our cash performance remains positive.

Turning to slide 21 on the outlook, we are reaffirming our previous outlook for 5% to 10% improvement over 2015. Underpinning that improvement, we do expect most divisions to be better than prior year.

We expect Q2 adjusted profitability to be similar to prior year, that quarter being our best during 2015, then returning to improvements over prior year during the second half of 2016.

We feel that those sectors affected by the low oil price and defense cuts are unlikely to see improvement this year, but overall the trend is now in the right direction. Although not likely to make much impact on the 2016 financials, we are very excited about the new products that are being launched this year.

Finally, it is a relief to be out of the losses in our alternative fuel business and we do expect the right-sized operation to remain profitable. Thank you. And we will now take questions for around about 25 minutes or as long as my voice lasts, whichever is the earlier. Thank you..

[Operator Instructions] Your first question comes from the line of Julian Mitchell of Credit Suisse..

Good morning. This is Lee Sandquist on for Julian Mitchell.

You mentioned weakness in the UK, from your observations, is this related to the upcoming referendum? And the also, is this weakness expected to continue throughout the remainder of the year?.

I don’t think it’s particularly related to the referendum, no. There is some talk in the press about the uncertainty causing people the whole backlog investment, but most of the material that we are selling is not into the capital investment market.

No, it’s just that in particular, one large customer in the UK takes automotive catalysis material from us and their demand is well down. So it is one of the markets that we do expect to remain down for the balance of the year, but not really anything to do with the Brexit.

On that, we do feel that it’s very likely that vote will be to remain in the EU and the opinion of the [indiscernible] seems to be swinging in that direction. There has been a great deal of political influence brought to bear. Just overnight, we had five previous heads of NATO saying how bad it would be.

I think with all these big guns being brought to bear, it is pretty unlikely I think the public will vote to leave. If they should, then we will cope with that and we would not think that overtime that will be a major problem for us, but I don’t think the issues that we are seeing at the moment have to do with that..

Understood. I know it’s probably hard to forecast.

But could you also provide an updated timeline for the Molycorp litigation?.

Well, we are just working through that at the moment, but it’s certainly not going to I think - if we have to go through that whole thought process, I think we are looking at well into 2017, before we get resolution. To some extent, we are having to consider whether to brush the hand with the Chinese subsidiary, we do want to.

But the Chinese process in particular is very, very long-winded. But core processes are being what they are, I think it would take well into 2017 before we put any resolution out of the court.

However, we do feel it’s necessary to take any action it has in our opinion, lost us a lot of business within us as we now have and so it’s important that we do our best to make it plain to everyone why that is, including our customers and we can afford to try and stop them from doing it.

Having said that, as mentioned on previous calls, our main effort to recover share in this area is through product development and attempting to get to the market. Our next generational product which will be a step change improvement on that that’s currently available. That will be protected by intellectual property again.

What we were doing at this time in a way which is easier to defend on behalf of the G4 process patent wars..

Understood. Thank you..

Thank you..

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

Hi, Phil..

Hey, good afternoon to you guys. I had a question on what you had mentioned earlier.

It sounds like one of your competitors was actually successful in their patent infringement case where they are also going against the Chinese today within the court process a lot sooner than you? Why have they received some relief here in the last couple months and can you elaborate matters as much as you can?.

Yes, all I can do really is report on the press release that they pushed out into the market. The parent company is called Solvay, but part of that business is Rhodia which has been a long term competitor of ours in the automotive catalysis area and they have a number of patented seat cover, the composition of materials in this area.

Of course the compositional patent is much easier to protect than a process patent is, because if you get a hold of competing product you can analyze it using a spectrometer and if the mix products is as your patent that’s pretty plain.

With a process patent like ours you have to be able to prove that they cannot make the product by any another process and deliver the product benefits that they have.

And that’s been a long winded and expensive process for us to go through to exhaust every possible way of making the product and demonstrate that you cannot get to the properties that are out in the market unless you use our patented process.

So Solvay Rhodia did get Molycorp into court a lot earlier than we did and they have been asked I think for at least years. The press release only the first to - the UK importer of products not to the Chinese plant, so I don’t think the Chinese plant was in fact cited in that case.

I can only guess as to why that is, but certainly we are having extreme difficulty in getting the action launched in the Chinese courts. That press release was dated the 13th of April and sure it’s out on the Internet..

Okay, I appreciate that.

And within your trading profit guidance this year of 5% to 10%, what do you have embedded in that for the automotives zirconium business?.

I think overall the zirconium business will be reasonably stable year-on-year. The automotive business we are assuming will continue to be down, but the industrial catalysis business that we have won is sufficient to allow it to more or less offset the depressed automotive side.

The only thing I would say is that the industrial side alone with a higher volume it is a bit more stable quarter-on-quarter than it used to be. It is still a bit more changeable quarter-over-quarter than the underlying automotive demand was.

So maybe the quarter-by-quarter you see a greater degree of variability, but over the year we think the zirconium business can be pretty stable with a different mix of product..

And that kind of leads into my next question. In terms of Elektron how should we think about the mix for the balance of the year, the mix sort of the other margins at this point because they are stuffed up pretty nicely quarter-on-quarter and year-on-year.

So should we be thinking that that margin is sustainable or was it a little bit of extraordinary because of the industrial heaviness in Q1?.

I think that to some extent it’s dependent on what happens in the Czech operation.

At the moment I can’t see any good reason why the revenues in the Czech operation should increase in the second half of the year because the price differential between US magnesium and Chinese magnesium is really extraordinarily highly at the moment, and so an encouragement to people to think about exporting scrap into the US, rather than recycling it in Europe the main reason why the revenues in that operation are down.

So if we see that revenues remain down the probability is that we will continue to see a higher margin year-on-year that won’t necessarily be as much up as in quarter one, but I do think it should show an improvement over the year, yes..

And then lastly, the comment about taking some actions to reduce the inventory in the magnesium business, you feel that you are little heavy there. Can you expand on that and maybe talk about where that would be.

Is that in the suns piece is that in the aerospace piece and whether or not you can manage that down without meaningfully impacting the absorption of the business? Thanks..

Hi, Phil, this is Andy. The main elements of the higher inventory are actually in the raw material side where we buy in material in bulk.

And it’s mainly in the US and mainly in areas that are actually not defense related than for automotive related so that more general areas of engineering and photo engraving and we don’t expect that to have a big impact therefore on absorption profitability going forward.

So there is probably $3 million to $5 million over, I would say, the next 12 months period which potentially we could get out of the system..

Thank you..

Your next question comes from the line of Jonathan Sacks of Stonehill Capital..

Hi, congratulations on the nice quarter..

Thank you..

First question, can you just talk a little bit about the industrial catalysis? I know in the past you talked about some very large orders that would be sort of spec-ed into new processes or factories that would have a very long tail, it sounds like the orders you are getting now are not bad, but maybe you could give us a little more color on the nature of the orders that you are receiving now and what end market do you think they are going into?.

Well, the industrial catalyst materials that we offer are for a range of different applications. Some of them are for emission control, so we do [indiscernible] job to the automotive catalysis side but on an industrial scale and almost our process catalysts or at least the base for the process catalysts.

The higher volume contract that we signed up to recently is for a product which is used in isomerization, so it’s in the cracking of oil products and improving the efficiency of the mix of the output into various fuels, so it’s being applied to the best of our knowledge to existing facilities as they change their technology, running change of technology the advantage of which of course is that you get into the plants more quickly.

Some of the longer term projects where we hope to spec-ed into new build obviously on the petrochemical side a lot of those projects that we put on ice of the moment, but they are still out there and the big increase that we’ve seen is basically with one customer out of the six or seven that we regularly deal with.

So I don’t - I think there is every - there is no reason why we shouldn’t be able to get several of the others up to a much higher level as well and that’s why it’s a very exciting market for us.

But right at the moment, the one product that we’ve been selling on a much bigger scale as far as we know has been for isomerization on building into existing petrochemical operations..

And what general geography is that?.

Well, we are selling it in North America, but the company that we are selling into is a global business, so they could be exporting it elsewhere, but as far as we know it’s mainly US..

Okay, great. Thank you. And on the magnesium seats, I think you mentioned that there was yet another approval, this one may be a crash test as opposed to a fire test.

Can you maybe elaborate on that a little bit and also discuss what further steps need to happen, if any, before there is a wider adoption, are there additional tests or certifications required or maybe different way of asking the question is, why haven’t the customers already started adopting it? Is it waiting for next cycle of rebuilds or do they have other approvals they need on their side or is the lower oil price today making the premium paid for the material not as cost effective..

Well, to take your last point first, there is no doubt that low oil price is unhelpful at the moment, because the payback from weight saving for the airlines is lower than it was, the fuel builds are much lower than they were and as of yet the airline industry doesn’t have the same emission controls that the automotive industry.

So while they obviously do have environmental concerns, they don’t have their legislative requirement to deliver reduced emission. That is coming, but it is still probably five or six years away and so it’s not a major factor at the moment. All that we can do is keep knocking down any potential barriers.

An aircraft seat once it’s designed and is available to be sold to the airlines has to pass a number of tests and that includes a 16G forward crash test. I think a 3.5G side impact test and various others.

The 16G front test is pretty standard across the range, but some of the specifications that have to be met are specific to aircraft types, so on Airbus 200 series for example. And those would be done by the seat manufacturers as and when they are introducing a new line of seats.

We’ve developed prototype seat in conjunction with Geven, smaller Italian based manufacturer, that’s the one that we had on our stand. We wanted to be able to demonstrate to the industry that our alloys built into that structural part of that seat could pass the 16G test, and which it did, it just takes away another potential question mark.

The 16G test is something that we think is good news for us because it really does mean that the industry needs a strong metallic component for the structure of the seat. It’s not something that a composite material would readily adapt to. As to why we don't yet buy-to-fly, I'm not sure. We have a very great deal of interest.

We've been selling a lot of project material, virtually all of the seat manufacturers have been discussing potential designs of components with us and we remain very confident that we will get parts flying in the not too distant future.

And in order to make sure the economic situation is as good as it possibly can be, we are concentrating on components where we can supply it as new as possible in the finished form. So for example, if you think about the main cross member in a row of three economy class seats, that is more or less a straightforward circular extrusion.

There is very little finishing work for us to be done to it. So the buy-to-fly ratio is very high. And it’s probably an easier sell than a component where they have to hog out 85% of the material from plate in order to get something that they can use. So we remain confident, but the lead times in this industry are long.

The chances are that a seat manufacturer will not introduce a material as a running change into an existing design. What they do is, they’ll be bringing out new designs of seats, which we would anticipate, as has previously been the case, every new design that they bring out aren’t to comfort and also it’s lighter.

And our material would then be built into that next-generation lightweight seat for the manufacturers. And as far as we know, that is what's going on. But obviously we’re not in control of the timing..

Okay, great. Thank you. And last questions, I know that there were some significant changes to the board or significant changes, which are coming.

Can you just discuss those a little bit and the timing and maybe any reactions you heard from other shareholders?.

Sure. Yes, well, you are referring to the AGM paperwork, which is out there. And that talk is a bit about this. I mean, certainly, corporate governance guidelines these days are looking over harder at board’s section. And with hindsight, we recognized this board that we’d been a bit slow, bringing on new non-executive blood to the board table.

So, Peter Haslehurst, who has been on the board for 13 years and Chairman for 10 is standing down in the forthcoming AGM. One further current NED has agreed to retire over the course of this coming year. And we intend to appoint three new non-executive directors, two of whom we’ve already identified and discussed with several shareholders.

We’ll end up with a board of seven, we currently have a board of six. So the board of seven will be five non-executive directors, two executive directors and the split alternatively, there will be three US citizens and for non-US citizens in order to avoid giving us a problem with our foreign issuer status.

And that I think will result in a reduction in the average age in the board room table by some measure, and hopefully will bring new ideas on challenges from the point of view of the executive management team.

And thank you for asking the question, because it does give me the chance to say a public thank you, in particular to Peter for all of his help and guidance over the last 10 years, particularly when he has been Chairman.

And to mention in respect to all of his long service to the company, the board offered to him an honorary position of President Americas, which he was very pleased to accept.

So we do a number of changes coming at the main board table, but I don't envisage that the strategy of the group will change in any dramatic way, but I'm sure that the characters that come onto the board will have their own thoughts and ideas and bring fresh challenges with them..

Thank you very much. And just I guess one last word from us. We certainly thank the existing board also for all the years of service. We support the changes that are being made and I also want to complement the company on the timing of its stock buyback, which looks very well timed. Thank you..

[Operator Instructions] Your next question comes from the line of Garo Norian of Palisade Capital..

You referenced certainly in the script and in the slides here the product launches that are kind of coming this year and not really hitting the financial benefits until ‘17 and I was curious if you could run through just ballpark impacts that you think from, let’s call, all the growth opportunities that are likely to accelerate as we go through ‘17?.

Okay. Well, just thinking about the various ones, they are at various stages. I mean the SoluMag product is now launched and in the market, but it is still in the launch phase in the sense that we’re still looking to win new customers for it. So I said that we’d sold $2 million worth of material really in the six months since we launched it.

And I think I’ve said previously that we would hope to be able to get that up to, in total, 4 million or 5 million in calendar year 2016. So that will make a financial contribution in the current year.

The Synermag alloy and the stent into which it's being built, we do whereby hopeful that our partner will announce the launch of that product in the not too distant future. But again, it's going to have a controlled market.

And as far as we are aware, there is a good deal of trading in the use of the product that goes in before commercial sales really start to take off.

So even with the launch in the course of the next few months, I think the revenue stream from that is much more likely between ‘17 impact, 2016 one, particularly as the majority of the benefit to us is as a royalty of our client - of our customer’s sales. The actual material that we sell is in very small quantities. So that's very much a 2017 benefit.

The GEN 2 Type 4 cylinders are really intended in the main to migrate our existing product into these new cylinders.

So they’re not necessarily incremental sales and that they will substitute for the GEN 1 product, but they are a better product and that will better protect our market share in what is still a highly competitive market, the alternative fuel market and hopefully enable us to win a few more customers, a bit more business to start to rebuild that business, even though the overall market is relatively depressed.

So we do expect to sell several million dollars, worth of those cylinders this year, but you take my point, there is not really incremental sales. The medical oxygen device, AOS device, it's still in the testing phase.

We do expect to be able to launch it into the market and to make our first commercial sales this year, but the financial impact will be small. I think the substantial - less than $1million worth of sales in the current year. So that's really in 2017 and onwards.

The portable oxygen concentrator, which we talked about last time around, we’ve really just been revealing that to the potential customer body and we hope to be able to start selling that alongside our oxygen cylinders within the next couple of months.

So that will be an incremental product we believe and we hope it will start to make a contribution in the second half of the year, but again, I think it's going to be low single digits in terms of the millions of revenue, as we build our product up and develop in the marketplace..

Great.

I mean is there a way of ballpark in the combined volumes in 2017?.

I wouldn't want to do it rough off the top of my head. I will try and give certainly a bit more guidance on that next time around if you like. I mean all of these are substantial product streams we believe.

The portable oxygen concentrators are the one that we’re probably the least sure about, because it’s a brand-new product for us and a new area for us. We're very familiar with medical oxygen, but it's usually the containment of the gas rather than the concentration of the gas.

But the other ones, SoluMag with the main customer being the oil and gas industry, even in a depressed condition, we think that could be tens of millions of dollars’ worth of revenue once it gets to maturity.

The Synermag stent is one of the projects that we’ve been working on since before the IPO and we said would be, we thought, a very significant contributor. The GEN 2 products, we probably will be in the $5 million $10 million revenue range there, but it's not all incremental sales. It is mainly substitutional.

On the AOS product, it's a little early to say, but again it was one of the IPO projects that we felt could be a significant contributor. So, in aggregate, certainly into tens of millions of dollars of revenue that is, and will obviously be firmly up on that as we do our planning and budgeting for 2017 in the next few months..

Great. Thank you very much..

At this time, there are no further questions. I will now turn the call to Brian Purves for any additional or closing remarks..

Okay. Well, I thank you for your participation and I will give my voice a rest if you don't mind and call it quits on that. So thank you for your participation. We are very pleased to bring a decent set of results to you. We look forward to speaking to you again after the quarter 2 results in early August. Thank you..

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 website at www.luxfer.com. Thank you. This does conclude today's teleconference. You may now disconnect..