Dan Stracner - IR Alok Maskara - CEO Steve Webster - Interim Finance Director.

Phil Gibbs - KeyBanc Capital Markets.

Good morning. My name is Christy, and I will be your conference operator today. Welcome to the Luxfer Third Quarter 2017 Conference Call. All lines have been place on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

I'd now like to turn the conference over to Dan Stracner from Luxfer Investor Relations. Dan, please go ahead..

Thanks, Christy, and welcome everyone to Luxfer's third quarter conference call. With me today is Alok Maskara, our Chief Executive Officer; and Steve Webster our interim Finance Director. First, Alok will provide an overview of the quarter, followed by Steve's review of the quarterly financial performance.

Alok will then return to summarize and offer an outlook. Today's webcast is accompanied by a slide presentation, which can be found in the Investors section of Luxfer's Web site. We will refer to these slides throughout our prepared remarks. Any references to non-GAAP financials are reconciled in the appendix of the presentation.

Before we begin, please let me remind you that any forward-looking statements made about the company's anticipated financial results are subject to future risks and uncertainties. Please refer to Slide 2 of today's presentation for further details. After our prepared remarks, we’ve reserved time for questions and answers.

I will now turn the call over to Alok Maskara. Alok, please go ahead..

Thank you, Dan. Good morning, ladies and gentlemen and welcome to the Luxfer conference call for the third quarter of 2017. Please turn to Slide 3 for the summary. For the third quarter ending on September 30th, our adjusted fully diluted EPS of $0.28 is $0.09 ahead of last year.

The Elektron Division has improved significantly year-over-year, driven by strong sales of our defense and disaster relief products and also growth in our SoluMag products.

We still expect our Q4 performance to be in line with previous expectations, because Q3 performance was better than expected, we’re comfortably maintaining our previous 2017 guidance of at least 10% year-over-year improvement in our annual EPS and EBITDA. Andy Beaden, our Group Finance Director, left Luxfer on October 1st.

We have started our search for his replacement and will provide an update over the coming months when a replacement is appointed. Now please turn to Slide 4 for an overview of the Group's financial performance.

Total revenue for the quarter was $115.2 million, which is 16% higher compared to $98.9 million in the third quarter of the previous year and 8% higher compared to $106.6 million in the second quarter of this year. The FX impact on Group's revenue in the third quarter was a positive $2.6 million.

Trading profit for the third quarter was $11.3 million compared to $7.3 million in the third quarter of the previous year. We did benefit from exchange rates over last year, as unfavorable currency hedges continued to wind down.

However, we still have productivity challenges at a couple of our sites and we’re in the process of resolving these challenges through well established lean manufacturing principles. Now please turn to Slide 5 for an overview of Gas Cylinders performance.

Cylinders revenue for the third quarter of 2017, was $0.5 million higher than most -- than last year, driven by a positive FX impact of $0.6 million, but was offset by a volume decline of $0.1 million.

Shipments of SCBA cylinders in North America were lower than last year as customers are experiencing a lower level of demand, mostly due to industry cyclicality. Alternative fuel sales were also weaker in the quarter, as we had lost a major customer in late 2016. The loss of this customer will not impact our year-over-year comparison starting 2018.

On the positive side, there has been continued growth in European medical sales, with sales of our advanced composite cylinders being higher this quarter than in the third quarter of the previous year. Superform revenue was higher in the quarter, as new automotive programs began.

However, profitability fell due to productivity issues during the quarter with the new program startups. Now please turn to Slide 6 for an overview of the Elektron Division's performance.

Elektron's reported third quarter revenue of $60.2 million was significantly higher than the previous year as we saw large growth in volumes and also benefited from FX. SoluMag sales continued to grow and exceed our expectation. Aerospace and defense orders were stronger in the quarter, with large orders for aircraft decoy flares.

Chemical catalysis [ph] sales were also higher because a large shipment fell into Q3, 2017 compared to Q2 in 2016.

After a shortage of orders in the second half of the previous year, Flameless Ration Heaters for Meals, Ready-to-Eat, had a very strong quarter, partly because of hurricanes in the United States and the Caribbean and also because of growth in defense orders. Now please turn to Slide 7.

As per our press release and 6-K filed yesterday, we’re pleased to announce that we’re moving away from our current ADR structure, and we will transfer our ADSs into ordinary shares. This will be a one-for-one exchange, with 1 ADS equaling 1 ordinary share.

The change will allow shareholders to directly own and trade ordinary shares on the New York Stock Exchange. Furthermore, this is a key step in our stock being eligible to join certain indices, such as Russell 2000 Index.

Please keep in mind conversion to an ordinary share does not guarantee future inclusion in the Russell 2000 index or any such indices. Another benefit is that shareholders won't have to pay for quarterly ADR fees. The effective date of this exchange is currently set for December 11, 2017.

This change is an important first step towards simplifying our corporate structure. You can find more details of this exchange on our Web site. Now, Steve Webster, our interim Finance Director will take you through more details on the Q3 financial results. Steve, go ahead..

Thank you, Alok, and welcome, everyone to the call. Please turn to Slide 8 for a summary of key income statement metrics. For Q3 2017, our revenues and trading profits have both grown compared to Q3 of the previous year. Adjusted EBITDA of $16.7 million is above the run rate that we need to hit our full-year guidance and is 39% ahead of the prior year.

There were a number of exceptional items in the quarter. We have incurred restructuring costs within both divisions and we continue to incur expenses related to the ongoing patent infringement litigation against the competitor. These exceptional charges totaled $2 million.

We continue to execute on additional actions to increase growth and productivity within the group and we'll provide additional guidance on our restructuring program in Q1 of 2018. Net income for this quarter was a net profit of $4.7 million compared to $3.3 million for Q3 of the previous year.

Adjusted for exceptional items and excluding the IAS 19 pension finance cost, this quarter has an underlying net profit of $7.5 million compared to $5 million for Q3 last year. Adjusted diluted EPS was therefore $0.28 for the quarter compared to $0.19 for Q3 of the previous year, providing dividend cover for greater than 2x for the quarter.

Please turn to Slide 9 for our key balance sheet and cash flow metrics. Net debt was $101.4 million, a $3.8 million reduction over the Q3 2016 position of $105.2 million and a $6 million reduction over 2016 year-end position.

Our trading working capital balance has increased to $104.8 million, higher than both Q3 and the year-end position of the previous year. Our adjusted return on invested capital was back into double digits at 12%, which is a 400 basis points increase over year-end 2016.

Thanks in part to tight control on capital expenditures, we had a strong second quarter on cash with operating cash flow of positive $9.6 million versus $7.2 million for Q3 of the previous year. Net cash flow before financing was a positive $6.8 million, significantly higher than the $1.6 million in Q3 last year.

Detailed slides on the balance sheet and cash flow can be found in the appendices. Thank you. And I will now hand the conference back to Alok..

Thank you, Steve. Now please turn to Slide 10 for a summary. The quarter-on-quarter financial performance of the group has improved significantly with Elektron achieving their strongest results in more than 2 years. Higher sales in defense and disaster relief products helped us achieve a better than expected EPS.

Our expectations for Q4 2017 has not changed. Therefore, we’re comfortably maintaining our prior guidance of at least 10% increase in EBITDA and EPS for 2017. Thank you. And we will now take questions..

Thank you. [Operator Instructions] Thank you for cooperation. And your first question comes from Phil Gibbs with KeyBanc..

Hi, good morning..

Good morning, Phil..

Just I have a question to start here with some of the issues that you are having in your facilities. I don’t know if you specified whether that was Elektron or cylinders, but I know cylinders had some productivity called inhibitors in the quarter from the ramp in some of the Superform business.

Can you talk about some of the magnitude of those headwinds in the quarter? And then, how you are seeing maybe those alleviate or not moving forward in the near-term?.

Sure. Thanks, Phil. I would say there were two sites that we had significant productivity challenges. One was in the cylinder segment and one was in the Elektron segment. The good news is both of those are immensely fixable. And as we look forward, we look at using lean methodology and putting most of those things behind us before the end of the year.

So we expect to start seeing positive momentum. In our cylinders, margin would not have gone down if it didn’t have those productivity challenges this quarter, just as to give you an example of the magnitude that we are facing. So we look at the things that are within our control and things that we need to execute better on both of those sides.

And I feel good about the plan we’ve put in place to address those productivity challenges..

Is the cylinder side more so the Superform?.

Yes. And it's related to new products. We introduced a new alloy and some new parts for our high-end automotive customers, and we could have done a better job getting to the right productivity in the right cycle times there. But, again, it's all within our control and something that we’re confident, we will be able to address in the near-term..

Speaking of new products, if I could ask a second here on SoluMag, you mentioned that you had some good top line momentum in that product year-on-year. And I know you initially started in oil and gas.

Is there some other areas where you are seeing growth and any sort of size or magnitude you can discuss in terms of how much that business grew relative to last year?.

Right now we are still very focused on oil and gas and the growth that we are getting, a small bit of it can be explained by fracking investments coming back. But a large portion is just gain in market share because our technology is better than what customers are using today.

So it's definitely new products and definitely driven by technology that doesn’t exist or didn’t exist in that area before. We still see upside in the future by using that technology in other verticals and other markets, but today it's all oil and gas.

And to give you approximation, like, more revenues essentially doubled this year than where we would have been in last year on that product line. So it's definitely good growth for us and we continue to see positive momentum there..

The revenues last were somewhere around $3 million to $5 million or so?.

I think that’s a good range, yes, Phil..

Okay. And then, my last one just a question of housekeeping on the tax rate.

I know it's been bouncing around here a little bit, what should we be expecting moving forward?.

The reason the tax rates bounce around quite a bit is obviously because we’ve made more money in U.S. than in U.K. In U.K., we’ve more favorable tax treatment and we’ve some accumulated losses. In Q3, I would say, our taxes on net adjusted income was roughly about 27%, so a few points higher than last year. I'd expect the same for Q4 as well.

Now going into next year, just like everybody else, we’re optimistic that the U.S. tax rates are going to change, but clearly that’s something that’s beyond our control. But otherwise, I would expect the tax rate to probably remain at a little higher level compared to last year and consistent with the current Q3 number..

Okay, perfect. Thanks so much..

Thanks, Phil..

[Operator Instructions].

Since there are no more questions, operator, I think we can close the call..

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 Web site at www.luxfer.com. Thank you for joining us today. This ends the Luxfer conference call. You may now disconnect..