Alok Maskara - Chief Executive Officer Heather Harding - Chief Financial Officer Doug Fox - Director of Investor Relations.

Michael Leshock - KeyBanc Capital Sarkis Sherbetchyan - B. Riley Capital Christopher Hillary - Roubaix Capital.

Good morning. My name is Brandy and I will be your conference operator today. Welcome to Luxfer’s 2018, Second 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 Doug Fox, Luxfer’s Director of Investor Relations.

Doug, please go ahead..

Thank you Brandy and welcome to Luxfer’s 2018, Second Quarter Conference Call. With me today are Alok Maskara, our CEO; and Heather Harding, Luxfer’s CFO. First Alok will provide a brief overview, followed by Heather’s review of the second quarter’s financial performance. Alok will then return for some brief closing remarks.

Today’s webcast is accompanied by a slide presentation, which can be found in the Investors section of Luxfer’s website. 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 expected financial results are subject to future risks and uncertainties. Please refer to slide two of today’s presentation for further details. After our prepared remarks, we have reserved time for questions-and-answers.

Now let me turn the call over to Alok. Alok, please go ahead..

Thanks Doug. Good morning everyone. Thank you for joining us today. Please turn to slide three for the summary of our performance for the second quarter. Luxfer is pleased to report strong growth and improved profitability for the second quarter of 2018. Consolidated revenue increased 20% to $128.2 million on broad strength across the company.

Revenues for the Elektron Segment increased 34% to $67.8 million, while revenues for Gas Cylinder Segment increased 8% to $60.4 million. The higher volumes and positive impact of cost reduction resulted in gross margin expansion of 180 basis points to 26.5% from 24.7% in 2017.

Quarterly adjusted EBITDA was $21 million compared to last year’s $15 million, up 40%. Adjusted fully diluted earnings per share for the quarter increased 76% to $0.44 from $0.25 in 2017. Net cash before financing increased 7% as we deployed additional working capital to support our strong growth.

The results for the second quarter demonstrate the effectiveness of our focus on growth, productivity and simplification, while establishing a culture of always putting the customer first. For the full year 2018 our revised earning guidance range is now $1.35 to $1.45 per adjusted fully diluted share.

Our guidance incorporates usual seasonality in our business during the second half of the year, the lower disaster relief product sales, as well as planned higher expenses related to simplification and productivity projects. Now please turn to slide four.

Luxfer has now demonstrated four consecutive quarters of year-over-year double-digit revenue growth. While some of this was driven by higher disaster relief sales, a large part of this was also driven by a focus on new products and from our increased emphasis on commercial excellence.

The volume growth, along with the early impact from our lean productivity initiatives has delivered strong year-over-year growth in profits. As you can see, our solid execution on a well-defined strategy is yielding better-than-expected results.

Overall, I am pleased with this progress, and we will maintain the momentum of our transformation plan going forward. Now, let me turn the call over to Heather. Heather, please go ahead..

Thanks Alok, and good morning everyone. Now please turn to slide five for a summary of our consolidated quarterly performance. With sales growth across both segments and nearly all product lines, consolidated revenue for the second quarter was $128.2 million, an increase of 20% over the $106.6 million for the second quarter of 2017.

Higher volumes primarily drove the growth, accounting for $17.2 million of the year-over-year improvement. FX accounted for $1.9 million of the increase, and pricing primarily to recover material inflations accounted for $2.5 million of the revenue growth. Adjusted EBITDA of $21.3 million was up 40% from a year ago.

The improved volume and mix, better pricing and the impact of cost reductions more than offset higher raw material costs and wages, including the impact of increased incentive pay related to our favorable performance. Now please turn to slide six for an overview of the Elektron Segment performance.

For the Elektron Segment, revenue increased a very strong 34% to $67.8 million. Growth for this segment was broad based. In addition to continued strong shipments of disaster relief and zirconium products, we had very solid growth in our innovative magnesium-based SoluMag product for the oil and gas industry.

FX had less than $1 million positive impact on sales, and price contributed $1.6 million to our sales performance. Quarterly adjusted EBITDA for Elektron increased 64% for the quarter on improved operating leverage on the higher volume, pricing and cost reductions. These were partially offset by higher material costs and wages.

Now please turn to slide seven for an overview of the Gas Cylinder segment performance. Quarterly revenue for cylinders segment increased 8%. Volume, price and FX were all positive in the period relative to prior year. We had favorable demand for products across much of the segment.

During the quarter we maintained strong shipments of aluminum cylinders. We also saw growing demand for alternative fuel cylinders to support bus and vehicle fleet conversions. These conversions to CNG and compressed hydrogen occurred primarily in Europe, as municipalities act to reduce urban pollution, supporting a cleaner environment.

Cylinder shipments during the second quarter also included aluminum scuba cylinders that supported the successful rescue of the Wild Boars soccer team that was trapped in a cave in Thailand. Through Luxfer’s Thailand scuba distributor, we provided Luxfer scuba cylinders to the rescue teams.

Everyone at Luxfer is proud that our high-performance product played an important role in saving the lives of these 12 boys and their coach. Second quarter adjusted EBITDA for Gas Cylinders declined slightly from a year ago, from $5.2 million to $4.9 million.

For the quarter, price and volume had a positive $1.1 million impact, but they were offset by raw material inflation and higher wages. In addition, segment productivity was negatively impacted by Superform performance. As planned, we implemented pricing surcharges in Q2 to offset the increased costs of aluminum.

The surcharges ranging from 4% to 10% took effect on May 1 and has largely been accepted by our customers. Now please turn to slide eight, where we highlight our year-over-year balance sheet performance. From a year ago net debt decreased approximately $10 million to $93.8 million. Our net debt-to-adjusted EBITDA leverage improved to 1.3x.

Year-over-year working capital was up $2.4 million, representing a 2.4% increase used to support the 20% quarterly revenue growth. Our working capital as a percentage of annualized revenue improved to less than 20%.

In addition to these metrics, we are pleased that the pension deficit declined to $37.5 million at the end of the second quarter, compared with $55.3 million at the end of 2017 and $58 million at the end of the first quarter. This reduction was due to an increase in the discount rate and improvement in long-term inflation expectations.

Let me finish by summarizing. Luxfer finished the second quarter with a strong balance sheet and solid cash generation. Now, let me turn the call back over to Alok..

Thank you, Heather. Please turn to slide nine for an update on the five key elements of our ongoing transformation plan. The next milestone on our simplification journey is to discard our current foreign private issuer status.

We remain on track to make this conversion by January 1, 2019, which will include publishing our results in the 10-K and 10-Q format, consistent with the U.S. GAAP standard. We will also be publishing a proxy statement and become compliant with SEC Section 16 requirements.

As part of establishing a shareholder-focused, high-performance culture, the top 50 Luxfer leaders met recently and adopted our common values and solidified the action plan required to deliver on our 2020 goals. I was pleased with the level of energy and enthusiasm displayed by the Luxfer senior management team during this meeting.

Growth transformation is a long-term journey, and we are pleased with the early impact of more focused new product development and share recovery through the newly launched commercial excellence initiatives. Productivity efforts continue to be fueled by lean and facility consolidation.

Our previously announced consolidation of Riverhead, New York facility was completed in Q2 without any customer disruption. The consolidation of our Findlay, Ohio facility into Madison, Illinois remains on track to be completed before the end of this year.

In addition, our team has been finalizing global contracts with vendors to deliver savings in IT, travel, freight, insurance and other areas.

To simplify and streamline our business portfolio, the Luxfer board continues to evaluate divestitures and acquisitions options that are driven by a proactive list of opportunities created from a detailed strategic review. Now please turn to slide 10 for a summary and outlook. In summary, the Q2 results were better than expected.

We are benefiting from favorable end market conditions, combined with the early impact of our transformation plan focused on growth, productivity and simplification. We remain solidly on track to deliver net $20 million in annual cost savings by 2021.

For full year 2018, based on current results and second half expectations, we are increasing our EPS guidance to $1.35 to $1.45 per share on a fully adjusted diluted basis. The second half guidance incorporates our expectations of lower sales for disaster relief products and plan expenses for simplification and productivity initiatives.

Now please turn to slide 11 for a wrap-up. I believe the future for Luxfer and its shareholders is bright. We hold sustainable positions in attractive end markets. Our activities in building a high-performance culture and driving lean manufacturing are expanding our opportunities for growth, profit and return on capital.

Our balance sheet remains strong and we continue to generate strong cash flow. This gives us the flexibility to invest when necessary to support growth and to drive productivity. I would like to express my gratitude to all the Luxfer employees who have worked hard to deliver our improved performance.

Together by delivering innovative solutions to our customers and by using lean principles to drive productivity and growth, we will continue to generate differentiated returns for our shareholders. Thank you for listening. We will now take questions..

[Operator Instructions]. Your first question comes from the line of Michael Leshock of KeyBanc Capital..

Hi Michael..

Hey guys, good morning. Hey, growth in Elektron is obviously very strong.

I was just wondering if you could maybe parse out how much of the upside was due to SoluMag and how much was zirconium catalysts?.

You know both of those grew very solidly. We don’t really declare the individual product line growth. But needless to say, you know SoluMag sort of doubled in the quarter and the zirconium catalysts also had double-digit growth.

What we were most impressed was the growth came from across the entire portfolio and every product line delivered growth, but SoluMag was clearly one of the exceptions with really, really strong growth..

Okay, great. And then also the FDA recently approved the potassium reduction drug Lokelma, which appears it would use your zirconium oxide.

Is this true? And if so, is there any sense of the opportunity you have there?.

Yes, it is true. The FDA approval of Lokelma would, like you know require us to supply the products to AstraZeneca, so we are very excited about it. It’s a very good success for us.

The financial impact of that is likely to be more next year than this year, because there are still a few more processes and things that we need to cover and AstraZeneca needs to cover before it can be commercially sold, but we are very excited about it.

We believe our product has unique properties and that’s the reason AstraZeneca has chosen us to be their partner and we will be supplying zirconium to that..

Okay, great. And I guess just lastly, can you provide an update for us on the rationalization? Specifically you discussed some of the headwinds in the back half from non-qualified restructuring.

Can you provide us a magnitude of the transitionary cash costs that we should expect within your earnings guidance?.

You know overall for the three year program to get to $20 million in savings, our cash cost is going to be about $40 million, which we have previously talked about.

Given the strength of our current results, we are looking to pull a lot more of that in 2018, and that’s one reason our second half expenses, non-qualified restructuring expenses are going to be higher than we had previously indicated. But we believe that will allow us to get to savings sooner, so that’s a good thing for the shareholders and us.

I don’t have an exact number to share with you Michael, but needless to say, you know it’s still within the overall scope of $40 million that we have talked about..

Alright, great. Thank you guys..

Your next question comes from the line of Sarkis Sherbetchyan of B. Riley Capital..

Hi Sarkis..

Good morning Alok. Hi Heather.

How are you guys?.

Hi, good morning..

So first question here, you know it looks like for both, the Elektron and Gas Cylinders Divisions. You were able to take some price to offset some of the material and wage inflation. Can you maybe help us understand how much of a lag is there? I think Alok you mentioned the customers are not necessarily pushing back.

Just help us understand between the two divisions you know where you stand with regards to taking price..

Sure. So the customers you know, I mean they are pushing back, but no more than normal and given the general inflationary environment, they are clearly more receptive and doing their own price increases as well. Now to answer your question, you know on both segments we had probably about a 90 to 120 day lag.

You saw in Q1 our inflation was higher than pricing and we’re essentially caught up with a small delta right now in Q2, and starting Q3 and going forward we would expect us to be essentially on par, so we are able to offset any inflationary impact with that.

Now wage inflation for us also includes impact for higher incentive plans given like you know our performance, but putting it all together we do feel good about our pricing strategy and our pricing actions, which will overcome the inflation.

As you know aluminum is one of the biggest drivers and like you know if the pricing comes down on that, you know some of our surcharges will be rolled back as well to be fair to our customers. So we will continuously monitor it and like you know so far feel very good about what the team has been able to deliver..

That’s very helpful, thanks. And then I think, in your prepared comments you also mentioned some of the favorable end market conditions.

Can you maybe bifurcate what you’re seeing in your end markets served? Is it really kind of strength in some, you know maybe some weakness in others or is it just kind of a broad-based strength; if you can put some color there..

Sure. So if I think of our end markets in four broad buckets, we always talk about you know industrial being our largest; then we have transportation; then we have defense and first responders and small in medical. We’ll leave more in medical since that’s more of a share opportunity.

Industrial, the ISN hovers around 58; it’s really good, and that does impact a lot of our magnesium sales and other zirconium industrial catalysis sales, all of that does well, so that’s a favorable end market, so we clearly get benefits off that.

On the transportation side, you know both from a new aircraft and also from high-end automotive, those are being favorable to us. And the end of defense sequestration spending and the new environment where we are expected to see and are already seeing higher defense orders and spend, all U.S., this is all U.S., is really good.

So across our three main meaningful segments, we are experiencing improved conditions and we see no signs of that changing anytime soon, so we’re quite pleased with that..

Great, and one final one from me. You know it seems like you highlighted some productivity impacts from Superform inside the Gas Cylinders performance slide. You know maybe can you help us understand if these scrap rates are improving there? I think you were kind of optimistic on turning that piece of business around.

Can you give some updates on what actions are underway there?.

Sure, yes. I mean we see early signs. Our scrap rate has improved. We have been able to use new technology to unyield the material and are working on productivity with our actual forming process. There’s a lot more lean focus.

I was in the factory just less than a month ago; I guess just two weeks ago and was pleased with all the progress we are making on lean initiatives there, so there is good progress. Now from a year-over-year perspective, Q2 was still a bit upside down in productivity.

That’s pretty much what drove the negative productivity and year-over-year decline in Gas Cylinder. But we are seeing solid signs of progress. You know we have also been able to work with customers, and these are large automotive customers, and being able to get better pricing, which this at least covers our cost fully.

So from that perspective, we see good signs. There is a brand new management team out there as well. So it took us probably a little bit longer than we had hoped for, but all the early indicators are positive, so I’m optimistic about Q3, it no longer being a headwind for us..

Thank you. Very helpful..

Your next question comes from the line of Christopher Hillary of Roubaix Capital..

Hi, good morning..

Good morning..

I just wanted to ask, you had some strong growth this quarter.

Are there some businesses or products that you’re enthusiastic about with a medium-term view to help you continue that growth?.

Yes, pretty much all the growth, except for some disaster relief sales that we called out. We are very excited about that going forward, and if I can call out one, I would call out SoluMag. That’s been one where we have a very unique value proposition.

We are helping our oil and gas partners lower their cost, increase productivity, so we are very optimistic about that. On the zirconium and the chemical side we are again very optimistic, both from you know optic and industrial and initiatives to get back share in the auto-catalysis business.

And even in things like Superform you know, Superform had good revenue growth and one of the strongest growth Superform has had in a while. It’s a matter of being able to convert that into profits, which we are increasingly optimistic about.

So we are pleased with the broad based growth that we have seen, and the only thing we called out was the disaster relief products, which had a strong first half and strong second half last year.

So that’s the reason we are a bit cautious about and that essentially depends on the number of landfall hurricanes that come into U.S., which you know it was a pretty difficult year last year for like you know disasters, but it was good for people who supply disaster relief products..

Great. Thank you..

At this time there are no further questions. I will now turn the floor back over to management for any closing or additional comments..

Thank you, Brandy. Thank you everybody for listening today and participating on the call. Just to remind you, our next regularly scheduled call for our third quarter is now on November 1. So with that Brandy, let’s close the call. Thank you very much..

An encore recording of this conference call will be available in 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. This ends Luxfer’s conference call..