Good morning. My name is Laurie and I’ll be your conference operator today. Welcome to Luxfer’s 2018 Fourth 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’ll turn the conference over to Doug Fox, Luxfer’s Director of Investor Relations. Doug, please go ahead.

Thank you, Laurie, and welcome. With me today are Alok Maskara, our CEO and Heather Harding, Luxfer’s CFO. First, Alok will provide a brief overview of the fourth quarter and full year. Alok’s remarks will be followed by Heather’s review of the fourth quarter’s financial performance, Alok will then return for some closing comments. Today’s webcast is accompanied by a slide presentation, which can be found on 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 2 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 3 for the summary of our performance for the fourth quarter of 2018. For the fourth quarter of 2018, Luxfer reported adjusted diluted earnings per share of $0.40, a 67% increase year-over-year and adjusted EBITDA of $16 million, up 16% year-over-year. We achieved this strong profit growth despite a 4% decline in quarterly sales. For the year, net cash flows before financing increased to $22.6 million, up from $7.1 million in the prior year. We finished the year with a net debt of $63.3 million, which is a $38 million year-over-year reduction in net debt and a modest 0.8 times net debt-to-EBITDA leverage ratio. On an annualized basis, we delivered 18.4% in return on invested capital, based on adjusted earnings. In addition to the strong financial performance, we made significant progress towards our transformation plan. For 2018, we achieved $9.2 million in cost reductions that includes benefits from manufacturing productivity, footprint consolidation and streamlining our back office operations. With this strong start, we are increasing our 2021 cost reduction target to $24 million, up from our prior $20 million commitment. And with the filing of our first 10-K as an SEC domestic issuer, we have completed the simplification phase of our transformation plan. Now, please turn to Slide 4 for details around the financials. For the fourth quarter, sales of $110.9 million were down 4% from a year ago. This decline was primarily the result of an anticipated reduction in hurricane-related disaster-relief sales. Even with the quarterly decline in sales, revenue for the 2018 fiscal year were up 11% to $488 million, which is well above our long-term projected growth rate of GDP plus. We had a solid year all around, with both business segments…

Thanks Alok, and good morning, everyone. Fourth quarter sales were down 4% to $110.9 million, primarily the result of lower volumes, much of it related to reduced hurricane-related sales of disaster-relief products, which accounted for approximately $3 million of the year-over-year decline. The remainder related to a $2.3 million impact from FX, as well as lower shipments of Graphic Arts products due to timing. Higher sales in our cylinder segment and favorable pricing partially offset these volume declines. Despite the sales decline, adjusted EBITDA increased 16% to $16 million for the quarter, our concerted efforts around price and cost reductions more than offset inflation and lower volume. Now please turn to Slide 9 for a summary of our full year results. For 2018, the 11% growth in sales was largely due to higher volumes, which contributed $35 million or 76% of the total increase. The remaining growth came from favorable pricing and movements in foreign exchange. For the full year, sales grew in both segments. Gas Cylinders increased 8% on notable growths in alternative fuel cylinders and Superform products. Elektron advanced 13% on the strength of magnesium alloys, driven in large part by SoluMag and growth in zirconium chemicals. The growth in sales contributed to the 34% increase in adjusted EBITDA of $80 million. Volume, cost reductions, price and FX were all favorable and more than offset inflation for the year. Volume added approximately a $11 million to the total $17.7 million growth in profits with cost reductions accounting for $9.2 million of the increase. Now please turn to Slide 10 for a breakout of our Elektron segment performance. Fourth quarter’s segment sales declined 11%, primarily on lower volume, lower shipments of hurricane-related disaster-relief products, as expected, and Graphic Arts products were partially offset by strong growth in magnesium alloys…

Thanks, Heather. Please turn to Slide 13. 2018 was a transformative year for Luxfer. We achieved strong growth in sales and profits, sharply improved cash conversion and materially strengthened the balance sheet. We made it easier for investors to buy Luxfer’s stock and created a more transparent company with the conversion to SEC domestic issuer status. Equally important, we positioned the company for sustained long-term GDP plus growth. We are increasingly optimistic about the future of the company, as momentum in productivity is continuing and we are gaining share in our core markets by delivering more customer-focused innovation. Please turn to Slide 14 for the 2019 outlook. We are starting 2019 in a good position. Macro trends and business activity remain favorable. Our strategy of developing a high performance culture is delivering results. We are also optimistic that innovation will continue and contribute to our performance in 2019 and beyond. Last year, SoluMag, a new generation of zirconium chemicals, contributed meaningfully to our growth. In addition to expected further growth of these innovative products, we are starting to ship our new ECLIPSE SCBA high pressure cylinder, which is 20% lighter than competing pressure vessels currently on the market. Our transformation plan continues on track and we are now positioned to recognize $24 million in cost savings by 2021. We achieved more than $9 million in savings in 2018, and programs are under way to deliver the remaining $15 million in cost savings over the next three years. While we are optimistic about our ongoing growth, our near-term outlook is tempered by first half 2019 comparison against an incremental $6 million in sales of disaster-relief products in the first half of 2018. In addition, we’ll be focusing more on profitability and return by exiting certain low and zero margin product lines.…

[Operator instructions] Your first question comes from the line of Chris Moore of CJS Securities.

Hey, good morning guys. Thanks for taking some questions. Maybe, we can just start kind of in Elektron on the sort of – kind of four sub-segments. Obviously, Zirconium and SoluMag were big contributors in 2018. Maybe, can you just kind of walk through Magnesium alloys, Zirconium, Magtech, and kind of starting within alloys, talk about opportunities there just to sort of try and understand kind of where you see near-term growth potential coming from?

Sure. So, let’s talk with Magtech. Magtech is the one, which had benefits from the hurricane activity. So, as we look at 2018, for the first half of 2018, they had $6 million or so of extra sales. And that’s the headwind we are trying to overcome as we get into 2019.

Right.

So, I think it’ll be fair to say that for 2019, they are facing some really tough comps, but the overall defense spending remains quite robust and we feel good about the base underlying business in Magtech going forward. Graphic Arts is the one, where we reference about some timing issues toward the end of Q4 and that’s the one, which we – it’s not a high growth business to start with, but given some of the timing issues, we think because some of those shipments have shifted to 2019 and we expect they’re going to make up for some of the shortfall that happened toward the tail-end 2018 in that business. But that remains slow growth flat business for us, pretty exciting and good for profitability and lots of room for productivity there.

And the catch up there is – I’m sorry, in the first half of 2019 – I know it’s slow growth, but in the first half of 2019 or some of the stuff that happened at the end of 2018 would be shifted towards the back half of 2019?

No. it will be first half of 2019 itself.

Okay.

And then on the zirconium chemicals, as you know, we saw the autocatalysis and industrial catalysis market. Both of them have been showing growth for us all year in 2018. It’s small growth, but it’s looking good from zirconium side and the magnesium alloys is where SoluMag is. So clearly, that had a very good growth here in last year. So, it’s going to be facing some tough comps and also that’s an area where fracking growth continues, but slows down a bit. So, we expect zirconium to continue on their growth profile and the SoluMag or fracking growth to slow down compared to the high, high growth rates we had in 2018.

Got you. Coming into Q4, you had talked about the SoluMag probably slowing a little bit in Q4, but also said that you would be ultimately looking to expand production capacity there. Is that still the case or what are your thoughts on that front?

Yes. That is still the case and SoluMag still grew in Q4, much less than what it grew for the rest of the year. We are still moving ahead and we are kind of halfway done with the extra capacity that we need to install. It’s a great product. We are very optimistic about the future. We continue to gain share against alternatives. Just our growth in 2018 was phenomenal, starting with small numbers. So, like those numbers are getting larger and fracking has slowed down a bit compared to what it was in 2018. Yes, we still expect it to be growth here.

Got it. On the cylinder side, can you just talk a little bit more about the high pressure cylinders and your expectations there?

Sure. Actually, let me start with Superform and then I’ll come to the higher pressure cylinders.

Great.

Superform had a good growth here last year, but as we look forward like we are focusing more on our core competency and smaller set of activities, where we make money. So, we expect Superform to continue on profitability improvement trend, but probably shrink their overall revenue base. So, I think that – some of our caution on revenue is reflected from that. On the Gas Cylinder side, as we mentioned, we have had decent growth, we expect that to continue. SCBA which is the large piece of growth driver and you can see that from some of our customers’ earnings report, continues to remain in a growth mode and folks are bullish about it. Alternate fuel while is probably less growth in U.S. right now, like Europe, that continues its growth trend, because less sensitive to diesel prices. So yes, we continue to feel good about our growth trajectory in Gas Cylinders, high-pressure cylinders and also Superform; but Superform, of course, revenue would be muted or going backwards.

Got it. And just in terms of this specific exiting lower margin product lines, can you talk a little bit further about that?

Sure. Two things I should highlight. One is the Superform which we’ve already touched. Second, as we did announce the divestiture or the intent to divest our magnesium recycling business. So that’s like mid to high teens revenue business with limited profitability and honestly, not a good fit with our overall focus on higher margin high-performance products. So that divestiture that’s probably not impact profits, but relatively take off like mid-teens or high-teens in revenue from our base, so that’s part of it. And then the Superform, where we are focusing on our core and not going to areas, where we compete with larger volumes producers that we could not make attractive margins. Those will be two big things I’ll highlight on what will happen in terms of revenue.

Got it. that’s helpful. Let me jump back in line. I appreciate it.

Thanks, Chris. Appreciate it.

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

Good morning.

Good morning, Phil.

So much for two questions; my first question was just on the projected proceeds from the asset sales on the Czech Republic piece and you gave us the associated sales, but was there any EBITDA associated with those assets to 2018?

Yes. The EBITDA is near negligible, and the proceeds are probably not going to be consequential. It did lead to some asset impairment, which was part of the impairment charges we took in Q4. But we don’t think it’ll be much easier from either thinking of cash generated or from like EBITDA outlook.

And then when we think about the forward cash spending requirements associated with the rationalization plan, how much did we spend in 2018 and in 2017 related to that $40 million target? Is that $40 million target still intact and how much do we have left to go?

Good morning, Phil.

Good morning.

So, relative to the increase in our cost savings, we are taking that $40 million – we are increasing that a bit. And if I look back at 2018, when I think about restructuring as well as capital, we estimate that we spend between those two buckets, around $7 million, $7.5 million in 2018 on the cash cost to achieve. So, there is obviously, the remainder left to go. I think previously we had talked about 2019 would be a big cash year on restructuring. And so we still expect that. I think we’d highlight it around $20 million in 2019, cash to achieve; the cost that we would take to get those savings.

What was the 2019 piece, I’m sorry?

Around $20 million.

Okay, so pretty substantial. Thanks. I’ll leave it there.

Thanks.

[Operator instructions] At this time, there are no further questions. I’ll now return the call to Doug Fox for any additional or closing remarks.

Thank you, Laurie and I’d just want to thank you for joining us today. Our next regularly scheduled earnings call will be in early May. And Alok, Heather and I will be around. If you have further questions, please give us a call. Thank you very much and have a good day.

Thanks everybody, bye.

An encore recording of this conference call will be available in about two hours. Telephone numbers to access the recording will be available on the Luxfer website at www.luxfer.com. Thank you for joining us today. The next regularly scheduled call will be in May, when the company discusses its 2019 first quarter financial results. This ends the Luxfer conference call.