Tronox Holdings plc

Good morning and welcome to the Tronox Holdings PLC second quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jennifer Gunther, Vice President, Investor Relations. Please go ahead. Jennifer Gunther Thank you, and welcome to our second quarter 2021 conference call and webcast. On our call today are John Romano and Jean-François Trujon, Co-Chief Executive Officers, and Tim Carlson, Chief Financial Officer. We will be using slides as we move through today's call. Those of you listening by internet broadcast through our website should already have them. For those listening by telephone, if you haven't already done so, you can access them on our website at investor.tronoc.com. Moving to slide two. A reminder that comments made on this call and the information provided in our presentation and on our website include certain statements that are forward-looking and subject to various risks and uncertainties, including but not limited to the specific factors summarized in our SEC filing. This information represents our best judgment based on today's information. However, actual results may vary based on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements. During the conference call, we will refer to certain non-US GAAP financial terms that we use in the management of our business and believe are useful to investors in evaluating the company's performance. Reconciliations to their nearest US GAAP terms are provided in our earnings release and in the appendix of the accompanying presentation. Moving to slide three, it's now my pleasure to turn the call over to John Romano. John?

Thanks, Jennifer, and good morning, everyone, and thank you for joining us today. We'd like to start today's call by thanking all of our employees around the world for all the continued hard work and support which allowed us to deliver these great results. Our second quarter results were very strong despite multiple supplier and logistics headwinds. This was another record quarter for Tronox on T02 sales volumes, revenue, earnings per share, adjusted EBITDA, and free cash flow. all enabled by the continuation of the market recovery, the strength of our differentiated vertically integrated business model, and the support of our customers. Revenue in the second quarter increased 4% sequentially to $927 million, primarily driven by higher TIO2 and Zircon average selling prices. This represented a 60% increase year over year. Net income for the quarter was $77 million, and diluted earnings per share was $0.46, while adjusted earnings per share was 61 cents. The difference between diluted EPS and adjusted EPS is due to debt redemption costs associated with our Q1 refinancing. Our adjusted EBITDA was $237 million, setting yet another record for Tronox. This figure came in at the top end of our guided range due to improved commercial performance as expected, offset by higher inflationary pressures and operational disruptions. J.F. will review this in more details in a few minutes. Adjusted EBITDA margins improved to 26% for the quarter. We generated $150 million in free cash flow after investing $60 million in capital expenditures. We repaid $135 million in debt in the second quarter and an additional $70 million in July for a total of $205 million. Our total debt balance as of today is $2.8 billion, and our trailing 12-month net leverage ratio is 3.2 times. We are $300 million away from our total debt target of $2.5 billion and 0.7 times from the midpoint of our targeted net leverage ratio, representing significant progress in light of the strength of the cycle, our positioning, and cash flow generating capabilities. Moving to slide four, I'll now discuss our commercial performance in more detail. As I previously highlighted, the second quarter was a very strong quarter from a commercial perspective. TIO2 revenue was $740 million, an increase of 6% quarter over quarter and 59% year over year, driven by continued strength in customer demand. Sales volumes grew 1% quarter over quarter on the low end of our guided range, mainly due to supply chain challenges that limited vessel and container availability at a time when inventories were already below seasonal norms. The sequential growth was led by North America and Europe. TIO2 volumes increased 45% versus the second quarter of 2020, which was the quarter most greatly impacted by COVID-19. Volume growth in Europe and Asia Pacific led to year-over-year recovery, though all regions saw double-digit growth. TIO2 price increase initiatives continued throughout the quarter, resulting in a 5% sequential increase. This equates to a 9% increase year-over-year on a U.S. dollar basis or 6% on a local currency basis. Revenue from Zircon sales declined slightly due to lower Zircon volumes in the quarter, as expected, partially offset by improved pricing. Demand continues to be very strong for Zircon, and we've been able to serve this growth in demand with inventory, which will continue to benefit us throughout the end of the year. Due to the tightness in the market, coupled with the increase in demand, pricing increased 5% from Q1 levels, or 1% over Q2 2020. Despite the higher pig iron selling prices, feedstock and other product revenue declined 8% sequentially, as some pig iron volumes rolled into the third quarter due to timing impacted by logistics issues. On a year-over-year basis, revenues increased 50% due to significantly improved pig iron volumes and pricing driven by strong in-market recovery. There were no external CP slag sales in Q2 of 2020, so the year-over-year comparison this quarter is on a like-for-like basis. Our global supply chain and logistics and order delivery employees navigated yet another quarter of disruptions to meet our commitments and serve our customers to the best of our ability. So I'd like to thank all of those employees again around the world for a job well done. We believe we are still in the early stages of the cycle. Regional price initiatives are continuing across both TIO2 and Zircon. Demand remains very strong throughout the supply chain, driven by the recovery across all of our end markets, and we believe inventory levels throughout the supply chain continue to be well below seasonal norms. As we look ahead to the third quarter, we are balancing strong customer demand against our ability to deliver consideration. We expect TO2 volumes to decline 5% to 10% sequentially, which would still represent the strongest third quarter volume on record. Zircon sales volumes are expected to remain elevated above 2019 and 2020 quarterly volumes, benefiting from sales from inventory, though volumes will be lower than the second quarter levels. Zircon pricing improvement in the third quarter is expected to more than offset the volume headwind. TIO2 and Zircon prices are expected to continue to increase as we make progress with our regional price initiatives. I'll now turn the call over to JF for a review of our operating performance and profitability in the quarter. JF? Thank you, John.

Moving to slide five. As John mentioned, a just EBITDA of $237 million was another record for Tronox. The increased volume and pricing John outlined support significant increase in EBITDA, which were offset by headwind from unfavorable foreign exchange rate, inflationary pressure, and operational disruption. These operational disruptions include the EBITDA headwinds we discussed on our first quarter earnings call, which were the $10 million impact from the planned five-year maintenance shutdown of our synthetic rutile production facility and the $4 million impact from the longer-than-anticipated downtime at our Botlek Pigment Plant due to an unexpected supplier shutdown. Additionally, we had a $5 million EBITDA impact from unexpected downtime at our Stalingboro Pigment Plant due to mechanical issue. All of these operational disruptions will roll off in the third quarter. Digging a bit further into the comparison, adjusted EBITDA increased 67% year-over-year, driven by improved volume and selling price across all products. as well as improved production costs, including synergy, partially offset by unfavorable ethics rate and the operational disruption. Production costs were favorable year over year due to the improved operating rate at the mining site due to the COVID impact and smelter relying costs in South Africa in 2020. Sequentially, adjusted EBITDA improved 5% due to the improved pricing and production costs, partially offset by operational disruption, unfavorable FX rate, and lower co-product volume. Production costs were favorable, partially due to improvement at our Yambu pigment facility, which continued to deliver above expectation. Inflationary pressure, including both external ore purchase and raw material, such as energy and sulfur price, as well as increased logistic costs, continued to impact our earnings. Additionally, you would have seen the news about the riot that occurred in South Africa. We want to assure you that our operation were not directly impacted. However, there were disruptions to the KZN port, which at this point haven't materially affected us. However, there is some risk that some of our shipment could be delayed as the port continues to work through the backlog. While the operational disruptions for the second quarter are not recurring, pressure on the cost side of the business, coupled with chlorine availability issue, are expected to partially offset continued price increase in the third quarter. As a result, we anticipate third quarter adjusted EBITDA of $245 to $260 million. Turning to slide six, this is a critical time for Tronox. While overcoming these various challenges, we remain focused on progressing Project Neutron, our enterprise-wide cost reduction initiative that will transform our business and more than offset raw material and fixed cost inflation, enabling us to remain among the lowest cost TIO2 producer and enhance service to our customers. We will achieve this through an optimized global supply chain, reduced maintenance spends, enhanced operation, improved throughput, and standardized process. This project is especially important given the increasing costs we are facing. We expect Neutron to unlock cost reduction of $150 to $200 per ton by the end of 2023. We look forward to updating you on our progress. Our vertically integrated business model continued to differentiate us from our competitor, providing security of supply. a global footprint that we can leverage to our customer advantage, and co-products that contribute significant value to our portfolio. We are on a journey of transformation and continue to deliver on our commitment to our stakeholders. We demand a lot of our organization, and our people continue to respond. We are grateful for the ongoing effort of our colleague around the world to deliver safe, quality, low-cost, sustainable ton for our customer. Thank you. Turning to slide seven. On this last point, producing safe, quality, low-cost, sustainable ton is a key part of our strategy and how we strive to differentiate ourselves. Though sustainability has long been a part of everything we do at Tronox, we are improving how we disclose our progress and effort related to our ESG performance has it become an increasingly critical focus area for our stakeholder. This week, we publish our 2020 Sustainability Report that highlights our commitment to improvement for the future. It provides detail on how we will align ourselves with a global warming scenario below 2 degrees Celsius and achieve an aspirational goal of net zero greenhouse gas emission and zero waste to external dedicated landfills by 2050. The report also reinforces our journey to zero to achieve zero injury, zero incident, and zero harm. We invite all stakeholders to review this report on our website to learn about our accomplishments to date and the aggressive goals we have set for the future. I will now turn the call over to Tim Carlson.