Tronox Holdings plc

Hello, everyone, and welcome to Knox Holdings' first quarter 2022 earnings call. My name is Juan, and I will be coordinating your call today. At this time, all participants are in listen-only mode. If you will ask a question, you may do so by pressing star, followed by number one on your telephone keypad. I would now like to turn the call over to Jennifer Gunther, Vice President of Investor Relations. Please, Jennifer, go ahead.

Thank you and welcome to our first quarter 2022 conference call and webcast. Turning to slide two, on our call today are John Romano and Jean-Francois Turgeon, 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 the presentation on our website at investor.tronox.com. Moving to slide three. A friendly 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 file. This information represents our best judgment based on what we know today. 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. Additionally, please note that all financial comparisons made during the call are on a year-over-year basis unless otherwise noted. Moving to slide four, it is now my pleasure to turn the call over to John Romano.

Thanks, Jennifer, and good morning, everyone, and thank you for joining us today. I'll start this morning by setting the stage with a quick overview of Tronox. We're the world's largest vertically integrated TIO2 producer with nine pigment plants, six mines, and five upgrading facilities across six continents. Our 2021 revenue totaled $3.6 billion, which was fairly evenly distributed across the Americas, Europe, Middle East, and Africa, and Asia-Pacific. Our 1.1 million tons of pigment capacity supports our well-balanced base of approximately 1,200 customers globally. Our vertically integrated business model supplies approximately 85% of our internal feedstock needs, and this ensures consistent and secure supply for our customers. In addition to TiO2, we also generate significant value as the world's second largest producer of zircon, with approximately 297,000 tons of capacity. We are proud of the organization we've created following the transformative crystal acquisition three years ago and the value we have and will continue to generate for our stakeholders. Before turning to the first quarter highlights, I want to address the crisis in the Ukraine. Our financial exposure is minimal with less than 1% of our total revenue from Russia and Ukraine combined in 2021. But more importantly, our hearts go out to those impacted by the conflict and we offer our support to those who are affected. Now let's turn to slide five to review our first quarter results. Tronox delivered solid first quarter results and continued to serve our customers against a backdrop of increasing costs, higher commodity prices, logistics constraints, and extended downtime at our Stallenberg UK pigment facility, which has since been resolved. It is a testament to the dedication of our employees that we've continued to deliver results in line with our expectations while overcoming these ongoing challenges. So we thank the Tronox team for their commitment. Despite the challenging operating environment, we delivered adjusted EBITDA of $240 million within our guided range. In the quarter, we invested $103 million in key capital projects. This included Neutron, our project to digitally transform our global portfolio, which is expected to generate savings of $150 to $200 per ton on a run rate basis by the end of 2023. We also invested in our mining extensions in South Africa and the Atlas Campaspe mine in Eastern Australia. And JF will review these investments in more detail later in the call. We generated $86 million in free cash flow from our strengthened and differentiated business model. And on April 4th, we closed the refinancing transaction, enabling the achievement of our previously stated $2.5 billion gross debt target ahead of our 2023 goal while also reducing cash interest payments, extending maturities, and increasing prepayable debt. We repurchased 1.4 million shares of our stock in the quarter, totaling $25 million, and we have $275 million remaining under the Board-approved share repurchase program through February of 2024. Finally, we announced a significant renewable energy project in South Africa, which we will now review on slide six. In March, we announced that we entered into a long-term power purchase agreement with South African independent power producer, Solar Group, to provide 200 megawatts of solar power to our mines and smelters in South Africa. This project is expected to provide approximately 40% of Tronox's South African electricity needs and lower our worldwide scope one and two emissions by approximately 13%. We anticipate the project should be fully implemented by the fourth quarter of 2023. This project is only one example of numerous initiatives and investments we are pursuing to meet our publicly announced goal to align with a global warming scenario below 2 degrees Celsius and achieve net zero greenhouse gas emissions by 2050. More information about our sustainability initiatives will be available in our 2021 sustainability report, expected to be published by mid-year, which we will expand on further at our Investor Day on June the 16th. Turning to slide seven, I will briefly review our first quarter financial highlights in more detail. Revenue of $965 million represented an 8% increase versus the prior year, driven by higher TIO2 and pig iron revenue. Income from operations includes the one-time settlement fee totaling $85 million, representing the break fee and related negotiated interest. Our effective tax rate in the quarter was 53%. due to the settlement and tax rate changes in foreign tax jurisdictions. Without these items, our normalized Q1 effective tax rate would have been 25.5%. Our GAAP diluted earnings per share was $0.10, and our adjusted diluted earnings per share was $0.60, an increase of 40% year over year. Adjusted EBITDA of $240 million represented a 7% increase. Our margin decreased 40 basis points to 24.9%, impacted by unfavorable product mix related to Zircon, logistics constraints, higher commodity costs, and the extended downtime in Stallenboro. Free cash flow of $86 million increased 12%. Now moving to slide eight, I will review our commercial performance in more detail. Our first quarter results were in line with our expectation, with our team continuing to manage strong customer demand while navigating a number of macro challenges, including continued input cost inflation and supply chain disruptions. Total revenue increased versus the prior year, driven by TIO2 and pig iron sales, partially offset by lower Zircon revenue and currency headwinds. Revenue from TIO2 sales was $773 million, an increase of 11%, driven by a 20% increase in average selling prices on a local currency basis, or an 18% increase on a US dollar basis, partially offset by a 6% decrease in volumes. Sequentially, TIO2 volumes increased 9% at the high end of our previously communicated range, driven by higher volumes across all regions, while average selling prices increased 6% on both a local currency and a U.S. dollar basis. Although we continue to monitor the macro situation, TIO2 demand remains solid. TIO2 supply-demand balance remains tight due to continued strong demand while inventories remain low, and delivery times continue to be extended by shipping delays and supply chain disruptions. Zircon revenue decreased 12% to $108 million, driven by a 38% decrease in volumes, partially offset by a 43% increase in average selling prices. Sequentially, Zircon volumes declined 20%, while average selling prices increased 14%. The volume decline on both a year-over-year and a sequential basis are due to higher sales volumes from inventory in the previous quarters, as we communicated previously. Revenue from other products was $84 million, representing a 17% increase, primarily due to higher pig iron volumes and higher average selling prices. Our dedicated team of employees are working to ensure we earn the right to be the supplier of choice for our customers. We have substantially increased the number of long-term volume contracts with our global customer base, securing our volumes well beyond 2022. Our demand outlook for the year remains solid as TIO2 market tightness persists, while inventories remain below seasonally normal levels. And similarly, positive trends continue in the zircon and pig iron markets. While we experienced unexpected challenges this quarter, Tronox remains well positioned to continue to overcome these adverse conditions. With our enterprise optimization model, we are able to maximize our global footprint, and we are investing to sustain our competitive advantage. We are focused on executing against our strategy to deliver safe, quality, low-cost, sustainable tons for our customers. Our expectation for TO2 market demand growth in line with GDP in 2022 remains unchanged. This will be supported by the need to replenish inventory throughout our customer supply chain channels. Distribution remains extremely challenged headed into the second quarter. And considering this, as well as low inventory levels, we anticipate TO2 volumes to be in line with the first quarter of 2022 levels. We expect TO2 pricing to continue to increase, reflecting strong market demand and commodity price increases. Zircon sales volumes are expected to increase slightly sequentially. benefiting from some orders that rolled over from the first quarter, but will remain more in line with production levels for the remainder of the year. Zircon pricing improvement in the second quarter is expected to more than offset the volume headwind on an EBITDA basis, and we expect this trend to continue for the full year. I will now turn the call over to JF for a review of our operating performance and profitability in the quarter.