Tronox Holdings plc

Welcome to the Tronics Holding Q4 2022 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. And if you change your mind at any time, please press star 2. For operator assistance at any point, it is star 0. Thank you. Now, let me turn the call over to your host, Jennifer Gunther. Vice President, Investor Relations. So, Jennifer, you may begin your conference.

Thank you, and welcome to our fourth quarter and full year 2022 conference call and webcast. Turning to slide two, on our call today are John Romano and Jean-Francois Turgeon, Co-Chief Executive Officers, Tim Carlson, Chief Financial Officer, and John Srebisal, Senior Vice President, Business Development and Finance. We will be using slides as we move through today's call. 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 filings. 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. John?

Thanks, Jennifer, and good morning, everyone, and thank you for joining us today. For those of you who have joined and may be a bit new to the Tronoc story, we're the world's largest vertically integrated TIO2 producer with nine pigment plants, six mines, and five upgrading facilities across six continents. Our 2022 revenue totaled $3.5 billion and 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. Vertically integrated business model supplies approximately 85% of our internal feedstock needs at full effective capacity, and this ensures consistent and secure supply for our customers. In addition to TiO2, we also generated significant value as the world's second largest producer of zircon with approximately 300,000 tons of capacity. Our strategy is focused on positioning Tronox as the advantage global TIO2 leader to the production of safe, quality, low-cost, sustainable tons. Now let's turn to slide five, where I want to take a moment to cover the significant strides we made in 2022 in our sustainability performance. In our sustainability report released in June, we accelerated the carbon reduction targets we had published previously, increasing our 2025 goal to 35% from 15% emission reductions and we increased the 2030 goal to 50% from 35% emission reductions relative to our 2019 baseline. We remain committed to our net zero goal by 2050, as well as other sustainability-related commitments, including zero waste to externally dedicated landfills by 2050 and targeting zero workforce injuries. The revision to the targets was made possible largely due to the significant renewable energy project we announced in 2022 in South Africa. This 200 megawatt solar project with Solar Group is expected to provide 40% of Tronox's South African electricity needs and reduce our exposure to electricity cost increases in the region. It's also expected to lower our global scope one and two emissions by 13%. And we're very excited about the positive impact this project will have on our organization, both locally and globally, as it is expected to be completed by the first quarter of 24. We also added additional disclosure on climate-related risks in accordance with TCFD and aligned our reporting to SASB standards. We are continuously working to understand the standards and expectations of our stakeholders and align our internal priorities accordingly. Finally, as we highlighted last quarter, we are continuously realizing increasing value from higher-value coproduct streams, including rare earth minerals. We continue to see demand for the types of rare earth elements found in our monazite reserves increasing given their use in the green economy. We are exploring opportunities to upgrade the rare earth content of what we sell to extract more value from our mineral resources. Now let's turn to slide six to review the key messages for 2022. 2022 was definitely a tale of two halves and we're proud of the perseverance of our organization throughout 2022 as we ended the year very different from what it began. The first half of 2022 began with considerable momentum, while the second half was characterized by a significant market pullback starting in China, followed by the rest of Asia Pacific, EMEA, and the Americas. Despite a 34% TIO2 volume decline and a 44% Zircon volume decline in the fourth quarter of 2022 compared to the prior year, we were able to achieve full year 2022 adjusted EBITDA of $875 million and adjusted EBITDA margin in the mid-20s, while generating full three-year cash flow of $170 million after investing $428 million in capital expenditures. These results were driven by prudent management of production and our cost structures to align with the current market environment while remaining focused on our commercial pricing strategy. Our capital investment of $428 million in ongoing key capital projects included Project Neutron, and our mining expansion projects that reinforce Tronox's commitment to strengthening our business model. The $170 million of free cash flow generated in the year came in well above our expectations. Despite the increase in cost pressures in the fourth quarter and the AR securitization initiative coming in lower than anticipated due to lower receivables, we successfully managed our cash position to more than offset these headwinds. In the year, we returned approximately $137 million to shareholders, including share repurchases and dividends. As we highlighted in the fourth quarter, the unanticipated events, namely the fire at our KZ Insight in South Africa and the historic flooding in Australia, unfavorably impacted costs by $30 million in the fourth quarter. We were also negatively impacted on the cost side by lower absorption as we adjusted our production to be more closely aligned with the lower market demand. In total, we incurred over $60 million in costs from fourth quarter events and unfavorable absorption charges. We expect to see continued impacts of these events in the first quarter, namely on zircon tons available for sale and the cost of ore from the new mine. However, these impacts are expected to begin to improve within the first quarter, and therefore, we anticipate greater recoveries to EBITDA as we move into the second and third quarters. Slide seven provides a bit more detail on the full year performance for your reference. So let's turn to slide eight and we'll review the fourth quarter in more detail. Revenue of $649 million was impacted by a swift market contraction across all regions. Improvements in pricing were more than offset by operational cost increases and lower sales volumes. As I previously outlined, the fourth quarter includes approximately $60 million of idle facility and lower cost or market charges along with higher costs from Q4 events and lower fixed-cost overhead absorption. Our effective tax rate for the quarter was 26 percent, while our normalized rate was 24 percent. Our GAAP diluted loss per share was 9 cents, and our adjusted diluted loss per share was 17 cents. Adjusted EBITDA on the quarter was $113 million, and our adjusted EBITDA margin was 17.4 percent, impacted by higher event-driven operational costs in the quarter. And our free cash flow in the quarter was $126 million. Now let's move to slide nine for a review of our commercial performance. While we did see a significant reduction in demand across all regions, our TIO2 volumes came in within our previously guided range for the quarter. Pricing across both TIO2 and Zircon was in line with our expectation, driven by continued execution of our commercial pricing strategy. TIO2 volumes declined 28% sequentially, while average selling prices declined slightly by 1%, while FX impacts were less than half of a percent favorable. Zircon volumes declined 30% compared to the prior quarter, owing to lower production from the fourth quarter, and our Zircon pricing remained relatively flat to the prior quarter. Revenue from other products was $80 million, a decrease of 12% to the prior year, largely driven by lower pig iron sales. The strengthening of the US dollar in the quarter was a headwind of revenue compared to the prior year due to unfavorable translation impacts primarily from the weakening of the Euro. We firmly believe we saw the trough in our TO2 volumes in the fourth quarter as we stated previously, and we're already beginning to see a rebound. We expect the first quarter pigment demand to increase from the fourth quarter, driven by a larger rebound in Europe than in other regions, We anticipate North America and Asia to recover a bit slower as demand continues to remain low, although still up from the fourth quarter lows. We expect the recovery in demand to continue as we enter into the coding season and anticipate seeing progressively improving sales volumes in all regions as we move throughout the second and third quarters. We also continue to see the benefits of our margin stability initiatives and our financial results. Even with the recent significant volume reductions, we anticipate our overall TO2 pricing in the first quarter to remain relatively flat to the fourth quarter level. This is driven by the variety of contract arrangements we have in the market with our customers that support our margin stability initiatives. As we've communicated previously and demonstrated in Q4, we do not expect pricing to move as it has in previous economic transitions. owing in large part to the commercial approach we've successfully implemented over the last several years. I'll now turn the call over to JF for a review of our operational performance. JF?