Tronox Holdings plc — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Tronox operates mineral-sands mines and processing facilities and produces titanium dioxide (TiO₂), zircon, feedstock and other products. It reports as one operating segment.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $708 million | $965 million |
| Gross profit / margin | $133 million / 18.8% | $232 million / 24.0% |
| Operating income | $62 million | $69 million |
| Net income attributable to Tronox | $23 million | $16 million |
| Basic and diluted EPS | $0.15 | $0.10 |
| Operating cash flow | $(79) million | $189 million |
| Capital expenditures | $93 million | $103 million |
| Adjusted EBITDA (non-GAAP) | $146 million | $240 million |
Interest expense was $33 million. The effective tax rate was 26%, compared with 53% a year earlier. Cash and cash equivalents were $115 million at quarter-end, down from $164 million at December 31, 2022. Total available liquidity was $432 million, including $317 million available under revolving facilities. Total debt was approximately $2.7 billion; net debt was $2.5 billion, and net debt to trailing-twelve-month Adjusted EBITDA was 3.3x. Management reported approximately 68% of interest rates fixed through 2028 and compliance with debt covenants.
Changes versus the prior-year quarter
- Sales fell 27%. TiO₂ revenue declined 28%, chiefly on a 30% volume decrease, partly offset by a 3% increase in average selling prices. Zircon revenue fell 33%, with volumes down 43% partly offset by prices up 10%. Feedstock and other revenue decreased 10%.
- Gross margin contracted 5.2 percentage points, reflecting unfavorable product mix, higher production and commodity costs, and idle-facility charges; improved TiO₂ and zircon pricing and favorable currency effects partly offset these pressures.
- Operating cash flow shifted from $189 million provided to $79 million used. The filing attributes the change mainly to working-capital outflows, including increased inventories, higher receivables and lower payables.
- Adjusted EBITDA fell to $146 million from $240 million. The prior-year figure included an $85 million Venator settlement addback; GAAP net income was higher in 2023 despite lower sales and gross profit.
- Cash declined by $49 million during the quarter. Financing cash flow was supported by short-term borrowings, including $152 million of proceeds and $26 million of repayments.
Outlook, risks and notable items
- No specific earnings, sales or production guidance is provided in the supplied filing text. Management expects operating cash flow to cover operating expenses, capital expenditures, interest and debt repayments over the next 12 months, subject to achieving its forecast. It says it could reduce capital spending and costs if conditions weaken.
- Management cites macroeconomic conditions, inflation, political instability, the Russia-Ukraine conflict and supply-chain disruption as potential pressures. Commodity prices and margins are cyclical; customer concentration and foreign-exchange and floating-rate debt exposures are also risks. A hypothetical 1% rate increase was estimated to reduce annualized pretax income by approximately $6 million.
- April 2023 subsequent borrowing: Tronox drew an additional $45 million on its Cash Flow Revolver. The Emirates Revolver maturity was extended to June 30, 2023; its $43 million equivalent draw was outstanding at quarter-end.
- Environmental liabilities included a $42 million provision for the Hawkins Point site. Purchase commitments totaled $2.507 billion, including $336 million due in less than one year; the filing states these commitments are expected to be used in normal operations.
- In April 2023, Tronox received a UK health-and-safety summons concerning a 2021 contractor incident at its Stallingborough plant and notice of an investigation into a separate 2022 incident. The company did not expect a material adverse effect based on its current understanding, but an adverse judgment on the summons could result in criminal liability and monetary penalties.
- The AMIC/Jazan option agreement was due to expire May 10, 2023; Tronox said it was discussing possible extension terms. It had lent AMIC the $125 million maximum under the related loan arrangement.
- The company recorded no share repurchases in Q1 and had approximately $251 million remaining under its authorization through February 2024. The 2022 Venator litigation was settled for $85 million, paid in April 2022; no comparable charge was recorded in Q1 2023.
Important facts for investors to verify
- Whether TiO₂ and zircon volumes recover, and whether pricing can offset production costs and unfavorable product mix.
- Working-capital trends, especially inventory levels, receivables and operating cash conversion.
- Liquidity after the April revolver draw, short-term facility maturities, borrowing costs and the 3.3x net-leverage measure.
- Progress and costs associated with Hawkins Point remediation, the UK safety matters, and the Jazan option and loan arrangements.
- Non-GAAP Adjusted EBITDA comparability: the prior-year period included the Venator settlement addback, and company-defined adjustments may differ from peer calculations.