Tronox Holdings plc — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Tronox mines and processes mineral sands and produces TiO₂ pigment, zircon, feedstock and related products. The company reports one operating segment.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $965 million | $891 million |
| Gross profit / margin | $232 million / 24.0% | $206 million / 23.1% |
| Income from operations | $69 million | $125 million |
| Net income attributable to Tronox | $16 million | $19 million |
| Diluted earnings per share | $0.10 | $0.12 |
| EBITDA / Adjusted EBITDA | $132 million / $240 million | $165 million / $225 million |
| Operating cash flow | $189 million | $135 million |
| Capital expenditures | $103 million | $58 million |
Adjusted EBITDA and EBITDA are non-U.S. GAAP measures. Cash and cash equivalents were $292 million at quarter-end; total available liquidity was $758 million, including $466 million available on revolving facilities. Debt was approximately $2.6 billion and net debt approximately $2.3 billion; net debt to trailing-twelve-month Adjusted EBITDA was 2.4x. Working capital was $1.3 billion.
Changes versus the prior-year quarter
- Sales rose 8%, primarily on higher average selling prices. TiO₂ revenue increased 11%, zircon revenue declined 12%, and feedstock and other product revenue rose 17%.
- Management reported TiO₂ selling prices up 18% in U.S. dollars and zircon prices up 43%; TiO₂ sales volumes fell 6% and zircon volumes fell 38%, partly reflecting higher inventory sales in Q1 2021.
- Gross margin improved from 23.1% to 24.0%, as pricing and foreign exchange benefits were partly offset by product mix, inflation, freight costs and downtime at the Stallingborough pigment plant.
- Operating income declined to $69 million, principally due to an $85 million Venator settlement charge. Interest expense fell $18 million, and the prior-year period included $34 million of debt-extinguishment losses.
- Operating cash flow increased by $54 million, which management attributed mainly to improved working-capital management and higher income adjusted for noncash items. Investing outflows increased with higher capital expenditures.
Outlook, liquidity and notable matters
- Management expects operating cash flows to fund operating expenses, capital expenditures, interest and debt repayments over the next 12 months, subject to forecast performance and external conditions. No specific revenue or earnings guidance is provided.
- Management cited inflation, supply-chain disruption, political instability including the Russia-Ukraine conflict, commodity and pricing cycles, foreign exchange, and possible interest-rate increases as risks. It said capital spending and operating costs could be reduced if needed to preserve liquidity.
- In April 2022, Tronox obtained a $400 million seven-year incremental term loan and used the proceeds with cash on hand to redeem its $500 million 6.5% senior secured notes due 2025. Management said this achieved its $2.5 billion gross-debt target ahead of its 2023 goal and reduced cash interest while extending maturities. The company expected about $20 million of debt-extinguishment expense in Q2, including an $18 million call premium.
- Also in April, Tronox drew $85 million on its cash-flow revolver to pay Venator. The settlement followed an April 6 court ruling; Tronox recorded an $85 million Q1 charge and paid the settlement on April 25. The filing says the charge includes interest.
- A new receivables securitization facility allows up to $75 million of sales. Tronox sold $75 million of receivables for cash in March and pledged about $31 million of retained receivables as collateral; the facility runs through March 14, 2023.
- Q1 income tax provision was $18 million and the effective tax rate was 53%, affected by the nondeductible Venator settlement and other jurisdictional factors. Full valuation allowances remain for certain deferred tax assets; some could be reversed within the next year, particularly in Australia.
- Environmental and legal exposures include a $59 million provision for the Hawkins Point site and a disputed Western Australia stamp-duty exemption that could result in a material charge if the company loses its appeal. The filing does not provide a clear estimate of the potential stamp-duty loss.
- The company repurchased 1.39 million shares for approximately $25 million in Q1, with about $275 million remaining under its authorization. It declared a $0.125-per-share dividend, paid April 8.
Important facts for investors to verify
- Whether TiO₂ and zircon pricing and sales volumes remain favorable, and how inflation, freight costs and plant downtime affect margins.
- Cash-flow quality, including the impact of the $75 million receivables sale, and the level and timing of capital spending.
- Post-refinancing debt, interest costs, revolver usage and covenant headroom; the company reported compliance with debt covenants at March 31.
- The final costs and accounting effects of the Venator settlement and April debt redemption.
- Developments in the Western Australia stamp-duty appeal, Hawkins Point remediation and valuation allowances on deferred tax assets.