Tronox Holdings Plc annual report, FY2023

Tronox Holdings plc — FY2023 Form 10-K

Reporting period: Year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing. Tronox is a vertically integrated producer of titanium dioxide (TiO₂) pigment, with mineral-sands mining and processing operations in Australia and South Africa and nine pigment facilities globally.

Financial performance and liquidity

Metric	FY2023	FY2022
Net sales	$2.850 billion	$3.454 billion
Gross profit / gross margin	$462 million / 16.2%	$832 million / 24.1%
Operating income	$186 million	$458 million
Net income (loss)	$(314) million; $(316) million attributable to Tronox	$500 million; $497 million attributable to Tronox
Adjusted EBITDA (non-GAAP)	$524 million; 18.4% of sales	$875 million; 25.3% of sales
Cash from operating activities	$184 million	$598 million
Capital expenditures	$261 million	$428 million

• Annual sales fell 17%. TiO₂ revenue was $2.248 billion, down 17%; zircon revenue was $257 million, down 41%; other-product revenue increased 7% to $345 million.
• Year-end cash was $273 million and available borrowing capacity was $488 million, for total available liquidity of $761 million. Working capital was $1.4 billion.
• Year-end total debt was approximately $2.8 billion and net debt was $2.551 billion. Net debt to trailing-twelve-month Adjusted EBITDA increased to 4.9x from 2.7x.
• Inventory rose to $1.421 billion from $1.278 billion. Operating cash flow declined by $414 million, with higher inventory and lower payables and accrued liabilities contributing to cash use.
• The company paid $89 million in dividends and made no share repurchases in 2023. A new authorization for up to $300 million of repurchases through February 2027 was approved in February 2024.

Material changes and unusual items

• Management reported continued weakness in TiO₂ and zircon demand and operated at record-low utilization to manage inventories and cash. Lower volumes, product mix, selling prices, higher production and commodity costs, and unfavorable fixed-cost absorption reduced margins.
• Fourth-quarter revenue rose 6% year over year, mainly on higher TiO₂ and other-product volumes. TiO₂ revenue increased 9%, while zircon volume and average selling price fell 26% and 11%, respectively. Gross profit declined year over year. Sequentially, revenue rose 4%, but gross profit fell.
• A $293 million non-cash tax charge followed a new valuation allowance on Australian deferred tax assets. The resulting effective tax rate was 741%; reported net loss was also affected by weaker operating results. The auditor identified realizability of Australian deferred tax assets as a critical audit matter.
• The Botlek, Netherlands pigment plant was offline for several months after a fire at its sole steam supplier, affecting 2023 results. Management also cited higher production costs, idle-facility charges and lower-of-cost-or-market inventory charges.
• Cash from operations funded $261 million of capital spending; the company also issued a $350 million incremental term loan, using part of the proceeds to repay revolving borrowings and to support liquidity and planned capital spending.

Outlook, strategy and risks

• No specific consolidated revenue, earnings or cash-flow guidance is provided in the supplied filing text. Management expects operations to provide sufficient cash over the next 12 months for operating costs, capital expenditures, interest and debt repayments, subject to forecasts and market conditions; adverse developments could require spending or cost reductions.
• Strategic priorities include cost reduction, continued vertical integration and mine replacement. Atlas reached full production in early 2023; Ginkgo was expected to cease mining in mid-2024, and the Atlas-to-Campaspe transition is planned as Atlas approaches the end of its mine life. South African Fairbreeze and Namakwa mine investments are also intended to replace end-of-life reserves.
• The 200 MW South African solar project, expected to reduce global Scope 1 and 2 emissions by approximately 13%, was expected online in the first half of 2024. A second renewable-energy project was delayed, and management said its 2025 emissions-intensity target timeline would be updated. Net-zero emissions by 2050 remains a stated long-term goal.
• Management is pursuing further processing and sales of monazite to build a rare-earth-oxide business. 2023 included opportunistic sales of ilmenite and part of a South African rare-earth tailings deposit; the filing does not establish recurring revenue or returns from these initiatives.
• Key risks include Chinese TiO₂ capacity and exports, cyclical demand and product-price volatility, energy and shipping costs, South African power and port disruptions, mine-development execution, environmental and product-safety regulation, foreign-exchange movements, and leverage. Debt principal was approximately $2.8 billion; the company reported compliance with debt covenants and stated that it did not expect the revolving facility’s springing covenant to be triggered under current planning.
• Environmental liabilities were $51 million and asset-retirement obligations were $186 million at year-end. The filing also describes the Hawkins Point remediation provision of $42 million and a separate UK health-and-safety summons received in February 2024; the company did not expect the latter to have a material adverse effect based on its current understanding.

Most important facts for investors to verify

• Whether TiO₂ and zircon demand, selling prices, and plant utilization recover—and whether margins improve despite cost and competitive pressures.
• Whether cash generation, working capital and liquidity can support capital spending, dividends and debt service; monitor net leverage and borrowing availability.
• The assumptions supporting the Australian deferred-tax-asset valuation allowance and any future tax-accounting changes.
• Atlas/Campaspe and South African mine-development schedules, costs, reserve replacement and expected returns.
• Progress and economics of the South African renewable-energy projects and rare-earth processing plans.
• Developments in South African electricity and logistics availability, TiO₂ regulatory proceedings, environmental contingencies and the February 2024 UK safety matter.