Tronox Holdings plc — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts are in U.S. dollars unless stated otherwise. Tronox mines and processes titanium-bearing mineral sands and produces TiO₂ pigment, related products and zircon.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $927 million | $578 million | $1.818 billion | $1.300 billion |
| Gross profit / margin | $227 million / 24% | $129 million / 22% | $433 million / 24% | $304 million / 23% |
| Operating income | $150 million | $49 million | $275 million | $128 million |
| Net income attributable to Tronox | $73 million | $(4) million | $92 million | $28 million |
| Diluted earnings per share | $0.46 | $(0.03) | $0.59 | $0.19 |
| Adjusted EBITDA | $237 million | $142 million | $462 million | $315 million |
Q2 sales rose 60% year over year, principally on higher TiO₂ and zircon volumes and higher TiO₂ and pig iron prices. Q2 TiO₂ revenue increased 59% and zircon revenue 78%. Management reported a 4% sequential increase in revenue to a record $927 million, supported by higher TiO₂ and zircon prices and TiO₂ volumes. Adjusted EBITDA margin was 26% in Q2 versus 25% a year earlier; for the first half it was 25% versus 24%.
For the six months, operating cash flow was $345 million, compared with $72 million in 2020. Capital expenditures were $118 million, versus $82 million. Cash and cash equivalents were $303 million at June 30, down from $619 million at year-end; total liquidity, including available revolving facilities, was $767 million. Working capital was $1.4 billion, compared with $1.7 billion at year-end.
Total debt was approximately $2.8 billion and net debt approximately $2.5 billion at June 30; net debt to trailing-twelve-month Adjusted EBITDA was 3.2x. The filing reports $2.804 billion of long-term debt, net, plus $34 million due within one year. Six-month interest expense was $86 million, down from $92 million.
Material changes and financing
- Revenue increased 60% year over year in Q2 and 40% for the first half. Higher sales volumes and pricing improved operating income and margins; foreign-exchange movements partially offset gross-margin gains.
- Tronox refinanced debt in March 2021, issuing $1.075 billion of 4.625% notes due 2029 and establishing a $1.3 billion term loan and a $350 million revolving facility. It redeemed its 2025 and 2026 senior notes and made other debt repayments.
- The refinancing and related repayments contributed to a $57 million first-half loss on extinguishment of debt, including call premiums and write-offs of debt issuance costs. Q2 reported net income was $77 million, compared with a $4 million loss in Q2 2020; the first-half comparisons were $103 million and $36 million, respectively, on a consolidated basis.
- Financing cash outflow was $573 million for the first half, largely reflecting debt repayments, issuance costs and dividends. Cash, cash equivalents and restricted cash declined by $341 million.
Outlook, risks and unusual items
- No specific revenue, earnings or production guidance is provided. Management expects operations and available borrowings to fund operating expenses, capital expenditures, interest and debt repayments over the next 12 months, subject to achieving its forecast. It notes that COVID-19 and broader macroeconomic conditions could adversely affect that forecast.
- Management cited maintenance downtime at a synthetic rutile facility, an extended chlorine-supplier shutdown at Botlek, and unexpected mechanical maintenance at Stallingborough, as well as higher logistics costs and unfavorable foreign exchange, as pressures on Q2 gross profit.
- Management said the revolving facility’s springing leverage covenant was not expected to be triggered under current scenario planning; the company reported compliance with debt covenants at June 30. A hypothetical 1% rise in interest rates was estimated to reduce annualized pretax income by approximately $5 million.
- Environmental and legal exposures include a $60 million recorded provision for remediation at the Hawkins Point site and litigation with Venator, which seeks a $75 million break fee while Tronox counterclaims for $400 million. Tronox states it cannot assure a favorable litigation outcome.
- In July 2021, Western Australia’s revenue authority indicated that a stamp-duty exemption was disallowed on technical grounds. Tronox disputes that position; an unfavorable final ruling could result in a material charge, which the company was still assessing.
- Other notable items include an $18 million breakage fee related to termination of the TTI acquisition in first-half other expense, and a $5 million deferred tax benefit associated with funding a South African employee stock ownership plan. The board declared a $0.10-per-share quarterly dividend on July 28, payable September 10, 2021.
Important facts for investors to verify
- Whether the strong TiO₂ and zircon demand, pricing and volume trends continued after the quarter, and whether operating interruptions and foreign-exchange costs eased.
- How cash generation, capital spending and discretionary debt repayments affect liquidity and the reported 3.2x net leverage measure.
- The final outcome and potential financial impact of the Western Australia stamp-duty matter, Hawkins Point remediation and Venator litigation.
- That Adjusted EBITDA is a non-GAAP measure and may not be comparable with similarly titled measures reported by other companies.