STAMFORD, CT, Oct. 27, 2021 (PRNewswire) -Tronox Holdings plc (“Tronox” or the “Company”), the world’s leading integrated manufacturer of titanium dioxide pigment, today reported its financial results for the quarter ending September 30, 2021:
Third Quarter 2021 Financial Highlights:
- Revenue of $870 million, an increase of 29% year over year, driven by higher TiO2, zircon and pig iron average selling prices and higher TiO2 and zircon volumes
- Income from operations of $168 million and net income of $113 million
- GAAP diluted EPS of $0.70 and adjusted diluted EPS of $0.72 (non-GAAP)
- Adjusted EBITDA of $252 million, in line with guidance, and an Adjusted EBITDA margin of 29% (non-GAAP)
- Record $191 million in free cash flow after $65 million in capital expenditures
- Reduced total debt to $2.7 billion, resulting in a net leverage ratio of 2.6x, within the communicated long-term targeted range of 2.0x-3.0x and ahead of the 2023 timeframe
Q4 2021 Summary Outlook:
- TiO2 sales volumes expected to be flat to down mid-single digits sequentially
- Adjusted EBITDA expected to be $230-$245 million
Commenting on these results, John D. Romano, co-chief executive officer, stated, “Jean-François and I are proud of the way our team navigated through numerous external challenges this quarter to deliver financial results in line with our third quarter guidance. We are working tirelessly with our dedicated team of employees to ensure we are the supplier of choice for our customers by leveraging our unmatched global footprint and vertically integrated business model. This quarter we successfully continued the implementation of planned regional pricing initiatives for both TiO2 and zircon, offsetting headwinds from inflationary pressures. Given inventory levels remain below normal, coupled with the strategic initiatives we have in place, we believe we are well positioned to continue to meet growing customer demand.”
Third Quarter 2021 Results
(Comparisons are to prior year (Q3 2021 vs. Q3 2020) unless otherwise noted)
The Company recorded third quarter revenue of $870 million, an increase of 29% year over year, primarily driven by higher TiO2 and zircon volumes and higher average selling prices across all products. Revenue from TiO2 sales was $682 million, an increase of 26% driven by a 13% increase in volumes and a 12% increase in average selling prices on both a US dollar and local currency basis. Sequentially, TiO2 volumes declined 10%, at the low end of guidance, and average selling prices increased 4% on a local currency basis or 3% on a US dollar basis.
Zircon revenue increased 107% to $116 million driven by an 81% increase in volumes and a 13% increase in average selling prices. Sequentially, zircon volumes declined 14%, due to higher sales from inventory in the second quarter, while average selling prices increased 10%.
Revenue from feedstock and other products was $72 million, which represented a 5% decrease, due to no external feedstock sales in the quarter compared to the prior year, partially offset by increased pig iron revenue from higher average selling prices.
Net income attributable to Tronox in the third quarter 2021 of $111 million included non-recurring costs primarily related to debt extinguishment totaling $4 million or $0.03 per diluted share. Excluding these items, adjusted net income attributable to Tronox (non-GAAP) was $115 million, or $0.72 per diluted share.
Adjusted EBITDA of $252 million, another record achievement for the Company, increased by 70%. Adjusted EBITDA margin of 29% increased 700 basis points. The increase in Adjusted EBITDA was driven primarily by higher average selling prices across all products, increased zircon and TiO2 volumes, favorable product mix and improved absorption at our mining and pigment sites, partially offset by unfavorable exchange rates and increased freight and commodity costs. Sequentially, Adjusted EBITDA improved on higher TiO2, zircon, and pig iron pricing and favorable exchange rates, partially offset by lower sales volumes, as anticipated, and increased freight and commodity costs.
The Company’s selling, general and administrative expenses were $76 million in the quarter. Interest expense was $37 million, a 23% decrease due to lower debt levels and reduced interest rates compared to the prior year. Depreciation, depletion and amortization expense was $72 million.
Commenting on operations, Jean-François Turgeon, co-chief executive officer added, “Tronox’s global footprint enables us to be closely located to our customers, a significant advantage in a time when the logistics market is so challenged. While we have been impacted by supply chain disruptions both on the mining and pigment side of our business, we have remained focused on effectively managing through the constraints to deliver for our customers.
“Our vertically integrated business model continues to serve as a competitive differentiator allowing us to strengthen our customer relationships because we are able to deliver consistent quality, security of supply, and as well as offer access to a global footprint. This, along with ongoing benefit of having zircon as a co-product, contributes significant value to our portfolio. We remain well-positioned for the long-term to capitalize on the TiO2 market’s evolution and high growth rates in emerging markets around the world.”
Balance Sheet, Cash Flow and Capital Allocation
Tronox paid down $156 million of debt in the third quarter for a total of $639 million year-to-date. Net leverage as of September 30, 2021 was 2.6x on a trailing twelve-month basis, down from 4.1x at the end of 2020, achieving the communicated net leverage target of 2.0x to 3.0x well ahead of our stated timeframe of 2023. Debt at the end of the quarter totaled $2.7 billion, $200 million away from its gross debt target of $2.5 billion, which the company expects to achieve no later than the close of Q1 2022. Available liquidity at the end of the quarter totaled $764 million, including $309 million in cash and cash equivalents and $455 million under existing revolving credit agreements.
Free cash flow for the third quarter was $191 million after $65 million in capital expenditures. This represents another record free cash flow quarter, bringing year-to-date total free cash flow generated to a record $418 million. Year-to-date capital expenditures as of September 30 totaled $183 million including investments in key capital projects such as newTRON, the Company’s global business transformation project to improve automate and digitize, and Atlas Campaspe, the mining development project in Eastern Australia that will sustain Tronox’s internalization of feedstocks and associated cost advantages and provide additional zircon. These investments are expected to generate returns significantly above the Company’s cost of capital.
With the Company’s gross debt target in sight, Tronox expects to prioritize capital expenditures, continued annual dividend increases and share repurchases.
During the third quarter, Tronox announced the reorganization of its Board committee structure to enhance oversight of environmental, social and governance (“ESG”) efforts. In addition, Tronox published its annual sustainability report in July outlining the Company’s ESG commitments, including plans to align with a global warming scenario of below 2° Celsius and achieve an aspirational goal of net zero greenhouse gas emissions and zero waste to external dedicated landfills by 2050. The report also features the Company’s ‘Journey to Zero’, an initiative to achieve zero injuries, zero incidents, and zero harm. Producing safe, quality, low-cost, sustainable tons has long been a key part of Tronox’s strategy. The enhanced oversight and increased disclosure is evidence of the Company’s ongoing commitment to ESG and sustainability.
Q4 2021 Outlook
- TiO2 sales volumes expected to be flat to down mid-single digits sequentially
- Adjusted EBITDA expected to be $230-245 million due to logistics challenges, higher freight and commodity costs and some less favorable product mix
The Company continues to expect strong customer demand, partially offset by ongoing supply chain disruptions and inflationary pressures including elevated commodity prices. Zircon sales volumes are expected to remain elevated above 2019 and 2020 levels; however, volumes in the fourth quarter will be lower than those in the third quarter, more in line with production levels. Pricing is expected to continue to increase, consistent with the quarterly movements seen in 2021.
Mr. Turgeon concluded, “With our portfolio of assets and market position, we are confident in our ability to continue to capitalize on our momentum and deliver on our commitments to our stakeholders. 2021 thus far has been a great year for Tronox. We continue to navigate the current macro challenges while transforming our company, which will ensure our future remains bright.”
Tronox Holdings plc is one of the world’s leading producers of high-quality titanium products, including titanium dioxide pigment, specialty-grade titanium dioxide products and high-purity titanium chemicals; and zircon. We mine titanium-bearing mineral sands and operate upgrading facilities that produce high-grade titanium feedstock materials, pig iron and other minerals. With approximately 6,500 employees across six continents, our rich diversity, unmatched vertical integration model, and unparalleled operational and technical expertise across the value chain, position Tronox as the preeminent titanium dioxide producer in the world.