Tronox Holdings plc Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Key Messages from Q1: Realized stronger-than-normal seasonal demand uplift in TiO2 volumes (12% increase from Q4 2024), Europe led growth with EU antidumping duties, North America had stronger seasonal trends, Zircon sales lower due to slower China start. Average pricing down 2% sequentially. Higher production costs due to lower operating rates at Botlek and increased direct material prices. Announced idling of Botlek pigment plant in The Netherlands.
• Cost Improvement Program: Expect to deliver $125 million to $175 million in sustainable run rate cost improvements by end of 2026, with majority from operations via operational excellence and technology. SG&A spend reduced early on.
• Vertical Integration: Vertical integration is key, producing high-grade feedstock internally and receiving co-products like Zircon and rare earth minerals. Expansion at Fairbreeze and East OFS mines underway, expecting $50 million to $60 million headwind this year but benefit next year as new high-grade ore bodies are mined.

Segment Performance

• TiO2: Year-over-year, revenues decreased 3% due to 1% each in sales volumes, price including mix, and unfavorable exchange rates. Sequentially, TiO2 revenues increased 10% driven by a 12% volume increase led by European demand, offset by a 2% decrease in average selling prices. Revenue contribution: Impacted by volume, price, and exchange rates.
• Zircon: Year-over-year, revenues decreased 22% due to a 15% volume decrease and 7% price including mix. Sequentially, Zircon revenues decreased 8% due to a 6% volume decrease and 2% price headwind. Revenue contribution: Affected by volume and price changes.
• Other products: Revenue increased 5% year-over-year and 25% sequentially due to higher sales of pig iron and opportunistic sales of ilmenite. Revenue contribution: Grew due to specific product sales.

Guidance

• 2025 Outlook: Revenue expected in range of $3 billion to $3.4 billion, adjusted EBITDA in range of $525 million to $625 million. Second half expected stronger than first due to pricing recovery and volume growth from anti-dumping measures in Europe, India, and Brazil. Free cash flow expected to be $50 million or greater. Target mid to long-term net leverage ratio less than 3 times through the cycle. Prioritize essential investments, strengthen liquidity, resume debt paydown, maintain dividend, and assess strategic high-growth opportunities like rare earths.

Risks

• Macroeconomic Volatility: Continued inflation, high interest rates, escalating tariffs affecting housing markets and consumer sentiment.
• Competitive Activity: Pressure on sales in Latin America, The Middle East, and Asia from competitive dynamics.
• Tariffs: Potential impact on steel related inputs and MRO materials, though primary materials like titanium dioxide and feedstock are exempt, EBITDA impact expected to be less than $5 million in 2025.

Q: Update on TiO2 volume growth expectations this year A: Growth driven by EU antidumping duties, with expectations for lift in India and Brazil once duties finalized. Europe saw significant Q4 to Q1 growth, with second quarter still showing growth but not as large as Q4 to Q1.

Q: Size of European growth in Q1 A: Double normal growth from Q4 to Q1, significant jump.

Q: Zircon market and revival A: Year-over-year Zircon sales lower, China New Year impact, balanced move quarter-by-quarter, annual growth only 5%.

Q: Botlek closure impact on inventory and free cash flow A: Expect to draw down inventory built in anticipation, leveraging fixed cost infrastructure to lower cost per ton, contributing to free cash flow.

Q: Pricing expectations in second half A: Seeing price increases in Europe, with progress in implementing price increases, though some competitive activity in other regions.

Q: Antidumping measures in India and Brazil A: Anticipated duties in India by May, Brazil duties to go back into effect by end of June/early July, positioning to supply demand from various facilities.

Q: CapEx normalization A: Normalized CapEx expected to be 250 to 300 million longer-term after mining projects.

Q: Rare earths project A: Prefeasibility studies ongoing in Australia, rare earths remain part of strategy, with renewed activity in the sector.