Q4 2024 Tronox Holdings plc Earnings Call
Speaker Change: Good morning, welcome to the Tronox Holding PLC Q4 2024 Earnings Conference Call.
Speaker Change: As safety is our leading value we heightened our focus and are happy to report that we reduced our total recordable injuries by 23% in 2024.
Speaker Change: We enhanced our focus on operations and achieved our targeted operating rates, resulting in production cost improvements in the second half of 2024.
Speaker Change: We continued differentiating our company to sustainability projects, such as the conversion of 40% of our power in South Africa to solar.
Speaker Change: And this not only benefits tronox from a greenhouse gas reduction standpoint, but also allowed us to avoid $17 million of additional electricity costs in 2024.
Speaker Change: We continued to execute on our capital allocation strategy through investments in the business returning capital to shareholders in the form of dividends and strengthened the balance sheet through opportunistic refinancing transactions.
Speaker Change: We also launched a new business strategy in the second half of the year as we referenced on our previous earnings call and initiated cost a cost improvement plan.
Speaker Change: This initiative is focused on enhancing cost efficiency optimizing asset reliability and driving operational excellence across all aspects of our business through.
Speaker Change: Through this work, we've identified $125 million to $175 million of additional cost improvement opportunities.
Speaker Change: <unk> on a run rate basis by the end of 2026, we are very excited about this program and believe it will deliver real sustainable cost improvements across all the business.
Speaker Change: I'll touch more on our strategy and the path forward, including more details on this cost improvement program a bit later in the call, but for now I'm going to turn the call back over to John to review our financials from 2024 in more detail John Thank you John turning to slide five.
Speaker Change: We generated revenue of $3 1 billion, an increase of 8% compared to the prior year, driven primarily by higher <unk> and zircon sales volumes, which was partially offset by unfavorable price and product mix.
Speaker Change: Income from operations of 219 million in the year, we reported net loss attributable to tronox of $48 million.
Speaker Change: Our full year adjusted EBITDA was $564 million alright, adjusted EBITDA margin was 18, 3%.
Speaker Change: Our free cash flow for the year was a use of $70 million.
Speaker Change: Turning to next slide I will now review fourth quarter results in more detail.
Speaker Change: We generated revenue of 676 million in the fourth quarter, a decrease of 1% versus the prior year quarter, driven by lower average selling prices and unfavorable mix impact on zircon and tier two.
Speaker Change: We also saw lower sales volumes of other products, which were partially offset by higher sales of <unk>.
Speaker Change: Income from operations was 48 million in the quarter and we reported net loss attributable to tronox of $30 million.
Speaker Change: We delivered adjusted EBITDA in the quarter of 129 million well within the guided range of $120 million to $135 million, we achieve adjusted EBITDA margins of 19, 1%.
Speaker Change: Capex for the quarter was $117 million in free cash flow was a use of $35 million.
Speaker Change: Now, let's move to the next slide for a review of our commercial performance.
Speaker Change: <unk> revenues increased 3% versus the year ago quarter as sales volumes improved 4%, partially offset by a 1% decline due to price and product mix.
Speaker Change: Sequentially <unk> revenues declined 13% fourth quarter tier two volumes declined 11% sequentially. This compares to our previous guidance of a 10% to 15% decrease.
Speaker Change: Lower average selling price and mix had an unfavorable impact of 1%.
Speaker Change: Active is the current demand and competitive environment.
Speaker Change: Movements in the euro dropping 1% headwind.
Speaker Change: Zircon revenues increased 32% over Q4, 2023 as sales volumes increased 43% and partially offset by 11% headwind from price and product mix.
Speaker Change: Sequentially zircon revenues increased 1% driven by a 9% increase in volumes exceeding our guidance of flat to slightly down versus Q3, which is largely attributable to strong commercial execution in Asia Pacific is.
Speaker Change: This was partially offset by 8% headwind from price and product mix.
Speaker Change: Revenue from our other products decreased 38% compared to the prior year and 40% versus the prior quarter due to opportunistic sales of ilmenite and heavy mineral concentrates tailings sold in each of the comparable quarters that did not repeat in the fourth quarter of 2024.
Speaker Change: Turning to next slide I will now review, our operating performance for the quarter.
Speaker Change: We saw significant cost improvements by achieving our targeted operating run rates and benefited from the sales of lower cost tons in the quarter.
Speaker Change: Our adjusted EBITDA of $129 million for the quarter represented a 37% improvement year on year, driven by lower production costs, partially offset by unfavorable commercial impacts and headwinds from exchange rates.
Speaker Change: Year on year production costs improved $75 million due to favorable fixed cost absorption lower raw material costs, and non repeating idle and LCM charges.
Speaker Change: Sequentially adjusted EBITDA declined 10%.
Speaker Change: Favorable commercial impacts were partially offset by improved production costs and tailwind from exchange rates.
Speaker Change: Turning to the next slide we ended the year with total debt of $2 9 billion and net debt of $2 7 billion. Our net leverage ratio at the end of December reduced to four eight times on a trailing 12 month basis.
Speaker Change: Our balance sheet remains strong with ample liquidity of $578 million, including $151 million in cash and cash equivalents.
Speaker Change: Additionally, in 2024, we strengthen our balance sheet by repricing and extending our revolver and term loan tranches as a result of these activities. We have extended our debt maturities out to 2029, and 2031 and reduced our net cash interest expense by $10 million.
Speaker Change: Working capital was a use of $103 million for 2020 for this this was mainly driven by the slowing of the market demand in the second half of the year, which drove higher finished goods inventory levels in the fourth quarter.
Speaker Change: Our capital expenditures totaled $370 million with approximately 45% allocated to maintenance and safety and 55% of strategic mining extension and growth projects and we returned 80 million to shareholders in the form of dividends.
Speaker Change: Turning to our capital allocation strategy, our priorities remain unchanged. We continue to prioritize investments that are essential for advancing our strategy and maximizing value from our vertically integrated business.
Speaker Change: We also remain focused on strengthening our liquidity and presuming debt pay down as the market recovers. We are targeting a mid to long term net leverage ratio of less than three times through the cycle.
Our dividend remains a priority and finally, we will continue to assess strategic high growth opportunities as they emerge including rare Earths will now turn the call back over to John Romano to go over the outlook John Thanks, John.
John Romano: So for 2025, we decided to issue an outlook for the full year, providing a longer term outlook meets our goal to be more transparent with investors, while aligning how we think about and manage the company internally.
John Romano: With how we talk about the company externally with the medium and long term in mind.
John Romano: Based on our current views on the market dynamics and global economic activity. We expect 2025 revenue to be in the range of three to $3 4 billion.
John Romano: And our adjusted EBITDA to be in the range of $525 million to $625 million.
John Romano: This forecast takes into account several factors, including the pace of the market recovery anti dumping impacts competitive dynamics as it pertains to price and volume some operating variability as we commissioned the <unk> mine extensions and our ongoing focus on accelerating and executing on our cost improvement program and.
John Romano: Performance.
John Romano: On the commercial side, we're assuming improvement in pigment and zircon volumes, partially offset by headwinds from non repeating other product sales in 2024.
John Romano: With respect to anti dumping we're already seeing an uplift in Europe, and Brazil, and expect that benefits would materialize in other jurisdictions like India, where this morning, the Indian trade defense industry recommended definitive duties that we expect will go into effect in the second quarter.
John Romano: On the operation side, we assumed benefits from non repeating idle facility in LCM charges and improving pigment production costs. This will be partially offset by higher mining production costs in the range of $50 million to $60 million as we transition out of older mines into newer mines with higher grade ore deposits.
John Romano: Our outlook also assumes that the second half of 2025 will be stronger than the first half as pricing is expected to be more of a headwind in the first half of the year before recovering in the second half and we're also expecting volumes to be stronger in the second half of the year.
John Romano: With regards to cash we expect the following net cash interest of approximately $130 million net cash taxes of less than $10 million as capital expenditures from projects in South Africa, our deductible working capital to be a use of cash of approximately $70 million to flattish for the year and.
John Romano: And capital expenditures to be in the range of $375 million to $395 million.
John Romano: As a result, we expect free cash flow to be relatively flat at the midpoint of the range.
John Romano: We have realigned our expectations to reflect the latest macroeconomic backdrop.
John Romano: Through the execution of our newly formed strategy and our cost improvement program, which I will cover on the next two slides, we see significant opportunity for earnings growth ahead.
John Romano: Slide 12 outlines our new business strategy that we previewed at the beginning of this call and it consists of four key components being the best at what we do growing our future leveraging what makes us unique in being the benchmark for sustainability.
John Romano: This framework builds on the strong foundation previously established it enables us to continue executing on what we do best while capitalizing on new opportunities.
John Romano: Part of our strategy as we referenced on the previous earnings call includes the launch of a sustainable cost improvement program.
John Romano: So, let's turn to slide 13.
John Romano: That program in more detail.
John Romano: As a result of the work completed over the last several months, we have identified $125 million to $175 million of sustainable run rate cost improvements by the end of 2026.
John Romano: This program is focused on enhancing cost efficiency and optimizing asset performance across all aspects of our business.
John Romano: Our target action actions will include leveraging operational excellence harnessing technology to drive efficiency and innovation enhancing supply chain and integrated business planning strategies and aligning SG&A to maximize the overall impact on our business.
John Romano: To give some context to this operational excellence means improving the efficiency and effectiveness of our processes to achieve best in class performance through continuous improvement accountability accelerated learning supported by our global centers of excellence.
John Romano: <unk> technology will include expanding our automated process control program or APC to further enhance the efficiency and reliability of critical assets by optimizing real time process adjustments APC maximizes very minimized as variable variability improves the yield and reduces energy consumption.
John Romano: Optimization of our integrated business planning process will enhance the impact of vertical vertical integration throughout our asset portfolio as new mines come on later this year and in 2026.
John Romano: And we're also aligning SG&A to ensure resources are strategically positioned to drive the greatest business impact through disciplined cost management.
John Romano: These are just a few examples of the opportunities we've identified in the early stages of this project and we will continue to evaluate every aspect of our business to drive further improvements.
John Romano: At the core of our strategy is a commitment to be the best at what we do focusing resources on our strengths while deep deep.
John Romano: Prioritizing nonessential activities.
John Romano: This program is not about short term cost reductions, but rather sustainable long term improvements to drive structural efficiencies, including the standardization of best practices across all of our business.
John Romano: We remain committed to safety continuous improvement and disciplined cost management across our entire business as we navigate through economic uncertainties, we're focused on managing the controllable.
John Romano: These actions will secure tronox is positioned as a leading vertically integrated titanium mining and upgrading producer.
John Romano: And so that will conclude our prepared remarks, and we'll now move to the Q&A portion of the call. So I will turn the call back over to the operator to facilitate <unk>.
John Romano: Danny.
Speaker Change: Thank you we will now begin the question and answer session. If you are participating in the Q&A and have joined via webinar.
John Romano: Based on icon, which can be found at the bottom of your webinar application screen.
John Romano: If you are participating in Q&A and have joined via phone lines. Please press star nine on your keypad to raise your hand.
Speaker Change: When you all called upon you will be prompted to Amit Your line and ask your question.
Speaker Change: We will now take a minute for the amendment to the <unk> roster.
Speaker Change: Our first question comes from John Mcnulty with BMO. Please press <unk> <unk> your line.
Speaker Change: Sorry about that.
Speaker Change: Hopefully you can hear me now so a question on the pricing environment can you speak to.
Speaker Change: What's driving what sounds like slightly softer pricing in the first half of the year.
Speaker Change: Especially given that we do have some of the tariffs in place now than I would've thought that would've at least contributed a little bit too to an improving pricing environment. So can you help us to think about that and also speak to maybe some of the competitive issues.
Speaker Change: Issues that you alluded to in the in the prepared remarks.
Speaker Change: Yeah. Thanks, John So when we think about again more providing annual guidance. So we're not going to provide a lot on the quarter, but when we think about pricing in kind of a cadence that happened in the fourth quarter. We're talking about the similar kind of movement in the first quarter. So it's not a significant move but there is a lot of.
Speaker Change: I would say competitive activity in certain regions of the world.
Speaker Change: And we're responding to that where we feel there is critical market share that we don't want to lose that being said, there's also some opportunities where we've gotten some price increases.
Speaker Change: And as we think about what's happening in Europe with regards to the traction we're starting to get from some of the activity that's happened from duties.
Speaker Change: You have already probably seen some other competitors have announced increases and we would expect that we'll start to see an opportunity for that to happen, but again, it's it's that recovery period as the market starts to recover it's going to be a little bit slower.
Speaker Change: And as the.
Speaker Change: Market starts to pick up and we mentioned in the prepared comments that there was some other duty.
Speaker Change: Activity, that's happening in India, now, where we would expect to see definitive duties, possibly.
Speaker Change: As early as the second quarter, we will start to see opportunities for price movement.
Speaker Change: But it's a bit of a mix.
Speaker Change: Sure.
Speaker Change: We're protecting some share in some areas, but we're also getting price it's not it's not a significant move I guess the point is.
Speaker Change: There's still a little downward movement, where we would expect upward movement in the second half.
Speaker Change: Got it okay, no that makes sense and then just a question on the cost cutting initiatives. The the 125 to 175 I guess, how much of that is reliant on on volumes versus just general efficiency moves and cost reduction that that can happen, regardless of whether the volume environment is better or not.
Speaker Change: <unk>.
Speaker Change: And also can you speak to how this will phase in as it is it relatively straight line through 'twenty five 'twenty six or is it backend loaded I guess, how should we be thinking about it.
Speaker Change: Yes, thanks for the question John.
Speaker Change: And the way we've looked at this cost of improvement program is really to focus on cost and less on volume. So that's really driving the improvement that we're going to be seeing the 125 to 175, so primarily costs related through improved efficiencies and just an overall redeployment and better use of our spend.
Speaker Change: As you look towards how we're going to see that.
Speaker Change: Play out over the next couple of years.
Speaker Change: The majority of that will be in 2026.
Speaker Change: Do think that we can achieve about 25% to $30 million of that 150, <unk> hundred 25 to $1 75 in 2025 on a run rate basis. So you won't see all of it in 'twenty five but fully expect to see that.
Speaker Change: Into 'twenty six and then achieving our final run rate by the end of 'twenty six.
Speaker Change: And.
Speaker Change: Again.
Speaker Change: I would say that Theres a lot of technology involved and then I'll give you. An example of some of the work that's been doing that for instance, at Hamilton, where we've talked about automated process control.
Speaker Change: We implemented that R&R spend flash dryers recently and that technology yielded a 6% improvement in productivity in those two.
Speaker Change: Was to spend flash drivers along with an 8% improvement in energy consumption and as we think about rolling that across all of our coordinators and into oxidation and into our finishing lines.
Speaker Change: We're starting.
Speaker Change: That's what these programs are coming taking the technology that we've already started to implement in rolling that out to the rest of our operations and we had a I would say.
Very productive meeting with all of our site managers here very recently.
Speaker Change: To kind of validate the work that we're doing and that's why we feel comfortable with the range that we put out and we'll be doing everything we can to increase that 25% to $35 million that John referenced at the end of 2025, but thats the target right now as we're still a bit early in the program.
Speaker Change: Great. Thanks, very much for the color.
Thank you.
Speaker Change: Our next question is from Joshua Spector.
Speaker Change: UBS Joshua please on mute your line to ask your question.
Joshua Spector: Hi, good morning, So I wanted to ask on the mining costs and the transition impact of that in 2025. So you called out $50 million to $60 million is that the bulk of it and then that does that immediately come back in 2026 or does that linger.
Speaker Change: Then related to this I mean, the whole goal is to help maintain and improve your low cost position.
Speaker Change: Get to better ore bodies is there a benefit and the costs that we should be layering in as you transition to the new mines or now.
Speaker Change: So.
Speaker Change: I'll start and then I'll, let John add to it, but so that $50 million to $60 million. The majority of that is going to come back naturally and I'll, let John touch on that a little bit more but also make reference that.
Speaker Change: Through the programs that we're doing around cost reduction, we're going to be looking at what we can do to our integrated business planning process to further improve that and those are improvements that are going to be part of that $125 million to $175 million, but yes, no I think as we've mentioned a couple of years ago, We did make the decision to delay our.
Speaker Change: Capex and investment in these mines, just given the market environment and uncertainty and so that's what we're seeing unfortunately.
Speaker Change: The negative of doing that this year, so as John mentioned, it as $50 million to $60 million that will hurt us. This year. We do expect the majority of that just to naturally turn and recovering 26. There is a portion of that that will require a lot of work that's part of our cost improvement program requires some.
Speaker Change: Significant and seamless execution on our operations as well as our integrated business planning processes in order to optimize that but we do expect that we will be able to achieve that $60 million.
Speaker Change: And those two mining projects just for color.
Speaker Change: Everybody's comes online mid year, and Easter RFS will start to come online at the end of the year and the real delay was more on the east Oss and had we not delayed that we probably would have been coming online in the first quarter with that mind. So there's that there's that lag where we're in these ore bodies that are just not.
Speaker Change: As rich as they will be when we migrate into the new ore bodies.
Speaker Change: Alright, and then just two quick ones on the cash I guess working capital I mean, this is maybe the fifth year that working capital is a pretty significant use of cash for you guys is there anything that can be done there when do you get relief on that side and then just with the cost savings program.
Speaker Change: Is there a cash going out the door this year and next year, that's either that we need to bake in.
Speaker Change: Yes, so obviously.
Speaker Change: Working capital will still be.
Speaker Change: Use up to flat for this year, but it is a significant improvement over last year, when we were at $103 million.
Speaker Change: We do expect to show progress in all of the major working capital buckets. The biggest use of cash. This year is actually AAR, which obviously is a good investment in working capital and driven by primarily by <unk> zircon volumes, increasing year over year, obviously that will turn into cash over time.
But then inventory obviously, it's ending the year at close to a $1 6 billion in total on our balance sheet, but we expect to make progress there throughout 2026, primarily we've mentioned that we're running our rates much higher that has an impact on our costs and what we're putting on the balance sheet. So we are replacing higher.
Speaker Change: Cost inventory with lower cost. So we are seeing inventory generate cash in 2025.
Speaker Change: To conclude AP.
Speaker Change: Is going to be relatively flat for the year not a significant driver of that so to.
Speaker Change: To conclude we are seeing that.
Speaker Change: We are making progress on our working capital.
Speaker Change: Obviously.
Speaker Change: Sorry, you will see Q1 be a big build like we normally see.
Speaker Change: Traditionally it's just the normal seasonal nature of our business, but we are.
Speaker Change: Negative $70 million of flattish. This does take into account the current environment that we see right now and obviously, if we were running at current rates and if we see a significant pick up that will generate significant amount of cash.
Speaker Change: Cash costs of the cost savings.
Speaker Change: Oh, sorry, we don't expect a significant amount of the cash going out to generate the cost savings for this year.
Speaker Change: Thank you.
Speaker Change: Our next question comes from David Begleiter at Deutsche Bank, David Please mute your line.
Speaker Change: Question.
David Begleiter: Thank you John.
Speaker Change: Hi, David.
Speaker Change: How are you Hey, John and John just on the New cost program has relate to project neutron industry placed neutron or would you try and still.
Speaker Change: Progressing we are still in existence.
Speaker Change: With Nutrisystem still in existence, but again a lot of what we talked about our neutron as far as improvements had to do with volume. So this project does not have to do with volume it has to do with.
Speaker Change: I would say a lot of it is generated through operating improvements, but there is it's growing across every aspect of our business and we talked a little bit about technology, but.
Speaker Change: Another example would be what we're doing with Accenture. So we partnered with Accenture about a year ago.
Speaker Change: And although this we're just starting to do.
Speaker Change: Two pilots, we're doing a pilot with them, an AI driven solutions to support process control and decision making.
Speaker Change: Enabling predictive insights and faster response time and operational stability. So.
Speaker Change: These are <unk>.
Speaker Change: Technology driven processes on what we've already done rolling them out to other pieces of the business again, we're also looking at supply chain and optimizing our optimizing our vertical integration with respect to prioritizing ore blends.
Speaker Change: There's an SG&A element of it that we mentioned so this is across the entire business.
Speaker Change: A significant portion is in fact around our operational efficiency efficiency and reliability, but every aspect of our business as part of this program and we feel confident in that range of $125 million to $175 million run rate by the end of 2026, and our objective will be to try to fast track.
Speaker Change: As much of that as we can by prioritizing the projects that we feel will yield. The biggest results are the fastest result, and resourcing those appropriately.
Speaker Change: And on the SG&A portion of this program.
Speaker Change: Included in this number or am I wrong, we do this to.
Speaker Change: To get to that target.
David Begleiter: David Yes, we mentioned John mentioned, we're looking at everything here, but the biggest part of our SG&A is to make sure that our spend in <unk> is much more efficient here.
David Begleiter: As I mentioned, we don't see from this program in particular in the year, one having a significant amount of cash costs associated with it. So it is really driving SG&A improvement, but again, we are looking at every aspect of SG&A as well as other parts of our business to drive value.
David Begleiter: If you are curious if theres going to be.
David Begleiter: A big.
David Begleiter: Dollar amount attached to the SG&A. This is working the SG&A throughout the process.
David Begleiter: Looking at how we're filling vacancy and how we're redeploying that SG&A. So from a cost perspective, we don't anticipate this to be a huge cost.
David Begleiter: Great. Thank you.
Speaker Change: Our next question is from Pizza Osterlund at Truest Pizza. Please on mute your line and ask your question. Thank you.
Pizza Osterlund: Hey, Good morning can you hear me.
Speaker Change: Yes, Thanks Peter.
Speaker Change: Alright, thank you.
Speaker Change: Within your 2025 guidance could you size or give a range for the volume growth you are assuming for Iot.
Speaker Change: Well I'll give you a little bit when we think about.
Speaker Change: So on a percentage basis in the first quarter. When we think about where we were in the first quarter of last year. So Q4 to Q1.
Speaker Change: We saw a pretty sizable increase and we're seeing that as we move forward into 2025 first quarter and kind of the same kind of range.
Speaker Change: From a pure percentage basis.
Speaker Change: John.
Speaker Change: High single digits, yes.
Speaker Change: And then we've also got zircon improvement in that as well so across Tio two I'd say, it's high single digits.
Speaker Change: Percentage.
Speaker Change: Obviously as we look in the higher end of the range, we do see even more robust.
Speaker Change: That's driving the spread in our range primarily it's the.
Speaker Change: Volume and price.
Speaker Change: The higher end.
Speaker Change: We don't we won't give a lot of color specifically on regional breakdowns, but in the first quarter. We made reference that we were already starting to see some improvement.
Speaker Change: As a result of some of the duties that are already in place in Latin America, specifically, Brazil and Europe. So now.
Now, we're starting to see a little bit of a lift even in the order book in Asia Pacific North America is still remaining relatively stable, we haven't seen a huge pickup there yet but as we as.
Speaker Change: As we move throughout the year.
Speaker Change: We're expecting those numbers to increase.
Speaker Change: That's very helpful. Thank you and then just as a follow up what are you assuming in the guidance in terms of <unk> market share maintain your share from <unk> or do you expect you may be able to gain share.
Speaker Change: So.
Speaker Change: Clearly we have lost some share to the Chinese over the course of the last several years and.
Speaker Change: As demand.
Speaker Change: It has an impact on our numbers for this year, but clearly.
Speaker Change: Part of that will be market share recovery from what we've lost from China.
Speaker Change: So I'd say the majority of the share gain is going to come in that area. We've talked about this historically strategically protecting some market share.
Speaker Change: We had to be somewhat competitive on price with some of the pretty significant most China made on pricing.
Speaker Change: With dumping in place in Europe, and in Brazil, as I mentioned earlier, it looks like it's going to be moving into <unk>.
Speaker Change: India.
Speaker Change: By the second quarter, we have a bit of a unique advantage because we've got a free trade agreement.
Speaker Change: The facility that we shipped the majority of our material out of Australia into India. So I would say there'll be share gain in that area.
Speaker Change: Yeah.
Speaker Change: Got it thanks for the color.
Speaker Change: Our next question comes from Frank Mitsch Fermium Research. Please.
Speaker Change: Line to ask your question.
Speaker Change: Okay.
Speaker Change: Good morning.
Speaker Change: When I come back to the mining costs of $50 million to $60 million negative impact for 2025, you mentioned February starting up midyear.
Speaker Change: Is it fair to say that most of that impact the comps in the first half of the year and then starts to decline Furbies comes up.
Speaker Change: And 50% to 60 kind of sounds like a sizeable number I'm curious if you guys have.
Speaker Change: Looked at.
Speaker Change: Sure.
Speaker Change: Your input costs, your mining costs and getting the ore and so forth.
Speaker Change: Versus if you were to buy on a depressed open market today, how much of a competitive advantage if any.
Speaker Change: Are you seeing in the early part of 2025 in terms of make versus buy.
Speaker Change: Thanks Frank.
John Romano: So I'll start and I'll, let John answer color towards so just I mean, when we think about the additional cost. It really has a lot to do with Easter RFS and the delay that we had so we're mining in areas right now that historically had we not made that delay we probably wouldn't be mining in so there is a bridge to get to these richer ore deposits.
John Romano: Historically said that our advantage from vertical integration is $3 to $400 a ton.
John Romano: It's definitely being impacted in the first half of the year to your point as we migrate out of these older mines until a richer ore bodies. So.
John Romano: Would it make it would still it still had been pages for us to be vertically integrated but the advantage that we have and have historically described as 3% to $400. A ton is a bit less as we are transitioning out of these two old mines.
Speaker Change: <unk>, John you're absolutely right, we are seeing much.
John Romano: More hurt in the first quarter, a little bit less in the second quarter and then.
John Romano: Trailing off in throughout the rest of the year. You mentioned you will see that fully revert in 2026.
John Romano: Yes. So we mentioned we are still maintaining a significant advantage over our competitors from vertical integration. If we look at what's out there from a comparable or market price.
John Romano: It has gone down a little less but still within our range that we normally quote around $300 million per ton and I guess the other element that is.
John Romano: If we were to go out and start buying a lot of or are we still are.
John Romano: Our upgrading facilities, where we're making slag and this is a short transition period. So.
From a cost perspective.
John Romano: Short bridge by buying externally versus using our current assets would be more of a hurt than it would be a help.
Speaker Change: Okay. Thank you that's helpful.
Speaker Change: I also want to talk about starting 2025.
Speaker Change: Some of the problems in 2024, where the high cost inventory flowing through that was on the order of magnitude of like $30 million a quarter.
Speaker Change: You also referenced the cost improvements in the second half of 'twenty.
Speaker Change: Bart.
Speaker Change: All of the cost improvement that has happened so what sort of expectation.
Speaker Change: Just kind of isolating the.
The high cost inventory that you faced in 2024.
Speaker Change: In 2025, and the sort of improvement that we could see from that.
Speaker Change: Yeah, Frank Thanks for that question.
Speaker Change: As you know we have been running.
Speaker Change: Our facilities that.
Speaker Change: Expected utilization rates.
Speaker Change: Third quarter and fourth quarter, and so we actually have seen that in our numbers and you can take a look at our year over year bridges, where we have we've mentioned that we have $75 million in Q4 versus prior year Q4, when we were running at lower rates. So that $75 million is real and we're seeing it come through our numbers in.
Speaker Change: And so we mentioned we expect to run at that level throughout the year and expect not that every quarter as we've as we've ramped up.
Speaker Change: Half of 2024, so we will see that benefit flow through in the first half of the year more but thats were running it.
Speaker Change: Rates in the second half of 'twenty five consistent with 24, you'll see lots of that benefit, but as we mentioned the biggest headwind there is in the mining side of it that pretty much if not more than offsets at this point.
Speaker Change: The benefits that we expect to see from our pigment plants cost improvement.
Speaker Change: Okay.
John Romano: Alright, thanks, so much John Thank you.
Speaker Change: Our next question is from Michael <unk> at Barclays. Michael You May know Amit your line and ask your question.
Speaker Change: Great. Thank you good morning, Jim.
Speaker Change: First question outside of or how are you seeing other inputs, such as chlorine and energy trend for 2025.
Speaker Change: Yes. So we are seeing generally speaking outside of or that our raw material costs will be declining on average in the low single digits year over year from a pricing perspective.
Speaker Change: It will depend of the material for example, we've always said electricity, we consume a lot of electricity in South Africa that does go up pretty significantly double digits every year as well as things like very specific coal in Australia that has gone up pretty significantly given the priorities they have there.
Speaker Change: But we do expect to have savings as you mentioned in areas like chlorine anthracite and coke, So overall down low single digits.
Speaker Change: Great that's helpful and then.
Speaker Change: If I think about the full year EBITDA guide and the cadence tronox historically seen a bit of a seasonal pick up from the fourth quarter to the first quarter. It seems like based on your full year mid point and the heavier second half weighting. It seems like first quarter might be relatively flat sequentially or maybe even <unk>.
Speaker Change: Is that the right calibration or no.
Speaker Change: Yes, I think you are getting at the right rate numbers on on Q1 versus Q4, and when you say, there's a couple of things that are going into that right, we talked a little bit about the price.
Speaker Change: Another element, where we have a planned outage at our Butler facility in the first quarter.
Speaker Change: That outage is actually planned around our chlorine providers outage.
Speaker Change: Normally this every this outage happens every two years and then historically, we've been able to buy merchant chlorine during that outage.
Speaker Change: Regulations have changed which don't allow us to buy chlorine via rail or truck. So that outage is going to be a bit longer than it would be normally and that's aligned with our Korean producers. So theres, an element of that which in the first quarter.
Speaker Change: Call it $7 million to $10 million.
Speaker Change: And just to complete a couple more things on Q1, obviously, it's the mining hurt that I mentioned in an earlier question, but also normally Q4 to Q1 when you turned the year, there's usually a reset on employee costs, when you're making higher contributions on.
Speaker Change: Unemployed benefits and then normal merit.
Speaker Change: Got it thank you.
Jeff Zekauskas: Our next question comes from Jeff Zekauskas at Jpmorgan, Jeff. Please press Star two Amit your phone line. Thank you.
Speaker Change: Yeah.
Jeff Zekauskas: Thanks very much.
Speaker Change: Earlier in the call did you say that you were going to build inventories.
Jeff Zekauskas: First quarter.
Jeff Zekauskas: Through debt.
Speaker Change: Time.
Speaker Change: You do build inventories in the first quarter, but you didn't do that in 'twenty four 'twenty two.
Speaker Change: And your inventories are high.
Speaker Change: Why would you build inventories.
Speaker Change: Yes, so so what.
Speaker Change: What I mentioned on the call was that.
Speaker Change: <unk> builder of working capital use of working capital is and we do expect throughout the year that inventory will be a source of cash but it is primarily driven by the lower cost per ton is the value of inventory as we have improved our cost structure there is going down.
Speaker Change: And I think.
Speaker Change: Historically first quarter.
Speaker Change: As we think about.
Speaker Change: Seasonal builds for painting season, we would build inventory.
Speaker Change: You draw it down in the second and third new build in the fourth and again, when we think about where we are depending upon where we land in that range.
Speaker Change: Planning to produce what we sell.
Speaker Change: Throughout the year.
Speaker Change: Okay.
Speaker Change: Which are the geographic regions, where prices are going down and which are the geographic region, where prices are going up.
Speaker Change: Yes, we don't typically provide a lot of guidance on regional pricing, but I will give you some color as I mentioned.
Speaker Change: In Europe, we have seen some competitive activity on pricing and at the same time in some areas in Europe, we're starting to get price traction so.
Speaker Change: Brazil, we're starting to see some opportunities to move prices in the upward direction. So in the first quarter I would say, it's a bit of a mix.
Speaker Change: Theres still some competitive activity in Asia.
Speaker Change: So we're starting to see an opportunity from some of the announcements that have come from China, where pricing is starting to move up so it's a bit of a mix and as I mentioned and when we think about pricing for the first quarter, it's going to be in the same kind of range call. It 1% to 2% down in the first quarter and then we'll start to see.
Speaker Change: Well start to plan for.
Speaker Change: Looking at price improvement towards the second half of the year.
Speaker Change: Great. Thank you so much.
Speaker Change: Our next question is from John Roberts at Mizuho, John Please on mute your line to ask a question. Thank you.
John Roberts: Can you hear me.
Speaker Change: Yes.
Speaker Change: Yes, what do you think China capacity and production will grow in 2025.
Speaker Change: So great question it depends on what they announced and what they do I mean, we're hearing a lot of pullback from some of the production so.
Speaker Change: I guess it just depends on what source you read if you read.
Speaker Change: Some of the.
Speaker Change: Our consultants out there are saying that theyre still announcements and what we're seeing on the ground again, we have a plant there.
Speaker Change: And we would expect that there shouldnt be a lot of growth in <unk>, especially as far as production goes as a lot of these duties are starting to play out.
Speaker Change: But.
Speaker Change: There is still some announcements out there for <unk>.
Speaker Change: <unk> is whether or not they can be implemented but again, we're starting to see pullbacks whether there.
Speaker Change: Short term pullbacks on production or longer term mothballing, its still yet to be determined.
Speaker Change: And do you have the inventory of ilmenite and heavy mineral concentrate but just no opportunities for sale or have you depleted your excess inventories.
Speaker Change: We have some inventory but.
Speaker Change: Of those one off sales or more of tailings that.
Speaker Change: We're not planning on selling that as a repeating those anymore. So we have I believe the inventory that we need therefore, we're not looking to sell that material anymore again with our mining developments, we do continue to grow our.
Speaker Change: Our inventory there as we progress throughout the months.
Speaker Change: Great. Thank you.
Speaker Change: Our next question is from Duffy Fischer at Goldman Sachs Duffey. Please Amit your line is now.
Amit: Yes, good morning.
Speaker Change: There was one strategic move in North America.
Speaker Change: And that's where basically exited via the sale of its JV.
Speaker Change: In your view, what's happened to the market share that they had in the North American market.
Speaker Change: Well by definition.
Speaker Change: The acquire of.
Speaker Change: <unk> should have picked that up.
Speaker Change: But I would say that theyre trying to.
Speaker Change: Make sure they maintain that share so that was.
Speaker Change: We all know who bought that.
Speaker Change: So you think it was a one for one because they said that they did not buy the client list for that so it seemed like that was kind of a.
Speaker Change: That was up for grabs but you think basically they just backed into all of the same volume and there werent meaningful shifts in customers versus producers.
Speaker Change: Yes again.
Speaker Change: A pretty known universe with regards to who the customers are in North America.
Speaker Change: I can't tell you exactly because I don't.
Speaker Change: Bold vision into that but I wouldn't I wouldn't suspect they lost the loss share.
Okay, and then even though you don't play a lot in this market, what's your view what happens with both ilmenite and higher grade ores.
Speaker Change: The global market for this year as far as pricing goes.
Speaker Change: Yes, I think John touched on it earlier.
Speaker Change: Ralph.
Speaker Change: Other raw materials, but right now we don't see a significant.
Speaker Change: Outlook, where pricing for orders are going to go up a lot.
Speaker Change: Yes, a lot of it will depend on the speed of the recovery.
Speaker Change: Well I guess more importantly, do you see raw materials for your competitors going down this year.
Speaker Change: We're not in the market for ore, but we have a good window on that and I don't see the order prices should be going down significantly in 2025, I mean there.
Speaker Change: It hasnt been over the past couple of years significant investment and finding expansions other than us. So it does take many years, because we are well aware of to bring those online and so without that investment you would expect it to maintain.
Speaker Change: <unk> similar to what we've been experiencing in the past couple of years.
Speaker Change: Great. Thank you guys.
Speaker Change: Our next question is from Hassan Ahmed of Alembic Global Advisors.
Speaker Change: Thanks, Tim on mute your phone line.
Speaker Change: And once again.
Speaker Change: Thanks.
Speaker Change: Online.
Speaker Change: John can you hear me yes.
Speaker Change: Yes, we can hear you.
Speaker Change: Good morning, John.
Speaker Change: So first on the guidance.
Speaker Change: I was a bit surprised by it I mean, you guys are guiding to an incremental year on year or $10 million to $110 million.
Speaker Change: And as I sort of look.
Speaker Change: The macro environment.
Speaker Change: Inventories are lean right.
Speaker Change: Pricing in theory should go up because the marginal producer is actually not really making any cash.
Speaker Change: And as I sort of try to read through.
Speaker Change: Your commentary I mean, it seems you guys are dedicating your guidance only on volume growth rate. So is pricing playing a role.
Speaker Change: Are you factoring in any inventory restocking.
Speaker Change: Some more color around the guidance would be helpful.
Speaker Change: Yes, so I'll start with we're.
Speaker Change: We're not only focusing on volume growth there is an assumption in the back half of the year that pricing moves as well, but if you're backing into margin based off of the revenue guide versus the EBITDA Guide. There's also this cost.
Speaker Change: Element that we talked about on the mining side again, we referenced that at $50 million to $60 million.
Speaker Change: We gave you a little bit of a preview even on this again planned outage, we've got about liquids seven.
Speaker Change: $7 million to $10 million, but theres definitely an assumption.
Speaker Change: And I would say, it's a reasonable assumption on pricing in the second half, but it's not all based on volume.
Speaker Change: Yeah, and just to recall as we mentioned earlier you did have some other products onetime sales and last year that as John mentioned, we will not be doing in 2025.
Understood understood and now as a follow up on the anti dumping side of things.
Speaker Change: I mean look.
We've talked about.
Speaker Change: Sort of potential market share gain.
Speaker Change: Being north of 600000 tons right.
Speaker Change: I mean, where does that stand because as I sort of take a look at the trade data.
Speaker Change: Seems that China in particular to the fourth of 2024 was exporting pretty heavily so I mean.
Speaker Change: And maybe you could also sort of shed some light on how that reflects in your guidance as well are you factoring in any sort of.
Speaker Change: Anti dumping tailwind for you guys.
Speaker Change: Yes, so if you think about.
Speaker Change: The last several months and almost like the last five to six months.
Speaker Change: Exports out of China have started to trail down in that 600000 tons that you referenced.
Speaker Change: Basically made up of Brazil of the EU and India.
Speaker Change: And we have started to see an uplift in Europe, and we've started to see an uplift in Europe and Brazil.
Speaker Change: <unk>.
Speaker Change: There is absolutely an element of the volume growth that is factored to what we believe we will attain through debt.
Speaker Change: Activity, that's going on in anti dumping.
Speaker Change: And as I mentioned in India. This morning definitive duties.
Speaker Change: We are recommended and.
Speaker Change: The way that process goes now is that it must be approved by the minister of finance in India within 90 days and we have a pretty.
Speaker Change: Pretty high level of confidence that those will get approved so India is a market that.
Speaker Change: Call. It 460000 tons, a year 300000 tons of that comes from China.
Speaker Change: And the duties that were outlined range from $600 a ton depending upon supplier down to around $500. A ton. So those are meaningful duties and that's something that hasn't been factored in to our first quarter, but we should start to see those numbers play out and again that was announced this morning.
John: Very helpful. John Thanks, so much.
Speaker Change: Okay. Our next question is from Vincent Andrews with Morgan Stanley.
John: Your line in your question.
Justin Pellegrino: Good morning, This is Justin Pellegrino on for Vincent.
Justin Pellegrino: You gave some really helpful color on the South African projects there in the slide deck in the Capex you spent over the last couple of years. The projects were delayed from 'twenty three and done in 'twenty four and we just wanted to get an idea of what.
Maintenance Capex is for 2025 first growth and kind of what does that look like in a standard geared given we've had some ups and downs over the last couple of years any color around that would be helpful. Thank you.
Justin Pellegrino: Yes, generally our maintenance capex ranges from about $125 million to $150 million in the past several years. It is at the more elevated level just given.
Justin Pellegrino: Cost inflation, and where we're focusing on on our plants.
Justin Pellegrino: So the majority of the remaining it does relate to growth areas, we did spend $130 million last year in mining.
Justin Pellegrino: Capex do you expect to roughly around that level, a little bit lower this year.
Justin Pellegrino: Perfect. Thank you.
Speaker Change: For our final question I'll hand, it back to Frank Mitsch Fermium, Frank Please on mute your line and ask your question.
Speaker Change: Very happy that you hit it back to me.
Speaker Change: Just a question on slide 10 capital allocation priorities.
Speaker Change: If I'm just looking at how they are ranked number one investing in value creation projects number two pay down debt.
Speaker Change: Preserve liquidity number three maintaining the dividend so I'm just curious.
Speaker Change: Am I looking at that right I assume basically I'm asking the commitment to the dividend.
Speaker Change: Given the fact free cash flow might be neutral to negative.
Speaker Change: So for it then how do you think about your dividend.
Speaker Change: Yes, Thanks, Frank look we're still supporting the dividend Thats still a priority for us and when we think about 2025 and the guidance. We provided our plan is to maintain the dividend.
Speaker Change: Thank you.
Speaker Change: And that concludes the Q&A portion of the webcast I will now turn the call back over to John Romano for closing remarks. Thank you.
Speaker Change: Thanks Danny.
Speaker Change: Just to summarize a few key points from the call.
Speaker Change: While we are incurring some higher cost on the mining side of the business as a result of capital delays as we discussed from two years ago, we're making a lot of progress on the overall business and we're already seeing cost improvements on the pigment side of the business with the work we've already started to execute on cost savings opportunities and we will deliver significant additional value from the cost savings.
Speaker Change: Program that we size today, we remain well positioned to respond to the market and meet the customer needs as the market continues to improve and we're improving our cash flow. This year and have a line of sight to significant cash flow improvements in the future.
Speaker Change: We're excited about the path ahead and look forward to keeping you updated on our journey.
Speaker Change: That is the call for today, we thank you for joining.
Speaker Change: Okay.