Brennen Arndt - Tronox Ltd. Thomas J. Casey - Tronox Ltd. Timothy C. Carlson - Tronox Ltd. Jean-François Turgeon - Tronox Ltd. Edward T. Flynn - Tronox Ltd..

Hassan I. Ahmed - Alembic Global Advisors LLC John Roberts - UBS Securities LLC Edlain Rodriguez - UBS Securities LLC Christopher Silvio Perrella - Bloomberg Intelligence Christopher Ryan - Bank of America Merrill Lynch Jonathan Richard Evans - SG Capital Management LLC Richard O’Reilly - Revere Associates.

Good day, ladies and gentlemen, and welcome to the Tronox Limited Q1 2017 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Brennen Arndt, Vice President of Investor Relations. Sir, you may begin..

Thank you, Heather, and welcome everybody to Tronox Limited's first quarter 2017 conference call and webcast. With me today are Tom Casey, Chairman and CEO; Tim Carlson, Senior Vice President and CFO; Jean-François Turgeon, President of Tronox TiO2; and Ed Flynn, President of Tronox Alkali.

We'll be using slides as we move through the conference call today. Those of you listening by Internet broadcast through our website should already have them. And for those of you listening by telephone, if you haven't already done so, you can access them on our website at tronox.com.

A reminder today that our discussion will include certain statements that are forward-looking and subject to various risks and uncertainties, including but not limited to the specific factors summarized in our 2016 Form 10-K. This information represents our best judgment based on today's information.

However, actual results may vary based on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements. Also during the conference call, we will refer to certain non-U.S.

GAAP financial terms that we use in the management of our business, including EBITDA, adjusted EBITDA, free cash flow and adjusted earnings per diluted share. EBITDA represents net income before net interest expense, income tax and depreciation, depletion and amortization expense.

Adjusted EBITDA represents EBITDA as further adjusted for non-cash unusual and non-recurring items. And free cash flow represents cash flow provided or used in operating activities less capital expenditures. Adjusted earnings per diluted share represents EPS also adjusted for unusual or non-recurring items on a fully-diluted basis.

Reconciliations are provided in our earnings release. It's now my pleasure to turn the call over to Tom Casey.

Tom?.

Thank you, Brennen, and good morning, everyone. Normally, it's my pleasure to review our quarters with you. That would be particularly the case this quarter, but as you can hear, my voice is still not recovered. So I've asked Brennen to take you through to review presentation.

Brennen?.

Great. Thank you, Tom. Our first quarter performance provided a very strong start to 2017 as our TiO2 and Alkali businesses combined to deliver $123 million of adjusted EBITDA and $132 million of free cash flow. Our TiO2 business exceeded the very aggressive goals we set for our first quarter performance.

Driving this strong performance in TiO2 were higher pigment selling prices, up 4% sequentially and up 16% above prior year; higher sales volumes including the highest single-month pigment sales volume since June of 2009, which we achieved in March; significantly higher titanium feedstock and zircons sales as well as continued cost savings from our Operational Excellence program.

We see the momentum in our TiO2 business continuing across the balance of this year and expect to benefit from additional set pigment selling price increases, firming conditions in titanium feedstock and co-products markets, and continued margin expansion sourced from top line growth in both pigment and historically higher margin feedstock as well as cost savings from our Operational Excellence program.

Our Alkali business delivered adjusted EBITDA of $38 million and free cash flow of $41 million in the quarter, despite record severe winter weather conditions at our Wyoming production facility, which impacted adjusted EBITDA by $4 million in the quarter. Our cash generation in the quarter reflected the strong performance by both businesses.

We closed the quarter with cash of $265 million and liquidity of $560 million, up from cash of $248 million and liquidity of $533 million respectively as of December 31 of last year. The first quarter was certainly a milestone one for Tronox, marked by the signing of a definitive agreement to acquire Cristal's TiO2 business.

Our integration planning is actively underway, so that we can from day one realize the substantial value creation enabled by this combination. We also began a process to market our Alkali business and have received strong initial expressions of interest from both strategic and financial parties.

At the same time, we continue our laser-like focus on generating high performance from our current portfolio. We are confident that 2017 will be a year of strong performance, and that 2018 will be a transformational one for Tronox. Moving to slide 4 for a review of TiO2's first quarter performance.

In our TiO2 segment, revenue of $378 million was 33% higher than $285 million in the year ago quarter, driven by higher pigment sales volumes and selling prices coupled with higher zircon and CP slag sales volumes.

Pigment sales of $272 million increased 26% compared to $216 million in the year ago quarter, as sales volumes increased 9% and average selling prices increased 16% or 17% on a local currency basis. Pigments selling prices were higher in all regions.

Titanium and feedstock (sic) [Titanium feedstock] and co-product sales of $92 million were 61% higher than $57 million in the year ago quarter. Zircon sales volumes increased 89% as a result of healthy market conditions and tighter inventories globally, while selling prices were 10% lower.

CP slag shipments sold under the contract for 100,000 metric tons began in the first quarter, whereas there were no sales of CP slag in the year ago quarter. Ilmenite sales volumes increased 35%. Sales volumes for natural rutile were 4% lower, while selling prices increased 4%.

Pig iron sales volumes were 8% lower, but selling prices were 28% above the prior year quarter, driven by rising iron ore selling prices in the first quarter. TiO2 segment income from operations of $32 million improved from a loss of $36 million in the year ago quarter.

TiO2 segment adjusted EBITDA of $85 million was up 286% or $63 million higher than $22 million in the year ago quarter.

Driving this strong performance were higher pigment sales volumes and selling prices, significant continued cost reductions resulting from our Operational Excellence program and the benefit of higher pigment production efficiency and plant utilization.

This strong adjusted EBITDA growth was achieved despite $20 million of foreign exchange headwinds with approximately two-thirds of that coming from the South African rand and approximately one-third from the Australian dollar.

Compared sequentially to the fourth quarter, TiO2 segment revenue of $378 million increased 7% versus $352 million in the fourth quarter, driven primarily by higher pigment sales volumes and selling prices.

Pigment sales of $272 million were up 11% over sales of $246 million in the fourth quarter as sales volumes increased 6% and selling prices increased 4%, also 4% on a local currency basis. Selling prices were higher in all regions. Titanium feedstock and co-product sales of $92 million were level to the fourth quarter.

CP titanium slag sales were level while ilmenite sales volumes increased 86%. Zircon sales volumes were 4% lower while selling prices improved by 1%. Natural rutile sales volumes were level and selling prices were 3% lower sequentially.

Pig iron sales volume strongly at 11% and selling prices were up 26%, driven again by higher iron ore prices during the quarter.

TiO2 segment income from operations of $32 million improved from $18 million in the year ago – in the fourth quarter rather, and adjusted EBITDA of $85 million improved by 6% from $80 million in the fourth quarter, driven again by higher pigment sales volumes and selling prices.

TiO2 delivered free cash flow of $91 million in the first quarter as cash provided by operating activities was $111 million, less capital expenditures of $20 million. Moving to our Alkali business on slide five, Alkali segment revenue of $191 million was level to the year ago quarter as sales volumes were 5% higher and selling prices were 4% lower.

Revenue in the quarter was reduced by $5 million as lower sales volumes resulted from lower production volumes due to record severe winter weather conditions at our Wyoming production facility early in the first quarter.

The region was hit with heavy snowfall and record low temperatures that fell for more than 40 degrees below zero for successive days in January. The regional utility experienced a number of power outages, and railcar availability for product shipments was limited.

In the domestic market, sales volumes were 3% lower due to lower demand in container glass and detergent markets while selling prices were 2% lower due to customer mix and freight pass-through cost.

In export markets, sales volumes increased 13%, driven by strong demand in both Asia-Pacific and Latin America while selling prices were 2% lower than the year ago quarter. Income from operations was $19 million in the quarter compared to $21 million a year ago.

Alkali segment adjusted EBITDA of $38 million increased from $36 million in the year ago quarter despite the $4 million reduction resulting from the record severe winter weather conditions, and again was driven by operating cost reductions and higher plant efficiencies.

Compared sequentially to the fourth quarter, alkali revenue of $191 million declined 3% from $197 million in the fourth quarter. Sales volumes declined 3% which was also impacted by lower production volumes due to the record severe winter weather. Selling prices were level, however, to the fourth quarter.

Domestic sales volumes declined 4% while selling prices were up 2%. Export sales volumes and selling prices were both 2% lower than the prior year quarter.

Income from operations of $19 million compared to $31 million in the prior quarter, and adjusted EBITDA of $38 million was down 17% from $46 million in the fourth quarter, driven by lower sales and production volumes as well as higher energy and operating costs, again primarily resulting from the record severe winter weather.

Alkali delivered free cash flow of $41 million in the first quarter, as cash provided by operating activities was $53 million and capital expenditures were $12 million. I'll now turn the call over to Tim for a review of our financial position.

Tim?.

Thanks, Brennen. I'll begin with a review of corporate and consolidated items, then move to our balance sheet and cash flow statements. The corporate loss from operations was $35 million compared to a loss from operations of $16 million in the year ago quarter and a loss from operations of $16 million in the fourth quarter.

The higher loss from operations in the first quarter includes higher professional fees of $15 million and related to the Cristal transaction and a process to market our Alkali business, which had a $4 million impact and a corporate adjusted EBITDA as well as certain non-cash employee retirement related and other costs of $10 million.

Corporate adjusted EBITDA was a negative $22 million compared to adjusted EBITDA of a negative $18 million in the year ago quarter, and adjusted EBITDA of a negative $21 million in the prior quarter. Moving to professional fees. Adjusted EBITDA would have been relatively flat in the period.

Corporate cash used in operations was $104 million, which included a semi-annual bond interest payment of $51 million which you can also see in the prior year quarter. This payment is made in the first and the third quarters of each year.

Selling, general and administrative expenses were $74 million in the first quarter compared to $50 million in the year ago quarter and $59 million in the prior quarter. The higher expenses in the quarter were due to the $15 million professional fees and the $10 million of non-cash employee retirement related and other costs previously mentioned.

Interest and debt expense of $46 million was level to $46 million in the year ago quarter and $47 million in the prior quarter. On March 31 2017, gross consolidated debt was $3.05 billion and debt, net of cash and cash equivalents, was $2.79 billion.

We closed the quarter with cash of $265 million, and liquidity of $560 million, up from cash at $248 million and liquidity of $533 million respectively as of 12/31/2016. Our blended cost of debt was 5.6% in the first quarter, and on March 31, 2017, 48% of our total indebtedness was set at a fixed rate.

Cash interest for the full year is expected to be in the $170 to $180 million range. Capital expenditures were $32 million and depreciation, depletion and amortization expense was $61 million in the quarter.

Capital expenditures for the full year are expected to be approximately $150 million, and we expect full year depreciation, depletion and amortization come in at approximately $245 million. With that, I thank you, and I will now turn the call back to Brennen..

Thanks, Tim. We'll close our remarks this morning by sharing our perspective on 2017. As we've said we are confident that 2017 will be a year of strong performance for Tronox and then 2018 will be a transformational one for Tronox.

We see the momentum in our TiO2 business continuing across the balance of this year and expect to benefit from additional pigment selling price increases, continued firming conditions in titanium feedstock and co-products markets, as well as margin expansion sourced from top line growth in both pigment and historically higher margin feedstock as well as continued cost savings from a very successful Operational Excellence program.

We see the tightness in the global supply demand balance continuing, and this includes taking into account Chinese pigment producers. We believe that pigment inventories in aggregate remain at or below normal levels at both customer and producer locations globally, again, including Chinese pigment producers.

We also believe pigment producers globally are running at very high utilization rates and also including Chinese producers, and those Chinese producers when they are not impacted by curtailments or shutdowns driven by environmental regulations or limited by ilmenite feedstock supply. The net result is little untapped global capacity.

Market conditions for the first level titanium feedstock ilmenite further support this expectation. Since the beginning of 2016, ilmenite selling prices in China have increased 260% through the first quarter of this year. Key magnetite mines in China that co-produce ilmenite remain shuttered, thus limiting the supply of ilmenite to pigment producers.

Chinese pigment selling prices are directly correlated to movements in ilmenite prices. As a result, Chinese pigment producers continue to raise both domestic and export selling prices. Through the first quarter of 2017, Chinese domestic selling prices offered on a delivered basis are approximately 65% higher than prices offered at the start of 2016.

In export markets, selling prices offered on a CIF basis are up approximately 45% from the start of 2016. We believe this supply tightness and rising price environment in China will continue in both ilmenite and pigment.

As ilmenite is the primary feedstock for higher grade feedstock production such as titanium slag and synthetic rutile, producers of high grade feedstock are facing cost pressures.

As a result of these cost pressures coupled with continued strong pigment market conditions, we are expecting firming conditions in the high grade feedstock markets as this year progresses. This in turn should provide cost pressures on non-integrated pigment producers who purchase feedstock providing further motivation for pigment selling prices.

However, under this scenario as a fully integrated producer, we will benefit from the rising margins at both feedstock and pigment levels. With respect to our own CP slag inventory and production, last year, we signed a 100,000 metric ton supply contract. The first shipment under that contract occurred in the first quarter.

This contract plus demand from our pigment business has enabled us to further reduce our feedstock inventories and restart the two furnaces in South Africa that were shuttered in 2015. All four of our furnaces are now in operation. Going forward, we will benefit from the enhanced fixed cost absorption as well as have more by-product pig iron to sell.

In our Alkali business, we expect 2017 to deliver a year of higher adjusted EBITDA and robust free cash flow, driven by improving market conditions especially in export markets and the benefit of cost reduction initiatives currently underway. With those remarks, I thank you. We'll now open the call for questions.

Heather?.

Thank you. Our first question comes from Hassan Ahmed with Alembic Global. Your line is open..

Morning, Tom and Brennen..

Morning..

Guys, as I was taking a look at some of the sequential sort of moves particularly within the TiO2 segment, I mean you guys have reported a $26 million increment in revenues, but the EBITDA increment is only $5 million.

So I'm just trying to reconcile – I would have thought that with sort of rising volumes, rising pricing, operating leverage would kick in and the EBITDA uptick would be far greater than that $5 million. So I'm just trying to understand what's going on over there. Were costs higher? I mean any sort of help reconciling that would be appreciated..

Sure. Let me pass that to Jean-François who is here with your response..

Hassan, I think that we announced that we restart our furnace in that first quarter. And there is some additional cost that was associated with restarting those operation. We also restart some of our mining assets to link with those furnace restart. And I think that is the explanation.

But as we progress in the year, we'll have the benefit of the fixed cost absorption with more production out of those asset that we put back in production. But in the first quarter, we obviously had to carry the additional costs..

Understood.

But would it be possible to get some sort of an estimate as to what sort of a EBITDA hit arose from that?.

Look, I'd say low single, it's a million dollars EBITDA impact..

So a couple of million dollars?.

A few, yeah..

Okay. Perfect. So thank you for that. And as a follow-up, I don't know whether you guys are in a situation to sort of update us on the Cristal side of things, be it the timing, be it – obviously now having spent a little more time post the announcement, what you guys are thinking in terms of synergies..

Hassan, this is Tom. Yeah, the process of integrating and working with Cristal is going well. We have teams at both companies that are actively engaged in integration planning. We've discovered no new surprises, no negative developments. We remain very confident in the synergy numbers that we announced. The regulatory applications are going in.

We filed .scot. (22:14) We filed in Australia. Other filings around the world are on the way, and we see no new unanticipated obstacles. So everything is going as we expected and no problems have developed..

Fantastic. Thank you so much for that, Tom..

Thank you. And our next question comes from John Roberts with UBS. Your line is open..

... answer. I think there was an issue still with the Jizan slag plant and a potential opportunity there. I think you guys have some skill sets that might be able to help them with that operation.

I don't know if you can address that yet or is that still going to take some time to figure out?.

Yeah. The issue is that they have so far been unable to put that into a commercial commissioning. We have people on our team who have designed and put slag furnaces into operation, and they have already before signing and after signing begun to look at the issue.

Our intention, as we said at the announcement, was that we would work with Cristal to try to conclude an acquisition of that facility once the operational commissioning had been perfected basically – had been realized. We're working on that.

We won't be able to do that, certainly not before closing, but we think that will be part of the supply story for us on slag going forward..

And then secondly a soda-ash question, your competitor, Ciner, I believe, has a major expansion coming up in Turkey later this year.

Should we expect an effect on the export pricing in the industry as that expansion comes into the marketplace?.

Hi, John. This is Ed. We saw a little bit of pricing pressure in some of the export markets this year, as that product was pre-sold or buyers leveraged it. What we know right now is that the (24:43) the 500,000 ton expansion came online in March. We haven't seen that material in the market yet.

What Ciner had said publicly is that the 2.5 million tons will come on in August. That is a greenfield expansion, so we'll just have to see if it comes online the way they are anticipating..

Okay. Thank you..

But in the long run, we believe that demand is going to grow ex-China somewhere between 800,000 and 1 million tons over the next three years. So in less than three years, that expansion will be absorbed if there are no synthetic shutdowns, and most times, when there is a natural expansion somewhere, synthetic plants ultimately shutdown..

Okay. Thank you..

Thank you. And our next question comes from Edlain Rodriguez with UBS. Your line is open..

Thank you. Good morning, guys. Just one quick one on volume growth that we see in the pigments in TiO2. I mean this seem to be higher than the end market growth. Like what do you think is going on there. Is there like pre-buying going on in the industry? I mean just trying to get your thoughts there..

Yeah. I think as we've said in past calls, we have had a very concerted strategy underway for well over a year now to tie ourselves with the higher growing paint and plastics customers. You're seeing that benefit in our quarterly results and our volume numbers particularly.

So that I think is a large explanator of the reason that we're outperforming, if you will, the overall market growth..

And I would add to that that in March we have experienced our bestselling month since June 2009, and that's in line with the beginning of the high season for our business. So it's not unusual to have at the end of the first quarter, especially when the weather is good, the situation where there is higher sales.

But we are tracking very closely our own inventory and the inventory of our customer, and our target is to be below or at normal level and at the moment, we're still at below inventory level..

Yeah. We're not sensing any pre-buy to any degree amongst our global customers at all..

Okay. I mean just one quick one on the cost savings program you have in place.

Like what's the progress there? Like are you achieving your targets? I mean, like, are we seeing all the cost savings flowing through?.

You remember that we took a three-year commitment of $640 million of cash – cumulative cash that we would deliver, and we're tracking very well to that commitment. And we commit to report that the second quarter and at the end of the year.

And as you know, at the end of last year, we had deliver and, in fact, exceed on our target for that program, and we continue to believe that we will deliver and exceed on this..

Okay. Thank you very much..

Thank you. And our next question is from Christopher Perrella with Bloomberg Intelligence. Your line is open..

...the payments, I thought it would have been improved at the corporate level, cash generation or cash use.

Can you just give some additional color as to why we're not seeing improvement on the corporate line?.

Hey, Christopher. The first half of your question, I think you were absolutely muted.

Can you repeat it please?.

Sure, the cash generation or the cash use of the corporate line accepting the bond payments is relatively flat year-over-year.

I was wondering what's slowing the progress of improvement there or what's the additional color on corporate cash use?.

Yeah. The other component of corporate cash in the Q1 was the compensation payments associated with bonuses. They get paid out in the first quarter of the year..

Okay.

And then shifting over to the TiO2, believe this time last year is when you restarted capacity, will we see a slowdown in year-over-year volume growth in the second quarter here as you lap the restart?.

Look at the moment, our plans have been pushed to capacity, and as part of our Operational Excellence program, we obviously focus on cost, but we also focus on what we call the hidden factory. And we've been very successful at improving the volume that we get out of our operation and that will allow us to continue to grow with the market..

So taking that comment, we'd see mid to low single digit volume growth in the second quarter?.

I think that's a fair assumption..

All right. Thank you very much..

Thank you. And our next question comes from Roger Spitz with Bank of America. Your line is open..

Hi, guys. This is Christopher Ryan on for Roger. Thanks for taking my questions. My first question, the TiO2 pigment prices were up 16% year-over-year, which appears well above your peer group recently reported, some all chloride, some with a chloride-sulfate mix.

Can you comment if this was a mix or geographically related?.

Look I think we have to congratulate our team on that very good result. And I would say that it's a global increase, probably stronger in Asia-Pacific than in the rest of the world. But globally, we saw improvement in all the markets where we operate..

Thank you. That's all my questions..

Thank you. Our next question comes from Jon Evans from SG Capital. Your line is open..

I have two questions and I hate to beat a dead horse, but I think a lot of us would try to really understand this. So you said basically that you had start-up costs sequentially that cost you $2 million or $3 million. So I mean if we said it was $2 million, that gets you $7 million sequentially on $27 million in revenues.

And I guess I'm really trying to struggle here with – that's like a 26% incremental when the margins are like 32%. So if you got 4% price, what was the drag? Are we going to see an acceleration in June of the margins? It just doesn't make mathematically sense..

Yes. And let me help you with a little bit more color around that. But I talked about restarting, so that's true. I think the other element that is important is in Q4 we always do shutdown of our pigment operation because it's a soft quarter for us and Q1 is also a bit soft.

So it is a right time to put our plant in perfect condition, so we can produce more in the high Q2 and Q3 season. And because of the inventory movement, that has an impact – the Q4 costs have an impact on Q1 and that explains some of the cost.

And the other element that we don't control is the exchange rate, the South-African rand, because all our costs are based in rand and we sell in U.S. and the rand has significantly appreciate in the first quarter. And it's the same thing with the Australian dollar.

So those have had a significant impact on our costs obviously because the costs are in South African rand and Aussie dollar and we continue to sell in U.S. So that's how you can reconcile the math..

Okay. Got it. And so you should see price – I mean the industry's announced significant price increases sequentially. You're saying volumes are going to be up low singles or high doubles.

So should we see margins accelerate or the incremental margins sequentially?.

That's what we expect..

Okay. And then the other question I have for you is just, can you....

One point that I'd like to say though, we're not expecting double digit growth. I mean we expect to grow that is in line with the growth of our customer going forward. That's how we have done our forecast..

Sure. No, I get you. And then the other question I have for you is someone else asked you where are you seeing the strongest pricing. And it was interesting to me that you said Asia. I was curious if you could comment at all about what you're seeing in Europe. So one of your competitors obviously had a force majeure. They haven't been able to deliver.

And one of your other competitor's plant blew up, et cetera.

So can you talk at all about what you're seeing in Europe and how much exposure you have in Europe and can you move any more product into Europe because of that?.

Look, obviously, the difficulty with the Pori plant, and I think that it took a little bit everybody by surprise, how long it would take to restart that facility. So that create opportunity in the European market, but there was some catch-up that European market had to do with the U.S.

And I can tell you in Asia-Pacific, I think that our Chinese competitor cannot cope with the demand in that market at the moment, and the further pressure that the Chinese government is putting on the producer in that part of the world forcing them to shut down their facility because of environmental issue also create a situation where the market is undersupply at the moment and that create opportunity for producer like us that had put their plant in good condition and we have benefits from that in Q1.

And I think that's what shows in our result. We continue to operate as a global producer, so we sell in all area of the world. We have a plant in Europe as you know. But we have more opportunity than our capacity at the moment and we obviously try to align with long-term customer that we believe will be there on the long run.

I hope it answer your question..

Yeah. No, no, that's very helpful. I'm sorry can I ask you one last question. You talked a little bit about – if I think about pricing realization, last year, the industry in general realized about 50% to 60% of the price increases.

Because the industry is so tight, do you think potentially you guys have an opportunity to realize more of the price increases this year? In other words, instead of 50% to 60%, could you realize 60% to 70%? I mean it seems like that's what is coming about in your first quarter when you had a 4% realization..

Look, as you can imagine, we don't like to quote on future price in publicly speaking term, I'll give you firm position on that. But I think that when you're in an undersupplied market, you can assume that as you announce a price increase, you have more success with that price increase.

And maybe one point I'd like to add to your first question is we're not a spot producer, so obviously in a market like the one we are, at the moment, there's spot opportunity, but that's not where our strength is. Our strength has been to be a long-term reliable supplier to our customer and that's how we want to be perceived.

And I think that's where the strength of being fully integrated with the control of our own mine and upgrading facility make us different than our competitor because we have better control of our destiny with that strength..

Got it. Hey, thanks for all the answers. It was really helpful. I appreciate it..

Yeah. Maybe if I can, just to summarize our response to that, but – so everybody gets a benefit of the – sort of a holistic look at this thing. But it's really the aggregation or accumulation of start-up costs, the higher inventory rolling from the fourth quarter into the first quarter that JF mentioned.

There was also a significant bonus accrual in that in the quarter. All of which I think in total would have – absent those, would have given us a margin that reflected the kind of margin that we expect to see going forward..

And so is that – Brennen, is that you just build – you're building inventory because you're going into the big season of Q2 and Q3?.

No, we're not building inventory but the cost that we incur to produce material in Q4, we basically sold it in Q1..

Okay..

So I may just – if I may clarify, JF said that we slowed down in Q4 because it's a normal maintenance period. And so when you produce less, your fixed costs per ton are higher. And then when you sell that higher fixed cost per ton material, that happens in the subsequent quarter. So that's what he's talking about.

When we talk about rolling through higher cost tons in Q1, now that production is back, maintenance period is over, the costs per ton go back to normal levels and we would expect to see margin expansion on those tons because they're not bearing an additional fixed cost..

Got it. That's really helpful..

Thank you. Our next question comes from Joel Ajana with Baliazi Asset (40:29). Your line is open..

Yeah. Hi. Thanks for taking my questions. With regard to the balance sheet, are you planning to refinance the bonds ahead of the Cristal transaction closing? Obviously with the bonds above par now, the yields are lower than the coupon. I wonder if that's an opportunity to reduce some money on your interest expense..

Yeah. That's definitely an option that we're looking at. As you know the credit markets are very favorable. We're actually very confident in our financial performance, and we think our trailing 12-month EBITDA numbers at the end of Q2 and Q3 will be at a level that will actually provide us some good negotiation power with some of the banks..

Thank you..

Thank you. Our next question comes from Richard O'Reilly with Revere Associates. Your line is open..

Two quick questions. The first is on soda-ash, while I can still ask about that topic. There was a comment about domestic volumes being down slightly from glass and detergent. And usually those are pretty stable markets. Maybe Ed can talk about how he sees the domestic markets versus the exports going for this year..

Sure. I'd be glad to. Overall, U.S. demand is relatively strong particularly in flat glass and chemicals. The U.S. Geological Service reported 2.8% growth in 2016. We expect continued growth of 2% in 2017. Specifically about detergents, we do see the consumer continuing to move a little bit away from powders to the single dose or liquids.

And in containers, what we see is a little bit of inventory correction on the glass container manufacturers. They were – run a little strong in the fourth quarter and are trying to correct that inventory in the first quarter. So that's what that comment was about..

Okay. Fine. Second question is back on titanium pigment, do you guys, especially in March see – how much did you see of the impact – benefit from the impact of your customer outages? And we're thinking about one or two of them having big issues..

Look, I would say that it was minimum because we had already agreed with our customer for the sale. And so I would say it's not major..

Okay.

Even into the second quarter now or...?.

Look, we are producing at capacity and we're selling everything that we produce at the moment. And I mentioned we're not the spot supplier.

And I think the reality is the supply at the moment is very tight and that's why you see those huge price increase in China happening (43:52) that is higher than in the rest of the world at the moment because they're more in a spot approach or I would say China has two type of producer.

There's the big player that behave more like us and like us, they have low inventory and they're running their plant at high rate and they cannot cope with their normal demand.

But the small producers, who are more spot, they're forced down because of their environmental condition, and that create a very tight supply because I know that some people are claiming that there's ample capacity in China. We don't believe that.

And I think that the last 12 months of price increase in China confirm our position that everybody is trying to benefit from that tight market at the moment..

Okay. Good. Thank you. That's more detail than I expected..

(44:48).

Okay. Thank you for more detail than I expected..

If I may, let me just reiterate JF's last point, which Brennen talked about 65% price increases in domestic China sales and 45% price increases in Chinese export sales. That is not a market, that is not pricing that characterizes a market that is oversupplied. It seems that data is very clear on that point..

Okay. Good. Thank you, then..

Thank you. Our next question comes from Hassan Ahmed with Alembic Global. Your line is open..

Sorry to bug you, again, guys. Just a quick clarification.

In the adjusted EBITDA for the TiO2 segment, the $85 million, I just wanted to make sure the $15 million SG&A increment that you guys sort of highlighted on the back of the Cristal transaction and the like, was that excluded or included in that adjusted $85 million number?.

So the professional fees that I talked about are in the corporate numbers, they're not in the TiO2 numbers. (46:11).

...$15 million, only $4 million is in adjusted corporate expense, adjusted corporate EBITDA..

I mean $85 million EBITDA in the TiO2 segment recognized that was delivered despite $20 million of FX headwinds..

Okay. So it would be on a recurring basis. One could say it would be $20 million higher..

And the costs that JF and Brennen summarized..

Correct. So the inventory side of things as well as the headwind from currency..

Yes, exactly..

Perfect. Thank you, guys..

Thank you. Our next question comes from Jon Evans with SG Capital. Your line is open..

Just the follow-up on China, so you talked about that.

How much of your business is in China? It's not spot though right, it's contract business, so what's your mix there?.

Look, we're not a big player in China. We only sell about 3% to 4%. Our market is more in the rest of the world. We do sell in Asia-Pacific. And I referenced China because obviously, lots of people are talking about what the Chinese impact could be on that business.

And we have a strong opinion that as Tom summarized it very well, with price increase domestically by 65% and in the export market by 45%, that's clearly not the market that has ample capacity waiting to be push. It's the market that is struggling with meeting demand..

Okay. Thank you for the follow-up. I appreciate it..

Thank you. And our next question comes from (48:14) with Standard Bank. Your line is open..

Thank you very much for taking my question. I've got three questions. All of them are follow-up from questions asked before. Now your Cristal TiO2 acquisition, you're saying you signed a definitive agreement.

Can we assume that you have received all the shareholder approval that was still outstanding when the deal was announced a few months ago? And secondly with regard to the Alkali business, you also announced that a few weeks ago and it doesn't seem like you have any sort of like better sort of business, does that mean you could potentially – have to sell the business at a discount? And my last question is on the state that's maturing.

Somebody asked earlier if you will be refinancing your debt, you said because markets are looking good. But let's say you can't, and we're looking at the cash generation of $156 million last year. And if we annualize this quarter's cash generation of $28 million, it becomes $112 million for the year.

And this maturing debt of $2.3 billion as June 2020, where are you going to get the cash from if you couldn't refinance it? That's all. Thanks..

Let me start. Same order that you used, the Cristal deal, we have not achieved the (49:46) shareholder approval, but we've not asked for it yet. We will prepare a proxy. We will issue a proxy and in due course, convene a shareholder meeting. And when the shareholders meet, they will vote on the transaction. That won't happen until the summertime.

So we're on schedule to preparing the proxy statement. We have to submit it to the SEC and then once it's reviewed and signed off on by the SEC, we'll issue it publicly. With respect to the Alkali transaction, your characterization that we have no bidders is accurate but only because we have not asked for bids.

We have a very strong process with scores of parties that our signing NDAs. Looking at our confidential information memorandum, talking to management, we will have some initial expressions of interest in the not-too-distant future, but we expect multiple expressions of interest.

And we will then probably narrow down that group of potential parties to a smaller group and engage with them more substantively. The process so far with Alkali has been very strong with respect to the refinancing, as Tim said. We're very confident about the ability to refinance the debt.

We are in conversations with banks right now, about our options and are very optimistic, given our performance, our actual performance as well as some of the strategic matters we have on hand. Markets remain strong. We are looking to do a financing or to refinance the balance sheet.

I think it makes better sense to wait until we see later this year, what the Alkali process is, and then we'll know all the moving parts.

So we expect that as part of the strategic transactions that we are doing, either simultaneously or shortly thereafter, that we would take advantage of the fact that we're trading above par on these 2020 debt instruments and that Tim and his team will be able to secure some interest savings for us..

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Brennen Arndt, Vice President, Investor Relations for closing remarks..

Just to briefly say thank you everyone for your questions and good questions. This ends the call. We look forward to seeing you next quarter..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone, have a great day..