Emerged from Bankruptcy, Tronox Looks Ahead to the Future

Case Type: operations strategy; business turnaround
Consulting Firm: Deloitte Consulting final round job interview.
Industry Coverage: chemical industry.

Case Interview Question #00372: Tronox Inc. (NYSE:TRX) is an Oklahoma City, Oklahoma based chemical company involved in the manufacturing of titanium dioxide (TiO2) pigment. The company is the world’s fifth-largest producer and marketer of titanium dioxide pigment, holding a 12% market share worldwide and serving customers in more than 100 countries.

Titanium dioxide is an inorganic pigment that whitens and brightens hundreds of consumer products – from paint and plastics to paper, cosmetics and more. Tronox produce a full range of superior pigment grades for a variety of end-use markets.

In January 2009, Tronox filed Chapter 11 bankruptcy protection. Recently, it successfully emerged from bankruptcy. They have hired you as a consultant to help them chart a future course of action. First of all, they want you to evaluate if their current products are viable. How would you go about this case?

Possible Answers:

This case tests how a candidate thinks about the fundamentals of turning a company around. For this purpose, the candidate has to understand the current situation first.

Suggested Structure:

Overall the candidate should explore if the client can generate positive cash flow in the future. If not the candidate should look at options to generate cash flow.

Step 1: Understand what led to client’s bankruptcy.
Step 2: Understand the products and the industry.
Step 3: Understand the current product economics and future projections.
Step 4: Propose recommendations — Both for top line and bottom line improvement.

1. What led to bankruptcy?

Simple the company was not making money and was incurring losses. This led to default of loans and resulted in Bankruptcy. They refinanced the company through some means and have very limited funding. Additional funding is not possible.

2. Products and Industry:

• Their main product is Chemical X (titanium dioxide TiO2) and the by-product is Chemical Y (iron sulfate, FeSO4).
• Both products X & Y are commodity chemicals.
• The chemical industry related to Chemical X & Y is highly cyclical and now it is at its peak.
• The industry related to Chemical X & Y is highly competitive.
• Client’s customers are other large chemical companies.

3. Product economics: data to be given only when the candidate asks.

• Annual production capacity: Totally 500,000 tons per year.
• Price of Chemical X = $95 per ton. Price of Chemical Y = $75 per ton.
• The end product from the manufacturing process is a combination of Chemical X and Y. It has to be separated into X & Y. Each ton of the end product they produce has X and Y in the ratio of 1:1.5.
• Client’s manufacturing facility has a fixed cost of $25MM per year.
• Variable costs of production are $60 per ton of end product.

At this stage of the case, the candidate has to perform the following calculations to quantify whether client’s current products are viable.

From the calculations, it is clear that the current products are making losses. The interviewer should provide the following response for questions that may arise.

• Can we raise prices? — No, we cannot. Industry is very competitive and also is at the peak of its cyclical. This means that going forward the price will only go down.
• Can we exit the business? — It is a possibility. But push the candidate to look at ideas to turn the company around.

Question #2: How can we increase the top line?

Possible Answer:

Assume that both Chemical X and Y have a saturated market and the market has several competitors. With the cyclical demand and a downward trend expected in the future it is difficult to sell more. So the candidate has to look for opportunities to launch new products or services.

Question #3: What new products or services can the client company launch? Allow the candidate to explore options creatively. However, the candidate should remember that funding to invest is very limited.

Possible Answers:

• Products that can be manufactured without major modifications to existing plant set up.
• Products that can be bought from manufacturers outside the US but can be sold in US.
• Products that will hedge against cyclical business issues. For example: if the chemical is used in the cooling systems of machines, then the customers would like the manufacturer to administer the chemical into the cooling system on a routine basis. The client can look at any such opportunities.
• Start a chemical distribution company.
• Start a chemical research laboratory and provide R&D advice to other large chemical companies.
• Move into chemicals retailing business.

Question #4: It is obvious that the cost of production for client is higher than the price they can command. What are the areas they should look at to reduce costs?

Possible Answers:

• Improve plant efficiency
• Reduce raw material cost by changing suppliers or negotiating costs down
• Reduce the fixed costs like corporate workforce and so on
• Outsource manufacturing to low cost countries
• Reduce energy costs by improving the energy efficiency

Question #5: Why can the client not exit the business? Sell this business to someone else and start something that is profitable? What issues do you foresee if the client has to do so?

Possible Answers:

• Who will want to buy this business?
• How much can the client sell the business for?
• Issues with laying off people.

Question #6: Ask the candidate to give a final recommendations to client.