Ashland Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Ashland fourth quarter earnings call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star, then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star, then zero. I would now like to hand the conference over to your speaker today, Mr. Seth Morozik, Director of Investor Relations at Ashland. Please go ahead, sir.

Thank you, Liz. Good morning, everyone, and welcome to Ashland's fourth quarter fiscal 2019 earnings conference call and webcast. My name is Seth Morozek, Director, Ashland Investor Relations. Joining me on the call today are Bill Wilson, Ashland's Chairman and Chief Executive Officer, Guillermo Novo, Ashland Director and incoming Chairman and Chief Executive Officer, and Kevin Willis, Senior Vice President and Chief Financial Officer. We released preliminary results for the quarter ended September 30th, 2019, shortly before 5 p.m. Eastern time yesterday, November 18th. The news release issued last night was furnished to the SEC in a Form 8K. During this morning's call, we will reference slides that are currently being webcast on our website, Ashland.com, under the Investor Relations section. The slides can also be found on the Investor Relations section of our website. We encourage you to follow along with the webcast during the call. Please turn to slide two. As a reminder, during today's call, we will be making forward-looking statements on a number of matters, including our outlook for fiscal year 2020. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. We believe any such statements are based on reasonable assumptions but cannot assure that such expectations will be achieved. Please refer to slide two of the presentation for a fuller explanation of those risks and uncertainties and the limits applicable to forward-looking statements. Please also note that we will be referring to certain actual and projected financial metrics of Ashland on an adjusted basis, which are non-GAAP financial measures. We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of the financial performance of our ongoing business. Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP. The most directly comparable GAAP measures as well as reconciliations of the non-GAAP measures to those GAAP measures are available on our website and in the appendix of today's slide presentation. Please turn to slide three. Bill will begin the call this morning with his opening comments and then introduce Guillermo. Guillermo will then provide a summary of his background and commentary on what he has learned over the recent months. Next, Kevin will review financial results for the fiscal fourth quarter and full year fiscal 2019. Finally, Guillermo will close with his priorities as incoming CEO and his outlook for Ashland's continuing journey. We will then open the line for questions. With that, Please turn to slide four, and I will turn the call over to Bill for his opening comments.

Bill? Thank you, Seth, and good morning, everyone. I'd also like to welcome Guillermo Novo to the call. We have been working actively together on his transition, and he has been strongly engaged since the announcement that he will be joining as Ashland's chief executive and chairman. We look forward to his comments. perspectives, and priorities, but first I'd like to quickly discuss fiscal year 19. Fiscal year 19 was a year of important gains in the context of difficult external conditions. From a financial perspective, we faced challenging end market conditions and a stronger U.S. dollar. In this context, Ashland took aggressive action. We implemented a program to reduce layers, increase operational agility, and improve our competitiveness, This program was also focused on reducing our fixed costs by $120 million on a run rate basis. This program contributed greatly to Ashland's reduced adjusted selling general and administrative expense in fiscal year 2019, which were reduced by more than $50 million, or 8%, As a result, adjusted EBITDA margins increased to 21.3% of sales compared to 19.9% in the prior fiscal year. These gains also enabled Ashland to deliver adjusted earnings per share growth of 14% versus fiscal 2018. Thus, while lower than we originally anticipated, Ashland made important financial gains in a difficult context. From an operational perspective, we also made many important gains. In fiscal year 2019, we launched 23 new products to support targeted growth in our pharmaceutical, nutrition, personal care, nutraceutical, and coatings businesses. We expanded the use of our new Ashland production system, which helped drive improvements in safety, quality, asset reliability, and overall customer satisfactions. During the year, we substantially expanded our focus on sustainability. We have established a sustainability council, which is focused on sustainable sourcing, reducing our environmental impact, and increasing sales of natural-based products. We've had numerous and important gains in this critical area, which are profiled in our sustainability report, which can be found on Ashland.com. From a capital allocation perspective, we've made great gains, in fiscal year 2019. During the year, Ashland returned $264 million to shareholders through both share repurchases and dividends. Furthermore, in August, Ashland divested the composites business and moral BDO facility to INEOS. The proceeds from this transaction allowed us to reduce debt by $940 million in the fourth quarter. In summary, while we faced challenges in fiscal year 2019, We also made additional financial, operational, and strategic gains. Importantly, just after the close of fiscal 2019, we announced that I will leave Ashland at the end of the calendar year, and Guillermo will take on the role as Ashland's next chairman and chief executive officer. As I reflect upon my tenure with Ashland, I'm proud of the transformation we've completed and the team's many accomplishments. Please turn to slide five. Before I begin, I'd like to note that safety and responsible operations are our first and fundamental priority. And in 2018, Ashland was recognized by the American Chemistry Council as the Responsible Care Company of the Year, and we were also named one of America's safest companies by EHS today. We completed Ashland's multi-decade transformation from a conglomerate focused on oil refining and marketing in 1997 to the pure play specialty materials company we are today. When I joined the company five years ago, our specialty materials portion of our business represented 41% of our sales versus 96% today. As part of that effort, we created an independent publicly traded Valvoline in 2017, acquired several businesses including Pharmachem and Vornia, and sold the composites business and moral BDO facility to INEOS. We now have a focused business with many differentiated products supplied to industry-leading customers in very attractive markets. We've created a far more competitive and agile organization by eliminating layers and reducing adjusted SG&A expenses. Ashland adjusted EBITDA margins have improved from 17.6% in fiscal year 2014 to 21.3% in fiscal 2019. Similar gains have been realized in Ashland's specialty ingredients business, where adjusted EBITDA margins have improved from 21.2% in fiscal year 2014 to 23.4 percent in fiscal 2019. During this five-year period, we've returned $1.3 billion to shareholders in the form of share repurchase and dividends. And at the same time, we've substantially improved Ashland's financial strength and financial flexibility. With the spinoff of Valvoline, we transferred the large majority of Ashland's pension obligations. We also established an asbestos trust, which, along with anticipated insurance proceeds, will help to fund future asbestos claim indemnity and legal costs. We lowered gross debt from $3.3 billion as of December 31, 2014, to $1.7 billion at the end of fiscal year 2019. And finally, as a result of these actions, we delivered 40% total shareholder returns since January 2015 versus 26% for the S&P 400 chemicals industry index over the same period. Moving to slide six and looking forward, we've transformed the company from a portfolio management orientation and set the foundation to be the premier specialty chemicals company. We've established a new blueprint which outlines our core operational priorities, the Ashland way which defines our culture, and we have also established our Always Solving brand, which is essential to us driving the value proposition which we bring to our customers. At the same time, our journey is not complete. We have many opportunities and challenges as we work to achieve our full potential by delivering greater revenue growth, margin expansion, and cash conversions. This is the right time for new leadership as we move from portfolio transformation to take the additional and essential steps required to reach our full potential. I'm excited by the naming of Guillermo Novo as Ashland's next chairman and CEO. Guillermo is a proven leader who has the right experience, skills, and leadership abilities to take Ashland to the next level of performance. And under Guillermo's leadership, I'm excited for Ashland's future and am very confident that the Ashland team will accelerate its operational, strategic, and financial performance. With that, I will turn the call over to Guillermo.