Ladies and gentlemen, thank you for standing by, and welcome to the Ashland Fourth Quarter Earnings Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Seth Mrozek, 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 Mrozek, Director, Ashland, Investor Relations. Joining me on the call today are, Bill Wulfsohn, 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 30, 2019 shortly before 5:00 PM Eastern Time yesterday, November 18th. The news release issued last night was furnished to the SEC in a Form 8-K. 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 2. 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 2 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 3. 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 4, 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 US 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 cost 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 satisfaction. 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, an increase in sales…

Thank you, Bill. It's a real pleasure to have the opportunity to connect to all of you today and I'm looking forward to meeting many of you in the near future. Bill, I'd like to thank you for all the support during this transition period. It's been incredibly helpful in getting me up to speed. I'm very grateful for that. I also want to thank everyone at Ashland for the warm welcome and for the support and enthusiasm you've demonstrated. Your energy, passion and commitment to our success is a real testament to the quality of the organization we have. I'm very excited and proud of having the opportunity to join Ashland and be part of this great team. Please turn to Slide 8. For those of you that don't know me, let me take this opportunity to introduce myself. I'm Guillermo Novo, I've been a Director at Ashland from May of this year. I will be officially joining Ashland as a new CEO in January. Most recently, I've been the CEO of Versum Materials, a specialty semiconductor materials company. For the past 30 years, I've been working in the specialty materials industry. Most of my career with Rohm & Haas and later with Dow Chemical, Air Products, and Versum Materials. One of the things that excites me the most about joining Ashland is that it feels like coming home. Although, most recently I've been involved in the semiconductor material space, most of my career has been the very same industries and markets that Ashland is focused on. For most of those last 30 years I've been intimately involved in personal care, pharma, coatings, construction materials, adhesives and many other markets. I've competed with many of Ashland's businesses for decades and have a great respect for the businesses and all…

Thank you, Guillermo, and good morning everyone. Please turn to Slide 11. First, I'll begin with a broad overview of results and accomplishments during the quarter. In early September we successfully closed on the sale of the Composites business and the Marl BDO facility to INEOS Enterprises As Bill previously mentioned, we used the net proceeds from the sale to reduce debt by $940 million, which reduced our net leverage to about 2.6 turns. Overall, financial results were mixed in both the fourth quarter and the fiscal year. Ashland sales were down in both periods, due primarily to specific challenges in our Pharmachem and Personal Care businesses and general industrial market demand weakness. As Guillermo mentioned, we are actively working on the challenges we can address. On the other hand, adjusted EBITDA grew in both the fourth quarter and fiscal year due primarily to successful execution on our cost reduction program. I'll provide a summary of that program and it's expected impact on fiscal year '20 later on this call. Please turn to Slide 12. Total Ashland sales in the quarter were $609 million, down 9% from the year ago period, due to lower sales in Specialty Ingredients. Negative currency and the Colgate-Gantrez reformulation each represented 1 point of this decline. SG&A cost declined significantly in the quarter as we realized the positive impact of the cost reduction program and lower incentive compensation. The lower costs drove improved EBITDA and EBITDA margin for the Ash -- for Ashland, which both increased versus the prior year. Adjusted EPS also grew by 8%, reflecting the improved cost position and reduced share count following the conclusion of our $200 million accelerated share repurchase program during the summer. The effective tax rate in the quarter was 23% driven by income mix and discrete tax…

Thank you, Kevin. Before we talk about the future, let me take a moment to address and recognize our team, many of whom I assume are listening to this call. I know that it's been a challenging environment for our business and in -- in the last year and that the portfolio transformation, the company has gone through has created much change and stress in the organization. On behalf of our Board and all our stakeholders, I want to thank you for your dedication and commitment to our success. You are at the core of our business. As we move forward, we know that we have a profitable and healthy company, that we have very strong businesses that are well positioned for success. Specialty materials are about knowledge, creativity, innovation, and commitment. We need to stay focused on creating value for our customers through innovation, partnership and quality and reliability of supply. Each and every one of us has an important role to play and contributions to make. We have very supportive customers and investors who want us to be successful. Most of us have been in these industries for a long time. If we stay focused on what we do best, create value for our customers, we will have an exciting and rewarding future ahead. It's up to us to create our future. Please turn to Slide 19. From our comments, I hope it's clear that we understand both the challenges and the opportunities that lie ahead. Let me share with you some of my early observations and then move to our plans for the future. As I commented before, although Ashland is now a focused pure play specialty materials company, the businesses have had a long and proud history in the industries we serve. Our core businesses like…

[Operator Instructions] Our first question comes from David Begleiter with Deutsche Bank. Your line is now open.

Thank you. Good morning. Guillermo on Slide 21 you mentioned aligning and rightsizing the cost structure. Post the most recent cost program, how much more do you think there is a go on the cost side, if you can quantify that? And maybe even margins is what is the margin potential of the ASI business you think going forward.

Okay. So good morning David. It's been -- it's nice to hear from you. So if you look at the alignment of costs, I look at it in two buckets that we need to align. As we form our businesses, each one of them is very, very different. Some are much more heavily involved with innovation tech service, higher cost structures, but much higher margins. Others there is innovation but they are a different type of business where margins are a little bit tighter and the business models need to change. Today, we basically have the commercial groups are dedicated by business, but a lot of the rest of the organization is sort of allocated to the businesses. So, the intent there is to form the businesses and then let them decide what they need. In some areas, they might increase some costs and other areas and might decrease. It really depends on their business model and what they want to do. So we will get that going, as soon as we can forming the businesses in the first step, and then we will empower them so that they can define those things and we can support it. The other bucket is more of the infrastructure support, some of the admin costs, some of the functions that really support the businesses, which again -- two issues there is what do the businesses need and then we'll adjust accordingly. And the other part is really compare and benchmark ourselves to the rest of the industry and make sure that we are aligning ourselves with $2.5 billion to $3 billion company, what should we look -- look like and really look at our profile for that. If you look at margins and I've been asked this question before, how good, can we get? I would say the target, I know that has been set 25% to 27% you're going to hear me talk more about minimum 25%. If you know the last company I went in -- we were able to get much higher margins, I would have said, if you had asked me the question you asked me at the beginning, I probably would have given you a lower number than what we got to. So because the business is really need to drive and develop their model, I don't know what, I don't know yet. So I think there could be upside, and I know, I think the minimum is 25% and we'll see how we progress as we get more information from the business units.

Very good. And just on oral care, Guillermo, what's the hit from the new customer reformulation in 2020 versus 2019?

So the hit started in this quarter. So it is going to impact us both on the revenue and on the cost side into next year. But the bigger issue was the Colgate and I think one of the big messages is, look we -- the filling of the asset if that was an expectation is going to be more complicated for us because we have to develop new markets. We have some exciting opportunities, but it's going to take time. The impact may be a -- of this additional business might be $8 million to $10 million sales.

Thank you very much.

Our next question comes from Christopher Parkinson with Credit Suisse. Your line is now open.

Great, thank you. Naturally the Ash portfolio had endured a few macro headwinds in 2019. But there still those out there listening now and that will simply say the portfolio just as an specialty, and there aren't necessarily ample opportunities to adequately improve the margin profile of the Ash portfolio. I understand it's fairly early, but just what are your general thoughts on those statements and what would be your response to those individuals?

Okay. I would respond very simply. I've had this question asked three years ago when we were spinning off and the other companies, and it was the same question these are old businesses, they have been underperforming, can it be really be specialties and we got them all to over 35% EBITDA margins, if you look at the businesses that we sold to Evonik at that time epoxy additives, all that. Similar to these, they were 30 -- 40 year old businesses. The nature of what we call specialties is the quality of the space we're in. Are we -- do we have the opportunity to create value for our customers. Having a robust portfolio, it doesn't mean that everything is the latest cutting edge, but that we have a portfolio mix, the asset capability, quality, reliability, tech service. There's a lot of other dimensions and the right business model to drive the performance. So I'm very excited about the portfolio. I don't see any differences, frankly, from what I've seen in other specialty business, be it at Rohm and Haas or at Air Products or anywhere else.

And just a quick follow-up, given your background at Rohm & Haas and Air Products assumed, just what do you think are they just for the people that you're just introduce yourself into now just what do you think are the two months to three most relevant skill sets you've acquired over your career that just really help you guide the ASH portfolio going forward. Thank you.

Yes. So I would say two dimension. One, more of the business side of things. I've been involved in these industries. I understand what it takes to operate a specialty business, the balance between innovation, the customer service, but also in some cases the disciplined operating discipline that you need to have in running a full P&L across the portfolio. So, and for me, it's more about learning Ashland than the businesses. I've been involved in the spaces for a long time. I think the other part has been really the last few years in transforming businesses with the spin-off and all that. This is sort of the same thing, it's a different situation because in a spin-off its cleaner, you have to start from scratch, but to a degree, it's the same thing, we've now become a different company, and I think part of what we need to do is drive the change and I've just done this, so I hopefully I can work with the organization and to achieve this. And I will say the -- I've already had a lot of discussions with the global organization, meetings with -- town hall meetings people, there is a lot of receptivity from the organization, there is excitement, they understand that, hey, this is a different, different company now and they actually have a lot of very good ideas of what we can do that we will be implementing.

Thank you.

Our next question comes from Laurence Alexander with Jefferies. Your line is now open.

Hi, this is Dan Rizzo for Laurence. How are you?

How are you doing?

You mentioned -- good. You mentioned last call or that sunscreen was a headwind. I was wondering if that's still the case or something that's bottomed and you expect it rebound in 2020?

The sunscreen last, I mean, I think there was a lot of market dynamics with trade issues that disrupted us last quarter more -- more than anything else. I know that there were some longer term questions on the sunscreen market and things that might change in the future. Those things really didn't impact the performance per se, the performance were really more specific dynamics. We've overcome them but Kevin, maybe you want to comment a little bit on just the volumes and...

Yes. We've actually seen -- we've seen a nice rebound on the skin care side. I would say that we've largely worked through the key issues that we had and the team's done a nice job with that. In the other -- the other thing to remind you of is sunscreen is a seasonal business, there's not a lot of seasonal in Personal Care, but that is one business that's seasonal. And as we work toward the upcoming sunscreen season, we've done a lot of work with customers already in terms of how that's going to play out. So I mean personally I feel pretty good about the skin care part of the business in terms of what the team has been able to do and how they've been able to grow on a number of fronts.

Okay. And then just one other question, you mentioned that you've been pretty good with pricing and stay -- trying to keep up with raw materials. Is it possible that the pricing is led to or higher pricing has led to reformulations by customers. Is that kind of a risk, when you're trying to through that going forward?

There is always a balance to be struck, but generally speaking, no. Most of the customers especially in Personal Care, we provide a very broad portfolio of products to, and there is a long-term relationship there that is built on both trust and performance. And I think the team executes well around that. And the fact of the matter is as raws move pricing has to move with it, largely our customers understand that and that's a discussion not a mandate. And so I think as we move forward that's not going to change. For a period of time raws were pretty flat to down. This is ongoing back away couple of years and I think we lost some of the pricing discipline within the organization that's been regained, and for sure certain times you will test the market from a pricing perspective, and I think that's an appropriate thing to do. And I think we do that in appropriate way. So I mean long story short, no, I don't think that we have caused reformulations because of pricing. I think our customers have their own dynamics and to be clear customers like Colgate are still large important customers that we provide a broad portfolio of products to and we expect that to continue and we expect to grow with them.

All right. Thank you very much.

Our next question comes from Mike Sison with Wells Fargo. Your line is now open.

Hey guys, good morning. Hey Guillermo, looking forward to working with you again. In terms of Specialty Ingredients, fourth quarter sales were down 9%, how much of that was some of the challenges you're seeing in Pharmachem, Personal Care, how much of that was sort of just kind of end market weakness, and given the fiscal first quarter '20 conditions are going to be similar, is that the type of sales declines you see near term meaning that they are also that down 9%-ish going forward?

So let me give you a sort of my high level take and then Kevin, you can provide a little bit of the detail. I mean clearly for the quarter Pharmachem was a very big impact. So, definitely we felt it, and there is no saying other than it was a major impact. And we have to address it more for 2020. I think in the other parts of the market, we -- most of the business did well, oral care obviously, the carryover still impacted us. For the quarter was not as big of an issue, but for the year, obviously it has been, with some of the dynamics that Colgate and the other customer that we got impacted, but you know, one of the questions, and I know there's a lot of concern or questions around. Hey, is there something wrong with the portfolio? What's happening? What we're trying to do is point that yes, we have issues. I'm trying to point where they are, those are structural things that we need to deal with. The rest of the portfolio is actually going -- is well positioned. So as you said, the demand is going to vary by segments, adhesives and parts of the cellulosic additives and we'll have more industrial construction type dynamics. But if you look at pharma, it's -- that runs at a different pace. We grew this year at the mid-single digit. So a very healthy portfolio, innovation is going that segment should be from a demand perspective, not impacted by some of the macroeconomic dynamics. And then the Personal Care is one that we're I think addressing those specific issues that impact us, but Kevin do you want to give...

No. Guillermo, I think you said it very well. I wouldn't really add anything, I mean what we're seeing on the industrial side is just like you said, it's really -- it's really tracking with the broader macro dynamics. And frankly, as I mentioned in my comments, the adhesives business while top line was down, has been very resilient from a profitability perspective, the same to the coatings. I think those teams are doing a nice job managing their P&L.

Got it. And then just a quick follow-up. When you think about 2020, and I know you don't want to give specific guidance, but when you think about EBITDA for the total company next year, you've got a plus $25 million in SG&A carry over, you've got weaker demand. You do have some things that are growing in terms of new products. So when you sort of add up sort of the positives and the negatives, can EBITDA grow next year, or is it going to be sort of a year that that's going to be challenge given some of the negatives that you've talked about?

So Mike when we don't give guidance, so we don't guidance to a degree on some of these areas. So I think we have levers to perform. I do think the -- from the cost side, obviously we can do more. This is timing and how quickly we can. So I don't want to over promise things at this point in time, but I do think that if we move quickly, organize our teams and focus them so that they have the full P&L ownership to drive each of their businesses, that the top line can also be stronger. And this is really around, we have very solid businesses, these guys know what they're doing. I've met with the business teams with technology people, I mean it's impressive. I feel I really do feel at home versus any other company that I've been in and what they know, these guys have decades of experience, I see why it was very hard to compete against, some of these businesses in the past, just as I look at the strengths we have. So I think the issue is now more focus is the biggest, the word I would use, full P&L focus. It's not that we're not focused on what we do, but just looking at sales or just looking at manufacturing all that isn't good enough for each of the businesses, given the different dynamics that we have.

Got it. Thank you.

Thank you.

[Operator Instructions] Our next question comes from John Roberts with UBS. Your line is now open.

Thank you. You used to provide more granularity to the sales change in the Specialty Ingredients segment. Is that something that will come out in the 10-K or is it your intention going forward not to give us that kind of granularity that we had before?

So, definitely we're going to be changing some of the things that we communicate, but we will show, as we move forward as we re-segment, we will talk about those new segments. So I think, give us a little bit of time to do that work and there will be more granularity that will come out. Well, we provide the same thing that we did before, I think some of these things are going to change. I understand everybody wants a lot of details, but I know as a competitor, I love all this detail when I see it, and we need to -- I want to make sure that we're rebalancing both for our own commercial interest as well as having good communications. But definitely there is more to come, but we'll need to wait for the re-segmentation to be done.

And then Kevin, I know you don't want to give any guidance, but maybe for the December quarter, could you give us the tax rate given the December -- the fiscal fourth quarter is typically not representative tax rate to a go-forward basis, and it seemingly interest expense was higher, at least in what we are modeling as well?

Sure. So if you look at our full year the tax rate was about 13%, it was higher in Q4 due to the things I mentioned. Looking forward to full fiscal '20, based on all we have going on, etcetera; it's really hard to give a narrow range at this point, but I would say somewhere in the, call it 13% to 18% type range is probably reasonable. I mean, if you want to get more specific than that I would say a lot of people would model, couple of hundred basis point change versus 2019. Q1 is almost always a funky tax rate for us because it's our weakest quarter. And you really can't judge the year by that. I mean typically we have -- we've typically had a pretty low tax rate in Q1 relative to the full year rate. So it's really not appropriate for me to commit to anything, but if you look at the past, we've kind of hovered around that 13% to 15% range for full year. Once we have -- once we have a solid number we'll give it to you.

Okay. And then welcome Guillermo and Bill if you're still their best wishes.

Thank you.

Our next question comes from Mike Harrison with Seaport Global Securities. Your line is now open.

Hi, good morning. Going back to the oral care situation, part of the strategy in the Specialty Ingredients business is customer intimacy, focus on the idea of the customers as they are looking at reformulating, you're working with them on the next generation of product. Yet we've had this situation where Colgate and then another oral care customer have done a reformulation and Ashland is not participating in the new product. So is there something broken with that customer intimacy model. Can you just maybe provide a little bit more color in understanding. I know you said that the Colgate remains an important customer. Help me understand how you guys kind of end up losing out on business like that with nothing to replace it?

Okay. So Mike, thanks for the question. Obviously I'm spending a lot of time trying to understand all the dynamics on the different businesses. So let me answer your last question is -- are we losing the intimacy with customers and all that. The answer is absolutely not. And you can see it where we're getting fantastic growth in Personal Care, Biologics grew last year 40% this year we got over double-digits growth. So we have a lot of segments that are growing. So it's not a generic thing. This is -- oral care is a more concentrated market. Our customers decided to reformulate. One, they're not using anything of what we supply. So it's just a big change and we don't like it, but it happened. I agree with you one of the things is we shouldn't be surprised, and that's something that we are looking to make sure that we understand what happened and what -- and making sure that doesn't happen again. And we just had another impact. So those are areas that clearly I'm looking into to make sure that it doesn't happen again in terms of the surprise factor. But I'm not concerned that there is something broken, and I say that not because I'm talking to one or two individuals after several weeks meeting with a lot of people in R&D and commercial different parts of the world, I had a chance to go to the Pharma show in Frankfurt and see the interactions with customers, it's very, very strong.

All right. And then Guillermo you also mentioned the importance of capital deployment and capital discipline. I was wondering as we've come into a period here where you've got proceeds from the divestiture and the Specialty Ingredients business is an area that would seem to be right for adjacencies. Can you just comment on the company's potential appetite for acquisitions going forward?

So let me be very clear. Our agenda in the near term is to drive our improvement that is by far where we want to focus. And M&A and all those things is not necessarily or what we're driving for at this point in time. I think once we get our margins, but we get our businesses and that we articulate clear strategies by business. This is a specialty company with different businesses. We're not going to be able to talk about it just in one generic terms. We need to talk about Pharma. We need to talk about Personal Care. Each of the individual parts to articulate and then how as a company, we're going to support that whole agenda. Having said that, there are segments that are obviously very strategic for us. If opportunities come, we are going to look and that we wouldn't hesitate to do something. And we'll communicate more of that later, but I'll be very clear pharma as an example is a no-brainer, this is a key part of our growth. We have a lot of differentiation. That's an area that we want to stay focused, but there are other ones that across our portfolio and we will communicate that more in the coming months.

All right. Thanks very much.

Thank you.

I'm showing no further questions in queue at this time, I'd like to turn the call back to Mr. Novo for closing remarks.

Okay. Well thank you very much again for your time and interest. I'm sure that we'll be having a lot of context over the coming weeks. I look forward to seeing you in the near future and really thank you for your time and attention.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.