Ashland Inc. ($ASH)

So it is now my pleasure to introduce Ashland Global Holdings. We are delighted to have William Whitaker, who was promoted Chief Financial Officer in July of 2025. Congratulations.

Thank you, Rosemarie.

So while in his new role, since he joined Ashland in 2015, William has held positions of increasing responsibilities in Corporate Development, Treasury and Financial Planning, among others. And importantly, he had the pleasure of talking to all of us as Investor Relations previously. So following -- a multiyear period of portfolio optimization via divestitures and acquisitions, results will be cleaner as 2026 unfolds. With a balanced portfolio of natural and naturally-sourced ingredients and additives, the company serves industries such as Life Sciences, Personal Care and household as well as Coatings, among others. Going forward, management's focus will be on operational efficiencies, growth from innovations and when appropriate, M&A for each of the 3 categories just mentioned. Ashland has 46 million shares outstanding, a stock price of around $50 for a market cap of $2.3 billion. Net debt, $1.1 billion and an enterprise value of $3.4 billion. And you will note -- on the overhead, there is a slide which describes the company and its main operations. And so you can refer to that while we are having our fireside chat.

Rosemarie and the Gabelli team just do want to thank you for the invitation. It's always a pleasure to connect with you, and I appreciate those in the room. We have a full audience today, so I appreciate it. And those online, I appreciate your interest. And in terms of the introduction, just the 1-minute pitch on Ashland, why it's an exciting time. I think Rosemarie gave a good overview. We're a specialty ingredients player. We specialize in areas that are consumer-leaning, as you can see on the pie chart. Quality, consistency, reliability, regulatory environments. That's what's important for us, and by the way, we've been in business for a very long time, over 100 years, but a really key point of our story is it's been quite a transformation story, one that I've had the benefit and privilege of being a part of over the last 11 years of the company. Going forward, the strategy is around execute, globalize and innovate. We're going to get into some of that with the details. But I do want to highlight that it's a very exciting time, to be learning more about the company, and I look forward to sharing our story.

All right. Well, with this -- with this introduction, let's get going. So on the last call, management said that following all of those years of transformation, the reset was now largely completed, and we should start -- investors should start seeing the benefits in 2026. This was correct and expressed a couple of months ago when you reported earnings. Can you talk about the potential impact of the current situation in the Middle East and whether those comments are still valid today?

Of course. And as you can imagine, very topical internally as I'm sure it is for you externally in terms of the conflict in the Middle East. But first, the headline in terms of the transformation and the portfolio reset, that's still valid. We've spent a lot over the last few years simplifying the portfolio, focusing our end markets to Pharma, Personal Care as well as Architectural Coatings. It remains valid. There are structural actions we've taken on the cost side that will continue to play out over time. So I think just as a starting point, the portfolio reset is complete. And in terms of the Middle East exposure, of course, it's involved a lot of scenario analysis, sensitivity analysis internally. It's an evolving situation, as I'm sure you can all appreciate, uncertainty is very high. And so we do spend our time as a cross-functional leadership team, understanding the moving pieces, what that means for us and then what we would do as a result. If the severity of energy prices increase or if the duration extends, what that means for us, and the simplest way that I would organize our impact is in four tiers. And the way I would think about the tiers is in relation to how quickly you feel that impact. And I'll go into each of them in detail in a minute, but the first tier is around just direct exposure in the region. Second tier is freight, shipping availability. Third tier is cost and inflation, raw material inflation. And the fourth tier, of course, is demand. And so first, just to highlight on the direct impact, the headline is that it's manageable for us. We have about 5% of sales in the Middle East and North Africa. The vast majority of that is in Egypt as well as Turkey. So if you exclude that, it's closer to 1% to 1.5% of sales in the region, so very manageable. We have no production in the region. We do have a small warehouse in Turkey, primarily supporting Pharma customers. We do have a team that we're mindful of on the sales and administrative side, primarily based in Istanbul and to a lesser extent, Dubai. Employee safety is a top priority, so we do spend time understanding the dynamics there. So overall, from direct exposure, minimal and manageable. The next piece is on the freight side, right, freight, shipping availability. Overall, there's no material shortages for us that I would call out today. It's something that we are watching. Just to give you some context, we are very much a global company. We do ship around the world, have a lot of experience in this area. Freight is about 5% of sales. It's about 2/3 outbound customer, 1/3 internal, shipping to staging areas within our warehouse. I bifurcate that because the customer shipping that's mostly ground-based is impacted by the energy, rising energy costs, whereas ocean is both availability, lead times and cost. So some of what we've seen, of course, is risk-based surcharges, rising energy prices. And so what are we doing in response? We're extending our lead times with our customers. On average, and it really does depend. But on average, we have 45 days of weighted average orders in the books at a given time. We're looking to extend that so we can better plan, as we take alternative routes on ocean-based shipping around the globe. We're also introducing surcharges to make sure that we can continue to supply -- be a reliable supplier for our customers. But then longer term, on the freight and shipping side, you got to build reliability, evaluate other shipping lanes, evaluate other suppliers, depending on the severity and the duration of the overall impact. So for now, it's manageable, but it is very much heightened the bar on execution internally. It's more timing than it is demand. Third pillar is the raw material inflation component. I think one of the things that's unique about Ashland maybe relative to others, depending on who you follow, we don't have a big pet chem raw material exposure. We do have more natural-based raw materials that are less impacted by what's going on right now. That being said, we do have some petrochemical-derived inputs. So in total, if you were to group pet-chem energy-intensive raw materials with packaging, it's about 15% of sales. But the unique thing for Ashland is that most of our exposure is tied to North America, which at the current time is advantaged versus Europe and Asia. So we're still mapping out the impact to various stakeholders and what that could mean for us. But the raw material basket, again, that you have the energy sensitivity, about 15% of sales and the vast majority of that is North America-based. So what are we doing in response? There are select circumstances where we will have to take pricing actions to maintain margins as well as continued ongoing support of our customers. The last piece I'll highlight is on demand. And so I think it's still too early to say, right? We're a few weeks into the conflict in the Middle East. There's nothing noteworthy from order trends perspective that we're seeing across our markets or across our business units at this point. I think it goes without saying that the longer this persists and the more the energy goes up, there's a natural wondering of what happens to the consumer over time. The one thing I would say that's specific to Ashland is we have relatively inelastic demand markets, right? Pharma, Personal Care, everyday staples. And so on a relative basis, we should be well positioned, but that is something that we're monitoring. And the last piece on demand that's all too familiar on the material side is, what this could mean from supply chains up and down from an inventory position. It's still too early to say. I think all of us remember the restocking and de-stocking following COVID. And so that's something that we're very mindful of understanding preorders or getting out in front of potential price increases or increased safety stock in the value chain. We're parsing that out versus underlying demand. So those are the factors, I'd say, as a headline, manageable. It's taking a lot of effort internally. We're focused on it, and there could be some opportunities depending on how this plays out.

Thank you. you have covered a lot more solutions or impact than anyone else. So after divesting non-core businesses since 2020, management has shifted its focus on innovation for growth and operational excellence. Now due to industry headwinds and potentially internal missteps, this has led to some share loss. And so you have taken some additional steps between 2022 and '25. Can you talk about the issues, the most recent actions you have taken and what you expect to see going forward?

Yes. No, it's a great question. There's been a ton of work going on, on simplifying the portfolio over the last, well, 5, 10, almost 15 years at this stage. So what are we doing going forward? One, it's a focus -- well, all three of these pillars are a focus on organic growth. We're aligned in areas that we have technology and market leadership in our big three end markets. How are we doing that? First is how we're organizing our teams. So over the last few years, we've introduced the business unit-centric approach where in the past, we had functionally aligned leadership teams. We've now organized ourselves around our business units. That's important because you build out leadership teams, support systems, accountability and incentives at a lower level to drive organic growth. The latest development is we're pushing this further into the regions. The regional dynamics by customer, by end market are very different. And so we are continuing to push more and more responsibility into a regional GM model, and that's one that we've seen has been effective. And then for me, the second pillar of this is on the visibility side. And this is what finance is working to enable. It's been a key accountability for me since I've been in the role is Ashland has a very accurate, efficient and disciplined reporting process externally. Internally, there's some work to do and there's some opportunity, which is the exciting thing. We're spending a lot of time on our operational cost structure, making sure we break it down at a level that's actionable and relevant for the decision-makers in the regions as we embrace that model. So that's a key deliverable for me and the finance team in the year ahead is breaking down manufacturing into various steps, breaking down supply chain logistics into various steps, having KPIs, accountability and visibility to enable that empowerment at the regions. And then the last piece is the portfolio itself in terms of delivering organic growth. We'll probably talk about it momentarily, but our Globalize and Innovate growth strategy, we are investing. These are these are attractive end markets, areas that are capital light, R&D intensive, attractive areas for us to replicate concentrated success in other areas. And so we're going to continue to introduce new products and make investments in those areas to drive growth.

So following up on this last comment regarding innovations. When you come up with a new ingredient, it does not hit the market instantaneously. And when it does, it does not develop into bigger orders instantaneously either. Can you talk about how long it takes from the moment you have a new molecule, if I can call it that, hitting the market and when you actually can have some revenues and possibly profit? I mean...

That sounds, yes. No, it's a very fair question. So in our business and the Additives business, it's a combination of a lot of singles. It's a very diversified end market, very diversified customer base, very diversified SKUs. So what's important is that you're relevant. A technology platform has applicability across all of your end markets. They're very difficult to build to get to a nearly a $2 billion company, and that's why it's profitable. And that's also why it's difficult to lose at that point. Our lenders appreciate us for this. It's a very diversified business model. But you're right, because when you're dealing in consumer markets, particularly on life sciences, pharma as well as personal care, things that are going on or in your body, it takes time. And so we have introduced new technology platforms over the last few years. We introduced the concept. We went a little bit deeper this last May. I would encourage you to check out our Innovation Day on some of the exciting market opportunities. In many cases, they're multiples, the size of our total addressable market today. Pharma, it could be anywhere from 5 to 10 years, depending on if it's a branded regulatory approval process. Personal Care is a little bit shorter than that, 2 to 3 years. It depends on -- a lot of what we found is you de-risk the technology, then you iterate, you iterate with your customers and then you fine-tune it for different applications. And then from there, there's consumer trials. And then from there, there's a reformulation cycle that our customers have worked through. They don't mobilize their entire team on a moment -- on a moment's notice. And so it is a process, but it is a process that we've been making good progress on over the last few years. Technology risk has largely defeased investment risk. The exciting thing that we've done is as we rationalize capacity over the last few years, we do have idle assets that can be re-purposed both from a cost effective and timeliness to leverage as we start to scale the new technology platform. And so where we are now is on that commercial ramp where you get the adoption in the early adopters and beta customers.

So looking at the different segments, your focus now is on Life Sciences, which is around 35% of 2025 revenues. Personal Care, around 32% and Specialty Additives around 28%. So pretty much balanced between all the categories. Could you talk about the changes made in each of those categories and expectation for each of these businesses in terms of growth and profitability?

Yes, absolutely. So to your point, the largest is Life Sciences, which for us, the vast majority of that is within pharma and pharma excipients. That's a delivery mechanism for the active. The way we think about pharma, heavily regulated, quality, consistency, reliability is paramount. That's why you see the margins that you do for our Life Science business, high return on invested capital, resilient demand environment. We are in branded generic and over-the-counter, so it is diversified, and so the strategy within our Life Sciences business is threefold. First is strengthening our Oral Solid Dose, so pills and tablets franchise. I'll go into a little bit more details in a minute. Scaling our Injectables and Tablet Film Coatings business. That's in our globalized category. And the third is to expand into attractive adjacencies using our new technology platforms such as Bioprocessing. So first, on the Oral Solid Dose, that is the vast majority of the pharma business today. We do have the broadest excipient portfolio in the world. What are we doing to strengthen that? We do have new product introductions. It's actually a key driver for our growth that you're seeing in fiscal '26 on the innovation side. And then we're also strengthening our cost footprint with some actions that we're doing in our VP&D network. The scaling, the injectables and the tablet coatings, this is an important piece of our growth priority for the business unit. Injectables. This is a growing area and a dominant area in terms of the medical community on delivery for treatments, and we want to participate in that as well, just like we do in the Oral Solid Dose. So we are participating in long-acting excipients in the injectable space. We do have a plant in Ireland. We've invested in capacity and people to continue to replicate that business. It's small but growing very nicely, and we're well positioned against some of the incumbents in that space. Tablet Coatings. This has historically been produced in the U.S. at our Wilmington office. We're now bringing production into the region where our customers are. It's important from a technical service perspective to be in the region. We're making targeted investments in growing share in that area. In this space, we are a distant #2 but there's a lot of opportunity to be a strong #2 player in that space. And then the last piece on the Bioprocessing. This is not an area that we've historically had exposure. But the way I would think about this, it's raw materials to make the active. And our new technology platforms have some interesting applications that I encourage you to check out in the May event. Personal Care, the next biggest. The punchline there is we're playing very well into the mega-trends that our customers are facing in terms of health and wellness, natural, clean beauty products. We are, as I mentioned earlier, we're in a lot of the products that you probably use today, your everyday consumer staples, styling products, conditioning polymers, rheology for everyday lotions. But we've also been on this migration towards higher-value products. So the biofunctional actives and the microbial protection are 2 business lines that we are globalizing. We've made investments. Biofunctional actives, that is the active ingredient. Typically, it's a plant extract, botanical, or peptide. So if you put on a cream and your skin is rejuvenated or fine lines are minimized, this would be the active that we are supplying. The other business, Microbial Protection, we acquired it a few years ago, primarily had a European concentration. We're putting assets in the region, putting people in the region and replicating that success. And then lastly, in terms of Specialty Additives. Specialty Additives is primarily architectural coatings, about 60%, 65% architectural coatings additives. What is that? It's rheology. So if you paint and your experience while painting in terms of the flow, the coverage, the splatter, we would be the additives that are enabling good outcomes, particularly if you're a DIY, we sell in the contractor and do-it-yourself. It's more profitable for us in the DIY because those that don't paint every day are not good at it. And so our additives help you be a good painter. That's something that has been -- of course, it's been a challenging -- for those that follow the coating space, it's been a challenging market conditions for a few years now. There was a bit of a pull-forward during the COVID pandemic on repair and remodeling. Housing affordability does remain a challenge in the Western world. A key driver for consumption in that space is housing turnover. You paint when you move and the next person paints when they come in. So that has been softer. But some of the areas that we're driving growth outside of that. So of course, rheology will be key to what we're doing, and we're the market leader in that space, particularly HEC. But now we're moving beyond rheology. So rheology is one component of an additive that our customers purchase. Think pH neutralizer, think specialty surfactants or super-wetters or deformers. And so we have the channel to market. We're very well respected in the coating space. What can we do beyond rheology. And the other piece, too, is that in spite of the softer market conditions, this is an area that we did consolidate some production recently. We had 4 plants in the world. Now we have 3. That's not a result of the demand environment. This is a result of we've made investments, and it makes sense to consolidate to get economies of scale. Does it help right now because volumes are soft in architectural coatings? Of course, it does help now. You've seen margin stability in a difficult macro. And I think the key piece on the Specialty Additives side of the equation is that is where you can get some operating leverage. If you were to exclude our Intermediates business, Specialty Additives is about 50% of the production volumes for the company. And so the newly consolidated focused manufacturing footprint has enabled margin stability in a more challenging time. But then on the way up, you get the operating leverage as well.

And following up on the Intermediates business, which is small at about 5% of total revenues. It is a source of many investors' questions. Do you need to have it? Can you actually -- what is it for? And couldn't you just buy those raw materials, which are used by the other divisions buying them into the market?

Yes. So that's right. Our fourth business unit is Intermediates. And to Rosemarie's point, it is different than the other business units. Traditionally, in the 3 areas we just talked about, we have a leading position, 1, 2, a sizable position in the areas that we play. Intermediates is a commodity. It's not a specialty business like we just talked about. Why are we in it? It is a key raw material, BDO for some of our downstream businesses. So what we produce in Personal Care as well as Life Sciences on the acetylenic side, it is a key raw material that's consumed. And so we enjoy the benefit of supplier economics and reliability in our key downstream raw material. And it is a fairly, I would say, streamlined reporting unit, to your point, it's 5% of sales. It's one plant. It's a lean team. It's very effective from a capital deployment and cash efficiency. And from a strategic perspective, some of the competitors in the space are also vertically integrated.

Are there any questions from the audience?

So I enjoyed your presentation, but I'm looking at the free cash flow conversion. And maybe what you've been explaining, how you can tie that into the free cash flow conversion. What is your -- what's the company's expectations of where this 32% is going to go to in 2026, 2027 and so forth?

Yes, it's a good question. So in terms of the financial algorithm, and I'll get to the 32% and the bridge to the longer term. We've committed to 200 to 300 basis points of out-performance versus market from a top line perspective, assuming a GDP-type growth rate in the markets we participate, mid-single-digit top line would be the commitment, greater than 25% EBITDA margin and then greater than 50% free cash flow. To your point, we weren't there last year. So what drove some of that? The key thing, and we talked about it a little bit, is we've been doing a lot of -- on the execute pillar, capacity rationalization and capacity consolidation. And as a part of that, it's a lot easier said than done. So what you do is you build safety stock in advance, and that was -- that was a dynamic that was playing out late last year was building inventory in advance of plant consolidation. And so first half of this year, it's interesting. You can start to see this play out. The way I would think about free cash flow cadence for the company, traditionally, Q1 is a net cash draw as you're building inventory in advance of your seasonal pickup. Q2 is typically breakeven and then you make all of your money in the second half of the year. That wasn't the dynamic that we experienced in Q1. It's not the dynamic we'd expect in Q2 because we're drawing down the inventory that we built in advance of some of the network consolidation. So as I think about capital deployment, CapEx is about $100 million. Leverage is in a really great place, 2.7x. We have no debt maturities until January 2028. Weighted average cost of debt is inside of treasuries. We locked in rates at a good time. And so from here, what do we do? We pay the dividend. We paid a dividend -- our increase is at 13% CAGR since 2009. We've increased it each and every calendar year since that time, something we're proud of. It's an important part of our capital discipline approach. That's about 35% to 40% of the free cash flow is the dividend. From there, we look at bolt-on M&A. We want to do M&A. We don't need to do M&A. There's a whole lot of things that we just talked about in terms of the Globalize, Innovate and Execute, and we could share more on why we think that's valuable from an organic perspective. And then thereafter, we repurchase shares. We've retired 25%. We gave the share count earlier. We were above 60 million shares outstanding 5 years ago. So we've taken out about 25% of the shares over the last 5 years. That's something we continue to do. We see a lot of value here at this point, absent M&A.

Yes. Thanks for the question. Last December, Activist Investors, Standard Investments disclosed that they acquired a significant stake in the company. Have you guys had any discussions or engagement with them? And maybe just share a little bit of that conversation.

Yes. So some background. So yes, Standard Investments filed a 13D a few months ago, to your point. They do have some legacy overlap with Ashland. So the Standard Industries used to own ISP and sold it to Ashland 15 years ago now. So we've had -- before this role, I was in Investor Relations, we've had ongoing dialogue with Standard for a number of years. Obviously, they disclosed the position. They see value. The 13D is pretty broad in terms of positions. But we've had discussion since, nothing I would say in terms of an update in terms of their intent. I think part of how I think about it is, from your seat, it's also been a validation because they own and operate businesses themselves. And so when we have that dialogue with them, it's a little bit interesting because they're not just investors, they're also operators. And so they understand the opportunities as well as the risks that we're navigating.

Thank you, William. So now that we have a better understanding of the company's strategy. Can you share how much you expect to generate company-wide in your revenues and in margin improvement over the short and longer term from all of those innovations projects?

And so this is something because we're through the portfolio reset that we're going to be radically transparent. And so one of the things you'll find in our quarterly reporting now is, we're breaking out our Globalize and our Innovate commitments, which is disclosing at a pretty granular level. So one of the things that we've done this year, we've committed to $35 million of incremental sales growth, which is what's supporting our top line commitment for the year. We started Q1, $9 million of that $35 million in our seasonal low. We do expect that to continue going forward.

And in terms of margin, I mean, what do you see the size actually? If you put all of that basket of Innovation together, how much in revenues do you think they can generate over the next 3 to 5 years? I am sure you have looked at that. Otherwise, you would not put them in the marketplace.

Well, one of the things that -- how we've positioned this is because we've demonstrated that the total addressable market from the innovation portfolio roughly adds 50% to our total addressable market, which is billions of dollars. But we also understand that's probably a bridge too far given where we are in terms of the development cycle and proving that out financially. So how we've positioned it is the 200 to 300 basis points of out-performance in terms of that growth algorithm. It's a derisker to deliver against that. And then by the way, it's upside in the sense that there's optionality because oftentimes, if you get one large customer in this space, it can really be quite meaningful in terms of validation and financial results.

And there won't be any cannibalization as you introduce those, are they going to replace some of your existing product lines?

It's very modest. What I would say, in general, there we're going after the synthetic nonbiodegradable incumbents. And so it's almost all additive. There's some minor overlap, but not material in the context of the opportunity that we're talking about.

Thank you very much. We have now ran out of time. And so we really, really appreciate you coming in, in person and introducing us to what we should call what -- the new Ashland.

Yes, I appreciate it, Rosemarie. I appreciate the interest and feel free to reach out to us if we can better explain the story. Thanks so much.