Earnings Call: Q1 2020

Jan 28, 2020

Ladies and gentlemen, thank you for standing by and welcome to the Ashland Global Holdings First Quarter 2020 Earnings Call. This time, Please be advised today's conference is being recorded. Would now like to hand the conference over to your speaker, Seth Mrozek, Director of Investor Relations. Please go ahead. Thank you, Sydney. Good morning, everyone, and welcome to Ashland's first quarter fiscal 2020 earnings conference call and webcast. My name is Seth Mrozek, Director, Ashland Investor Relations. Joining me on the call today are Guillermo Novo, Ashland's Chairman and Chief Executive Officer and Kevin Willis, Senior Vice President And Chief Financial Officer. We released preliminary results for the quarter ended December 31, 2019 at approximately 5 pm Eastern Time yesterday, January 27th. 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 As a reminder, during today's call, we will be making forward looking statements on several 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 more complete 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. Guillermo will begin the call this morning with an overview of results in the 1st fiscal quarter. He will then provide an update on the work that has been done to realign the Ashland business structure. Next, Kevin will review financial results for the fiscal first quarter, and discuss the debt offering and redemption that was completed in January. Finally Guillermo will close with key accomplishments that have been achieved over the past few months addition to providing And I will now turn the call over to Guillermo for his opening comments. Guillermo? Thank you, Seth, and good morning to everyone. It's an exciting and dynamic time here at Ashland and I'm incredibly energized by what we have accomplished and the opportunities that lie ahead. I want to thank the Ashland team for the strong support and enthusiasm you have demonstrated during this transition. Today, I'll start with comments about the high level drivers of our performance in Q1, then discuss the business realignment that continues as we speak. Following my remarks, I'll turn the call over to Kevin to take you through the details. Q1 performance was below prior year, We experienced no significant surprises in Q1 other than the extended turnaround costs at our line facility as a result of an unexpected need for additional maintenance work. And we continue to advance our sustainability objectives in terms of innovation and operations. As expected, market demand remained soft in the quarter in both the industrial and consumer markets. In pharma, We have a difficult comp relative to a very strong prior year Q1 and saw some customers adjust their inventory levels. In personal care, we continue to see demand softness in hair care. In oral care, results were stronger than planned driven by some new product in reductions by key customers. For adhesives, we saw general softness across most segments, especially transportation, but the construction market was strong. Coatings demand remained soft during the quarter. As we communicated, we also had the prior year carryover headwinds of business losses and tailwinds of improved costs. From a cost perspective, we continue to realize benefits from the cost reduction program and have begun taking additional cost improvement actions. I will talk more about these actions later in the call. Please turn to slide 7. As we discussed during the last call, we are moving from a functional model to a business led 1. As part of this change, we are putting in place a new business structure to better align strategy, resources and capital allocation. And improve execution. This change recognizes that we have a diverse portfolio of specialty businesses with different profiles and requirements to drive success. This will move decision making and accountability Incentive compensation will be heavily aligned to business unit results. Informing the teams, we are leveraging our internal talent and complementing it with targeted external talent. I'm very pleased with Our business will be made up of the following: the Consumer Specialties Group will include our life science and our personal care and household business units. Note that the Life Science BU will hold our current pharma and health and wellness businesses. The health and wellness business will include Ashland's core additives business as well as pharmachem's nutrition activity. Personal care and household BU will include Ashland's existing businesses as well as the Evoqua fixative business. From Pharmachem. The Industrial Specialties Group will be made up of our Specialty Additives and performance at Adhesive's business units. Specialty Additives will contain our coatings, construction, and Performance Additives business lines. Performance Adhesives will remain unchanged. We will continue to Although we will allocate to the businesses business units, some of the corporate managed costs linked to their operating activities, like IT, HR, EHNS and other functions. We will have a corporate segment that holds all corporate governance costs. Note that in addition to aligning our resources to the businesses, We are also aligning our core assets to them. Each business will be accountable for the operations and performance of the assets in their business and for the supply This business model change will be a fundamental change in how we run our businesses and the company. And in true and in turn improve decision making, our agility and build ownership. Business units will own their strategies and be accountable for their operating performance. This is not a one size fits all model. They will have the dedicated resources and full empowerment to make decisions including their business models and cost structures. The intent is for the new business structures to better align strategy resources and capital allocation. And, of course, improve execution. Aligning our incentive compensation to the line of sight for our business units and their teams is also a significant change. Their decisions and actions drive our performance And as such, BU incentive comp will be heavily aligned to the business unit's results. We have accomplished a lot in a short period of time. All the general managers have been selected and will all be in place starting February 1st. We have defined the business units, their teams and aligned their assets. And we're now in the process of finalizing the financials. As part of the actions taken, we have started to reduce our cost structure. For this coming quarter, we will be focused on operationalizing to update all their strategies and define their business models and cost structures. As the BUs take control of their operations, we will begin the process of rightsizing other corporate structures. And then I'll come back with some closing comments. Kevin? Thank you, Guillermo, and good morning, everyone. If you will, please turn to slide 12. First, I'll begin with a broad overview of results during the quarter. As you may recall, the December quarter is our seasonal trough during the year. As demand tends to be slowest as our customers manage inventory and anticipation of planned downtime at their facilities. We also scheduled much of our planned downtime to coincide with our customers planning. This quarter was no different, and our results demonstrate the same normal seasonality patterns that we would expect. That being said and as expected, heading into the quarter, Global demand in both that occurred last year at both pharma chem and within the personal care end market. We did however realize continued improvements to our cost structure as both SG and A and raw material costs were down compared to the prior year. While overall results were consistent with expectation they were below the results of last year's December quarter. Total Ashland sales in the quarter were $533,000,000, down 7% from the year ago period due to lower sales and specialty ingredients. Negative currency represented one point of this decline SG and A costs again declined significantly in the quarter as we realized positive impact of the cost reduction program including the benefit of eliminated stranded costs. We did incur higher than anticipated costs during the planned catalyst changeover the Lima, Ohio facility within intermediates insolvent. Total Ashland's adjusted EBITDA was $88,000,000 compared to $100,000,000 in prior year. Adjusted EPS was $0.13, down a penny from the prior year. Our tax rate was favorable due to income mix and the benefit of discrete tax items. Now let's Specialty Ingredients sales were $505,000,000, down 9% versus prior year, due primarily to weaker demand in both consumer and industrial end markets, plus the prior year business losses, which I already referenced. Gross profit margin benefited from lower raw material costs, though this was somewhat offset by unfavorable product mix. Favorable price versus raws continues to be a good story for specialty ingredients as the commercial teams have been diligent during a prolonged period of raw material volatility. Operating income and EBITDA both declined versus prior year as lower gross profit was partially offset by lower SG and A costs. Please turn to Slide 15. Turning to Intermediates And Solvents. Sales in the quarter were $28,000,000, up 22% from the year ago period. Though the December quarter last year was particularly weak for the I and S segment. As previously mentioned, the planned catalyst changeover plus the unexpected maintenance work at Lima resulted in $12,000,000 of additional costs versus prior year. Plant returned to normal operations during the quarter and no additional costs are expected related to this maintenance work. Now I'd like to review some important balance sheet work that we've recently completed. Please turn to Slide 17. To improve our debt maturity profile and better match the currency of our earnings assets and liabilities, in January, we issued $500,000,000 of unsecured euro denominated bonds at 2%. We also finalized a new unsecured U. S. Credit facility consisting of a $250,000,000 hire approximately $766,000,000 of higher rate debt this month. This move extends maturities and reduces our weighted average cost of debt as well as cash interest expense. It also provides a natural hedge for our euro denominated balance sheet and income statement. We expect this refinancing to result in approximately $18 to $20,000,000 of lower cash interest expense on an annual basis. This euro bond issuance debut is an important step as it demonstrates new capital sourcing options for Ashland outside the US. Please turn to slide 19 I will now turn the call back over to Guillermo for his closing comments. Guillermo? Thank you, Kevin. As we discussed in our last call, Our key objectives are to drive profitable growth, driven by organic sales and adjusted EBITDA growth margin expansion and improve cash flow generation. Please turn to Slide 20. My priorities continue to be to develop and articulate our strategy for our business and the company to improve our operating performance and to align and right size our cost structures to the needs of our business and run as a best in class company for our size and profile. And to maintain a disciplined and ensure that our actions result in visible improvement momentum in our performance. Please turn to slide 20 Our near term focus is very clear. First of all, is to enable our business units. This is at the core of core value creation. We are targeting to have them fully operational with their new strategies, plans and structures by early fiscal third Q3. We will drive cost improvement actions. It's important to note that our company undergone significant portfolio changes for a long time. Because of this we want to make sure that we move with urgency on defining our future structures and implementing the cost actions we plan to take. We will be acting on cost across 4 levels of the company. The first level is around our BUs. BUs will drive setting their business models and improving their defined their needs and service levels requirements, we will take action on corporate managed costs that are allocated to the business based on these new service 3rd, we will ensure we have in place a best in class governance structures and costs in line with a $2,000,000,000 to $3,000,000,000 company of our profile. It's also important to note that although we are a smaller company now, we do have some legacy costs from our history. We will ensure that we have the appropriate cost structure And lastly, we're going to focus on driving our operating performance. Although the business units will drive the core operations, we do have some on a few challenged businesses. Another area is about accelerating productivity initiatives. And the last area is improving our working Please turn to Slide 22. As I've outlined, our focus for 2020 is very clear. Our number one priority is to take the necessary self help actions that will drive We will move which will be critical for the work that lies ahead. We already have a lot of issues we need to address, but there's still more work to define other actions we need to take and dimension both their near term and long term impact. As such, we will not be providing guidance. In terms of the outlook, we will We expect market demand to start improving, especially in We continue to make progress We expect pricing and raw material dynamics to stay balanced. At a minimum, We expect to see throughout the year with especially on inventory. This will liberate cash, but we still need to dimension the operating impact these actions may have. For Q2 call, we'll plan to present the new business structures and give further color on our strategy and path forward. Please turn to Slide 24. A premier specialty materials company. We have an enviable portfolio of businesses focused on high quality markets with exciting growth opportunities. We have leadership positions in We already have a profitable Our focus now is on making a good thing even better. I want to thank give a very special thank you to everyone in the Ashland team. Your support and dedication is greatly appreciated. Note that together, we will be making Ashland an even better company where we can innovate with our customers and grow together. Your work counts and is critical to our future. So thank you very much. Please limit yourself today to one question and one follow-up Our first question comes from the line of Christopher Parkinson's with Credit Suisse. Your line is open. Great. Thank you. So Guillermo, we understand you've only been on the ground for a few weeks, but we also know you're familiar with some of these platforms your past experiences. Just given investor concerns regarding systematic business loss due to some pharmacum weakness Can you just give us a quick review of your perspectives on the longer term competitive positioning of the ASI portfolio by end market? But particularly in the life sciences and PC and H platforms? Okay. Yeah. I would highlight 2 big items in terms of some of the events that happened last year. And I think we talked about it a little bit in the last call. And first is, yes, we had some business impact in our portfolio, but we did not lose share to competition. It's not like we're not playing our game. We lost business because some of our customers made reformulations and took some of the business internally. So if you look at actually the core businesses across the portfolio, we are still in a very good positions. There's the normal puts and takes of share share wins, share losses that happen. We don't go into that level of detail on an ongoing basis. But I'm pretty confident that if you look at some of our core business in pharma, in coatings in adhesives, we're doing very well. And a lot of our traditional construction and other such segments. So I'm not as concerned that there's something systematically broken. Now The oral care we're addressing, it's now a capacity. It's done. We actually versus our plans. We've had a better quarter. Than we had planned through innovation, new products, customers are taking some of our newer technology. So, the teams now, that's one of the areas that I want the new business units and leadership teams to focus and really make sure that we're getting more traction. I think we can get much more leverage out of our innovation investments that we're making that I don't think we are where we need to be in those in those areas. On the Farmken side, I this is one of the areas that I need to spend more time. We have an issue there. I mean, there's no doubt that this is a more structural And I'd rather comment that in the next calls as we move forward. But, clearly we have some good businesses that are stable We look at our active ingredients business. The margins can improve, but the stable business that we can grow. In some of our fixative business and some of our custom manufacturing. Obviously, we've had some bigger challenges. There's a lot of great technology there, especially if you look at our Avoca business to grow into taking into new directions. But this is going to take a period of time. So this is definitely an area where we'll spend a little bit more time and effort. Got it. And just as a corollary of that question, for those investors that concerned about the long term growth profile, the ASI platform, what do you believe are the overall macro key thematic top line drivers we should be monitoring and what's your general thought process regarding how long it will take senior management, the new business unit heads to better align the company's cost structure with that outlook? Thank you. I think on the cost and organization, the expectation is that we'll move quickly on those So within this year, I'd like to see most of those things in place. I think the ones that you're going to have probably a broader timeline, some things we can do now, some things that will take a year, some things that might take a little bit longer is more on the corporate side. We can structural things we can do, certain footprint changes or even if we want to change our IT strategy, things of those nature take a little bit more time. So that area I think you're going to have a broader spectrum but definitely on the business side, the cost part will be very critical. I think we should be getting much more benefit on the revenue side on focus. And that's been the experience that I've had with other businesses that we've gone through this transformation. Obviously, the innovation one is is the part that is a longer lead time. And that's why we're moving with urgency. The sooner we can get to it, the better. The good news there is that we actually do have really great capabilities. Every lab facility they go, the projects that we're working on think it's about getting more traction. But there's a lot of exciting things that are going on that are probably not as visible to the outside that's one of the things that we want to show our investors and our customers on the things that we're doing. These are things like innovation around sustainability. About, biodegradable products. It's about natural products. New pharma products to help our customers improve productivity in the manufacturing of their pills, expanding into markets on bio on injectables in the pharma area. In coatings, we have a real premier group in Rheology. At competing against them for a long time. They're expanding into other technologies to expand the portfolio. So there's a lot of exciting things that's why I'm very excited. The sooner we can get through some of these cost actions and restructuring the sooner we can get to the real exciting stuff, which is really about innovation and organic growth. Thank you. And our following question comes from John McNulty with BMO Capital Markets. Your line is open. Yeah. Thanks for taking my question. With regard you had indicated there, there was some opportunities around the working capital side. I guess Can you give us some preliminary thoughts on where you think you can actually make the improvements there and if you can quantify it at all? Well, that's the part of quantifying is why we're not being specific on some targets yet. But if you just look at our balance sheet and the inventory levels relative to others, other companies, we have a high inventory level. And especially if you look in some of our bigger asset plans, that's where we want to focus. And it's not an insignificant amount. Now the issue is what actions do we take commercially moving the material. If it impacts running our plants, that's the balance of things that we want to do. And this is something I need the new business groups really to own and drive. So that's part of the timeline issues that we need to work through. Got it. And then just as a follow-up, so when you think about the key issues that have maybe caused the company to struggle a little bit in certain areas, do you think it's a lack of focus or do you think it's a lack of investment? And if it's on the investment side, how much do you think you have to put in to actually kind of revitalize the platform? Or is it really just getting the right people in the right places? I don't think it's an investment question. If you look at our R and D investments, the levels that we have. If you look at our the capital investments we're doing, our plants are well positioned. We're adding capacity as needed. So that's not the issue. I think it is an issue of focus. I mean, it's very even before we put all the businesses in place just changing how we're looking at our income statements and balance sheets by businesses and aligning them. We have smart people that are involved in these businesses. They're seeing the issues and they're already moving on it. We're not waiting on some of these things. I think the biggest disconnect and when we say focus, it's not that people weren't doing the thing. It's that when you have these functional organizations, in niche business, specialty business like these, where everything is actually very interconnected, our sales, our innovation, our manufacturing decisions. These are big customers that we're working with. It's much more intimate. If you're in the commercial side and you're just looking at revenue and contribution margin, You will you try to make the right decision based on those things. But what happens when you generate business that short term increases sales and contribution margin, but it costs you a lot of extra costs to deliver that and you make no money on those transactions. We the groups don't have that full view of the P and L. And that's really the fundamental change. If you go down, it's not that we're not focused with marketing people that don't know their space or that we have R and D people that don't know their technology or the customer interaction, it's connecting all that in a much more one focused, one agenda that we're we're attempting to do. And frankly, we're already seeing benefits of just changing the narrative internally and that'll help us bring more traction. Great. Thanks very much for the color. Thanks. Thank you. And our following question comes from the line of David Begleiter with Deutsche Bank. Your line is open. Thank you. Good morning. Guillermo, I know you're putting out good morning. I know you're not putting out targets, but the prior team had a longer term margin target for the special ingredients business of 25% to 27%. Is that still reasonable or is that even too low perhaps your longer term thinking of the potential of Ashland? I think as we said in the last call, I mean, we're not changing our targets. That's still the target. I think that there's opportunities to do more than that, especially as we look at each of the business units This is a lot of the discussion of costs has been really around our corporate structures and all that. Actually, it's really about the business model, service levels, things that we want to do differently across the different business units. So I think as was the case with the prior company I was in, the bigger surprise really came out of those activities that were much more intimate to the business and that provided some upside momentum, both in terms of cost and in terms of mix improvement. Very good. And just on the innovation engine and pipeline, Guillermo, when would you hope that will begin to really impact the top line? Is it a few quarters? Is it longer than that perhaps? What's your timeline for that improvement? Trying now to support the key initiatives. So we're identifying which are the major projects, major initiatives how do we focus on them to accelerate them so that we can increase the level of impact. And I think the other issue is for the business units. It's not surprising. I mean, for some of you that look at this across many companies, just aligning now our incentive comp and our actions to business units, I can guarantee you that there's going to be a different sense of urge for each of those businesses because the majority of their line of sight, are they going to be rewarded for it? What they do matters and that just creates a very positive sense of urgency across the organization that we want to foster and develop. So I think we can move much faster I think the things that'll take longer are more as we step back and this is something that I'll work with our CTO on more of the portfolio is are there some changes that we want to shift into bigger activities? Are we doing we've got a lot of great projects on sustainability. Where can we do more on some of these areas, especially in the consumer side where this is a business imperative as we move forward. So there's a lot of exciting things I think we have a lot of options because of the core capabilities we have. So that puts us in a good position to choose. We're not having to start things from scratch at this point in time. Thank you. Our following question comes from the line of Mike Sison with Wells Fargo. Your line is now open. Hey, guys. Welcome back to you, Amar. Just curious, I know you've got a lot of things going going on in terms of improving the company, but when's a reasonable timeframe to start to see EBITDA growth for Ashland? Should you see some this year second half or is it really a 2021 event? So I think two things that I mean, three points that I would make. One is, we've been focused really on all these things that happened last year. Are we stabilize it so that we're not getting any more negative surprises. And that this quarter, we've seen that. And as the business teams go, my level of confidence increases because we're going to have very focused teams addressing those issues. I think that the second issue is going to be general market demand that the there's still a lot of uncertainty, but all the indications are most of the markets are starting to improve. Especially in the second half that will help us drive EBITDA growth. But the most important part and we don't control that, that'll be the market. I think is really our self help actions. And it's on both the prior question and on the discussion of our cost actions that we need to take. Making getting the businesses focused so they can drive their portfolio with what I would call the exciting EBITDA growth drivers, which is really the revenue and the innovation mix improvement drivers that they have. And they're already developing. They're already identifying things that they can do. And second is obviously on the cost side of things, the actions that we need to take so those self help actions. So if you look at the timeline, I think the second half of the year is where we're going to see the biggest benefit. What we've been trying to do as you've seen now is to show I know there's been a lot of, concern of our has the company been moving too slow on some things? And what we want to make sure is that we can't show it yet on the financial results that we are showing at internally that we're taking actions that we are moving with a high level of urgency, in all these activities. So next quarter, you're going to see hear more about the actions we're taking. I think we will see some benefits on costs and on revenue, but the bulk of that will come in the second half of the year. Got it. And then in order to get to that mid-20s type of EBITDA margin for the total company, is getting there primarily from your own actions or do you need a little bit of growth and sort of organic growth to get there? I'd like to target through our self help actions, but obviously organic growth is the bigger driver. What I don't want to use is organic growth as a reason not to do things. I think right now, it's really about our self help actions and moving with urgency. I don't think it's healthy for the organization given our history to 6 months, 8 months from now, a year from now to be talking about this again, let's get it behind us. Let's move forward. It's not going to be easy. But it's something we need to do. And then we can focus on more the positive story moving forward. So self help is at the top of our list of drivers for our performance. Got it. Thank you. Thank you. And our next question comes from the line of Lawrence Alexander with Jefferies. Your line is open. Hi, good morning. This is Kevin Szeck on for Laurence Alexander. Hi, Kevin. My first question, my first question has to do with the end markets. So you mentioned that there would likely be an inflection likely coming in the second half of twenty twenty. And I was just curious to know if you're already seeing some of those inflections happen? And if so, what specific end markets? Yes. I think we're this is sort of our seasonal low, if you look at it and this is a normal type of the year. But we are seeing already indications. If you look at As I said, pharma had a tough comp, but there was a lot of actions in Q1 from customers around inventory things that they did and we're starting to see the pickup of that. We saw a few in personal care, a few customers delay orders just because as an example, in the sun care area. It was a softer year for our customers last year. So there was some inventory impact. But we're seeing those orders already coming in now. And for coatings, I think the indication is more for us seasonally It's more in the back half of the year. And indications is that that'll start picking up. Architectural Coatings are the big the big driver for us and that's more of a seasonal driver. We also saw some nice momentum in oral care been set the business losses aside that we're still working through. We had some new product introduction there that drove some top line and bottom line growth for that business. Okay, great. Thanks. That's very helpful. And I guess my second question has to do with your restructuring efforts that you've talked a bit about. I'm just curious to know, I guess, the relationship between just realigning the different segments versus cost cutting and rightsizing, I guess, Should most of the cost cutting be done in 2020 and then sort of realigning kind of still working progress? So we are already realigning the businesses. I think the essence, once we define these businesses, as we've laid out to you. We are building the P and Ls. Each leader now is looking at it. And as no surprise, we have a very diverse portfolio of businesses. They're all nice, healthy, but they're not all the same. Some are much healthier, much nicer than others in terms of margins, potentials. But the cost structures are also very different. So you might have some that have very high gross profit margins, but higher R and D costs others that are good gross profit but not as high and lower R and D more productivity driven So each business now needs to align their structure to the P and Ls. In the past, a lot of these support costs have been We try to line them, but they've been much more across the company. Everybody gets their charge. We're now enabling the businesses to say, Hey, I don't need that service. I don't that's not important. I want to reduce it or increase it. In some of the cases, they might want more services in certain area. We're going to give them that freedom. But we would like to get most of that done this year. I think on the business side, these are not things that we need to delay. This is about structure. This is about how we focus. I think the structural side that takes time are some of the more systems process related activities, and that's probably more on the corporate side. Okay, great. Thank you. Thank you. And our next question comes from John Roberts with UBS. But will the industrial segment manufacture cellulosics for the consumer segment so that most of the manufacturing assets are going to end up over in industrial. And you chose not to merge the BDO or intermediate and solvents business into industrial. I guess you could have done that. It's kind of small, but maybe talk about how the manufacturing is going to work in the new organization. Okay. Yeah. So, we are aligning who are we look at who are the big volume drivers of the assets and who are the best owners in terms of taking the full P and L and management accountability. So of the assets, it's going to vary by business. The cellulosics in general tend to be will be falling into the specialty additives business. They're the bigger volume. And they need to really make sure that we're running the assets that if there's capacity that they're the ones that need to fill it out. The other pharma personal care you can't sell out those assets. I mean, those are specialty very niche products and it's really more about innovation and getting into customer So they're going to own that. In the acetylinics, it's going to be more on the consumer side. They're the bigger driver on that. And then each one has their own asset. Adhesives as an example is a big driver of a lot of our acrylics or a lot of our polyurethanes. But as specialty additives expands their portfolio of new reallurgy modifiers, new products. There's going to be that interrelationship. I've been if you look at companies and business that I've been involved in in the past, this is running coatings in prior company. We ran the network. It's very efficient. You have one owner. You can make sure that you're running things very efficiently. The part that you need to work with your other businesses and make sure that demand planning is robust and that there's a good dialog of understanding their needs so that we can service them appropriately. And then R and D as a percent of sales, just under 3% for all of the company. Do you have in mind a target for the Consumer Specialty segment? For our I mean, each one of them are going to now drive their agenda. So I don't want to speak for them. This is about empowering them to own this. So I don't want to, put boundaries on what they're going to do. But clearly, We have different businesses and they're going to have to spend differently. And it's not just the dollar spend. The questions that we're asking them is where are you investing your money. When we look at our portfolio, we're looking at new product development, which are some really big new platforms that we're investing in, what are you investing in process technology, productivity, So some businesses should be investing more on productivity as an example. Others should be more on, new products as they have a robust portfolio Others, hey, we should be looking at some of these longer term initiatives in developing new platforms. In the consumer segment, a great example is biodegradable. That's one area that we're making a lot of progress, but we need to do we'd like to do more. One area that we've done very, very well and now we're trying to get more products out the door is the biofunctional. That part of our business has been very good. So not one size fits all and each business will drive their agenda. Thank you. And our next question comes from the line of Jeff Zekauskas with JP Morgan. Your line is open. Earlier in the call, Guillermo, you spoke of there being structural issues at Pharmachem. What's a structural issue? And how did it arise? Well, I think it's clear to say that we have been we've lost some important pieces of business. And it's not across the board. You look at the core the 3 buckets of activities within pharmachem, One of them, Avoca, we've moved to household. We've had issues there, but that technology actually, they have a robust roadmap of things that they can do taking that technology in other areas and they're working it. So working with them to make sure that we are able to leverage that extraction and and purification technologies that we have in that area is a good thing, but it is a change. So that's a structural change that we that they're doing. In the active ingredients, I think that part is okay. Its margins could be higher. That's we need to improve we're bringing in some new products. But how do we leverage that in our food additives business in a more, more systematic way? We need to restructure how we do things. Part that is structural is the custom manufacturing type activities that we had at Pharmachem. That has been hit. That's where most of the assets are. A more of a U. S.-based business and we need to address that. So pharmachem to be very direct Relative to our expectations, how it's turned out has been very different and we need to address that in a more specific way. So I need a little bit more time to work with the team on that. Were Pharmachem volumes down, 20% in the quarter? Actually more than that, the volume were significant, gap for us. In terms of the overall company. If you take out Pharmachem, I think you would see the rest of the businesses have been pretty stable. And you wouldn't really we wouldn't be having a lot of these conversations in terms of the overall performance at this point in time. So the other businesses inside of specialty ingredients were maybe flat to down and the large decrement in revenues really came out of farm camp? So, yeah, if you look at specialty additives, and talking in terms of some of the businesses, the way we're going to talk in the future, coatings was definitely slightly down just in market demand, but we it's a business that we have very strong positions in. I think the part that probably we didn't spike out as much is we had Nanjing that we talked about at the last call that did have some costs in not so much revenue, but costs in the quarter. And then last year, we did close down a CMC plan in China. That impacted revenue, but not Not so much profit. So if you combine it too, it looks like the business is down, but it's 2 different things. So I would say coatings is much more market driven at this point in time. If you look at some of the big customers here that have merged some of their activities just seasonality around the world with weather and things like that. So we're I'm not that concerned on that part of the portfolio. And then lastly, does the coronavirus make any difference to your business? Does it affect I don't know, supplies of raw materials or it doesn't affect demand. Can you see any alteration in your business patterns in any way? From the onset of the virus? In China. And like everybody else, I mean, if demand gets impacted and obviously is an issue, Obviously, now just movement of people and things is impacting operations. We don't really export a lot from there So we I don't expect that that's going to be a big issue, but we're monitoring our customers. I mean, at the end of the day, I think this is much more of a macro market issue. Very different from other industries that are having structural issues around supply or a customer basis there, for us that's not so much the case. Okay, great. Thank you so much. And our next question is from Jim Sheehan with SunTrust Robinson. Your line is open. Thank you. Could you please give us a sense for the special ingredients organic growth rate excluding Pharmachem? I said I think you just said it was relatively stable. But excluding the Pharmachem business loss, was your growth rate in your organic growth rate better or worse in this quarter relative to the prior quarter? We were down versus the prior quarter. If you remember, the we had the oral care was an issue. And then just general demand. Pharma as an example, we were down, but it's really the comp that was a very tough one. On the other ones, I would say a few percentage, a percent or 2 and it's more macro driven than anything else. Okay. And could you please quantify the proportion of EBITDA that represents the more challenged structural portion of pharmahem or any other way to estimate proportion of that business that you think needs attention? I guess we'll outline that as we roll out the new businesses and financial split. I would say it's not an insignificant amount. To be very direct. I think if you look, our Evoca business was sizable, so some of the impacts have been significant. I think towards the back end of the year, some of these new developments will come in and offset. So that's a good news. On the nutrition side of a pharmachem, that's going to take a little bit more time at work. But it's it's not an insignificant amount of revenue or EBITDA. Thank you. Our next question comes from Mike Harrison with Seaport Global Security. Your line is open. Guillermo, you made a comment that the organization was somewhat fatigued with change and obviously there's been a lot of change from a portfolio standpoint I think maybe some change as well at the management level or strategic standpoint. But can you give a little bit more detail on how that factoring into your approach to, the restructuring and reorganization. How do you overcome that Teague and turn it into an organization that's more energized about the path forward. Okay. I think that the first action that we're taking is focusing on the business. And I use the example of in airplanes when there's an emergency, the Air Max comes down and they say put it on first and then help others. In our case, put it on the business. And they will help us. So energizing our strengths, which is really a strong business capabilities and enabling that has to be at the forefront of what we do and how we're going to move forward in terms of driving performance And that also generates excitement because that's where innovation, that's where engagement with customers. So making that much more visible. And enriching because I think as people get the freedom to take action, they're the ones that are going to drive the actions. We're not going to do a top down realignment of businesses. It's the business teams, their leadership groups are really going to define where we go. That's difficult work, but it is also very energizing because they are able to see where they want to go. They are able to see why they're doing things in a much more clear line of sight way and that generates, excitement and clarity. And the majority the reality is the majority of the organization things aren't going to change. It's really more to the better not to the cost reduction side. I think on the other parts is, we're just going to be very on and direct on what we need to do. And that's not easy, not the things that people want to do and wake up in the morning, but it's something that we need to do for the better good of the company and the future. And we're just going to be honest and direct about it and make sure that we're treating everybody in a fair way. The other part is that this is not about just cutting costs on people. It's about driving simplicity and rightsizing to a company or size. The hardest part when you are moving from $8,000,000,000 company to $5,000,000,000 to $3,000,000,000 is that you're not starting with a blank piece of paper. You're sort of evolving what you have. And that is very difficult and emotionally more hard. I think what we want to try to do is where are we today? What do we need and start with that blank piece of paper? And then than connected to. But I need to have these discussions internally with our teams. I don't think it would be appropriate to go into details with the external world without giving the benefit of the discussion and communications internally. So we need a little bit more time to really give more details on that area. No, understood. That's good color. And then my other question is on the coatings business. You mentioned down modestly and it sounds like that was related more to market weakness. Just wanted to get your sense if there's any inventory destocking that happened during the quarter or still is yet to come Do you feel like there's been any de formulation or any other share movements going on, just as we head into this seasonal period of potentially rebuilding inventories. I think a lot of the coatings guys are going to talk about relatively easy comps related to weather. And so I just wanted to get a sense of how you're viewing your position in that market, heading into the spring season. Yes. No, we're very well positioned. I mean, if you look at, especially the virology side, but also the other additives But in Rheology, clearly, Ashland is, has a strong position in cellulosic aquaflow also extremely well positioned for some of the higher end paints, and they're doing more. I think this is an area that we have I think I mentioned last call, our capabilities are higher than the portfolio we have. We can do more and that's what the team is doing trying to expand the number of products that we have to bring to the market. So as the market improves, we should see this business do very well. Thanks very much. Thank you. Good. Okay. Well, thank you all for your interest. I'm really looking forward to seeing all of you in the coming weeks. And I thank you all for your support. And again, to everybody from the National team that's listening. Thank you for all your help. So looking forward to seeing you. Ladies and gentlemen, this concludes today's conference call. 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