Ashland Specialty Ingredients Analyst Day€¦ · •Successful launch of new OnGuard™ water...
Transcript of Ashland Specialty Ingredients Analyst Day€¦ · •Successful launch of new OnGuard™ water...
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Ashland Specialty Ingredients Analyst Day
Dec. 4, 2012
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Forward-Looking Statements
This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In addition, Ashland may from time to time make forward-looking statements in its other filings with the Securities and Exchange Commission (SEC), news releases and other written and oral communications. These forward-looking statements are based on Ashland’s expectations and assumptions, as of the date such statements are made, regarding Ashland’s future operating performance and financial condition, the economy and other future events or circumstances. Ashland’s expectations and assumptions include, without limitation, internal forecasts and analyses of current and future market conditions and trends, management plans and strategies, operating efficiencies and economic conditions (such as prices, supply and demand, cost of raw materials, and the ability to recover raw-material cost increases through price increases), and risks and uncertainties associated with the following: Ashland’s substantial indebtedness (including the possibility that such indebtedness and related restrictive covenants may adversely affect Ashland’s future cash flows, results of operations, financial condition and its ability to repay debt), severe weather, natural disasters, and legal proceedings and claims (including environmental and asbestos matters). Various risks and uncertainties may cause actual results to differ materially from those stated, projected or implied by any forward-looking statements, including, without limitation, risks and uncertainties affecting Ashland that are described in its most recent Form 10-K (including Item 1A Risk Factors) filed with the SEC, which is available on Ashland’s website at http://investor.ashland.com or on the SEC’s website at www.sec.gov. Ashland believes its expectations and assumptions are reasonable, but there can be no assurance that the expectations reflected herein will be achieved. Ashland undertakes no obligation to subsequently update any forward-looking statements made in this news release or otherwise except as required by securities or other applicable law.
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Regulation G: Adjusted (Including Pro Forma) and Baseline Results
The information presented herein regarding certain unaudited, adjusted (which may include pro forma results in prior years) and baseline results does not conform to generally accepted accounting principles in the United States (U.S.-GAAP) and should not be construed as an alternative to the reported results determined in accordance with U.S.-GAAP. Management has included this non-GAAP information to assist in understanding each business segment’s historical operations and financial performance. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information related to Ashland filings with the SEC has been reconciled with reported U.S.-GAAP results.
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Agenda
8:45 Overview and Strategy Jim O'Brien, Chairman & CEO
9:15 Ashland Specialty Ingredients (ASI) John Panichella, President
Overview, Markets and Strategy Business Unit Leaders
10:45 Break
11:00 ASI Technology May Shana’a, VP Technology/Growth
11:10 Capital Allocation/Financial Review Kevin Willis, Controller ASI
11:30 Q&A
12:00 Financial Review Lamar Chambers, Sr. Vice President & CFO
12:15 Closing Comments and Q&A Jim O'Brien
12:30 Lunch
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Objectives
• Provide in-depth review of Ashland Specialty Ingredients
• Overview of 2012 performance and accomplishments
• Better understand levers for long-term value creation
• Share our views regarding capital redeployment and longer-term capital structure
• Outline vision for future
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Overview and Strategy
Jim O’Brien
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Commercial Units
Ashland Specialty
Ingredients
Ashland Water
Technologies
Ashland Performance
Materials
Ashland Consumer
Markets
Leading Products & Services
#1 cellulose ethers, global leader in
vinyl pyrrolidones
#1 specialty
papermaking chemicals
#1 unsaturated
polyester resins and vinyl ester
resins
#2 U.S. franchised
quick-lube chain, #3 passenger-car
motor oil
Sales1 $2.9 billion $1.7 billion $1.6 billion $2.0 billion
Ashland: Four Strong Businesses
1 For fiscal 2012.
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Corporate Profile1
Specialty Ingredients
35%
Water Technologies
21%
Performance Materials
19% Consumer
Markets 25%
Sales - $8.2 Billion
Specialty Ingredients
57%
Water Technologies
11%
Performance Materials 12%
Consumer Markets
20%
EBITDA - $1.4 Billion
Specialty Ingredients now contributes nearly 60% of EBITDA
1 Fiscal 2012 data. EBITDA has been adjusted for key items. See Appendix for reconciliation.
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Our History
2008: Acquired Hercules
2006: Divested Ashland Paving and Construction
2011: Acquired International Specialty Products (ISP)
2011: Divested Ashland Distribution
2005: Sold stake in Marathon Oil joint venture
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Specialty Chemical Attributes
Combining the elements for long-term success
• Long-term growth • More consistent, predictable performance • Strong, sustainable margins • Significant hurdles for new entrants • Technology driven, difficult to displace
Ashland
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Ashland’s EBITDA Transformation
Pre-Transformation: 2004
2012
Divested Segments
69%
Ashland Specialty
Chemicals 15%
Specialty Chemical Commercial Units
80%
Ashland Consumer
Markets 20%
Creating a world-class specialty chemical company
Ashland Consumer
Markets 16%
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Ashland’s Geographic Sales Transformation
North America
53% Asia Pacific
13% Latin America/
Other - 7%
Europe 27%
Pre-Transformation: 2004
North America
88% Asia Pacific - 2%
Latin America/ Other - 1%
Europe 9%
Nearly half of sales outside North America
2012
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Strategic Decisions Have Dramatically Expanded EBITDA Margins1
4.5% 4.3%
9.0% 9.7%
12.6%
16.6%
2007 2008 2009 2010 2011 2012
Divested Distribution March 2011
Acquired Hercules November 2008
Acquired ISP August 2011
1 2007 through 2012 EBITDA margin as reported in the fiscal year noted and not adjusted for future transactions. EBITDA presented herein has been adjusted for certain key items.
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Baseline Historical Performance1
$921 $904 $942
$1,071 $1,152
$1,359
13.3% 12.0%
15.2% 15.7% 14.5%
16.6%
2007 2008 2009 2010 2011 2012
EBITDA EBITDA %
Good growth and performance
($ in millions)
1 See Ashland’s November 15, 2011 analyst day presentation for reconciliation to amounts reported under GAAP for periods 2007 through 2011. See Appendix for 2012 reconciliation.
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Share Price Levers
Significant opportunities for share-price expansion
Growth
Margins
Free Cash Flow
Value1 P/E 13.2x 11.4x 9.0x
EV/EBITDA 8.4x 7.3x 5.8x
Top Tier Chemicals
• EBITDA expansion to $1.7 billion by 2014 • EPS growth to $9.50 to $10.50 per share by 2014
• Achieved EBITDA margins of nearly 17% • Expect to further improve margin profile
• Excluding dividends, generated $246 million in 2012 • 2013 FCF of approximately $400 million
Ashland
1 As of November 16, 2012. Top Tier includes ALB, CYT, ECL and FMC. Chemicals group also includes CE, DD, DOW, EMN, PPG and ROC. Multiples represent median values based on 2013 Factset consensus.
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2012 Accomplishments
• Significant growth in earnings and EBITDA – Good growth in Specialty Ingredients,
Performance Materials and Consumer Markets
• Attained $75 million in savings through corporate cost reduction program
• Completed commercial integration of ISP
• Significantly improved capital structure
2011 2012
Adjusted EBITDA up 17%1
$1.2B $1.4B
2011 2012
Adjusted EPS up 70%
$3.90
$6.62
1 2011 EBITDA includes pro forma ISP data.
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Water Technologies: 2012 Performance
Financial Performance
2012 20111 Growth
Sales ($ B) $1.7 $1.8 (6) %
EBITDA ($ MM) $149 $189 (21) %
EBITDA % of sales
8.6% 10.3% (170) bp
Positive
• Repositioned business to focus on higher-margin, higher-growth opportunities
• Successful launch of new OnGuard™ water treatment platform
• Significantly improved pricing actions led to full cost recovery
Negative
• Share gains in Industrial markets have not met our expectations
• Slowdown in global Printing and Writing demand
• Asian packaging demand • Broad-based weakness in Europe
Business Drivers
Municipal 9%
Paper 58%
Industrial 33%
2012 Sales
1 Baseline sales and EBITDA, excludes MCW divestiture.
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• Continue to win in emerging regions • Capitalize on low market share in
Industrial water treatment by building capability in key segments
• Improve execution in Light Industry water treatment to improve profitability
• Strengthen corporate account program • Revitalize R&D pipeline and accelerate
new product introductions into key Pulp and Paper segments
• Secular declines in Printing and Writing – Mature markets in decay – Emerging regions continue to grow
• Share gains in Industrial markets have not met our expectations
• SG&A spend too large as a percent of sales
Major Opportunities Major Challenges
Water Technologies: Outlook
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Performance Materials: 2012 Performance
Financial Performance
2012 20111 Growth
Sales ($ B) $1.6 $1.6 -
EBITDA ($ MM) $159 $128 24 %
EBITDA % of sales
10.2% 7.9% 230 bp Positive
• Improved margins across all product lines
• Cost efficiencies from capacity reductions and plant closures
• Improved business mix • Some recovery of base business
in North America • Lower butadiene pricing in
Elastomers
Negative
• Weak demand in China and Brazil • Low Unsaturated Polyester Resin
(UPR) industry utilization rates • Depressed replacement tire
market led to softer Elastomers volumes
Business Drivers
2012 Sales
Construction: Residential
14%
Marine 9%
Pkg. & Converting
15%
Construction: Industrial
28%
Transportation 28%
1 Baseline sales and EBITDA, excludes Casting Solutions joint venture.
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• Further growth in targeted markets: Packaging & Converting, Mining and Energy
• Continued base business recovery in North America – Returning Construction markets in
North America • International expansion of
adhesives business • A return to growth in emerging
regions
• Wind market remains depressed • Protracted softness in Europe • Industry utilization rates for UPR
remain low – Approaching rates of ~ 70%
• Slow recovery in primary markets in China
Major Opportunities
Performance Materials: Outlook
Major Challenges
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Consumer Markets: 2012 Performance
Financial Performance
2012 2011 Growth
Sales ($ B) $2.0 $2.0 -
EBITDA ($ MM) $272 $251 8 %
EBITDA % of sales
13.4% 12.7% 70 bp
Positive
• Continued international expansion • Improved sales in DIFM and VIOC • Significant pricing actions over
course of year • Restored more normalized margin
by fiscal year end
Negative
• Do-It-Yourself motor-oil market remained weak through 2012
• Consumers’ delay of routine vehicle maintenance
• Raw material costs continued to fluctuate
Business Drivers
2012 Sales
Do-It-Yourself 32%
DIFM: Valvoline Instant Oil
Change 15%
DIFM: Installer Channel
21%
Valvoline International
32%
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• Drive NextGen™ trial and MaxLife™ growth
• Expand and strengthen international presence in emerging regions
• Leverage VIOC business model to grow organically – Same-store sales growth – Additional stores
• Base oil capacity expansions should further reduce volatility
• Lingering weak economic environment negatively affecting lubricant demand – Consumers’ delay of routine vehicle
maintenance • Continued exposure to raw
material cost volatility – No reliable hedge for base oil
Major Opportunities
Consumer Markets: Outlook
Major Challenges
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Overall Progress on 2014 EBITDA Goals
Ashland overall remains on track
20121 Original 2014 Targets
Progress/ Expectations
Ashland Specialty Ingredients $763 $795
Ashland Water Technologies $149 $310
Ashland Performance Materials $159 $225
Ashland Consumer Markets $272 $420
Ashland Overall $1.4 B $1.7 B
($ in millions)
unless otherwise noted
1 Fiscal 2012 data. EBITDA has been adjusted for key items.
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Fiscal 2013 Objectives
• Expand sales and tightly control costs – Focus growth capital in Specialty Ingredients – Improve performance in Water Technologies – Achieve sales gains in Consumer Markets and
Performance Materials • Complete remaining $15 million in ISP cost synergies • Achieve significant increase in free cash flow
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Long-Term Strategy
• Focus on cash generation and earnings growth – Maintain cost discipline – Tightly control working capital
• Allocate cash to highest-return opportunities – Improve overall return on capital – Further improve margin profile
• Concentrated growth in Specialty Ingredients – Numerous organic growth opportunities – Further expand short- and long-term R&D pipeline – Selectively pursue bolt-on M&A opportunities
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Ashland Specialty Ingredients John Panichella
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Ashland Specialty Ingredients Global leader in water-soluble and film-forming polymers
Sales by Geography
Fiscal 2012 Performance
Sales: $2.9 billion Adjusted EBITDA: $763 million1
Adjusted EBITDA Margin: 26.5%1
Sales by Product
Cellulosics 31%
PVP 15% Solvents/
Intermediates 18%
Pharma/ Nutrition
18%
Personal Care 21%
Specialty Performance
25%
Sales by Market
North America
37%
Asia Pacific 17%
Europe 37% Latin America/
Other - 9%
Coatings 13%
Industrial 23%
Guar 12%
Other 10%
1 See Appendix for reconciliation to amounts reported under GAAP.
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Pharmaceutical Skin Care Paint & Coatings Energy Specialties
• Tablets • Capsules
• Skin lotions • Anti-aging products • Body washes • Suncare
• Water based architectural paints
• Drilling • Cementing • Stimulation • Production
• Civil engineering • Inks and printing • Ceramics • Agriculture • Batteries
Nutrition Hair Care Emulsion Polymerization Construction Industrials
• Food - texturant • Custom food blends • Beverage clarification
and stabilization
• Shampoos • Conditioners • Mousses/gels • Hairspray
• Paints • Adhesives
• Dry mortar • Gypsum • Joint compound
• Intermediates
Oral Care & Household All Other
• Toothpaste/mouthwash • Denture adhesives • Detergents and cleaning
products
• Specialty solvents
Personal Care Pharma/Nutrition Coatings Industrial Performance
Ashland Specialty Ingredients
Key Markets and Applications
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Wood Pulp
Cotton Linter
Butane or LPG
Natural Platforms
Synthetic Platforms Thickener
Stabilizer
Binder
Emulsifier
Conditioner
Film-former
Disintegrant
Adhesive
Shelf-stable peroxide
Disinfectant
Clarifier
Shared
Applications
Ashland Specialty Ingredients
Primary Technology Platforms
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Pharmaceutical Personal Care Coatings Energy Construction Food&Bev
HEC + +++ MC +++ CMC + + ++ HPC +++ Guar +++
Ashland Specialty Ingredients
Major Natural Products: Sales Concentration1
Natural, renewable products with broad applicability
1 Key: [+++] represents greater than 50% of product sales, [++] is between 25% and 50% and [+] is 10% to 25%.
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Pharmaceutical Personal Care Coatings Energy Construction Food&Bev
PVP ++ ++ PVPP +++ ++ Vinyl Ethers +++ Biocides ++ +
Ashland Specialty Ingredients
Major Synthetic Products: Sales Concentration1
Significantly strengthens Pharmaceutical, Personal Care and Coatings
1 Key: [+++] represents greater than 50% of product sales, [++] is between 25% and 50% and [+] is 10% to 25%.
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Financial Performance
2012 2011 Growth
Sales ($ B) $2.9 $2.5 13%
EBITDA ($ MM) $763 $608 25%
EBITDA % of sales
26.5% 23.9% 260 bp Positive
• Broad based pricing gains • Strong performance in Industrial
markets – Energy and Construction both
performed well • Solid performance in
Pharmaceutical • Good growth in new product
introductions
Negative
• Lower pricing in Intermediates and Solvents
• Straight guar destocking in September quarter
• Reduced Coatings demand in Europe and Asia
Business Drivers
2012 Sales
Pharma/ Nutrition
18%
Personal Care 21%
Specialty Performance
25%
Coatings 13%
Industrial 23%
Ashland Specialty Ingredients
2012 Performance
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• Strong growth in base business – Pharmaceutical – Personal Care – Coatings
• Continue to gain share in Construction
• Capitalize on Energy demand – Hydraulic fracturing growing globally – Advanced technical solutions
required • Four separate capital expansion
projects coming online in 2013
• Straight Guar – Expected loss on inventory of
roughly $25 million in Q1 – Apparent improved crop
lowered price – Grew gross profit dollars in 2012 by
roughly $60 million (good volume growth, strong pricing)
• Intermediates and Solvents – Lower pricing and profitability due to
global capacity increases – Previously described on Q4 earnings
call and 2011 Analyst Day
Major Opportunities Major Challenges
Ashland Specialty Ingredients
2013 Outlook
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Achieve long-term, double-digit organic earnings growth
Be recognized as the premier specialty ingredients and formulation business in the world
with strong growth and superior margins
We will achieve this goal through relentless focus on innovation, helping our customers to improve their
formulations anywhere in the world
Ashland Specialty Ingredients
Vision Statement
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• Leverage broad product portfolio through industry-leading market channel
• High-touch model for top 40 customers – Higher R&D, sales and support services
• Focus growth and investment in emerging regions – Regional applications labs with formulation expertise
• Increase new product sales through customer-focused innovation
• Pursue adjacent technologies • Selectively invest in capital projects with the highest returns
– Expand capacity as plants approach full utilization – Further improve manufacturing productivity/efficiency
Ashland Specialty Ingredients
Strategy
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523 484
551
691
907
2008 2009 2010 2011 2012 ex Energy Energy
Strategic Accounts: Sales
15% CAGR
• Top 40 customer accounts – Represent roughly 30% of
Specialty Ingredients’ sales • Pursue best-in-class
support levels – R&D – Technical Service – Sales/Support
• Expand position as supplier of choice
Significant growth in Top 40 customer accounts
Ashland Specialty Ingredients
Strategic Accounts
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• Targeting double-digit revenue growth in emerging markets
• Expanding regional labs to increase customer intimacy
• Developing local, five-year innovation plans to meet regional customer needs
• Leveraging local cultural awareness to gain competitive advantage
520 469
569
706 755
2008 2009 2010 2011 2012
Emerging Region Sales
10% CAGR
Strong growth in emerging regions
Ashland Specialty Ingredients
Emerging Region Strategy
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• Continuous pursuit of manufacturing efficiencies – Improved yields – Reduced energy consumption – Raw material costs and usage – Fixed cost absorption and asset utilization
• Generally target COGS savings to neutralize normalized raw material inflation
Ashland Specialty Ingredients
Productivity Goals
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Jeffrey Wolff Group Vice President Pharmaceutical & Nutrition
James Mish Group Vice President Care Specialties
Dale MacDonald Group Vice President Coatings
Joe Stinson Group Vice President Specialty Performance
Kevin Willis VP Finance, Ashland Controller, Specialty Ingredients
Dr. May Shana’a Group Vice President Technology & Growth Strategy
Ashland Specialty Ingredients
Presenters
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Pharmaceutical and Nutrition
Jeffrey Wolff
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Pharmaceutical67%
Food & Beverage
33%
• Business segment includes – Pharmaceutical – Food & Beverage
• Pharmaceutical – Global leader in excipients – Enhance/aid underlying drug
performance
• Food & Beverage – Provider of natural and synthetic
additives
2012 Sales - $526 MM
($ in millions)
Ashland Specialty Ingredients
Pharmaceutical and Nutrition
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Business Dynamics
Market
• $1.6 billion available excipient market • Growing 5% to 6% per year • Leading position with binders and
disintegrants
Market Drivers
• Aging global population – Rising hypertension, diabetes,
obesity • Compliance, convenience and drug
effectiveness • Regulatory requirements
Opportunities • Growth of generics • Natural coatings • Improved drug solubilization
Pharmaceutical and Nutrition
Pharmaceutical Market Overview
ASI Product Benefits
Binding Disintegration
Time Release Coating
Extend leadership in excipients that deliver, protect and stabilize
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Pharmaceutical
Market
Excipients provide high functionality and value
Binders 40%
Oral Solid Excipients • Overall excipients market is $3.7 billion – Includes all dosage routes
• Primarily focused on Oral Solid Dosage – $1.6 billion market – Includes pills and tablets
• Consists of four main excipient applications: – Binders – Coatings – Disintegrants – Solubilizers
Available Market - $1.6 B
Coatings 28%
Other 24%
Disintegrants 5%
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Purpose Typical %1
< 25%
10 – 80%
3 – 30%
1 – 10%
0 – 60%
Purpose Typical %1
1 – 4%
3 – 30%
Pharmaceutical
What goes into a tablet?
• Aesthetic coatings – Provides color/appearance
• Functional coatings – Delayed drug release – Enteric release – Moisture barrier
• Active ingredient – Delivers pharmaceutical activity
• Fillers – Inert ingredients that impart bulk
• Binders – Holds tablet together – Precisely regulates drug release
• Disintegrants – Helps tablet to dissolve in the body – Enables quick release of the active
into your body
• Solubilization aids – Enables drug absorption – Allows for reduced pill usage
Excipients make up the majority of most tablets, vary considerably between applications
- areas Ashland competes
1 Listed %s are by weight.
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Pharmaceutical
Market Trends and Drivers
Overall excipients market growing at 5% to 6% per year
Aging Population
• Median age globally continues to advance
• Rising hypertension, diabetes and obesity
Rapid Growth of Generics
• Patents expiring on number of blockbuster drugs
• Leads to lower price and increased availability
Controlled Release Forms
• More convenient dosage form
• Increases patient compliance
• Improves safety and efficacy
Global Access to Health Care
• Global emergence of middle class
• Increasing focus in emerging regions to improve quality and quantity of health care
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• Primarily compete at drug discovery through clinical phase – Work directly with customer to address their needs – Can take 10+ years before first commercial sale
• FDA (or national equivalent) approves entire drug formulation – Includes excipient(s)
• Excipients manufactured under cGMP standards – Typically audited by customers on regular basis
• Once approved, excipient reformulation is possible, but switching costs are high – Relative savings generally minimal – Potential brand and recall risk
Pharmaceutical
Approval Process
Excipients market is highly regulated, displacing incumbents is difficult
Drug Discovery: 5,000-10,000 compounds
Preclinical: 250 compounds
Clinical: 5 compounds
1 Commercial Drug
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Pharmaceutical
Drug Lifecycle over time
Drug Usage
Patent Expiration
Global volumes typically increase
Branded sales fall significantly
FDA Approval
Significant excipient demand growth as drugs come off patent
Years
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• Expand leadership position in binders and disintegrants
• Grow position in coatings • Leverage regional applications labs to support
emerging-region growth – Significant opportunity in generics
• Further improve service and support levels for key strategic accounts
• Develop industry-leading products in controlled-release forms
Pharmaceutical
Strategy and Focus
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Pharmaceutical
Custom Benecel™ HPMC
• Customized manufacturing process which enables highly tailored release profile • Eliminates need for customer blending (trial and error process) • Improves predictability and reproducibility
Capabilities
Can Precisely Tailor Release of Active
0%
20%
40%
60%
80%
100%
% a
ctiv
e re
leas
ed
Time
Typical product “A”
Typical product “B”
New capability to produce anything in this range on commercial scale
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Pharmaceutical
Best-in-class solubilization aid: HPMC-AS
• Best-in-class solubilization aid, now being commercialized • Dramatically improves drug solubility (up to 3x versus competitive offering) • Enables growing trend in pharmaceutical actives
– Roughly 60-70% of new actives being developed are poorly soluble
Capabilities
Growing trend Significantly outperforms other offerings
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
30 60 90 120 150 180
Dru
g re
leas
e
Time (min)
Enhanced solubility
Enhanced solubility Enhanced
solubility
Competitive offering
Ashland’s HPMC-AS
As-is (no solubilizer) Poorly Soluble
Drugs 60%-70%
Soluble 30%-40%
Based on drugs now in development
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Business Dynamics
Market
• $2.9 billion available market – Hydrocolloids ~ $2.5 billion – Beverage clarifiers/stabilizers ~
$400 million • Growing with global GDP
Market Drivers
• Convenience • Health and wellness • More natural/identifiable ingredient
descriptions
Opportunities • Beverages and bakery • Leverage natural product platforms
for growth
Pharmaceutical and Nutrition
Food and Beverage Market Overview
ASI Product Benefits
Viscosity Stability
Clarification Shelf Life
Sizeable market opportunity
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391 416 435 489
526
2008 2009 2010 2011 2012
Sales1
8% CAGR
Core Product Lines
Klucel™ HPC
• Tablet binding, controlled release and solubility enhancement
Benecel™ MC
• Controlled release, coatings and tablet binding
Plasdone™ (Co)Povidone
• Tablet binding and solubility enhancement
Polyplasdone™ Crospovidone
• Superdisintegrants for rapid tablet disintegration
Aquarius™ coating systems • Aesthetic and functional tablet coatings
Polyclar™ PVPP • Beverage clarification and stabilization
Aqualon™, Blanose™, Bondwell™
carboxymethylcellulose
• Thickening and texturizing for bakery, dairy and prepared foods
Wide portfolio of industry-leading excipients
1 Excludes sales from divested Hydrocolloids, Carmine and Pinova businesses.
Pharmaceutical and Nutrition
Sales Growth
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Personal Care
James Mish
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• Four primary markets – Skin Care – Oral Care – Hair Care – Home Care/Other
• Skin Care – Active and functional ingredients
• Oral Care – Functional ingredients for teeth,
mouthwash and dentures • Hair Care
– Functional ingredients for shampoos, conditioners and styling agents
2012 Sales - $596 MM
Hair Care 31%
Skin Care 38%
Other 6%
Oral Care 25%
($ in millions)
Ashland Specialty Ingredients
Personal Care
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Market
• $5 to $6 billion global target market – Focused on skin, hair and oral care
• Growing 4% to 5% per year • Leader in fixatives, rheology modifiers
and dental adhesives
Market Drivers
• Population growth and global emergence of middle class
• Tailored innovation and new products • Global awareness of need for
complete UV protection
Opportunities
• Leverage renewable and naturally derived cellulosic backbone
• Active ingredients for UV protection and anti-aging
Styling Conditioning
Flow Properties UV Protection
Leading solutions provider for skin, hair and oral care
Business Dynamics ASI Product Benefits
Personal Care
Market Overview
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Skin Care
Typical Formulation1
Ashland provides active and functional product solutions in Skin Care
1 Listed %s are by weight.
Components
Water 0% - 90%
• Filler/Carrier
Functional 10% - 80%
• Includes a wide variety of chemistries • Builds the “body of the formula” • Provides texture and feel • Enables active delivery and overall
product performance
Actives < 20%
• Enables actual product claims • Provides specific end benefit:
– Anti-wrinkle – Anti-oxidant – UV/Environmental protection
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Skin Care
Market
Actives 35%
Skin Care Additives • Targeted skin-care market is $2.4 billion • Actives/Biofunctionals
– Represent largest opportunity by value – Ashland sales concentrated in anti-aging
and UV absorption • Functional
– Emulsifiers: enables oil/water mix and improves product consistency
– Preservatives: extends shelf life, prevents bacterial/mold growth
– Other: emollients, rheology modifiers, water-proofing agents
Available Market - $2.4 B
Actives - UV 19%
Preservatives 10%
Emulsifiers 27%
Other 9%
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Skin Care
Market Trends and Drivers
Skin care market growing at 5% to 6% per year
Anti-Aging
• Aging global population
• Increasing global focus on youthful appearance
Natural/ Green
• Growing awareness of protecting the earth
• Desire for simple, understandable ingredients
• Sustainability
Male Grooming
• Growing demographic, particularly in young men
• Distinction between male and female products has blurred
UV Protection/ Sun-Care
• Global consumer increasingly aware of need for UV protection
• Broad-based UVA and UVB needs
• Highly regulated
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Skin Care
Escalol™ S UV Absorber
• Safe for daily use, present in a number of cosmetic applications • Highly water resistant • Synergistic with other UV absorbers • Commercially available in Europe and other parts of the world
Capabilities
UV absorber with broad UVA and UVB protection
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Skin Care
Telosense™ Biofunctional
• Inspired by telomere science – Telomeres are the “ends” of chromosomes, they shorten as cells divide/age
• Telosense™ biofunctional maintains presence of key protein in vitro which helps prevent telomere shortening
Capabilities
Breakthrough technology for skin anti-aging
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Hair Care
Market
Fixatives 32%
Hair Care Additives • Targeted hair-care market is $1.3 billion – Shampoos – Conditioners – Colorants – Styling Agents: sprays, mousses, gels
• Conditioning agents – Film former on hair surface – Moisturizes, promotes shine/manageability
• Fixatives – Holds hair in place, used in styling agents
• Rheology modifiers – Thickeners, stabilizers, emulsifiers, etc.
Available Market - $1.3 B
Rheology Modifiers
24%
Conditioning Agents
44%
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Hair Care
Market Trends and Drivers
Hair Care additives growing at 3% to 4% per year
Repair/ Prevention
• Consumers want targeted solutions for – Heat damage – Split-ends – Dandruff control – Overly dry/oily
Natural/ Green
• Trend towards more natural ingredients
• “Free of” parabens, sulfates and silicones
• Sustainability
Customer Diversity
• Consumer brand companies developing cultural/regional solutions
• Large shift towards male grooming
Texturizing
• Hairstyles are becoming more complex
• Leads to the need for more sophisticated products
63
Hair Care
N-Hance™ 4572 conditioning polymer
• Enhanced deposition of actives to enable industry-leading conditioning • Allows 30% to 50% reduction in silicone while maintaining overall performance • Enables more sustainable formulations, overall “greener” products
Capabilities
Offers break-through performance in conditioning and deposition
Untreated Hair
Treated Hair
64
Oral Care
Market
Bioadhesive 56%
Oral Care Additives • Available Oral Care market is $0.3 billion – Toothpaste – Denture Care – Mouthwash
• Customer base and targeted segments are highly concentrated
• Rheology modifiers – Thickeners, stabilizers
• Bioadhesive – Toothpaste: bonds active to enamel – Dentures: bonds dentures to gums
Available Market - $0.3 B
Rheology Modifiers
44%
65
Oral Care
Market Trends and Drivers
Oral Care market growing at 3% to 4% per year
Healthy Mouth
• Broad-based, more holistic approach to oral care – Gums – Teeth – Tongue
Beauty/ Whitening
• Consumer view of “beauty” increasingly associated with bright, white teeth
Prevention
• Multi-benefit products continue to gain share – Toothpastes – Mouthwash
• Enhanced solutions – Tartar-control – Gingivitis – Sensitivity
Aging Population
• Median age globally continues to advance
• Emerging middle class more financially capable of dentures and other oral-care products
66
Oral Care
Gantrez™ Bioadhesive
• Forms tighter/longer-lasting bond between active and hard/soft tissue in mouth • Highly tailored to meet customer needs • Applications include plaque reduction, gingivitis prevention, tartar control
Capabilities
Technology platform for best-in-class active delivery
67
Business Dynamics
Market • $1.7 billion available market • Growing 3% per year • Largest segment is laundry
Market Drivers
• Emerging regions, global emergence of middle class
• Niche products/microbranding • Energy and water conservation
Opportunities
• Leverage broader Personal Care relationships to drive growth
• Develop tailored solutions through regional labs
• Broaden natural product platforms
ASI Product Benefits
Dye Transfer Inhibition Surface Cleaning
Soil Release/Removal Rheology Control
Small business today, with good opportunities for growth
Personal Care
Home and Household Market Overview
68
• Expand and grow industry-leading position in Hair and Oral Care – Build out market position in Skin and Home Care
• Maintain “high-touch” model in key strategic accounts • Relentless approach to innovation • Leverage regional applications labs to drive growth in
fast-growing emerging regions • Partner with large distributors to better support
smaller, regional accounts
Personal Care
Strategy and Focus
69
484 465 525
576 596
2008 2009 2010 2011 2012
Strong sales growth driven by continuous innovation
5% CAGR
Sales Core Product Lines
Aqualon™ cellulose gum
• Globally approved thickener for oral care and wound care systems
Natrosol ™ HEC
• Robust rheology modifier for liquids and gels
Gantrez™ AN copolymers
• Bioadhesive enabling tartar control and denture adhesives
N-Hance™ cationic guar
• Leading hair conditioning polymers for softer, more manageable hair
Peroxydone™ polymer complex
• Teeth whitening for bleaching gels and films
Escalol™ UV absorber
• UV absorbing actives for beach and skin care products
Vincience™ actives • Leading portfolio of skin care actives
Personal Care
Sales Growth
70
Coatings
Dale MacDonald
71
Water-Based Architectural
98% Other - 2%
• Specialty additives for water-based paints – Primarily sell into architectural
paints – Interior and exterior
applications • “Other” ~2% of sales1
– Wood coatings – Colorants – Emulsion polymerization
2012 Sales - $379 MM
($ in millions)
1 Based on management estimates.
Ashland Specialty Ingredients
Coatings
72
Coatings
Types of Paint
Water-Based1
41%
Solvent-Based/ Other1
59%
• Uses water as the suspension medium • More environmentally friendly option • Dominates the architectural coatings market • Growing in popularity due to:
– Environmental concerns – Ease of use and clean up – Improved performance characteristics
Water-Based
• Uses a combination of organic solvents – Typically causes strong odor
• Dominates the industrial coatings market • Better performance on wood and metal • Increasingly regulated by region
Solvent-Based
1 Volume splits include industrial and architectural applications.
73
Coatings
What goes in to a can of water-based paint?1
1 Listed %s are by volume.
Additives <4% by weight, but nearly double that by value
74
Market
• $2.6 billion additives market • Water-based paints growing at 5% • Leaders in cellulosic (HEC) and
synthetic rheology modifiers
Market Drivers
• Growth in emerging regions • Global shift from solvent-based
to water-based coatings • Low-VOC paints • One-coat coverage
Opportunities • Tailored products in emerging markets • Expanded synthetic portfolio • Customer friendly products
Flow and Leveling Low VOC
Preservative Spatter-Resistance
Business Dynamics
Leading provider of additives into water-based paints
ASI Product Benefits
Coatings
Market Overview
75
Coatings
Additives Market for Water-Based Paints
Additives Market (by value)
Rheology Modifiers
46%
Overall Additives Market - $2.6 B
Surfactants/ Dispersants
19%
Other 8%
Foam Control 14%
Biocides 13%
• Market size is $2.6 billion • Roughly half of the market is
rheology modifiers – Controls flow properties of liquids
• Typical rheology modifications – Flow and leveling (even coat) – Sag resistance (no drip) – Color stability – Spatter resistance
Ashland’s portfolio covers all major additive categories
76
Coatings
Market Trends and Drivers
Additives market for water-based paints growing at ~5% per year
Consumer Spending
• Strongly influenced by emerging global middle class
• Well balanced between new construction and remodeling
Environmental/ Regulation
• Global regulation to reduce levels of organic solvents
• Consumers’ interest in more environmentally friendly alternatives
Manufacturing Cost Efficiency
• Higher through-put • Lower manufacturing
costs
Product Performance
• Desire for one-coat coverage – Faster – Reduced costs
• Improved hiding – Desire to reduce
TiO2
77
Coatings
Water-Based Architectural Coatings1
$28 $30 $31 $33 $34 $35 $37 $39 $41 $44 $46
68.0% 68.2% 68.9%
69.8% 70.6%
71.4% 72.0%
72.6% 73.0%
73.7% 74.2%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$ in billions % of Total Architectural Market
Continued water penetration leads to 5% long-term growth
1 Based on internal estimates and third party reports.
% Water Based by Region
Developed Economies 80% – 85%
Emerging Regions 60% – 70%
78
Coatings
Strategy and Focus
• Maintain leadership position in rheology modifiers – Expanding HEC capacity globally
• Leverage portfolio beyond architectural paints – Water-borne wood coatings – Emulsion polymerization
• Customized solution model for emerging regions – Significant growth opportunity due to ongoing shift to
water-based paints • Utilize global R&D capabilities to maintain industry-
leading innovation
79
Coatings
Natrosol Performax™ HEC Rheology Modifier
Improves customer manufacturing efficiency, lowers costs
• Enables streamlined paint manufacturing throughout the entire process – Easily dispersible product requires less time and energy
• Maintains best-in-class performance characteristics: thickening, stability and sag resistance
Capabilities
Natrosol Performax™ HEC quickly/fully
dissolves and requires no up-front processing: saves
time, energy and costs
Conventional products require up-front
processing: consumes time and energy
Smooth/Consistent mixture in low-energy mixing
80
Natrosol™ HEC
• Industry standard thickener provides creamy in-can feel with superior color performance, stability and sag resistance
Natrosol™ Plus HMHEC
• Best-in-class spatter resistance, improved high-shear viscosity
Aquaflow™ NSAT
• Easy-to-use liquid thickener with superior flow for higher gloss finishes
Dextrol™ Strodex™ surfactants
• Additives to enhance gloss, color stability and wetting of surfaces
Nuosept ™ Fungitrol™
biocide
• Preservatives and biocides for in-can protection and paint-film mildew resistance
Jaypol™ dispersant • Keeps pigment dispersed, improves stability
Drewplus™ foam control
• Reduces foam during paint manufacture and application
298 300 336
380 379
2008 2009 2010 2011 2012
6% CAGR
Coatings
Sales Growth
Success through superior chemistry and technical collaboration with customers
Core Product Lines Sales
81
Industrial
John Panichella
82
Energy 63%
Construction 37%
• Business segment includes – Energy – Construction
• Energy – Specialty additives into all stages of
upstream operation
• Construction – Primarily focused on additives for dry
mortars and cements
Energy 64%
Construction 36%
2012 Sales - $650 MM
($ in millions)
Ashland Specialty Ingredients
Industrial
83
Market
• Energy: $5.8 billion market –Growing 10+% per year
• Construction: $2 billion market –Growing 4% to 5% per year
Market Drivers
• Energy: Drilling activity, stimulation and fracturing
• Construction: Economic recovery and growth in emerging regions
Opportunities
• Energy: Deeper, horizontal wells and shift from gas to crude
• Construction: Extend into associated markets with redispersible powers
Industrial
Construction and Energy Market Overview
Water Retention Drilling Efficiency
Fluid Loss Additives Energy Savings
Business Dynamics
Leading provider of oil and gas additives
ASI Product Benefits
84
Energy
Market
Products sold into all stages of upstream production
Cementing 11%
Specialty Additives • $5.8 billion available market • Drilling
– Additives for drilling muds/fluids • Cementing
– Maintain/Improve cement integrity in wide range of environments
• Stimulation – Well treatments to restore or enhance
productivity – Roughly 80% of Ashland’s Energy sales – Includes guar-based product lines
• Production – Improve efficiency, minimize scale and
contamination Available Market - $5.8 B
Drilling 12%
Production 37%
Stimulation 40%
85
Energy
Market Trends and Drivers
Specialty additives for upstream operations growing at 10+% per year
Horizontal and Deepwater Wells
• Number of horizontal rigs has more than tripled since 2009
• Horizontal drilling and deeper wells require 2x the specialty chemicals per rig
Regulatory/ Environmental
• Push to minimize environmental impact
• Creates opportunities for greener, more natural solutions – Guar – Cellulosics
Unconventional Wells
• Shale gas boom in North America – Other regions
investigating deposits
• Require large amounts of stimulation chemicals
Natural Gas vs Crude
• Depressed natural gas price in North America
• Shift from dry-gas to more liquid-rich wells – Higher-value
hydrocarbons – Requires better
technical solutions
86
Energy
Guar
Straight Guar
Derivatized Guar
• More commoditized offering • Generally used as a thickener • Primarily sold into Energy; additional
applications in Food and Beverage • Energy
– Decent performance in dry-gas – Adequate performance in shallower wells
• Highly differentiated, more technically advanced product
• Strong technical capabilities in Energy and Hair Care (cationic guar)
• Energy – Uniquely developed for wet-gas, crude-rich wells – Leaves little or no residue, improving oil-field yields – Performs well in more extreme operating conditions
87
Energy
Product Strategy
• Sand • Acids • Surfactants
• Straight Guar
Oil and Gas Additives Highly Specialized
Highly Commoditized
Reduce Volatility Invest To Grow Do Not Participate
Primarily focused on highly differentiated product categories
• Guar Derivatives • CMC • HEC
• Gas Migration Add. • Kinetic Hydrate Inhib. • Techwax™ additives
88
Energy
Strategy and Focus
• Drive growth in stimulation and cementing segments – Strong fit with existing capabilities and applications expertise – Segments place high value on advanced technical offerings
• Collaborative approach to new product development and innovation
• Expand investment in R&D to develop industry-leading solutions – Guar substitutes and alternatives – Improved saltwater tolerance and performance in extreme
temperatures
89
Energy
XxtraDura™ GMA Cement Additive
• Highly compatible, multipurpose cement additive to prevent gas channeling • Ensures safer/cleaner operations while maintaining productivity • Also offers excellent fluid loss control and compressive strength • Derived from HEC and proprietary synthetic compound
Capabilities
Prevents gas channeling in extreme operating environments
Gas Channeling:
Gas permeates unset cement, degrades cement
integrity and strength
Oil Well Cement:
Protects and supports casing, helps restrict flow between zones of the well
(improves productivity and safety)
90
Leading position in cellulose ethers, building position in RDP
Cellulose Ethers
52%
Dry Mortar Additives • Targeted additives market is $2.1 billion • Primarily composed of cellulose ethers
and redispersible powders • Cellulose ethers
– Used for water retention, rheology control – Improves workability/open-time and
reduces crack formation – Typical products include MC and HEC
• Redispersible powders (RDP) – Latex-based polymers – Improves adhesion, flexibility, integrity
and water repellency
Available Market - $2.1 B
Redispersible Powders
43%
Other 5%
Construction
Market
91
Sand/Fine Aggregate Cement/Gypsum/Latex Additives
Mixed at job site or increasingly offsite
~25% ~70% < 5%
Construction
Dry Mortar1
1 Weight loadings based on typical cement-based mortar.
92
Construction
Market Trends and Drivers
Additives market for dry mortar growing at 4% per year
Residential New/Remodel
• Developed markets >75% based on remodeling
• Emerging regions primarily driven by new construction
Broader Product Tolerance
• Higher performing additives to offset cement levels/quality
• Ability to perform under more extreme weather conditions – Hot and cold
Convenient/ Easy Application
• Reduce install time • Lower labor costs • Enable more
uniform/consistent application – Less contractor
dependent
Safety/Quality Concerns
• Job-site preparation varies in quality
• Shifting from on-site to off-site dry mortar production – Higher/more
consistent additive consumption
93
• Expand solutions with new additives platforms – Installed RDP plant in mid-2012 – $50 million revenue opportunity for current capacity
• MC is at full capacity, must expand margins to meet internal hurdles for reinvestment – Significant progress in 2012
• Targeted new product development to improve margins – Enable year-round construction – Wider climate applicability – Better additives to allow the use of “green” cements
Construction
Strategy and Focus
94
Construction
Ashland Aquatherm™ Specialty Water-Soluble Polymers
• High water-retention capabilities and improved workability in extreme climates • Enables year-round construction with no reduction in quality • Leads to lower labor costs and/or lower materials costs
Capabilities
Extreme temperature stability in dry mortar
With
Improved workability and spreading
in high-temperature skimcoat application
Without
95
Galactasol™ Guar
• Used as a gellant in fracturing fluids to improve performance of the proppant
AquaPAC™ CMC
• Suspension aid in drilling that performs well in a wide variety of environments
Natrosol™ HEC • Fluid loss additive in cementing applications
Culminal™ MC
• Improves workability/open time and reduces crack formation in cement mortars
Aquapas™ RDP
• Imparts increased adhesion strength and higher abrasion resistance to exterior stucco applications
Aquatherm™ cellulose ether
• Water retention and rheology modifier for high- and low-temperature applications
400
270 271 382
650
2008 2009 2010 2011 2012
13% CAGR
Industrial
Sales Growth
Core Product Lines Sales1
Strong sales growth following the recession
1 Excludes Benchmark transaction.
96
Specialty Performance
Joseph Stinson
97
Energy 63%
Construction 37%
• Business segment includes – Intermediates and Solvents – Specialties
• Intermediates and Solvents – Butanediol (BDO) – N-methyl 2-pyrrolidone (NMP) – Tetrahydrofuran (THF)
• Specialties – Incubator business approach – Wide range of specialty technologies
and markets
Intermediates & Solvents
70%
Specialties 30%
2012 Sales - $727 MM
($ in millions)
Ashland Specialty Ingredients
Specialty Performance
98
Market
• Broad, diverse market • Growing 2% to 4% per year • Growth areas include agriculture and
lithium batteries
Market Drivers
• Global demand for BDO and other specialty solvents
• Alternative energy sources (batteries) • Demand for higher crop yields
(agriculture)
Opportunities • Pursue new product development
in agricultural chemicals • Growth in adjacent markets
Specialty Performance
Market Overview
Binder for Lithium-Ion Increased Efficacy
Electronic Solvents Solvents for Ink
Business Dynamics
Supplier of high-performance polymer additives and specialty solvents
ASI Product Benefits
99
Specialty Performance
Production and Usage of Butanediol
Butanediol (BDO)
BDO Merchant Sales
Specialty Solvent Production/Sale
Polymers Production/Sale
Internally produced BDO is used in three separate categories
~35%
~45%
~20%
100
• Decrease dependence on solvents’ merchant market – No sizeable capacity expansions – Pursue debottlenecking given high investment returns – Continue to shift towards in-house needs
• Strive for best-in-class operating efficiencies • Implement incubator business model for
select markets – Lithium-ion batteries – Agricultural adjuvants
Specialty Performance
Strategy and Focus
101
BDO • Butanediol, primarily used in spandex fibers and thermoplastics.
THF • Tetrahydrofuran, specialty solvent with broad
application; primarily used in spandex fibers, pharmaceuticals and adhesives
NMP • N-methyl-2-pyrollidone, specialty solvent used primarily in electronics and agriculture
668
435
553
713 727
2008 2009 2010 2011 2012
2% CAGR
Specialty Performance
Sales Growth
Core Product Lines Sales
More economically sensitive, but lowest margin
102
Ashland Specialty Ingredients
Break
103
Technology
May Shana’a
104
• Staff of 500 employees – Over 100 PhDs – Global presence
• Research goals – Support business strategies – Build/maintain competitive
advantage (innovate) • Roughly 900 active patents
– Covers wide range of end-markets and applications
– Granted 71 new patents in 2012
Developed working directly with customers
~70%
Ashland generated
30%
New Products1
1 Internal estimate based on R&D projects now underway.
Ashland Specialty Ingredients
Research and Development
105
Ashland Specialty Ingredients
Targeted Innovation for Global Markets
Centers of Excellence
Wayne, N.J. Wilmington, Del.
Hopewell, Va.
Bradford, U.K.
Paris, France
Zwijndrecht, Netherlands
Sophia Antipolis, France
Cologne, Germany Dusseldorf, Germany Memmingen, Germany
Istanbul, Turkey Port Neches, Texas
Mexico City, Mexico
Sao Paolo, Brazil
Shanghai, P.R. China
Hyderabad, India
Nanjing, P.R. China
Singapore
Mumbai, India
Applications & Tech Service Labs
Tadworth, U.K.
Newton Aycliffe, U.K.
Global network of world-class scientists, 10 Centers of Excellence
106
Cellulosic ethers Guar
Acrylics NSAT UV Absorbers
Biocides Skin Care Actives:
Peptide Biofunctional
Ashland Specialty Ingredients
Broad Product Portfolio
Major supplier of water-soluble polymers
Water Soluble Polymers
Specialty Functional Ingredients Active Ingredients
PVP / VA / PVPP MVE-co-MA Polyquats
Acrylamides Acrylics
Phosphate ester Defoamers
Redispersible powders Surfactants
Emollients Emulsifiers Solvents
Surfactants
Ashland Heritage ISP
107
Ashland Specialty Ingredients
Core Expertise and Capabilities
Consumer Science
Synthetic Chemistry
Material Science
Analytical Chemistry
Manufacturing Excellence
Applications Expertise
Formulation Full range of capabilities to
address customer needs
108
Ashland Specialty Ingredients
Product Customization
• Solubility • Ionic strength • pH variations • Flexibility
Natural Platforms Synthetic Platforms
• Temperature stability • Viscosity • Pressure tolerance • Interaction with other ingredients
Start with renewable backbone and adjust Built from ground-up
A B
Customization allows significant tailoring
+ + + Wide
range of options
109
Ashland Specialty Ingredients
Current Technical Platforms
Pharmaceutical Oral Solid Dosage • Immediate and sustained drug release • Film coating • Solubilization
Personal Care Skin/Hair/Oral Home
• Anti-aging and sun protection • Hair conditioning/hair repair, superior styling • Oral healthcare and whitening • Home care
Coatings Architectural • Low-VOC/low-odor coatings • Improved hiding • Foam control
Energy Oil and Gas • Drilling, cementing, stimulation, production • Green additives • High temp - high pressure additives
Construction Dry Mortar, Gypsum • Cement/gypsum/latex based mortars • Tile cements • Exterior insulation systems
Nutrition Food and Beverage • Texturants/hydrocolloids • Emulsifiers • Beverage clarification
Focus Segments Innovation Platform
110
Ashland Specialty Ingredients
Expanding Technical Platforms
Acrylates $4.6 billion market opportunity
Personal Care Pharma/Nutr. Coatings Industrial
Expands available market by roughly $10 billion
Performance
Market Applicability
Encapsulation $3.6 billion market opportunity
Surfactants $3.0 billion market opportunity
111
Ashland Specialty Ingredients
New Product Sales and Pipeline
76 funded projects represents ~$800 million sales opportunity
439 474
617
2010 2011 2012 Long-term
25% of
Sales
New Product Sales
Product Line Extensions 32 projects
$2 to $5 million opportunities
Mid-Size 33 projects
$5 to $20 million
Large 11 projects
>$20 million
112
Color Protection for Shampoos
High T and High P Oilfield Additives
New Delivery Systems for Hair
New Delivery Systems for Skin
Waterproof UV Booster
Long-Term Breath Freshener
Bioadhesive
Conditioning for Damaged Hair
Sustainable Formulation
Green Conditioning
Improved Drug Solubilization
Natural Color Tablet Coatings
New Defoamer
Enhanced Recovery Additives
Cement Anti- Settling Aid
Zero-VOC Additives
High-Coverage Coatings
XxtraDura™ GMA Cement Additive
Aquapas™ RDP Technology
Natrosol Performax™ HEC
Polyelectrolyte Complex
Vincience™ Actives
Current Midterm 2017+
Next Generation Binders for Li Batteries
Beverage PET Packaging
Direct Compressible Table Polymer
4-in-1 Tile Cement Cold Weather
Cellulose Ether
Clay Reduction in Joint Compound
Guar Alternatives
Low CO2 Cement Additive
Next Generation Tooth Whitening
Encapsulation Technology AP/DEO
Technology
Styleze™ XT3 Polymer N-Hance™ 4572
AquaStyle 300AF
Vincience™ Actives
Vincience™ Actives
EIFS 2-in-1
Ashland Specialty Ingredients
Innovation Pipeline
113
Capital Allocation/Financial
Kevin Willis
114
• Excluding straight guar, should achieve good business growth over prior year
• October sales and volumes finished somewhat lower than expected – Curtailed straight-guar sales until market stabilized – Hurricane Sandy delayed shipments to/from East Coast
• Sales have rebounded in November – Anticipate good sales growth over Q1 2012 – Straight-guar curtailment continued in November
Ashland Specialty Ingredients
Fiscal First-Quarter Outlook
115
496 411
490 608
763 21.4% 21.8% 23.1% 23.9% 26.5%
2008 2009 2010 2011 2012
2.3
1.9 2.1
2.5 2.9
2008 2009 2010 2011 2012
• Significant sales growth since 2009 – Expansion in all key markets – Good growth in volumes and pricing
• Sales up over 50% since 2009
$ B
• Grew EBITDA margins every year • 5-yr EBITDA CAGR of 11% • Strong EBITDA growth since 2009 • ISP data not restated for Ashland
corporate SG&A allocations
$ MM % EBITDA Margin
Sales EBITDA
1 Includes historical contributions from ISP and Hercules. Excludes Pinova/Benchmark.
Ashland Specialty Ingredients
Baseline Historical Financial Performance1
116
• Volume growth slowed in 2012, but still up 2%
• Lower-margin product lines make significant contributions to volume – Over 1/3rd of total volumes
from Intermediates and Solvents • Recently shuttered lower-
margin CMC capacity – Approximately 5,000 MT in 2012 – Closed towards end of fiscal 2012
320 354
388 396
2009 2010 2011 2012
Volumes1
1 Pro forma volumes include ISP. Excludes divested Pinova business. 2008 data not available for ISP.
(Metric Tons in ‘000s)
7% CAGR
Ashland Specialty Ingredients
Volume Growth
117
• Total raw material spend of approximately $1 billion – Represents roughly half of COGS
• Top 5 raw materials – Guar – Cellulose: wood pulp/cotton linter – Butane – LPG – Ethylene oxide
Top 5 25%
Other COGS 75%
Raw Material Spend
Ashland Specialty Ingredients
Raw Material Sensitivity
118
Entire product family is near full capacity
Some products approaching full
capacity
Spare capacity available
(at least for next 1-2 years)
HEC
CMC
MC
Deriv. Guar
Solvents Vinyl Ethers
Actives
PVP
Largest product lines at or near sold-out position
Utilization Rates
V-Cap
Sales ($)
HPC Aquaflow RDP
Acrylates Straight Guar
Ashland Specialty Ingredients
Utilization Rates
119
Significant investment in growth projects
• Expected 2013 capital spend of approximately $220 million
• Over 50% of capital consists of growth and productivity projects – 4 plant expansions coming on-line
in 2013 • Specialty Ingredients constitutes
80+% of Ashland’s growth capital
Growth 46%
Maintenance 44%
2013 Capital
Productivity 10%
Ashland Specialty Ingredients
2013 Capital Plan
120
Product Primary # Project(s) Expected Completion Family End-Market Projects 2013 2014 2015
HEC 2 Mid Late
Derivatized Guar 3 Late Mid Early
MC 2 TBD
CMC 2 Late Early
PVP 1 Mid
Vinyl Ethers 1 TBD
Skin-Care Actives 1 Mid
Ashland Specialty Ingredients
Upcoming Capacity Expansions
121
Specialty Ingredients Summary
John Panichella
122
Technology
• Highly tailored products
• Customer-intimate technology model
• Push for constant innovation
Capital Costs
• Significant amount of backward integration
• Stand-alone plant capital is $40+ million
• Full supply-chain replication would cost $ billions
Intellectual Property
• High number of – Patents – Trade secrets
• Large degree of manufacturing know-how
Switching Costs
• Requalification periods costly and time consuming
• Products typically represent small % of customer’s final product
Significant hurdles for any new market participant
Ashland Specialty Ingredients
Advantaged Market Positions
123
Pharma/ Nutrition $1.6 5% to 6% + +
Personal Care $5 to $6 4% to 5% + +
Coatings $2.6 ~ 5% +
Industrial ~ $8 Energy: 10+% Construction: 4% to 5% +
Performance N/A 2% to 4% Market
Target Market
Market Growth
Growth vs. Market
($ in billions)
Ashland Specialty Ingredients
Business Unit Overview
124
Options for long-term, high-return growth
Capital Expenditures
Research & Development
M&A
• Ongoing demand growth • Numerous product lines at full capacity • Investing $220 million in 2013
• Well-stocked R&D pipeline • Roughly $800 million opportunity being funded • New technologies/platforms/markets
• Pursuing bolt-on M&A • Primarily targeting new technologies/broader position
in existing markets
Ashland Specialty Ingredients
Capital Reinvestment Options
125
Existing Strengths Markets/Technologies
Broaden Solutions
Leverage customers with new technologies
Enter New Markets
Explore new technologies, markets and capabilities
Broaden Markets
Leverage technologies to broader customer base
Customers & Markets
Tech
nolo
gies
Existing New
Exi
stin
g N
ew
Target Path Market Size
Encapsulation Organic/ Inorganic $3,600
Surfactants Organic/ Inorganic $3,000
Defoamers Organic/ Inorganic $2,500
Biofunctionals Organic/ Inorganic $350
Tablet Coatings
Organic/ Inorganic $500
Acrylates Organic $4,600
RDPs Organic $900
$ in millions
Ashland Specialty Ingredients
One-Step Adjacencies
126
Food & Beverage
33%
• Strong global business with concentration in renewable chemistries – Solid profitability and margins
• History of strong sales and double-digit earnings growth – Expect to significantly exceed original 2014 targets
• Key growth drivers – Above GDP market growth supported by new product
innovation – Capital investment and expansion – Growth in emerging regions
• High returns on incremental growth investments
Ashland Specialty Ingredients
Summary
127
Ashland Financial Overview
Lamar Chambers
128
Value Proposition to Shareholders
Top-line growth and earnings expansion
Organic Volume Growth
• Growth in excess of underlying markets – Innovation and technology
• Strongest growth in Specialty Ingredients – Growing at 2x - 3x GDP
• Expansion in emerging markets
Capital Allocation
• Capacity expansions to support growth • Further reduce interest expense • Other value creating uses
– Bolt-on M&A – Share repurchases – Dividend expansion
Margin Expansion
• Strong growth in highest-margin business – Specialty Ingredients
• Mix improvement in Water Technologies • Volume gains in Performance Materials
Cost Control
• Tightly maintain current cost structure • Achieve $15 million in remaining ISP cost
synergies
129
Total Shareholder Returns1
Corporate transformation has been rewarding
0%
50%
100%
150%
200%
250%
300%
350%
400% Ashland S&P 500 Cumulative Return
Ashland 356%
S&P 500 116%
2003 2004 2005 2006 2007 2008 2009 2010 2012 2011
1 From September 30, 2002 to September 30, 2012. Assumes reinvestment of dividends.
130
Liquidity and Net Debt
($ in millions)
$158 $163
$459
$1,050
$78
$1,036
$803
'13 '14 '15 '16 '17 '18 '19 and after
Scheduled Debt Repayments by Fiscal Year
$ 523 Available revolver and A/R facility capacity 955
$ 1,478 Liquidity
LiquidityAt Sept. 30,
2012 Cash
InterestDebt Expiration Rate Moody's S&P Term Loan A 08/2016 L+200 Baa3 BB+ $ 1,425 Term Loan B 08/2018 L/Floor+275 Baa3 BB+ 1,036 4.75% senior notes, par $500 million 08/2022 4.75% Ba2 BB- 500
A/R facility drawn1 08/2015 L+75 300 6.5% debentures, par $282 million 06/2029 6.50% Ba2 B+ 129
9.125% senior notes2, par $78 million 06/2017 9.125% Baa3 BB+ 76
Other debt Various 124 Revolver drawn3 08/2016 L+200 Baa3 BB+ -
Total debt Ba1/Stable
BB/Stable $ 3,590
Cash $ 523 $ 3,067
3 $1 billion facility, including ~$95 million used for letters of credit
2 Callable June 2013
At Sept. 30,2012
1 $350 million accounts receivable securitization facility
Net debt (cash)
131
Ashland Interest Expense
• Annual net interest expense – Book interest of ~$180 million – Cash interest of ~$150 million
• 80% of debt fixed • 2013 opportunities for ~$15
million incremental savings – Retire remaining 9 1/8th notes – Principal payments on Term Loan A – Other miscellaneous maturities
Fixed 80%
Floating 20%
Debt Profile
132
Capital Structure
• Targeted long-term capital structure –Gross debt to EBITDA at or below 2.0x • Net debt to EBITDA of ~1.7x
–Balanced fixed- and floating-rate debt –Staggered maturities
• Goal of attaining investment-grade credit metrics
133
Cost-Reduction Program
• Goal of $90 million in annualized savings – $40 million of stranded costs – $50 million of ISP acquisition synergies
• $75 million of run-rate savings now in place • $15 million additional reductions end of fiscal 2013
– Dependent on global ERP rollout
134
Capital Expenditures
• Approximately $385 million of annual capital expenditures – Maintenance capital
of $200 million to $225 million – Expect similar spend in 2014
• Spend concentrated within Specialty Ingredients – Receives roughly 80% of
Ashland’s growth capital
3-yr. Capital Spend
Specialty Ingredients
Water Technologies
Performance Materials
Consumer Markets
Corp./ Other
135
Pension/OPEB Expense and Funding
• Expect pension/OPEB income of approximately $30 million in 2013 – Service cost of nearly $50 million incurred by commercial units – Roughly $75 - $80 million benefit reported in
Unallocated and Other • Compares to $7 million of expense in 2012 • Anticipate pension cash funding of $120 million
– Includes U.S. and non-U.S. – Roughly $50 million decrease from 2012
• Pension is closed to new participants – Replaced with enhanced 401(k)
136
Unallocated and Other
• Primarily consists of: – Pension income/expense (other than service expense) – Legacy environmental
• Adjusted operating income of $16 million in 2012 – Pension income + $32 million – Ashland Distribution stranded costs - $5 million – Other miscellaneous expense - $11 million
137
Tax Expectations
• 2013 tax expectation of 26% to 28% • Should trend to mid 20% range by 2014
– Lower cash needs in U.S. – Higher growth in lower-tax-rate regions of world – Further integration/consolidation of ISP legal entities
• FY 2013 cash tax-rate expectation of roughly 25% – Relatively stable next few years
138
Free Cash Flow Bridge
2013 Consensus
EBITDA
Cash Taxes
Implied Free Cash Flow
Working Capital
Interest CapEx Environ- mental
Pension/ OPEB
Other
Implied 2013 free cash flow of approximately $400 million
$1.4 B
1 Free cash flow is defined as Cash Flows Provided by Operating Activities from Continuing Operations less Additions to Property, Plant and Equipment. (no longer deduct dividends)
139
Components of 2014 Earnings Per Share
2012 2014 Commercial Unit Growth
Interest
2014 EPS estimate of $9.50 to $10.50 per share
$6.621
$9.50 to
$10.50
1 Adjusted earnings per share.
Unallocated/ Other
140
Summary
Jim O’Brien
141
Summary and Investment Thesis
• Positioned for long-term growth and earnings expansion
• Investments focused in Specialty Ingredients – Highest margin business – Numerous organic opportunities – Potential bolt-on M&A
• On track to achieve longer-term targets – 2014 EBITDA of $1.7 billion – 2014 EPS of $9.50 to $10.50
2012 2014
EBITDA growth of $300 million
$1.4B
$1.7B
2012 2014
EPS growth of over $3/share
$6.62
$9.50 to
$10.50
142 ™ Trademark, Ashland or its subsidiaries, registered in various countries
143
Appendix: Regulation G Reconciliations
144
Ashland Inc. and Consolidated Subsidiaries Reconciliation of Non-GAAP Data for Fiscal Year Ended Sept. 30, 2012 ($ millions, except percentages)
1 Calculation of adjusted EBITDA for each quarter has been reconciled within each quarterly earnings release filed with the SEC and posted on Ashland's website. Total adjusted EBITDA may not sum to actual results due to quarterly rounding conventions.
Sales Q4 12 Q3 12 Q2 12 Q1 12 Total Specialty Ingredients 734 793 723 628 2,878Water Technologies 431 427 428 449 1,735Performance Materials 369 404 408 378 1,559Consumer Markets 522 517 520 475 2,034Total 2,056 2,141 2,079 1,930 8,206
Adjusted EBITDA1 Q4 12 Q3 12 Q2 12 Q1 12 Total
Adjusted EBITDA Margin
Specialty Ingredients 193 224 186 160 763 26.5%Water Technologies 33 37 39 40 149 8.6%Performance Materials 31 49 35 45 159 10.2%Consumer Markets 83 68 66 56 272 13.4%Unallocated 9 3 3 - 16Total 349 381 329 301 1,359
145 ™ Trademark, Ashland or its subsidiaries, registered in various countries