Ashland Inc. (NYSE: ASH) Fourth Quarter 2022 Results Conference Call November 8, 2022 9:00 AMm. ET
Participating companies
Seth Mrozek – Director, Investor Relations
Guillermo Novo – President and CEO
John Kevin Willis, Senior Vice President and Chief Financial Officer
Conference Call Participants
Christopher Parkinson – Mizuho Values
David Begleiter – Deutsche Bank
Lucas Beaumont – UBS
Mike Harrison – Port Research Partners
John McNulty – BMO Capital Markets
Laurence Alexandre – Jefferies
Edlain Rodriguez – Credit Suisse
Operator
Have a nice day. And thank you for being here. Welcome to Ashland Global Holdings Inc. ‘s fourth quarter 2022 earnings call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a response session. [Operator Instructions] Please note that today’s convention is recorded.
I would now like to reach out to your speaker today, Seth Mrozek, Director of Investor Relations. Continue.
Seth Mrozek
Hello everyone and welcome to Ashland’s fourth quarter fiscal 2022 conference call and webcast. My call is Seth Mrozek, Ashland’s Director of Investor Relations. With me are Guillermo Novo, President and CEO of Ashland; and Kevin Willis, Senior Vice President and Chief Financial Officer.
We published initial effects for the quarter ended September 30, 2022 at approximately 5:00 p. m. m. Yesterday, November 7, Eastern Time. Last night’s press release was filed with the SEC on Form 8-K. During today’s call, we’ll talk about slides found lately on our website, ashland. com, in Investor Relations. section. We encourage you to stick to webcasting the call.
Skip to slide two. As a reminder, on today’s call, we will make forward-looking statements on several matters, adding our outlook for fiscal year 2022. These forward-looking statements are subject to threats and uncertainties that may also cause long-term effects or occasions to differ materially from those projected today. We believe that these statements are based on moderate assumptions, but we cannot guarantee that those expectations will be achieved. Please refer to the slide at the time of the presentation for a more complete explanation of those threats and uncertainties, and the applicable limitations. to forward-looking statements. You can also refer to our most recent Form 10-K in Section 1A for a full discussion of the threat points affecting our business.
Please also note that we will refer to certain actual and projected monetary measures in Ashland on an adjusted basis, which are non-GAAP monetary measures. We will refer to those measures, as adjusted, and provide them to complement your understanding and assessment of monetary measures. functionality of our ongoing business. Non-GAAP measures should not be considered a replacement for or greater than monetary measures calculated in accordance with GAAP. The directly comparable maximum GAAP measures, as well as the reconciliations of non-GAAP measures to those GAAP measures, are located on our online page and in the appendix to today’s slideshow.
Skip to slide three. Guillermo will begin the call this morning with a review of Ashland’s functionality and effects during the fiscal fourth quarter. Next, Kevin will provide a more detailed review of the quarter’s monetary effects. Guillermo will then provide further observations on Ashland’s monetary effects and fiscal year 2022 progress. on our operational strategy, environmental, social and governance engagement objectives, and a review of our monetary outlook for fiscal 2023. Next, we’ll open the line for your questions.
Now, turn to slide five and I’ll pass it on to Guillermo for his opening remarks. William?
William New
Thank you, Seth, and good morning everyone. Thank you for your interest in Ashland and for your participation today. After finishing the last two weeks in Europe meeting with clients and our teams, we are now making this call from London. This is appropriate given that central progression in Europe will be critical. for effects in 2023 and longer. Ashland’s effects for the quarter were in line with our expectations, and we achieved sales and adjusted EBITDA for the year at the upper end of our expected ranges.
Customer order momentum remained strong in our key end markets, and we continue to make significant progress in adopting appropriate pricing measures to recover prices across all segments. The demanding situations of the global supply chain have shown some signs of improvement. Markets, our groups have taken steps to improve the diversity of high-value products we sell. We continue to invest in sustainable and forward-thinking inventions to drive successful growth, accelerate speed, and have an effect on new product launches. Domestic investments to build the capacity to produce high-value products in key markets are on track and on schedule.
Ashland performed well in this quarter and fiscal year, generating strong effects, which I will review later in the call. Our ability to react temporarily and operate with agility is the result of the intentional adjustments we have made to the business over the past 3 years. I would like to congratulate the entire Ashland team on the effects and progress made. Let me share with you some of the highlights of the fourth quarter effects.
Sales of $631 million increased 7% year-over-year. Against a backdrop of strong global demand, all businesses contributed to our growth. Adjusted EBITDA decreased a modest 1% to $147 million, as smart effects were offset by unfavorable exchange rates, superior incentive payment, and planned facility renovation costs. Adjusted EBITDA margin decreased through 190 foundation issues to 23. 3% from the prior year quarter, as exchange rates and turnaround negatively impacted margins through 310 foundation issues. For the full year, Ashland achieved an adjusted EBITDA margin of just 25%.
Shareholder returns continued to grow in the quarter, with earnings per share increasing 20% adjusted to $1. 46, reflecting the effect of repurchases, reduced interest expense and a favorable effective tax rate.
Skip to slide six. As I mentioned earlier, all segments contributed to sales expansion in the quarter thanks to cost recovery due to inflation, the combine was ahead of the curve and many product lines with limited capacity. And segment-adjusted EBITDA margins remained strong despite the hurdles I mentioned. to before. In a moment, Kevin will provide more main points about the effects of the segments. While there are many global uncertainties on the horizon, the Ashland team is acting well and executing the moves that are under our control. I look ahead to discuss our outlook for FY23 and review the broader progress the company is making later in the call.
In the meantime, I’ll pass the call to Kevin to take a closer look at the fourth quarter results. Kevin?
Jean Kevin Willis
Thank you, Guillermo, and good morning everyone. Skip to slide eight. Ashland’s total sales in the quarter were $631 million, up 7% from a year earlier, driven by continued recovery in inflation and an improved mix. Unfavourable exchange rates had a negative effect of 6%. on sales for the quarter. Gross margin remained relatively strong at 33. 1%, reflecting the recovery of charges and the advanced mix across sales groups in the face of higher charge inflation. Excluding key items, overhead, administrative, R
Overall, Ashland’s adjusted EBITDA for the quarter was $147 million, down from prior-year adjusted EBITDA of $149 million. Importantly, an unfavorable exchange rate negatively impacted adjusted EBITDA through $15 million in the quarter, while the expected change of Intermedios’ plant in Lima resulted in additional prices of $13 million. Ashland’s adjusted EBITDA for the quarter was 23. 3%, with negative impact on the exchange and turnover margin through 310 basis points. the prior year quarter, reflecting a decrease in diluted stocks, a decrease in interest expense and a favorable effective tax rate.
Continued loose money was $93 million for the quarter, a year-over-year low, primarily reflecting an accumulation in current capital due to raw curtain inflation and other input costs we saw globally.
Now let’s review the effects for each of our 4 operating segments. Move on to slide 9. Life Sciences had another solid quarter and the team performed very well. Pharmaceutical demand remained strong, the product mix was favorable, the team implemented disciplined cargo recovery and smooth operation of the factories; all contributing to the expansion of the margin. The adverse effect of exchange rates offset the strong functionality of the life sciences. Overall, life sciences sales increased 13% to $213 million, while adjusted EBITDA increased 19% to $57 million. The adjusted EBITDA margin increased particularly to only around 27%.
Personal care also had a smart quarter, with smart execution across the team. There was strong biologic demand in all end markets, and the microbial cover acquisition we made last year exceeded expectations. It was carried out well. As with the life sciences, those effects were partially offset by adverse currency winds. For the quarter, non-public care sales increased 3% to $188 million, while adjusted EBITDA increased 10% to $56 million. to almost 30%.
Continue to slide 11. Special additives had a strong quarter overall with smart equipment performance, while demand remained healthy and the combine advanced into the quarter, capacity constraints and unfavorable exchange rates limited overall sales growth. During the quarter, sales of specialty additives increased 3% to $187 million, while adjusted EBITDA decreased 9% to $43 million, primarily reflecting higher operating prices, adding higher energy prices at our European pulp production facilities. This was partially offset through the pick-up in inflation. The adjusted EBITDA margin also decreased to 23%, mainly due to higher operating prices.
Continue to slide 12. Reported sales through intermediaries were $64 million, up 7% from last year, due to higher market costs and greater control of the product line. As reported on previous earnings calls, the middle team conducted a planned overhaul at the Lima, Ohio plant this quarter. Filming was completed on time and on budget, resulting in $13 million in costs that impacted industry profitability in the quarter. Intermediaries reported adjusted EBITDA of $17 million; a low of 19% compared to last year, and the adjusted EBITDA margin was reduced to 26. 6%.
As we discussed at our investor day last November, the capital allocation field remains a vital component of Ashland’s pricing strategy. The moves we have taken over the past year have improved our monetary position and given us greater flexibility. Since August 2021, we have executed $650 million in percentage repurchases, representing approximately 11% of our remarkable percentages. And earlier this year, Ashland’s board of trustees approved a new $500 million indeterminate percentage repurchase authorization. At the end of the quarter on Sept. 30, we had approximately $1. 3 billion in cash and liquidity.
Our net debt is reduced to $624 million, which is approximately a leverage circular. We have no floating rate debt and all of our notable debt is subject to high-quality credit terms. We are making an investment in our existing businesses to grow organically and following our enhanced and successful expansion strategy through M&A opportunities targeting the pharmaceutical, non-public care and coatings industries. In a context of global uncertainty, Ashland has a strong balance sheet with the flexibility to pursue our specific expansion strategy.
With that, I will forward the call to Guillermo to talk about the effects of FY22 and our priorities and perspectives for FY23. William?
William New
Thank you, Kévin. Skip to slide 15. Me I’d like to take a few minutes to summarize Ashland’s very clever functionality in FY22 recently ended. have an effect on the global pandemic in 2020 and 2021. Due to high demand, we are largely exhausted across many product lines, resulting in capacity constraints for our segments. Our sales and operating groups were able to pursue the announced strategy of improving the mix. And we are also able to improve productivity. Demanding global logistics and supply chain situations remained at an all-time high, but encouraging signs of decline are now emerging.
Cost inflation, specifically for raw materials, freight and energy, was significant for the year. And our groups have done a wonderful job of recovering inflation and maintaining our overall margins. and operational discipline. Innovation has been a central theme of our strategy and who we are as a company. During the year, we introduced a record number of new products that also have superior sales expansion potential, in line with our purpose of building innovation, speed and impact, and all aligned with our sustainability purposes.
It is very gratifying and encouraging to see those new technologies gain so many awards and popularity from our consumers and the industries we serve. On top of those factors, adjustments in the global economy and the strength of the U. S. dollar are having an adverse effect. an effect on sales and profits. Despite the challenges, Ashland delivered an expansion of sales and profits for the year that exceeded our initial expectations.
In addition, Ashland has achieved many milestones this year to increase and improve our balance sheet. We finalized the sale of the performance adhesives business at the beginning of the year and used the proceeds to buy back a significant amount of our shares and reduce our significant debt. As a result, we now have low net debt without noticeable floating debt and retain significant liquidity. In addition, peak charge inflation resulted in higher operating capital balances and a reduction in the continuous flow of loose money during the year. We expect those trends to moderate next year, allowing for a generation of cash flow more in line with our stated goals.
As we have discussed in previous earnings calls, we have made many significant capital investments to build capacity for key product lines for our architectural, pharmaceutical and private care coatings businesses. These expansions are very complex and we are still waiting for production. to be online towards the end of the calfinishar year 2023 and until 2024. And finally, we continue to work to fill stock levels in key regions, not just in reaction to the supply chain. Demanding situations, but also in preparation for some of the demanding situations facing the global market.
In short, Ashland’s balance sheet gives us a solid foundation in a dubious world, and we have the flexibility and scope to execute our expansion strategy and praise our shareholders. We continue to control our internal innovation portfolio to either accelerate the speed of new product launches and ensure those launches generate the maximum price for our consumers and for Ashland.
Continue to slide 16. Before moving on to our fiscal outlook later in the call, I’d like to review the monetary highlights of the year. The segments recorded double-digit sales growth. As noted, the strong effects were driven by resilient end-market demand, innovations in the limited capacity asset mix, and a disciplined recovery in cargo inflation, partially offset by significant foreign currency headwinds of $77 million.
Continue with the slide 17. La earnings expansion also far exceeded last year. Ashland’s adjusted EBITDA increased by $95 million or 19% to $590 million, well above our direction at the start of the year. All segments recorded adjusted EBITDA expansion of at least double digits, reflecting early load recovery action, sustained quality margins and continuous improvement of the mix across our sales teams. And as I said before, our operations team executes the effective and productive control of our services at the highest level. As with sales results, adjusted EBITDA for the year was partially offset through significant currency setbacks of $38 million. Acquisition, depreciation and amortization of adjusted EPS for the year increased to $5. 70, up 52% from the prior year.
Continue to slide 19. Our priorities remain the development of our business while maintaining its quality, generating successful expansion opportunities, generating margins and loose money while leveraging EGS as a core price and catalyst. Of all the feedback I’ve shared, our groups continue to demonstrate strong progress on all fronts, demonstrating operational resilience, strategic direction, innovation and expansion, and discipline in capital allocation.
We opened our call this morning with a video that coincides with the release of Ashland’s first ESG report, curtain matrix, and experiential websites. You can see the curtains that include many videos of our control equipment on our website.
The report is a manifestation of our commitment and execution behind our global, environmental, social and governance activities. And it includes an interactive materiality matrix that transparently displays Ashland’s ESG schedule and which we consider a key competitive advantage. The report highlights the transformation and right dimensioning of our company; integrating ESG into our strategy and into the lens of business and successful growth.
It is also the holistic convergence of everything that connects environment, social and governance, as well as purchasing, operations and solutions. The report and supporting websites show how everyone in the company adapts to Ashland’s EGS program. As discussed above, Ashland is in the procedure of setting clinical goals. And we plan for more data in early 2023.
As we reflect on Ashland’s operations and effects for FY23, we recognize that there are many known macroeconomic dynamics that have an effect not only on our business, but also on our customers, suppliers, competition, and consumers. Those points can be simply negative, some can also be positive. The familiar dynamics come with global recessionary trends, emerging inflation, supply chain and logistical challenges, energy cargo and availability in Europe, value arbitrage in parts of the world, emerging interest rates and capital charge, global currency volatility, and a slowing M&A environment.
We also recognize that there are known points related to Ashland’s positioning in this environment. These come with a commercial portfolio aimed at delivering resilient, consumer-centric end markets with consistent and disciplined teams. We have a number of capacity constraints until new investments are made. Our strong operational functionality and price momentum, as well as reduced exposure to petrochemical-related commodities, have been significant in this era of immediate charge inflation.
We also have a strong balance sheet and can continue our expansion capital investments. Many of them are very advanced. In addition, we recognize that there are dangers and uncertainties in today’s world that are difficult to assess and quantify. A deeper global recession, the war in Ukraine, the regional climate has an effect, the availability and cost of energy, COVID, imposed by the government. Closures and continued currency volatility are points that may have an effect in the coming years.
And those dangers can affect us in other ways, whether positive or negative. In the hereafter, as in the hereafter, we see no importance in looking to wait for very dubious occasions. We will focus on the things we can control and prepare contingency plans to deal with those biggest doubts if or when they occur. As a result, we are not taking those high-stake, high-doubt occasions into account in our outlook. If and when they occur, we will update our perspective accordingly.
Continue to slide 23. Our fiscal outlook for FY23 reflects Ashland’s known macro operating environment and unique position in this landscape. While we expect a recessionary environment in 2023, our businesses and the markets we traditionally serve have shown resilience. indication that this resilient profile has changed. Our core markets will remain relatively strong even in this recessionary environment.
The ongoing transfer of charges and the combination to this year were based on the actions taken in FY22 and we will take additional action if necessary for any inflation of the additional charges. We expect limited capacity this year until the new capacity comes online. At the end of the Calfinishar 2023 year and until 2024. De agreement with this, with our call to the outlook, we do not expect any change in our underlying operating performance. An improvement in the availability and price of fast raw fabrics is expected despite some persistent demanding situations in Europe.
In terms of forward-looking headwinds, we run several risks. While we are resilient, we are not immune to some slowdown in customer demand due to a global recession. We expect some reduction in customer stocks in several markets and regions at the beginning of the year. Power inflation and hard work will be broader-based, commodity inflation will vary through technology. As such, there will be more arbitrage of sources and costs in some parts of the world.
We will also be expecting a continued negative impact on an unfavorable foreign currency. Given those dangers and the possibility of increased volatility, we offer a wider variety of forecasts than usual. We expect sales to range from $2500 million to $2700 million, representing an expansion of just 9% over the medium term, with a pick-up in inflation and an increasingly better mix that is once again the main drivers of expansion. We also expect adjusted EBITDA in diversity of $600 million to $650 million, representing an expansion of 6% over the medium term and only about 10% excluding foreign exchange. These levels of perspective do not come with all the unknown dangers and uncertainties.
Let me be clear, as we have done in recent years when uncertainty was high, we are pragmatic and focused on the things we can and predict. For what we can’t Array we will focus on making plans and building resilience. We don’t see much sense to be too positive or pessimistic based on external points that we can’t or can’t predict. This would only create more noise in our plan-making process. adjustments to our perspective, if any.
Ashland is well located. We are confident in the company’s business portfolio, the global market-driven groups and our plans and movements we take. We have demonstrated solid sales and earnings over the past two years, and we are confident that we will achieve this resilience. in 2023 and beyond.
Skip to slide 25. Over the past decade, Ashland’s transformation adventure has sharpened us as a specialty ingredient and additive company. As we systematically identify and address the toughest problems, we are in spaces rich in opportunities to innovate and create price for our clients, where the innovation and expertise of one corporation can be leveraged in others.
In closing, I would like to thank once again the Ashland team for their leadership and proactive ownership of their business in a dubious environment. We have consolidated our portfolio as a global specialty additives and ingredients company with exceptional businesses that occupy a leading position in resilience. , high-quality, consumer-focused markets. I am very happy with the resilience and execution shown through our workers and businesses, and I see the opportunities ahead. Thank you all for joining us.
And, Bella, let’s move on to questions and answers.
Q&A session
Operator
[Operator Instructions] The first comes from Christopher Parkinson’s line with Mizuho Securities. Your line is now open.
Christophe Parkinson
Guillermo, just out of curiosity, just contemplating the wide diversity of the third class, can you communicate a little more detail about what the lower end of this diversity and the upper end of diversity in particular through sub-segment would entail, if you feel comfortable?Thanks a lot.
William New
Thank you, Cris, for the question. So, on the downward side, I think we’re full. So one of the disorders we have is for the upper side, volume is a less important factor. So if you look at the downward side, it’s that we’re seeing a more recessionary impact on our businesses or there are more inventory adjustments by customers. in play, obviously for FX is a big challenge and continues to have a big impact in bullish or bearish scenarios.
And I think of both, it’s very interesting; I mean inflation is to blame for much of the source of income expansion for everyone in this environment. So, depending on how you look at it, I mean margin coverage is a top priority, but expansion and EBITDA generation will also vary depending on the inflationary Outglance. On the upper side, it’s more about inflation remaining strong, the physically powerful price recovery movement and improved combination, and the fact that FX is a bit more favorable.
Christophe Parkinson
Heard.
Jean Kevin Willis
I would argue that the combination would also have a positive effect on the increase.
Christophe Parkinson
It is ok; useful. And just — Guyrmo, going back to analyst’s day, which is, I guess, about a year ago, I mean there’s been a lot of debate and discussion about the long-term expansion of self-care. You’ve been quite successful, you’ve left some industries, it turns out you’ve introduced a particular new hair care product and added Schülke preservatives. Could you give us your updated vision, say, a medium-term view of non-public care?portfolio, where are you, where do you need to be and everything you are passionate about?Thank you.
William New
I think the core parts of the business, the groups are focused, we’re driving margin recovery. And I think it is important to take into account the maximum: for the core business, science, private care, coatings and special additives; The pick-up in inflation has kept our margins going. Any improvement was really due to the influence of the whole on those companies, which is a little different from the middle side of the equation. Then, they move to maintain and protect margins. I think they’re all focused on where we can get percentage gains from the market, where we can drive expansion with our underlying business. We’ve eliminated some of those underperforming spaces to create less noise in our portfolio.
And I think it’s about innovation. I mean, the real effect now for us this—2022 and 2023—is to move this pipeline forward. I mean, we’re introducing a lot of new products; The revenue from those products will actually start to arrive in 2024, because between their introduction, consumers will start working, like the product, and in fact, start introducing new formulations. There is a channeling process. So what excites me right now is that filling the pipeline goes really well with a lot of very strong pitches. And I think the Personal Care team has done a wonderful job of innovation. Many, not just many productswith a superior effect, it is simply very, as I said in my comments, the number of recognitions we receive, the rewards are, that is a main indicator. I think it was very positive that we reached the ideal point of what our consumers want.
Christophe Parkinson
Very colorful. Thank you so much.
William New
Thanks.
Operator
The next one comes from David Begleiter’s line with Deutsche Bank. Your line is now open.
David Begleiter
Hi, William, do you see a lot of stock reduction in your end markets and when?If so, when will it end?
William New
You know, it varies, and it varies by segment, Dave. And that’s. . . we’re watching this very closely, because there are two dynamics. First of all, running capital presbounds for everyone has been a big factor with inflation, so we have a lot of corporations looking at what they’re doing. The end of the year is approaching; in this first quarter it will probably be the loudest, the loudest in terms of this stock. But at the same time, there are still primary stringent situations in product availability, and this is seen here in Europe, where force majeure, scenario economics are causing production to drop in limited areas. And I’ll probably comment on raw fabrics in some of the questions I get. But there is also a threat of origin; it hasn’t gone away. So according to the industry, if I look at the pharmaceutical industry, they’re much more involved in source reliability, they’re looking to make a cap, they’re looking at threat management, contingency planning, they need to make a limit. We have inventory. Some of our materials are – other suppliers already have, especially in Europe, demanding situations. So that component of the portfolio doesn’t move aggressively enough to drive the stock down. They are very involved in the security of the source.
On the other hand, I would say that some business regions are looking for much more secure changes in inventory. And in Personal Care, it depends on consumers and their position. Therefore, it is quick for the visitor and the industry, depending on its position on tolerance to threats of source issues in the future.
David Begleiter
And what does that mean for EBITDA FQ1 for last year, I guess, but for how long?
William New
We have – Q1 is probably going to be a little noisier, and that’s more the stock aspect of the equation. We have — that the merit we have is that there are many remaining costs and combined momentum. So we have a lot of momentum in the year. So I think that’s where the broader diversity we provide has an impact. We, to be very transparent, were looking to provide annual guidance or quarterly guidance, it’s a very complicated environment to expect right now because of all those variables. Therefore, we recognize that there may be a bit more variability in terms of stock and demand in the first quarter. But we’re also showing a lot of that tailwind from 2022. Get started: we will produce to fill stocks. And we can move the source between regions and in other parts of the world where some of the source is still limited.
David Begleiter
Thanks.
Operator
The next one comes from Joshua Spector’s line with UBS. Your line is now open.
Lucas Beaumont
Hola. Es Lucas Beaumont for Josh. So, in the fourth quarter, just check the charts to see what you had here of the price volumes. So, I mean, it seems that outside of RMS, we’ve noticed more of a slowdown on the value side. So, just in the context of that, could you tell us about your 9% sales expansion for next year and what you’re assuming there from a price volume perspective?
William New
Okay, and just to. . . And particularly in the middle segment?
Lucas Beaumont
Yes, sorry, all — all intermediaries of specialized segments.
William New
It’s ok.
Lucas Beaumont
So, yes, all Intermediate, yes, thank you.
William New
No, I think we see: if you look at each of the segments, we see continued demand. In the pharmaceutical business, I think we probably know: the core market is solid, but we’ve had a little more call because other providers are having problems, and we’ve been very reliable, so I think we’ve been a pass-through supplier for a lot of our customers. Therefore, we expect this resistance to continue. The – in personal care, this will vary by player and region. I think there is a bit more noise here in Europe. But in other parts of the world, we are still seeing continued growth. Again, if the segment continues to behave like in the past, it’s nothing you don’t do, you wake up and start, avoid brushing your teeth during a recession or using shampoo, conditioners, or some of those products, so it deserves to be resilient.
And in special additives, we see this scenario, that is, in Europe, where we expect to see a slight decrease in demand. Obviously, there’s a shift from DIY, call it, DIY normalization, with business markets still pretty strong in the U. S. It’s slowing down a bit in Europe. So our challenge, as I said, we don’t have a lot of volume, so it’s actually going to be more around this and it will have an effect on the price composition. compared to last year, so we deserve to be solid. And, in fact, the challenge is the new inflation. And I think the component we’re looking for is power, it’s a big problem, especially in Europe. We’re going to see a lot of increases around the world, they’re going to be higher than last year for peak companies, and that’s going to come with us.
Our question is whether we will have to do more during the year as things unfold. All of that: higher inflation, those widespread inflations, I think, would push everyone to take steps to achieve it through the chain. And even, I would say, in our – from the point of view of raw materials, and back this is – this brings us to your growth query, and although raw materials, a lot – headline inflation has gone down a bit, for our segments and all the players, our competition is there, the energy aspect has a big impact. And express the raw materials, we see primary surges in cargo and availability. So, I would highlight, for us, the 50% of our new inflation that we see coming from caustic soda and iodine, for example.
Therefore, for those product lines, any competitor will face the same global as we do. This is significant: caustic, for example, was a non-problematic raw curtain for us in 2021. It doubled by the end of 2022. Now the value is five to six times higher than in 2021. Therefore, it has a main charging element, which for our cellulose, for us, for our suppliers is a large load, so we transmit it. Therefore, it will be a great driving force in terms of value dynamics.
And I think the other component is availability, caustics are expensive because overall demand has declined. Therefore, chlorine is not used in cars, construction, so they can not produce caustics. So, we’re very involved in the disponibilidad. de we’re still on a micro – in some of our product lines at the same global level we were last year, but in a more micro dynamic that affects certain technologies. And I think that’s really, for us, what’s going to drive that potential for profit expansion.
Lucas Beaumont
Fine thank you. And in —
Jean Kevin Willis
And Josh, like. . . just for a little more detail, Josh, the realization of the value in the fourth quarter is almost exactly the same as in the third quarter. As a result, stocks remained very strong in the fourth quarter.
Lucas Beaumont
Thanks a lot. And then he just touched on his capital allocation priorities, so his leverage is very low, he retained the purpose of looking to make the merger and acquisition bolted. But, I mean, right now you’re construction money. the context of, I suppose, if the trading environment is still challenging and you continue to make money, I mean you have enough capacity right now to close various types of Schülke-type transactions. So how do you think about the money point where would it start generating more significant returns for shareholders if nothing happened in the next six to 12 months?Thank you.
William New
No, I. . . I think that is well said. In other words, we have a lot of flexibility. And I think consultation now is prudence and how we act. Obviously, being well placed from a balance sheet as well, not just the source of the income statement, which is in a very strong position. Mergers and acquisitions are softening, some of the expected costs and multiples will decrease somewhat, so there may be some attractive opportunities. Therefore, we must be patient and focused. We need to do forced mergers and acquisitions. We don’t have to. So I think it gives us the opportunity to invest organically to take into account mergers and acquisitions and praise our shareholders.
Jean Kevin Willis
And we have an authorization in a position to do so. We have a $500 million percentage buyback authority in position earlier this year. So, in addition to flexibility, we have. we have permission to do that as well.
Lucas Beaumont
Super. Thank you.
Operator
The next one comes from Mike Harrison’s line with Seaport Research Partners. Your line is now open.
Mike Harrison
Hello morning.
William New
Hi Mike.
Jean Kevin Willis
Hi Mike.
Mike Harrison
Did you expect to comment on the personal care activity?
William New
I think, Mike, most commonly about the combine and what: smart functionality in the loading aspect in all our plants, and all that. So, however, the combine is the biggest driver. We had a very strong one: the last six weeks of the quarter were a very favorable combination in terms of results, and that’s what fed the functionality to the maximum.
Mike Harrison
It is ok. And then, in the special additives sector, it turns out to be perhaps the domain where you see the maximum effect on the volatility of power, perhaps also the domain where you can see the greatest effect on stock reduction. I guess, looking ahead, does it deserve us to think that the threat is more concentrated in this specialty additives business, at least for the next 3 to 6 months?
William New
Yes, I think of several things, just to remind everyone. When we communicate about how to improve the mixture, one of the points at which we take the volume to move to the top is in the special additives. So, they’re more restricted than others because some of the low-end segments, that’s what we’re taking. So, its constraints are a little different in the sense that it’s not just the market, it’s becoming our own hierarchy of segments. So, you can obviously see the volumes piling up as stocks are reset. We see the maximum of this in Europe, not so widely in other parts of the world.
There is fear about the availability of the offer. We, and the industry, still have limited capacity, so we’ll see some variations there. Energy is a big problem, and that’s there: the owners of all our pulp mills. So, clearly, this is where we see a many of them have an effect on the power side. And we’re making progress. Most of them are in Europe, and that has an effect on everyone. So, we’re not the only ones who have to respond to those fears of power. And the good news for us is that we are. . . most of our factories. they are in the Netherlands, Belgium and France. So we’re in a slightly more balanced scenario than some of the other players in Germany.
Mike Harrison
Thank you so much.
Operator
The next one comes from John McNulty’s line with BMO. Your line is now open.
John McNulty
Yes, thank you for answering my question. So when you think about the balance between looking to withdraw cash from current capital while making sure you have all the materials you need. I guess, how do you think it balances that as we look ahead to 2023?And, I guess, how do we think about how much cash you can lose from current capital over the course of the year?
Jean Kevin Willis
Yes, John, I’ll stick with that one. I think if we take a look at what we expect our rate of expansion to be for FY23 compared to FY22, it seems like a middle ground. I think one of our main objectives would possibly be less to withdraw cash from current capital and more to manage the expansion in current capital, which will be mainly a function of inflation. And also, depending on how we can combine, we need to strategically load stock into those product lines and upper margin SBUs so we can supply the right service point. and continue with the mixing.
So when we take a look at our FY 23 plan internally, it’s less about normalizing loose coins for FY 23 than looking to withdraw coins from current capital, most commonly stock receivables; We need to continue to manage those who have a lot of discipline. We just need. . . We need to make sure that we handle very strongly any building we see. Given what we expect from inflation, et cetera, there is There will probably be some accumulation there, but incredibly modest than it was in FY22, again, unless we see big inflation accelerated, which we don’t expect lately.
William New
I think, John, that the other component that we’re lucky, that we have a solid balance sheet, that we’re also looking for when we need to take action if we’re going to move to reduce stocks, no. . . I think one of the biggest considerations we have right now is that if everyone is cutting stocks and then there’s a source challenge in Germany, or any challenge, we go back to 2021 and we’re starting to have a lot of challenges. And we look at it through the lens of our markets, not the broader market, which is what mainstream fabrics do, but only relative to ours. Therefore, we believe that this next quarter will be the riskiest, everyone is moving in stock now. I think we’re going through to have a much broader view of what’s going on in the global quarter at the moment, and maybe it’s a more appropriate time for us to think again about what we need to do on the side of current capital.
John McNulty
they gave it to me No, it all makes sense. And then, I guess, Guillermo, from your perspective, I mean, when you start to see a recession risk, all the kind of difficulty there, I guess, how would you say it has an effect on M&A markets?Do you see more assets popping up when other people just throw in the towel and say, “Okay, it’s time to get out,” or do you see less because no one needs to sell in the background?I guess how would you describe the full set of opportunities as you envision 2023 for you?
William New
I think, clearly, that everything is stopped. So, there is a pause that is evident in the market. I think there is a valuation reset that is on the buyer’s side or on the seller’s side that causes this pause. If you have a smart asset, you’re probably not going to deal with right away. So I think it’s going to be a time when everyone will take a breather about what they need to do and move. I think the component of the challenge that everyone has is that, for the assets we need, they tend to be very specialized, high-end applications; I think it takes time for other people to replace what they need to do over time. But I think that’s where we have to be patient; Don’t rush into something.
I believe the opportunities will provide themselves. Some of those smaller, very specialized spaces like this are a must for our bolts, I think other people will start to reconsider it the year. And we’re going to be, that’s where we need to be located so we can take advantage of those opportunities when they arise. But move, be careful. We don’t need to rush and buy anything; The quality is. . . Expansion with quality is not expansion just for the sake of expansion.
John McNulty
I get it, it makes sense.
Jean Kevin Willis
John, some other component of the equation is that I think other people are also waiting to see what the interest rate environment is getting into. For corporations that have a lot of floating-rate debt, they probably pay close attention, I mean Since the maximum bank debt is traded at three-month rates, which have more than 400 foundation issues this year, the maximum bond debt trades 10-year Treasuries, up to 270 foundation issues this year. Wait-and-see mode, and just to see if things calm down. Or do we have to step back when the Fed begins to overcome an era of time?Currently, this is not the case. But I think it also influences the M&A environment.
John McNulty
They gave it to me Enjoy the color, gentlemen. Thank you.
Operator
The next one comes from Laurence Alexander’s lineage with Jefferies. Your line is now open.
Lorenzo Alejandro
Just thinking about the interaction between your expectations for the year, I mean the strategy of diversity and replacement mix. Do you expect that, in your base case, sales of nutraceuticals and skin care in US dollars, I assume, will increase in 2023?
William New
Well, skincare is a pretty global business for us. So I think it’s not just a position based on the US dollar. In fact, he was the one who was very strong for us in the last quarter. So I think it’s more in line with the overall portions of our portfolio. I think nutraceuticals, I mean we’ve stabilized it in the last two years. I don’t think we are satisfied where we are yet. I think there’s more self-help that we’re contemplating doing in this space. Therefore, it is not so much expansion that we are going to seek, but the expansion of profits that is driving profits and profitability. A small part of the business of more than $100. So it’s more on this improvement that we’re going to focus on. But the order still stands. It’s more about us, not too much about the market.
Lorenzo Alejandro
And particularly in Europe, do you see verticals where volume trends have been unexpected compared to the kind of your fundamental playbook on how each of the sub-segments works?
William New
Like I said, the component that we are, and this is where the acquisition factor is important. What we can’t, we don’t go through macros, we don’t take a look at every company. We want to do for our products, for our technologies. For example, we see a very high demand in the pharmaceutical industry because others have much greater problems of origin. So it was stronger. So, we see that demand has been strong since the customer period, but our functionality has been higher than the market just because we are in a smart position to source out. And that’s why we want to keep that focused for the next two quarters.
Lorenzo Alejandro
It is ok! Super. Thank you.
Operator
The next one comes from John Roberts’ line with Credit Suisse. Your line is now open.
Edlain Rodriguez
Thank you. Actually, it’s Edlain Rodriguez. You talked about. . . I mean how tough the wallet is, which it obviously is. Is there anything I can do to mitigate that impact?
William New
Yes, I think we basically or necessarily concentrate on the 3 main businesses: Pharmacy, Personal Care and Architectural Coding. Very resistant. I would say the coding may be at the beginning of a recession, there’s a little bit more volatility, stock stocks, things of that nature. But at the end of the day, it’s also more consumer-focused. Costs: Architectural coding wasn’t on the commercial side, so they have an ability to recover fairly quickly.
So those 3 pillars seem pretty solid. I think he’s looking at the other spaces we sell. It has segments in life sciences, food, nutrition, which are quite powerful physically, more consumer-focused. In non-public care, it is total non-public care. Care segment. In special additives, we have the appearance of potency as a small part. But it is more physically powerful because the need for energy production is increasing. But it has spaces in our particular functionality specialty that can serve the automotive industry, the ink industry. There are some programs in which we see a sure sweetness. So, they’re on the margins right now, yet it’s the, the most, the products that move more into this general commercial domain that we see some of the sweetness.
Edlain Rodriguez
Fine thank you. That’s all I have. Thank you.
Operator
In the absence of questions at this time, I now give the ground back to Guillermo Novo for closing remarks.
William New
It is ok. Well, everyone, I appreciate your participation, your interest in Ashland. As always, we look forward to seeing you all in the coming weeks and chatting with you. But the most important message right now is for our teams. And I just need Again, it’s been 3 years of surprise after surprise, challenge after challenge and they’ve performed incredibly well in a conversion environment, both externally and internally. And I think the challenge now is to stay calm, to focus on the things that we can control. . And I’m sure we’re going to have a smart year. And that we will be able to cope with all the surprises and adjustments as they arise. So, thank you for your attention. And I look ahead to see you soon. Good bye.
Operator
That concludes the convening of today’s convention. Thank you for your participation. You can now log out.