Ashland Global Holdings Inc. (NYSE: ASH) — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021. The filing presents annual results, not a standalone “2021 Q4” report. Performance Adhesives is classified as a discontinued operation for all periods presented; unless noted, financial results below are for continuing operations.
Business context
Ashland is a global specialty materials and ingredients company serving consumer and industrial markets in more than 100 countries. Its continuing reportable segments are Life Sciences, Personal Care & Household, Specialty Additives, and Intermediates and Solvents. Sales outside North America were 68% of total sales.
Key financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Sales | $2.111 billion | $2.016 billion |
| Gross profit / gross margin | $670 million / 31.7% | $599 million / 29.7% |
| Operating income (loss) | $181 million | $(463) million |
| Continuing-operations income (loss) | $173 million | $(555) million |
| Net income (loss), including discontinued operations | $220 million | $(508) million |
| Diluted EPS, continuing operations | $2.82 | $(9.16) |
| Adjusted EBITDA (non-GAAP) | $495 million | $449 million |
| Operating cash flow, continuing operations | $466 million | $227 million |
| Capital expenditures | $105 million | $133 million |
| Free cash flow (non-GAAP) | $361 million | $94 million |
| Cash and cash equivalents at year-end | $210 million | $454 million |
| Total debt at year-end | $1.970 billion | $1.853 billion |
Adjusted diluted EPS from continuing operations was $2.58 in FY2021 versus $1.85 in FY2020. FY2021 free cash flow includes a $92 million inflow from the U.S. receivables sales program and excludes certain mandatory debt repayments. Available liquidity was $566 million, plus $12 million available under the U.S. receivables sales program. Working capital was $792 million; liquid assets were 62% of current liabilities.
Material changes and segment results
- Sales increased 5% year over year. Pricing added $20 million, foreign exchange $46 million, and the Schülke acquisition $32 million; volume was slightly unfavorable, reducing sales by $3 million.
- Adjusted EBITDA rose $46 million to $495 million. Management attributed the increase mainly to improved pricing, favorable currency and lower selling, general and administrative costs, partly offset by shipping, logistics and packaging constraints and unplanned shutdowns.
- Life Sciences sales were $737 million and operating income was $130 million; adjusted EBITDA was $195 million, flat year over year.
- Personal Care & Household sales were $592 million and operating income was $73 million. Adjusted EBITDA increased to $161 million from $150 million, including the Schülke acquisition; sales fell mainly on lower volume.
- Specialty Additives sales rose to $655 million and operating income to $61 million. Adjusted EBITDA increased to $158 million from $143 million.
- Intermediates and Solvents sales rose to $178 million and operating income to $35 million. Adjusted EBITDA increased to $48 million from $13 million, reflecting stronger pricing and demand.
- FY2020 results included a $530 million non-cash goodwill impairment, substantially contributing to the prior-year loss. No goodwill impairment was recorded in FY2021.
Capital allocation, outlook and risks
- Performance Adhesives sale: Ashland agreed to sell the business to Arkema for $1.65 billion, with closing expected by the end of the March 2022 quarter, subject to conditions. Estimated net proceeds were $1.2–$1.3 billion, intended for core-business investment, balance-sheet optimization and shareholder returns. Completion and realization of benefits are uncertain; the divestiture will also reduce revenue diversification.
- Acquisition: Ashland completed its $312 million cash acquisition of Schülke’s personal care business on April 30, 2021.
- FY2022 outlook: Sales of $2.25–$2.35 billion and Adjusted EBITDA of $550–$570 million. These are management’s non-GAAP/forward-looking estimates and are subject to uncertainty.
- Debt and capital returns: Ashland issued $450 million of 3.375% notes due 2031 and redeemed approximately $411 million of 4.75% notes due 2022. It spent $450 million on an accelerated share repurchase, initially receiving 3.9 million shares; the transaction was expected to settle by March 2022. FY2021 dividends were $1.15 per share.
- Debt capacity and covenants: Net leverage ratio was 3.2 against a maximum of 4.0; interest coverage was 9.4 against a minimum of 3.0. The company reported compliance with debt covenants. Ratings were BB+ at S&P and Ba1 at Moody’s.
- Environmental and asbestos exposure: Environmental remediation reserves were $207 million, with the reasonably possible future-cost range reaching approximately $480 million. Asbestos reserves were $537 million in total; modeled future costs could reach approximately $482 million for Ashland-related claims and $334 million for Hercules-related claims. These estimates are uncertain and partly offset by insurance receivables.
- Other risks: COVID-19 uncertainty, volatile raw-material and logistics costs, global competition, supply disruptions, cybersecurity and operational incidents, foreign-exchange exposure, regulatory compliance, and pending or threatened litigation. Management said raw-material volatility could continue in FY2022.
- Cost-reduction initiatives targeted $100 million in incremental annual savings; Ashland reported achieving approximately 96% of the target run-rate by September 30, 2021 and expected substantial completion by calendar year-end 2021.
Important facts for investors to verify
- Whether the Arkema transaction closed on schedule, the final net proceeds, and their deployment among investment, debt reduction and shareholder returns.
- Whether FY2022 sales and Adjusted EBITDA guidance was achieved, and how much growth reflects pricing, volume, currency or acquisitions.
- Underlying segment profitability and cash generation after adjusting for one-time items, acquisition effects and discontinued operations.
- Liquidity after share repurchases, dividends, acquisition spending and debt maturities; also monitor leverage, interest coverage and refinancing costs.
- Changes in environmental and asbestos reserves, actual remediation and claim costs, and recoverability of related insurance receivables.
- Schülke integration progress and the effect of the acquired business on Personal Care & Household sales and margins.