Earnings Call Transcript - ASH Q4 2020

Seth Mrozek, Director, Ashland Investor Relations

Thank you, Tawanda. Good morning everyone and welcome to Ashland's fourth quarter fiscal year 2020 earnings conference call and webcast. My name is Seth Mrozek, Director, Ashland Investor Relations. Joining me on the call today are Guillermo Novo, Ashland's Chairman and Chief Executive Officer; and Kevin Willis, Senior Vice President and Chief Financial Officer. We released preliminary results for the quarter ended September 30, 2020 at approximately 5:00 PM Eastern Time, yesterday, November 10. The news release issued last night was furnished to the SEC in a Form 8-K. During this morning's call, we will reference slides that are currently being webcast on our website ashland.com, under the Investor Relations section. The slides can also be found on the Investor Relations section of our website. We encourage you to follow along with the webcast during the call. Please turn to slide 2. As a reminder, during today's call we will be making forward-looking statements on several matters, including our outlook for fiscal year 2021. These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved. Please refer to slide 2 of the presentation for a more complete explanation of those risks and uncertainties, and the limits applicable to forward-looking statements. Please also note that we will be referring to certain actual and projected financial metrics of Ashland on an adjusted basis, which are non-GAAP financial measures. We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of the financial performance of our ongoing business. Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP. The most directly comparable GAAP measures, as well as reconciliations of the non-GAAP measures to those GAAP measures are available on our website and in the appendix of today's slide presentation. Please turn to slide 3. Guillermo will begin the call this morning with an overview of Ashland's results in the fourth fiscal quarter. Next, Kevin will provide a more detailed review of financial results for the quarter and the fiscal year. Finally, Guillermo will close with key priorities and planning in the current economic environment, in addition to providing his thoughts and the important next steps. We will then open the line for questions. Now, if you could please turn to slide 5, I will turn the call over to Guillermo for his opening comments.

Guillermo Novo, Chairman and Chief Executive Officer

Thank you, Seth, and good morning to everyone. Before I begin, I'd like to thank you for your participation this morning. I hope that everyone is safe and healthy in these unprecedented times. As we have stated throughout the year, our first priority has been protecting the health and safety of our employees. Second, we have continued to supply our customers in the critical industries that we serve. Despite all the challenges that presented this year, we have also remained committed to executing our strategy. Importantly, this means expanding our margins, enhancing our free cash flow conversion, demonstrating the resilience of our business and working to accelerate organic growth in each of our business units. I will discuss these aspects of the strategy in more detail at the end of this call. Please turn to slide 6; in summary, Q4 results demonstrated the value of our leadership positions in high-quality end markets, and the importance of the actions we are taking internally. Our consumer business continues to demonstrate strong resilience, posting 4% sales growth during the quarter. And we realized substantial sequential improvement in the Industrial business, as global demand continues to recover during the quarter. On the self-help side, we continue to make significant progress on driving our business focus, restructuring costs, improving margin, and reducing inventory levels. This resulted in improved free cash flow generation in both the quarter and the full year. Kevin will review our inventory actions and the impact on free cash flow in more detail in a few minutes. I'd like to recognize the entire Ashland team for their focus and commitment to our success during these challenging times. It's a real privilege to be a part of this team. Let me pass the call over to Kevin to review our Q4 results and full-year in more detail.

Kevin Willis, Senior Vice President and Chief Financial Officer

Thank you, Guillermo, and good morning everyone. Please turn to slide 8. Total Ashland sales in the quarter were $609 million, flat with the prior year period and up 6% compared to the June quarter. These results reflect continued strength in our consumer businesses and substantial sequential improvement in our Industrial businesses. Excluding key items, SG&A and R&D costs again declined in the quarter, as we realize the positive impact of the cost reduction program, and new cost actions. In total, Ashland's adjusted EBITDA was $154 million, a 3% increase over the prior year quarter, and adjusted EBITDA margin was 25.3%, a 70 basis point improvement over last year. Adjusted EPS, excluding acquisition amortization, was $1.25 per share, up 21% from the prior year. Now let's review the results of each of our three business groups. Please turn to slide 9. First, I'll begin with Consumer Specialties; sales were $344 million, up 4% from the prior year quarter. The impact from favorable currency represents approximately one percentage point of this increase. Within Life Sciences, pharma continued to perform well, up high single digits in the quarter, driven by strong demand for pharma excipients. After a few challenging quarters, the nutraceuticals business returned to growth, thanks to a lot of hard work and dedication by the team. Nutrition sales were down during the quarter as our food and beverage customers continue to be challenged during the pandemic. The Personal Care sales were down low-single digits during the quarter, as we continue to lap prior year business losses in oral care, and experienced lower demand for hairstyling and suncare products due to the pandemic. Home care sales were up, as the market for our hand sanitizer additives continues to grow. Avoca sales also grew, and while the business remains challenged, we're making progress in stabilizing the business. We are now focused on leveraging the bio-functional extraction capabilities in this business to develop new product lines to drive growth across new markets, in both our personal care and household businesses. Price mix was favorable during the quarter, which drove improvement in gross profit margin. Adjusted EBITDA margin in Life Sciences improved to over 28%, while in Personal Care and Household, adjusted EBITDA margin declined slightly to 28%. In total, Consumer Specialties' adjusted EBITDA margin improved by 170 basis points to 28.2%. Please turn to slide 10; turning to Industrial Specialties, sales were $240 million, down 3% from the prior year quarter and up 17% from the June quarter. This reflects substantial sequential improvement in global Industrial demand, following the trough in April and May of this year. Our Coatings business was up double digits during the quarter, reflecting strong global demand for architectural paint, particularly in DIY applications. And while we saw modest growth in construction products, our energy business was down significantly, reflecting lower drilling activity across the globe. Sales of pressure-sensitive adhesives were down year-over-year but showing signs of recovery with continued sequential improvement; structural adhesive sales were also down but demonstrated strong sequential improvement in demand for automotive and building applications. Our Laminated and Coatings Adhesives business is growing due to increased demand for food packaging. Price mix was favorable in both Specialty Additives and Performance Adhesives, which drove nice margin improvement. Adjusted EBITDA margin and Specialty Additives improved to 27.5%, while in Performance Adhesives, adjusted EBITDA margin improved to 26%. In total, Industrial Specialties' adjusted EBITDA margin improved by 160 basis points to 26.7%. Please turn to slide 11; turning to Intermediates and Solvents, sales were $28 million, down from the year-ago period, primarily reflecting both lower volumes and pricing. Inter-company sales of BDO to Consumer Specialties totaled only $3 million in the September quarter, as the Consumer Specialties business executed on its inventory control measures. Adjusted EBITDA of $6 million for I&S was down from $13 million in the prior year period. Please turn to slide 12; before I review the results for the full fiscal year, I'd like to spend a few moments on the inventory control actions we pursued during the fourth quarter. As we said on the last earnings call, we implemented a systems-wide program to right-size overall inventory levels. This included slowing, and in many cases, shutting down production on certain lines and facilities for a period of time. By the end of the quarter, we substantially exceeded our original estimates and reduced overall inventory levels by $99 million compared to June 30, excluding an $11 million FX impact on the remaining inventory balance. To achieve these results, we incurred roughly $47 million of one-time costs, mainly related to abnormal production variances expensed during the quarter. Given the extraordinary and one-time nature of the program, and in order to improve the comparability of our quarterly results, we are excluding these costs from our adjusted results, including adjusted EBITDA. We are very pleased with the progress the team made during the quarter. The one-time inventory control actions are now complete, and to be clear, the business unit leaders are tasked with staying focused and disciplined regarding improved inventory management going forward. The inventory actions also contributed to improved free cash flow during the quarter. We generated $160 million of free cash flow compared to $83 million in the prior year quarter. While both periods include payments for restructuring activities, our free cash flow improved in Q4 due primarily to the inventory reductions and improved earnings. Please turn to slide 13; before I turn the call back over to Guillermo, I'd like to make a few comments about Ashland's results during fiscal year 2020. While the underlying businesses performed as expected, the full year sales decline reflects the dramatic decline in Global Industrial demand due to the COVID-19 pandemic, as well as the impact of headwinds from prior year share losses in Consumer Specialties. As we enter fiscal year 2021, we have now lapped the impact of the share losses, and while uncertainty remains in the global marketplace, we have seen resilient performance in our Consumer businesses and steady sequential improvement in demand over the past few months in our Industrial businesses. The important self-help actions that we executed this year are evident in our earnings. In what turned out to be a year full of uncertainty, Ashland generated $528 million of adjusted EBITDA, down only 1% from last year. Adjusted EBITDA margin improved by 140 basis points to 22.7%, reflecting the progress we made on reducing SARD expenses during the year. Adjusted EPS, excluding intangible amortization improved 10% to $3.90 per share, again reflecting these important actions. And free cash flow improved by over $100 million, to $175 million including $30 million of restructuring payments related to our cost reduction initiatives during the year. In summary, despite operating in a year of great uncertainty, I'm pleased by the tremendous progress made by the team and look forward to a stronger performance in fiscal year '21. With that, I will now turn the call back over to Guillermo to address our priorities, outlook, and strategic focus.

Guillermo Novo, Chairman and Chief Executive Officer

Thank you, Kevin. Please turn to slide 15. As we look to our fiscal year 2021, our priorities are very clear: Drive margin expansion, enhance free cash flow conversion, continue to demonstrate business and operating resilience; and accelerating profitable growth. To achieve these objectives, we have clear levers that we plan to act on, with the same discipline we showed in 2020. To capture cost savings carryover from the $50 million SARD cost reduction actions we've completed in 2020 and accelerate the capture of the $50 million of cost of goods sold reductions we have already identified. Drive productivity and mix improvement from innovation, focusing on our more profitable strategic segments and exiting some lower-end product lines. And align our capital allocation priorities for CapEx and working capital, consistent with our strategic priorities. During fiscal year 2020, we had the opportunity to demonstrate the underlying resilience of our businesses, as well as our improved operating discipline. We will maintain focus on driving continuous improvement in our business-centric model and our operating discipline. As I will comment later, fiscal year 2020 has not been just about our transformation and margin improvement. We have used this time to reset our strategy for each business, and rebalance our innovation portfolio to accelerate growth. As we enter fiscal year 2021, our focus will be shifting to accelerating profitable growth drivers, both organic and inorganic. Please turn to slide 16. For fiscal year 2021, the drivers of performance are revenue growth and the net impact of our self-help actions, partially offset by some cost reset items. Although we do not control the COVID impact on demand, we do have control over our self-help actions and our cost management discipline. While the macroeconomic environment continues to improve sequentially in parts of the world, recent developments are a reminder that there is still a high level of uncertainty around the potential impact of COVID on market demand and global supply chains. Given such high uncertainty, we will not provide specific guidance for fiscal year 2021. However, based on the clarity of our planned self-help actions, which are in our control, and the sustained trend of continued demand improvements, we will provide more specific comments on the expected key performance drivers for fiscal year 2021. The areas of most uncertainty of demand remain the impact of COVID-19 and potential actions governments can take in response, assuming no long-term vaccine solutions are meaningfully implemented until later in our fiscal year 2021. Our base scenario assumes continued trendlines of demand. This scenario, together with our plans to exit some lower-end product lines, which impact revenue but not EBITDA, would mean sales growth in the range of 2% to 4% for fiscal year 2021. We do recognize there is significant upside potential, like what we saw in our fiscal Q4, given that demand in many of our industrial market segments are still below 2019 levels absent any major shutdowns in key economies. We do not expect significant changes in consumer macro trends or increased downside demand risks in industrial segments. However, if industrial markets recover quicker, there could be upside from higher volumes, given benefits to both gross profit growth as well as improved cost absorption. Given the self-help opportunities we control, we feel confident about our EBITDA outlook. Between the cost reductions we have just completed, the new cost reductions we are now planning to capture, offset by cost reset items such as incentive compensation, LTIP, and benefits, we expect the self-help actions to improve EBITDA by at least $20 million to $25 million over and above organic EBITDA growth. Our path is clear: Focus on driving the actions we control, and building resilience and agility in our business to capitalize on the market developments for the factors we do not control. Please turn to slide 17. As we communicated, our strategic focus is to expand our additives portfolio and build out our biotech capabilities, accelerate our growth in Asia, build a customer-focused and innovation-centric culture, and accelerate our digital modernization. Please turn to slide 18. I'm very proud of the Ashland team and the accomplishments they've achieved during 2020. I continue to be impressed by the level of energy, ownership, and accountability our teams have demonstrated during a period of significant internal change and external challenges. This transformation positions us well for the future. Although I will clearly stay committed to completing and delivering the value of our transformation activities, I know that I can count on our leaders to execute on the plans we have developed. We're now in a different stage in our journey, and my primary focus will be shifting to accelerating profitable growth and advancing our ESG agenda. We've already made a lot of progress in these areas, so my focus will be on accelerating impact. On growth, the focus will be on driving innovation impact and advancing our strategy for targeted M&A in key market segments. Regarding our Environmental, Social, and Governance or ESG agenda, Ashland has been on an ever-evolving journey, defining and driving sustainability progress under three core areas: sourcing, operations, and solutions. Our focus will be on committing to create specific targets and delivering them. We will become a signatory to the UN Global Compact and are developing science-based targets for CO2, water, and waste, and we will be stewards of global social responsibility. Although a significant part of our portfolio already has a strong sustainability profile, sustainability is an integral part of our innovation priorities for each business. As Ashland moves forward, we are committed to making the world a better place through the application of Specialty Materials. We will continue to respect, protect, and advance the people we work with, customers we serve, shareholders who invest in our future, the communities we're part of, and the planet we share. As we continue to focus on organic growth and our future, we will be planning an Investor Day for mid-year 2021. We will provide more details over the coming months. Please turn to slide 20. In closing, I want to once again thank the Ashland team for their leadership and proactive participation in an uncertain environment. We're fortunate to be a premier specialty materials company, with high-quality businesses that have leadership positions in defensive markets. I'm pleased by the resilience demonstrated by our people and businesses, and look forward to the opportunities that lie ahead. Thank you. Operator, can we move to Q&A?

Operator, Operator

Thank you. Our first question comes from the line of Chris Parkinson with Credit Suisse. Your line is open.

Chris Parkinson, Analyst

Great. Thank you very much. Can you just talk a little bit more about your cost programs and reconcile your $100 million target with your remarks on the additional $20 million to $25 million of cost benefit for '21, highlighted on slide 16? And then also the COGS cost reductions, so just put simply, isolating any EBITDA contribution from revenue growth, how can we isolate these factors for fiscal year '21 and even '22? Thank you very much.

Guillermo Novo, Chairman and Chief Executive Officer

If you recall our discussion about our journey, we aimed to enhance our cost structure by at least $100 million. This year, we concentrated on SG&A and R&D, which we refer to as SARD. We've already achieved a run rate of $50 million, with part of this coming in this year and most expected next year, though a small portion may extend into 2022. The majority will already be in the run rate. A significant part of this figure stems from the SARD initiatives we've implemented. Regarding the cost of goods sold, we initially set a goal of an additional $50 million in cost savings but discovered other opportunities related to our plant footprint and networks. Fortunately, we’ve identified that $50 million, plus or minus a few million, and we are already in the process of implementing these savings. The challenge now is the speed of execution, particularly in the U.S. and Europe, given our singular manufacturing plant in Asia, which complicates timing. We also have some resets in costs tied to incentive compensation and other areas. I expect that some of these will offset the cost resets, but there may be potential for additional savings if we can expedite progress. Our plan is in place, and while the specifics around timing aren't surprising, we aren't waiting to finalize all timing calculations. We will proceed with implementation and report our progress regularly. This approach has proven effective for us in maintaining momentum moving forward.

Kevin Willis, Senior Vice President and Chief Financial Officer

Yes. And we will let you know in the December quarter earnings call in January, kind of where we are from a run rate perspective on the COGS savings at the end of December. But the team is very much focused on executing on those items as Guillermo said, we have a detailed list of it all, and we're right at the $50 million mark. So we feel really good about that.

Chris Parkinson, Analyst

That's helpful. Thank you. As a quick follow-up, when we look at PC&H regarding growth, can you explain the trends you're noticing in Personal Care? Please share any high-level insights on skin, hair, and sun, keeping in mind that the latter is currently in a seasonally weaker phase. I'm trying to understand your overall perspective on how these end markets might grow in more normalized conditions and the sustainability of the benefits from hand sanitizers. Thank you very much.

Guillermo Novo, Chairman and Chief Executive Officer

For the quarter, aside from a stronger recovery in certain industrial segments, everything unfolded as we previously discussed, and all segments, including personal care, met our expectations. In the Personal Care segments, the areas most affected by COVID are hairstyling and salons, as people are visiting salons less, and suncare. These will continue to be key focus areas for potential improvement, depending on the developments with COVID in 2021. There are no significant changes in the other segments. Regarding the market perspective, hand sanitizers have progressed. Initially, the priority was to get the product out due to high demand. Now, I foresee some inventory adjustments across the entire chain, as initially a lot of lower-quality products were produced. We are seeing this evolve into a long-term category, suggesting ongoing demand. The sophistication of the products is increasing, and we have expanded our product offerings to provide different value options for our customers, including variations in cost, sensory experience, texture, and moisture. In stores, some products can feel sticky or leave a residue, so future products will evolve and become increasingly sophisticated. This presents an opportunity for more targeted technology. We are not just selling a single product; we have a portfolio of products, with some new formulations focusing on sustainability, biodegradability, and natural ingredients. In Personal Care and Household, Avoca, which Kevin mentioned, has faced challenges this year. However, I anticipate increased production rates next year, which will positively impact our absorption. I am enthusiastic about our efforts in biotechnology, particularly in high-volume extraction and purification, where our team has excelled in identifying new product lines that we are starting to implement and ramp up capacity with some customers. We also aim to introduce exciting new products in the household segment, so there is much more to look forward to, and our team has been actively engaged in that area.

Chris Parkinson, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from the line of John Roberts with UBS. Your line is open.

John Roberts, Analyst

Thank you. Since we're halfway through the December quarter, could you share your insights on how the quarter is shaping up, considering you likely have your orders through November at this point?

Guillermo Novo, Chairman and Chief Executive Officer

Well again, I don’t want to look forward too much, as there is a lot of uncertainty right now specifically, if you look at what's happening in Europe and the U.S. But I can say that things are strong. We don't see a change in the trendline that we had from prior quarter at this point in time.

John Roberts, Analyst

Could you discuss your current average operating earnings since implementing the inventory controls? It would be helpful to compare these figures to pre-COVID levels or specifically for large units like cellulosic and BDO.

Guillermo Novo, Chairman and Chief Executive Officer

One of the key messages is that we are entering 2021 prepared and eager to succeed. We have taken significant steps to manage costs and plan for inventory, and we will continue to take action in this area. As Kevin mentioned, we need to maintain strict control over our inventories, and we are focused on implementing a disciplined sales and operations planning process to meet demand. Most of our plants are showing improved absorption rates compared to this year, and while we have made progress in reducing inventory, our absorption rates in prior quarters were lower than the previous year, indicating significant upside potential. I am not certain about the utilization rates by groups, but they have shown marked improvement, indicating further growth potential. Each 1% increase in sales greatly impacts gross profit, and the contribution margin from absorption rates is considerably higher, which would be very beneficial for us.

John Roberts, Analyst

Okay. Thank you.

Kevin Willis, Senior Vice President and Chief Financial Officer

Yes. I mean, that's fair. John, I would say that our plant footprint is operating normally at this point. We got through the inventory control piece, which was obviously huge, and everything is operating, I would say normally, and as it should be at this stage of the game. To Guillermo's point, the extent we can see more of a recovery, above and beyond what we talked about in that 2% to 4% range, there is only upside in terms of contribution margin because we do have some large plants, that conversion cost is pretty high, and so to the extent you do increase topline and volumes in those big facilities like a Calvert City, Texas City, Hopewell, you do see a lot of uplift in the margin.

John Roberts, Analyst

Great. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of John McNulty with BMO Capital Markets. Your line is open.

John McNulty, Analyst

Yes. Thanks for taking my question. I guess the first one would be on the top line. You highlighted that there is going to be a number of product lines that you discontinue or shut down. Can you quantify what that impact of the topline overall would be roughly?

Guillermo Novo, Chairman and Chief Executive Officer

We haven't shared specific details yet as we need to work with customers in an organized manner. However, we have previously discussed our approach involving buying and reselling products, which amounts to tens of millions of dollars. While everyone is closely examining every percentage, the impact is minimal. This primarily pertains to the Personal Care segment, but it does not affect our EBITDA at all. Margin considerations are not our main focus; our priority is not to sell anything. We have a defined strategy and are concentrating on areas where we can add and create value for our customers.

Kevin Willis, Senior Vice President and Chief Financial Officer

Should also enable the team to be better focused, as we remove this, what I would call maybe a distraction from the mix.

Guillermo Novo, Chairman and Chief Executive Officer

And working capital.

John McNulty, Analyst

Got it. So maybe a quick one then...

Guillermo Novo, Chairman and Chief Executive Officer

Yes, we have been focusing on specific segments like additives and biotech. When we discuss biotech, it also encompasses additives since we need to enhance our overall capabilities. This remains a priority for us. Additionally, growth in Asia is another key focus. Our main priorities include Pharma, Personal Care, and Coating, which we consider our primary areas. Expanding our adhesive business globally is also important to us, even though it doesn't fall under additives. It is a highly profitable sector, and we are dedicated to fostering its growth as well.

John McNulty, Analyst

Got it. Thanks very much for the color.

Operator, Operator

Thank you. Our next question comes from the line of David Begleiter with Deutsche Bank. Your line is open.

David Begleiter, Analyst

Thank you. Good morning. Guillermo or Kevin, on the 2% to 4% sales growth, can you break it down between volume and price and mix, any FX headwinds you might see next year?

Guillermo Novo, Chairman and Chief Executive Officer

Kevin, I’ll give you some time to consider all the other details. At the heart of our growth is volume, which is the main driver. Our consumer business has performed well this year, and we expect this trend to continue. It's really about that growth moving forward. Regarding the percent impact, obviously there's the exit of the lower end, but it doesn’t significantly affect EBITDA. While it reduces the Personal Care segment a bit this year, the consumer side continues strong. We are projecting based on what we see today and acknowledge the potential upside; however, we don't control that aspect. We are maintaining a comfortable projection of the 2% to 4% improvement in our industrial business, as we believe there’s limited downside unless there’s another shutdown. We avoid being overly optimistic, but we genuinely hope for improvement and faster recovery. However, reliance on hope isn’t our strategy. We focus on delivering results and prefer to plan on what will enhance disciplined operational performance. We feel confident with the numbers we have outlined, based on the scenarios we foresee. Kevin, do you want to add anything else?

Kevin Willis, Senior Vice President and Chief Financial Officer

Yes, the volume aspect is significantly more influenced by the industrial sectors, with an approximate split of 70% industrial and 30% consumer in terms of volume, despite consumer revenue being substantially higher. For 2021, we anticipate that volume, primarily from the industrial side, will be the main contributor, particularly in areas like Coatings and Adhesives. Energy will continue to pose a challenge; while it’s not a major part of our business, it has declined notably and we expect this trend to last. We also expect to see some positive mix that will benefit our margins, and the overall balance between pricing and raw materials should be stable. Looking at the bigger picture, we believe the consumer divisions will maintain their current performance. Guillermo mentioned the planned exit from certain resale purchases, which will have minimal impact on the bottom line. Ultimately, our results will largely depend on the performance of the industrial end markets, and if they show better recovery, we should see significant positive effects on our results.

David Begleiter, Analyst

And toward that question, Kevin and Guillermo, incremental gross profit margins next year on these higher sales, how should we be thinking about that dynamic?

Guillermo Novo, Chairman and Chief Executive Officer

If you look closely, even though we didn't provide guidance, you can model various scenarios based on some solid numbers. A 1% increase in growth affects our current gross profit. The impact on gross profit and absorption depends on the product mix. If we gravitate toward the industrial side, for instance, the higher asset cellulosics could lead to a notable percentage increase in margin for those products. So, the potential is there.

Kevin Willis, Senior Vice President and Chief Financial Officer

That's right. In the larger facilities, and this is going to be cellulosics and acetylenics primarily. Adhesives, not, because their conversion costs are a much smaller percentage of COGS. But if you look at those big facilities, contribution margins can be north of 50% for incremental volumes, and that's more of a rule of thumb. It depends on the plant. It depends on the product line, but rule of thumb is 50% plus contribution margins.

David Begleiter, Analyst

Thank you very much.

Operator, Operator

Thank you. Our next question comes from the line of Laurence Alexander with Jefferies. Your line is open.

Laurence Alexander, Analyst

Hi. I have two questions. First, regarding the incremental margins, cost savings, favorable mix effect, and fixed cost absorption on the large units, it seems you're effectively moving towards a 10% to 14% EBITDA growth. Could you discuss any potential challenges that might hinder this, such as increasing SG&A investments for growth or other factors that could lead to inefficiencies? Second, regarding sustainability, what percentage of your products falls into the disadvantaged category? Among those, how many are adequately shielded from substitution due to being in regulated or highly specialized formulations, meaning any displacement would take several years or even a decade?

Guillermo Novo, Chairman and Chief Executive Officer

Let me start by discussing our growth, EBITDA, and any potential setbacks we might encounter. We’ve been concentrating on our current strategies, and our growth drivers are straightforward: revenue expansion, primarily through recovery. We're investing considerable effort into innovating and enhancing growth. However, these efforts require time, particularly in developing new products and technologies. While I can’t dictate the pace of market recovery, I’m confident it will occur, whether this year or next. Our goal is to be prepared to take advantage of any quick demand uptick, which would allow us to exceed our projections for 2% to 4% net EBITDA growth from self-initiated improvements. In terms of our long-term focus, it’s essential to gain traction with core innovations and any inorganic growth strategies aligned with our overall strategy. That is where I envision growth moving forward, as we can control this and it will significantly impact our long-term success. Regarding sustainability, we plan to highlight this during our Investor Day. A considerable portion of our portfolio already possesses a strong sustainability profile, particularly with our natural raw materials like cellulose. However, we need to improve technologies for those products that are partially sustainable or that require further development. We aim to provide value to our customers as our environmentally sustainable technology progresses, enabling transitions to biodegradable and low-impact products. For example, while we’re not necessarily changing our adhesives, we’re looking at how we can help our customers integrate sustainability into their offerings, like the use of structural adhesives to create lighter vehicles or sustainable wood materials for construction. Our sustainability objectives encompass a wide range of initiatives, including our sourcing and solutions, some of which can be managed internally. Moreover, when it comes to biodegradable products, there's more to consider than just whether they are biodegradable. We must tailor our products to specific regional requirements, which can differ significantly. The real challenge lies in ensuring that a product meets the unique biodegradation timelines specified in various markets. Ultimately, we’ll provide a clearer overview of our sustainability efforts moving forward, but we're starting from a strong foundation.

Laurence Alexander, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Mike Harrison with Seaport Global Securities. Your line is open.

Michael Harrison, Analyst

Hi. Good morning.

Guillermo Novo, Chairman and Chief Executive Officer

Hi, Mike.

Kevin Willis, Senior Vice President and Chief Financial Officer

Hello, Mike.

Michael Harrison, Analyst

Guillermo, you've talked a little bit about the coatings industry and wanting to maybe add some things around that Specialty Additives business and in particular, you mentioned the strength you're seeing in Architectural Coatings. Have you started to tap into some of these opportunities around Industrial Coatings at this point, and is that something that you can do organically, or is that really where you need the M&A to increase your exposure in that non-architectural piece of the coating space?

Guillermo Novo, Chairman and Chief Executive Officer

We're actively working with the teams to revamp their innovation portfolios, and we can pursue many initiatives organically. In the industrial sector, while there are still many solvent-based products, the industry is shifting towards water-based options, and there are various other products emerging. Specifically in the water-based segment, where we hold a significant position, the challenge lies in performance. Some products have shown good performance in architectural applications, but we need to enhance performance for structural protection. We will need to pursue both organic technology developments and inorganic strategies to expand our portfolio. I see a strong connection between architectural and industrial technologies; the challenge is how to fine-tune our approach. As I mentioned regarding sustainability, the key is finding the right balance in performance levels. Generally, lowering performance standards is simpler than raising them, particularly when transitioning from architectural to industrial applications, where we need to enhance properties like water and corrosion resistance. I believe we are making significant progress in this area.

Michael Harrison, Analyst

All right, thanks. And then on the nutraceuticals business, you mentioned that return to growth. Can you give an update on some of the actions that you've taken to get that growth back where you want it, and in particular, some of the margin actions? Would you say that this business is stabilized at this point, or poised for growth? Maybe just some color there.

Guillermo Novo, Chairman and Chief Executive Officer

Thank you for the question, as I want to acknowledge the team. Coming into the company, it was clear that this area was under significant pressure. Reflecting on my first call a year ago, it's evident that this team has risen to the challenge and done an excellent job. They've not only regained market position but have also diversified by securing new business with various customers, rather than relying solely on one major client. They've engaged in meaningful conversations with customers to understand their product needs and the importance of quality and reliable supply, which has really made a difference. The market itself is still expanding, particularly in health and wellness, as there's a growing concern and fundamental demand from consumers. Their efforts have been outstanding. I also want to recognize our plants, particularly those in New Jersey, which have performed exceptionally well this year. Throughout the challenges posed by COVID, they ensured that our customers were supplied and operational, and I commend the entire team for their achievements. We're also making solid progress on cost savings and productivity. They've maintained high performance and ended the year strongly. We're hitting our targets, and we've regained our position prior to any share losses, now with a better and more robust portfolio. Well done to everyone involved.

Michael Harrison, Analyst

Thanks very much.

Operator, Operator

Thank you. Our next question comes from the line of Jeff Zekauskas with JP Morgan. Your line is open.

Jeff Zekauskas, Analyst

Thank you very much. You mentioned a positive price mix effect in Consumer Specialties. Could you clarify whether this effect was more or less than 1% and quantify the benefit?

Guillermo Novo, Chairman and Chief Executive Officer

Let me sort of give you what the drivers were, and Kevin, you can comment more. But if you look at the mix in the consumer side, I mean on Life Science, obviously pharma being stronger, it's a higher margin, higher mix area. So that has been very strong. The improvement in the nutraceutical side that I just talked about is obviously a big driver. The part that's softer is our nutrition business. Our nutrition business, a lot of the products that go into food and beverage, that still has been impacted by COVID, beer, wine, and a lot of foods, the travel, restaurant, entertainment industry is still down. So that's down, but that tends to be lower margin business for us. So that obviously was favorable to the mix, in terms of the growth areas. And in the Personal Care, again, we're shifting our focus to the areas that are strategic to us, and those tend to be the higher margin, more profitable areas that are driving our mix. So it's more the mix side in these segments. It's more the mix, where there is more price stability in that area. There could be some areas that we had some impact. Probably Avoca is the only one where we probably saw some price erosion early on. But that's not anything new and it hasn't changed that much toward the back end of the year. But, Kevin, I don't know if you have the other comments you would add?

Kevin Willis, Senior Vice President and Chief Financial Officer

Yes. In total, it was about $10 million to $12 million positive from price, mix, and raw material costs. Each of these factors contributed to our performance. I agree with Guillermo that a significant part of this is due to the mix. When the Pharma business grows in the high-single digits, it is our most profitable segment, which positively impacts the overall mix of the consumer business quite significantly.

Jeff Zekauskas, Analyst

Okay, great. And in the quarter you took a $22 million restructuring charge and $7 million environmental charge. How would you allocate those charges to cost of goods sold and into SG&A or other overhead expenses? And in general, what are your cash outlays for restructuring and environmental next year?

Kevin Willis, Senior Vice President and Chief Financial Officer

I'll address that. The $22 million primarily consists of severance costs. Most of it relates to the ongoing work in cost of goods sold for fiscal '21, which amounts to $50 million in hard dollar costs. Typically, we account for about $0.70 on the dollar in these cases, and we may see additional expenses in the December quarter, though I don't anticipate much beyond that. We aim to resolve this matter and move on. Most of this charge is linked to severance costs associated with COGS and involves personnel. Regarding environmental expenses, these predominantly stem from legacy sites. Yearly cash spending for environmental remediation usually ranges from $20 million to $30 million, and our recent figure was higher than usual, prompting us to highlight it this quarter. Most of these expenses relate to legacy issues and are run through corporate rather than business units, which typically have minimal environmental costs. Our usual annual spend in this area is around $20 million to $30 million, with last year's figure around $26 million.

Jeff Zekauskas, Analyst

Okay, great. Thank you so much, Kevin.

Operator, Operator

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Guillermo for closing remarks.

Guillermo Novo, Chairman and Chief Executive Officer

Okay. Well, I wanted to thank everybody for your participation and your questions. I hope everybody stays safe. As I hope you heard, we're really pleased with the closing of this year. A strong progress for the entire business across multiple areas. Very well positioned for 2021 with, I think a lot of actions that we can control internally, and we're really switching now to a growth mindset that will be the exciting time moving forward from all this transformation, to really driving and creating value for our customers. So we're looking forward to updating you as the year goes, and thank you for your attention. So, thank you very much.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.