Good day, ladies and gentlemen, and welcome to the Ashland First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to your host, Seth Mrozek, Director of Investor Relations. Please go ahead.

Thank you, Stephanie. Good morning and welcome to Ashland's first quarter fiscal 2016 conference call and webcast. We released preliminary results for the quarter ended December 31, 2015, at approximately 5:00 PM, Eastern Time, yesterday, January 25th, and this presentation should be viewed in conjunction with the earnings release. Additionally, we posted slides and prepared remarks to our website under the Investor Relations section and have furnished each of these documents to the SEC in a Form 8-K. On the call today are Bill Wulfsohn, Ashland's Chairman and Chief Executive Officer; Kevin Willis, Senior Vice President and Chief Financial Officer; Luis Fernandez-Moreno, Senior Vice President of Ashland and President of the Chemicals Group, which includes Ashland Specialty Ingredients or ASI and Ashland Performance Materials or APM; and Sam Mitchell, Senior Vice President of Ashland and President of Valvoline. As shown on Slide 2, our remarks include forward-looking statements; as such terms defined under U.S. securities law. We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved. Please also note that we will be discussing adjusted results in this presentation. We believe this enhances understanding of our performance by more accurately reflecting our ongoing business. In addition when in discussing ASI, we also refer to core markets, those of highly differentiated markets of personal care, pharma and coatings, which we identified during our November 2015 Investor Day as core platforms for targeted growth. I will now hand the presentation over to Bill.

Thank you, Seth, and good morning, everyone. As we entered our fiscal year '16 in October, we established four core investor related priorities for the year. I will now quickly walk through these priorities and our relative performance against these objectives in our first quarter. Our first investor related priority is to continue to drive the operational and strategic improvement needed to meet targeted earnings and margin gain. In our first fiscal quarter we made significant progress in this area. While overall sales were down, the ASI team realized gains in several of their core strategic growth markets including pharma, personal care and coatings. Additionally, the composites team improved profit margins through effective cost management and with pricing discipline in a volatile raw material cost environment. Finally, the Valvoline team delivered record Q1 earnings, delivering strong performance across virtually all of their core performance metrics including driving unit volume growth. At the same time as anticipated we continue to feel the negative impact of FX, divested product lines and reduced demand for oil and gas related products. Fortunately, we are beginning to lap these headwinds and expect to feel their impact less moving forward in our fiscal year. That said, ASI began to see softer demand in the quarter for a portion of their industrial products especially in China and Brazil. To help mitigate the impact of these challenges the Ashland team responded aggressively in areas we could control. More specifically, Ashland drove solid gross profit margin improvements by driving productivity gains and by maintaining pricing discipline. In addition with a strong focus on cost control, Ashland's SG&A was down year-over-year on an absolute dollar basis. Net-net, while overall revenues declined the Ashland team drove a 240 basis point improvement in EBITDA margins versus prior year. This combined with a…

Thanks Bill and good morning. Yesterday, we reported GAAP earnings from continuing operations of $1.38 per share. When adjusted for key items, earnings per share was $1.41, a 3% decline from prior year. In the aggregate Ashland’s adjusted EBITDA margin increased by 240 basis points when compared to a year ago. Specialty ingredients saw good growth in some of the core markets, offset by lower emerging market growth as certain customers reduced their inventory levels due to uncertainty in near term global demand. Performance Materials delivered another solid quarter due in large part to the strength of composites margins and a favorable raw material cost environment. Valvoline continues to execute at a high level and turned in yet another record quarter of profitability. As you can see on this Slide, combination of foreign currency and divestitures together reduced EBITDA by $14 million when compared to a year ago. We continue to expect to lap the headwinds we’ve been facing as we head into the June quarter. We’re pleased with the results in APM, Valvoline and certain core growth markets of ASI. However, in line with recent macro dynamics, we are seeing lower than expected March quarter demand in industrial specialty products in emerging regions. In this context, as Bill indicated, ASI is accelerating productivity and sales pipeline initiatives. So while Q2 will be impacted, based on the actions we’re taking we’re not changing our perspective on our internal estimates for the second half of the year at this time. Now for a few corporate items. Our adjusted effective tax rate during the quarter was 25%. During fiscal '16, we continue to expect our full year tax rate to be 24% to 26%. Capital spending in the quarter totaled $53 million. We continue to expect capital spending this year to be in the range of $320 million to $340 million driven by our previously announced capacity expansions at Hopewell, Virginia and Nanjing, China to support growth in our value-added cellulosic technologies. In addition, we are also continuing the investments to upgrade Valvoline's digital marketing and infrastructure. Free cash flow in the quarter totaled $13 million, which is consistent with normal seasonality and customary calendar year end statement practices. We continue to estimate free cash flow of approximately $325 million to $350 million during this fiscal year. As I stated on the conference call last quarter, our intention was to execute on the first $500 million of our existing $1 billion share repurchase authorization early in fiscal 2016. In November, we announced the $500 million accelerated share repurchase agreement and took an initial delivery of 3.9 million shares. That agreement is in place until May 2016, and we will provide an update when it has been completed. With that, I'll now hand the presentation over to Luis to provide more color on results for the chemicals businesses for the quarter.

Thanks, Kevin. ASI’s results were mixed in the first quarter, which is typically our lowest seasonal period. We made continued gains in several of our core growth end markets, including pharmaceutical, hair care and coatings, where our differentiated products and strong relationships continue to deliver value to our customers. However these gains were offset by a number of product headwinds which continues to weigh on sales and volumes. Overall, sales declined 15% to $476 million, largely due to the same factors that we have been talking about during recent quarters; weak energy markets, foreign currency, and exited product lines. However, overall results were lower than expected as weaker demand in some end markets and customer destocking contributed to the overall shortfall. As expected, during the quarter, we also completed maintenance turnarounds at more than half of dozen manufacturing facilities, which added $10 million in incremental costs versus last year. This work largely completes the planned turnarounds at ASI’s manufacturing facilities for fiscal 2016. The combination of those four factors, weak energy markets, foreign currency, exited product lines, and planned turnarounds, resulted in an estimated $25 million headwind to EBITDA. That’s equal to the decline in ASI’s adjusted EBITDA during the quarter. Within Consumer Specialties overall sales declined 7% or our currency adjust 2% when compared to the prior year. We are seeing good penetration of our value added product lines sold into the core growth pharmaceuticals market with sales growing 3% after adjusting for currency. We continue to gain share in our key technology platforms, where we have capitalized on some of our more differentiated controlled-release chemistries. Within our personal-care end markets sales fell by currency-adjusted 7%. Our results were negatively affected by weaker than expected global demand and customer destocking, particularly within oral and skin care. These results were…

Thanks, Luis. Valvoline posted record first quarter earnings as our teams continue to execute at a high level. The Valvoline Instant Oil Change team had another exceptional quarter with each of the key metrics improving from prior year. Oil changes per day were up nearly 5%, average ticket increased 1% and same-store sales for company-owned sites rose almost 6%. Premium oil changes accounted for more than 58% of all oil changes up from roughly 56% a year ago. Our franchise system also delivered similarly strong results, evidence of consistent execution of our customer service model and marketing programs. During the year, we continued to expand our overall store network, adding 26 new sites. At the end of 2015 calendar year, we had 956 stores system wide. In December, we announced a definitive agreement to acquire Oil Can Henry's, which operates and franchises 89 quick lube stores in six states. In a moment, I'll share some additional details regarding this exciting acquisition. Within the DIY channel, volume was largely flat, although mix improved due to successful branded promotions with a number of key customers. Within the international channel volume grew 8%, driven by good execution of channel building efforts. Our international team continues to do a good job of developing key channels and marketing strategies, which is fueling higher growth across the regions. Premium product sales remained strong across Valvoline and accounted for 43% of total branded lubricant sales. This strong operational performance, coupled with good margin management, led to EBITDA growth of 10% from prior year. This performance marks our ninth consecutive quarter of year-over-year EBITDA growth. EBITDA margin rose 340 basis points to 22.1%. Looking to the second quarter, we expect continued solid performance across all channels. Typical seasonal patterns should result in a sequential increase in sales. We…

Thank you, Sam and congratulations to you and your team on delivering a record first fiscal quarter and also on the announced acquisition of Oil Can Henry's. I think this is a really attractive and strategic opportunity for Valvoline and will accelerate the expansion of Valvoline's store network. Looking forward, we will stay focused on our four core investor related priorities. Our first priority remains to drive the operational and strategic gains in our businesses, so as to enhance their competitiveness and achieve targeted earnings growth. From an earnings perspective, we have some good news as we expect to lap the ASI FX divestiture related and oil and gas headwinds in the June quarter. That said, as Luis explained, we are currently seeing softer demand in some portions of the ASI business largely in emerging regions and the industrial specialty end markets. This dynamic emerged towards the end of the first quarter and will continue to put pressure on ASI earnings in the March quarter. While we can't control the global economy, we are taking actions in the areas we can control. More specifically the Chemicals team is taking actions to control costs and accelerate its sales pipeline. The Valvoline team continues to hit on all cylinders and the planned acquisition of Oil Can Henry's should increase Valvoline's strong momentum. As for our second core priority, as previously stated we expect to generate approximately $325 million of free cash flow this fiscal year. We made great strides last year to reduce the cash required to support legacy liabilities with the establishment of the asbestos trust, which together with insurance receivables, we hope will eliminate the need to tap future operating cash flow for years to come. And in addition with last year's $500 million voluntary payment to the U.S. qualified…

And as a reminder -- go ahead Stephanie.

Thank you [Operator Instructions]. Our first question comes from Brian Maguire with Goldman Sachs. Your line is open.

I think if I heard you right you said that despite some of the market weakness you are reiterating your full-year targets as you expect some of the productivity and sales growth initiatives at ASI to offset some of that weaknesses. Can you kind of confirm that and then also maybe give some examples? Or do you have any kind of financial targets for those productivity and sales initiatives?

Brian, what we expect is that Q2 will be impacted as we’ve indicted due to destocking and the emerging market dynamics that we’re seeing. However, based on our current internal view of Q3 and Q4, we’re not changing our point of view on the second half of the year. But, we do believe Q2 will be impacted as we’ve indicated. So that would impact the full year number, but just on the Q2 basis. Is that clarifying?

Yes. Got it. So you think you can basically course correct by the time you get to 3Q, but 2Q is too near on the horizon to be able to do much about it?

We’re working on that and Luis can talk a little bit about that as well. But yes, I think that’s fair.

So I mean that’s a very good point. So there's a couple of things that we’re doing. First and foremost, I mean, we do expect to lap the headwinds from both energy and FX assuming the current state at the current level by Q3 and Q4. So, we will see earnings growth for Q3 and Q4. And as I mentioned, we’re accelerating a variety of productivity initiatives that will allow us to compensate for what we’re seeing as a lower demand in Q3 and Q4 and that’s what we are expecting to do. That’s pretty much the focus that we have.

Okay great. And just on the Oil Can Henry's acquisition, I know you mentioned it's about a 10% increase in your stores, and I think the stores channel is about 20% of your sales. So should we expect about a 2% annualized benefit to revenues and what kind of margins above or below segment average would you kind of expect on that?

The margin impact is certainly positive, Valvoline Instant Oil Change carries a stronger margin contribution than the balance of the portfolio and the Oil Can Henry's system is very profitable. And with the synergies that Valvoline brings to the system, it will certainly be accretive in the long term. It won’t have a significant impact on fiscal '16. We do expect to close as I mentioned in Q2. There’ll be some transitional costs and then the benefits really ramp up for us in fiscal '17 and beyond.

Our next question comes from Laurence Alexander with Jefferies. Your line is open.

Hi, this is Jeff Schnell on for Laurence. As you look at the operating levers within ASI heading into the back half of the year, what kind of conditions would you need to see to lift margins in the back half say more than 200 basis points over the first half or can it occur on productivity alone?

Actually that’s a very good question. In terms of our margins, our gross margins continue to be very strong. You could see that actually the fact that we have $10 million of plant expenses compared to last year and our gross margins were pretty flat with last year. We continue to make progress when it comes to our overall gross margin as we grow on the higher margin portions of the portfolio. So that is one of the levers that we continue to use, continue to grow in the high margin parts of the portfolio which is one of the levers we have as we introduce new products. But obviously when it comes to productivity improvements, there are things that we can do and continue to do when it comes to managing our plant operations effectively, in the case of the slower demand as well as certain initiatives on our productivity and SG&A mostly on the back office functions not on the front office and we're accelerating those to compensate the lower demand and to reduce our fixed costs let's put it that way. So those are the levers that we're moving.

And I would just add, this is Bill, on a couple of things as Luis highlighted, the gross profit percent has been strong, so that's important right there. But secondly in the first half of the year, as was discussed earlier, this is the period which not only is slower but also a period in which there were the plant turnaround, the scheduled plant turnaround. So those weigh a little bit heavily on the first half of the year and without having those in the second half that will also help to the margin improvement on the EBITDA level.

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

Bill and Luis, on ASI, when do you expect volumes to turn positive? Would that be in Q3?

Yes, that's again a good question. As we lap the energy fundamentally, the other thing that is impacting volume the most is the energy situation. We definitely expect volumes overall to go up. Having said that I mean let me highlight that on pharma, we continue to see volume growth. In coatings we continue to see volume growth and different than in the past. We actually have the capacity to support that volume growth because of the investments that we've done and in certain elements of our personal care business we continue to see volume growth. So when you do that we compare the fact we're growing those four segments and eliminate the negative impact of energy because we will lap those effects, definitely we'll start seeing volume growth in the June quarter.

Very good. And Bill and Kevin, on the buyback, after the -- what is your thinking on the remainder of the $1 billion buyback program in terms of being completed?

Yes, we'll evaluate that after the current ASR has been closed out which is really at the option of the bank but no later than May of 2016. So we'll continue to evaluate our options as that winds down.

Do you think it will be done before the spin is affected?

Couldn't really say at this point. We'll just have to see how things play out over the course of time.

Our next question comes from John Roberts with UBS. Your line is open.

Sam, Are there any metrics on Oil Can Henry's that you could compare for us with VIOC? Are your average tickets materially higher or are your average raw material costs materially lower? I'm just trying to get either a sense of how good you are at VIOC or how much you might be able to improve them?

We think there is -- well, first of all they're a very well run system and that was one the things that attracted Valvoline to it, so it's certainly not a turnaround situation. But there are a lot of capabilities that we have in our model that they don’t have as a smaller regional system and so the team there is very excited. We have begun the transition process, the planning process and getting ready for the close and some of these tools we definitely expect are going to benefit them from a marketing perspective, they can help drive car counts. Again they do have healthy car counts today but we think there is opportunity for upside. They definitely have a healthy ticket too, quite comparable to Valvoline Instant Oil Change. But the key for us in the transaction is in addition to the capabilities that we bring to operating those stores is the fact that they will be selling Valvoline products and that gives us tremendous leverage and opportunity for a profit impact when you look at the impact that this acquisition is going to have on our total Valvoline business. But also it's a great market, like the Northwest, when you look at the map and you see where Valvoline is developed today, we really not had presence in the Northwest. So this is really helping to become a fully national chain in a very attractive market. So really just could be more excited about this acquisition and the early work that the teams are doing point to very successful transition too.

And then, Luis, why is the new product activity so much stronger in hair care than oral and skin care? Is it just normal lumpiness as customers work on different areas or is there some divergence going on between these two markets?

It's more than obvious of how we work on the different projects and the fact that we just launched a significant amount of new products in hair care. So that's where we're seeing the benefit of those. We also have new products that are launched for skin care that we expect to start picking up in the near term and especially in oral care. There's nothing as specific that is [natural] to the markets [indiscernible] on how we produce the new products as we have the different projects and the different collaborations. As you said, it's somewhat lumpy.

Our next question comes from Mike Sison with KeyBanc. Your line is open.

Just curious, last quarter you gave us your thoughts on your outlook for '16 relative to consensus estimates, it certainly seems that 2Q will be weaker, are you still -- are you signaling that the second half -- you are still comfortable you are still comfortable where I guess the Street is set up for the second half of the year?

This is Bill. Based upon the discussions we had last quarter, we are seeing as we have discussed a weaker profile in Q2 but we are not changing our outlook for the second half of the fiscal year.

Okay, great. And then, Sam, organic growth -- organic volume growth at Valvoline continues to be impressive given the environment here. How does that look as you head into the second, third and fourth quarters? And can you sustain that level of growth?

We are confident, we are going to see continued volume growth through the balance of the year. Certainly the first quarter was impressive at 4% and with the strong international growth but when we take a look at the international business and across the different regions we've really had solid volume growth in every one of the regions in which we operate. So there is some good momentum there and then even in the U.S. markets, the number of initiatives that we have with some of our key customers, we feel, are going to help us to drive volume growth in the second half of the year too. So the team is definitely really performing at a high level and confident that we're going to be able to continue at the pace that we're on.

Our next question comes from Dmitry Silversteyn from Longbow Research. Your line is open.

Good morning. Just wanted to follow up on a couple of things. Number one, did I hear you right that adhesive sales were also down in the quarter on a year-over-year basis as part of the industrial weakness and inventory correction?

No, what I did say was below our expectations. So, obviously as we entered the quarter we have certain expectations for growth when it comes to adhesives, we expect to see growth and the fact of the matter they were flattish versus last year but below definitely of our expectations.

Okay and the reason that they were below expectations, is that mainly North America construction or is it still China and Brazil that are driving the results in adhesives?

No for adhesives, our exposure is mostly to North America, we have very little exposure outside of North America and we again believe it's mostly around destocking on certain segments of the market. Some of it is construction, some of it is packaging. But again it's as we expected to grow rather than a reduction.

Okay. And the anniversary of all the divestitures as far as the last divesture in biocides, that's all going to come to an end in the March quarter, so June maybe September quarters you are going to be pretty clean on year-on-year loopback comps?

Yes, elastomers actually is done in Q1. So, for Q2 we will not see any elastomer issues. The closure of redispersible powders will come out of the results in Q1 and biocides will be until Q4.

That will be -- okay. But that's a relatively small business, if I remember.

That is correct and that's why for all intents and purposes by the June quarter we expect to lap both divestitures and energy markets.

Got it. Secondly, in Valvoline, besides the top-line growth that earlier callers commented you on and my congratulations on that as well. Your margins seem to have benefited significantly even though you were passing through lower pricing. So part of that is continuing declines in base oil. But is part of that also that you are seeing some declines in the additive portions or your other cost buckets within Valvoline? Can you talk a little bit about sort of the cost environment outside of base oil in Valvoline?

Yes, in additives, additive costs have also been moving down impacted by the energy markets too and so we've worked with our key suppliers there to also benefit from lower additive costs moving forward.

Got it. And then just finally again, as a point of clarification, when you talk about lapping the foreign exchange headwind, I can see that happening clearly in the euro part of the exchange. But if you look at some of these other currencies, whether it's Chinese or Canadian or Australian where I think you have a pretty good Valvoline business, all of those currencies really softened in the second half of 2015 calendar. So should that continue to impact you for much of 2016 calendar or fiscal, I'm sorry?

For the Valvoline business, there is additional impact mainly because of the Australian dollar, we have a good sized business there and certainly Canada too, those will be our two major impacts. So that will continue for the next couple of quarters.

This is Bill. Just adding to that, there will of course always be currency fluctuations and there has been change or there were changes last year in the rate of exchange with the euro. But really what we're talking about is moving it to the point or getting to the point where it's not as meaningful of an impact on our overall results where we're not needing to speak to that. It's part of what's driving our business, and so that’s really in the aggregate what we’re talking about. There will still be impacts some plus some minuses as we go forward. But we can focus more on the fundamentals of the business.

Yes, by far the biggest impact on an overall basis is the euro and the biggest impact specifically around that is within ASI. Primarily because the high value polymers are mostly manufactured in the U.S. and then exported around the world. So, a strong dollar has a negative impact on that, and again the euro is by far the largest part of that impact.

I appreciate the granularity. Thank you very much.

Our next question comes from Jim Sheehan with SunTrust Robinson Humphrey. Your line is open.

First on the energy end market, could you update us on what percent of ASI consists of energy in 2015? And also talk about the impact that the energy market has had on your nutrition business. Is there still a crossover impact going on there?

Yes, so at this time, I mean you do remember before the energy market prices started, energy represented 8% of our sales. For total fiscal '15, it’s about 3% and you can imagine that for fiscal '16 its going to be slightly lower than that just from what we saw in Q1. So, it's had a significant impact. And yet I don’t think that we are seeing much more of what we’ve seen in the past when it comes to the nutrition markets. I think it will have a significant impact when it comes to the volume available for nutrition, when it comes to certain cellulosics and [war]. And I think that volume has been transferred to those segments, so there is no further impact in terms of more volumes going to that market. I think that we’re going to -- what we’ve seen is what we will continue to see in the future.

And Bill can you offer your thoughts currently on where you see leverage in the new Ashland versus Valvoline after the separation?

Sure, and I think it's very consistent with what we have said before that we are looking to essentially keep the same basic financial ratings that we have today with our current Ashland with the two respective independent companies.

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

Luis, can you give us a little bit more color on what's going on in the skin care market? How much were volumes down? How does that compare with the trend you had been seeing? And I know there have been some competitive dynamics going on there, but how much is it competitive dynamics and how much is inventory destocking?

Yes, a couple of comments there. I mean there is definitely a difference in the regions. We saw in Latin America, specifically in Brazil a significant reduction, a significant destocking as people face challenges with their currency. Now we don’t necessarily get impacted by the currency impact because our prices are in dollars. But what we saw is that the customers in Brazil immediately protected their balance sheet by reducing inventories. And there is certain level of reduced demand. So I would say that would be the place where we saw more of an impact and we’ve got a significant presence in that market. We saw some destocking in North America in certain categories. Some of them are related to pending technology changes. So, it's really destocking rather than other things. I cannot necessarily comment on the details of that. And we did see slightly lower demand when it comes to the sunscreen materials and that has an impact on competitive reasons. So those will be the areas in terms of having a little bit more -- to be more specific on what situation is in skin care. And in oral care, I mean really what we saw was a significant destocking from our major customers. We’ve confirmed that and again in the regions that I mentioned before but it's mostly a destocking impact. To me the question is how much of that destocking is just destocking and how much is they are seeing a slightly lower demand in their own markets and that’s why we’re a little bit more cautious in our forecast.

And then on the coatings side, Luis, can you talk about where you are relative to your capacity constraints? I know you mentioned the HEC volumes were up 3%. Are you pretty much sold out at this point? And where are we in terms of the timing of new capacity coming on stream?

So at this time, we have now started all of the Nanjing expansion and we’re working on an expansion and hopeful that will come on stream next year. With the expansion of Nanjing and assuming that the growth continues to be in the market between 3% to 4% and we’ll be growing slightly ahead of that, we are good for 2016 and 2017. So at this time, assuming normal growth, we are capable to supply in the market which is very positive. If the market were to grow slightly faster we would need to get back to buying material as we’ve done in the past. And obviously if the market were to grow slightly slower, we would have a small amount of capacity left over. But again it will come back in 2017. Bottom line at this time what we see is we have a very balanced perspective on our HEC capacity and it's not going to only to coatings, it's going into coatings, it's also going into personal care and both of those markets are growing and we feel that, that we have now cut off when it comes to the current demand and that we continue to do investment we'll be catching up to the growth of those markets.

Just to add, I'd happened to be at the Nanjing facility last week. And while they have ramped up new capacity addition there, they're working on productivity enhancements to get more out of the existing capacity or the new capacity that's been put in which will also give us a little bit more head space on our headwind for growth.

All right, thanks. And then Bill, there's been a little bit of discussion around the strategy involving the Valvoline spin, whether it might make more sense to sell the Specialty Ingredients business. Is that an option that was under consideration by the Board? And if an offer did emerge for Specialty Ingredients how would you guys approach it?

Well to be in with we look at all options in terms of what's the best way to create value for the shareholders and clearly we believe that the separation is the primary mechanism right now to create that value and it's incumbent upon us to drive the value of the two new independent entities. So we're more in a position to acquire than to be acquired. But I think if you look historically and you look at our tax basis and so forth, I think acquisitions would have been challenging in the past from a tax effectiveness. So our objective is to separate into two great companies that grow but it would have been more challenging in the past, we'll say that.

Our next question comes from Roger Spitz with Bank of America Merrill Lynch. Your line is open.

Perhaps I'm trying to pin you down a little further on any clarity on the leverage of new Ashland. I think you've said in prior documents it might be over 3 times, but should we think about that in terms of a little bit over 3 times or leverage flat currently? And what debt at Ashland might you consider repaying upon separation?

As we look at creating the balance sheets for these companies, it's our objective to maintain a rate of leverage that will achieve a mid to high BB credit rating from the agencies that's our stated objective and as we continue to develop our plans for separation that’s -- that hasn't changed. And in terms of what that leverage will look like for each company, I'd say more to come on that as we get more specific internally around that as well. But again the objective is to create two balance sheets, two capital structures that will warrant a mid to high BB credit rating.

[Operator Instructions] Our next question comes from Jeff Zekauskas with JPMorgan. Your line is open.

Were Valvoline prices up sequentially? And if they were how did you do that? Is it all mix?

Were our prices up?

Sequentially not year-over-year?

No. the improvements in our profitability driven primarily by mix with some benefit of the reduced base oil costs, but as we have explained before with our pricing model, some of our volume is purely market based where we adjust based on market conditions. Some of the model -- some of our volume is based on index pricing. We do private label business that also adjusts fairly quickly. And so in those parts of the business we've made price adjustments to customers according to the model.

What I mean is did the mix benefits lead to a higher average price sequentially?

Okay. I am sure what you're asking. The mix benefit did not offset the price adjustment in the first quarter.

So when you take a step back and you look at Valvoline, in 2014 I think your gross margin was something below 32% and in 2015 maybe it was something below 36% and now where you are is 38%. And obviously raw materials have come down and your prices have come down but not as much. So when you think about what's the normal average gross margin for Valvoline, is it 40%, or 30%, or 35%, or you can't tell?

It's Sam, reflecting upon your question, I mean, I think one of the concepts that we need to begin to talk more about is really the contribution or profit per unit, because if the price of oil goes down substantially or the price of oil goes up substantially, the question is our profitability per quart, per gallon, per barrel, how we want to look at it, how has that fundamentally changed along the way. And so the percentage could change, just based upon the underlying price of oil either plus or down. So, that is something I think we will reflect upon and probably talk a little bit more about in the future just to make it easier to see what's really going on in terms of the dynamics of profitability versus the cost of the underlying materials. And certainly you've seen adjustments, some pretty big adjustments, obviously in base oil costs and that means our selling prices have adjusted fairly significantly too, when you're talking about going back to a couple of years where crude was versus where it is today. So, it definitely has a big impact on our gross profit margin percentage and certainly EBITDA. So those are higher. To say that they're normalized, or what is a normal level, really is dependent on where crude is. The key thing, when you look at our profitability is that, Valvoline has a very strong brand and as we bring value to our customers then we can benefit and protect our margins really in both, in rising cost environment and a falling cost environment and we're confident with that.

So from the level that we are at now is the direction of gross margins for the remainder of the year up or down if you can tell?

Well as I mentioned in my earlier comments is that as for Q2, we're projecting EBITDA margin of 23%.

Right. So, I guess that means the direction is up.

Yes. Well, relatively stable to what we just reported. So, we're still going to be in that range. So as our base oil costs continue to be in this relatively low range, we would expect the EBITDA margins to continue to be solid and we continue to look for opportunities to drive our mix and certainly we're making good progress there.

Okay, great. Thank you so much.

And I'm showing no further questions. I will now turn the call back over to Seth Mrozek for closing remarks.

Very good. Thank you all for your time and participation this morning. Look forward to further discussions. Thank you.