John McNulty: Got it, okay, now that helps. And then from a capital allocation perspective, so over the last, I guess, four quarters or so you’ve bought back about $100 million worth of stock, not really anything on the M&A front, and for probably various reasons than the markets were kind of closed down for a while. I guess can you speak to how you’re looking at 2024 and if you see that pipeline opening up a bit where there may be opportunities, and then also, do you feel like you have the bandwidth to go after those types of opportunities, given all the self-help work that you’re doing yourself? So can you help us to think about that?
Guillermo Novo: So in M&A, we haven’t stopped, we’ve been active even in this year. I mean, if the right deal came, we are capable of doing it. Most of these are bolt-ons, so they’re not — they are things that we can do within our financial position and continue to support our organic growth activities. The issue is that we’ve been disciplined. I mean, even in the downturn, some of the properties that would have been in the spaces that we’re looking at, went at very, still very valuations that we didn’t believe were appropriate for the returns that we would need to generate from those acquisitions. So it’s been more, we’ve been active, there’s been things, but we’ve just been disciplined, and we will continue to be disciplined.
So as we go into ‘24, there are opportunities. We have the targets, we are working them, but at the end of the day, we do have a very strong organic growth potential here. So that’s our number one priority. We want to do the M&A, but we don’t have to do it to drive some of our growth objectives. And we’re going to be prudent on that. If you look at the M&A, nothing’s really changed on the priorities. Pharma and injectables being the number one priority for us. Technologies in personal care that are more natural derived biodegradable and expanding beyond rheology and coating sort of are the big themes. And if you look at our organic growth themes that I covered today, they basically hit those three themes. So we got plenty to do, but we will augment them, but we will stay, maintain the same prudence that we have done in the last two years.
Operator: Next question comes from Michael Sison with Wells Fargo.
Michael Sison: Hey, cheers. Nice start to the year. I’m just curious where your network utilization rates are now, and then if you were able to hit the midpoint of your guidance for the second half of the year, where do your utilization rates need to be, and then do you get another 10% to 15% above that as you head into ‘25 because of your portfolio actions?
Guillermo Novo: So let me get some comments, and, Kevin, you might want to comment also based on some of the portfolio action we’re doing. But if you look, obviously, the volumes have been down. Headwinds has been absorption is the biggest issue. So utilization rates have been much lower. But if you look at our actions and the specific product lines. So CMC, obviously, we’re consolidating. So Alizay will be very well loaded as we finish those actions. And that takes away a lot of the noise in the low end business. Similarly, we’re looking at how we optimize our MC businesses. And that’s progressing well. HEC, with the network optimization opportunities we have, I do think that one, we can get much better loading. I think, obviously, we’re looking to grow that part of the portfolio.
So we want to make sure the volume pickup will be very important. And it will normalize more to below, we’re below the 80, below the healthy utilization rates in many of our plants. So they are that network optimization. Aquaflow is at low utilization rates right now. DIY has not recovered as much. And we have a big position in the US and Europe with those technologies. So that one is one that we are moving slower on the capacity and all that because we are underutilized at this point in time. The rest, it’s a mix of things. The smaller units, it’s not as big of a worry for us. So I would focus on HEC is really the one that as we look into 2025, that we really want to make sure that some of these actions really optimize our loading, but allow us to continue to drive the organic growth for that business, which is we’re the market leader in that business.
But Kevin, I don’t know if you want to have any specific numbers on the portfolio actions.
Kevin Willis : Sure. Yes, and the 10% to 15% increase in utilization rates is only related to CMC, MC and HEC. And the way to think about that is those utilization rates will offset the loss gross profit not just from CMC and MC. There won’t be any loss gross profit from HEC, but we’ll also offset the loss gross profit from the nutraceuticals business. It’s part of why we get the uplift that we get from an EBITDA margin perspective and also from a return on that asset’s perspective. I think across the rest of the network, it’s a little bit mixed in terms of where we are from a utilization perspective, but we’re well-positioned to be able to ramp based on the outlook that we have. And I’m really not concerned about being able to do that assuming that demand continues to unfold as it has here early in the fiscal year.
So feel good about that. And as Guillermo said, as we move into fiscal ‘25, we’re going to be pretty well-positioned to take advantage of continued improvement and to the extent that DIY architectural coatings, business improves. We’re well-positioned at Alizay because our utilization rates are pretty low right now for Aquaflow, and we are increasing our capacity there and can ramp that project up based on how we see demand unfolding. And again, HEC, we’re commissioning the new unit at Hopewell. Now we’ve been doing that for a while. And as you’ll recall, about a year or so ago, we completed the commissioning of our new continuous dryer there, which was a major bottleneck for us in terms of general cellulosic capacity and so that’s now off the table which is also good and helpful.
Guillermo Novo: I think, Mike, the other comment I would make on just capacity utilization just to reinforce our innovation and growth. For all these new projects we’re basically not making significant capital investments so our transformed vegetables we have capacity already in two of our plants that as this ramp up we have plenty to support growth there. Our super wetters we’re making in Calvert City and assets that we’re not utilized before so that — as that ramps up that will be positive. The PH neutralizer we will be making also in Calvert City and another unit that was underutilized. We’re making, we’re back integrating into some of our preservative raw materials also rather than building a new plant that we were planning to build in Europe.
