You’ve seen the higher level leadership changes that have been public, but we’ve been bringing in 2 new R&D heads for 2 of our businesses. We’re bringing a lot of scientists. We’re bringing in new marketing people. There’s a lot of other changes behind the scenes that are going, and this is really about the future and where we’re going. I’ll be very direct on the recent announcement, with our Life Science, that wasn’t planned. The person got — Ashok got an offer to become CEO of a private equity company. They probably will announce soon wherever he’s going to go. It’s a good opportunity for him, and we wish him all the best. That was not a plan. We’re already in the process of hiring. But that has this kind of stuff we hired people. This happens.
I’ve been involved in these kinds of changes. So this is just part of life, and we need to roll with these changes. But we’re — the business is in very — the Life Science business is very well positioned. They have a clear strategy. If you could hear from my comments, they know where they’re going, they’re expanding into a lot of new areas. So the position — the business is very well positioned, and it’s really about bringing in the new leader, and that’s already in progress.
Mike Harrison: All right. And then the other thing I wanted to ask about is the Biofunctionals business. You talked a little bit about some of the opportunities for geographic expansion, but it sounds like at least in this quarter, that business was relatively weak. Can you talk about what was driving that weakness and whether you expect improvement in the second half of the year?
Guillermo Novo: So Bio-functionals to be direct is — was significantly up improving sequentially in Q2. We’re starting to see that recovery. Some of our major customers are picking up momentum. Recent announcement, people seeing greater Asia travel. These are going into more high-end cosmetics. So definitely, we’re seeing that with our core customers. China, we have a very good position in China. We’re starting to see the recovery there, which comes at a perfect time when we’re just inaugurated our biofunctionals — biofunctionals plant in our Nanjing plant. So that business is very well positioned. Our new leader, Jim Minicucci, he’s already working with his team. We have very focused teams now in both bio-functionals and the preservative business that we want to drive in that globalization.
So we have some new resources that we’re adding in terms of leadership, in terms of sales and marketing capabilities that we’re augmenting and regionalizing. So a lot of investment, and I think this is a new part of the recovery, like all the other segments. I think the issue there is the volumes are not the driver, the dollars given the value per kilo in these areas are much different from some of the other businesses that we have.
Operator: [Operator Instructions] Our next question comes from John McNulty with BMO.
John McNulty: Maybe one for Kevin. So on the cash flow side, you started out the year at a pretty solid level. And yet it sounds like the cash conversion, I think you were calling for 50%, which is — which you’re clearly starting at a better rate than that. So I guess what may be different this time in ’24 in terms of how cash runs through the year? Is it something about the restructuring? Or is it just the early harvesting in the first half, as you kind of dialed back production or you’re just being conservative? I guess how should we be thinking about free cash flow and cash conversion?
Kevin Willis: Yes. For the first half of the year in total. So the March quarter was weaker than prior year. First half of the year, we were at about a 36% conversion rate. We expect full year to be 50% or so. So on a weighted average basis. So the second half could be stronger, relatively speaking, than the first half, for cash conversion. Cash taxes are a little higher this year than prior year. That’s part of the number. But by and large, we’re pretty comfortable with the cash conversion. And again, second half tends to be the stronger part of the year, normally anyway. I think the first quarter was somewhat stronger because of the very, very poor incentive payout that we had for fiscal ’23 results. We pay those incentives out in the December quarter. And that was — that number was probably $25 million lower than target, lets say. I mean that’s what the reset was around $25 million. So that’s part of the driver for that as well.
John McNulty: Got it. Okay. That’s helpful. And then just one last one. On the raw material front, I mean, it sounds like at least at this point, things are benign, but you’ve got your eye on a couple of things. BDO, obviously, you’re fully integrated through, so it shouldn’t be a concern there. I guess what are the other raw materials that you’re looking at where maybe there is some risk of inflation because it still seems like it’s a relatively benign environment. So I guess how should we be thinking about that?
Guillermo Novo: So let me comment and Kevin, you can add some color. But just to be — BDO, we’re not tracking it. I mean, for us, it’s butane is more the issue for the back integration that we have. But we do track it because it affects a lot of other players in the market, especially in the PBP and other downstream NMP and other areas. So I think picking up, we expect that — those costs, market cost expectations is that we’ll start to trend up, which is, for us, a good thing. Overall, especially in our Intermediates business. So that’s where we’ve seen the biggest impact. For other areas, obviously, cellulose, cotton and wood pulp is the other big raw materials. They’ve been sort of stable. Expectations that they’ll soften up a little bit more over time, but it’s — these products go into hygiene and other — although it’s not our business is and the only user of these materials.
But that one, it hasn’t been the biggest driver yet, a little bit of improvement year-on-year, in terms of costs. The rest you really start getting down into, Patrick, the process chemicals that we use the OPO, solvents, things of that nature. None of them is a significant cost per se, a subtle linux. So it will vary by business, but we’re monitoring those type products that we use in our production, for the high-volume products.
Kevin Willis: Yes, on an overall basis, our raw material forecast has remained pretty stable in terms of raw material cost forecast, has remained pretty stable throughout the year. I mean first half of the year, we have seen declines in some areas. But again, generally, it’s been a pretty stable environment on an overall basis.
Operator: I’m showing no further questions at this time. I would now like to turn it back to Guillermo Novo for closing remarks.
Guillermo Novo: Thank you, Daniel. Thank you, everyone, for your time today. As you heard, I think things are normalizing. We’re focusing, we’re going to manage. We still have work to do during 2024 to make sure we optimize as the normalization dynamics play out, and we’ll stay on point on that. But really, the issue now is also to focus on the future. And the future is refining our portfolio, honing in on those high-value markets that we want to participate in and that we want to lead in and driving our innovation portfolio that really can transform the company in the coming decade. So thank you for your time and look forward to connecting with all of you in the coming weeks.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
