Cabot Corporation (NYSE:CBT) Q4 2023 Earnings Call Transcript

Cabot Corporation (NYSE:CBT) Q4 2023 Earnings Call Transcript November 7, 2023

Operator: Hello and welcome to the Q4 2023 Cabot Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. It is now my pleasure to introduce Vice President, Treasurer and Investor Relations Steve Delahunt.

Steve Delahunt: Thank you, Andrew and good morning. I would like to welcome you to the Cabot Corporation’s earnings teleconference. With me today are Sean Keohane, CEO and President and Erica McLaughlin, Executive Vice President and CFO. Last night we released results for our fourth quarter of fiscal year 2023, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of the call. During this conference call, we will make forward-looking statements about our expected future operational and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Additional information regarding these factors appears under the heading Forward-Looking Statements in the press release we issued last night and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 and in subsequent filings we make with the SEC, all of which are available on the company’s website. In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the Investors section of our website.

Also as we typically do each year, I would like to remind you that over the next several weeks in connection with investing restricted stock awards issued under our long-term incentive equity program officers of the company will be selling shares to pay tax and obligations related to their rewards. I will now turn the call over to Sean who will discuss the full year highlights, include an update our Reinforcement Materials segment, our capital allocation for fiscal 2023 and our continued leadership and sustainability. Erica will review the corporate financial details, business segment results in our cash flow, outlook, and priorities for fiscal 2024. Sean will provide our strategic summary and closing comments and open the floor to questions.

Sean?

Sean Keohane: Thank you, Steve. Good morning, ladies and gentlemen, and welcome to our call today. Fiscal year 2023 was characterized by a turbulent macroeconomic and geopolitical environment, but it was a year in which the enduring strengths of the Cabot portfolio were exhibited. We executed well and built momentum as we moved through the year positioning us for a successful 2024. We delivered the second highest adjusted earnings per share in the company’s history of $5.38, grew the Reinforcement Material segment to a record EBIT of $482 million with EBITDA margins of 22% and generated over $350 million of free cash flow. In the year, we returned $186 million to shareholders through a combination of share repurchases and dividends.

And finally, we made significant progress against our sustainability ambition and continued to demonstrate our industry leadership. I am immensely proud of the Cabot team for the resilience and agility they demonstrated throughout the year and for their focus on execution in support of our customers. Turning now to our fiscal 2023 results, segment EBIT declined 5% year-over-year, largely due to lower volumes as we saw prolonged destocking in both segments and weekend market demand, especially in the Performance Chemical segment. Price and mix benefits net of costs contributed significantly to year-over-year results driven by the Reinforcement Materials segment as we realized improved pricing and product mix benefits from the 2023 customer agreements.

The stronger U.S. dollar had a negative impact in the year due to the translation of weaker foreign currencies back into dollars. The largest impact came from the euro, Japanese yen and Chinese renminbi. While total segment EBIT was down only modestly at 5%, adjusted earnings per share declined by 14% due to higher net interest expense from the rising rate environment, higher operating tax rate and currency headwinds. I want to take a moment to talk about the Reinforcement Materials segment. This business not only achieved record EBIT in 2023, but I believe it is a structurally changed business compared to a decade ago. Cabot is a global leader in reinforcing carbons with a unique global footprint, leading technology and a long standing commitment to sustainability.

The Cabot business model is largely a make and sell in-region business. This is driven by economic fundamentals, but also by the importance that our customers place on regional supply security. While this has long been the case, the importance of supply security has become even more pronounced given how rising geopolitical tensions have stressed many global supply chains. The key end markets in this segment are replacement tires and auto OE production. You will recall that replacement tires account for approximately two thirds of segment volume with auto OE production and industrial applications driving the balance. The EBIT performance in this segment has increased dramatically over the past eight years, supported by the long-term resilience of the replacement tire market and an increasingly tight supply demand balance in the mature regions.

We expect that utilizations in Europe will become even tighter this year as Russian carbon black, which has historically been a significant supplier to the European region, will be subject to sanctions starting in July of 2024. Furthermore, I believe that we have structurally improved our performance through a commitment to commercial and operational excellence across the company. The industry is also facing stricter environmental regulations that are requiring producers to make significant abatement investments to ensure reliable and sustainable supply to our customers. These investments raise the barriers to entry for additional capacity, roughly doubling the cost of new capacity, and require recovery in the form of price increases. As a result of these factors, I believe the outlook for this business remains strong, underpinned by favorable long-term demand drivers and a growing requirement for innovation to meet our customers sustainability needs.

Miles driven has been remarkably resilient over the long-term and the global car park is forecast to continue to grow, both of which are expected to support our outlook for a consistently growing base of earnings and cash flow to fund our capital allocation priorities. Moving now to capital allocation highlights, the Cabot portfolio has robust cash flow characteristics and in fiscal 2023, we generated very strong operating cash flow of $595 million, which allowed us to fund our balanced set of capital allocation priorities. Capital expenditures in the year were $244 million, which included approximately $143 million of maintenance and compliance capital with the balance funding our high confidence, high return growth projects. Our growth projects in 2023 were focused on the growth factors of battery, materials and inkjet, as well as productivity investments across our businesses.

In addition to funding our capital plan, we returned $186 million to shareholders during the year. We’ve maintained a continuous and growing dividend since 1968, which is the year the company went public and that commitment remains a core part of our capital allocation priorities. We paid $88 million in dividends in fiscal year 2023, including an 8% increase in May, reflecting our confidence in the long-term cash flow outlook for the company. We would expect to continue to raise the dividend over time as our earnings grow. We also repurchased $98 million of shares in fiscal 2023. We have communicated in the past that we plan to offset dilution each year, which is roughly $20 million annually and we will be opportunistic with additional repurchases based on our outlook for cash flow and the timing of alternative investment opportunities.

This is what transpired in 2023 as our strong cash flow generation enabled repurchases in excess of dilution. Given the strength of the cash flow, we are also able to reduce debt by $179 million. Reducing debt is not a core priority of our capital allocation strategy, but rather is more of a temporary use of cash to reduce interest expense until the cash is needed to fund our growth investments. We remain committed to our long-term investment grade credit rating as it affords us consistent access to the capital markets. Now turning to sustainability. In June of this year, we published our 2023 sustainability report, which highlighted our recent performance and advancements toward our 2025 sustainability goals, as well as our vision for creating a more sustainable world.

At that time, we had achieved five of our 2025 sustainability goals ahead of schedule, while the others remain on track. Included in the five goals that we have achieved is our goal to export 200% of the energy that we import. I believe that this goal is an excellent example of our commitment to circularity by using the waste energy in our manufacturing process to produce cogeneration power, which is CO2 free. Cabot has long been a leader in sustainability and been recognized by external parties for our leadership and excellence. Fiscal year 2023 represented another year of important progress in our sustainability journey as evidenced by our earning the top rating of Platinum from EcoVadis for the third consecutive year. The Platinum rating recognizes Cabot’s environmental, social and governance efforts and places Cabot among the top 1% of companies assessed by EcoVadis.

EcoVadis is one of the world’s leading sustainability ratings platforms and one that many of our customers rely on to evaluate their supply chains. Sustainability is at the core of our purpose and our creating for tomorrow’s strategy and during the year we made important progress on several strategic fronts. Of particular note, in 2023 was the launch of our Evolve Sustainable Solutions technology platform, which is focused on advancing sustainable reinforcing carbons. Our goal through the Evolve technology platform is to develop products for our customers that offer sustainable content with reliable performance and importantly, at industrial scale. Evolve Platform is built on three pillars. The first pillar is recovered where we are focused on developing solutions made from circular value chains such as end of life tire recycling and the plastics recycling value chain.

The second pillar is renewable, where we are advancing solutions made from renewable materials or bio-based feedstocks. And finally reduced where we seek to innovate new products made from processes with demonstrably lower greenhouse gas footprint. We believe our Evolve Sustainable Solutions platform will play a critical role in our sustainability journey as we look to collaborate with our customers to deliver solutions that address some of their most pressing sustainability challenges. We have a number of projects in various stages of development with our customers and technology partners, and I’m excited about the future innovations that they’re expected to deliver. I’ll now turn the call over to Erica to discuss the financial results of the quarter in more detail.

Erica?

Erica McLaughlin: Thanks, Sean. I’ll start with discussing the company results. I’m pleased to report the fourth quarter results of adjusted EPS of $1.65, which is the strongest quarter of this fiscal year. This performance was 6% above the same quarter last year, driven by record results in the Reinforcement Materials segment, partially offset by lower EBIT in our Performance Chemical segment. Cash flow from operations was strong at $138 million in the quarter, which included a working capital decrease of $1 million. Discretionary free cash flow was $88 million in the quarter. We ended the quarter with a cash balance of $238 million and our liquidity position remained strong at approximately $1.3 billion. Capital expenditures for the fourth quarter of fiscal 2023 were $78 million and additional uses of cash during the fourth quarter were $23 million for dividends and $50 million for share repurchases.

Our debt balance was $1.3 billion and our net debt-to-EBITDA was at 1.7 times. The operating tax rate for fiscal 2023 was 28% and we anticipate our operating tax rate for fiscal 2024 to be in the range of 28% to 30%. One additional item to note is the benefits seen in the general unallocated income. During the quarter, we experienced a foreign currency loss due to a government devaluation in Argentina. In August, the Argentinian Government devalued the currency against the U.S. dollar by approximately 20% in one day, resulting in FX loss of approximately $7 million. We treated this as a certain item consistent with how we have treated similar government induced devaluations in other countries, most recently being Venezuela. By treating this as a certain item, the interest in investment income earned in the quarter was not offset by as much of a currency headwind as in prior quarters.

This line item of general and allocated income and expense includes currency exposures related to our net asset positions, mainly related to the South American currencies and investment income we earned in those countries, as well as interest income on our global cash balances. While these currency moves are quite difficult to predict, we are expecting that the quarterly amount in fiscal 2024 would be income in the range of $6 to $8 million per quarter, driven by higher interest income from higher interest rates and the net impacts from the South America currencies and investment income in those countries. Now moving to Reinforcement Materials, during the fourth quarter and full year of fiscal 2023, EBIT for the segment increased by $25 million and $74 million respectively, as compared to the same periods in the prior year.

The increase was principally driven by improved unit margins from higher pricing and product mix in our 2023 calendar year customer agreements, partially offset by lower volumes. Volumes were 2% lower in the quarter and 5% lower in the full year as compared to the comparable periods in the prior year. The fourth quarter volumes included lower volumes in the Americas and Europe, with higher volumes in Asia driven by strength in China. The full year volumes were impacted by destocking activities during the year with volumes lower across all regions. Looking to the first quarter of fiscal 2024, we expect a sequential decrease in EBIT due to seasonally lower volumes in the Americas and a negative impact from foreign currency translation. We expect that year-over-year EBIT results in the first quarter of fiscal 2024 will be significantly higher than the first quarter of fiscal 2023 due to the improved price and mix from 2023 customer agreements and higher year-over-year volumes.

Now turning to Performance Chemicals, EBIT decreased by $13 million in the fourth fiscal quarter and $109 million for the full year as compared to the same period in fiscal 2022. The decrease in the fourth quarter was due to lower margins driven by a less favorable product mix in Specialty Carbons and few metal oxide product lines. The segment was also impacted by pricing pressures in the fumed metal oxide and battery materials product lines. Volumes were slightly negative in the quarter as a decrease in volumes year-over-year in the fumed metal oxides and inkjet product lines was mostly offset by growth in the specialty carbon, specialty compounds and battery materials product lines. The decrease in the full year, volume in the full year was driven by 4% volume and lower unit margins.

Volumes were lower across all product lines except battery materials and most notably a 17% year-over-year decline in fumed metal oxides volumes. Lower volumes in fumed metal oxides were driven by weaker demand in silicones applications and the impact from partner driven downtime. Lower margins were driven by a less favorable product mix in battery materials and specialty carbons. Volumes in battery materials grew by 43% in the fiscal year and EBITDA was $21 million as outlined in our communication last quarter. Looking ahead to the first quarter of fiscal 2024, we expect a sequential volume decline due to seasonality in the Americas. We expect margins to remain relatively consistent sequentially as pricing and product mix benefits are expected to offset higher costs.

We expect that year-over-year EBIT results in the first quarter of fiscal 2024 will be largely flat with last year as volume improvement is largely offset by higher costs, the absence of insurance proceeds that we had in Q1 of 2023 and an unfavorable impact from foreign currencies. Now moving to cash flow. Sean talked earlier about the strength of our cash flow in fiscal 2023 and the uses of cash that are aligned with our capital allocation framework. As we look to 2024, we expect operating cash flow to remain strong, driven by our outlook for business EBITDA and the forward curve of oil prices. The uses of our cash flow will continue to be aligned with our capital allocation framework with capital expenditures expected to be in the range of $250 million to $275 million as we invest in maintenance and compliance capital to ensure our plants continue to run reliably and in attractive growth projects.

We also anticipate the continued ability to return a significant amount of cash to shareholders through dividends and share repurchases. To provide a bit more detail on our key capacity investments in 2024, you can see that these projects cut across both segments. In the Reinforcement Materials segment, we are moving forward with our Indonesia plant expansion. Engineering for this project began a few years ago, but we paused the expansion during the pandemic. Today, we are the only carbon black manufacturer in Indonesia and this site serves customers throughout the Southeast Asia region, which is growing at the fastest rate in the world for reinforcing carbons. In the Performance Chemicals segment, we expect to complete the capacity additions in China related to battery materials that we have highlighted in the past to add conductive additive capacity.

In addition, to meet the expected battery materials demand growth outside of China, we are making investments to expand conductive additive capacity in the U.S. and Europe. These capacity investments are to serve the needs of our customers in those regions with local supply as the demand for EVs grows in those markets. We will begin these projects with a plan to align the timing of when the investments come online with the demand needs of our customers. In inkjet, we are undertaking the bottlenecks at our existing plants in the U.S. to unlock additional capacity in a cost effective manner to serve the expected increase in demand for packaging applications. I will now turn it back to Sean to discuss our outlook. Sean?

Sean Keohane: Moving to our 2024 outlook, clearly we are entering the year with some uncertainty in terms of how the global economy will perform. The ongoing conflict in Ukraine continues to weigh heavily on Europe, and the military escalation in the Middle East has the potential to impact commodity prices. In China, the timing and pace of recovery is still uncertain and in the United States, it remains unclear what the impact will be of the Fed’s tight monetary policy. While these macro factors are affecting all companies, we feel good about the resilience of our portfolio and our earnings growth prospects for fiscal 2024. Overall, we expect fiscal year 2024 adjusted earnings per share to be in the range of $6.30 to $6.80 which is up 22% at the midpoint over fiscal 2023.

Let me take you through the key assumptions that underpin our outlook. As it relates to volumes, we believe that destocking is largely over in our key end markets, both for Reinforcement Materials and Performance Chemicals. We believe that the Q4 run rate is a good basis for Reinforcement Materials. If volumes improve from there, we could move higher into the range. For Performance Chemicals, we are not yet seeing external indicators point to improvement. So we expect that near-term volumes will likely stay around Q4 levels. Again, if we see recovery, I would say potentially in the back half of fiscal 2024, then we could move higher in the range. Regarding margins, we do expect improved pricing and mix from our Reinforcement Materials calendar 2024 agreements.

The magnitude of the increases would impact where we are in the range. For Performance Chemicals, we expect relatively consistent margins overall to the Q4 exit rate with some differences between product lines. As for costs, we expect higher costs will partially offset the Reinforcement Materials pricing and product mix benefits driven by inflationary pressures, our new air pollution control project starting up in the U.S. and a return to normal incentive compensation expense. Foreign exchange rates, interest rates and energy prices can all impact positioning in the range. The midpoint of our range assumes relatively consistent FX rates and interest rates with today’s levels and we are assuming the forward curve for oil. We also have assumed the tax rate to be in the range of 28% to 30%.

So at the midpoint it is one point higher than fiscal year 2023. As we think about the quarterly shape of earnings, the first quarter results are expected to be down sequentially from the fourth quarter of fiscal 2023 due to normal seasonality in the Americas and a higher tax rate, but step up in Q2 as normalized volumes return and new calendar year contract pricing is implemented in Reinforcement Materials. While we expect the near-term macroeconomic uncertainties to persist through fiscal 2024, our team is focused on long-term value creation and realizing that growth opportunities we have within the portfolio. During Investor Day in 2021, we launched our Creating for Tomorrow strategy, which seeks to leverage our strengths and exposure to compelling macro tailwinds to drive strong growth of earnings and cash flows through 2024.

Delivering on our commitments is paramount for this management team and we are very proud of the progress we’ve made so far. When we set the targets, we made certain demand and market assumptions based on the environment at the time. While many of those key assumptions have weakened since 2021, it hasn’t impacted our focus on achieving our corporate objectives. Let me first remind you of the corporate financial goals that we outlined at that time. We set out a corporate adjusted earnings per share targeted growth rate in the range of 8% to 12% compounded annually from 2021 through 2024. Over the same time, we expected to generate strong discretionary free cash flow in excess of $1 billion. We also outlined our capital allocation framework which included $200 million to 300 million per year of capital expenditures.

This amount included maintenance and compliance capital to maintain and run our assets and also to fund growth projects in high value areas such as battery materials and inkjet for packaging. As we look at our 2024 guidance range, we are on track to meet the adjusted earnings per share target despite softer than expected macroeconomic activity and weaker demand in our key end markets. The midpoint of our 2024 guidance would put us at a 9% CAGR over the three-year period. While the expected growth in 2024 is within the range, our path to get there was not what was expected when we launched the goals. We projected higher growth and underlying demand drivers such as tire production, auto builds and polymer demand. We also expected foreign currency exchange rates and interest rates to remain consistent with 2021 levels.

We have been able to overcome these headwinds mainly due to the very strong performance in our Reinforcement Materials segment and remain on track to achieve our adjusted EPS objective. Discretionary free cash flow continues to be quite strong at over $700 million through 2023, putting us in a good position to achieve our three-year target of greater than $1 billion. Strong cash flow has allowed us to make the necessary sustaining and compliance investments while also committing to projects that will drive sustained earnings growth in the future. Capital expenditures have been between $200 million and $300 million for fiscal years 2022 and 2023 and are expected to be in that range for fiscal year 2024. So while the macro environment has weakened since Investor Day two years ago, we remain confident in the resilience and the strength of our portfolio and in achieving the Investor Day targets.

I would like to close with a reminder of our corporate strategy and our priorities for fiscal year 2024. Our Creating for Tomorrow strategy charts a new phase of growth and breakout value creation by leveraging our strengths to lead in performance and sustainability. Our focus is on driving advantage growth, delivering innovative chemistry to enable a better future and relentlessly pursuing continuous improvement in everything that we do. Two years into the strategy, we’ve made tremendous progress in executing the strategy in achieving our long-term goals and the expectation is that we will build on that in fiscal 2024. As we look ahead to 2024, we’re excited about the growth opportunities in front of us and have outlined some key priorities for the coming year.

First, we intend to deliver on our financial objectives which include year-over-year growth in adjusted earnings per share and robust discretionary free cash flow generation to support growth investments and return cash to shareholders. Second, we’ll continue to invest for advantage growth. This means investments where we believe we have a right to win. Those areas include strategic investments in battery materials in the U.S. and Europe to leverage the growing EV market and our customers demand for regional sourcing. Our priorities also include adding new reinforcing carbon capacity in Indonesia, where we’re the only local supplier to meet the expected growing tire production demand in that region. And it includes adding capital efficient capacity at our inkjet plant through a series of debottleneck projects.

Third, we will continue to execute in the areas of commercial excellence by maintaining pricing and margin discipline and operational excellence with a focus on overall equipment effectiveness, yield and energy recovery. And finally, we seek to extend our leadership and sustainability by executing against our 2025 goals and building on a revolve platform launch. I hope that provides some color on our priorities for 2024. While the macroeconomic and geopolitical environments will likely remain turbulent, we believe we have the right strategy, a talented team that is committed to execution and the balance sheet strength to deliver breakout value creation for our shareholders. Thank you very much for joining us today and I will now turn the call back over for our question-and-answer session.

Operator: Thank you. [Operator Instructions] And our first question comes from the line of John Roberts with Mizuho.

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Q&A Session

John Roberts: Thanks and nice quarter. Could you peel apart the performance outlook a little? Any significant difference in the outlook between Masterbatch Silicones Inc and there’s been a lot of evidence of decelerating growth in EVs. Have you seen that in the growth of your battery materials business yet?

Sean Keohane: Hi John. Sure. Let me try to provide a bit of commentary on the guidance and how we’re thinking about it. As I said, I think we see that destocking is largely over in our key end markets both for reinforcement and Performance Chemicals. So, I think that’s positive. But I would say in Performance Chemicals where your question went, we’re not yet seeing any external indicators that are pointing to improvement. So I think near-term volumes will likely stay near the near the Q4 levels. I think to see improvement from that, we’d want to see some signs from key end market indicators, things like manufacturing PMI, improvements in housing and construction, and I think consumer confidence, particularly as it relates to durable goods, we’re still seeing more of a skew towards services rather than durable goods.

So, we’d need to see those indicators to break out from kind of that current Q4 rate of volume in Performance Chemicals. I would say across the different product lines there in Performance Chemicals, the only, I think notable difference would be in fume silica. Erica commented on the silicones market and her remarks, and clearly the fume silica market, our volumes were down by the largest amount across the product lines and Performance Chemicals. And this is because there’s overall weakness in silicones, which is a big end market that consumes fume silica. So I think that’s often tied to housing and construction and infrastructure and we’re just simply not seeing movements there yet. So again, the Q4 level of volume, that’s sort of a rate in Performance Chemicals is, I think, the right way to think about it until we see some end market improvement.

I think the second part of your question around battery materials, we’re still seeing volumes growing strongly year-over-year. So I think that is positive. Though as you point out, there are some signs that there’s been some deceleration in the market. Certainly some public commentary on this would point in that direction for sure. And I think it’s the way we look at it is we think about this over the long-term. Clearly the shift to EVs, we think is a once ever transition and will change the mobility sector. But I don’t think it’ll be a straight line. And there are a lot of moving parts here. Certainly the level of EV penetration, the timing and startup of new battery plants, there are lots of regionalization pressures, government incentives, these things can be distorting in the short term.

And I think the timing of build out of the regional supply chain to support battery plants in the U.S. and Europe, these are all factors that are at play here. So it’s a complicated dynamic, but our view on this over the long-term remains, and we’re positioning ourselves and investing prudently to win in this trend over the long-term.

John Roberts: Thank you.

Operator: Thank you. One moment, please, for our next question. Our next question comes from the line of Josh Spector with UBS.

Josh Spector: Yes, hi. Thanks for taking my question. So I wanted to ask on reinforcement, I guess specifically with the contract price assumptions for next year, I guess if I go through your guidance, I kind of get something of maybe to the tune of a $10 million benefit per calendar quarter looking at next year. This year we were over $30 million a quarter benefit. Is that the right ballpark of what baked into your assumption? And I guess how does that compare versus how negotiations are actually going so far?

Sean Keohane: Hi, Josh. Good morning. Thanks for the question. Let me just sort of pull the lens back a little bit here and talk about the timeline and process. I think this year negotiations are playing out along the timeline of what we’ve historically seen, where most of the contracts are finalized in the fall and so we’re currently in the midst of discussions with customers now. So it would be premature to comment on contract outcomes today. In terms of the current market environment, as I said, we believe destocking is largely over and volumes are normalizing from the weaker levels that we saw earlier in the year. And our view is that the long-term fundamentals haven’t changed here. The supply demand fundamentals remain favorable in both the Americas and Europe, with no major capacity additions expected.

And as we see that in combination with positive trends in end market demand, such as miles driven, those markets should remain fairly tight in 2024 and beyond. So that really hasn’t changed at all. I think the other factor at play here is certainly costs of both ours and those of our competitors which are going up, driven by increasing environmental and regulatory factors. And in order to support our customers in a sustainable way, we need to earn a fair return on these investments and higher operating costs. And so in order to do that, additional pricing is necessary. And this is certainly an industry wide issue, and our customers care about this because they too value our commitment to sustainability. And I think it’s important to their own value proposition to their customers in terms of promoting more sustainable products.

So, again, those factors have not changed. And in addition, in Europe, we’re seeing customers continue to migrate away from Russian supply ahead of the EU sanctions, which take effect around mid 2024. So those market factors remain, and that’s sort of how we see the environment. And just as a reminder, approximately 30% of our contract volumes are under multi-year deals from last year with additional price increases taking effect in 2024. And we view those pricing, the pricing on those contracts as a reference point for 2024. And so we sit here today, we’re in the zone of approximately two thirds of the way through our contract negotiations with price increases achieved across these volumes. But I think saying anything further at this point wouldn’t be appropriate.

It’s sensitive, competitive information, but hopefully that gives you a feel for the environment and our view on things here over the longer term.