Daniel Kang: Thanks for the color. Just my follow-up just in regards to Prattville 3 and just CapEx outlook. How are you planning to ramp up Prattville 3? I guess, can you give some color in terms of CapEx into FY 2025-2026?
Aaron Erter: Yes, Daniel, really good question. How we’re trying to ramp it up is very carefully and prescriptively. I think we have a very, very experienced team and our best people on Prattville. So if we look at Prattville, it’s going to be critical to our success next year and into the future. So like I said, we have our best people on Prattville. If you think about the capacity that that’s going to give us. If we look at sheet machine number three, it’s going to give us roughly 300 million standard feet additional capacity. And you heard me talk about as we think forward, right, and what gets you really excited is the prospect of R&R to take off again, we’re going to need all of that. And that’s going to help us as we move forward. In regards to FY 2025 CapEx, Rachel can take you through that.
Rachel Wilson : Yes. The first thing is we’ve got brownfield capacity in all three regions, and we have greenfield capacity, both in the United States as well as in Europe. So we have a lot of options in front of us. We’ve talked about our need to complete Prattville number four in the next year, a continuing expansion in our Orejo facility in Spain. And then that we will be further investing in the U.S. So those are some of the primary areas that you can expect to see us employ CapEx in 2025.
Daniel Kang: Thank you, both.
Operator: The next question comes from Lee Power with UBS. Please go ahead.
Lee Power : Hi, Aaron. Hi, Rachel. Obviously, really strong gross margins. You’re obviously taking the opportunity to invest in marketing. And then some of those comments around high-quality leads, like it seems your comments on the call are quite conservative around that flowing through to a higher PDG number. Like is there something that you think is a sweet spot in terms of marketing spend and PDG. And are you willing to talk to what that is?
Aaron Erter : Yes. So if we talk about leads, right, really, really important, but usually, if we think about the time line of converting leads into sales, it’s a rather long lead time. It’s roughly 18 months lead. So as we think forward, there’s some time that we’re going to see sales from that. As far as PDG, we’re not going to give any forward look on that right now. But as I said before, the higher PDG you achieve the tougher it gets year-over-year. And then it’s also dependent on the market you’re going to enter in as well. So we’ll leave it at that.
Lee Power : Okay. Thanks. And then just a follow-up. Like if you look at capacity utilization, I think it was 89% in the U.S., it was 89% in FY 2023. Can you give us an idea of kind of where you’re sitting now? And then just the economics around sending volumes further a field than that 500 miles, if you need to, given you’ve got obviously Prattville ramping up kind of in the near term and just the ability to kind of send that further a field, if you need to into other markets?
Aaron Erter : Yes. Lee, so as far as capacity utilization, we don’t give that number. I would just say this, if we think forward over the next three years, we have the capacity we need to handle our growth projections. And with that said, we’re constantly evaluating new capacity adds that we need to make. So we’re doing that right now. On top of that, Rachel talked a little bit about HOS and our HMOS that’s going to help us just get more efficient, right, to be able to add capacity in our existing model as well. So I would just say this, we have the capacity we need to satisfy growth expectations. And you know, Lee, I think your other piece was, go ahead, Lee.
Lee Power: No, sorry, I was just going to — I think you’re getting to it just the economics about sending things further a field than kind of that 500 miles lease obviously send most of the product.
Aaron Erter: Yeah, Rachel, why don’t you take that one?
Rachel Wilson: Yeah, I mean the first thing is having 10 manufacturing facilities across the US creates a very nice strategic moat, right? So not only is this an advantage in terms of how we serve our customers, how responsive we can be, but also by the way, it supports our ESG initiatives. As we think about, you about, is that far enough? Can we be the flexibility to serve from another facility? Ultimately, we do. The good news, though, is that given our footprint and given the region, it’s not one facility, it’s 10, right, across the U.S., we do have a really good way to reach our end markets.
Lee Power: Excellent. Thank you. Appreciate the color.
Aaron Erter: Thanks, Lee.
Rachel Wilson: Thank you.
Operator: The next question comes from Brook Campbell-Crawford with Barrenjoey. Please go ahead.
Brook Campbell-Crawford: Yes, thanks for taking my question. Do you mind providing some color or some commentary just around your growth cutbacks and your expected return on that capital, bearing in mind I think your group return on capital employed is 40% over the last three years. I think you noted that in the presentation. So how should we think about this significant amount of growth cutbacks going into the business? Is 40% the number we should think about, or is it a different range? I guess noting the new plans, I presume will be pretty efficient and low cost relative to your average? Thanks.
Rachel Wilson: Thank you, Brook. The first comment is, what drives a strong return on capital employee? By the way, it starts with also having strong margins, right? And discipline in your CapEx expense. So at the heart of, how we’ve been doing on some of our return on capital is the strong margins and that is another reason why it’s very important for us to continue to invest in growth and keep our capacity ahead of demand. So that is something we are committed to. In terms of you know what is that right number we are trying to very efficiently build that is correct but there’s also really those investments through cost as we think about how do we manufacture more efficiently and that is also a piece of how we gain productivity. So we’ll be working on both of those aspects to try to maintain that performance.
Brook Campbell-Crawford: Okay. That’s great. And then just for the fourth quarter FY 2024, you had the January price increase. Do you mind just providing some commentary on what we should expect for ASP in North America in the fourth quarter versus the third quarter? Should we simply just use a sort of a mid-single digit step up there in price? Or any reasons why that might not be such a great idea when it comes to forecasting the fourth quarter ASP in North America? Thanks.
Aaron Erter: Yeah, Brook, I would say this. I mean, obviously, North America, you know, we announced price increase in October of the calendar year 2023, which was implemented in January 1st. And then the other regions, you know, there’s different timings for that. But what we’ve always stated is our average sales price would be positive, right? So I think, that’s the right type of directional information that I would provide right now. Yeah.
Brook Campbell-Crawford: Okay. Thanks.
Aaron Erter: Thanks, Brook.
Operator: The next question comes from Sam Seow with Citi. Please go ahead.
Sam Seow: Good morning, guys. Thanks for taking my question. Just a question on the margins, the 32.7% looks like a record to me and it’s not lost on me winter and probably you had a lower mix of high-value products than when you last reported a couple of years ago. So going forward just thinking, how should we think about the margin upside in a more normalized SG&A spend environment? I mean it looks like SG&A was up 40% there in North America. And if I back out the extra $21 million to $22 million, it looks like margins could have been 35% plus. But yes just any color around the upside there?
Aaron Erter: Yeah. Sam thanks for the questions. You said it right. I mean margins at 32.7% in North America was outstanding. The team did a really great job. I think you mentioned the SG&A I mean really Q2 to Q3 sequentially it was flat from an SG&A standpoint. I think your question is how should you think about margins moving forward, I would just say this as we look at North America for the near-term, I think we’re at our peak from a margin standpoint. The reason I say this is we’re going to continually invest in long-term growth initiatives. The other thing and Rachel mentioned this is the headwinds that we’re going to face as it relates to input costs. Now we’re going to be able to cancel some of those as it relates to some of our cost savings. But we are going to see more headwinds as it relates to raw materials out there. So long-term, we believe we will get to accretive margins. But more short-term, near*term this is going to be the high point for us.
Sam Seow: Got it. And then just as a quick follow-up. I mean, I came to understand obviously anything quantitative you can provide, just so one we can measure the SG&A is being utilized efficiently. Two, I mean in terms of the SG&A, it was elevated in Australia and Europe where I guess margins were in our target for any thoughts there? And then I guess to your point on input costs, do you expect SG&A going forward to be correlated to gross margins?
