GCP Applied Technologies Inc.(NYSE:GCP)
Q2 2016 Earnings Conference Call
August 10, 2016, 10:00 AM ET
Betsy Cowell - Vice President of Financial Planning and Investor Relations
Joseph DeCristofaro - Investor Relations
Gregory Poling - President of Chief Executive Officer
Dean Freeman - Vice President and Chief Financial Officer
Ivan Marcuse - KeyBanc Capital Market
Jim Barrett - C.L. King & Associates
Chris Shaw - Monness, Crespi, Hardt & Co
Erik Karlsson - Bodenholm Capital
Ryan Bloom - Hartford
Good morning and welcome to the GCP Applied Technologies. Inc, Second Quarter 2016 Conference Call. All participants will be in a listen-only mode [Operator Instructions]. Please note that this event is being recorded.
I would now like to turn the conference over to Betsy Cowell, Vice President of FP&A and Treasurer. Please go ahead.
Thank you, Dan. Hello, everyone and thank for joining us today on our call. With us on the call are Greg Poling, President and Chief Executive Officer and Dean Freeman, Vice President and Chief Financial Officer.
I would also like to introduce Joe DeCristofaro who Joined GCP on August 1, as our new Vice President of Investor Relations. Joe will be taking over this role from me as I continue to lead financial planning and analysis and treasury at GCP. We are very pleased to welcome Joe to the company.
So, at this point, I’ll turn the call over to Joe.
Thank you Betsy. It's an honor to join GCP at such an exciting time in a company's evolution and I look forward to speaking with each of you in the future.
Turning to today's call, our earnings release and cost funding presentation slides are available on our website, to download copies please go to gcpat.com and click on the Investor's tab.
Some of the comments today will be forward-looking statements under the U.S. Federal Securities Laws. Actual results may differ materially from those projected or implied due to a variety of factors. We will discuss certain non-GAAP financial measures, which are described in more detail in this mornings' earnings release and on our website. Our comments or forward-looking statements and non-GAAP financial measures apply both to the prepared remarks of today as well as Q&A.
Greg will start us off today with the business update. Dean's commentary will include highlights of second quarter financial results in 2016 guidance.
We were discussing these results excluding the impact of Venezuela for the quarter and have provided a reconciliation of the financial information in our press release. All revenues and associated growth rates in this discussion are stated on a comparable constant currency basis, which adjust for the impact of foreign currency.
With that, I will turn the call over to Greg.
Thanks Joe and welcome to the company. Good morning everyone. I would like to thank you for joining us today on GCP Applied technologies earnings call and in our second quarter as a public company, we have successfully built our team and are executing to achieve our goals.
We have invested in technology, launched new products, improved our goal with market position and accelerated operational productivity. We are creating shareholder value by growing our business, expanding margins and generating strong operating cash flows. As we look at the second quarter, we are tracking to our full-year commitments for sales growth, earnings growth and cash generation and we are reaffirming our full-year 2016 guidance.
I would like to make a number of comments and provide some color on the quarter and then Dean will walk you through the numbers in more detail. First overall for the quarter, our construction businesses grew by about 4% on a constant currency basis and 6% year-to-date.
A number of our construction markets such as North America, Asia, Australia, Mexico, Argentina were strong as commercial residential and infrastructure construction continues to grow. However, as you all know there have been some pockets of market challenges namely in Venezuela, Turkey and there has been some slow to negative growth in Brazil and China.
The most significant impacts for us are Venezuela and Brazil. We will lap the unfavorable market turndown in Brazil during the fourth quarter of this year and the currency devaluation, which we took in Venezuela at the end of the third quarter.
Overall, the markets in which we participate remain healthy and we responded effectively to the geographic challenges that we have seen. The geographic diversity of our business allows us to counter balance, challenging market conditions, growth and stronger geographies.
The specialty construction chemicals business on a constant currency basis, grew at about 1%. This was slower than the 3% growth we saw in the first quarter, and the lower growth compared to 2015 is due to three primary reasons.
First, in the quarter, we took some proactive steps to rationalize less profitable business in the segment. In other words, we are marking commercial choices to improve our margins. These choices negatively impacted the segment sales in the quarter by about two points of growth. But it will improve the overall quality of our business going forward.
We will continue to be disciplined in our assessment of commercial and portfolio opportunities in order to increase the EBIT margins in the specialty construction chemicals business. Second, we have a very strong position in Brazil and as I mentioned the economic challenges in Brazil negatively impact our segment sales and this was about 1.5 points impact to our growth.
Third, the second quarter is our most difficult comparison just given the strength of the second quarter that we had in 2015. So Dean will provide you more details on these points in his commentary, but I did want to give color on the growth rate we saw in the SCC business.
Specialty building materials grew at 9% on a constant currency basis. This was another solid quarter of growth. It was driven by continued strength in the global non-residential construction and healthy U.S. residential regrouping market.
Our Darex packaging business grew 3% on a constant currency basis. This is the first time we have had growth since the third quarter 2014 in Darex. The solid commercial performance came from Asia-Pacific and Latin America.
Now, I would like to move on to give you some comments on our products. We are well positioned with best-in-class products across our segments. We have a number of new offerings that are beginning to gain market acceptance.
For example, in specialty construction chemicals business the adoption of our [ad] (Ph) is for precast and sprayable concrete are increasing. We have also accelerated the Verifi Concrete Management System installs, which will deliver sales growth in the second half of the year and beyond and we have announced that we have also acquired the IP and related assets of SensoCrete to add our Verifi platform.
In specialty building materials, we had continued strength in our pre-applied water proofing products. Our fire protection product line is a strong project cycle and we have made distribution gains and are seeing good reroofing activity in residential roofing and underlayment business. In Darex packaging segment sales volume increased in BPNI coating and we achieved revenue growth as I said in Asia-Pacific and Latin America.
Overall, the fundamentals of our business continued to be healthy. We have responded effectively to market condition that impacted business in specific geographies. We continue to improve our margins and cash flows and the organization is focused on execution.
I would now like to turn the call over to Dean for more specifics.
Thank you, Greg and good morning everybody. Let's me mention again as Greg pointed out that today's discussion will be based on results excluding Venezuela. As you know we devalued the Venezuela business at the end of the third quarter 2015 and I can say I’m very much sure looking forward to lapping the effects of that at the end of the third quarter 2016.
The third quarter will be the quarter most impacted by Venezuela devaluation on a year-over-year comparison as just a reminder. You will find a schedule in the appendix of the press release and the earning slide for comparable results for information.
Now looking at the second quarter, consolidated revenues improved 3.7% to 371 million and 4.8% on a year-to-date basis. Adjusted earnings grew 7.2% in the quarter and 19.2% year-to-date. Adjusted EBITDA margin expanded 90 basis points in the quarter and 260 basis points and the first half of the year.
Margin expansion was largely driven by volume mix and the continued positive effects of material deflation and productivity offsetting the negative impact of FX and price. Overall, business growth and earnings results were in line with our expectations for the quarter and the first half.
As Greg mentioned, the combined construction revenues grew 4% in the quarter and 6% year-to-date and from an earnings perspective, adjusted earnings grew 18% versus prior year and 35% in the first half of year.
Now looking at the segments, specialty construction chemicals revenues grew 1% on the constant currency basis in the second quarter. Again, the increase was largely attributable to the growth in the cement additives business, the volume improvement principally in Asia Pacific and Europe.
Concrete admixture sales were significantly impacted by Latin America due to the effects of Brazil being down almost 30% in the quarter, and accounting for 1.5 points over revenue overall. As Greg mentioned, we will lap the full effects for the decline in Brazil in the fourth quarter.
The Concrete admixture business grew in North America Europe and Asia an average mid to single digit growth rate on the constant currency basis. As Greg further described, the rationalization actions in specialty construction chemical business accounted for approximately two point or lower sales growth.
Our new additive for both sprayable concrete and [indiscernible] products grew in the mid single-digits in the first half of the year. Verifi Concrete Management System installation has double-digit growth. These installs will drive Verifi revenue growth in the second half of the year and beyond.
Gross margins for the segment of 37.1% improved 250 basis points largely due to raw material deflation and productivity more than offsetting the impact of foreign exchange. Adjusted EBITDA increased 14% to 19.9 million and margin expanded 170 basis points to 12.1%.
Looking at specialty buildings materials, again a strong quarter with constant currency revenue increase 9% or 118.4 million. The business benefited from sustained positive market dynamics principally in North America and Western Europe.
In the second quarter, our building envelope, residential, fire protection segments at high single to double-digit growth rate. With a strong project pipeline, the SBM business also benefitted from continued strength and pre-applied liquid water proofing products and growth in [indiscernible] fire proofing projects. We also expanded our expanded our distribution network for residential roofing products.
Adjusted EBIT grew 20% in the segment to 35.5 million and margins expanded 310 basis points to 30.3% in the second quarter largely and higher volume and mix. Looking at our Darex packaging business it grew 3% on the constant currency basis versus prior year, reasonably sales in Latin America and Asia to a solid growth and higher coatings demand, which grew globally at mid single-digit range.
Majority of the sales growth was from continued adoption new coatings formulation an [can] (Ph) production growth shifting to Latin America where we have a strong market position. Gross margin expanded 20 basis points to 36.9% during the quarter. Darex benefited from favorable volume of raw material deflation again offsetting effects. Adjusted EBIT was down versus the prior year largely to increases in G&A.
Looking at other consolidated results for GCP, we had interest expense totaling about 17.7 million for the quarter. Our effective tax rate was approximately 31% rounding out the earnings discussion the adjusted earnings per share of $0.44 with diluted share count increasing 500,000 share to 71.4 million.
Adjusted free cash flow for the six months, totaled 51.6 million on-track with our expectation. We have invested 25 million in CapEx so far this year and we plan to hold that at no more than 4% of sales for the full-year.
Let me talk about how we see guidance for the rest of the year. As I mentioned, we are tracking to our full-year commitments and we are reconfirming our outlook for 2016, which is unchanged from our previous update.
We continue expecting that sales growth of 46% constant currency, adjusted EBIT in the range of 210 to 225 million, adjusted EPS in the range of $1.38 to $1.55 per share. And effective tax rate of 32% to 33% for the year and adjusted free cash flow of approximately $100 million.
Also for the full-year we continue to expect to grow our construction businesses in the mid single-digits range and about 1% growth for Darex.
As we think about the second half of the year, I would like to also provides a little bit of perspective on the seasonality. In the first half, year-over-year revenue comparisons were more favorable in the first quarter and less favorable in the second.
Looking ahead, we generally expect the third quarter to be similar to the second quarter and a comparatively strong of fourth quarter on a year-over-year basis as we lap the marketing impacts in Brazil and FX headwinds including Venezuela.
From an earnings perspective, we expect the earnings profile in the second half of the year to be generally similar to the first half, with the third quarter looking more like the second quarter although slightly weaker due to continued impact of Brazil and seasonality in Europe. In fourth quarter, it should be stronger version than the first.
And with that, I'll turn it over to Greg for closing comments.
Thank you, Dean. Once again, we appreciate your interest in GCP and we thank you for joining our second quarter call. We will continue to drive our business forward by focusing on revenue growth, improving margins and delivering strong cash flow. Our team is working enthusiastically and they are excited to be part of a new company focused on delivering value to our customers and our shareholders.
With that, Dean and I would be happy to take your question.
Operator, we can now begin the Q&A session.
Thank you. We will now begin the question-and-answer session [Operator Instructions] Our first question comes from Ivan Marcuse of KeyBanc Capital Market. Please go ahead.
Hi guys thanks for taking my questions. The first question and as you see the 2% of business that you guys have walked away from. Should that 2% for that level be- should we see that I guess negatively impact sales in SCC through the next three quarters is [indiscernible] bigger, smaller sort of how to think about that credence. And then additionally, you didn’t change your sales guidance for the full-year, so is that a function of - you knew that you are leaving this business or SBM is just that much stronger?
No, it's great question. Just to give you little color, this was a handful of customers, we actually have them some in Asia and a couple North America. We are making decision as these contracts come up to make sure that frankly we bring the margins up in the SCC business.
You will have this until you lap the business, but we have other offsets in the specialty construction chemicals business. We do get past the Brazil issues as we come into the back half of the year, we are getting a little broke out on some of new products that we are focusing on. You have got some market growth in North America.
So it wasn’t specific that these accounts, but we do know that it’s important for us on SCC to make good commercial decisions and improve the quality of business here. And so we took these actions and those customers were ones that we had had. So it will take a little well to lap, but we will make that up.
Is it specific to a certain region where maybe profitability inst great versus other regions?
No, I should say it was across three or four different countries in three regions.
Okay great and then just moving over to the free cash sustain a real quick. I thought you had a pretty big benefits from interest expense this quarter on the cash flow. What is that, is that a one-time thing or is that just a timing issue and that reverses out in the back half for the year?
No, R&D expense guidance have been changed. We generate about 17 I think it was a little over $17 million interest expense in the first half and it should largely be the same in the second half of the year.
No the question was in terms of the cash flow statement, there is a $29 million benefit to cash flow, cash flow from operation from interest expense, so just curious if that is just one that hasn’t gone out the door yet, or how to think about that on an annual basis?
On our presentation cash flow, we have showed the add back of the expense of 29, and then on a separate line we showed the 6.8 million of actual cash paid. So it’s a little unique presentation, but that’s how we do on cash flow statement.
So that is excluded from your adjusted free cash flow?
It's the actual cash paid 6.8 million is the actual cash paid in the cash statement.
So that is in our adjusted free cash.
Okay great, thanks. I’ll get back in the queue.
And our next question comes from Jim Barrett of C.L. King & Associates. Please go ahead.
Joe, congratulations on a new position and look forward to working with you.
Greg, I just had a question on SCC chemicals, can you give us any thought on your internal targets, in terms of operating margins for that division? And to what degree Verifi will help you get there? I assume that’s a small but a high margin addition.
Yes, good question Jim. Look, I would tell you that, last year I think the margins in that business were about a little less than 10% overall in that segment and we targeted, although we don't have a specific date in mind but on overall annualized basis, we ought to able to get that up over 15%.
As you capture the new products, Verifi will be a piece of that, we get good margin out of Verifi. Some of our other new products also - we target higher than average margins for the new products that we are bringing out of the lab. But we will get some advantage relative to some of these decisions that we are making where frankly we want to make sure we are getting paid for the value that we are delivering on the customer side.
But all-in, this business ought to be north of 15% EBIT margin business for at least - that's our first chunk of target versus where we were last year. And we are working our way through that very quickly here.
Is it reasonable to assume A, that that will crack with industry's roofing shingles shipments and B, should I assume that very little of that is going to [Indiscernible]?
Jim, you have to repeat. I didn't hear you. The sound went down.
On the underlayment business, should I assume that that crack very closely with the industry's asphalt roofing shingles shipments and is it pretty much wholly R&R due to the premium price and I’m picking of new home building usage?
Yes, so, look, we certainly enjoy a little bit of business in new construction, high-end construction with our underlayment business, but the bulk of that business is reroofing and that volume is up and that's helping with that business. And the other thing that we are doing is working hard on our distribution share. We picked up points of distribution and that's been a focus for the Company for the past year now. So the combination of a good sort of reroofing market and distribution capture and frankly having a best-in-class product in the marketplace we like to grow there.
Thank you very much.\
And our next question comes from Chris Shaw of Monness. Please go ahead.
Hey good morning everyone. How are you doing? First, I guess is in the construction related business segment. I know there was a pretty strong weather impact in the first quarter, was there any sort of residual I guess not benefit for the negative for the second quarter or do you see it happening in the second half at all, was there any pull forward and can we expect sort of slower go from that at all?
Chris, we really - and when you look at weather around the world it well impact us. I would say in North America I think we have seen that. In the first quarter, things were quite strong. The business, the marketplace, the shipments in the overall construction in North America continues to be good, but we did have some weather especially some of our regions that were quite strong in the second quarter.
And it sort of balanced out on a half, but I think I would tell you that there was some plus and minus first and second quarter. Especially it really was in those SCC business. A couple of projects in SBM on a commercial side gets delayed if you get some there and I would tell it's a little early to call the second half weather, but things in right now around the country are sort of calmed down a little bit.
And then I'm definitely no reading the or understanding the construction data that's out there, but it seemed like in 2Q the construction I guess maybe the start data or is it getting worse for commercial construction in the U.S. am I reading that right, or do you have any interpretation of that how the data is trending right now?
Yes, I think we read the same date, I mean there is the bit - and this is - I’m speaking to North America right now, really U.S. business. I mean housing start data was pretty good, the non-res data was awesome, I think you have seen the energy impact, which frankly isn’t big player for us.
We would love to see the infrastructure pick up and people are talking about that politically that would be a help. But the commercial construction business has been pretty good for us in that probably is a nice piece of the SBM business. So we really up to get down into that data.
The other thing we look at is the architecture billing index and that’s continuing to be favorable, those tend to be the types of projects where our material at the high end would be using construction.
But you are right the non-res little softer in the second quarter, there was some good indicators at other places. And just to move a little bit, we were seeing some good green shoots in Europe, it's a little early for me to call yet whether Brexit is going to slow that down a little in Europe or not. But you are right on North America.
Is ADI the best thing to look at for your exposures or the commercial construction?
You know it's a good one. We look at construction put in place, we look at starts, we look at non-res, we look at ADI, I mean cement and concrete, or volumes and pricing drive. There is a number of hem, but it's a good indicator relative to that type of activity we are seeing at the specification level, so from that standpoint its good.
Okay thanks. And then just from a acquisition front, the SensoCrete deal, it read sort of there was just like technology purchases, there is nothing meaningful in terms of revenues is coming up over that, is there?
That’s right, it was a technology purchase gives us some patents, it gives us some technology rather, it really odd one Verifi. I don’t want to get too technical. We measured everything on the drum outside using specific types of sensors, it lets us get inside the drum, it's gets another set of measurements in term of the drum that’s on the ready mix truck. We like their technologies and ad to ours and frankly this is a space we are making a commitment to and it was part of that.
And then, are there anything else, the deals that you think you are going to close on, I know we are all sort of anticipating coming out of gate with the bunch of deal? So do you think you getting close to anything else?
Well as you know, we have bolt-on acquisitions as part of our strategy. We also realize it that when that happen we could talk about them. I would say our pipeline is active and we are still strongly committed to adding growth to our business through bolt-on acquisition.
Great, thanks for the help.
All right. Thank you.
And our next question comes from Erik Karlsson of Bodenholm Capital. Please go ahead.
Firstly on SBM, this is showing very strong growth here, 9% in constant currency. Looking at your pipeline and there you have a little better disability, is there any reason to expect the current growth isn’t sustainable during the second half of the year?
Hi, Erik, sure, look our pipeline as you know, we look at what is been designed, what we have specified, what is been built. Our pipeline today is as strong or little stronger than it was a year ago. So overall, that’s a good indicator for us. Any given month of quarter, we are going to have some project impacts, but we are pretty bullish overall on the rest of year relative to the SBM business on the commercial side and indications are good. You do get some project bumps here and there, but overall what you said about the marketplace, I agree with.
Very good and SCC margin expansion you talked about which you said over 15% overtime. If you used 2015 as a base, do you think a three-year is a reasonable expectation as it looks today?
I hope to do better than that.
Okay so if you use 2015 as a base and I said 2018 then it takes me to 2017, so it should be doable already 2017 potentially?
We are working, as I said, I don't want to target us there, because some of it depends on adoption of the new products on speed, we like the new products, they are higher margin, the speed as you adopt those will improve the margin. We have benefited from some raw material improvement.
So we have to cover that in our objective going forward if we get some inflation and as I have told people as we get inflation, which we don't see right now, we have some built-in into back end, but things look pretty mundane and everybody know.
As you do that, we will have to price to capture it and then we will make these decisions around the world to make sure we have business. So I’m not going to pin myself down to an exact date on that but we are working hard to bring the margins up in the SCC business.
Very good and which are new products do you think are most exciting there in SCC?
The ones we talk about on sort of script. We are working hard on Verifi. We think this is a good way to increase the size of the market, provide our customers a lot of valuable insights on how to make their productivity stronger, and give out quality concrete. So Verifi is one, we are having some success, we have put out some new technology on the sprayable concrete market, which frankly we were undeserving that and we are undeserving precast.
We have got some growth in the precast market and we have taken a bit of page out of Verifi. We have an indicator there, a little product that we are selling that helps manage the quality of the precast concrete as well from equipment standpoint. So those are three areas right now and then cement additives we are focused on our regional penetration in some of the emerging markets.
One last question if I may please. The SG&A costs were little bit higher this quarter particularly in Darex, was there any unusual in the SG&A cost in any of the division that you would call out here in the quarter?
No what is going on, we are on our plan where we are running G&A across the Company about as we would expect given the performance of the Company. Darex is now going to carry as load of the GCP company, which is also a public company. And so we have seen a little step up in - it looks like a big percentage to them on a growth of some points out of the earnings, but we are on plan with G&A it's just Darex carries it's burden of the weight in the third of the company.
Yes, G&A has been running about 20% to 21% and we don't expect a dramatic change from that.
Very good. Thank you very much.
And our next question is a follow-up from Ivan Marcuse of KeyBanc. Please go ahead.
Just a quick question on Verifi you are talking about it, the technology that you bought what does that bring to the table for Verifi that you didn't have previously such as - is there any sales or earnings associated with it? And I guess thirdly on Verifi, what is sort of the revenue expectation that you would expect for this business when does that start moving the needle?
Yes, good Just on SensoCrete, I mean, this you got to get into the technology of ready mix and productivity and place of concrete on the differences, but frankly we measured - we use hydraulic systems in sensors that we then take that data to cloud and bring into manipulated and feed it back to our customers to improve their productivity. So that’s how Verifi works and it's a sensor system on what we would describe with the outside of the drum on the truck if you can imagine that.
The SensoCrete people went at that issue a little differently and they put a probe together that went inside the drum, we think the combination gives us some opportunities relative to improving the data, the accuracy and some flexibility in how we go-to-market with what equipment we have. And they had some patent ability in terms of that space that we also wanted to own.
So we didn’t pick up sales and revenue with the acquisition of the technology, but we expect it to help us with the growth of Verifi going forward. Frankly, it's an area where we wanted that patent protection as well. So from that standpoint that’s where we are buying.
And then in terms of Verifi moving the needle, as I have said we are in the introduction space we started to ramp up some of our truck install, so we can see when we put equipment on the truck what we are doing and give us a little visibility to growth rate going out. I expect to exit 2016 with a relatively good comfort level that we drive a point of growth in 2017 for SCC that’s sort of a magnitude I would give you.
It's not going to be automatic in the first quarter of next. But we are going to start to have an enough equipment out there that we can drive in rand numbers, about a point growth, some - take a three quarters to valid in a point of growth that in Verifi next year. So that starts and these are good margins.
Got you. And then in the Latin America businesses, your sales are down 20% or so, how much of that was currency relative to volume? And then in Brazil, I know this is I guess seasonally a light quarter, but did you see any sequential declines or beyond what the general does? Or is it pretty stable from what you can tell?
If you want more in the currency, I'll let add Dean , but let me give you my view. The numbers that I gave you with the 1.5 points of growth coming out of Brazil that’s ex-currency that was volume decline. The currency was much bigger than that, I mean our Brazil business with currency is down, I don’t know 60% to 70% like that over a year-over-year and year-to-date because the currency.
So I think the numbers I talked about are really they are trying to get a handle on when is the market buy. And I can tell you that we lap that going into the fourth quarter and frankly the volumes and the activity we are seeing in Brazil, I would call it a flat line, right. I think we are starting to see some stabilization in that market, which is good for us, we have very nice position there. So we are looking forward to getting pass both the currency and sort of the economic downturn there and see that market place turn. But right now I would call it stabilizing.
Great. And then the last question is more of a follow-up, and sorry for beating dead horse, I just got confusion on the answer. In your cash flow statement, you had interest expense benefit of $29 million - out of just a cash flow and I was just curious that where that was? Was that a timing issue in that 29 million sort of reverse it out in the back half as a result of you pay the interest on your debt?
So Ivan, the number you are talking about are the six month number, we bridge net income to the operating cash flow of the business. So we are adding back the effect of the interest expense to the operating cash flow. And we also have an offsets to that, so that's a 29 million that's the add back and then there is a cash offset of 6.8 that's the cash that we paid, so that brings us about $22 million worth of add back to the operating cash flow number. To bridge to the free cash, it's largely the prepositioning expenses some restructuring and some repositioning tax related expenses.
Okay I'll follow…
Our next question is a follow-up from Jim Barrett of C.L. King & Associates. Please go ahead.
Greg, question for you on the 200 basis points of the SCC business that you put for vent, given your market share additive, your worldwide market share in concrete add mixture. Did that business go to secondary competitors that go to our number two competitor, was that a function of the fact that I assume they could simply get lower prices elsewhere, how should we think about that?
It was two points of growth that's how I would sort of characterized it, and frankly they probably ended up a different place. This was business that I don't who took it. I know specifically each one, but it went to different places depending on where it was. One of the pieces of the business was in Asia and that probably went to a local producer. There is a piece of - that's a couple of in central Asia, I don't know if they went to a large competitor, my bet it went to a regional competitor. And the North American business frankly probably someone that doesn't have a lot of position they have take that business.
Okay, I see. Thanks again.
And our next question comes from Ryan Bloom of the Hartford. Please go ahead.
Yes good morning. I wanted to get a refresh on the cost restructuring issues that you had in rightsizing in Brazilian and Latin America ops, is it breakeven from an operating level negative, if you can give an update and also from a free cash flow standpoint where does Brazilian, Latin America stand and then I would have a follow-up after that?
Sure, I mean we are not going to get into country product profitability, but Brazil is a not a money loser for us. And in terms of the restructuring activities we took some earlier in the year and frankly we are continuing given - the commercial organization is sized where we would like it to be, and we want that organization in place as that market turns around, and the activities that we had to commercially were pretty much done. We are continuing across the Company to always look for benefits on our sort of overall cost structure in Brazil is part of that view. So if that answered your question. Dean, anything on the cash, he asked about the cash.
Sorry what was the question for cash?
Basically, also from a free cash flow standpoint where it stands is it similarly like you get contacts for profitability not being…
From a working capital perspective, we just like the profitability, it's generating positive cash.
And can I ask going forward then would you expect the free cash on conversion, if you have 100 million this year given all those headwinds, I assume the benefits from operating profits given the rightsizing the business will enhance the free cash flow perspective. Do you have any orders of magnitude to benefits that you get once you anniversary some of those headwinds?
I think as we have talked about in the past, the business generates about a $100 million of adjusted free cash, I think moving forward we will continue to expand our cash flow performance both as function of our EBITDA expansion. From a working capital perspective, it's a not a significant drop on our cash flow.
We will have debt repayment certainly in second half of the year and going into next year because we talked about - but again we think that’s largely offset as we expand the business, expand EBITDA. And then, obviously as we think about our capital investment we talked about more than about 4% of CapEx as a percentage of our overall revenue.
Okay great thank you.
[Operator Instruction] And ladies and gentlemen showing no further questions. This concludes our question-and-answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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