GCP Applied Technologies Inc (GCP) 2017 Q1 法說會逐字稿

Good morning, and welcome to the GCP Applied Technologies First Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Joe DeCristofaro, VP of Investor Relations. Please go ahead.

Thank you, Kate. Hello, everyone, and thank you for joining us on today's call. With us on the call are Greg Poling, President and Chief Executive Officer; and Dean Freeman, Vice President and Chief Financial Officer.

Our earnings release and corresponding presentation slides are available on our website. To download copies, please go to gcpat.com and click on the Investors tab.

Some of our comments today will be forward-looking statements under 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 morning's earnings release and on our website. Our comments on forward-looking statements and non-GAAP financial measures apply both to the prepared remarks and to the Q&A. References to EBIT refer to adjusted EBIT, and references to margin refer to adjusted gross margin or adjusted EBIT margin, as defined in our press release.

Greg will start us out today with a business update and insights into 2017. Dean's commentary will include highlights of our first quarter financial results and 2017 guidance. We are discussing these results on a continuing operations basis to account for the expected sale of Darex Packaging Technologies. All revenue and associated growth rates in this discussion are stated on a comparable constant currency basis, which adjusts for the impact of foreign currency.

With that, I will turn the call over to Greg.

Thanks, Joe. Good morning, everyone, and thank you for participating in our first quarter 2017 earnings call.

In this first quarter, we made significant progress transforming GCP into a focused construction products technologies company. We are investing in and commercializing new products, we're executing on our bolt-on acquisition strategy, and we're planning the actions necessary to realign our cost structure. Our 2017 outlook is based on strong specified product pipeline, growth in our new product sales, improved pricing, continued productivity and execution on our planned realignment initiatives. These initiatives will improve our effectiveness and reduce our cost structure.

The sale of our Darex business is on track to close mid-year. We signed a purchase agreement following a conclusion of the required statutory consultations with our works councils. We have also received antitrust clearances in the United States, Germany, Brazil, Russia and Austria and have completed the filings required for South Africa. These are all the necessary antitrust filings to close.

We are completing our transaction -- our transitional services agreements, which we are required to execute with this transaction. I'm also pleased to announce this morning we've signed a definitive agreement to acquire Stirling Lloyd, which is a U.K.-based supplier of high-performance liquid waterproofing, for approximately $94 million. Stirling Lloyd, which has sales of about $40 million in annual revenues, has a proven product portfolio for infrastructure construction, including bridges, tunnels, car parks, commercial decks and asphalt repair. The company has a strong brand presence in over 40 successful years in business, protecting infrastructure in 60 countries. They have projects, including London's Olympic Stadium and the New York George Washington Bridge. We expect the transaction to close later this quarter, and we look forward to Stirling Lloyd's employees joining GCP. This is our third bolt-on acquisition in the past 9 months.

Now looking at our first quarter. Sales were consistent with our expectation. The year-over-year revenue comparison reflects a shift in project timing, especially in our SBM business, and a more favorable construction season in last year's first quarter. Our adjusted EBIT was impacted by the lower revenues and higher SG&A expenses. These expenses included higher stranded costs due to the Darex transaction, timing associated with integration costs for Halex acquisition and corporate costs to operate as a public company that were not included in our first quarter of 2016. These costs were included in the second through fourth quarters of last year.

We're currently planning restructuring actions to improve our SGA cost going forward and eliminate the costs that are carried in discontinued operations.

I think Dean will now provide you with the details associated with our business performance, our planned restructuring and our 2017 guidance.

Thanks, Greg, and good morning, everybody. Just a quick reminder, today's discussion is on a continuing operations basis to account for the proposed sale of our Darex business. In addition, all my comments for revenue and the associated growth rates are on a constant currency basis.

GCP's consolidated revenues were down 1% to $235 million in the quarter, which was, again, consistent with our expectations. SCC's revenue grew 4%, largely due to higher volumes in North America and price increases. SBM revenue declined 8% year-over-year including Halex, and 16% excluding Halex, largely as a result of the comparative impact of favorable construction season and the timing of certain projects in the first quarter of 2016.

On a regional basis, North America revenues were down approximately 1%. The region did benefit from 3% growth in SCC while SBM declined 4%. As expected, we saw weakness in EMEA, which was down about 12% in the quarter, again, due primarily to ongoing impact of geopolitical events in Turkey and certain project timing in the Middle East. Core Europe was down about 6% with growth in SCC offset by, as I mentioned earlier, the project timing in SBM. In Latin America, revenue rose due to the increase in -- price increases in Venezuela. We also saw volume growth in Argentina and Colombia that was offset by declines in Brazil. Asia Pacific revenues declined 6% in the first quarter as performance was impacted by comparative project timing.

We remained focused on our new product launches and our commercial growth programs. We continue to expand the number of Verifi installs, which grew about 30% year-over-year. Verifi revenue growth -- grew at double-digit rates in the first quarter, and we expect revenues to accelerate throughout the year due to the growth in the install rate across our ready-mix customer base.

The launch of CONCERA, an admixture that enables the production of highly flowable concrete, and Clarena, a product that mitigates the negative effects of poor-quality aggregates on concrete performance, have received good initial market interest.

In SBM, the adoption of our Silcor liquid waterproofing in North America is gaining momentum with a strong project pipeline and a growing applicator network. Each of these new products addresses premium market segments, offers an enhanced value proposition for our customers and supports the company's margin expansion goals.

Moving to GCP's adjusted EBIT. The decline in the first quarter resulted from lower volumes and higher SG&A expenses, as Greg mentioned. The SG&A -- the increase in SG&A expenses reflects the full run rate cost of operating the new company of about $5.5 million in the quarter, not included in the prior year, as well as approximately $1.4 million of incremental stranded costs associated with the Darex divestiture. Additional expenses incurred in the quarter included costs associated with the Halex acquisition due to timing of integration actions and higher employee-related expenses.

Turning to the margin performance of the segments. SCC's gross margin expanded 130 basis points to 35.7% on improved pricing and productivity programs, partially offset by the negative impact of raw material inflation. Segment operating income declined 13% in the first quarter due to higher selling costs, an increase in R&D and the full allocation of the run rate effect of corporate and global support costs that were not in the first quarter of 2016. The increase of corporate allocation costs for SCC was approximately $2.9 million.

SBM's gross margin declined 300 basis points to 43.3%, again, due to lower volumes of high-margin products as a result of the project timing and the impact of Halex. The integration of our Halex acquisition is on target, and we have rebranded the VersaShield product line as KOVARA in support of our strategy to introduce a new category of floor membrane underlayment to building owners through our global sales organization.

We divested Halex's low-margin, tack strip noncore product line, representing approximately $17 million in annual revenue. This transaction includes divestiture of 2 of the original Halex facilities and accelerates our integration process.

SBM operating income declined 46% in the first quarter and segment operating margin was 16.6% as a result of lower volumes, the timing of sales and marketing expenses and the impact of Halex, again, as I mentioned, the higher G&A allocation, the full year run rate effect to the corporate and global support costs that were not in the prior year period. This increase in corporate allocations for the SBM business was $1.7 million.

Rounding out the consolidated results for GCP. We had net interest expense totaling $17 million. Adjusted EPS was a loss of $0.06 with diluted share count of 71.2 million. We invested $13 million of CapEx, and we used $39 million of adjusted free cash in the quarter as the first quarter is historically our largest cash outflow period due to the timing of interest payments incentives, the inventory build in anticipation of higher demand in the second quarter, and we also built additional buffer inventory for our ongoing capacity increase for our Preprufe product line.

Just looking quickly at the regional market. The construction markets in North America continued to grow. Market indicators for residential construction spending and the ABI index support a positive trend. In Europe, we expect moderate growth rates, except Turkey, where we will not lap a significant downturn until the fourth quarter of the year. And we expect Latin America to stabilize, particularly in Brazil, where we're lapping year-over-year declines and with continued growth in Mexico and in Argentina.

We expect modest growth in 2017 in Asia Pacific, particularly in China with growth variability by country throughout the rest of the region. Overall, our guidance for the year, we expect revenue growth of 5% to 8%. This includes the sale of the Halex tack strip product line and the additional revenue from the Stirling Lloyd acquisition on a partial year basis. We expect quarterly SG&A expenses to continue at about the same level as the first quarter throughout the remainder of the year.

And we're planning for $20 million of cost reduction over the next 12 to 18 months, of which $15 million is contained in discontinued operations with an additional $5 million in restructuring and continuing operations.

Our adjusted EBIT 2017 guidance is a range of $145 million to $160 million, including the impact of stranded costs. We expect our effective tax rate for 2017 to be between 32% and 33%, capital investments to be approximately 5% of sales, and we're forecasting adjusted EPS of $0.71 to $0.88. We also continue to project $40 million to $50 million of adjusted free cash from continuing operations.

I further would like to provide a little bit more color on our adjusted EBIT guidance for continuing operations on a comparative basis with 2016. When we announced the Darex transaction in March, we identified and included about $25 million of stranded costs, which implied a baseline for 2016 adjusted EBIT for continuing operations of about $124 million. As we completed our analysis, we have adjusted the baseline to $143 million for 2016. The $19 million difference is due to the reclassification of $15 million of Darex cost of discontinued operations and $4 million of Darex share of both pension expense and currency loss in Venezuela in 2016.

And with that, I'll turn the -- my comments over to Greg for closing comments.

Thanks, Dean. In the first quarter, we began the transformation of GCP into a focused construction products technologies company. We are on track for the sale of our Darex business in mid-year of 2017. We're executing on our strategy for bolt-on acquisitions. Our new products are gaining traction in the marketplace, and we are planning the realignment necessary to lower our cost structure and move resources closer to our customers.

Thank you again for joining our call, and now Dean and I will be happy to take your questions.

(Operator Instructions) The first question comes from Mike Harrison of Seaport Global Securities.

Dean, I was wondering if you could go back to the guidance range. Let's just focus on the EBIT guidance range. Wondering if you can bridge the prior range of guidance that you had given for $224 million to $233 million to this new range of $145 million to $160 million.

Did you say $224 million?

I believe that's what I had.

Yes. So let me walk you from prior year. So we started at -- we ended 2016 at $214 million, and what we talked about is that Darex coming out would be about $65 million of EBIT coming out. And then about $25 million of stranded costs would remain, which leaves $124 million in the previous 2016 baseline. So that's how we started at the end of March. And we also made comments that, obviously, we hadn’t worked through discontinued ops, but that was the assumption at the time. Since then, the stranded costs, we have pushed $15 million into discontinued ops, $4 million of discrete Darex costs due to discontinued ops, which leaves you with a baseline of $143 million and approximately $7 million of stranded costs on an ongoing basis. Does that make sense?

It does. I think what I was trying to get to is just a better sense of your 2017 guidance that you just issued this morning versus what you issued when you reported Q4. Should we be viewing it as a maintain of your previous guidance or was it an increase or a cut?

Well, I think the way we're thinking about it is if you're kind of at the midpoint, I think that number pencils out to be about 7% growth in our guidance. The top end of that is about 12%. We widened the range. I think we've given ourselves a little bit more downside cover both as a result of the timing of our cost takeout, which obviously impacted us in the first quarter, the pushout of large projects to the second half of the year. And so timing of integration activities plus also the timing of our cost takeout would take it down to the bottom.

All right, that's fair. Wanted to ask also just on the Stirling Lloyd acquisition. Can you maybe give us a little bit of additional color on how that fits into your existing portfolio of waterproofing products? Is this more purchasing market share in a competitor? Or should we view this more as a product line extension?

I would call this -- this is Greg. I would call this as a product line extension. Stirling Lloyd has a pretty unique situation in that they have spray liquid waterproofing products for infrastructure that are used on these larger projects. We found ourselves selling some of our products, our Preprufe and Bituthene, on the same products they have, but this is a sprayable, high-performance, primarily exterior covering type of waterproofing material. So it's a product line extension for us. It's going to be complementary on the sales side to the architects, engineers, builders, people that are putting up infrastructure. But on the product side, it's a new addition for us. So this is not a competitive situation. It's complementary.

And can you comment at all on what the recent revenue growth rate has looked like at Stirling Lloyd and possibly on the margin profile or the EBITDA multiple that you paid for it?

Yes, I mean, our EBITDA multiple on -- and this again is a project-related business. We actually -- they had some very strong projects in '17. If you look at what we expect here, you paid about a little over 10x EBITDA. We think we can take about 1 turn to 1.5 turns. I expect by the time we get out 12 months, 1.5 turns out of that on the cost side. So a little over 10x will be a little under 9x after synergies, which is right in the target range that we want. The EBITDA margins on this business are in the -- above 20%.

They are accretive.

They're accretive to our EBITDA margins. We do have some purchase accounting that flows through at the EBIT line. But even at the EBIT line, after synergies, we’ll be above the company's average on EBIT, takes us 12 months or so as we work our way through the cost. So we think there's a complementary selling opportunity here. It gives us a better position in infrastructure. They have a nice business from a global perspective. U.K., some Asia business, clearly, in Europe and some in the U.S. so it fits very well our geographies. And then product-wise, we really like it. So it's a good fit for us.

The next question comes from Mike Sison of KeyBanc.

If you start with the $143 million, Dean, that you talked about, can you maybe help us -- show the variables of growth to be new guidance of $145 million to $160 million? What sort of gets you there to the high end? And you started the year kind of down on adjusted EBIT. So I'm just trying to visualize where you make it up and -- for the rest of the year.

Yes. Look, I think the low end, if you look at our revenue guidance range, the 5% to 8%, that's still intact. I think the low end reflects maybe a longer tail in the project timing, maybe a longer tail on our execution of cost takeout. And sort of just a longer period to recover in the balance of the year. The higher end really reflects the acceleration of our cost takeout, the higher end growth with our expectation of the project pipeline in the second half of the year, as well as the acquisitions that we brought on, both Stirling Lloyd and Halex, picking up in the second half of the year.

Mike, I'll add to that. This is Greg. On the SBM pipeline, especially in our specialty, our Preprufe products, we're really in a situation where last year, call it, 55% of our business was in the first half. This year, we have a mirror image of that. We're expecting about 55%. The pipeline is quite good. We've got the coverage and the specifications. So that's some of the swing relative to the first half to the second half. You also have the cost takeout for the integration activities. We took out the Halex low end piece. That gives us some of the integration. So you pick up those integration costs going into the second half. And then frankly, you have this -- our run rate on expenses is about the same for the full year, but we had this big comparison in the first quarter because we hadn't split up the company on a full year basis in the first quarter. So that's some of the walk on just sort of the operational pieces on why we have this back-half loaded business.

Got it. No, I understand. And then I think you said that stranded costs are now $7 million. Is that what stays on through '18? Or will you be able to handle that as well?

So here's -- let me tell you how I'm thinking about this. If you take the SG&A for this year, Mike, we're probably -- we're around 24% to 25% on remainco with all of the costs on the SG&A, okay? We're targeting in '18 to get that number on a run rate basis down to 22% to 23%. The timing on that, because of all of the restructuring activities that we have to go through, first, we have to take out the restructuring on the discontinued ops, we have to go through the planning, we have all the approvals. The timing on that sort of moves the range. But we're targeting to get the company at the 22% to 23% on SG&A. And we're higher than that now because of the integration and divestiture costs and the stranded costs.

Okay, great. And then just one quick follow-up in terms of the constant currency sales growth. Are you -- I mean, I would imagine, since you're guiding to that, that you're starting to see pretty good growth now and should it be the strongest in 2Q and 3Q? Is that the way we should think about it given the start for 1Q?

Yes. The business on SCC, on -- across the cement and concrete businesses, we are seeing our expected sort of market. And our new products are picking up steam there. So it picks up throughout the year. On SBM, we really see those projects starting to kick in, in the second quarter, but it's the third and fourth quarter in terms of the timing more than last year. So SCC, we're seeing the growth. We had about 4% in the first quarter on a constant currency basis. North America market looks pretty good. We're liking the new products there. SBM projects, we've got some airport work, some larger projects that we didn't specify, but they're showing up in the second half.

The next question comes from Laurence Alexander of Jefferies.

Just a couple of things. First, just on FX. It looks as if FX is about a 5% headwind. Is that a good run rate for the year on the sales line at current levels? I mean, given the ex-Darex portfolio. And does that translate directly through to EBIT? Or is there some difference in the incremental margin that you would use for adjusting FX? And I guess, the implication would be that the bottom end of your EBIT range would be down year-over-year. And then, I guess, finally, just to tie this one together is if that's the case, are you planning additional cost cuts to stabilize results going into 2018?

Yes, we set the guidance pretty much on the basis of what we talked about in March, which was really off of the period ending the month of January, which is somewhat of a trough period, we believe. It sort of stabilized and recovered at this point, so I think that to your point, the 5% is sort of a stable thumbnail of where we expect currencies towards the end of the year. It does run through our margins and we offset that largely with price. And obviously, other productivity given our ability to only -- for a margin decline, only be about 70 basis points year-over-year. But in terms of incremental cost takeout, obviously, I think we're clear on what we're intending to do both as a result of what we are pushing into discontinued ops as well as the continuing ops cost takeout of $5 million. We'll talk more about that in the future.

Yes, let me add. The FX -- if you look at it based on where we said, coming out of the first quarter, has the least effect in the fourth quarter. Because -- I mean, just in terms because you start to lap some of the last year effects. So the fourth quarter has very little effect. And frankly, the restructuring cost is not tied at all to FX. The FX will fall where it is. We'll put the pricing in and follow our productivity. We want to get our fundamental SG&A cost structure to the right size, given the new company. And we want to put those people at the ground level sales, the marketing, the R&D people, that's what we're doing on the repositioning. It has nothing to do with sort of the incremental on this issue with the FX.

Right. So just to be clear on that, the adjusted EBIT forecast of $145 million to $160 million is before adjusting for FX and then you would have a headwind of about 4% to 5% of EBIT on that?

Yes, Laurence, it includes our assumptions for FX as of the end of January.

Correct. But clearly...

Right. To the extent that it gets worse or better, that would be -- that would have an impact on our guidance.

But right now, the total, if you take where the FX is today versus our guidance, the swing is slightly positive in terms of EBIT from today. We're not seeing a negative from here out, if that's the question.

Perfect, okay. Secondly, on the back half weighting in terms of orders, does -- are some of these projects that you're working on spilling over into 2018? And does that give you any kind of visibility on what the run rate is for the first part of '18 compared to the first part of '17?

Yes, it's a great question. The business that we track on the projects at a very specific level, as I know you know, is around the SBM business. And when you look at our project pipeline for SBM, which essentially is those jobs we have a system where we manage the specifications that we have around the world, that pipeline is significantly stronger in the second half of the year than it was in the first half. It's the reverse of what we saw last year. The pipeline was much stronger in the front part of '16, weaker in the second part. What we're seeing here is -- and you see it reflected in our sales. So that's the case as that pipeline continues to grow, it is an indication that the first part of '18 would also reflect those projects. And we -- obviously, the pipeline doesn't end at the end of a year where these projects carry through. But the work that we're seeing relative to the pipeline is stronger in the second half and that would have a reflection on those projects' impact going into '18 as well.

And then just lastly, just to be clear, the free cash flow target, that includes or excludes the cost takeout to offset the stranded costs?

It excludes it as of right now.

So the free cash flow, including the actual free cash flow you would have disposable, would be diminished by the cost takeout?

Yes, it would be part of the -- so to the extent that we have continuing operations, restructuring costs, we would present our cash flow -- adjusted free cash flow on a continuing operations basis, including the impact of those cost takeout. Anything related to discontinued ops are going through discontinued ops, and we wouldn't report that necessarily in our adjusted free cash flow.

The next question comes from Jim Barrett of CL King & Associates.

Greg, the Stirling Lloyd acquisition sounds like a very, very nice fit. I just had a few questions on that. Are -- is the exterior waterproofing product, is it a patented product?

No, they have -- they've been in the business for a long time. We're dealing here in PMMA chemistry. They have the manufacturing assets. As you know, in these businesses, the formulations are secrets and trademarks. But this is not a patent acquisition. It's a contractors, formulation, manufacturing capability that augments the pieces we sell. Now we'll work on, as we do with all these acquisitions, we'll start to work in our labs now on the combination of these technologies to try to extend the intellectual property portfolio. But that's something we'll have to add to this.

I see. And given that it's a British company, and I've heard you mentioned that it did have a nice international reach, but given the company's size, is there a -- is part of the acquisition rationale the fact that you can penetrate their product line more deeply in the U.S. and in other markets as well? Or are they already well represented around the world?

No question about it. They've got a nice position in the U.K., Europe is a piece. They sell in the United States on big projects, a good reputation. Where we really think you pick up here is we've seen jobs around the world where they've been on the project and so have we. But there are a number of projects that we think we can bring to the pipeline and there are certain geographies that we're in that they didn't participate. So we see that as the cross-selling opportunities here from a geography and a project basis to be good. And the other thing is they have a contractor network as well as specifier network. We'll add that to our network, and that combination is a positive. So we think that the combination will broaden the opportunity for their product line, and it's probably going to broaden the opportunity for our existing product line in infrastructure as well because of their position there.

And can you finally tell me, was this an auction? And secondly, is the management of Stirling Lloyd staying on to work for GCP?

So I won't get into the process. We have -- we've completed it, and we have arrangements with the management. This is a privately held family business. So you know how those work, but we have a good transition period and the management team's there. We're in integration mode today. And the news I've gotten this morning is the employees are quite happy to see us and they also think it's a great fit. So we think the match with how we go to market with their employees is going to be a natural for them.

Well, it seems that way. And then last and maybe least, you acquired Halex, you've acquired Stirling Lloyd. Is that enough on your plate for the next 12 months? Or are you -- do you feel that you have the appetite or the ability to assimilate more deals if they were to present themselves near term?

Yes, good question. I'll tell you what happens. As we conclude midyear the Darex activities, our capabilities free up. We've got a very nice pipeline that we're continuing to work from an M&A standpoint. We're going to focus on concluding the Darex transaction and the integration of Stirling Lloyd, but we'll have both the cash as well as the appetite and the ability to look at additional bolt-ons that fit what we do, right? We want to get in businesses we understand. So we'll continue to do that.

The next question is from Chris Shaw of Monness, Crespi.

Firstly, about the Stirling Lloyd acquisition, is that -- is any contribution from that in the new guidance? Or is that additive and will it be -- how much additive it would be?

Yes. I mean, if you take the annualized revenue, we have to file a regulatory. We don't see any issues on that, but we'll close this in the second quarter. On a revenue basis, we can see some on the top end of our guidance, depending on when we close, it would show up. But we also have the $17 million of revenue coming out for the tack strip business. So that's part of the trade here.

Yes. On a net basis they basically wash.

That's the piece from Halex that you divested?

That's right.

That's right.

Is this also a wash on the earnings side or...?

No, we should see -- now we have a go through the synergy piece, but we should see some earnings contribution clearly in 2017.

Right, that's in our guidance.

Okay. And then in SBM, the -- I guess, the project timing, I guess, I just wanted to understand these are, I assume, like large building envelope projects that just they're large enough where it's meaningful one quarter or not when they actually do the sale?

That's correct. What we do is track all of these projects that we have specified, and if you look at our pipeline and we really compare it to the prior year's pipeline, both our revenue -- our pipeline in the second half is significantly stronger worldwide than it was in the first half of this year at about the same rate. In fact, the coverage ratios are about twice in the second half that they were in the first. That was just the reverse last year, and our revenues go with that. So, again, I think I said about 55% of our revenue last year in the first half in our Preprufe -- this is really in our Preprufe product lines, which drives a lot of this. And it's just the reverse of that in 2017. And it's the falling out of these projects. I mean, there's a number I'm not going to get into the -- for competitive reasons, but a number of airport projects and infrastructure that we have specified. Last year, we talked about coming out of the Wheatstone Project in Australia. Last year, we came out of some of the larger projects in the Middle East. This year, those projects are starting in the second half, similar type.

Sure. Why isn’t the SCC business more impacted by large projects? Is that just because it's just a bigger market in general and so they get muted, then (inaudible)?

The ubiquitous nature of concrete and cement, the projects all add up over time, but you don't get the impact you do on these where you sell -- for us, on SBM, $1 million is -- for a project is a huge project for us. On concrete, it's spread across all those tons and cubic yards and meters of concrete.

Okay. And then just more broadly, looking out, I mean, just taking the temperature of the construction -- commercial construction market for you guys, I mean, do you see any changes looking ahead another 12 months maybe in terms of strength or demand? Or things are pretty much they -- as they were a quarter ago?

The customers we talked to in North America continue to predict that they'll have a good second half of the year. Their order books are strong. It sort of goes with our pipeline. It's the same as what we've seen on the specified side. I mean, as we look at the world, I think Dean talked about a little bit, in Latin America, Brazil is continuing to try to bounce off the bottom here. But the Mexican market, the Colombian market, there's some others, Argentina, have been better, frankly. The Middle East, we saw some slowdown. But some infrastructure projects that are coming out in bidding. Europe is in a better situation than it was a year ago. North America continues to be a good market. And then Asia is really a by country situation for us in terms of what we see there; some countries doing better, some countries not so strong.

(Operator Instructions) The next question comes from Tobias Brickel of Bodenholm Capital.

The first one, please, is on the large project activity. Across the group, there was very strong in all geographies in the first half of '16 and softer since, and you highlighted an improvement in the second half of the year. I'm just wondering, did you make any changes in the sales force, the go to market or your approach around the large projects just around the separation date that would kind of explain that order pattern or the large project, that activity?

Yes. Thanks, Tobias. I actually don't think there is any changes in how we've gone to market versus when the projects that we get specified and the number that are available. They have specifications on them when we track the pipeline. It's the way the projects have fallen. We are working very hard in certain geographies now to sell across GCP and take a bigger slice of these projects going forward. But that's not an impact that we've seen that explains this. This is really about when projects ended last year, the amount of work we had and when they begin this year. The pipelines, frankly -- the total pipeline in 2017 is a higher pipeline than 2016. But it's significantly back-end loaded.

Okay, great. And secondly, just on M&A. Within the pipeline of your transactions, do you look at larger deals than the Stirling Lloyd acquisition as well? And how confident are you that you can close something perhaps even this year given how strong the balance sheet will look like after the disposal of Darex?

Well, in terms of what we look at, if it's businesses that have a strong fit with us from a technical standpoint, businesses that we understand that we see cost synergies and growth opportunities, we are more than willing to look at that versus from a scale standpoint. Unfortunately, we don't dictate the timing on both the availability and when we can close deals. We'll have the ability to do that. We'll have the cash to do it, but we're going to stay disciplined. We're on our process, make sure that we can make the returns on it. So we think that the pipeline for M&A looks good. I can't predict timing on any specific deal at this point.

There are no additional questions at this time. This concludes the question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.