Crown Holdings Inc (CCK) 2006 Q1 法說會逐字稿

Good morning and welcome to the Crown Holdings first quarter 2006 earnings conference call. Your lines have been placed in listen-only mode until the question-and-answer session. Please be advised that this conference is being recorded.

I would now like to turn the call over to Mr. Alan Rutherford, Executive Vice President and Chief Financial Officer. Thank you, Mr. Rutherford, you may begin.

Thank you very much. Thank you and good morning, everybody. With me on the call this morning is John Conway, Chairman, Chief Executive Officer and Tim Donahue, Senior Vice President of Finance.

Let me point out that on this call as on the news release we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in our SEC filings including comments in the section called Management Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for 2005 and in any subsequent filings.

In view of Regulation G, we do not intend to provide non GAAP financial measures of performance on liquidity beyond those already contained in the Company's earnings release.

I will comment on the results after which John Conway will discuss the quarter and outlook before opening the call to questions. Total Company sales increased a reported 3.3% over prior year. However, this included a foreign exchange impact of 54 million without which sales would have improved 7.1% on a comparable basis. Segment income of 101 million was a 3.1% improvement over prior year and on a comparable basis considering the foreign exchange impact would have improved 6.3%.

Worldwide beverage count volumes - excluding the Middle East consolidation pickup - were up 1% with the Americas weakness being countered by strong volume growth in Europe, the Middle East and Asia. Including Middle East volume, volumes were up 6% worldwide in the quarter. Food can volumes were up 5% worldwide compared to prior year with a strong start to the year being recorded in all divisions.

America's division sales were up 1% compared to prior year, reflecting mixed change of lower beverage sales in the early part of the year ahead of increasing food count sales growing as the year progresses.

Within the Americas division, America's beverage reported lower sales and income due to volume and price pressure which John will discuss further in a few minutes. North America food reported higher sales and improved income on better volumes over prior year. European division sales were 4.5% higher than prior year. However, adjusted for foreign exchange, would have been up 13%. Within the European division, the European beverage sales were up 29.3%, reflecting good volumes and the Middle East consolidation.

Without the Middle East but including currency impact, sales would have been up 17.4%. Segment income was flat, reflecting the Middle East consolidation offset by the aluminum cost increases not passed through in selling price until March 1st of this year.European food reported a 1% improvement in sales - although excluding foreign exchange impact this would have been 9.6% on stronger volume. Income also improved over prior year reflecting the good start to the year with the improved volume contributing to profit.

Asia division sales were up 10% in the first quarter of 2006, compared to prior year. The Company recorded a restructuring charge, largely related to restructuring in our food operations in Spain. It is expected that some recovery of this expense will occur, relating to asset sales at a later point in the year. Lower interest expense reflects the successful refinancing undertaken in the fourth quarter of 2005, and a lower foreign exchange impact also is a reflection of the debt restructuring undertaken at that time.

As you know, commodity prices have risen strongly and this impacts our Company, our competitors and our customers worldwide. In this environment which we believe will continue, our stockholders' interests are of foremost importance to us and we fully intend to pass through all such costs into the market now and in the future.

At this time, we still consider we can improve segment income by 5 to 10% over 2005 and that the free cash flow available to delever the Company and repurchase stock will be at least 300 million.I will now hand the call over to John for his comments.

Thank you, Alan, and good morning. Once again as you can see from the numbers and Alan's summary, we had a very solid first quarter and we are pleased with our performance. This is particularly true given the rapid increase in raw material prices and costs that we experienced during the quarter, and the delay that we have had and we described to you in our last call in passing through raw material price increases in our beverage can business in Europe and in China. We thought it would be very useful on this call to give you a relatively comprehensive review of a number of different areas that we know are of interest.

First, we will provide some visibility on unit volumes in our principal product areas as we now see them for 2006. Second, we will take you through performance by region byproduct for the first quarter. Third, we will summarize execution of our price increase strategy. Fourth, we wanted to comment on Crown's exposure to raw material price increases in the beverage can sector. Fifth, we would like to summarize for you the status of our various capacity additiona. Finally, we thought it would be well on this call to remind everyone of Crown's strategy and why we believe it has been effective and will continue to be effective. In this regard, we will contrast Crown strategy with some alternative strategy.

So let me turn first to how unit volumes for the year are unfolding. Let me start with our food can business which, as you know, is a very large business for Crown and comprises 34% of our sales. We were off to a very good start. As we see the year today, globally, we believe our food can business will be up over 5% in units versus prior year. The business in Europe is strong and the price increases implemented during the course of 2005 are fully effective in the first full quarter of 2006. In the Americas, the year also began well in our food business. We believe we will have an outstanding full year in our food business as a consequence of further productivity improvements, volume increases that we believe our customer base will achieve; and we have been very fortunate in gaining some significant new business for 2006 and subsequent years.

This, in turn, is allowing us to better utilize plants, reduce our costs, and we believe lay the foundation for continued success. We have gained market share in North America and we now believe our Americas food business will be up over 5% in units for the year.Our metal backing closure business continues to do exceptionally well. We anticipate global unit volume growth of 5% for 2006. We are particularly pleased that our new product offerings - especially our ideal closure and our new family of super plus baby food closures - continue to gain sales and market share. These are significantly improved products that appeal to our customers in every way; and we have been very excited about the success of these patented proprietary new products.

Finally the aerosol business globally will enjoy a very solid year. Units are expected to be up by 2%. Aerosol performance in all parts of the world - Europe, the Americas and Asia - will show year on year volume increases. One of the significant positives is the growth in our proprietary packaging aerosol segment, including shaped cans and aerosol cans using plastic bags and pistons as part of the propellant system for the aerosol can itself. Again, technology and new product capability is helping us greatly in the aerosol area.

Finally, the global outlook for our beverage can business continues to be good. We believe our unit volume on a global basis will be up about 6% and please remember the base that we are talking about is approximately 40 billion cans worldwide. We think it worthwhile to describe for you beverage can volume by region. There has been speculation about what might have occurred in each of our big geographic markets in beverage cans; so we thought we should anticipate your questions and describe to you what we now believe occurred and the consequences of it. First, in our European business we believe units will be up by 9% year on year. There continues to be good overall growth in the region, ranging from low single digit growth in Western Europe to mid single digit growth in southern Europe and eastern Europe to double-digit growth in the Middle East and North Africa. In our Americas division, we had a volume setback.

At the moment we believe that unit volumes in our beverage business in the Americas will be down by 6% year on year. This decline is entirely in the United States and Canada. We are disappointed but we thought you would be interested in our understanding of exactly what occurred.In brief, one of our competitors in an effort to gain market share, reduced price. Ironically this was the same competitor who has said repeatedly that cost increases cannot be fully offset in North America by productivity gains. So we were surprised by their action and we did lose volume. The consequence is that our business and customer mix has shifted but we did recover and mostly offset the volume that we had lost.In addition, we are increasing our focus on specialty beverage cans and we are adding specialty can capacity in North America. We are making a major expansion in our Mississippi plant and we are doing the same in our Quebec plant. We have other opportunities that we are actively studying.

We are confident today that these moves and business that we think will be available will replace in 2007 a volume that we lost in 2006. If things go the way we expect, the margin should be improved compared to the 12 ounce business that we lost.

In Asia, the beverage can business continues to be very strong. As you know Crown's unit volume growth in the region last year was 17%. It is a little early to talk about what we think the year has in store for Asia because the growth has been so strong and is somewhat difficult to predict. But we can say that we expect unit volumes at this time to be up about 10%.

Turning to the first quarter, as I said we're very pleased by our performance. In food cans, unit volume in Europe were up 4% versus 2005. In the Americas division, food cans were up 6.3% versus 2005 unit volumes. We are expecting a very strong performance from our food can businesses on both sides of the Atlantic in the second and third quarters. Metal vacuum closure unit volumes were up 28% in Europe and up 3% in the Americas. Price increase implementation has gone well. There has been no change in our food business, aerosol business and closure business from what we described to you in January. That is, we have been putting through price increases in all these categories and they have gone successfully. We believe we will be able to cover raw material cost increases as we understand them at this pint. There could always be something unexpected in this very volatile raw material pricing environment but at the moment we are very comfortable about what we have accomplished.

With regard to beverage cans, as you know the two difficult markets in relation to raw material pass-throughs have been our European beverage can business and our China beverage can business. In both cases, we have announced price increases effective March 1, intended to cover raw material price increases - particularly the very sharp run-up in aluminum. That is also going well and we expect that we will pass through aluminum increases in both Europe and China. Most of our customers have been understanding and do not expect their can supplier to bear the brunt of commodity price increases. Some others have been more resistant but we still believe that we will be successful in this effort. We thought you would like to have some visibility in the beverage can area to Crown's exposure to raw material price increases.

What I'm referring to here is the extent to which Crown carries the risk in 2006 on raw material increases and whether the risk has been passed along to our customers or mitigated either through formula pricing or hedges that cover raw material costs going forward. As I mentioned earlier in the call, Crown will sell in 2006 approximately 40 billion cans globally. Of this 40 billion cans, the great majority benefit from risk transfer mechanisms which effectively transfer raw material price increases. We believe that we are proportionately as well covered as our competitors and certainly more covered from an absolute profit and loss standpoint because we sell fewer aluminum cans than our two principal beverage can competitors in the Americas and Europe - the two largest beverage can markets.

We also wanted to give you a comprehensive update about planned capacity additions and changes and when they will come on stream. I'm going to run through them by region. First in the Americas we will be adding specialty can capacity in Canada, which will begin production in the second quarter this year. We're also adding specialty can capacity in the United States in Mississippi that will begin production in the third quarter. We are adding and restructuring capacity and beverage ends in Brazil that came onstream in the first quarter of this year. Further, in the Americas we are adding capacity in our vacuum closure business - all related to our new ideal closure which is growing very significantly. Our first phase addition will commence production second quarter 2006 and the next segment of capacity addition will begin fourth quarter 2006. In Europe, we are adding capacity significantly as you know in the Middle East and North Africa. To remind you, our new Tunisian plant began operations in November 2005. Our next significant capacity addition will be new end capacity in Dubai in June of 2006. Our second beverage can line in Dubai will begin commercial production in August of this year. Our third line in Jordan will come onstream in Ammon with commercial production in May of this year. This will be followed by our new third line in Jeddah, Saudi Arabia which will commence production in July 2006. We now plan to start production at our new plant in Kazakhstan in late 2007.

In our Asian division, we are doubling the size of our Vietnam plant which will result in new capacity being commercially started in the fourth quarter of this year. Our recently announced Cambodia plant to be situated in Phnom Penh will start production in mid 2007. In total on a full year basis, we will add can capacity of at least 3.2 billion beverage can bodies and end capacity of 1.6 billion units.

The last thing we wanted to do this morning before we give you an opportunity to ask questions is to briefly describe Crown's strategy for taking our business forward and contrast it with some alternatives that have been suggested to us.

First let me remind you that we have an excellent multiproduct metal packaging business. We are not overly reliant on any particular product that is sold to any particular set of customers. For example, our food can business represents 34% of our sales, beverage cans are 42%, general line cans and aerosol cans are 13%, and closures are 6%. Further, our geographic market distribution we believe is the best in the industry. Our presence in the mature markets of North America and northwest Europe is balanced and is a significant cash producer. We have a strong position in rapidly growing emerging markets. We are heavily present in China and southeast Asia, the Middle East, eastern Europe, and South America and we are aggressively expanding in these areas.

We devote significant time and energy to developing new products and processes. We have mentioned to you our average beverage super end which has the best performance characteristics in the industry and in addition uses 10% less metal than is commonly used by our competitors for this very important beverage can component. Our proprietary patented can shaping technology is preferred by the world's leading packaged goods companies. We are the global leader in easy opening food can ends. Our patented ideal vacuum closure for plastic and glass containers which - is a composite of plastic and metal - is the industry leader. We also have other significant exciting new developments that are not yet commercial which we cannot disclose to you at this time. Our plan is to manage the mature markets carefully, develop and commercialize great new packages and processes, and drive aggressively in our emerging markets. We think it is worthwhile to contrast our plan to some alternative approaches that have been suggested to us over the past number of months. First, should we make acquisitions of other metal packaging companies at high multiples where synergy savings are possible but not compelling. We do not believe that we should do so. By this we mean we should not do so given our alternative opportunities. If our opportunities with new products and in the emerging markets were not so attractive, perhaps we would be attracted to this alternate strategy but we are not.Another alternative that has been suggested to us is that we should once again embark on a string of acquisitions intended to create a plastic packaging business of size and substance. We have been that route. Our conclusion is that it is very difficult to do such a thing and create a truly interconnected plastic packaging business. Synergies are limited. The plastic manufacturing process is very capital-intensive and barriers to entry are low. All of this leads us to the conclusion that embarking on a series of plastic acquisitions that demands substantial price multiples of EBITDA is not likely a winning approach for Crown. So our conclusion is to stay on our current course. We think it provides the capital markets with a clear and compelling strategy. It is better for Crown and our shareholders than any competing alternative strategies.

With that, we are prepared to throw the call open to questions.

Operator, if we could have the first question please.

(OPERATOR INSTRUCTIONS) Ghansham Panjabi.

Good morning. Wachovia Securities. It looks like you guys are aggressively addressing higher aluminum prices in Europe through your own selling prices and you probably are trying to do the same as your cost increases in the U.S. as well next year. Isn't there a threat, though, that PET is becoming a little more attractive to your customers as the spread between aluminum and PET widens? I'm just interested in your thoughts on that.

I think there is always a threat. But we really doubt it's going to be of any real significance in the markets where we have been putting price up with regularity over the last number of years where there were no caps and so forth. We have not seen a move to plastic or to glass. And as you know although resin has abated a little bit in price recently, it has gone up substantially. Alan and I were discussing a report this morning to the effect that $100 a barrel oil is in the not very distant future - perhaps even this year. So we are not getting a lot of feedback from our customers to the effect that there is going to be a move to plastic.

And I can't imagine you are just going to sit by and watch your customers -- your competitors try to take market share from you. What is the strategy there?

The issue as you know is North America and as I said we weren't pleased with the way volume unfolded this year; but we have largely regained already what we've lost. We have got a very good plan that's already in motion to regain what we lost. So we are confident in 2007 we will be back where we were in terms of market share. The units will be back where they were. As they always are, Ghansham, after these episodes.

Right and just one final question. The aluminum cost headwind for the quarter?

In --?

In Europe. Sorry.

Yes, in Europe. We reckon around 8 to 9 million.

Thank you so much.

George Staphos.

Thanks. Banc of America Securities. John, just getting back to the volume recovery as you see it by '07. Is most of that coming from new markets and expected incremental growth or are you basically doing what you're suggesting some of your competitors did? Taking it from their market share? If that is the case then why does this continue to spiral going forward?

Our focus is going to be on specialty cans. It is an area where we have participated largely through 16 oz. containers but not in other sizes. So the additions -- capacity additions in North America that I described a moment ago -- are focused on the other sizes and we think in some cases, many cases, customers definitely would like a second source of supply. So I think it is going to be growth, but growth in specialty cans. And our hope is, we basically don't perpetuate the problems in 12 oz. cans.

What cost of capital are you using as your hurdle rates here and also with your emerging market capacity expansions? Obviously the growth rates are better in these markets but historically they've been much more volatile.

George, I think they're different, right. I think you depending on the market you are in and the risks relevant to those markets - clearly in the emerging markets - our hurdle rate is much higher than it would be in the more developed markets.

Would you blend the average?

Put a circle around 15% for the more developed markets and I won't address the more -- the emerging markets.

That's fair. Last question and I will turn it over. If we had to summarize - even with some of the pressures you felt in the first quarter - for the reasons why you are not adjusting your guidance, it would be largely on the volume front. Are there any other things that are positive that you have in your back pocket, so to speak, over the course of this year that make you confident around the 300 million of free cash flow and growth? And within the free cash flow, what are you assuming for pension funding this year in the UK? Thanks.

Let me answer the first part of the question. The earnings shortfalls as you can see in the press release year on year are Americas beverage and Europe beverage. America's beverage is going to improve because the change in customer mix that we had meant that we were transitioning into a somewhat different customer base during the first quarter and it took some time. So there is that. The other thing you need to remember is that the typical formula contractual cost pass-through in North American beverage as it relates to our cost of manufacturer are adjusted April 1 not January 1. So there is a lag and we are seeing that lag as well.

In Europe, the shortfall is largely the inability failure to pass through raw material price increases and we are confident we are going to get them as of March 1. But we had a two-month lag. So, we look ahead to the year we think beverage is going to bounce back very strongly on both sides of the Atlantic - still subject to the volume loss in the Americas that we talked about. And the balance of the businesses started well and we think are going to finish well also. So that's the basis why we think we are still going to have - in spite of the volume shortfall in North America - on balance a very good year. Alan may want to add to that and to the other parts of your question.

You know we -- at the moment as I said, we are sticking to 5 to 10% having, generally, as John said in spite of everything we were pleased with the first quarter and obviously he believes and I think he's right that we are going to do better going forward, especially with the pass-through of materials that we've spoken about. And it could be as you are suggesting that our 5 to 10% may have to be adjusted but I think, frankly, we would like to see what's going on in the second quarter before we make any change to that.On the free cash flow, the pension expense was 45 million which I think is what we are going to stick to at the moment as the cash 44 -- sorry, 44 million income statement income number.

Was that funding?

Sorry?

Funding? 44 million.

Yes. 44 million.

Thank you.

Chris Manuel.

KeyBank Capital Markets. Good morning. First of all, John, thank you very much for running through all the information you did. I thought it was very very useful and very helpful.

I have to say we didn't know we were going to be answering your questions until we read your missive this morning. So -- .

From the capacity standpoint you had talked about having about 3.2 billion additional units come online this year. Is that -- I don't know if I caught that right, on the annual basis or what you are anticipating for the fully year '06 versus '05?

It wasn't all this year. For example two - Kazakhstan and Cambodia are next year, 2007. The idea was it was annualized. I think the best thing is if you want to know plant by plant, give Tim a call and he can take you through that. But it layers in. As I said, all the additions are significant. That is to say, in every case they are full line additions so you could roughly assume same 4 to 500 million cans per addition.

Second question I had was, as we look at essentially two parts, is margins for -- is you've given us for beverage in Americas. As the year progresses would there be any reason why - as you recover some of this volume and do more custom cans and things of that nature - that the margin should not get back closer to at least where it was first quarter last year or potentially even higher?

I agree with you. I think margins should improve as we move into the year in beverage, and on both sides of the Atlantic, and that is what we anticipate is going to happen.

Is there anything structurally that would prohibit your margins and the Americas to be significantly different than what they are in Europe? Particularly, I'm referring to both beverage and food.

No. There's nothing structurally. In fact, you could argue that the consolidation is greater in North America than it is in Europe. So then you come around to individual competitor behavior.

Last question I have and I'll let others on is with respect to SuperEnd. Do you have any updates there? I saw in your K, I believe you discussed you have in the new party metal container that is paying you royalties. Any further discussions with licensing agreements for other folks?

We've had some discussions and we are reflecting carefully on what we want to do in that area. The SuperEnd's value has gone up dramatically since we invented it seven or eight years ago. Our cost advantage now we think on a per thousand basis is over $1. So it is a huge advantage and it is a better end. It's stronger and performs better than the current end that is in the marketplace for any alternatives that we've seen. So there's interest in licensing and, although at the moment we have been moving with those companies that we don't compete with directly - other than metal container and as you know they also happened to be a good customer through Anheuser-Busch. So recently we announced the new license with SuperEnd with [Showa] Can Company in Japan. That is where our focus is, licensing those companies that we don't compete with at the moment.

Alton Stump.

Thank you. Longbow Research. Just had a quick question on the lost business of course here in the U.S. in the fourth quarter. Kind of working through what you said this morning it sounds like about one or so billion cans was lost here in the U.S.. Is that about right? (indiscernible)

It's a little more than that and -- but it is somewhat more than that.

I guess a question on that is how quickly will that come back in terms of the additional capacity that you are building now? Is that a second half '06 story or is it more '07?

We are going to begin to regain it this year and it will carry on into '07.

Just one more question and then I'll hop off the line. With a major competitor just undercut on pricing it sounds like here in the U.S. is there any risk of that same competitor also doing the same thing in Europe this year with the recent round of increases that you've taken?

I don't know. I really don't -- I think you better ask them that question.

Yes. I guess as far as -- anyway in the first (indiscernible) of course the 1st of March, have you seen any sign of any major competitor cutting back on pricing at all?

No. In Europe so far, it would appear that our two principal competitors are facing exactly the same increase in aluminum and other costs that we are as we've been telling you ad nauseam; and it would appear we are going to be very successful in getting our price increases effective March 1. We do not know what the others are going to do but we suspect their increases will be affected not later than April 1.

Thank you.

(OPERATOR INSTRUCTIONS). George Staphos.

Thanks. I will try to make it quicker. In Europe, one of the other manufacturers has seen at least a temporary outage in capacity related to some unfortunate circumstances -- fire. Fortunately no one was hurt. But that would seem to be perhaps an opportunity for some of the other players to be able to sell a bit more can this year. Would that be true or is the market already relatively sold out? Or is it excess capacitize and this is a really good opportunity. Help us think through that thing?

I think the biggest factor is the capacity outage should provide better opportunity for the price increase to be effective in Europe; and that will occur if competitors don't use it as an opportunity to gain market share. We have no intention of trying to gain market share. We are going to maintain our market share. Our focus is on increasing the prices in Europe. And I think that is going to be the general response.

And back to North America and I realize it's a difficult question to ask or answer as a matter on an open forum like this but in beverage cans over the last several years, Crown -- our analysis would suggest that perhaps you lost a little bit more share than you gained. And it is an industry where there are four players. Do you think you are getting to a point with your North American beverage can business where it either becomes marginalized versus your peers or it's maybe become more of a vestige in your overall portfolio? I realize those are fairly (indiscernible) questions. How would you see it? Do you think it is a viable business or more than viable business going forward? Thanks.

Yes. First your premise is wrong. Our market share we've maintained over the past three to four years. So that has not been an issue. Keep in mind that in the U.S. and Canada, traditionally, we make and sell in excess of 20 billion cans which is to say we are essentially the same size as two other of the four competitors in total. So we don't have any size issue.The answer is no, we don't think it's marginalized. We do think -- we know we are going to regain the volume that we lost. I can just tell you that with an absolute certainty. So we are going to be right back to where we were and as we always are. Let me just give you 1000% assurance of that.

Thanks very much. Have a good quarter.

Sangita Jain.

Lehman Brothers. I just wanted to get an update on your stock buyback program. How much is it in the first quarter?

In the first quarter we bought back approximately 500,000 shares. You know you will understand that in the first quarter we used a lot of cash with working capital and so we have not been so prevalent in the market in the first quarter because of that. We don't regenerate all the cash as we go through into the third and fourth quarter. Therefore we did not buy so many shares. Half a million is the answer.

Thank you.

Amanda Tepper.

J.P. Morgan. Good morning. First your food can volumes were very strong, much stronger than we thought the market growth was - both in the U.S. where you said you are gaining share but also Europe. How and why are you gaining these volumes? I'm assuming since you are so firm on price elsewhere, it's not on price.

The European business has gotten off to a real good start. There might have been a little bit of prebuy in December, November/December '04 a little bit. And so we may have a favorable comp there. North America, that hasn't been the case. So it would just appear that, for a variety of reasons, our customers are drawing it more strongly than they have in the past. We are really not sure but our forecast at this point or as I described them to you - that is to say unit volumes across the board. So thank goodness we've got such a good strong food can business and we are pleased with it. The other nice thing about the food can business to keep in mind is it's inherently a much more complex business than the beverage can business. That is, say, different sizes, different ends, different easy open features, shaped cans, lithograph and so forth. And that really plays to our strength. We have a really strong research development engineering technical expertise. So we are able to exploit that and we plan to continue to do so.

And then as you are aggressively pursuing this growth in emerging markets both, are you still sticking with your approach of making sure you have your capacity spoken for, via some kind of customer commitment before you go in? And outside the Middle East are you doing more 100% owneds or how do you think about JVs versus 100% ownership of these markets (indiscernible)?

The first thing is, yes, we typically want to have committed customers before we spend $50, $60 million on an emerging market to build a new plant. Whatever it happens to be - beverage in that case. So we are doing that.

As far as the JV approach is, it's really a risk analysis issue. We believe strongly that in the Middle East it's important for us to have - as a strong supportive partner - companies and individuals, families, that are citizens, residents, pillars of society if you will of those countries. We do not think that we want to be a 100% owned commodity can producer, supplying local customers in some of these very volatile markets. Volatile politically even both economically we've had wonderful growth. It's been a great approach for us when we've have her local issues whether they are government issues, supplier issues, customer issues. The fact that we have a tremendous local partner in the Middle East - Saudi Arabian family that we have been in partnership with 40 years has been a huge benefit to us. Now as we look at some of the other emerging markets, we don't feel that that is necessarily required. Our new Cambodian plant for example will be -- is 100% owned by Crown. Our new Kazakhstan plant is 100% owned by Crown. And so on. So we take a -- we don't take a [doctrinaire] approach. It is not wrong to share profits with a partner. It is right to do so if by doing so you gain access to an opportunity you wouldn't otherwise have. We don't plan on changing our strategy.

Then with the restructuring in [Spain] if you can give a little color on what you are doing there? You mentioned there might be asset sales and also can you give us what the clean after-tax charge is, excluding options from that in the quarter?

Yes. First of all of I say we are restructuring our food can business and really what we are doing, Amanda, is we are going to give you some consolidation down there and the net effect of it is that we will be more efficient in that area. And as I indicated on the call, ultimately, there will be some asset sales which is going to pay for the vast majority of the expense involved. So it enables us to restructure, to become more efficient to have a modern operation without too much of input from cash, from our point of view. The net impact on us for that is how much? Seven?

7 million.

$7 million is the net amount.

After-tax in Q1. Thank you very much.

Dan Khoshaba.

USA Capital Partners. Good morning. John, the metal can volumes were strong pretty much across the board in the quarter and it looks like just globally metal can volumes are off to a good start. What do you attribute the strength, overall, to metal cans around the world?

Couple of things. One is the food can area in particular and aerosols too, continue, to be really a very low-cost way for our customers to take their products to market. In spite of the price increases we've implemented and in spite of the increases in steel prices it is the lowest cost way to [retorque] processed food and take it to market and that continues to be the case. I think possibly Dan and we don't know, possibly here - as oil gas runs up, as disposable income gets squeezed, and I just heard recently that in some areas, anyway, restaurant sales are down a little bit - it's quite possible that people are actually eating at home on occasion and that of course plays to our strength. I think that is true on both sides of the Atlantic. We are very pleased. It looks like it is going to hold up through the year.

Also, John, I've been reading up a little bit on the [CSE] business and it seems like Coke and Pepsi and not sure about Europe, maybe you can comment, but in United States there seems to be a little bit (indiscernible) as well. Seems to be a little bit more of a focus this year on advertising and selling volume. And I guess traditionally the can is usually one when that has been the case.

I think that's true and as you know it would appear in the first quarter beverage volumes, beer and soft drink in North America were pretty strong and we think that is also the case. I haven't seen industrywide numbers for Europe for the quarter. And Asia and South America have been booming. So I agree with you.

Good luck in the quarter.

Joe Stivaletti.

Goldman Sachs. I was just wondering if I could go over just a couple of numbers questions. You talked on the fourth quarter call about a CapEx for the year of about 175 and invested payment of about 25. I didn't know if you had any updates on those?

Capital spending. 175. That's the same number. We're staying on that. Asbestos. 25 million. We are staying on that.

And then on -- in terms of your cash tax situation, if we are in the range of your 300 million of free cash flow, would a cash to X bill for the year of in the neighborhood of 80 million? What kind of rough guidance would you (MULTIPLE SPEAKERS)

Cash taxes, we believe at the moment, will be around $70 million.

7, 0?

7, 0.

Okay. And I just wanted to clarify on the -- you know, it was very helpful to go through all the detail particularly with the situation in the beverage can business in the Americas. When this competitor went out and cut prices and that caused you to lose some share, what was your reaction overall in terms of your price movement?

I mean, I'm trying to understand how much you felt the need to cut prices versus hold your prices, and just trying to understand maybe a little bit about what we might expect as the year progresses there. You said things will get better but I know that, obviously, was the big drop in your segment and when we look at segment income was 12 million there in America's beverage?

We tried to minimize any activity on our part; and I think we did a pretty good job and we were fortunate in that several customers where we already had a very significant position we were able to enlarge our position for I think what they regarded as strategic reasons to try to be sure that they become a larger factor with us and would have more security going forward. So I think we did a pretty good job in that area and that's one of the reasons that after we get through the volume issue and we are confident of a significant rebound.

All right. That's very helpful. Thank you.

Kevin Cohen.

Most of my questions have been answered. As it relates to aluminum though, the past (indiscernible) I think the Company has talked about China as an area where it can be a potential issue. How do you guys see that shaping up? And what has the competitive response been in that market specifically?

Competitive response has been excellent. As you know we have one principal competitor in China, a U.S.-based multinational can company, and then a number of smaller companies. As far as we can tell everybody desperately intends to increase prices and fully pass through aluminum. And so once again it would appear that no one foresaw $2600 metric ton aluminum. Does not surprise us. We didn't. And we think it is going to be fully passed through.

I think the Company early articulated the raw material lag if you are relative to product price increases in Europe for the first quarter $8 to $9 million or so. What was it globally Companywide as it relates to aluminum and then also if you have it for all raw material costs? Aluminum, steel, all rolled up. That would be helpful.

We don't have it globally. It wasn't that great globally because pretty much every place we did pass it through. If you remember many of these markets there is already a convention of raw material pass-through or in places like Vietnam, etc. we are the only beverage can producer or we are the only significant beverage can producer. So we -- basically it's been passed through every place with the two exceptions we are discussing here today. And China is not that big a piece of our business. It's not very significant.

And then just lastly. Any other areas where you think potentially competitive action might occur from certain other players or substrates or geographies that we should focus on?

I don't think so. I really don't. We are not seeing any signs of it and it would appear that the very significant upward cost pressures on all of our competitors are being pretty -- have been pretty well equally distributed and the reaction we're seeing now in terms of determination to get price increases appears to be pretty uniform.

Lastly the second quarter, how has it been going so far? (indiscernible) expectations?

So far so good. Frankly we appear to be doing fine.

No surprises either way?

No. No.

Thanks a lot and the overview in the beginning was very very helpful.

[Andrew Shurley].

Ivory Capital. I was wondering as you recapture volume in the America's beverage segment do you expect to fully recover your dollar margin? Or will recent competitive dynamics make it tougher to recapture higher costs of freight, energy, labor, etc.?

We think we will. And largely because of the mix change I described to you but it is a little early to say. But that's certainly our intention.

Thanks.

Ghansham Panjabi.

One final question. You know, your expectations for the aluminum headwind in Europe during the second quarter and also how are you protecting yourselves from the event that aluminum tops 3,000 per ton? I mean that seems pretty realistic here.

What was the first part of your question?

Just you had an 8 to 9 million European aluminum headwind in Q1. Should we expect that to disappear in Q2?

Yes. We believe it's going to be successful. The next thing, how we are going to protect ourselves from $5,000 metric ton aluminum? Why don't we take that one on?

That's a good one.

Okay. There's only one way we have to have formula pass-throughs. What we've done in the past in some of the markets - Europe and Asia are great examples - is we simply had a once-in-a-year price negotiation, typically October, with our customers about the following year. Well that worked in the past. It doesn't work today. So what we have to do and what we are doing, as you know, is we have got to move our customers around the world to formula pricing of exactly the type we have in North America, South America, parts of Asia. And it just simply has to be done. I think it's indisputable.

By the way just to remind ourselves, the aluminum industry did this to a can industry about 10 years ago when they moved us to formula pricing and they said can sheet is going to cost whatever the L&E is that month more or less plus our conversion charge. Real straightforward. Real simple. We understood it, the can industry. We fought it like hell when they tried to impose it but the logic of it was overwhelming. So that's what we had to do globally.

Let me tell you what we can't do. We can't guess what the aluminum price is going to be next year because nobody ever guesses correctly, as you know.

Okay. Great. Thanks.

[James Daly].

Deutsche Bank. Just to follow up on that question. Part of your protection from price increases on aluminum are basically in the price (technical difficulties) you have any contract with your suppliers? There's been some rumors going around that one of your suppliers was -- had the ability this quarter that's a temporary release (technical difficulties) above those price ceilings. Can you comment on that?

Yes. The caps for the North American market, and as you know that's the only place it applies, are still in place. And all of our suppliers are honoring the caps.

Thank you.

Eugene Sakai.

This is actually [Randy Selleck]. Of Mortar Rock Capital.

You mentioned that you bought about a half million shares in the first quarter and you implied that you might have bought more but you needed the working capital for your first quarter. What is your thought on buybacks? Let's say the stock is at this price. I mean it seems pretty cheap. Is your goal to maximize your buyback here? How much do you have left on your buyback and what would you do going forward?

On the buyback we still have about 140 million -- 140, 50 million of availability. The point I was making was that in the first quarter in our industry, it's a very strong quarter from use of capital - working capital. So obviously we tend to be conserving our cash at this time in order to and especially with aluminum pricing doing what it's doing etc.

And obviously what we don't want to do is be using that cash to buy back stock at a time when we may need it for working capital. That's why we have held back in this quarter and that is why I was making the point that when the cash starts to flow in the 300 million free cash flow - which is a bit later in the year - then we will begin to be buying back more stock. And we have the 150 million and it is available over a two year period. This year, next year.

I would hope that (MULTIPLE SPEAKERS)

The point was later in the year probably.

Yes and I would hope that if your stock doesn't [appreciate] that you would look at that as a great investment in your capital.

Well, we don't disagree. As I say, we were a bit cautious this quarter especially with commodity pricing doing what they were doing.

Yes I understand. I appreciate it. Thank you.

Christopher Miller.

J.P. Morgan. Two quick follow-ups. D&A came in lighter than we expected for the quarter. What kind of run rate for the year, full year D&A -- where do you expect that to come in?

I think you are analyzing this number and getting like a 220. I think we will be higher than that, Chris. You've got to remember that currencies were down about 8% against the dollar quarter to quarter, year-over-year. And certainly the euro has been strengthening against the dollar recently. But I think north of 230 is probably a good estimate at this point.

Great. Just lastly, there's been some talks of potential strikes on the aluminum supply front. Any thoughts on that? Anything you need to do to potentially prepare for it or do you see it as a very minor risk at this point?

We don't have a good deal for the outcome of the situation. As you know Alcoa - that's who you are referring to - has said it's their intention to run their North American plants through a strike. And they seem to have a high degree of confidence in their ability to be able to run their smelters and converting plants - including can sheet plants - relatively successfully. So we are very aware of the situation. We are paying close attention to it. And we think we should be able to work our way through it. But obviously we are going to - as we get closer to it and we are already taking steps to see what we can do to offset it. There should be a shortfall.

I don't know if you disclose it. How much of your aluminum supply comes from Alcoa?

No, we don't disclose it. But we can tell you that we are not the most exposed to Alcoa by a long shot.

That's very helpful. Thanks so much.

That concludes Crown's first quarter conference call for 2006. And we thank you for your interest in the Company. Thank you.