Crown Holdings Inc (CCK) 2011 Q4 法說會逐字稿

Good morning and welcome to the Crown Holdings fourth-quarter and full-year 2011 earnings conference call. Your lines have been placed on 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. Tim Donahue, Executive Vice President and Chief Financial Officer. Mr. Donahue, you may begin.

Thank you, Shirley, and good morning to everybody. Welcome to Crown Holdings fourth-quarter and full-year 2011 conference call. With me on the call today are John Conway, our Chairman and Chief Executive Officer; and Tom Kelly, Senior President Finance. Before we begin, I would like to point out that on this call, as in the earnings 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 the press release and in our SEC filings, including comments in the section titled Management's Discussion and Analysis of Financial Condition, and results of operations in form 10-K for 2010, and in subsequent filings. A reconciliation of Generally Accepted Accounting Principles to non-Generally Accepted Accounting Principle earnings can be found in our earnings release, and if you do not already have the earnings release, it is available on the Company's website at Crowncork.com.

You will also find a reconciliation from net income to EBITDA, credit ratio computation, and supplemental cash flow data on the Company's website. I'll first review the quarter and year results and then hand the call over to John. We had a very strong finish to what's been another good year in 2011. Fourth-quarter, comparable diluted earnings per share increased 14% to $0.48 per share versus $0.42 in last year's fourth quarter.

For the full-year, comparable diluted earnings per share were $2.81 in 2011, an increase of 25% over the 2010 level of $2.24. Net sales in the fourth quarter increased 6% over the prior year, as strong emerging market beverage can growth offset weak economic conditions in Europe and a weakening euro and British pound sterling against the US dollar. For the full-year, net sales rose 9% over 2010.

Segment income at $192 million in the fourth quarter was up 4% compared to the prior year as strong emerging market performance offset unfavorable currency translation and lower manufacturing activity, which was planned to bring down year-end capital working levels. For the year segment income up almost 10% over the prior year.

Before we review operating segment performance, we want to provide you with an update on the flooding in Thailand and its impact on our operations. On our third-quarter earnings call in October, we noted the severe flooding conditions in Thailand. At that time, none of our plants had been affected. However, soon after the call, our beverage can plant north of Bangkok, one of the three plants we operate in the Bangkok area, was flooded.

Fortunately our food and general line plants in the Bangkok area were not flooded. The beverage plant is a two-line, aluminum can plant with a beverage end line. Almost all of the equipment, submerged underwater for six weeks, is damaged beyond repair. Fortunately the financial impact on Crown has been minimal and we are grateful that our employees in Thailand are safe, although their lives have certainly been disrupted and damaged.

As always, we are dedicated to ensuring the continued support of our customers' needs and we are now focused on a return to normal operations as soon as possible. We will rebuild in Thailand and expect to be back in operation by early 2013. Until then, we will support our customers' requirements in Thailand from other locations.

Turning now to our operating segments. In Americas' beverage, revenues increased 11% in the quarter and were up 8% for the full-year. Segment income at $85 million was up 20% in the fourth quarter and 10% for the full-year. Sales unit volumes in this segment were up 7.5%, reflecting strong gains in Brazil and Mexico, which offset a 4% decline in North America. We had consistent and outstanding performance in Brazil throughout 2011, and 2012 is off to a great start.

As a reminder, in the first half of 2011, we installed three new production lines, including two lines at the new Ponta Grossa plant, adding more than 2.5 billion units of annualized capacity to our Brazilian operations. Startups went extremely well, resulting in volume growth of 53% in the fourth quarter and 31% growth for the full-year. North American food revenues in the fourth quarter and full-year were in line with the prior year, as the pass-through of higher steel cost offset slightly lower volumes.

US volumes were surprisingly strong through the quarter and equalled the prior year, while overall North American volume was down 1.5% in the quarter. Segment income was $31 million in the quarter; and at $146 million was up 22% for the full-year, reflecting improved manufacturing performance, increased metal vacuum closure sales and benefits from the prior-year's restructuring.

European beverage revenues increased 5% in the fourth quarter due to the pass-through of higher raw material cost and 5% sales unit volume increases, offsetting currency translation of $10 million. Segment income was down $13 million in the quarter, reflecting our efforts to reduce year-end working capital by lowering production activity, price compression, and currency translation of $2 million. Revenues in European food were down 3% in the quarter due to lower volumes, the result of the 2010 pre-buy, which did not recur in Q4 this year, and weak economic conditions, both offsetting higher tin plate pricing.

Segment income at $37 million was down $5 million from the prior year due to lower volumes, lower manufacturing activity, which was planned to lower working capital at year-end, and currency translation of $2 million. For the full-year, segment income improved 7% as ongoing productivity gains, cost reductions, and currency translation all offset the impact of 4% lower volumes.

Fourth-quarter segment income and specialty packaging improved over the prior-year, and for the full-year rose 36% on the back of increased sales unit volumes and productivity improvements. Our non-reportable businesses, that is China, southeast Asia, our can making equipment business in the UK and our US and European Aerosols business all performed very well during 2011, with sales in segment income up 16% and 14%, respectively, for the year.

Despite the flooding in Thailand, beverage can sales remained strong throughout China and southeast Asia, and were up 21% in the fourth quarter, offsetting lower Aerosol sales, the result of customer buy-aheads at the end of 2010. Demand remains very strong throughout Asia, and we will again add significant production capacity throughout 2012.

In 2011, we completed a new plant in Hangzhou, China, and added a second beverage can line in Cambodia. In 2012, we will complete three new plants in China, begin construction on two additional new plants, as well as a second production line in an existing planted in China, and add more capacity in Vietnam. We expect our capacity expansion program will result in continued improvement across China and southeast Asia results for 2012, with much more of the benefit accruing to 2013 and future years.

So to summarize, we had another good year in 2011, with most businesses outperforming 2010. Unit volume growth in the emerging markets improved manufacturing performance, and a continued focus on controlling cost offset weakening conditions in Europe. As a metal packaging Company, we continue to realize the benefits of our product and geographic diversity despite the volatility of the last several years.

We ended the year with net debt just under $3.2 billion, up $600 million over the 2010 level, primarily due to $328 million of North American pension pre-funding and the repurchase of minority interest totaling $202 million. During the fourth quarter, we also purchased $100 million in common stock; and for the year almost 8 million shares were purchased. Credit quality remains strong as net debt to adjusted EBITDA ended the year at 2.8 times and interest coverage at 4.9 times.

For the year, net interest expense was $221 million and should be similar in 2012. Our tax rate from ongoing operations was 25.5% in 2011, slightly below our prior estimate due to improved results in countries with lower tax rates. For 2012, we currently project a tax rate of 28.5%; and that increase will largely be offset by a reduction in minority interest expense.

Pension expense in 2011 was $97 million and is projected to be the same in 2012, as the pre-funding offsets the impact of declining interest rates and lower asset returns. Pension contributions, including the pre-funding, totaled $404 million in 2011, and are estimated at $135 million for 2012. Capital expenditures in 2011 were $401 million with more than $300 million being for capacity expansion primarily in the emerging markets.

For 2012, we expect CapEx to total $325 million, excluding the cost to rebuild Thai beverage capacity, which will be covered by insurance. Just to summarize, and excluding Asian reconstruction, we expect to complete five new plants; three in China and one each in Brazil and Turkey, add more production capacity to Vietnam, and begin construction on three additional lines, including two new plants in China.

Looking ahead, the Company expects emerging market volume growth and productivity improvements to increase earnings in 2012. However, we do remain cautious, as there is still considerable uncertainty surrounding global economic conditions, particularly in Europe. First-half earnings are expected to be similar to the first half of 2011, due to the impact of inventory repricing in our steel products businesses.

For the full-year, we currently estimate full-year comparable earnings per diluted share at current exchange rates to be in the range of $2.90 to $3.10 per share. Free cash flow for 2011 came in at $333 million, a little below our expectations, as surprisingly strong US food can volumes and larger-than-expected volume increases in Brazil accounted for more than the shortfall amount.

For 2012, after capital spending of $325 million and cash spending for restructuring projects, we currently project free cash flow of at least $325 million. And with that, I'll turn it over to John.

Thank you, Tim and good morning. As Tim pointed out, we had another excellent quarter which concluded a successful year for our Company. There will always be ups and downs for our various businesses around the world in our multiple, metal packaging productlines, but the sum of the outcomes, we think was very good.

First regarding 2011, our businesses performed very well, and we continued to execute our overall strategy successfully. Our earnings for the year increased on a continuing basis by 25%, and our free cash flow at $333 million was significant, given the number of surprises, many favorable to income, but not for cash. Our capital program was very successful, and we deployed $400 million primarily supporting capacity additions in our excellent, emerging markets businesses.

We continue to monitor the rate of capital expenditure in the emerging markets to ensure that our efforts are appropriate in light of the growth that we are experiencing and that we foresee. We think that the unit volume growth in beverage cans that Tim referenced for the fourth quarter of 2011 and the full-year validates our strategy and confirms that the actions we took as much as three years ago and continued through 2011 were the right ones.

As for the fourth quarter of 2011, generally the results were very good. Our businesses in the Americas and Asia performed very strongly. Unit volumes were strong and profits were up as well.

Europe deserves a discussion. The fourth-quarter results reflected lower volumes in our Food Spec Pack and Aerosol businesses, which were a product of generally-low demand in Europe. Our customers were being cautious and were avoiding, at all cost, packing cans they were not confident they could sell quickly.

With regard to the European beverage business, although volumes were good, profits declined versus prior-year as a consequence of margin compression due to price activity, which we had seen earlier in the year, but which is much more apparent in a seasonally-low volume fourth quarter. But taking the Company's performance as a whole, we think that the quarter was quite successful and reflected good execution overall.

As Tim mentioned, over the course of the year we continued to purchase carefully-selected joint venture interests in our emerging markets businesses. And of course, we returned $312 million to our shareholders through share repurchases.

Looking ahead to 2012, the Company's position in prospects are excellent. Our goal is to maintain strong, healthy businesses in the developed markets of western Europe and North America. At the same time, we will continue to grow our emerging markets businesses in South America, eastern Europe, the Middle East, China and southeast Asia.

Tim mentioned briefly the restructuring program in Europe. We are studying opportunities to improve our cost structure in Europe. You may recall that several years ago, we instituted a major restructuring of our North American Food and Aerosol businesses with outstanding results. We have something similar in mind for Europe. The results will be evident in 2013.

Regarding our earnings performance in 2012, Tim has pointed out the reasons for our caution. Demand in Europe in the second half of 2011 was weaker than expected and we are being conservative in our view of the pace of recovery. All of you are as well-educated as we concerning European issues, so you can understand the basis for our caution. Our other markets should do very well with growth continuing.

However, as new capacity comes online, we will be in multiple, learning curves during the year so that profit benefits will be seen more in 2013 than 2012. Having said that, we expect all of the emerging markets to perform strongly in 2012. Our momentum is strong and positive throughout the world. Our position in every market in which we are present has continued to strengthen, enabling us to serve our customers more effectively with a broader product range and better geographic coverage.

And finally, our capital spending program for 2012 reflects our continuing commitment to support our customers' growth plans globally but particularly in the emerging markets. So, with that, Shirley, I think we are ready to open the call to questions.

Thank you. We will now begin the question-and-answer session. (Operator instructions) One moment for our first question. Our first question comes from Phil Gresh with JPMC. You may ask your question.

Good morning.

Good morning, Phil.

First question just with the guidance, could you quantify the impact of the inventory repricing effect?

I don't have it in front of me, but it's certainly on a year-over-year impact in all of our steel businesses around the world. You got me guessing here. I'm going to say somewhere between $15 million to $20 million.

Okay. So that would be a one-time item that theoretically should not impact forward years?

No. I mean, this was the rollover impact, the benefit we had in the first quarter of last year, that does not recur this year, that's right.

Oh, okay. Got it. Okay. And then with Europe, you had talked about the price compression there. Your peers have talked about it as well. It sounded like from your tone, that it hasn't gotten any worse than what you saw earlier in the year. It's just that the seasonality affected it; is that accurate? Or has it actually gotten a little bit worse here as the year has progressed?

No, I think that's accurate, Phil. It hasn't gotten any worse since we called it out I think six months ago; and as we said, you're just seeing it as seasonally our volume is lower. Overall the market grew about 5% in Europe. We were up nicely in the fourth quarter in Europe. And so, demand characteristics are fundamentally good, but some of the things that happened, they just become more apparent as the year rolls on.

Okay. And then on Brazil, obviously the demand there was exceptionally strong in the fourth quarter. One thing I noticed in your release, is you did not mention anything about the Belem project, so I was just wondering if you could give us an update in terms of what you're thinking there from a timing standpoint.

Yes, at the moment, a couple of things, yes, the demand was very strong in Brazil. And the market growth was good in Brazil, not extraordinary, but I think what occurred, of course, was that we took a view three years ago the Brazilian market was going to be very strong; and we had an opportunity to do some things to fill some geographic holes in a significant way that would enable us to participate in the growth in Brazil in an outsized way. And that's exactly what's happened.

Our market share in the fourth quarter I think is up towards 30% in Brazil, so almost doubling over four years. And as far as Belem is concerned, we are going to continue working along on it. We are thinking at the moment that we will complete the plant towards the end of the fourth quarter of 2012, so you'll begin to see the benefits in '13, but not much in '12.

Okay. And then just one question on the free cash flow guidance. How much -- within that $325 million, what are your assumptions around both, A, restructuring costs, and, B, working capital?

We have assumed working capital is flattish, slight positive to cash. And restructuring disbursements, roughly $60 million to $65 million.

Okay. All right. I'll turn it over. Thanks.

Thank you.

Thanks. The next question comes from Tim Thein with Citigroup. You may ask your question.

Great. Thank you. First question, Tim, just in terms of the full-year guidance, is it possible to give even just kind of directionally, they parse out the earnings contributions based on your guidance that you've given between the organic business and then the contributions from the new projects that were started up in 2011. Just trying to get a feel for it. It looks to me, and you can correct me if I'm wrong, but your base business is flat to maybe slightly down in 2012? Is that a correct read?

Well, I think when you -- we just talked about the benefit that we had in 2010 from inventory repricing. And because of -- obviously, that doesn't occur every year, so we don't have that this year and that's why we said the first half this year would largely be flat or similar to last year. But when you recognize that we are not going to have that this year, then what you've just said is, in the steel products businesses is potentially correct. Although we are hopeful that our steel products businesses will be able to overcome that and will be flat to last year.

Having said that, so outside of the steel products businesses, beverage in North America and Europe as well as the emerging markets, we expect to perform better than last year. But I don't think we have anything here where we could parse out for you emerging markets or contribution from recent projects. I don't think we want to get into that level of detail given the public nature of the call.

Okay. And just you mentioned that on the pricing outlook in bev cans in Europe. Can you comment, it sounds as though you've had some of your competitors take different approaches in terms of both sourcing as well as pricing off tin plate in Europe in 2011. I'm just curious, in light of the current environment, what your outlook assumes there from a price-cost standpoint, ex any inventory swings related to tin plate. So just underlying price cost in Europe food.

Well, going forward, we think the European beverages from a price cost standpoint is stable. And as Tim said, we think we are going to get the benefits next year of volume growth and efficiencies improvements and so forth, productivity improvements, not impeded by price activity. Overall the European market, we would characterize in beverage as being in very good balance. Virtually everybody we think finished the year on an annual basis with operating rates of over 90%.

As we looked at it -- and I don't want to spend a lot of time on the call -- we think what may have happened was there was some geographic imbalances that were corrected by those who felt they had serious geographic imbalances over the course of '11; and that may be the source of the price activity, but whatever. At least, as I said in the second half of the year, we didn't see it, but we saw it pretty markedly in the first half.

Thank you. Our next question comes from George Staphos with Bank of America Merrill Lynch. You may ask your question.

Hi, good morning. It's actually Benjamin Wong filling in for George, who is on another call.

Hi, Ben.

Hi, guys. Can you just comment on how trends are in Brazil early in the year? I know we are well into the summer there, but if you could comment on new capacity startups and also on the broader market. Thanks.

Well, the market continues to be strong, so we are anticipating a very good year for '12, as Tim said. All of our capacity came online we think very, very effectively. Give you a sense of, we have three, very large beverage can plants, one in the south, one in the middle of the country, one in the north; and all are running exceptionally well. We have just been very, very fortunate in so many things down there, and so we think Brazil is going to be very strong this year, strong for us, strong for the industry. We think it should be good for everybody.

Okay. Thanks, John. And Tim, do you have -- what should we be expecting for DNA or thinking about for DNA in 2012?

I think up about $10 million to $15 million over the 2011 number.

Okay. Thanks.

You're welcome.

Thank you. Our next question comes from Chris Manuel with Wells Fargo. You may ask your question.

Good morning, gentlemen.

Good morning, Chris.

Couple quick questions for you. First if we could start on, you bought back a couple of your minority partners, looks like $50 million in 3Q and an incremental $150 million or so in 4Q. Could you give us a little more color as to what geographies, what you were able to pull back in, things of that nature and what that might do for minority interest?

Tim will do that; and maybe as he does it, he'll give you a sense of what our overall position is as a result if we don't go into details about individual acquisitions.

So Chris, what we have been working on the last two years was buying out various minority positions in China. And so we've completed, with the exception of one very small joint venture, whose terms of the joint venture expire in early 2013, we have completed the purchase of all minorities in China. And we now own 100% of all existing and will own 100% of all of our future projects in China. We made a couple small purchases of some smaller amounts in Vietnam. And so in Asia, Vietnam is the only other area where, in fact, where we have minority positions, but they only range from 4% to 30%. So some small, small positions. So across Asia, with the exception of Vietnam, as I mentioned, we now own 100%. We still have a 50% partner, very good partner, very loyal and strong partner in Brazil.

We still have our partnership arrangements in the Middle East. And the other activity we were able to complete this year in the early fourth quarter was the buyout of the remaining public shareholders in our Greek and Spanish beverage companies. Spain being owned by Greece, but that company was a public company traded on the Athens exchange; and we bought somewhere between 15% and 20% of the shares, the remaining shares, in the fourth quarter.

Okay. So that was the $150 million piece?

And there was some China activity in that $150 million as well.

Okay. And the last follow-up within there, can you give us a rough sense as to what minority interest might do then, given these changes, looking forward '11 to '12, I think it was, if I got my number right here, 111 in -- (multiple speakers)

Yes. And so, what I said was the tax rate was going to go up three percentage points this year, from 25.5% to 28.5%; and that would be offset by a reduction in minority interest. So minority interest should come down roughly $20 million.

Okay. The second question I had was -- (multiple speakers)

Understanding it comes down $20 million, even though the profits are going up in some of the companies we have, such as Brazil, right?

Right, I'm with you.

Yes.

The second question I had before I bounce it over is from the sounds of the capacity increases and things that you still have coming, are there any incremental adds that you've made in there for new plants, new facilities, places that you don't have press releases out on with locations, things of that nature today, number 1? And then number 2, as you look at where you're positioned, where are you still projected to be somewhat tight that as you look into '13 and '14 and beyond, that you may still have room to continue to add?

Okay. I'll take the first part of the question and John will take the second. The capital budget, what we said for next year was $325 million. And as I said, Chris, that excludes reconstructing the Asian capacity we lost in the Thai flood.

Yes.

Obviously, we've given you a full roster of projects over the last couple of years; and you know what we have announced. But we will always be out prospecting and looking for new opportunities and customers coming to us with opportunities. There may be one or two projects in that capital number that are not yet announced, but we are certainly not going to go into that on this call. And then I'll let John talk about the second part of the question.

Yes, and to listen to your question, there's nothing making a contribution in 2011 that you don't know about. But generally speaking, just exactly what you would expect, Brazil we think we've got covered. We don't have anything planned right now beyond Belem, but if the market continues to grow over time, we know that we will be continuing to invest there.

Asia continues to be a source of substantial growth for us, and we really think our market estimates for beverage can growth in China, for example, are relatively conservative when we look at outside consultants, when we listen to what some of our can sheet suppliers have to say about the market, we are being quite conservative. So it's possible that there are more opportunities in China that we haven't yet announced. We are looking at it constantly, of course, big country. Southeast Asia, something similar, and we've had great success there. And so it's quite possible that we will have additional opportunities there. But we don't have anything on the drawing boards as we speak, Chris.

Okay. That's helpful. Thank you for the color.

Thanks, Chris.

Thank you and the next question comes from Alex Ovshey with Goldman Sachs. You may ask your question.

Good morning.

Good morning, Alex.

Can you talk about on what the priorities for free cash flow use will be in 2012? And what is the appetite to buy back stock above and beyond the free cash flow generation in '12, given the natural deleveraging in the business that you see from EBITDA going up into emerging markets?

Obviously, like many companies, especially in the packaging space where we do generate a lot of cash flow and we are confident in our cash flow abilities, we always have a focus on deploying cash flow to grow the business or return capital to shareholders or both. Certainly in the recent history and in the future, if there is an absence of compelling acquisition opportunities, we will choose to buy back stock. As for your specific question, are we willing or would we potentially lever up to buy back stock above the free cash flow amount, I think the answer to that would be, we would look to buy back stock this year in an amount no more than our free cash flow. I think there's going to be a combination of significant portion of the free cash flow going to buying back stock and some small deleveraging.

That's helpful, Tim. Can you just comment on how many billion beverage cans were shipped in 2011? I think you've publicly talked about 48 billion cans as being [the base number for '10]. (multiple speakers)

51 billion.

And if all goes well, would the capacity start-up in the EM, what does that number look like for you in '12, based on the guidance you have out there?

I don't think I have that number, but it's certainly going to be up another 3 billion to 4 billion. But I just don't have the number. It's not just the capacity that we are going to start up in 2012. It's the full-year, full learning curve effect of capacity that's come on in '10 and '11 as well.

We've got a lot of moving parts. As Tim said, yes, we're going to benefit from capacity installed in '11 running more effectively in '12. On the other hand, you've got to be a little bit cautious, because as these new plants and lines come on in '12, as you mentioned in the comments, you start a learning curve; and takes us typically six to nine months to get to full capacity. So the 3 billion, 3 billion to 4 billion looks like the right number, but as we said earlier, frankly at the moment we expect, although it's going to be a nice benefit in '12, we expect a very significant benefit in '13.

Okay.

If you thought about 51 billion this year, think about 54 billion next year.

Okay. That's helpful. Last question, as we think about the CapEx requirements to take your beverage can capacity from 48 billion in '10 to north of 60 billion, has most of that CapEx been spent between '10, '11 and '12? So if you don't want to announce new projects between now and the start of '13, your CapEx number for '13 would go down to more maintenance type levels or is there any CapEx flow-through for this expansion project then into '13?

We know that we will be spending significant capital, perhaps not as high as '12 and '13, but we are going to start now throughout Asia, China and southeast Asia in particular. We are going to start getting the benefits now of the many factories that we have constructed. And we've got very good geographic coverage through the entire region and that's been our goal, so that now as the market continues to grow, we are going to be able to add machinery equipment to existing facilities. When the capital cost per thousand cans produced, as a consequence, starts going way down, returns go way up; and you drive your costs way down. And if we carry this all out as we plan to, we will be able to spend less capital, but get just as much capacity as we have been adding over the last couple of years, drive our costs down, and we think leave ourselves as we are now in a very, very good competitive position to respond to price issues, et cetera. So we think the cost base, if you will, is going to be absolutely first class as we finish all this. It already is compared to the competition, but we think it's going to get even better.

Thanks very much.

Thanks. Next question comes from Al Kabili with Credit Suisse. You may ask your question.

Yes, thanks. I guess first question, Tim, on the inventory repricing in the $15 million to $20 million, wasn't that last year more of a 1Q event? I'm just trying to understand how that reconciles with the flat first half '12 versus '11.

Some of it carries into Q2, but you're right, most of it's a 1Q event last year. A little bit would have carried into Q2.

So to be flat for the half year, '12 versus '11, does that imply first quarter is down?

No, I think -- remember what John also said. I think what it implies is flat for the first half of the year, which could imply flat for both quarters. John mentioned that we are going to be in multiple startups and there will be impacts of multiple startups; and then the other item is obviously currency translation. The euro right now is about 6% to 7% weaker than it was on average for 2011, and a bit weaker than that than it was in the first half of last year. So currency is a fairly large headwind in the first half. Where we are at today, it won't be a big headwind in Q4 of '12, so most of the currency impact will happen in the first half.

And now in terms of the startup costs that I think you're having a lot, China starting up in the second quarter, is that what you're referring to? How big of a headwind could that be?

In China, we've got three plants starting up, one each in each of the first three quarters of next year; and we are going to immediately double the size of the plant that starts up in March of '12, begin doubling the size of that by putting a second line in. And if you thought about startup, maybe it's per line, $0.25 million per quarter.

Okay. The Middle East, if you could talk a little bit about what you're seeing in the Middle East right now with the turmoil?

Well, demand overall held up pretty well. We've had weakness in spots, though. We've talked about it before. But when we talked to our customers and we consider the medium term outlook, we think the Middle East market should be growing at about 8% per year. We think that's a relatively conservative estimate. Our customers are much more bullish than that, so the overall market prospects are very, very good, but the month-to-month, week-to-week basis is going to be a little bit choppy.

Okay. As far as the Slovakian operations, I know there was some operational issues there. Where are you with respect to that, addressing those issues?

We are largely through that, we think, from a capability standpoint with respect to our people and so forth there. They have turned themselves, over two years, into pretty good can makers at this point. We've got some technical issues and some capacity bottlenecks that need to be resolved. We are going to be doing that in the March, April time frame. And with that, we will be completed. But the plant is running much better; and with the technical things that need to be done, we will come out of it, we think, in outstanding shape.

Okay. And final question, I guess for Tim, in terms of the low end of the guidance, can you just help us, what you're assuming there, because it sounds like you're not going to see any incremental pricing pressure in Europe. The operations in Slovakia sound like you've got that under control. Middle East seems like it's a little choppy, but not falling off a cliff. And you've got the improvement in the ramp-up of the projects, the new line. So I'm just trying to understand how you get to the bottom end of the outlook. Thanks.

I think everything you've just said, we may agree, with one or two small exceptions. The bottom end of the range represents, perhaps, us being a little overly cautious as it surrounds Europe and the news flow out of Europe and any potential macro event that could occur in Europe that would damage the euro as a currency or demand in Europe overall if there's some real shock to the European system.

Okay. That's helpful. Thank you.

You're welcome.

Thank you. Next question comes from Ghansham Panjabi with Baird. You may ask your question.

Hi, guys. Good morning.

Good morning.

Tim, the cash restructuring that you quantified at $60 million, $65 million is a pretty big number. Can you share with us what that encompasses? Is that right-sizing the European food can business? And also what kind of capacity are you planning on taking out?

Yes, Ghansham, it's largely focused, as Tim said in his comments, on Europe; and we don't have specifics yet; and we won't have specifics until we work our way through the various constituent groups in Europe that we need to consult with under their legal requirements. So that's in process, but we have a good conceptual plan of what we are trying to do. And largely it's to consolidate capacity, and the result of which is going to be the remaining factories are going to be far more efficient and effective than the ones that we have in mind. So we don't want to get more specific than that, but what we've tried to do was reference of course what we did in North America. I think you know some of the details of that. And I think you have seen the results and the benefits of the restructuring program in North America in segment income in Americas Food and Closures for example. And it's embedded in the non-reportable segments in Aerosol.

That's what we have in mind. We have been looking at some opportunities for a number of years. We don't like to do restructuring's until we feel that we've got something really solid and something we almost just cannot miss on and that's what we think about this one.

Okay. So John, what about the time line? Is this an 18-month project, 24 months?

No. It will be completed this year. We will see some benefits this year, but the bulk of the benefits will be in 2013.

2013. And there's no structural reason that European Food operating margins can't mirror the trajectory that you saw in North American Food, right?

Well, North American Food, the people here did a phenomenal job. Yes, if the Europeans can do as good a job, we are going to see a benefit.

Okay. And switching to pension, the $135 million in 2012, I would have thought that the pre-fund in North America would have given you some sort of pension holiday. Is there still a residual contribution into North America in '12?

There is. The timing of our pre-funding technically, Ghansham, had we made the pre-funding by September 15, and not in December, we would have had a holiday in 2012 carrying on for several years. But it was just the timing, just, it's a technical timing issue. So there is, I think, $65 million of -- Tom is shaking his head yes. $65 million of US funding in '12, and then we will have holiday in '13, '14, and perhaps '15.

Okay. And just one final one on the minority interest. You said $20 million lower. Is that going to flow through to the cash outflow component to the NCI dividend?

We would expect certainly the dividends paid to minority to that trajectory to mirror the minority interest on the income statement, yes.

Thanks so much.

Thank you.

Thank you. Next question comes from Philip Ng with Jefferies. You may ask your question.

Good morning, guys. Just want to get some thoughts on the seasonality of your Americas [beverage] business. Historically, North America dominated that business in 2Q. And 3Q was much bigger. And Q4 was obviously quite strong from Brazil. So how should we be thinking about that going forward?

Tim will comment. You're right. It's changing, and not only Brazil, but Asia too to a degree, because Chinese New Year tends to be a period of bill by our customers in the fourth quarter and into the first, but, Tim, you might want to pick it up.

Yes, I think you're right, Phil, historically the second and third quarters probably made up at least 60%; and maybe that number is somewhere between 53% and 55% now, just given the growth of Brazil in Americas beverage, that is. And John's point with respect to Asia is the same. Obviously, you've got Chinese New Year, which this year as you know, was quite early. And in Brazil obviously you have Carnival and the high season. So, yes, it is changing; and the working capital requirements associated therewith are changing as well, as we continue to build the businesses, until we are done, let's say, building. If we are ever done, given the tremendous opportunities that, as John mentioned, we see throughout many of these regions, we are going to continue to not only invest capital but in a small way invest some working capital at year-end as we look to meet customers' peak season demands, so we will have to do a better job of managing that. But I would say it's moved a few percentage points in the last couple of years.

Okay. And quick question on China. Some of the regional competitors in that market have added capacity and are coming online now. Have you seen pre-discipline behavior on the pricing front? I think one of your competitors alluded to some modest price erosion, so I just want to get some thoughts on that. And have you been able to offset some of that potential pricing pressure from the incremental capacity that's coming on with better learning curve and whatnot?

Yes, you're right, we are not the only ones who see growth in China. However, we know we have a comprehensive understanding of who is adding capacity and who says they might add capacity; and this ranges through the more major companies right on through the smaller companies. And so at times there is a little price activity; it's not so much associated with any supply-demand imbalance. It just might be associated with somebody adding new capacity and wanting to sell it out quickly. But then the situation tends to correct itself. So we think medium term, even longer term, we are in good shape.

And the other of course is that, yes, our learning curve, we come up pretty quickly, but our idea, our big idea, among other things, in China is run more efficiently and effectively than the local competition, run with lower spoilage, drive your costs down lower, make more cans under one roof. And we think we are going to do very, very well from a competitive cost disadvantage for the foreseeable future.

Sticking with that theme, in the past when you guys have brought on capacity, the startup costs, it didn't seem like it impacted margins as much. 2012 seems to be a bigger issue, is that fair or I'm just reading too much into that?

It's a bigger issue only given the number of projects we have.

Sure.

In the past we've had two projects perhaps, but right now we've got five projects underway, so -- and as we are completing some of those projects, we are going to be starting new projects, just the number of projects.

I think what we are beginning to remember, what we are doing here, what we are trying to do, we are the biggest metal packaging company in Asia if you exclude the Japanese. That's the China and southeast Asia business. We have been growing at a fairly dramatic rate. We continue to grow at more or less the same rate, but off a much bigger base, so we are building a major metal packaging company in China and southeast Asia. And it's quite an effort. It's going very well. We've got the resources for it. We are fortunate that we build our own equipment. We've got outstanding project management capability. We do it all in-house. We do our own engineering, and our people now, particularly in Asia, but throughout the world, we've had a lot of practice for a long period of time, but a lot of intense practice over the past couple of years, so we are very good at what we do.

But as Tim said, this is a lot of activity and a lot of new plants starting and they are a drag in the first six months. There's no way around it. So that's what it is. But it's no different in kind. It's just more of.

Okay. Thanks, guys.

Thank you.

Thank you. Our next question comes from Debbie Jones with Deutsche Bank. You may ask your question.

Good morning. I'm just curious, sticking with China, what is your market share in the region currently? And then with all your capacity coming on, I'm just wondering if you plan to grow share in the region over the next couple of years or if you're just rather going to be in line with the rest of the growth?

Yes, our market share in southeast Asia is around 65% to 70% now, talking from memory. We don't think we are going to grow that at this point, but we think we are going to maintain it. Our share in China is right around 20%. We will probably grow that share based upon our current trajectory and what we know about competitive plants.

And then you said -- (multiple speakers)

Just one last thing. Generally speaking, we don't care about share. We think it's a highly irrelevant statistic. What we care about is product coverage, geographic coverage, and the cost base of our factories. So whether we have 20% share or 40% share means nothing to us. It's whether we've got good geographic coverage and we have low cost plants. That's the critical part. Market share doesn't do a damn thing in this business.

Okay. Fair enough. And again on China, with all the capacity coming on, I know you said you feel like you have the sources for the expansion plans, but I'm just curious if you're seeing some competition for the human capital needed to add all this capacity?

Well, there are two aspects to it, how we manage the projects, do the engineering, do the startup, so forth; and we've got our own in-house people who do that all around the world. Of course we've got some focused on Asia, but we are just fine there. With regard to the new plant starts, it's true that good skilled can makers are increasingly scarce in China, but generally speaking our experience has been that, both in China and southeast Asia, the local citizens love to work for multi nationals that treat them well, pay them well. We do, and so we have not had any difficulty.

All right. And then just last question. I was wondering if you could just quantify the FX impact that you would have embedded in your guidance? I know you talked about it, but if you just have a range you could provide.

Yes, I'll give you a number. You promise not to hold me to it, which I know you're going to, but if you thought about $0.10, $0.10 per share for the year, I mean that's what we are looking at right now. It's a pretty sizable number.

Okay. Thank you very much.

You're welcome.

Thank you. Our next question comes from James Armstrong with Vertical Research Partners. You may ask your question.

Good morning.

Good morning.

First on Asia, given it's growing, do you plan on breaking out the segment in the future? And can you give us an idea of how big the Asian business is relative to the non-reportable segment now?

Yes. The Asian business in 2010 was $700 million in sales and just under $900 million in sales in 2011. And obviously we would expect that number to grow again. Whether it grows another 20% or not, I don't know, but certainly over the next several years, we would expect that business -- it would not be unlikely for that business to be $1.5 billion or $2 billion in revenues in the next five or six years. But again, that's just looking forward if growth continues in that region.

Will we break it out? Perhaps we will. We manage the business. We've got a number of countries. It's not just China, it's all throughout southeast Asia, as John mentioned. There's another five countries in southeast Asia; and so we will continue to review that.

Okay. Switching gears. On working capital, according to your cash flow statement, working capital was a use of funds by $55 million in the year, whereas the balance sheet working capital dropped by $37 million by our calculation, and should have been a source of funds. Can you help me understand what went on here?

Yes, it's foreign currency. So the year-end currency rate, the ending rate for the euro, for example, was 3.5% lower in '11 than it was in '10, so it's currency. It's just the translation at the actual rate versus an average rate for the year. So the cash flows come throughout the year, whereas the balance sheet is translated at the spot rate on December 31.

That helps. And not to beat a dead horse, but on your expansion plans, everything except one can line is expected to start up within a year. As we look out into the future, will the pace of the expansion continue at the six to seven can lines a year rate or should we expect a drop-off as we go into '13 and '14?

Yes, we think you're not quite correct on that. Tim mentioned a number of plants that we will be beginning construction on in '12, and those of course, we will have to think a little bit about that. But, yes, there are plans to add more lines and the lines will be coming on in '13. I can't recall how many we said are going to -- (multiple speakers)

Three. Two new plants, three total ones. (multiple speakers)

Three lines coming on in '13 at this point.

Okay. That helps. Thank you.

Thank you. Our final question comes from George Staphos of Bank of America Merrill Lynch. You may ask your question.

Thanks. Hi, guys, good morning. Apologies for coming on late. I think the question has been asked a couple of different ways from what I heard, but I'll give it another shot. What do you think, in the realm of normal probabilities -- again we won't hold you to anything. But as you sit here today, what capital spending could look like say by 2014?

George, it's really hard to know. You tell me what do you think the growth is going to be in China, southeast Asia, Middle East, Brazil in 2013 and '14.

Okay.

And I'll tell you what I think the capital is going to be. But I do think, George, I do think, and if you weren't listening earlier, you probably weren't, we have reached a point now, we believe, in China and southeast Asia where our rate of building new buildings is going to decline dramatically. So new capital increasingly is going to be added to existing sites. And that in itself will cause capital to come down in Asia. And Asia is a big part of our capital component, as you know, relative to capacity being added. So that alone is going to bring it down, but to speculate now for '14, I'd have a little difficulty, but Tim wants to give it a try.

What I will say, George, I know we went through an exhaustive explanation for some of the investors on our Q4 call last year, whereby we described how we characterize spending via expense and/or capital as it relates to maintenance. And as we described to you last year, we have been consistently spending in North America and western Europe about $100 million per year. Roughly half of that is maintenance and half of that is growth capital in those two markets. The bulk of the balance of the capital is all growth in the emerging markets. So whether that number is another $100 million, $200 million or $300 million remains to be seen, as John said. But one thing is for sure, the pace of our EBITDA should increase in the future given the recent expansion we have had.

So as a percentage of EBITDA, if you're looking at converting EBITDA or EBIT to cash flow, we should be able to convert, even considering similar capital levels if we continue to grow and spend money in Asia as we have been, we should be able to convert more EBITDA to cash flow given that if CapEx stays similar or slightly declines, the EBITDA is going to go up. I don't know if that helps.

Yes, no. I mean, it's logical, Tim, and we appreciate the thoughts. Considering what the capital cost is for a line as opposed to a line plus the brick and mortar, would it be fair to say that whatever the growth rate has been, and we will go back and look at that relative to the revenue growth you've been seeing, that perhaps that relationship dips by 50%? So whatever growth you do see in emerging markets, the CapEx associated with that grows at half the rate it has been growing at in relation to revenue? Would that be fair?

I think 50% is a little bit too much of a decline, but if you said 35% to 40%, that could be right, but we are being pretty high in free here, George.

Yes, it's good enough for government. I appreciate the thoughts there, John. I guess two questions to finish up. I know it's late in the call. Can you comment at all in terms of the takeaway and the customer expectations you're seeing in your developed markets, here mostly in the US -- I know what you said about Europe -- relative to soft drink and beer? And how do you feel about your ability to continue generating cash from your existing, more mature businesses to fund the growth in emerging markets over time, either through capital efficiency, further restructuring and the like? Thanks and good luck in the quarter.

One thing I think is worth remembering, the only market we have where we've had unit volume declines in the last several years that are anything other than seasonal or one-offish, if you will, has been the US and Canada beer and soft drink and other business. And you're fully aware of what's going on there with unit volumes. And we don't think that's going to continue at the same rate. We don't think there's a reason for it to continue at the same rate fundamentally.

And the silver lining in all that we have been seeing is a movement in mix from traditional 12-ounce soft drink cans, because that's where the issue really has been, into so-called specialty cans, cans of different sizes for carbonated soft drinks, but cans of different sizes for a range of other products. So Europe is growing, the Middle East is growing, north Africa is growing, all the other markets are growing. The Food business is stable. The Aerosol business is essentially stable, and up and down, up and down. But you look out over 10 years, it's been very stable. So it's limited to that issue. But, no, I think we look at the cash flow characteristics out of that business, we're going to be making a lot of cash in North American beverage for a long time to come.

Okay. Thank you very much.

Thank you, George.

Thank you. At this moment I'm showing no further questions.

Thank you very much, Shirley. That will conclude the call today. We ask you to note that the first quarter conference call is scheduled for April 19 at 9.00 Eastern time and we thank all of you for listening and look forward to speaking with you again in April.

Thank you and this does conclude today's conference. We thank you for your participation. At this time you may disconnect your line.