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Crown Holdings (NYSE:CCK)

Q2 2012 Earnings Call

July 19, 2012 09:00 AM ET

Executives

Timothy Donahue - EVP & CFO

John Conway - President & CEO

Analysts

Philip Ng - Jefferies

Phil Gresh - JPMC

Matt Wooten - Robert W. Baird

Mark Wilde - Deustche Bank

George Staphos - Banc of America/Merrill Lynch

Al Kabili - Credit Suisse

Alex Ovshey - Goldman Sachs

Chip Dillon - Vertical Research Partners

Chris Manuel - Wells Fargo Securities

Adam Josephson - KeyBank

Scott Gaffner - Barclays

Todd Wenning – Morningstar

Operator

Good morning and welcome to the Crown Holdings Second Quarter 2012 Earnings Conference Call. (Operator Instructions). I would now like to turn the call over to Mr. Timothy Donahue, Executive Vice President and Chief Financial Officer. Mr. Donahue you may begin.

Timothy Donahue

Thank you Shirley and good morning everyone. Welcome to Crown Holdings second quarter 2012 conference call. With me on the call today are John Conway, our Chairman and Chief Executive Officer; and Tom Kelly, Senior Vice 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 2011 and in subsequent filings.

A reconciliation of generally accepted accounting principles to non- generally accepted accounting principles 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 computations, and supplemental cash flow data on the Company's website.

I will first review the quarter and update guidance for the year. John will have some comments and then we will open the call for questions. Diluted earnings per share were $0.89 compared to $0.83 in last year’s second quarter on a comparable basis, diluted earnings were $0.84 per share in both the second quarter of 2012 and 2011.

For the six months comparable diluted earnings per share were a $1.30 against $1.32 in 2011. All businesses were above met or were close to expectations in the first half and we remain confident in the full year.

Demand in Europe continues to be weak due to well-known ongoing economic issues and to very poor weather. Overall, European unit volume sales were 3% lower in the second quarter compared to 11.

Demand in our European beverage business was firm and slightly ahead of the prior year but was offset by lower unit volume sales in three-piece steel packaging, that is food can enclosures, aerosol cans and specialty packaging. Our business which is resilient but not immune economic conditions reflects the continued weakness in Europe. We had planned for much of this weakness and early in the year adjusted our production schedules to reduce inventory.

On a currency neutral basis net sales were level to the prior year as higher global beverage can sales were offset by lower unit volume sales in European three-piece steel packaging. The strength in U.S. dollar relative to the Mexican Peso, Euro, Pound, Sterling and Canadian Dollar had the effect of reducing sales by 110 million in the quarter. Our review of revenue by segment will be on a currency neutral basis and the unfavorable currency impact by segment was as follows, 7 million in the Americas beverage segment, $2 million in North American food, 30 million in European beverage, 47 million in European food, 10 million in specialty packaging and 5 million in non-reportable.

In Americas Beverage, revenue increased 1.5% over the prior year with overall volume in the segment up by the same 1.5% figure. Volume in Brazil continued to be strong and was up 21% over the prior year second quarter offsetting a 1.9% decline in North America. The overall Brazilian market was up 5.5% in the second quarter over the prior year and our share gain is the result of capacity additions in both 12-ounce and specialty can sizes made in the first half of last year in the growing regions of the North East and in the South.

Sales units volume in North American food were down 5% in the quarter but for the six months remained 1.5% ahead of last year. As we discussed in April there was some customer pull ahead into the first quarter and we had expected the strong first quarter volume performance to balance out over the course of the year.

Cost reductions from last year’s restructuring activities helped plan operating performance productivity and profitability continue their improvement over the prior year. On a currency neutral basis, sales in European beverage were level to the prior year as unit volume growth in the United Kingdom, Dubai and Saudi Arabia offset weakness in France and Spain.

The result of ongoing economic uncertainty and adverse weather in North West Europe. Segment income was down 6 million in the quarter and reflects unfavorable currency translation of 2 million and lower production levels.

Sales in European food were down 5.5% ex-currency in the quarter. Volumes were down 1% as some crops were weather delayed and are now been packed in July notably piece in the UK. Currency translation reduced segment income by 5 million in the quarter with the operating shortfall, the result of lower production activity and unfavorable product and location mix. That is less large diameter cans, more small diameter cans and production activity been lower in our much larger more efficient plants notably in France and Italy.

In specialty packaging, revenues were down due to lower overall demands. Segment income reflects the lower sales activity and 1 million of currency translation which was almost fully offset by cost reductions. Demand continued strong throughout Asia during the second quarter with beverage can sales volumes up 29% over the prior year as new plants in Heshan, China and Putian, China and the second line in Phnom Penh, Cambodia all contributed.

Global aerosol can volume was down 4% mainly reflecting the weak conditions in Europe were again, we have adjusted our production activity. In the second quarter we began commercial beverage can production in Ziyang, the third beverage can plant we have commissioned in China alone over the last 12 months. Production of beverage can ends in Heshan Guangdong Province also commenced in the second quarter and in two weeks we will begin can production in the Heshan plant.

At this time we still expect double digit beverage can growth in 2012 over 2011. In 2010, we initiated a sizeable global capacity expansion program focused on the emerging markets principally Brazil, China and South East Asia, announcing total capacity additions of more than 14 billion beverage cans.

With Heshan’s completion in two weeks, we will have completed capacity additions for 9.2 billion beverage cans off the 14 billion unit program including six new Greenfield sites and capacity additions at six additional facilities.

In 2013, we expect to commercialize three additional Greenfield sites as well as add a second line to our Putian, China facility in total 2.9 billion additional units to be added in 2013. During the quarter we recorded a gain of $10 million related to insurance proceeds received in excess of net book value for the Thai flooding in 2011.

The proceeds were received in early July so you will see that in the third quarter cash flow. We also recorded $3 million for restructuring related to the program we initiated in the fourth quarter of 2011, the activities are progressing well and we will begin to realize cost savings in the third quarter and fourth quarter and in the next year.

Also on the income statement we reported a $5 million foreign exchange gain related to two items. The first $3 million related to currency moves on inter-company debt between the Mexican Peso and the Euro and reverses the $3 million loss we had on this inter-company debt in the first quarter.

The second item $2 million related to a decline in the value of the Brazilian Real to the U.S. Dollar. The value of the real declined in the second quarter compared to the dollar making the real debt on the books of our Brazilian company worthless, i.e. a gain to us helping to offset the negative operating impacts of a strengthen dollar.

Net debt at the end of June was 3.56 billion more than a $100 million lower than at the end of the first quarter, for the first six months free cash flow was 105 million above last year’s level at this time.

This is due to better working capital management primarily lower inventory levels which are the result of lower plant production activity.

Through six months we are (inaudible) on plan despite the U.S. dollar been much stronger than we had anticipated. European demand remains weak but we plan for that. So at this time we estimate full year 2012 comparable earnings per diluted share to be in the range of $2.90 to $3 and for the third quarter to be between $0.95 and a $1.05 per share.

Free cash flow is still projected to be at least 325 million and with that I will turn it over to John.

John Conway

Good morning it's a pleasure to be here with you. Tim I think has summarized well the company’s performance of the second and third quarter. Generally speaking our performance was solid particularly given the generally weak economic conditions in our more developed markets especially Europe. The Americas had a good quarter with our beverage business and food business continuing to perform strongly in North and South America.

Asia continues to perform very well both through with regard to growth as a consequence of the capacity additions that we have been making for the last three years and very successful execution of our capacity expansion program for beverage cans in China and South-East Asia.

Europe was clearly was the underperformer, all of you are well aware of the general economic situation in Europe. The effect of relatively high unemployment and restrained spending of all types by the private sector and by government is that our customers are been very careful in their purchasing decisions and tend to differ purchases as long as possible. At the same time their customers are been approval (ph) as well.

In addition the weather in Europe was very poor in the second quarter, temperatures were low and there was a lot of rain through Western Europe and North Western Europe in particularly. As you know we have large businesses in France, Benelux, Italy and the UK including large low cost factories for the impact of reduced production clearly comes through as unit cost go up.

The result of this was that our seasonal business in particular was pushed back as service have been delayed. Fortunately we are seeing a nice pick up in July and believe that the food business will strengthen in the quarter and probably into the early part of the fourth quarter.

Our beverage business was also affected by the weather as a consequence of outdoor activities been curtailed. We were able to adjust production quickly in response to the reduced demand and the result was very good working capital management which had a beneficial cash effect in the quarter.

Tim mentioned the progress of a number of our international beverage can capacity additions. As I said at the outset the projects are going well and making the contribution to growth in sales and earnings that we had anticipated. We have mentioned to you in the past that we are very carefully that we very carefully consider all of our capacity expansion plans and continue to reassess them in light of changing market conditions.

We have recently noted that although we believe China demand growth will be significant this year, it will not be as great in certain regions as we had thought. As a consequence we have decided to cancel our new beverage can plant that was planned to be constructed in Chang Chong, China, North of Beijing. The market will not supported added capacity at this time.

For similar reasons we had decided to postpone construction of our Zing Zang (ph) beverage can plant South of Beijing and now anticipate commercial production of beverage cans from that plant in 2014.

Reviewing the Brazilian market, growth has been little modest over this first six months of 2012 versus ’11 than we had thought. We believe that the market will pick up in the second half of the year for many reasons nonetheless we have decided to postpone indefinitely our new factory plan for Bedlam (ph) in Northern Brazil.

As you may know we have a large two line can factory in North Eastern part of Brazil and we believe that this factory will be able to adequately serve the North Eastern region and the Northern region of Brazil without the addition of additional capacity.

South East Asia and demand continues to be very strong so our expansion plans there are unchanged. And with that operator we are ready to open the call for questions.

Question-and-Answer Session

Operator

Thank you we will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Philip Ng with Jefferies. You may ask your question.

Philip Ng - Jefferies

Just wanted to get a little more clarity on how (inaudible) tracking early into 3Q it sounds like at the very least weather is improving a little bit, in fact shaping up a little bit better and if I remember correctly what was a drag last year as well. So can you breakdown like food, beverage and your aerosol business for 3Q?

Timothy Donahue

I think weather does look like it's improving, the weather patterns if you take a look at the European weather pattern it looks like it's starting to move a little bit it should be a little bit better it's been so far early in the year, the weather has been absolutely atrocious in the UK and while it's never great in the UK it's probably been as bad as it's been in the last 100 years cold and wet and even in the North Western France. So it does look like it's getting better I think we are talking to our customers and the retailers in Europe, we are expecting a fairly firm food can harvest and demand in the third quarter, beverage has been okay, it was little softer in Western Europe than we would have liked in the second quarter but we do think that’s going to firm up as well in the second half of the year.

Philip Ng - Jefferies

So when you factor in whether improving I guess on the margin and the macro potentially getting worse so should we assume volumes improve a little bit versus 2Q or pretty much the same for Europe.

John Conway

We think the third quarter will show a pick up I mean as Tim just said we have been very carefully canvasing all of our customers and as I mentioned in my remarks a phenomenon we are seeing this year even more than last year is the food customers, all of the customers, food customers in particular are very reluctant to order cans until they are right on top of their seasonal packs.

They are not buying ahead and having security of having cans in their warehouse. Now we are going to be able to satisfy the demand in the third quarter notwithstanding that but it is in effect but we do think there is going to be a very nice rebound in food in particular in the third quarter for all the reasons we talked about. Weather is improving, harvest got delayed and not cancelled and customers having to pull cans because we are checking with them as to what their filling schedules are, filling schedules aren’t changing very much, they can pull from us but the timing has changed.

Philip Ng - Jefferies

And John you gave us some updates on some of these projects in Brazil and China it sounds like you are pushing out a few. So if CapEx coming in a little bit should we expect incremental cash flow that would have been allocated for growth be return to shareholders and any chiffon your philosophy for buy backs versus dividend.

John Conway

Obviously CapEx will be coming down a little bit, we are accessing right now what we are going to do with the cash and but we want to be sure if we understand exactly the CapEx if that’s first, but Tim might want to add to that.

Timothy Donahue

I think the lower CapEx that you are hoping to see from the plant cancellation and/or deferrals you will see more of that next year than you would this year, much of the capital that we had planned to spend for those projects Zinyang, Chang Chong (ph), was going to be spent next year.

And as we always do to answer the second part of your question we've been fairly transparent about saying that we are going to dedicate the large majority of our cash flow to share buybacks and so whatever free cash flow is plus or minus CapEx you will expect that to go cash flow and go to share buybacks. On the last piece of your question the dividend it's an item we review all the time and we will have several board meetings over the balance of this year and we will continue to review with our board but nothing to say at this point.

Operator

Thank you. Our next question comes from Phil Gresh with JPMC. You may ask your question.

Phil Gresh - JPMC

You mentioned in several of the businesses that you essential under produce in the quarter, could you quantify for us how much that was?

Timothy Donahue

I know Phil you had asked the question on the first quarter call as it related to working capital and I told you at the time that the reason first quarter working capital was higher than last year is we had less payable because we were bringing less payable because we are bringing less material in as part of the plan to lower overall production this year versus last year and as we look across a number of the product lines specifically in Europe whether it be beverage, aerosols, food cans, vacuum closures, production levels in the second quarter this year anywhere from 5% to 15% lower than they were last year at this time and you will recall last year we got a bit excited after the first quarter the food volumes were quite strong, we felt we were going to see the big recovery from the ’09 recession, it didn’t materialize in the second half of the year and we work real hard to try to get as low as possible last year but we certainly made the decision early this year that we weren’t going to carry a lot of inventory this year so we have been curtailing production activity as best we can to keep inventories lower.

Phil Gresh - JPMC

Got it okay and then as we look at the second half I mean do you feel like you still need to under produce at this stage or you have fully caught up. I know you did a little bit under production in the second half last year, so it's kind of taking that into account as well.

Timothy Donahue

No I think we probably have an opportunity down at the back half of the year, notwithstanding any other demand issues but based on how we see demand in the second half of the year which we think is going to be far firmer in the third quarter certainly for food products that wasn’t in the second quarter and beverage looks to pick up as well. We think we are much better aligned right now than we were last year at this time.

Phil Gresh - JPMC

Got it okay and just looking at your operating cash flow that you have generated over the past couple of years in the second half, it looks to me like your annual free cash flow guidance could have an element of conservatism to it. Am I missing anything there or is there anything specific in the second half of this year that we needed to take into account.

Timothy Donahue

Well you know you might be right, we still have a fair amount of a year to go here. Keep in mind that as you know we build working capital in the first half of the year and we are currently and we have been building working capital at euro levels anywhere between today’s rate of 122 to earlier in the year at 130 depending on where the euro goes at the balance of the year, we could be collecting that working capital back into the system at lower rates so that declining euro value if you will translate into lower collected dollars from what we’ve put into the system. So we are being a little bit conservative as it relates to that.

The only other thing I would say is that we were a little short last year on cash flow but we did make a big effort in the fourth quarter but having started this year with trying to flatten out the profile you wouldn't expect as much in perhaps in late fourth quarter as we had last year only because we are going to be a little flatter to start the year.

Phil Gresh - JPMC

Got it okay and then last question is I may have missed this but in your EPS guidance did you give an updated tax rate and also does it include any assumption of buybacks in the second half, I know you haven’t really done any year-to-date, thanks.

Timothy Donahue

We did not give you any information in the prepared remarks previously I think we had said tax rate 28% for the year, I think based on country mix we have obviously had a beneficial country mix in the first half of the year and where we sit today right around 26% why don’t we say about 27% for the full year and that’s basically country mix more profits in lower tax countries, middle-east, Southeast Asia et cetera compared to the higher tax rate countries and share buybacks, we do have an element of the share buyback baked into our EPS guidance certainly.

Operator

Thank you. Our next question comes from Ghansham Panjabi with Robert W. Baird. You may ask your question.

Matt Wooten - Robert W. Baird

Good morning it's Matt Wooten sitting in for Ghansham today. If we can go back to CapEx for a minute, is the run rate for the first half the right way to think about CapEx for the full year or can you quantify your assumption for 2012?

Timothy Donahue

I don’t think you want to look at the run rate in the first half has been indicative of the full year. We generally tend to do much more activity in the low seasons of the year, we have previously said 325 million of capital net of the insurance proceeds to help us rebuild the Thai capacity and when we think about a number this year between 300 and 325 most of the savings we are going to experience as I said earlier from the two project being canceled, that John mentioned will be a next year.

Matt Wooten - Robert W. Baird

Understood. Thank you and then a second question if I may, you discussed 65 million or so in cash restructuring in 2012, is that still the right number to think about for the full year progress, do you think there is opportunity to expand the scope of the program given the weakness in Europe.

Timothy Donahue

I wouldn’t characterize the European food market food can demand is been weak, I think we have a business that we think is very resilient, we think that over the medium and long-term the number of units demanded by our customers and the system are going to be fairly stable. So we wouldn't characterize the businesses I think we have some timing issues this year related to weather and as John said customers and consumers reluctance to put any more into the supply chain or their coverts then they actually have to at any one point in time so I don't think that there's anything structural in food can demand that requires us to do anything.

There is always opportunity for cost savings however in a infrastructure or a system as large as ours, it's a $2 billion business and it’s spread across 48 food can plants. So we have opportunities, however we have been a pretty firm in our requirements to our European management that until the cost savings and the payback is so compelling we are not willing to undertake the exercise and when I say compelling we’re looking for payback in less than two years.

So at this time I think it will be premature to consider that we have any more activity this year.

Operator

Thank you. Our next question comes from Mark Wilde with Deustche Bank. You may ask your question.

Mark Wilde - Deustche Bank

Just curious with this drought getting worse and worse here in the U.S., can I have view on how this is going to affect your food can pack in the second half?

John Conway

Yes Mark, we have been following closely as well and talking to our customers. We think it's going to be very minimal. Actually our food can business is not very exposed to seasonal vegetables, and in particular I think the segment that’s arguably possibly going to be most effective is sweet corn and most of our customers virtually all of them are in the far upper mid-west which has been lot less affected and over half of the (inaudible) as necessary.

So we have been all over the problem as you can imagine and at this point we think the affect is going to be very, very minimal if any on our sales this year.

Mark Wilde - Deustche Bank

And John just if you try to think about this for the industry as a whole, if you go back in your history where the company went we have had a really severe drill what does this do to the industry volumes overall? Any sense of that?

John Conway

No I really couldn’t speculate I mean among other things each of the can company each of the customers is so differently positioned proportional, seasonal, not proportion, what are they, where are they, and that is just to say where their business in drought areas or not I saw recently a drought map as you probably looked at it and it's very specific to a certain areas and within 100 miles rainfall looks to be adequate so I think I just couldn’t possibly it's too complicated to subgroup it (ph).

Mark Wilde - Deustche Bank

Okay and then just on that last set of questions we had around restructuring in the European food can business, I think you have said that pretty clear like not likely any additional activity this year but if you look a bit further out could you see some and are there other areas in Europe that you might be looking at right now.

John Conway

I think what Tim is trying to say is we never wanted to say never but at the moment with the restructuring we have done. We don’t see anything on the horizon that we think looks sufficiently attractive to do.

There are always things we can do to drive down cost, wonderful part of the business and as Tim said with the multiple countries products, factories that we have in Europe we are always looking at opportunities but for the moment nothing more this year and I don’t anticipate anything next year.

But it's possible we don’t anticipate anything next year.

Mark Wilde - Deustche Bank

Okay but carries through to the non-food businesses as well John.

John Conway

Yes I will say yes, we can’t think of anything as we sit here.

Operator

Thank you and the next question comes from George Staphos with Banc of America/Merrill Lynchthis. You may ask your question.

George Staphos - Banc of America/Merrill Lynch

Couple of questions here I guess first one would be I think you said European beverage can volumes were even if I have understood it correctly if you could confirm that and I think you said it was a trade-off obviously between Europe and the middle-east. Could you provide a bit more detail in terms of the volume trends you saw by if you will region within your European segment and beverage can?

John Conway

Yes Tim, looking at the numbers right now but broadly speaking the middle-east was up somewhat year-on-year (inaudible), and in Europe we were down somewhat year-over-year, he will get the percentage exactly. I think down a little bit more than the overall market. We think the market was off a little bit we were off somewhat more and largely because the business for us in Spain, France was weaker than we anticipated which we attribute to some degree to weather certainly in France and to a degree to economic weakness in Spain but I don’t know Tim if you have any color on the exact percentages?

Timothy Donahue

Yes the total Europe and Georgia was up 20 basis points down about 3% in Western Europe which is as I said earlier we had pretty good roads in the UK, we had roads in Turkey and Slovakia and we had shortfalls I said earlier in France and Spain as you can imagine the weather and the economy. And those two countries offset by about 7% growth in the middle-east largely coming from Dubai and Saudi.

George Staphos - Banc of America/Merrill Lynch

Okay, you said 7% in the middle-east.

Timothy Donahue

7.

George Staphos - Banc of America/Merrill Lynch

Okay now how the Slovakian plant has that come up now or are we now past the point of worrying whether this the second line or the first line would work, as you would expect.

Timothy Donahue

Yes it's running well and benefiting from the relevant strength in the Eastern European beverage can market.

George Staphos - Banc of America/Merrill Lynch

Okay. Now I want to come back to the food can profitability in Europe, it was down sharply. You mentioned I think of 1% volume drop which not fair goal, you said FX was a minus 5 in EBIT. Those components from my analysis wouldn’t necessarily add up to the type of EBIT decline you saw a year-on-year. So maybe you could parse out the lost operating leverage from producing less than demand, help us fill in the other components to the EBIT bridge in that segment to the extent possible.

Timothy Donahue

I mean production was down 5% in cans and about 4.5% in (inaudible), you know you are not talking about small numbers here you are talking 5% on 2.5 billion right so those are lot of units that aren’t been produced and not observing and then on the end side you almost double. Okay we have two piece cans we still have a lot of three piece cans so the number of Ns (ph) is almost double the number of cans so you reduce that it's a very big number of the production.

As I said there is a little bit of product mix as well and the larger diameter can so is harder to make, you make them slower but you tend to do a little better margin wise and there was less sales of those and more sales of the smaller diameter cans.

John Conway

And George what we want to keep in mind is the European division we referred to the volumes we still of course are including our North African food can business, our sub-Saharan African food can business. It's doing relatively well but a lot of smaller cans fish and so on and then the effects of both the weather and economic conditions in France, Benelux, Spain were noticeable.

And so that’s a good business for us, we have low cost plants in those regions, we do very, very well typically. We reduced production there and we see a market deterioration and unit cost and again as I said earlier on the call we are pretty confident based on talk of the customer, the business is going to come back quite strongly in the third quarter. We got enough productivity capacity to satisfy the rebound and demand that we are seeing but when France reduces and Spain to a lesser degree, the (inaudible) it affects us.

George Staphos - Banc of America/Merrill Lynch

I guess maybe I have should have asked question differently there was no significant competitive factor in those results, it was really more of the operating leverage and mix.

John Conway

No we don’t yet know how the overall food can market did, but we are convinced, I am convinced that we are not losing share that’s not the issue it's the whole food can industry and really the fillers been exceedingly cautious about their purchases and the weather compounding that.

George Staphos - Banc of America/Merrill Lynch

Okay we if go to the non-reportable segment you mentioned obviously that Asian beverage can volumes were up significantly I think the number was something like 24%, 29% somewhere in that range yet the EBIT growth was de minimis, it was flat I believe year-on-year. I know aerosol is within that segment as well, help us understand that despite what was very good growth in overall Asian beverage cans that EBIT was if I got this correctly flat year-on-year.

Timothy Donahue

Yes I mean if I look at aerosol in the machinery operation that we have in the UK aerosol been the biggest component, I am adding it up for you, down 7 million between aerosol and the machinery, machinery been down 1, aerosol been down $6 million to $7 million in quarter year-on-year primarily Europe.

George Staphos - Banc of America/Merrill Lynch

Okay.

John Conway

And so Asia was actually up quite nice in Georgia. Tim is going to tell me something in the order of 20%.

Timothy Donahue

Little more than 20%.

John Conway

Segment income up 20% which I think is very, very good when you consider okay the unit volume growth is great on the other hand, we have got a lot of plans that are in learning curve and so hold together and age is going extremely well. Tim referenced our growth in sales but South East Asia continues to do very, very well in terms of China, we are continuing to do well, our view on China. We had come into the year thinking that the growth in the year could be as much as 18% to 20% frankly more conservative than some but we think pretty much inline with what knowledgeable people will thought about the China market.

We have recently taken the view, we think the China market beverage can market will be up about 13% this year and regionally you know various things and consequently the decision to cancel the plan North of Beijing.

George Staphos - Banc of America/Merrill Lynch

Okay and the last one and I will turn it over with that and with the telling if you will reaching the tail end of your capacity program from a couple of years ago, is it possible to say what the or is there intermediate term say after 2015, 2016 capital spending might look like for the company, capacity expansion it seems like the CapEx cycle is heading lower for you which is obviously very good for cash flow. Help us understand what’s possible at least to look at this juncture to talk about this at this juncture relative to capacity and CapEx for the future. Thanks.

John Conway

We have kind of a place over for CapEx and Tim can talk to that in a moment but I think what you are saying is absolutely right, what we anticipate after we get through this bricks and mortar phase and all the support facilities, land et cetera and all the auxiliary equipment activities that are needed for a beverage can plant for example. We will then begin a phase where we are increasing capacity in existing buildings because our geographic footprint will be largely complete so you are absolutely right we are anticipating we can continue to get very good unit volume growth in the emerging markets but at a lot less CapEx per unit produced, I don’t know Tim you want to speculate about CapEx in two to three years?

Timothy Donahue

Actually I really don’t, it's kind of far away, I think as John said it's we do have a foot print by country and by region I think we are pleased with and as John had said in the past it didn’t happen by accident it was by design, we pick certain markets and we avoided other markets and so having said that I think the future capital will be in the existing plants we have. But I think you are generally right George it's going to come down over the next couple of years. We are certainly not going to have if at the time we initiated this program and 2010 was a more than 30% increase over the volumes we had in ’09 we are not going to at least as I can tell right now over the next several years have a another 30% expansion program.

Operator

And your next question comes from Al Kabili with Credit Suisse. You may ask your question.

Al Kabili - Credit Suisse

I guess just first one on Americas bev, similar line of question and non-reportable. What Brazil is up double easily well into the double digits and operating income only up 1 million year-on-year. I know U.S. was down but I was hoping you could kind of help us bridge that one a little bit.

Timothy Donahue

I mean U.S. is down just under 2%, North America that is less than Canada and it's a far bigger business than Brazil it's probably a business that’s at least in the second quarter more than 5 times as large as Brazil but keep in mind the second quarter is if it's probably the biggest quarter we have in North America and it's also the smallest quarter we have in Brazil so you are just looking at the size of the quarter relative to those two markets.

John Conway

Yes you got to keep in mind just how small that, how small that business is in Brazil in that, nothing going on, no holidays, cold weather and so on.

Al Kabili - Credit Suisse

Okay and was there any meaningful margin compression going on in Brazil as well that we ought to be thinking about?

John Conway

Nothing that we haven’t spoken about before, I mean we talked last year about some margin adjustments, the consequence of a number of things but nothing beyond that.

Al Kabili - Credit Suisse

Okay and John I guess on North America you know with the market continuing to trend down here the last few years I mean you haven’t lost share but the market is down and probably will continue to go down given secular issues with carbonated soft drinks, how are you feeling about your beverage can, utilization in U.S. and at what point are we getting close to a point where you have to start thinking about some capacity adjustments.

John Conway

We don’t have that issue at the moment, we don’t foresee it over the next three to five years for Crown. As you know we have got a market share of about 20% we are number two in the U.S., Canada market now by a little bit but well below the market leader and given our customers and their activity and our contractual horizon we don’t see the need to take any capacity, what we are doing though is what everybody else is doing is thinking about the subject. We are seeing the growth in non-standard cans what people call specialty which are just cans other than a traditional 12-ounce and a traditional shape and there is growing interest in alternate can sizes and growing interest in alternate products. I mean all the things you know about energy drinks lightly carbonated fruit juices, teas and so on and that’s all bottles for some people and that’s all I think very interesting and to the extent that you use existing 12-ounce capacity to service it.

You can’t produce as many you have more changes and as a consequence productivity on 12-ounce lines declines if you will, so it really does soak up a far bit of capacity often at very often at better margin. So I agree with what you are saying, we are concerned about it and everybody is concerned about it, our customers are clearly concerned about it but I don’t see it for Crown in any event it is not a pressing issue but it's something we are going to have to deal within the years ahead.

Al Kabili - Credit Suisse

Okay that’s help John, I appreciate that. Switching over to cash flow a little bit Tim, with respect to the cash restructuring cost I think 65 million is the plan, where have you spent year-to-date towards that?

John Conway

We are looking at, we think I am guessing it's 80% but I don’t know it could be towards 90%.

Al Kabili - Credit Suisse

Okay all right and along those lines, will we see any of the savings hit in the back half, I know most of this is going to be a ‘13 event but will we see any of these savings hit in the second half?

Timothy Donahue

Yes I think if we said that the we expected savings let’s say 25 million to 30 million we maybe 7 million to 10 million the back half of this year and the full amount next year.

Al Kabili - Credit Suisse

Okay great all right and then final question, you know John on China with the projects you talked about postponing or cancelling in China the next year, I think you still have a couple for next year you know in the plan and I was wondering if you could maybe access the risk with those other Chinese projects that you are still looking at doing next year.

John Conway

We still pretty, we are still confident of those. I mentioned the Ziyang (ph) plant the City South of Beijing couple of months we are pushing that so they won't start production until ’14 but the others we think what we still be doing and again as I said okay it's an off year in China everybody is a little bit concerned, we reduced our estimates of market growth to 13% but it's still very, very good and then when you look regionally our view is that on the coastal regions, the southern regions, Guangdong Province and West, the markets are still strong, rolling and so we feel we need capacity.

Operator

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

Alex Ovshey - Goldman Sachs

Can you tell us to what FX rates you have built in currently into your EPS guidance and what it was in the beginning of the year?

Timothy Donahue

We had at the beginning of the year we are using the 132 and I think where we are at now on average for the year we are using about 125, 126 so even though the rates is lower right now we are going to have an average rate obviously so what that implies is the rate the average that we have had the dates were June and today is 123 used for the balance of the year it is just about 125, about 126 it looks like.

Alex Ovshey - Goldman Sachs

Okay thanks and then the global beverage can volumes what you have baked in for the full year, I think in the first half you said it was up 6.

Timothy Donahue

It's not how we look at the guidance so I don’t have forecasted volumes by product line.

Alex Ovshey - Goldman Sachs

Okay and then if we look at what your capacity base in global bev cans will be at the end of ’12 how many, more building cans will you have versus ’11?

Timothy Donahue

Did you mean how many units have we added this year in terms of capacity installed.

John Conway

We will have to dig it out.

Timothy Donahue

It's got to be probably about 3.5 billion units.

John Conway

Yes we are guessing, 3-3.5 billion.

Timothy Donahue

Alex if you go to the any of the most recent presentations we have given and it's on the company’s website there is a plant capacity scheduled there and you can just add the ones up it's about 3 probably 5 projects, 3 billion to 4 billion.

Alex Ovshey - Goldman Sachs

The question I am really trying to get to is if longer term out of that 3 billion to 3.5 billion you expect to generate x amount of dollars. You know what percentage of that x are you going to see in ’12 and what percent.

Timothy Donahue

You are not going to see, you are still going to see far more in ’13 and ’14 then you will to hear, obviously as the plants come up through a learning curve and I think the one thing we have always tried to tell you is that for example only if we add a plant that makes a billion units and we open the plant on January 1 and the first year we make 400 million to 500 million and in the following year we make 850 to 900 and then the year after that you make the full billion so there is a lot of productivity to be gained and therefore revenues to be gained in the subsequent years.

Alex Ovshey - Goldman Sachs

Okay thanks. Last question, what’s the impact on the non-reportable segment of not having the Thai capacity in the numbers, is there any impact or is the insurance proceeds largely sold.

Timothy Donahue

There is very little impact, two things we are sourcing cans as best we can throughout the system to support our customers in Thailand and for those cans that we are unable source where we have customer loss and/or the additional cost of freight cans we are covered by insurance.

Operator

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

Chip Dillon - Vertical Research Partners

First question is looking at the U.S. markets, actually taking a little bit different path, given the growth in specialty it looks like that with all the shifting of volumes next year 2013 can we actually see a very tight market in one of that which would show up with perhaps better margins than we might have seen in recent years in the U.S. markets.

Timothy Donahue

Could we see a tighter market?

John Conway

Honestly I couldn’t say we know what our situation is and we are essentially sold out this year and next year and so I think frankly we are the wrong company that you be addressing the question to.

Chip Dillon - Vertical Research Partners

Got you and I totally understand that and the second question looking at the situation in China, I know maybe I just missed it but when did you announce the one plant south of Beijing and why is it important that you move forward there and not in the Zinyang (ph) even then one you originally announced North of Beijing.

John Conway

Well I can’t recall when we announced.

Timothy Donahue

They were all announced together.

John Conway

Ziyang (ph) but Tim’s recalling they were all announced together.

Chip Dillon - Vertical Research Partners

Last October all right okay.

John Conway

Okay and why it pretty simple, we are just taking a look at the, there are two or things we said that we feel we need to have before we want to move ahead. We would like to have a proportion of the business committed to a customer and we want to feel confident that the regional market in which we are putting the capacity is going to be strong and growing and we have taken a look at the situation in North of Beijing, the situation South of Beijing by the way I am just using this to orient you it's way North and way South but okay and the conclusion is the North is not ready for additional capacity at this time for a variety of reasons could be we can’t get a customer to commit, could be we don’t think the market is not strong enough, could be both but we think that the activity south of Beijing is still holding up but delayed.

Chip Dillon - Vertical Research Partners

Got you and then looking at the working capital I know that is obviously not built as much as it's normally guys and you mentioned strong management but I think Tim you said just also there might be a play there and as we look at the progress or as we look at the change in working capital been so much lower than normal how much of would you say is management of working capital on one hand and how much of it is currency on the other hand that probably will see a reduction of the drawn down on the second half.

Timothy Donahue

Trying to see here the, there is certainly a currency element there but I think if we just look the receivables and inventory they are down 400 million and payables are down 300 million so that only leaves about a 100 million net exposed to currency so I would think the majority is working capital management, there is a very small amount that’s currency given the net position we are talking about there.

Chip Dillon - Vertical Research Partners

Okay that’s good and then lastly just one last quick one, in the (inaudible) situation more than I know you originally announced that there is a billion can operation back in October can and now you have I believe you have just either cancelled or postponed that definitely. How much about is just the market not growing quite as fast as you thought and how much of that might be just you know other capacity that might have slipped in since then I am not sure if there is any but could you address that?

John Conway

It's mostly almost entirely that the market has slowed and Tim referenced in the second quarter things picked up a little bit in Brazil but as we were telling earlier it's seasonally such as small quarter that we don’t relot into that. So our fundamental concern is that market growth is slow, we talked to our customers always, we have talked to all of them and what other things can happen with regard to unit volume growth, they are subdued than they were. We talked about with them about packaging conversions more to cans from glass and so forth. They are still all very bullish on cans but less than we taught and so we just took a look at the entire region and decided we are going to probably be a little bit more prudent and that’s why we made the decision.

Operator

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

Chris Manuel - Wells Fargo Securities

Just a few follow-up questions most of have been asked but one element (ph) that we haven’t touched on yet is with regards to pricing and price compression. I know in the past you have talked about having price compression, some issues, principally in Europe. I think as we look at your margin trajectory even on flattish volumes, you know it still is coming in a bit. At what point do we begin to anniversary that, is that still an ongoing issue, does it potentially get worse given some of the softness in Western Europe that you are seeing right now. Can you give us maybe just some thoughts and color there?

John Conway

We haven’t seen much in price compression, I think there has been a little bit, there has always going to be when volume softness a little bit but that isn’t the fundamental. It really is as Tim said to us it's just a lot less production in the second quarter than we ordinarily would have in the food and food business. So that may become a more of an issue towards the end of the year depending upon how the third and fourth quarters come back but that hasn’t been the biggest thing. The biggest thing has just been the extreme reluctance of customers to buy ahead of their precisely no needs.

Chris Manuel - Wells Fargo Securities

I am more referring on the bev side, I apologize.

John Conway

Well on the beverage side.

Chris Manuel - Wells Fargo Securities

More specifically on the beverage side.

John Conway

Beverage is really fundamentally unchanged.

Chris Manuel - Wells Fargo Securities

Okay so all right and then I want to circle on two other topics if we can, so as you indicated when you looked at the China market, you thought originally coming into the year it might be up high teens 28% and you have lowered that down to something a lower teens. Can you talk a little bit about what you are seeing and why or what’s behind that, is it consumption levels are not coming in where you thought, is it that maybe conversions from three piece to two piece over there coming in lower or kind of an impossibly as well what you are anticipating the next year to how that continues to play out.

John Conway

I think there is three things, the beer conversion is slower a little bit, the overall beer market is growing as it was but the beer conversions glass to cans have slowed a little bit and below our rate. Nothing fundamental about the way our customers are thinking about how they want to go to market, it's just a rate of change that slowed somewhat in certain areas than other areas.

Some of the soft drink companies pushing PET a little bit harder, you may or may not Chris but the in China in carbonated soft drinks the can tends to be the premium package. It's prized that way and the volume driver for the software drink companies tends to be more PET and so they have been pushing PET a little harder, could be reflection of the economy generally and of course we had this phenomenon that I think you are very aware of where one of our very large customers getting quite a bit larger this herbal tea company had an altercation, a problem with their franchise or if you will the end result was that they had to rebrand not a lot but they had to rebrand and then the franchise all decided to come into the market more directly and that didn’t hurt overall volumes but it's slowed the process of three piece well that’s converting to two piece aluminum.

We still think it's all going to happen but it's going to be delayed and so those were all the things and undoubtedly maybe general you know slowdown in growth in China from 10%-11% GDP growth to what they are now people are now saying 7.5% to 8%.

That’s all we think part of it and we are not disappointing with 13% overall growth rate but in an absolute sense but obviously less than we had planned for.

Chris Manuel - Wells Fargo Securities

Okay that’s helpful and then but the bottom-line is over the next few years you still anticipate a single digit, low double digit growth. This may be slow…

John Conway

Absolutely I think we have been using 12% year-over-year on growth it's kind of a 5 year projection…

Timothy Donahue

On a growing base which is unit term is still very significant for the industry.

John Conway

I mean you don’t want to get carried away Chris but I think as you know I mean I think the Chinese beer market is twice the size of the U.S. beer market now and it's growing 5% to 6% a year as an example and everything else is growing too off much bigger basis.

Chris Manuel - Wells Fargo Securities

Now if I could follow it up with little bit more discussion on both South America and Europe in a similar direction, so you are recognizing this small quarter there but as you look at South America particularly Brazil it has slowed a bit over the last 12-18 months but it is still growing at a nice level. Do you think kind of a mid-single digit level is a reasonable assumption?

I mean recognize your volume drop more than that given capacity but overall market in a mid-single digit level the next year or two is still achievable.

John Conway

That’s what frankly our people believe that’s what we think the industry down there, the can industry for example, at least certainly what our customers are telling us. We are just being quite cautious, it will require quite a rebound in the second half of the year and I think everything particularly Brazil which is so important to us generally speaking is going very, very well but the economic growth has slowed as you know. There is a lot of talk about the good things that are going to happen, minimum wage is going to go up. Unemployment is still very low and that’s all quite positive and the middle classes and they have got quite an elaborate definition of the different levels and how they are moving and that all seems to be very positive. I think that’s a negative that we are aware of, you are aware of is consumer credit which was virtually non-existent in Brazil up until about 5 years ago. It's growing quite a rate and there are some people who believe that the average consumer in Brazil needs to pay off its credit cards a little bit and pay more attention to its mortgage and it's car payments.

And that maybe dampening discretionary consumer spending, so all of that together we think the market is going to do fine but we just think the rate of growth has slowed and we are been cautious this year.

Chris Manuel - Wells Fargo Securities

Other concept of paying off debt, I like that. I am joking but when we talk about Europe a similar issue which I think about Eastern Europe versus Western Europe and particularly in the middle-east as well it had paused for few years, it seems to be in fact growing again you specifically cited a few regions in Western Europe that have been more soft and obviously you had some new capacity that came online and in Turkey as well. What is your anticipation there, do you anticipate more of the same. You have done a good job as you appointed out in prepared remarks that year-to-date anticipating this, getting production in line. Do you think now that Western Europe can stabilize from here and go back to kind of little single digit growth at some point? I guess what are you anticipations in the next 12-18 months?

John Conway

Well we think that in beverage in Europe, the fundamental direction is still positive and healthy I think we have been using something like 4% to 5% unit volume growth across Europe for quite some time and we haven’t changed our view and the reasons are around beer conversions continue from glass to cans. The influence of the drinking and driving and smoking prohibitions continue to force people to consume beer, everything else more at home than at pubs and bars et cetera that continues and that’s positive.

Energy drinks continue to grow, we have some not lot but it's a factor. And soft drinks continues to do well for cans and of course Eastern Europe is going to continue to do, so all those things are positive. The two things, the thing that this year that makes it real hard for us to forecast the next 12 to 18 month but we are not negative it is the weather.

I mean the weather has been absolutely dreadful and you almost can’t overstate how crappy the weather has been in France, Benelux, Northern Germany even Northern Italy and the UK and we have become obsessed with looking at the weather map every day and you almost can’t believe it what the temperatures are, temperatures tend to be high 50s, low 60s in Paris, London, now it's got a little better than last couple of days and constant rain.

So you know you can get carried to whistle but we think there is going to be a bounce back, it looks like things are improving a lot in the third quarter and so we still think the market is going to up overall but it was a little bit of a disappointing quarter.

Timothy Donahue

I think Chris if you looked at industry data for the last 10 or 12 years you would see that every year with the exception of two years ’03 because of the German Deposit Legislation and ’09 the deep recession year but every other year growth in Europe and I am including Europe and Russia in those numbers but Russia no greater than Western Europe has been anywhere between 4% to 10% in eight of those other years. So I think we are still very positive on European growth of cans.

John Conway

Yes we still are and the market even now is a little over half of the North American beverage can market, U.S., Canada. So I think there is good room to grow I wish it was somewhat bigger frankly in Europe than we are.

Operator

Thank you. Our next question comes from Adam Josephson with KeyBank. You may ask your question.

Adam Josephson - KeyBank

Couple of questions, what have been the recent trends in your margins in China and how much improvement are you expecting there?

Timothy Donahue

Well I think I will answer the question as follows, we have not seen if you are asking have we seen margin compression, the answer is no, the recent trend in our margins is impacted however by startup cost we have had for a number of the projects we have had low startup cost when you have three to four projects ongoing at anyone point in time are not insignificant per quarter but I would say there has been no margin compression.

Adam Josephson - KeyBank

And as those cost roll off presumably you would expect fairly significant improvement next year and in subsequent years?

Timothy Donahue

Yes coupled with increases in productivity and the benefits of selling more volume yes.

Adam Josephson - KeyBank

One regarding China and Brazil, given the differences in per capita beer consumption and can penetration, would it be reasonable to expect if Brazilian can markets to grow much more closely in-line with GDP than the Chinese bev can market.

John Conway

Well we think that I think beverage can growth in Brazil should exceed GDP growth and it has for the last five years, because the package mix although it's much more of it's move for example in beer, the cans than had five years there is still a good ways to go and the leading company there is a strong proponent of cans and they have been pushing cans a little hard and then the competitors have to follow.

So, I think that’s going to occur and frankly the same thing in China, we are getting the benefit of sure GDP growth, increasing per capita incomes but also the package mix phenomenon for beer, for teas, or these so called herbal and Asian drinks it's all very positive from packing as an example.

Adam Josephson - KeyBank

Great, in the middle-east and South-East Asia how much more quickly have you been growing than the local economies and how likely do you expect that to continue for?

John Conway

Well quite a bit, I would have to go back and remind myself for all the GDP growth numbers are but quite a bit and then in South-East Asia to a degree, the way to think of it is that in a number of a these countries they jumped over returnable glass for a beer, they didn’t have a very big beer industry. They are now bringing a lot of more beer and they are not putting and the returnable blast they jump right into cans and so that’s been very, very positive. In the middle-east one of the benefits we get is cans is absolutely the best package for carbonated drink of any kind simply because of the weather conditions, the shipping conditions, the handling conditions and you don’t have any carbonation loss.

So, both regions are very, very conducive for cans.

Adam Josephson - KeyBank

Thanks and then one last one in your guidance, are there any FX translation benefits embedded in that 290 to 3 bucks (ph).

Timothy Donahue

Not other than what we are sitting with now year-to-date $2 million.

Adam Josephson - KeyBank

Terrific.

Timothy Donahue

But let’s be fair here right, that 2 million is a pitons compared to what is the negative embedded in the guidance which is the strengthen dollar against all the major currencies in which we operate.

Operator

Thank you. Your next question comes from Scott Gaffner with Barclays. You may ask your question.

Scott Gaffner - Barclays

Just wanted to go back to the expansion plans, with the two plans with the one being cancelled and the one being postponed, is it safe to two questions on this, is it safe to assume that there were never any contracts on that capacity and second if there weren’t any contracts does that mean you are the level the contractual obligations on your 2013 expansions is now higher than it was when you mentioned on the last quarter.

Timothy Donahue

I think the answer to that is the level of contracts for the remaining 13 projects is certainly higher in percentage terms. On the project that was cancelled in China and as we always said we wouldn’t proceed unless we had a contract and as John said earlier for a number of years we have cancelled that plant it's probably fair to say we didn’t have a contract.

We do have a contract in the Northern Part of Brazil in Belem and as John mentioned in his comments, prepared remarks, we will continue to service that customer which is under a long term contract from the plant in the North Eastern (inaudible).

Scott Gaffner - Barclays

Okay and then just in Europe during the quarter can you talk a little bit about when in the quarter did you really see the weakness from your customers, how fast do you hear about that weakness and when did you begin to pull down your production levels and working capital levels in response to that and likewise how fast can you then pick backup if demand does comeback.

John Conway

Across all the businesses?

Scott Gaffner - Barclays

Correct in Europe.

John Conway

Well we had a somewhat weak start but markedly weak as we went into latter half of April and May and the weather of course wasn’t improving. So we are able to adjust very quickly and we did, so and so as I was saying earlier, we are staying very close now to where we think the customers are going to be in pulling cans particularly in food more than they have and we are very confident we can respond to their demand requirements in the third quarter.

Scott Gaffner - Barclays

Okay then just lastly the North American food business, the margins were significantly higher than what we were expecting. I know in the first quarter you sort of talked about the segment benefited some shifts in customer volumes, I mean what was the driver of the margin improvement in the second quarter and do you think that’s a sustainable margin level?

Timothy Donahue

Cost reductions are the main driver and it relates primarily to the restructuring activity, we had North American food that is we closed the plant in the fourth quarter which is probably about 6th or 7th plant we have taken out in the North American food system over the last four years.

John Conway

We have really been fortune I mean as a consequence we held a lot for a long time during the restructuring in the U.S. and Canada as many of you know and then we finally did it, it was a major program took us about a year and half and two to get through it. The result of it all is that our plants are very, very well loaded, that our shipping radius is appropriate and our people just done a phenomenon job driving on cost, driving down spoilage, reducing can weights all of the things you need to do and the business will be successful. So it's just been a really great outcome.

Timothy Donahue

Is the margin sustainable? I certainly think our performance sustainable as Johns aid are we able to do all the things technically and manufacturing wise to enable us to have the opportunity to make a better margin and the plant loading certainly is we believe very high for an industry like North American food. So those conditions are certainly sustainable. I can’t comment on what the future of price might be in the industry.

Scott Gaffner - Barclays

Right I mean it is a great margin performance, I think just to clarify, was there any benefit from shifting customer volumes in the second quarter as well, did you address that earlier.

Timothy Donahue

I mean the volume was down in the second quarter right, as we expected when we talked to you in the first quarter we expected some of that out performance in Q1 to reserve itself in Q2 or balance out I think is the word I used earlier and margin was down about 5% in Q2 but all of the benefit we saw over the prior year was related to cost reductions.

You take a factory out you take a lot of fixed cost out.

Operator

Thank you. We have time for one final question and that comes from Todd Wenning with Morningstar. You may ask your question.

Todd Wenning - Morningstar

Two quick ones, in recent months we have seen some of the larger U.S. craft brew, you have taken more interest in aluminum cans, do you have any interest in building a relationship with the craft breweries or is your interest in specialty cans primarily toward non-alcoholic beverages.

John Conway

No we have been working very closely with the craft breweries, we have done a lot of work with them. We have quite a high proportion of the craft brewing business already. We don’t talk about it a great deal but we are very, very interested in. It's a nice phenomenon, you are absolutely right there. Coming around the with the virtues of the can, they are understanding that with some attention to labels and marketing and so forth, they can come up with something very distinctive. So it's still a very small day, we got to admit that we are paying a lot of attention to it.

Todd Wenning - Morningstar

Okay great and with one of your competitors is making some plans to build can capacity in China, I am sorry in India, do you have any interest in taking some of the CapEx that was dedicated to those Chinese and Brazilian plants and using it to build a presence in India.

John Conway

We have been selling into the Indian market for almost 20 years, principally from our plants in the middle-east, Dubai in particular, lot of trade relations in Dubai traditionally with India. So we think we know the markets very, very well. We have sales there calling on customers, we do business with a lot of prospective and have over the years. We think one day in the future it's going to be a wonderful market but right now we think it's way, way ahead of any significant demand. You got various things going on, first of all soft drink, soft drink in a country like India with per capita income as low as they are can stay returnable glass for a long, long time and then if you add BET for high volume sales that’s a very cheap way not a very good one in my view to go to market with carbonated soft drinks, product degradation I think is severe in hot climates but okay, it's the way the lot of soft drink marketers like to go to market.

So really hard for cans to find a significant place. You turn over to beer and if you pay any attention to it at all you have first of all problem, Indians don’t drink a lot of beer maybe sometime in the future they are going to but they don’t now and then you through on top of that the limitations on shipping products as a consequence of poor infrastructure, as a consequence of duties believe it or not between states, regulations and so forth. The whole thing together and we have looked at this a lot, I mean this isn’t like something that we just kind of don’t pay any attention to.

We have looked at it a lot, we have a very, very difficult time understanding why we should consider deploying capital. India, frankly even talking about India and so our message to our people in the middle-east is you keep selling into India as you have been, keep tracking the markets and if one day you can persuade this thing is going to take off fine I mean we think beverage can supply in India is probably 50% to 100% now in access of market requirements.

So no zero plans for India.

Timothy Donahue

I think that’s the end of the call. Thanks Shirley for your moderation that will conclude the call, please note that the third quarter 2012 conference is scheduled for October 18th, at 9 in the morning eastern time and we thank all of you for listening and look forward to speaking with you again in October. Bye now.

Operator

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

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