Amcor Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
August 17, 2022

Key Takeaways

  • FY2022: Net sales grew 13% (4% organic; Q4 organic +6%), adjusted EBIT rose 7% and EPS increased 11% to $0.85, while returning over $1.3 billion to shareholders via $600 million of buybacks and a 20% dividend hike to $0.48, all on a 2.7x leverage, investment-grade balance sheet.
  • FY2023 outlook: Management targets adjusted EPS of $0.80–$0.84 (5%–10% underlying growth plus 2% from buybacks, offset by ~4% higher interest, ~2% Russia divestment and ~2% FX headwinds), $1.0–$1.1 billion of free cash flow, a 15% step-up in CapEx (4%–5% of sales) and $400 million of share repurchases.
  • Safety: Achieved a 3% reduction in reported injuries globally, with over 50% of sites remaining injury-free for 12 months or more, underlining the company’s commitment to employee well-being.
  • Russia exits: Announced sale of three Russian manufacturing sites (representing 4%–5% of EBIT), expected to close in H2 FY2023, with earnings impact to be mitigated via European footprint optimization and cost base adjustments.
  • Investment case: Built on leadership in higher-value segments (healthcare, pet food, premium coffee, hot-fill), strong emerging-market presence, disciplined M&A (30 acquisitions in 10 years, including a Czech Republic plant), and continued innovation in sustainable and digital packaging.
AI Generated. May Contain Errors.
Earnings Conference Call
Amcor Q4 2022
00:00 / 00:00

There are 11 speakers on the call.

Operator

And gentlemen, thank you for standing by, and welcome to Amkor's Full Year 2022 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. Traci Whitehead, Head of Investor Relations, you may begin your conference.

Speaker 1

Thank you, operator, and thank you, everyone, for joining Amkor's June quarter earnings call for fiscal 2022. Joining the call today is Ron DeLeeuw, Chief Executive Officer and Michael Casamento, Chief Financial Officer. Before I hand over, let me note a few items. On our website, amkor.com, under the Investors section, you'll find today's press release and presentation, which we will discuss on the call. Please be aware that we will also discuss non GAAP financial measures and related Reconciliations can be found in that press release and presentation.

Speaker 1

Remarks will also include forward looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists several factors that could cause future results to be different than current And reference can be made to Amkor's SEC filings, including our statements on Form 10 ks and 10 Q for During the question and answer session, as the operator mentioned, we request that participants ask their question and then rejoin the queue for

Speaker 2

With that, over to you, Ron. Thanks, Tracy, and thanks, everyone, for joining Michael and myself today to discuss Amkor's financial results For fiscal 2022, we'll begin with some prepared remarks before opening for Q and A. And kicking off with Slide 3, which covers safety, our 1st and most important value. Throughout fiscal 2022, we continue to make good progress on our long term objective of eliminating injuries across our global operations. The focus of our teams on implementing additional safety best practices resulted in a further 3% reduction in the number of reported injuries globally, And I'm pleased to report that well over 50% of our sites continue to be injury free for the past 12 months or more.

Speaker 2

We pride ourselves on making the well-being of our Turning to our key messages for today on Slide 4. First, FY 2022 has been another outstanding year for Amkor. We could not be more pleased with how our teams have demonstrated remarkable perseverance and agility, continually adjusting to challenges in the operating environment from raw material While remaining focused on driving value for our customers and our shareholders. As a result, financial performance was strong with growth Across all key metrics, the business finished the year with good momentum, more than offsetting any external headwinds, So that Q4 was our strongest quarter of sales and EBIT growth and full year EPS growth of 11% was at the top end of our guidance range. 2nd, we expect the business to continue performing well and we anticipate sustaining strong underlying growth in FY2023.

Speaker 2

And finally, we have a resilient and compelling investment case, which has consistently delivered significant shareholder value through a combination of organic growth, Value creating acquisitions and cash returns to shareholders. Turning to some financial highlights for the year as outlined on Slide 5. In short, we've added to our track record with another year of sustainable growth in the underlying business. Focusing on the strong June quarter, net sales growth was 13% and this included approximately $1,700,000,000 of incremental price increases on an annualized basis related to the pass through of higher raw material costs. Excluding this pass through, Organic sales growth accelerated through the year, reaching 6% for the June quarter in both the Flexibles and Rigid Packaging segments.

Speaker 2

And our strong performance reflects good work by our teams to recover broader and higher levels of general inflation, mostly through the second half of the year. It also reflects favorable volume and mix benefits. And as we have in the past several quarters, we benefited from mid to high single digit growth EBIT growth of 9% in the June quarter and it's worth noting that this high single digit earnings growth was achieved in a quarter which clearly no longer benefited from any synergies And while we continue to experience significant inflation and an unfavorable price cost lag related to raw materials, Flexibles delivered outstanding EBIT growth of 11% in the quarter and in line with our expectations, earnings growth Continued to improve in Rigid Packaging. For the full year, net sales growth was 13% and 4% on an organic basis, which represents our 3rd consecutive year of accelerating top line growth. Adjusted EBIT of $1,700,000,000 It was 7% higher than the prior year and adjusted EPS of $0.85 per share was 11% higher than 1 year ago.

Speaker 2

Our financial profile remains strong with return on average funds employed at 16.3 percent and we also returned more than $1,300,000,000 of cash to shareholders through share repurchases and a higher annual dividend. Now before handing over to Michael for more detail on the financial results, Let me provide an update on our business in Russia. As previously announced, we've been exploring all strategic options And after a thorough assessment, we've decided to sell our 3 manufacturing sites in Russia. Until completion, which we expect will occur In the second half of our twenty twenty three fiscal year, we remain committed to supporting our employees and customers while preserving value for shareholders through an orderly sale process. We're also proactively undertaking initiatives to help offset the future impact of the divested earnings, including optimizing our European footprint and adjusting our regional cost base.

Speaker 2

With that, I'll hand over to Michael, who will cover the estimated impact of this sale on fiscal 2023 guidance.

Speaker 3

Thanks, Ron. And I'll begin with the Flexible segment on Slide 6. Performance throughout fiscal 'twenty two was excellent across several different dimensions as each one of our businesses quickly to the continued evolving market environment, implementing measures to recover high raw material costs, manage general inflation, Improved cost performance and deliver increasing mix benefits. Year to date sales of $11,200,000,000 includes significant recoveries of The leverage we get from our well developed and deeply embedded capabilities, which have enabled us to implement a range of pricing actions across the business in a timely manner. Excluding this raw material impact, we are very pleased with the organic sales growth, which was delivered across all Flexibles business units Organic sales growth was 4% for the year and 6% in the June quarter, representing the strongest quarter of growth for the year.

Speaker 3

The strong mix benefits in part reflect continued growth in priority segments, including Healthcare, Pet Food, Meat and Coffee. We have made deliberate choices to focus on these segments and through the year have seen organic sales growth in the mid to high single digit range across these categories. More broadly, supply chain disruptions had a dampening effect on growth in certain high value categories through the year, including in the June quarter. As a result, year to date in June quarter volumes across the Flexibles business were in line with last year. Based with these constraints, we proactively took action in parts of the business to On a year to date basis, an 11% for the June quarter reflects strong price mix benefits and favorable cost performance.

Speaker 3

Margins also remained strong at 13.6 Turning to Rigid Packaging on Slide 7. The key messages today are the underlying demand has remained elevated across North and South America through fiscal 2022, leading to continued sequential strengthening in our earnings growth in the June quarter in line with our expectations. On a year to date basis, reported sales grew by 20%, which includes approximately 16% related to the The 5% organic sales growth was driven by favorable price mix benefits of 2% and volume growth of 3%. In North America, year to date beverage volumes were up 1%. Hot fill container volumes increased by 2% for the year against the strong comparative period of double digit growth And we're up 4% in the June quarter, reflecting continued strength in categories like isotonic and juice.

Speaker 3

By leveraging Amkor's highly differentiated Technology, design and PCR handling capabilities, we are well differentiated and adding significant value for our customers in the Hotfield segment, which over a multiyear period has resulted in compound volume growth of around 5%, helping drive consistent mix benefits. Specialty container volumes continued to improve throughout the year, including in the June quarter, but on a full year basis remained below the prior year, which benefited from a strong first half in And in Latin America, the business delivered double digit volume growth for the year supported by high volumes in all countries we operate in the region. And the June quarter masked the highest level of volume growth for the business this year at LatAm Parq by strength in Brazil. Turning to earnings, in line with our Growth improving sequentially and reaching 5% in the June quarter. Moving to the cash and the balance sheet on Slide 8.

Speaker 3

We continue to generate Strong free cash flow even as we step up our capital investments and compensate for additional working capital needs from higher raw material costs and supply constraints. Free cash flow was 1,100,000,000 in line with the expectations and broadly in line with fiscal 2021. We're pleased this result, given we've worn the unfavorable working capital impact of higher raw material costs throughout the year and have also proactively increased inventories across the business Our working capital performance remains a top priority, one even more critical in this inflationary environment. Despite these challenges, we've been able to maintain a 12 month average working capital to sales ratio below 8% and in line with last year. We also see ample opportunity to increase investments in strategic growth projects, which generate strong returns in excess of 20%.

Speaker 3

This led to a 13% increase in capital investments during the 'twenty two fiscal year. And as we've previously communicated, we will continue We maintain an investment grade credit rating, which gives us access to funding through the cycle of competitive rates Approximately 54% of our debt is fixed. Leverage of 2.7x on a trailing 12 month EBITDA basis was in line with our expectations at year end The balance sheet is extremely well positioned with only one maturity in the next 18 months being a €300,000,000 bond in March 23. We continue to deliver on our investment case, returning meaningful capital to shareholders during fiscal 'twenty two Yes, we're repurchasing $600,000,000 worth of shares and raising our annual dividend per share to $0.48 In total, we are We returned more than $1,300,000,000 to shareholders in fiscal 'twenty 2. Turning now to Amkor's outlook for fiscal 2023 on Slide 9.

Speaker 3

We expect adjusted EPS of approximately $0.80 to $0.84 per share on a reported basis. This includes growth of 5% to 10% from the underlying business and a benefit of approximately 2% from share repurchases, Offset by 3 nonoperating items. The first, the negative impact of approximately 4% from higher interest expense, which is based on the assumption that interest rates increased in line with the current market forward curve expectations 2nd, an estimated 2% negative impact from the scale down on planned sale of our 3 plants in Russia and third, a 2% negative impact related to a stronger U. S. Dollar, assuming current exchange rates prevail for the balance of the fiscal year.

Speaker 3

In terms of cash flow, we expect to continue to generate significant adjusted free cash flow for the year of approximately $1,000,000,000 to $1,100,000,000 Even as we fund the further 15% increase in capital investments to capture organic growth opportunities. While Amkor's cash flows are typically weighted to the second half, in fiscal 2023, the seasonality is likely to be slightly more pronounced September 'twenty three quarter is expected to be lower than Q1 of fiscal 'twenty two. Our strong cash generation enables us to continue paying a compelling and growing dividend and allocate approximately $400,000,000 in cash to share repurchases during the 2023 fiscal year. So in summary for me today, the business has delivered another strong year of organic growth as we remain focused on executing for our customers, recovering inflation and higher raw material costs And increasing earnings leverage by managing mix. Our continued and consistent performance supports our confidence in delivering another year of underlying growth in fiscal 2023.

Speaker 2

With that, I'll hand back to Rolf. Okay. Thanks, Michael. Before turning to Q and A, I want to And our financial performance continues to reflect consistent delivery against our strategy and a resilient investment case, which is shown on Slide 10. We enter fiscal 2023 with leadership positions in most of our chosen primary packaging segments and with over 95% of our sales for consumer staples and health We also have absolute and relative scale advantages in all key regions and industry leading commercial and innovation capabilities.

Speaker 2

With this portfolio, we have a long track record through multiple economic cycles of delivering earnings growth, margin expansion and significant free cash flow, All while maintaining a strong investment grade balance sheet. Our cash flow and balance sheet strength is enabling us to step up investments for growth And continue to return additional value to shareholders in the form of a growing dividend and regular share repurchases. The starting point in creating value for shareholders will always be the underlying organic growth of the business. And as we've continually We have multiple drivers of organic growth that have contributed to that momentum and which are shown on Slide 11. We've been focused on these areas for some time and we're investing across 1st, Amkor has leading positions in higher growth, higher value priority segments, including healthcare, meat, Cheese, premium coffee, pet food and hot fill containers.

Speaker 2

Collectively, we generate more than $4,000,000,000 in annual sales across these categories And they're growing at mid single digit rates and offer significant opportunities for differentiation contributing to margin expansion. Over time, they'll represent a higher proportion of our sales mix and become an increasingly relevant driver of earnings growth. We also have a leading and well diversified emerging markets portfolio generating more than $3,000,000,000 in revenue, which we will also grow at mid single digit rates over the long term as has been the case for many years. And innovation continues to be One of the most critical drivers of differentiation and growth in the packaging industry and Amkor is coming from a position of tremendous strength with deep R and D talent and capabilities. And finally, sustainability is fundamental to everything we do from an innovation perspective and remains at the forefront of discussions with global brand owners.

Speaker 2

As the sustainability leader in the packaging industry, we continue to be the supplier of choice to help our customers achieve their goals in a meaningful way and at scale. Organic growth has accelerated over the last 3 years and as Michael mentioned, we're stepping up CapEx to around 4% to 5% of sales on an ongoing basis to maintain that momentum. In our industry, there's also a pipeline, a rich pipeline of acquisition opportunities available to supplement our organic growth. We have a pragmatic and disciplined approach to M and A and we've completed around 30 deals in the last 10 years and we continue to be active. Earlier this month, we acquired a world class flexible packaging plant in the Czech Republic.

Speaker 2

This plant features state of the art equipment and immediately increases Our capacity in Central Europe to satisfy strong demand in priority segments, including coffee and pet food. The acquired land and buildings in a strategically attractive lower cost location. We've also invested in several new opportunities through our open innovation and corporate venturing efforts. These typically start small, but we're very excited to have recently increased our strategic investment in ePACK, a fast growing flexible packaging player Leveraging digital technologies to offer smaller production runs and shorter lead times. This increased investment in EPAC It's an excellent example of our objective to partner with high growth visionary companies to learn from and to leverage new innovations and business models.

Speaker 2

As you heard from Michael, we have a strong investment grade balance sheet and we Expect another year of robust cash flow in fiscal 'twenty three, which means we can continue to invest in growth and return a substantial amount of capital to shareholders. We're committed to growing our already compelling dividend every year and Amkor is one of a small number of companies included in the Dividend Aristocrats Index, which recognizes companies with a 25 year or longer history of consecutive dividend increases. Our current yield It's especially attractive at approximately 4%. And we've also been a regular repurchaser of our own shares, Allocating $1,500,000,000 of cash to share repurchases since 2019. And over that time, we bought back more than 8% of Our outstanding shares were roughly 1 third of the shares that were issued to acquire Bemis 3 years ago.

Speaker 2

And looking ahead, we Our strong cash generation to continue supporting regular share repurchases, including approximately $400,000,000 in fiscal 'twenty three. In summary on Slide 14, Amkor had another strong year in fiscal 'twenty two, generating sustainable momentum and delivering earnings growth at the top end of our expected range. We expect to deliver another year of strong growth in the underlying business in FY2023 and we're committed to continuing delivering for shareholders By increasing investments in the business and returning value through a compelling dividend and ongoing share repurchases. So With those opening remarks, operator, we can now turn the line over to questions.

Operator

Your first question comes from the line of Anthony Pettinari with Citi. Your line is open.

Speaker 4

Good afternoon. Hi, Amkor. Hi. In Rigids, you Saw really good volume growth in North America bev and some of your packaging peers have talked about Customers pushing price over volume and maybe reducing some promotional activity. I'm wondering if you could just talk about Maybe the outlook for bev volumes in fiscal 'twenty three and the dynamic that you're seeing there, do you think that you're Gaining share or maybe you're kind of overweight some categories that are winning in the marketplace.

Speaker 4

Just any kind of further detail there would be very helpful.

Speaker 2

Yes. Look, I think the starting point would be that the demand has remained elevated. If we look across our business and we had a good solid year in 2022 From a volume perspective, but what's really more compelling in our view is that over 2 years, our volumes across the beverage space are up 6%. In hot fill, which is a priority segment for us, they're up about 14% over 2 years, and that includes growth in both of the years. So we had super strong growth in 'twenty one, fiscal 'twenty one, A little slower growth in 'twenty two against that stronger comp, but the demand has remained elevated.

Speaker 2

Look, I think over the long term, we continue to expect kind of low single digit volume growth across our end market segments. We look back over the last 5, 6, 7 years, We've had about 2% total beverage growth, but the hot fill space has grown closer to 3% to 4% and that's what we'd expect going forward. I think Looking back over the last 24 months, there's been a bunch of ups and downs clearly, but we like our exposure. We're Highly levered to the sports drink category, which has gone through a bit of a rejuvenation, iced teas, some of the hot fill juices as well Have performed well. So that's the expectation going forward, Anthony.

Speaker 2

It's low single digit growth with maybe a little bit more in hot films.

Speaker 4

Okay, okay. That's very helpful. And then just switching to flexibles, in terms of improving material availability, what inning do you think you're in there or where at what point does that maybe run its course? And does the guidance Assume maybe kind of a modest mix headwind in 'twenty three as you kind of maybe go back to some maybe lower margin customers. I don't know if that's the right way to think about it, but Any thoughts there?

Speaker 2

Yes. Well, let me answer it. It's 2 separate questions. Let me try to answer both. I mean, as far as the raw material availability goes, I'd say I'd say we're in the middle innings.

Speaker 2

I think it's been a bit like a whack a mole game in terms of the availability constraints that we've dealt with over the last, say, 12 to 15 months. We still have constraints on some I think the commodity raw materials that we source have been in ready supply for quite some time now. Where we've had constraints, it's been more in Specialty resins, at times we've had constraints or limitations on aluminum supply as well that seems to have abated a bit. But as far as the overall basket of goods, I would describe that we're in the middle innings. I think we would like to believe there's light at the end of the tunnel.

Speaker 2

As far as our guidance, We assume basically ready availability and low single digit volume growth in flexibles. So that's Hopefully, we see the end of it by the end of the fiscal year in terms of the constraints. Yes. And then look, as far as mix, the other part of your question, I think we would expect organic sales growth to be generally similar. But over time as materials become more available, the contribution to that sales growth will balance out.

Speaker 2

So we might see a little bit less from a in a bridging sense From mix and a little bit more from volume. But longer term, and this is important to note, making the distinction between the bridging of 1 financial year To the next, and just a long term strategic direction, which is to drive improved mix and drive growth in those higher priority segments that we talk about.

Speaker 1

Operator, we'll take the next question please.

Operator

Your next question comes from the line of Ghansham Panjabi with Baird. Your line is open.

Speaker 5

Yes, thank you. Good day, everybody. I just wanted to follow-up on Anthony's question on the elasticity impact. Ron, I mean, Maybe just a broader portfolio question, not just rigid, but Flexibles as well. Have you seen any sort of impact as it relates to new product introduction activity or Anything like that, because clearly a lot of your customers are talking about consumer US citizen taking hold.

Speaker 5

And then also just to clarify, the 3% price contribution in flexibles, Apart from the 11% pass through impact, what exactly does that encompass? Are these market based price increases as you tend to adjust for Higher freight and labor costs or is there something else there? Thanks.

Speaker 2

Yes. Let me talk to I'll answer the first question and Michael can come back on the second Around the pricing. Look, we talk to our customers as you'd expect and we're close To our customers across the different markets that we're participating in, I think generally the same messages come back and that is what you hear them say publicly, which is To date, in this part of the inflationary cycle, elasticities have been lower than they would have expected and lower than historical Levels. But they're also quick to point out that there is elasticity of demand even across these more defensive end markets. And there's a potential for the elasticity to increase as we get deeper into this period of high inflation.

Speaker 2

There's a cumulative amount of inflation that builds up, which could impact the consumer. All that being said, I mean, we really like our portfolio. We have No general industrial exposure. We're almost completely exposed to consumer staples and healthcare products, Which have proven over a number of economic cycles to be quite resilient. And we've got no doorbells exposure of any kind also.

Speaker 2

We feel like we're as well positioned as anybody. Certainly, if you go back, if you'd follow the company 5, 10 years ago, our portfolio now It's more defensive than it's ever been, and with, as I said, essentially all of our exposure into more defensive segments. Do you Yes, sure. In terms of

Speaker 3

the pricing, so as you've seen from the results, I mean, our teams have been out there working really hard to get not only the raw material increases Back in the year, and we you see us, we put through about $1,500,000,000 in raw material related price increases through the year, so about 12% of revenue. And that kind of Counted at 25% increase generally across the board in raw materials. But in addition to that, clearly, we've seen Pretty significant increases in inflation across things like energy and freight and to a lesser extent, some labor. And so clearly, our teams have been out in the marketplace, recovering those nonraw related items as well. I'm working really hard to do that.

Speaker 3

And if you think about Energy and Freight as a component of Amkor's Cost of goods, they're a smaller component. They're around about 3% of our cost of goods. And during the year, we've seen somewhere between 15% 20% increases in those items, and that equates to around $100,000,000 $110,000,000 And then take labor and a few other things into account, the overall inflation for the year was somewhere around 150,000,000 Mark, and if you look at our price increases across the board, we had about a 1% price increase non raw material related, so 1% in sales growth. That's a pretty similar amount to the inflation that we saw.

Operator

Your next question comes the line of Brook Campbell Crawford with Berenberg. Your line is open.

Speaker 6

Yes, thanks for taking my question. Just one on Slide 9. The sort of 5% to 10% Organic growth, I guess, based on organic volume growth of 1% to 2%, can you just sort of step me through that leverage Are you expecting price increases to more than offset cost inflation? I'm sure there's a mix in there, but it's just good leverage there from volume to EPS.

Speaker 2

Yes. Look, I would describe it as basically the components that you just outlined. So we start with Our expectation of low single digit volume growth, we start with the expectation that that volume growth will be more heavily weighted towards The more differentiated higher value segments that we've called out, we would expect to continue to get inflation recovery And we would expect to continue to drive cost productivity in the business. So those building blocks probably haven't changed much. I mean in certain years we've had Acquisition synergies to contribute, we don't have that obviously in 'twenty three, but those are the building blocks.

Speaker 6

Just on the restructuring costs taken below the line and throughout the year, there was another $11,000,000 in the Q4 and I note there was no de mis synergies in that period as well. So maybe you can Just help us understand what are some of the examples of things that contribute to that $11,000,000 in the June quarter and if we should expect some of that to

Speaker 3

Yes. Thanks, Brook. It's Michael here. Look, that was just the end of the program. So there's some tail off on Certain costs relating to mostly relating to footprint related items, the impairments and other things.

Speaker 3

So that's Specifically on the Bemis program, which is now closed out. So you should not expect any more cost below the line for that

Operator

Your next question comes from the line of Lawrence Gammler with Credit Suisse. Your line is open.

Speaker 5

Thank you. Just making sure you can hear me?

Speaker 2

Yes, sir.

Speaker 5

Thank you. Okay, first question, I guess, Michael, with regards to the cash flow guidance, I was hoping for At least raw materials inventory not to be a drag on cash flow in F 'twenty three. Given the cash flow guidance is Not in advance of F 'twenty two, it does seem like there is a bit of a drag. Just wondering if you can walk us through that. And my second question is related to You recently appointed this value question more for Ron.

Speaker 5

You guys recently appointed ahead of global sales, I guess, to harmonize some of those High margin categories and your presence across Europe and the U. S. Ron, maybe you can just talk about the priorities there.

Speaker 2

Sure. Okay. Do you want to take the first one?

Speaker 3

Yes. Sure. I'll start with the cash flow. Look, I mean, we're looking forward to another strong year of cash flow in that $1,000,000,000 to $1,100,000,000 Range, there's several factors that drive that. Obviously, we're going to have some we'll have higher EBITDA within that cash flow.

Speaker 3

From a working Capital standpoint, in FY 'twenty two, we had a cash outflow of around $150,000,000 on the back of the raw material Price escalation and holding more inventory on the back of the volatile and disrupted marketplace. So We're not anticipating an additional outflow as a result of that. But at the same time, you're going to see increased sales and further pass throughs. So there will be some working capital impact from that, albeit we'll be holding working capital to sales Around that below 8 ratio, which we've been pretty consistent on over the last few years. So no real impact on the inventory side.

Speaker 3

It's also going to depend on what happens with raw material pricing and how the market supply chain works. But pretty much, we're looking for a neutral working capital impact. Obviously, we're going to be spending more in CapEx. So we talked about a 15% step up in CapEx, which will that's included in the guidance. And then with the higher interest, That's an outflow that we didn't have this year.

Speaker 3

So when you put all that together, looking forward to another strong year in that $1,000,000,000 to $1,100,000,000 range.

Speaker 2

And then, Larry, yes, you asked about Head of Global Sales and Marketing, which is a role that we've had, but we've elevated. And maybe just For context, we run the business in a very decentralized way through the business groups. We have a small number of resources in the center That drive leverage across the portfolio in areas that we think are the highest impact. And sales and marketing has been one of those for quite some time. We've had that role In the center, what's new is that we've elevated it.

Speaker 2

It's now a direct report to me. It sits on the leadership table. There's a few things that really I'm expecting to get out of it. 1st and foremost is we just as we pivot increasingly towards generating higher levels of organic growth And top line growth, we just want the voice of the customer even more prominent around the leadership table. And so this person will help us do that.

Speaker 2

Clearly, we have some global customer relationships that have always required a degree of coordination, so she'll pick that up as well. And then our commercial capabilities, which is an initiative called Value Plus that we've had in place for 15 years or so, It's a commercial excellence program inside the company. I think of it as sort of 6 Sigma for the commercial side of the business. She'll also take the lead And driving continuous improvement in that program as well. So that's the rationale for the elevation and increase in prominence of what's always been a very important role

Operator

Your next question comes from the line of George Staphos with Bank of America. Your line is open.

Speaker 5

Hi, everyone. Good day. Hope you can hear me okay. Thanks for all the details. My question It's going to be on Russia, Ron and Mike.

Speaker 5

So I wanted to understand the guidance for next year, You mentioned it'd be about a 2% effect considering that you assume the business winds down and is sold By mid fiscal 'twenty three, does that mean then that in fiscal 'twenty four, there'll be A residual comparison will be the other half that you're comparing against in fiscal 'twenty three from having the business in your results. And then more broadly, You mentioned footprint alignment, cost reduction. Can you talk to us about how you are going to Best try to fill some of the earnings that we'll be leaving and how much will acquisitions play in that Effort for the company. Thank you and good luck with the New Year.

Speaker 2

Yes. Thanks, George. And I'll take it. Michael can tag on here at the end. But we've decided to sell these 3 plants, which have Historically produced around 4% to 5% of our EBIT.

Speaker 2

The planning assumption and the assumption that's embedded in our guidance for the year is that we complete that sale process at Some point in the second half of the year. And between now and then, we're scaling back the operations, which is all consistent with what we had said back in March and I think on our call in May. Now as far as the difference between roughly a 2% headwind in FY 'twenty three and whether or not there's any residual impact in 'twenty four, Look, we're pedaling really hard to offset the gap. And so we don't expect any meaningful residual impact in FY 'twenty four. Clearly, we're losing 4% to 5% of earnings.

Speaker 2

We're going to take a hard look at the cost base in that part of the business. We'll be rightsizing it, If you will, the cost base in that part of the company, looking at footprint as well. And so we expect to mitigate the remaining Impact to the extent there is any.

Operator

Your next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is open.

Speaker 2

Yes. Thank you, everyone.

Speaker 4

I guess, first question is just thinking about maybe the growth peaks Delivered in the quarter and your thoughts in fiscal 'twenty three, maybe a little bit more regionally. And just wondering, you gave some color regionally in the Rigid's business, but help us think about kind of what you're seeing in Europe, Asia, China had lockdowns in most recent quarter that Could have proven disruptive and especially in Europe as you look ahead, weaker economic growth, Kind of how you and the impact of energy and power prices, how that both impacts in your view of costs, but also your view of consumer demand. And I High level, Ryan, you talked about kind of low single digit volume growth outlook as a starting assumption for fiscal 'twenty three. And I'm just trying to

Speaker 7

Build up to that a little bit more.

Speaker 3

Okay. I'll handle that part

Speaker 2

and Michael you can come back and talk about the energy point. Yes, well that's right. The starting point is the assumption of low single digit growth. I mean, if we look backwards a bit in 2022, because I would expect it will have similar Dynamics Network in 'twenty three. Generally speaking, across the developed markets, we had sort of Flat to low single digit volume growth in North America.

Speaker 2

Europe was a little bit softer because we had even more acute Supply shortages of certain raw materials and we prioritize some higher value segments and customers. But in the emerging markets in 'twenty two, we had mid single digit growth, and that's been sort of a long term trend. So that's the way we would expect the FY 'twenty three to evolve as well. You asked specifically about China. China has been volatile.

Speaker 2

I mean it's been a really consistent grower for us for a long time. We had good growth across FY 'twenty three as well. But clearly in the Q4, in particular with some of the lockdowns, we had some very strong months and we had some very soft months. And I would expect those ups and downs to persist into the start of 'twenty three at least As things normalize, but generally speaking, I guess the next level of detail beneath the low single digit growth across the portfolio would be Kind of lower single digits in the developed markets, Europe and North America, mid single digits in the emerging markets of Asia and Latin America. I would point out as well just because of the some of the comments you made in asking the question, This has been a very resilient business through a number of economic cycles, and I can't emphasize that enough.

Speaker 2

And I also would point out to those that have followed the company for a long time that the Portfolio has not been as defensive as it is now. We really have no general industrial and durables exposure. Michael, do you want to talk about energy costs?

Speaker 3

Yes. So look, in terms of energy, as I said earlier, we've certainly seen inflation in our energy That cost around the globe and in Europe and that actually in Europe accelerated in the second half. But we've been out there recovering it. And we're certainly anticipating there's going to be more inflation to come. But the teams are out there and covering it.

Speaker 3

And The level is dependent on where things get to in that marketplace. And obviously, we've factored that into the guidance range. There's a range of outcomes in that guidance range. Overall, we're expecting inflation to continue and the teams are out there recovering it.

Speaker 4

All right. Thank you. I appreciate the color. Thank you.

Speaker 2

Thanks, Adam.

Operator

Your next question comes from Jacob Karknes with Jarden Australia. Your line is open.

Speaker 8

Good evening, Michael, and evening, Ron. Just a question on the CapEx Obviously, the Q3 update, you upgraded the CapEx to sales guidance to be between 4% and 5% of revenue. And Today, you mentioned that there's a 15% increase in the CapEx guidance. Can you just give us some indication as to where that CapEx is being allocated? Is it going to allow Amkor to compete more in the sustainability and recycled materials space or are we looking at kind of BAU Investment back into the business, I'm just wondering how it sets you up strategically moving forward.

Speaker 2

Yes. So Look, the guidance is consistent. I mean, if you do the math, we're working our way up to that 4% to 5% of sales range, which means that for a couple of years, there'll be Larger increases on the order of the 15% that you referenced. Generally speaking, Well, as a general rule, it's going into business as usual in the sense that we are not allocating capital outside of our Lane in the value chain. So what we're not doing is allocating capital in a major way to recycling infrastructure or things like Got it.

Speaker 2

I mean, we can that's a separate discussion, but we think we can contribute to the development of infrastructure in a different way. So From that perspective, you could call it business as usual. But I think what's exciting to us is that we're we see enough line of sight Good organic growth in some of the priority segments that we've referred to and some of the innovation platforms, which do have sustainability attributes That we can deploy more capital to drive higher levels of growth. Couple of examples. In healthcare, we've opened a new Health Care Packaging Plan in Singapore.

Speaker 2

We've also expanded a plan in Ireland in the medical packaging space. We put money to work in Switzerland to supply Nespresso capsules. We've continued to invest in our innovation platforms, our sustainable innovation platforms. We've talked publicly about A platform called Amlite, which is a recycle ready material that can be used for human food pouches and pet food pouches. So those are some examples of where the capital is being deployed.

Operator

Your next question comes from the line of John Bechtel with Macquarie. Your line is open.

Speaker 6

Good day, Ron and Michael. How are you?

Speaker 2

Good, John. How are you doing?

Speaker 6

Very well. Thank you. Just in terms of price and cost spread and how we should think about that. Are you expecting a meaningful positive price cost spread In 'twenty three, and we know that you won't have the benefit or incremental benefit of Bemis synergies for the year ahead. And I suppose as part of that, is that sort of price cost spread, are you starting to see that come through in a positive way now?

Speaker 6

Or is it more a second half weighting, assuming it does?

Speaker 3

Yes. Hi, John. It's Michael. I can take that one for you. Look, I mean, throughout this year, we've seen Pretty volatile and persistent increases in raw material mixed across the globe.

Speaker 3

You remember, we buy a broad basket raw materials and geographies and they move at different times in different ways. But what we did see Through the year was recovery of that, but for the entire year, it was a headwind, a manageable headwind. I'd say it eased as we got into the second half. I think Q4 certainly was a marginal headwind. Where raw materials are today and what we see moving forward, I mean, there are still movements upwards.

Speaker 3

Aluminum is probably one that's come down, but the marketplace is still across the globe volatile. And But what we've included in guidance for now is that we think in the Q1, things are going to be relatively stable Based on what we see today, and we could start to see some marginal tailwinds as we get to December. But What happens in the second half, we'll see. It's all going to depend on where the raw materials move. But that's all been factored into our guidance, the guidance range That we put out there in that 5% to 10% underlying business.

Speaker 3

Obviously, if raw materials come down fast, then that's one The elements that could get us to the higher end of the range and if they continue to escalate, then as you know, we recover it, but some There is always a lag in that and so that could be one of the factors that leads us to the bottom end of the range. But where we sit today, Fairly neutral in Q1, perhaps some slight tailwind as we head into Q2.

Speaker 6

Thank you.

Operator

Your next question comes from Richard Johnson with Jefferies. Your line is open.

Speaker 9

Thanks very much. Ron, can I just quickly ask you a question on Rigid Plastics? Your major competitor in Hot Fill reported volume growth For the June quarter, which was slightly higher than yours, and the reason they gave for their growth of market share gain In sports strengths and given how consolidated that category is between the 2 of you, I just wanted to clarify whether you'd lost Any share in that particular area? And then just secondly, a quick follow-up on Michael, if I might. Michael, can you remind me how you account for interest hedging gains and losses?

Speaker 9

Thanks.

Speaker 2

Yes. Look, on the hot fill space, in response to someone's question earlier, I pointed out over the last 2 years, hot fill volumes are 14%. Across any of the categories you're exposed to, there's not been 14% growth, I can tell you that.

Speaker 5

So I

Speaker 2

think that our share has Improved over the last 24 to 36 months pretty meaningfully. Michael, on the interest?

Speaker 3

Yes. On the interest rates, what's Richard? Yes, they're part of the interest expense. They run through that line.

Speaker 9

Great. Thanks very much.

Operator

Your next question comes from Kyle White with Deutsche Bank. Your line is open.

Speaker 10

Hey, thanks for taking the question. Ron, a little bit more longer term question here. Just curious how we should think about the shareholder growth algorithm over the long term? You're still targeting a 10% to 15 Shareholder return, I guess why should it be higher given the increase to CapEx and organic investments especially towards some of these higher value end markets that you're targeting? I guess obviously you're increasing CapEx now, it takes time to get those returns, but do you see runway for this algo increasing, especially as you include M and A to it?

Speaker 2

Look, it's a good question. I think the short answer is yes, you can see a path at some point. But as you pointed out, we need There's a bit of ramp up to get returns from the capital that we're putting to work. I think the other thing that will happen is that the mix in that algorithm will shift A bit over time, we've been grinding out the organic growth from margin expansion and Cost productivity over the years and then we've been quite acquisitive, although less so more recently. So I think over time, You'll see the organic growth come a little bit more from the top line overall and a little more commercial productivity.

Speaker 2

And I think you'll see us get back on the acquisition path again as we had been prior to the last few years. So I think we're comfortable with the algorithm at the moment, but there's reasons for optimism that the mix will evolve a little bit as we move forward. And that's why we're putting our money behind some of these growth projects that I outlined earlier.

Operator

Your next question comes from the line of Daniel Kang with CLSA. Your line is open.

Speaker 8

Good morning, everyone. So I guess I would notice in terms of resin prices, it's pulled back quite meaningfully in recent months. Can Can you talk us through your thoughts on the dynamics that's driving this, your new peak capacity coming on board potentially You're now providing a more medium term, towerwind.

Speaker 2

Yes. Look, I think, as Michael alluded to, the basket of resins that we buy have moved in different directions in a different The resins that we buy have moved in different directions at different paces. And so overall, we still actually saw resins Across our global basket go up a bit in the Q4, but there's definite signs that things will ease. And in the medium term and Even maybe a bit sooner in certain regions of the world, there is more capacity coming on stream in some commodities and that will certainly take Some of the heat out of the pricing. Remember that supply demand is one element.

Speaker 2

We also have the underlying feedstock Prices playing a role as well. So oil and natural gas, which have come off a little bit and I'm talking very recently now. But it's really those two things that drive the prices of the polymers that we consume. And for the last Period of time here in this more recent inflationary cycle, we've had pressure from both. We've had raw supply demand working against us At times when we've had inflation in oil and gas, it looks it's possible that in the near term or certainly in the medium term, both of those factors Abate and we start to see some more meaningful softening and more sustained softening across the basket of our materials that we're buying.

Speaker 8

Thank you, Ron. If there's a chance for a follow-up, I just wanted to ask about Potential M and A. Are you seeing more opportunities at potentially more attractive valuations given the higher rate Environment?

Speaker 2

Not yet, but you would have to believe that as rates go up, As the high yield market maybe gets a little tighter and a little more constrained, that there'll be maybe less competition for deals, That would be the theme that you would expect to emerge. I mean, it's just it's a bit early in the interest rate cycle, and it's a bit early generally In the asset pricing cycle for us to have seen that yet, but we're in a great position because we know exactly where we want to go strategically. We know exactly The segments that we'd like to acquire in to advance our strategy and we've got a great financial position to work With a really strong balance sheet and lots of cash flow. So we'll be we'll certainly be in the deal flow to the extent Assets do come to market.

Operator

Your next question comes from Mark Wilde with Bank of Montreal. Your line is open.

Speaker 7

Thanks. Good evening, Ron. Good evening, Michael.

Speaker 2

Hi, Mark.

Speaker 7

Just curious about just any inventory destocking behavior that you're seeing? We've heard a lot of Conversation about this with different retailers, but I think there have also been questions about whether upstream from them, whether some of the CPGs have Taken on a little extra inventory over the last couple of years and whether they might be starting to bleed a little bit of that back out now. Just any thoughts around that, Ron?

Speaker 2

Yes. Look, it's always difficult for us to have great visibility into where things Stan, from an inventory perspective down the value chain, I mean, I guess, and this is really anecdotally, I'd probably suggest There is probably more inventory than there needs to be in some parts of the chain. Has it been acute in any part of our business and really held things back? No. But I would say With the limited visibility that we have, you'd probably say there's a little bit more inventory than there needs to be in certain segments.

Speaker 2

But take that for what it's worth, which is just a bit anecdotal. Okay. And then if I

Speaker 7

could just follow on real quickly. Can you just update us on sort of Where volume is at in both kind of healthcare and medical devices? Because you did mention some incremental healthcare and device Investments, I know earlier in the pandemic that some of those volumes were weak. I'm just curious about where you stand right now.

Speaker 2

Yes. That's a good question. I'm glad you asked. I mean healthcare volumes generally, medical device packaging and Pharmaceutical Packaging have bounced back very strongly. So we had good Mid to high single digit growth across both of those segments through FY 2022.

Speaker 2

Pharma was a little bit slower to rebound, But the medical device packaging volumes for us now are back to where we were pre pandemic. Now that's a segment that It has grown in sort of the mid single digits for us for many, many years. It's good margin business and innovation intensive, etcetera. So we expect that to continue, but we're Back to where we were in 2019.

Operator

Your next question comes from the line of George

Speaker 5

I wanted to come back to acquisitions And recognizing you're going to be very disciplined as always about the businesses that you look at. You mentioned that sustainability is Core to everything that you do at Amkor, clearly, how important will it be for the acquisitions that you look at To either give you a new technology, a new ability to promote sustainability and otherwise help your customers' products become more It's important, but really what you're looking at are the financial metrics, the improvement in return on funds employed and so on. How would you have us Think about how you're evaluating that. And if you could talk a little bit about the check facility and just provide

Speaker 4

a bit more color on that, that'd be great.

Speaker 5

Again, thanks good luck in the year.

Speaker 2

Yes, thanks. Look, it's a great question, George. I mean, I would say that the two factors that you outlined, they're inextricably linked. As you think about doing an acquisition, especially anything of meaningful scale, you'd be thinking more Beyond the 1st couple of years of ownership and so you'd be thinking about the sustainable growth In a business that you'd be acquiring, you'd be thinking about the sustainable competitive advantage. All of those things in our universe are going to be linked to sustainability.

Speaker 2

So it's inconceivable that we would buy something that didn't further enhance our sustainability the sustainability credentials of our product portfolio. I mean, that being said, we like our product portfolio as it relates to sustainability. We think that we've got the key to More sustainable products with the stable of product segments that we're in today. So we don't see Any real need to step out, but anything that we look at will increase, will be accretive, if you will, to the sustainability profile of our product portfolio and because for no other reason then it will be It will lead to better financial outcomes over time and higher returns ultimately. Just really quickly to close off on the Czech plant, we bought a plant which is relatively new And it was opened right at the outset of the pandemic, so it's very, Very low utilization gives us instant capacity in Central Europe and it happens to have assets that are Easily directed towards some of our priority segments, including coffee and pet care.

Speaker 2

So it's essentially we're essentially buying a plant more so than a business, And we closed on that in early August and we'll be working over the next couple of years to fill up that site. And if things go well, then we've got optionality to expand the site As well. So pretty excited about that little bolt on in that part of the world.

Operator

Ladies and gentlemen, there are no further questions. I will now turn the call back to Ron for closing remarks.

Speaker 2

Okay. Thank you, operator. Thanks everybody for joining the call today Just in Amkor, we've had a strong year in 'twenty two and we're expecting another strong year in 'twenty three and

Operator

This concludes today's conference call. You may now disconnect.

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