Amcor (AMCR) Risk Analysis

We face a number of commercial risks, including (i) operational disruption, such as mechanical or technological failures, disruptions due to natural disasters, geopolitical conflicts, or health crises, each of which could lead to production loss and/or increased costs, (ii) shortages in manufacturing inputs due to the loss of key suppliers or their inability to supply inputs, and (iii) risks associated with development projects (such as cost overruns and delays). Supply or workforce shortages, fluctuations in freight costs, limitations on shipping capacity, or other disruptions in our supply chain, including sourcing materials from a single supplier or those that may occur related to wars, including the conflict in the Middle East, geopolitical tensions, natural disasters, health crises, or new regulations, could affect our ability to obtain timely delivery of raw materials, equipment, and other supplies, and in turn, adversely impact our ability to supply products to our customers. Additionally, severe weather events and other adverse effects of climate change could have negative effects on agricultural productivity, leading customers to face both availability and price challenges with agricultural commodities, which may impact the demand for our products. The potential magnitude of these commercial risks on our business, financial condition, results of operations, or cash flows could be material. Additionally, the insolvency of, or contractual default by, any of our customers, suppliers, and financial institutions, such as banks and insurance providers, may have a material adverse effect on our operations and financial condition. Such risks are exacerbated in times of economic volatility, either globally or in the geographies and industries in which our customers, suppliers, or financial institutions operate. If a counterparty defaults on its payment obligation to us, we may be unable to collect the amounts owed, and some or all of these outstanding amounts may need to be written off. If a counterparty becomes insolvent or is otherwise unable to meet its obligations in connection with a particular project, we may need to find a replacement to fulfill that party's obligations or, alternatively, fulfill those obligations ourselves, which may be more expensive. The occurrence of any of these risks could have a material adverse effect on our business, financial condition, results of operations, or cash flows, which may result in a competitive disadvantage.

Our business and financial results may be negatively impacted by outbreaks of contagious diseases. Health crises have resulted in the past and could in the future result in supply chain disruptions due to the temporary closure of our facilities, the facilities of our suppliers, or other suppliers in our supply chain, the shut-down of customers' operations, volatility in raw material costs, and labor shortages and may have broader global economic or geopolitical implications. In addition, any major animal disease outbreak could adversely impact the demand for our packaging. While we have established protocols to manage these potential impacts, the extent to which health crises may impact our business and operations is unknown and the effect on our business, financial condition, results of operations, or cash flows could be material.

We are subject to foreign exchange rate risk, both transactional and translational, which may negatively affect our reported cash flow, financial condition, and results of operations. Transactional foreign exchange exposures are associated with transactions in currencies other than the entity's functional currency. Translational foreign exchange exposures result from exchange rate fluctuations in the conversion of entity functional currencies to U.S. dollars, our reporting currency, and may affect the reported value of our assets and liabilities and our income and expenses. In particular, our translational exposure may be impacted by movements in the exchange rate between the Euro, the Brazilian Real, the Swiss Franc, the Chinese Yuan, and the United Kingdom Pound Sterling against the U.S. dollar. Refer to "Item 7A. - Quantitative and Qualitative Disclosures About Market Risk," including foreign exchange risk, in this Annual Report on Form 10-K. Exchange rates between transactional currencies may change rapidly due to a variety of factors. In addition, we have recognized foreign exchange losses related to the currency devaluation in Argentina and its designation as a highly inflationary economy under U.S. GAAP. Refer to Note 2, "Significant Accounting Policies," of the notes to consolidated financial statements in this Annual Report on Form 10-K for further information regarding highly inflationary accounting. To the extent currency devaluation occurs across our business, we are likely to experience a lag in the timing to pass through U.S. dollar-denominated input costs across our business, which would adversely impact our margins and profitability. As such, we may be exposed to future exchange rate fluctuations, and such fluctuations could have a material adverse effect on our reported cash flow, financial condition, and results of operations. Our Board of Directors has approved a hedging policy to limit and manage the risk of such foreign exchange fluctuations, however, if our hedges are not effective in mitigating our foreign currency risks, if we are under-hedged, or if a hedge provider defaults on their obligations under hedging arrangements, it could have a material adverse impact on our reported cash flow, financial condition, and results of operations.

Numerous ESG-related legislative and regulatory initiatives, including those related to our products, operations, and sourcing activities, have been passed and are likely to continue to be introduced in the various jurisdictions in which we operate. These new ESG-related regulations are evolving rapidly, and the regulations being enacted are often not harmonized across the jurisdictions in which we operate, increasing the complexity and cost of compliance and exposing us to increased legal risks associated with compliance. Our failure to comply with ESG regulatory reporting requirements could result in fines, loss of reputation, and other negative impacts which could be material, and the cost of compliance may negatively impact our business, financial condition, and results of operations. Increased regulation of emissions linked to climate change, including carbon pricing and greenhouse gas emissions and other climate-related regulations, could potentially increase the cost of our operations due to increased costs of compliance (which may not be recoverable through adjustment of prices), increased cost of fossil fuel-based inputs and increased cost of energy intensive raw material inputs. We could also incur additional compliance costs for monitoring and reporting emissions and for maintaining permits. However, any such changes are uncertain, and we cannot predict the amount of additional capital expenses or operating expenses that would be necessary for compliance. Increased environmental legislation or regulation, including regulations related to extended producer responsibility ("EPR") and pollution mitigation funds, could result in higher costs for us in the form of payments under EPR programs, higher raw material costs, increased energy and freight costs, new taxes on packaging products which could reduce demand for our products, and result in increased litigation. As a plastics packaging manufacturer, we face risks associated with inadvertent releases of plastic materials and other chemicals used in our operations, as well as the downstream management of our products at the end of their useful lives. Legislative and regulatory activity relating to plastic packaging, recycling, waste management, and EPR programs has increased in many jurisdictions and is expected to continue evolving. Such developments may result in product bans or restrictions on certain packaging formats or materials or could impose additional compliance obligations, taxes, fees, or investment requirements and/or operational adjustments, and could result in increased costs, litigation, penalties, reputational harm, unplanned capital expenditures or other liabilities that may adversely affect our business, financial condition, results of operations, or cash flows. In addition, it is possible that certain chemicals and materials might cease to be permitted to be used in our processes. Government bans of, or restrictions on, certain materials or packaging formats may close off markets to Amcor's business. For example, governmental authorities in the U.S., Europe and in other countries have become increasingly focused on the contamination of soil, air, and water exacerbated by the use of non-degradable chemicals, including per- and polyfluoroalkyl substances ("PFAS"). Various U.S. states have implemented, or are in the process of implementing, laws to restrict the use of PFAS in various applications, including in packaging materials or production processes. While we believe we are in compliance with existing regulations, the cost of compliance in the future to modify our products or production processes may be significant and adversely impact our financial position, results of operations, and cash flows. Increased social legislation or regulation, including requirements related to human rights due diligence and modern slavery reporting, could result in increased costs of compliance resulting from enhanced efforts to assess and remediate potential human rights risk across our global operations and supply chain. Gaps in our ability to identify potential human rights violations could lead to negative publicity or loss of business. Biodiversity-related incidents or alleged impacts in our value chain could expose us to increased compliance costs due to increasingly stringent regulations, and potential fines, legal penalties, and enforcement actions if requirements are not met. Many of our products are manufactured using petrochemical-based raw materials. Emerging restrictions on certain plastics or mandates to reduce plastic use may require shifts to more costly alternative materials or additional investment in the redesign of existing products and these costs might not be able to be passed on to our customers. Mandates to use certain types of materials, such as PCR content, may lead to supply shortages and higher prices for those materials as current recycling rates may be insufficient to meet increased demand for PCR within and beyond the packaging industry. Additionally, a sizable portion of our business comes from healthcare packaging and food and beverage packaging, both highly regulated markets. Therefore, we are also subject to certain local and international standards related to such products. Compliance with these laws and regulations can require a significant expenditure of financial and employee resources. A failure to comply with these regulatory requirements could adversely affect our reputation, our results of operations or result in, among other things, litigation, revocation of required licenses, internal investigations, governmental investigations or proceedings, administrative enforcement actions, fines, and civil and criminal liability.

Our ability to execute our strategy and deliver long-term value depends on our success in attracting, developing, and retaining a skilled and engaged workforce, including our global executive management and operational teams. Following the merger with Berry, we are continuing to integrate and align our organization, including talent strategies, systems, practices, and leadership structures across the combined business. While this integration creates opportunities to enhance organizational capability and scale our talent strategies, it also requires effective change management to ensure continuity and retention of critical talent. If we are unable to successfully manage this integration or retain key employees, our ability to execute our business plans and achieve expected performance outcomes could be adversely affected, which may in turn impact our financial condition, results of operations, and cash flows. We continue to face labor market challenges in certain regions, including skilled labor shortages, wage inflation, demographic shifts, and evolving workforce expectations. While we have responded effectively to date through workforce planning, succession strategies, and employee engagement efforts, we cannot guarantee continued success in attracting or retaining the talent critical to our growing organization. Prolonged gaps in workforce continuity or capability may negatively affect our productivity, operations, and ability to meet customer commitments.

We seek protection from a number of our key operational risk exposures through the purchase of insurance. A significant portion of our insurance is placed in the insurance market with third-party reinsurers. Our policies with such third-party reinsurers cover a variety of risk exposures, including property damage and business interruption. Although we believe the coverage provided by such policies is consistent with industry practice, the insurance coverage does not insure us against all risks in our operations or all claims we may receive and there is no guarantee that any claims made under such policies will ultimately be paid or that we will be able to maintain such insurance at acceptable premium cost levels in the future. Additionally, we retain a portion of our insurable risk through our captive insurance companies, located in Singapore and Guernsey. Our captive insurance companies collect annual premiums from our business groups and assume specific risks relating to various risk exposures, including property damage. The captive insurance companies may be required to make payments for insurance claims that exceed the captive's reserves, which could have a material adverse effect on our business, financial condition, results of operations, or cash flows.

We rely on the successful and uninterrupted functioning of our information technology and control systems, which includes operating multiple enterprise resource planning systems, to support critical business operations and various business functions, and on various technologies to process, store, and report information about our business, and to interact with customers, suppliers, and employees around the world. We cannot guarantee that our systems will fully meet future business requirements or that upgrades will proceed as intended. In addition, our information systems rely on internal information technology systems and third-party systems, including cloud solutions, which require different security measures. These measures cover technical changes to our network security, organization, and governance changes as well as alignment of third-party suppliers on market standards. As with all information technology systems, our systems may be susceptible to damage, disruption, information loss, or shutdown due to a variety of factors including power outages, failures during the process of upgrading or replacing software, hardware failures, cyber-attacks (e.g., phishing, ransomware, computer viruses), natural disasters, telecommunications failures, user errors, unauthorized access, and malicious or accidental destruction, or catastrophic events. Infrastructure changes, including migration to new data centers or cloud solutions, updates or patches to our core software infrastructure, and changes in our data processing pipelines could lead to significant business disruptions due to human error in our deployment processes or third-party software errors. While we have established and regularly test our business disaster recovery plan, there is no guarantee that it will resolve issues resulting from those disruptions in a timely manner. We may suffer material adverse effects on our business, financial condition, results of operations, and cash flows.

Sales of our products and services are closely tied to our customers' sales volumes to end consumers. Shifts in consumer preferences across the industries we serve, or in the packaging formats used to deliver those products, may arise from changes in cost, economic conditions, regulatory developments (including end user taxes), or evolving expectations related to convenience, health, environmental impact, and social considerations. For example, increasing focus on reducing packaging waste and limiting the use of petrochemical components, may decrease demand for certain products or render portions of our existing portfolio less relevant or obsolete. Additionally, new products we introduce may not achieve expected sales volumes or margin levels due to various factors, including our or our customers' inability to accurately predict consumer demand, end user preferences or movements in industry standards, or to develop products that meet consumer demand in a timely and cost-effective manner. If changing preferences are not offset by growth in new or substitute products or changes in consumer demand are not adequately mitigated by growth in new or substitute products, our business, financial condition, results of operations, or cash flows could be materially adversely affected.