Avery Dennison Investor Presentation August 2014 Unless otherwise indicated, the discussion of the company s results is focused on its continuing operations, and comparisons are to the same period in the prior year. 1 Avery Dennison Investor Presentation
Forward-Looking Statements Certain statements contained in this document are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements, and financial or other business targets, are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but not limited to risks and uncertainties relating to the following: fluctuations in demand affecting sales to customers; the financial condition and inventory strategies of customers; changes in customer order patterns; worldwide and local economic conditions; fluctuations in cost and availability of raw materials; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; impact of competitive products and pricing; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; fluctuations in currency exchange rates and other risks associated with foreign operations; integration of acquisitions and completion of potential dispositions; amounts of future dividends and share repurchases; customer and supplier concentrations; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems; successful installation of new or upgraded information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest and tax rates; fluctuations in pension, insurance, and employee benefit costs; impact of legal and regulatory proceedings, including with respect to environmental, health and safety; changes in governmental laws and regulations; changes in political conditions; impact of epidemiological events on the economy and our customers and suppliers; acts of war, terrorism, and natural disasters; and other factors. We believe that the most significant risk factors that could affect our financial performance in the near-term include: (1) the impact of economic conditions on underlying demand for our products; (2) competitors' actions, including pricing, expansion in key markets, and product offerings; and (3) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through selling price increases, without a significant loss of volume. For a more detailed discussion of these and other factors, see Risk Factors and Management s Discussion and Analysis of Results of Operations and Financial Condition in our 2013 Form 10-K, filed on February 26, 2014 with the Securities and Exchange Commission and subsequent quarterly reports on Form 10-Q. The forward-looking statements included in this document are made only as of the date of this document, and we undertake no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law. Use of Non-GAAP Financial Measures This presentation contains certain non-gaap financial measures as defined by SEC rules. As required by these rules, we have defined, qualified, and reconciled these non-gaap financial measures to the most directly comparable GAAP financial measures, in the Appendix of this document.
Overview > Sustainable competitive advantages in two core businesses» Global reach, scale» Product breadth, technical expertise, innovation» Service, quality 2013 Sales by Segment and End Market RBIS 26% > #1 share positions worldwide > Premium pricing and above industry margins PSM 73% Vancive Medical Technologies 1% > Targeting double-digit adjusted EPS CAGR through 2018 > Strong, consistent FCF with solid balance sheet enabling significant return of cash to shareholders Industrial / Durable 17% Logistics & Shipping 17% Medical / Healthcare 5% Retail Apparel 22% Non-durable Consumer Goods 39% 2013 Net Sales (as reported) = $6.1 billion 3 Avery Dennison Investor Presentation
2013 Sales by End Market Emerging Markets ~30% Other* 5% Latin Eastern America Europe & 8% MENA Western 8% Asia U.S. Europe (ex-japan) 25% 29% 14% Asia 30% * Canada, Australia, South Africa, and Japan Eastern U.S. Europe 37% & MENA 9% Latin America 7% Other* 5% Western Europe 23% 4 Avery Dennison Investor Presentation
Pressure-Sensitive Materials (PSM) > Leading manufacturer of self-adhesive film and paper label material > Packaged goods end markets:» Home & Personal Care» Food & Beverage» Pharmaceutical FINANCIAL SNAPSHOT 2013 Sales $4.5 bil. Organic Sales Growth 4.7% Adjusted Operating Margin* 10.2% > Variable information end markets:» Shipping Labels» Bar Codes > 10,000+ printing company customers serving packaged goods and logistics companies around the globe > Large and growing addressable markets» 38% of segment sales in emerging markets * Excluding restructuring charges and other items 5 Avery Dennison Investor Presentation
Pressure-Sensitive Materials (PSM) > Our products enable:» Increased shelf appeal of consumer packaged goods» Maximized design options for a wide range of containers» Printing with a broad range of inks, resolutions and finishing techniques» Label application at high speed» High-impact fleet and architecture branding» Bonding solutions (tapes) with greater functionality and/or lower total applied cost Rigid Film Squeezable Film Coated Paper Thermal Paper Graphics & Tapes 6 Avery Dennison Investor Presentation
Industry leader in expanding market > Unmatched scale and global footprint» 2.5 times larger than nearest competitor» Local manufacturing and distribution across the globe > Industry-leading service, quality, and technical expertise > Innovation leader in the space» Significant benefits from manufacturing adhesives > Unique commercial relationships and market insights 7 Avery Dennison Investor Presentation
Retail Branding & Information Solutions (RBIS) FINANCIAL SNAPSHOT > Global leader (>5x nearest competitor) in branding & information solutions for apparel industry» Branding solutions: graphic tags, packaging, labeling, embellishments» Information solutions: inventory tracking & routing, loss prevention, price management, brand protection 2013 Sales $1.6 bil. Organic Sales Growth 4.9% Adjusted Operating Margin* 6.3% * Excluding restructuring charges and other items 8 Avery Dennison Investor Presentation
Key Drivers of Value Creation Market Segment Leadership Share growth within key highvalue segments Accelerate RFID Adoption» Mid-term growth projection of 20%+» 3-yr CAGR (2010-2013) ~40% Global Supply Chain Optimization Global leadership in integrated, end-to-end inventory & loss prevention solutions Faster, highly-flexible, capital efficient supply chain and manufacturing footprint Exterior Embellishment Share Gains Performance innovation & leading brand partnership 9 Avery Dennison Investor Presentation
Market Segment Strategy Segments RBIS Segment Share 08 13 Projected Segment Unit CAGR * RBIS Segment Share 13-18 * Key Growth Drivers Performance / Outdoor Athletic 2-4% Innovation Embellish/labels Global compliance & protection Sustainable solutions Innovation Premium Fashion 2-4% Creative packaging and labels Brand protection & consistency Global compliance Creativity Fast Fashion 2-4% Blended in-plant /Service Bureau Quick response products/solutions Global compliance/automation Speed Contemporary Fashion 1-3% Inventory visibility & accuracy Price management Global compliance/automation Simplification Value 0-2% Global Compliance Blended in-plant /Service Bureau Private brand development Cost * Internal assessment / plan 10 Avery Dennison Investor Presentation
Improving RBIS s Productivity / Asset Utilization Key Actions > Implemented hub and spoke structure > Plant closures > Sites repurposed to fast response units > Technology consolidations > Standardized org structures > Integrated supply chain > Lean manufacturing culture > Digital conversion» Increased digital printing capacity to 30%+ in 2013; ~60% increase since 2011» Targeting 50%+ digital printing capacity by 2015 ~1.4 mil Sq Ft Global Reduction 2009 o 58 Sites o 6.6 mil Sq Footage o 50 Mfg Sites 2013 o 48 Sites o 5.2 mil Sq Ft ( ~20%) o 39 Mfg / Fast Response Sites Sales per Sq Ft Reliability % $308 $202 09 13 53% $350+ 86.1 18 09 97.9 13 14% 99.0+ 18 11 Avery Dennison Investor Presentation
Portfolio Overview Long-Term Targets (2014 2018) 2013 SALES ORGANIC SALES GROWTH (5-YEAR CAGR) GAAP EBIT MARGIN ADJ.* EBIT MARGIN (BY 2018) PSM $4.5 bil. 4-5% 10-11% 10-11% RBIS $1.6 bil. 4-5% 9.5-10.5% 10-11% Vancive Medical Technologies $74 mil. 10%+ ~10% ~10% * Excluding restructuring charges and other items 12 Avery Dennison Investor Presentation
Targeting Continued Strong Progress Through 2018 Organic Sales Growth (CAGR (1) ) 4% 5% 2018 Operating Margin Adjusted (2) EPS Growth (CAGR (1) ) 2018 Return on Total Capital (ROTC) (3) Net Debt to EBITDA 9% 10% (up ~ 2 pts vs 2013 adj (2) ) 12% 15%+ 16%+ (up 4+ pts vs 2013) 1.7x to 2.0x (1) Reflects five-year compound annual growth rates, with 2013 as the base period (2) Excluding restructuring charges and other items (3) Net operating profit, excluding restructuring charges and other items, after taxes divided by average invested capital 13 Avery Dennison Investor Presentation
Capital discipline is a key contributor to value creation 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Fixed Asset (Net PP&E) Turnover (1) 2009 2010 2011 2012 2013 Operational Working Capital % of Sales (2) 15% 12% 9% 6% 3% 0% 2009 2010 2011 2012 2013 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Net Debt / Adj. EBITDA (3) 2009 2010 2011 2012 2013 Long-Term Target (annual average) Impact of Discontinued Operations (1) WholeCo annual net sales divided by 2-point average consolidated net PP&E for years 2009 through 2012; 2013 reflects continuing operations for both sales and net PP&E (2) WholeCo operational working capital at year-end divided by annualized fourth quarter net sales for years 2009 through 2012; 2013 reflects continuing operations for both operational working capital and net sales (3) Net Debt / LTM WholeCo Adj. EBITDA, 4-qtr Avg.; adj. EBITDA excludes restructuring charges and other items 14 Avery Dennison Investor Presentation
5-Year Capital Deployment ($ in millions) 2014-2018 Cumulative Capital Sources: Leverage Capacity (2013) ~ $350 Add'l Leverage Capacity (Organic EBITDA Growth) up to $700 Cash Flow from Ops before Restructuring $2,700 - $2,900 Available Capital $3,300 - $4,000 Capital Uses: % of Total Restructuring < $150 < 5% Capex ~ $1,000 25% - 30% Dividends ~ $750 ~ 20% Add'l Capital Available to Shareholders / M&A $1,400 - $2,000 ~ 50% Total Capital Available to Shareholders / M&A $2,150 - $2,750 ~ 70% 15 Avery Dennison Investor Presentation
2011 Avery Dennison Corporation. All rights reserved. Avery Dennison and all other Avery brands, product names and codes are trade marks of Avery Dennison Corporation. All other brands and product names are trademarks of their respective owners. Fortune 500 is a trademark of Time, Inc. Personal a nd company names and other information on samples depicted are fictitious. Any resemblance to actual names and addresses is purely coincidental. 16 Avery Dennison Investor Presentation