CCL Industries Inc. — Management Reports 2021

Feb 25, 2021

MANAGEMENT'S DISCUSSION AND ANALYSIS

YEARS ENDED DECEMBER 31, 2020 AND 2019 (TABULAR AMOUNTS IN MILLIONS OF CANADIAN DOLLARS, EXCEPT PER SHARE DATA)

This Management’s Discussion and Analysis of the financial condition and results of operations (“MD&A”) of CCL Industries Inc. (“the Company”) relates to the years ended December 31, 2020 and 2019. In preparing this MD&A, the Company has taken into account information available until February 24, 2021, unless otherwise noted. This MD&A should be read in conjunction with the Company’s December 31, 2020, annual consolidated financial statements, which form part of the CCL Industries Inc. 2020 Annual Report dated February 24, 2021. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), and, unless otherwise noted, both the financial statements and this MD&A are expressed in Canadian dollars as the presentation currency. The major measurement currencies of the Company’s operations are the Canadian dollar, U.S. dollar, euro, Argentine peso, Australian dollar, Bangladeshi taka, Brazilian real, Chilean peso, Chinese renminbi, Danish krone, Hong Kong dollar, Hungarian forint, Indian rupee, Israeli shekel, Japanese yen, Malaysian ringgit, Mexican peso, New Zealand dollar, Philippine peso, Polish zloty, Russian ruble, Singaporean dollar, South African rand, South Korean won, Swiss franc, Thai baht, Turkish lira, U.K. pound sterling and Vietnamese dong. All per Class B non-voting share (“Class B share”) amounts in this document are expressed on an undiluted basis, unless otherwise indicated. The Company’s Audit Committee and its Board of Directors (the “Board”) have reviewed this MD&A to ensure consistency with the approved strategy and results of the business.

INDEX

1. Corporate Overview

• A) The Company

• C) Customers and Markets E) Recent Acquisitions and Dispositions

• G) Consolidated Annual Financial Results

• B) Coronavirus (“CV19”) Pandemic D) Strategy and Financial Targets F) Subsequent Events H) Seasonality and Fourth Quarter Financial Results

2. Business Segment Review

• A) General C) Avery Segment E) Innovia Segment

• B) CCL Segment D) Checkpoint Segment

• F) Joint Ventures

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3. Financing and Risk Management

A) Liquidity and Capital Resources B) Cash Flow C) Interest Rate, Foreign Exchange D) Equity and Dividends Management and Other Hedges E) Commitments and Other Contractual F) Controls and Procedures Obligations

4. Risks and Uncertainties

5. Accounting Policies and Non-IFRS Measures

A) Key Performance Indicators and B) Accounting Policies and Non-IFRS Measures New Standards C) Critical Accounting Estimates D) Related Party Transactions

6. Outlook

Forward-Looking Information

This MD&A contains forward-looking information and forward-looking statements, as defined under applicable securities laws (hereinafter collectively referred to as “forward-looking statements”) that involve a number of risks and uncertainties. Forward-looking statements include all statements that are predictive in nature or depend on future events or conditions. Forward-looking statements are typically identified by, but not limited to, the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans” or similar expressions. Statements regarding the operations, business, financial condition, priorities, ongoing objectives, strategies and outlook of the Company, other than statements of historical fact, are forwardlooking statements. Specifically, this MD&A contains forward-looking statements regarding the anticipated growth in sales, income and profitability of the Company’s segments; the Company’s improvement in market share; the Company’s capital spending levels and planned capital expenditures in 2021; the adequacy of the Company’s financial liquidity; the Company’s targeted return on equity, improved return on total capital, adjusted earnings per share, Adjusted EBITDA growth rates and dividend payout; the Company’s effective tax rate; the Company’s ongoing business strategy; the Company’s ability to maintain a Net Debt to Adjusted EBITDA ratio below 3.5 times; the Company’s expectations regarding general business and economic conditions; the Company’s Corporate Social Responsibility initiative to enhance the integration of social and environmental concerns into its business operations; the Company’s expectation to successfully divert waste from landfill; thus, reducing costs and having a positive sustainability impact for its customers; the Company’s announced new capacity addition in its proprietary “Ecofloat,” with start-up expected in early 2022; the impact the coronavirus will have on the global economy and the global supply chain; the Company’s success in passing on foreign exchange movements and input cost changes to its customer base; the Company’s success in quickly initiating actions to reduce variable costs if the economic environment weakens; CCL Label and CCL Design pursuit of new product initiatives, with capacity expansion plans in new and existing markets; CCL Secure’s success in developing market-leading security technology to pursue widespread long-term adoption of

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polymer banknotes; the Company’s expectation that Avery.com, WePrint™ and Kids Label businesses will backstop Avery’s direct-to-consumer platform; the Company’s expectation that Avery will have sustainable growth in its direct-toconsumer offering, including incremental acquisitions; the Company’s expectation that there will be a more normalized back-to-school season in 2021, with a positive impact to Avery; Checkpoint’s capture of sales and profit growth from the evolving radio-frequency identification (“RFID”) market and possible complementary and tuck-in business acquisitions; the Company’s expectation that the Checkpoint operation will benefit from cost-saving initiatives and a return to in-store shopping by consumers; and Innovia’s success in passing on resin price increases to its customer base through contractual pricing mechanisms.

Forward-looking statements are not guarantees of future performance. They involve known and unknown risks and uncertainties relating to future events and conditions, including, but not limited to, the impact of competition; consumer confidence and spending preferences; general economic and geopolitical conditions; currency exchange rates; interest rates and credit availability; technological change; changes in government regulations; risks associated with operating and product hazards; and the Company’s ability to attract and retain qualified employees. Do not unduly rely on forward-looking statements as the Company’s actual results could differ materially from those anticipated in these forward-looking statements. Forward-looking statements are also based on a number of assumptions, which may prove to be incorrect, including, but not limited to, assumptions about the following: higher consumer spending; increased customer demand for the Company’s products; continued historical growth trends, market growth in specific segments and entering into new segments; the Company’s ability to provide a wide range of products to multinational customers on a global basis; the benefits of the Company’s focused strategies and operational approach; the Company’s ability to implement its acquisition strategy and successfully integrate acquired businesses; the achievement of the Company’s plans for improved efficiency and lower costs, including the ability to pass on polypropylene resin cost increases to its customers; the availability of cash and credit; fluctuations of currency exchange rates; the Company’s continued relations with its customers; and general business and economic conditions. Should one or more risks materialize or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward-looking statements. Further details on key risks can be found throughout this report and particularly in Section 4: “Risks and Uncertainties.”

Except as otherwise indicated, forward-looking statements do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made may have on the business. Such statements do not, unless otherwise specified by the Company, reflect the impact of dispositions, sales of assets, monetizations, mergers, acquisitions, other business combinations or transactions, asset write-downs or other charges announced or occurring after forward-looking statements are made. The financial impact of these transactions and non-recurring and other special items can be complex and depends on the facts particular to each of them; therefore, the

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financial impact cannot be described in a meaningful way in advance of knowing the specific facts.

The forward-looking statements are provided as of the date of this MD&A and the Company does not assume any obligation to update or revise the forward-looking statements to reflect new events or circumstances, except as required by law.

Unless the context otherwise indicates, a reference to “the Company” means CCL Industries Inc. and its subsidiary companies and equity-accounted investments.

Additional information relating to the Company, including the Company’s Annual Information Form, is available on SEDAR at www.sedar.com or on the Company’s website www.cclind.com.

1. CORPORATE OVERVIEW

A) The Company

Founded in 1951, and publicly listed under its current name since 1980, the Company’s corporate offices are located in Toronto, Ontario, Canada, and Framingham, Massachusetts, United States, with a regional centre for Asia Pacific in Singapore. The corporate offices provide executive and centralized services such as finance, accounting, internal audit, treasury, risk management, legal, tax, human resources, information technology, environmental, health and safety and oversight of operations. The Company employs approximately 22,200 people in 191 production facilities located in North America, Latin America, Europe, Australia, Africa and Asia including equity investments operating five facilities in Russia and five facilities in the Middle East.

The CCL Segment is the world’s largest converter of pressure sensitive and extruded film materials for a wide range of decorative, instructional, security and functional applications for government institutions and large global customers in consumer packaging, healthcare, chemicals, consumer durables, electronic device and automotive markets. Extruded and labeled plastic tubes, aluminum aerosols and specialty bottles, folded instructional leaflets, specialty folded cartons, precision decorated and die cut components, electronic displays, polymer banknote substrate and other complementary products and services are sold in parallel to specific end-use markets. Avery is the world’s largest supplier of labels, specialty converted media and software solutions to enable short-run digital printing in businesses and homes alongside complementary products sold through distributors, mass-market stores and e-commerce retailers. Checkpoint is a leading developer of RF and RFID-based technology systems for loss prevention and inventory management applications, including labeling and tagging solutions, for the retail and apparel industries worldwide. Innovia is a leading global producer of specialty, high-performance, multi-layer, surface-engineered films for label, packaging and security applications. The Company partly backward integrates into materials science, with capabilities in polymer extrusion, adhesive development,

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coating and lamination, surface engineering and metallurgy deployed as needed across the four business segments.

B) Coronavirus (“CV19”) Pandemic

2020 was an unprecedented year, with extensive civil and economic shocks from the CV19 pandemic taking hold in the first quarter and having its greatest effect in the second quarter. Globally, governments reacted by imposing civil restrictions of differing magnitudes to mitigate the contagion. The impact drastically impacted parts of the global economy with automotive manufacturing shutdowns; and temporary retail store, restaurant and office closures, partly offset by the benefits of consumer pantry loading and commodity price fluctuations. CCL reacted quickly, introducing new safety policies for employees, suppliers and customers, investing in personal protective equipment, availing itself of government subsidies where available, and initiating restructuring plans to match business costs to customer activity levels. Temporary company-wide savings from furloughed and short-time working employees and other government assistance programs amounted to $10.1 million and $20.0 million, respectively. Early in the second quarter of 2020, the Company further strengthened its liquidity position with a US$600.0 million 10year investment grade note offering, freeing up its entire US$1.2 billion revolving credit facility to ensure that it could withstand any foreseeable scenario. Fortunately, all of the Company’s facilities were deemed essential manufacturing so that government-imposed closures in certain international locations were only temporary and no facility was an incubator for the virus. The Company maintained its acquisition growth strategy with four strategic targets added after the onset of the pandemic. Despite a strong second half recovery, consolidated organic sales growth was down for the year; however, profitability was up and the Company posted record adjusted earnings per share and free cash flow for the year, proving the financial resiliency of the Company and the dedication of its people to all stakeholders.

C) Customers and Markets

The state of the global economy and geopolitical events can affect consumer demand and customers’ marketing and sales strategies to promote growth, including the introduction of new products. These factors directly influence the demand for the Company’s products. Growth expectations generally mirror the trends of each of the markets and product lines in which the Company’s customers compete and the growth of the economy in each geographic region. The Company attempts to gain market share in each market and category over time.

The label market is large and highly fragmented, with many players but with no single competitor having the substantial operating breadth or global reach of the Company. Avery has a dominant market-leading position for its products in North America, Europe and Australia. It also has a small presence in Latin America. Checkpoint has significant market positions in Europe, North America and Asia with smaller operations in Latin America. Checkpoint sells directly to retailers and apparel manufacturers and competes with other global retail labeling companies.

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Innovia operates plants in Europe, Mexico and Australia and has additional distribution capabilities in the United States and Asia that sell films to pressure sensitive label materials producers and converters, flexible packaging converters, consumer packaged goods companies and the security products industry.

D) Strategy and Financial Targets

The Company’s strategy is to increase shareholder value through investment in organic growth and product innovations around the world, augmented by a global acquisition strategy. The Company builds on the strength of its people in marketing, manufacturing and product development and nurtures strong relationships with its international, national and regional customers and suppliers. The Company anticipates increasing its market share in most product categories by capitalizing on market insights and the growth of its customers, and by following developments such as globalization, new product innovation, branding and consumer trends.

A key attribute of this strategy is maintaining focus and discipline. The CCL Segment aspires to be the market leader and the highest value-added producer in each customer sector and region in which it chooses to compete. The primary objective is to invest in growth globally, both organically and by acquisition. Avery objectives align to its core competencies in label solutions centered on specialty converted media that enable short-run digital printing in homes and small businesses and increasingly using the direct-to-consumer channel, both organically and by acquisition. Checkpoint focuses on technology-driven lossprevention and inventory-management labeling for the retail and apparel industries. Innovia is a leading global producer of specialty, high-performance, multi-layer, surface-engineered biaxially oriented polypropylene (“BOPP”) films for label, packaging and security applications. Innovia also provides significant depth and capability to develop proprietary films for label applications.

The Company’s financial strategy is to be fiscally prudent and conservative. The 2020 financial results delivered strong cash flow and a solid balance sheet after investing $161.4 million in acquisitions and $266.6 million in net capital expenditures to execute global growth initiatives. During good and difficult economic times, such as the CV19 pandemic, the Company has maintained high levels of cash on hand and unused lines of credit to reduce its financial risk and to provide flexibility when acquisition opportunities are available. As at December 31, 2020, the Company had $703.7 million of cash on hand and approximately US$1.2 billion of undrawn capacity on the Company’s unsecured revolving credit facility.

The Company maintains a continuous focus on minimizing its investment in working capital to maximize cash flow in support of growth in the business. In addition, capital expenditures are targeted at the most attractive growth opportunities and are expected to be accretive to earnings. The Company’s financial discipline and prudent allocation of capital have ensured sufficient available liquidity and a secure financial foundation for the long-term future.

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A key financial target is return on equity before goodwill impairment loss, restructuring and other items, tax adjustments, gains on business dispositions and non-cash acquisition accounting adjustments (“ROE,” a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A). The Company continues to execute its strategy with a goal of achieving a comparable ROE level to its leading peers in specialty packaging. 2020 ROE of 17.8%, although still strong, was flat to 2019 due to a solid increase in adjusted net earnings; albeit, certain Segments of the Company were negatively impacted by the CV19 pandemic compared to substantial increases in the Company’s equity base, largely from retained earnings over the last five years:

	2020	2019	2018	2017	2016	2015
Return on Equity	17.8%	17.8%	20.0%	24.0%	23.5%	21.1%

Another metric used by the investment community as a comparative measure is return on total capital before goodwill impairment loss, restructuring and other items, tax adjustments, gains on business dispositions and non-cash acquisition accounting adjustments (“ROTC,” a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A). The chart below details performance since 2015. The Company targets delivering returns in excess of its cost of capital. ROTC of 11.9% for 2020 improved compared to 2019 due to the solid increase in adjusted net earnings for 2020, partially offset by the increase in capital deployed for acquisitions and net capital expenditures compared to 2019:

	2020	2019	2018	2017	2016	2015
Return on Total Capital	11.9%	10.8%	11.3%	14.0%	15.9%	15.4%

ROTC should increase as the Company deleverages its balance sheet and increases net earnings as the negative effect from the global CV19 pandemic on the Avery and Checkpoint Segments diminishes.

The long-term growth rate of adjusted basic earnings per Class B share (a nonIFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) is another important financial target. This measure excludes goodwill impairment loss, restructuring and other items, tax adjustments, gains on business dispositions and non-cash acquisition accounting adjustments. Management believes that, by taking into account both the relatively stable overall demand for consumer staple and healthcare products globally and the continuing benefits from the Company’s focused strategies and operational approach, a positive growth rate in adjusted basic earnings per share is realistic under reasonable economic circumstances.

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The Company has achieved significant growth in its annual adjusted basic and basic earnings per share since 2015:

	2020	2019	2018	2017	2016	2015
Adjusted Basic EPS Growth Rate	10.4%	2.2%	1.5%	17.9%	32.5%	31.9%
Basic EPS Growth Rate	10.4%	1.5%	(2.2%)	36.4%	16.5%	34.7%

In 2020, adjusted basic earnings increased by 10.4% to $3.08 per Class B share. Improved profitability from the CCL and Innovia Segments and slightly reduced corporate costs, including net interest expense, offset reduced earnings for the Avery and Checkpoint Segments. The Company believes continuing growth in earnings per share is achievable in the future as the negative earnings impact of the global CV19 pandemic wanes and the Company executes its global business strategies for the CCL, Avery, Checkpoint and Innovia Segments.

The Company will continue to focus on generating cash and effectively utilizing the cash flow generated by operations and divestitures. Earnings before net finance cost, taxes, depreciation and amortization, excluding goodwill impairment loss, earnings in equity-accounted investments, non-cash acquisition accounting adjustments, restructuring and other items (“Adjusted EBITDA,” a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A), is considered a good indicator of cash flow and is used by many financial institutions and investment advisors to measure operating results and for business valuations. As a key indicator of cash flow, Adjusted EBITDA demonstrates the Company’s ability to incur or service existing debt, to invest in capital additions and to take advantage of organic growth opportunities and acquisitions that are accretive to earnings per share. Historically, the Company has experienced growth in Adjusted EBITDA:

	2020	2019	2018	2017	2016	2015
Adjusted EBITDA	$ 1,123.2	$ 1,067.2	$ 995.3	$ 959.2	$ 792.7	$ 608.4
% of sales	21%	20%	19%	20%	20%	20%

In 2020, Adjusted EBITDA increased by approximately 5.0% from 2019, excluding the impact of 0.2% positive foreign currency translation, improving to 21% of sales. The Company’s Adjusted EBITDA margins remain at the top end of the range of its peers. The Company expects growth in Adjusted EBITDA in the future as the world normalizes subsequent to the effects CV19 pandemic and the Company implements its global growth initiatives.

The framework supporting the above performance indicators is an appropriate level of financial leverage. Based on the dynamics within the specialty packaging industry and the risks that higher leverage may bring, the Company has a comfort level up to a target of approximately 3.5 times net debt to Adjusted EBITDA with an appropriate deleveraging and liquidity profile to maintain its investment-grade ratings with Moody’s Investor Service (“Moody’s”) and S&P Global (“S&P”). As at

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December 31, 2020, net debt (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) to Adjusted EBITDA was 1.24 times, 0.37 turns lower than the 1.61 times at December 31, 2019, reflecting increased Adjusted EBITDA and a reduction in net debt. This leverage level is consistent with management’s conservative approach to financial risk and the Company’s ability to generate strong levels of free cash flow from operations (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A). This leverage level also allows the Company the flexibility to quickly execute its acquisition growth strategy without significantly exposing its credit quality.

The Board does not have a target dividend payout ratio (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A). However, the Company has paid dividends quarterly for over thirty years without an omission or reduction. The Board views this consistency and dividend growth as important factors in enhancing shareholder value. For 2020, the dividend payout ratio was 23.4% of adjusted earnings. This dividend payout ratio reflects the strong cash flows generated by the Company and a solid increase in adjusted earnings in 2020 compared to 2019. Therefore, after careful review of the current year results, budgeted cash flow and income for 2021, the Board has declared a 16.7% increase in the annual dividend: an increase of $0.03 per Class B share per quarter, from $0.18 to $0.21 per Class B share per quarter ($0.84 per Class B share annualized). Including this increase, the Company has more than doubled the annualized rate since March 2016.

The Company believes that all of the above targets are mutually compatible and consequently should drive meaningful shareholder value over time.

The Company’s strategy and ability to grow and achieve attractive returns for its shareholders are shaped by key internal and external factors that are common to the businesses it operates. The key performance driver is the Company’s continuous focus on customer service, supported by its reputation for quality manufacturing, competitive price, product innovation, dependability, ethical business practices and financial stability.

The Company has always updated its financial strategies and performance against internal benchmarks while considering its obligations to Corporate Social Responsibility (“CSR”). The Company’s CSR initiative is designed to enhance the integration of social and environmental concerns into its business operations and interactions with stakeholders. In 2020, the Company released the 2019 Sustainability Report entitled “Laying the Groundwork for a Sustainable Future,” covering material environmental and social responsibility issues and policies. A copy of this report is available at www.cclind.com.

Sustainability: The Company is committed to helping customers meet their targets by developing new products while reducing the environmental impact of its manufacturing processes. The Company will limit industrial waste ending up in the environment or in landfills by implementing waste reduction strategies. The

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Company has set goals of cutting 2019’s level of waste to landfill by 90% globally by 2025 and eliminating all landfill from its manufacturing process by 2030 in North America and Europe.

Ethics: The Company’s Global Business Ethics Guide is its primary policy on workplace practices, human rights, health and safety, ethical conduct and fair business practices for all employees. Reviewing the Guide is an important part of new hire training and global facilities are audited to ensure all new hires receive a copy of the ethics guide and sign a commitment of adherence to the code.

Health & Safety: The health and safety of the Company’s employees around the world is a top priority. The Company’s current Environmental Health & Safety (“EHS”) policy and robust safety reporting programs address the statutory requirements of the countries where the Company does business. The EHS policy was revised and updated in 2020 as part of the 2019 Sustainability Report. The Company is committed to integrating EHS considerations into operating practices and employee training programs. Quarterly reporting of health and safety performance statistics to management and the CSR Committee is required, with the objective of an injury-free workplace and appropriate responses to all incidents. Each facility is assessed a color code ranking for safety in each calendar year, with a focus on improvement of their health and safety standards.

Responsible Supply Chains: The Company continues to work with its supply chain partners to reduce the overall environmental and social impacts of its products including transportation, secondary packaging and material sourcing. Through predictive forecasting and responsive production, the Company is able to drive down lead times and help lower inventory throughout the supply chain with the added benefit of reducing waste and obsolescence and lowering the effects on the environment.

Circular Innovation: The Company’s product innovation teams work directly with customers to create sustainable products applicable to their needs while supporting end-use consumer demand to reduce waste in the environment.

E) Recent Acquisitions and Dispositions

The Company is globally deployed with significant diversification across the world economy including emerging markets, a broad customer base, distinct product lines and many different currencies.

The Company continues to deploy its cash flow from operations into its core Segments with both internal capital investments and strategic acquisitions. The following acquisitions were completed over the last two years:

• In November 2020, the Company acquired privately owned Super Enterprises Printing (Malaysia) Sdn. Bnd. (“SEP”) for approximately $15.4 million, net of cash. SEP is headquartered in Kuala Lumpur, with a second manufacturing operation in Guangzhou, China. SEP

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manufactures decorative panels, liquid crystal and touch-screen display covers and in-mould decorated components for the consumer electronics and automotive sectors across Asia. The company now trades as “CCL Design.”

• In October 2020, the Company acquired Graphic West International ApS (“GWI”), headquartered in Denmark, with operations in Europe and North America, for approximately $35.2 million, net of cash and debt. This new operation brings expanded capabilities and geographic reach in digitally printed cartons for the pharmaceutical industry. The company now trades as “CCL Specialty Cartons.”

• In July 2020, the Company acquired InTouch Labels and Packaging Co., Inc. (“InTouch”), near Boston, Massachusetts, for approximately $11.1 million, net of cash and debt. InTouch is a specialized short-run digital label converter and was added to Avery’s direct-to-consumer operations.

• In March 2020, the Company acquired Flexpol Sp. Z.o.o. (“Flexpol”), a privately owned company based in Plock, Poland. Flexpol is a leading producer of BOPP film for the European market. The purchase price, net of cash acquired, was approximately $23.5 million. The new business immediately commenced operating as “Innovia Poland.”

• In February 2020, the Company acquired Clinical Systems, Inc. (“CSI”), based in Garden City, New York, for approximately $19.7 million, net of cash on hand. CSI is a specialized provider to the U.S. clinical trials industry and is operating as part of CCL Label’s Healthcare and Specialty business.

• In February 2020, the Company acquired the remaining 50% interest in its aluminum slug joint venture, Rheinfelden Americas, LLC (“Rheinfelden”), by assuming $18.8 million of net debt previously held in the venture. The business immediately changed its name to CCL Metal Science.

• In January 2020, the Company acquired privately owned Ibertex Etiquetaje Industrial S.L.U. and Eti-Textil Maroc S.a.r.l. AU (“Eti-Textil”) for approximately $20.1 million, net of cash and debt. Eti-Textil, headquartered in Elche, Spain, with satellite manufacturing in Tangier, Morocco, is an apparel label producer that has been integrated into the Apparel Labeling Solutions (“ALS”) business of Checkpoint.

• In January 2020, the Company acquired I.D.&C. World Holdco Ltd. (“ID&C”), with operations in Tunbridge Wells, U.K., and Bradenton, Florida, for approximately $35.5 million, net of cash acquired. ID&C is a global leader in live event badges and wristbands and is part of Avery’s growing direct-to-consumer business.

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• In January 2020, the Company acquired IDentilam Ltd. (“IDL”), based in Horsham, U.K., for approximately $2.9 million, net of cash acquired. IDL designs and develops a range of software solutions for event badging and identification cards and has been added to Avery’s direct-toconsumer operations.

• In November 2019, the Company acquired Stuck On You Holdings Pty Ltd and Stuck on You Trading Pty Ltd (collectively, “SOY”) based in Melbourne, Australia, for approximately $7.2 million, net of cash acquired. SOY is a direct-to-consumer online digital print business expanding Avery’s presence in personalized “kids’ labels” in Australasia.

• In June 2019, the Company acquired Say it Personally Limited (“STS”), a privately owned company based near East Grinstead in the U.K. for approximately $0.4 million, net of cash acquired. STS is a manufacturer of durable, personalized garment tags for the U.K. market and expands Avery’s direct-to-consumer online product offerings.

• In May 2019, the Company acquired the shares of Colle à Moi Inc. (“CAM”), a privately owned company based in Quebec City, Canada, for approximately $3.1 million, net of cash acquired. CAM adds to Avery’s direct-to-consumer online digital print capabilities in personalized “kids’ labels.”

• In April 2019, the Company acquired the shares of Hinsitsu Screen (Vietnam) Company Limited (“Hinsitsu”), based in Hanoi, Vietnam, for approximately $12.9 million, net of cash acquired. Hinsitsu is a leading supplier of durable and tamper-evident labels and graphic overlays for the electronics industry in the ASEAN region and was added to CCL Design within the CCL Segment.

• In January 2019, the Company acquired Olympic Holding B.V. and its related subsidiaries (“Olympic”), a privately owned company based in Venray, Netherlands, for approximately $13.6 million, net of cash acquired. Olympic is a start-up technology company with a patented proprietary process to produce high-bond, acrylic foam tapes without the use of solvents for applications in the automotive, electronics and construction industries. Olympic was added to CCL Design within the CCL Segment.

• In January 2019, the Company acquired Easy2Name Limited (“E2N”), a privately owned company based near Newbury, U.K., for approximately $2.5 million, net of cash acquired. E2N expands Avery’s direct-toconsumer online digital print offering of durable, personalized “kids’ labels” to the U.K. market.

The acquisitions completed over the past few years, in conjunction with the

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building of new plants around the world, have positioned the CCL Segment as the global leader for labels in the personal care, healthcare, food and beverage, durables, security and specialty categories. Avery is the world’s largest supplier of labels, specialty converted media, and software solutions to enable short-run digital printing in businesses and homes alongside complementary office products. Checkpoint has added technology-driven loss-prevention, inventory-management and labeling solutions, including RF- and RFID-based systems, to the retail and apparel industries. Innovia provides vertical integration, driving the Company deeper into polymer sciences, enhancing the development of proprietary products for its customers.

F) Subsequent Events

Prior to the release of the 2020 annual financial statements, the Company announced the following:

• In January 2021, the immediate appointments of Ms. Linda A. Cash and Dr. Susana Suarez-Gonzalez to the Board of Directors and, effective May 2021, the retirement of Ms. Mandy Shapansky from the Board of Directors.

G) Consolidated Annual Financial Results Selected Financial Information

Results of Consolidated Operations

Results of Consolidated Operations
		2020		2019		2018
Sales	$	5,242.3	$	5,321.3	$	5,161.5
Cost of sales		3,740.1		3,809.1		3,662.7
Gross profit		1,502.2		1,512.2		1,498.8
Selling, general and administrative		725.4		774.6		785.8
		776.8		737.6		713.0
Earnings in equity-accounted investments		9.5		5.4		5.3
Net finance cost		(65.2)		(81.0)		(80.7)
Restructuringand other items		(27.6)		(25.0)		(14.8)
Earnings before income taxes		693.5		637.0		622.8
Income taxes		163.8		159.9		156.0
Net earnings	$	529.7	$	477.1	$	466.8
Basic earnings per Class B share	$	2.96	$	2.68	$	2.64
Diluted earnings per Class B share	$	2.94	$	2.66	$	2.61
Adjusted basic earnings per Class B share	$	3.08	$	2.79	$	2.73
Dividends per Class B share	$	0.72	$	0.68	$	0.52
Total assets	$	7,336.7	$	7,038.0	$	7,027.6
Total non-current liabilities	$	2,792.5	$	2,992.3	$	3,007.6

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Comments on Consolidated Results

Sales were $5,242.3 million for 2020, a decrease of 1.5% compared to $5,321.3 million recorded in 2019. This decrease in sales includes an organic decline of 3.9%, partially offset by acquisition growth of 2.1% and a positive 0.3% impact from foreign currency translation.

Consistent with 2019, approximately 98% of the Company’s 2020 sales to end-use customers are denominated in foreign currencies. Consequently, changes in foreign exchange rates can have a material impact on sales and profitability when translated into Canadian dollars for public reporting. The appreciation of the U.S. dollar, euro, U.K. pound, Chinese renminbi and Thai baht by 1.1%, 3.0%, 1.5% 1.1% and 0.3%, respectively, was partially offset by a 22.1% and 9.0% depreciation of the Brazilian real and Mexican peso, respectively, relative to the Canadian dollar in 2020 compared to average exchange rates in 2019.

Selling, general and administrative expenses (“SG&A”) were $725.4 million for 2020, compared to $774.6 million reported in 2019. The decrease in SG&A expenses in 2020 relates to a reduction in corporate expenses as well as general reductions across all business Segments of the Company. Corporate expenses for 2020 declined to $46.7 million, compared to $49.7 million for 2019 due entirely to reduced long-term variable compensation expenses on diminished profitability improvement in the second year of the cumulative plan.

Operating income (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) for 2020 was $823.5 million, an increase of 4.6% compared to $787.3 million for 2019. Foreign currency translation was a 0.3% positive impact to consolidated operating income for 2020 compared to 2019. The CCL and Innovia Segments each increased operating income while the Avery and Checkpoint Segments posted declines, compared to 2019. Further details on the business segments follow later in this report.

Adjusted EBITDA in 2020 was $1,123.2 million, an improvement of 5.2% compared to $1,067.2 million recorded in 2019. Excluding the impact of foreign currency translation, the increase was 5.0% over the prior year.

Net finance cost was $65.2 million for 2020, compared to $81.0 million for 2019. The 19.5% decline in net finance cost can primarily be attributed to reduced total debt for the comparative years.

For the full year 2020, restructuring costs and other items represented an expense of $27.6 million ($20.8 million after tax) as follows:

• Restructuring expenses of $18.4 million ($14.2 million after tax), primarily related to severance and reorganization costs across the Company matching operational expenses to reduced economic activity resulting from the global CV19 pandemic.

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• Acquisition transaction costs totaled $1.1 million ($1.1 million after tax), for the nine acquisitions closed in 2020.

• Other expenses of $8.1 million ($5.5 million after tax), related to the final judgement at the High Court of Australia for a pre-acquisition lawsuit against CCL Secure’s polymer banknote substrate business for wrongful termination in 2008 of an agency agreement in the amount of A$45.1 million ($43.0 million) including interest and legal costs. This final judgement was $8.6 million in excess of the amount accrued on the Innovia acquisition.

The negative earnings impact of these restructuring and other items in 2020 was $0.12 per Class B share.

For the full year 2019, restructuring costs and other items represented an expense of $25.0 million ($19.9 million after tax) as follows:

• Restructuring expenses of $11.1 million ($9.3 million after tax), primarily related to severance and reorganization costs for Innovia, Checkpoint’s European operations, and similar expenses in the CCL Segment due to slowing demand in the fourth quarter.

• Acquisition transaction costs totaled $0.6 million ($0.6 million after tax), for the six acquisitions closed in 2019.

• Other expenses of $13.3 million ($10.0 million after tax) related to the settlement of a lawsuit attributable to practices employed by the preacquisition management of Checkpoint.

The negative earnings impact of these restructuring and other items in 2019 was $0.11 per Class B share.

In 2020, the consolidated effective tax rate was 23.9%, compared to 25.3% in 2019, excluding earnings in equity-accounted investments. The combined Canadian federal and provincial statutory tax rate was 25.8% for 2020 (2019 – 25.8%). The decline in the consolidated effective tax rate for 2020 can be primarily attributed to a reduction in a valuation allowance on the Company’s ability to utilize previously unrecognized deferred tax assets at one of its German entities.

Approximately 98% of the Company’s sales are from products sold to customers outside of Canada, and the income from these foreign operations is subject to varying rates of taxation. The Company’s effective tax rate is also affected from year to year due to the level of income in the various countries, recognition or reversal of tax losses, tax reassessments and income and expense items not subject to tax.

Net earnings for 2020 increased 11.0% to $529.7 million, compared to $477.1 million recorded in 2019 due to the items described above.

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Basic earnings per Class B share were $2.96 for 2020 versus the $2.68 recorded for 2019. Diluted earnings per Class B share were $2.94 for 2020 and $2.66 for 2019. The movement in foreign currency exchange rates in 2020 compared to 2019 had a positive impact on the translation of the Company’s basic earnings of $0.01 per Class B share. The diluted weighted average number of shares was 179.8 million for 2020, compared to 179.1 million for 2019.

As of December 31, 2020, the Company had 11.8 million Class A voting shares and 167.4 million Class B non-voting shares issued and outstanding. In addition, the Company had outstanding stock options to purchase 2.4 million Class B nonvoting shares, 0.6 million restricted stock units (“RSU”) to issue 0.6 million Class B non-voting shares, and 0.2 million deferred share units (“DSU”) outstanding to issue 0.2 million Class B non-voting shares. Lastly, the Company has a performance stock unit (“PSU”) plan to issue up to 1.5 million Class B non-voting shares to participants at the end of 2021, provided the financial performance criteria have been achieved and the participants are still employed by the Company. Since December 31, 2020, there has been no change in the number of outstanding Class A voting shares, DSUs or PSUs to be issued; however, 29,688 stock options were exercised to purchase to 29,688 Class B non-voting shares from treasury shares and 8,348 RSU’s vested and an additional 8,348 Class B non-voting shares were issued from treasury shares.

Adjusted basic earnings per Class B share was $3.08 for 2020, up 10.4% from $2.79 in 2019.

The movement in foreign currency exchange rates in 2020 versus 2019 had an estimated positive translation impact of $0.01 on adjusted basic earnings per Class B share. This estimated foreign currency impact reflects the currency translation in all foreign operations.

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H) Seasonality and Fourth Quarter Financial Results

		Unaudited		Unaudited		Unaudited		Unaudited
2020		Qtr 1		Qtr 2		Qtr 3		Qtr 4		**Year **
Sales
CCL	$	838.8	$	781.6	$	877.0	$	860.2	$	3,357.6
Avery		158.8		146.2		178.4		150.8		634.2
Checkpoint		154.9		121.6		169.7		189.3		635.5
Innovia		144.0		172.4		148.3		150.3		615.0
Totalsales	$	1,296.5	$	1,221.8	$	1,373.4	$	1,350.6	**$ **	5,242.3
Segment operating income
CCL	$	140.6	$	115.0	$	160.8	$	136.4	$	552.8
Avery		32.1		18.5		35.7		27.0		113.3
Checkpoint		12.1		6.4		29.6		32.2		80.3
Innovia		15.5		23.7		20.2		17.7		77.1
Operating income		200.3		163.6		246.3		213.3		823.5
Corporate expenses		10.5		7.5		12.3		16.4		46.7
Restructuring and other items		1.8		3.8		16.2		5.8		27.6
Earnings in equity-accounted
investments		(1.3)		(1.7)		(2.5)		(4.0)		(9.5)
		189.3		154.0		220.3		195.1		758.7
Finance cost,net		17.1		15.9		16.4		15.8		65.2
Earnings before income taxes		172.2		138.1		203.9		179.3		693.5
Income taxes		45.6		34.2		50.6		33.4		163.8
Net earnings	$	126.6	$	103.9	$	153.3	$	145.9	$	529.7
Per Class B share
Basic earnings	$	0.71	$	0.58	$	0.86	$	0.81	$	2.96
Diluted earnings	$	0.70	$	0.58	$	0.86	$	0.80	$	2.94
Adjusted basic earnings	$	0.72	$	0.59	$	0.93	$	0.84	$	3.08

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H) Seasonality and Fourth Quarter Financial Results (continued)

		Unaudited		Unaudited		Unaudited		Unaudited
2019		Qtr 1		Qtr 2		Qtr 3		Qtr 4		Year
Sales
CCL	$	851.1	$	831.5	$	831.2	$	787.1	$	3,300.9
Avery		157.6		203.3		207.6		170.5		739.0
Checkpoint		173.5		177.3		180.5		192.8		724.1
Innovia		149.9		142.1		137.8		127.5		557.3
Totalsales	$	1,332.1	$	1,354.2	$	1,357.1	$	1,277.9	$	5,321.3
Segment operating income
CCL	$	142.0	$	117.0	$	127.2	$	108.1	$	494.3
Avery		27.9		45.3		48.4		34.9		156.5
Checkpoint		20.3		23.1		28.0		25.0		96.4
Innovia		14.7		13.3		6.2		5.9		40.1
Operating income		204.9		198.7		209.8		173.9		787.3
Corporate expenses		14.3		14.7		18.1		2.6		49.7
Restructuring and other items		1.4		2.1		1.7		19.8		25.0
Earnings in equity-accounted
investments		(1.1)		(1.2)		(1.1)		(2.0)		(5.4)
		190.3		183.1		191.1		153.5		718.0
Finance cost,net		22.0		20.6		19.5		18.9		81.0
Earnings before income taxes		168.3		162.5		171.6		134.6		637.0
Income taxes		44.6		41.2		43.9		30.2		159.9
Net earnings	$	123.7	$	121.3	$	127.7	$	104.4	$	477.1
Per Class B share
Basic earnings	$	0.70	$	0.68	$	0.71	$	0.59	$	2.68
Diluted earnings	$	0.69	$	0.68	$	0.71	$	0.58	$	2.66
Adjusted basic earnings	$	0.71	$	0.69	$	0.72	$	0.67	$	2.79

Fourth Quarter Results

Sales for the fourth quarter of 2020 increased 5.7% to $1,350.6 million, compared to $1,277.9 million recorded in the 2019 fourth quarter. Excluding foreign currency translation, sales for the fourth quarter of 2020 increased by 5.3% compared to the 2019 fourth quarter. This increase was due to 2.5% organic sales growth and 2.8% from acquisitions. The CCL and Innovia Segments each recorded organic growth rates of 7.4% and 5.4%, respectively, partially offset by organic declines of 15.1% and 3.8% at the Avery and Checkpoint Segments, respectively. CCL Segment sales gains for the Healthcare & Specialty, CCL Design and CCL Secure were particularly robust for the quarter. Lower hardware sales in Checkpoint’s MAS product line more than offset sales growth in apparel labeling, including RFID. Avery sales suffered from the cessation of fan-attended sports event, concerts,

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trade conventions and conferences due to CV19 restrictions, resulting in significantly reduced demand for event and name badges. Workplace closures also affected demand for organization products.

Operating income in the fourth quarter of 2020 increased 22.7% to $213.3 million, compared to $173.9 million in the fourth quarter of 2019. For the fourth quarter of 2020, the CCL, Checkpoint and Innovia Segments improved operating income 26.2%, 28.8% and 200.0%, respectively, offsetting the 22.6% decline for the Avery Segment. Within the CCL Segment, Healthcare & Specialty, Food & Beverage, CCL Design and CCL Secure all recorded significant profitability improvement due to sales gains and productivity initiatives offsetting a slight decline in results for Home & Personal Care impacted by a downturn in ASEAN markets and currency devaluations, especially in Latin America. Cost-savings initiatives benefited both the ALS and MAS businesses of Checkpoint, as did favorable product mix. Innovia’s fourth quarter profitability benefited from solid organic growth, resinbased price increases and productivity initiatives compared to the 2019 fourth quarter. Reduced demand for Avery’s event and name badge business more than offset solid profitability improvement in direct–to-consumer labels and workplace closures affected end-user demand for business lines sold through distribution.

Corporate expenses were $16.4 million in the fourth quarter of 2020, compared to $2.6 million recorded in the prior-year period. The increase in corporate costs is principally attributable to a prior period low that included a significant clawback of previously accrued long-term variable compensation.

Adjusted EBITDA for the fourth quarter of 2020 was $283.9 million, up 11.5% compared to the $254.7 million for the 2019 comparable period. Adjusted EBITDA improved due to the aforementioned improvement at the CCL, Checkpoint and Innovia Segments.

Net finance cost was $15.8 million for the fourth quarter of 2020 compared to $18.9 million for the fourth quarter of 2019. Reduced total debt outstanding for the fourth quarter of 2020 compared to the fourth quarter of 2019 resulted in a reduction of comparative net finance costs.

For the fourth quarter of 2020, restructuring costs and other items represented an expense of $5.8 million ($4.5 million after tax) as follows:

• Restructuring expenses primarily related to severance and reorganization costs for Checkpoint’s operations globally to match customer demand levels during the pandemic to operational costs.

The negative earnings impact of these restructuring and other items for the 2020 fourth quarter was $0.03 per Class B share.

For the fourth quarter of 2019, restructuring costs and other items represented an expense of $19.8 million ($15.3 million after tax) as follows:

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• Restructuring expenses of $6.4 million ($5.2 million after tax), primarily related to severance and reorganization costs for Checkpoint’s European operations and similar expenses in the CCL Segment due to slowing demand in the fourth quarter.

• Other expenses of $13.3 million ($10.0 million after tax), related to the settlement of a lawsuit attributable to practices employed by the preacquisition management of Checkpoint.

Tax expense in the fourth quarter of 2020 was $33.4 million, resulting in an effective tax rate of 19.0% compared to $30.2 million and an effective tax rate of 22.8% in the prior-year period. The decline in the consolidated effective tax rate for the 2020 fourth quarter can be attributed to a reduction in a valuation allowance based on the Company’s ability to utilize previously unrecognized deferred tax assets at one of its German entities.

Net earnings in the fourth quarter of 2020 increased 39.8% to $145.9 million, compared to net earnings of $104.4 million in the 2019 fourth quarter. This increase reflects the items described above.

Basic earnings per Class B share were $0.81 in the fourth quarter of 2020, an increase of 37.3% compared to $0.59 in the fourth quarter of 2019. The movement in foreign currency exchange rates in the fourth quarter of 2020 compared to 2019 had no impact.

Adjusted basic earnings per Class B share increased 25.4% to $0.84 for the fourth quarter of 2020, compared to $0.67 in the corresponding quarter of 2019.

Summary of Seasonality and Quarterly Results

For the CCL and Innovia Segments, the first and second quarters are generally the strongest due to the number of workdays and various customer-related activities. Also, there are many products that have a spring-summer bias in North America and Europe such as agricultural chemicals and certain beverage products, which generate additional sales volumes for the Company in the first half of the year. The polymer banknote business within the CCL Segment experiences intra-quarter variations in sales influenced by Central Banks’ reorder volatility. For Avery, the third quarter has historically been its strongest, as it benefits from increased demand related to back-to-school activities in North America, although the impact is expected to diminish in future periods on secular declines in lowmargin ring binder sales and the expansion of the Avery’s direct-to-consumer businesses that do not have this seasonal bias. For Checkpoint, the second half of the calendar year is healthier as the business substantially follows the retail cycle of its customers, which traditionally experiences more consumer activity from September through to the end of the year and prepares for the same in its supply chain from mid-year on. Checkpoint’s year-over-year comparative quarterly results often include one-time large chain-wide customer-driven hardware installations that strengthen future reoccurring label revenues. Sales in the final quarter of the

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year are negatively affected in North America by Thanksgiving and globally by the Christmas and New Year holiday season shutdowns.

Sales and net earnings comparability between the quarters of 2020 and 2019 were primarily affected by the magnitude of CV19-related civil limitations by country, regional economic variances, the impact of foreign currency changes relative to the Canadian dollar, the timing of acquisitions, the effect of restructuring initiatives, the impact of Central Bank reorder patterns, tax adjustments and other items. In particular, the second quarter of 2020 experienced significant sales and profitability declines associated with the broad impact of CV19 restrictions on the Company’s customer base. Checkpoint’s second quarter results were particularly affected by the closure of non-essential retail outlets globally and apparel manufacturing hubs in Asia. Innovia’s second quarter results benefited from volume increases partly powered by pantry-loading demand and strong performance from the recently acquired Flexpol.

The 2020 third quarter was a record for the Company, driven by solid organic growth within the CCL Segment, particularly high banknote demand at CCL Secure and strong results at Healthcare and Specialty. Avery’s third quarter back-toschool sales in North America fell on highly abnormal school and college return conditions due to limitations related to the CV19 pandemic. Checkpoint results improved despite a decline in sales, on improved performance in its ALS operations, including strong growth in RFID sales, cost-saving initiatives and favorable product mix.

2. BUSINESS SEGMENT REVIEW

A) General

Over the last decade, all divisions invested significant capital and management effort to develop world-class manufacturing operations, with spending allocated to geographic expansion, cost-reduction projects, the development of innovative products and processes, the maintenance and expansion of existing capacity and the continuous improvement in health and safety in the workplace, including environmental management. In particular, throughout 2020 each operating unit invested in the necessary Personal Protective Equipment and enhanced processes for the safety of its employees, customers and suppliers in order to remain open as a critical business in each regime the Company operates. The Company also makes strategic acquisitions for global competitive advantage, servicing large customers, taking advantage of new geographic markets, finding adjacent and new product opportunities, adding new customer segments, building infrastructure and improving operating performance. The Avery and Checkpoint Segments and the CCL Design business within the CCL Segment are less capital intensive as a percentage of sales than the Company’s other businesses. Further discussion on capital spending is provided in the individual Segment discussion sections below.

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Although each Segment is a leader in market share or has a significant position in the markets it serves in each of its operating locales, it also operates generally in a mature and competitive environment. In recent years, consumer products and healthcare companies have experienced steady pressure to maintain or even reduce prices to their major retail and distribution channels, which has driven significant consolidation in the Company’s customer base. This has resulted in many customers seeking supply-chain efficiencies and cost savings in order to maintain profit margins. Volatile commodity costs have also created challenges to manage pricing with customers. These dynamics have been an ongoing challenge for the Company and its competitors, requiring greater management and financial control and flexible cost structures. Unlike some of its competitors, the Company has the financial strength to invest in the equipment and innovation necessary to constantly strive to be the highest value-added producer in the markets that it serves.

The cost of many of the key raw material inputs for the Company, such as plastic films and resins, paper, specialty chemicals and aluminum, are largely dependent on the supply and demand economics within the petrochemical, energy and base metals industries. The Checkpoint Segment purchases component parts including circuit boards, memory chips and other electronic modules from third parties. The significant cost fluctuations for these inputs can have an impact on the Company’s profitability. The Company generally has the ability, due to its size and the use of long-term contracts with both suppliers and customers, to mitigate volatility in purchased costs and, where necessary, to pass these on to the market in higher product prices. However, the Innovia Segment can experience delays in price adjustments up or down to customers due to the nature of its respective relationships and contracts. Innovia’s pricing mechanisms are more complex, involving multiple indices for polypropylene used by customers and suppliers and differing terms in contracts when trigger points are arrived at for price changes. Significant progress on renegotiating customer contracts to mitigate the impact of volatile input costs was made in 2020 and 2019. However, this will be a multi-year initiative to evolve customer contracts to have efficient pass-through mechanisms with appropriate margins. The success of the Company is dependent on each business managing the cost-and-price equation with suppliers and customers.

A driver common to all Segments for maximizing operating profitability is the discipline of pricing contracts based on size and complexity, including consideration for fluctuations in raw materials and packaging costs, manufacturing run lengths and available capacity. This approach facilitates effective asset utilization and relatively higher levels of profitability. Performance is generally measured by product against estimates used to calculate pricing, including targets for scrap and output efficiency. An analysis of total utilization versus capacity available per production line or facility is also used to manage certain divisions of the business. In most of the Company’s operations, the measurement of each sales order shipped is based on actual selling prices and production costs to calculate the amount of actual profit margin earned and its return on sales relative to the established benchmarks. This process ensures that pricing policies and production performance are aligned in attaining profit margin targets by order, by

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plant and by division.

Management believes it has both the financial and non-financial resources, internal controls and reporting systems and processes in place to execute its strategic plan, to manage its key performance drivers and to deliver targeted financial results over time. In addition, the Company’s internal audit function provides another discipline to ensure that its disclosure controls and procedures and internal control over financial reporting will be assessed on a regular basis against current corporate standards of effectiveness and compliance.

The Company is not particularly dependent upon specialized manufacturing equipment. Most of the technology employed by the divisions can be sourced from multiple suppliers. The Company, however, has the resources to invest in largescale projects to build infrastructure in current and new markets because of its financial strength relative to that of many of its competitors. Direct competitors in the CCL Segment are often smaller and may not have the financial resources to stay current in maintaining state-of-the-art facilities. Certain new manufacturing lines take many months for suppliers to construct, and any delays in delivery and commissioning can have an impact on customer expectations and the Company’s profitability. The Innovia Segment, in addition to its unique method for producing BOPP films for label and packaging applications, also provides the Company with the know-how and material science capability to develop proprietary substrates. Finally, the Company also uses strategic partnerships as a method of obtaining exclusive technology in order to support growth plans and to expand its product offerings. The Company’s major competitive advantage is based on its strong customer service, process technology, the know-how of its people, market-leading brand awareness and loyalty, and the ability to develop proprietary technologies and manufacturing techniques. In 2020, the Company announced a $35.0 million new capacity investment for its proprietary “Ecofloat” shrink films. This hybrid polyolefin film facilitates easy separation from primary bottle packaging to aid customers’ bottle-to-bottle circular recycling initiatives globally. The project commenced in early 2021, with completion scheduled for early 2022.

The expertise of the Company’s employees is a key element in achieving the Company’s business plans. This know-how is broadly distributed throughout the world; therefore, the Company is generally not at risk of losing its competency through the loss of any particular employee or group of employees. Employee skills develop through on-the-job training and external technical education, enhanced by the Company’s entrepreneurial culture of considering creative alternative applications and processes for its products.

The nature of the research carried out by the CCL Segment can be characterized as application or process development. The Company spends meaningful resources on assisting customers to develop new and innovative products. While customers regularly come to CCL with concepts and request assistance to develop products, the Company also takes its own new ideas to the market. Proprietary information is protected by confidentiality agreements and by limiting access to CCL’s manufacturing facilities. The Company values the importance of protecting

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its customers’ brands and products from fraudulent use and, consequently, is selective in choosing appropriate customer and supplier relationships.

Avery has a strong commitment to understanding its ultimate end users, actively seeking product feedback and using consumer focus groups to drive product development initiatives. Furthermore, it leverages CCL Segment’s applications and technology to deliver product innovation that aligns with consumer printable media trends. Avery has also invested in many direct-to-consumer businesses globally and encourages the cross-pollination of unique products and best practices.

Checkpoint has always been an innovator in its industry, with a strong dedication to research and development activities. It was the pioneer of RF electronic-articlesurveillance hardware and consumables. Checkpoint has made further advances with the active enhancement and deployment of RFID solutions, including inventory management software, to the retail and apparel industries.

Innovia maintains a world-class research and development centre specifically dedicated to the support of films for label and packaging applications. The new discoveries and product enhancements generated from this centre are deployed globally, sometimes benefitting downstream businesses such as CCL Secure and CCL Label.

The Company continues to invest time and capital to upgrade and expand its information technology systems and security. This investment is critical to keeping pace with customer requirements and in gaining or maintaining a competitive edge. Software packages are, in general, off-the-shelf systems customized to meet the needs of individual business locations. The CCL, Avery, Checkpoint and Innovia Segments communicate with many customers and suppliers electronically, particularly with regard to supply-chain-management solutions and when transferring and confirming design formats and colours. A core attribute of Avery’s printable media products is the customized software to enable short-run digital printing in businesses and homes. Avery recognizes that it is critical to develop its software solutions to maintain its market-leading position with consumers. Avery launched WePrint™, expanding its direct-to-consumer software solutions, and acquired the e-commerce platforms of 13 companies over the past seven years, including E2N, CAM, STS, SOY, IDL, ID&C and InTouch, to leverage acquired digital printing software into the pre-existing Avery suite.

Within the Avery Segment, most products are sold under the market-leading Avery brand and, with equal prominence in German-speaking countries, the Zweckform brand name. Within the Checkpoint Segment, products are predominantly sold under the Checkpoint brand and, for retail merchandising products in Europe and Asia Pacific, the Meto brand. The Company recognizes that in order to maintain the pre-eminent positions for Avery, Zweckform, Checkpoint and Meto, it must continually invest in promoting these brands. Product quality, innovation and

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performance are recognized attributes for the success of these brands.

The Company deploys many initiatives to reduce the carbon footprint of its products and services to ensure the business is sustainable. Collaborative logistic partnerships with customers and suppliers reduce use of wooden pallets and corrugated boxes. New products help customers reduce their own carbon footprint such as CCL’s Eco Stretch Sleeves that decorate PET beverage containers without adhesive or energy and patented “wash off” labels for reusable glass bottles, which lowers the impact waste going to landfill. The Company’s greenfield sites are designed and constructed to specific standards to reduce their carbon footprint, and some sites have adopted the use of solar power to run their facilities. In August 2020, CCL Industries signed on to the New Plastics Economy Global Commitment, a part of the Ellen MacArthur Foundation, a circular vision in which plastic never becomes waste. In December 2020, the Company released its first Sustainability Report entitled “Laying the Groundwork for a Sustainable Future,” that covers material environmental and social responsibility issues and policies as well as setting ambitious targets to reduce waste within its operations and its supply chain.

Business Segment Results

		2020		2019
Segment sales
CCL	$	3,357.6	$	3,300.9
Avery		634.2		739.0
Checkpoint		635.5		724.1
Innovia		615.0		557.3
Total sales	$	5,242.3	$	5,321.3
Operating income*
CCL	$	552.8	$	494.3
Avery		113.3		156.5
Checkpoint		80.3		96.4
Innovia		77.1		40.1
Operatingincome	$	823.5	$	787.3

• This is a non-IFRS measure. Refer to “Key Performance Indicators and Non-IFRS Measures” in Section 5A.

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Comments on Business Segments

The above summary includes the results of acquisitions on reported sales and operating income from the date of acquisition.

B) CCL Segment

Overview

There are five customer sectors inside the CCL Segment. The Company trades in three of them as CCL Label and one each as CCL Design and CCL Secure. The differentiated CCL sub-branding points to the nature of the application for the final product. The sectors have many common or overlapping customers, process technologies, information technology systems, raw material suppliers and operational infrastructures. CCL Label supplies innovative specialized label, plastic tube, aluminum aerosol and specialty bottle solutions to Home & Personal Care and Food & Beverage companies, plus regulated and complex multi-layer labels and specialty folded cartons for major pharmaceutical, consumer medicine, medical instrument and industrial or consumer chemical customers referred to as the Healthcare & Specialty business. CCL Design supplies long-life, highperformance labels and other products to automotive, electronics and durable goods companies. CCL Secure supplies polymer banknote substrate, pressure sensitive stamps, passport components, ID cards and other security documents to government institutions.

The Segment's product lines include pressure sensitive labels, shrink sleeves, stretch sleeves, in-mould labels, precision printed and die cut metal, glass and plastic components, expanded content labels, pharmaceutical instructional leaflets, specialty folded cartons, graphic security features, extruded or labeled plastic tubes, aluminum aerosols or specialty bottles and printed polymer security film substrates. It currently operates 147 production facilities located in Canada, the United States (including Puerto Rico), Argentina, Australia, Austria, Brazil, Chile, China, Denmark, Egypt, France, Germany, Hungary, Ireland, Israel, Italy, Japan, Korea, Malaysia, Mexico, the Netherlands, New Zealand, Oman, Pakistan, Philippines, Poland, Russia, Saudi Arabia, Singapore, South Africa, Switzerland, Thailand, Turkey, United Arab Emirates, the United Kingdom and Vietnam. The five plants in Russia and five plants in the Middle East, are connected to the equity investments in CCL-Kontur and Pacman-CCL, respectively, and are included in the above locations.

This Segment’s industry is made up of a very large number of competitors that manufacture a vast array of decorative, product information, identification and security label-type applications. The Company believes that CCL is the largest consolidated operator in most of its defined global market sectors. Competition largely comes from single-plant businesses, often owned by private operators who compete with the Segment in local markets. There are also a few multi-plant competitors in certain regions of the world and specialists in a single market segment globally. However, there is no major competitor that has the product

26

breadth, global reach and scale of the CCL Segment.

The Company has completed numerous label acquisitions, strategic joint ventures and greenfield start-ups geographically and added new product offerings to position CCL Label as a global leader in the Home & Personal Care, Food & Beverage and Healthcare & Specialty end markets. CCL Design is an equally significant financial and geographic market for the CCL Segment, principally focused on the automotive and electronics markets. The high-security, specialized polymer banknote operations form an integral part of CCL Secure.

CCL produces labels predominantly from polyolefin films and paper partly sourced from extruding, coating and laminating companies, using raw materials primarily from the petrochemical and paper industries. CCL also coats and laminates pressure sensitive materials and is generally able to mitigate the cost volatility of third-party-sourced materials due to a combination of purchasing leverage, agreements with suppliers and its ability to pass on these cost increases to customers. In the label industry, price changes regularly occur as specifications are constantly changed by the marketers and, as a result, the selling price of these labels is updated, reflecting current market costs and new shapes and designs.

CCL’s global customers are requiring more of their suppliers, expecting a full range of product offerings in more geographic regions, further integration into their supply chain at a global level and protection of their brands, particularly in markets where counterfeiting is rife. These requirements put many of the Segment’s competitors at a disadvantage, as do the investment hurdles in converting equipment and technologies to deliver products, services and innovations. Having trusted and reliable suppliers is an important consideration for global consumer product companies, major pharmaceutical companies, OEMs in the durable goods business and, of course, Central Banks. This is even more important in an uncertain economic environment when many smaller competitors may encounter difficulties and customers want to ensure their suppliers are financially viable.

CCL considers customers’ demand levels, particularly in North America and Western Europe, to be reasonably mature and, as such, will continue to focus its expansion plans on innovative and higher growth product lines within those geographies, with a view to improving overall profitability. In Asia, Latin America and other emerging markets, a higher level of economic growth is still expected over the coming years, despite the slower conditions experienced in the past few years. This should provide opportunities for the Segment to improve market share and increase profitability in these regions. Furthermore, there is close alignment of label demand to consumer staples, with the exception of CCL Design and CCL Secure, which are completely aligned to the automotive and electronics industries and government institutions and Central Banks, respectively. Management believes the Segment will attain the sales volumes, geographic distribution and reach mirroring those of its customers over the next few years through its focused strategy and by capitalizing on following customer trends.

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CCL Segment Financial Performance

		2020	**%Growth **		2019
Sales	$	3,357.6	1.7%	$	3,300.9
Operating income	$	552.8	11.8%	$	494.3
Returnonsales		**16.5% **			15.0%

Sales in the CCL Segment for 2020 increased 1.7% to $3,357.6 million, compared to $3,300.9 million in 2019, driven by organic growth of 1.1%, 0.7% from acquisition-related growth, partially offset by 0.1% negative impact from foreign currency translation.

Sales in 2020 for North America were up low single digit excluding the impact of currency translation and acquisitions, compared to 2019. Home & Personal Care sales declined modestly on reduced demand for tubes and aerosols for higher-end beauty, cosmetic and skin care products often sold in travel and specialty retail stores and hair salons. However, profitability improved on strong operational execution and significantly higher sales of labels for cleansing applications. Healthcare & Specialty results improved significantly on higher pandemic-related demand for over-the-counter medicines and sanitizers, plus increased use of lawn and garden chemicals as consumers spent more time at home. Food & Beverage posted strong sales growth especially for sleeves and pressure sensitive labels, leading to a corresponding profitability improvement. CCL Design declined in sales and profitability due to the automotive industry shutdown during the second quarter. CCL Secure, which is principally stamps and security products, slightly increased sales, with profitability flat to 2019. Overall, profitability and return on sales improved significantly.

European sales were down low single digit for 2020, excluding currency translation and acquisitions compared to 2019. Home & Personal Care sales declined modestly on weak demand in the U.K., however profitability improved in other countries on good mix and solid operational execution. Healthcare & Specialty sales and profitability increased in most markets, offsetting operational challenges in Scandinavia, France and Germany. Food & Beverage sales and profitability declined as mineral water and soft drink customers’ “on premise” demand in bars, cafes and restaurants was reduced. Lower sales in automotive slightly outpaced gains in electronics markets; however, profitability improved significantly on productivity initiatives and favorable mix. CCL Secure posted exceptional results due to unusually high demand for banknotes during the pandemic compared to 2019. Overall, European profitability and return on sales improved compared to 2019.

Sales in Latin America , excluding currency translation, increased double digit for 2020 compared to 2019. Sales and profitability in Mexico increased at CCL Label, CCL Design Automotive and CCL Secure offsetting declines at CCL Design Electronics. Sales and profitability for aluminum aerosols improved significantly for 2020 compared to 2019. Sales in Brazil increased, especially to Home & Personal

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Care and Food & Beverage customers, which significantly improved overall profitability and offset declines in Healthcare & Specialty and Wine & Spirits. Currency devaluation resulted in overall flat operating income for 2020 compared to 2019. Argentina and Chile posted reduced sales, but losses reduced significantly. Despite the negative currency translation impact, operating income overall increased and return on sales improved dramatically.

Asia Pacific sales, excluding acquisitions and currency translation for 2020 were down single digit compared to 2019, largely due to performance in Australia and South Africa. Sales and profits in China increased on strong end-market demand for CCL Design electronics, partly offset by share loss in Home & Personal Care and slow sales to Beverage customers. Results in Thailand declined on slower customer exports, partially offset by gains in Vietnam, Singapore and the Philippines. In Australia, CCL Secure sales declined, but mix improved operating margins, while the closure of the wine label plant in Sydney reduced profitability. The new Johannesburg Beverage plant closed in the second quarter along with the entire beer industry in South Africa and reopened late in the third quarter, reducing sales and profitability. For the Asia Pacific region, operating income declined slightly, but return on sales improved.

Operating income for the CCL Segment increased by 11.8% to $552.8 million for 2020 compared to $494.3 million for 2019. Foreign currency translation had a negative effect of 0.1% on 2020 operating income compared to 2019. Operating income as a percentage of sales improved to 16.5% in 2020 compared to the 15.0% return generated in the prior year.

The CCL Segment invested $197.8 million in capital spending in 2020 compared to $272.7 million last year. The major expenditures were for equipment installations to support capacity additions for the Home & Personal Care, Food & Beverage and CCL Design businesses globally. Depreciation and amortization for the CCL Segment was $209.3 million in 2020, compared to $200.3 million in 2019.

C) Avery Segment

Avery is the world’s largest supplier of labels, specialty converted media and software solutions to enable short-run digital printing in businesses and homes alongside complementary office products sold through distributors and massmarket retailers. The products are split into three primary lines: (1) Printable Media: including address labels, shipping labels, marketing and product identification labels, business cards, and name badges supported by customized software solutions; (2) Organizational Products Group (“OPG”): including binders, sheet protectors, indexes, dividers and writing instruments; and (3) Direct-to-Consumer: digitally imaged labels, business cards, name badges, event badges, wristbands and family-oriented identification labels supported by unique web-enabled e- commerce URLs. Products in the Printable Media and Direct-to-Consumer categories are predominantly used by businesses and individual consumers consistently throughout the year; however, in the OPG category, North American consumers engage in the back-to-school surge during the third quarter.

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Avery operates 17 manufacturing and three distribution facilities. Sales for Avery are principally generated in North America, Europe and Australia, with a marketleading position. There is a small presence in Latin America. Most products are sold under the market-leading Avery brand and, with equal prominence in Germanspeaking countries, under the Zweckform brand name that is better known by consumers in that part of Europe, as well as the direct-to-consumer pc/nametag, Mabel’s Labels, goedgemerkt, badgepoint, Imprint Plus, Easy2Name, Colle à Moi, Stuck on You, IDentilam, I.D.&C., and InTouch brands.

Avery reaches its consumers, including small businesses, through distribution channels that include mass-market merchandisers, retail superstores, wholesalers, e-tailers, contract stationers, catalog retailing and direct-to-consumer e-commerce. Merger activity and store closures in these distribution channels can lead to short-term volume declines as customer inventory positions are consolidated. Avery is the leading brand in its core markets, with the principal competition being lower-priced private label products. Avery has experienced secular decline in its core mailing address label product as e-mail and internetbased digital communication has grown rapidly. In response, Avery has developed innovative new products targeted at applications such as shipping labels and product identification. Avery has successfully launched its proprietary direct-toconsumer e-commerce label design software platform WePrint[™] . Starting in 2014 with Nilles, and with twelve more acquisitions since then, Avery has expanded its digital printing capabilities to custom-designed roll-fed labels, the commercial graphic arts sector, the meetings and events planning industry, personalized identification labels for children and families, and event badges and wristbands. Some of these e-commerce platforms expanded rapidly during the pandemic while others such as event and commercial-oriented badges weakened. Future growth rates in all these new businesses are expected to outpace Avery’s legacy product lines. It is also the Company’s expectation that Avery will continue to open up new revenue streams in short-run digital printing applications.

Avery Segment Financial Performance

	2020	**%Growth **	2019
Sales	$ 634.2	(14.2%)	$ 739.0
Operating income	$ 113.3	(27.6%)	$ 156.5
Returnonsales	**17.9% **		21.2%

Sales in the Avery Segment for 2020 were $634.2 million compared to the $739.0 million posted in 2019. The decrease was due to an organic decline of 18.5%, partially offset by acquisition growth of 3.1% and the positive impact of foreign currency translation of 1.2%.

North American sales declined double digits for 2020, excluding currency translation and acquisitions, compared to 2019. Sales and profitability in Printable Media and Organizational Products lines declined due to workplace closures. In addition, Organizational Products’ back-to-school sales reduced significantly on

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highly abnormal school and college return conditions due to the pandemic. Sales and profitability for Direct-to-Consumer name and event badge and wristband categories were severely depressed on the collapse of sports and leisure gatherings, conventions, and business meetings and conferences. Partially offsetting the declines were dramatic improvements in results for the “WePrint™” and “Avery.com” online label categories as well as a strong start for the newly acquired InTouch operation. Overall profitability declined, however return on sales remained strong.

International sales, largely generated from products in the Printable Media and Direct-to-Consumer categories, represent approximately 30% of the Avery Segment for 2020. Sales, excluding acquisitions and currency translation, were down mid-single digit in Europe with significant organic growth in the “WePrint™” category, improving profitability that was more than offset by reduced results in “kids’ labels” and name badging, as well as a poor start for the newly acquired wristband and event badging businesses. Legacy Printable Media operations posted modestly lower results compared to the declines in North America. Results were also down in the Asia Pacific and Latin American business units due to the pandemic.

Operating income for 2020 was $113.3 million compared to $156.5 million in 2019. Return on sales of 17.9% for 2020 was down compared to 21.2% for 2019, largely due to the pandemic’s adverse impact on direct-to-consumer name badging operations globally and the back-to-school seasonal surge in North America.

The Avery Segment invested $22.0 million in capital spending for 2020, compared to $13.5 million for 2019. The majority of the expenditures in 2020 were for capacity additions in the direct-to-consumer operations in North America and Europe. Depreciation and amortization for the Avery Segment was $19.3 million for 2020 compared to $17.3 million for 2019.

D) Checkpoint Segment

Overview

The Checkpoint Segment is a leading global manufacturer and provider of hardware and software systems, plus security labels and tags, providing inventory control and loss-prevention solutions to world-leading retailers.

Checkpoint is a leading manufacturer of technology-driven loss-prevention, inventory-management and labeling solutions, including RF and RFID solutions, to the retail and apparel industry. The Segment has three primary product lines: MAS, ALS and Meto. The MAS line focuses on electronic-article-surveillance (“EAS”) systems; hardware, software, labels and tags for loss prevention and inventory control systems including RFID solutions. ALS products are apparel labels and tags, some of which are RFID capable. Meto is a small separately branded Europe-centric product line, including hand-held pricing tools and labels

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and promotional in-store displays. All MAS and ALS products are sold under the Checkpoint brand.

Checkpoint is supported by 20 manufacturing facilities, nine distribution facilities and three product and software development centres around the world. Checkpoint is headquartered in the United States but uses its global footprint to generate sales internationally. Checkpoint sells directly to retailers or apparel manufacturers and competes with other global retail labeling companies.

Checkpoint’s market-leading position, strong brand recognition and product development pipeline should still drive modest growth despite a changing ‘brickand-mortar’ retail landscape. Large contracts with retailers for hardware and software can create significant quarter-to-quarter and, in some cases, year-to-year revenue volatility. However, Checkpoint’s comprehensive solution of hardware and software also creates an important high-margin recurring revenue stream for its related consumables. Moreover, CCL is also confident that Checkpoint can capture its share of the fast growing RFID market as retailers seek omni-channel fulfillment systems.

Checkpoint Segment Financial Performance

		2020	**%Growth **		2019
Sales	$	635.5	(12.2%)	$	724.1
Operating income	$	80.3	(16.7%)	$	96.4
Returnonsales		12.6%			13.3%

Sales for the Checkpoint Segment were $635.5 million for 2020, compared to $724.1 million for 2019, driven by an organic decline of 13.7%, partially offset by 0.7% acquisition growth and a 0.8% positive impact from foreign currency translation.

The Checkpoint Segment experienced dramatic sales and profitability reductions from February through May of 2020 in all categories as CV19-related restrictions, firstly in China, affected profitability in manufacturing plants, next in March, moving to shut down all non-essential retailing throughout Europe and Asia followed by further mandated closures in North America. A strong recovery followed from June through the end of the year. MAS product lines posted 2020 sales and profitability declines in all regions, more pronounced in North America in part due to strong market share gains in 2019. CV19-related restrictions curtailed customer in-store hardware implementations in all jurisdictions, but label and tag sales were solid, aiding results, especially in the second half peak retail season. ALS posted solid organic sales improvement subsequent to the first half shutdown period as pentup demand and rapid growth in RFID volumes, supported by cost savings, drove strong profitability improvement for the year. The smaller Meto business recorded declines in sales and profitability for 2020 compared to 2019.

Operating income for 2020 was $80.3 million, a decrease of 16.7% compared to $96.4 million in 2020. Return on sales was 12.6% for 2020, compared to 13.3%

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for 2019. Return on sales declined due to the aforementioned impacts of the CV19 pandemic in the first half of 2020.

The Checkpoint Segment invested $22.0 million in capital spending for 2020, compared to $28.9 million for 2019. The majority of expenditures in 2020 were in the Asia Pacific region to enhance capacity in ALS manufacturing facilities. Depreciation and amortization for the Checkpoint Segment was $29.1 million for 2020, compared to $29.6 million for 2019.

E) Innovia Segment

The Innovia Segment consists of the Innovia film operations acquired in 2017, the Treofan film facility acquired in 2018, the Flexpol facility acquired in 2020 and two small legacy film manufacturing facilities transferred from the CCL Segment. The acquired operations, which comprise the majority of the Innovia Segment, provide a global footprint for the manufacture of specialty high-performance, multi-layer, surface-engineered BOPP films, with a facility located in each of Australia, Belgium, Mexico, Poland and the United Kingdom. These films are sold to customers in the label materials, flexible packaging and consumer packaged goods industries worldwide, with a small percentage of the total volume consumed internally by CCL Secure and CCL Label within the CCL Segment. The two smaller legacy facilities, one located in Germany and one in the United States, produce almost their entire output for the CCL Segment’s Food & Beverage and Home & Personal Care businesses, respectively.

Polypropylene resin is the most significant input cost for this Segment, derived from oil or natural gas and manufactured globally by a limited number of producers. Polypropylene costs depend on the prices of natural gas, oil and the availability of resin cracking capacity. Innovia does not use derivative financial instruments to hedge its exposure to volatility of polypropylene prices; therefore, many of its large customer price agreements adjust for movements up and down in resin cost. North American prices eased in 2019 through the first half of 2020 but increased rapidly in the final two quarters of the year. European resin prices were more stable but also turned upwards in late 2020.

Film innovation remains a strategic focus for the Segment, investing resources in its industry-leading research and development people and laboratory in the United Kingdom. This commitment has resulted in the development of unique process technology, highly differentiated specialty BOPP films and innovative surface coating technology, keeping film innovation at the forefront for the Segment.

In November 2020, the Company announced a $35.0 million new capacity investment for its proprietary “Ecofloat” shrink films. This hybrid polyolefin film facilitates easy separation from primary bottle packaging to accommodate customers’ bottle-to-bottle circular recycling initiatives globally. The project commenced in early 2021 with completion scheduled for early 2022.

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Innovia Segment Financial Performance

		2020	**%Growth **		2019
Sales	$	615.0	10.4%	$	557.3
Operating income	$	77.1	92.3%	$	40.1
Returnonsales		12.5%			7.2%

Sales in the Innovia Segment for 2020 increased 10.4% to $615.0 million, compared to $557.3 million in 2019 all on the Flexpol acquisition contribution, as a 1.4% positive impact from foreign currency translation offset a 1.4% organic decline. Sales gains to U.S. and Australia-based customers offset declines to European and Latin American customers in legacy operations.

Operating income improved 92.3% to $77.1 million compared to operating income of $40.1 million for 2019. Operating income for 2019 included a $9.6 million pension curtailment gain, recorded in the fourth quarter of the year, associated with the Company’s decision to close the legacy U.K. defined benefit plan. Therefore, comparative operating income improved 152.8% from $30.5 million in 2019. Significantly improved mix, productivity initiatives in the U.K. and Mexico operations and enhanced pass-through pricing mechanisms in customer sales agreements drove robust increases in profitability. Flexpol operations in Poland, acquired late in the first quarter of 2020, performed ahead of expectations. Return on sales improved to 12.5% for 2020 compared to 7.2% for 2019.

The Innovia Segment invested $41.0 million in capital spending for 2020, compared to $30.2 million for 2019. The 2020 expenditures were largely for capacity enhancements in the European operations. Depreciation and amortization for the Innovia Segment was $46.2 million for 2020, compared to $42.3 million for 2019.

F) Joint Ventures

For the years ended December 31		2020		2019	+/-
Sales (at 100%)
CCL Label joint ventures	$	133.2	$	125.7	6.0%
Rheinfelden*		3.0		2.4	25.0%
*primarilysales to CCL Segment	**$ **	136.2	$	128.1	6.3%
Earnings (losses) in equity-accounted
investments (at 100%)
CCL Label joint ventures	$	19.5	$	14.3	36.4%
Rheinfelden		(0.5)		(3.6)	86.1%
	$	19.0	$	10.7	77.6%

Results from the joint ventures in CCL-Kontur, Russia; Pacman-CCL, Middle East and, up until the date of its acquisition by the Company on February 14, 2020,

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Rheinfelden in the U.S. are not proportionately consolidated into a Segment but instead are accounted for as equity investments. The Company’s share of the joint ventures net income is disclosed in Earnings in equity-accounted investments in the consolidated income statement.

Both Pacman-CCL and CCL-Kontur had a record year as sales and profitability increased significantly on strong product mix and market share gains. As expected, Rheinfelden Americas, the aluminum slug joint venture, began operating in the first quarter of 2020, with a small start-up loss, after the facility was temporarily shuttered subsequent to the fire at the facility in 2018 and ensuing replacement equipment delivery delays. Earnings in equity-accounted investments amounted to $9.5 million for 2020, compared to $5.4 million for 2019.

3. FINANCING AND RISK MANAGEMENT

A) Liquidity and Capital Resources

The Company’s leverage ratio is as follows:

For the years ended December 31		2020		2019
Current debt	$	51.8	$	38.8
Current lease liabilities		34.2		35.3
Long-term debt		1,889.4		2,234.8
Long-term lease liabilities		119.2		110.9
Total debt(1)		2,094.6		2,419.8
Cash and cash equivalents		(703.7)		(703.6)
Net debt(1)	$	1,390.9	$	1,716.2
Adjusted EBITDA	$	1,123.2	$	1,067.2
Net debt to Adjusted EBITDA(1)		1.24		1.61

(1) Total debt, net debt and net debt to Adjusted EBITDA are non-IFRS measures; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A.

In May 2020, the Company completed a rule 144A 3.05% private note offering due June 2030 in the principal amount of US$600.0 million. These notes are unsecured senior obligations. The proceeds of the offering were almost entirely used to repay borrowings on the Company’s unsecured syndicated revolving credit facility.

The Company’s debt structure at December 31, 2020, was primarily comprised of the 144A 3.05% private notes due June 2030 in the principal amount of US$600 million ($754.8 million), 144A 3.25% private notes due October 2026 in the principal amount of US$500.0 million ($630.8 million), the $300.0 million principal amount 3.864% Series 1 Notes due April 2028, and the term loan facility of US$161.0 million ($204.8 million). An additional loan facility resident in Australia was $50.2 million. Outstanding contingent letters of credit totaled $4.1 million; accordingly, there was approximately US$1.2 billion of unused availability on the revolving credit facility at December 31, 2020. The Company’s debt structure at

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December 31, 2019, was primarily comprised of the 144A 3.25% private notes due October 2026 in the principal amount of US$500.0 million ($643.1 million), the $300.0 million Series 1 Notes, outstanding debt totaling $780.3 million under the unsecured syndicated revolving credit facility and the term loan facility of US$366.00 million ($475.3 million). Additional loan facilities negotiated in 2019 and resident in Mexico and Australia were $33.4 million and $37.6 million, respectively.

In February 2019, the term loan facility was amended by extending the maturity date to February 2021 and removing the required US$12.0 million quarterly principal payments. In February 2020, the Company amended both its syndicated credit facilities, extending the maturity of its US$366.0 term loan facility from February 2021 to February 2022 and the maturity of its US$1.2 billion revolving credit facility from March 2023 to February 2025.

Net debt was $1,390.9 million at December 31, 2020, $325.3 million lower than the net debt of $1,716.2 million at December 31, 2019. Net debt declined due to net long-term debt repayments, inclusive of lease repayments of $358.4 million and the impact of foreign currency translation on net debt.

Net debt to Adjusted EBITDA decreased to 1.24 times as at December 31, 2020, compared to 1.61 times at the end of 2019, due to the decrease in net debt and an increase in Adjusted EBITDA. The measure continues to strengthen as the Company strategically deploys its free cash flow for business acquisitions and capital expenditures.

The Company’s overall average finance rate was 2.29% as at December 31, 2020, compared to 2.35% as at December 31, 2019. The decrease in the average finance rate was caused by a decrease in rates on the Company’s variable rate debt at December 31, 2020, compared to December 31, 2019.

Interest coverage (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) was 11.9 times and 9.1 times in 2020 and 2019, respectively, indicative of lower net finance costs and higher operating income.

The Company’s approach to managing liquidity risk is to ensure that it will always have sufficient liquidity to meet liabilities when they are due. The Company believes its liquidity will be satisfactory for the foreseeable future due to its significant cash balances, its expected positive operating cash flow and the availability of its unused revolving credit line. The Company anticipates funding all of its future commitments from the above sources but may raise further funds by entering into new debt financing arrangements or issuing further equity to satisfy its future additional obligations or investment opportunities.

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B) Cash Flow

Summary of Cash Flows		2020		2019
Cash provided by operating activities	$	882.9	$	779.5
Cash used for financing activities		(461.3)		(256.2)
Cash used for investing activities		(428.0)		(376.1)
Effect of exchange rates on cash		6.5		(32.7)
Increase in cash and cash equivalents	$	0.1	$	114.5
Cash and cash equivalents – end of year	$	703.7	$	703.6

In 2020, cash provided by operating activities was $882.9 million, compared to $779.5 million in 2019. Free cash flow from operations was $616.3 million for 2020, compared to $443.8 million in the prior year. Driving the improvement in these metrics for 2020 were increased earnings, improved net working capital and, for the latter metric, reduced net capital expenditures compared to 2019.

The Company maintains a rigorous focus on its investment in non-cash working capital. Days of working capital employed (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) was 23 days and 24 days for the years ended December 31, 2020, and December 31, 2019, respectively. The days working capital employed decreased as the Company was able to drive efficiencies in its net working capital relative to the fourth quarter sales growth.

Cash used for financing activities in 2020 was $461.3 million, consisting of net debt repayments of long-term debt and leases of $358.4 million and dividend payments of $128.7 million, partly offset by proceeds from the issuance of shares of $25.8 million due to the exercise of stock options.

Cash used for investing activities in 2020 of $428.0 million was primarily for acquisitions that totaled $161.4 million and net capital expenditures of $266.6 million.

After the above noted items and the $6.5 million positive effect of foreign currency rates, cash and cash equivalents increased by $0.1 million in 2020 to $703.7 million.

Capital spending in 2020 amounted to $282.8 million and proceeds from capital dispositions were $16.2 million, resulting in net capital expenditures of $266.6 million, compared to $335.7 million in 2019. Management reduced capital expenditures in 2020 to preserve capital given the uncertain impact of the global CV19 pandemic. Depreciation and amortization in 2020 amounted to $305.0 million, compared to $290.5 million in 2019.

The Company is continuing to seek investment opportunities to expand its business geographically, add capacity in its facilities and improve its

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competitiveness. As in previous years, capital spending will be monitored closely and adjusted based on the level of cash flow generated.

C) Interest Rate, Foreign Exchange Management and Other Hedges

The Company periodically uses derivative financial instruments to hedge interest and foreign exchange rates. The Company does not utilize derivative financial instruments for speculative purposes.

As the Company operates internationally with slightly over 2.0% of its 2020 sales to end-use customers denominated in Canadian dollars, it has significant market risk exposure to changes in foreign exchange rates. Each subsidiary’s sales and expenses are primarily denominated in its local currency, minimizing the foreign exchange impact on the operating results.

The Company also has exposure to market risks related to interest rate fluctuations on its debt. To mitigate this risk, the Company maintains a combination of fixed and floating rate debt.

The Company periodically uses interest rate swap agreements to allocate notional debt between fixed and floating rates. The Company believes that a balance of fixed and floating rate debt can reduce overall interest expense and is in line with its investment in short-term assets such as working capital, and long-term assets such as property, plant and equipment. The Company uses cross-currency interest rate swap agreements ("CCIRSA") as a means to convert U.S. dollar debt into euro debt to hedge a portion of its euro-based investment and cash flows.

As at December 31, 2020, the Company utilized CCIRSAs to hedge its euro-based assets and cash flows, effectively converting notional US$264.7 million 3.25% fixed rate debt into 1.23% fixed rate euro debt, US$111.5 million 3.25% fixed rate debt into 1.16% fixed rate euro debt, US$204.6 million 3.05% fixed rate debt into 2.06% fixed rate euro debt and US$203.9 million 3.05% fixed rate debt into 2.00% fixed rate euro debt. The effect of the CCIRSAs has been to decrease finance cost by $14.9 million for the year ended December 31, 2020 (2019 - $17.2 million).

The Company has potential credit risks arising from derivative financial instruments if a counterparty fails to meet its obligations. The Company’s counterparties are large international financial institutions and, to date, no such counterparty has failed to meet its financial obligations to the Company. As at December 31, 2020, the Company had $9.6 million potential exposure to credit risk arising from derivative financial instruments.

As at December 31, 2020, the Company had US$1,261.0 million drawn under the 144A private bonds and term credit facility which are hedging a portion of its U.S. dollar-based and euro-based investments and cash flows, inclusive of U.S. dollar debt swapped to euros.

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D) Equity and Dividends

Summary of Changes in Equity

For theyears ended December 31			2020		2019
Net earnings		$	529.7	$	477.1
Dividends			(128.7)		(121.1)
Settlement of exercised stock options			31.3		29.2
Contributed surplus on expensing of stock options and
stock-based compensation plans			8.6		18.8
Defined benefit plan actuarial loss, net of tax			(3.5)		(54.9)
Increase in accumulated other
Comprehensiveloss			(52.9)		(124.5)
Increase in equity		$	384.5	$	224.6
Equity		$	3,282.2	$	2,897.7
Shares issued at December 31	– Class A (000s)		11,836		11,836
	– Class B (000s)		167,380		166,790

In 2020, the Company declared dividends of $128.7 million, compared to $121.1 million declared in the prior year. As previously discussed, the dividend payout ratio in 2020 was 23% (2019 – 24%) of adjusted earnings. After careful review of the current year results, budgeted cash flow and income for 2021, the Board declared a 16.7% increase in the annual dividend: an increase of $0.03 per Class B share per quarter, from $0.18 to $0.21 per Class B share per quarter ($0.84 per Class B share annualized).

If cash flow periodically exceeds attractive acquisition opportunities available, the Company may also repurchase its shares, provided that the repurchase is accretive to earnings per share and it will not materially increase financial leverage beyond targeted levels. The Company did not purchase any of its shares for cancellation in 2020.

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E) Commitments and Other Contractual Obligations

The Company’s obligations relating to debt, leases and other liabilities at the end of 2020 were as follows:

Non-derivative financial liabilities Secured bank loans Unsecured bank loans Unsecured 144A 3.25% private notes Unsecured 144A 3.05% private notes Unsecured 3.864% Series 1 notes Unsecured syndicated bank credit facility Unsecured syndicated bank term credit facility Other long-term obligations Interest on unsecured bank credit facilities Interest on 144A 3.25% private notes Interest on 144A 3.05% private notes Interest on unsecured 3.864% Series 1 notes Interest on other long-term debt Trade and other payables Accrued post- employment benefit liabilities Lease liabilities Total contractual cash obligations	December 31, 2019 Carrying Amount			December 31, 2020	December 31, 2020	December 31, 2020	December 31, 2020	December 31, 2020
		Carrying Amount	Contractual Cash Flows	Payments Due by Period
				0–6 Months	6–12 Months	1–2 Years	2–5 Years	More Than 5 Years
	$ 0.5 4.3 643.1 - 298.4 851.3 475.3 0.7 - 1,035.6 * 146.2	$ 0.8 $ 0.8 52.1 52.1 630.8 636.3 754.8 763.5 298.6 300.0 (1.9) - 204.8 204.9 1.1 1.1 * 6.9 113.7 212.4 81.5 0.6 1,135.7 1,135.7 206.0 *153.4 160.6		$ 0.2 $ 0.2 $ 0.2 $ 0.2 $ - - 50.2 1.9 - - - - - - 636.3 - - - - 763.5 - - - - 300.0 - - - - - - 204.9 - - 1.1 - - - - 1.6 1.5 1.9 1.9 - 5.1 10.4 20.7 62.0 15.5 9.7 11.7 23.3 69.9 97.8 3.3 5.7 11.6 34.8 26.1 0.3 0.3 - - - 1,135.7 - - - - 2.4 2.4 17.6 63.1 120.5 19.5 20.6 28.0 45.7 46.8
	$ 3,455.4	$ 3,230.2 $ 3,876.1		$ 1,178.9 $ 103.0 $ 310.1 $ 277.6 $ 2,006.5

• Accrued long-term employee benefit and post-employment benefit liability of $12.4 million, accrued interest of $9.6 million on unsecured notes, unsecured bonds, unsecured two-year term loan and unsecured syndicated credit facilities, and accrued interest of $2.5 million on derivatives are reported in trade and other payables in 2020 (2019: $12.4 million, $8.0 million and $1.5 million, respectively).

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Pension Obligations

The Company sponsors a number of defined benefit plans in countries that give rise to accrued post-employment benefit obligations. The accrued benefit obligation for these plans at the end of 2020 was $836.5 million (2019 – $768.0 million) and the fair value of the plan assets was $454.8 million (2019 – $402.8 million), for a net deficit of $381.7 million (2019 – $365.2 million). Contributions to defined benefit plans during 2020 were $16.2 million (2019 – $25.3 million). The Company expects to contribute $48.7 million to pension plans in 2021, inclusive of defined contribution plans. These estimated funding requirements will be adjusted annually, based on various market factors such as interest rates, expected returns and staffing assumptions, including compensation and mortality. The Company’s contributions are funded through cash flows generated from operations. Management anticipates that future cash flows from operations will be sufficient to fund expected future contributions. Details of the Company’s pension plans and related obligations are set out in note 20, “Employee Benefits,” of the Company’s 2020 annual consolidated financial statements.

Other Obligations and Commitments

The Company has provided various loan guarantees for its joint ventures and associates totaling $23.3 million (2019 – $42.3 million). The Company has posted surety bonds through accredited insurance companies globally totaling $57.0 million (2019 – $71.3 million). The nature of these commitments is described in note 26 and note 27 of the Company’s 2020 annual consolidated financial statements. There are no defined benefit plans funded with the Company’s stock.

F) Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the President and Chief Executive Officer (“CEO”) and the Senior Vice President and Chief Financial Officer (“CFO”), on a timely basis so that appropriate decisions can be made regarding public disclosure. The Company’s Disclosure Committee reviews all external reports and documents before publication to enhance disclosure controls and procedures.

As at December 31, 2020, based on the continued evaluation of the disclosure controls and procedures, the CEO and the CFO have concluded that the Company’s disclosure controls and procedures, as defined in National Instrument 52-109, Certificate of Disclosure in Issuers Annual and Interim Filings (“NI 52109”), are effective to ensure that information required to be disclosed in reports and documents that the Company files or submits under Canadian securities legislation is recorded, processed, summarized and reported within the time periods specified.

Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of

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financial statements for external purposes in accordance with IFRS. Management is responsible for establishing and maintaining adequate internal control over financial reporting. NI 52-109 requires CEOs and CFOs to certify that they are responsible for establishing and maintaining internal control over financial reporting for the issuer, that internal control has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS, that the internal control over financial reporting is effective, and that the issuer has disclosed any changes in its internal control during the year ended December 31, 2020, that has materially affected or is reasonably likely to materially affect its internal control over financial reporting.

Based on the evaluation of the design and operating effectiveness of the Company’s internal control over financial reporting, the CEO and the CFO concluded that internal control over financial reporting was effective as at December 31, 2020.

There were no material changes in internal control over financial reporting in the financial year ended December 31, 2020.

4. RISKS AND UNCERTAINTIES

The Company is subject to the usual commercial risks and uncertainties from operating as a Canadian public company and as a supplier of goods and services to the non-durable consumer packaging and consumer durables industries on a global basis. A number of these potential risks and uncertainties that could have a material adverse effect on the business, financial condition and results of operations of the Company are, in no particular order, as follows:

- Covid 19 Pandemic

In March 2020, the World Health Organization declared a global pandemic related to CV19. The impacts on global commerce have been and are anticipated to continue to be far-reaching. CV19 has resulted in unprecedented governmental actions in multiple jurisdictions, including the closure of workplaces determined to be non-essential, the imposition of new health and monitoring requirements and the imposition of restrictions on the international, national and local movement of people and some goods. There have been significant disruptions to business operations, supply chains and customer activity and demand; service cancellations, reductions and other changes; the imposition of quarantines and curfews; as well as considerable general concern and uncertainty. There has been significant stock market volatility and significant volatility in foreign exchange and commodity markets. While CV19-related governmental and public health imposed restrictions were partially relaxed in a number of jurisdictions during the second and third quarters of 2020, renewed, and in some instances, heightened restrictions have since been imposed or are contemplated in multiple jurisdictions. While the Company’s operations have been determined by most jurisdictions to be essential businesses and have continued to operate throughout the pandemic with

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limited disruptions, there can be no assurance that this will continue to be the case throughout the duration of the CV19 pandemic or that such plants will operate at pre-pandemic staffing and production levels. CV19 continues to have varying impacts by geography and sector on the Company’s employees, suppliers and customers and on the demand for the respective products that the Company and its customers produce. While the introduction, beginning in late 2020, of vaccines designed to offer protection against CV19 offers the possibility of a reduction in the duration of the pandemic, the time needed for widespread availability and distribution of such vaccines, their duration and efficacy against the emergence and spread of new strains of CV19, as well as the levels of public participation in inoculation programs, remain uncertain. The duration of the pandemic and its impact on the Company’s financial performance and position is an area of estimation uncertainty and judgment, which is continuously monitored and reflected in management’s estimates.

The impacts of the CV19 pandemic that may have an effect on the Company include: a change in short-term and/or long-term demand and/or pricing for the Company’s products; reductions in production levels; increased costs resulting from the Company’s efforts to mitigate the impact of CV19; deterioration of worldwide credit and financial markets that could limit the Company’s ability to obtain external financing to fund operations and capital expenditures, and result in a higher rate of losses on accounts receivable due to counterparty credit defaults; disruptions to supply chains; impairments and/or write-downs of assets; restrictions on movement of workforce; reductions in the labour force; the closure of workplaces; and adverse impacts on the Company’s information technology systems and internal control systems as a result of the need to maintain remote work arrangements. A material adverse effect on the Company’s employees, customers and/or suppliers could have a material adverse effect on the Company.

Significant uncertainty remains with respect to the future impact of CV19 on the Company’s businesses. As a result, the Company’s expected financial results for 2021 and beyond may be negatively impacted by continued CV19-related disruptions. The Company cannot currently estimate the severity of any such impact, which may be material. The overall severity and duration of CV19-related adverse impacts on the Company’s businesses will depend on future developments that cannot currently be predicted, including directives of governmental and public health authorities, the extent and duration of governmental assistance for individuals and businesses adversely affected by CV19, the effectiveness of inoculation programs, the extent to which suppliers and customers are impacted by renewed operating restrictions and closures and the speed at which they are able to return to normalized production levels, the level of consumer demand, the status of labour availability and the ability to staff the Company’s operations and facilities. Even after CV19 outbreaks have subsided, the Company may continue to experience material adverse impacts to its businesses as a result of CV19’s global economic impact, including any related recession.

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Potential Risks Relating to Significant Operations in Foreign Countries

The Company operates plants in North America, Europe, Latin America, Africa, Asia, Australia and the Middle East. Sales to customers located outside of Canada in 2020 were approximately 98% of the Company’s total sales, a level similar to that in 2019. Non-Canadian operating results are translated into Canadian dollars at the average exchange rate for the period covered. The Company has significant operating bases in both the United States and Europe. In 2020, 40% and 32% of total sales were to customers in the United States and Europe, respectively. The Company’s operating results and cash flows could be negatively impacted by slower or declining growth rates in these key markets. The sales from business units in Latin America, Asia, South Africa and Australia in 2020 were 26% of the Company’s total sales. In addition, the Company has equity accounted investments in Russia, the United States and the Middle East. There are risks associated with operating a decentralized organization in 191 manufacturing facilities in 42 countries around the world with a variety of different cultures and values. Operations outside of Canada, the United States and Europe are perceived generally to have greater political and economic risks and include the Company’s operations in Latin America, parts of Asia, Russia and the Middle East. These risks include, but are not limited to, fluctuations in currency exchange rates, inflation, changes in foreign law and regulations, government nationalization of certain industries, currency controls, potential adverse tax consequences and locally accepted business practices and standards that may not be similar to accepted business practices and standards in North America and Europe. Although the Company has controls and procedures intended to mitigate these risks, these risks cannot be entirely eliminated and may have a material adverse effect on the consolidated financial results of the Company.

Competitive Environment

The Company faces competition from other suppliers in all the markets in which it operates. There can be no assurance that the Company will be able to compete successfully against its current or future competitors or that such competition will not have a material adverse effect on the business, financial condition and results of operations of the Company. This competitive environment may preclude the Company from passing on higher material, labour and energy costs to its customers. Any significant increase in in-house manufacturing by customers of the Company could adversely affect the business, financial condition and results of operations of the Company. In addition, the Company’s consolidated financial results may be negatively impacted by competitors developing new products or processes that are of superior quality to those of the Company or that fit the Company’s customers’ needs better, or have lower costs; or by consolidation within the Company’s competitors or by further pricing pressure being placed on the industry by the large retail chains.

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Foreign Exchange Exposure and Hedging Activities

Sales of the Company’s products to customers outside Canada account for approximately 98% of the revenue of the Company. Because the prices for such products are quoted in foreign currencies, any increase in the value of the Canadian dollar relative to such currencies, in particular the U.S. dollar and the euro, reduces the amount of Canadian dollar revenues and operating income reported by the Company in its consolidated financial statements. The Company also buys inputs for its products in world markets in several currencies. Exchange rate fluctuations are beyond the Company’s control and there can be no assurance that such fluctuations will not have a material adverse effect on the reported results of the Company. The use of derivatives to provide hedges of certain exposures, such as interest rate swaps, forward foreign exchange contracts and aluminum futures contracts, could impact negatively on the Company’s operations.

Retention of Key Personnel and Experienced Workforce

Management believes that an important competitive advantage of the Company has been, and will continue to be, the know-how and expertise possessed by its personnel at all levels of the Company. While the machinery and equipment used by the Company are generally available to competitors of the Company, the experience and training of the Company’s workforce allows the Company to obtain a level of efficiency and a level of flexibility that management believes to be high relative to levels in the industries in which it competes. To date, the Company has been successful in recruiting, training and retaining its personnel over the long term, and while management believes that the know-how of the Company is widely distributed throughout the Company, the loss of the services of certain of its experienced personnel could have a material adverse effect on the business, financial condition and results of operations of the Company.

The operations of the Company are dependent on the abilities, experience and efforts of its senior management team. To date, the Company has been successful in recruiting and retaining competent senior management. Loss of certain members of the executive team of the Company could have a disruptive effect on the implementation of the Company’s business strategy and the efficient running of day-to-day operations. This could have a material adverse effect on the business, financial condition and results of operations of the Company.

Acquired Businesses

As part of its growth strategy, the Company continues to pursue acquisition opportunities where such transactions are economically and strategically justified. However, there can be no assurance that the Company will be able to identify attractive acquisition opportunities in the future or have the required resources to complete desired acquisitions, or that it will succeed in effectively managing the integration of acquired businesses. The failure to implement the acquisition strategy, to successfully integrate acquired businesses or joint ventures into the Company’s structure, or to control operating performance and achieve synergies

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may have a material adverse effect on the business, financial condition and results of operations of the Company.

In addition, there may be liabilities that the Company has failed or was unable to discover in its due diligence prior to the consummation of the acquisition. In particular, to the extent that prior owners of acquired businesses failed to comply with or otherwise violated applicable laws, including environmental laws, the Company, as a successor owner, may be financially responsible for these violations. A discovery of any material liabilities could have a material adverse effect on the business, financial condition and results of operations of the Company.

- Long Term Growth Strategy

The Company has experienced significant and steady growth over the last decade. The Company’s organic growth initiatives coupled with its international acquisitions over the last number of years can place a strain on a number of aspects of its operating platform including human infrastructure, operational capacity and information systems. The Company’s ability to continually adapt and augment all aspects of its operational platform is critical to realizing its long-term growth strategy. Another key aspect to the Company’s growth strategy includes increased development of the Company’s presence in emerging markets that could create exposure to unstable political conditions, economic volatility and social challenges. If the Company cannot adjust to its anticipated growth, results of operations may be materially adversely affected.

Lower than Anticipated Demand

Although the Checkpoint Segment enjoys the advantage of significantly lower customer concentration than the rest of the Company, the Segment is heavily dependent on the retail marketplace. Changes in the economic environment including the liquidity and financial condition of its customers, the impact of online customer spending or reductions in retailer spending and new store openings could adversely affect the Segment’s sales. A reduction in the commitment for chain-wide installations due to decreased consumer spending that results in reduced demand for loss prevention by retail customers or failure by the Segment to develop new technology that entices the customer to maintain its commitment to Checkpoint’s loss prevention products and services may also have a material adverse effect on the Company’s business, financial condition and results of operations.

Exposure to Income Tax Reassessments

The Company operates in many countries throughout the world. Each country has its own income tax regulations and many of these countries have additional income and other taxes applied at state, provincial and local levels. The Company’s international investments are complex and subject to interpretation in each jurisdiction from a legal and tax perspective. The Company’s tax filings are subject

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to audit by local authorities, and the Company's positions in these tax filings may be challenged. The Company may not be successful in defending these positions and could be involved in lengthy and costly litigation during this process and could be subject to additional income taxes, interest and penalties. This outcome could have a material adverse effect on the business, financial condition and results of operations of the Company.

Realization of Deferred Tax Assets

The Company needs to generate sufficient taxable income in future periods in certain foreign and domestic tax jurisdictions to realize the tax benefit. If there is a significant change in the time period within which the underlying temporary difference or loss carry-forwards become taxable or deductible, the Company may have to revise its unrecognized deferred tax assets. This could result in an increase in the effective tax rate and could have a material adverse effect on future results. Changes in statutory tax rate may change the deferred tax asset or liability, with either a positive or a negative impact on the effective tax rate. The computation and assessment of the ability to realize the deferred tax asset balance is complex and requires significant judgment. New legislation or a change in underlying assumptions may have a material adverse effect on the business, financial condition and results of the Company.

Fluctuations in Operating Results

While the Company’s operating results over the past several years have indicated a general upward trend in sales and net earnings, operating results within particular product forms, within particular facilities of the Company and within particular geographic markets have undergone fluctuations in the past and, in management’s view, are likely to do so in the future. Operating results may fluctuate in the future as a result of many factors in addition to the global economic conditions, and these factors include the volume of orders received relative to the manufacturing capacity of the Company, the level of price competition (from competing suppliers both in domestic and in other lower-cost jurisdictions), variations in the level and timing of orders, the cost of raw materials and energy, the ability to develop innovative solutions and the mix of revenue derived in each of the Company’s businesses. Operating results may also be impacted by the inability to achieve planned volumes through normal growth and successful renegotiation of current contracts with customers and by the inability to deliver expected benefits from cost-reduction programs derived from the restructuring of certain business units. Any of these factors or a combination of these factors could have a material adverse effect on the business, financial condition and results of operations of the Company.

Insurance Coverage

Management believes that insurance coverage of the Company’s facilities addresses all material insurable risks, provides coverage that is similar to that which would be maintained by a prudent owner/operator of similar facilities and is

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subject to deductibles, limits and exclusions that are customary or reasonable given the cost of procuring insurance and current operating conditions. However, there can be no assurance that such insurance will continue to be offered on an economically feasible basis or at current premium levels, that the Company will be able to pass through any increased premium costs or that all events that could give rise to a loss or liability are insurable, or that the amounts of insurance will at all times be sufficient to cover each and every loss or claim that may occur involving the assets or operations of the Company.

Brexit

The U.K.’s withdrawal from the European Union (“E.U.”), commonly referred to as “Brexit,” became effective on January 31, 2020 and was followed by an 11-month transition period, during which the trading rules and relationship remained largely unchanged. Upon the expiry of the transition period, the U.K. left the E.U. Single Market and Customs Union, as well as all E.U. policies and international agreements, with the result being that the free movement of persons, goods, services and capital between the E.U. and the U.K. ended and two separate markets and regulatory jurisdictions were formed. On January 1, 2021, the E.U. - U.K. Trade and Cooperation Agreement (the “TCA”) became effective. The TCA provides preferential access to the U.K. and to E.U. members to each other’s markets, without tariffs or quotas on imported products between the jurisdictions. However, economic relations between the U.K. and the E.U. will now be on more restricted terms than existed prior to Brexit. It is difficult to predict the severity of the impact of these changes on the Company’s U.K. and E.U. based operations. Goods moving between the U.K. and any member of the E.U. will be subject to additional inspections and documentation checks, leading to possible higher transportation and regulatory costs, as well as delays at ports of entry and departure. Such delays could adversely impact elements of the Company’s supply chain and also the Company’s ability to meet customers’ delivery schedules. The U.K. has yet to determine which E.U. laws and regulations to replace or replicate and compliance with any amended or additional laws and regulations could increase the Company’s costs. To the extent that higher costs are incurred by the Company which cannot be passed on to its customers, this could decrease the profitability of the Company’s U.K. and E.U. operations. Brexit and the perceptions as to its impact may adversely affect business activity, political stability, consumer and corporate confidence and economic conditions in the U.K., in those countries that have adopted the euro as their currency (the “Eurozone”), in the E.U. and elsewhere. The economic outlook could be further adversely affected by: (i) the risk that one or more other E.U. countries could come under increasing pressure to leave the E.U; (ii) the risk that the euro as the single currency of the Eurozone could cease to exist; and (iii) the risk that movements in the U.K. pound exchange rates related to Brexit could damage competitiveness or profitability, as a significant portion of the Company’s U.K. transactions are priced in U.S. dollars and euros. In addition, any of these developments, or the perception that any of these developments are likely to occur, could have a material adverse effect on economic growth or business activity in the U.K., the Eurozone, the E.U. or elsewhere and could result in the relocation of businesses, cause business

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interruptions, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, political systems or financial institutions and the financial and monetary system. Given that the Company conducts a significant portion of its business in the E.U. and the U.K., any of these developments could have a material adverse effect on the business, financial position, liquidity and results of operations of the Company.

Catastrophic Events

Natural disasters, such as earthquakes, tsunamis, floods or wildfires, public health crises, such as epidemics and pandemics, political instability, acts of terrorism, war or other conflicts and other events outside of the Company’s control, may adversely impact its business and operating results. In addition to the direct impact that such events could have on the Company’s facilities and workforce, these types of events could negatively impact consumer spending in the impacted regions or, depending on the severity, globally, which would impact the Company’s customers and in turn impact demand for its products.

Dependence on Customers

The Company has a modest dependence on certain customers. The Company’s two largest customers combined accounted for approximately 9.0% (2019 – 9.0%) of the consolidated revenue for the fiscal year 2020. The five largest customers of the Company represented approximately 16.2% (2019 – 16.5%) of the total revenue for 2020 and the 25 largest customers represented approximately 35.8% (2019 – 36.4%) of the total revenue. Several thousand customers make up the remainder of total revenue. Although the Company has strong partnership relationships with its customers, there can be no assurance that the Company will maintain its relationship with any particular customer or continue to provide services to any particular customer at current levels. A loss of any significant customer, or a decrease in the sales to any such customer, could have a material adverse effect on the business, financial condition and results of operations of the Company. Consolidation within the consumer products marketer base and office retail superstores could have a negative impact on the Company’s business, depending on the nature and scope of any such consolidation.

Environmental, Health and Safety Requirements and Other Considerations

The Company is subject to numerous federal, provincial, state and municipal statutes, regulations, by-laws, guidelines and policies, as well as permits and other approvals related to the protection of the environment and workers' health and safety. The Company maintains active health and safety and environmental programs for the purpose of preventing injuries to employees and pollution incidents at its manufacturing sites. The Company also carries out a program of environmental compliance audits, including an independent third-party pollution liability assessment for acquisitions, to assess the adequacy of compliance at the operating level and to establish provisions, as required, for environmental site remediation plans. The Company has environmental insurance for most of its

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operating sites, with certain exclusions for historical matters.

Despite these programs and insurance coverage, further proceedings or inquiries from regulators on employee health and safety requirements, particularly in Canada, the United States and the European Economic Community (collectively, the “EHS Requirements”), could have a material adverse effect on the business, financial condition and results of operations of the Company. In addition, changes to existing EHS Requirements, the adoption of new EHS Requirements in the future, or changes to the enforcement of EHS Requirements, as well as the discovery of additional or unknown conditions at facilities owned, operated or used by the Company, could require expenditures that might materially affect the business, financial condition and results of operations of the Company to the extent not covered by indemnity, insurance or covenant not to sue. Furthermore, while the Company has generally benefited from increased regulations on its customers’ products, the demand for the services or products of the Company may be adversely affected by the amendment or repeal of laws or by changes to the enforcement policies of the regulatory agencies concerning such laws.

Operating and Product Hazards

The Company’s revenues are dependent on the continued operation of its facilities and its customers. The operation of manufacturing plants involves many risks, including the failure or substandard performance of equipment, natural disasters, suspension of operations and new governmental statutes, regulations, guidelines and policies. The total loss of certain of the Company’s manufacturing plants could have a significant financial impact on the affected business segment, particularly where the plant represents a single or significant source of supply. The operations of the Company and its customers are also subject to various hazards incidental to the production, use, handling, processing, storage and transportation of certain hazardous materials. These hazards can cause personal injury, severe damage to and destruction of property and equipment and environmental damage. Furthermore, the Company may become subject to claims with respect to workplace exposure, workers' compensation and other matters. The Company’s pharmaceutical and specialty food product operations are subject to stringent federal, state, provincial and local health, food and drug regulations and controls, and may be impacted by consumer product liability claims and the possible unavailability and/or expense of liability insurance. The Company prints information on its labels and containers that, if incorrect, could give rise to product liability claims. A determination by applicable regulatory authorities that any of the Company’s facilities are not in compliance with any such regulations or controls in any material respect may have a material adverse effect on the Company. A successful product liability claim (or a series of claims) against the Company in excess of its insurance coverage could have a material adverse effect on the business, financial condition and results of operations of the Company. There can be no assurance as to the actual amount of these liabilities or the timing thereof. The occurrence of material operational problems, including, but not limited to, the above events, could have a material adverse effect on the business, financial condition and results of operations of the Company.

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The Timing and Volume of New Banknote Orders

The CCL Secure banknote substrate operation is dependent on government procurement decisions and the volume and timing of new or replacement banknote orders is often uncertain. These decisions can be influenced by many political factors that could delay or reduce the volume of banknote orders. The impact of new large volume banknote orders may result in the Company having to invest in material capital projects to support government procurement decisions. As a result, volatility may be created in the cash flows and in the financial results of the CCL Secure operations and could have a material adverse effect on the financial condition of the Company.

Decline in Address Mailing Labels

Since the advent of e-mail, traditional mail volumes have declined, particularly over the past decade. Address labels used for traditional mail has historically been a core product for the Avery business. There is a direct correlation of address label sales volumes to the quantity of mail in circulation in each of the markets in which Avery operates. Accordingly, a further dramatic decline in traditional mail volume, without the introduction of offsetting new consumer printable media applications in Avery, could have a material adverse effect on the business, financial condition and results of operations of the Company.

Product Security

CCL Secure’s banknote substrate business is involved in high security applications and must maintain highly secured facilities and product shipments. CCL Secure maintains vigorous security and material control procedures. All employees, guests and third party contractors with access to facilities and products are prudently screened and monitored. However, the loss of a product, counterfeiting of a high security feature or the breach of a secured facility as a result of negligence, collusion or theft is possible. Loss of product whilst in transit, particularly during transshipment, through the failure of freight management companies or the loss of the shipment vehicle by accident or act of God is possible. Consequently, the financial damage and potential reputational impairment on CCL Secure may have a material adverse effect on the Company’s business, financial condition and results of operations.

Financial Reporting

The Company prepares its financial reports in accordance with accounting policies and methods prescribed by IFRS. In the preparation of financial reports, management may need to rely upon assumptions, make estimates or use their best judgement in determining the financial condition of the Company. Significant accounting policies are described in more detail in the notes to the Company’s annual consolidated financial statements for the year ended December 31, 2020. In order to have a reasonable level of assurance that financial transactions are properly authorized, assets are safeguarded against unauthorized or improper use

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and transactions are properly recorded and reported, the Company has implemented and continues to analyze its internal control systems for financial reporting. Although the Company believes that its financial reporting and financial statements are prepared with reasonable safeguards to ensure reliability, the Company cannot provide absolute assurance in that regard.

- Compliance with Anti Bribery and Export Laws

Due to the Company’s global operations, the Company is subject to many laws governing international relations, including those that prohibit improper payments to government officials and commercial customers, and which may restrict where the Company can do business, what information or products the Company can supply to certain countries and what information the Company can provide to foreign governments, including but not limited to the Canadian Corruption of Foreign Public Officials Act (“CFPOA”), the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act and the U.S. Export Administration Act. The Company’s policies mandate compliance with these anti-bribery laws. The Company operates in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Given the high level of complexity of these laws, there is a risk that some provisions may be inadvertently or intentionally breached, for example through fraudulent or negligent behavior of individual employees, the Company’s failure to comply with certain formal documentation requirements or otherwise. Additionally, the Company may be held liable for actions taken by local dealers and partners. If the Company is found to be liable for CFPOA, FCPA or other violations (either due to the Company’s own acts or through inadvertence, or due to the acts or inadvertence of others), the Company could suffer from civil and criminal penalties or other sanctions, which could have a material adverse impact on the Company’s business, financial condition, and results of operations.

New Product Developments

Markets are continually evolving based on the ingenuity of the Company and its competitors, consumer preferences and new product identification and information technologies. In particular, customers and consumers are seeking more sustainable product offerings using recyclable components and enabling circularity in product use. To the extent that any such new developments result in a decrease in the use of any of the Company’s products, a material adverse effect on the financial condition and results of operations could occur.

Checkpoint’s ability to create new products and to sustain existing products is affected by whether the Company can develop and fund technological innovations, such as those related to the next generation of product solutions, evolving RFID technologies, and other innovative security devices, software and systems initiatives. The failure to develop and launch successful new products could have a material adverse effect on Checkpoint’s business, financial condition and results of operations.

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Although the Innovia Segment has a unique manufacturing process for its BOPP and CCL Secure is the leading manufacturer of polymer banknote substrate, it is dependent on its ability to constantly evolve the technological capabilities of its products to meet the demands of its customer base. New scientific advancements in polymer film manufacturing could curtail the use of Innovia’s BOPP, while the advancement of e-commerce and cashless societies may outmode the need for polymer banknotes. Failure to invest in intellectual properties and perpetually innovate may result in lower demand for films and banknote substrate and could have a material adverse effect on the Company’s business, financial condition and results of operations.

Labour Relations

While labour relations between the Company and its employees have been stable in the recent past and there have been no material disruptions in operations as a result of labour disputes, the maintenance of a productive and efficient labour environment cannot be assured. Accordingly, a strike, lockout or deterioration of labour relationships could have a material adverse effect on the business, financial condition and results of operations of the Company.

Legal and Regulatory Proceedings

Any alleged failure by the Company to comply with applicable laws and regulations in the countries of operation may lead to the imposition of fines and penalties or the denial, revocation or delay in the renewal of permits and licenses issued by governmental authorities or litigation. In addition, governmental authorities, as well as third parties, may claim that the Company is liable for environmental remediation or damages. A significant judgment against the Company, the loss of a significant permit or other approval or the imposition of a significant fine or penalty could have a material adverse effect on the business, financial condition and results of operations of the Company.

Moreover, the Company may from time to time be notified of claims that it may be infringing patents, copyrights or other intellectual property rights owned by other third parties. Any litigation could result in substantial costs and diversion of resources, and could have a material adverse effect on the business, financial condition and results of operations of the Company. In the future, third parties may assert infringement claims against the Company or its customers. In the event of an infringement claim, the Company may be required to spend a significant amount of money to develop a non-infringing alternative or to obtain licenses. The Company may not be successful in developing such an alternative or obtaining a license on reasonable terms, if at all. In addition, any such litigation could be lengthy and costly and could have a material adverse effect on the business, financial condition and results of operations of the Company.

The Company may also be subject to claims arising from its failure to manufacture a product to the specifications of its customers or from personal injury arising from a consumer’s use of a product or component manufactured by the Company. While

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the Company will seek indemnity from its customers for claims made against the Company by consumers, and while the Company maintains what management believes to be appropriate levels of insurance to respond to such claims, there can be no assurance that the Company will be fully indemnified by its customers or that insurance coverage will continue to be available or, if available, will be adequate to cover all costs arising from such claims. In addition, the Company could become subject to claims relating to its prior or acquired businesses, including environmental and tax matters, or claims by third parties, such as distributors or agents. There can be no assurance that insurance coverage will be adequate to cover all costs arising from such claims.

Specifically, during 2018, the Federal Court of Australia awarded a judgment and costs against a subsidiary of the Company, CCL Secure Pty Ltd. (formerly Innovia Security Pty Ltd.) (“ISPL”), totaling A$70.0 million ($63.8 million), finding a wrongful termination of an agency agreement with Benoy Berry and a company controlled by him, Global Secure Currency Ltd. (collectively “Berry”), an arm’s length third party in Nigeria. ISPL appealed the judgment. As part of the appeals process, the Australian court of appeals mandated that the Company guarantee the entire judgment in order to stay execution of the judgment pending resolution of the appeal. On appeal, the Australian court of appeals reduced the total damages awarded to Berry to A$4.8 million ($4.4 million) including interest and Berry’s estimated legal costs, and awarded ISPL a portion of its appeal costs. Berry appealed the reduced award to the High Court of Australia. In the third quarter of 2020, the High Court of Australia issued a final judgement for Berry in the sum of approximately A$45.1 million ($43.0 million), including interest and Berry’s legal costs. The final judgement was $8.6 million in excess of the previously recorded provision, which had been accrued as part of the 2017 Innovia acquisition for this matter, and is reported in Restructuring and Other Items.

In the first quarter of 2019, a hearing on a jurisdictional issue was heard in respect of a lawsuit launched in 2011 by Berry in Nigerian Federal Court against ISPL and Innovia Films Ltd. (collectively “IFL”), as well as other defendants not affiliated with ISPL. The court denied IFL’s motion to dismiss the lawsuit on the jurisdictional issue. IFL is appealing that decision to the highest appeals court in Nigeria. The lawsuit alleges that IFL and the co-defendants committed to build a banknote substrate plant in Nigeria and Berry seeks an order requiring IFL and the codefendants to build the plant or in lieu thereof, grant an award of total damages in the amount of €1.5 billion ($2.2 billion). IFL intends to vigorously defend this claim, which the Company considers to be without merit and accordingly, the Company has made no provision for the matter.

- Defined Benefit Post Employment Plans

The Company is the sponsor of a number of defined benefit plans in twelve countries that give rise to accrued post-employment benefit obligations. Although the Company believes that its current financial resources combined with its expected future cash flows from operations and returns on post-employment plan assets will be sufficient to satisfy the obligations under these plans in future years,

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the cash outflow and higher expenses associated with these plans may be higher than expected and may have a material adverse impact on the financial condition of the Company.

Breach of Legal and Regulatory Requirements

CCL Secure’s banknote substrate operation has the highest accreditation within the security printing industry. This accreditation provides governments and Central Banks with assurance in respect of safeguarding high ethical standards and business practices. Violation of CCL Secure’s highly strict requirements and constant detailed oversight in relation to bribery, corruption and anti-competitive activities remains a risk in an industry expecting the highest ethical standards. Consequently, the financial damage and potential reputational impairment on CCL Secure that could arise if the standards and practices are compromised, or perceived to have been compromised, may have a material adverse effect on the Company’s business, financial condition and results of operations.

Material Disruption of Information Technology Systems

The Company is increasingly dependent on information technology (“IT”) systems to manufacture its products, process transactions, respond to customer questions, manage inventory, purchase, sell and ship goods on a timely basis and maintain cost-efficient operations, as well as maintain its e-commerce websites. Any material disruption or slowdown of the systems, including a disruption or slowdown caused by the Company’s failure to successfully upgrade its systems, system failures, viruses or other causes, could have a material adverse effect on the business, financial condition and results of operations of the Company. If changes in technology cause the Company’s information systems to become obsolete or if information systems are inadequate to handle growth, the Company could incur losses and costs due to interruption of its operations.

The Company maintains information within its IT networks and on the cloud to operate its business, as well as confidential personal employee and customer information. The secure maintenance of this information is critical to the Company’s operations and reputation. The Company invests in hardware and software to prevent the risk of intrusion, tampering and theft. Any such unauthorized breach of the IT infrastructure could compromise the data maintained, which could cause the corruption or exposure of confidential or proprietary information, a significant disruption in operations, the loss or theft of critical data and financial resources and meaningful harm to the Company’s reputation, any of which could result in a material adverse effect on the Company’s business, financial condition and results of operations.

- Impairment in the Carrying Value of Goodwill and Indefinite Life Intangible Assets

As of December 31, 2020, the Company had approximately $2.4 billion of goodwill and indefinite-life intangible assets on its consolidated statement of financial position, the value of which is reviewed for impairment at least annually. The

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assessment of the value of goodwill and intangible assets depends on a number of key factors requiring estimates and assumptions about earnings growth, operating margins, discount rates, economic projections, anticipated future cash flows and market capitalization. There can be no assurance that future reviews of goodwill and intangible assets will not result in an impairment charge. Although it does not affect cash flow, an impairment charge does have the effect of reducing the Company’s earnings, total assets and equity.

Raw Materials and Component Parts

Although the Company is a large customer to certain key suppliers, it is also an inconsequential buyer of some materials. The ability to grow earnings will be affected by inflationary and other increases in the cost of electronic subassemblies and raw materials, aluminum ingot, slugs and foils, resins, extruded films, pressure sensitive laminates, paper, binder rings and plastic components. Inflationary and other increases in the costs of raw materials, labour and energy have occurred in the past and are expected to reoccur, and the Company’s performance depends in part on its ability to pass these cost increases on to customers in the price of its products and to effect improvements in productivity. The Company may not be able to fully offset the effects of raw material costs and other sourced components through price increases, productivity improvements or cost-reduction programs. If the Company cannot obtain sufficient quantities of these items at competitive prices, of appropriate quality and on a timely basis, it may not be able to produce sufficient quantities of product to satisfy market demand, product shipments may be delayed, or its material or manufacturing costs may increase. Innovia is sensitive to price movements in polypropylene resin used in its BOPP films for label, packaging and security applications. Polypropylene is the most significant input cost for the Innovia Segment and is traded in the market, with prices linked to the market price of natural gas and refining capacity. Price movements must be managed and, where necessary, passed along to the Segment’s customers. Failure to pass along higher costs in a timely and effective manner to its customers could have a material adverse effect on the Innovia Segment’s business and profitability. Checkpoint’s supply chain relies significantly on components sourced from factories in Asia; therefore, supply disruption and tariff changes could adversely affect sales and profitability. Avery’s U.S. supply chain relies almost completely on its plant in Tijuana, Mexico; supply disruption, changes to border controls or the failure to implement the provisions of the United States-Mexico-Canada Agreement on trade could adversely affect sales and profitability. Overall, any of these problems could result in the loss of customers and revenue, provide an opportunity for competing products to gain market acceptance and have a material adverse effect on the Company’s business, financial condition and results of operations.

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Credit Ratings

The credit ratings currently assigned to the Company by Moody’s and S&P, or that may in the future be assigned by other rating agencies, are subject to amendment in accordance with each agency’s rating methodology and subjective modifiers driving the credit rating opinion. There is no assurance that any rating assigned to the Company will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future. A downgrade in the credit rating assigned by one or more rating agencies could increase the Company’s cost of borrowing or impact the Company’s ability to renegotiate debt, and may have a material adverse effect on the Company’s financial condition and profitability.

Share Price Volatility

Changes in the Company’s stock price may affect access to, or cost of, financing from capital markets and may affect stock-based compensation arrangements. The Company’s stock price has appreciated significantly over the last five years and is influenced by the financial results of the Company, changes in the overall stock market, demand for equity securities, relative peer group performance, market expectation of future financial performance and competitive dynamics among many other things. There is no assurance that the Company’s share price will not be volatile in the future.

Protection of Intellectual Property

Certain of the Company’s products involve complex technology and chemistry and the Company relies on maintaining protection of this intellectual property and proprietary information to maintain a competitive advantage. The infringement, expiration or other loss of these patents and other proprietary information would reduce the barriers to entry into the Company’s existing lines of business and may result in loss of market share and a decrease in the Company’s competitiveness, which could have an adverse effect on the Company’s financial condition, results of operations and cash flows. There also can be no assurance that the patents previously obtained or to be obtained by the Company in the future will provide adequate protection of such intellectual property or adequately maintain any competitive advantage.

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Dividends

The declaration and payment of dividends is subject to the discretion of the Board of Directors taking into account current and anticipated cash flow, capital requirements, the general financial condition of the Company and global economy as well as the various risk factors set out above. The Board of Directors intends to pay a consistent dividend with consistent increases over time. However, the Board of Directors may in certain circumstances determine that it is in the best interests of the Company to reduce or suspend the dividend. In that situation, the trading price of the Company’s Class A and Class B shares may be materially affected.

Climate Change

Event risks caused by global climate change, including the frequency and severity of weather-related events, could damage the Company’s facilities, disrupt operations, impact revenues and cash flow, and create financial risk. These could result in substantial costs for emergency response efforts during the event, reinstatement of regular business operations and repair or replacement of premises and equipment. The potential impact or financial consequence of such events is highly uncertain. The Company's operations are spread over more than 191 locations around the world and therefore subject to varying climate change event risks.

Global climate change also gives rise to other risks to the Company’s business and operations, including increased regulation and market shifts in supply and demand, which are also difficult to predict. Many countries in which the Company carries on business are at differing stages of developing policy and regulations regarding carbon emissions and other environmental impacts which could significantly affect the Company’s business, create financial obligations and increase operating costs. Increased public awareness of climate change may impact consumer demand for the Company’s customers' products. The Company’s failure to innovate more sustainable or circular economy products could have a material adverse effect on its financial condition and profitability.

The Company’s failure to implement environmental, social and governance targets and initiatives, or to achieve its sustainability targets could have a material adverse impact on its financial condition and profitability.

5. ACCOUNTING POLICIES AND NON-IFRS MEASURES

A) Key Performance Indicators and Non-IFRS Measures

CCL measures the success of the business using a number of key performance indicators, many of which are in accordance with IFRS as described throughout this report. The following performance indicators are not measurements in accordance with IFRS and should not be considered as an alternative to or replacement of net earnings or any other measure of performance under IFRS. These non-IFRS measures do not have any standardized meaning and may not

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be comparable to similar measures presented by other issuers. In fact, these additional measures are used to provide added insight into the Company’s results and are concepts often seen in external analysts’ research reports, in financial covenants in banking agreements and note agreements, in purchase and sales contracts on acquisitions and divestitures of the business, and in discussions and reports to and from the Company’s shareholders and the investment community. These non-IFRS measures will be found throughout this report and are referenced alphabetically in the definition section below.

Adjusted Basic Earnings per Class B Share – An important non-IFRS measure to assist in understanding the ongoing earnings performance of the Company, excluding items of a one-time or non-recurring nature. It is not considered a substitute for basic net earnings per Class B share, but it does provide additional insight into the ongoing financial results of the Company. This non-IFRS measure is defined as basic net earnings per Class B share, excluding gains on dispositions, goodwill impairment loss, non-cash acquisition accounting adjustments, restructuring and other items and tax adjustments.

Earnings per Class B Share		Three	Months Ended	Months Ended		Twelve Months	Twelve Months	Ended
		December31				December		31
		2020		2019		2020		2019
Basic earnings	$	0.81	$	0.59	$	2.96	$	2.68
Net loss from restructuring and other items		0.03		0.08		0.12		0.11
Adjusted basic earnings	$	0.84	$	0.67	$	3.08	$	2.79

Adjusted EBITDA – A critical financial measure used extensively in the packaging industry and other industries to assist in understanding and measuring operating results. It is also considered as a proxy for cash flow and a facilitator for business valuations. This non-IFRS measure is defined as earnings before net finance cost, income taxes, depreciation and amortization, goodwill impairment loss, earnings in equity accounted investments, non-cash acquisition accounting adjustments, restructuring and other items. The Company believes that Adjusted EBITDA is an important measure as it allows the assessment of the Company’s ongoing business without the impact of net finance costs, depreciation and amortization and income tax expenses, as well as non-operating factors and unusual items. As a proxy for cash flow, it is intended to indicate the Company’s ability to incur or service debt and to invest in property, plant and equipment, and it allows comparison of the Company’s business to that of its peers and competitors who may have different capital or organizational structures. Adjusted EBITDA is a measure tracked by financial analysts and investors to evaluate financial performance and is a key metric in business valuations. Adjusted EBITDA is considered an important measure by lenders to the Company and is included in the financial covenants for the Company’s bank lines of credit.

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The following table reconciles Adjusted EBITDA measures to IFRS measures reported in the annual consolidated income statements for the periods ended as indicated.

		Three	Months Ended	Months Ended		Twelve	Months Ended	Months Ended
		December 31				December 31
Adjusted EBITDA		2020		2019		2020		2019
Net earnings	$	145.9	$	104.4	$	529.7	$	477.1
Corporate expense		16.4		2.6		46.7		49.7
Earnings in equity-accounted investments		(4.0)		(2.0)		(9.5)		(5.4)
Finance cost, net		15.8		18.9		65.2		81.0
Restructuring and other items		5.8		19.8		27.6		25.0
Income taxes		33.4		30.2		163.8		159.9
Operating income	$	213.3	$	173.9	$	823.5	$	787.3
Less: Corporate expense		(16.4)		(2.6)		(46.7)		(49.7)
Add: Depreciation and amortization		87.0		83.4		346.4		329.6
Adjusted EBITDA(a non-IFRS measure)	$	283.9	$	254.7	$	1,123.2	$	1,067.2

Days Working Capital Employed – A measure indicating the relative liquidity and asset intensity of the Company’s working capital. It is calculated by multiplying the net working capital by the number of days in the quarter and then dividing by the quarterly sales. Net working capital includes trade and other receivables, inventories, prepaid expenses, trade and other payables, and income taxes recoverable and payable. The following table reconciles the net working capital used in the days of working capital employed measure to IFRS measures reported in the consolidated statements of financial position as at the periods ended as indicated.

Days Working Capital Employed

AtDecember31		2020		2019
Trade and other receivables	$	922.8	$	849.2
Inventories		533.5		481.6
Prepaid expenses		35.3		36.6
Income taxes recoverable		29.0		34.0
Trade and other payables		(1,135.7)		(1,035.6)
Income taxes payable		(40.3)		(38.1)
Networking capital	$	344.6	$	327.7
Days in quarter		92		92
Fourth quarter sales	$	1,350.6	$	1,277.9
Days of workingcapital employed		23		24

Dividend Payout Ratio – The ratio of earnings paid out to the shareholders. It provides an indication of how well earnings support the dividend payments.

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Dividend payout is defined as dividends declared divided by earnings, excluding goodwill impairment loss, non-cash acquisition accounting adjustments, restructuring and other items, and tax adjustments, expressed as a percentage.

Dividend Payout Ratio		2020		2019
Dividends declared per equity	$	128.7	$	121.1
Adjusted earnings	$	550.5	$	496.9
Dividendpayout ratio		23%		24%

Free Cash Flow from Operations – A measure indicating the relative amount of cash generated by the Company during the year and available to fund dividends, debt repayments and acquisitions. It is calculated as cash flow from operations, less capital expenditures, net of proceeds from the sale of property, plant and equipment.

The following table reconciles the measure of free cash flow from operations to IFRS measures reported in the annual consolidated statements of cash flows for the periods ended as indicated.

	Twelve months ended	Twelve months ended	Twelve months ended	Twelve months ended
		December		31
Free Cash Flow from Operations		2020		2019
Cash provided by operating activities	$	882.9	$	779.5
Less: Additions to property, plant and equipment		(282.8)		(345.6)
Add: Proceeds ondisposalofproperty, plant and equipment		16.2		9.9
Free cash flow from operations	$	616.3	$	443.8

Interest Coverage – A measure indicating the relative amount of operating income earned by the Company compared to the amount of net finance cost incurred by the Company. It is calculated as operating income (see definition below), including discontinued items, less corporate expense, divided by net finance cost on a twelve-month rolling basis.

The following table reconciles the interest coverage measure to IFRS measures reported in the annual consolidated income statements for the periods ended as indicated.

	Twelve months	Twelve months	Twelve months	ended
		**December **		31
Interest Coverage		2020		2019
Operating income (a non-IFRS measure; see definition
below)	$	823.5	$	787.3
Less:Corporate expense		(46.7)		(49.7)
	$	776.8	$	737.6
Net finance cost	$	65.2	$	81.0
Interest coverage		11.9		9.1

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Net Debt – A measure indicating the financial indebtedness of the Company, assuming that all cash on hand is used to repay a portion of the outstanding debt. It is defined as current debt including cash advances, plus long-term debt, less cash and cash equivalents.

Net Debt to Adjusted EBITDA (or “Leverage Ratio”) - A measure that indicates the financial leverage of the Company. It indicates the Company’s ability to service its existing debt.

Operating Income – A measure indicating the profitability of the Company’s business units defined as income before corporate expenses, net finance costs, goodwill impairment loss, earnings in equity-accounted investments, restructuring and other items, and income taxes.

See the definition of Adjusted EBITDA above for a reconciliation of operating income measures to IFRS measures reported in the annual consolidated income statements for the periods ended as indicated.

Restructuring and Other Items and Tax Adjustments – A measure of significant non-recurring items that are included in net earnings. The impact of restructuring and other items and tax adjustments on a per share basis is measured by dividing the after-tax income of the restructuring and other items and tax adjustments by the average number of shares outstanding in the relevant period. Management will continue to disclose the impact of these items on the Company’s results because the timing and extent of such items do not reflect or relate to the Company’s ongoing operating performance. Management evaluates the operating income of its segments before the effect of these items.

Return on Equity before goodwill impairment loss, restructuring and other items, non-cash acquisition accounting adjustments, and tax adjustments (“ROE”) – A measure that provides insight into the effective use of shareholder capital in generating ongoing net earnings. ROE is calculated by dividing annual net earnings before goodwill impairment loss, restructuring and other items, tax adjustments, gains on business dispositions and non-cash acquisition accounting adjustments by the average of the beginning and the end-of-year equity.

The following table reconciles net earnings used in calculating the ROE measure to IFRS measures reported in the annual consolidated statements of financial position and in the annual consolidated income statements for the periods ended as indicated.

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		Twelve	months ended	months ended
		December 31
Return on Equity		2020		2019
Net earnings	$	529.7	$	477.1
Restructuring and other items (net oftax)		20.8		19.8
Adjusted net earnings	$	550.5	$	496.9
Average equity	$	3,090.0	$	2,785.4
Return on equity		17.8%		17.8%

Return on sales – A measure indicating relative profitability of sales to customers. It is defined as operating income (see definition above) divided by sales, expressed as a percentage.

The following table reconciles the return on sales measure to IFRS measures reported in the annual consolidated statements of earnings in the segmented information per note 4 of the Company’s annual consolidated financial statements for the periods ended as indicated.

Return on Sales Three Months Ended December 31 Twelve Months Ended December 31 Sales 2020 2019 2020 2019 CCL $ 860.2 $ 787.1 $ 3,357.6 $ 3,300.9 Avery 150.8 170.5 634.2 739.0 Checkpoint 189.3 192.8 635.5 724.1 Innovia 150.3 127.5 615.0 557.3	Return on Sales Three Months Ended December 31 Twelve Months Ended December 31 Sales 2020 2019 2020 2019 CCL $ 860.2 $ 787.1 $ 3,357.6 $ 3,300.9 Avery 150.8 170.5 634.2 739.0 Checkpoint 189.3 192.8 635.5 724.1 Innovia 150.3 127.5 615.0 557.3
Total sales $ 1,350.6 $ 1,277.9 $ 5,242.3	$5,321.3
Operating income CCL $ 136.4 $ 108.1 $ 552.8 Avery 27.0 34.9 113.3 Checkpoint 32.2 25.0 80.3 Innovia 17.7 5.9 77.1	$ 494.3 156.5 96.4 40.1
Total operating income $ 213.3 $ 173.9 $ 823.5	$ 787.3
Return on sales CCL 15.9% 13.7% 16.5% Avery 17.9% 20.5% 17.9% Checkpoint 17.0% 13.0% 12.6% Innovia 11.8% 4.6% **12.5% **	15.0% 21.2% 13.3% 7.2%
Total return on sales 15.8% 13.6% 15.7%	14.8%

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• Return on total capital before goodwill impairment loss, non cash acquisition accounting adjustments, restructuring and other items and tax adjustments (“ROTC”) – A measure of the returns the Company is achieving on capital employed. ROTC is calculated by dividing annual net income before goodwill impairment loss, restructuring and other items, non-cash acquisition accounting adjustments, and tax adjustments by the average of the beginning- and the endof-year equity and net debt.

The following table reconciles net earnings used in calculating the ROTC measure to IFRS measures reported in the annual consolidated statements of financial position and in the annual consolidated income statements for the periods ended as indicated.

		Twelve	months ended	months ended
		December 31
Return on total capital		2020		2019
Net earnings	$	529.7	$	477.1
Restructuring and other items (net oftax)		20.8		19.8
Adjusted net earnings	$	550.5	$	496.9
Average totalcapital	$	4,643.5	$	4,594.8
Return on total capital		11.9%		10.8%

Total Debt – A measure indicating the financial indebtedness of the Company. It is defined as current debt, including bank advances, plus long-term debt.

B) Accounting Policies and New Standards

Accounting Policies

The above analysis and discussion of the Company’s financial condition and results of operation are based on its consolidated financial statements prepared in accordance with IFRS.

A summary of the Company’s significant accounting policies is set out in note 3 of the consolidated financial statements.

C) Critical Accounting Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of sales and expenses during the year and the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. In particular, estimates are used when determining the amounts recorded for depreciation and amortization of property, plant and equipment and intangible assets, outstanding self-insurance claims, pension and other post-employment benefits, income and other taxes, provisions, certain fair value measures including those related to the

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valuation of business combinations, share-based payments and financial instruments and also for the valuation of goodwill and intangible assets.

- Goodwill and Indefinite Life Intangibles

Goodwill represents the excess of the purchase price of the Company’s interest in the businesses acquired over the fair value of the underlying net identifiable tangible and intangible assets arising on acquisitions. Goodwill and indefinite-life intangibles are not amortized but are required to be tested for impairment at least annually or if events or changes in circumstances indicate that the carrying amount may not be recoverable.

During the 2020 fourth quarter, the Company completed its impairment test as at September 30, 2020. Impairment testing for the cash-generating units (“CGU”), CCL, Avery, Checkpoint, and Innovia Segments, was done by a comparison of the unit’s carrying amount to its estimated value in use, determined by discounting future cash flows from the continuing use of the unit. Key assumptions used in the determination of the value in use include long-term growth rates of 2% to 5% and pre-tax discount rates ranging from 7% to 9%. Discount rates reflect current market assumptions and risks related to the segments and are based upon the weighted average cost of capital for the segment. The Company’s historical growth rates are used as a basis in determining the growth rate applied for impairment testing. Significant management judgment is required in preparing the forecasts of future operating results that are used in the discounted cash flow method of valuation. In 2020 and 2019, it was determined that the carrying amount of goodwill and indefinite-life intangibles was not impaired. Since the process of determining fair values requires management judgment regarding projected results and market multiples, a change in these assumptions could impact the fair value of the reporting units, resulting in an impairment charge.

- Long Lived Assets

Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Performance of this evaluation involves management estimates of the associated business plans, economic projections and anticipated cash flows. Specifically, management considers forecasted operating cash flows, which are subject to change due to economic conditions, technological changes or changes in operating performance. An impairment loss would be recognized if the carrying amount of the asset held for use exceeded the discounted cash flow or fair value. Changes in these estimates in the future may result in an impairment charge.

Employee Benefits

The Company accrues its obligation under employee benefit plans and related costs net of plan assets. Pension costs are determined periodically by independent actuaries. The actuarial determination of the accrued benefit obligations for the plans uses the projected unit credit method and incorporates management’s best

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estimate of future salary escalation, retirement age, inflation and other actuarial factors. The cost is then charged as services are rendered. Since these assumptions, which are disclosed in note 20 of the 2020 annual consolidated financial statements, involve forward-looking estimates and are long-term in nature, they are subject to uncertainty. Actual results may differ, and the differences may be material.

D) Related Party Transactions

A summary of the Company’s related party transactions is set out in note 27 of the 2020 annual consolidated financial statements.

6. OUTLOOK

2020 was a turbulent year, with strong pandemic-related civil restrictions imposed by various regimes in the first quarter of the year through early second quarter, subsequent “reopening” mid-year, followed by renewed limitations in the fourth quarter creating unprecedented operating challenges. Safety was paramount and the Company met the challenge for its employees, customers and suppliers and remained open for business. Each operation right-sized its cost structure to match customer activity. The Company maintained its growth strategy adding six new facilities through acquisitions and investing $282.8 million in capital expenditures. All in for 2020, the Company posted record adjusted earnings per share of $3.08 per Class B share compared to $2.79 per Class B share for 2019, record free cash flow from operations and a strengthened balance sheet.

2021 started with cautious optimism as the worldwide rollout of CV19 vaccinations commenced, the U.S. election process concluded, Brexit finally reached a negotiated conclusion and emerging market growth appears to have returned. The long-term impact of the pandemic on the global economy remains unknown. Commodity and currency markets are likely to remain volatile and passing on foreign exchange movement and input cost changes to the Company’s customer base will be important.

The CCL Segment reported a solid year in 2020 compared to 2019, with organic growth and strong profitability improvement despite the pandemic. CCL Label and CCL Design remain committed to pursuing new product initiatives, with capacity expansion plans in new and existing markets for its core customers where the opportunity meets long-term profitability objectives. CCL Secure will continue to develop market-leading security technology to pursue long-term widespread adoption of polymer banknotes across the world’s Central Banks.

Although Avery’s sales and profitability dropped due to significant negative pandemic-related effects on its customers in the name and event badging product lines, it retains the highest return on capital of the Company’s four segments for 2020. The Avery.com, WePrint and kids’ label businesses should continue to backstop the direct-to-consumer platform. However, returns for the name and event badging businesses will not reach pre-pandemic levels until meetings,

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conventions, concerts and sporting events return to normal activity. With the CV19 vaccine rollout underway in North America, a more normalized back-to-school season is expected in 2021.

Checkpoint results temporarily stalled on the retail and apparel industry shutdowns during the first six months of 2020. Unlike the Avery Segment, profitability for Checkpoint bounced back strongly in the second half of the year aided by cost savings, high ALS label, tag and RFID demand and favorable mix in MAS product lines. For 2021, ALS product lines should benefit from cost savings and growth in RFID, while MAS hardware installations, which were stymied in 2020, could return as vaccinations will allow consumers back to in-store shopping and increasing the need for EAS products.

2020 financial results for Innovia improved very significantly on dramatic productivity gains, lower input costs in the first half and results ahead of expectations for the newly acquired operations in Poland. Significant polypropylene resin cost increases emerged in North America in the second half, and to a lesser extent in Europe, and will test contractual pass-through pricing mechanisms in 2021. The proprietary new “Ecofloat” shrink film line in Europe will not come on line until early 2022, with most of the capital deployed in 2021.

The Company concluded the year with cash on hand of $703.7 million and unused availability on the revolving credit facility at approximately US$1.2 billion. The Company’s liquidity position is robust, with a net debt leverage ratio of 1.24 times adjusted EBITDA at the end of the current year, 0.37 turns lower than 2019. As always, the Company remains focused on vigilantly managing working capital and prioritizing capital to higher-growth organic opportunities or unique acquisitions expected to enhance shareholder value. The Company expects capital expenditures for 2021 to be approximately $330.0 million, supporting organic growth and new greenfield opportunities globally. First-quarter orders have been solid so far, but pandemic uncertainties remain. Comparisons to 2020 have low hurdles for the first two quarters of 2021, but where the world will be in the second half of the year remains uncertain. Should demand hold up at second half of 2020 levels, the Company would be set to make good progress in the year ahead.

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