Avery Dennison Investor Meeting
March 6, 2007




            Forward-Looking Statements
            Certain information d...
Avery Dennison Investor Meeting
March 6, 2007




             Our Foundation…
             a balanced strategy for sustai...
Avery Dennison Investor Meeting
March 6, 2007



             What’s so different about AVY?

                    • Attrac...
Avery Dennison Investor Meeting
March 6, 2007



             What’s so different about AVY?

               • Attractive ...
Avery Dennison Investor Meeting
March 6, 2007



             Full Year 2006 Highlights

               • Modest growth in...
Avery Dennison Investor Meeting
March 6, 2007



             Overview of Today’s Portfolio

                             ...
Avery Dennison Investor Meeting
March 6, 2007


               International operations growing faster-than-
             ...
Avery Dennison Investor Meeting
March 6, 2007



             Horizons delivering on its promise

               • Project...
Avery Dennison Investor Meeting
March 6, 2007



             Pressure-sensitive Materials




                      Adj. ...
Avery Dennison Investor Meeting
March 6, 2007


             Roll Materials: broadest reach in the industry…
             ...
Avery Dennison Investor Meeting
March 6, 2007



             We’ve placed major assets in these regions




             ...
Avery Dennison Investor Meeting
March 6, 2007


             New films coater brings much-needed capacity
             for...
Avery Dennison Investor Meeting
March 6, 2007


             Our film extrusion capabilities bring added value
           ...
Avery Dennison Investor Meeting
March 6, 2007



             Office and Consumer Products




                      Adj. ...
Avery Dennison Investor Meeting
March 6, 2007



             Strategy to grow/differentiate Printable Media

            ...
Avery Dennison Investor Meeting
March 6, 2007



             Product Improvements




            Integrated Marketing


...
Avery Dennison Investor Meeting
March 6, 2007



             Integrated Marketing




             The early results are ...
Avery Dennison Investor Meeting
March 6, 2007



             Retail Information Services




                      Adj. O...
Avery Dennison Investor Meeting
March 6, 2007


             We are pursuing five key strategies to capture
             s...
Avery Dennison Investor Meeting
March 6, 2007


             Centralization and standardization, supported by IT
         ...
Avery Dennison Investor Meeting
March 6, 2007



             Other Specialty Converting Businesses




                  ...
Avery Dennison Investor Meeting
March 6, 2007




                 The RFID tag market continues to expand

              ...
Avery Dennison Investor Meeting
March 6, 2007


             The character of the market has evolved over the
            ...
Avery Dennison Investor Meeting
March 6, 2007


              Sources of competitive advantage:
              product rang...
Avery Dennison Investor Meeting
March 6, 2007


             Sources of competitive advantage:
             intellectual p...
Avery Dennison Investor Meeting
March 6, 2007


             Sources of competitive advantage:
             superior chann...
Avery Dennison Investor Meeting
March 6, 2007




             Margin expansion is key near-term priority

               ...
Avery Dennison Investor Meeting
March 6, 2007



             Enterprise Lean Sigma (ELS)… an evolution


                ...
Avery Dennison Investor Meeting
March 6, 2007


                  Office Products North America has already
              ...
Avery Dennison Investor Meeting
March 6, 2007




             Revenue growth target of 4-6% is achievable
             ov...
Avery Dennison Investor Meeting
March 6, 2007


              We have faced some top-line headwinds over the
             ...
Avery Dennison Investor Meeting
March 6, 2007


             But we have built a strong pipeline of growth
             op...
Avery Dennison Investor Meeting
March 6, 2007



             Good margin progress in ’06, with some offsets…

           ...
Avery Dennison Investor Meeting
March 6, 2007



             Return on Total Capital has also improved

                 ...
Avery Dennison Investor Meeting
March 6, 2007


              Capital model provides significant flexibility for
         ...
Avery Dennison Investor Meeting
March 6, 2007



                                Expect continued modest increase to divid...
Avery Dennison Investor Meeting
March 6, 2007




                         APPENDIX
                Reconciliation of Non-...
Avery Dennison Investor Meeting
March 6, 2007




                                  Total Company Adjusted Organic Sales G...
Avery Dennison Investor Meeting
March 6, 2007




                                             Organic Sales Growth by Seg...
Avery Dennison Investor Meeting
March 6, 2007




                                               Total Company Operating M...
Avery Dennison Investor Meeting
March 6, 2007



                                              OPERATING MARGIN BY SEGMENT...
Avery Dennison Investor Meeting
March 6, 2007



                               Historical Earnings Per Share, GAAP vs. Pr...
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Transcript of "2007InvestorMeetingHandout"

  1. 1. Avery Dennison Investor Meeting March 6, 2007 Forward-Looking Statements Certain information discussed during this presentation may constitute “forward-looking” statements. These statements and financial or other business targets are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or expected results depending on a variety of factors, including but not limited to fluctuations in cost and availability of raw materials; ability of the Company to achieve and sustain targeted cost reductions; foreign currency exchange rates; worldwide and local economic conditions; impact of competitive products and pricing; selling prices; impact of legal proceedings, including the Canadian Department of Justice and the Australian Competition and Consumer Commission investigations into industry competitive practices, and any related proceedings or lawsuits pertaining to these investigations or to the subject matter thereof or of the recently concluded investigations by the U.S. Department of Justice (“DOJ”) and the European Commission (including purported class actions seeking treble damages for alleged unlawful competitive practices, and a purported class action related to alleged disclosure and fiduciary duty violations pertaining to alleged unlawful competitive practices, which were filed after the announcement of the DOJ investigation), as well as the impact of potential violations of the U.S. Foreign Corrupt Practices Act based on issues in China; impact of epidemiological events on the economy and the Company’s customers and suppliers; successful integration of acquisitions; financial condition and inventory strategies of customers; timely development and market acceptance of new products; fluctuations in demand affecting sales to customers; and other matters referred to in the Company’s SEC filings. The Company believes that the most significant risk factors that could affect its ability to achieve its stated financial expectations in the near-term include (1) the impact of economic conditions on underlying demand for the Company’s products; (2) the impact of competitors’ actions, including expansion in key markets, product offerings and pricing; (3) the degree to which higher raw material and energy-related costs can be passed on to customers through selling price increases (and previously implemented selling price increases can be sustained), without a significant loss of volume; (4) potential adverse developments in legal proceedings and/or investigations regarding competitive activities, including possible fines, penalties, judgments or settlements; and (5) the ability of the Company to achieve and sustain targeted cost reductions. Use of Non-GAAP Financial Measures This presentation contains certain non-GAAP measures as defined by SEC rules. As required by these rules, we have provided a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, included in the Appendix section of this presentation. Use of Brands and Product Images Avery, Avery Dennison, Fasson, InfoChain Express®, and Real-World™ RFID are trademarks or service marks of Avery Dennison Corporation. All other brands and product names are trademarks of their respective companies. Use of these images is intended to demonstrate applications for Avery Dennison products and services. This display does not indicate affiliation, sponsorship, approval or endorsement by the manufacturers of the products and the owners of non-Avery Dennison trademarks. 1
  2. 2. Avery Dennison Investor Meeting March 6, 2007 Our Foundation… a balanced strategy for sustained value creation • We have invested for top line growth and productivity improvement – Acquisitions – Portfolio rationalization (divestitures; strategic product pruning) – Significant restructuring program • Two major growth platforms continue to draw large share of investment today – Emerging markets – RFID • Core businesses generating solid free cash flow to support sustained value creation ahead 2
  3. 3. Avery Dennison Investor Meeting March 6, 2007 What’s so different about AVY? • Attractive markets with solid growth drivers • Strong customer value proposition… product innovation, combined with superior service and quality • Strategic advantage in all key markets What’s so different about AVY? Operating Margin* AVY Segments vs. Peers Pressure-Sensitive Materials Office & Consumer Products AVY PSM BMS PS Sector UPM Converting AVY OCP ABD Office Products 10.0% 20.0% 8.0% 16.0% 6.0% 12.0% 8.0% 4.0% 4.0% 2.0% 0.0% 0.0% 2004 2005 2006 2003 2004 2005 2006 * Excluding restructuring charges 3
  4. 4. Avery Dennison Investor Meeting March 6, 2007 What’s so different about AVY? • Attractive markets with solid growth drivers • Strong customer value proposition… product innovation, combined with superior service and quality • Strategic advantage in all key markets • Clear vision, values, and operating principles What’s so different about AVY? • Attractive markets with solid growth drivers • Strong customer value proposition… product innovation, combined with superior service and quality • Strategic advantage in all key markets • Clear vision, values, and operating principles above-average earnings growth / ROI / FCF potential Superior Shareholder Return 4
  5. 5. Avery Dennison Investor Meeting March 6, 2007 Full Year 2006 Highlights • Modest growth in sales on adjusted organic basis (3%) • Gross profit and EBIT margin (before restructuring charges) up 40 basis points • U.S. DOJ and European Union investigations closed with no action • Board raised authorization for share repurchase to 7.4 mil. shares in late October Overview of Today’s Portfolio 2006 Net Sales = $5.6 billion Other Specialty Converting Retail Information Services Pressure- sensitive Materials Office and Consumer Products 5
  6. 6. Avery Dennison Investor Meeting March 6, 2007 Overview of Today’s Portfolio Long-Term Operating 3-5 Yr Sales Margin Target Growth Drivers Growth Target* Pressure- • Emerging markets 5-7% 10-12% sensitive • Increased penetration of PS Materials label technology for product ID (food & beverage) • Share gain in durables • RFID adoption driving carton labeling penetration Office & • Increased penetration of ~ flat 18-20% Consumer printable media products (with improved Products product mix) • New category innovation; existing product upgrades Retail Info • Global consolidation 6-8% 10-12% Services • New products and services • Emerging markets Other Specialty 10%+ > 10% Converting • New products, niche applications * Excluding acquisitions and divestitures Our approach to acquisitions is highly disciplined • Strategy before deal-making (prioritized areas of interest) • Create economic value under conservative assumptions • Rigorous integration process – Proven methods – Tracking of post-acquisition progress vs. targets 6
  7. 7. Avery Dennison Investor Meeting March 6, 2007 International operations growing faster-than- average… and profitability is expanding 2006 Revenue Operating Margin**, by Region International Operations (before intergeographic eliminations) 11.0% Latin Other* America 10.0% Asia 9.0% U.S. 8.0% Eastern 7.0% Europe 6.0% 5.0% Western 2003 2004 2005 2006 Europe * “Other” includes Canada, Australia, and South Africa ** Excluding restructuring charges Emerging markets represent consistent source of profitable growth Emerging Markets Share of Total Sales 2001 2006 2011 Contribution to Overall 2.7 pts. 2.9 pts. 3.9 pts. Growth: Emerging Markets Local Management Leveraging Global Capabilities 7
  8. 8. Avery Dennison Investor Meeting March 6, 2007 Horizons delivering on its promise • Projects from H2 pipeline expected to represent over $300 mil. in sales in 2007 – $60 mil. of incremental sales in 2006 – Over $80 mil. incremental planned for 2007 – Few blockbusters... look for steady stream of new products, new applications • Shifting focus of R&D – Sharper prioritization – “More ships, fewer castles” Key Growth Priorities By Business • Grow materials businesses through expansion in emerging markets, increased service leadership, and innovation in new applications • Invest in new marketing programs to accelerate growth of Avery-brand printable media products • Accelerate growth of RIS business with new products and continued geographic expansion • Expand new RFID business through share gain of expanding carton label market and innovation in new applications for selected markets 8
  9. 9. Avery Dennison Investor Meeting March 6, 2007 Pressure-sensitive Materials Adj. Organic Sales Growth(1) Operating Margin(2) 2006 2005 2004 2006 2005 2006 Sales 2004 $3.2 B + 3.6% + 3.1% + 9.6% 9.6% 9.0% 8.6% (1) Excluding currency, acquisitions, and divestitures – see Appendix for detail (2) Excluding restructuring charges and other items – see Appendix for detail Advantages, Opportunities and Challenges Market leader Global scale advantages… technology development, raw material sourcing, global customers Regional scale advantages… superior service (Exact, Next Day Delivery, Fasson Optimum Performance), lower cost asset configuration and utilization Opportunities Challenges Emerging markets Slower domestic market growth Beverage market conversion Optimizing volume / price / mix Durables share gain equation in more competitive RFID adoption driving carton market labeling penetration 9
  10. 10. Avery Dennison Investor Meeting March 6, 2007 Roll Materials: broadest reach in the industry… high relative market share on a regional basis • 64 distribution centers • Organized around trade zones in 32 countries • 27 stand-alone sales offices • 25 manufacturing facilities Headquarters Distribution Centers Manufacturing Facilities 1–1.5 X larger 2–4 X larger > 4 X larger than #2 than #2 than #2 competitor competitor competitor Emerging markets are #1 growth driver for PSM PS Consumption/Capita relative to GDP/Capita 14.0 United Kingdom Netherlands 12.0 New Zealand PS/Capita (m2) Australia United States 10.0 Germany/France/Sweden Spain Japan/Finland/Italy Taiwan 8.0 Singapore 6.0 Czech Republic Canada Malaysia/South Africa/ South Korea Poland/Chile 4.0 Hungary Indonesia/ Greece Vietnam/ Phillipines Turkey/ 2.0 Argentina Venezula Thailand/Russia/Brazil/Mexico India China/Columbia 0.0 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 GDP/Capita Sources: 1) GDP / Capita – CIA – The World Factbook 2) Population – Population Reference Bureau 3) Market Size Estimates - RMWW 10
  11. 11. Avery Dennison Investor Meeting March 6, 2007 We’ve placed major assets in these regions Brazil China India Malaysia Korea Penetration of beer and other new segments will drive growth in more mature markets Targeting > $50 mil. in sales in ‘07 from this segment, representing over 20% growth vs. ‘06 11
  12. 12. Avery Dennison Investor Meeting March 6, 2007 New films coater brings much-needed capacity for clear-on-clear… with new capabilities • Global asset • Enhanced productivity for clear-on-clear applications • Capabilities to drive penetration of new segments Creates opportunity to drive increased productivity across entire system Technology breakthroughs drive PS penetration 12
  13. 13. Avery Dennison Investor Meeting March 6, 2007 Our film extrusion capabilities bring added value to this market Low share position in durable goods applications creates another major growth opportunity Targeting ~ $100 mil. in sales in ‘07 from this segment, representing over 15% growth vs. ‘06 13
  14. 14. Avery Dennison Investor Meeting March 6, 2007 Office and Consumer Products Adj. Organic Sales Growth(1) Operating Margin(2) 2006 2005 2004 2006 2005 2006 Sales 2004 $1.1 B - 0.4% - 0.6% - 5.1% 16.5% 16.7% 15.9% (1) Excluding currency, acquisitions, and divestitures – see Appendix for detail (2) Excluding restructuring charges and other items – see Appendix for detail Advantages, Opportunities and Challenges Branded Printable Media – innovator of highly differentiated, proprietary products Manage for Growth Filing and Other – low cost provider Manage for Margin Opportunities Challenges New sources of growth for Key growth drivers have Branded Media slowed (decline of traditional mail) Expansion of under-penetrated categories Customer concentration Cost reduction for Filing Private label growth eroding business share 14
  15. 15. Avery Dennison Investor Meeting March 6, 2007 Strategy to grow/differentiate Printable Media • Deliver an exceptional consumer experience – Upgrade print enablement and web support – Improve existing product with differentiated features • Increase investment in more proven integrated marketing initiatives • Develop new categories Print Enablement / Web Support Avery Wizard 3.0 – Simplifies mail merge – Supports Easy Peel layouts with vertical merge – 1 million downloads since launch 15
  16. 16. Avery Dennison Investor Meeting March 6, 2007 Product Improvements Integrated Marketing In-Store On-Pack Promotional Drivers generated over 700 MM Impressions Direct to Broadreach Consumer Media 16
  17. 17. Avery Dennison Investor Meeting March 6, 2007 Integrated Marketing The early results are promising Easy Peel Clear -- Retail POS $ (12 month moving average sales) Sept ’05 to Dec ’06 high single-digit growth in Retail POS for this product 9/4/05 2/2/06 6/5/06 11/3/06 12/1/05 4/3/06 9/2/06 17
  18. 18. Avery Dennison Investor Meeting March 6, 2007 Retail Information Services Adj. Organic Sales Growth(1) Operating Margin(2) 2006 2005 2004 2006 2005 2006 Sales 2004 $0.7 B + 4.8% + 3.1% + 9.8% 8.4% 7.2% 7.4% (1) Excluding currency, acquisitions, and divestitures – see Appendix for detail (2) Excluding restructuring charges and other items – see Appendix for detail Advantages, Opportunities and Challenges One of two global providers Complex supply chain, multi- tiered customer base Labels and tags low cost/high value to retail/apparel companies Customers demand: • Global quality, data integrity, color consistency • Fast, reliable sampling and order fulfillment Opportunities Challenges Industry consolidation driving Increased vendor power share gain Achieving scale in Latin Rapid growth in Asia (China, America and Europe India, other countries in region) Share gain in interior labeling 18
  19. 19. Avery Dennison Investor Meeting March 6, 2007 We are pursuing five key strategies to capture share and gain scale in this profitable market • Speed of service and global consistency • Value-added sales organization to reach multi-tiered customer base • Geographic reach • New products and services • Acquisitions Improving speed & global consistency is a top priority Three Years Ago Today TARGET Time from 52 weeks 17-26 weeks* 8 weeks apparel concept to merchandise on floor Quote for Tag 3-5 days 1 – 2.5 days** 1 DAY Design Art Proofs / 5-15 days 2 – 12 days** 3 DAYS Samples * Varies by seasonal items ** Varies by product line and region Source – just style.com and Avery Dennison Customers 19
  20. 20. Avery Dennison Investor Meeting March 6, 2007 Centralization and standardization, supported by IT infrastructure, are key to quality & service GPD EU GPD US GPD Amer GPD HK GPD HK 3 Global Development Hubs -Pricing (GQM) -Development Tracking (PaRTS) -Production Art/Proofing (PaRTS) -Formats (GOCA) -Item Specs (GOCA) New products and services are contributing significantly to growth of the segment Heat Transfer Brand Protection Item-Level RFID (e.g., anti-counterfeiting) 20
  21. 21. Avery Dennison Investor Meeting March 6, 2007 Other Specialty Converting Businesses Adj. Organic Sales Growth(1) Operating Margin(2) 2006 2005 2004 2006 2005 2006 Sales 2004 $0.6 B + 2.3% + 4.9% + 8.2% 3.5% 3.4% 7.0% (1) Excluding currency, acquisitions, and divestitures – see Appendix for detail (2) Excluding restructuring charges and other items – see Appendix for detail Specialty… leveraging material science expertise to address unmet needs in new applications • Elastic side panel for diapers • Sound and vibration dampening tapes • Low surface energy applications 21
  22. 22. Avery Dennison Investor Meeting March 6, 2007 The RFID tag market continues to expand RFID Market Unit Volume Compound Annual Growth: 2006-2012 Even conservative 120 estimates define 100 huge market by 2012 80 Percent Estimates of RFID Unit 60 Volume By 2012 40 40 B Vandergraf Int’l 30 B ABI 20 8B VDC 0 ma G l s ve e tai nt ion nic r CP ar he ar oti me Re hC tat tro Ph Ot tom rn or ec alt ve sp Au El He Go an Tr 22
  23. 23. Avery Dennison Investor Meeting March 6, 2007 The character of the market has evolved over the past 12 to 18 months… Case and pallet tagging has moved steadily forward The character of the market has evolved over the past 12 to 18 months… Other ROI-driven applications are becoming commercially important Expanded interest / pilots in item-level tagging 23
  24. 24. Avery Dennison Investor Meeting March 6, 2007 Sources of competitive advantage: product range; speed and flexibility in development AD-220/AD-221 AD-420/AD-421 AD-612 AD-622 AD-812/AD-811 AD-820/AD-821 Sources of competitive advantage: manufacturing capability 24
  25. 25. Avery Dennison Investor Meeting March 6, 2007 Sources of competitive advantage: intellectual property High speed strap attach In-line testing Sources of competitive advantage: applications knowledge and testing 25
  26. 26. Avery Dennison Investor Meeting March 6, 2007 Sources of competitive advantage: superior channel access Qualified Converters in North America: Brady Corp Carolina Graphic Press & AmeriColor CCL Label Challenge Printing George Schmitt & Co. Global Venture HEI Intermec Technologies # of Qualified Kennedy Group Lowry Computer Products Converters Marnlen Management Metalcraft Mid South Graphics NA: 32 Mini Graphics Moore Wallace MPI Label System Europe: 9 Nashua National Label NCR Asia: 3 Nosco Printing Group Paxar Americas PLITEK R&V Group Repacorp Label Products RSI ID Technologies Sato America Starport (Package Service) Topflight Corporation Vanguard ID Weber Marking System WS Packaging Group Zebra Technologies Our sales growth trajectory has changed (off of a small base) RFID Units Sold Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb 26
  27. 27. Avery Dennison Investor Meeting March 6, 2007 Margin expansion is key near-term priority • Maintain our pricing rigor • $90 to $100 million of annual savings from restructuring actions completed in 2006 • RFID still costing ~ $25 to $30 mil. pre-tax; losses will decline as revenue ramps up • Enterprise Lean Sigma to drive continuous improvement 27
  28. 28. Avery Dennison Investor Meeting March 6, 2007 Enterprise Lean Sigma (ELS)… an evolution ELS • Individual excellence • Team excellence • Cost out focus • Quality, Cost, Speed, Safety • Led by few • Led by top leadership • Belted community only • Everyone part of ELS • Manufacturing focused (especially value add • Aligned to savings employees) targets • Value Stream focused • Aligned to business priorities Office Products North America has already delivered… more to come across the Company Supply Chain Headcount Direct Labor Costs down 40% down 49% '02 '03 '04 '05 '06 '07e '01 '02 '03 '04 '05 '06 '07e Reduction in supply chain costs 28
  29. 29. Avery Dennison Investor Meeting March 6, 2007 Office Products North America has already delivered… more to come across the Company Defects Per Million Recordable Injury Rate Service – Line Fill Rate down 70% down 68% up 2.4 points to 98% '01 '02 '03 '04 '05 '06 '01 '02 '03 '04 '05 '06 '03 '04 '05 '06 '07e Improved service, quality, and safety record Office Products North America has already delivered… more to come across the Company Plant/DC Square Footage Fixed Assets ROTC down 25% down 30% up over 15 points '01 '02 '03 '04 '05 '06 '07e '01 '02 '03 '04 '05 '06 '07e '01 '02 '03 '04 '05 '06 '07e '08e Improved capital efficiency and ROTC 29
  30. 30. Avery Dennison Investor Meeting March 6, 2007 Revenue growth target of 4-6% is achievable over the medium to long-term Adjusted Organic Sales Growth* 5.9% Target = 4.9% 4% to 6% 2.8% 2.5% 2.5% 2002 2003 2004 2005 2006 Target * Excluding currency, acquisitions, divestitures, and other issues of comparability (extra week in 2004, exited business, etc.) – see Appendix for detail 30
  31. 31. Avery Dennison Investor Meeting March 6, 2007 We have faced some top-line headwinds over the past two years… Sources of Change in Reported Sales 2006 vs. 2004 $5,576M $5,317M 2004-2006 organic sales growth = 5.3% (compound) before “headwinds” 2004 Emerging Price / Mix Horizon Two Currency Acquisitions Divestitures / 53rd Week in Roll NA Share Slowdown in Other 2006 Markets Exited Business 2004 Loss U.S. Markets … and we remain cautious about 2007 sales Sources of Change in Reported Sales 2007 vs. 2006 Target = 2% - 5% reported growth $5,576M 2006 Emerging Markets Horizon Two Currency Mature Market Roll NA Share Divestitures / 2006 Pre-Buy Other 2007 Growth Gain Exited Business (before H2) 31
  32. 32. Avery Dennison Investor Meeting March 6, 2007 But we have built a strong pipeline of growth opportunities for the medium to long-term Organic Sources of Change in Sales 2009 vs. Today Target = 4% - 6% organic growth $5,576M 2006 Emerging Markets Horizon Two Mature Market Growth Exited Business 2009 (before H2) / Roll NA Share Gain Meanwhile, operating margins have improved Pro-forma Operating Margin* (% of sales) 12.0 Margin impact of 11.0 options/RSU Margin expense impact of Target = RFID 10.0 9.5% to 10.5% 9.0 8.0 7.0 6.0 2003 2004 2005 2006 2007 Guidance * Excluding restructuring charges – see Appendix for detail 32
  33. 33. Avery Dennison Investor Meeting March 6, 2007 Good margin progress in ’06, with some offsets… Sources of Change in Operating Margin 2006 vs. Prior Year 9.3% 8.9% 2005 Restructuring (Net of Productivity (Net of Stock Option/RSU and IT / Marketing Other 2006 Transition Costs) Inflation) Pension Expense … and we target substantial margin expansion over the medium-term Sources of Change in Operating Margin, Ex-RFID 2008 vs. Today 11.0% 9.8% 2006 Volume and Restructuring Elim. of LIFO / IT Investments Segment Mix Other 2008 Productivity (Net of Other Inflation) 33
  34. 34. Avery Dennison Investor Meeting March 6, 2007 Return on Total Capital has also improved Pro-forma Return on Total Capital* > 16.5% 15.9% 14.3% 13.1% 12.4% 2003 2004 2005 2006 2007 Guidance * Excluding restructuring charges – see Appendix for detail 2007 Earnings Guidance Pro-forma Earnings Per Share, Fully Diluted* 4 year CAGR ~ 12% $4.00 - $4.35 $3.77 $3.44 $3.04 $2.70 2003 2004 2005 2006 2007 Guidance Target: double-digit EPS growth post ‘07 * Excludes restructuring charges, gains on sale of assets, and other items – see Appendix for detail. 34
  35. 35. Avery Dennison Investor Meeting March 6, 2007 Capital model provides significant flexibility for funding requirements 2007 Capital Allocation CAPEX/Software ~ $210-$225 mil. Cash Flow from Operations Acquisitions ~ $550 mil. + Available + Cash > $1 bil. Dividends ~ $165 mil. Debt Capacity $500+ mil. Share Repurchase Over $600 mil. in “unallocated” cash Capital spending… continued shift towards emerging markets Fixed Capital Spending & Overall Capital Efficiency 2.3 $206 mil. $162 mil. $160 - $165 mil. $162 mil. $201 mil. 2.1 Capital $150 mil. Turnover (Ratio of Sales to Average Invested 2.0 Capital) 1.8 2002 2003 2004 2005 2006 2007e Emerging Markets 35
  36. 36. Avery Dennison Investor Meeting March 6, 2007 Expect continued modest increase to dividend $1.80 31 consecutive years of dividend increase $1.60 $1.40 Dividends per share $1.20 5 year average dividend yield ~ 2.5%... vs. 1.6% for $1.00 dividend-paying industrial companies in S&P 500 $0.80 $0.60 $0.40 $0.20 $0.00 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 Key Takeaways • Acceleration of top line growth achievable over the medium-term • Major sources of productivity improvement still ahead • Significant free cash flow potential, to fund acquisitions and/or share repurchase, as appropriate 36
  37. 37. Avery Dennison Investor Meeting March 6, 2007 APPENDIX Reconciliation of Non-GAAP Financial Measures to GAAP 37
  38. 38. Avery Dennison Investor Meeting March 6, 2007 Total Company Adjusted Organic Sales Growth 2002 2003 2004 2005* 2006* Reported Sales Growth 10.6% 14.6% 12.1% 2.9% 1.9% Less Impact of Currency 0.6% 6.1% 4.7% 1.4% 0.3% Less Impact of Acquisitions, Net of Divestitures 5.1% 6.0% 0.1% 0.3% (1.0%) Organic Sales Growth 4.9% 2.5% 7.4% 1.2% 2.6% Comparability Adjustments (1.4%) 1.3% 0.3% Adjusted Organic Sales Growth 4.9% 2.5% 5.9% 2.5% 2.8% * From continuing operations Note: Columns may not foot due to minor rounding differences Organic Sales Growth by Segment: 2004 Pressure Office and Retail Other Specialty Sensitive Consumer Information Converting Materials Products Services Businesses 2003 GAAP Sales $2,572.6 $1,168.1 $552.7 $469.2 Impact of 2004 Currency Changes $145.6 $35.1 $12.3 $14.5 2003 Adjusted Non-GAAP Sales $2,718.1 $1,203.2 $565.1 $483.7 2004 GAAP Sales $3,008.5 $1,172.5 $636.1 $523.8 Est. Impact of Acq.& Divestitures $0.0 $0.0 $10.1 ($5.3) Other Comparability Adjustments $28.3 $30.5 $5.8 $5.8 2004 Adjusted Non-GAAP Sales $2,980.2 $1,142.0 $620.2 $523.3 GAAP Sales Growth 16.9% 0.4% 15.1% 11.6% Adj. Organic Sales Growth 9.6% -5.1% 9.8% 8.2% 38
  39. 39. Avery Dennison Investor Meeting March 6, 2007 Organic Sales Growth by Segment: 2005 Pressure Office and Retail Other Specialty Sensitive Consumer Information Converting Materials Products Services Businesses 2004 GAAP Sales $2,984.5 $1,172.5 $636.1 $523.8 Impact of 2005 Currency Changes $57.8 $7.7 $6.7 $4.4 2004 Adjusted Non-GAAP Sales $3,042.3 $1,180.2 $642.8 $528.2 2005 GAAP Sales $3,114.5 $1,136.1 $674.8 $548.1 Est. Impact of Acq.& Divestitures $0.0 $0.0 $17.8 $0.0 Other Comparability Adjustments ($22.8) ($37.1) ($5.8) ($5.8) 2005 Adjusted Non-GAAP Sales $3,137.3 $1,173.2 $662.8 $553.9 GAAP Sales Growth 4.4% -3.1% 6.1% 4.6% Adj. Organic Sales Growth 3.1% -0.6% 3.1% 4.9% Organic Sales Growth by Segment: 2006 Pressure Office and Retail Other Specialty Sensitive Consumer Information Converting Materials Products Services Businesses 2005 GAAP Sales* $3,114.5 $1,136.1 $630.4 $592.5 Impact of 2006 Currency Changes $15.4 $1.2 $3.4 $0.6 2005 Adjusted Non-GAAP Sales $3,129.9 $1,137.3 $633.8 $593.1 2006 GAAP Sales $3,236.3 $1,072.0 $667.7 $599.9 Est. Impact of Acq.& Divestitures $0.0 ($51.0) $3.2 ($6.6) Other Comparability Adjustments ($5.0) ($10.2) $0.0 $0.0 2006 Adjusted Non-GAAP Sales $3,241.3 $1,133.2 $664.5 $606.5 GAAP Sales Growth 3.9% -5.6% 5.9% 1.2% Adj. Organic Sales Growth 3.6% -0.4% 4.8% 2.3% * 2005 GAAP sales have been re-stated for Business Media reporting change from RIS to Other Specialty Converting. 39
  40. 40. Avery Dennison Investor Meeting March 6, 2007 Total Company Operating Margin FY 2003 FY 2004 FY 2005 FY 2006 ($ in millions, except as noted) Net Sales 4,736.8 5,317.0 5,473.5 5,575.9 Operating income, as reported 397.1 434.0 424.7 481.1 Operating margin, as reported (GAAP) 8.4% 8.2% 7.8% 8.6% Non-GAAP adjustments: Restructuring costs, asset impairment, lease cancellation costs, and environmental remediation, net of gains on asset sales 30.5 35.2 63.6 36.2 Adjusted non-GAAP operating income 427.6 469.2 488.3 517.3 Adjusted non-GAAP operating margin 9.0% 8.8% 8.9% 9.3% Total Company Return on Total Capital FY 2003 FY 2004 FY 2005 FY 2006 ($ in millions, except as noted) GAAP Average Invested Capital (5 point average) 2,503.2 2,663.2 2,707.6 2,655.4 Net Income 267.9 279.7 226.4 367.2 Addback: After-tax interest expense 42.4 43.8 46.1 46.0 Return on Average Total Capital 12.4% 12.1% 10.1% 15.6% Pro-forma Adj. Average Invested Capital (5 point average) 2,503.6 2,682.7 2,742.8 2,683.3 Net Income 267.9 279.7 226.4 367.2 Addback: After-tax interest expense 42.4 43.8 46.1 46.0 Addback: After-tax restructuring costs, asset impairment, lease cancellation costs, environmental remediation, and impact of discontinued ops, net of gains on asset sales -0.8 27.6 119.8 12.5 Pro-forma Return on Average Total Capital 12.4% 13.1% 14.3% 15.9% 40
  41. 41. Avery Dennison Investor Meeting March 6, 2007 OPERATING MARGIN BY SEGMENT FY 2004 FY 2005 FY 2006 ($ in millions, except as noted) Pressure Sensitive Materials Net Sales 2,984.8 3,114.5 3,236.3 Operating income, as reported 221.4 258.1 301.2 Operating margin, as reported 7.4% 8.3% 9.3% Non-GAAP adjustments: Restructuring costs, asset impairment, and lease cancellation costs, net of gains on asset sales 34.4 23.0 9.3 Adjusted non-GAAP operating income 255.8 281.1 310.5 Adjusted non-GAAP operating margin 8.6% 9.0% 9.6% Office and Consumer Products Net Sales 1,172.5 1,136.1 1,072.0 Operating income, as reported 186.4 168.0 179.0 Operating margin, as reported 15.9% 14.8% 16.7% Non-GAAP adjustments: Restructuring costs, asset impairment, and lease cancellation costs, net of gains on asset sales 0.5 21.8 (2.3) Adjusted non-GAAP operating income 186.9 189.8 176.7 Adjusted non-GAAP operating margin 15.9% 16.7% 16.5% OPERATING MARGIN BY SEGMENT FY 2004 FY 2005 FY 2006 ($ in millions, except as noted) Retail Information Services Net Sales 592.7 630.4 667.7 Operating income, as reported 43.4 37.7 45.0 Operating margin, as reported 7.3% 6.0% 6.7% Non-GAAP adjustments: Restructuring costs, asset impairment, and lease cancellation costs, net of gains on asset sales 0.3 7.5 11.2 Adjusted non-GAAP operating income 43.7 45.2 56.2 Adjusted non-GAAP operating margin 7.4% 7.2% 8.4% Other Specialty Converting Businesses Net Sales 567.0 592.5 599.9 Operating income, as reported 39.9 14.1 17.2 Operating margin, as reported 7.0% 2.4% 2.9% Non-GAAP adjustments: Restructuring costs, asset impairment, and lease cancellation costs, net of gains on asset sales 0.0 6.2 3.7 Adjusted non-GAAP operating income 39.9 20.3 20.9 Adjusted non-GAAP operating margin 7.0% 3.4% 3.5% 41
  42. 42. Avery Dennison Investor Meeting March 6, 2007 Historical Earnings Per Share, GAAP vs. Pro-Forma 2003 2004 2005 2006 2.68 2.78 2.25 3.66 GAAP EPS Restructuring & asset impairment, increase 0.26 0.26 1.07 0.33 to environmental reserve Gains on sale of business/assets, legal (0.24) - (0.02) (0.22) settlements, and other items - - 0.14 - Tax Expense on Repatriated Earnings 2.70 3.04 3.44 3.77 Pro-forma EPS Note: Historical figures have NOT been adjusted to remove the contribution from businesses subsequently divested or discontinued. 2007 Earnings and Free Cash Flow Guidance 2007 Guidance Reported (GAAP) Earnings Per Share $3.90 - $4.30 Add Back: Estimated Restructuring and Asset Impairment Charges* $0.05 - $0.10 Adjusted (non-GAAP) Earnings Per Share $4.00 to $4.35 Capital Expenditures & Investments in Software $210 to $225 mil. Free Cash Flow $345 to $395 mil. * Subject to upward revision as plans are finalized 42

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