CCL Industries Inc
Annual Report 2021

Plain-text annual report

2020 ANNUAL R E P O R T CCL Industries Inc. CCL Avery Innovia Checkpoint Avery is the world’s largest supplier of labels, specialty converted media and software solutions for short-run digital printing applications for businesses and consumers available alongside complementary products sold through distributors, mass-market stores and e-commerce retailers. Innovia is a leading global producer of specialty, high- performance, multi-layer, surface engineered films for label, packaging and security applications. 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. CCL is the world’s largest converter of pressure sensitive and specialty extruded film materials for a wide range of decorative, instructional, functional and security applications for government institutions and large global customers in the consumer packaging, healthcare & chemicals, consumer electronic device and automotive markets. Extruded & laminated plastic tubes, aluminum aerosols & specialty bottles, folded instructional leaflets, precision decorated & die cut components, electronic displays, polymer banknote substrate and other complementary products and services are sold in parallel to specific end-use markets. 25,100 Employees 204 Production Facilities 43 Countries 6 Continents NORTH AMERICA REPRESENTS EUROPE REPRESENTS EMERGING MARKETS REPRESENTS 41% of total sales 32% of total sales 27% of total sales CAUTION ABOUT FORWARD-LOOKING INFORMATION This annual report 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 forward-looking statements. Specifically, this annual report 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 2022; 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 and strategy; the Company’s expectation to successfully divert waste from landfill reducing costs and having a positive sustainability impact for its customers; the Company’s announced new capacity addition in its proprietary “Ecofloat” film line commencing commercial production by the end of the second quarter in 2022; the continuing impact the CV19 pandemic 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, including inflationary costs to its customer base; the Company’s success in quickly initiating actions to reduce variable costs if the economic environment weakens; the pursuit of new product initiatives by CCL Label and CCL Design, 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 polymer banknotes; the Company’s expectation that results for “WePrint™” and Kids’ label businesses will remain solid; the Company’s expectation that Avery’s PMG and OPG product groups in North America will improve as bricks-and-mortar retail strengthens and onsite office-employee density increases; the Company’s expectation that Avery’s Direct-to-Consumer event and name badging operations will continue to improve globally as large-scale business meetings and trade conventions trend back to pre-pandemic levels; the Company’s expectation that the Checkpoint operation will benefit from cost-saving initiatives and a move to omni-channel shopping by consumers; the Company’s expectation that Innovia will offset resin, energy and freight cost increases with productivity initiatives and price increases to its customer base; and the Company’s expectation that if demand remains solid and recent acquisitions meet expectations, results for 2022 should strengthen over 2021. 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, aluminum and other inflationary 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 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 annual report 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. Donald G. Lang Executive Chairman Geoffrey T. Martin President and Chief Executive Officer 2 0 2 1 L E T T E R T O S H A R E H O L D E R S 2021 CONCLUDED A SECOND YEAR OF PANDEMIC TIMES. CCL’S ADJUSTED NET EARNINGS* INCREASED BY 10% DURING EACH OF THE PAST TWO YEARS REACHING OVER $600 MILLION FOR 2021. SO, DID WE HAVE BUSINESSES THAT GAINED DURING THESE ONCE IN A GENERATION CONDITIONS? MOST DEFINITELY… PARTS OF OUR CCL SEGMENT AND INNOVIA BENEFITED FROM HIGHER DEMAND IN CONSUMER PACKAGED GOODS, LAWN & GARDEN CHEMICALS, OTC MEDICINES & SANITIZERS, IT PERIPHERALS AND BANKNOTES RESULTING FROM STAY-AT-HOME ORDERS AND GOVERNMENT SUPPORT PROGRAMS FOR CITIZENS. Did we also suffer? Yes we certainly did…Avery, Checkpoint, on premise demand in Food & Beverage, travel related products in Home & Personal Care and the automotive industry were all hit by severe restrictions on workplaces, restaurants, entertainment and retailing in all its forms. If the book ends of this new economy were airlines and the world’s largest tech businesses we sat somewhere in between. Did we recover much faster than expected? Absolutely! What are the two key economic legacies from the crisis? A much higher pile of government debt and the return of inflation levels that we last saw in the 1970s…more on that later. Overall, we cannot complain, as our Company advanced on all fronts in 2021 with sales up 13.8% to $5.7 billion, excluding foreign currency translation. The Canadian dollar, among the strongest currencies in the world in 2021, was a persistent headwind. Adjusted net earnings* increased more than $55 million to $606 million, up 10.1%, but 15.7% excluding foreign currency translation, while adjusted basic earnings per Class B share* improved from $3.08 in 2020 to $3.37 in 2021; foreign currency translation reduced results by $0.15 in 2021. Restructuring charges and transaction expenses for nine acquisitions were a modest $4.4 million. Higher capital spending in a recovering world and inflationary impacts in working capital held free cash flow* to $532 million, 88% of adjusted net earnings. 1 2021 ANNUAL REPORT2 0 2 1 L E T T E R T O S H A R E H O L D E R S CCL SEGMENT 2021 sales increased 6.9% organically to $3.5 billion, after modest 1.1% increases in both 2020 and 2019. Geographically, we delivered high single digit growth in North America, double-digit gains in Latin America (moderated by currency devaluations) and Asia Pacific plus low single digit progress in Europe. Operating income* improved modestly to $546 million but reduced by foreign currency translation; while adjusted EBITDA* margin reversed much of 2020’s gains falling 130 basis points to 22.1%. Less favourable mix, inflation and the absence of government support dollars enjoyed in 2020 were the main reasons for the decline. Home & Personal Care sales increased on better markets in cosmetic skin care and products associated with travel or sold at specialty retail, including hair salons; but more than offset in labels for North America and Europe by the very sudden end to the sanitizer and cleansing boom, once the scientific community confirmed Covid is almost entirely an air borne infection. Sales gains in 2021 largely came from labels in Latin America (much of it inflation recovery) and real volume progress for tubes and aerosols in North America, which drove most of the profit gain for the year. Profitability also increased in Europe on productivity gains. Asia sales increased in China but fell in ASEAN countries; profits dropped significantly throughout the region on inflation, share loss and less than optimal commercial discipline. We had another record year at our label joint venture in the Middle East. Our aluminum slug business, fully acquired in 2019, remains loss making but improved on 2020’s poor result. We expect to make a positive EBITDA contribution in 2022. We made one small label acquisition in Singapore that contributed positively to EBITDA. Healthcare & Specialty posted modestly improved results versus their strong pandemic fueled 2020. Results included a first full year of the Graphics West acquisition, where performance moderately missed pro- forma expectations but complimented existing organic investments in the short run, digital, pharmaceutical carton space. Ag Chem results were strong in the United States but decidedly mixed in Europe on share loss. Healthcare was decent on a global basis and although still problematic in Scandinavia and Germany, notably improved its performance in other European geographies. Supply availability, labor shortages plus paper, freight, resin and chemical inflation sequentially increased as the year unfolded and particularly restrained results in the second half of 2021. 2 Food & Beverage more than recovered 2020’s on-premise and travel-related declines with near double digit sales gains in 2021. Sleeves continued its recent growth trajectory, especially strong again in the United States and Latin America with Turkey’s results aided by currency devaluation on euro denominated transactions. Sales relating to household disinfectants and cleaning fluids, where we use assets in this space to support Homecare customers, declined as pandemic driven use waned, together with share loss in the United States. Sales of closure labels at fast food chains and for other consumer packages improved. New pressure sensitive label plants in Brazil and South Africa made strong, profitable progress in the beer sector creating short-term working capital outflows to finance long supply chains and receivable terms. Wine & Spirits operations had a record year in all respects; driving most of the profit increase for the year overall. Our joint venture in Russia posted another record year on strong organic sales growth in local currency from share gains. Sector profitability overall improved, but as everywhere, impacted by accelerating inflation as the year unfolded. CCL Design sales to electronics customers, after increasing in the low teens organically in 2020 did so again in 2021, as high demand for cell phones, computers, servers and IT peripherals continued. Growth in the second half of the year curtailed as chip shortages impeded customers’ output. Profitability was held by less favorable mix, new business win start-up costs and the absence of government financial support in China that benefitted 2020. ASEAN markets were moderately impacted by Covid lock downs including Malaysia at the Super Enterprises acquisition. Automotive had a comparatively good first half of 2021 versus the weak period in 2020, reversing in the second half as chip shortages severely constrained OEM output, compared to the recovery quarters last year. The combination still resulted in a gain but demand remains below 2019 levels. Sales to alkaline battery producers were stable. Olympic Tapes posted its first profit as we gained customer qualification approvals. Overall, profitability at CCL Design improved on the partial automotive recovery. At the end of the year and into the first few days of 2022, we closed two important acquisitions with operations in Mexico, the U.K. and China, which should add approximately $90 million to the revenue base in 2022. CCL Secure results were behind the record 2020 performance fueled by high currency demand in the developed world with high margin mix and new denomination polymer conversions in emerging countries. Nonetheless, 2021 was still the second best year for this business under CCL ownership. Sales of stamps in the United States were stable and we won an important new contract for passport components that commenced this year. 2021 ANNUAL REPORTAVERY INNOVIA This part of CCL was the most negatively affected by the pandemic, so not surprisingly, it bounced back the strongest, modestly surpassing 2019 levels, excluding foreign currency translation, with 14.7% organic sales growth over 2020. Name badge categories suffered the most last year; while sports & entertainment related demand improved, conferences & meetings for business levels remain well below 2019. Kids’ labels, We Print and printable media products all returned to normal, growing in all geographies. The In Touch acquisition had an outstanding first full year. Back-to-school demand for organization products improved over the 2020 chaos surrounding attended education in North America; but workplace demand remains depressed for these categories. Significantly higher sea freight costs and component supply availability from China curtailed sales and hurt profits. Operating income* increased by over $35 million to $149 million on sales of $709 million, a return on sales* of 21%, up 310 basis points, broadly in line with 2019. Three direct-to-consumer acquisitions closed in the second half of 2021 will add approximately $70 million to the sales base for 2022. Avery continues to deliver the highest return on total capital* of any Segment in the Company. CHECKPOINT The closure of non-essential retailing and the entire apparel supply chain in many geographies deeply affected Checkpoint in the first half of 2020 but growth returned in the second half of that year and continued throughout 2021, even escalating in the last two quarters. Apparel Labeling Solutions hit record levels of profitability for the year, on close to 30% organic growth driven by exceptional gains in RFID, augmented by the Uniter and Eti-Textil acquisitions. Merchandise Availability Solutions also returned to strong growth, as many retailers enjoyed record consumer spending increases with dollars moving from the service sector to tangible consumption, fueled by government financial support to citizens. Growth was especially strong in North America but all regions contributed. Rampant intermodal freight inflation from our Chinese supply plants to in market regional distribution hubs hurt profitability, as did rising costs and availability of electronic components. The smaller Meto business had a stable year. Segment operating income* for 2021 increased by over $35 million to a record $115 million on sales of $773 million, a return on sales of 15%, up 240 basis points. Very late in the year we acquired an apparel label business in Brazil, which along with a full year of Uniter, should add approximately $35 million to the revenue base in 2022. Pandemic tailwinds for consumer staples, and therefore label and packaging films, gradually subsided as 2021 unfolded. Film tonnage modestly increased organically, all the growth in the Americas with Europe and Asia slightly down. Productivity initiatives in the supply plants continued to pay off as did far better management of the raw materials supply chain. Resin costs increased with rarely seen velocity in the United States and at a more moderate pace in Europe, but we successfully passed through pricing that accounted for the vast majority of our 24% organic sales growth. More problematic were significant increases in freight and energy costs, which accelerated throughout 2021 impacting profitability in the second half of the year. Price increases to recover these costs are lagging, notably in Europe. Sales reached $753 million, with a 17.3% adjusted EBITDA* margin, compared to 20.7% in 2020, 15.2% in 2019 and 12.1% in 2018. Free cash flow from operations* was strong, but below 2020 levels benefitting from significant working capital inflows in the Americas. Our $35 million investment in Poland to build the new Ecofloat line is nearing completion. Commercializing this spring, Ecofloat is a hybrid film allowing easier separation of shrink sleeves from PET containers in recycling centres, aiding customers’ bottle- to-bottle sustainability initiatives. The vast majority of the output will be used internally at CCL Label. DELIVERING TO SHAREHOLDERS Following our February 2022 Board meeting, we announced a 14.3% increase in the dividend. The annualized payout now stands at $0.96 per Class B share and $0.95 per Class A share, doubling over the last five years. The Company has paid dividends without omission or reduction for more than three decades. Despite spending $234 million on acquisitions and $307 million on net capital expenditures, the Company’s net debt to adjusted EBITDA ratio ended 2021 comfortably inside investment-grade territory at 1.06 times, down 0.18 turns. In May 2021, the Board approved a Normal Course Issuer Bid giving management authority to buy back up to 4.8% of the Company’s Class B shares. Heightened acquisition activity in the second half of 2021, strategically the best use of our capital, precluded share repurchases so far. We plan to invest $380 million in 2022 in capital equipment and new plant expenditures, compared to an expected $325 million depreciation and amortization expense, excluding right-of-use asset amortization. With 98% of sales outside Canada, CCL continues to provide domestic shareholders considerable geographic risk diversification. 3 2021 ANNUAL REPORTCELAB (Circular Economy for Labels) over the past two years, collaborating with others in the industry to promote label matrix and release liner recycling worldwide. 2022 OUTLOOK Our number one priority in the year ahead is to manage our way through this post pandemic inflationary cycle coupled with so many supply availability issues. If it indeed proves to be transitory; all we can say is this seems to be a long transition! So, we expect these tough conditions to continue, especially in the first half of 2022. Pricing execution will therefore be key. Despite this short-term challenge, we remain optimistic about our future with many opportunities for growth. We close by taking this opportunity to say a humble thank you to our truly amazing people for their stunning dedication throughout this crisis. All our operations were open for business in 2021 including Vietnam where CCL and Checkpoint employees lived and worked at our plants for many weeks as a return home would have kept them away from their jobs during a government lockdown. We will never forget that. To our customer and supplier partners, we know how challenging inflation and supply availability has been for many of you in 2021, and we are pleased to have navigated these troubled waters together. For sure we will need to continue to understand and support each other in 2022 as this once in a generation economic landscape evolves. Donald G. Lang Executive Chairman Geoffrey T. Martin President and Chief Executive Officer * Non-IFRS measures; see Section 5A of CCL’s Management’s Discussion and Analysis for more detail. 2 0 2 1 L E T T E R T O S H A R E H O L D E R S DIVERSITY, LEADERSHIP AND GOVERNANCE CCL is a global company with operations in 43 countries. Our Company firmly believes in decentralized organizational principles, the most important of which is business leadership being local to the country where we operate, especially outside North America. This the best way to ensure our structures around the world reflect the ethnicity and society in the business communities we serve. Our business units value industry experience and track record above all other qualities, especially for senior leaders. We are highly predisposed to promote from within and regard recruiting outside a failure to develop people internally. That is not the case with our small professional corporate team that continues its technically excellent, agile, highly responsive mantra, costing approximately 1% of sales. In our 2021 employee census, 62.3% of employees are men, 37.7% women; a 270 basis points positive move towards a more equal female ratio. Last year, employees identifying themselves as “white” fell below 40% for the first time. We remain deeply committed to the principle that our people must reflect the cultural norms where our plants, distribution centres and offices are located…. globally. Gender and cultural diversity starts at the top. Four of eleven Directors on our Board are female and two of them would not identify themselves of white Anglo Saxon heritage. It’s a journey not yet at its end. Our Board continues to represent all shareholders through good governance practice, while providing seasoned wise counsel to management. SUSTAINABILITY The Company signed on to the Ten Principles of the United Nations Global Compact on human rights, labor, the environment and anti-corruption in December 2021, committing to integrate them into our strategy, culture and day-to-day operations. We will report progress on external initiatives and internal targets annually in our Sustainability Report, including our commitments to the United Nations Sustainable Development Goals and the New Plastics Economy Global Commitment. While many initiatives were undertaken in 2021, a few stand out. CCL Label won a prestigious German Packaging Award for EcoStretchTM, a closed-loop concept for stretch sleeves. Once sufficient volumes are developed, the plan is to invest in recycling technology in Austria, where, after de-inking and cleaning, the sleeves would be melted and shaped into pellets for return to our extruders to make new films in a circular process. Avery Italy partnered with Treedom to promote the process of reforestation of the planet by committing to plant trees on behalf of consumers who use our labels. Innovia engaged with 4 2021 ANNUAL REPORT F I N A N C I A L H I G H L I G H T S (In millions of Canadian dollars, except per share and ratio data) Sales EBITDA % of sales Restructuring and other items - net loss Net Earnings % of sales Basic earnings per Class B share Net earnings Diluted earnings Adjusted basic earnings per Class B share Dividends As at December 31 Total assets Net debt * Total equity Net debt to EBITDA* Return on equity (before other expenses)* Number of employees $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2021 5,732.8 1,173.1 20.5% 4.4 599.1 10.5% 3.33 3.31 3.37 0.84 7,627.8 1,249.2 3,747.0 1.06 17.2% 25,100 2020 5,242.3 1,123.2 21.4% 27.6 529.7 10.1% 2.96 2.94 3.08 0.72 7,336.7 1,390.9 3,282.2 1.24 17.8% 22,200 * A non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A. 9.4% 4.4% 13.1% 12.5% 12.6% 9.4% 16.7% 4.0% -10.2% 4.2% 13.1% 5 2021 ANNUAL REPORT 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, 2021 and 2020. In preparing this MD&A, the Company has taken into account information available until February 24, 2022, unless otherwise noted. This MD&A should be read in conjunction with the Company’s December 31, 2021, annual consolidated financial statements, which form part of the CCL Industries Inc. 2021 Annual Report dated February 24, 2022. 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, Moroccan dirham, 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. I N D E X 1. Corporate Overview 8 8 A) The Company 8 B) Coronavirus (“CV19”) Pandemic 8 C) Customers and Markets 9 D) Strategy and Financial Targets 11 E) Recent Acquisitions and Dispositions 13 F) Subsequent Events 13 G) Consolidated Annual Financial Results 15 H) Seasonality and Fourth Quarter Financial Results 18 2. Business Segment Review 18 A) General 20 B) CCL Segment 22 C) Avery 23 D) Checkpoint 24 E) Innovia 25 F) Joint Ventures 26 3. Financing and Risk Management 26 A) Liquidity and Capital Resources 27 B) Cash Flow 28 C) Interest Rate, Foreign Exchange Management and Other Hedges 28 D) Equity and Dividends 29 E) Commitments and Other Contractual Obligations 30 F) Controls and Procedures 31 4. Risks and Uncertainties 40 5. Accounting Policies and Non-IFRS Measures 40 A) Key Performance Indicators and Non-IFRS Measures 44 B) Accounting Policies and New Standards 44 C) Critical Accounting Estimates 45 D) Related Party Transactions 46 6. Outlook 6 F O R WA R D - LO O K I N G I N F O R M AT I O N 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 forward- looking 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 2022; 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 and strategy; the Company’s expectation to successfully divert waste from landfill reducing costs and having a positive sustainability impact for its customers; the Company’s announced new capacity addition in its proprietary “Ecofloat” film line commencing commercial production by the end of the second quarter in 2022; the continuing MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT impact the CV19 pandemic 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, including inflationary costs to its customer base; the Company’s success in quickly initiating actions to reduce variable costs if the economic environment weakens; the pursuit of new product initiatives by CCL Label and CCL Design, 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 polymer banknotes; the Company’s expectation that results for “WePrint™” and Kids’ label businesses will remain solid; the Company’s expectation that Avery’s PMG and OPG product groups in North America will improve as bricks-and- mortar retail strengthens and onsite office-employee density increases; the Company’s expectation that Avery’s Direct- to-Consumer event and name badging operations will continue to improve globally as large-scale business meetings and trade conventions trend back to pre-pandemic levels; the Company’s expectation that the Checkpoint operation will benefit from cost-saving initiatives and a move to omni-channel shopping by consumers; the Company’s expectation that Innovia will offset resin, energy and freight cost increases with productivity initiatives and price increases to its customer base; and the Company’s expectation that if demand remains solid and recent acquisitions meet expectations, results for 2022 should strengthen over 2021. 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, aluminum and other inflationary 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 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. 7 2021 ANNUAL REPORT 1 . C O R P O R AT E OV E RV I E W 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 25,100 people in 204 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, coating and lamination, surface engineering and metallurgy deployed as needed across the four business segments. B) Coronavirus (“CV19”) Pandemic 2021 was a year of perseverance and resiliency as the world withstood the ongoing CV19 pandemic. Optimism abounded early in the year as government approved vaccines rolled out, civil restrictions eased, and infection rates appeared to be declining. Accordingly, most temporary government financial support programs ceased and savings from furloughed and short-time working employees were insignificant for the year. CCL maintained its safety policies for employees, suppliers and customers, mitigating any chance of contagion and subsequent closure of any of its facilities. However, as the year progressed, vaccine scarcity in developing economies and the emergence of the more contagious Omicron variant drove many regimes into re-employing lockdown measures for their citizens. Consequently, global supply chain issues were prevalent all year compounded by inflation rates not evidenced in a generation, climbing sequentially as the year progressed. Despite these challenges, the Company delivered record adjusted earnings per share and strong free cash flow, while maintaining its acquisition growth strategy, closing on nine transactions in 2021. The Company’s balance sheet finished the year with a leverage ratio slightly in excess of one turn and available liquidity in excess of $2.0 billion. 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 markets served by the CCL Segment are large and diverse, with some sectors highly fragmented, but with few competitors having the Company’s substantial operating breadth or global reach. Avery has a dominant market-leading position for its products in North America, Europe and Australia. Checkpoint has significant market positions in all regions of the world and sells directly to retailers and apparel manufacturers and competes with other global retail labeling companies. 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 materials producers, flexible packaging converters and the consumer packaged goods industry, while also producing film internally for security and label applications. 8 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT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 businesses and increasingly using the direct-to-consumer channel, both organically and by acquisition. Checkpoint focuses on technology-driven loss-prevention 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 2021 financial results delivered strong cash flow and a solid balance sheet after investing $234.4 million in acquisitions and $306.9 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, 2021, the Company had $602.1 million of cash on hand and approximately US$1.19 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. A key financial target is return on equity before goodwill impairment loss, restructuring and other items, non-cash acquisition accounting adjustments and tax 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. 2021 ROE of 17.2%, although still strong, was down modestly to 2020 as retained earnings increased faster than profitability gains: Return on Equity 2021 17.2% 2020 17.8% 2019 17.8% 2018 20.0% 2017 24.0% 2016 23.5% Another metric used by the investment community as a comparative measure is return on total capital before goodwill impairment loss, restructuring and other items, non-cash acquisition accounting adjustments and tax adjustments (“ROTC,” a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A). The chart below details performance since 2016. The Company targets delivering returns in excess of its cost of capital. ROTC of 12.5% for 2021 improved compared to 2020 due to the solid increase in adjusted net earnings for 2021, partially offset by the increase in capital deployed for acquisitions and net capital expenditures compared to 2020: Return on Total Capital 2021 12.5% 2020 11.9% 2019 10.8% 2018 11.3% 2017 14.0% 2016 15.9% ROTC should increase as the Company deleverages its balance sheet and increases net earnings as the turbulent operating environment caused by the global CV19 pandemic fades away. The long-term growth rate of adjusted basic earnings per Class B share (a non-IFRS 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. 9 2021 ANNUAL REPORT The Company has achieved significant growth in its annual adjusted basic and basic earnings per share since 2016: 2021 Adjusted Basic EPS Growth Rate 9.4% Basic EPS Growth Rate 12.5% 2020 10.4% 10.4% 2019 2.2% 1.5% 2018 1.5% (2.2%) 2017 17.9% 36.4% 2016 32.5% 16.5% In 2021, adjusted basic earnings increased by 9.4% to $3.37 per Class B share. Improved profitability from the Avery, Checkpoint and Innovia Segments and reduced net interest expense, offset reduced profitability for the CCL Segment and increased corporate costs. 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: 2021 2020 2019 2018 2017 Adjusted EBITDA $ 1,173.1 $ 1,123.2 $ 1,067.2 $ 995.3 $ 959.2 $ % of sales 20% 21% 20% 19% 20% 2016 792.7 20% In 2021, Adjusted EBITDA increased by approximately 8.8% from 2020, excluding the negative 4.4% impact of foreign currency translation. 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 of the 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 December 31, 2021, net debt (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) to Adjusted EBITDA was 1.06 times, 0.18 turns lower than the 1.24 times at December 31, 2020, 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 2021, the dividend payout ratio was 25% of adjusted earnings. This dividend payout ratio reflects the strong cash flows generated by the Company and a solid increase in adjusted earnings in 2021 compared to 2020. Therefore, after careful review of the current year results, budgeted cash flow and income for 2022, the Board has declared a 14.3% increase in the annual dividend: an increase of $0.03 per Class B share per quarter, from $0.21 to $0.24 per Class B share per quarter ($0.96 per Class B share annualized). Including this increase, the Company has more than doubled the annualized rate since March 2017. 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 pricing, product innovation, dependability, ethical business practices and financial stability. 10 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT 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 strategy and interactions with stakeholders. Beginning with its 2019 report, the Company now releases an annual Sustainability Report covering material environmental and social responsibility issues and policies. These reports are made available on the Company’s website at www.cclind.com/sustainability. 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 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, enhanced in 2021 to align with the Company’s Corporate Social responsibility strategy, 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 with the launch of the Company’s inaugural 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 objectives of an injury-free workplace and appropriate responses to all incidents. Each facility is assessed a colour 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 December 2021, the Company acquired International Master Products Corporation (“IMP”), based in Michigan, U.S., for $61.4 million net of cash acquired. IMP is a leading provider of labels and tags for the U.S. horticulture industry through digitally enabled design software, expanding Avery’s direct-to-consumer business. • In December 2021, the Company acquired Lodging Access Systems, LLC, (“LAS”), based in Florida, U.S., for $26.4 million, net of cash acquired. LAS is a leading supplier of digitally printed and encoded RFID key cards, wrist bands and key fobs for access controls. LAS further expands Avery’s direct-to-consumer business. • In December 2021, the Company acquired the pharmaceutical leaflet printing press and customer list from the Laramara Foundation in Sao Paulo, Brazil, for $0.8 million. These assets were added to the CCL Segment. • In December 2021, the Company acquired Forever Blue Investimentos e Participacoes S.A. (d.b.a. “Tecnoblu”), headquartered in Blumenau, Brazil, for $17.7 million net of cash and debt. Tecnoblu is now a part of the Checkpoint Apparel Labeling Solutions business (“ALS”). • In December 2021, the company acquired Desarrollo e Investigación S.A. de C.V. and Fuzetouch PTE LTD (Singapore) (collectively “D&F”) headquartered in San Luis Potosi, Mexico, for approximately $51.3 million net of cash acquired. D&F is a leading supplier of graphic interface control panels and assemblies and now trades as “CCL Design.” 11 2021 ANNUAL REPORT • In July 2021, the Company acquired the Uniter Group of companies (“Uniter”), based in A Coruña, Spain, with operations in Europe, Asia and North Africa for approximately $50.4 million, including debt assumed and net of cash acquired. Uniter’s five factories are part of the Checkpoint ALS business. • In July 2021, the Company acquired privately owned Plum Paper LLC (“Plum”), based in California, U.S., for approximately $26.3 million, net of cash acquired. Plum is a leading supplier of personalized planners and is part of Avery’s growing direct-to-consumer business. • In May 2021, the Company acquired privately held Lux Global Label Asia Pte. Ltd. (“LUX”), based in Singapore for approximately $9.4 million, net of cash. LUX produces decorative labels for global consumer product customers in the ASEAN region. LUX now trades as “CCL Label Singapore.” • In April 2021, the Company acquired the assets of Europack Packaging and Fluid Management GmbH (“Europack”) for approximately $0.9 million. Europack was added to the CCL Segment. • In November 2020, the Company acquired privately owned Super Enterprises Printing (Malaysia) Sdn. Bnd. (“SEP”) for approximately $18.4 million, net of cash. SEP is headquartered in Kuala Lumpur, with a second manufacturing operation in Guangzhou, China. SEP 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 business. • 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, U.S., 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 and reported in the CCL Segment. • 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 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 Florida, U.S., 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 direct-to-consumer business. • 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-to-consumer business. The acquisitions completed over the past few years, in conjunction with the 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. 12 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORTF) Subsequent Events Prior to the release of the 2021 annual financial statements, the Company announced the following: • In January 2022, the Company acquired McGavigan Holdings Ltd. (“McGavigan”), headquartered in Glasgow, Scotland, with significant additional manufacturing capability in China for $105.5 million including assumed debt and net of cash acquired. McGavigan is a leading supplier of in-mould decorated components for automobile interiors and has now been added to CCL Design. G) Consolidated Annual Financial Results Selected Financial Information Results of Consolidated Operations Sales Cost of sales Gross profit Selling, general and administrative expenses Earnings in equity-accounted investments Net finance cost Restructuring and other items Earnings before income taxes Income taxes Net earnings Basic earnings per Class B share Diluted earnings per Class B share Adjusted basic earnings per Class B share Dividends per Class B share Total assets Total non-current liabilities Comments on Consolidated Results 2021 5,732.8 4,140.7 1,592.1 761.4 830.7 11.2 (56.9) (4.4) 780.6 181.5 599.1 3.33 3.31 3.37 0.84 7,627.8 2,462.8 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2020 5,242.3 3,740.1 1,502.2 725.4 776.8 9.5 (65.2) (27.6) 693.5 163.8 529.7 2.96 2.94 3.08 0.72 7,336.7 2,792.5 $ $ $ $ $ $ $ $ 2019 5,321.3 3,809.1 1,512.2 774.6 737.6 5.4 (81.0) (25.0) 637.0 159.9 477.1 2.68 2.66 2.79 0.68 7,038.0 2,992.3 Sales were $5,732.8 million for 2021, an increase of 9.4% compared to $5,242.3 million recorded in 2020. This increase in sales includes an organic growth rate of 11.8% and acquisition-related growth of 2.0%, partially offset by the 4.4% negative impact of foreign currency translation. Consistent with 2020, approximately 98% of the Company’s 2021 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 depreciation of the U.S. dollar, euro, Brazilian real, Mexican peso and Thai baht by 6.5%, 3.1%, 11.3% 1.4% and 8.4%, respectively, was partially offset by a 1.8% appreciation of the Australian dollar relative to the Canadian dollar in 2021 compared to average exchange rates in 2020. Selling, general and administrative expenses (“SG&A”) were $761.4 million for 2021, compared to $725.4 million reported in 2020. The increase in SG&A expenses in 2021 relates to an increase in corporate expenses as well as general increases across all business Segments of the Company. Corporate expenses for 2021 increased to $60.6 million, compared to $46.7 million for 2020, primarily due to increased variable compensation expenses on improved profitability in the third year of the amended long-term incentive plan. Operating income (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) for 2021 was $891.3 million, an increase of 8.2% compared to $823.5 million for 2020. Foreign currency translation was a 4.6% negative impact to consolidated operating income for 2021 compared to 2020. The Avery, Checkpoint and Innovia Segments each increased operating income while CCL Segment posted a modest decline, compared to 2020. Further details on the business segments follow later in this report. 13 2021 ANNUAL REPORT Adjusted EBITDA in 2021 was $1,173.1 million, an improvement of 4.4% compared to $1,123.2 million recorded in 2020. Excluding the impact of foreign currency translation, the increase was 8.8% over the prior year. Net finance cost was $56.9 million for 2021, compared to $65.2 million for 2020. The 12.7% decline in net finance cost can primarily be attributed to reduced total debt for 2021 compared to 2020. For the full year 2021, restructuring costs and other items represented an expense of $4.4 million ($3.5 million after tax) as follows: • Restructuring expenses of $3.9 million ($3.0 million after tax), primarily related to severance and reorganization costs across the CCL, Checkpoint and Innovia Segments. • Acquisition transaction costs totaled $0.5 million ($0.5 million after tax), for the nine acquisitions closed in 2021. The negative earnings impact of these restructuring and other items in 2021 was $0.02 per Class B share. 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. • 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 AUD$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. In 2021, the consolidated effective tax rate was 23.6%, compared to 23.9% in 2020, excluding earnings in equity-accounted investments. The combined Canadian federal and provincial statutory tax rate was 26.5% for 2021 (2020 – 25.8%). The effective tax rate was impacted by amendments to UK tax legislation enacted into law for the year partially offset by a reduction in valuation allowances due to improved profitability at certain subsidiaries of the Company resulting in a decline in the consolidated effective tax rate. The new UK tax legislation raised income tax rates in future periods, therefore, the Company was required to increase its deferred income liability by $8.0 million resulting in a corresponding increase in tax expense. This increase in tax expense was more than offset by a reduction in valuation allowances due to improved profitability at certain subsidiaries of the Company. Of this $8.0 million increase, $4.7 million primarily related to book and tax timing differences and other discrete items. However, $3.3 million related to indefinite life intangibles from recent acquisitions that were recognized for accounting purposes but had no corresponding tax basis and were therefore excluded from adjusted basic earnings per share. 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 2021 increased 13.1% to $599.1 million, compared to $529.7 million recorded in 2020 due to the items described above. Basic earnings per Class B share were $3.33 for 2021 versus the $2.96 recorded for 2020. Diluted earnings per Class B share were $3.31 for 2021 and $2.94 for 2020. The movement in foreign currency exchange rates in 2021 compared to 2020 had a negative impact on the translation of the Company’s basic earnings of $0.15 per Class B share. The diluted weighted average number of shares was 180.9 million for 2021, compared to 179.8 million for 2020. As of December 31, 2021, the Company had 11.8 million Class A voting shares and 168.4 million Class B non-voting shares issued and outstanding. In addition, the Company had outstanding stock options to purchase 1.5 million Class B non-voting shares, 0.7 million restricted stock units (“RSU”) to issue 0.7 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, 2021 there has been no change in the number of outstanding Class A voting shares, RSU’s, DSUs or PSUs to be issued; however, 50,000 stock options were exercised to purchase 50,000 Class B non-voting shares from treasury shares. Adjusted basic earnings per Class B share was $3.37 for 2021, up 9.4% from $3.08 in 2020. 14 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORTThe movement in foreign currency exchange rates in 2021 versus 2020 had an estimated negative translation impact of $0.15 on adjusted basic earnings per Class B share. This estimated foreign currency impact reflects the currency translation in all foreign operations. H) Seasonality and Fourth Quarter Financial Results 2021 Sales CCL Avery Checkpoint Innovia Total sales Segment operating income CCL Avery Checkpoint Innovia Operating income Corporate expenses Restructuring and other items Earnings in equity-accounted investments Finance cost, net Earnings before income taxes Income taxes Net earnings Per Class B share Basic earnings Diluted earnings Adjusted basic earnings $ $ $ $ Unaudited Qtr 1 Unaudited Qtr 2 Unaudited Qtr 3 Unaudited Qtr 4 $ $ $ 876.7 140.4 168.7 163.7 1,349.5 157.2 21.0 25.4 19.5 223.1 15.9 – (1.9) 209.1 14.7 194.4 46.6 147.8 0.82 0.81 0.82 $ $ $ $ $ $ $ 856.3 178.9 187.7 183.4 1,406.3 139.5 38.2 29.1 28.7 235.5 16.2 2.6 (2.1) 218.8 14.1 204.7 51.7 153.0 0.86 0.86 0.89 $ $ $ $ $ $ $ 882.0 209.7 189.3 207.2 1,488.2 127.6 51.2 24.6 20.5 223.9 10.3 0.7 (2.4) 215.3 14.2 201.1 47.9 153.2 0.85 0.84 0.85 $ $ $ $ $ $ $ 883.2 179.9 226.8 198.9 1,488.8 121.5 38.4 36.4 12.5 208.8 18.2 1.1 (4.8) 194.3 13.9 180.4 35.3 145.1 0.80 0.80 0.81 $ $ $ $ $ $ $ Year 3,498.2 708.9 772.5 753.2 5,732.8 545.8 148.8 115.5 81.2 891.3 60.6 4.4 (11.2) 837.5 56.9 780.6 181.5 599.1 3.33 3.31 3.37 15 2021 ANNUAL REPORT 2020 Sales CCL Avery Checkpoint Innovia Total sales Segment operating income CCL Avery Checkpoint Innovia Operating income Corporate expenses Restructuring and other items Earnings in equity-accounted investments Finance cost, net Earnings before income taxes Income taxes Net earnings Per Class B share Basic earnings Diluted earnings Adjusted basic earnings Fourth Quarter Results $ $ $ $ Unaudited Qtr 1 Unaudited Qtr 2 Unaudited Qtr 3 Unaudited Qtr 4 $ $ $ 838.8 158.8 154.9 144.0 1,296.5 140.6 32.1 12.1 15.5 200.3 10.5 1.8 (1.3) 189.3 17.1 172.2 45.6 126.6 0.71 0.70 0.72 $ $ $ $ $ $ $ 781.6 146.2 121.6 172.4 1,221.8 115.0 18.5 6.4 23.7 163.6 7.5 3.8 (1.7) 154.0 15.9 138.1 34.2 103.9 0.58 0.58 0.59 $ $ $ $ $ $ $ 877.0 178.4 169.7 148.3 1,373.4 160.8 35.7 29.6 20.2 246.3 12.3 16.2 (2.5) 220.3 16.4 203.9 50.6 153.3 0.86 0.86 0.93 $ $ $ $ $ $ $ 860.2 150.8 189.3 150.3 1,350.6 136.4 27.0 32.2 17.7 213.3 16.4 5.8 (4.0) 195.1 15.8 179.3 33.4 145.9 0.81 0.80 0.84 $ $ $ $ $ $ $ Year 3,357.6 634.2 635.5 615.0 5,242.3 552.8 113.3 80.3 77.1 823.5 46.7 27.6 (9.5) 758.7 65.2 693.5 163.8 529.7 2.96 2.94 3.08 Sales for the fourth quarter of 2021 increased 10.2% to $1,488.8 million, compared to $1,350.6 million recorded in the 2020 fourth quarter. Excluding foreign currency translation, sales for the fourth quarter of 2021 increased by 14.6% compared to the 2020 fourth quarter. This increase was due to 12.8% organic sales growth and 1.8% from acquisitions. The CCL, Avery, Checkpoint and Innovia Segments each recorded organic sales growth rates of 6.0%, 20.8%, 18.8% and 36.0%, respectively. CCL Segment recorded organic growth in all five of its sectors but most prominently at Food & Beverage and CCL Secure. Avery sales increased in all product categories and in all regions. Checkpoint recorded significant sales growth in both the Merchandise Availability Solutions (“MAS”) product lines and especially Apparel Labeling Solutions (“ALS”) product lines, including RFID. Sales growth at Innovia was principally driven by higher resin costs largely passed through to customers. Operating income in the fourth quarter of 2021 was a modest decline of 2.1% to $208.8 million, compared to $213.3 million in the fourth quarter of 2020. For the fourth quarter of 2021, Avery and Checkpoint improved operating income 42.2% and 13.0%, respectively, offset by the 10.9% and 29.4%, declines for the CCL Segment and Innovia, respectively. Within the CCL Segment, Healthcare & Specialty, Home & Personal Care and CCL Secure all recorded profitability improvement due to sales gains and efficiency initiatives offset by results for CCL Design and Food & Beverage, which were impacted by supply chain challenges in automotive markets and raw material cost inflation, respectively. Avery’s substantial sales growth and profitability improvement across all categories drove an improved return on sales. The ALS and MAS businesses of Checkpoint, both posted strong profitability for the fourth quarter. Innovia’s fourth quarter profitability gains were eroded by substantial increases in energy and freight costs. Corporate expenses were $18.2 million in the fourth quarter of 2021, compared to $16.4 million recorded in the prior-year period. The increase in corporate costs is principally attributable to increased expense for variable long-term compensation. 16 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT Adjusted EBITDA for the fourth quarter of 2021 was $277.2 million compared to the $283.9 million for the 2020 comparable period. Adjusted EBITDA declined due to the aforementioned results at the CCL and Innovia Segments. Net finance cost was $13.9 million for the fourth quarter of 2021 compared to $15.8 million for the fourth quarter of 2020. Reduced total debt outstanding for the fourth quarter of 2021 compared to the fourth quarter of 2020 resulted in a reduction of comparative net finance costs. For the fourth quarter of 2021, restructuring costs and other items represented an expense of $1.1 million ($0.9 million after tax) as follows: • Restructuring expenses primarily related to severance and reorganization costs for the CCL and Checkpoint’s operations globally to match operational costs to customer demand levels during the pandemic. The negative earnings impact of these restructuring and other items for the 2021 fourth quarter was $0.01 per Class B share. 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 operational costs to customer demand levels during the pandemic. The negative earnings impact of these restructuring and other items for the 2020 fourth quarter was $0.03 per Class B share. Tax expense in the fourth quarter of 2021 was $35.3 million, resulting in an effective tax rate of 20.1% compared to $33.4 million and an effective tax rate of 19.0% in the prior-year period. The comparative effective tax rates for the fourth quarters of 2021 and 2020 are lower than the annual effective tax rates due 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 2021 were $145.1 million, compared to net earnings of $145.9 million in the fourth quarter of 2020. Basic earnings per Class B share were $0.80 in the fourth quarter of 2021, compared to $0.81 in the fourth quarter of 2020. The movement in foreign currency exchange rates in the fourth quarter of 2021 compared to 2020 had a negative impact of $0.04 on basic earnings per Class B share. Adjusted basic earnings per Class B share declined 3.6% to $0.81 for the fourth quarter of 2021, compared to $0.84 in the corresponding quarter of 2020. 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 low-margin 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 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 2021 and 2020 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 2021 experienced significant sales and profitability improvement compared to a prior year period that was broadly impacted by CV19 restrictions on the Company’s customer base. CCL Segment experienced notable increases in its Food & Beverage and CCL Design business lines on improved on-premise demand and an uptick in automotive markets, respectively. Avery’s results improved in traditional product lines with increased employee density in businesses and in Direct-to-Consumer name badge, event badge and wristbands categories as sports and leisure events, conventions, meetings and conferences trended towards pre-pandemic levels. Checkpoint’s second quarter results were robust compared to a prior year second quarter affected by the closure of non-essential retail outlets globally and apparel manufacturing hubs in Asia. 17 2021 ANNUAL REPORTThe 2021 third quarter was a strong quarter, but as expected below the record 2020 third quarter results, which included high margin, windfall banknote substrate orders for CCL Secure. Avery’s third quarter improved dramatically with a more normalized back-to-school season in North America compared to a 2020 third quarter that was chaotic due to limitations related to the CV19 pandemic. Checkpoint and Innovia’s results, although solid for the third quarter of 2021, were impacted by inflation cost pressures. 2 . B U S I N E S S S E G M E N T R E V I E W A) General All divisions of the Company invest 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. Throughout the pandemic 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 in which 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. Avery, Checkpoint 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. 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 generally operates in a mature and competitive environment. For a number of 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, and more recently in 2021, obvious inflationary input 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, Innovia and parts of the CCL 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 2019 through 2021. The success of the Company is dependent on each business managing the cost-and-price equation with suppliers and customers. A driver across the Company 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 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. 18 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT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 large-scale 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 parts of 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. Innovia, 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. During 2021, the Company commenced construction of the previously announced $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. Commercial production is scheduled to commence in the second quarter of 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 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 the wider Company’s 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-article-surveillance 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, security 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 Segment, Avery, Checkpoint and Innovia 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 16 companies over the past eight years, to leverage acquired digital printing software into the pre-existing Avery suite. Avery products are most often 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 performance are recognized attributes for the success of these brands. 19 2021 ANNUAL REPORTThe Company deploys many initiatives to reduce the carbon footprint of its products and services to ensure the business is sustainable. A few of the notable items in 2021 that advanced the Company’s sustainability and environmental goals: CCL Label won the prestigious German Packaging Award for EcoStretchTM, which delivers a practical concept for a closed-loop recycling solution that turns used stretch sleeves into pellets that then feed back into the manufacturing process. Avery’s site in Italy has partnered with Treedom to promote the process of reforestation of the planet and the local economies of certain countries by committing to plant trees on behalf of consumers that use the Company’s labels. Innovia has launched a new family of highly functional recyclable BOPP films named Encore, which are manufactured from renewable, non-food based raw materials and help to reduce the use of fossil-based virgin raw materials. CCL Label was honored at the Korea Star Awards 2021 for its innovative, patented multipack label solution, which reduces material usage by up to 85%, while also delivering improved recycling and cost savings. Business Segment Results Segment sales CCL Avery Checkpoint Innovia Total sales Operating income* CCL Avery Checkpoint Innovia Operating income 2021 2020 $ $ $ $ 3,498.2 708.9 772.5 753.2 5,732.8 545.8 148.8 115.5 81.2 891.3 $ $ $ $ 3,357.6 634.2 635.5 615.0 5,242.3 552.8 113.3 80.3 77.1 823.5 * This is a non-IFRS measure. Refer to “Key Performance Indicators and Non-IFRS Measures” in Section 5A. 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 (with Label substituted as relevant for Tube and Container product lines) 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. It also supplies 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, high- performance 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 150 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, 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. 20 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT 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 one of the largest consolidated operators in most of its defined global market sectors. Competition often comes from single-plant businesses, invariably 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 are few major competitors with the product breadth, global reach and scale of the CCL Segment. The Company has completed numerous label business 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 in house 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 are updated, reflecting current market costs and new shapes and designs. CCL’s global customers expect 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 and value-added 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, as well as 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. CCL Segment Financial Performance Sales Operating income Return on sales 2021 % Growth $ $ 3,498.2 545.8 15.6% $ 4.2% (1.3%) $ 2020 3,357.6 552.8 16.5% Sales in the CCL Segment for 2021 increased 4.2% to $3,498.2 million, compared to $3,357.6 million in 2020, driven by organic growth of 6.9% and 1.7% from acquisition-related growth, partially offset by 4.4% negative impact from foreign currency translation. Sales in 2021 for North America were up high single digit excluding the impact of currency translation and acquisitions, compared to 2020. Home & Personal Care sales and profitability increased on better demand for tubes, aerosols and specialty bottles for travel size, beauty, cosmetic and skin care products, with labels only modestly up organically as cleansing and sanitizing-related demand fell dramatically. Healthcare & Specialty sales declined modestly with profitability up in Ag Chem but down in Healthcare as pandemic related demand waned. Food & Beverage posted improved results in both sleeves and pressure sensitive labels driven by higher “on-premise” demand for customers. CCL Design sales and profitability increased modestly as automotive demand improved very significantly over an extremely weak prior year in the first half; however rising semiconductor supply chain challenges as 2021 unfolded reduced the gains in automotive and electronic markets for the year. Overall, profitability and return on sales improved despite rising inflationary impacts. 21 2021 ANNUAL REPORT European sales were up low single digit for 2021, excluding currency translation and acquisitions compared to 2020. Home & Personal Care sales declined slightly but profitability improved on strong results in the U.K. and Poland. Healthcare & Specialty sales increased on gains in Healthcare, however, share loss in Ag Chem markets and operational challenges in the Nordic region reduced profitability. Food & Beverage results were mixed with gains in pressure sensitive labels as “on-premise” demand partly returned. Share loss related declines in sleeves in the U.K. were partly offset by foreign exchange devaluation benefits in Turkey while significant raw materials inflation impacted everywhere. CCL Design sales and profitability increased in comparatively stronger automotive and industrial markets, offsetting softer mix in electronics markets. CCL Secure results reduced very significantly as 2020 included unexpected high margin pandemic-related demand for banknotes. European overall profitability and return on sales declined. Sales in Latin America, excluding currency translation, increased double digit for 2021 compared to 2020. Sales and profitability improved in Mexico in all business lines bar CCL Secure, compared to a very strong prior year aided by new currency launches. In Brazil, sales improved significantly with gains across all product categories (especially Food & Beverage) outpacing profitability improvement due to mix changes and devaluation compounded inflation. Foreign currency translation drove a decline in operating income for 2021 compared to 2020 in Brazil while Argentina and Chile posted improved results. Excluding the impact of currency translation, overall operating income for the region improved but return on sales fell compared to 2020. Asia Pacific 2021 sales, excluding acquisitions and currency translation were up double digit compared to 2020. Sales growth in China was particularly strong, driven by CCL Design on new business wins, with profitability held by start-up costs, softer mix and the absence of government assistance programs that benefitted 2020. Sales and profitability across ASEAN markets declined compared to the prior year period, as all countries remain challenged by some of the toughest CV19 restrictions in the world, most notably in Vietnam. In Australia, sales and profitability increased on strong results for CCL Secure and improved results for Healthcare and Wine label operations. The new Beverage plant in South Africa posted significantly improved results in its first full year of operation. For the Asia Pacific region, operating income declined slightly and return on sales fell. Operating income for the CCL Segment declined by 1.3% to $545.8 million for 2021 compared to $552.8 million for 2020, principally due to the decline in CCL Secure results as the prior year included an unexpected surge in high margin pandemic-related demand for banknotes. Foreign currency translation also had a negative effect of 4.6% on 2021 operating income compared to 2020. Operating income as a percentage of sales decreased to 15.6% in 2021 compared to the 16.5% return generated in the prior year, due to the mix effect of high banknote demand in 2020 and the impact of inflation, especially in the second half of 2021. The CCL Segment invested $230.6 million in capital spending in 2021 compared to $197.8 million last year. The major expenditures were for equipment installations and new plants to support capacity additions globally. Depreciation and amortization, excluding amortization on right-of-use assets, for the CCL Segment was $205.3 million in 2021, compared to $209.3 million in 2020. C) Avery Avery is one of 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 mass- market 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, key cards, wristbands, planners & journals 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 demand typically surges for the back-to-school season during the third quarter. Avery operates 23 manufacturing and three distribution facilities. Sales for Avery are principally generated in North America, Europe and Australia, with a market-leading position. There is a small presence in Latin America. Most products are sold under the market-leading Avery brand and, with equal prominence in German-speaking countries, under the Zweckform brand name that is better known by consumers in that part of Europe, as well as the direct-to-consumer brands: • pc/nametag • Easy2Name • InTouch • Mabel’s Labels • Colle à Moi • Plum Paper • goedgemerkt • Stuck on You • MasterTag • badgepoint • IDentilam • RFID Hotel • Imprint Plus • I.D.&C. 22 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT Avery reaches some of its consumers and end users at small businesses through distribution channels including mass- market merchandisers, office superstores, wholesalers, contract stationers, mail order and e-commerce retailers. Merger activity and store closures in some of 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. Secular decline in the OPG category and core mailing address labels has been partly offset by innovations such as shipping and product identification labels and Avery’s proprietary direct-to- consumer e-commerce label design software platform WePrint™. Furthermore, starting in 2014 with Nilles, and with 16 more acquisitions since, Avery expanded its digital printing franchises to custom roll labels, the digital graphic arts sector, the meetings and events planning industry, personalized identification labels for children and families, event badges and wristbands, personalized planners and journals, RFID enabled keycards and wristbands and horticultural labels and tags. Some of these e-commerce platforms expanded rapidly during the pandemic while others, such as event and corporate identity name badges weakened, and some very significantly. 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 Financial Performance Sales Operating income Return on sales 2021 % Growth $ $ 708.9 148.8 21.0% 11.8% 31.3% $ $ 2020 634.2 113.3 17.9% Avery sales for 2021 were $708.9 million an 11.8% improvement compared to the $634.2 million posted in 2020, surpassing 2019 performance in constant currency. The increase was due to 14.7% organic growth, 1.8% acquisition-related growth, partially offset by a 4.7% negative impact of foreign currency translation compared to 2020. North American sales increased double digits for 2021, excluding currency translation and acquisitions, compared to 2020. Sales and profitability in Printable Media, OPG and “Kids’ labels” product lines rebounded including a significantly stronger back-to-school season compared to the pandemic chaos of 2020. Sales and profitability for Direct-to-Consumer name, event badge and wristband categories improved dramatically as sports and entertainment events trended toward 2019 levels, but conventions, meetings and conferences although improved, still lagged pre-pandemic levels, in some cases significantly. “WePrint™” and other online label categories as well as the newly acquired Plum platform posted strong results for 2021. Overall profitability increased substantially and return on sales improved despite the substantial raw material and freight inflation combined with supply availability challenges. International sales, largely generated from products in the Printable Media and Direct-to-Consumer categories, represent approximately 30% of the Avery Segment for 2021. Sales, excluding acquisitions and currency translation, were up double digit in Europe with significant organic growth across all the direct-to-consumer categories. Legacy Printable Media operations posted significantly improved results compared to 2020. Results bounced back in the smaller Asia Pacific and Latin American business units as pandemic-related consumer restrictions partly abated in 2021. Operating income increased 31.3% to $148.8 million for 2021 compared to $113.3 million in 2020. Return on sales of 21.0% for 2021 improved compared to 17.9% for 2020, largely due to a partial reversal of the pandemic’s adverse 2020 impact on direct-to-consumer name badging operations globally and a better back-to-school season in North America. Avery invested $14.7 million in capital spending for 2021, compared to $22.0 million for 2020. The majority of the expenditures in 2021 were for capacity additions in the direct-to-consumer operations in North America and Europe. Depreciation and amortization, excluding amortization on right-of-use assets, was $19.0 million for 2021 compared to $19.3 million for 2020. D) Checkpoint Overview 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 globally. There are three primary product lines: MAS, ALS and Meto. The MAS line focuses on electronic-article-surveillance (“EAS”) systems, including 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 and promotional in-store displays. All MAS and ALS products are sold under the Checkpoint brand. 23 2021 ANNUAL REPORT Checkpoint is supported by 24 manufacturing facilities, eight distribution facilities and three product and software development centres globally. Checkpoint is headquartered in the United States but uses its worldwide 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 the move to an ‘omni-channel’ 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 related consumables. The Company is also confident that Checkpoint can capture its share of the fast growing RFID market as retailers move increasingly to ‘omni-channel’ distribution from a single inventory position. Checkpoint Financial Performance Sales Operating income Return on sales 2021 % Growth $ $ 772.5 115.5 15.0% 21.6% 43.8% $ $ 2020 635.5 80.3 12.6% Checkpoint sales were $772.5 million for 2021, a 21.6% increase compared to $635.5 million for 2020, driven by 23.0% organic growth, 3.2% acquisition growth partially offset by a 4.6% negative impact from foreign currency translation. Checkpoint experienced a dramatic turnaround in sales and profitability in 2021 posting a record year as CV19-related restrictions subsided, compared to the shutdown of all non-essential retail in the first and second quarters of 2020. Consequently MAS sales and profitability improved in all regions despite the significant impact of higher freight from China and inflation in key electronic components. ALS results exceeded management’s highest expectations with continued rapid growth in RFID volumes, even when compared to the vastly improved results in 2020 over 2019. Currency devaluation in Turkey aided profitability. Furthermore, the recent acquisitions of Eti-Textil and Uniter augmented results by adding new geographies and customers. The smaller Meto business recorded improved performance for 2021 compared to 2020. Operating income for 2021 was $115.5 million, an increase of 43.8% compared to $80.3 million in 2020. Return on sales improved to 15.0% for 2021, compared to 12.6% for 2020. Return on sales increased due to the much reduced impact of the pandemic in 2021 compared to 2020. Checkpoint invested $31.5 million in capital spending for 2021, compared to $22.0 million for 2020. The majority of expenditures in 2021 were in the Asia Pacific region to enhance capacity in ALS manufacturing facilities. Depreciation and amortization, excluding amortization on right-of-use assets, was $31.3 million for 2021, compared to $29.1 million for 2020. E) Innovia Innovia operations acquired in 2017, Treofan acquired in 2018, Flexpol acquired in 2020 and two small legacy film manufacturing facilities transferred from the CCL Segment make up this business. Innovia’s global footprint for the manufacture of specialty high-performance, multi-layer, surface-engineered BOPP films, includes major facilities located in each of Australia, Belgium, Mexico, Poland and the United Kingdom. These films are sold to customers in the pressure sensitive 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. In addition, 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. Polypropylene cost increases in North America outpaced rises in Europe throughout 2021, stabilizing during the fourth quarter of this year and into 2022. 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. 24 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT Throughout 2021, Innovia has been constructing the new capacity investment in Poland 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 is scheduled to commence commercial production by the end of the second quarter in 2022. Innovia Financial Performance Sales Operating income Return on sales 2021 % Growth $ $ 753.2 81.2 10.8% 22.5% 5.3% $ $ 2020 615.0 77.1 12.5% Innovia sales for 2021 increased 22.5% to $753.2 million, compared to $615.0 million in 2020, attributable to 24.1% organic growth and 2.3% acquisition-related growth, partially offset by 3.9% negative impact from foreign currency translation. The significant organic gain was predominantly fueled by pass-through pricing mechanics associated with dramatically higher resin costs, although additional volume in North America also supported growth. Operating income improved 5.3% to $81.2 million compared to $77.1 million for 2020. Pass-through pricing mechanisms largely recovered higher polypropylene resin cost, especially in North America. Productivity initiatives that began in 2020 supplemented operating margin in the first half of 2021 were more than eliminated in the back half by substantial inflation in energy and freight costs, especially in Europe. Return on sales declined to 10.8% for 2021 compared to 12.5% for 2020. Innovia invested $47.0 million in capital spending for 2021 largely for the new European Ecofloat line, compared to $41.0 million for 2020. Depreciation and amortization, excluding amortization on right-of-use assets, for the Innovia Segment was $46.1 million for 2021, compared to $46.2 million for 2020. F) Joint Ventures For the years ended December 31 Sales (at 100%) CCL Label joint ventures Rheinfelden* Earnings (losses) in equity-accounted investments (at 100%) CCL Label joint ventures Rheinfelden Earnings in equity-accounted investments (at 50%) * primarily sales to CCL Segment 2021 143.5 – 143.5 22.5 – 22.5 11.2 $ $ $ $ $ 2020 133.2 3.0 136.2 19.5 (0.5) 19.0 9.5 $ $ $ $ $ +/- 7.7% n.m. 5.4% 15.4% n.m. 18.4% 17.9% 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, Rheinfelden in the U.S. are not proportionately consolidated into a Segment but instead 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. Earnings in equity-accounted investments amounted to $11.2 million for 2021, compared to $9.5 million for 2020. Excluding the impact of foreign currency translation, sales and earnings in equity-accounted investments improved 13.8% and 27.3%, respectively. 25 2021 ANNUAL REPORT 3 . F I N A N C I N G A N D R I S K M A N AG E M E N T A) Liquidity and Capital Resources The Company’s leverage ratio is as follows: For the years ended December 31 Current debt Current lease liabilities Long-term debt Long-term lease liabilities Total debt(1) Cash and cash equivalents Net debt(1) Adjusted EBITDA Net debt to Adjusted EBITDA(1) $ $ $ 2021 15.3 32.7 1,691.4 111.9 1,851.3 (602.1) 1,249.2 1,173.1 1.06 $ $ $ 2020 51.8 34.2 1,889.4 119.2 2,094.6 (703.7) 1,390.9 1,123.2 1.24 (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. 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. The term facility was completely repaid during 2021. The Company’s debt structure at December 31, 2021, was primarily comprised of the 144A 3.05% private notes due June 2030 in the principal amount of US$600.0 million ($750.5 million), 144A 3.25% private notes due October 2026 in the principal amount of US$500.0 million ($627.4 million), the $300.0 million principal amount 3.864% Series 1 Notes due April 2028, and borrowings of $9.5 million on the Company’s syndicated revolving credit facility. Outstanding contingent letters of credit totaled $3.5 million; accordingly, there was approximately US$1.19 billion of unused availability on the revolving credit facility at December 31, 2021. 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$600.0 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. Net debt was $1,249.2 million at December 31, 2021, $141.7 million lower than the net debt of $1,390.9 million at December 31, 2020. Net debt declined due to net long-term debt repayments, inclusive of lease obligation repayments of $269.5 million, offset by the impact of foreign currency translation on net debt. Net debt to Adjusted EBITDA decreased to 1.06 times as at December 31, 2021, compared to 1.24 times at the end of 2020, 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 2.42% as at December 31, 2021, and 2.29% at December 31, 2020 reflecting the impact of the full repayment of the Company’s variable rate term loan facility. Interest coverage (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) was 14.6 times and 11.9 times in 2021 and 2020, 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. 26 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT B) Cash Flow Summary of Cash Flows Cash provided by operating activities Cash used for financing activities Cash used for investing activities Effect of exchange rates on cash Increase (decrease) in cash and cash equivalents Cash and cash equivalents – end of year 2021 838.7 (370.0) (541.3) (29.0) (101.6) 602.1 $ $ $ 2020 882.9 (461.3) (428.0) 6.5 0.1 703.7 $ $ $ In 2021, cash provided by operating activities was $838.7 million, compared to $882.9 million in 2020. Free cash flow from operations (a non-IFRS measure; see “Key Performance Indicators and Non-IFRS Measures” in Section 5A) was $531.8 million for 2021, compared to $616.3 million in the prior year. Driving the change in these metrics for 2021 were increased earnings offset by days working capital employed, increased income taxes paid and, for the latter metric, increased net capital expenditures compared to 2020. 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 29 days and 23 days at December 31, 2021, and December 31, 2020, respectively. The days working capital employed increased as the Company was impacted by significant inflationary pressure in the fourth quarter captured in inventory and accounts receivable not offset by a corresponding increase in accounts payable relative to the fourth quarter sales growth. Cash used for financing activities in 2021 was $370.0 million, consisting of net principal repayments of long-term debt and lease obligations of $269.5 million and dividend payments of $151.0 million, partly offset by proceeds from the issuance of shares of $50.5 million due to the exercise of stock options. Cash used for investing activities in 2021 of $541.3 million was primarily for acquisitions that totaled $234.4 million and net capital expenditures of $306.9 million. After the above noted items and the $29.0 million negative effect of foreign currency rates, cash and cash equivalents decreased by $101.6 million in 2021 to $602.1 million. Capital spending in 2021 amounted to $323.8 million and proceeds from capital dispositions were $16.9 million, resulting in net capital expenditures of $306.9 million, compared to $266.6 million in 2020. Management increased capital expenditures in 2021 after preserving capital in 2020 with the uncertain impact of the global CV19 pandemic. Depreciation and amortization in 2021 amounted to $302.8 million, compared to $305.0 million in 2020, excluding right-of-use asset amortization. The Company is continuing to seek investment opportunities to expand its business geographically, add capacity in its facilities and improve its competitiveness. As in previous years, capital spending will be monitored closely and adjusted based on the level of cash flow generated. 27 2021 ANNUAL REPORT 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 2021 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, 2021, 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 $14.0 million for the year ended December 31, 2021 (2020 - $14.9 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, 2021, the Company had $16.3 million potential exposure to credit risk arising from derivative financial instruments. As at December 31, 2021, the Company had just over US$1.1 billion drawn under the 144A private bonds and syndicated revolving 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. D) Equity and Dividends Summary of Changes in Equity For the years ended December 31 Net earnings Dividends Settlement of exercised stock options Contributed surplus on expensing of stock options and stock-based compensation plans Defined benefit plan actuarial gain (loss), net of tax Increase in accumulated other Comprehensive loss Increase in equity Equity Shares issued at December 31 – Class A (000s) – Class B (000s) $ $ $ 2021 599.1 (151.0) 61.8 17.0 37.1 (99.2) 464.8 3,747.0 11,822 168,362 $ $ $ 2020 529.7 (128.7) 31.3 8.6 (3.5) (52.9) 384.5 3,282.2 11,836 167,380 In 2021, the Company declared dividends of $151.0 million, compared to $128.7 million declared in the prior year. As previously discussed, the dividend payout ratio in 2021 was 25% (2020 – 23%) of adjusted earnings. After careful review of the current year results, budgeted cash flow and income for 2022, the Board declared a 14.3% increase in the annual dividend: an increase of $0.03 per Class B share per quarter, from $0.21 to $0.24 per Class B share per quarter ($0.96 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 2021. 28 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT E) Commitments and Other Contractual Obligations The Company’s obligations relating to debt, leases and other liabilities at the end of 2021 were as follows: December 31, 2020 Payments Due by Period December 31, 2021 Carrying Carrying Amount Amount Contractual Cash Flows 0-6 6-12 Months Months 1-2 Years 2-5 Years More than 5 Years 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 $ $ 0.8 52.1 4.8 10.1 $ 4.8 10.1 $ $ 1.4 6.8 $ 1.4 0.9 1.9 1.0 $ 0.1 1.0 $ 630.8 627.4 631.8 754.8 750.5 758.2 298.6 298.8 300.0 (1.9) 204.8 1.1 * * * * 9.5 – 5.6 * * * * 11.0 – 5.6 4.8 * 92.4 * 192.3 * 69.9 * – – – – – 4.8 0.8 5.2 9.7 3.3 * 1,135.7 * 1,321.5 0.4 0.2 1,321.5 * 1,321.5 * 153.4 * 144.6 206.2 * 158.3 2.3 19.5 – – – – – – 0.7 10.2 11.5 5.7 0.1 – 2.3 17.7 – – – – 0.3 1.5 20.5 23.1 11.6 0.1 – 16.0 27.1 631.8 – – 11.0 – 0.5 1.8 56.5 69.4 34.8 – – 63.1 47.2 – 0.4 – 758.2 300.0 – – – – – 78.6 14.5 – – 122.5 46.8 $ 3,230.2 $ 3,172.8 $ 3,767.3 $ 1,375.5 $ 50.5 $ 103.1 $ 917.2 $ 1,321.0 * Accrued long-term employee benefit and post-employment benefit liability of $13.8 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 $2.4 million on derivatives are reported in trade and other payables in 2021 (2020: $12.4 million, $9.6 million and $2.5 million, respectively). 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 2021 was $782.6 million (2020 – $836.5 million) and the fair value of the plan assets was $468.7 million (2020 – $454.8 million), for a net deficit of $313.9 million (2020 – $381.7 million). Contributions to defined benefit plans during 2021 were $17.3 million (2020 – $16.2 million). The Company expects to contribute $50.4 million to pension plans in 2022, 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 2021 annual consolidated financial statements. 29 2021 ANNUAL REPORT Other Obligations and Commitments The Company has provided various loan guarantees for its joint ventures and associates totaling $21.3 million (2020 – $23.3 million). The Company has posted surety bonds through accredited insurance companies globally totaling $39.7 million (2020 – $57.0 million). The nature of these commitments is described in note 26 and note 27 of the Company’s 2021 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. CCL’s Disclosure Committee reviews all external reports and documents of CCL before publication to enhance the Company’s disclosure controls and procedures. As at December 31, 2021, based on the continued evaluation of the disclosure controls and procedures, the CEO and the CFO have concluded that CCL’s disclosure controls and procedures, as defined in National Instrument 52-109, Certificate of Disclosure in Issuers Annual and Interim Filings (“NI 52-109”), are effective to ensure that information required to be disclosed in reports and documents that CCL 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 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 its most recent interim period that has materially affected or is reasonably likely to materially affect its internal control over financial reporting. In accordance with the provisions of NI 52-109, management, including the Chief Executive Officer, and the Chief Financial Officer, have limited the scope of their design of the Company’s disclosure controls and procedures and internal control over financial reporting to exclude controls, policies and procedures of IMP, LAS, Laramara, Tecnoblu, and D&F. These companies were acquired during the month of December 2021. The total net assets acquired for these acquisitions was $157.6 million, which are reported in the Company’s consolidated financial statements of financial position for the year ended December 31, 2021, and was approximately 4% of consolidated net assets and less than 1% of sales. The scope limitation is primarily based on the time required to assess disclosure controls and procedures and internal control over financial reporting in a manner consistent with the Company’s other operations for these acquisitions. The assessment on the design effectiveness of disclosure controls and procedures and internal control over financial reporting is on track for completion by the end of the second quarter of 2022 and the assessment of the operating effectiveness will be completed by the fourth quarter of 2022. Except for the preceding changes, based on the evaluation of the design and operating effectiveness of CCL’s internal control over financial reporting, the CEO and the CFO concluded that the Company’s internal control over financial reporting was effective as at December 31, 2021. There were no material changes in internal control over financial reporting in the financial year ended December 31, 2021. 30 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT4 . R I S KS A N D U N C E R TA I N T I E S 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, 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 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 2022 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. 31 2021 ANNUAL REPORTRaw Materials Component Parts and Inflation 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 sub-assemblies 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 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. 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 2021 were approximately 98% of the Company’s total sales, a level similar to that in 2020. 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 2021, 39% 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 2021 were 27% of the Company’s total sales. In addition, the Company has equity accounted investments in Russia and the Middle East. There are risks associated with operating a decentralized organization in 204 manufacturing facilities in 43 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. 32 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT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 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 Checkpoint enjoys the advantage of significantly lower customer concentration than the rest of the Company, it remains 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 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 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. 33 2021 ANNUAL REPORT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 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 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. 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. 34 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORTDependence on Customers The Company has a modest dependence on certain customers. The Company’s two largest customers combined accounted for approximately 8.1% (2020 – 9.0%) of the consolidated revenue for the fiscal year 2021. The five largest customers of the Company represented approximately 15.2% (2020 – 16.2%) of the total revenue for 2021 and the 25 largest customers represented approximately 35.8% (2020 – 35.8%) 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 market 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 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. 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. 35 2021 ANNUAL REPORT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, 2021. In order to have a reasonable level of assurance that financial transactions are properly authorized, assets are safeguarded against unauthorized or improper use 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. Although Innovia has a unique manufacturing process for a portion of its BOPP product line 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. 36 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT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 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 was reported in Restructuring and Other Items in 2020. 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 co-defendants 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 thirteen 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, 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. 37 2021 ANNUAL REPORT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, 2021, 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 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. 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. 38 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT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. 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 204 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. 39 2021 ANNUAL REPORT5. AC C O U N T I N G P O L I C I E S A N D N O N - I F R S M E A S U R E S 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 be comparable to similar measures presented by other issuers. 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 Basic earnings Net loss from restructuring and other items New UK Tax Legislation Adjusted basic earnings Three Months Ended December 31 Twelve Months Ended December 31 2021 0.80 0.01 – 0.81 $ $ 2020 0.81 0.03 – 0.84 $ $ 2021 3.33 0.02 0.02 3.37 $ $ 2020 2.96 0.12 – 3.08 $ $ 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 may allow 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. 40 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT The following table reconciles Adjusted EBITDA measures to IFRS measures reported in the annual consolidated income statements for the periods ended as indicated. Net earnings Corporate expense Earnings in equity-accounted investments Finance cost, net Restructuring and other items Income taxes Operating income Less: Corporate expense Add: Depreciation and amortization Adjusted EBITDA (a non-IFRS measure) Three Months Ended December 31 Twelve Months Ended December 31 2021 145.1 18.2 (4.8) 13.9 1.1 35.3 208.8 (18.2) 86.6 $ $ 2020 145.9 16.4 (4.0) 15.8 5.8 33.4 213.3 (16.4) 87.0 $ $ 2021 599.1 60.6 (11.2) 56.9 4.4 181.5 891.3 (60.6) 342.4 $ $ 2020 529.7 46.7 (9.5) 65.2 27.6 163.8 823.5 (46.7) 346.4 277.2 $ 283.9 $ 1,173.1 $ 1,123.2 $ $ $ 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 At December 31 Trade and other receivables Inventories Prepaid expenses Income taxes recoverable Trade and other payables Income taxes payable Net working capital Days in quarter Fourth quarter sales Days of working capital employed $ $ $ 2021 1,083.8 677.3 46.5 37.9 (1,321.5) (48.5) 475.5 92 1,488.8 29 $ $ $ 2020 922.8 533.5 35.3 29.0 (1,135.7) (40.3) 344.6 92 1,350.6 23 Dividend Payout Ratio – The ratio of earnings paid out to the shareholders. It provides an indication of how well earnings support the dividend payments. Dividend payout ratio is defined as dividends declared divided by earnings, excluding goodwill impairment loss, non-cash acquisition accounting adjustments, restructuring and other items, and tax adjustments, (together “Adjusted earnings”) expressed as a percentage. Dividend Payout Ratio Dividends declared per equity Adjusted earnings Dividend payout ratio 2021 151.0 606.0 $ $ 2020 128.7 550.5 $ $ 25% 23% 41 2021 ANNUAL REPORT 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. Free Cash Flow from Operations Cash provided by operating activities Less: Additions to property, plant and equipment Add: Proceeds on disposal of property, plant and equipment Free cash flow from operations Twelve months ended December 31 2021 838.7 (323.8) 16.9 $ 2020 882.9 (282.8) 16.2 531.8 $ 616.3 $ $ 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. Interest Coverage Operating income (a non-IFRS measure; see definition below) Less: Corporate expense Net finance cost Interest coverage Twelve months ended December 31 2021 891.3 (60.6) 830.7 56.9 14.6 $ $ $ 2020 823.5 (46.7) 776.8 65.2 11.9 $ $ $ 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, which includes bank advances, plus long-term debt and lease liabilities, 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. 42 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT 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. Return on Equity Net earnings Restructuring and other items (net of tax) New UK Tax Legislation Adjusted net earnings Average equity Return on equity Twelve months ended December 31 2021 599.1 3.5 3.4 606.0 3,514.6 17.2% $ $ $ 2020 529.7 20.8 – 550.5 3,090.0 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 Sales CCL Avery Checkpoint Innovia Total sales Operating income CCL Avery Checkpoint Innovia Total operating income Return on sales CCL Avery Checkpoint Innovia Total return on sales $ $ $ $ Three Months Ended December 31 $ $ $ $ 2021 883.2 179.9 226.8 198.9 1,488.8 121.5 38.4 36.4 12.5 208.8 13.8% 21.3% 16.0% 6.3% 14.0% 2020 860.2 150.8 189.3 150.3 1,350.6 136.4 27.0 32.2 17.7 213.3 15.9% 17.9% 17.0% 11.8% 15.8% Twelve Months Ended December 31 2021 2020 $ $ $ $ 3,498.2 708.9 772.5 753.2 5,732.8 545.8 148.8 115.5 81.2 891.3 $ $ $ $ 3,357.6 634.2 635.5 615.0 5,242.3 552.8 113.3 80.3 77.1 823.5 15.6% 21.0% 15.0% 10.8% 15.5% 16.5% 17.9% 12.6% 12.5% 15.7% 43 2021 ANNUAL REPORT Return on total capital before goodwill impairment loss, restructuring and other items, non-cash acquisition accounting adjustments, 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 end-of-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. Return on Total Capital Net earnings Restructuring and other items (net of tax) New UK Tax Legislation Adjusted net earnings Average total capital Return on total capital Twelve Months Ended December 31 2021 599.1 3.5 3.4 606.0 4,834.7 12.5% $ $ $ 2020 529.7 20.8 – 550.5 4,643.5 11.9% $ $ $ 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 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. 44 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORT During the 2021 fourth quarter, the Company completed its impairment test as at September 30, 2021. 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 3% to 5% and pre-tax discount rates ranging from 8% to 10%. 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 2021 and 2020, 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 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 2021 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 2021 annual consolidated financial statements. 45 2021 ANNUAL REPORT6. O U T LO O K 2021 was another tumultuous year with pandemic-related challenges in each corner of the world. The Company prioritized its commitment to safety for its employees, customers and suppliers but remained open for business everywhere. Growth remained in focus with the closing of nine accretive acquisitions and investing $306.9 million in net capital expenditures. All in for 2021, the Company posted record adjusted earnings per share of $3.37 per Class B share compared to $3.08 per Class B share for 2020 and a strengthened balance sheet. 2022 has started as a period of adjustment, the pandemic is entering a third year, Governments and citizens are learning to persevere, armed with more information and therefore making more calculated decisions. The Omicron variant appears to be less fatal than previous versions and optimists view that it is reaching the endemic stage; however, the final outcome remains unknown. What is certain is that the inflationary cost pressures of 2021 will continue in 2022 as global supply availability issues persist and, if anything, might worsen near-term. The tailwinds of fiscal stimulus is likely to decelerate with monetary policy tightening, resulting in potentially more unpredictable economic activity in 2022. Therefore, passing on input cost changes to the Company’s customers will be very important while managing likely continued volatility in currency markets. The CCL Segment reported a solid year in 2021 compared to 2020, with organic growth and profitability improvement across all vertical markets, except for the anticipated decline at CCL Secure that offset profitability improvements elsewhere. 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. Avery’s sales and profitability improved dramatically compared to a prior year significantly hampered by pandemic-related issues. For 2022, Avery’s Direct-to-Consumer event and name badging operations should continue to improve globally as large-scale business meetings and trade conventions trend back to pre-pandemic levels. “Kids’ labels” and “WePrintTM” sales are expected to remain solid. Avery’s PMG and OPG product groups in North America should improve as bricks-and- mortar retail strengthens and onsite office-employee density increases. Checkpoint results improved significantly in 2021, compared to prior year that was temporarily stalled due to shutdowns in the retail and apparel industry during the first six months of 2020. Checkpoint has significant exposure to ASEAN and Indian sub-continent locations where pandemic-related restrictions remain more severe than the rest of the world. Supply chain challenges and inflationary cost pressures remain on the watch; efficiency initiatives and price increases will be needed to offset where applicable. Innovia faced significant polypropylene resin cost increases in 2021 but successfully passed them on to customers. Effectively managing input cost volatility, energy and freight cost inflation while offsetting with enhanced productivity efforts and, as appropriate, price adjustments remain mission critical. Completing and successfully starting up the proprietary new “Ecofloat” shrink film line in Europe will be at the forefront for 2022. The Company concluded the year with cash on hand of $602.1 million and unused availability on the revolving credit facility at approximately US$1.19 billion. The Company’s liquidity position is robust, with a net debt leverage ratio of 1.06 times Adjusted EBITDA at the end of the current year, 0.18 turns lower than 2020, despite closing on nine acquisitions in the year. 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 2022 to be approximately $380.0 million, supporting organic growth and new greenfield opportunities globally. First-quarter orders have been solid so far, but pandemic uncertainties continue. Expected supply chain challenges and inflationary cost pressures will need to be managed amidst once-in-a-generation conditions. Should demand remain solid, and recent acquisitions meet expectations, results for 2022 should strengthen. 46 MANAGEMENT’S DISCUSSION AND ANALYSIS Years ended December 31, 2021 and 2020 (Tabular amounts in millions of Canadian dollars, except per share data)2021 ANNUAL REPORTKPMG LLP 100 New Park Place, Suite 1400 Vaughan, ON L4K 0J3 Tel 905-265 5900 Fax 905-265 6390 www.kpmg.ca INDEPENDENT AUDITORS’ REPORT To the Shareholders of CCL Industries Inc. Opinion We have audited the consolidated financial statements of CCL Industries Inc. (the Entity), which comprise: • • • • • • the consolidated statements of financial position as at December 31, 2021 and December 31, 2020 the consolidated income statements for the years then ended the consolidated statements of comprehensive income for the years then ended the consolidated statements of changes in equity for the years then ended the consolidated statements of cash flows for the years then ended and notes to the consolidated financial statements, including a summary of significant accounting policies (hereinafter referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2021 and December 31, 2020, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “Auditors’ Responsibilities for the Audit of the Financial Statements” section of our auditors’ report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other responsibilities in accordance with these requirements. KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP. 47 2021 ANNUAL REPORTCCL Industries Inc. February 24, 2022 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2021. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matter described below to be the key audit matter to be communicated in our auditors’ report. Evaluation of goodwill and brands impairment analysis for each Cash-Generating Unit (CGU) Description of the matter We draw attention to Notes 2(d), 3(e), 3(h(i)) and 13 of the financial statements. The goodwill and brands balances were $1,975.1 million and $423.3 million, respectively. The Entity performs goodwill and indefinite life assets impairment testing annually or more frequently when events or circumstances indicate that the carrying amount may not be recoverable. The recoverable amount is the higher of a CGU’s fair value, less costs to sell, and its value in use. In assessing the value in use, future cash flows were discounted. Key assumptions used in the determination of the value in use include growth rates and discount rates. Why the matter is a key audit matter We identified the evaluation of goodwill and brands impairment analysis for each CGU as a key audit matter. This matter represented an area of significant risk. Significant auditor attention and significant auditor judgment, in particular that of senior team members and valuation professionals with specialized skills and knowledge, was required in performing and evaluating the results of our procedures. How the matter was addressed in our audit The primary procedures we performed to address this key audit matter included the following: We calculated historical profitability growth rates and compared those rates against the rates predicted by the Entity for each CGU. We considered whether the current pandemic environment or internal and external communications made by the Entity are indicative of a continuation of, or a change from past experience. We involved valuation professionals with specialized skills and knowledge, who assisted in assessing the appropriateness of the discount rate of each CGU, which was based on weighted average cost of capital (WACC) by comparing the Entity’s WACC to a WACC range that was independently developed using publicly available market data including risk premiums, betas and debt to capital ratios for comparable entities. 48 2021 ANNUAL REPORTCCL Industries Inc. February 24, 2022 We assessed the reasonableness of the recoverable amount of goodwill and brand assets for each CGU by developing an estimated recoverable amount using the Entity’s future cash flows for each CGU and the independently developed discount rate developed by valuation professionals above, and comparing the result to the Entity’s estimated recoverable amount for each CGU. We performed sensitivity analyses over key assumptions and assessed the impact on the Entity’s determination that the estimated recoverable amount of each CGU exceeded the carrying amount of the CGU. Other Information Management is responsible for the other information. Other information comprises: • • the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions. the information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “Annual Report”. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated. We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report. We have nothing to report in this regard. The information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “Annual Report” is expected to be made available to us after the date of this auditors’ report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and 49 2021 ANNUAL REPORTCCL Industries Inc. February 24, 2022 using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity’s financial reporting process. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying 50 2021 ANNUAL REPORTCCL Industries Inc. February 24, 2022 transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. • Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. • Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditors’ report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Chartered Professional Accountants, Licensed Public Accountants The engagement partner on the audit resulting in this auditors’ report is Tammy L. Brown. Vaughan, Canada February 24, 2022 51 2021 ANNUAL REPORTC O N S O L I D AT E D S TAT E M E N T S O F F I N A N C I A L P O S I T I O N (In millions of Canadian dollars) As at December 31 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Prepaid expenses Income taxes recoverable Derivative instruments Total current assets Non-current assets Property, plant and equipment Right-of-use assets Goodwill Intangible assets Deferred tax assets Equity-accounted investments Other assets Derivative instruments Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Current portion of long-term debt Lease liabilities Income taxes payable Total current liabilities Non-current liabilities Long-term debt Lease liabilities Deferred tax liabilities Employee benefits Provisions and other long-term liabilities Derivative instruments Total non-current liabilities Total liabilities Equity Share capital Contributed surplus Retained earnings Accumulated other comprehensive loss Total equity attributable to shareholders of the Company Acquisitions Commitments and contingencies Subsequent events Total liabilities and equity See accompanying explanatory notes to the consolidated financial statements. On behalf of the Board: 52 Note 2021 2020 6 7 8 24 10 11 12,13 12,13 15 9 24 14 18 18 15 20 24 16 29 5 26 31 $ 602.1 1,083.8 677.3 46.5 37.9 – 2,447.6 1,910.3 145.5 1,975.1 991.1 47.7 68.4 25.8 16.3 5,180.2 $ 703.7 922.8 533.5 35.3 29.0 0.4 2,224.7 1,882.7 158.4 1,918.5 1,007.6 42.7 66.1 26.8 9.2 5,112.0 $ 7,627.8 $ 7,336.7 $ $ 1,321.5 15.3 32.7 48.5 1,418.0 1,691.4 111.9 286.6 315.5 15.2 42.2 2,462.8 3,880.8 462.1 103.6 3,422.7 (241.4) 3,747.0 1,135.7 51.8 34.2 40.3 1,262.0 1,889.4 119.2 270.8 385.1 10.9 117.1 2,792.5 4,054.5 396.8 90.1 2,937.5 (142.2) 3,282.2 $ 7,627.8 $ 7,336.7 Donald G. Lang Director Geoffrey T. Martin Director 2021 ANNUAL REPORT C O N S O L I D AT E D I N C O M E S TAT E M E N T S (In millions of Canadian dollars, except per share information) Years ended December 31 Note Sales Cost of sales Gross profit Selling, general and administrative expenses Restructuring and other items Earnings in equity-accounted investments Finance cost Finance income Interest on lease liabilities Net finance cost Earnings before income tax Income tax expense Net earnings Earnings per share Basic earnings per Class B share Diluted earnings per Class B share See accompanying explanatory notes to the consolidated financial statements. 30 19 19 11 22 17 17 2021 5,732.8 4,140.7 1,592.1 761.4 4.4 (11.2) 837.5 59.4 (7.7) 5.2 56.9 780.6 181.5 599.1 3.33 3.31 $ $ $ $ $ $ $ $ 2020 5,242.3 3,740.1 1,502.2 725.4 27.6 (9.5) 758.7 67.9 (9.1) 6.4 65.2 693.5 163.8 529.7 2.96 2.94 53 2021 ANNUAL REPORT C O N S O L I D AT E D S TAT E M E N T S O F C O M P R E H E N S I V E I N C O M E (In millions of Canadian dollars) Years ended December 31 Net earnings Other comprehensive income (loss), net of tax: Items that may subsequently be reclassified to income: Foreign currency translation adjustment for foreign operations, net of 2021 $ 599.1 $ tax recovery of $5.4 for the year ended December 31, 2021 (2020 – tax expense of $5.0) (180.4) 2020 529.7 – (53.3) 0.3 0.1 (3.5) (56.4) 81.5 0.7 (1.0) 37.1 (62.1) $ 537.0 $ 473.3 Net gains (losses) on hedges of net investment in foreign operations, net of tax expense of $12.4 for the year ended December 31, 2021 (2020 – tax recovery of $7.9) Effective portion of changes in fair value of cash flow hedges, net of tax expense of $0.2 for the year ended December 31, 2021 (2020 – tax expense of $0.1) Net change in fair value of cash flow hedges transferred to the income statement, net of tax expense of $0.3 for the year ended December 31, 2021 (2020 – nil) Actuarial gains (losses) on defined benefit post-employment plans, net of tax expense of $12.1 for the year ended December 31, 2021 (2020 – tax recovery of $1.3) Other comprehensive loss, net of tax Total comprehensive income See accompanying explanatory notes to the consolidated financial statements. 54 2021 ANNUAL REPORT C O N S O L I D AT E D S TAT E M E N T S O F C H A N G E S I N E Q U I T Y (In millions of Canadian dollars) Class A Shares (note 16) Class B Shares (note 16) Total Share Contributed Surplus Capital Retained Earnings Total Accumulated Other Equity Comp- Attributable to Income Shareholders rehensive Balance, January 1, 2020 $ 4.5 $ 361.0 $ 365.5 $ 81.5 $ 2,540.0 $ (89.3) $ 2,897.7 Net earnings Dividends declared Class A Class B Defined benefit plan actuarial losses, net of tax Stock-based compensation plan Stock option expense Stock options exercised Income tax effect related to stock options Other comprehensive loss – – – – – – – – – – – – 529.7 – 529.7 – – – – – 31.3 – – – – – – – 31.3 – – – – – 8.5 5.8 (5.5) (0.2) – (8.4) (120.3) (3.5) – – – – – – – – – – – – (52.9) (8.4) (120.3) (3.5) 8.5 5.8 25.8 (0.2) (52.9) Balance, December 31, 2020 $ 4.5 $ 392.3 $ 396.8 $ 90.1 $ 2,937.5 $ (142.2) $ 3,282.2 Net earnings Dividends declared Class A Class B Defined benefit plan actuarial gains, net of tax Stock-based compensation plan Stock option expense Stock options exercised Income tax effect related to stock options Other comprehensive loss – – – – – – – – – – – – 599.1 – 599.1 – – – 3.5 – 61.8 – – – – – 3.5 – 61.8 – – – – – 20.8 2.6 (11.3) 1.4 – (9.8) (141.2) 37.1 – – – – – – – – – – – – (99.2) (9.8) (141.2) 37.1 24.3 2.6 50.5 1.4 (99.2) Balance, December 31, 2021 $ 4.5 $ 457.6 $ 462.1 $ 103.6 $ 3,422.7 $ (241.4) $ 3,747.0 See accompanying explanatory notes to the consolidated financial statements. 55 2021 ANNUAL REPORT C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W S (In millions of Canadian dollars) Years ended December 31 Cash provided by (used for) Operating activities Net earnings Adjustments for: Property, plant and equipment depreciation Right-of-use assets depreciation Intangible amortization Earnings in equity-accounted investments, net of dividends received Net finance costs Current income tax expense Deferred tax expense (recovery) Equity-settled share-based payment transactions Gain on sale of property, plant and equipment Change in inventories Change in trade and other receivables Change in prepaid expenses Change in trade and other payables Change in income taxes receivable and payable Change in employee benefits Change in other assets and liabilities Net interest paid Income taxes paid Cash provided by operating activities Financing activities Proceeds on issuance of long-term debt Repayment of long-term debt Repayment of lease liabilities Proceeds from issuance of shares Dividends paid Cash used for financing activities Investing activities Additions to property, plant and equipment Proceeds on disposal of property, plant and equipment Business acquisitions and other long-term investments (note 5) Cash used for investing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Translation adjustments on cash and cash equivalents Cash and cash equivalents at end of year See accompanying explanatory notes to the consolidated financial statements. 56 2021 ANNUAL REPORT 2021 2020 $ 599.1 $ 529.7 245.3 39.6 57.5 (5.0) 56.9 191.2 (9.7) 28.3 (5.9) 1,197.3 (125.9) (129.5) (9.0) 164.0 (2.5) (20.4) 9.6 1,083.6 (48.1) (196.8) 838.7 41.3 (274.7) (36.1) 50.5 (151.0) (370.0) (323.8) 16.9 (234.4) (541.3) (72.6) 703.7 (29.0) $ 602.1 $ 247.5 41.4 57.5 (6.0) 65.2 149.1 14.7 14.1 (2.4) 1,110.8 (38.5) (43.2) 2.2 48.7 9.7 20.2 (29.0) 1,080.9 (59.4) (138.6) 882.9 916.3 (1,230.5) (44.2) 25.8 (128.7) (461.3) (282.8) 16.2 (161.4) (428.0) (6.4) 703.6 6.5 703.7 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information) 1 . R E P O R T I N G E N T I T Y CCL Industries Inc. (the “Company”) is a public company, listed on the Toronto Stock Exchange, and is incorporated and domiciled in Canada. These consolidated financial statements of the Company as at and for the years ended December 31, 2021 and 2020, comprise the results of the Company, its subsidiaries and its interest in joint ventures and associates. The Company has manufacturing facilities around the world and is primarily involved in the manufacture of labels, consumer printable media products, technology-driven label solutions, polymer banknote substrates and specialty films. In March 2020, the World Health Organization declared a global pandemic related to COVID-19 (“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; inflation; 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, vaccine scarcity in developing economies and the emergence of a more contagious variant renewed, and in some instances, heightened restrictions in multiple jurisdictions in 2021. While the Company’s operations have been determined by most jurisdictions to be essential businesses and have continued to operate throughout the pandemic with 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. The duration of the pandemic and its impact on the Company’s financial performance and position is an area of estimation uncertainty and judgement, which is continuously monitored and reflected in management’s estimates. 2 . B A S I S O F P R E PA R AT I O N (a) Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and IFRS interpretations adopted by the International Accounting Standards Board. These consolidated financial statements were authorized for issue by the Company’s Board of Directors on February 24, 2022. (b) Basis of measurement These consolidated financial statements have been prepared on the historical cost basis except for the following items in the consolidated statements of financial position: • Derivative financial instruments are measured at fair value; • Financial instruments at fair value through profit or loss are measured at fair value; and • Assets related to the defined benefit plans are measured at fair value and liabilities related to the defined benefit plans are calculated by qualified actuaries using the projected unit credit method (c) Presentation currency These consolidated financial statements are presented in Canadian dollars, which is the Company’s presentation currency. All financial information, except per share information, is presented in millions of Canadian dollars, unless otherwise noted. 57 2021 ANNUAL REPORTN O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Years ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information) (d) Use of estimates and judgements The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the application of accounting policies and 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. Actual results could differ from those estimates. Estimates and assumptions are used mainly in determining the measurement of recognized transactions and balances. In the process of applying the Company’s accounting policies, management makes various judgements, apart from those involving estimations, that can significantly affect the amounts it recognizes in the financial statements. Judgements, estimates and assumptions are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. The Company has applied judgement in its assessment of the classification of financial instruments, the recognition and derecognition of tax losses and provisions, the determination of cash-generating units (“CGUs”), the identification of the indicators of impairment for property and equipment and intangible assets, the level of componentization of property and equipment and the allocation of purchase price adjustments on business combinations. Estimates are used when determining the amounts recorded for depreciation and amortization of property, plant and equipment, intangible assets and right-of-use assets, outstanding self-insurance claims, pension and other post- employment benefits, income and other taxes, provisions, lease liabilities, certain fair value measures, including those related to the valuation of business combinations, share-based payments and financial instruments and in the valuation of goodwill and intangible assets. 3 . S I G N I F I C A N T AC C O U N T I N G P O L I C I E S The accounting policies set out below have been applied consistently to all comparative information presented in these consolidated financial statements. (a) Basis of consolidation (i) Business combinations The Company measures goodwill as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss. The Company elects to measure, on a transaction-by-transaction basis, non-controlling interest either at its fair value or at its proportionate share of the recognized amount of the identifiable net assets at the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred. (ii) Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed, when necessary, to align them with the policies adopted by the Company. (iii) Associates and joint arrangements The Company’s interests in equity-accounted investees comprise interests in associates and joint ventures. Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20% and 50% of the voting power of another entity. The Company classifies its interest in joint arrangements as either joint operations (if the Company has rights to the assets and has obligations for the liabilities relating to an arrangement) or joint ventures (if the Company has the rights only to the net assets of an arrangement). When making this assessment, the Company considers the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. 58 2021 ANNUAL REPORTInvestments in associates and joint ventures are accounted for using the equity method and are recognized initially at cost. The Company’s investments include goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Company’s share of the income and expenses and equity movements of equity-accounted investees, after adjustments to align the accounting policies with those of the Company, from the date that significant influence commences until the date that it ceases. When the Company’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued, except to the extent that the Company has an obligation or has made payments on behalf of the investee. (iv) Transactions eliminated on consolidation Inter-company balances and transactions, and any unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. (b) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Company’s entities using exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency using the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in the foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on translation are recognized in the consolidated income statement, except for differences arising on the translation of a financial liability designated as a hedge of the net investment in a foreign operation or qualifying cash flow hedges, which are recognized directly in other comprehensive income (see note 3(b)(iii)). Foreign currency-denominated non-monetary items, measured at historical cost, have been translated at the rate of exchange at the transaction date. The financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the entity operates. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into Canadian dollars using exchange rates at the reporting date. The income and expenses of foreign operations are translated into Canadian dollars using the average exchange rates for the period. (ii) Foreign operations Foreign currency differences are recognized directly in other comprehensive income and presented within the foreign currency translation adjustment. When a foreign operation is disposed of, the amount in other comprehensive income related to the foreign operation is fully transferred to the consolidated income statement. A disposal occurs when the entire interest in the foreign operation is disposed of or, in the case of a partial disposal, when the partial disposal results in the loss of control of a subsidiary or the loss of significant influence. For any partial disposal of the Company’s interest in a subsidiary that includes a foreign operation, the Company re-attributes the proportionate share of the relevant amounts in other comprehensive income to non-controlling interests. For any other partial disposal of a foreign operation, the Company reclassifies to the consolidated income statement only the proportionate share of the relevant amount in other comprehensive income. Foreign exchange gains and losses arising from a monetary item receivable from, or payable to, a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognized directly in other comprehensive income and presented within the foreign currency translation adjustment. 59 2021 ANNUAL REPORT(iii) Hedge of net investment in a foreign operation The Company applies hedge accounting to the foreign currency exposure arising between the functional currency of the foreign operation and the parent entity’s functional currency, regardless of whether the net investment is held directly or through an intermediate parent. Foreign currency differences arising on the translation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized directly in other comprehensive income to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the consolidated income statement. When the hedged part of a net investment is disposed of or partially disposed of, the associated cumulative amount in equity is transferred to the consolidated income statement as an adjustment to the consolidated income statement on disposal, in accordance with the policy described in note 3(b)(ii). (c) Financial instruments (i) Financial assets and liabilities The Company recognizes financial assets and financial liabilities initially at fair value and subsequently measures them at either fair value or amortized cost based on the following classifications: Amortized cost: The Company classifies financial assets held to collect contractual cash flows at amortized cost, including cash and cash equivalents and trade and other receivables. The Company initially recognizes the carrying amount of such assets on the consolidated statement of financial position at fair value plus directly attributable transaction costs, and subsequently measures them at amortized cost using the effective interest rate method, less any impairment losses. Fair value through profit or loss (“FVTPL”): Financial assets purchased and financial liabilities incurred, with the intention of generating earnings in the near term, are classified as FVTPL. This category includes derivative assets and derivative liabilities that do not qualify for hedge accounting, if any. For items classified as FVTPL, the Company initially recognizes such financial assets on the consolidated statement of financial position at fair value and recognizes subsequent changes in the consolidated income statement. Transaction costs incurred are expensed in the consolidated income statements. The Company does not currently hold any assets and liabilities designated as FVTPL. Fair value through other comprehensive income (“FVTOCI”): This category includes the Company’s investments in securities. Subsequent to initial recognition, they are measured at fair value on the consolidated statement of financial position and changes therein are recognized in other comprehensive income. When an investment is derecognized, the accumulated gain or loss in other comprehensive income is not transferred to the consolidated income statement. Other financial liabilities: This category is for financial liabilities that are not classified as FVTPL or FVTOCI and includes trade and other payables and long-term debt. These financial liabilities are recorded at amortized cost on the consolidated statement of financial position. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. (ii) Derivative financial instruments, including hedge accounting The Company uses derivative financial instruments to manage its foreign currency and interest-rate-risk exposure and price-risk exposure related to the purchase of raw materials. Embedded derivatives are separated from the host contract and accounted for separately. If the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through the income statement. Changes in the fair value of separable embedded derivatives are recognized immediately in the consolidated income statement. On initial designation of the hedge, the Company formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Company makes periodic assessments of prospective hedge effectiveness. 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORTThe fair value of forward exchange contracts is based on their listed market prices, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds). The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date. Fair values reflect the credit risk of the instrument and include adjustments to take into account the credit risk of the group entity and counterparty when appropriate. Cash flow hedges When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and presented in the hedging reserve in equity. The amount recognized in other comprehensive income is removed and included in profit or loss in the same period that the hedged cash flows affect profit or loss, under the same line item in the consolidated statement of comprehensive income as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in the consolidated income statement. If the hedging instrument no longer meets the criteria for hedge accounting or expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in other comprehensive income and presented in unrealized gains or losses on cash flow hedges in equity remains there until the forecast transaction affects profit or loss. When the hedged item is a non-financial asset, the amount recognized in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognized. If the forecast transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss. In other cases, the amount recognized in other comprehensive income is transferred to the consolidated income statement in the same period that the hedged item affects profit or loss. Fair value hedges Fair value hedges are hedges of the fair value of recognized assets, liabilities or unrecognized firm commitments. Changes in the fair value of derivatives that are designated as fair value hedges are recorded in the consolidated income statement, together with any changes in the fair value of the hedged item that are attributable to the hedged risk. (d) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost, less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended uses, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. The fair value of property, plant and equipment recognized as a result of a business combination is based on the amount for which a property could be exchanged on the date of valuation between knowledgeable, willing parties in an arm’s length transaction. Borrowing costs related to the acquisition, construction or production of qualifying assets are capitalized as part of the cost of the assets. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized within selling, general and administrative expenses in the consolidated income statement. 61 2021 ANNUAL REPORTThe cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred. (ii) Depreciation Depreciation is calculated based on the cost of the asset, or other amount substituted for cost, less its residual value. Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows: • Buildings • Machinery and equipment • Fixtures and fittings • Minor components Up to 40 years Up to 20 years Up to 10 years Up to 5 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (e) Intangible assets (i) Goodwill Goodwill arises on the acquisition of subsidiaries and is tested for impairment annually or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. For measurement of goodwill at initial recognition, see note 3(a)(i). Subsequent measurement Goodwill is measured at cost, less accumulated impairment losses. In respect of equity-accounted investments, the carrying amount of goodwill is included in the carrying amount of the investment. (ii) Other intangible assets Indefinite life intangibles, such as brands, are tested for impairment annually or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. Intangible assets consist of patents, trademarks, brands, software and the value of acquired customer relationships. Impairment losses for intangible assets where the carrying value is not recoverable are measured based on fair value. Fair value is calculated by using discounted cash flows. The fair values of customer relationships acquired in a business combination are determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return on all other assets that are part of creating the related cash flows. The fair values of brands acquired in a business combination are determined using the multi-period excess earnings method or the relief of royalty method, whereby the value of the brand is equal to the royalty savings from having ownership as opposed to licensing the brand. Amortization is recognized in the consolidated income statement on a straight-line basis over the estimated useful lives of intangible assets, other than indefinite-life intangible assets, such as brands and goodwill, from the date that they are available for use. The estimated useful lives for the current and comparative years are as follows: • Patents, trademarks and other • Customer relationships • Brands and goodwill Up to 15 years Up to 20 years Indefinite-life 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT(f) Leases The Company recognizes right-of-use assets and lease liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. The right-of-use asset is measured based on the initial value of the lease liability adjusted for lease payments made at or before the commencement of the lease, initial direct costs and estimated dismantling and restoring costs. The right-of-use asset is depreciated over the shorter of the lease term and the asset’s useful life, unless it is reasonably certain the Company will obtain ownership by the end of the lease term, in which case the asset is depreciated over its useful life. The lease liability is measured at the present value of all future lease payments discounted at the lessee’s incremental borrowing rate. Lease liabilities are measured at amortized cost using the effective interest rate method whereby interest is recognized in profit or loss over the lease term. The Company has adopted the practical expedients related to short-term leases and leases of low-value assets whereby lease obligations associated with these leases are recognized as an expense in the consolidated income statement when incurred. (g) Inventories Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in, first-out principle and includes expenditures incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bringing them to their existing locations and conditions. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling. The fair value of inventories acquired in a business combination is determined based on the estimated selling price in the ordinary course of business, less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories. Estimates regarding obsolete and slow-moving inventory are also computed. (h) Impairment (i) Financial assets, including receivables A financial asset not carried at FVTPL is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates an expected credit loss (“ECL”). Loss allowances are measured on the basis of lifetime ECLs where losses are recognized from all possible default events over the expected life of a financial instrument. The Company considers evidence of impairment for financial assets measured at amortized cost at both a specific asset and a collective level. All individually significant financial assets measured at amortized cost are assessed for specific impairment. All individually significant financial assets measured at amortized cost that are found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. In assessing collective impairment, the Company uses historical trends of the probability of default, timing of recoveries and the amount of expected loss, adjusted for management’s judgement as to whether current and expected future economic and credit conditions are such that the expected losses are likely to be greater than or less than those suggested by historical trends. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate and reflected in an allowance account against trade receivables. Losses are recognized in the consolidated income statement. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. 63 2021 ANNUAL REPORT(ii) Non-financial assets The carrying amounts of non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the impairment would be recognized in the consolidated income statement. Impairments are recorded when the expected recoverable amount of assets is less than their carrying amount. The recoverable amount is the higher of an asset’s or a cash-generating unit’s fair value, less the cost to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the CGU, or the group of CGUs, that is expected to benefit from the synergies of the combination. This allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses, other than those relating to goodwill, are evaluated for potential reversals when events or changes in circumstances warrant such consideration. The carrying values of finite-life intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Additionally, the carrying values of goodwill and indefinite- life intangibles are tested annually for impairment. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior years are assessed at each reporting date for any indications that the losses have decreased or no longer exist. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Goodwill that forms part of the carrying amount of an equity-accounted investment is not recognized separately and therefore is not tested for impairment separately. Instead, the entire amount of the equity-accounted investment is tested for impairment as a single asset when there is objective evidence that the equity-accounted investment may be impaired. (i) Employee benefits (i) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in the consolidated income statement in the period that the service is rendered by the employee. (ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit post-employment plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value using a discount rate comparable to high-quality corporate bonds. Any unrecognized past service costs and the fair value of any plan assets are deducted. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognized asset is limited to the total of any unrecognized past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the Company if it is realizable during the life of the plan or on settlement of the plan liabilities. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in the consolidated income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in the consolidated income statement. The Company recognizes all actuarial gains and losses arising from defined benefit plans directly in other comprehensive income immediately and reports them in retained earnings. 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORTThe Company determines the net interest expense on the net defined benefit liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability, taking into account any changes in the net defined benefit liability during the period as a result of the contributions and benefit balances. Net interest expense and other expenses related to the defined benefit plans are recognized in profit or loss. (iii) Termination benefits Termination benefits are recognized as an expense when the Company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date or provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Company has made an offer of voluntary redundancy, it is probable that the offer will be accepted and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value. (iv) Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are recognized as the related service is provided. (v) Share-based payment transactions For equity-settled share-based plans, the grant-date fair value of options granted to employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The amount recognized as an expense is adjusted to reflect the actual number of share options for which the related service and non-market vesting conditions are expected to be met. The fair value of employee stock options is measured using the Black-Scholes model. Measurement inputs include the share price on the measurement date, the exercise price of the instrument, the expected volatility, the weighted-average expected life of the instrument, the expected dividends, and the risk-free interest rate. Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. For equity-settled share-based deferred share unit (“DSU”) plans, the grant-date fair value of deferred share units is recognized as an employee expense, with a corresponding increase in equity. The grant-date fair value is not subsequently remeasured. The value of DSUs received in lieu of dividends is also recognized as a personnel expense in selling, general and administrative expenses in the consolidated income statement. (j) Provisions A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as a finance cost. (k) Revenue Revenue is measured based on the consideration specified in a contract with a customer. Revenue is recognized as performance obligations are satisfied and the Company transfers control of a product or service to a customer. For performance obligations satisfied at a point in time, revenue is recognized when the Company has a present right to payment, the buyer has legal title to the asset, physical possession of the asset has transferred to the buyer, the buyer has the significant risks and rewards of ownership and the buyer has accepted the asset. Generally, the buyer obtains control at the time goods are shipped, the product is delivered or services are rendered. For performance obligations satisfied over time, revenue is recognized by measuring the progress toward complete satisfaction of that performance obligation. For customer contracts that contain multiple performance obligations, each element is treated separately for revenue recognition purposes. For these contracts, the total transaction price is allocated to each obligation based on its relative stand-alone selling price. Revenue is then recognized for each obligation when the relevant recognition criteria are met. Certain contracts with customers contain incentives, including the payment of discounts based on quantities purchased. These incentives represent variable consideration and are estimated and recognized as a reduction of related revenues. 65 2021 ANNUAL REPORT(l) Finance income and costs Finance income comprises interest income on invested funds, changes in the fair value of financial assets at FVTPL, and gains on hedging instruments that are recognized in the consolidated income statement. Interest income is recognized as it accrues in the consolidated income statement, using the effective interest method. Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at FVTPL, impairment losses recognized on financial assets, and losses on hedging instruments that are recognized in the consolidated income statement. All borrowing costs are recognized in the consolidated income statement using the effective interest method, except for those amounts capitalized as part of the cost of qualifying property, plant and equipment. (m) Taxation Income tax expense comprises current and deferred tax. Income tax expense is recognized in the consolidated income statement except to the extent that it relates to items recognized either in other comprehensive income or directly in equity. In such cases, the tax is also recognized in other comprehensive income or directly in equity, respectively. (i) Current tax Current tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the end of the reporting period and includes any adjustments to taxes payable in respect of previous years. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities. (ii) Deferred tax Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated statement of financial position. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period and which are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled. (iii) Deferred tax liabilities Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries and associates, except where the reversal of the temporary difference can be controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. (iv) Deferred tax assets A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill or in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination and that affect neither accounting nor taxable profit or loss. (n) Share capital All shares are recorded as equity. When share capital is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effect, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When repurchased shares are subsequently sold or reissued, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to retained earnings. (o) Earnings per share The Company presents basic and diluted earnings per share (“EPS”) data for its Class B shares. Basic EPS is calculated by dividing net earnings attributable to shareholders of the Company by the weighted average number of shares outstanding during the period. Diluted EPS is determined by adjusting net earnings attributable to shareholders and the weighted average number of shares outstanding for the effects of all potentially dilutive shares, which primarily comprise share options granted to employees. 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT(p) Segment reporting A segment is a distinguishable component of the Company that is engaged either in providing related products and services (business segment) or in providing products and services within a particular economic environment (geographical segment) and that is subject to risks and returns that are different from those of other segments. Segment information is presented in respect of the Company’s business and geographical segments. The Company’s primary format for segment reporting is based on business segments. The business segments are determined based on the Company’s management and internal reporting structure. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly other investments and related revenue, loans and borrowings and related expenses, corporate assets (primarily the Company’s headquarters) and head office expenses. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment and intangible assets, other than goodwill. (q) Government grants Government grants are recognized when there is reasonable assurance that they will be received and that the Company will comply with conditions attached to the grant. Government grants for compensation of expenses are deducted from the related expense on a systematic basis in the periods in which the original expenses are recognized in profit or loss. Government grants related to assets are initially recognized as deferred income at fair value and then recognized in profit or loss as other income on a systematic basis over the useful life of the related asset. 4 . S E G M E N T R E P O R T I N G (a) Business segments The Company has four reportable segments, as described below, which are the Company’s main business units. The business units offer different products and services and are managed separately as they require different technology and marketing strategies. For each of the business units, the Company’s CEO, the chief operating decision maker, reviews internal management reports regularly. The Company’s reportable segments are the following: • CCL is a converter of pressure sensitive and specialty extruded film materials for a wide range of decorative, instructional, functional and security applications for government institutions and large global customers in the consumer packaging, healthcare & chemicals, consumer electronic device and automotive markets. Extruded & laminated plastic tubes, aluminum aerosols & specialty bottles, folded instructional leaflets, precision decorated & 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 a 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 mass-market 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, including binders, sheet protectors, indexes & dividers and writing instruments; (3) Direct-to-Consumer digitally imaged media, including labels, business cards, name badges, event badges, wristbands and family-oriented identification labels supported by unique web-enabled e-commerce URLs. • Checkpoint is a manufacturer of technology-driven loss-prevention, inventory-management and labeling solutions, including radio frequency and radio frequency identification (“RFID”) solutions, to the retail and apparel industry. The Segment has three primary product lines: Merchandise Availability Solutions (“MAS”), Apparel Labeling Solutions (“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 supplies hand-held pricing tools and labels and promotional in-store displays. • Innovia supplies specialty, high-performance, multi-layer, surface-engineered biaxially oriented polypropylene (“BOPP”) films from facilities in Australia, Belgium, Mexico, Poland and the United Kingdom (“U.K.”) to customers in the pressure- sensitive label materials, flexible packaging and consumer packaged goods industries worldwide. Additionally, a small percentage of the total volume is sold internally to CCL Secure while two smaller film facilities, in Germany and the U.S., produce almost their entire output for CCL Label. 67 2021 ANNUAL REPORT CCL Avery Checkpoint Innovia Corporate expenses Restructuring and other items Earnings in equity-accounted investments Finance cost Finance income Interest on lease liabilities Income tax expense Net earnings $ 2021 3,498.2 708.9 772.5 753.2 $ Sales 2020 3,357.6 634.2 635.5 615.0 $ $ 5,732.8 $ 5,242.3 $ Operating Income $ $ 2021 545.8 148.8 115.5 81.2 891.3 (60.6) (4.4) 11.2 (59.4) 7.7 (5.2) (181.5) 2020 552.8 113.3 80.3 77.1 823.5 (46.7) (27.6) 9.5 (67.9) 9.1 (6.4) (163.8) Total Assets Total Liabilities Depreciation and Amortization Capital Expenditures $ 599.1 $ 529.7 December 31 2021 2020 2021 2020 2021 2020 2021 2020 CCL Avery Checkpoint Innovia Equity-accounted investments Corporate $ 3,919.6 827.1 1,101.8 1,167.0 68.4 543.9 $ 3,805.6 707.1 975.1 1,145.9 66.1 636.9 $ 1,088.9 266.7 538.4 300.7 – 1,686.1 $ 1,066.8 231.9 497.7 288.7 – 1,969.4 $ 226.5 25.4 39.5 49.4 – 1.6 $ 231.3 26.4 38.2 48.9 – 1.6 $ 230.6 14.7 31.5 47.0 – – $ 197.8 22.0 22.0 41.0 – – Total $ 7,627.8 $ 7,336.7 $ 3,880.8 $ 4,054.5 $ 342.4 $ 346.4 $ 323.8 $ 282.8 All revenues are from products and services transferred at a point in time, except $76.3 million for the twelve-month period ended December 31, 2021 (December 31, 2020 – $69.6 million), which are for installation and maintenance service arrangements within the Checkpoint Segment. (b) Geographical segments The CCL, Avery, Checkpoint and Innovia Segments are managed on a worldwide basis but operate in the following geographical areas: • Canada; • United States and Puerto Rico; • Mexico, Brazil, Chile and Argentina; • Europe; and • Asia, Australia, Africa and New Zealand. Canada United States and Puerto Rico Mexico, Brazil, Chile and Argentina Europe Asia, Australia, Africa and New Zealand Property, Plant and Equipment, Goodwill and Intangible Assets $ 2021 70.8 1,759.7 566.1 1,716.5 763.4 $ 2020 71.3 1,709.7 522.8 1,719.1 785.9 Sales 2020 126.1 2,086.2 431.4 1,697.9 900.7 $ $ 2021 134.3 2,252.2 487.8 1,819.7 1,038.8 Consolidated $ 5,732.8 $ 5,242.3 $ 4,876.5 $ 4,808.8 The geographical segment is determined based on the location from which the sale is made. 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT 5. AC Q U I S I T I O N S (a) Acquisitions in 2021 In April 2021, the Company acquired the assets of Europack Packaging and Fluid Management GmbH (“Europack”) for approximately $0.9 million. Europack was added to the CCL Segment. In May 2021, the Company acquired privately held Lux Global Label Asia Pte. Ltd. (“LUX”), based in Singapore for approximately $9.4 million, net of cash. LUX produces decorative labels for global consumer product customers in the ASEAN region. LUX now trades as “CCL Label Singapore.” In July 2021, the Company acquired privately owned Plum Paper LLC (“Plum”), based in California, U.S. for approximately $26.3 million, net of cash acquired. Plum is a leading supplier of personalized planners and is part of Avery’s growing direct-to-consumer business. In July 2021, the Company acquired the Uniter Group of companies (“Uniter”), based in A Coruña, Spain, with operations in Europe, Asia and North Africa for approximately $50.4 million, including debt assumed and net of cash acquired. Uniter’s five factories are part of the Checkpoint Apparel Labeling Solutions business. In December 2021, the Company acquired Desarrollo e Investigación S.A. de C.V. and Fuzetouch PTE LTD (Singapore) (collectively “D&F”) headquartered in San Luis Potosi, Mexico, for approximately $51.3 million net of cash acquired. D&F is a leading supplier of graphic interface control panels and assemblies and now trades as “CCL Design”. In December 2021, the Company acquired Forever Blue Investimentos e Participacoes S. A. (d.b.a. “Tecnoblu”), headquartered in Blumenau, Brazil for $17.7 million net of cash and debt. Tecnoblu is now a part of the Checkpoint Apparel Labeling Solutions business. In December 2021, the Company acquired the pharmaceutical leaflet printing press and customer list from the Laramara Foundation (“Laramara”) in São Paulo, Brazil for $0.8 million, These assets were added to the CCL Segment. In December 2021, the Company acquired Lodging Access Systems, LLC, (“LAS”), based in Florida, U.S. for $26.4 million, net of cash acquired. LAS is a leading supplier of digitally printed and encoded RFID key cards, wrist bands and key fobs for access controls. LAS further expands Avery’s direct-to-consumer business. In December 2021, the Company acquired International Master Products Corporation (“IMP”), based in Michigan, U.S., for $61.4 million net of cash acquired. IMP is a leading provider of labels and tags for the U.S. horticulture industry through digitally enabled design software, expanding Avery’s direct-to-consumer business. The following table summarizes the allocation of the consideration to the fair value of the assets acquired and liabilities assumed for the Europack, LUX, Plum, Uniter, D&F, Tecnoblu, Laramara, LAS and IMP acquisitions: Cash consideration, net of cash acquired Assumed debt Trade and other receivables Inventories Prepaid expenses Property, plant and equipment Right-of-use assets Goodwill Intangible assets Deferred tax assets Trade and other payables Income taxes payable Lease liabilities Deferred tax liabilities Provisions and other long-term liabilities Net assets acquired $ $ $ $ 234.4 10.2 244.6 31.5 17.9 2.2 32.4 4.6 116.7 69.7 0.5 (16.0) (4.3) (4.5) (5.1) (1.0) 244.6 69 2021 ANNUAL REPORT As a result of the inherent complexity associated with the valuation of net assets acquired, the determination of the fair value of assets and liabilities acquired for D&F, Tecnoblu, Laramara, LAS and IMP are based upon preliminary estimates and assumptions. The Company will continue to review information prior to finalizing the fair value of the assets acquired and liabilities assumed. The actual fair value of the assets acquired and liabilities assumed may differ from the amounts noted above. Goodwill is comprised of the excess fair value of the consideration paid over the fair value of the net assets acquired. Factors that make up the amount of goodwill recognized include expected synergies and employee knowledge of operations. The total amount of goodwill and intangible assets for Europack, LUX, Plum, Uniter, D&F, Tecnoblu, Laramara, LAS and IMP is $186.4 million, $94.0 million of which is deductible for tax purposes. The following table summarizes the combined sales and net earnings that the newly acquired Europack, LUX, Plum, Uniter, D&F, Tecnoblu, Laramara, LAS and IMP have contributed to the Company for the current reporting period. Sales Net earnings (b) Pro forma information Twelve Months Ended December 31, 2021 $ $ 32.6 2.1 The pro forma consolidated financial information below has been prepared following the accounting policies of the Company as if the acquisitions took place on January 1, 2021. The pro forma consolidated financial information has been presented for illustrative purposes only and is not necessarily indicative of the results of operations and financial position that would have been achieved had the pro forma events taken place on the dates indicated, or the future consolidated results of operations or financial position of the consolidated company. Future results may vary significantly from the pro forma results presented. The historical consolidated financial information has been adjusted in preparing the pro forma consolidated financial information to give effect to events that are: (i) directly attributable to the acquisitions; (ii) factually supportable; and (iii) with respect to revenues and earnings, expected to have a continuing impact on the results of CCL Industries Inc. As such, the impact from acquisition-related expenses is not included in the accompanying pro forma consolidated financial information. The pro forma consolidated financial information does not reflect any cost savings (or associated costs to achieve such savings) from operating efficiencies, synergies or other restructuring that could result from the acquisitions. The following table summarizes the sales and net earnings of the Company combined with Europack, LUX, Plum, Uniter, D&F, Tecnoblu, Laramara, LAS and IMP as though the acquisitions took place on January 1, 2021: Sales Net earnings (c) Acquisitions in 2020 Twelve Months Ended December 31, 2021 $ $ 5,882.6 618.3 In January 2020, the Company acquired IDentilam Limited (“IDentilam”) based in Horsham, U.K., for approximately $2.9 million, net of cash acquired. The company designs and develops a range of software solutions for event badging and identification cards along with digital printing services. IDentilam was added to Avery’s direct-to-consumer operations. 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. ID&C was added to Avery’s direct-to-consumer operations. 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 was integrated into the Apparel Labeling Solutions business of Checkpoint. 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 with results reported within the CCL Segment. 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT In February 2020, the Company acquired Clinical Systems, Inc. (“CSI”), based in Garden City, New York, U.S. for approximately $19.7 million, net of cash acquired. CSI is a specialized provider to the U.S. clinical trials industry and operates as part of CCL Label’s Healthcare and Specialty business. In March 2020, the Company acquired Flexpol Sp. z.o.o. (“Flexpol”), a privately owned company based in Plock, Poland, for approximately $23.5 million, net of cash acquired. Flexpol is a leading producer of BOPP film for the European market and was added to the Innovia Segment. In July 2020, the Company acquired InTouch Labels and Packaging, Co., Inc. (“InTouch”), based 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 business. 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 November 2020, the Company acquired privately owned Super Enterprises Printing (Malaysia) Sdn. Bnd. (“SEP”) for approximately $18.4 million, net of cash.  SEP headquartered in Kuala Lumpur, with a second manufacturing operation in Guangzhou, China. SEP 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.” The following table summarizes the allocation of the consideration to the fair value of the assets acquired and liabilities assumed for the IDentilam, ID&C, Eti-Textil, CSI, Rheinfelden, Flexpol, InTouch, GWI and SEP acquisitions: Cash consideration, net of cash acquired Assumed debt Trade and other receivables Inventories Other current assets Income tax recoverable Property, plant and equipment Right-of-use assets Goodwill Intangible assets Trade and other payables Lease liabilities Deferred tax liabilities Provisions and other long-term liabilities Net assets acquired 6. C A S H A N D C A S H E Q U I VA L E N T S Bank balances Restricted cash Short-term investments Cash and cash equivalents $ $ $ 164.4 20.8 185.2 30.5 13.4 0.9 1.7 59.2 7.2 99.3 24.0 (34.2) (4.7) (9.3) (2.8) $ 185.2 December 31, 2021 December 31, 2020 $ $ 584.1 8.0 10.0 602.1 $ $ 697.0 3.4 3.3 703.7 71 2021 ANNUAL REPORT 7. T R A D E A N D OT H E R R E C E I VA B L E S Trade receivables Other receivables Trade and other receivables 8 . I N V E N TO R I E S Raw material Work in progress Finished goods Total inventories December 31, 2021 December 31, 2020 $ $ 948.4 135.4 1,083.8 $ $ 809.9 112.9 922.8 December 31, 2021 December 31, 2020 $ $ 305.4 67.8 304.1 677.3 $ $ 215.1 61.7 256.7 533.5 The total amount of inventories recognized as an expense in 2021 was $4,140.7 million (2020 – $3,740.1 million), including depreciation of $284.0 million (2020 – $288.0 million). 9. E Q U I T Y-AC C O U N T E D I N V E S T M E N T S Summary financial information for equity-accounted investments, including joint ventures and associates, not adjusted for the percentage ownership held by the Company, is as follows: Net earnings Other comprehensive loss Total comprehensive income Carrying amount of investments in associates and joint ventures Net earnings Other comprehensive income (loss) Total comprehensive income (loss) Carrying amount of investments in associates and joint ventures At December 31, 2021 Associates Joint Ventures Total $ $ $ 6.2 – 6.2 31.1 $ $ $ 16.3 (5.5) 10.8 37.3 $ $ $ 22.5 (5.5) 17.0 68.4 At December 31, 2020 Associates Joint Ventures Total $ $ $ 5.6 (7.8) (2.2) 28.1 $ $ $ 13.4 3.4 16.8 38.0 $ $ $ 19.0 (4.4) 14.6 66.1 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT 1 0. P R O P E R T Y, P L A N T A N D E Q U I P M E N T Cost Balance at January 1, 2020 Acquisitions through business combinations Other additions Other movements Disposals Effect of movements in exchange rates Land and Buildings Machinery and Equipment Fixtures, Fittings and Other $ $ 849.0 18.8 45.9 21.3 (20.1) (0.6) $ 2,525.4 40.1 233.6 (23.0) (17.4) (41.2) $ 45.0 0.3 3.3 1.7 (0.4) – Total 3,419.4 59.2 282.8 – (37.9) (41.8) Balance at December 31, 2020 $ 914.3 $ 2,717.5 $ 49.9 $ 3,681.7 Acquisitions through business combinations Other additions Other movements Disposals Effect of movements in exchange rates Balance at December 31, 2021 Accumulated depreciation Balance at January 1, 2020 Depreciation for the year Other movements Disposals Effect of movements in exchange rates 11.1 15.9 10.2 (5.9) (32.6) 913.0 235.6 35.7 4.1 (8.9) (0.1) 20.7 305.3 (47.1) (33.7) (97.0) 0.6 2.6 (1.1) (0.6) (2.3) $ $ $ $ 2,865.7 $ 49.1 $ 1,338.7 207.5 (4.2) (14.9) (25.5) 26.9 4.3 0.1 (0.3) – 32.4 323.8 (38.0) (40.2) (131.9) 3,827.8 1,601.2 247.5 – (24.1) (25.6) $ $ Balance at December 31, 2020 $ 266.4 $ 1,501.6 $ 31.0 $ 1,799.0 Depreciation for the year Other movements Disposals Effect of movements in exchange rates Balance at December 31, 2021 Carrying amounts At December 31, 2020 At December 31, 2021 35.5 (1.8) (1.7) (9.8) 288.6 647.9 624.4 $ $ $ 205.4 (30.8) (27.0) (52.0) 1,597.2 1,215.9 1,268.5 $ $ $ $ $ $ 4.4 (1.6) (0.5) (1.6) 31.7 18.9 17.4 $ $ $ 245.3 (34.2) (29.2) (63.4) 1,917.5 1,882.7 1,910.3 73 2021 ANNUAL REPORT 1 1 . L E A S E S (a) Right-of-use assets Right-of-use assets related to leased properties that do not meet the definition of investment property are presented as property, plant and equipment (see note 10). Land and Buildings Machinery and Equipment Other Total Cost Balance at January 1, 2020 Acquisitions through business combinations Other additions Other movements Effect of movements in exchange rates $ $ 145.9 7.0 38.3 (5.9) (3.7) $ 13.6 0.1 1.2 (0.6) (0.1) $ 24.5 0.1 9.0 (1.3) (2.2) Balance at December 31, 2020 $ 181.6 $ 14.2 $ 30.1 $ Acquisitions through business combinations Other additions Other movements Effect of movements in exchange rates Balance at December 31, 2021 Accumulated depreciation Balance at January 1, 2020 Depreciation for the year Other movements Effect of movements in exchange rates 2.9 19.3 (10.7) (6.7) 186.4 25.6 27.7 (3.1) (4.6) $ $ 1.5 2.7 (4.3) (0.3) 13.8 3.8 4.1 (0.6) (0.2) $ $ 0.2 9.2 (4.1) (1.7) 33.7 8.1 9.6 (1.0) (1.9) $ $ $ $ Balance at December 31, 2020 $ 45.6 $ 7.1 $ 14.8 $ Depreciation for the year Other movements Effect of movements in exchange rates Balance at December 31, 2021 Carrying amounts At December 31, 2020 At December 31, 2021 26.5 (8.5) (1.8) 61.8 136.0 124.6 $ $ $ $ $ $ 4.0 (2.6) (0.1) 8.4 7.1 5.4 $ $ $ 9.1 (5.0) (0.7) 18.2 15.3 15.5 $ $ $ (b) Amounts recognized in the consolidated income statements and statements of cash flows 184.0 7.2 48.5 (7.8) (6.0) 225.9 4.6 31.2 (19.1) (8.7) 233.9 37.5 41.4 (4.7) (6.7) 67.5 39.6 (16.1) (2.6) 88.4 158.4 145.5 Interest on lease liabilities Expenses relating to short-term leases Expenses relating to low-value asset leases, excluding short-term leases of low-value assets Total cash out flow for leases December 31, 2021 December 31, 2020 $ $ $ $ 5.2 4.7 0.5 46.5 $ $ $ $ 6.4 3.1 0.5 53.1 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT 1 2 . I N TA N G I B L E A S S E T S Customer Relationships Patents, Trademarks and Other Brands Total Goodwill Cost Balance at January 1, 2020 Acquisitions through business combinations Other additions Effect of movements in exchange rates $ 679.5 $ 181.9 $ 433.0 $ 1,294.4 $ 1,794.4 24.0 – 6.6 – 0.1 6.7 – – (0.7) 24.0 0.1 12.6 102.6 – 21.5 Balance at December 31, 2020 $ 710.1 $ 188.7 $ 432.3 $ 1,331.1 $ 1,918.5 Acquisitions through business combinations Effect of movements in exchange rates 69.2 (21.9) Balance at December 31, 2021 $ 757.4 Accumulated Amortization Balance at January 1, 2020 Amortization for the year Effect of movements in exchange rates $ 217.6 46.0 (1.0) $ $ Balance at December 31, 2020 $ 262.6 $ Amortization for the year Effect of movements in exchange rates 46.4 (8.0) Balance at December 31, 2021 $ 301.0 Carrying amounts At December 31, 2020 At December 31, 2021 $ $ 447.5 456.4 $ $ $ 0.5 (7.8) 181.4 48.1 11.5 1.3 60.9 11.1 (2.1) 69.9 127.8 111.5 $ $ $ $ $ $ – (9.1) 423.2 – – – – – – – 432.3 423.2 $ $ $ $ $ $ 69.7 (38.8) 1,362.0 265.7 57.5 0.3 323.5 57.5 (10.1) 370.9 1,007.6 991.1 $ $ $ $ $ $ 116.7 (60.1) 1,975.1 – – – – – – – 1,918.5 1,975.1 1 3 . G O O DW I L L A N D I N D E F I N I T E - L I F E I N TA N G I B L E A S S E T S Impairment testing for cash-generating units containing goodwill and indefinite-life intangible assets For the purpose of impairment testing, goodwill and indefinite-life intangible assets are allocated to the Company’s operating segments, which represent the lowest level within the Company at which goodwill is monitored for internal management purposes. The aggregate carrying amounts of goodwill and indefinite-life intangible assets allocated to each unit are as follows: Goodwill CCL Avery Checkpoint Innovia Indefinite-life intangible assets – brands Avery Checkpoint Innovia December 31, 2021 December 31, 2020 $ $ $ $ 1,160.6 240.3 241.1 333.1 $ 1,173.6 188.1 212.5 344.3 1,975.1 $ 1,918.5 187.6 180.3 55.4 423.3 $ $ 191.3 184.6 56.4 432.3 75 2021 ANNUAL REPORT Impairment testing for goodwill and indefinite-life intangible assets was done by a comparison of the asset’s carrying amount to its estimated value in use, determined by discounting the CGU future cash flows. Key assumptions used in the determination of the value in use include long-term growth rates of 3% to 5% and pre-tax discount rates of 8% to 10%. Discount rates reflect current market assumptions and risks related to the CGUs and are based upon the weighted average cost of capital. The Company’s historical growth rates are used as the basis in determining the growth rate applied for impairment testing. The Company completed its impairment testing as at September 30, 2021. The estimated values in use of CCL, Avery, Checkpoint and Innovia CGUs exceeded their carrying values. As a result, no goodwill and indefinite-life intangible assets impairment was recorded during 2021. 1 4 . T R A D E A N D OT H E R PAYA B L E S Trade payables Other payables Trade and other payables 1 5. D E F E R R E D TA X (a) Unrecognized deferred tax assets Deferred tax assets have not been recognized in respect of the following items: Deductible temporary differences Tax losses Income tax credits December 31, 2021 December 31, 2020 $ $ 782.2 539.3 $ 633.2 502.5 1,321.5 $ 1,135.7 December 31, 2021 December 31, 2020 $ $ 8.1 58.4 1.1 67.6 $ $ 9.9 58.0 7.2 75.1 The unrecognized deferred tax assets on tax losses of $10.1 million will expire between 2022 and 2031, $8.1 million will expire beyond 2031, and $40.2 million may be carried forward indefinitely. The deductible temporary differences of $8.1 million do not expire under current tax legislation. Income tax credits of $1.1 million will expire between 2022 and 2027 and relate mainly to foreign tax credits in the United States. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable income will be available against which the Company can utilize the benefits therefrom. 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT (b) Recognized deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net (Assets) Liabilities December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 $ $ Property, plant and equipment Intangible assets Derivatives Inventory reserves Employee benefit plans Share-based payments Capitalized research and development Provisions and other items Tax loss carry-forwards Balance before offset 1.8 – – 14.8 79.9 8.0 3.8 58.0 13.7 180.0 $ 1.8 – 0.4 14.0 78.9 4.2 5.9 63.7 10.1 179.0 Offset of tax (132.3) (136.3) $ $ 127.1 275.7 7.2 0.4 – – – 8.5 – 418.9 (132.3) $ 123.5 267.6 1.7 0.4 – – – 13.9 – 407.1 (136.3) 125.3 275.7 7.2 (14.4) (79.9) (8.0) (3.8) (49.5) (13.7) 238.9 – 121.7 267.6 1.3 (13.6) (78.9) (4.2) (5.9) (49.8) (10.1) 228.1 – Balance after offset $ 47.7 $ 42.7 $ 286.6 $ 270.8 $ 238.9 $ 228.1 Balance at December 31, 2020 Liability (Asset) Recognized in Income Statement Acquisitions Translation and Others Recognized in Other Comprehensive Balance at December 31, 2021 Income/Equity Liability (Asset) $ Property, plant and equipment Intangible assets Derivatives Inventory reserves Employee benefit plans Share-based payments Capitalized research and development Provisions and other items Tax loss carry-forwards $ 121.7 267.6 1.3 (13.6) (78.9) (4.2) (5.9) (49.8) (10.1) $ 228.1 $ 5.1 8.3 (0.9) (0.9) (12.8) (2.3) 2.0 (4.1) (4.1) (9.7) $ $ 0.1 5.0 – (0.1) (0.3) – – (0.4) – $ (1.6) (5.2) 0.1 0.2 – (0.1) 0.1 4.8 0.5 $ – – 6.7 – 12.1 (1.4) – – – 125.3 275.7 7.2 (14.4) (79.9) (8.0) (3.8) (49.5) (13.7) $ 4.3 $ (1.2) $ 17.4 $ 238.9 77 2021 ANNUAL REPORT Balance at December 31, 2019 Liability (Asset) Recognized in Income Statement Acquisitions Translation and Others Recognized in Other Comprehensive Balance at December 31, 2020 Income/Equity Liability (Asset) $ Property, plant and equipment Intangible assets Derivatives Inventory reserves Employee benefit plans Share-based payments Capitalized research and development Provisions and other items Tax loss carry-forwards $ 109.9 263.6 (1.5) (12.3) (63.1) (3.4) (8.5) (58.6) (11.5) $ 10.6 2.4 5.4 (1.6) (13.8) (1.0) 2.6 8.6 1.5 $ 214.6 $ 14.7 $ 4.1 5.4 – (0.1) (0.1) – – 0.3 – 9.6 $ $ (2.9) (3.8) 0.2 0.4 (0.6) – – (0.1) (0.1) (6.9) $ $ – – (2.8) – (1.3) 0.2 – – – $ (3.9) $ 121.7 267.6 1.3 (13.6) (78.9) (4.2) (5.9) (49.8) (10.1) 228.1 The aggregate amount of temporary differences associated with investments in subsidiaries and joint ventures for which deferred tax liabilities were not recognized as at December 31, 2021, is $2,903.9 million (2020 – $2,214.7 million). The aggregate amount of temporary differences associated with investments in subsidiaries and joint ventures for which deferred tax assets were not recognized as at December 31, 2021, is $18.1 million (2020 – $20.6 million). 1 6. S H A R E C A P I TA L Shares issued (in millions) Balance, January 1, 2020 Stock options exercised Balance, December 31, 2020 Stock options exercised Director share units exercised Restricted share units exercised Balance, December 31, 2021 Class A Shares Amount 11.8 – 11.8 – – – 11.8 $ $ $ 4.5 – 4.5 – – – 4.5 Class B Shares 166.8 0.6 167.4 0.9 * 0.1 $ $ Amount 361.0 31.3 392.3 61.8 0.5 3.0 $ $ 168.4 $ 457.6 $ Total 365.5 31.3 396.8 61.8 0.5 3.0 462.1 * Number of class B non-voting shares issued was nominal. At December 31, 2021, the authorized share capital comprised an unlimited number of Class A voting shares and an unlimited number of Class B non-voting shares. The Class A and Class B shares have no par value. All issued shares are fully paid. Both Class A and Class B shares are classified as equity. (a) Class A The holders of Class A shares receive dividends set at $0.01 per share per annum less than Class B shares; they are entitled to one vote per share at meetings of the Company, and their shares are convertible at any time into Class B shares. (b) Class B Class B shares rank equally in all material respects with Class A shares, except as follows: (i) Holders of Class B shares are entitled to receive material and attend, but not to vote at, regular shareholder meetings. (ii) Holders of Class B shares are entitled to voting privileges when consideration for the Class A shares, under a takeover bid when voting control has been acquired, exceeds 115% of the market price of the Class B shares. (iii) Holders of Class B shares are entitled to receive, or have set aside for payment, dividends declared by the Board of Directors from time to time, set at $0.01 per share per annum greater than Class A shares. 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT Dividends The annual dividends per share were as follows: Class A share Class B share 1 7. E A R N I N G S P E R S H A R E Basic earnings per share 2021 0.83 0.84 $ $ 2020 0.71 0.72 $ $ The calculation of basic earnings per share for the year ended December 31, 2021, was based on profit attributable to Class A shares of $39.3 million (2020 – $35.0 million) and Class B shares of $559.8 million (2020 – $494.7 million) and a weighted average number of Class A shares outstanding of 11.8 million (2020 – 11.8 million) and Class B shares outstanding of 167.9 million (2020 – 166.9 million). Weighted average number of shares (in millions) Issued and outstanding shares at January 1 Effect of stock options exercised Weighted average number of shares at December 31 Diluted earnings per share Class A Shares 11.8 – 11.8 2021 Class B Shares 167.4 0.5 167.9 Class A Shares 11.8 – 11.8 2020 Class B Shares 166.8 0.1 166.9 The calculation of diluted earnings per share for the year ended December 31, 2021, was based on profit attributable to Class A shares of $39.1 million (2020 – $34.8 million) and Class B shares of $560.0 million (2020 – $494.9 million) and a diluted weighted average number of Class A shares outstanding of 11.8 million (2020 – 11.8 million) and Class B shares outstanding of 169.1 million (2020 – 168.0 million). Weighted average number of shares – diluted (in millions) Weighted average number of shares (basic) Effect of deferred share units on issue Effect of share-based compensation Weighted average number of shares (diluted) December 31, 2021 December 31, 2020 179.7 0.2 1.0 180.9 178.7 0.2 0.9 179.8 The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the year that the options were outstanding. 79 2021 ANNUAL REPORT 1 8 . LOA N S A N D B O R R OW I N G S Current liabilities Current portion of unsecured bank credit facilities (ii) Current portion of other loans (iv) Short-term operating credit lines available (v) Short-term operating credit lines used Non-current liabilities Unsecured syndicated bank credit facilities (i) Unsecured notes (iii) Other loans (iv) December 31, 2021 December 31, 2020 $ $ $ $ $ – 15.3 15.3 10.9 0.4 9.5 1,676.7 5.2 $ $ $ $ $ 50.2 1.6 51.8 42.8 14.4 202.9 1,684.2 2.3 $ 1,691.4 $ 1,889.4 (i) Unsecured syndicated bank credit facilities As at December 31, 2021, the Company had an unsecured US$1.2 billion revolving credit facility with a syndicate of banks. The facility bears interest at the applicable benchmark interest rate, plus an interest rate margin linked to the Company’s net debt to EBITDA. Borrowings under the facility were $11.0 million (CDOR plus 1.0%) along with $3.5 million of contingent letters of credit drawn on this syndicated bank credit facility. As at December 31, 2020, $4.1 million of contingent letters of credit were drawn on this syndicated bank credit facility. In February 2020, this facility was amended, extending the maturity from March 29, 2023, to February 28, 2025. As at December 31, 2020, the Company had an unsecured US$161.0 million ($204.9 million; LIBOR plus 0.75%) non- revolving term loan facility with a syndicate of banks that bore interest at the applicable domestic rate, plus an interest rate margin linked to the Company’s net debt to EBITDA. In February 2020, this facility was amended, extending the maturity from February 26, 2021, to February 28, 2022. This facility was fully repaid October 29, 2021. The unused portion of the revolving syndicated bank credit facility was US$1,188.5 million at December 31, 2021 (December 31, 2020 – US$1,196.8 million). As at December 31, 2021, transaction costs related to the unsecured syndicated bank credit facilities were $1.5 million (December 31, 2020 - $2.0 million). As at December 31, 2019, the Company utilized cross-currency interest rate swap agreements (“CCIRSAs”) to effectively convert notional US$228.4 million LIBOR-based debt into €200.0 million negative 0.28% fixed rate debt in order to hedge its euro-based assets and cash flows (note 24(a)). These swaps were unwound in June 2020. (ii) Unsecured bank credit facilities In January 2019, the Company signed a two-year unsecured bilateral credit facility for US$35.0 million with a maturity date of January 22, 2021, which was extended to January 22, 2022, early in 2020, and extended, again, to January 22, 2025, early in 2021. This bilateral loan incurs interest at the applicable domestic rate, plus an interest rate margin and, annually, automatically extends out an additional year until January 22, 2024. As of December 31, 2021, and December 31, 2020, the facility was undrawn. In December 2019, the Company signed an uncommitted unsecured bilateral credit facility for A$65.0 million. This bilateral loan incurs interest at the applicable domestic rate plus an interest rate margin. As of December 31, 2021, the facility was undrawn. As of December 31, 2020, A$51.2 million ($50.2 million) was drawn. 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT (iii) Unsecured notes Unsecured notes as at December 31, 2021, consisted of US$600.0 million ($750.5 million; 2020 - $ 754.8 million) principal amount of 144A 3.05% private notes, offered in a private placement in the United States in May 2020, maturing June 1, 2030; $298.8 million (2020 - $298.6 million) principal amount of 3.864% Series 1 Notes, maturing April 13, 2028; and US$500.0 million ($627.4 million; 2020 - $630.8 million) principal amount of 144A 3.25% private notes, maturing on October 1, 2026. These notes bear interest payable semi-annually. The net proceeds of all three notes were used to partially repay amounts borrowed under the unsecured syndicated bank credit facility. As at December 31, 2021, the Company utilized CCIRSAs to effectively convert notional US$408.5 million (2020 – US$408.5 million) of the 144A 3.05% private notes into €360.0 million (2020 – €360.0 million) 2.06% and 2.00% fixed rate debt and convert notional US$376.2 million (2020 – US$376.2 million) of the 144A 3.25% private notes into €340.0 million (2020 - €340.0 million) 1.16% and 1.23% fixed rate debt in order to hedge its euro-based assets and cash flows (note 24(a)). (iv) Other loans Other loans include term bank loans at various rates and repayment terms. (v) Operating credit lines Interest rates charged on the credit lines are based on rates varying with LIBOR, the prime rate and similar market rates for other currencies. (vi) Reconciliation of changes in liabilities arising from financing activities Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the consolidated statement of cash flows as financing activities. Changes in the Company’s liabilities arising from financing activities are as follows: Balance at January 1 Financing cash flows Foreign exchange Other Balance at December 31 $ 2021 1,941.2 (233.4) (13.8) 12.7 $ 2020 2,273.6 (314.2) (41.1) 22.9 $ 1,706.7 $ 1,941.2 As at December 31, 2021, there are no assets pledged as collateral against long-term debt. As of December 31, 2020, the carrying amount of financial and non-financial assets pledged as collateral against $1.0 million of long-term debt amounted to $11.5 million. 1 9. F I N A N C E I N C O M E A N D C O S T Recognized in consolidated income statement Interest expense on financial liabilities measured at amortized cost Fees and interest recognized on other financial instruments Interest expense on post-employment defined benefit plans Finance cost Interest income on cash and cash equivalents Interest income on other assets Interest income on post-employment defined benefit plans Finance income Interest expense on lease liabilities $ $ 2021 58.8 (10.1) 10.7 59.4 2.4 0.2 5.1 7.7 5.2 2020 65.5 (11.2) 13.6 67.9 1.8 0.4 6.9 9.1 6.4 Net finance cost recognized in consolidated income statement $ 56.9 $ 65.2 The above finance income and cost are with respect to assets (liabilities) not at FVTPL. 81 2021 ANNUAL REPORT 2 0. E M P LOY E E B E N E F I T S Present value of wholly unfunded defined benefit obligations Present value of partially funded defined benefit obligations Total present value of obligations Fair value of plan assets Recognized liability for defined benefit obligations Liability for long-service leave and jubilee plans Total employee benefits Total employee benefits reported in trade and other payables Total employee benefits reported in non-current liabilities (a) Defined contribution post-employment plans December 31, 2021 December 31, 2020 $ $ 275.7 506.9 782.6 (468.7) 313.9 15.4 329.3 13.8 315.5 $ $ 301.2 535.3 836.5 (454.8) 381.7 15.8 397.5 12.4 385.1 The Company sponsors defined contribution post-employment plans in Canada, the U.S., Thailand, the Netherlands and the U.K. A post-employment plan is classified as a defined contribution plan if the Company pays fixed contributions into a fund at a separate entity and the Company has no further obligation to pay any further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. The expense for Company-sponsored defined contribution post-employment plans was $31.6 million in 2021 (2020 – $31.5 million), of which $0.1 million (2020 – $0.1 million) was for key management personnel. Company contributions into defined contribution state plans are included in the line item Compulsory social security contributions in the table in note 21. (b) Defined benefit post-employment plans The Company also has defined benefit post-employment plans in various countries of the world. Although some of these plans have elements common to defined contribution plans, the Company has accounted for these as defined benefit plans as they are not fully funded at a separate entity. Partially funded defined benefit obligations The Company’s defined benefit post-employment plans are not fully funded. The obligation of these plans, net of any assets, is recorded in non-current liabilities on the consolidated statement of financial position in employee benefits or, for payments expected to be made within the next twelve months, in trade and other payables in current liabilities. Fluctuations in the pension liabilities resulting from actuarial gains or losses due to changes in risk factors are recorded in other comprehensive income. The primary partially funded plans are in Canada, the U.K., Switzerland and the Netherlands. Details of these plans are as follows: (i) In Canada, the Company has a registered partially funded defined benefit pension plan for seven retired executives and one active employee. The Company makes all required contributions to the plans. Benefits are based on employee earnings. An actuary is involved in measuring the obligation of the plan and in calculating the expense and any contributions required. The plan is closed to new members. The primary risk factors for this plan are longevity of plan beneficiaries, discount rate volatility for the value of the obligation and market risk on the assets. The Company has determined that any surplus in the plan after all obligations have been covered is fully available to the Company. (ii) In the U.K., the Company has two registered partially funded defined benefit pension plans. The Company’s plan has no active members and is closed to new members. Benefits are based on final salary. All members of the plan are either deferred or retired and benefits are provided to spouses or dependents in the event of a member’s death before or after retirement. The Company is required to make payments of £0.8 million in deficit funding contributions annually. An actuary is involved in measuring the obligation of the plan and in calculating the expense and any contributions required. The primary risk factors for this plan are longevity of plan beneficiaries and discount rate volatility for the value of the obligation and market risk on the assets. The Company has determined that any surplus in the plan after all obligations have been covered is fully available to the Company. 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT  On April 6, 2019, the Innovia plan was frozen. No further benefits will be earned by members in the plan and no contributions will be paid into the plan other than deficit funding contributions. It is closed to new members. Benefits are based on a member’s final pensionable salaries and length of service at retirement. Benefits are provided to spouses in the event of a member’s death before or after retirement. The Company is required to make payments of £1.2 million in deficit funding contributions annually. An actuary is involved in measuring the obligation of the plan and in calculating the expense and any contributions required. The primary risk factors for this plan are longevity of plan beneficiaries and discount rate volatility for the value of the obligation and market risk on the assets. The Company has determined that any surplus in the plan after all obligations have been covered is available to the Company if the plan is wound up. However, any surplus while the plan is ongoing is under the authority of the trustees. Active members have been moved to a defined contribution plan. (iii) In Switzerland, the Company provides a mandatory, legislated contribution-based cash balance plan for employees that is accounted for as a post-employment defined benefit plan. Benefits from the plan are paid out at retirement, disability or death. If an employee terminates from the Company prior to retirement, the vested benefit equal to the accumulated savings account balance is transferred to the pension plan of the new employer. The plan is governed by a foundation board that is legally responsible for the operation of the plan and includes employer and employee representation, in equal numbers. A legally required minimum level of retirement benefit is based on age-related savings contributions, an insured salary defined by law and a required rate of return set annually by the Swiss government. Contributions from both employers and employees are compulsory and vary according to age and salary. The primary risk factors for this plan are longevity of plan beneficiaries, discount rate volatility for the value of the obligation and market risk on the assets. Under Swiss pension law, any surplus assets technically belong to the pension plan and any reduction in contributions is at the discretion of the Board. (iv) In the Netherlands, the Company provides a defined-benefit career average pay plan for a small number of employees. An actuary is involved in measuring the obligation of the plan. Benefits from the plan are paid through retirement and at death, before or during retirement, to the spouse or dependents. If a member of the plan leaves the Company, the member may choose to have the benefits of the plan transferred into the plan of the new employer. The benefit formula is based on a percentage of each year’s pensionable salary up to a set maximum salary, less a social security offset. Benefits are guaranteed by an insurance company and the Company is required to pay annual premiums on the insurance contract based on a contract interest rate. There are no employee contributions to the plan. The primary risk factors for this plan are longevity of plan beneficiaries and discount rate volatility. This plan was frozen as of December 31, 2018, and all members were moved to a defined contribution plan. The most recent actuarial valuation for funding purposes for the executive defined pension plan in Canada was as of January 1, 2021. The next required actuarial valuation will be as of January 1, 2024. The most recent actuarial valuation of the two U.K. defined benefit pension plans for funding purposes were as of January 1, 2020. The next required valuation is as of January 1, 2023. Wholly unfunded defined benefit obligations For defined benefit post-employment plans that have no assets, the Company simply funds the plans as benefits are paid. The primary wholly unfunded plans are in Canada, the U.S. and Germany. Details of these plans are as follows: (i) In Canada, the Company maintains non-registered, wholly unfunded supplemental retirement arrangements for one active Canadian executive, eight retired Canadian executives and two retired U.S. executives or their widows. The Company makes all required contributions to the plans. Benefits are based on employee earnings. An actuary is involved in measuring the obligation of the plans and in calculating the expense and any contributions required. The plans are closed to new members. The primary risk factors for these plans are longevity of plan beneficiaries and discount rate volatility. (ii) In the U.S., the Company has a post-employment, wholly unfunded deferred compensation plan for designated executives (“NQP”). Liabilities are based strictly on the contributions made to the plan and an established rate of return and are not subject to actuarial adjustments. It allows executives to elect to defer specified portions of salary, cash bonuses and long-term incentive plan payments. The Company contributes a matching portion of the executive’s NQP deferred amount to a maximum of 8% of the executive’s base salary plus bonus. The Company may also contribute a discretionary annual Company contribution based on a percentage of base salary and annual bonus. Contributions to the NQP for one of the executives vest immediately. For the other executives, immediate vesting of discretionary Company contributions and interest occurs on death, disability or change of control, with normal vesting occurring at age 60 with 10 years’ service. The Company’s match portion and interest vest in the same manner as Company contributions in the 401k plan. Elective deferrals by the executive vest immediately. 83 2021 ANNUAL REPORT(iii) In Germany, the Company has several wholly unfunded defined benefit plans. There are four salary-based annuity plans that are closed to new members, but currently have approximately 90 active members. All contributions and benefits are funded by the Company. The primary risk factors for these plans are longevity of plan beneficiaries and discount rate volatility. There are also three cash balance plans for current employees. Two of those plans require the Company to match a specific portion of employee contributions. Upon retirement, lump sum payments are made unless an employee requests an annuity. The third cash balance plan has employer and employee contributions and pays out in three instalments upon retirement. The primary risk factor for these three plans is discount rate volatility. (iv) The Company has wholly unfunded post-employment defined benefit plans in Austria, France, India, Italy, Mexico and Thailand. Benefits are paid out in a lump sum upon retirement, disability or death. There are no employee contributions in these plans. Benefits are based on salary and length of service with the Company. The following table shows the reconciliation from the opening balances to the closing balances for the defined benefit post-employment plans, including the defined benefit pension plans, supplemental retirement plans and other post- employment defined benefit plans. $ Partially Funded Wholly Unfunded $ 535.3 – 2.7 0.3 6.9 1.0 (14.1) (1.5) (3.4) (8.0) (0.8) – (11.5) 301.2 0.9 5.2 0.2 4.4 1.5 (11.0) 1.0 1.4 (12.8) 0.7 (1.2) (15.8) $ 506.9 $ 275.7 $ $ $ $ 454.8 5.7 25.9 1.0 6.3 (14.1) (0.9) (0.1) (9.9) 468.7 (38.2) (38.2) $ $ $ $ – – – – 11.0 (11.0) – – – – (275.7) (275.7) $ $ $ $ $ $ Total 836.5 0.9 7.9 0.5 11.3 2.5 (25.1) (0.5) (2.0) (20.8) (0.1) (1.2) (27.3) 782.6 454.8 5.7 25.9 1.0 17.3 (25.1) (0.9) (0.1) (9.9) 468.7 (313.9) (313.9) 2021 Accrued benefit obligation: Balance, beginning of year Opening balance from current year acquisitions Current service cost Past service cost Interest cost Employee contributions Benefits paid Actuarial (gains) losses – experience Actuarial (gains) losses – demographic assumptions Actuarial gains – financial assumptions Reinstatements and transfers Effect of curtailment Effect of movements in exchange rates Balance, end of year Plan assets: Fair value, beginning of year Expected return on plan assets Actuarial gains Employee contributions Employer contributions Benefits paid Administrative expenses Settlements Effect of movements in exchange rates Fair value, end of year Funded status, net deficit of plans Accrued benefit liability 84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT 2020 Accrued benefit obligation: Balance, beginning of year Current service cost Interest cost Employee contributions Benefits paid Actuarial gains – experience Actuarial gains – demographic assumptions Actuarial losses – financial assumptions Reinstatements and transfers Effect of curtailment Settlement gain (loss) Effect of movements in exchange rates Balance, end of year Plan assets: Fair value, beginning of year Expected return on plan assets Actuarial gains Employee contributions Employer contributions Benefits paid Administrative expenses Settlements Effect of movements in exchange rates Fair value, end of year Funded status, net deficit of plans Accrued benefit liability The Company’s net defined benefit plan expense is as follows: 2021 Current service cost Past service cost Net interest cost on accrued benefit liability Curtailment gain Settlement loss Administration costs Net defined benefit plan expense Net defined benefit plan expense is recorded in: Cost of sales Selling, general and administrative expenses Finance cost Net defined benefit plan expense $ Partially Funded Wholly Unfunded $ 482.5 2.9 9.4 1.1 (12.1) (2.5) (1.7) 47.2 – (0.3) (0.2) 9.0 285.5 5.2 5.3 1.2 (10.4) (1.9) (0.4) 6.6 (0.2) – 0.2 10.1 $ 535.3 $ 301.2 $ $ $ $ $ $ $ $ 402.8 7.7 42.6 1.1 5.8 (12.1) (0.8) (0.3) 8.0 454.8 (80.5) (80.5) $ $ $ $ – – – – 10.4 (10.4) – – – – (301.2) (301.2) Partially Funded Wholly Unfunded 2.7 0.3 1.2 – 0.1 0.9 5.2 2.4 1.6 1.2 5.2 $ $ $ $ 5.2 0.2 4.4 (1.2) – – 8.6 1.4 2.8 4.4 8.6 $ $ $ $ $ $ $ $ $ $ Total 768.0 8.1 14.7 2.3 (22.5) (4.4) (2.1) 53.8 (0.2) (0.3) – 19.1 836.5 402.8 7.7 42.6 1.1 16.2 (22.5) (0.8) (0.3) 8.0 454.8 (381.7) (381.7) Total 7.9 0.5 5.6 (1.2) 0.1 0.9 13.8 3.8 4.4 5.6 13.8 85 2021 ANNUAL REPORT 2020 Current service cost Net interest cost on accrued benefit liability Curtailment gain Settlement loss Administration costs Net defined benefit plan expense Net defined benefit plan expense is recorded in: Cost of sales Selling, general and administrative expenses Finance cost Net defined benefit plan expense Actuarial gains (losses) recognized directly in equity are as follows: Actuarial gains – experience Actuarial gains – demographic assumptions Actuarial gains (losses) – financial assumptions Experience gains on plan assets Recognized during the year in other comprehensive gain (loss) Plan assets consist of the following: 2021 Equity securities Debt securities Real estate Other Total 2020 Equity securities Debt securities Real estate Other Total Partially Funded Wholly Unfunded $ $ $ $ 2.9 1.7 (0.3) 0.1 0.8 5.2 2.3 1.1 1.8 5.2 $ $ $ $ $ $ $ $ $ 5.2 5.3 – 0.2 – 10.7 2.1 3.7 4.9 10.7 $ 2021 0.5 2.0 20.8 25.9 49.2 $ $ Partially Funded Wholly Unfunded 55% 34% 2% 9% 100% – – – – – Partially Funded Wholly Unfunded 58% 34% 2% 6% 100% – – – – – Total 8.1 7.0 (0.3) 0.3 0.8 15.9 4.4 4.8 6.7 15.9 2020 4.4 2.1 (53.8) 42.6 (4.7) Total 55% 34% 2% 9% 100% Total 58% 34% 2% 6% 100% No plan assets are directly invested in the Company’s own shares or directly in any property occupied by, or other assets used by, the Company. The actual returns on plan assets are as follows: 2021 2020 86 Partially Funded Wholly Unfunded $ $ 31.6 50.3 – – $ $ Total 31.6 50.3 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT The weighted average economic assumptions used to determine post-employment benefit obligations are as follows: December 31, 2021 Discount rate Expected rate of compensation increase December 31, 2020 Discount rate Expected rate of compensation increase Partially Funded Wholly Unfunded 1.84% 1.46% 1.30% 1.37% 1.54% 2.06% 1.34% 2.34% The weighted average economic assumptions used to determine post-employment plan expenses are as follows: December 31, 2021 Discount rate Expected rate of compensation increase December 31, 2020 Discount rate Expected rate of compensation increase Partially Funded Wholly Unfunded 1.30% 1.37% 1.97% 1.39% 1.37% 2.35% 1.48% 2.33% Total 1.73% 1.92% 1.32% 2.11% Total 1.33% 2.11% 1.79% 2.11% The sensitivity analysis on the defined benefit obligation is as follows, and it is prepared by altering one assumption at a time and keeping the other assumptions unchanged. The resulting defined benefit obligation is then compared to the defined benefit obligation in the disclosures: Discount rate (increase 1%) Discount rate (decrease 1%) Longevity (+1 year) Inflation (+0.25%) Inflation (-0.25%) Salary (increase 1%) Salary (decrease 1%) Duration (years) Partially Funded Wholly Unfunded (99.2) 98.2 14.5 13.6 (13.5) 3.9 (2.8) 19 $ $ $ $ $ $ $ (27.0) 30.2 10.9 – – 2.8 (2.7) 13 $ $ $ $ $ $ $ The Company expects to contribute $3.7 million to the partially funded defined benefit plans and pay $14.0 million in benefits for the wholly unfunded plans in 2022. (c) Long-term incentive, long-service leave, jubilee and other plans The Company has long-term incentive plans with share-based payments, long-service leave plans and jubilee plans in various countries around the world. As at December 31, 2021, $0.8 million (2020 – $0.8 million) of the total obligation of $15.4 million (2020 – $15.8 million) was classified as current and reported in trade and other payables. The expense for these plans was $16.4 million in 2021 (2020 – $4.3 million). 87 2021 ANNUAL REPORT 2 1 . P E R S O N N E L E X P E N S E S Wages and salaries Compulsory social security contributions Contributions to Company-sponsored defined contribution plans Net expenses related to defined benefit plans Equity-settled share-based payment transactions 2 2 . I N C O M E TA X E X P E N S E $ 2021 1,116.9 126.4 31.6 13.8 28.3 $ 2020 1,075.9 113.5 31.5 15.9 14.1 $ 1,317.0 $ 1,250.9 Current tax expense Current tax on earnings before earnings in equity-accounted investments for the year Deferred tax expense (benefit) (note 15) Origination and reversal of temporary differences Impact of tax rate changes Recognition of previously unrecognized tax losses and deductible temporary differences $ $ 2021 191.2 (5.3) 9.0 (13.4) (9.7) $ $ Total income tax expense $ 181.5 $ Reconciliation of effective tax rate Combined Canadian federal and provincial income tax rates The income tax expense on the Company’s earnings differs from the amount determined by the Company’s statutory rates as follows: Net earnings for the year Add: income tax expense Deduct: earnings in equity-accounted investments Earnings before income tax and equity-accounted investments $ Income tax using the Company’s domestic combined Canadian federal and provincial income tax rates Effect of tax rates in foreign jurisdictions Impact of tax rate changes Recognition of previously unrecognized tax losses and deductible temporary differences Losses and deductible temporary differences for which no deferred tax asset was recognized Non-deductible expenses and other items Income tax recovery recognized directly in other comprehensive loss Derivatives and foreign currency translation adjustments Actuarial gains (losses) Total income tax recovery recognized directly in other comprehensive income (loss) $ $ $ 2021 26.5% 599.1 181.5 11.2 769.4 203.9 (16.7) 9.0 (13.4) 3.1 (4.4) 181.5 6.7 12.1 18.8 $ $ $ $ 2020 149.1 26.1 3.7 (15.1) 14.7 163.8 2020 25.8% 529.7 163.8 9.5 684.0 176.5 (6.0) 3.7 (15.1) 4.6 0.1 163.8 (2.8) (1.3) (4.1) 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT The Company is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. If the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. 2 3 . S H A R E - B A S E D PAY M E N T S For options and share awards granted for stock-based compensation, $26.6 million (2020 – $14.4 million) was recognized in the consolidated financial statements as an expense, with a corresponding offset to contributed surplus. At December 31, 2021, the Company had five share-based compensation plans, which are described below: (a) Employee stock option plan Under the employee stock option plan, the Company may grant options to employees, officers and directors of the Company. The Company does not grant options to independent directors. The exercise price of each option equals the closing market price of the Class B non-voting shares on the last trading day prior to the grant date of the option, and an option’s maximum term is 10 years. Current options vest 25% one year from the grant date and 25% each subsequent year. The term of these options is five years from the grant date. In general, the grants are conditional upon continued employment. No market conditions affect vesting. Granted options are not entitled to dividends and may not be transferred or assigned by the option holder. In 2021 and 2020 , stock option grants were not awarded. A summary of the status of the Company’s employee stock option plan as of December 31, 2021 and 2020, and changes during the years ended on those dates, is presented below: Outstanding at beginning of year Granted Exercised Outstanding at end of year Options exercisable at end of year 2021 Weighted Average Exercise Price Shares (in millions) 2020 Weighted Average Exercise Price Shares (in millions) 2.4 – (0.9) 1.5 0.9 $ $ $ 59.68 – 56.67 61.45 62.88 3.0 – (0.6) 2.4 1.2 $ $ $ 56.57 – 43.73 59.68 59.67 The weighted average share price of stock options exercised in 2021 was $70.00 (2020 – $57.31). The following table summarizes information about the employee stock options outstanding at December 31, 2021. Range of Exercisable Prices $50.01 - $56.00 $56.01 - $60.00 $60.01 - $66.87 $50.01 - $66.87 Options Outstanding Options Exercisable Weighted Average Options Outstanding Remaining (in millions) Contractual Life Weighted Average Exercise Price Options Exercisable (in millions) Weighted Average Exercise Price 0.6 0.1 0.8 1.5 2.2 years 0.2 years 1.2 years 1.5 years $ $ $ $ 55.73 58.03 66.87 61.45 0.2 0.1 0.6 0.9 $ $ $ $ 55.73 58.03 66.87 62.88 89 2021 ANNUAL REPORT (b) Deferred share units (“DSU”) The Company maintains a deferred share unit plan. Under this plan, non-employee members of the Company’s Board of Directors may elect to receive DSUs, in lieu of cash remuneration, for director fees that would otherwise be payable to such directors, or any portion thereof, until DSU holdings of three times the annual retainer have been achieved. In addition, director compensation includes an annual grant of DSUs. The number of units received is equivalent to the fees earned and is based on the fair market value of a Class B non-voting share of the Company on the date of issue of the DSU. When dividends are paid on Class B non-voting shares of the Company, the equivalent value per DSU is calculated and the holder receives additional DSUs in lieu of actual cash dividends based on the fair market value of a Class B non-voting share of the Company. DSUs cannot be redeemed or paid out until such time as the director ceases to be a director. A DSU entitles the holder to receive, on a deferred payment basis, the number of Class B non-voting shares of the Company equating to the number of the holder’s DSUs on the redemption date. The Company accounts for the DSU plan as an equity-settled share-based payment transaction. The Company had 0.2 million DSUs outstanding as at December 31, 2021. (c) Performance stock units (“PSU”) In 2019, the Company introduced a performance stock unit plan. Under the plan, participants may be eligible to receive a maximum of approximately 1.5 million Class B non-voting shares of the Company to be issued from treasury. The vesting of these shares is dependent on the Company’s performance and continuing employment. The grant-date fair value of these shares is being amortized over the vesting period and recognized as compensation expense.  (d) Long-term retention plan (“LTRP”) In 2017, the Company instituted a long-term retention plan. Under the plan, the Company provided a one-time retention incentive to executives totaling 0.3 million restricted share units (“RSU”). The incentive vests 25% in each year beginning in 2022 and ending in 2025, inclusive. In 2019, under the aforementioned long-term retention plan, the Company provided a one-time retention incentive to additional executives totaling 0.1 million RSUs. The incentive vests 25% in each year beginning 2024 and ending 2027, inclusive. Each RSU is equivalent to one Class B non-voting share of the Company, to be issued from treasury. (e) Other restricted share units In 2020, the Company established the restricted share unit plan. Each unit is equivalent to one Class B non-voting share of the Company. Current options vest 25% one year from the grant date and 25% each subsequent year. The term of these options is four years from the grant date, and will be settled through equity. The grants are conditional upon continued employment. No market conditions affect vesting. Granted options are not entitled to dividends and may not be transferred or assigned by the option holder. The Company had 0.3 million RSU’s outstanding as at December 31, 2021. 90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT2 4 . F I N A N C I A L I N S T R U M E N T S (a) Hedges of net investments in foreign operations US$123.8 million (2020 – US$123.8 million) of unsecured 144A 3.25% private notes, US$191.5 million (2020 – US$191.5 million) of unsecured 144A 3.05% private notes and nil (2020 – US$161.0 million) of the unsecured syndicated bank credit facilities (hedging items) have been used to hedge the Company’s exposure to its net investment in US-dollar- denominated operations (hedged items), with a view to reducing foreign exchange fluctuations. The foreign exchange effect of the unsecured 144A 3.25% private notes, the unsecured 144A 3.05% private notes, the unsecured syndicated bank credit facilities and the net investment in US-dollar-denominated subsidiaries is reported in accumulated other comprehensive loss in the consolidated statement of financial position. These have been and continue to be 100% fully effective hedges as the notional amounts of the hedging items equal the portion of the net investment balance being hedged. No ineffectiveness was recognized in the consolidated income statement in 2021 or 2020. In February 2017, the Company converted US$264.7 million of the 144A 3.25% private notes (note 18) into €250.0 million 1.23% fixed rate debt using CCIRSAs (hedging items). In February 2018, a further US$111.5 million of the 144A 3.25% private notes (note 18) were converted into €90.0 million 1.16% fixed rate debt using CCIRSAs. In January 2019, US$228.4 million of the unsecured syndicated bank credit facilities (note 18) was converted into €200.0 million negative 0.28% fixed rate debt using CCIRSAs. In June 2020, US$204.6 million and US$203.9 million of the 144A 3.05% private notes (note 18) was converted into €180.0 million 2.06% fixed rate debt and €180.0 million 2.00% fixed rate debt, respectively, using CCIRSAs. Each of these conversions was to hedge the Company’s euro-based assets and cash flows. Fair value of these CCIRSAs was recorded in non-current liabilities when negative in value and non-current assets when positive in value. The offset was recorded in accumulated other comprehensive loss in the consolidated statement of financial position. The January 2019 CCIRSAs were unwound on June 5, 2020, with a gain of $3.6 million. These have all been, and the active CCIRSAs continue to be, 100% fully effective hedges as the notional amounts of the hedging items equal the portion of the net investment balance being hedged. No ineffectiveness was recognized in the consolidated income statement in 2021 or 2020. Notional Principal Amount Interest Rate Fair Value December 31 Fixed Rate Fixed Rate Received (US$) Paid (€) 2021 (C$) 2020 (C$) Maturity Effective Date US$105.8 million € 100.0 million 3.25% 1.24% $ (7.8) million $ (16.8) million October 1, 2026 February 28, 2017 US$84.8 million € 80.0 million 3.25% 1.20% $ (5.3) million $ (13.4) million October 1, 2026 February 28, 2017 US$42.3 million € 40.0 million 3.25% 1.21% $ (3.0) million $ (6.8) million October 1, 2026 February 28, 2017 US$31.8 million € 30.0 million 3.25% 1.29% $ (2.4) million $ (5.1) million October 1, 2026 February 28, 2017 US$62.1 million € 50.0 million 3.25% 1.16% $ 9.2 million $ 5.6 million October 1, 2026 February 21, 2018 US$49.4 million € 40.0 million 3.25% 1.15% $ 7.1 million $ 3.6 million October 1, 2026 February 22, 2018 US$125.0 million € 110.0 million 3.05% 2.1% $ (6.9) million $ (23.0) million June 1, 2030 June 10, 2020 US$79.6 million € 70.0 million 3.05% 2.1% $ (4.9) million $ (14.8) million June 1, 2030 June 10, 2020 US$68.0 million € 60.0 million 3.05% 2.0% $ (3.6) million $ (12.3) million June 1, 2030 June 23, 2020 US$45.3 million € 40.0 million 3.05% 2.0% $ (2.8) million $ (8.4) million June 1, 2030 June 23, 2020 US$45.3 million € 40.0 million 3.05% 2.0% $ (2.8) million $ (8.3) million June 1, 2030 June 23, 2020 US$45.3 million € 40.0 million 3.05% 2.0% $ (2.7) million $ (8.2) million June 1, 2030 June 23, 2020 91 2021 ANNUAL REPORT (b) Credit risk Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows: Cash and cash equivalents Trade and other receivables Other assets Derivative instruments The aging of trade receivables at the reporting date was as follows: Under 31 days Between 31 and 90 days Greater than 90 days December 31, 2021 December 31, 2020 $ $ 602.1 1,083.8 19.7 16.3 703.7 922.8 19.6 9.6 $ 1,721.9 $ 1,655.7 December 31, 2021 December 31, 2020 $ $ 576.7 320.6 69.5 966.8 $ $ 482.8 289.5 55.6 827.9 The movement in the allowance for impairment in respect of trade receivables during the year was as follows: Balance at January 1 Increase during the year Balance at December 31 December 31, 2021 December 31, 2020 $ $ 18.1 0.3 18.4 $ $ 15.5 2.6 18.1 The Company believes that no impairment allowance is necessary in respect of trade receivables not past due. 92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT (c) Liquidity risk Exposure to liquidity risk The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: December 31, 2020 Payments Due by Period December 31, 2021 Carrying Carrying Amount Amount Contractual Cash Flows 0-6 6-12 Months Months 1-2 Years 2-5 Years More than 5 Years Non-derivative financial liabilities Secured bank loans Unsecured bank loans Unsecured 144A 3.25% $ $ 0.8 52.1 4.8 10.1 $ $ 4.8 10.1 1.4 6.8 $ 1.4 0.9 $ 1.9 1.0 $ 0.1 1.0 $ 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 630.8 627.4 631.8 754.8 750.5 758.2 298.6 298.8 300.0 (1.9) 204.8 1.1 * * * * 9.5 – 5.6 * * * * 11.0 – 5.6 4.8 * 92.4 * 192.3 * 69.9 * – – – – – 4.8 0.8 5.2 9.7 3.3 * 1,135.7 * 1,321.5 0.4 0.2 1,321.5 * 1,321.5 * 153.4 * 144.6 206.2 * 158.3 2.3 19.5 – – – – – – 0.7 10.2 11.5 5.7 0.1 – 2.3 17.7 – – – – – 0.3 1.5 20.5 23.1 11.6 0.1 – 16.0 27.1 631.8 – – 11.0 – 0.5 1.8 56.5 69.4 34.8 – – 63.1 47.2 $ 3,230.2 $ 3,172.8 $ 3,767.3 $ 1,375.5 $ 50.5 $ 103.1 $ 917.2 $ 1,321.0 * Accrued long-term employee benefit and post-employment benefit liability of $13.8 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 $2.4 million on derivatives are reported in trade and other payables in 2021 (2020: $12.4 million, $9.6 million and $2.5 million, respectively). 93 – 0.4 – 758.2 300.0 – – – – – 78.6 14.5 – – 122.5 46.8 2021 ANNUAL REPORT (d) Currency risk Exposure to currency risk The Company’s exposure to foreign currency risk was as follows based on notional amounts: December 31, 2021 December 31, 2020 U.S. Dollar 151.1 343.1 364.5 319.7 U.K. Pound 25.4 20.3 31.4 – Euro 104.9 142.1 205.7 706.6 U.S. Dollar 179.6 290.1 303.7 477.2 U.K. Pound 21.9 17.9 32.8 – Euro 131.6 118.0 161.6 700.2 Cash and cash equivalents Trade and other receivables Trade and other payables Long-term debt Sensitivity analysis A 5% weakening of the Canadian dollar, as indicated below, against the following currencies at December 31 would have increased (decreased) equity and income by the amounts shown below. This analysis assumes that all other variables; in particular, interest rates, remain constant. Euro U.S. dollar U.K. pound 2021 (25.4) (19.7) 6.1 Equity 2020 (26.2) (27.9) 6.2 Income Statement 2021 (0.6) 3.0 0.1 2020 0.2 2.9 0.2 A 5% strengthening of the Canadian dollar against the above currencies at December 31 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. (e) Interest rate risk An increase of 100 basis points in interest rates on the floating rate debt and cash equivalents as at the reporting date would increase net earnings by $5.4 million (2020 – $0.8 million decrease). This analysis assumes that all other variables; in particular, foreign currency rates, remain constant. 94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT (f) Fair values versus carrying amounts The fair values of financial assets and liabilities, together with the carrying amounts shown in the consolidated statement of financial position, are as follows: Assets carried at fair value: Other assets Derivative financial assets Assets carried at amortized cost: Trade and other receivables Cash and cash equivalents Liabilities carried at fair value: Derivative financial liabilities Liabilities carried at amortized cost: Trade and other payables Unsecured 144A 3.25% private notes Unsecured 144A 3.05% private notes Unsecured 3.864% Series 1 Notes Unsecured syndicated bank credit facilities Other loans Finance lease liabilities $ $ $ $ $ $ $ December 31, 2021 December 31, 2020 Carrying Amount Fair Value Carrying Amount 19.7 16.3 36.0 1,083.8 602.1 $ $ $ 19.7 16.3 36.0 1,083.8 602.1 $ $ $ 19.6 9.6 29.2 922.8 703.7 $ $ $ Fair Value 19.6 9.6 29.2 922.8 703.7 1,685.9 $ 1,685.9 $ 1,626.5 $ 1,626.5 42.2 42.2 1,321.5 627.4 750.5 298.8 9.5 20.5 – $ $ $ 42.2 42.2 1,321.5 663.3 781.7 320.4 9.5 20.5 – $ $ $ 117.1 117.1 1,135.7 630.8 754.8 298.6 253.1 3.9 – $ $ $ 117.1 117.1 1,135.7 697.2 829.7 337.4 253.1 3.9 – $ 3,028.2 $ 3,116.9 $ 3,076.9 $ 3,257.0 The basis for determining fair values is disclosed in note 3. The interest rates used to discount estimated cash flows for the unsecured notes are based on the government yield curve at the reporting date, plus an adequate credit spread. 95 2021 ANNUAL REPORT (g) Fair value hierarchy The table below summarizes the levels of hierarchy for financial assets and liabilities. The different levels have been defined as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2: inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). December 31, 2021 Other assets Derivative financial assets Long-term debt Derivative financial liabilities December 31, 2020 Other assets Derivative financial assets Long-term debt Derivative financial liabilities Level 1 Level 2 Level 3 Total 19.7 – – – 19.7 $ $ – 16.3 (1,795.4) (42.2) $ (1,821.3) $ – – – – – $ 19.7 16.3 (1,795.4) (42.2) $ (1,801.6) Level 1 Level 2 Level 3 Total 19.6 – – – 19.6 $ $ – 9.6 (2,121.3) (117.1) $ (2,228.8) $ – – – – – $ 19.6 9.6 (2,121.3) (117.1) $ (2,209.2) $ $ $ $ The methods and assumptions used to measure the fair value are as follows: The fair value of derivative financial instruments generally reflects the estimated amounts that the Company would receive to sell favourable contracts or pay to transfer unfavourable contracts, at the reporting date. The Company uses discounted cash flow analysis and market data such as interest rates, credit spreads and foreign exchange spot rates to estimate the fair value of forward agreements and interest-rate derivatives. The fair value of long-term debt is estimated using public quotations, when available, or discounted cash flow analysis based on the current corresponding borrowing rate for similar types of borrowing arrangements. 96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT 2 5. F I N A N C I A L R I S K M A N AG E M E N T The Company has exposure to the following risks from its use of financial instruments: • credit risk; • liquidity risk; and • market risk. This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. (a) Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and it arises principally from the Company’s receivables from customers and investment securities. The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Company’s payment and delivery terms and conditions are offered. The Company’s review includes external ratings, where available, and in some cases bank references. Purchase limits are established for each customer, which represent the maximum open amount without requiring approval from senior management; these limits are reviewed quarterly. Customers that fail to meet the Company’s benchmark creditworthiness may transact with the Company only on a prepayment basis. The Company is potentially exposed to credit risk arising from derivative financial instruments if a counterparty fails to meet its obligations. These 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, 2021, the Company’s exposure to credit risk arising from derivative financial instruments amounted to $16.3 million (2020 – $9.6 million). (b) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity by monitoring expected cash flows and to ensure the availability of credit as much as possible, that it will always have sufficient liquidity to meet its liabilities when they are due. The financial obligations of the Company include trade and other payables, long-term debt and other long-term items. The contractual maturity of trade payables is six months or less. Long-term debt includes instruments with varying maturities extending to 2030. The Company has the capacity to discharge its current liabilities from the continued cash flows from business operations and an additional $602.1 million of cash on hand and US$1,188.5 million of available capacity within its syndicated bank credit facility at December 31, 2021. (c) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices, will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. The Company uses derivatives to manage market risks. Generally, the Company seeks to apply hedge accounting in order to manage volatility in profit or loss. The Company does not utilize derivative financial instruments for speculative purposes. (i) Currency risk The Company operates internationally, giving rise to exposure to market risks from changes in foreign exchange rates. The Company partially manages these exposures by contracting primarily in Canadian dollars, euros, U.K. pounds and U.S. dollars. Additionally, each subsidiary’s sales and expenses are primarily denominated in its local currency, further minimizing the foreign exchange impact on the operating results. In other cases, borrowings are done by non-Canadian-dollar-based subsidiaries in their own functional currencies such that the principal and interest are denominated in a currency that matches the cash flows generated by those subsidiaries. These provide natural hedges that do not require the application of hedge accounting. 97 2021 ANNUAL REPORT(ii) Interest rate risk The Company is exposed to market risk related to interest rate fluctuations on its debt. To mitigate this risk, the Company maintains a combination of fixed and floating rate debt. (iii) Commodity price risk Polypropylene is the most significant input cost for the Innovia Segment. It is traded in the market, with prices linked to the market price of natural gas and refining capacity. The Segment does not use derivative financial instruments to hedge its exposure to the volatility of polypropylene prices; therefore, movements must be managed and, where possible, passed along to the Segment’s customers. (d) Capital management The Company’s objective is to maintain a strong capital base throughout the economic cycle to maintain investor, creditor and market confidence and to sustain the future development of the business. This capital structure supports the Company’s objective to provide an attractive financial return to its shareholders equal to that of its leading specialty packaging peers. The Company defines capital as average total equity and measures the return on capital (or return on equity) by dividing annual net earnings before goodwill impairment loss and restructuring and other items by the average of the beginning and the end-of-year shareholders’ equity. In 2021, the return on capital was 17.2% (2020 – 17.8%). Management and the Board maintain a balance between the expected higher return on capital that might be possible with a higher level of financial debt and the advantages and security afforded by a lower level of financial leverage. The Company has provided a growing level of dividends to its shareholders over the last few years, generally related to its growth in earnings. Dividends are declared bearing in mind the Company’s current earnings, cash flow and financial leverage. There were no changes in the Company’s approach to capital management during the year. The Company is subject to certain financial covenants on its unsecured syndicated bank credit facility. The Company monitors the ratios on a quarterly basis and at December 31, 2021, was in compliance with all its covenants. 2 6. C O M M I T M E N T S A N D C O N T I N G E N C I E S (a) Commitments As at December 31, 2021, the Company had uncollateralized surety bonds of $39.7 million (2020 – $57.0 million), primarily to the Brazilian Tax Authority in order to facilitate the appeal of tax reassessments. The Company intends to vigorously defend this claim, which the Company considers to be without merit and, accordingly, has made no provision for the matter. (b) Contingencies In the normal course of operations, the Company and its subsidiaries may be subject to lawsuits, investigations and other claims, including environmental, labour, product, customer disputes and other matters. During 2018, the Federal Court of Australia awarded a judgement 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 judgement. As part of the appeals process, the Australian court of appeals mandated that the Company guarantee the entire judgement in order to stay execution of the judgement 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 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. 98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT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 co-defendants 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. Management believes that adequate provisions for legal claims have been recorded in the accounts where required. Although it is not always possible to accurately estimate the result or magnitude of legal claims due to the various uncertainties involved in the legal process, management believes that the ultimate resolution of all such pending matters, individually and in the aggregate, will not have a material adverse impact on the Company, its business, financial position or liquidity. 2 7. R E L AT E D PA R T I E S (a) Beneficial ownership The directors and officers of CCL Industries Inc. as a group beneficially own, control, or direct, directly or indirectly, approximately 11.2 million of the issued and outstanding Class A voting shares, representing 94.9% of the issued and outstanding Class A voting shares. (b) Loan guarantees The Company has provided various loan guarantees for its joint ventures and associates totaling $21.3 million (2020 – $23.3 million). 2 8 . K E Y M A N AG E M E N T P E R S O N N E L C O M P E N SAT I O N Short-term employee compensation and benefits Share-based compensation Post-employment benefits 2 9. AC C U M U L AT E D OT H E R C O M P R E H E N S I V E LO S S Unrealized foreign currency translation losses, net of tax expense of $1.8 million (2020 – tax recovery of $5.2 million) Gains on derivatives designated as cash flow hedges, net of tax expense of nil (2020 – tax expense of $0.1 million) 2021 10.3 4.9 0.6 15.8 $ $ 2020 9.6 4.5 0.7 14.8 $ $ 2021 2020 $ (241.5) $ (142.6) 0.1 0.4 $ (241.4) $ (142.2) 99 2021 ANNUAL REPORT 3 0. R E S T R U C T U R I N G A N D OT H E R I T E M S Restructuring costs Acquisition costs Other items Total restructuring and other items 2021 3.9 0.5 – 4.4 $ $ 2020 18.4 1.1 8.1 27.6 $ $ For the full year 2021, restructuring costs and other items represented an expense of $4.4 million ($3.5 million after tax) as follows: • Restructuring expenses of $3.9 million ($3.0 million after tax), primarily related to severance and reorganization costs across the CCL, Checkpoint and Innovia Segments. • Acquisition transaction costs totaled $0.5 million ($0.5 million after tax), for the nine acquisitions closed in 2021. 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. • 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), primarily 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 AUD$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. 3 1 . S U B S E Q U E N T E V E N T S The Board of Directors has declared a dividend of $0.24 per Class B non-voting share and $0.2375 per Class A voting share, which will be payable to shareholders of record at the close of business on March 17, 2022, to be paid on March 31, 2022. In January 2022 the Company acquired McGavigan Holdings Ltd. (“McGavigan”), headquartered in Glasgow, Scotland, with significant additional manufacturing capability in China for $105.5 million including assumed debt net of cash acquired. McGavigan is a leading supplier of in-mould decorated components for automobile interiors and will be added to CCL Design. 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSYears ended December 31, 2021 and 2020 (In millions of Canadian dollars, except per share information)2021 ANNUAL REPORT S I X Y E A R F I N A N C I A L S U M M A R Y (In millions of Canadian dollars, except share and ratio data) 2021 2020 2019 2018 2017 2016 Sales & Net Earnings Sales Depreciation and amortization Net finance costs Net Earnings Basic net earnings per Class B Share $ 5,732.8 $ 5,242.3 $ 5,321.3 $ 5,161.5 $ 4,755.7 $ 3,974.7 342.4 56.9 599.11 346.4 65.2 529.72 329.6 81.0 477.13 278.0 80.7 466.84 259.2 75.2 474.15 203.7 37.9 346.36 $ 3.331 $ 2.962 $ 2.683 $ 2.644 $ 2.705 $ 1.986 $ Financial Position Current Assets Current Liabilities Working capital7 Total Assets Net debt Shareholders’ equity $ Net debt to equity ratio Net debt to total book capitalization 2,447.6 1,418.0 1,029.6 7,627.8 1,249.2 3,747.0 0.33 $ $ 2,224.7 1,262.0 962.7 7,336.7 1,390.9 3,282.2 0.42 $ $ 2,105.0 1,148.0 957.0 7,038.0 1,716.2 2,897.7 0.59 $ $ 2,125.2 1,346.9 778.3 7,027.6 1,902.5 2,673.1 0.71 $ $ 1,851.6 1,299.7 551.9 6,144.0 1,773.9 2,157.9 0.82 $ $ 1,660.9 907.0 753.9 4,678.8 1,016.2 1,775.2 0.57 25.0% 29.8% 37.2% 41.6% 45.1% 36.4% Number of shares (000,000’s) Class A – Dec 31 Class B – Dec 31 Weighted average for the year 11.8 168.4 179.7 11.8 167.4 178.7 11.8 166.8 178.0 11.8 165.9 176.8 11.8 165.0 175.8 11.8 164.1 175.2 Cash Flow Cash provided by operations Additions to plant, property & equipment Business acquisitions Dividends Dividends per Class B share $ 838.7 $ 882.9 $ 779.5 $ 772.7 $ 711.2 $ 564.0 323.8 234.4 151.0 282.8 161.4 128.7 345.6 40.4 121.1 352.9 365.9 92.2 285.7 1,191.4 81.2 234.7 571.5 70.2 $ 0.84 $ 0.72 $ 0.68 $ 0.52 $ 0.46 $ 0.40 1 After pre-tax restructuring and other items – net loss of $4.4 million. 2 After pre-tax restructuring and other items – net loss of $27.6 million. 3 After pre-tax restructuring and other items – net loss of $25.0 million. 4 After pre-tax restructuring and other items – net loss of $14.8 million. 5 After pre-tax restructuring and other items – net loss of $11.3 million. 6 After pre-tax restructuring and other items – net loss of $34.6 million. 7 Current assets minus current liabilities. 101 2021 ANNUAL REPORT Europe Asia Pacific Günther Birkner President, Food & Beverage, Healthcare & Specialty and Innovia Zurich, Switzerland Derek Cumming Group Vice President, CCL Design East Kilbride, Scotland Scott Mitchell-Harris Group Vice President, Checkpoint Europe & Asia Pacific Barcelona, Spain Lee Pretsell Group Vice President, Healthcare & Specialty Dublin, Ireland Werner Ehrmann Vice President, Technology Development Holzkirchen, Germany Simon Huber Managing Director, Innovia Films U.K. & Poland Wigton, England Mathias Maennel Vice President & Managing Director, CCL Design Europe Oss, Netherlands Michael McGarry Vice President & Managing Director, Healthcare Europe Belfast, Northern Ireland Jamie Robinson Vice President & Managing Director, Home & Personal Care Europe and Food & Beverage, U.K. Castleford, England Reinhard Streit Vice President & Managing Director, Food & Beverage Europe Völkermarkt, Austria Jim Anzai Vice President & Managing Director, CCL Industries North Asia Tokyo, Japan Da Gang Li Group Vice President, CCL Industries Greater China Shanghai, PR China Pravin Krishnan Vice President & Managing Director, CCL Design ASEAN Singapore Kittipong Kulratanasinsuk Vice President & Managing Director, CCL Label ASEAN Bangkok, Thailand Daniel Choo Thian Chau Managing Director, CCL Label & Checkpoint Vietnam Ho Chi Min City, Vietnam Lifeng Wang Vice President & Managing Director, CCL Design – Intelligent Decorative Technologies Suzhou, PR China Alex Zhu Vice President & Managing Director, CCL Design Greater China Suzhou, PR China Mark Gentle Vice President & Managing Director, Checkpoint & Meto Australia, New Zealand & ASEAN Melbourne, Australia Neil Sanders Vice President & Managing Director, CCL Secure – Polymer Bank Notes Melbourne, Australia Latin America Luis Jocionis Group Vice President, CCL Industries South America Sao Paolo, Brazil 2 0 2 1 B U S I N E S S L E A D E R S H I P North America Mark Cooper President, Avery & METO Brea, California, USA Ben Lilienthal President, Checkpoint & Group Vice President, CCL Industries Central America Thorofare, New Jersey, USA Ben Rubino President, Home & Personal Care Lumberton, New Jersey, USA Stephan Finke Vice President & Managing Director, Food & Beverage North America and Australia / New Zealand Sonoma, California, USA Eric Frantz Group Vice President, Home & Personal Care, North America Hermitage, Pennsylvania, USA Bill Goldsmith Vice President Business Development, CCL Design North America Schererville, Indiana, USA Al Green Vice President, Technology Development Clinton, South Carolina, USA Andy Iseli Vice President & General Manager, CCL Tube Los Angeles, California, USA Jon Knight Vice President & General Manager, Innovia Films North America Winston-Salem, North Carolina, USA Sandra Lane Vice President, CCL Secure North America Greensboro, North Carolina, USA John O’Brien Vice President & General Manager, CCL Label Canada Toronto, Ontario, Canada Allison Phillips Vice President, Strategic Business Development Avery North America Brea, California, USA Patrick Thomas Vice President & General Manager, CCL Design North America Strongsville, Ohio, USA 102 2021 ANNUAL REPORT2 0 2 1 C O R P O R AT E E X E C U T I V E S Donald G. Lang Executive Chairman Geoffrey T. Martin President and Chief Executive Officer Suzana Furtado Corporate Secretary Kamal Kotecha Vice President, Taxation Mark McClendon Vice President and General Counsel James A. Sellors Senior Vice President, CCL Industries Asia Pacific Lalitha Vaidyanathan Senior Vice President, Finance-IT- Human Resources, CCL Industries Nick Vecchiarelli Vice President, Corporate Accounting Monika Vodermaier Vice President, Corporate Finance Europe Sean P. Washchuk Senior Vice President and Chief Financial Officer 2 0 2 1 B O A R D O F D I R E C T O R S Linda A. Cash Director since 2021 Corporate Director Georgia, U.S.A. Vincent J. Galifi Director since 2016 President, Magna International Inc. Ontario, Canada Alan D. Horn Director since 2019 President and Chief Executive Officer, Rogers Telecommunications Limited Ontario, Canada Kathleen L. Keller-Hobson Director since 2015 Corporate Director Ontario, Canada Donald G. Lang Director since 1991 Executive Chairman, CCL Industries Inc. Ontario, Canada Erin M. Lang Director since 2016 Managing Director, LUMAS Canada Ontario, Canada Stuart W. Lang Director since 1991 Corporate Director Ontario, Canada Geoffrey T. Martin Director since 2005 President and CEO, CCL Industries Inc. Massachusetts, U.S.A. Douglas W. Muzyka Director since 2016 Corporate Director Pennsylvania, U.S.A. Thomas C. Peddie Director since 2003 Corporate Director Ontario, Canada Susana Suarez-Gonzalez Director since 2021 Executive Vice President and Chief Human Resources; Chief Diversity and Inclusion Officer, International Flavors & Fragrances Inc. New York, U.S.A. 103 2021 ANNUAL REPORTS H A R E H O L D E R S ’ I N F O R M AT I O N Auditors KPMG LLP Chartered Professional Accountants Annual Meeting of Shareholders The Annual Meeting of Shareholders will be held on: May 12, 2022 at 2:00 p.m. Legal Counsel McMillan LLP Transfer Agent TSX Trust Company P.O. Box 700 Postal Station B Montreal, QC H3B 3K3 Email: shareholderinquiries@tmx.com Investor Services: (416) 682-3860 or (800) 387-0825 Fax: (888) 486-7660 or (514) 285-8457 (outside Canada and the U.S.A.) Website: www.tsxtrust.com Financial Information CCL Industries Inc. 111 Gordon Baker Road Suite 801 Toronto, ON M2H 3R1 Class B Share Information Stock Symbol CCL.B Listed TSX Opening price 2021 Closing price 2021 Number of trades Trading volume (shares) Trading value Annual dividends declared Institutional investors, analysts and registered representatives requiring additional information may contact: Shares outstanding at December 31, 2021 Sean Washchuk Senior Vice President and CFO (416) 756-8526 Additional copies of this report can be obtained from: Class A voting shares Class B non-voting shares $58.47 $67.83 357,204 63,019,145 $4,254,644,338 $0.84 11,822,137 168,362,341 CCL Industries Inc. Investor Relations Department 111 Gordon Baker Road Suite 801 Toronto, ON M2H 3R1 Tel: Fax: Email: (416) 756-8500 (416) 756-8555 ccl@cclind.com Website: www.cclind.com 104 This report is printed on recyclable, acid-free and chlorine free paper. Printed in Canada. 2021 ANNUAL REPORT CCL Industries Inc. 111 Gordon Baker Road, Suite 801 Toronto, ON M2H 3R1, Canada Tel +1 (416) 756 8500 161 Worcester Road Framingham, MA 01701, USA Tel +1 (508) 872 4511 www.cclind.com 

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