2006InvestorConferenceBookFinal

Investor Conference Marina del Rey, California

February 27-28, 2006

2 - AVERY DENNISON CORPORATION

About this Booklet

This text is an edited transcript of the presentations made by Avery Dennison Corporation to members of the investment community on February 27-28, 2006. Information has not been updated to reflect subsequent performance or events. Presentations were made by:

Dean A. Scarborough President and Chief Executive Officer………………. 2 Christian A. Simcic Group Vice President, Roll Materials Worldwide…..12 Timothy S. Clyde Group Vice President, Office Products Worldwide…21 Simon D. Coulson Group Vice President, Retail Information Services Worldwide………...…………………………………….31 Sandra Beach Lin Group Vice President, Specialty Materials and Converting Worldwide…………………………………40 Daniel R. O’Bryant Executive Vice President, Finance and Chief Financial Officer……………………………50 Presentations and discussions during this Conference contained “forward-looking” statements – that is, statements related to future events. These statements are by their nature subject to uncertainty. Actual results and trends may differ materially from historical or expected results depending on a variety of factors, including but not limited to fluctuations in cost and availability of raw materials; ability of the Company to achieve and sustain targeted cost reductions; foreign exchange rates; worldwide and local economic conditions; selling prices; impact of legal proceedings, including the U.S. Department of Justice (“DOJ”) criminal investigation, as well as the European Commission (“EC”), Canadian Department of Justice, and Australian Competition and Consumer Commission investigations, into industry competitive practices and any related proceedings or lawsuits pertaining to these investigations or to the subject matter thereof (including purported class actions seeking treble damages for alleged unlawful competitive practices, and purported class actions related to alleged disclosure violations pertaining to alleged unlawful competitive practices, which were filed after the announcement of the DOJ investigation, as well as a likely fine by the EC in respect of certain employee misconduct in Europe); impact of potential violations of the U.S. Foreign Corrupt Practices Act based on issues in China; impact of epidemiological events on the economy and the Company’s customers and suppliers; successful integration of acquired companies; financial condition and inventory strategies of customers; development, introduction and acceptance of new products; fluctuations in

demand affecting sales to customers; and other matters referred to in the Company’s SEC filings. The Company assumes no obligation to update any forward-looking statements made in these presentations or discussions as a result of new information or future events or developments.

Dean Scarborough a

It’s been almost a year since I took the reins as CEO, and I have to tell you I am more optimistic than ever about our future.

Last year I focused on two areas. First was to get us back on track to deliver our numbers after a very difficult start to the year. My second priority was to do an assessment of our strategy, our portfolio and our organization.

I approached the assessment as an outsider, although I have to admit that was hard, given the fact that I’ve been with the company for 23 years. My assessment included benchmarking with other companies and discussions with hundreds of employees. I was impressed by what I heard... optimism about our future and a strong desire to raise the bar, to redefine excellence. Employees want us to preserve personal initiative, the ability to “make a difference” and to be recognized for their actions to improve our business. But I also heard a strong desire for change, to simplify, standardize and eliminate work that doesn’t add value to customers.

The conclusion from my assessment was that, while we have substantial opportunities to improve our position, we generally have the right portfolio and the right strategies in place to deliver long term value creation. We have set an internal goal to deliver well above-average returns to shareholders. What you will be hearing over the next day from the leadership group is how we are going to deliver that value.

Let me summarize our overall strategy in a nutshell. In the near term, we will accelerate our productivity through better resource allocation, modifying our portfolio, and significantly reducing our back office costs by streamlining and simplifying our organizational model. That will enable us to not only improve margins and return more cash to shareholders, but also to invest in new sources of long term growth.

Dean Scarborough - CONTINUED


2005 At A Glance

• Improved underlying profitability– Raised prices to offset raw material

inflation– Continue to simplify operations– Maintaining focus on value-creating top-

line growth• Delivered against earnings target…

on weaker-than-expected sales• Undertook actions to drive

significant improvement in future profitability

• Achieved major development milestones for RFID

To provide some context for my comments

this evening, let me just recap some of the highlights from last year.

We made significant progress in improving our underlying profitability, bringing the year to a close with a much improved operating margin.

We accomplished this in an environment of substantially higher raw material costs, by implementing pricing actions across most of our businesses. Our rigorous approach to pricing offset more than $100 million of additional raw material and energy-related costs this past year.

We also cut operating expenses, with a focus on simplifying how we do business, while maintaining our focus on customers. As a result of these efforts, we achieved our earnings target for the year, despite weaker than expected sales.

In addition, we initiated a series of actions that will drive continued margin expansion over the next few years. These actions carried some substantial one-time costs, most of which we recognized in the fourth quarter; we’ll be touching on these initiatives both tonight and tomorrow morning. And finally, we achieved some major development milestones in our RFID business, which I will describe later in this discussion.

How will we “redefine excellence”?

• Make a good portfolio better• Execute top-line growth initiatives• Expand profit margins and returns• Build stronger organizations with

talented, motivated employees

Given our progress to-date, how exactly will

we redefine excellence? That’s the question I want to answer for you this evening.

First, I’ll describe how we are going to make a good portfolio better, through crisper resource allocation methods and by exiting business lines that don’t have sustainable competitive advantage.

Next, I’ll cover our top-line growth initiatives… giving you the highlights from what you’ll hear tomorrow, as well as spending some time on RFID. I’ll also outline our plans to expand our profitability.

Succeeding in all these areas will require an organization that not only has the right strategies… it will also require a highly focused organization that is structured to efficiently meet customer needs. For us, that means a simpler organization than the one we have today. The resulting organization will be more responsive to our customers… quicker to decision and execution… lower cost, and, ultimately, a more rewarding place to work.

• Emerging markets• New products, niche applications

Growth Drivers

Overview of Today’s Portfolio

Pressure-sensitive Materials

Office & Consumer Products

Retail Info ServicesOther Specialty Converting

2005 Segment Mix3-5 Yr Sales

Growth Target*

• Emerging markets • Increased penetration of PS

label technology for product ID (food & beverage)

• Share gain in durables• RFID adoption driving carton

labeling penetration

• Increased penetration of core products

• New category innovation; existing product upgrades

• Global consolidation• New products and services

Sales Op ProfitOperating

Margin Target

5-7%

down modestly

6-8%

10%+

10-12%

18-20%

10-12%

> 10%

* Excluding acquisitions and divestitures

Let’s start with a look at our portfolio. Here’s

my view of what it will look like in the future:



Three to five years from now, I expect that emerging markets will represent about 30 percent of our total sales, up from a little over 20 percent today.

Roll Materials and Retail Information Services will be bigger and more profitable.

Office Products will represent a smaller share of our total sales, but the segment will be even more profitable than it is today, due to an improved product mix. In the near-term, sales growth for this segment will be constrained as we reposition our portfolio, de-emphasizing our less differentiated product lines. But over the long term, we expect to see our growth trajectory improve.

Finally, as the market develops, RFID should be a business generating well over $100 million in sales.

Now, I know that some of you keep very close track of what we say each year, to see where we have changed course. So I will acknowledge right up front that we have lowered our sales growth expectations for the roll business. Our value creation expectations for the business are still very high, as we have raised our targets for profitability and return. But, in light of the slower growth we saw in North America last year, we feel our adjusted top-line targets are appropriate.

I won’t walk you through all the growth drivers and sources of margin expansion for each of our key businesses – you’ll be hearing about all that tomorrow. But let me give you some of the highlights.

We are market leaders in our key businesses…

One of two global players

Tickets and tags for retail apparel

Retail Information Services

#1

#1 or “close #2”

Varies by product, region

• Printable media (labels, dividers)

• Binders, sheet protectors (North America only)

• Other products

Office and Consumer Products

#1Paper/film roll materials for labels


GlobalMarket PositionMarket/CategoriesBusiness

We are strong market leaders in each of our

key businesses. Our global Fasson roll materials business is three times the size of its largest competitor. Our flagship office product categories – mailing labels and index dividers – command over half of the global market. And,

while our Retail Information Services business shares the leadership role with Paxar, these two companies far outdistance the rest of the pack.

…and we continue to build competitive advantage in these large, growth markets

• Data management and global image/color control systems

• Geographic reach• Superior sales organization for multi-tier

market• Design expertise and rapid sampling

capability

Retail Information Services

• Ubiquitous software templates and other consumer use “enablers”

• Powerful consumer brand

Office and Consumer Products

• Global and regional scale• Proprietary product technology and

know-how


Key Sources of Competitive Advantage

We expect to strengthen these leadership

positions by enhancing our already substantial competitive advantages. For Pressure-sensitive Materials, our scale – on both a global and regional basis – drives advantage in many important respects.

We have an unrivalled manufacturing and distribution platform that drives both cost and service advantages. Our technical capabilities and innovative, proprietary new products are the reasons we lead in films, the fastest growing segment of the roll label market.

Our Office and Consumer Products business benefits from software templates that drive consumers to demand Avery-brand products for mass mailings and other desktop printer applications.

Likewise, our Retail Information Services business benefits from a set of strong competitive advantages. One of the most important of these is fulfillment speed and consistency of brand image and data across multiple apparel manufacturing locations. And we have an industry leading infrastructure and a strong, multi-location presence in China, which is the most important market for this business.



Competitive advantage drives superior performance

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2003 2004 2005

AVY PSM BMS PS Sector UPM Converting

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

2004 2005

AVY OCP ABD Office Products

Operating Margin*AVY Segments vs. Peers

Pressure-Sensitive Materials Office & Consumer Products

* Excluding restructuring charges

The proof of our competitive advantage is

evident in our superior performance relative to our peers. Our two largest businesses have consistently outperformed the competition in terms of profitability.

Although we didn’t include a slide on this, I want to point out that Retail Information Services is just on par with its primary competitor in terms of operating margin. That’s because we have been investing ahead of growth in this business, which has constrained our profitability. As we grow into our investments, we do expect a significant expansion in operating margin.

International operations growing faster-than-average… and profitability is expanding

U.S.

Western Europe

Eastern Europe

Asia

Latin America

Other*

2005 Revenue by Region(before intergeographiceliminations)

* “Other” includes Canada, Australia, and South Africa

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2003 2004 2005

2005 Operating Margin**, International Operations

** Excluding restructuring charges

Another important element of our portfolio is

geographic reach. Our international operations have been growing faster than average, and profitability outside the U.S. has expanded dramatically with the completion of the Jackstädt acquisition integration in Europe.

2000 2005 2010

We’ve increased our participation in the rapidly growing emerging markets…

Local Management Leveraging Global Capabilities

Emerging Markets

Emerging Markets Share of Total Sales

Contribution to Overall Growth: 0.2 pts. 2.4 pts. 3.5 pts.

You’ll hear a common message across

many of the presentations tomorrow, which is the important role of emerging markets. We’ve more than doubled our share of sales coming from the emerging markets over the past five years, and we expect to see another roughly 50 percent increase in the proportion of our sales from these markets by 2010.

Historically, these regions consistently delivered over 20 percent annual growth. Now, given the size of the businesses today, we do expect that pace to moderate. Nevertheless, the opportunities for growth in these markets remain outstanding, and we have made significant investments to capture that growth.

… and these markets are contributing significantly to our profit growth and returns

Largest single growth platform today

Operating Profit from Emerging Markets*($ millions)

2000 2005 2010* Figures are approximate. Estimates do not include allocation of expenses incurred in North America

and Europe for direct support of businesses in emerging markets (particularly significant for RIS).

~ 40

~ 115

> 200

Importantly, emerging markets aren’t just

contributing to our top line… they are adding significantly to our profit growth as well. We generated roughly $115 million of profit from emerging markets last year, and we expect continued solid growth and margin expansion ahead.



Resource Allocation Philosophy

• Divesting businesses with limited competitive advantage

• Enhanced discipline with respect to internal growth initiatives– Increased visibility on spending; more

centralized control of investments– More rigorous “opportunity assessment”

• Acquisitions must demonstrate strong strategic logic– Close to “bullet-proof”– Must create economic value (return to

shareholders) under conservative assumptions

You know, one of the most important things I

do as CEO is to allocate resources. That includes capital spending, people and investments for growth.

Let me tell you about my philosophy towards resource allocation. First of all, I believe strongly that we don’t belong in any business where we don’t have a relatively strong source of sustainable competitive advantage, particularly if we are competing in a market with limited growth potential. You have two options for businesses in that category…divest, or manage for cash. The divestitures we announced in the fourth quarter all fell into that first category.

Second, I believe that effective resource allocation requires highly disciplined decision-making. Our experience in implementing our Horizons growth program taught us some valuable lessons on that front. This program has been – and continues to be – a great success.

We took an inward-focused culture and forced it to look outside… to seek unmet customer needs, to creatively respond to those needs, and to quickly drive results through an innovative, 100-day process of execution. We unleashed a tremendous amount of creativity in our employees, and our pipeline of growth ideas swelled.

But we didn’t get everything right. As we allowed our highly decentralized businesses to pursue new growth agendas, we invested in too many places… and it took us too long to kill some projects. But I’m happy to say that we learned as we went along, and we modified our course.

We expect our next wave of longer-term growth initiatives to be more effective than the first. We are maintaining greater central visibility and control of both operating expenses and

investments for growth. And we’re requiring more rigorous screening early after idea generation.

This same, more disciplined approach to our organic growth agenda applies to our acquisition strategy. I’m happy to say that we have a good track record in this area. In particular, I’m confident that the JAC and RVL acquisitions are proving themselves key to our competitive advantage and growth potential.

Given the odds against acquisition success, though, our philosophy is that we won’t buy a business unless it is fairly close to “bulletproof”. We proactively identify and prioritize candidates. We have to see a very strong, strategic logic to any deal. And, of course, we are highly disciplined about not overpaying.

Key Growth Priorities

• Grow materials businesses through expansion in emerging markets, increased service leadership, and innovation in new applications

• Invest in new marketing programs to accelerate growth of Avery-brand printable media products

• Accelerate growth of RIS business with new products and continued geographic expansion

• Expand new RFID business through share gain of rapidly expanding carton label market and innovation in new applications for selected markets

That summarizes our portfolio outlook. Now

I’d like to spend some time on our growth priorities. At the 50,000 foot level, we’ve got four primary areas of focus: • We’ll grow our materials businesses – that

is, Roll Label, Graphics & Reflective, and Specialty Tapes – primarily through expansion in the emerging markets, as well as through service leadership and product innovation.

• We’ll grow the Printable Media category of our Office Products business by investing in proven marketing programs, driving demand for existing products that we believe are significantly underpenetrated. We’ll enhance our existing products with features that consumers value, and develop some exciting new categories as well.

• New products and continued geographic expansion will accelerate growth for our Retail Information Services business.

• And, finally, we’ll gain share of the rapidly expanding market for RFID, both for the



carton label market, as well as other emerging, high volume applications like pharmaceutical.

Horizons continues to support growth initiatives

• H1 process… the way we do business today

• H2/H3 process has evolved… more selective

• Former H2 projects now represent ~ $200 mil. of sales… anticipate $40+ mil. of incremental sales from these products in 2006

Horizons is the key process we use to

execute our top-line growth strategies. The Horizon 1 process that I described earlier is now, quite simply, the way we do business today.

The Horizons 2 and 3 process has evolved. We’re more selective about the projects we’ll invest in now. But our probability of success has increased. And we’re now seeing the fruits of our investments in longer-term growth initiatives. Products from this pipeline now represent about $200 million of sales for us, and we expect about $40 to $50 million of incremental sales from these initiatives in 2006.

RFID remains #1 single growth opportunity

Let me spend some time on RFID. Like the

emerging markets today, I believe that RFID will one day represent an entire platform for our growth, a fundamentally enabling technology that will span many, many applications. I know that all of you here today are familiar with the business we’re developing here. But for

the sake of some of those who may be listening on the internet and may be new to the Company, let me provide just a bit of background.

We participate in a few areas of this industry, but the most important one is the manufacturing of what’s called an inlay – the combination of a very small silicon chip, and an antenna.

Thanks to vendor mandates from Wal-Mart, other key retailers, and the Department of Defense… not to mention interest from the FDA and pharmaceutical companies, RFID is emerging as a multi-billion dollar market. RFID tags allow manufacturers and retailers to automatically locate and identify stock, and record the movement of inventory. This technology is expected to significantly reduce costs in the supply chain, and improve sales by eliminating stock-outs.

The projected pace of industry development is highly uncertain – but when it does ramp up, we’re targeting a 30 percent share of the market, which should eventually translate into a business contributing hundreds of millions of dollars of revenue annually.

We’re developing multiple sources of competitive advantage that leverage our strengths

• Outstanding product performance and testing capabilities

• Good linkages to all points in value chain

• Superior roll-to-roll manufacturing capability

• Superior commercial approach

• Corporate credibility / financial strength

Let me tell you why this is such an attractive

market for us. We believe we will have a number of sources of sustainable competitive advantage in this business.

First off, we offer great products and testing capabilities. Having systems in place to ensure tag readability all the way through the supply chain is absolutely essential to success.

We’ve also commercialized a manufacturing capability that is 10 times faster than conventional equipment, with high yields. This is a proprietary process that will give us an advantage for at least a couple of years, during which time we’ll be developing our next



generation advance in manufacturing. One of the most important advantages we

have is channel access – through our roll label material business, we’re already the largest supplier to the printers who make RFID labels.

And we also have size and credibility in the marketplace… as you can imagine with an emerging technology like this, the market is crowded with a lot of start-up players… so big end users like Wal-Mart and the Department of Defense appreciate the stability we offer.

2005 Milestones

• Began volume production on industry’s first and only high-speed inlay manufacturing process

• Joined Intermec’s Rapid Start Licensing program to address an IP barrier for customers

• Significantly lowered price of world’s first high-volume Gen 2 tag to enable widespread adoption

• Released white paper to drive industry progress in tag testing

• Chosen as inlay supplier by major end users

2005 was a year of significant

accomplishment in the development of this business – both for the industry and ourselves.

We commercialized our high speed manufacturing process, and we’re continuing to drive operational improvement, with the goal of achieving and maintaining a cost advantage in this industry.

At last year’s Analyst Meeting, we showed a short video clip contrasting traditional technology with our new high-speed process. Since we’ve made considerable progress since then, I thought it would be worth showing you an updated version of that comparison. [commentary describing video clip]

Another important milestone last year occurred when we joined Intermec’s Rapid Start program, an important step in clearing the intellectual property hurdles for our customers.

And we significantly reduced the price of inlays purchased in volume, to less than eight cents each.

This major strategic move was hailed by

RFID Journal as one of the top ten stories in the industry last year! This is the only business in the Company where we celebrated lower prices!

We’ve been aggressively marketing our advantages, and we’ve been seeing excellent traction with customers following the announcement of this pricing strategy, especially among those interested in moving quickly to the Gen 2 standard.

Importantly, we are confident that we can make good money at these prices when we achieve our volume goals. We have a clear path to profitability at this pricing level.

But perhaps the most important milestone is that we have been chosen by major end users as their inlay supplier. I am particularly pleased to announce that Kimberly-Clark has chosen our Gen 2 inlay for their RFID program. KC has been a true leader in the development of this technology. They were the first to ship RFID-tagged cartons to Wal-Mart, and they are one of the first transitioning to the Gen 2 standard. Kimberly-Clark has long seen the potential for RFID to drive efficiency improvements throughout their supply chain.



Fundamental improvement in competitive position vs. a year ago

• Manufacturing speeds, yields beating internal targets

• Customers, other partners recognize our technical capabilities

• On track to achieve share goal for retail carton applications

• Sufficient progress to begin broadening reach:– Develop and commercialize HF products– Increase pharmaceutical, apparel, other

item level engagements– Expand activities in Europe / Asia

In sum, in twelve short months, we’ve fundamentally changed our competitive position in this market. Our manufacturing speeds and yields have been beating our internal targets, and we continue to make progress towards achieving our cost trajectory. Customers and other partners in the industry recognize our technical capabilities. And, as they say in politics, the early returns are very encouraging. Based on our success rate with key accounts so far, we’re on track to achieve our share goal on Gen 2 carton applications by year-end.

Given the tremendous progress we’ve made on the carton labeling initiative, we’re now broadening the reach of our development efforts. Our high speed strap-attach process and technical capabilities advantage us in other RFID markets.

HF represents a particularly interesting segment of the market right now. It’s actually bigger than UHF in unit volumes currently – about a half a billion units this year – although UHF is generally expected to surpass HF as carton labeling ramps up. But the jury is still out on which technology will be best suited to item level tagging… so HF could ultimately represent the bigger market. Either way, we are well positioned to capture a leading share position in both technologies.

The nice thing about HF applications today is that they carry higher average selling prices. We expect to commercialize a number of these applications by the end of this year.

Modest revenue projection for 2006 reflects reality of market ramp

• Market adoption progressing… meeting reasonable expectations– Users waiting for Gen 2– Implementations at minimum to meet customer

requirements– Retailers remain committed… but careful in

making demands• Key unknowns continue to affect timing

– Infrastructure costs still high– Real implementation experience / expertise not

widely available– Item tagging getting more attention… but

HF/UHF question yet to be answered

Now, with all this said, I do want to

emphasize that our outlook for revenue from RFID is quite modest in the short-term… likely not more than $10 million this year. There are a number of reasons why we believe that demand will remain modest in 2006. While mandated programs continue to expand, there are still only a few distribution centers requiring RFID labels. And even the companies that are already shipping RFID labeled goods are not labeling all of their SKUs. Further, the true share gain opportunity for us comes as companies transition to Gen 2, the new global technology standard for these devices. Most companies are still in the beginning stage of this transition. And I have to emphasize that there are some big unknowns that will affect how quickly this technology takes off. But we believe that it is only a question of “when”, not “if” this happens. We said the same thing last year… but it’s even clearer now, that there’s just no stopping this train.

Margin expansion is key near-term priority for the Company

• Continued pricing rigor• Targeting $80 to $90 million of annual

savings from restructuring actions currently underway

• Planning continues for additional savings through organizational redesign

I’ve covered our growth strategies in some

detail. Now I’ll spend a couple minutes on margin expansion. Dan is going to cover this



topic in much more detail tomorrow, but I would like to make a few big picture comments on this important priority. First of all, we will maintain our pricing rigor. As you know, we gave up some market share this year as we raised prices in response to significant cost inflation. But our profits are up in the business where we lost share. And we have not given up share in the high return segments of the market, like films and durables.

Second, we are targeting substantial cost savings through the restructuring actions we announced in the fourth quarter… worth $80 to $90 million annually when we’re finished.

And we believe there remain additional opportunities for increased efficiency through other organizational changes that are still in the planning stages.

General and administrative expenses have been “sticky”

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Net Sales (excl. discontinued ops) G&A as % of Sales

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Here’s why I think there’s room for further

improvement. Through acquisitions and our own internal growth programs, our sales are up by more than a billion and a half dollars since 1999. And yet our general and administrative expenses have remained about even as a percent of sales. Note that I’m talking general and admin expenses here… I’m not including R&D or marketing expense. It’s clear to me that we simply haven’t leveraged our size in this area of the P&L.

We’ve generated great productivity in our plants and operations, so it’s time to deliver productivity in the back office as well.

Stronger, simpler organizations will enable achievement of long-term goals

• Achieve best of both worlds…– Decentralization and customization to

meet customer requirements– Centralization and standardization to

achieve efficiency• Phased approach… two to three years to

fully implement• Targeting 50 to 100 basis points

improvement in SG&A as percent of sales

Our aim is to achieve the best of both

worlds… decentralization and customization of the front-end to meet our customers’ requirements… with centralization and standardization on the back-end to achieve efficiency.

We will be taking a phased approach to these changes. I expect it to take a few years to fully achieve our vision. But, in the end, our goal is to significantly and sustainably reduce SG&A expense as a percent of sales by 50 to 100 basis points.

ELS

• Individual excellence

• Cost out focus

• Led by few

• Belted community only

• Manufacturing focused

• Aligned to savings targets

• Team excellence

• Quality, Cost, Speed, Safety

• Led by top leadership

• Everyone part of ELS (especially value add employees)

• Value Stream focused

• Aligned to business priorities

Enterprise Lean Sigma… an evolution

In addition to these restructuring-related cost

savings, we will also benefit from a number of productivity initiatives spanning all the businesses. You’ll hear more about these from our operating executives tomorrow.

And, finally, we will drive continuous improvement and operational excellence through a platform called Enterprise Lean Sigma.

I believe you are all familiar with the great success we have had with Six Sigma. These tools have driven substantial productivity improvement in our plants, year in and year out,



over the last five years. We haven’t talked much about our Lean Manufacturing efforts… this is basically a complementary tool set that is focused on continuous elimination of waste in all processes… in effect, learning to do more with less.

Enterprise Lean Sigma combines these tool sets and takes continuous improvement to the next level.

Constant reinforcement of Company values and ethics is crucial in today’s global environment

Growth Productivity

People

Values

Purpose. Passion. Potential. Pride.Our people make a world of difference.

Integrity Service Teamwork Innovation Excellence Community

When I talk to employees I generally cover

three topics -- growth, productivity, and people. Underpinning these priorities is a set of core values on which the Company was founded.

In light of the investigations of our Company and industry, I think it is important for you to know how seriously we take these values. To reinforce them, we launched a global program to ensure that our employees are informed and educated on values, business ethics and our code of conduct. We provided training in local languages to help ensure that everyone understands proper business procedures. I have personally spoken to thousands of employees around the world on the importance of this topic.

I’ll just take this opportunity to preempt the question on the status of the investigations that are underway. I wish I could provide some direction for you, but I have no news to report. These remain ongoing inquiries, and we’re not in control of the process, so there is nothing I can say by way of update. We will, of course, continue to keep you apprised of material developments if and when they occur.

Wrap-Up: AVY Value Proposition

• Industry leader with clear and sustainable competitive advantages in large, growth markets

• Balanced strategy for value-creating growth

• Strong balance sheet and cash flow, combined with disciplined investment strategy

• Experienced management and high-performance organization focused on creation of shareholder value

Now, I’ve covered a lot of ground tonight,

and I know I’m standing between you and a cocktail. So let me just quickly state our value proposition: • We are leaders in our industries with clear

competitive advantages in large, growth markets.

• We are executing against a balanced strategy for value-creating growth – that is, top-line growth, margin improvement, and capital efficiency.

• We maintain a strong balance sheet and deliver solid cash flow, combined with a highly disciplined capital allocation model and investment strategy.

• And we’ve got a proven management team that continues to develop a high-performance organization, focused on maximizing long-term shareholder value.

Christian Simcic


It’s a pleasure to be here this morning. I always enjoy the chance to speak with the investment community because I have a great story to tell.

Roll Materials Worldwide

The industry leader in every region of the world

1–1.5 X larger than #2 competitor

2–4 X larger than #2 competitor

> 4 X larger than #2 competitor

2005 Sales ~ $2.7 Billion

With roughly $2.7 billion in sales, our roll

materials business is the global industry giant in a relatively specialized industrial niche. We have the leading share position in every region of the world with the exception of Japan, where we don’t play.

But most of you know all that. What you really care about is one key question, which I’m going to acknowledge right up front… how are we going to grow profitably in a more challenging and competitive environment?

The market dynamics for the pressure sensitive labelstock industry have undergone significant change over the last few years. We entered a period of rapid cost inflation, requiring price increases unlike anything we’d seen in a decade. And we’re now competing against a more aggressive, global competitor who is focused on share gain, both in the U.S., as well as in China, with an apparent willingness to invest heavily and accept much lower operating margins than ours.

That seems to suggest that we will either suffer margin erosion or share loss, all else being equal. But “all else” isn’t equal. And that’s precisely what I hope to communicate to you in today’s presentation.

We will expand our global share with existing and new sources of competitive advantage, including service, as well as new products and technology improvements, especially in films. At the same time, we will expand our operating margin through new, significant sources of productivity improvement.


Today’s Agenda

• The pressure-sensitive labelstock market

• Growth catalysts• Margin expansion strategy• Building competitive advantage

Just a quick outline of my agenda. First, I’ll

provide some historical background that I think will help you understand the industry and our position in the market today. I’ll talk about the key growth catalysts for the industry and for our business in particular. And I’ll tell you how we’ll win in a more competitive environment – expanding our global share position over time and improving our operating margin – by executing aggressive productivity initiatives, and by building on our already compelling set of competitive advantages.


We manufacture materials in roll form

First, for those of you who might be new to

Avery Dennison, let me start with a quick overview of who we are and what we do. We manufacture pressure-sensitive materials in master rolls up to 80 inches in width. We then “slit” these master rolls into narrower widths, typically between 4 to 12 inches, and ship these rolls to our label converting customers. These customers range in size from “Mom and Pop” operations to multi-national converters with over $100 million in sales. They print and die-cut the material into labels for use in literally thousands of different applications.

Christian Simcic - CONTINUED



End-Use Applications

• Product decoration• Brand identification

• Variable information

The vast majority of these labels are used

for one of two purposes. Product decoration and brand identification applications represent about half of our total business. Our materials are used to promote most of the world’s best-known multi-national brands. Variable information applications – bar codes, for example – make up the balance of our products.


1–1.5 X larger than #2 competitor

2–4 X larger than #2 competitor

> 4 X larger than #2 competitor

Broadest Reach in the Industry… High Relative Market Share on a Regional Basis

• Organized around trade zones in 32 countries• 27 manufacturing facilities

• 66 distribution centers• 47 sales offices

Manufacturing Facilities

HeadquartersDistribution Centers

One of the critical success factors for profitable

growth in this industry is the achievement of scale and high relative market share on a regional basis. No competitor matches our global footprint nor has the resources to invest in technology and innovation that we do.

And this is a business where regional scale really matters. Specifically, our scale drives sustainable competitive advantage in three key areas which I’ll touch on a bit later: technology, service, and productivity.


-2%

2%

6%

10%

14%

18%

22%

26%

1998 1999 2000 2001 2002 2003 2004 2005

Our global unit volume growth generally falls in the 6-10% range

Annual Unit Volume GrowthRoll Materials Worldwide

Impact of Jacstädtacquisition, June, 2002

This is a great market to lead. Industry

volumes have long grown at multiples of GDP, sparked from time-to-time by both external and internal catalysts. Up until this past year, global unit volume growth for our roll materials business has typically been in the 8 to 10 percent range, before acquisitions.

That spike you see in 2002 and 2003 relates to our mid-2002 acquisition of Jackstädt. One interesting note about that acquisition: our profitability took a sizeable hit when we purchased this break-even company. Today, we are back at pre-Jac profitability levels, without losing the new customers we gained through the acquisition. And we now have the opportunity to further leverage our new scale in Europe, driving additional margin expansion there.


In North America, industry volumes have grown at a compound annual rate of approximately 4%

1.0

1.1

1.2

1.3

1.4

1.5

1997 1998 1999 2000 2001 2002 2003 2004 2005Total Market Fasson

Annual Unit Volume Growth*: All Products North America -- Fasson vs. Total Market

Impact of Spinnaker/ Nashuaconsolidation

* Growth rates normalized for 2004 extra week and other irregularities

(uni

t vol

ume

inde

xed

to 1

997) CAGR = 4%

North America is still our largest region

today, representing about 40 percent of our total sales. So it’s worth looking at the trends here. Even in this mature market, unit volumes have grown at a compound annual rate of 4 percent, although with a fair amount of volatility from year to year.



As you know, 2005 was a surprisingly soft year for this market. I know that Dean spoke in the last teleconference call about some of the factors contributing to slower growth in this region, most notably, relatively weak manufacturing output. We do expect to see a pick-up in industry volumes this year, and believe that the long-term domestic market growth rate will be in the range of 2 to 4 percent.


New applications continue to shift to pressure-sensitive technology

Est. North American Penetration of Pressure-Sensitive Technology

29%

5%

56%70%

35%

73%75%

19%

73%

Food Wine Beer OtherBeverage

Durables PersonalCare

Household Pharma VariableInfo

Pressure Sensitive Other Labeling Technologies

One of the key drivers of volume growth has

been the penetration of pressure-sensitive technology at the expense of competing labeling technologies. This has long been a factor in our industry, but we continue to see new applications shifting to pressure-sensitive.

For example, the overall beverage segment still remains largely untapped, and there’s a long way to go in the food segment as well. As the chart demonstrates, there are still significant opportunities to increase pressure-sensitive’s penetration of labeling, even in mature markets like Western Europe and North America.


PS labeling remains underpenetrated in the emerging markets

Sources: 1) GDP / Capita – CIA – The World Factbook 2) Population – Population Reference Bureau 3) Market Size Estimates - RMWW

PS Consumption/Capita relative to GDP/Capita

PS

/Cap

ita

(m2)

GDP/Capita

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0

United States

United Kingdom

Netherlands

Australia

Canada

Japan/Finland/Italy

Singapore

Germany/France/Sweden

New Zealand

Spain

Taiwan

South Korea

Greece

Czech Republic

Hungary

Malaysia/South Africa/Poland/Chile

Indonesia/Vietnam/

Phillipines Turkey/Venezula Argentina

Thailand/Russia/Brazil/Mexico

China/ColumbiaIndia

Emerging markets – Asia, Latin America,

and Eastern Europe – represent another key

growth driver. As the chart here demonstrates, pressure-sensitive labeling remains relatively under-penetrated in these markets, driving rapid growth as a rising middle class creates new consumers for packaged goods. The race for premium brand recognition and awareness is increasing, driving the need for more sophisticated packaging.

China is now the third biggest advertising market in the world. P&G has been the highest bidder for ad space for each of the last two years in China Central Television’s annual auction.


Retailing is evolving rapidly in India

New Retailing Traditional Retailing

Malls

India is emerging as the next China story,

with per capita GDP rising rapidly as companies outsource services and software development to that part of the world. Likewise, the evolution of the retail industry in these markets is working in our favor. Retailing is being redefined – transitioning from small shops, where packaging is of little importance to consumers, to superstores in modern shopping centers.

I have seen more changes in the last two years than in the five years before, with shopping malls blossoming everywhere and companies like Wal-Mart negotiating their entry into this new market.

In this environment, where consumers face tens of thousands of items from which to choose, the label acts as a silent salesperson at the “moment of truth”. With most buying decisions being made three feet from the shelf and on impulse, labeling is a key product differentiator.




Countering Inflation

• Pricing rigor• Cost out and productivity actions• Enhancing our value proposition

Industry pricing is a hot topic, of course, so let me touch on that. Over the last year and a half, we have seen significant inflation pressures fueled by oil prices and feedstock shortages. We have reacted to the increase in raw material costs in three ways -- through pricing, cost out and productivity actions, and by improving our value proposition for customers.

As you know, we gave up some share domestically this past year as a result of our pricing strategy. It was clearly the right approach. We covered our raw material cost increases, and improved our bottom line results.

We also trimmed off some of the business that we didn’t mind losing in segments with limited growth potential, such as labels for electronic data processing, while generally maintaining our share in the more profitable, higher growth product lines such as film.

This pattern is typical. As the industry leader, we naturally lose some share during periods of inflation. The same thing happened back in the mid-90s. But, as prices stabilize, we begin to recapture share through the superior value proposition we offer our customers – that is, through outstanding service, product innovation, and quality.

By the way, as we go forward, we are improving our ability to price our products in line with that value proposition, customizing prices for speed of delivery, guarantees, product development support, and technical assistance.

Our second strategy to address inflation is cost-out and productivity improvement. We added capabilities to our large assets to drive productivity. One example was the introduction of our multi-layer aqueous release system, or MARS technology, to redesign products using less expensive liners.

We reduced SG&A expense. And we streamlined our portfolio. We are optimizing our

production network, allowing us to close plants in Canada and South Africa, improving our asset utilization.

Finally, we are improving our value proposition for our customers. We are constantly adding more EXACT-width programs and faster delivery on our most profitable products. And we used our Horizons process to focus and prioritize our resources on products and applications with better-than-average profitability.

With all this said, perhaps the most compelling evidence for our ability to thrive in this environment is our long history of relatively steady share gain. Of course, it’s never a straight line. But I’m confident that we will continue to expand our global share position over time, while improving our profitability.

Now I’d like to talk about our specific strategies for growth. I’ll limit my discussion to three of the most important platforms for the business: capitalizing on the rapid growth in the emerging markets, penetrating the beer label market, and gaining share in durable goods.


Growth Catalyst #1: Emerging Markets

0

20

40

60

80

100

2003 2005 2007 2009 2011

Mature Emerging Markets

Revenue from the emerging markets of

Asia, Latin America, and Eastern Europe is expected to continue growing by 15 to 20 percent for the roll materials business. As a result, five years from now, these regions are expected to represent over 30 percent of our total sales, up from just over 20 percent today. This growth reflects the factors I discussed earlier… rising per capita GDP, and changes in the retail industry, which are driving more sophisticated product decoration. And, of course, overall economic growth also drives usage of our variable information products, for tracking and shipping of goods, and so forth.





We’re building capacity and capabilities in

these markets to capitalize on this growth. For example, this past year we added a hotmelt coater in China, as well as emulsion coaters in Korea, Malaysia, and Brazil. We also opened an R&D center in China last year, which I’ll talk about more later.


China

KoreaMalaysia

Brazil


The next exciting opportunity is beer label.


Growth Catalyst #2: Beer

Ongoing transitions to pressure-sensitive among major breweries

Technological breakthroughs across the supply chain have really opened up this previously untapped segment. We have engineered lower cost “clear-on-clear” products – that is, thin films that make glass bottles appear label-less, like the products shown in this slide. At the same time, our customers are converting our material on wider presses. And new label application machinery has made it possible to apply the thin films at unprecedented speeds. These technological breakthroughs have been key enablers for the beverage segment.


Technology developments are supporting growth of food/beverage segment

Machines can now apply a thousand labels

per minute, which completely changes the affordability of pressure–sensitive technology. This video demonstrates the tremendous speed of the machinery that applies our product to bottles. It took years of technical development to create label material products that deliver high yields at these speeds. That’s why our share position is so high in beer label today.

By the way, the operational efficiencies now achieved by the bottling plants using pressure-sensitive technology are driving meaningful cost reductions for the end user. The investments made throughout the supply chain – and the advantages of using pressure sensitive – will make it tough for this market segment to ever return to traditional, less efficient, cut and stack labels.




Growth drivers in beer…

New product introductions and promotions

Besides the ongoing transitions of major

brands, beer label sales are boosted by new product introductions – where the flexibility offered by pressure sensitive is particularly valued – as well as by temporary product promotions, including experiments by SAB Miller and others.


Growth drivers in beer…

Geographic expansion

More importantly, the beer market transition

to pressure-sensitive is happening around the world, as more and more Asian, and to a lesser extent Latin American, beer brands are switching to pressure-sensitive.


Projected Growth in Beer Label – 2005 to 2008

Pressure Sensitive Market for Beer Labels ($ millions)

0

20

40

60

80

100

120

2004 2005 2006 2007 2008

ASIA PACIFICSOUTH AMERICAEUROPENORTH AMERICA

Needless to say, we expect the beer market to

contribute meaningfully to our growth in the next few years. We estimate the size of the global PS beer label market at roughly $50 million last year, and expect that to more than double by 2008. As I said, our technological innovation in films has driven our strong share position in this segment. We will continue to develop proprietary products to build on this competitive advantage.

Some of our recent innovations include several new patented technologies, such as a pasteurizable emulsion adhesive that addresses issues associated with condensation. We’ve also commercialized a wash-off solution that enables film-based labels to be applied to reusable bottles. This is a critical breakthrough, since half of the worldwide market consists of reusable bottles. Most important, our product is proprietary, and it’s a very cost-effective solution.


Technology breakthroughs are opening up other food and beverage segments

Beer is just the tip of the iceberg. Our lower

cost materials and the increased productivity gain from the new labeling equipment are opening up new markets for our products. In the past, the bread-and-butter for pressure-sensitive



technology was meeting the demands of relatively small runs of a high number of SKUs, in markets like Health and Personal Care.

Now, with the technology breakthroughs I’ve described, pressure-sensitive labels become practical for longer run applications. This allows brand managers in segments like soda, water and food to achieve enhanced packaging appeal on lower priced products. If pressure-sensitive captures only 10 percent of the soda and water market, this could translate into another 75 to 100 million dollar market for us. Together with our allied partners, we will drive that transition in the coming years.


Customers choose Fasson for films expertise

1.0

1.3

1.5

1.8

2.0

2.3

2.5

1997 1998 1999 2000 2001 2002 2003 2004 2005

Total Market Fasson

Annual Unit Volume Growth*: Film ProductsNorth America -- Fasson vs. Total Market

* Growth rates normalized for 2004 extra week and other irregularities

(uni

t vol

ume

inde

xed

to 1

997)

CAGR = 11%

CAGR = 8%

Our success with beer is a perfect example

of how we drive growth through competitive advantage. We’ve been in the films business for decades, extruding our own proprietary products. This type of innovation is exactly why customers choose Fasson… and why our films business has grown much faster than the industry average.


60.5

50.3

37.1

2003 2004 2005

Growth Catalyst #3: Durables

Annual Sales from DurablesRoll Materials Worldwide

($ millions)

And now I’ll discuss a completely different

market – where PS technology has already penetrated, but where we have played a small

role in the past. Durables represent a large, profitable market of over a billion dollars globally.

In contrast to most major segments, we have less than a 10 percent share of this market, which historically consisted of relatively custom products. As the segment has grown, products have moved from custom to stock, playing to our competitive advantage … and driving share gain.

While similar in many ways to traditional Fasson segments, the durable goods market has a unique set of requirements. In general, volumes are smaller, but of higher value – on average, a factor of four to five times our traditional products.

Our strategy to gain share in this market is already bearing fruit. From a small base, we’ve grown our revenue in this segment by 25 percent annually over the last two years.


Strategy for growing the Durables segment:

• Expand portfolio -- provide differentiated products

• Leverage the Fasson channel

• Offer local manufacturing of high quality, cost-competitive products

• Differentiate through service

Our success here is built on our proprietary

adhesive technology, innovation in top coats, and service advantages. We have expanded our product portfolio for the segment, adding high-performance solvent products, as well as new, lower cost emulsion adhesives and top coats. Our strategy is to leverage our strong relationships with converters in the Fasson channel.

In addition, we are well positioned to benefit from two important trends in this market: the migration of durable goods manufacturing to Asia, and the increased need for supply chain reliability and flexibility. Our global footprint enables local manufacturing and distribution proximity of high-quality, cost-competitive products in major emerging markets.

Finally, the addition of EXACT slitting to our durable portfolio brings much-needed flexibility and cost savings to our customers.




Europe represents major source of future margin expansion

Roll Materials EuropeSales and Operating Margin Trend

2001 2002 2003 2004 2005

Sales Operating Margin

Impact of Jacstädtacquisition, June, 2002

Now I’d like to shift gears a bit. As I said at

the beginning, one of the keys to our success in a more competitive market is our ability to find new, significant sources of productivity improvement to drive margin expansion. Our number one source of margin expansion in the near to medium term is Europe.

Frankly, with everyone focused on North America, I think people may be missing a big success story in our business. We have been raising our margin in Europe while delivering solid top-line growth – in a market, by the way, where Raflatac has a strong share position. We’ll continue to drive improvement here, as we leverage the investments we made when we consolidated our manufacturing base.


Strategy for Margin Expansion

• Leverage investments in Europe• Exploit global scale through new

strategic sourcing initiatives• Drive productivity improvement

through innovations in technology– MARS– Films coater

• Execute Enterprise Lean Sigma• Drive organizational efficiency

through redesign

The next important element of our margin

expansion strategy consists of several strategic sourcing initiatives. In China, for example, we are using our new R&D center to teach local suppliers how to meet our unique needs … creating new lower cost alternatives and establishing new sources of supply.

A third leg of our productivity improvement platform is technology driven. I mentioned

MARS earlier – this proprietary technology allows us to use lower cost papers for our backing material. We have already converted three of our largest coaters to the technology, and expect to yield an incremental $6 million of savings in 2006 from this investment.

MARS is just one example of our advances in coating technology. I am pleased to announce that we are installing a new coater in North America to support our growth in the beverage market that will significantly enhance our productivity. For competitive reasons, I’m not willing to go into much detail here … but we have developed new technology to enhance coating speeds and improve both the quality and consistency of our products, particularly with regard to our clear films portfolio.

The next leg of our productivity platform is Enterprise Lean Sigma, which Dean described briefly yesterday as our foundation for operational excellence. We’ll be using these tools to drive productivity throughout the supply chain, in manufacturing as well as in the back-office.

Finally, we’ll improve productivity through our organization redesign. Part of the Company’s fourth quarter headcount reductions included restructuring of our North American and European operations. In addition to reducing cost, these actions will simplify our back-office processes, driving speed of response for our customers, and agility of our organization as we grow.


How We’ll Win: Competitive Advantage

• Global distribution network• World-class service• Capacity and capabilities to serve

emerging markets• Superior customer value through

innovation• Differentiated technology

I started this presentation by noting that “all

things are not equal” in the race for profitable growth, due to our strong competitive advantages. So let me spend a couple minutes on these advantages, and what we’re doing to expand them.

As I mentioned earlier, we have the broadest production network globally. This provides us with the benefits of scale and the



ability to invest in the widest, fastest coating assets. Because of our scale, we can dedicate these assets to specific segments of the market, allowing us to optimize manufacturing efficiency.

We offer World-Class Service – once again, made possible by the scale of our global network. Over the past year, we have seen a significant increase in EXACT width and Next-Day Delivery programs around the world. Our goal is to provide 90 percent of our customer orders on EXACT, up from the mid-70s today.

And we will continue to expand our capacity and capabilities in the rapidly growing emerging markets, including China, India and South America, by offering the broadest product line, delivered by experienced staff deploying superior technology.

I’ve mentioned our new R&D center in China a couple of times already. This investment will allow us to localize most of our products in the region, and enable us to qualify local raw material suppliers, a key element of our global sourcing initiative.

Once we’ve successfully expanded the capabilities of this center, we expect to increase the productivity of our global research activities by transferring some of the labor-intensive work to Asia.

Another important source of competitive advantage for us is our ability to bring new solutions to the industry. Customers rely on us to create new applications that drive their growth … something our competitors simply don’t invest in. I spoke of this earlier with regard to our expertise in films.

Finally, we are creating differentiation through proprietary adhesives, face stocks, and liner technology, as I have illustrated with the beer example, MARS, and so forth. We partner with our raw material suppliers to secure exclusivity on materials with superior performance features.

And we are developing our own products with cost advantages that can be made available globally. One example is GCX, a clear conformable film that offers a cost-effective, no-label look alternative. This film is currently being used by global giants like Unilever and J&J. This is a proprietary film extruded by our own Engineered Films Division. I believe Sandy may touch on that later today.


Wrap-Up

• Solid growth drivers• More nimble organization• Reduced cost structure• Optimized production network• Expanded service capabilities

Let me just quickly summarize. We’ve got

some great growth drivers propelling us forward, particularly in the emerging markets, and with our global platforms for beer and durables. And we are starting 2006 robust and healthy, with a streamlined, nimble organization. We’ve cut costs. We’ve utilized our proprietary technology to redesign products. We’ve reduced SG&A. And we’re optimizing our production network, putting more volume on larger assets. Finally, we’ve greatly expanded our service capabilities across the globe. In short, we expect to continue delivering solid profitable growth and margin improvement ahead.

Tim Clyde


Good morning. I’m very pleased to be here today to talk about the Consumer and Office Products business. This business is an important part of the Avery Dennison portfolio, comprising about 20% of sales and roughly 35% of operating profit in 2005.

This is a strong business, with high margins and returns, supported by a compelling set of competitive advantages. Our powerful brand is carried on a wide range of products used in offices, homes and schools, in over 20 countries around the world. At the same time, we have some challenges in the business as our growth drivers have stalled and our highly consolidated trade customers are pushing more and more private label.

This morning, I’d like to address the fundamentals of this business and, importantly, describe the new strategies we have been putting in place to increase shareholder value in the coming years.

Office Products Worldwide

Portfolio consists of two distinct segments

Filing & Other30 – 35%

Printable Media65 – 70%

The Consumer and Office Products segment

is comprised of two main product portfolios. Printable Media products represent about two-thirds of the total business. As the name implies, these are products that run through a printer, utilizing software templates provided in most popular word processing programs and other types of software.


Printable Media

This product range includes Avery brand

laser and ink jet labels and various paper and card products. The product portfolio also includes our line of tab dividers, in which more than half of the sales come from printable product.

Printable Media represents a global platform for us. Computer hardware and software are similar from country to country, and consumer usage for these categories is more common across geographic regions than is the case for many other office products. Of course, language and paper size are different, and some of the individual products are unique, but many of the applications are similar. For example, addressing, or mailing, is the leading application in just about every one of our markets. Other common applications include filing and identification labels, and business cards.

We are leveraging this common platform to build revenue wherever there are enough PCs and printers to justify our investment. My comments today will focus mostly on North America and Europe, but we are expanding this business in emerging markets. Today, emerging markets represent less than 5% of our sales, but we are building the business as office product usage evolves in all emerging geographies. And clearly, over the next three to five years, this represents a growth opportunity for us, to leverage the foothold that Avery Dennison has built as a Company in these regions.

Now, the balance of our sales comes from Filing and other products, including binders, sheet protectors, desk accessories, and filing supplies. These are products that consumers routinely use to organize, reference, or present information. We also have a writing instrument product line, consisting mainly of markers and highlighters.

Tim Clyde - CONTINUED



Filing & Other

In contrast to Printable Media, product

solutions and usage in these categories vary considerably around the world, driven by differences in local custom and tradition. Thus, our product offering has been different in various major regions around the world.


Segments exhibit very different characteristics

Printable Media Filing/Other

Branding /Differentiation Strong Weak

Position Market Leader Mixed

Margins > Average < Average

It’s important to point out that the

fundamentals of these two product ranges are quite different. In Printable Media, we have a strong brand and a differentiated product offering. We are clearly the market leader in most of the major markets in which we compete today. Growth over the past few years has been flat, with some categories growing and others declining. Margins are well above the segment average.

On the other hand, in the Filing categories, brand is generally less important to the consumer, and our market positions are more mixed. In Europe, we were not the market leader in these categories, and our relative size made it difficult to establish a low cost position. In North America, however, we are the market leader in binders and sheet protectors, and we have been able to build a low cost supply

infrastructure. Over the past few years, growth has been

negative in these categories, and margins are well below the segment average and have been somewhat volatile.


Challenges: Low industry and category growth limit top-line

• Low growth industry• Improving inventory turns reduce

sell-in to channel• E-mail eroding traditional mail

The Consumer and Office Products

business faces several significant challenges. First, low industry and category growth present challenges to generating top-line expansion.

Growth in the Office Products industry generally runs about the rate of office employment, outside of some high growth technology products. The relatively low industry growth rate is also affected by the low inventory turns in the industry. While our customers have made good progress in reducing their inventories over the past few years, we expect that they will continue to find ways to improve their turns, which impedes our growth.

In addition, our largest printable media application — mailing — has been declining over the last several years. The number of pieces of physical mail has been shrinking as email has eroded more traditional mail; and this trend has been reasonably consistent across all of our major, developed markets.

Fortunately, as we look to the future, there are some important trends which will create growth opportunities for printable media. A number of key product categories, such as dividers and cards, remain under-penetrated against our target users. In addition, the proliferation of electronic devices, combined with the consumer’s desire to personalize and customize these devices, is creating new product opportunities. I will come back to some of these opportunities a bit later.




Challenges: Private Label taking share from branded product

Private Label Share 10% to 30% in our Categories

The second significant challenge in this

business is private brands. It is no secret that the trade has continued to aggressively expand private label. In fact, many of our key trade distributors have made public references to their own targets to have at least 20% of their sales from private label products.

The result in our product categories has been some share shift to private label, both from Avery-brand products, as well as from other brands present in the marketplace. In our product categories in North America, the share for private brand, measured in manufacturer’s dollars, ranges from 10% to 30%. As you would expect, our more differentiated Printable Media categories are in the lower part of the range, and our less differentiated Filing products are in the higher part of the range.


Impact of Private Brand on Label Category

• Eroding 1 – 2 share points annually• Equates to $5 - $10M in sales• All major markets

In the past, we have reported that our Label

category has seen 1 to 2 points of share erosion annually in each of our major markets around the world. We expect this trend to continue over the next several years. That represents an estimated 5 to 10 million dollar impact to our top line over each of the next few years.

While private label has been and will continue to be an issue for us, we are pursuing a number of strategies to ensure the sustainability of our Avery-branded product.

We know that continuous product differentiation and innovation help us maintain share versus private label, particularly in Printable Media. In the past, we have rolled out major product improvements in our Label line, such as our Jam Free and Smudge Free features and the associated quality guarantees. In addition, we have strong intellectual property backing many of our most innovative offerings, including IndexMaker Tab Dividers and our Clean Edge card range.

We will continue to find and invest in these types of product improvements, proprietary features, and intellectual property. As an example, we are now rolling out a product called Easy Peel Labels, which has a perforated backing sheet, making the label significantly easier to peel off the backing sheet. This new innovation addresses an important consumer compromise, and it is currently only available on selected Avery-branded product.


Continuous product differentiation drives significantly higher brand preference

Consumer Brand Preference ScoresFor Printable Media Products

(Indexed to Avery)

PrivateAvery Brand Other

100 28 8

Most importantly, the results of our investment in

our brand are evident in our consumer research. We know that our Avery-brand Printable Media has significantly stronger consumer trial, usage, and brand preference compared to private label and other brands. The chart that you see here shows consumer brand preference scores for our Printable Media product segments, with the data being indexed to the Avery brand score. As you can see, consumer preference for the Avery brand is very strong.

In addition to product differentiation, we are structuring our customer financial support programs to reflect our shared interest in branded category growth. All of our major



customers have a financial support program which rewards an increase in Avery-branded product and penalizes a decrease.

Clearly, the Consumer and Office Products segment faces some significant challenges. As a result, it has been a challenge to grow the top line. But our returns in this business are still quite strong, and, as you saw in the fourth quarter, have been improving.


Focus on product segments with clear advantage and growth potential

The real question then is what are we going

to do differently to change the growth trajectory of this business? For the future, our focus will be on products and categories in which we have a clear advantage, have meaningful points of differentiation, and can envision opportunities to grow.

This means that our strategic imperative is to grow and differentiate our Printable Media product range. At the same time, it also means that we will deemphasize certain marginal product ranges.


Exit Marginal Volume

• Divested Filing UK & Filing France• Less emphasis on producing private

label• Little profit impact

We just announced the divestiture of our

Filing ranges in the UK and France. In these product segments, we had very low margins and

a weak, single country share position, making it difficult to create a cost advantage. These divestitures will reduce our net sales by about $60 million, but, by 2007, will have very little impact on our overall earnings.

By the way, the Company’s guidance for 2006 included some transitional costs associated with our restructuring and divestiture actions. Some of these transitional costs are associated with this divestiture, particularly with respect to unabsorbed overhead that we will carry for the balance of the year.

In North America, we have also made decisions to exit some very low margin volume and to deemphasize the amount of private label we manufacture. The complexity and low margins associated with some private label segments are unattractive to us. In addition, this private label volume uses up valuable production capacity and distracts our attention from branded growth and innovation. This action will reduce our net sales by about $20 million, but, again, the impact on earnings is negligible.


Focus on brand and innovation

The volume we have chosen to exit or divest

does not fit with our focus on categories in which we have both a competitive advantage and reasonable growth potential. More importantly, these changes begin to simplify our portfolio and get our people and organization really focused on brand, growth, and innovation, particularly in Printable Media.




Strategic Priorities

• Reduce cost & waste• Manage Filing & Other to improve

returns• Grow and differentiate Printable

Media

We now have three clear, global strategic

priorities which we will deploy to improve the trajectory of this business. These key strategies are: • To continue to reduce cost and waste; • To manage our Filing & Other products to

improve financial returns; and • To grow and differentiate our Printable

Media product range. I’d like to review each of these in some more

detail. So, let me start with our strategic priority to reduce cost and waste. We have a strong track record of productivity improvement and cost reduction.

Over the past five years, we have made significant changes to our supply chain infrastructure in North America. We now have four manufacturing sites, two of which are in Mexico. We believe that our supply chain has the right balance of low factor costs, low overhead, and low transportation costs, with good responsiveness and speed to customer destinations.


Progress In Lowering Cost Structure

Labor Cost in North America

100

91

75

58

51

0

20

40

60

80

100

2002 2004 2006

Inde

x 20

02 =

100

For example, this graph shows the

significant reduction in labor costs in our supply

chain over a five year period. We have clearly made progress in reducing our costs, and we have plans to continue this trend.


Reduce Cost & Waste

• Streamlined, low cost supply chain infrastructure

• Significant emphasis on Lean Sigma

• Raw material inflation covered

In Europe, the divestiture of the two

previously mentioned filing ranges greatly streamlines our supply chain infrastructure. Thus, we now believe that we have built a strong, low cost supply chain in our two largest regions. As we go forward, we will continue to refine our low cost infrastructure and continue to find opportunities to improve our product sourcing and lower our costs.

We will also push much more aggressively on continuous process improvement by accelerating our Enterprise Lean Sigma approach. This philosophy, and the associated tools, has created substantial savings in the past. Without major transition activities or new expenses facing us this year, we can focus on optimizing our operation and further reducing our costs.

Raw materials are a significant part of our cost structure, and price increases in 2005 and 2006 have covered all inflation from 2004 to 2006. Although future increases in oil based commodities remain a modest concern, we believe the overall impact would be manageable.

So, our low cost infrastructure and accelerated continuous improvement activities, combined with an improved product mix as we change our product portfolio over time, should allow us to hit the long-term EBIT margin target that Dean referenced yesterday of 18% to 20%.




Filing & Other – Improve Returns

• Reduce costs; utilize low cost supply chain

• Reduce complexity• Partner with customers to improve

category performance– Service– Feature innovation– Mix and attachment rates

Our second strategic priority is to manage

our Filing & Other products to improve financial returns. Many of these products form an important foundation for our relationship with our trade customers. For example, our binder category is a large, highly visible, destination category, which is critically important to our customers. Thus, we will work to increase the performance of this business for both Avery and our customers.

For Avery, this will mean continuing aggressive efforts to reduce costs. Our supply chain infrastructure in North America provides the low cost manufacturing platform, and we continue to drive significant year-over-year productivity improvement. We are also reducing complexity in this business. The number of SKUs will decrease by about 35% from 2004 to the end of 2006. We are also reducing complexity in raw materials and manufacturing technology. So we do expect continued improvement in the financial performance of these products into 2006.

For our customers, this will mean a relentless focus on improving category performance. As a leader in service and logistics support, we are dedicated to increasing our collaboration with key customers to improve supply chain efficiencies and improve service levels. We have a number of initiatives underway with leading channel players, with goals to improve service and reduce costs for both partners.

In the area of growth and innovation, we will work closely with our trade customers to develop and introduce key feature enhancements to our products and to improve the consumer shopping experience. We are also increasing revenue and margin by implementing initiatives to improve product mix and enhance add-on sales. For example, we have worked with a number of

channel partners to significantly increase the proportion of binders which are sold with a companion item such as a Tab Divider.


Strategic Priorities

• Reduce cost & waste• Manage Filing & Other to improve

returns• Grow and differentiate Printable

Media

Our third and most important strategic

priority is to grow and differentiate our Printable Media product range. I’d like to review why we believe this is a strong business and describe how we are going to grow it.


Strong Media Design Capability

Design differentiated media

Reinforces brand awareness & preference

In Printable Media, we have two compelling

sources of competitive advantage and differentiation.

Our ability to understand consumers, and then to design media which will meet both the needs of our consumers and the demands of modern technology, will continue to be an important competency. Furthermore, many of Avery Dennison’s technical competencies in pressure sensitive materials, converting and so on, expand our media design capability. It is this media design capability which creates high quality, differentiated products, and which supports and reinforces the image of the Avery brand.




Enablement & Alliances

We have also long recognized that providing

the consumer with easy-to-use tools to create, format, and print our product is critical to product usage and brand loyalty. Thus, we have invested heavily in what we call “consumer enablement”.

Templates for Avery product are pre-installed in hundreds of top selling software programs and provide ready-to-use formatting solutions for millions of consumers. Microsoft Word remains the single most important source of consumer enablement, with a huge installed base worldwide. Avery product templates are also available through Microsoft Office Online, where in 2005, consumers downloaded 3.4 million Avery product templates, up 70% from 2004.


Enablement & Alliances

Our software and enablement tools are also

available at Avery.com. These tools include software templates, clipart downloads, Print-From-The-Web applications, and other features. In 2005, we had over 17 million visits to our web site, with substantial numbers of visitors seeking product and software information, downloading software and templates, and accessing Avery

Print. In 2005, consumers downloaded 10 million templates from Avery.com.

We have proven that we can establish strong alliances with many important partners to deliver solutions to consumers. We continue to work with dozens of software publishers, adding new partners and providing better enablement support for consumers.


Growth Potential

Category 1 Category 2 Category 3

Target 50 44 23

Users 27 11 2

Loyal 16 5 1

Number of Consumers(millions)

Thus, the business has a very strong set of

advantages, and, importantly, we remain convinced that we can still grow the Printable Media product segment. This slide shows the size of the target group and the penetration of actual users for several of our important Printable Media product applications. The actual product applications are disguised for confidentiality purposes, but, as you can see, large segments of non-users still exist. Importantly, we are going after this growth potential in new ways.

We are increasing the amount of money we spend to enhance awareness, usage, and brand preference of important Avery products, particularly those in which we have untapped market potential. By redeploying some of our division and company-wide cost savings, as well as moving more money from fixed infrastructure to working program dollars, we have significantly raised the investment we can make in awareness programs.

As an example, we are running a very large promotion in the second quarter. Built around the theme “Meetings and Events”, the campaign will cover a number of products and include a variety of promotional vehicles, ranging from radio advertisements to flyers to in-store displays.




Larger Marketing Investment

We are also spending more of our increased

marketing investment on proven initiatives. Over the past two years, we have been testing a number of promotional vehicles and campaigns, so that we are better able to spend against initiatives with greater confidence of a sound payback.

For example, we ran a matched market radio test to assess the efficacy of radio advertising to increase usage of one of our key product lines. The results were excellent. Overall awareness increased by 50% and claimed usage increased by 50%. More importantly, we witnessed a 50% increase in outbound sales at our customer’s locations; and, as you can see in the chart, the increased usage was sustained after the promotional event.


100

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52 W

eek

MA

vg U

nit S

ales

Spend on Proven Initiatives

Test

Control

TestPeriod

We can now apply this knowledge to expand

our use of radio as a marketing vehicle, and to build awareness for this product range. We have completed similar tests on several other marketing programs, including sampling, direct marketing, and various promotions. As a result, we are now in a position to more confidently invest in proven initiatives and programs.

We are upgrading our print enablement solutions to create an even better consumer experience. The easier our solution is to use, the more product we sell and the more new users we convert. Some of the non-users that I showed on that earlier chart will not adopt until we make the enablement solution easier.

Over the next two years, our focus will be to make all of our enablement resources on Avery.com easier to find, easier to navigate, and easier to use. We are also upgrading the functionality of our Wizard companion to Microsoft Word, including better mail merge and other enhancements. Finally, we are going to improve the functionality and availability of Avery Print, our web-based printing tool.


Upgrade Print Enablement

These changes are very important to

consumers, and will not only help increase usage by reducing the barriers to trying and using our product, but will also further differentiate Avery product in the marketplace.

We are upgrading many of our existing products to further address consumer compromises. Adding valued enhancements to our existing products and applications will improve the consumer experience, leading to higher usage and adoption. Again, some of the non-users in the chart I showed earlier will not adopt until we improve some of these features.




Upgrade Existing Product Features

In the past year, for example, we have

promoted Easy Apply label sheets for use with our IndexMaker Tab Dividers. As I mentioned earlier, we are in the process of bringing the Easy Peel technology to a wider range of products.

We are also improving our T-shirt transfer product, increasing the wash durability by a factor of 10 times. In 2006, we also plan to upgrade our successful Clean Edge Business Cards to allow printing on both sides.

Again, these changes are important to consumers… they will help increase product usage, and will further differentiate Avery from private label.

These new plans and activities are the primary emphasis of our growth strategy in the coming year or two. To set a foundation for future growth, we will also develop new applications and categories in Printable Media.

At these meetings in the past, we have talked about a few new applications that have not delivered the short term revenue that we had hoped for. We were trying to create new-to-the-world applications, some sold through new channels of distribution, and these initiatives will take time to generate meaningful revenue.

Different from the past, we are not counting on these applications to immediately become major revenue producers. We recognize that these compelling new applications take time to build, just as our past successes in Tab Dividers and Cards took many years to become significant sources of revenue and margin.

That said, to establish a foundation for long term growth, we continue to develop our portfolio of product platforms.


New Category Innovation

Avery Sign Kits represent a terrific

opportunity to create large format signs from a letter size printer. Our unique tiling software and pressure sensitive-based product offer a great consumer solution.

Our range of identification cards and labels, including our Photo Identification line, will continue to grow as the security and identification market evolves.

Finally, Portable Electronics represent a large new opportunity for us. Consumers want to decorate and personalize their mobile phones and other small electronic devices. We believe that both changing technology and the trend toward greater personalization and customization will continue to create opportunities for Printable Media, and these mobile phones are a great example.


Wrap-Up

• Ongoing headwinds• Drive profit growth through three

strategic priorities:– Grow and differentiate Printable Media– Manage Filing to improve returns– Reduce cost and waste

• New, tested approach to grow Printable Media

• Target medium term growth of 1% to 4%

So, let me summarize the key takeaways

from this discussion. The Office Products business has some significant headwinds, with the decline of traditional mail and the pressure from private label limiting growth and challenging margins. To combat these challenges, we have embarked on a new



approach. We will focus on products and categories in

which we have clear sources of competitive advantage and growth potential; and we are driving improvement through three strategic priorities.

• To grow and differentiate our Printable Media product range;

• To manage our Filing products to improve financial returns; and

• To continue to reduce cost and waste.

The Printable Media product segment has strong fundamentals, and we are applying new approaches to grow these products. We plan to spend more, and to focus that spending on proven initiatives. And we are upgrading print enablement and key product features to improve the consumer experience, to make our solution easier to use, and, ultimately, to increase product usage and brand loyalty.

This business is positioned well over the medium term, and, as these new initiatives take hold, Printable Media should see growth in the 1% to 4% range over this period.

Simon Coulson


It’s my pleasure to speak with you today about Retail Information Services. This business has great fundamentals – not only in terms of its growth drivers, but also in terms of long-term profitability and return on investment. The Company has invested heavily to build this business. We’ve spent roughly $400 million for acquisitions, capital and software development over a three year period. And we’re incurring substantial expense to build businesses in new markets.

The exciting news is that we’re starting to see these investments pay off… and we anticipate continued solid growth in sales and operating profit for many years to come.

Retail Information Services Worldwide

Global leader in information management and brand identification for the retail supply chain

Our vision is straightforward… to expand our

existing global leadership position in information management and brand identification for the retail supply chain.


$675 MM

2005 SalesOrganic Sales Growth*

2005 2004Operating Margin**

+ 10.8% 7.4% 7.6%

Financial Overview

2005 2004 2003

5.7%+ 2.2%* Excluding currency, acquisitions, and divestitures** Excluding restructuring charges

2003

+ 5.2%

Our sales growth has outpaced both our

market and the overall Company average, and we have made considerable progress in improving our operating margin following the major acquisition we completed in late 2002.

I know that Dean and Dan spoke during the year-end teleconference about the factors that drove our out-sized growth in 2004 and the resulting slow-down in 2005… so I won’t repeat that explanation.

But I do think it’s worth pointing out that the overall operating margin in 2005 masks the significant progress made during the year. Our operating margin in the fourth quarter increased by a full point compared to the prior year. And we have plenty of opportunity for additional margin expansion ahead.

RIS offers products and services to retailers and brand owners that assist in managing their global supply chain and brand image to provide floor-ready merchandise.


Customers and Products

Our tickets and tags carry price and

inventory tracking data and define and enhance brand recognition. From carton labels to hang tags and woven labels, we transmit data globally throughout the retail supply chain.


Our Business Model

Simon Coulson - CONTINUED


RIS is quite different from other parts of Avery Dennison. While service is an important differentiator for most of our businesses, our core competency – the heart of what we do – is taking time out of the retail supply chain. We manage our customer’s item-level information flow all the way from the merchandise order… to the factory… to the retail floor.


… can disrupt the entire supply chain

The lack of the smallest component…

What we offer here is deceptively simple –

we make labels and tags that do one of two things. They either help promote a brand or private label, or they manage data, in the form of barcodes and other variable information.

But while a price ticket or label might be a very small percentage of the total cost of a garment, if either of these products is missing, an entire shipment can be delayed. In a highly seasonal business, that delay usually means the garments will either be sold at a significant mark-down, or they won’t be sold at all.


Key Success Factors

• Speed of service• Geographic reach• Quality and global consistency• New products and services

Speed of service and quality are key

determinants of success in this business. Quality is measured by global product consistency and accuracy of information. Speed refers not only to

product cycle time, but to information delivery as well. Our business is about getting the right product to the right place at the right time, and providing our customers with visibility at all points in the process. So we’ve made significant investments to ensure competitive advantage in speed and quality.

Another key to success is geographic reach. The supply chain for the apparel, footwear, and softgoods markets is truly global. To meet the demands of this supply chain, it is absolutely essential to offer local manufacturing and sales presence in all the major locations where the goods are manufactured.

We’ve also developed new products and services that are likewise key to our success, and promise significant growth.

I’ll be expanding on each of these key points. But first, let me describe some of the macro trends affecting our business, and provide a little insight into our business model.


Macro trends benefiting our business

• Private Branding– Retailers outsource program design– Design creativity drives product

differentiation• Free Trade – WTO Quota Elimination

– Transitions among alternate sourcing locations create significant challenge for retailers

– Our global footprint and information management systems facilitate rapid changes in sourcing strategy

There are a couple of strong, global trends

that are driving growth of this industry. Many retailers are using private branding to differentiate themselves and improve their operating margins. In contrast to my colleagues at Office Products, I love the growth of private label!

Major retailers outsource the design function for their private brands. They are using these brands to drive meaningful differentiation… differentiation against competing brands within their stores, as well as differentiation against competing retailers. We constantly monitor and interpret global fashion trends in order to bring these retailers fresh and creative packaging design concepts.

And when they specify their tag and label program through us, they’re guaranteed that their fresh new brand concept will remain



consistent wherever their tags and labels are ultimately produced.

Another important trend is the ongoing shift in apparel sourcing locations, due to changing tariffs. We saw the volatility that comes from these changing trade regulations with the quota elimination that took effect at the start of 2005.

We had a tremendous surge in volume in the second half of 2004, as apparel factories in China prepared for the expected increase in exports when the quota was lifted. And, in fact, that’s exactly what happened… apparel exports from China surged in the first quarter of 2005, and trade regulators jumped in again to deal with the fall-out.

Besides creating volatility in our business, these changing regulations make life difficult for retailers. Our global footprint and seamless management of information enables easy transition to alternate sourcing locations for our customers.


75% of sales support Top 25 US/EU retailers and brands

… but > 20,000 factories actually purchase our products

There are customers … and then there are customers

While we have a highly concentrated retailer

and brand owner customer base, we have to meet the requirements of thousands of factories all over the world.


TIER 1 Retailers / Brand Owners

TIER 2

TIER 3

Buying Offices / Agents / Importers

Vendors / Factories / Contractors

Multiple types of customers… with different needs

Our customer base is unique in that it is multi-tiered. Tier one consists of the retailers and brand owners, typically located in the United States and Europe, who source merchandise in low cost regions such as Asia and Latin America. Tier two consists of major buying offices and sourcing agents, located primarily in Asia, and to a lesser extent, Latin America and Miami. And tier three consists of the factories where our tag and label products are physically shipped and applied.


Retailer

Buying Office/Agent

DomesticImporter

Retailer Controlled Outsourced

Contractors Contractors

A B C D E F

Front-end creative design services

Real-time electronic communication

In-country production support

Avery Dennison RIS

local representation crucial for global programs

most advanced information management systems linking trading partners

graphic design services and product/program development

Retailer supply chain

We meet unique needs of each customer

Tier 1

Tier 2

Tier 3

Buying decisions are either made or

influenced at each tier in the customer base, so our sales organization must understand and meet the customer requirements within each tier.

The retailers and brand owners specify RIS as their supplier. Our competitive advantage here consists of our design capabilities and speed of sampling for new programs and designs. We maintain constant contact with the retailers and major brand owners, standing at the ready when they launch their new apparel programs. Our in-house design team develops creative labeling and packaging solutions, and rapidly turns those ideas into samples for customer review and approval.

The buying offices and agents are strong influencers in supplier selection. Most retailers utilize regional buying offices. Their primary concern is fulfillment – making sure their orders are filled accurately, and that the garments they’re responsible for get where they need to get, when they need to get there. Our information management systems ensure that they’ll meet their commitments.

Finally, the apparel manufacturers ultimately choose their tag suppliers on all option-based programs. What I mean by that is that we will get specified by the retailer, but the factory may



have a choice of three or four tag and label suppliers. We have to earn that business at the factory level as well.

Over the past couple of years, we have seen an increasing share of programs switching to option-based, where the factory has a choice, which increases the importance of the relationships we build and maintain at that level. Naturally, these customers rely on us for quality and responsiveness. But they also turn to us for information. Given our position in the heart of the supply chain, we typically learn about the programs being developed by the retailers before the apparel factories do… so we can help them anticipate changes and prepare for them.


Sales Office Locations

To serve our constituents in that first tier of

the customer base, we have a significant sales and marketing presence in both the US and Europe. Our sales organization focuses on high level relationships among the major retailers, including Wal-Mart, Kohl’s, and many others.


Manufacturing Locations

We have global production scale in the form

of 40 ticket centers – 42 by the end of this year – located wherever apparel is manufactured

around the world. We call that being “close to the needle”.

Importantly, while the Retailer or Brand Owner may specify RIS as their supplier, the transaction itself -- the order, shipment, and invoice – happens between us and the factory. So production and sales are heavily skewed towards Asia and Latin America. In effect, front-end costs are incurred in the US and Europe, while our revenue and profits are generated in Asia.


Average # of Orders / Day : 9,246

Active Ship-To’s : 17,473

Active Item Types (SKU level 10-15x)

:

98,000

Average Value / Order : US$97

Average Cycle Time : 6.1 Days

Average # of Tickets/labels Shipped/Day

:

47 million

(Statistics for Asian Operations)

Our business is complex… transaction intensive

Adding to the complexity of our customer

base is the fact that we ship and bill a large number of factories and SKU’s. This business is highly transaction intensive. As an example, our operations in Asia produce over 9,000 orders a day on average. We have over 17,000 ship-to locations and 98,000 active item types… and the average value of an order is only about $100. We’re shipping an average of 47 million tickets and labels every day. Managing this volume of activity and complexity has required significant investment in information systems, creating a meaningful barrier to entry, and a key reason we’re gaining share against smaller regional suppliers.




Apparel Brand Identification & Information Management Estimated Market Size ~ $3.3 billion

Woven Labels

Price Tickets & Integrated Tags

Heat Transfer

Graphic Tags, Packaging

Printed Fabric Labels

Market Size by Product Line

We estimate the market for the type of

products we sell to be about $3.0 to $3.5 billion dollars, consisting of graphic tags, packaging, and price tickets, as well as printed fabric and woven labels. Heat transfer is a relatively small segment today, but is growing rapidly.


OthersPaxar

Checkpoint

Avery Dennison

Shore-To-Shore

The global market is consolidating

Apparel Brand Identification & Information Management Estimated Market Size ~ $3.3 billion

This industry is consolidating. We are one

of only two global providers in the business with the wherewithal to invest in the management systems and global infrastructure necessary to meet the needs of this complex supply chain.

Market share is a somewhat meaningless metric in our business, but we estimate that between Paxar and ourselves, we represent less than 40% of the global market. So there’s still a great deal of industry consolidation ahead.

Importantly, while we have a strong relative position in both the U.S. and Asia, our share of the European and Latin American markets is weak. We have been investing to strengthen our position in these markets.


Competitive Advantage

• Building industry leading global infrastructure

• Turning around new label samples and quotes consistently faster than anyone… regardless of manufacturing location or product line

• Effectively serving and forming strong relationships with key factories

By responding to key industry trends, we are

driving real sources of competitive advantage. As manufacturing quotas are eliminated, our

customers continue to adjust their global sourcing strategies. As a result, one of our most important competitive advantages is fulfillment speed and consistency of brand and SKU data across multiple apparel manufacturing locations.

We have an industry leading infrastructure and a strong presence in China. China is the most important market for us today. We have multiple sites in greater China, more than any other competitor, enabling very high service and the quickest response. We are selectively adding sites in other fast growing markets such as India, Bangladesh and Vietnam, as well as Eastern Europe and North Africa, with capabilities across all product lines.

A second key trend is the need for speed. Retailers are increasingly pressed for time as they launch new programs. Being fast on the front end, that is, providing artwork for new designs, price quotes, and samples, gets our products specified first.

Finally, both buying offices and apparel factories require increasing levels of support. For example, as I mentioned earlier, we serve factories that do business with multiple large retailers. We help them respond to their customers faster and with greater accuracy, by providing them with information on new programs. In some cases, we’ve located ticketing centers on-site, so they can simply outsource all this complexity to us.




GPD HK

GPD GSO

Two Global Development Hubs- Pricing - Development Tracking - Production Art/Proofing- Formats- Item Specs

Speed and Global Consistency

We have several key initiatives underway to

expand our competitive advantage. The first addresses speed and global

consistency in the new product development cycle. We manage thousands of new programs every year. To more effectively manage this complexity while maintaining very high service levels, we created a new organization called Global Product Development, or GPD. The daily mission of this organization is to design, quote, and sample new products for retailers and brand owners. We have two hubs today, one in Hong Kong and the other in Greensboro, North Carolina, and we’ll be adding a third hub in Europe.

These hubs are linked real time with information systems to control design revisions and achieve color consistency. And they have their own press equipment to develop samples – in essence, we’ve set up a completely separate supply chain to support the new product development process.


We’ll set the industry standard for turnaround time

3 DAYS2 – 12 days**5-15 daysArt Proofs / Samples

1 DAY1 – 2.5 days**3-5 daysQuote for Tag Design

8 weeks17-26 weeks*52 weeksTime from apparel concept to merchandise on floor

TARGETTodayThree

Years Ago

* Varies by seasonal items

** Varies by product line and region

Source – just style.com and Avery Dennison Customers

Over the past few years, retailers and brand

owners have dramatically reduced the product development cycle. Where they used to allow

about a year between new apparel concept and execution, they now look to execute program changes within four to six months. Some are cutting the cycle even further, to as little as two months. In effect, retailers are transitioning from the traditional two or three major seasons each year, to many smaller seasons.

In this environment of rapidly reduced cycle time, we believe strongly that the first responder gets the business – so we measure success by these industry-leading response metrics. We expect our new approach to product development – and the tools we’ve put in place to support it – will drive best-in-class turnaround times, from ideation to first product.


AsiaEurope / USA

Aver

y D

enni

son

Mar

ket

US SalesEurope Sales

Brand OwnersRetailersImporters

Buying Officese.g. Gap May Co.

Buying Agents

e.g. AMCLi & Fung

Factories Trim consolidators

Contractorse.g. TAL

Luen Thai

Sales Department

Buying Office Sales Buying Agent Sales District SalesSales Sales Sales

Vendor Sales Organization

Besides improving speed and consistency,

we are aligning our sales organization more closely with the factories and buying agents. As I said before, we represent an important information link between the retailers and these customers.


Region

North China

India

Sri Lanka

Bangladesh

Vietnam

Comments

New Plant in Suzhou planned for 2006

New plant in Chennai region in 2006

Sri Lanka acquisition in 2005

Ticket Center opened in Q4, 2005

Continue to use partner – evaluating expansion in late 2006

Priority

Geographic Expansion

Geographic expansion also ties us more

closely to factories and agents in Asia. In 2005,



we increased our regional presence in Sri Lanka and Bangladesh. We are expanding in China and India this year… again, operating out of multiple sites in these most important countries.


Heat Transfer Packaging

RFID

Printed FabricLabel

New Products

Now let me highlight some new products

that are fueling our growth.


ComfortTagTM

New Markets – beyond traditional T-shirts, Activewear, and Children’s

• Jeans – Denim

• Swimwear

• Socks

• Footwear

Avery Advantage

• Ultimate in wearer comfort

• Broadest range of transfers

• Global consistency

• Expanding capacity in Asia, Europe, and Latin America

• Global technical support

Our heat transfer business is generating

about $9 million in sales today, and we expect annual growth to exceed 50% for the product line over the next five years. We’ve developed our own brand of heat transfers called ComfortTag.

ComfortTag is unique in the marketplace because it provides the ultimate in wearer comfort. Our heat transfers are softer and can be used with the broadest range of fabrics. Also, our proprietary ink technology provides a superior look… it eliminates the halo effect you see on other heat transfers – and it enables the use of smaller font types… which means less real estate for the label.

We support our products with a range of bonding equipment, so we can sell the whole system. And we provide the technical support

and training for this system at the factory level. We’ve supported system installations all over the world, from the Middle East, to Africa, to Latin America. Our technical support capabilities are a huge competitive advantage for us.

This market has grown rapidly as heat transfers have moved beyond the T-shirt and active wear market and into denim, swimwear, footwear, and fashion apparel. In response to the skyrocketing demand, we’re leveraging our global infrastructure, expanding manufacturing capacity for the product line in Asia, Latin America, and Europe.


• Carton Labels• Item Tags• Printers• Ticket Express• InfoChain Express

Radio Frequency Identification

RIS is already generating small, but growing

sales in both carton and item-level RFID. With respect to carton labels, we have recently signed an agreement with the American Apparel & Footwear Association, or the AAFA. Under this agreement, we will offer high-volume pricing to all AAFA member companies, which includes most major apparel & shoe manufacturers that ship to Wal-Mart and Target. In return, AAFA endorsed our product and is assisting us in marketing this program to its membership.

We also shipped our first orders for pre-printed, pre-programmed RFID labels to Wal-Mart suppliers through our RFID Ticket Express network – both in the United States and in Asia.

But the biggest opportunity for RIS will materialize when RFID moves to the item-level. Several apparel retailers and department stores in Europe and the U.S. are already testing the tagging of individual garments… with very encouraging results.

The key benefit they see is reducing out-of-stocks on the retail shelf, and thus increasing sales. We are involved in several pilots and expect to see a rapid acceleration of sales from RFID over the next several years. Since we are



already managing item-level information for many of these retailers and brand owners, we are uniquely positioned to be a leading player in item-level RFID.


Packaging

– Existing customer base– Brand consistency

Packaging for soft lines is really an

extension of our identity graphics product line. We like to think of these products as “big promotional hang tags.”

The same competitive advantages that benefit our hang tag business – namely, global color and quality consistency and distribution – apply to packaging for soft lines. This is another opportunity for retailers to promote their brands… and another hassle they ask us to help them address.

The market for softlines packaging is in the hundreds of millions, and we currently have an extremely small share, so there is a lot of upside potential here.


Supply Chain Services

Our supply chain services, specifically

InfoChain Express, Compliance Express, and Ticket Express, help customers increase compliance and accuracy levels.

We’ve created a visible communication

platform for brand owners, retailers and factories that facilitate the movement of goods within the global marketplace. The connection of these trading partners results in faster inventory turns, as well as a reduction in freight fees, penalties, and duties.

We help retailers ensure that their suppliers are meeting their shipping requirements – getting the goods out on time, submitting advance shipping notices, and ensuring that cartons are correctly filled and identified.

In effect, we help retailers assess the reliability of their suppliers, while ensuring compliance with their mandates. This has a collateral benefit for us, by the way, in that it mitigates the potential for factories to use non-approved label suppliers.

We are the only Tag & Label supplier to offer these services, providing a single source supply chain management solution to retailers, brand owners, and factories.


Productivity Improvements in 2005: Operations

• US: Downsized manufacturing base by consolidating from 5 to 3 facilities

• Asia: Migrating manufacturing from Hong Kong to Nansha (mainland China)

• Savings through global procurement programs

• Price increases to offset raw material inflation

Now let me shift to productivity

improvement. In 2005, we turned our operating profit around following a soft first quarter. We accelerated productivity actions already in process in order to achieve faster savings in a slower growth environment.

In the US, we consolidated five manufacturing facilities into three. In Asia, we continued to migrate both manufacturing and order entry functions from Hong Kong to Mainland China.

Through global procurement programs, we realized savings in raw materials. And in the fourth quarter of 2005, we achieved our first year-over-year net gain through pricing actions that impacted all product lines. Further pricing actions are being taken to reflect order changes and smaller run sizes.




Productivity Improvements in 2005: SG&A

• Consolidated US sales offices• Migrated activities from high cost

regions (US and Hong Kong) to lower cost regions (Latin America and China)

We are reducing SG&A costs by

consolidating US sales offices to mirror the consolidating retailer customer base. And we continue to migrate support activities, such as price ticket formatting, to low cost regions.


Margin Expansion Strategy

• Achieve scale in Latin America and Europe

2003 2004 2005

Sales

OperatingLoss

Europe/Latin AmericaSales and Operating Losses

Sales Growth, ex-curr:Margin Impact to RIS:

n/a(150) b.p.

+65%(220) b.p.

+29%(280) b.p.

As I said at the start, we have significant

opportunity for further margin expansion ahead. One of the most important sources of improvement for us will come as we achieve scale in Europe and Latin America.

Our investments to establish a meaningful presence in these regions depressed our operating margin by nearly 300 basis points last year. We are definitely getting the sales growth in these regions – sales were up nearly 30% in 2005 – so we expect to turn the corner here shortly, with both regions generating a profit by the middle of next year.

In addition to volume leverage of our investments in Europe, we’ll also be reorganizing our business for productivity improvement in this region.


Margin Expansion Strategy

• Reorganize European business:– Consolidate offset capacity– Rationalize ticket centers– Expand in Turkey

• Continue to downsize US manufacturing base– Further consolidate 3 facilities into 2– Additional 15% reduction in force

• Continue to migrate activities to lower cost regions– Mainland China (from Hong Kong)– India– Bangladesh

• Achieve scale in Latin America and Europe

As the European retailers shift their sourcing to Turkey and other lower cost regions, we are consolidating our offset capacity and rationalizing the number of ticket center locations in the market. And we plan to invest in more capacity in Turkey, either late this year or early in 2007.

We will continue to downsize our US manufacturing base, by further consolidating from three facilities into two, accompanied by a 15% reduction in headcount.

And we will continue to migrate certain activities to lower cost regions, not only to China, but also to India and Bangladesh.

The net result of all these actions will be an operating margin in the range of 10% to 12% over the long-term.


Wrap-Up: Effective strategy in place to achieve sales growth and margin expansion objectives

Revenue Growth Target: 6-8%Operating Margin Target: 10-12%

(1) Speed of service and global consistency

(2) Creating value through sales organization

(3) Geographic expansion

(4) New products

(5) Margin expansion through scale and productivity initiatives

In sum, this is a great business to be in, and

we’re confident of our ability to achieve our top-line growth and operating margin goals. We’ll build on our already strong competitive advantages to gain share of this consolidating industry. We’ll continue to drive growth through new product innovation. And we’ll improve our profitability through scale and increased efficiency.

Sandra Beach Lin


Good morning. It’s my pleasure to speak to you today about the recently-formed Specialty Materials and Converting Group. The divisions in our group are split between the Pressure-sensitive Materials segment and the “Other Specialty Converting” collection of businesses. So it may surprise you to learn that this group actually represents the second largest set of businesses in the Avery Dennison portfolio.

Specialty Materials and Converting Worldwide

Today’s Agenda

• Graphics and Reflective

• Specialty Tapes• Industrial and Automotive

• Performance Polymers• Engineered Films

I’ll be taking you through our businesses,

our growth platforms, and our competitive advantages in each. This discussion will include the Graphics and Reflective business, which is part of our Pressure-sensitive Materials segment, and consists primarily of stock-in-a-box durable film products.

Then I’ll turn to the Specialty Tapes and Industrial and Automotive businesses. In contrast to the Graphics business, these offer more customized solutions that are specific to the needs of individual customers.

In addition to these divisions, my group also includes Performance Polymers, our adhesives supplier, and Engineered Films. These businesses provide much of the proprietary technology for our materials operations, so they are very important to the success of the Company. Each has also established an external growth platform, which I’ll touch on briefly.


Sales by business and region

North AmericaEurope

Central/ South

AmericaAsia / Pacific

Specialty Tapes

Graphics & Reflective

Industrial & Automotive

2005 sales ~ $1 billion*

* Excludes intercompany sales

So, let me begin with a brief description of our

group. Excluding intercompany sales, we finished 2005 with about a billion dollars in revenue.

We manufacture and sell our products worldwide, supported by 3,700 employees operating out of 23 facilities. A little over half of our sales are derived from the North American market, with the balance coming from more than a hundred different countries around the globe.

The emerging markets of Asia, Latin America, and Eastern Europe represent about 15% of our total sales today. As with Christian’s business, these markets are an important vehicle for the growth of our group.


Technological innovation for diverse applications

Our businesses are organized to capture the

opportunities for pressure sensitive technology that fall outside of roll label. It’s that technology that unites this diverse set of businesses.

The beauty of pressure-sensitive technology is its incredibly broad reach, serving applications across most industries and end markets. We continue to find new areas where our proprietary adhesives, our expertise in materials science, and our ability to combine and convert materials, work together to uniquely solve unmet needs.

Sandra Beach Lin - CONTINUED



Signage

Digital

Screen Print Graphics

Reflective Films

Other

Promotional Films

Offset / Commercial Print

* Excludes highway safety (reflective markers) business -- pending divestiture

2005 sales ~ $500 million

Graphics and Reflective: Sales By Segment*

Now let me take you through the divisions,

beginning with Graphics and Reflective. This business is organized to provide pressure-sensitive materials to non-roll printers, primarily for advertising and promotional purposes.

Our business model here is an interesting combination of features from our other major operations. We’re manufacturing pressure sensitive films using coating and laminating technologies that are similar to what we use to manufacture rolls of label material. So the back end of this business looks a lot like our Fasson operation.

Our customers are offset, screen, and signage converters, who buy our branded materials through distributors. So the front end looks much more like our Office Products business, in that we’re marketing the powerful Avery Graphics brand across multiple distribution channels.

Growth has been challenging in North America and Europe, since a couple of the market segments are in decline. Fortunately, we have established a strong footprint in emerging markets, where our sales grew by over 10% last year.

And even in the mature regions, there are solid growth drivers behind many key segments of the market. I’d like to spend a few minutes discussing these growth drivers and our competitive advantages.


Growth Drivers… Signage

Durable, custom-colored, easily applied graphics created by computer cutting

Let’s start with our biggest segment, which

is Signage. Our customers are sign makers – thousands of them – who cut our vinyl with computer plotters. We have gained share in this segment over the past few years, and are now the largest player here, with a roughly 20% share of the worldwide market.

Our success is driven by several key competitive advantages. First, for applications requiring longer life films, we manufacture our own line of cast films, both in North America and Europe.

Another major advantage is our ability to match specific colors, in small run lengths, quickly and economically… and if you’re a graphic designer, precise color matching is all-important.

Service is also a key differentiator. We offer next day service on a wide range of stock colors, and can custom match colors within 24 to 48 hours. Most sign shops are small, and don't hold a lot of inventory, so the ability to respond quickly is highly valued.

Our Delta Sales force has been key to our share gain in Graphics. To understand this concept, think S.W.A.T. teams that are targeting sign shops to pull through demand for our branded products. We are duplicating this model in Europe, especially in the east, where we are less well known.




Growth Drivers… Wide Format Digital

Short runs of durable, machine-friendly graphics straight off the file

Wide Format Digital Printing represents a

rapidly growing segment for us, driven by a market that is expanding at the rate of about 8% to 10% annually. As with Signage, we have a leading share in this segment, which we continue to expand through new products and rapid service. This competitive advantage connects well with the underlying growth driver for digital printed graphics - the demand for lower priced media to meet the need for short-run, rapid-churn advertising and promotional materials.

One example of a new product is a material that would easily eliminate or minimize the air bubbles that get trapped when a pressure-sensitive film is applied over large surfaces. Our EZ ApplyTM product range consists of a variety of films designed to offer air egress, and the ability to reposition the film several times before it adheres. Digital applications are driving larger and more complex requirements for printed films, and bringing less experienced installers into the market. EZ ApplyTM makes it possible for both the professional and inexperienced installers to get excellent results.

This is a small business for us today, but represents a significant opportunity… which explains why we're fighting the jury verdict last December that favored 3M in a patent infringement suit against us. This case actually goes back to 2001, when 3M first filed suit. In 2003 the District Court found in our favor. At trial, the verdict went in their favor, which we will aggressively appeal.


Growth Drivers… Screen Print Graphics

Warrantied, durable graphics for fleet and architectural needs

In the Screen Print Graphics segment, we

sell directly to large integrated converters, providing pressure-sensitive films primarily for fleet graphics and architectural applications. These converters service large-ticket contracts for organizations like the U.S. Post Office, Sunoco, UPS and Thai Airways.

This segment is mature in the U.S. and Europe, but we see share gain potential by leveraging the Delta Sales force to cost-effectively create pull-through sales with the end users. And, of course, we’re benefiting from expansion in the emerging markets.


Growth Drivers… Reflective Films

Switching to the Reflective Products

Division, as its name suggests, this business is a key supplier of reflective products that are used primarily in highway and road signage, as well as commercial safety applications. These products utilize proprietary glass beaded and microreplication technology.

As we announced during the year-end teleconference, the Company is currently in discussions to sell a portion of this division – the part that manufactures raised reflective pavement markers. This is basically a break-



even business for us that hasn't been growing. The divestiture will not impact the Reflective Films side of the business, which has experienced solid top-line growth and margin improvement.

We estimate the size of the Reflective Films market at roughly $800 million globally, growing modestly in the U.S., and much more rapidly overseas. We have been growing from a relatively small share position and see many opportunities to expand our reach, particularly in commercial applications and in highway projects outside the U.S..


We’re targeting commercial applications for Reflective in the U.S.

Traffic SafetyWork Zone

Conspicuity Tapes

Our products include a full range of

reflective materials for highway and road signs, flexible safety vests and other garments, as well as films for use on vehicles. A large share of our revenue is derived from the specification and bid process of various governmental authorities - which is unique to this business within the Avery Dennison portfolio.

We have also chosen to focus on commercial applications such as conspicuity tape for corporate fleets and railroad cars. We differentiate ourselves to the Reflective sign makers by approaching them as business partners, offering greater responsiveness, flexibility, and speed.


Domestic market growth supported by legislative change and government funding

• SAFETEA- LU –Safe, Accountable, Flexible, Efficient Transportation Equity Act – A Legacy for Users

• School & Rail Crossings

Regulatory measures continue to support

growth of the domestic reflective market. One example is the SAFETEA-LU highway bill. This is an acronym only a government could love: Safe, Accountable, Flexible, Efficient Transportation Equity Act – A Legacy for Users. Now that’s a mouthful. This bill provides federal matching funds to the states, including money for roadway safety programs – a total of $5 billion over four years. And two new funding mechanisms designed for school and railway crossings provide further opportunities for our signage and safety products in the county and municipal markets.


Omni-View Premium Sheeting

Materials innovation is key success factor

New technology is an important growth

driver for Reflective. The market is shifting from glass beaded to prismatic films, based on pending implementation of new federal minimum standards for the degree of reflectivity in highway signs.

This shift will provide opportunities for growth of our proprietary and higher margin prismatic films, including Omni-View, a new product with significantly enhanced brightness, which we introduced late last year.




Significant continued growth opportunity in emerging markets

Emerging markets are an important part of

the growth strategy for both Graphics and Reflective. In Graphics, we're specifically focused on China, Eastern Europe, and India. The market size for these three regions is about $400 million, growing in excess of 10% annually. Our share position here is relatively small - less than 10% - which gives us great growth potential.

We installed our first coating asset in China in 2003 to support our growth in this important market. And we successfully launched our first Graphics design and distribution center in Beijing in 2004, which will be followed by the opening of similar centers in Guangzhou and Shanghai in the spring of this year. We will use these centers to build brand awareness in a market that is highly fragmented today.

Our competitive advantages in this market are the same as they are elsewhere in the world: a wide variety of color offerings, rapid service and new products required to meet changing technology demands.


Eastern Europe… another rapidly growing market with share gain potential for Graphics

Russia

Belarus

Ukraine

Poland

Baltics

Romania

Cz Rep

• Ukraine

Hungary

Slovakia

Serbia Croatia

Bulgaria

Uzbekistan

Western EUMarket size $595 MShare 32%

New EUMarket size $64MShare 36%

Eastern EuropeMarket size $120 MShare 10%

map highlights “addressable” region of Russia

Another strong emerging market for

Graphics is Eastern Europe, Russia in particular.

The Graphics and Display market in Russia has been growing at roughly 10% annually, and is now approaching $90 million. Our growth strategy here focuses on expansion of our distribution network and shifting users upstream to higher value products.


Emerging markets key to growth and share gain for Reflective segment

Emerging markets are also key to the

growth of the Reflective Films business. We've expanded our sales presence in the Asian and Latin American markets to better exploit the growth in those regions. Both China and India represent major growth drivers, with literally tens of thousands of kilometers of new highway construction over the next five years… all requiring reflective signage, of course.


We’ve delivered significant margin improvement in these businesses… and there’s more to come

• Organization redesign• Technology-based cost reductions• Continuous productivity

improvement through Enterprise Lean Sigma

That covers our growth strategy for Graphics

and Reflective. Let me spend a minute on margin expansion.

The Company has executed a great deal of cost reduction in the Graphics and Reflective business over the past few years, but there’s ample opportunity for further improvement.

We have run this business on a strictly regional basis. We are in the process now of



creating a global model that will leverage our strengths, and decrease our cost base around the world.

We have invested in new technologies to reduce the cost of cast films. We have a new, proprietary process which will enable us to offer an even wider variety of colors, in short runs, and at lower cost.

And Enterprise Lean Sigma was actually piloted in the Graphics business in North America. We will use this approach to continue wringing out continuous productivity improvements, in the form of materials substitutions, scrap reduction, inventory reductions, and increased processing speeds.


Specialty Tape Division

Now let's move on to the Specialty Tapes

business. This terrific business is based on applications development - meeting unmet customer needs with tailored product solutions. Our main application focus is to use pressure-sensitive technology to attach things… so essentially, we're in the fastening business. The global Specialty Tapes business serves three distinct market segments: Consumer Products consists of tapes and mechanical closure systems for diaper and incontinence products; Industrial Products supplies tapes for automotive, electronics, appliance and HVAC/construction applications; and Medical includes products for wound care as well as tapes for diagnostic and electromedical applications.


Driving profitable growth through Horizons

100

200

300

400

2002 2003 2004 2005 2006 est.

Specialty Tapes WorldwideNet Sales

CAGR = 9%

($ m

illio

ns)

Our ability to combine unique materials

together with high performance adhesives has enabled a compound annual growth rate in sales of 9% over the past four years, with operating profit growing even faster. This success has been largely driven by the Horizons growth process.


Specialty Tape: Consumer

Most of you are familiar with diaper tapes.

We've been in the Consumer Products business with our diaper tapes for 30 years and we've seen great growth. We have proprietary converting equipment and processes, and we have developed materials for fastening diapers that work better, and are softer - key requirements for diaper companies.

The key to success in this market is innovation. Our proprietary technology has enabled us to rapidly expand around the world as personal income levels have grown and consumers favor the convenience of disposable diapers.




Specialty Tape: Industrial

WeathersealsMkt Size $91MM Sunroof wind deflectors

Encapsulated Quarterlight

Headlight seals

Tail light seals

Glass Run Channel

Body Side Molding

Sunroof Seal

Trunk Seal Roof line Seal

Wheel FlareMkt Size $9MM

EmblemMkt Size $27MM

Mkt Size $44MM

As I indicated, the Industrial segment is

focused on the appliance, automotive and construction industries. For example, this slide demonstrates all the parts of a vehicle that can be attached or achieve greater functionality through the use of our tapes. The boxes represent the specific applications that we are pursuing with our products and technology.

One particularly exciting project is aimed at providing automakers with the ability to attach parts to difficult substrates. Car exteriors are coated with low surface energy paints. These paints make it very difficult to attach body side moldings. Our new line of Low Surface Energy, or LSE, products will be commercialized later this year. We feature this product at our booth outside – if you haven’t already checked it out, I encourage you to do so!

Automakers have expressed tremendous interest in these proprietary products, because they reduce their cost of labor by eliminating the need for a primer coat. Our LSE technology is also applicable in other industries, providing yet another platform for growth.

Combining these types of innovations with high quality and superior customer service, we expect continued profitable growth and share gain here.


Specialty Tape: Medical

Medical is the smallest of the three Specialty

Tape segments, but it offers significant growth potential.

We have developed a number of high performance wound care products, including hydrocolloid wound dressings for leading global OEMs, as well as a range of thin film wound dressings, ostomy flanges and surgical drapes. Future growth will come from global penetration of these products with OEMs and distributors.

In addition to the wound care business, the medical segment also applies its broad adhesive technology to diagnostic and electro-medical applications, which likewise exhibit strong growth fundamentals. To support this growth, we’ve invested in equipment, clean-room manufacturing facilities, and cGMP quality systems.

These investments will allow us to capture more value from our proprietary adhesive technology by providing turn-key solutions to our global OEM customers – that is, we’ll be providing finished or partially converted medical devices, rather than just the tapes.


Specialty Tape: Emerging Markets

China & Brazil



Once again, emerging markets are an important growth vehicle for this business. We have made investments in manufacturing in China and Brazil. In 2006, we'll expand our Chinese business further with the addition of a coater to serve the rapidly expanding disposable diaper tape and industrial markets. We were the first multinational to bring local manufacturing to this market, and we will leverage our strong position here.


Industrial and Automotive Division

• Performance Films• Industrial and Automotive Labels

Turning now to the Industrial and

Automotive Products Division… this business is composed of two parts: Performance Films and a label converting operation. Both businesses are growing… but in the interest of time, I’ll focus on Performance Films.


Performance Films

$0

$25,000

$50,000

$75,000

$100,000

(000s)

1997 1998 1999 2000 2001 2002 2003 2004 2005

Performance Films DivisionNet Sales

This division has delivered compound

growth of 11% since 1997, representing roughly $100 million of very profitable sales today. Our technology and market focus is on "durable decoration".


Performance Films: Growth Drivers

Automotive laminates Metalure

Building on this concept, the bulk of the

Performance Films business goes into automotive applications. Our competitive advantage is coating and matching colors and designs with durable films, meeting growing demand for vehicle decoration.

Our films are used in molds that transfer patterns – wood and metallic finishes, for example – to vehicle interiors. Growth has come from the increased use of plastic parts to reduce both weight and cost; our technology, quite simply, improves the appearance of these plastic parts. This has been a great business in the U.S., and we have a significant opportunity in Asia to replicate the model, especially in China.

Metalure is another growth segment for us, consisting of a line of metallic pigment flakes used in inks, paints, coatings and cosmetics. This proprietary product line has been growing by more than 15% annually over the past five years.


Serving our Internal Businesses… and Expanding

• Performance Polymers• Engineered Films Division

As I mentioned at the beginning of this

presentation, my group also includes two businesses whose primary mission is to enable



the growth of our internal customers – Performance Polymers and Engineered Films. These businesses have also looked outside and have begun to capture some additional growth opportunities.


Performance Polymers

Performance Polymers manufactures acrylic

adhesives for the Roll Materials, Graphics and Specialty Tapes businesses. Our products consist of proprietary formulations designed to meet the demanding and diverse requirements of the Company's highly varied applications.

Over 85% of the division’s sales come from internal customers, who I can tell you are very demanding! But with extensive technical support, manufacturing sites in the United States and Switzerland, and a blending facility in China, we are well positioned to meet their needs.

The Performance Polymers team has also been seeing good success in selling their acrylic adhesives to external customers - those focused on non-roll PS applications such as industrial tapes, protective films, window films, and so forth. Off of a small base, we’ve seen external sales growth of better than 20% annually.


Engineered Films

The Engineered Films Division extrudes films used by the Roll Materials business and other divisions. We are the exclusive supplier of films for the Primax and Fasclear products, for example. These are products that are used primarily for high-end health and personal care applications.

Christian mentioned GCX, a new proprietary clear film that is lower cost with greater functionality than similarly priced films in use today; we expect it to provide a real competitive advantage in the years ahead.

Like Performance Polymers, EFD also has opportunities for significant growth to external customers.


Engineered Films: Roll-Fed Shrink

While still a relatively small segment of the

label market, shrink sleeve has grown rapidly for certain applications that don’t lend themselves to PS technology. Shrink sleeve is particularly popular in the specialty beverage categories and applications that require 360 degree graphics.

The shrink sleeve process is inherently inefficient as it requires an off-line seaming step to produce the sleeve prior to labeling. Our manufacturing technology allows us to produce a shrink film that can be applied directly to the container in a rotary process. The speeds and efficiency of this process offer a significant total applied cost advantage in comparison to conventional shrink sleeve.

Furthermore, our patented film enables a shrink factor of up to 40%, more than 2 times that of competing roll-fed products. This enables the beverage manufacturer to use containers with more pronounced curvatures, which, when combined with the 360 degree label, increases shelf appeal.

We are expecting to capitalize on the huge installed base of roll-fed labelers, which can be retrofitted to produce shrink labels using our



material. The retrofits will require minimal capital investment in comparison to the installation of a new shrink sleeve machine.

We estimate the size of the potential market for this product at roughly $150 million, and expect to commercialize our first application during the third quarter this year.


Poised for profitable growth

• Organizational redesign• Enterprise Lean Sigma• Customer focused… with tailored

products and outstanding service

Now let me wrap up with a few more comments

on the overall Specialty Materials and Converting group, which first came together during 2005. Through a lot of synergy identification work, we’ve charted a course to make the whole much greater than the sum of the parts.

Last November we began a significant effort to streamline and simplify the organization. With 15 different leadership teams across the globe for our various regional units, we had created a structure that reflected the Company’s entrepreneurial tradition, but failed to leverage its size and scope. We are now in the midst of restructuring our businesses into fewer, global units. We will take advantage of our strengths around the world, more easily sharing best practices and new technology.

We will leverage our productivity savings with the introduction of Enterprise Lean Sigma into all of our businesses.

And we will keep the customer at the very center of our efforts, developing tailored products and delivering them with the highest level of service.

Dan O’Bryant


I recognize that lunch is waiting on the other side of my speech, so I’ll try to keep this short. Hopefully this has been a good morning… I hope you’ve gotten out of it what you came for.

The theme of my discussion this morning is margin improvement. I will talk about our financial position, of course, but my key focus will be on margins. I wish I had a dollar for every time I’ve been asked whether we’ll ever get back to our peak margins. Actually, I wish I had a dollar per share for every time I’ve been asked that question. In fact, I was asked that question at our Board meeting last Thursday… you should be pleased that our Board is asking the same questions that you are.

Let me start out with just a little bit of history on the margin front. I think it’s instructive as to where we believe we will go in the future.

Our margins peaked in 2000 at 12.4%. I realize that 2000 is becoming ancient history by now, but the question remains, can we ever get back to that level. There are several reasons our margins fell during the years following that peak.

Several factors drove operating margincompression since our peak in 2000

Sources of Change in Operating Margin2005 vs. Peak

9.6%

12.4%

2000 Productivity Price Erosion Raw Mat'lCost Pass-

Through

Segment Mix RFID Acq/Other 2005

On the positive side, Six Sigma, Lean

Manufacturing, and other ongoing productivity initiatives actually drove about 450 basis points of margin improvement over the past five years. But we operated in a tough and deflationary market during the first half of the decade. Price erosion cost us about 400 basis points of margin, offsetting a large portion of our productivity gains.

A third factor has been the impact of raw material inflation over the last 18 months, representing more than $100 million worth of added cost. We have covered that inflation dollar for dollar with price increases. Our divisions have done a great job, but the de-facto impact on our P&L has been to add $100 million

in sales at 100% cost. That has pulled our margin down by about 100 basis points.

Segment mix has also been a factor. We’ve been growing faster in the materials businesses than in our high margin Office Products segment. The impact of that shift since 2000 at the EBIT margin line is about 70 basis points.

And then other factors like RFID spending, other growth-related spending, and acquisitions have also reduced our EBIT margin.

By the way, we’ve already recovered most of the margin loss associated with our 2002 acquisitions, but we have a little more room to improve there. I’ll touch on that in a second.

But enough on the past. I think when people ask me whether our margins can get back to their peak, they are really asking, “Can you improve your margins, and by how much?” So I’m going to try to quantify that for you.

"Core" Operating Margin*(% of sales)

6.06.57.07.58.08.59.09.5

10.010.511.0

Q1-03

Q2-03

Q3-03

Q4-03

Q1-04

Q2-04

Q3-04

Q4-04

Q1-05

Q2-05

Q3-05

Q4-05

2006est.

But operating margins have improved…

* Excludes restructuring charges and RFID spending

Margin impact of option expense

First of all, our margins have been

improving. We completed the Jac integration in 2004, and on a quarterly basis, our margins are up 160 basis points from their 2003 low of 8.5%. And we’ve sustained a margin of over 10% for the last three consecutive quarters, if you exclude the unique RFID investment that we’re making.

And, adjusting for the change in stock option accounting rules, we do expect another year of solid margin improvement in 2006.

Dan O’Bryant - CONTINUED


… and we expect substantial margin expansion ahead

Sources of Change in Operating Margin2008 vs. Today

11.0%

9.6%

2005 Productivity Raw Mat'lDeflation

CapacityUtilization

RFID Segment Mix OtherBusinessRealities

2008

?

Our operating margin target for 2008 is just

over 11% if you take out stock option expense. That’s roughly another 150 basis points of lift from the 2005 average, and here’s how we intend to get there:

First, you’ve heard about margin improvement from each of our business units this morning. Productivity is going to be a key driver across the organization. We’ve long demonstrated our ability to generate productivity improvement, but we’re far from finished.

Raw material costs are still rising, and we’re still raising prices, but we don’t expect this round of inflation to last much longer. We’re beginning to see relief in some areas already, while other key commodities are still rising. As I’ve already shown you, just covering inflation has cost us nearly 100 basis points of margin. As that trend reverses itself, we should get that margin back. In addition, the benefit of our ongoing productivity efforts, which in the past were offset by price erosion, should now drop to the bottom line, giving us some added margin.

Capacity utilization continues to be a substantial opportunity for us to raise margins in a couple of our businesses. First, following the 2002 acquisition of Jackstädt, our roll materials business in Europe invested heavily to consolidate our manufacturing platform there. We’ve already seen our margin improve significantly following that consolidation, but we’re not finished yet… there’s still more capacity that we can grow into in Europe. And, as Simon pointed out, the operating margin for the Retail Information Services business has been compressed by nearly 300 basis points due to the investments we’ve made to gain market share in Europe and Latin America. So we do expect margin lift from these two businesses as they grow into their investment base.

Current growth initiatives, including RFID, will also contribute to our expanding margins. In the fourth quarter, RFID reduced our operating margin by 70 basis points. Assuming industry volumes ramp up the way we expect, we anticipate hitting the breakeven point in this business some time during 2008. This will contribute steadily to improving margins over the next three years as volumes ramp up and scale drives our costs lower.

We expect other initiatives to contribute to further margin expansion. We’re working to streamline and simplify the organization. Sandy, in particular, commented on the opportunity in her group. I view these as somewhat beyond the normal types of productivity that we’ve driven over the years, so they aren’t captured individually in this chart. But they will contribute to margin expansion, particularly in the SG&A area.

Now, I’ve obviously laid more on the table than we will need to hit our 11% target by 2008. Maybe we can do better than 11%, but realistically, not everything will go our way over the next few years. So we’re driving specific programs and projects to deliver more than what we think is needed to deliver our 11% target. Something will certainly go against us between here and there, so we have provided for that. But the point is, we’re very, very focused on margin expansion. We know how to execute our plans, and our management team is well incented to get our margins up to target.

Let me address another frequently asked question: Will the restructuring charges ever end? The short answer is: no. Now let me give you the detail.

$87.1$75.7Total$19.9$0.02001$16.8$15.22002$11.9$18.22003$0.5$34.72004

$38.0$7.52005

Non-IntegrationIntegration

Historical Restructuring Costs ($ mil.)

It’s important to recognize that much of our

restructuring costs over the last few years have been driven by the integration of the acquisitions



that we did in 2002. Until the fourth quarter of last year, our non-integration related restructuring costs were averaging about $12 million annually, in line with what you would expect for an evolving portfolio of businesses.

Lately that number has been higher. We’re changing the portfolio, we’re insisting on even more productivity than we’ve been getting over the last few years. We’ve already told you to expect additional restructuring costs of $10 to $15 million this year, and indicated that it could be more, once our plans are finalized. They still aren’t finalized, but we now expect the total for the year could be closer to $30 million to complete some of the programs we have been talking about.

We will continue to drive productivity, and sometimes that’s going to cost us money. I don’t know that it should or needs to be referred to as “restructuring costs” all the time, but I do think over the next few years you should expect us to continue to drive productivity, and to continuously reinvest some of our savings in additional productivity programs.

At the same time, we will continue to drive improvement in our cash flow, along with our margins and earnings-per-share.

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

2001 2002 2003 2004 2005 2006 Guidance

Ear

ning

s P

er S

hare

0

100

200

300

400

500

600

Ope

ratin

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sh F

low

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il.)

EPS Operating Cash Flow

Applying balanced approach to top-line growth and margin expansion to drive value creation

Pro-forma Earnings Per Share* and Operating Cash Flow

* Excludes restructuring charges, gains on sale of assets, and other items.

Now, there’s been a lot of noise in the

accounting, of course, as a result of the integration expense and the restructuring costs, as well as the impact on our cash flow of the extra week that we had in 2004, which really pulled about 70 million dollars out of 2005’s cash flow. If you adjust for that, the underlying cash flow from operations has been growing at over 7% for the last five years. Going forward, our objective is to accelerate productivity and ensure that the underlying cash flow from our business keeps up with the pace of earnings growth.

Organic sales growth has been more volatile of late

1.2%

4% to 6%

7.4%

2.5%

4.9%

-1.8%

4.7%

2000 2001 2002 2003 2004 2005 Target

* Excluding currency, acquisitions, and divestitures

Organic Sales Growth*

Let me spend a few minutes on our medium

to long-term growth targets that Dean mentioned yesterday. I’ll just touch on the key drivers, starting with Office Products. In the short-term, our organization, filing and presentation business is going to be declining, partly because we’ve divested some product lines in Europe. Tim talked about some of the lowest margin private branded products that we’ve chosen not to participate in. But this business will be managed for cash and for returns as we go forward.

Our focus will be to get the Printable Media business growing at a more rapid clip and to maintain the exceptional margins that we’ve had there over the last year. So, again, we’ll be redeploying some of the cash that we’re generating to grow the top line in that business, so we’ll achieve a better growth rate there over the medium- to long-term.

Secondly, in the roll materials business, Dean acknowledged yesterday that the North American market has slowed a bit. There are a couple of reasons for that. Some manufacturing is migrating out of the U.S. Manufacturing growth in the U.S. has been slower than overall economic growth. And some of our markets in North America have been highly penetrated, like the wine market, which we just started into about seven years ago, and pharmaceuticals.

So, while we have some new emerging markets, many of the ones that we’ve depended on for growth over the last decade have reached a level of higher penetration… the bar code market being one of those that is more mature today.

But we’re truly at an inflection point in that business. We don’t believe that the variable imprint – or data processing – part of that business will remain sluggish over the longer term. Yes, it is mature today, but RFID will be a



key growth driver for the roll materials business. All of those RFID tags will have to be attached, and pressure-sensitive will be the primary means for attaching them. This will give us lift in the years ahead, even in North America.

So, while we acknowledge that growth in the near to medium term has slowed down, there are a number of drivers that should accelerate that growth over the longer-term. And, don’t forget, that when we talked about slowing our growth expectations… particularly for that North American business… we’ve expanded our margin expectation across all of our businesses.

Guidance for 2006: Top Line Sales

• Projecting reported revenue growth (continuing operations) of 2-3%– “Core” volume up 4-5%... 2-3% after

product line divestitures and other offsets

– Price/mix expected to add 1%– Currency translation at current rate will

reduce growth by 1%

So let me shift now and talk about our

specific guidance for the upcoming year. I spoke about our 2006 guidance in our teleconference last month, so I won’t go into the same level of detail here.

Our expectation for sales growth this year reflects improvement in some of our key markets, particularly the roll label market in North America. We also expect to begin recovering some of the lost share in North America. We may be on the low end of our 4% to 6% long-term expectations, but we do expect improvement in core volume growth this year.

We lose about two points of sales growth due to product-line divestitures and the private label business we chose not to participate in. We expect that price will add about a point to our growth this year, which will be offset by the negative impact of currency translation.

We expect earnings in the range of $3.45 to $3.80 per share before those restructuring costs that I’ve been talking about, which are still in the planning phase. Let me just highlight some of the key factors besides sales growth that will affect our results this year.

35 - 40Estimated 2006 Savings, Net of Transition Costs

15 – 202006 estimated transition costs

50 – 60Estimated 2006 Savings Realized

80 – 90Total Annualized Savings When Complete

97Total Non-Cash Charges (Q4-05)

43 – 48 +Total Cash Charges (primarily Q4-05)

($ mil.)Summary:

Guidance for 2006: Restructuring Benefits

We expect our restructuring actions will

drive savings of $50 to $60 million, growing to $80 or $90 million per year when complete. But we’ll incur transition costs of about $15 to $20 million associated with these actions – things like accelerated depreciation, the cost of moving equipment, and so forth.

Guidance for 2006: Other Key Factors

• Continued tight control of SG&A expense

• Ongoing productivity improvement actions across businesses

• Offsets vs. 2005:– Stock option expense– Pension expense– Tax rate

We’ve already detailed the actions we’re

taking to drive SG&A reduction and improved productivity. We’ll be using some of those gains to invest for future growth, including the $10 to $15 million increase in marketing spend that Tim talked about for our Printable Media business.

We will have a few other offsets to our productivity improvements. We expect stock option expense to total about 12 cents per share, and changes in our actuarial assumptions will increase our pension expense by about 5 cents per share. And our operational tax rate will likely be higher this year than last. We’re expecting the rate to be in the range of 20% to 23% for the year.

Let me wrap up with a quick overview of our financial position.



Capital model provides significant flexibility for funding requirements over the next two years

Capital Allocation2006 to 2007

Over $1 bil. in “unallocated” cash over two years

Available Cash

~ $2 bil.+

Cash Flow from

Operations~ $1.1 bil.

Debt Capacity

~ $900 mil.Share Repurchase

?

Acquisitions / Other?

CAPEX/Software~ $400 mil.

Dividends~ $315 mil.

Pension Plans~ $50 mil.

We expect to generate over a billion dollars

of unallocated cash over the next two years, allowing us to fund our operations, acquisitions if needed, and any other contingencies which we can see ahead.

We ended the year with a debt to total capital ratio of 41.8%, at the low end of our target range. We bought back about 700,000 shares in the fourth quarter, which will reduce our average outstanding shares over the next few quarters.

It remains our intent to accelerate our share repurchase program. However, we intend to continue moving cautiously on this front while industry investigations continue. Our free cash is seasonal, most of it coming out in the second half of the year, which is when we hope to have the opportunity to buy more stock back.

$133 mil.$150 mil.

$201 mil. $206 mil.

$162 mil.

$175 - $200 mil.

Emerging Markets

1.7

1.9

2.0

2.2

2.3

Capital Turnover

(Ratio of Sales to Average Invested Capital)

Capital spending… continued shift towards emerging markets

Total Capital Spending & Capital Efficiency

2001 2002 2003 2004 2005 2006e

We anticipate spending in the range of $175

to $200 million on capital this year, and at this pace, our capital efficiency should continue to improve.

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$1.60

$1.80

'75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05

Div

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30 consecutive years of dividend increase…30 consecutive years of dividend increase…~ ~ 13% compound annual growth13% compound annual growth

Expect continued modest increase to dividend

And of course, I can’t conclude without

showing you our dividend slide. Last October, our Board approved the 30th consecutive year of dividend increase, supporting the title that Business Week gave us last year… a “Dividend Aristocrat”. We’re pleased with the progress on our dividend and expect to be able to continue that increase.

So, in conclusion, our long-term organic revenue target of 4% to 6% and EBIT margin target of 11% will add value in the medium term. Longer term, we expect to see our top line growth rate accelerate.

Avery Dennison Corporation150 North Orange Grove BoulevardPasadena, California 91103www.averydennison.com

Questions?Contact: Cynthia GuentherVice President, Investor RelationsPhone 626.304.2204

Economy & Finance

2006InvestorConferenceBookFinal