The TLMI Index & Trend Report

Volume 20 - Winter 2018/2019 Colleagues and Friends, Scope of the Report ...... 2 One of the benefits of TLMI membership is relevant, tailored market research Section One: specific to the label industry. Ongoing studies include the Converter Ratio Overview and Macroeconomic Report, the Wage & Labor Review and the following TLMI Biannual Index & Outlook ...... 3 Trend Report. US Industrial Production against TLMI Converter Member Sales...... 7 The Index & Trend report is a key resource for association converter US Food & Beverage Production against TLMI Converter Member Sales ...... 8 and supplier members as it provides economic forecasts and industry US Pharmaceutical Production & benchmarks to assist us with our internal strategic planning and Cosmetics against TLMI Member Sales... 9 goalsetting objectives. Included in this Fall’s report is industry expert ITR’s Section Two: macroeconomic view of US industrial production along with comparisons to The Voice of the Brand Owner/ TLMI Converter member sales. Packaging Buyer...... 10 Label Procurement Growth Projections A key component of this report is the 2018 Brand Owner and Packaging Buyer for 2019...... 11 Survey which provides market intelligence from the brand and packaging Companies’ Loyalty to their Label procurement level. Surveying these companies annually allows TLMI to Vendors...... 12 track and report on key market trends such as label procurement volume Migration away from PS to other Formats...... 13 projections, expectations of their label vendors and trends that will impact Trends that will impact TLMI Members TLMI members in 2019. In addition, we asked about their loyalty to their in 2019...... 14 current label vendors, commitment to PS vs. other label technologies and Section Three: regionalization of label sourcing. The Label Buyer-Label Vendor Dynamic ...... 16 The report concludes with a summary of TLMI’s Q3 Converter Quarterly Regionalization of Label Sourcing...... 17 Trends and for the first time a summary of TLMI’s long-standing Roll Stock Lead Times & Rushed Print Jobs...... 19 Survey highlighting material constructions and consumption. TLMI’s proprietary research helps all of us run more profitable and efficient Section Four: businesses. I trust you will find value and insight in the following pages. TLMI Converter Quarterly Trends Report Synopsis Q3 2018...... 22 Best regards, Section Five: The North American Market Dan or Roll Labelstocks...... 26

Report researched and compiled by:

www.lpcprint.com

The TLMI Index & Trend Report December 2018 SCOPE OF THE REPORT

The brand owner/packaging buyer edition of the TLMI Index & Trend Report is unique in that it gives TLMI members a rare glimpse inside the top of the supply chain – the companies that source, apply and use labels and other narrow web decoration formats. Food conglomerates, craft breweries and distilleries, automotive Fortune 500 manufacturers, electronics and software companies, big pharma, household chemical companies and nutraceutical brands; these end-use segments and many others are represented in the brand owner issue of the TLMI Index & Trend Report.

As researchers, our primary objective in compiling this report is working hard to ensure the widest sampling of packaging buyers and brands possible fill out a detailed technical survey and participate in deeper-dive, one-on-one interviews. This ensures we are offering TLMI members the most relevant information possible from what can be our industry’s most elusive and challenging universe to survey: brands and packaging buyers.

We want to stress that the TLMI Market Intelligence Committee was a critical component in the research process. They helped to define some of the questions for the online survey as well as the interviews, and we feel it’s imperative that converters, and suppliers, remain an intrinsic part of the market intelligence-gathering process as TLMI continues to define its goals and research directives moving forward.

Imagine that you have 100-120 prospective label-buying customers in a room. They are paying attention to what you have to say and you can ask them any set of questions you want. What would you ask this captive audience? This was the central question we asked people on the Market Intelligence Committee, and we want to thank all the converters that were open and forthright in helping us craft key questions to which converters want answers.

As 2018 comes to a close, the North American label-printing industry remains as dynamic, resilient and enterprising as ever. Trends like single-serve packaging, product personalization, rigid container-to-pouch migration and multi-layer constructions persist while economic conditions like rising inflation, tariffs, and as a result, rising raw material prices, force us to create internal business cultures and production strategies that help us persevere and ultimately succeed. Our hope is that the TLMI Index & Trend Report can continue to serve as an ongoing resource to assist you in that journey.

Sincerely,

LPC, Inc.

The TLMI Index & Trend Report December 2018 2 SECTION ONE

Overview and Macroeconomic Outlook

Compiled by the Institute for Trend Research (ITR EconomicsTM)

INDUSTRY SNAPSHOTS Macroeconomic Outlook Arrow denotes 12-month moving total/average direction US Industrial Production during the 12 months through July was up 3.2% from the same period one year ago. Activity is rising at an accelerating pace Retail Sales in each of the three major components. The largest, US Total Manufacturing Production, was up 2.2%. Meanwhile, US Mining Production was up 10.6%, and Wholesale US Electric and Gas Utilities Production was up 2.8%. Growth in US Industrial Trade Production will persist through the remainder of 2018, although we expect the pace of rise to slow by the end of the year. Plan for mild contraction in 2019. Auto Production The US industrial economy is benefiting from accelerating growth in Exports, which were up 8.1% on a year-over-year basis. However, the US dollar is Manufacturing strengthening, which signals that Production will transition to the back side of the business cycle in the near term as the benefits of a weakened dollar Rotary Rig fade for Exports. Retaliatory tariffs implemented by major trade partners such as China, Canada, and Mexico also pose a downside risk to Exports. We are monitoring these developments closely and will provide updates to our Capital Goods outlooks as more information becomes available.

Nonresidential US Private Sector Employment is growing at an accelerating pace, up 1.8% from Construction a year ago. This trend will persist through the remainder of this year. A tight Residential labor market will make it more challenging to find qualified applicants. Consider Construction increasing your firm’s monetary and non-monetary benefits to attract and retain top talent. The pace of growth for Employment will slow next year, but we Steep Rise Flat anticipate further tightening in the labor market during this time. Look to labor-

Mild Rise Mild Decline saving technologies to enhance the productivity of your existing staff.

Steep Decline

MAKE YOUR MOVETM INVESTOR UPDATE A tight labor market will make it challenging to Stock Prices are at a record high, but the pace of rise find new workers, rendering employee retention has generally slowed since an early-2018 peak. While we are not anticipating an imminent bear market, increasingly important. Evaluate your benefits several leading indicators, including the US Purchasing packages to ensure they are competative. Managers Index and Corporate Profits for certain sectors, point to further slowing in the pace of rise.

ITR ECONOMIC’S LONG-TERM VIEW: 2018: Slowing Growth 2019: Mild Recession 2020: Growth

The TLMI Index & Trend Report December 2018 3 Retail Sales Wholesale Trade • Retail Sales during the 12 months through July were up • Wholesale Trade is rising at an accelerating rate in both its 5.3% from the same period a year ago Durable and Nondurable segments • Growing Employment is contributing to increasing • Slowing growth trends will take hold by the end of this consumer strength year and persist through next year for each component • Consumer Prices are rising at an accelerating rate, driving • We do not expect a recession during this cycle, but firms up the dollar-denominated value of Retail Sales should take caution not to budget linearly Auto Production Manufacturing • North America Light Vehicle Production in the 12 months • Total Manufacturing Production during the 12 months through July was down 4.2% from one year ago ending in July was up 2.2% from a year ago • Activity will recover and rise mildly through the remainder • Many segments of the industrial sector will end the year of this year before resuming a recession next year in slowing growth trends • Trade disputes pose a long-term risk to this industry • Medical Equipment and Supplies Production, down 3.5%, is currently an area of weakness, but this industry is Rotary Rig recovering • The Rotary Rig Count in the 12 months through August was up 30.4% from the year-ago level Capital Goods New Orders • The pace of rise for the Rig Count is slowing • New Orders in the 12 months through July were up 8.0% • Our expectation of falling Oil Prices late this year and in compared to the year-ago level 2019 suggests that the Rotary Rig Count will face further • Business-to-business activity will rise through the first half downward pressure of next year Total Nonresidential Construction • Consider expanding your distribution channels to handle further growth if they are near full capacity • Nonresidential Construction in the 12 months through July was up 0.8% from one year ago Total Residential Construction • Construction recently transitioned to an accelerating growth trend • Residential Construction during the 12 months through July was up 9.1% on a year-over-year basis • Overall Nonresidential Construction will grow at an accelerating rate into the second half of 2019 • Construction is growing but at a slowing pace • The single unit housing market is growing at a faster rate than the multi-unit market and may present more opportunities LEADING INDICATOR SNAPSHOT

3Q18 4Q18 1Q19 The majority of leading indicators in this report are ITR Leading IndicatorTM • signaling that US Industrial Production will enter a slowing growth trend by the end of this year ITR Consumer Activity Leading IndicatorTM • Decline in the ITR Consumer Activity Leading Indicator has been mild, which supports our US Leading Indicator outlook that business-cycle decline in the industrial economy will also be mild Purchasing • Leading indicators suggest business-cycle decline Managers Index for Industrial Production through at least early next year US Total Capacity Utilization Rate N/A

Green indicates that the indicator signals cyclical rise for the economy in the given quarter. Red denotes the opposite.

The TLMI Index & Trend Report December 2018 4 A CLOSER LOOK: Tariffs A Strategy to Offset the Impact of Tariffs By: Alex Chausovsky, ITR Senior Consulting Advisor

What you need to know: Even in the face of increasing protectionism, plentiful growth opportunities remain in the US economy.

The US economy is undergoing a period of robust expansion right now. US Industrial Production, our benchmark for performance of the industrial sector of the economy, is in Phase B, Accelerating Growth. US Nondefense Capital A CLOSERGoods New LOOK: Orders (excluding Tariffs aircraft), a barometer for business-to-business activity, are up 8.0% on a year-over- year basis. With the macroeconomy providing a tailwind, many companies are optimistic about their near-term A CLOSER LOOK: A Tariffs Strategy prospects.to Offset the Impact of Tariffs A Strategy to Offset the By: Alex Impact Chausovsky, of Tariffs However, ITRas Seniorwith all Consulting good things, Advisor this economic rising trend will eventually end. ITR Economics anticipates that the By: Alex Chausovsky, ITR Senior Consulting Advisor overall economy, and many vertical markets that comprise it, will soon transition to Phase C, Slowing Growth. The What you need to know:transition Even inhas the already face of begun increasing in some protectionism, sectors; others will follow suit in the coming quarters. The pace and severity of plentiful growth opportunities remain in the US economy. What you need to know: Even in the face of increasing protectionism, plentiful growththe opportunities slowdown will vary by industry, but it’s safe to say that some markets will likely see negative year-over-year remain in the US economy. performance by the time 2019 is behind us. The US economy is undergoing a period of The protectionist trade policy of the The US economy is undergoing a period of robustrobust expansion expansion right right now. now. US US Industrial Industrial Production, our benchmark for current US administration is one important performance of the industrial sector of the economy,Production, is in ourPhase benchmark B, Accelerating for performance Growth. US Nondefense Capital factor that could have a major impact on Goods New Orders (excluding aircraft), a barometerof the industrial for business sector-to of-business the economy, activity, is in are up 8.0% on a year-over- next year’s economic performance and it year basis. With the macroeconomy providingPhase a tailwind, B, Accelerating many Growth.companies US Nondefense are optimistic about their near-term is a source of significant concern for many prospects. Capital Goods New Orders (excluding aircraft), businesses. The escalating trade war with However, as with all good things, this economica barometer rising trend for willbusiness-to-business eventually end. activity, ITR Economics anticipates that the China in particular is arousing anxiety overall economy, and many vertical markets thatare comprise up 8.0% on it, a will year-over-year soon transition basis. to With Phase C, Slowing Growth. The among many companies. In the latest transition has already begun in some sectors; othersthe macroeconomy will follow suitproviding in the a comitailwind,ng quarters.many The pace and severity of salvo, the US government announced it the slowdown will vary by industry, but it’s safecompanies to say arethat optimisticsome markets about will their likely near- see negative year-over-year will impose 10% tariffs on approximately performance by the time 2019 is behind us. term prospects. $200 billion worth of Chinese imports starting September 24. Beijing The protectionistimmediately trade policy reciprocated of the with 10% tariffs on about $60 billion worth of American imports. The chart above gives a However, as with all good things, this economic current US administracomprehensivetion is one importantview of the current and proposed tariff landscape. It also shows that there is still room for substantial on about $60 billion worth of American imports. The chart above rising trend will eventually end. ITRfactor Economics that could anticipates escalationhave that a majorthe in the impact trade onwar, with more than $600 billion in proposed tariffs remaining on the table. overall economy, and many verticalnext marketsyear’s thateconomic comprise performance it, will gives and a comprehensiveit view of the current and proposed tariff soon transition to Phase C, Slowingis a sourceGrowth. Theof significanttransitionBusinesses hasconcern al- concerned landscape.for many about It also the shows possible that there impact is still of roomtariffs for and substantial protectionism es- on their ability to keep growing should ready begun in some sectors; othersbusinesses. will follow The suit inescalatingtake the comingcomfort trade in the calationwar large with in sizethe trade of their war, domesticwith more thanmarket. $600 Inbillion 2017, in proposed California, Texas, and New York were the largest US states in terms of Gross Domestic Product (GDP). If these state economies were ranked with the economies of quarters. The pace and severity ofChina the slowdown in particular will vary byis indus arousing- tariffs anxiety remaining on the table. countries around the globe, California would be the fifth-largest economy in the world, Texas the seventh, and New try, but it’s safe to say that someamong markets many will likely companies. see negative In the latest salvo, the US governmentYork the 10th. announced In other words,it these states are economically equal to France, Canada, and Spain, respectively. year-over-year performance by the time 2019 is behind us. Businesses concerned about the possible impact of tariffs and will impose 10% Althoughtariffs on the approximately newprotectionism round of Section on their 301 ability tariffs to keep growing should take com- $200 billion worth of Chinese imports The protectionist trade policy of the current announcedUS administration this weekfort in willthe likelylarge size result of their in higher domestic market. In 2017, Califor- starting Septembercosts for both24. businessesBeijing and consumers and immediately reciprocated with 10% tariffs on aboutis one $60important billion factor worth that of could American have a imports.major impact The onchart next above nia, gives Texas, a and New York were the largest US states in terms of year’s economic performance and it is a source of significantcould detrimentally con- Gross Domesticimpact demand Product (GDP).for aIf these state economies were comprehensive view of the current and proposed tariff landscape. It also shows that there isrange still room of forgoods, substantial there remain plentiful cern for many businesses. The escalating trade war with China in ranked with the economies of countries around the globe, Cali- escalation in the trade war, with more than $600 billion in proposed tariffs remaining on the opportunitiestable. to mitigate some of the negative particular is arousing anxiety among many companies. In the lat- fornia would be the fifth-largest economy in the world, Texas the Businesses concerned about the possible impact of tariffs and protectionism on their abilityconsequences to keep growing by should expanding domestically. est salvo, the US government announced it will impose 10% tariffs seventh, and New York the 10th. In other words, these states are take comfort in the large size of their domestic market. In 2017, California, Texas, and NewCompanies York were should the largest not lose track of the fact on approximately $200 billion worth of Chinese imports starting economically equal to France, Canada, and Spain, respectively. US states in terms of Gross Domestic Product (GDP). If these state economies were rankedthat with selling the ineconomies California, of Texa s, and New York countries around the globe, California would beSeptember the fifth -24.largest Beijing economy immediately in the reciprocated world, Texas withis 10% economicallythe tariffs seventh, andanalogo Newus to doing business York the 10th. In other words, these states are economically equal to France, Canada, and inSpain, France, respectively. Canada, and Spain Although– a combined the new round of Section 301 tariffs $5.5 trillion marketplace. Even announcedin the face this of week will likely result in higher Although the new round of Section 301 tariffs increasing protectionism, plentifulcosts for growthboth businesses and consumers and announced this week will likely result in higher opportunities remain in the US economy.could detrimentally impact demand for a range costs for both businesses and consumers and of goods, there remain plentiful opportunities could detrimentally impact demand for a to mitigate some of the negative consequences range of goods, there remain plentiful opportunities to mitigate some of the negative by expanding domestically. Companies should consequences by expanding domestically. not lose track of the fact that selling in Califor- Companies should not lose track of the fact nia, Texas, and New York is economically analo- that selling in California, Texas, and New York gous to doing business in France, Canada, and is economically analogous to doing business Spain – a combined $5.5 trillion marketplace. in France, Canada, and Spain – a combined Even in the face of increasing protectionism, $5.5 trillion marketplace. Even in the face of plentiful growth opportunities remain in the increasing protectionism, plentiful growth US economy. opportunities remain in the US economy.

The TLMI Index & Trend Report December 2018 5 STATE-BY-STATE:STATE-BY-STATE: Permits Permits

• US Housing Unit Building Permits during the 12 months through July were up 6.7% from the same period one year ago • Nationally, Permits are rising at a slowing rate • •The US PacificHousing Region Unit Building and Mountain Permits Region during are the growing 12 months at the through fastest Julyrates were on a up year -over-year basis, up 11.6%6.7% fromand 11.1%, the same respectively period one year ago • Permits Nationally, were belowPermits the are year rising-ago at level a slowing in the rateGreat Lakes Region (down 1.7%) and the Plains Region (down •1.1%) • The Pacific Region and Mountain Region are growing at the fastest rates on a year-over-year basis, up 11.6% and 11.1%, respectively A • Question Permits were below from the year-ago a level Business in Owner: the Great Lakes Region (down 1.7%) What doesand the the recent Plains preliminary Region (down trade 1.1%) agreement between the US and Mexico mean for manufacturing in North America? James Giles, Economist at ITR Economics™, answers: ThisA deal Question should help fromalleviate a some Business fears of a Owner:full-blown trade war between the US and Mexico. Firms can invest in these two countries with more confidence that neither will face significant trade barriers from the other. Businesses can Whatalso plan does for the a recentlonger preliminarytime horizon, trade as the agreement agreement between did not the include US and the Mexico Trump meanadministration’s demand for a sunset clause that would have forced more frequent renegotiation and risked tearing up the deal every five years. for manufacturing in North America? The agreement is also intended to support domestic automotive production by raising the threshold for exclusion fromJames tariffs. Giles, For aEconomist vehicle to at avoid ITR Economics™,the tax, 75% answers:of its value would have to originate in the US or Mexico, up from NAFTA’s 62.5% threshold. This may shift some production to these two countries. However, the higher labor costs relativeThis todeal Asia should could help drive alleviate up automotive some fears prices, of a especially full-blown with trade a provisionwar between in the the deal US thatand wouldMexico. require Firms nearlycan half of allinvest parts in sold these in twothe tradecountries zone with be moreproduced confidence by workers that makingneither $16will faceor more significant per hour. trade Hig herbarriers costs from could drive downthe demand other. Businesses for vehicles can from also the plan US for and a Mexico.longer time horizon, as the agreement did not include the Trump To date,administration’s Canada remains demand outside for aof sunset this agreement, clause that which would poses have forceda major morerisk tofrequent manufacturing renegotiation in North America.and risked Pleasetearing send up questions the deal everyto [email protected] five years. The agreement is also intended to support domestic automotive production by raising the threshold for exclusion from tariffs. For a vehicle to avoid the tax, 75% of its value would have to originate in the US or Mexico, up from NAFTA’s 62.5% threshold. This may shift some production to these two countries. However, the higher labor costs relative to Asia could drive up automotive prices, especially with a provision in the deal that would require nearly half of all parts sold in the trade zone be produced by workers making $16 or more per hour. Higher costs could drive down demand for vehicles from the US and Mexico. To date, Canada remains outside of this agreement, which poses a major risk to manufacturing in North America. Please send questions to [email protected]

The TLMI Index & Trend Report December 2018 6 Tracking TLMI Converter Members’ Sales against Major Indices US Industrial Production

12-‐Month Moving Average Index US Industrial Produc3on Index to TLMI Member Sales Sales 115 115 15 12/12 Rates-‐of-‐Change 15 12MMA 12MMA Forecast 110 110 10 10

105 105 5 5

100 100 0 0

95 95 -‐5 -‐5

Produc4on 90 90 -‐10 -‐10 Produc4on Forecast TLMI Member Sales 85 85 -‐15 -‐15 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

US Industrial Production during the 12 months through July was 3.2% above the year-ago level. Production will rise through the remainder of this year. Activity will then decline mildly in 2019. Growth will resume in 2020 and persist through much of 2021.

US Total Manufacturing Production, the largest of the three major segments of the industrial economy, is growing at an accelerating pace, up 2.2%. However, the pace of growth for this sector will slow by the end of this year. This will contribute to hindering the rate of rise for the overall industrial economy. Escalating trade tensions could limit demand for US goods in foreign markets, which would pose a downside risk to the Manufacturing sector and Industrial Production as a whole. Consider what’s next; newer product lines may help your firm outperform your competitors as we enter the back side of the business cycle.

US Total Retail Sales

12-‐Month Moving Average Index US Industrial Produc3on Index to TLMI Member Sales Sales 115 115 15 12/12 Rates-‐of-‐Change 15 12MMA 12MMA Forecast 110 110 10 10

105 105 5 5

100 100 0 0

95 95 -‐5 -‐5

US Total Retail Sales during the 12 months through July were up 5.3% from the year-ago level. Retail Sales will expand through at least the next three years. However, the pace of growth will slow next year. Retail Sales will then return an accelerating pace of growth in 2020.

US Consumer Prices were up 2.4% from one year ago and are rising at an accelerating rate. Retaliatory tariffs imposed by US trade partners could lift prices further. We anticipate that accelerating rise in Prices will persist through the remainder of this year. Firms operating in the consumer sector should communicate their competitive advantages to potential customers to avoid competing solely on price as costs rise. Differentiate your product offerings to stand out from your competitors.

The TLMI Index & Trend Report December 2018 7 US Food Production

12-‐Month Moving Average Index US Food Produc2on Index to TLMI Member Sales Sales 130 130 9 15 12MMA 12/12 Rates-‐of-‐Change 12MMA Forecast 120 120 6 10

110 110 3 5

100 100 0 0

90 90 -‐3 -‐5

80 80 -‐6 Produc4on -‐10 Produc4on Forecast TLMI Member Sales 70 70 -‐9 -‐15 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

US Food Production during the 12 months through July was up 4.6% on a year-over-year basis. Production will expand through the next three years. However, the pace of rise will slow through 2019. Accelerating growth will then resume in 2020.

US Grain and Oilseed Milling Production and US Dairy Products Production are growing at accelerating rates. However, our analysis indicates that these components will transition to slowing growth trends by the end of this year. Slowing growth in these segments will contribute to hindering the rate of growth for overall US Food Production. Revisit your capital expenditure plans with the expectation of slowing growth through 2019.

US Beverage Production

12-‐Month Moving Average Index US Beverage Produc4on Index to TLMI Member Sales Sales 135 135 15 12/12 Rates-‐of-‐Change 15 12MMA 12MMA Forecast 125 125 10 10

115 115 5 5

105 105 0 0

95 95 -‐5 -‐5

85 85 -‐10 Produc4on -‐10 Produc4on Forecast TLMI Member Sales 75 75 -‐15 -‐15 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

US Beverage Production during the 12 months ending in July was up 3.3% from the year-ago level. Production will generally rise through at least the length of the forecast. However, the pace of rise will slow in the near term. Expect Production to grow at a slowing rate into late 2019. Activity will then rise at an accelerating rate into early 2021.

The US Beverage and Tobacco Products Utilization Rate is signaling that the pace of growth for Production will slow in the near term, in line with our expectations. Avoid linear budgeting. While we are not anticipating a significant recession in this market, activity will be relatively weak in the coming quarters. Keep this in mind before expanding your capacity.

The TLMI Index & Trend Report December 2018 8 US Pharmaceutical Production

12-‐Month Moving Average Index US Pharmaceu2cal and Medicine Produc2on Sales 130 130 15 15 12MMA Index to TLMI Member Sales 12MMA Forecast 12/12 Rates-‐of-‐Change 120 120 10 10

110 110 5 5

100 100 0 0

90 90 -‐5 -‐5

80 80 -‐10 Produc4on -‐10 Produc4on Forecast TLMI Member Sales 70 70 -‐15 -‐15 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

US Pharmaceutical and Medicine Production during the 12 months through July was up 1.9% on a year- over-year basis. Production is growing at an accelerating rate. However, we expect that this market will contract in 2019. Growth will then resume in 2020 and continue through at least the first half of 2021.

US Personal Consumption Expenditures for Prescription Drugs are up 4.0% from the year-ago level. Production is likely benefiting from increasing Expenditures. However, Expenditures are growing at a slowing pace, which will put downside pressure on Production in 2019. Focus your resources on your most profitable business segments. Consider cutting costs, where possible, in areas with weaker growth potential.

US Personal Consumption Expenditures for Cosmetics

12-‐Month Moving Average Expenditures US Personal Consump5on Expenditures for Sales 70 70 15 15 12MMA Cosme5cs to TLMI Member Sales 12/12 Rates-‐of-‐Change 12MMA Forecast 60 60 10 10

50 50 5 5

40 40 0 0

30 30 -‐5 -‐5

Expenditures 20 20 -‐10 -‐10 Expenditures Forecast

TLMI Member Sales 10 10 -‐15 -‐15 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

US Personal Consumption Expenditures for Cosmetics, Perfumes, Bath, Nail Preparations, and Implements during the 12 months through July averaged $51.9 billion, up 3.9% from the same period one year ago. Expenditures will rise through the length of this forecast. The pace of rise will increase into early 2019. Expenditures will then rise at a slowing pace into the middle of 2020. Accelerating growth will then take hold and persist through the first half of 2021.

Cosmetics and Other Toilet Preparations Producer Prices are rising at an accelerating pace. This indicator, which typically leads Expenditures by about two quarters, suggests that Expenditures will rise at an accelerating pace into early next year, in line with our forecast. Evaluate your supply of capital equipment. Ensure that you have the resources necessary to accommodate growth related to this sector through at least the first half of 2021.

The TLMI Index & Trend Report December 2018 9 SECTION TWO SECTION TWO TheThe Voice Voice of of the the BrandBrand Owner Owner / Packaging/ Packaging Buyer Buyer Compiled by LPC, INC. COMPILED BY LPC, INC.

LABEL PROCUREMENTLABEL PROCUREMENT GROWTH GROWTH,, LABEL VENDOR LABEL VENDOR LOYALTY LOYALTY,, MIGRATION MIGRATION AWAY FROM PS, AND BRAND/PACKAGING BUYER TRENDS IN 2019. AWAY FROM PS, AND BRAND/PACKAGING BUYER TRENDS IN 2019. 2018 marks the first time TLMI is surveying industry brand owners and packaging buyers 2018 marksin the three first years. time The TLMI renewed is surveying goal in surveyingindustry brandthese companies owners and is to packaging obtain information buyers in threeon years. The renewedtrends, goal application in surveying preferences these companies and segment is to opportunitiesobtain information that will on have trends, a direct application impact on preferencesTLMI’s and segmentlabel converter opportunities members thatas well will as have industry a direct suppliers. impact This on is theTLMI’s top oflabel the converter value chain, members asthe well companies as industry that suppliers.drive specific This decoration is the top trends,of the valuepackaging chain, formats the companies and sustainability that drive directives. TLMI recognizes that their ongoing feedback is a key component of the association’s specific decoration trends, packaging formats and sustainability directives. TLMI recognizes that their offerings to its membership. Survey participants either directly source, or are influential in the ongoing feedbacksourcing is and a key design component of, printed of labels the association’sacross formats offerings (PS, glue-applied, to its membership. in-mold and sleeves).Survey participants either directly source, or are influential in the sourcing and design of, printed labels across formats (PS,A gluetotal- ofapplied, 117 brands in-mold and packagingand sleeves). buyers participated in the 2018 Packaging Buyer/Brand Owner Survey. The chart below breaks down the total participant group by the end-use A total of 117categories brands they and serve. packaging buyers participated in the 2018 Packaging Buyer/Brand Owner Survey. The chart below breaks down the total participant group by the end-use categories they serve.

End-Use Segments Served by Participating Companies

Food 30%

Beverage 19%

HABA/Personal Care 14% 117 companies across end-use

Pharmaceuticals 13% categories participated in the TLMI Packaging Buyer/Brand Owner Chemicals (Household and Industrial) 11% Survey. Highest percentages of Consumer Durables/Electronics 10% participants serve the food, beverage and health care segments. Other 5%

Retail 4% Note: ‘Other’ primarily includes non-consumer durables and other industrial segments. Numbers do not add up to 100% due to some participants serving multiple end-use segments.

The TLMI Index & Trend Report December 2018 10 Survey participants were also asked to Job Functions of Survey Participants indicate their specific job function in the Survey participants were also asked to Job Functions of Survey Participants survey.Survey The participants surveys include were aalso number asked to of indicateindicate theirtheir specific specific job job function function in in the the Package Engineering 56% technical questions about decoration survey.survey. TheThe surveys surveys include include a numbera number of formats, lead times, and current decoration Package Engineering 56% technicalof technical questions questions about about decoration decoration Sourcing/Procurement 16% trends and drivers. formats,formats, leadlead times, times, andand current current decoration decoration Sourcing/Procurement 16% trends and drivers. Whtrendsile some and people drivers. at the sourcing/ Research & Development 14% procurementWhile some level people have at the sourcing/expertise While some people at the sourcing/ Research & Development 14% necessaryprocurement to answe levelr allhave of thethe expertise questions in Brand Management 7% procurement level have the expertise the survey,necessary often to answer packaging all of theengineers, questions R&D in necessarythe survey, to often answe packagingr all of theengineers, questions R&D in Brand Management 7% managers, brand managers and marketing Marketing Management themanagers, survey, brand often managers packaging and engineers, marketing R&D 5% managers are better equipped to give us the managers,managers are brand better managers equipped and to marketinggive us Marketing Management 5% informationmanagersthe information we are ar bettere seekingwe are equipped seeking as exhibited asto exhibited give in us the Other 2% this inchart this thatchart breaks that breaks down down the thetotal total information we are seeking as exhibited in participantparticipant group group by jobby job function. function. Other 2% this chart that breaks down the total participant group by job function.

Will 2019 be a Year of Continued Label Procurement Growth? Will 2019 be a Year of Continued Label Procurement Growth? ProjectionsWillProjections 2019 from be a YearBrands from of Brands andContinued Packaging and LabelPackaging Buyers Procurement Buyers Growth? ParticipantsProjectionsParticipants were asked fromwere toasked Brands indicate to indicate andthe rate thePackaging atrate which at which they Buyers they project project their their label label procurement procurement volumes volumes toto increase, or decrease, over the next year. Respondents were given a range of values to choose from (0% Participantsincrease, wereor decrease, asked toover indicate the next the year. rate Respondents at which they were project given atheir range label of values procurement to choose volumes from to growth,(0% 1-3% growth, growth, 1-3% 4- growth,6% growth, 4-6% etc. growth, in addition etc. in addition to ranges to ofranges declining of declining values )values) and averages and averages were increase, or decrease, over the next year. Respondents were given a range of values to choose from (0% then calculatedwere then from calculated all of thefrom responses all of the responsesof the participant of the participant group. As group. the chart As the below chart indicates, below indicates, label growth,label 1 procurement-3% growth, volumes4-6% growth, overall etc. are i projectedn addition to to increase ranges 4-5%of declining in 2019. values In calculating) and averages label were procurement volumes overall are projected to increase 4-5% in 2019. In calculating label procurement thenprocurement calculated from growth all averagesof the responses per end-use of thesegment, participant there is group. not a significantAs the chart discrepancy below indicates, between label growth averages per end-use segment, there is not a significant discrepancy between categories with procurementcategories withvolumes less than overall a 2% are different projected between to increase the projected 4-5% in highest 2019 . growthIn calculating sector (chemical label procurement labels) less than a 2% different between the projected highest growth sector (chemical labels) and lowest growthand averageslowest (consumer per end -durables).use segment, there is not a significant discrepancy between categories with (consumer durables). less than a 2% different between the projected highest growth sector (chemical labels) and lowest (consumer durables). Companies Project Label Chemical label procurement volumes are expected to

ProcurementCompanies GrowthProject Labelin 2019 growChemical at highest label rates, procurement followed volumesby beverage. are expected Spikes in to Procurement Growth in 2019 beveragegrow at label highest procurement rates, followed were primarilyby beverage. indicated Spikes in 8.0% by beveragecraft beer, label RTD procurementtea/coffee and were spirits primarily companies indicated. 6.0%8.0% by craft beer, RTD tea/coffee and spirits companies. 4.0% 5.2% 6.0% 4.5% 4.3% 4.1% 3.8% 3.8% 3.6% 2.0%4.0% 5.2% 4.5% 4.3% 4.1% 3.8% 3.8% 3.6% 0.0%2.0%

0.0%

The TLMI Index & Trend Report December 2018 11 Are Companies becoming more or less loyal to their Label Vendors? Are Companies becoming more or less loyal to their Label Vendors? Are Companies becoming more or less loyal to their Label Vendors? How Loyal will Companies be to their TLMI has been gauging brand owner/ Label VendorsHow in 2019?Loyal will Companies be to their TLMI has been gauging brand owner/ packaging buyer loyalty to their label vendors Label Vendors in 2019? packagingTLMI buyer has loyalty been gaugingto their label brand owner/ for more than avendors decade.packaging for As more in past than buyer surveys, a decade. loyalty Asto intheir past label vendors I foresee staying with our current label participants weresurveys, askedfor participants tomore indicate than wereifa theydecade. asked to As indicate in past surveys, vendor(s) for all categories. 37% I foresee staying with our current label anticipate stayingif they with anticipateparticipants their current staying were label withasked their to current indicate if they 37% label vendor(s), or if it was likely they would vendor(s) for all categories. vendor(s), or if it was anticipatelikely they stayingwould putwith their current label put some or all of their label business out to some or all of their label business out to bid I foresee putting our label business bid in 2019.vendor(s), or if it was likely they would put out to bid and possibly securing a new 47% in 2019. some or all of their label business out to bid label vendor for SOME categories.I foresee putting our label business As this graphin 2019 indicates,. nearly 60% of out to bid and possibly securing a new As this47% graph indicates, nearly 60% of label vendor for SOME categories. participating companies stated they would participating companiesbe putting stated their theybusiness would out to bid in 2019 I foresee putting our label business As this graph indicates, nearly 60% of out to bid and possibly securing a new 11% be putting theirand business securingparticipating out a new to bid label companies in vendor2019 for stated all, or they would I foresee putting our label business label vendor for ALL categories. and securing a some,new label categories.be putting vendor Thirty-seven their for all, business or percent out ofto bid in 2019 out to bid and possibly securing a new 11% companies predict they will stay with their label vendor for ALL categories. some, categories. Thirty-seven percent of currentand label securing vendor(s). a new label vendor for all, or I foresee putting our label business companies predict theysome, will categories.stay with their Thirty -seven percent of out to bid due to policy, however I current label vendor(s). predict we'll stay with currentI foresee putting5% our label business companies predict they will stay with their vendors. out to bid due to policy, however I current label vendor(s). predict we'll stay with current 5% vendors.

How does this year’s survey data compare How does this year’s survey Label Vendor Loyalty 2018 vs. 2015 and contrastdata withcompareHow past does surveys?and this contrast year’s survey data compare Label Vendor Loyalty 2018 vs. 2015 and contrast with past surveys? By comparingwith and past contrasting surveys? this year’s survey results I foresee staying with its 50% with resultsBy from comparing the 2015 and TLMIcontrasting Brand this Owner/ year’s current label vendor(s) for By comparing and contrasting this year’s survey results I foresee staying with its 2015 50% survey results with results from the 2015 all categories. 37% Packaging Buyer Survey,with we results can see from that the what 2015 we TLMI refer Bran d Owner/ current label vendor(s) for TLMI Brand Owner/ Packaging Buyer Survey, 2015 to as ‘label vendor loyalty’ is trending downwards. In all categories. 201837% we can see thatPackaging what we Buyer refer Survey,to as ‘label we can see thatI foresee what puttingwe refer our label 2015, half vendorof all companies loyalty’to asis trending‘label surveyed vendor downwards. indicated loyalty’ that is trending they downwards.business out toIn bid and 29% 2018 I foresee putting our label would stayIn with 2015, their half 2015, existingof all companieshalf label of all vendors companiessurveyed for the surveyed indicatedpossibly thatsecuring they a new label vendor for SOME business out to bid and 29% indicated that they would stay with their 47% coming year comparedwould to 37% stay in with this year’stheir existing survey. label vendors forcategories. the possibly securing a new existing label vendors for the coming year label vendor for SOME 47% coming year compared to 37% in this year’s survey. It’s importantcompared to note to here37% inthat this more year’s than survey. 70% of I foresee putting our label categories. business out to bid and 13% companies that participatedIt’s important in the 2018to note survey here also that more than 70% of I foresee putting our label It’s important to note here that more than possibly securing a new participated in the 2015companies survey. Thisthat thereforeparticipated gives in theus 2018 surveylabel vendor also for ALL business11% out to bid and 13% 70% of companies that participated in the possibly securing a new a unique glimpse inside the sourcing objectives of the categories. 2018 surveyp alsoarticipated participated in the in 2015the 2015 survey. This therefore gives us label vendor for ALL 11% same groupsurvey. of com Thispanies atherefore unique over givesglimpse a specific us a inside unique time the period. sourcing objectivesI foresee putting of the our label categories. business out to bid due to glimpse insidesame the sourcinggroup of objectives companies of overthe a specific time period. 8% policy, however I predictI foresee putting our label same group of companies over a specific business out to bid due to we'll stay with current 5% 8% time period. vendors. policy, however I predict we'll stay with current 5% vendors.

The TLMI Index & Trend Report December 2018 12 Migration away from PS to other Label Decoration Formats MigrationMigration away away from from PS toPS otherto other Label Label Decoration Decoration Formats Formats While pressureWhile Whilepressure sensitive pressure sensitive remains sensitive remains the dominant remainsthe dominant the labeling dominant labeling format format labeling in in the the format North North AmericaninAmerican the North market,market, American over over the market, the over the past halfpast-decade half-decadepast otherhalf- decadeother formats formats’ other’ annual formatsannual growth growth’ annual rates rates growth have have outpaced outpacedrates have PS. PS. outpaced The TLMI IndexPS. Index The & & TrendTLMI Trend ReportIndex Report & Trend Report has tracked the migration away from PS to other decoration formats since 2012 and once again the Brand has tracked thehas migration tracked the away migration from PS away to oth fromer decoration PS to other formats decoration since formats 2012 and since once 2012 again and the once again the Owner/Packaging Buyer Survey asked participants if their company would migrate a portion of their PS Brand Owner/Packaging Buyer Survey asked participants if their company would migrate a portion of businessBrand to another Owner/Packaging labeling format Buyer in the Survey coming asked year. participants if their company would migrate a portion of their PS businesstheir to PS another business labeling to another format labeling in the format coming in year. the coming year.

Will CompaniesWill Companiesbe migrating be away migrating from PSaway from PS to other Decoratingto other Technologies?Decorating Technologies?

We will NOT be migrating from PS to any other We will NOT be migrating from PS to any other 76% 76% decoration formatdecoration for our format products for our products

We will be migratingWe will from be migrating PS to shrink from sleeves PS to shrink for sleeves for 11% For11% the majorityFor the of majority companies, of companies, their current their PS current PS some of our productssome of our products applicationsapplications will remain will PS. remain Shrink sleevesPS. Shrink had sleeves had We will be migratingWe will from be migrating PS to wraparound from PS to (non- wraparound (non- 9% highest9% migrationhighest frommigration PS out from of non PS -outPS of non-PS shrink, non PS)shrink, labels non for somePS) labels of our for products some of our products formats. 3% of companies indicated they would formats. 3% of companies indicated they would We will be migratingWe will from be migrating PS to in-mold from PSlabels to in-mold for labels for 8% 8% some of our productssome of our products be moving beaway moving from away PS to fromdirect PS-print to direct for -print for one, or more,one, applications or more, applications and all of these and all of these We will be migratingWe will from be migrating PS to direct-print from PS to for direct-print for 3% 3% some of our productssome of our products companiescompanies serve the personal serve the care/cosmetics personal care/cosmetics industries. industries.

The ShrinkingThe ShrinkingState of Shrink State? of Shrink? The TLMI Brand Owner/Packaging Buyer Survey asked companies about label The TLMI BrandThe Owner/Packaging TLMI Brand Owner/Packaging Buyer Survey Buyer Survey % of Companies indicating Migration decoration migration in 2012, 2013, 2015 % of Companies indicating Migrationasked companiesaskedand about companies2018. label The question decoration about label was migration decorationposed the in migration in from PS to Shrink Sleeves from PS to Shrink Sleeves 2012, 2013, 20152012,same and 2013, way 2018. in2015 each The and year’s question 2018. survey. The was This question posed graph was posed 50% 50% the same waythe inindicates sameeach year’sway the inpercentage survey. each year’s This of companies graphsurvey. This in graph each of these years that indicated some indicates theindicates percentage the o percentagef companies o inf companies each of in each of of their applications would migrate from 40% these years that indicated some of their applications 40% thesePS to year shrinks that in the indicated following some year. of In theirtaking applications would migratewould froma closer migrate PS look to shrink at from survey inPS the resultsto shrinkfollowing for inthese the following 30% 30% year. In takingyear. ayears, closer In takingwe look see a ata closersteady survey lookdecrease results at survey infor shrink results for these years, wethesemigration see years, a steady weprojections. seedecrease a steady In in past shrink decrease Index & in shrink Trend Reports we discussed the possibility 20% 20% migration projections.migration Inprojections. past Index In & pastTrend Index Reports & Trend Reports of shrink sleeve stabilization. However, we discussed the possibility of shrink sleeve weas discuss the Indexed the& Trend possibility Report ofcontinues shrink sleeve to 10% 10% stabilization.stabilization Howevertrack non-PS, as. Hthe labelowever Index format, &as Trend growth,the Index Report it will & Trend be Report continues to continuestrackinteresting non- toPS tracklabelto examine nonformat-PS the labelgrowth, state format of itshrink will growth, it will be interesting toand examine if these theonce state high-migration of shrink and projections if 0% 0% be interesting to examine the state of shrink and if from PS to shrink will continue to decline. 2012 20132012 20152013 20182015 2018these once highthese-migration once high projections-migration from projections PS to from PS to shrink will continueshrink will to decline. continue to decline. Note: This graph depicts a decrease in the uptake of shrink when it comes to companies’ projecting the migration of labeling from one format (PS) to another (shrink). While we are witnessing a decline in Note: Thismigration, graphNote: it’sdepicts Thisimportant graph a decreaseto notedepicts that inshrink a the decrease is uptakestill a decoration in of the shrink uptake in awhen growth of it shrinkphase. comes when to companies’ it comes to projecting companies’ the projecting the migration of migrationlabeling from of labeling one format from (PS) one to format another (PS) (shrink). to another While (shrink). we are While witnessing we are a witnessingdecline in a decline in migration, it’smigration, important it’s to importantnote that shrinkto note is Thethat sti TLMIll shrinka decoration Index is & sti Trendll ain Reportdecoration a growth phase. in a growth phase. December 2018 13 Brands’ Perspective: Packaging Buyer Trends that willBrands’ impact Perspective: TLMI Converters in 2019 Packaging Buyer Trends that will impact TLMI Converters in 2019 A series of questions in the survey sought to gauge just how important some specific areas A series ofwere questions to participating in the survey companies. sought Respondentsto gauge just were how given important a range ofsome applications specific areas and were were to participatingasked companies. to indicate ifRespondents they were currently were givenusing thea range application, of applications not using and it however were asked seriously to indicate if they wereconsidering currently itusing for the the future, application, or not using/not not using considering it however it forseriously the future. considering The graph it below for the future, or not using/notindicates considering the applications/technologies it for the future. The companies graph below are notindicates currently the using, applications/technologies however are seriously considering for future use. companies are not currently using, however are seriously considering for future use.

Packaging Buyers' View: TechnologiesTechnolgoies not currently used however seriously considering for the future 50%

40% 41% 45% 39% 30%

20% 24% 10% 11% 0% Product Peel & Extended Content Linerless Labels Security Features Personalization Read/Hinge Labels Labels

Companies indicated highest interest in incorporating security features into their labels followed by product personalizCompaniesation indicated and highestlinerless. interest Product in incorporating personalization security interest features was into highest their labelsin the food, beverage,followed personal by care/cosmeticsproduct personalization and pharmaceutical and linerless. Productsectors personalizationwhile interest ininterest security was features highest on a label wasin persistent the food, beverage, across nearly personal all end care/cosmetics-use segments. and pharmaceutical sectors while interest in security features on a label was persistent across nearly all end-use segments. Ten percent of companies indicated that they are currently sourcing linerless labeling applications and the TLMI TenIndex percent & Trend of companies Report will indicated continue that to they gauge are currentlythe increased sourcing adoption linerless of labeling linerless applications as these companiesapplications seek and a morethe TLMI sustainable Index & Trend paradigm. Report will continue to gauge the increased adoption of linerless applications as these companies seek a more sustainable paradigm.

The TLMI Index & Trend Report December 2018 14 In Inaddition addition to toapplication application trends trends like like personalization, personalization, linerless linerless and and security security features features on on a label, a label, the the survey additionally asked packaging buyers and brand owners about broader market forces that will also surveyIn addition Inadditionally addition to application to asked application trendspackaging trends like buyerspersonalization, like personalization, and brand linerless owners linerless andabout andsecurity broader security features featuresmarket on forceson a a label,label, that the will also have an impact on label converters and/or the overall North American label industry. Companies were havesurvey an theadditionally impact survey on additionally label asked converters packaging asked packaging and/or buyers the andbuyers overall brand and Northownersbrand ownersAmerican about about broader label broader industry. market market forcesCompanies forces that will were also given a setthat of will criteria also havethat anincluded impact SKUon label proliferation, converters and/orsingle- theserve overall packaging North American and rigid label container -to- givenhave ana set impact of criteria on label that converters included SKUand/or proliferation, the overall sin Northgle-serve American packaging label industry.and rigid Companiescontainer-to were- pouch migrationindustry. andCompanies asked towere indicate given aif set these of criteria forces that were included increasing, SKU proliferation, decreasing orsingle-serve staying the same pouchgiven a migration set of criteria and askedthat included to indicate SKU if proliferation, these forces weresingle increasing,-serve packaging decreasing and rig orid staying container the -sameto- for their companiespackaging and in rigid2019. container-to-pouch If a specific criteria migration wasn’t applicableand asked to to indicate their businesses if these forces (for were example, forpouch their migration companies and in asked 2019. to If indicatea specific if criteriathese forces wasn’t were applicable increasing, to their decreasing businesses or staying (for example, the same companiesincreasing, that manufacture decreasing industrialor staying the goods same like for tools their orcompanies construction in 2019. materials If a specific that criteriapurchase labels companifor theirwasn’t escompanies that applicable manufacture in 2019.to their If industrial businessesa specific goods criteria(for example, like wasn’t tools companies applicableor construction that to manufacture their materials businesses industrial that (forpurchase example, labels however single-serve packaging is irrelevant) companies were given the option to choose ‘not applicable howevercompanigoodses single that like- servemanufacturetools orpackaging construction industrial is irrelevant) materials goods thatcompanies like purchasetools or were labelsconstruction given however the materials optionsingle-serve to that choose packaging purchase ‘not applicable labels to our products.’ tohowever our productsis irrelevant) single-.’serve companies packaging were is given irrelevant) the option companies to choose were ‘not given applicable the option to our toproducts.’ choose ‘not applicable TheTheto graphs our graphs productsThe below graphs below .’show below show participants’ show participants’ participants’ projections projections projections for for each eachfor ofeach ofthese theseof these criteria criteria criteria in in2019. in 2019. 2019. The graphs below show participants’ projections for each of these criteria in 2019. Label Buyers Projections: Label Buyers Projections: LabelLabel Buyers Buyers Projections: Projections: SKU Proliferation in 2019 Single-Serve Packaging in 2019 LabelSKU Proliferation Buyers Projections: in 2019 SingleLabel-Serve Buyers Packaging Projections: in 2019 SKU Proliferation in 2019 DecreasingDecreasing Single-Serve Packaging in 2019 Decreasing Not 8%8% Decreasing Not Staying the 5% ApplicableApplicable Decreasing Staying the 5% Staying the Same Decreasing Staying the 3%Not3% 8% Same Same Staying28% the 5% Same Applicable 28% Staying34% the Same 34% 3% Not Same 28% Not ApplicableApplicable 34% Increasing 24%24%Not Increasing Increasing 61% Applicable Increasing 61% 37% Increasing 24% 37% Increasing 61% 37%

Label Buyers Projections: WhileWhile brand brand owners owners and and packaging packaging buyers buyers Label Buyers Projections: project all of these market forces will increase in Rigid Container-to-Pouch Migration projectWhile brand all of ownersthese market and packaging forces will buyers increase in Rigid LabelContainer Buyers-to -Projections:Pouch Migration While2019, brandmore owners than 60% and of packaging companies buyers predict SKU 2019,project more all of than these 60% market of companies forces will predict increase SKU in Rigid Container-to-Pouch Migration projectproliferation all of these will continuemarket forces to rise will. Suchincrease a high in 2019,proliferation2019, more more than than will 60% continue60% of ofcompanies companies to rise .predict Such predict a high SKU number of companies indicating increased SKU SKUnumberproliferation proliferation of companies will will continue continue indicating to to riserise. .increased SuchSuch a a high SKU Staying the highproliferationproliferation number of suggests companies suggests companies companiesindicating are increased are still still Staying the number of companies indicating increased SKU SameSame SKUwitnessingwitnessing proliferation sales sales suggestsgrowth growth bycompanies by increasing increasing are thestill the Staying34% the proliferation suggests companies are still 34% witnessingnumbernumber of sales ofproduct product growth varieties varietiesby increasing they they offer the offer and and that that Same witnessing sales growth by increasing the numberSKU proliferation of product varietiesis a way tothey better offer serve and the 34% thatSKUnumber SKU proliferation proliferation of product is is varieties aa wayway to theybetter offer serveserve and the that NotNot neeneedsds of ofunique unique customer customer segments. segments. Applicable theSKU needs proliferation of unique customer is a way segments. to better serve the Applicable Increasing 34% Increasing We predict this trend will continue to drive 34%Not 32% Wenee predictds of uniquethis trend customer will continue segments. to drive Applicable 32% digitalWe presspredict adoption this trend as increased will continue SKU to drive Increasing 34% proliferationdigitaldigital press press adoptionwill adoption drive down as asincreased averageincreased job SKU SKUrun 32% We predict this trend will continue to drive lengthsproliferation across willfast movingdrive down consumer average goods job run proliferationdigital press adoptionwill drive asdown increased average SKU job run (FMCG)lengths segments. across fast moving consumer goods lengthsproliferation across will fast drive moving down consumer average goodsjob run (FMCG) segments. (FMCG)lengths acrosssegments. fast moving consumer goods (FMCG) segments.

The TLMI Index & Trend Report December 2018 15 SECTION THREE

The Label Buyer – Label Vendor Dynamic

WHAT EXACTLY BRANDS/PACKAGING BUYERS WANT FROM LABEL VENDORS, CURRENT LEAD TIMES, RUSH PRINT RUNS & INNOVATION

In addition to general market and printed packaging design trends, the TLMI Brand Owner/ Packaging Buyer Survey also asked companies a series of questions related to the label buyer- label vendor dynamic. What are the companies that purchase labels seeking from their label converter partners? How do brands and packaging buyers feel about current lead times, label vendor proximity and additional services label converters can offer? Asking these questions give us a better understanding of label-buyer preferences and objectives when it comes to their relationships with their label-converting suppliers.

The first question in this series asked companies to indicate how important they consider additional services their label vendors do/could offer. Participants were asked to rank a series of criteria including artwork design, online ordering and vendor-managed inventory services. Many TLMI converter members are already offering some or all of these options and asking label buyers to rank them tells us the importance packaging buyers attach to each of these potential options. The list below shows how participants ranked these services, from least to most important:

Artwork design was ranked as the most important service What additional services do label converters could offer their customers. Companies in the food and beverage sectors consistently ranked this packaging buyers want their service as significant with nearly every participant in the craft label vendors to provide? food and beverage sectors ranking the offering of artwork design as the most important additional service converters #1 Artwork design could offer their customers. This service was ranked less important by companies in the health and beauty/cosmetics #2 VMI (Vendor-managed and chemicals sectors. inventory) #3 Online ordering Interestingly, the ability to order labels online was consistently ranked as least-important by participating brands and packaging buyers.

This topic will continue to be explored in future editions of the TLMI Index & Trend Report as we try to hone in on what types of additional services label buyers are seeking and ways TLMI converters can differentiate themselves in the marketplace.

The TLMI Index & Trend Report December 2018 16 Regionalization of Label Sourcing: Regionalization of Label Sourcing: Do packaging buyers want their label vendors closer? Do packaging buyers want their label vendors closer? Regionalization of Label Sourcing: Do packaging buyers want their label vendors closer? The Brand Owner/Packaging Buyer Survey The Brand Owner/Packaging Buyer Survey How close to Point of Application askedThe companies Brand Owner/Packaging what their current Buyer labelSurvey How close to Point of Application asked companies what their current label do Packaging Buyers want supplyasked demands companies were what in terms their currentof proximity label of do Packaging Buyers want supply demands demands were were in interms terms of proximityof proximity of of their Label Vendors? label vendors. How close do these companies their Label Vendors? label vendors.vendors. How How close close do do these these companies companies want their label vendors to the point of want theirtheir label label vendors vendors to tothe the point point of of application?application? The labelThe label converting converting industry industry has has We demand our label vendors application? The label converting industry has historicallyhistorically been been a regional a regional one. one. Packaging Packaging are withinWe demand 250 miles our of label where vendors 5% historically been a regional one. Packaging are within 250 miles of where 5% buyersbuyers have have wanted wanted their their label label suppliers suppliers labels are applied buyers have wanted their label suppliers labels are applied withinwithin a set a distanceset distance of whereof where the the labels labels were were withinbeing applied a set distance to their products. of where the labels were being applied to their products. We demand our label vendors being applied to their products. are withinWe demand the same our generallabel vendors The 2018 survey once again asked are within the same general The 2018 survey once again asked participants region of where labels are 57% Theparticipants 2018 survey to indicate once theiragain preference asked participants of appliedregion (Midwest, of where Northeast, labels are 57% to indicate their preference of where their towhere indicate their theirlabel vendorspreference are located. of where Only their appliedMid-Adlantic, (Midwest, etc.) Northeast, label5% vendor of companiess are located. surveyed Only require 5% of their Mid-Adlantic, etc.) label vendors are located. Only 5% of companieslabel vendors surveyed be within require 250 their miles label of where companieslabels are being surveyed applied require while one their third label of It makes no difference to us vendors be within 250 miles of where labels vendorscompanies be claimed within it250 makes miles no ofdifference where labels whereIt ourmakes label no vendors difference are to us 38% are being applied while one third of where our label vendors are arewhere being a label applied vendor while is located. one third of located 38% companies claimed it makes no difference located companies claimed it makes no difference where a label vendor is located. where a label vendor is located.

In 2016 the TLMI Index & Trend Brand Owner/ In 2016 the TLMI Index & Trend Brand Are Regional Sourcing Preferences In Packaging2016 the BuyerTLMI Indexasked this& Trend same Brandquestion and Are Regional Sourcing Preferences Owner/Packaging Buyer asked this same question Decreasing? 2018 vs. 2016 Owner/Packagingthe chart on the right Buyer compares asked this and samecontrasts question Decreasing? 2018 vs. 2016 and theresponses chart on the the responses right compares from two and years contrasts ago and the chart on the right compares and contrasts responseswith the those responses received fromin the twopast yearsfew months. ago with We demand our label responsesThis graph the indicates responses that regionalfrom two label years sourcing ago with 27% those received in the past few months. This graph vendorsWe are demand within our 250 label thosetrends received are lessening. in the pastIn 2016, few more months. than oneThis in graph 27% indicates that regional label sourcing trends are miles ofvendors where are labels within are 250 indicatesfour respondents that regional demanded label sourctheir labeling trends vendors are miles of where labels are5% lessening. In 2016, more than one in four applied 5% lessening.were within In 2016, 250 miles more of thanpoint oneof application, in four a applied respondentsmarked demanded increase compared their label to the vendors percentage were respondents demanded their label vendors were We demand our label within 250of companies miles of pointdemanding of application, the same in a today’smarked vendorsWe are demand within our the label withinmarketplace. 250 miles of point of application, a marked 50% increase compared to the percentage of companies samevendors general areregion within of the increase compared to the percentage of companies 50% demanding the same in today’s marketplace. wheresame labels general are applied region of In 2016, 23% of companies claimed it made no where labels are applied 57% demanding the same in today’s marketplace. (Midwest, Northeast, 57% In 2016,difference 23% of companies where their claimed label vendors it made were no located Mid-Adlantic,(Midwest, etc.)Northeast, In compared2016, 23% to of 38% companies in the most claimed recent itsurvey. made no Mid-Adlantic, etc.) difference where their label vendors were located difference where their label vendors were located compared to 38% in the most recent survey. It makes no difference 23% compared to 38% in the most recent survey. It makes no difference 23% 2016 to us where our label 2016 vendorsto us are where located our label 38% vendors are located 2018 38% 2018

The TLMI Index & Trend Report December 2018 17 Regionalization of Label Sourcing: Do Label Buyers want Multiple-Site Label Vendors? Regionalization of Label Sourcing: Out of allDo the Label printed Buyers packaging want sectors, Multiple-Site the label-printing Label industry Vendors? is the most fragmented with an estimatedOut 2,200 of all thelabel printed converters packaging located sectors, throughout the label-printing the North industry American is the most marketplace. fragmented Due to its high level of fragmentation,with an estimated our 2,200 industry label converters is one in located a steady throughout state of the consolidation. North American Both marketplace. strategic and private equity investorsDue to its are high constantly level of fragmentation, seeking out our acquisition industry is opportunitiesone in a steady state in the of consolidation.label converting space. Both strategic and private equity investors are constantly seeking out acquisition opportunities As consolidationin the label increases, converting brands space. and packaging buyers have an option to purchase labels from a companyAs that consolidation might have increases, label-manufacturing brands and packaging sites buyersin Boston, have anRaleigh, option Dallasto purchase and Siliconlabels Valley. Alternately,from this a company same companythat might mighthave label-manufacturing prefer the personal sites customerin Boston, Raleigh, touch ofDallas a small, and family-owned companySilicon in just Valley. one Alternately,location. In this an same attempt company to define might prefer what the brands personal and customer packaging touch buyers of a want, we asked small, family-owned company in just one location. In an attempt to define what brands and companies how important it is that their label vendors have multiple locations. packaging buyers want, we asked companies how important it is that their label vendors have multiple locations. Our research suggests that for the How important is it that label vendors Our researchmajority suggests of participants, that for the the preference is majority of participants, the preference have more than one location? for their label vendor, or vendors, to have is for theirmultiple label vendor, sites. orFor vendors, 24% of companies it’s to have multiple sites. For 24% of companiescritical it’s critical and they and onlythey sourceonly labels from source labelslabel fromconverters label converters with more than one Critical 24% with moreproduction than one production facility. facility.

This is goingThis tois begoing an important to be an metric important metric for for the Index & Trend Report to keep the Index & Trend Report to keep tracking. tracking. As the industry continues to consolidateAs the will industry this multiple-site continues to consolidate Important, however not required 60% preferencewil lincrease this multiple among- packagingsite preference increase buyers?among Or will the packaging pendulum buyers? swing Or will the in the other direction and companies prefer smallpendulum to mid-sized swing label in the other direction and converterscompanies with a more prefer personalized small to mid-sized label customerconverters service approach? with a moreIt will be personalized Unimportant 16% interestingcustomer to track service this trend approach? and how It will be preferences among packaging buyers shift in interestingthe years to come.to track this trend and how preferences among packaging buyers shift in the years to come.

The TLMI Index & Trend Report December 2018 18 Lead Times and Rushed Print Jobs Lead Times and Rushed Print Jobs Lead Times and Rushed Print Jobs A new question in the 2018 survey asked Packaging Buyers & Lead Times for Labels: brandsA new andquestion packaging in the buyers 2018 surveywhat their asked PackagingLead BuyersTimes for & LeadExisting Times Labels for Labels: currentAbrands new question lead and timespackaging in theare for2018 buyers both survey what existing their asked brands and packaging buyers what labelcurrent jobs lead and timesfor new are label for both jobs. existing Lead Times for Existing Labels their current lead times are for both Companies were given a range of options existinglabel jobs label and jobs for andnew for label new jobs. label jobs. toCompaniesCompanies choose from were were ranging given given a rangefroma range deliveryof optionsof options timestoto choose choose of 1 -from3 from business ranging ranging days from from to delivery more delivery thantimes fouroftimes 1-3 weeks. business of 1- 3As business thisdays graphto moredays indicates, thanto more four the than 29% 26% weeks. As this graph indicates, the current 24% currentfour weeks. label deliveryAs this graph time indicates,‘sweet spot’ the for 29% label delivery time ‘sweet spot’ for existing 26% existingcurrent jobs label is delivery 1-3 weeks time with ‘sweet more spot’ than for 24% jobs is 1-3 weeks with more than half of halfexisting of all jobscompanies is 1-3 weeks reporting with delivery more than 0% 10% 11% all companies reporting delivery times for timesexistinghalf of for all label existing companies jobs labelwithin reporting jobs this within time delivery frame. this 10% 11% 1-3 0%Bus. 4-7 Bus. 1-2 Weeks 2-3 Weeks 3-4 Weeks >4 Weeks timetimes frame. for existing label jobs within this Days Days time frame. 1-3 Bus. 4-7 Bus. 1-2 Weeks 2-3 Weeks 3-4 Weeks >4 Weeks Days Days

DeliveryDelivery times times for newfor new label label jobs jobs paints paints Packaging Buyers & Lead Times for Labels: quite a different picture. More than 70% of quiteDelivery a different times for picture. new label More jobs than paints 70% PackagingLead Buyers Times & for Lead New Times Labels for Labels: ofquite companiescompanies a different indicated indicated picture. their More currentcurrent than delivery 70% time for new label jobs is three weeks or Lead Times for New Labels deliveryof companies time for indicated new label their jobs current is three more. weeksdelivery or more.time for new label jobs is three weeksMore or than more. 30% of companies responded More than 30% of companies responded delivery times for new label jobs is five deliveryMoreweeks than times or 30% more. for of new Just companies label18% of jobs companies responded is five weeks or more. Just 18% of companies 24% deliveryindicated times delivery for new times label for jobs new is label five jobs 21% indicatedweeksis less or deliverythan more. two Just times weeks. 18% for of new companies label jobs 24% 16% 21% is less than two weeks. 11% 13% 13% indicated delivery times for new label jobs 2% 16% is less than two weeks. 2% 11% 13% 13% < 1 Week 1-2 2-3 3-4 4-5 5-6 >6 Weeks Weeks Weeks Weeks Weeks Weeks < 1 Week 1-2 2-3 3-4 4-5 5-6 >6 Weeks Weeks Weeks Weeks Weeks Weeks

Average Delivery Times for Existing and New Label Jobs Average Delivery Times for Existing and New Label Jobs AverageAccording Delivery toTimes brands for and Existing packaging and buyers:New Label Jobs According to brands and packaging buyers: The averageAccording lead totime brands for existing and packaging label jobs buyers: is 16 days. The average lead time for existing label jobs is 16 days. The average lead time for existing label jobs is 16 days. TheThe average average lead lead time for for new new label label jobs jobs is 28 is days.28 days. The average lead time for new label jobs is 28 days.

The TLMI Index & Trend Report December 2018 19 Do Companies feel Current Lead Times After soliciting lead time information from survey for Labels are Adequate? participants, companies were then asked to indicate if their current lead times for existing and new label orders were sufficient. Participants were asked to After soliciting lead time information from survey Do Companies feel CurrentNo Lead Times Afterselect soliciting the most lead applicable time information response fromfrom thesurvey options participants, companiesparticipants, were then companies asked to indicate were then if their asked current to indicatelead if for Labels are Adequate?5% below: Mostly timestheir for existing current andlead new times label for orders existing were and sufficient. new label  Yes, current lead times are adequate 55% Participantsorders werewere askedsufficient. to select Participants the most applicable were asked response to from the optionsMostly, below:however sometimes we need No select the most applicable response from the options products expedited and our label Yes 5% • below:Yes, current lead times are adequate Mostly 40% vendor/vendors isn’t/aren’t able to meet our Mostly, howeverYes, current sometimes lead times we needare adequateproducts 55% • requirements expedited Mostly, and our however label vendor/vendors sometimes isn’t/aren’twe need able  to meetNo, leadour requirements times are one of our primary pain Yes products expedited and our label No, pintslead times when areit comes one of toour order primary fulfillment pain pints for when it 40% • vendor/vendors isn’t/aren’t able to meet our comesthe to labels order we fulfillment buy for the labels we buy requirements  No, lead times are one of our primary pain pints when it comes to order fulfillment for In addition to leadIn times,addition companies to lead times, were companiesasked Howthe frequently labels we buy do Packaging Buyers how often they requestwere asked rush how print often runs they from request rush request 1-3 Day Rush Print Runs? their label vendors.print This runs graph from showstheir label that vendors. the This graph shows that the vast majority of vast majority of participants request rush print In addition toparticipants lead times, request companies rush print were runs. asked How frequently do PackagingFrequently Buyers runs. Nearly 9% ofNearly companies 9% of companies stated they stated do theythis do 9% how often they request rush print runs from request 1-3 Day Rush Print Runs? frequently while this86% frequently indicated while they 86% do this indicated they Never their label vendors. This graph shows that the occasionally. Justdo 5% this indicated occasionally. they Just never 5% indicated they 5% vast majoritynever of participants request rush request print runs rush from print their request rush print runs from their label vendors. Frequently label vendors. Sometimes runs. Nearly 9% of companies stated they do this 9% 86% It’s importantfrequently to while note 86%that indicatedfor companies they do this Never It’s important to note that for companies indicatingoccasionally. they sometimes Just 5% i ndicatedrequest rush they print never 5% indicating they sometimes request rush runs,request they most rush commonly print runs do from so in their association label vendors. print runs, they most commonly do so in Sometimes with new productassociation launches. with new product launches. It’s important to note that for companies 86% indicating theyRush sometimes print runs will request be an rushinteresting print runs, they mostmetric commonly to track with do packagingso in association buyers moving forward. In 2017 more than 20,000 new Rushwith print new runs product willproduct be anlaunches. introductions interesting metricoccurred to in track the food with and packaging beverage buyers industries moving alone. forward. As consumer In 2017 more than 20,000packaged new product goods introductionscompanies chase occurred trends like in thegluten-free, food and additive-free, beverage industries GMO-free, alone. organic, As consumer packagedmicrowavable goods companies and ethical/environmentally chase trends like glutenfriendly,-free, new productadditive launch-free, ratesGMO are-free, expected organic, microwavable andto ethical/environmentallycontinue to rise. Consumer friendly, marketers new claim product that the launch number rates of smaller, are expected more targeted to continue Rush print runsproduct will launchesbe an interesting has spiked metric in recent to yearstrack as with brands packaging and packaging buyers buyers moving seek forward. to enhance In 2017 to rise. Consumer marketers claim that the number of smaller, more targeted product launches has more than 20,000impact newwith productlaunches introductionsthat align more occurredclosely with in consumerthe food requirements.and beverage industries alone. As spiked in recent years as brands and packaging buyers seek to enhance impact with launches that align consumer packaged goods companies chase trends like gluten-free, additive-free, GMO-free, organic, more closely with consumer requirements. microwavable and ethical/environmentally friendly, new product launch rates are expected to continue to rise. Consumer marketers claim that the number of smaller, more targeted product launches has spiked in recent years as brands and packaging buyers seek to enhance impact with launches that align more closely with consumer requirements.

The TLMI Index & Trend Report December 2018 20 The final question in the TLMI Brand Owner/Packaging Buyer Survey asked companies if they expect The final question in the TLMI Brand Owner/Packaging Buyer Survey asked companies if they their label vendors to bring them new, innovative label designs and ideas for their products. As we saw expect their label vendors to bring them new, innovative label designs and ideas for their earlier,products. artwork As we design saw earlier, was ranked artwork as design the most was importantranked as the service most importantlabel converters service labelcould offer their customers.converters could offer their customers.

OnceOnce again, again, the the graph graph below below shows shows that brandbrand owners/packaging owners/packaging buyers buyers consider consider label label design to be an important,design to and be anvaluable, important, additional and valuable, service additional offering service from their offering label from vendors. their label Nearly vendors. one third of participantsNearly one indicated third of participants that they only indicated work thatwith they companies only work that with are companies able to deliverthat are a able consistent to stream of newdeliver ideas afor consistent label designs stream and of new other ideas innov for ations.label designs More and than other half innovations. of all participants More than indicated that they half of all participants indicated that they expect their label vendors to bring them new label expectdesign their ideas label occasionally, vendors to that bring it helps them their new standing label design with these ideas companies occasionally, however that it’s it nothelps a their standing withrequirement. these companies however it’s not a requirement.

Do Packaging Buyers expect Label Vendor(s) to bring innovative Label Designs to the Partnership?

Yes, we only work with companies that are able to deliver a consistent stream of new ideas for label 31% designs and other innovations

Sometims, we like it when our label vendor(s) brings us new label designs and innovative ideas, 56% however it's not a requirement

No, our label designs are internally driven and our 13% label vendor(s) don't influence that process

In taking a closer look at the respondent data, the companies that declared they only work with In taking a closer look at the respondent data, the companies that declared they only work with companies that are able to deliver a consistent stream of new ideas primarily serve four sectors. companies that are able to deliver a consistent stream of new ideas primarily serve four sectors. Those Thoseinclude: include: • Beverage  • Personal Beverage care/cosmetics  Personal care/cosmetics Consumer durables •  Consumer durables Pharmaceuticals •  Pharmaceuticals

The TLMI Index & Trend Report December 2018 21 SECTION FOUR

TLMI Converter QuarterlySECTION TrendsFOUR Report Synopsis SURVEYING TLMI CONVERTERS IN Q3 2018 TLMI Converter Quarterly Trends Report Synopsis Each quarter TLMI polls its converter member companies for the compilation of the association’s ConverterSURVEYING Quarterly TLMITrends CONVEReport thatRTERS is distributed IN Q3 to 2018 participating converter Each quartermembers. TLMI polls The report its converter features membersales and companiesprofits trending for thedata co inmpilation addition ofto thebacklog, association’s lead Convertertime Quarterly and number Trends of Report employee that metrics.is distributed It also tracks to participating labor costs, pressconver laborter ratesmembers and . The report features salesmaterial and costs. profits This trending section dataof the in Biannualaddition Index to backlog, & Trend leadReport time summarizes and number the dataof employee from metrics. Itthe also most tracks recent labor Quarterly costs, pressTrends labor Report, rates offering and material association costs. converters This section a snapshot of the of Biannual their Index & Trend Reportpeers’ performance,summarizes thein addition data from to offeringthe most TLMI recent supplier Quarterly members Trends insight Report, into some offering of the association important market forces and trending realities of their tag and label converting customers and converters a snapshot of their peers’ performance, in addition to offering TLMI supplier members prospects. insight into some of the important market forces and trending realities of their tag and label converting customers and prospects. The chart below shows sales and profit data for the third quarter of 2018 compared to sales

and profit data for the second quarter of 2018 in addition to year-over-year outcomes that The chart comparebelow shows the third sales quarter and profit of 2018 data with for the the third third quarter quarter of 2017. of 2018 compared to sales and profit data for the second quarter of 2018 in addition to year-over-year outcomes that compare the third quarter of 2018 with the third quarter of 2017.

Sales Profits

76% 45% 74% 41% 58% 55% Increase

Steady 19% 19% Decrease 6% 4% 6% 4% Converters % TLMI of 19% 22% 37% 40% 37% 41%

Q3 ʹ18 Trailing Q3 ʹ18 Q3 ʹ18 Trailing Q3 ʹ18 vs Twelve vs vs Twelve vs Q2 ʹ18 Months Q3 ʹ17 Q2 ʹ18 Months Q3 ʹ17

Max just a reminder, ‘SALES’ and ‘PROFITS’ headings need to be placed at the top of the graph along with the headings underneath the bars, which will read:

Q3 ’18 Trailing Q3 ’18 Q3 ’18 Trailing Q3 ‘18 vs Twelve vs vs Twelve vs Q2 ’18 Months Q3 ’17 The TLMI IndexQ2 ’18 & Trend ReportMonths Q3 ‘17 December 2018 22 The U.S. economy barreled ahead in the third quarter and a significant percentage of TLMI converter members report a robust quarter as well. The U.S. government stated last month that the economy expanded at an annualized rate of 3.5% between July and September, following a 4.2% increase in the The U.S. economy barreled ahead in the third quarter and a significant percentage of TLMI previous quarter. However, as the Institute for Trend Research comments earlier, there are signs that converter members report a robust quarter as well. The U.S. government stated last month growth couldthat thecool economy in the coming expanded months. at an annualized rate of 3.5% between July and September, following a 4.2% increase in the previous quarter. However, as the Institute for Trend Research Sales for the third quarter of 2018 versus the second quarter increased for 44% of all TLMI converter comments earlier, there are signs that growth could cool in the coming months. respondents, with 37% reporting a drop in sales from the previous quarter. A closer examination of the TLMI converterSales for quarter the thirdly data quarter shows of 2018 medium versus-sized the second companies quarter (converters increased for with 44% annual of all TLMI sales of $15-$35 million) wereconverter the top respondents, performers with with 37% 81% reporting of medium a drop-sized in sales companies from the reportingprevious quarter. their quarter A closer- over- quarter saleexaminations revenues of increased the TLMI ,converter compared quarterly to 41% dataof small shows companies medium-sized (converters companies with (converters annual sales of with annual sales of $15-$35 million) were the top performers with 81% of medium-sized less than $6 million), 33% of mid-range companies (converters with annual sales of $6-$15 million) and companies reporting their quarter-over-quarter sales revenues increased, compared to 41% 30% of largeof small companies companies (converters (converters with with annual annual sales sales ofof moreless than than $6 $35million), million. 33% of mid-range companies (converters with annual sales of $6-$15 million) and 30% of large companies Quarter-over(converters-quarter with sales annual revenue sales declinesof more than were $35 most million. prevalent among mid-range converters with nearly half of all mid-sized company participants reporting a decline in third quarter sales compared to second quarterQuarter-over-quarter sales. sales revenue declines were most prevalent among mid-range converters with nearly half of all mid-sized company participants reporting a decline in third quarter sales Backlogcompared and Employee to second quarter Data sales.

In addition to sales and profits, the trends data collected on a quarterly basis from TLMI converter member companiesBacklog alsoand benchmarks Employee current Data backlog data and year-over-year backlog data. The charts that followIn indicateaddition currentto sales backlogand profits, as wellthe trendsas year data-over collected-year results. on a quarterly basis from TLMI converter member companies also benchmarks current backlog data and year-over-year backlog data. The charts that follow indicate current backlog as well as year-over-year results. The majority of TLMI converter participants Current Backlog Theare majorityrunning ofat TLMIa one converter or two week backlog. participantsFor the third are quarter, running 16% at a ofone participating or two week backlog. For the third converters reported a current backlog of quarter, 16% of participating converters reportedthree weeks a current or more. backlog of three 61% of weeks or more. Converters A number of mid-range to medium-sized Aconverte number rsof reportmid-range that to their medium- backlogs are sizedrising converters due to an report increase that intheir sales coupled backlogswith the are challenge rising due of to finding an increase qualified labor inthat sales would coupled enable with themthe challenge to increase of finding qualified labor that would 24% of capacity (by adding another shift, for enable them to increase capacity (by Converters 5% of addingexample) another in order shift, to for bring example) down label 11% of Converters indelivery order to times bring. downNearl ylabel half delivery (48%) of Converters times.participating Nearly half mid (48%)-range of companiesparticipating indicated 1 week/less 2 weeks 3 weeks >3 weeks mid-rangebacklogs arecompanies up while indicated 45% of medium-sized backlogs are up while 45% of medium- converters reported the same. sized converters reported the same.

The TLMI Index & Trend Report December 2018 23 Eighteen percent of small-sized converters reported a Backlog: Q3 '18 vs Q3 '17 rise in backlogs for the third quarter of 2018 versus theEighteen third quar Eighteenpercentter of 2017. ofpercent small - ofsized small-sized converters converters reported a Backlog: Q3 '18 vs Q3 '17 rise in backlogsreported for a the rise third in backlogs quarter for of the 2018 third versus quarter 44% of Accordingthe third to ofquar the 2018ter National versusof 2017. Associationthe third quarter of of 2017. converters 35% of 44% of Manufacturers’ 2018 Third Quarter Outlook Survey, Converters AccordingAccording to the National to the NationalAssociation Association of of converters more than 73% of U.S. manufacturers cite the inability 35% of to Manufacturers’attract a qualityManufacturers’ 2018workforce Third 2018 asQuarter Thirdtheir topQuarterOutlook challenge Outlook Survey, Converters Survey, more than 73% of U.S. manufacturers andmore nearly than half 73% of allof companiesU.S. manufacturers report thi cites as the the inability cite the inability to attract a quality workforce singleto attract biggest a threatquality facing workforce their asbusinesses. their top challengeThis and nearlyas half their of top all challengecompanies and report nearly thi halfs as of the all report will continuecompanies to reportclosely this examine as the converters’single biggest 22% of single biggest threat facing their businesses. This capacity levels,threat CAPEX facing projections their businesses. and backlog This report data Converters report will continue to closely examine converters’ and the impactwill continuethat the limited to closely ability examine to hire converters’ qualified 22% of Converters productioncapacity levels,laborcapacity continues CAPEX levels, projections CAPEX to hav projectionse on and our backlog industry. and databacklog and the impactdata and that the the impact limited that ability the limited to hire ability qualified to productionhire labor qualified continues production to have laboron our continues industry. to Decrease Steady Increase have on our industry. Decrease Steady Increase

Survey data collected from TLMI member Surveyconverters data additiocollectednally from tracks TLMI number member of Number of Employees: Q3 '18 vs. Q2 '18 Survey data collected from TLMI member convertersemployee additionallyvolumes quarter tracks over number quarter of to converters additionally tracks number of Number of Employees: Q3 '18 vs. Q2 '18 employeeprovide members volumes withquarter an effectiveover quarter tobenchmarking provideemployee members volumes tool thatwith quarter allows an effective over them quarter to to 52% of benchmarkingprovide members tool that with allows an effective them to Converters compare and gauge their own company’s 44% of compareperformancebenchmarking and gauge against tool their those that own allows of company’s their them peers. to 52% of Converters Converters performancecompare and against gauge those their of owntheir company’s peers. 44% of As pewithrformance the other against analyses those in the of their peers. Converters AsConverter with the Quarterly other analyses Trends in Report,the Converter this QuarterlydataAs is with broken Trends the otherdown Report, analysesinto this four data in company the is 4% of broken down into four company scale scaleConverter categories Quarterly (small, Trendsmid-range, Report, this Converters categories (small, mid-range, medium and mediumdata is and broken large). down However, into four this company report 4% of large).scale However, categories this (small, report midwill -showrange, data Converters forwill all show participating data for all partimemberscipating as a grouped medium and large). However, this report Down About the Same Up valuemembers only. as a grouped value only. will show data for all participating Hiring continues to rise. Forty-four percent of companies indicated their number of employees has Down Hiring continuesAbout the to rise.Same Forty-four percentUp of companiesmembers indicated as atheir grouped number value of employeesonly. increased comparedhas increased to employee compared volumes to employee the previous volumes quarter the previous. An interesting quarter. An possibility interesting for possibilitythis report Hiring continues to rise. Forty-four percent of companies indicated their number of employees has moving forwardfor this would report be moving to take forwarda closer wouldlook at be hiring to take volumes a closer and look to at ask hiring converters volumes to and break to ask down theirincreased total newconverters compared hires into to to breaksales, employee downproduction volumestheir total and the newnon previous- hiresproduction into quarter sales, management. Anproduction interesting categories and possibility non-production. In the for spring this report of 2019moving, research forwardmanagement for thewould Converter categories. be to take Edition Ina closerthe of spring this look report of at 2019, hiring will research volumescommence for and the and to Converter askhiring converters practices Edition to will ofbreak thisbe looked down at moretheir total closelyreport new in hiresanwill effort commence into tosales, be ableand production hiringto provide practices and TLMI non -converterproductionwill be looked members management at more with closely relevantcategories in an dataeffort. In they the to spring becan able of benchmark2019, research totheir provide own for the internalTLMI Converter converter outcomes Edition members against of this with moving report relevant fo willrward. data commence they can and benchmark hiring practices their own will internal be looked at more closelyoutcomes in an against effort moving to be able forward. to provide TLMI converter members with relevant data they can benchmark their own internal outcomes against moving forward.

The TLMI Index & Trend Report December 2018 24 Material Costs and Labor Rates

Material Costs Q3 '18 vs. Q2 '18 MaterialMaterial Costs Costs and andLabor Labor Rates Rates For material costs, 62% of respondents reported an increase in material costs for the

third quarter of 2018 versus the second Material Costs Q3 '18 vs. Q262% '18 of quarter.ForFor material material This marks costs, costs, the 62% 62% second of of respondents respondents consecutive Converters reported an increase in material costs quarterreported that an more increase than 50%in material of the costs for the for the third quarter of 2018 versus the respondentthird quarters reported of 2018 an versus increase the insecond material second quarter. This marks the second 62% of costs.quarter. This marks the second consecutive consecutive quarter that more than 50% Converters quarter that more than 50% of the 33% of Accordingof the torespondents TLMI’s data reported-collection an firm,increase in Converters respondents reported an increase in material Industrymaterial Insights, costs. last quarter was the first costs. time since 2011 (twenty-six consecutive 6% of 33% of According to TLMI’s data-collection firm, Converters quarters)According that to over TLMI’s 50% data of -thecollection respondents firm, Converters Industry Insights, last quarter was the first reported an increase in material costs. Industrytime since Insights, 2011 last (twenty-six quarter was consecutive the first timequarters) since 2011 that over(twenty 50%-six of consecutivethe respondents 6% of MaterialConverters costs Material costs Material costs quarters)reported that an increaseover 50% in of material the respondents costs. decreased stayed the same increased reported an increase in material costs.

Material costs Material costs Material costs decreased stayed the same increased Industry Insights reportsreports that labor costs and Labor Costs Q3 '18 vs. Q2 '18 material costs are continuing toto showshow signssigns of

pressureof pressure among among TLMI TLMI converter converter members. members. In terms of overall labor costs, over half (51%) of In termsIndustry of Insightsoverall labor reports costs, that over labor half costs and the respondents reported an increase in labor Labor Costs52% Q3 of '18 vs. Q2 '18 (51%)material of the costs respondents are continuing reported to show an signs costs in the second quarter and another 40% Converters increaseof pressure in labor among costs TLMI in the converter second qu members.arter of converters reported increases in labor costs andIn another terms of 40% overall of converters labor costs, reported over half 40% of for the third quarter. Converters increases(51%) of in the labor respondents costs for the reported third quarter. an 52% of Converters increase in labor costs in the second quarter Like with backlog and number-of-employeesnumber-of-employees and another 40% of converters reported 40% of data, the TLMI Converter Quarterly TrendsTrends Reportincreases collects in labor material costs cost for and the laborthird quarter.rate Converters Report collects material cost and labor rate data each quarter from participating TLMI data each quarter from participating TLMI 8% of converters.Like with Forbacklog the Converter and number Edition-of-employees of the Converters converters. For the Converter Edition of the reportdata, published the TLMI inConverter the second Quarterly quarter Trend of s 2019,reportReport we published willcollects be creatingin material the second quarter-over-quartercost quarterand labor of rate indices2019,data we toeach willillustrate quarter be creating the from movement quarter participat-over ofing these- TLMI 8% of DecreasedConverters Stayed same Increased importantquarterconverters. indices metrics. For to theillustrate Converter the movement Edition of theof thesereport important published metrics. in the second quarter of 2019, we will be creating quarter-over-

quarter indices to illustrate the movement of Decreased Stayed same Increased these important metrics.

The TLMI Index & Trend Report December 2018 25 IndexMax, & can Trend we have Report some NEWkind DATAof ‘NEW’ for button 2018 here? This section has never been SECTION FIVE featured before in this report SECTION FIVE TheThe North North American American MarketMarket for for Roll Roll Labelstocks Labelstocks

DATA EXTRACTED FROM THE TLMI Q3 ROLLSTOCK REPORT DATA EXTRACTED FROM THE TLMI Q3 ROLLSTOCK REPORT

For the firstFor time,the first the time,TLMI Indexthe TLMI & TrendIndex Report & Trend is Reportfeaturing is featuring data extracted data extracted from thefrom TLMI the QuarterlyTLMI RollstockQuarterly Survey. Each Rollstock quarter Survey., TLMI’ Eachs data quarter,-collection TLMI’s firm,data-collection Industry Insights, firm, Industry receives Insights, volum e sales data from Northreceives America volume’s largest sales rolldata labelstock from North suppliers. America’s A largestggregated roll labelstockinput from suppliers. the Rollstock Aggregated Report is featured inputherein, from and the mo Rollstockving forward Report this is featured analysis herein,will be andpublished moving twice forward a year this soanalysis that TLMI will be can offer all associationpublished members twice a yearunique so thatglimpse TLMI of can the offer current all association market for rollmembers labelstocks, a unique liners glimpse and ofadhesives the in North Americacurrent market. for roll labelstocks, liners and adhesives in North America. The graph below shows growth and contraction rates for the third quarter of 2018 compared to the The graph below shows growth and contraction rates for the third quarter of 2018 compared third quarterto the of third 2017 quarter for the of major 2017 labelstockfor the major categories. labelstock categories.

Volume Growth* for Major Labelstock Categories: North America - Q3 2018 vs. Q3 2017 10.0%

8.0% 7.30%

6.0%

4.0% 2.0% -1.70% 0.70% 0.0%

-2.0% Non VIP Papers VIP Papers Films

*Growth *Growthand contraction and contraction rates ta kenrates from taken shipments from shipments in MMSI in (millionMMSI (million square square inches) inches) data. data.Each segment Eachincludes segment the following includes the substrates following: substrates:

Non VIP Papers: Variable Information Papers: Films Non VIP Papers: Variable Information Papers: Films  Standard white and tag  Standard uncoated EDP  VIP film • Standard white and tag • Standard uncoated EDP • VIP film  Colored papers  Direct thermal  Over laminating • Colored Specialty papers papers • Direct Thermal thermal transfer • OverWhite laminating film

• Specialty Digital papers color process • Thermal Laser/copier/inkjet transfer • WhiteClear film paper  Digital color process • Digital color process paper • Laser/copier/inkjet • Clear film • Digital color process film

The TLMI Index & Trend Report December 2018 26 In addition to submitting volume sales for Liner Consumption (mmsi) by Type: roll labelstocks per type, participating North America Q3 2018 Incompanies addition toInalso additionsubmitting submit to breakdowsubmitting volume salesn datavolume for sales for roll Liner Consumption (mmsi) by Type: for liner andlabelstocks adhesive per consumption. type, participating companies roll labelstocks per type, participating Composite also submit breakdown data for liner and North America Q3 2018 companies also submit breakdown data 1% Comparing adhesiveyear-to- consumption.date MMSI data for for liner and adhesive consumption. 2017 and 2018 we see a slight uptick in CompositeFilm Comparing year-to-date MMSI data for 2017 1% 15% Paper Comparingfilm liner consumption yearand 2018-to-date we seewith MMSI a slight YTD data uptick2018 for in film liner 84% 2017volumes and up 2018consumption .5% we and see paper a slightwith liner YTD uptick 2018 volumesin up .5% Film consumptionand down paper .6%. liner Thereconsumption was an down .6%. There 15% Paper film liner consumption with YTD 2018 84% increase of was.1% an in increasecomposite of .1% liner in composite liner volumes upconsumption .5% and paper (paper/film liner combination). consumptionconsumption down(paper/film .6%. There combination). was an increase of .1% in composite liner consumption (paper/film combination).

Adhesive Consumption (mmsi) by Type: Comparing year-to-date MMSI data for adhesives,Comparing we see no year change-to- datebetween MM theSI YTDdata for North America Q3 2018 2018 and YTD 2017 data. Aqueous, hot melt and adhesives, we see no change between Adhesive Consumption (mmsi) by Type: solvent adhesive consumption is essentially the same betweenComparingthe YTD the 2018 twoyear and data-to YTD- setsdate 2017with MM aqueous data.SI data for North America Q3 2018Solvent adhesivesadhesives,Aqueous, representing hot we meltsee more no and than change solvent 80% betweenof 2% labelstock sales volumes. theadhesive YTD 2018 consumption and YTD 2017 is essentially data. Aqueous Solvent the same between the two data sets Hot Melt Aqueous, hot melt and solvent 82% 2% 16% adhesivewith aqueous consumption adhesives is representingessentially Aqueous themore same than between 80% of labelstockthe two data sales sets Hot Melt 82% volumes. 16% with aqueous adhesives representing more than 80% of labelstock sales

volumes.

Note about the TLMI Quarterly Rollstock Report:

The TLMI Rollstock Quarterly Reports are compiled for the exclusive use of the Note aboutparticipating the TLMI Quarterly material Rollstockmanufacturers Report: who take part. The data presented here includes

a brief, top-line analysis of the most recent quarter’s results. North America’s largest The TLMI Rollstocklabelstock Quarterly suppliers participate Reports arein the compiled TLMI Rollstock for the Report, exclusive together use representing of the more Note about the TLMI Quarterly Rollstock Report: participatingthan material an estimated manufacturers 95% of the totalwho takemarket. part. The fullThe reports data presentedare confidential here includesand only a participating material suppliers have access to the complete information therein. Thebrief TLMI, top -Rollstockline analysis Quarterly of the mostReports recent are compiledquarter’s forresults. the exclusive North America’s use of the largest

participatinglabelstock suppliers material participate manufacturers in the who TLMI take Rollstock part. The Report, data together presented representing here includes more a

briefthan, antop estimated-line analysis 95% of of the the most total recent market. quarter’s The full results. reports Northare confidential America’s andlargest onl y participating material suppliers have access to the complete information therein. labelstock suppliers participate in the TLMI Rollstock Report, together representing more than an estimated 95% of the total market. The full reports are confidential and only participating material suppliers have access to the complete information therein.

The TLMI Index & Trend Report December 2018 27