Aluminum trades as a commodity on the London Metals Exchange (“LME”) and the Segment had historically used a general hedging program in combination with fixed-price contracts with a number of specific customers. This was done to moderate the fluctuations in the cost of aluminum so that the Segment and the customer could potentially reduce cost volatility. However, with the volatility of aluminum cost through 2008 and into 2009, this hedging strategy became unprofitable to CCL. Therefore in 2009, the Company decided to discontinue entering into aluminum hedges for general requirements. Currently, the Container Segment will only hedge some of its anticipated future aluminum purchases using futures contracts on the LME if they are matched to specific fixed-price customer contracts. The Segment hedged 29% of its 2011 volume but has only hedged 20% and 8% of its expected 2012 and 2013 requirements, respectively, and all, including matured 2011 hedges, were matched to fixed-price customer contracts. Existing hedges are priced in the US$2,100 to US$2,500 range per metric ton. The unrealized loss on the aluminum futures contracts as at December 31, 2011, was $1.7 million. Pricing for aluminum in 2011 ranged from US$1,900 to US$2,800 per metric ton compared to US$1,800 to US$2,500 per metric ton in 2010. This volatility continued to create challenges; however, the Container Segment has successfully introduced pricing mechanisms in its customer contracts that pass through the fluctuations in the cost of aluminum to its customers. This new pricing strategy began to have a positive impact in the second half of 2010 and carried through 2011 as old pricing agreements expired. Management believes the aluminum container business can continue to improve levels of profitability in the coming quarters with increased demand, continued pricing discipline, and by driving greater operational efficiencies in the facilities. The aluminum container continues to be generally perceived to be more esthetically pleasing by customers and consumers compared to tin plate containers. The biggest risk for the Segment’s business base relates to customers shifting their products into containers of other materials such as steel, glass or plastic, leading to a loss in market share. However, certain products and delivery systems can only be provided in an aluminum container. The relative cost of steel versus aluminum containers sometimes impacts the marketers’ choice of container and may cause volume gains or losses if customers decide to change from one product form to another. Aluminum costs remain the key factor in determining the level of growth in the market. In North America, there are two direct competitors in the United States and one in Mexico in the impact-extruded aluminum container business. CCL believes that it is approximately the same size as its key United States competitor in the aerosol market and has about 50% market share. Other competition comes from South American, Asian and European imports; however, currency exchange rates and logistical issues, such as delivery lead times and costs, significantly impact their competitiveness. The success of new products promoted heavily in the market will have a material impact on the Segment’s sales and profitability. Beverage products packaged in CCL’s shaped resealable aluminum bottles, for example, are directly impacted by the success or failure of these new products in the market. Another growth opportunity is the possibility of acquiring market share from competitors in existing product lines. With improved economic conditions in 2010, movement of aerosol filling to Mexico and higher demand for personal care and beverage containers, production capacity tightened within the industry. This capacity tightening allowed the Segment to successfully implement price increases to its customer base, although capacity constraints have now eased somewhat in 2011. The new plant in Guanajuato, Mexico, continues to grow as many global marketers that use aluminum containers have moved production of these products to Mexico to achieve cost and logistic savings. The Company added a third production line, which became operational in 2011, to provide additional low-cost capacity in this growing market. Container Segment Financial Performance 2011 % Growth 2010 Sales $ 175.7 8% $ 162.4 Operating income (loss) $ 9.2 n.m. $ (4.5) Return on sales 5.2% (2.8%) The Container Segment posted sales of $175.7 million for 2011, an increase of 8.2% compared to $162.4 million in 2010. Foreign currency translation had an unfavourable impact of 2.6%. Excluding foreign currency translation, sales for the Container Segment increased by 10.8% driven by better mix and improved pricing from the United States market and higher volumes in Mexico. The Container Segment realized a significant turnaround in 2011, posting operating income of $9.2 million compared to an operating loss of $4.5 million for 2010. The U.S. operation delivered record operating results. While the Canadian operation recorded a loss for the year, the plant was profitable for the final six months resulting in the largest single positive impact for the CCL Industries Inc. 2011 Annual Report 21