General Information
Directors
John Read (Chairman)
Elliott Kaplan
Hadrian Morrall
Brandon Penn
Company Secretary
Mark Saus
Registered Office
9 Widemere Road
Wetherill Park NSW 2164
Share Register
Registries Limited
Level 7 / 207 Kent Street
Sydney NSW 2000
Solicitors
Thomson Playford Cutlers
Australia Square Tower
Sydney NSW 2000
Bankers
Commonwealth Bank of Australia
Premium Business Services
Level 1, 430 Forest Road
Hurtsville NSW 2220
Auditors
UHY Haines Norton
Level 11, 1 York Street
Sydney NSW 2000
Contents
02
Chairman’s Report
03
Directors’ Report
11
Auditors’ Independence Declaration
12
Corporate Governance Statement
18
Income Statements
19
Balance Sheets
20
Cash Flow Statements
21
Statements of Changes in Equity
22
Notes to the Financial Statements
46
Directors’ Declaration
47
Independent Audit Report
48
Additional Company Information
09
manu facturer
of bi ode gradable
voidfill Packag ing
indus try leader i n t he
desi gn, enginee ring and
installati on of Protecti ve
Packaging sys tems
general war ehouse
Packaging
one-stoP shoP for
rigid, flexib le and
industrial Packagin g
extensi ve range of
domes tic and im Port ed
containers, c losur es
and de coration s
range of tec hnologi cal
se rvice s inclu ding:
Package design and
develoPment; tool makin g
and cus tom moldin g
of blow and injec tion
molded comPonent s
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
1
Pro-Pac Packaging Limited and Controlled Entities
Chairman’s Report
09
On behalf of the Board of Directors of Pro-Pac Packaging Limited (ASX: PPG), I am pleased to
present this report for the year ended 30 June 2009.
In arguably one of the most challenging environments to face the packaging sector, PPG delivered
in the year under review a solid performance with revenue growth of 3% to $76.3 million and a
25% improvement in net profit after tax (NPAT) to $2.3 million.
The year was characterised by two distinct halves.
In the first six months ended 31 December 2008, profits contracted reflecting, in part, subdued consumer demand and
supply chain deleveraging. These negative influences were further exacerbated by volatile input costs and volatile foreign
exchange movements.
By contrast, during the second half of the financial year, despite being traditionally a slower trading period, the Company
achieved improved revenues and significantly better profitability and cash flows.
While the improved performance in the second half was in part due to a reversal of the trends experienced in the first
half, with more stable input prices and a relatively strong dollar, a major contributor to second half performance was the
Company’s focus on winning new quality work from major corporate customers at acceptable margins. The new major
account growth in the second half of the financial year required a significant increase in investment in working capital,
constraining cash flow from operations which was $2.8m for the financial year. Organic growth was supplemented during
the financial year by the acquisition of the businesses of Fastway Industrial Packaging and Packstrap International.
Combined, these businesses made a positive contribution to both revenues and profits.
In recognition of the improved second half trading performance, PPG declared, on 27 August 2009, a fully franked final
dividend of 0.5 cents per share. The dividend was paid on 16 October 2009 and the Company’s Dividend Reinvestment
Plan applied to this dividend.
In large part the improved performance is attributable to the dedication and hard work of the PPG management team.
That team was expertly led for a majority of the financial year and during a period of unprecedented change by Ms Wendy
Penn. At the conclusion of that change program and with effect from 1 March 2009, Hadrian Morrall and Brandon Penn
were appointed joint CEOs focused on the two core business streams of rigid and industrial packaging. Together with
their senior management team Hadrian’s and Brandon’s focus on revenue growth, enhanced margins and operational
and logistical efficiencies has contributed significantly to the improved performance in the six months ended 30 June
2009. Improvements within the core business were also supplemented by two acquisitions during the year under review.
Management is continuing to evaluate a number of acquisitive and organic growth opportunities.
Trading results for the first 3 months on the new financial year have seen continued growth in revenues and profits with
promising over budget performance. Given the improvement in performance this calendar year and signs of renewed
business confidence, the Board is optimistic that stronger earnings will be achieved in the 2010 financial year.
John D. Read
Chairman
29th September 2009
2
P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Directors’ Report
The Directors present the Financial Report of Pro-Pac
Packaging Limited (“the Company”) and the Consolidated
Entity (“PPG”) being the company and its controlled
entities, for the year ended 30 June 2009, together with the
Auditors’ report thereon.
Directors
The Directors in office at the date of this report and during
the year are as follows:
John Read
B.Sc. (Hons) (Cant.), MBA (AGSM), FAICD
(Chairman and Non-Executive Director – appointed
23 August 2005)
Mr Read is a Fellow of the Australian Institute of
Company Directors. He is a former director of CSIRO
and the Australian Institute for Commercialisation
Limited. During the past five years, Mr Read has held
and continues to hold the following directorships of ASX
listed companies; Chairman of The Environmental Group
Limited (ASX Code: EGL), Chairman of Patrys Limited
(ASX Code: PAB) and non-executive director of CVC
Limited (ASX Code: CVC). Mr Read is also a director
of CVC Private Equity Limited and CVC Sustainable
Investments Limited.
Mr Read is Chairman of the Remuneration Committee
and a member of the Audit Committee.
Elliott Kaplan
BAcc, CA
(Non-Executive Director – appointed 16 February 2005)
Mr Kaplan is a Chartered Accountant with extensive
experience in senior financial and chief executive
officer roles in both private and public listed companies.
His experience, from both an investor and investee
perspective, spans a diverse range of industries including
manufacturing, environmental, distribution and services.
Mr Kaplan is Managing Director of CVC Private
Equity Limited. Mr Kaplan is also a director of The
Environmental Group Limited (ASX Code: EGL) and
Dolomatrix Limited (ASX code: DMX).
Mr Kaplan is Chairman of the Audit Committee and a
member of the Remuneration Committee.
Hadrian Morrall
(Executive Director – appointed 16 August 2007)
Mr Morrall has over 20 years experience in the plastics
industry. He is a founding director of Plastic Bottles Pty
Ltd (PB Group) and has held the position of Managing
Director of the PB Group for the last 17 years. He oversaw
the growth of that company from its start in Sydney to a
National Group and its diversification into manufacturing
through various acquisitions. Prior to the PB Group, Mr
Morrall spent 3 years in Plastic distribution with Edwards
Durapak as Sales Manager. He is the President of the
BMIA (Blowmolders Industry Association) and is a qualified
Automotive Engineer.
Brandon Penn
B. Com
(Executive Director – appointed Non Executive Director
16 August 2007, Executive Director 1 March 2009)
Mr Penn is a founding director of Plastic Bottles Pty Ltd
(PB Group). He has had extensive experience in start up
businesses.
Mr Penn has had a number of business interests alongside
the PB Group including the establishment of a dominant
software development company, Dealing Information
Systems (DIS), which developed wholesale banking systems.
DIS was acquired in 1996 by Sungard Data Systems
NYSE. Mr Penn assumed Asia-Pacific responsibility for
the Sungard companies and offices throughout the Asia
Pacific region.
In 2001 Mr Penn left Sungard to concentrate on his interest
in the PB Group as a non-executive Director. He has been
instrumental in negotiating and integrating a number of
acquisitions growing the PB Group into a rapid growth
multi-state importation, manufacturing and distribution
business.
Mr Penn was a member of the Audit Committee and the
Remuneration Committee until his resignation on 1 March
2009 when he was appointed as an executive director.
Company Secretary
Mark Saus
B.Com, B. Compt (Hons), CPA
(Company Secretary and Chief Financial Officer -
appointed 2 September 2005)
Mr Saus has more than 20 years experience in commercial
and financial management roles in private and public
listed companies both in Australia and overseas. His
experience spans a diverse range of industries including
manufacturing, distribution and retail. Recent roles
include head of finance positions in high growth SME
environments. Mr Saus is also the Chief Financial Officer
of the Group.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
3
Pro-Pac Packaging Limited and Controlled Entities
Directors’ Report
Interests in the shares and options of the Company
As at the date of this report, the relevant interests of the directors in the shares and options of Pro-Pac Packaging Limited
are shown in the table below:
Ordinary Shares
395,843
1,405,727
12,629,985
18,484,698
Interest in Ordinary Shares
through Directorships of
Corporate Shareholders
27,750,887
7,636,221
-
-
John Read
Elliott Kaplan
Hadrian Morrall
Brandon Penn
Meetings of Directors
Attendances by each director during the year were:
Board
Number of Meetings
attended
meetings held
while in office
Audit committee
Number of Meetings
attended
meetings held
while in office
Remuneration committee
Number of Meetings
attended
meetings held
while in office
John Read
Elliot Kaplan
Hadrian Morrall
Brandon Penn
7
7
7
7
7
7
7
7
3
3
-
3
3
3
-
3
1
1
-
1
1
1
-
1
Principal Activities
Pro-Pac Packaging Limited is a company limited by shares
that is incorporated and domiciled in Australia. The
principal activities of the consolidated entity during the
year were the manufacture and distribution of industrial,
protective and rigid packaging products.
There have been no significant changes in the nature of
these activities during the year.
Overview of the Company’s Business
The Pro-Pac business was established in 1987 and has grown
to become a leading Australian manufacturer and distributor
of industrial, protective and rigid packaging products.
Pro-Pac maintains a national presence, supplying the
packaging needs of both national and multinational
customers.
The Group proposes to continue to seek, acquire and
integrate synergistic industrial, protective and rigid
packaging businesses and to continue with the development
and introduction of new packaging products.
Review of Operations
The Directors of Pro-Pac Packaging Limited (ASX:PPG)
are pleased to provide this commentary on the performance
of the company and its controlled entities(“the Group”) for
the financial year ended 30 June 2009.
Results for the Year Ended 30 June 2009
In a challenging environment, Pro-Pac Packaging Limited
(ASX: PPG) recorded a solid performance in the year
ended 30 June 2009, with revenue growth of 3% to
$73.9m and a 25% improvement in net profit after tax
(PAT) to $2.3m.
The year was characterised by two distinct halves.
In the first six months ended 31 December 2008, profit
contracted reflecting, in part, subdued consumer demand
and supply chain deleveraging. These negative influences
were further exacerbated by volatile input costs and volatile
foreign exchange movements.
By contrast, during the second half of the financial year,
despite being traditionally a slower trading period, the
4
P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Company achieved improved revenues and significantly
better profitability and cash flows.
While the improved performance in the second half was in
part due to a reversal of the trends experienced in the first
half, with more stable input prices and a relatively strong
dollar, a major contributor to second half performance was
the Company’s focus on winning new quality work from
major corporate customers at acceptable margins. Organic
growth was supplemented during the financial year by
the acquisition of the businesses of Fastway Industrial
Packaging and Packstrap International. Combined, these
businesses made a positive contribution to both revenues
and profits.
The new major account growth in the second half of the
financial year required a significant increase in investment
in working capital, constraining cash flow from operations
which was $2.8m for the financial year.
Outlook
As the Company enters the 2010 financial year, its focus is
on profitable growth and continued logistics and operational
improvement. While management continues to assess new
innovative products and continues to pursue new markets
and new customers, management will also apply additional
focus on operational and logistics efficiencies to manage
higher trading volumes. With two acquisitions in 2008/09,
the Company continues to deliver on its acquisitive growth
program and is continuing to assess further strategic
acquisition opportunities. The quality of acquisition
candidates has improved and valuations have moderated as
credit markets remain tight.
Dividends
Having regard to the improved performance in the second
half, the Directors have resolved to declare a fully franked
final dividend of 0.5 cents per share. The Company’s
Dividend Reinvestment Plan (DRP) will apply. The
Record Date for the dividend is 8 September 2009 and the
Payment Date is 16 October 2009.
Financial Position
The net assets of the consolidated Group increased by
$1,637,163 to $50,693,545 for the year ended 30 June
2009. Working capital for the Group increased in line
with the Group’s expansion including the new major
account growth. Investment in capital expenditure and the
acquisition of synergistic businesses resulted in increased
borrowings.
Capital Structure
During the year 1,612,311 shares were issued under the
Dividend Reinvestment Plan while 1,480,000 shares
were cancelled under the Company’ Executive Long
Term Incentive Plan (ESPP). At 30 June 2009 there were
120,160,300 shares on issue.
Significant Changes in the State of Affairs
There were no significant changes in the state of affairs of
the Company during the year under review.
Significant Events Subsequent to
Balance Date
There were no significant events subsequent to balance
date.
Likely Developments
The Group proposes to continue to seek, acquire and
integrate synergistic industrial, protective and rigid
packaging businesses and to continue with the development
and introduction of new packaging products.
Environmental Regulation and
Performance
The consolidated entity’s operations are not regulated by
any significant environmental regulation under a law of the
Commonwealth or of a State or Territory.
Indemnification and Insurance of
Directors and Officers
The Company has entered into a deed of access, indemnity
and insurance with each of the Directors, under which the
Company has agreed to:
• continue to provide the Directors with access to certain
relevant information after they cease to be Directors;
• to the extent permitted by law, indemnify the Directors
against liabilities incurred in their capacity as directors of
the Company and its subsidiaries; and
• maintain certain Directors’ liability insurance in respect
of Directors, both during and after the period they are
Directors.
The Company has paid insurance premiums in respect
of Directors’ and Officers’ liability and legal expense
insurance for the Directors of the Company.
These contracts of insurance prohibit the disclosure of
the nature of the liabilities covered and amount of the
premium paid. The Corporations Act 2001 does not require
disclosure of the information in these circumstances.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
5
Pro-Pac Packaging Limited and Controlled Entities
Directors’ Report
The Group has not, during the year or since the end of the
financial year, in respect of any person who is or has been
an auditor of the Group, paid or agreed to pay a premium
in respect of a contract insuring against a liability for the
costs or expense of defending legal proceedings.
Remuneration Report
Remuneration policy
The performance of the Group depends upon the quality
of its directors and executives. To prosper, the Group must
attract, motivate and retain highly skilled directors and
executives.
The Remuneration Committee comprises John Read
(Chairman) and Elliott Kaplan each of whom is a
Non-Executive Director.
The Remuneration Committee assesses the appropriateness
of the nature and amount of remuneration of directors
on a periodic basis by reference to relevant employment
market conditions with the overall objective of ensuring
maximum stakeholder benefit from the retention of a
high quality Board and executive team. It is intended
that the manner of payments chosen will be optimal for
the recipient without creating undue cost for the Group.
Further details on the remuneration of Directors and
executives are set out in this Remuneration Report.
In accordance with best practice corporate governance,
the structure of non-executive Director and executive
remuneration is separate and distinct.
Non-Executive Director remuneration
The Company seeks to set aggregate remuneration at a
level which provides the Company with the ability to attract
retain and motivate directors of the highest quality, whilst
incurring a cost which is acceptable to shareholders.
The Constitution of the Company and the ASX Listing
Rules specify that non-executive directors are entitled to
receive remuneration for their services as determined by
the Company in a General Meeting. The Company has
resolved that the maximum aggregate amount of directors’
fees (which does not include remuneration of executive
directors and other non-director services provided by
directors) is $200,000 per annum. Non-executive directors
are entitled to be reimbursed for their reasonable expenses
incurred in connection with the affairs of the Company.
A director may also be remunerated as determined by the
directors if that director performs additional or special
duties for the Company.
The remuneration of the Company’s Non-Executive
Directors for the period ending 30 June 2009 is detailed in
Table 1 of this Remuneration Report.
6
P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Executive Director and Senior Management
remuneration
The Group aims to develop remuneration packages
properly reflecting each person’s duties and responsibilities
and the remuneration is competitive in attracting, retaining
and motivating people of the highest quality.
The Remuneration Committee is responsible for reviewing
and providing recommendations to the Board with respect
to the remuneration packages of senior management and
executive directors.
The Remuneration Committee is responsible for providing
advice to the Board with respect to non-executive directors’
remuneration.
The Board is responsible for determining remuneration
packages applicable to the Board members and the Chief
Executive Officers. The Chief Executive Officers determine
the remuneration packages for the senior executives of the
Company in accordance with compensation guidelines set
by the Board.
The remuneration of the Chief Executive Officers and
senior management for the year ending 30 June 2009 is set
out in Table 1 of this report.
Employment contracts
Joint Chief Executive Officers and Divisional
Managing Directors
The Company has entered into an executive service
agreement with Mr Hadrian Morrall and Mr Brandon
Penn in relation to their roles as Joint Chief Executive
Officers and Managing Director of the rigid plastics and
industrial packaging divisions respectively. The agreements
expire on 16 August 2011 and 2 March 2010 respectively.
In their executive service agreements, Mr Morrall and Mr
Penn agree that all intellectual property rights created,
developed or acquired by them in the course of their
employment, belong to the Company.
At the end of the contract period, the Company or the
executive may terminate the service agreement by giving
the other party six months notice.
The Company may terminate the agreement at any time
with immediate effect in the event of non-performance
of duties or in the event of dishonesty, a willful breach,
non-observance or neglect in the discharge of duties. The
agreement provides that for a period of twenty four months
after termination of their employment contract (less any
served notice period) Mr Morrall and Mr Penn respectively,
will not compete with Pro-Pac in Australia.
• The Shares will be registered in the names of the
Participants from allotment, but will remain subject to
restrictions on dealing while they are pledged as security
for a loan or subject to performance hurdles specified.
• If the employee leaves the employment of the Group,
the loan balance must be repaid in full or the shares
surrendered in full settlement of the outstanding loan
balance.
Key Management Personnel at 30 June 2009
John Read
– Chairman (non-executive)
Elliot Kaplan
– Director (non-executive)
Hadrian Morrall – Director (executive - appointed
Joint CEO 1 March 2009)
Brandon Penn
– Director (executive - appointed
Joint CEO 1 March 2009)
Wendy Penn
– Divisional director (appointed
1 March 2009, previously CEO from
1 April 2008 until 28 February 2009)
Mark Saus
– Chief Financial Officer
Senior Management
Employment agreements entered into with senior
management contain the following key terms:
Event
Company Policy
Resignation/notice period
1 month or less
Serious misconduct
Company may
terminate at any time
Payouts upon resignation or
termination, outside industrial
regulations (ie ‘golden handshakes’) None
Executive Long Term Incentive Plan (ESPP)
The Company has established an ESPP to encourage
employees to share in the ownership of the Company and
promote the long-term success of the Company as a goal
shared by the employees. The ESPP has been approved
by members of the Company for the purposes of sections
260C(4)(a), 259B(2)(a), 257B(1) and paragraph (b) of the
definition of employee share scheme buy-back in section
9 of the Corporations Act. There are currently 675,000
shares issued to employees under the Plan.
The following are the key terms and conditions of the
ESPP:
• No Shares under the ESPP will be allotted unless the
requirements of the Corporations Act 2001 and the ASX
Listing Rules have been complied with.
• Performance hurdles apply to the ESPP. The key
performance hurdle is that the total shareholder return
to shareholders of the Company must exceed the rate
of growth over the same period for the S&P/ASX Small
Ordinaries Accumulation Index (or any equivalent or
replacement of that index).
• Shares are allocated to employees at either the value of
shares as detailed in the latest disclosure document issued
by the Company or the 5-day weighted average price
immediately prior to the offer being made to employee.
• The Company may provide loans to participants to
acquire shares under the ESPP. As security for the loans,
Participants will pledge the shares acquired under the
ESPP to the Company at the time the loans are provided
and will grant a charge over any benefits attributable to
the Shares, including bonus shares, rights, and dividends.
Any dividends paid on the shares by Pro-Pac Packaging
Limited are treated as interest on the loan.
• The term of the loans and the vesting period for the
shares from the date of issue of shares is 3 years.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
7
Pro-Pac Packaging Limited and Controlled Entities
Directors’ Report
Remuneration of Key Management Personnel
Excluding the Directors, there are only two staff members of the Company who qualify as a “Key Management Personnel”
for the purposes of this report. The executive key management personnel are also the most highly paid executive officers of
the consolidated entity for the year under review.
Table 1
Short-term benefits
Post
employment
benefits
Other
long term
benefits
Share
based
payment
Total
Cash, salary and
commissions
Cash profit
Super-
share and non- annuation
Other Equity and
options
Performance
based
cash benefit
$
$
John Read
Elliott Kaplan
2009
2008
2009
2008
Hadrian Morrall 2009
2008
Brandon Penn
Wendy Penn
Mark Saus
2009
2008
2009
2008
2009
2008
Total
2009
Remuneration 2008
55,000
50,833
40,000
36,667
187,023
178,191
91,028
32,166
165,000
90,000
154,380
154,061
692,431
541,918
-
-
-
-
-
-
-
-
-
-
-
-
-
$
4,950
4,575
-
-
19,915
19,346
4,655
-
-
-
18,416
18,332
47,936
42,253
$
-
-
-
-
16,823
16,823
-
-
-
-
-
-
16,823
16,823
$
-
-
-
-
-
-
-
-
-
-
2,160
2,160
2,160
2,160
$
59,950
55,408
40,000
36,667
223,761
214,360
95,683
32,166
165,000
90,000
174,956
174,553
759,350
603,154
-
-
-
-
-
-
-
-
-
-
1.2%
1.2%
-
-
8
P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Options issued as part of remuneration for the year ended 30 June 2009
No options were granted as remuneration during the year ended 30 June 2009.
Shares and Loans issued under the ESPP during the year ended 30 June 2009
No shares or loans were issued under the ESPP during the year ended 30 June 2009.
ESPP Shares of Key Management Personnel as at the date of this report
2009
Mark Saus
Total
ESPP Shares
(number)
ESPP Shares
$
100,000
100,000
200,000
36,500
50,000
86,500
ESPP Loans
Outstanding
$
36,500
50,000
86,500
ESPP Issue Price
$
ESPP Expiry Date
$
0.365
0.50
18 January 2010
27 November 2010
Option Holdings of Key Management Personnel
There have been no options held by the Key Management Personnel during the year.
Loans to Key Management Personnel
Other than loans issued in relation to the Company’s ESPP shares detailed above, there were no loans to Key Management
Personnel during the year.
Other Transactions with Key Management Personnel
During the year the Company paid $732,728 (inc. GST) to entities associated with directors Hadrian Morrall and Brandon
Penn for property rental and outgoings, based on normal commercial terms and conditions.
During the year the Company paid $44,550 (inc. GST) to CVC Limited of which John Read is a director, for consulting
and acquisition services based on normal commercial terms and conditions.
During the year the Company paid $58,666 (inc. GST) to entities associated with director Brandon Penn for consulting and
facilitation services in respect of an acquisition of a subsidiary company, based on normal commercial terms and conditions.
Share Options
During the year 400,000 options in the Company’s unissued ordinary shares were issued for services rendered by a
consultant.
The options were issued at an exercise price of 32.8 cents per share exercisable at any time prior to 30 September 2011.
As at the date of this report (and at the balance date) there were 400,000 unissued ordinary shares under options.
Proceedings on Behalf of the Company
No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings
to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of
those proceedings. The Company was not a party to any such proceedings during the year.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
9
Pro-Pac Packaging Limited and Controlled Entities
Directors’ Report
Auditors Independence Declaration and Non-Audit Services
Other than as disclosed in Note 30, there were no non-audit services provided by the entity’s auditors UHY Haines Norton.
The Auditor’s independence declaration as required under S307C of the Corporations Act 2001 for the year end
30 June 2009 has been received and can be found on page 11 of the Directors’ report.
This Directors’ Report is signed in accordance with a resolution of the Board of Directors.
Dated this 29th day of September 2009.
John Read
Chairman
Elliott Kaplan
Director
10 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Auditors’ Independence Declaration
Under Section 307c of The Corporations Act 2001
To the Directors of Pro-Pac Packaging Limited
I declare that, to the best of our knowledge and belief, during the year ended 30 June 2009, there have been:
(i) No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the
audit; and
(ii) No contraventions of any applicable code of professional conduct in relation to the audit.
Mark Nicholaeff
Partner
UHY Haines Norton
Chartered Accountants
Signed at Sydney on 24 September 2009.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
11
Pro-Pac Packaging Limited and Controlled Entities
Corporate Governance Statement
The Board of Directors of Pro-Pac Packaging Limited is
responsible for the corporate governance of the Company
and its controlled entities (Pro-Pac) and to ensure that
Pro-Pac is directed and managed appropriately. In this
regard, the Board is committed to ensuring accountability
and that control systems are commensurate with the risks
involved to enable Pro-Pac to create value and optimise its
performance.
During August 2007, the ASX Corporate Governance
Council released its Corporate Governance Principles and
Recommendations – 2nd edition (ASX Principles). The
ASX Listing Rules require Pro-Pac to provide a statement
in its Annual Report disclosing the extent to which they
have followed the best practice recommendations during
the reporting period, and if any recommendations are not
followed, an explanation is provided.
The Company’s Corporate Governance Statement is
structured with reference to the Australian Securities
Exchange (“ASX”) Corporate Governance Council’s
(the “Council”) “Corporate Governance Principles and
Recommendations”, which are as follows:
Principle 1 –
Lay solid foundations for management and
oversight
Principle 2 – Structure the Board to add value
Principle 3 –
Promote ethical and responsible decision
making
Principle 4 – Safeguard integrity in financial reporting
Principle 5 – Make timely and balanced disclosure
Principle 6 – Respect the rights of shareholders
Principle 7 – Recognise and manage risk
Principle 8 – Remunerate fairly and responsibly
A copy of the “Corporate Governance Principles and
Recommendations” can be found on the ASX’s website
at www.asx.com.au.
However, the ASX Corporate Governance Council
acknowledged that “a one size fits all” approach is
inappropriate and that it is unwise to require all companies
to apply the same rules because different companies face
different circumstances hence some recommendations
are unnecessary or may even be counter-productive. In
particular it acknowledged that it may be inappropriate
or uneconomic for smaller companies, such as Pro-Pac,
to follow the same rules as Australia’s largest listed
companies. Instead the Council chose to issue a full suite
of recommendations and require companies to adopt an
‘if not why not’ approach to reporting compliance with the
recommendations. Companies are at liberty to determine
whether each recommendation is appropriate to them.
They are required to disclose in the Corporate Governance
Statement of their annual reports those recommendations
which they have not adopted during each reporting period
and provide explanations for their decisions.
A number of the best practice recommendations require
the formal documentation of policies and procedures that
Pro-Pac already substantially performs. Pro-Pac considers
that to create such further documentation independently and
specifically for Pro-Pac would have minimal additional benefit
but substantial additional expense. Pro-Pac is also mindful
to not adopt such procedures solely for the sake of adoption
or where they could actually inhibit the proper function or
opportunities of Pro-Pac. However it recognises that it has
to put in place a compliance program which includes the
documentation of its compliance policies and procedures and
a Risk Management Statement which considers the major
risks to Pro-Pac operations, the rating and ranking of these
risks to set priorities in the treatment of the risks. The Board
has determined that the adoption of such formal policies and
procedures must be tailored to Pro-Pac at minimal expense
and must be appropriate for Pro-Pac, taking into account the
size and complexity of its operations.
This statement summarises the corporate governance
practices currently in place at Pro-Pac. The Board
recognises that in a changing world, it is important to
review these practices and policies from time to time to
ensure they continue to reflect local and international
developments and assist Pro-Pac in optimising its corporate
performance and accountability. Pro-Pac will continue to
keep its corporate governance practices under review.
Key summaries of the corporate governance practices
and policies and other key documents can be found on
Pro-Pac’s website at www.ppgaust.com.au
ASX Principle 1 - Lay solid foundations for
management and oversight
Companies should establish and disclose the respective
roles and responsibilities of board and management.
• Recommendation 1.1: Companies should establish the
functions reserved to the board and those delegated to
senior executives and disclose those functions.
• Recommendation 1.2: Companies should disclose
the process for evaluating the performance of senior
executives.
• Recommendation 1.3: Companies should provide the
information indicated in the Guide to reporting on
Principle 1.
Role of the Board
The Board has adopted a charter that establishes the
role of the Board and its relationship with management.
The primary role of the Board is the protection and
12 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
enhancement of long-term shareholder value. Its
responsibilities include the overall strategic direction of
Pro-Pac, establishing goals for management and monitoring
the achievement of these goals. The functions and
responsibilities of the Board and management are consistent
with ASX Principle 1. A summary of the matters reserved
for the Board can be found in the corporate governance
section of the Pro-Pac website. (www.ppgaust.com.au)
Pro-Pac has in place systems designed to fairly review and
actively encourage enhanced Board and management
effectiveness. The Chairman has the responsibility to
review continually the performance of each director and
the Board as a whole. The performance of the Board is
reviewed regularly against both measurable and qualitative
indicators. The performance criteria against which
Directors and Executives are assessed is aligned with the
financial and non-financial objectives of Pro-Pac. From
time to time and, as considered appropriate, the Chairman
will seek external assistance and advice to undertake these
performance reviews.
A performance evaluation for senior executives was
undertaken during the reporting period. This entails an
evaluation of the executive against a pre-determined set
of objectives and key performance areas.
ASX Principle 2 - Structure the Board to
add value
Companies should have a board of an effective
composition, size and commitment to adequately
discharge its responsibilities and duties.
• Recommendation 2.1: A majority of the board should
be independent directors.
• Recommendation 2.2: The chair should be an
independent director.
• Recommendation 2.3: The roles of chair and chief
executive officer should not be exercised by the same
individual.
• Recommendation 2.4: The board should establish a
nomination committee.
• Recommendation 2.5: Companies should disclose the
process for evaluating the performance of the board, its
committees and individual directors.
• Recommendation 2.6: Companies should provide the
information indicated in the Guide to reporting on
Principle 2.
Structure of the Board
The skills, experience and expertise relevant to the position
of director held by each Director in office at the date of
this Report is included in the Directors’ Report. Corporate
Governance Council Recommendation 2.1 recommends
that a majority of the Board to be independent Directors.
The Corporate Governance Council defines independence
as being free from any business or other relationship that
could materially interfere with – or could reasonably be
perceived to materially interfere with – the independent
exercise of their judgement.
When determining the independent status of a director the
Board would consider whether the Director is, inter alia:
• a substantial shareholder of the company or an officer
of, or otherwise associated directly with, a substantial
shareholder of the company; and
• employed, or has previously been employed in an
executive capacity by the company or another group
member, and there has not been a period of at least
three years between ceasing such employment and
serving on the board.
In accordance with the above criteria, the following
Directors are not considered to be independent:
Name
John Read
Non-Executive Chairman
Reason for non-compliance
– Mr Read is director of CVC
Limited, a substantial shareholder.
Elliott Kaplan
Non-Executive Director
Hadrian Morrall
Executive Director
Brandon Penn
Executive Director
– Mr Kaplan is a director of
CVC Private Equity Limited, a
substantial shareholder.
– Mr Morrall is employed by the
Company in an executive
capacity, is a substantial
shareholder and a supplier of
leasehold premises.
– Mr Penn is employed by the
Company in an executive capacity,
is a substantial shareholder and
a supplier of leasehold premises.
The Company does not satisfy Corporate Governance
Council Recommendation 2.1 as it does not have a
majority of independent directors. Given the size of the
Company and the Board, the Company does not consider
compliance with Recommendation 2.1 would necessarily
enhance shareholder value.
The Board distinguishes between the concept of
independence and the issues of conflict of interest or
material personal interests which may arise from time to time.
Wherever there is an actual or potential conflict of interest
or material personal interest, the Board’s policies and
procedures ensure that the directors:
• fully and frankly inform the Board about the
circumstances giving rise to the conflict; and
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
13
Pro-Pac Packaging Limited and Controlled Entities
Corporate Governance Statement
• abstain from voting on any motion relating to the
matter and absenting himself or herself from Board
deliberations relating to the matter including receipt of
Board papers bearing on the matter.
If the Board resolves to permit a Director to have any
involvement in a matter involving possible circumstances of
conflicting interests, the Board will minute full details of the
basis of the determination and the nature of the conflict
including a formal resolution concerning the matter.
If a Director believes that he or she may have a conflict
of interest or duty in relation to a particular matter, the
Director should immediately consult with the Chairman.
The Company Secretary will maintain a register of all
possible conflict of interest situations.
The Company also has a Director’s Code of Conduct
which sets out standards to which each director will adhere
whilst conducting his duties. The code requires a Director,
amongst other things, to:
• act honestly, in good faith and in the best interests of the
Company as a whole;
• perform the functions of office and exercise the powers
attached to that office with a degree of care and
diligence that a reasonable person would exercise if he
were a Director in the same circumstances; and
• consider matters before the Board having regard to any
possible personal interests, the amount of information
appropriate to properly consider the subject matter and
what is in the best interests of the Company.
The Company considers industry experience and specific
expertise, as well as general corporate experience, to be
important attributes of its Board members. The Directors
noted above have been appointed to the Board due to their
considerable industry and corporate experience.
There are procedures in place, agreed by the Board, to
enable Directors, in furtherance of their duties, to seek
independent professional advice at the Company’s expense.
The term in office held by each Director in office at the
date of this report is listed below. Note that the Company
was incorporated in February 2005.
Name
John Read
Elliott Kaplan
Hadrian Morrall
Brandon Penn
Term in office
49 months
56 months
25 months
25 months
The Board believes that a Board of four Directors operates
effectively, generally allows the Board to collectively exercise
its authority without the need for many sub-committees
and is appropriate for the size of the Company. Further,
the Board has considered the competencies and experience
of each of the Directors and believes that it is not in the
interests of shareholders to seek to replace any of the
current Board members. For these reasons, the Company
did not adopt the following best practice recommendations
throughout the financial year ended 30 June 2009:
• having a majority of independent Directors;
• having an independent Chairman;
• having an independent Chairman for its Audit
Committee; and
• having a Nomination Committee of the Board.
An evaluation of the Board, its committees and directors
was undertaken by the Chairman during the year.
Nomination and appointment of new directors
The Board has elected not to establish a formal
Nominations Committee to oversee the appointment and
induction process for Directors. The Board has determined
that it may deal more effectively with such matters as
a single body. The ASX Guidelines contemplate that a
Nomination Committee may not always be appropriate for
Company’s with smaller boards of directors.
ASX Principle 3 - Promote ethical and
responsible decision-making
Companies should actively promote ethical and
responsible decision-making.
• Recommendation 3.1: Companies should establish a
code of conduct and disclose the code or a summary of
the code as to:
- the practices necessary to maintain confidence in
the company’s integrity;
- the practices necessary to take into account their
legal obligations and the reasonable expectations
of their stakeholders; and
- the responsibility and accountability of individuals
for reporting and investigating reports of unethical
practices.
• Recommendation 3.2: Companies should establish a
policy concerning trading in company securities by
directors, senior executives and employees, and disclose
the policy or a summary of that policy.
• Recommendation 3.3: Companies should provide the
information indicated in the Guide to reporting on
Principle 3.
14 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
In line with ASX Principle 3, the Board has established a
Code of Conduct and Securities Trading Policy.
• Recommendation 4.3: The audit committee should have
a formal charter.
Code of Conduct
The purpose of the Code of Conduct is to guide all
employees, including Directors as to:
• the practices necessary to maintain confidence in
Pro-Pac’s honesty and integrity;
• the responsibility and accountability of individuals for
reporting and investigating reports of unethical practices.
The overriding principle is that all business affairs of Pro-Pac
must be conducted legally, ethically and with strict
observance of the highest standards of propriety and
business ethics. If there are any doubts as to how to respond
to a particular circumstance, Directors and employees are
encouraged to consult with the Chairman or Company
Secretary and, if necessary, seek external professional advice.
Pro-Pac has in place a code of conduct which sets
standards for the Board and employees in dealing with
Pro-Pac’s customers, suppliers, shareholders and other
stakeholders. A copy of this code of conduct is available on
the Pro-Pac website.
Securities Trading Policy
A securities trading policy has been adopted and is binding
on all Directors, officers and employees of Pro-Pac.
This policy imposes trading restrictions on all Directors,
officers and employees of Pro-Pac in possession of ‘inside
information’. A copy of the Securities Trading Policy is
posted on the Pro-Pac website.
Directors are required to comply with the requirements of
the ASX Listing Rules and their letter of appointment and
promptly advise Pro-Pac of any dealing in Pro-Pac shares to
allow Pro-Pac to make the necessary disclosures to the ASX.
ASX Principle 4 - Safeguard integrity in
financial reporting
Companies should have a structure to independently
verify and safeguard the integrity of their financial
reporting.
• Recommendation 4.1: The board should establish an
audit committee.
• Recommendation 4.2: The audit committee should be
structured so that it:
- consists only of non-executive directors
- consists of a majority of independent directors
- is chaired by an independent chair, who is not
chair of the board
- has at least three members.
• Recommendation 4.4: Companies should provide the
information indicated in the Guide to reporting on
Principle 4.
ASX Principle 4 requires Pro-Pac to “have a structure to
independently verify and safeguard the integrity of the
company’s financial reporting”. The Board believes its
practices are in accordance with this principle.
Audit Committee
To assist in the execution of its responsibilities, the Board
has established an Audit Committee. The structure of
the Audit Committee and its responsibilities reflect in part
the requirements of ASX Principle 4. A summary of the
Charter setting out the Committee’s responsibilities is
posted on the Pro-Pac website.
It is the Board’s responsibility to ensure that an effective
internal control framework exists within the Company.
This includes internal controls to deal with both the
effectiveness and efficiency of significant business
processes, the safeguarding of assets, the maintenance of
proper accounting records, and the reliability of financial
information as well as non-financial considerations such
as the benchmarking of operational key performance
indicators. The Board has delegated the responsibility for
the establishment and maintenance of a framework of
internal control and ethical standards for the management
of the Company to the Audit Committee.
The Committee also provides the Board with additional
assurance regarding the reliability of financial information
for inclusion in the financial reports.
The Committee comprises Mr Kaplan and Mr Read.
Each member is financially literate (i.e. they are able to
read and understand financial statements) and Mr Kaplan
has financial expertise (i.e. he is a Chartered Accountant).
All members have some understanding of the industry in
which the Company operates.
Recommendation 4.2 requires that the composition of
Audit Committee comprises a majority of independent
Directors and that the committee have at least three
members. The Company does not, given its size and the
size of its Board, satisfy this requirement.
For additional details of Directors’ attendance at Audit
Committee meetings and to review the qualifications of
the members of the Audit Committee, please refer to the
Directors’ Report.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
15
Pro-Pac Packaging Limited and Controlled Entities
Corporate Governance Statement
ASX Principle 5 - Make timely and
balanced disclosure
Companies should promote timely and balanced
disclosure of all material matters concerning the
company.
• Recommendation 5.1: Companies should establish
written policies designed to ensure compliance with
ASX Listing Rule disclosure requirements and to
ensure accountability at a senior executive level for that
compliance and disclose those policies or a summary of
those policies.
• Recommendation 5.2: Companies should provide the
information indicated in the Guide to reporting on
Principle 5.
Consistent with ASX Principle 5, the Board aims to ensure
that all investors have equal and timely access to material
information concerning the Company, that there is
compliance with continuous disclosure requirements and
that announcements made by the Company are factual and
presented in a clear and balanced way.
The Company has adopted an External Communications
Policy reflecting the principles set out in ASX Principle 5.
This policy has been placed on the Pro-Pac website.
ASX Principle 6 - Respect the rights of
shareholders
Companies should respect the rights of shareholders
and facilitate the effective exercise of those rights.
• Recommendation 6.1: Companies should design
a communications policy for promoting effective
communication with shareholders and encouraging
their participation at general meetings and disclose their
policy or a summary of that policy.
• Recommendation 6.2: Companies should provide the
information indicated in the Guide to reporting on
Principle 6.
Pro-Pac has adopted a number of different practices
designed to promote effective communication with
shareholders as recommended by ASX Principle 6 and
as reflected in the Company’s External communications
policy, published on its website. These practices include
placing on the Pro-Pac website relevant information,
including ASX announcements, annual and half-year
reports, copies of notices of meetings, analyst briefings and
presentations given by the Chairman or Chief Executive
Officers. Annual reports are distributed to all shareholders
by mail or email (unless a shareholder has specifically
requested not to receive these documents).
A representative from the auditors of Pro-Pac attends the
annual general meeting and any other meeting as required
by the Board and is available to answer shareholder
questions about the conduct of the audit and preparation
and content of the auditor’s report. Shareholders are given
the opportunity to raise questions with any of the Directors
at shareholder meetings, both formally and informally.
The External communications policy also elaborates on the
Company’s continuous disclosure policy.
ASX Principle 7 - Recognise and
manage risk
Companies should establish a sound system of risk
oversight and management and internal control.
• Recommendation 7.1: Companies should establish
policies for the oversight and management of material
business risks and disclose a summary of those policies.
• Recommendation 7.2: The board should require
management to design and implement the risk
management and internal control system to manage the
company’s material business risks and report to it on
whether those risks are being managed effectively. The
board should disclose that management has reported to
it as to the effectiveness of the company’s management
of its material business risks.
• Recommendation 7.3: The board should disclose whether
it has received assurance from the chief executive
officer (or equivalent) and the chief financial officer (or
equivalent) that the declaration provided in accordance
with section 295A of the Corporations Act is founded on
a sound system of risk management and internal control
and that the system is operating effectively in all material
respects in relation to financial reporting risks.
• Recommendation 7.4: Companies should provide the
information indicated in the Guide to reporting on
Principle 7.
ASX Principle 7 recommends that a company “establish a
sound system of risk and oversight and management and
internal control.”
In addition to its financial reporting obligations, the
Audit Committee is responsible for reviewing the risk
management framework and policies of Pro-Pac. The
structure of the Audit Committee and its responsibilities
reflect in part the requirements of ASX Principle 7 and
are set out in the Company’s Audit committee charter,
published on its website.
In performing this function, the Committee receives periodic
reports from the external auditor, senior management and,
16 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
This Committee is responsible for ensuring that the
recruitment and remuneration policies and practices of
Pro-Pac are consistent with its strategic goals and human
resources objectives and are designed to enhance corporate
and individual performance as well as meet the appropriate
recruitment and succession planning needs.
To do this the Committee, among other things, is responsible
for reviewing and monitoring executive performance,
remuneration and incentive policies and the manner in
which they should operate, the introduction and operation of
share plans, executive succession planning and development
programs to ensure that they are appropriate to the Group’s
needs and the remuneration framework for Directors (as
approved by shareholders). The Committee may consult with
remuneration advisors to Pro-Pac to assist in its role.
The remuneration committee is also responsible to
determine and review compensation arrangements for the
directors and to ensure that the Board continues to operate
within the established guidelines, including when necessary,
selecting candidates for the position of director. In carrying
out its functions the Remuneration Committee considers
remuneration issues annually and otherwise as required
in conjunction with the regular meetings of the Board.
Compensation arrangements are determined subject to the
Company’s constitution and prior shareholder approvals.
Remuneration of non-executive Directors is in accordance
with resolutions of shareholders in the general meeting.
The Company does not have any schemes for retirement
benefits, other than statutory superannuation for non-
executive Directors.
Details of the directors and key executives remuneration
are set out in the Directors’ Report.
in some instances, external consultants detailing compliance
with statutory requirements and the adequacy of the risk
management programs and systems in place. In addition, the
Committee reviews the adequacy of the group’s insurance
program. In line with ASX Principle 7, Pro-Pac adopted
the policy requiring the Chief Executive Officer and Chief
Financial Officer to confirm in writing that, to the best of
their knowledge, the integrity of the financial statements
is founded on a sound system of risk management and
internal compliance and control which operates efficiently
and effectively in all material respects.
Note 22 details the policies set in place by the Board to
manage the risks arising from the Company’s financial
instruments.
ASX Principle 8 - Remunerate fairly and
responsibly
Companies should ensure that the level and composition
of remuneration is sufficient and reasonable and that its
relationship to performance is clear.
• Recommendation 8.1: The board should establish a
remuneration committee.
• Recommendation 8.2: Companies should clearly
distinguish the structure of non-executive directors’
remuneration from that of executive directors and
senior executives.
• Recommendation 8.3: Companies should provide the
information indicated in the Guide to reporting on
Principle 8.
It is the Company’s objective to provide maximum
stakeholder benefit from the retention of a high quality
Board and Executive team by remunerating directors and
key executives fairly and appropriately with reference to
relevant and employment market conditions. To assist in
achieving this objective, the Board will link the nature and
amount directors’ emoluments to the Company’s financial
and operations performance.
The Board has in place a Remuneration Committee
to assist the Board in relation to human resources
issues affecting the Pro-Pac Group. The structure of
this Committee and its responsibilities reflect in part
the requirements of ASX Principle 8. The Committee
comprises Mr Read and Mr Kaplan. In addition to the
members, the Chief Executives are invited to the meetings
at the discretion of the Committee.
A charter setting out the responsibilities of the Committee
has been adopted and a summary of this charter is posted
on the Pro-Pac website.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
17
Pro-Pac Packaging Limited and Controlled Entities
Income Statements
For the year to 30 June 2009
Notes
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
Revenue
Sale of goods
Interest income
Dividend income
Total Revenue
Expenses
Amortisation of prepaid royalty
Depreciation expense
Distribution
Employee benefits expense
Finance costs
Occupancy costs
Other expenses from ordinary activities
Raw materials and consumables used
Rationalisation and relocation expenses
73,872,532
72,115
-
71,722,898
163,838
-
-
6,814
1,400,000
-
39,050
1,598,788
73,944,647
71,886,736
1,406,814
1,637,838
16
4(a)
4(b)
322,082
1,657,635
2,784,861
14,080,075
708,408
2,464,623
4,947,212
43,899,938
-
293,160
1,642,430
1,638,957
12,789,308
679,242
2,411,724
6,826,663
42,379,230
647,053
-
-
-
126,617
-
-
296,502
-
-
-
-
-
124,242
-
-
212,092
-
-
Total Expenses
70,864,834
69,307,767
423,119
336,334
Profit before income tax
3,079,813
2,578,969
983,695
1,301,504
Income tax expense
Profit after tax
5
(816,593)
(771,218)
174,529
91,098
2,263,220
1,807,751
1,158,224
1,392,602
Profit for the year attributable to members
of parent entity
2,263,220
1,807,751
1,158,224
1,392,602
Earnings per share (cents per share)
- Basic earnings per year
- Diluted earnings per year
6
6
1.90
1.90
1.69
1.69
-
-
-
-
The above statements should be read in conjunction with the accompanying notes.
18 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Balance Sheets
As at 30 June 2009
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepayments
Total current assets
Non-current assets
Investments in controlled entities at cost
Property, plant and equipment
Intangible assets
Deferred tax assets
Prepayments
Loans to group companies
Total non-current assets
TOTAL ASSETS
Liabilities
Current liabilities
Trade and other payables
Borrowings
Provisions
Current tax liabilities
Total current liabilities
Non-current liabilities
Provisions
Borrowings
Notes
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
8
10
11
16
2,174,457
12,547,094
7,622,320
766,234
2,562,730
11,537,797
6,181,090
707,851
23,110,105
20,989,468
2,012
1,298
-
10,092
13,402
671
1,093
-
5,206
6,970
12
13
15
16
14
18
19
20
-
9,845,985
38,195,247
634,690
1,638,658
-
-
9,003,040
36,784,888
600,133
1,992,786
-
37,551,202
-
-
77,999
-
11,023,602
37,551,202
-
-
72,993
4,223
10,414,314
50,314,580
48,380,847
48,652,803
48,042,732
73,424,685
69,370,315
48,666,205
48,049,702
9,933,254
1,568,225
1,547,302
315,089
9,811,012
1,364,628
1,194,918
260,705
122,627
-
-
315,089
81,443
-
-
260,705
13,363,870
12,631,263
437,716
342,148
Total non-current liabilities
9,367,270
7,682,670
20
19
403,602
8,963,668
310,496
7,372,174
-
-
-
-
-
-
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued Capital
Reserves
Retained earnings
TOTAL EQUITY
22,731,140
20,313,933
437,716
342,148
50,693,545
49,056,382
48,228,489
47,707,554
21
48,153,866
20,116
2,519,563
47,605,676
8,884
1,441,822
48,153,866
-
74,623
47,605,676
-
101,878
50,693,545
49,056,382
48,228,489
47,707,554
The above balance sheets should be read in conjunction with the accompanying notes.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
19
Pro-Pac Packaging Limited and Controlled Entities
Cash Flow Statements
For the year to 30 June 2009
Notes
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Finance costs
Income tax paid
Net cash flows provided by/(used in )
operating activities
73,325,914
(69,090,562)
72,115
(698,981)
(796,766)
71,925,474
(67,101,477)
170,545
(775,254)
(547,586)
-
(383,290)
6,814
-
-
-
(256,443)
39,050
-
-
9
2,811,720
3,671,702
(376,476)
(217,393)
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments for controlled entities net of cash
Payments for unincorporated business net of
cash acquired
(641,296)
155,455
-
(1,091,716)
222,672
(12,984,737)
-
-
-
-
-
(9,906,624)
(2,227,439)
(193,508)
-
-
Net cash flows used in investing activities
(2,713,280)
(14,047,289)
-
(9,906,624)
Cash flows from financing activities
Payment of hire purchase and finance lease liabilities
Proceeds from borrowing
Loans to subsidiaries
Proceeds from issue of shares
Bank bills repaid
Dividend paid
Costs of issue of shares
Net cash flows provided/(used in) by
financing activities
(1,326,555)
1,477,133
-
-
-
(637,291)
-
(1,328,518)
2,955,851
-
17,200,000
(6,630,000)
(899,399)
(37,107)
-
-
1,015,108
-
-
(637,291)
-
-
-
(6,138,806)
17,200,000
-
(899,399)
(37,107)
(486,713)
11,260,827
377,817
10,124,688
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
(388,273)
2,562,730
885,240
1,677,490
1,341
671
Cash and cash equivalents at end of
financial year
8
2,174,457
2,562,730
2,012
671
-
671
The above statements should be read in conjunction with the accompanying notes.
20 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Statements of Changes in Equity
For the year to 30 June 2009
Issued
capital
$
Retained
earnings
$
Option
Reserve
$
Total
Equity
$
Consolidated
Balance as at 1 July 2007
18,729,203
1,222,496
11,300
19,962,999
Shares issued to Plastic Bottles Group shareholders
Shares issued under share placement
Costs of raising shares
Future income tax benefit associated with costs of
raising shares
Issue of shares for dividend re-investment plan
Dividend paid
Recognition of share based payments
Cancellation of cost of ESPP shares
Profit for the year
11,003,060
17,200,000
(37,107)
11,132
699,388
-
-
-
-
-
-
-
-
-
-
11,003,060
17,200,000
(37,107)
-
-
(1,598,788)
-
10,363
1,807,751
-
-
-
7,947
(10,363)
-
11,132
699,388
(1,598,788)
7,947
-
1,807,751
Balance as at 30 June 2008
47,605,676
1,441,822
8,884
49,056,382
Issue of shares for dividend re-investment plan
Dividend paid
Recognition of share based payments
Profit for the year
548,190
-
-
-
-
(1,185,479)
-
2,263,220
-
-
11,232
-
548,190
(1,185,479)
11,232
2,263,220
Balance as at 30 June 2009
48,153,866
2,519,563
20,116
50,693,545
Parent
Balance as at 1 July 2007
18,729,203
308,064
Shares issued to Plastic Bottles Group shareholders
Shares issued under share placement
Costs of raising shares
Future income tax benefit associated with costs of
raising shares
Issue of shares for dividend re-investment plan
Profit for the year
Dividend paid
11,003,060
17,200,000
(37,107)
-
-
-
11,132
699,388
-
-
-
-
1,392,602
(1,598,788)
Balance as at 30 June 2008
47,605,676
101,878
Issue of shares for dividend re-investment plan
Dividend paid
Profit for the year
548,190
-
-
-
(1,185,479)
1,158,224
Balance as at 30 June 2009
48,153,866
74,623
The above statement should be read in conjunction with the accompanying notes.
-
-
-
-
-
-
-
-
-
-
-
-
-
19,037,267
11,003,060
17,200,000
(37,107)
11,132
699,388
1,392,602
(1,598,788)
47,707,554
548,190
(1,185,479)
1,158,224
48,228,489
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
21
Pro-Pac Packaging Limited and Controlled Entities
Notes to the Financial Statements
For the year to 30 June 2009
Note 1: Corporate Information
The financial report of Pro-Pac Packaging Limited and its
subsidiaries (“the Group”) for the year ended 30 June 2009
was approved for issue in accordance with a resolution of
the Directors on 29 September 2009.
Pro-Pac Packaging Limited is a company limited by shares
incorporated in Australia whose shares are publicly traded
on the Australian Securities Exchange.
The nature of the operations and principal activities of the
Group are described in the Directors’ Report.
Comparatives
Comparative figures have been adjusted where necessary
to conform to changes in the presentation for the current
financial year where required by accounting standards or as
a result of changes in accounting policies.
Note 2: Summary of Significant
Accounting Policies
(a) Basis of Preparation
The financial report is a general purpose financial
report, which has been prepared in accordance with
Australian Accounting Standards, Australian Accounting
Interpretations, other authoritative pronouncements
of the Australian Accounting Standards Board and the
requirements of the Corporations Act 2001. The financial
report has also been prepared on an accruals basis and is
based on historical costs. The financial report is presented
in Australian dollars.
The financial report covers the economic entity of Pro-Pac
Packaging Limited and controlled entities, and Pro-Pac
Packaging Limited as an individual parent entity.
(b) Statement of compliance
The financial report complies with Australian Accounting
Standards, which include Australian equivalents to
International Financial Reporting Standard (‘AIFRS’).
Compliance with AIFRS ensures that the financial report,
comprising the financial statements and notes thereto,
complies with International Financial Reporting Standards
(‘IFRS’).
(c) Basis of consolidation
The consolidated financial statements comprise the
financial statements of Pro-Pac Packaging Limited and its
subsidiaries as at 30 June 2009.
A list of controlled entities is contained in Note 24 to the
Financial Statements.
The financial statements of subsidiaries are prepared for
the reporting year ended 30 June 2009 using accounting
policies consistent with the parent entity.
Adjustments are made to bring into line any dissimilar
accounting policies that may exist. All inter-company
balances and transactions, including unrealised profits or
losses arising from intra-group transactions, have been
eliminated in full.
Subsidiaries are consolidated from the date on which
control is transferred to the Group and cease to be
consolidated from the date on which control is transferred
out of the Group. Where there is loss of control of a
subsidiary, the consolidated financial statements include the
results for the part of the reporting period during which
Pro-Pac Packaging Limited had control.
(d) Business combinations
Business combinations occur where control over another
business is obtained and results in the consolidation of its
assets and liabilities. All business combinations, including
those involving entities under common control, are
accounted for by applying the purchase method.
The purchase method requires an acquirer of the business
to be identified and for the cost of the acquisition and
fair values of identifiable assets, liabilities and contingent
liabilities to be determined as at acquisition date, being
the date that control is obtained. Cost is determined as the
aggregate of fair values of assets given, equity issued and
liabilities assumed in exchange for control together with
costs directly attributable to the business combination. Any
deferred consideration payable is discounted to present
value using the entity’s incremental borrowing rate.
Goodwill is recognised initially at the excess of cost over
the acquirer’s interest in net fair value of the identifiable
assets, liabilities and contingent liabilities recognised. If the
fair value of the acquirer’s interest is greater than cost, the
surplus is immediately recognised in profit or loss.
(e) Property, plant and equipment
Plant and equipment is stated at cost less accumulated
depreciation. Plant and equipment is depreciated using
the straight line and diminishing value methods over the
estimated useful lives.
The current depreciation rates are over 3 to 20 years.
An item of property, plant and equipment is de-recognised
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset.
Any gain or loss arising on de-recognition of the asset
(calculated as the difference between the net disposal
22 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
proceeds and the carrying amount of the item) is
included in the income statement in the year the item is
de-recognised.
Impairment
The carrying values of plant and equipment are reviewed
for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. For
an asset that does not generate largely independent cash
inflows, the recoverable amount is determined for the
cash-generating unit to which the asset belongs.
If any such indication exists and where the carrying values
exceed the estimated recoverable amount, the assets or
cash-generating units are written down to their recoverable
amount.
The recoverable amount of plant and equipment is the
greater of fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time
value of money and the risks specific to the asset.
(f) Borrowing costs
Borrowing costs are recognised as an expense when
incurred.
(g) Goodwill
Goodwill on acquisition is initially measured at cost being
the excess of the cost of the business combination over the
acquirer’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities.
Following initial recognition, goodwill is measured at cost
less any accumulated impairment losses. Goodwill is not
amortised. Goodwill is reviewed for impairment annually
or more frequently if events or changes in circumstances
indicate that the carrying value may be impaired.
Impairment is determined by assessing the recoverable
amount of the cash generating unit to which the goodwill
relates. Where the recoverable amount of the cash
generating unit is less than the carrying amount, an
impairment loss is recognised.
Where goodwill forms part of a cash-generating unit
and part of the operation within that unit is disposed of,
the goodwill associated with the operation disposed of is
included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation.
Goodwill disposed of in this circumstance is measured on
the basis of the relative values of the operation disposed of
and the portion of the cash generating unit retained.
(h) Recoverable amount of assets
At each reporting date, the Group assesses whether there
is any indication that an asset may be impaired. Where
an indicator of impairment exists, the Group makes a
formal estimate of recoverable amount. Where the carrying
amount of an asset exceeds its recoverable amount the
asset is considered impaired and is written down to its
recoverable amount.
Recoverable amount is the greater of fair value less costs
to sell and value in use. It is determined for an individual
asset, unless the asset’s value in use cannot be estimated
to be close to its fair value less costs to sell and it does not
generate cash inflows that are largely independent of those
from other assets or groups of assets, in which case the
recoverable amount is determined for the cash-generating
unit to which the asset belongs.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time
value of money and the risks specific to the asset.
(i) Inventories
Inventories are valued at the lower of cost and net
realisable value.
Costs incurred in bringing each product to its present
location and condition are accounted for as follows:
• Raw materials – purchase cost on a first-in, first-out basis.
• Finished goods and work-in-progress – cost of direct
materials and direct labour and a proportion of
manufacturing overheads based on normal operating
capacity.
(j) Trade and other receivables
Trade receivables, which generally have 30-90 day terms,
are recognised and carried at original invoice amount less
an allowance for any uncollectible amounts.
An estimate for doubtful debts is made when collection of
the full amount is no longer probable. Bad debts are written
off when identified.
(k) Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise
cash at bank and in hand and short-term deposits with an
original maturity of three months or less.
For the purposes of the Cash Flow Statement, cash and
cash equivalents consist of cash and cash equivalents as
defined above, net of outstanding bank overdrafts.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
23
Pro-Pac Packaging Limited and Controlled Entities
Notes to the Financial Statements
For the year to 30 June 2009
Note 2: Summary of Significant
Accounting Policies (cont.)
(l) Interest bearing loans and borrowings
All loans and borrowings are initially recognised at cost,
being the fair value of the consideration received net of
issue costs associated with the borrowing.
After initial recognition, interest bearing loans and
borrowings are subsequently measured at amortised cost
using the effective interest method. Amortised cost is
calculated by taking into account any issue costs, and any
discount or premium on settlement.
(m) Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past
event, for which it is probable that an outflow of resources
embodying economic benefits will be required to settle
the obligation and a reliable estimate can be made of the
amount of the obligation.
If the effect of the time value of money is material,
provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due
to the passage of time is recognised as a finance cost.
(n) Equity-settled compensation
The group operates equity-settled share-based payment
employee share and option schemes. The fair value of the
equity to which employees become entitled is measured at
grant date and recognised as an expense over the vesting
period, with a corresponding increase in an equity account.
The fair value of shares is ascertained as the market bid
price. The fair value of options is ascertained using a
Black-Scholes model which incorporates all market vesting
conditions. The number of shares and options expected to
vest is reviewed and adjusted at each reporting date such that
the amount recognised for services received as consideration
for the equity instruments granted shall be based on the
number of equity instruments that eventually vest.
(o) Leases
A distinction is made between finance leases which
effectively transfer from the lessor to the lessee substantially
all the risks and benefits incidental to ownership of the
leased property, without transferring the legal ownership,
and operating leases under which the lessor effectively
retains substantially all the risks and benefits.
Where assets are acquired by means of finance leases, the
present value of minimum lease payments is established as
an asset at the beginning of the lease term and amortised
on a straight line basis over the expected economic life.
A corresponding liability is also established and each lease
payment is allocated between such liability and interest
expense. Operating lease payments are charged to expense
on a basis which is representative of the pattern of benefits
derived from the leased property.
(p) Revenue
Revenue is recognised to the extent that it is probable that
the economic benefits will flow to the Group and the revenue
can be reliably measured. The following specific recognition
criteria must also be met before revenue is recognised:
Sale of goods
Revenue is recognised when the significant risks and
rewards of ownership of the goods have passed to the
buyer and can be measured reliably. Risks and rewards are
considered passed to the buyer at the time of delivery of
the goods to the customer.
Interest
Revenue is recognised as the interest accrues (using the
effective interest method, which is the rate that exactly
discounts estimated future cash receipts through the
expected life of the financial instrument) to the net carrying
amount of the financial asset.
Dividends
Revenue is recognised when the shareholders’ right to
receive the payment is established.
(q) Income tax
The income tax expense (revenue) for the year comprises
current income tax (income) and deferred tax expense
(income).
Current income tax expense charged to the profit or loss
is the tax payable on taxable income calculated using
applicable income tax rates enacted, or substantially
enacted, as at reporting date. Current tax liabilities (assets)
are therefore measured at the amounts expected to be paid
to (recovered from) the relevant taxation authority.
Deferred income tax expense reflects movements in the
deferred tax asset and deferred tax liability balances during
the year as well as unused tax losses.
Current and deferred income tax expense (income) is
charged or credited directly to equity instead of the profit
or loss when the tax relates to items that are credited or
charged directly to equity.
24 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Deferred tax assets and liabilities are ascertained based on
temporary differences arising between the tax base of assets
and liabilities and their carrying amounts in the financial
statements. Deferred tax assets also result where amounts
have been fully expensed but future tax deductions are
available. No deferred income tax will be recognised from
the initial recognition of an asset or liability, excluding
a business combination, where there is no effect on
accounting or taxable profit or loss.
Deferred tax assets and liabilities are calculated at the
tax rates that are expected to apply to the period when
the asset is realised or the liability is settled, based on tax
rates enacted or substantially enacted at reporting date.
Their measurement also reflects the manner in which
management expects to recover or settle the carrying
amount of the related asset or liability.
Deferred tax assets relating to temporary differences and
unused tax losses are recognised only to the extent that it is
probable that future taxable profit will be available against
which the benefits of the deferred tax asset can be utilised.
Where temporary differences exist in relation to investments
in subsidiaries, branches, associates and joint ventures,
deferred tax assets and liabilities are not recognised where
the timing of the reversal of the temporary difference can
be controlled and it is not probable that the reversal will
occur in the foreseeable future.
Current tax assets and liabilities are offset where a legally
enforceable right of set-off exists and it is intended that net
settlement or simultaneous realisation and settlement of the
respective asset and liability will occur. Deferred tax assets
and liabilities are offset where a legally enforceable right of
set-off exists, the deferred tax assets and liabilities relate to
income taxes levied by the same taxation authority on either
the same taxable entity or different taxable entities where it
is intended that net settlement or simultaneous realisation
and settlement of the respective asset and liability will occur
in future periods in which significant amounts of deferred
tax assets are expected to be recovered or settled.
The income tax calculations are based on the premise that
the Group has been consolidated for income tax purposes
with effect from 1 July 2005. Each entity in the Group
recognises its own current and deferred tax liabilities,
except for any deferred tax liabilities resulting from unused
tax losses and tax credits which are immediately assumed
by the parent entity. The current tax liability of each group
entity is then subsequently assumed by the parent entity.
(r) Other taxes
Revenues, expenses and assets are recognised net of the
amount of GST except:
• where the GST incurred on a purchase of goods and
services is not recoverable from the taxation authority, in
which case the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense item as
applicable; and
• receivables and payables are stated with the amount of
GST included.
The net amount of GST recoverable from, or payable
to, the taxation authority is included as part of receivables
or payables in the balance sheet. Cash flows are included
in the Cash Flow Statement on a gross basis and the
GST component of cash flows arising from investing and
financing activities, which is recoverable from, or payable
to, the taxation authority are classified as operating cash
flows.
Commitments and contingencies are disclosed net of
the amount of GST recoverable from, or payable to, the
taxation authority.
(s) Employee benefits
Provision is made for employee benefits accumulated as a
result of employees rendering services up to the reporting
date. These benefits include wages and salaries, annual
leave and long service leave. Liabilities arising in respect of
wages and salaries, annual leave and any other employee
benefits expected to be settled within 12 months of the
reporting date are measured at the amounts expected to be
paid when the liability is settled. All other employee benefit
liabilities are measured at the present value of the estimated
future cash outflow to be made in respect of services
provided by employees up to the reporting date.
(t) Financial Instruments
Recognition
Financial instruments are initially measured at cost on
trade date, which includes transactions costs, when the
related contractual rights or obligations exist. Subsequent
to initial recognition these instruments are measured as set
out below.
Loans and receivables
Loans and receivables are non-derivate financial assets with
fixed or determinable payments that are not quoted in an
active market and are stated at amortised cost using the
effective interest rate method.
Financial liabilities
Non-derivate financial liabilities are recognised at amortised
cost, comprising original debt less principal payments and
amortisation.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
25
Pro-Pac Packaging Limited and Controlled Entities
Notes to the Financial Statements
For the year to 30 June 2009
Note 2: Summary of Significant
Accounting Policies (cont.)
(u) Foreign Currency Transactions and Balances
Foreign currency transactions are translated into functional
currency using the exchange rates prevailing at the date
of the transaction. Foreign currency monetary items
are translated at the year-end exchange rate. Exchange
differences arising on the translation of monetary items are
recognised in the income statement.
(v) Critical Accounting estimates and judgements
The directors evaluate estimates and judgements
incorporated into the financial report based on
historical knowledge and best available current information.
Estimates assume a reasonable expectation of future events
and are based on current trends and economic data,
obtained both externally and within the Group.
Key estimates
(i) Impairment
The Group assesses impairment at each reporting date by
evaluating conditions and events specific to the Group that
may be indicative of impairment triggers. Recoverable
amounts of relevant assets are reassessed using value in-use
calculations which incorporate various key assumptions.
No impairment is considered necessary in respect
of goodwill based on key estimates used in assessing
recoverable amounts.
Key Judgements
(i) Provision for impairment of receivables
Current trade and term receivables are non-interest bearing
loans and generally on 30-60 days terms. Non-current trade
and term receivables are assessed for recoverability based
on the underlying terms of the contract. A provision for
impairment is recognised when there is objective evidence
that an individual trade or term receivable is impaired.
These amounts have been included in the other expenses
from ordinary activities item.
Note 3: Segment Information
The Group operates solely as a supplier of packaging
products within Australia. As such there is only one business
and geographical segment.
26 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
Note 4a: Expenses
Finance costs
Bad and doubtful debt - trade
Rental expense on operating leases:
- minimum lease payments
Write down of inventories to net realisable value
Note 4b: Significant Expenses
The following significant expense items are relevant in
explaining the financial performance:
- restructuring and relocation expenses
708,408
188,694
679,242
104,788
2,386,343
145,053
2,253,851
60,878
-
647,053
Note 5: Income Tax
Major components of income tax for the year ended 30 June are:
-
-
-
-
-
-
-
-
-
-
Income Statement
Current income tax
Current income tax charge/(refund)
Adjustments in respect of previous years
Deferred income tax
Relating to temporary differences
Income tax expense/(refund) in income statement
Statement of changes in equity
Deferred income tax asset
Cost of issuing securities
Income tax benefit in equity
900,788
(49,638)
(34,557)
816,593
752,634
(9,132)
(205,365)
(49,638)
(155,387)
(1,912)
27,716
80,474
66,201
771,218
(174,529)
(91,098)
-
-
11,132
11,132
-
-
11,132
11,132
A reconciliation of income tax expense applicable to accounting
profit before income tax at the statutory income tax rate
to income tax expense at the Group’s effective income tax
rate for the year ended 30 June 2009 is as follows:
Accounting profit before tax
At the statutory income tax rate of 30%
Special tax allowances net of expenditure not allowable
for tax purposes
Adjustments in respect of previous years
At effective income tax rate of 26.5% (2008: 29.9%)
3,079,813
923,944
2,578,969
773,691
(57,713)
(49,638)
816,593
6,659
(9,132)
771,218
771,218
Income tax expense reported in income statement
816,593
Tax consolidation
The Financial report has been prepared on the basis that the Group has adopted the provisions of the tax consolidation
regime for the years ended 30 June 2009 and 30 June 2008.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
27
Pro-Pac Packaging Limited and Controlled Entities
Notes to the Financial Statements
For the year to 30 June 2009
Note 6: Earnings Per Share
Basic and diluted earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary
equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.
The following reflects the income and share data used in the total operations basic and diluted earnings per share
computations:
Net profit attributable to equity holders ($)
Weighted average number of ordinary shares for basic earnings per share
Basic earnings per share (cents per share) *
Diluted earnings per share (cents per share) *
Consolidated
2009
Consolidated
2008
2,263,220
119,011,351
1.90
1.90
1,807,751
106,919,186
1.69
1.69
* The difference between basic and diluted shares on issue represents the PPG Executive Long Term Incentive Plan shares
on issue which are treated as an option grant. As the average exercise price of the options was higher than the average
market price per share during both the current and prior years, the options would not have been exercised and therefore
no dilution has occurred.
Note 7: Dividends Paid and Proposed
On 27 August 2009, the Company declared a fully franked final dividend of 0.5 cents per share. The record date for
determining entitlements to the dividend was 8 September 2009 and the dividend will be paid on 16 October 2009.
The Company’s Dividend Reinvestment Plan was applied to the final dividend at a discount of 3%. No interim dividends
were declared.
Franking credit balance
As indicated in note 5, the financial report has been prepared on the basis that the group has adopted the provisions of the
tax consolidation regime for the years ended 30 June 2009 and 30 June 2008. As such franking credits arising from the other
Group companies totalling $ 8,585,311 (2008: $ 8,390,098) will be available to the parent entity.
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
2,174,457
2,562,730
2,012
671
Note 8: Cash and Cash Equivalents
Cash at bank and in hand
Cash at bank and in hand earns interest at
floating rates based on daily bank deposit rates
The fair value of cash and cash equivalents
2,174,457
2,562,730
2,012
671
Reconciliation of cash
For the purposes of the Cash Flow Statement, cash
and cash equivalents comprise the following at 30 June:
Cash at bank and in hand
2,174,457
2,562,730
2,012
671
28 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
Note 9: Cash flow Information
a) Reconciliation from the net profit after tax to
the net cash flows from operations
Net profit after tax
2,263,220
1,807,751
1,158,224
1,392,602
Add/(Less) non-cash items:
Depreciation and amortisation of plant and equipment
Amortisation of prepaid royalty
(Profit)/Loss on disposal of assets
Movement in income tax provision
Movement in deferred tax assets and liabilities
Movement in provision for bad debts
Other non-cash movements
Changes in assets and liabilities:
Receivables
Inventories
Payables
Provisions
Prepayments
Other Current Assets
1,657,635
322,082
(5,450)
54,383
(34,556)
97,305
20,474
(1,105,990)
(853,468)
230,737
329,938
(164,590)
-
1,642,430
293,160
183,464
195,916
27,716
23,584
-
177,177
(906,959)
150,618
(68,304)
233,215
(88,066)
-
-
-
(169,522)
(5,006)
-
-
-
-
-
(148,848)
66,202
-
-
-
-
(1,355)
41,183
-
(1,400,000)
-
-
(10,000)
81,439
-
(1,598,788)
Net cash flows from operating activities
2,811,720
3,671,702
(376,476)
(217,393)
b) Non cash financing and investing activities
1. During the year, the company issued shares to the value of
$548,190 (2008: $699,388) in terms of the dividend reinvestment plan.
2. During the year, the consolidated Group acquired plant with an aggregate value of
$1,678,307 (2008: $1,372,500) by means of finance lease and hire purchase agreements.
These acquisitions are not reflected in the cash flow statements.
c) Credit standby arrangements with banks
Credit facility
Amount utilised
Loan facilities
Amount utilised
Note 10: Trade and Other Receivables
Current:
Trade receivables
Provision for impairment of receivables
Other debtors
Total current receivables
1,050,000
269,759
12,000,000
7,009,428
1,050,000
235,847
7,000,000
5,600,000
-
-
-
-
-
-
-
-
12,423,718
(198,400)
321,776
11,300,130
(101,095)
338,762
12,547,094
11,537,797
-
-
1,298
1,298
-
-
1,093
1,093
Trade receivables are non-interest bearing and are generally on terms between 30 and 60 days.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
29
Pro-Pac Packaging Limited and Controlled Entities
Notes to the Financial Statements
For the year to 30 June 2009
Note 10: Trade and Other Receivables (cont.)
Credit risk – Trade and Other Receivables
The Group has no significant concentration of credit risk with respect to any single counter party or group of counter
parties. The class of assets described as Trade and Other Receivables is considered to be the main source of credit risk
related to the Group.
The following table details the Group’s trade and other receivables exposed to credit risk (prior to collateral and other credit
enhancements) with ageing analysis and impairment provided for thereon. Amounts are considered as ‘past due’ when the
debt has not been settled, with the terms and conditions as agreed between the Group and the customer or counter party to
the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are
provided for where there are specific circumstances indicating that the debt may not be fully repaid to the Group.
The balances of receivables that remain within initial trading terms (as detailed in the table) are considered to be of high
credit quality.
Gross
amount
Past due &
impaired
$
$
Past due but
not impaired
> 90
$
Past due but Within initial
not impaired
trade terms
61- 90
$
$
Consolidated
2009
Trade and term receivables
Other receivables
12,423,718 198,400
-
321,776
21,893
-
976,239
-
11,227,186
321,776
Total
12,745,494
198,400
21,893
976,239
11,548,962
2008
Trade and term receivables
Other receivables
11,300,130 101,095
-
338,762
230,762
-
899,404
-
10,068,869
338,762
Total
11,638,892
101,095
230,762
899,404
10,407,631
Parent
2009
Trade and term receivables
Other receivables
- - -
-
1,298
-
-
-
-
1,298
Total
1,298
-
-
-
1,298
2008
Trade and term receivables
Other receivables
- - -
-
1,093
-
-
-
-
1,093
Total
1,093
-
-
-
1,093
Neither the Group nor parent entity holds any financial assets with terms that have been renegotiated, but which would
otherwise be past due or impaired.
30 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
Note 11: Inventories
Raw materials (lower of cost and net realisable value)
Finished goods (lower of cost and net realisable value)
831,280
6,791,040
483,313
5,697,777
Total inventories at lower of cost and net realisable value
7,622,320
6,181,090
Note 12: Property, Plant and Equipment
At 30 June
Plant and equipment
At cost
Accumulated depreciation
12,854,600
(3,243,477)
10,544,159
(1,763,895)
Leased plant and equipment
Capitalised leased plant and equipment
Accumulated depreciation
9,611,123
8,780,264
368,209
(133,347)
234,862
456,792
(234,016)
222,776
Total property, plant and equipment
9,845,985
9,003,040
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(a) Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the
end of the current financial year.
Consolidated Consolidated
2009
$
2009
$
Consolidated
2009
$
Parent
2009
$
Parent Parent
2009
$
2009
$
Owned
Leased
Total Owned
Leased
Total
Balance at the beginning of the year
Additions arising from acquisitions
Additions
Disposals
Reclassifications
Depreciation charge for the year
8,780,264
340,023
2,205,991
(165,217)
76,014
(1,625,952)
222,776
-
113,611
-
(69,842)
(31,683)
9,003,040
340,023
2,319,602
(165,217)
6,172
(1,657,635)
Carrying amount at the end of the year 9,611,123
234,862
9,845,985
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
31
Pro-Pac Packaging Limited and Controlled Entities
Notes to the Financial Statements
For the year to 30 June 2009
Note 13: Intangible Assets
Goodwill
Carrying amount at beginning of the year
Acquisition through business combinations
Closing value
At 30 June
Gross
Accumulated impairment losses
Net carrying value
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
36,784,888
1,410,359
14,369,928
22,414,960
38,195,247
36,784,888
38,195,247
-
36,784,888
-
38,195,247
36,784,888
-
-
-
-
-
-
-
-
-
-
-
-
Impairment Test for Goodwill
The Group and all of its subsidiaries are divided into two major cash generating units as these are the smallest groups
of identifiable assets that generate cash inflows that are largely independent of the cash inflows from other assets or
groups of assets. Goodwill acquired through business combinations has been allocated to the cash-generating-units for
impairment testing.
The recoverable amount of the cash generating unit has been determined based on a value-in-use calculation. Based on
the value-in-use calculations undertaken by management, Goodwill has not been impaired (see note 27).
Note 14: Loans to Group Companies
Loans to Group Companies
-
-
11,023,602
10,414,314
32 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
Note 15: Defered Tax Assets
Deferred tax assets
Deferred tax assets comprise:
Provisions and other timing differences
Transactions costs on equity issue
Reconciliation of gross movements
The overall movement in the deferred tax account is as follows:
Opening balance
Arising on acquisition of subsidiaries
Charge to income statement
Reclassification
Charge to equity
Closing balance
Deferred tax assets
The movement in deferred tax assets for each temporary
difference during the year is as follows:
Provisions and other timing differences at 01 July
Reclassification
Arising on acquisition of subsidiaries
Credit/(charge) to income statement
At 30 June
Transaction cost to equity issue at 01 July
Reclassification
Charge to income statement
Credited directly to equity
At 30 June
Note 16: Prepayments
551,868
82,822
634,690
600,133
-
34,557
-
-
634,690
527,140
(85,480)
-
110,208
551,868
72,993
85,480
(75,651)
-
82,822
527,140
72,993
600,133
(4,823)
82,822
77,999
-
72,993
72,993
358,845
257,872
(27,716)
-
11,132
600,133
219,651
-
257,872
49,617
527,140
139,194
-
(77,333)
11,132
72,993
-
(80,474)
85,480
-
139,194
-
(77,333)
-
11,132
77,999
72,993
-
(4,823)
-
-
(4,823)
72,993
85,480
(75,651)
-
-
-
-
-
-
139,194
-
(77,333)
11,132
72,993
82,822
72,993
Prepayment of royalty
The prepayment of the royalty is amortised over the remaining period of the exclusive licence to manufacture and
distribute biodegradable flowable void fill products. The prepaid royalty amortised for the year ended 30 June 2009
amounted to $322,082 (2008: $293,160).
Portion included under non-current assets - prepayments
Portion included under currents assets - prepayments
1,638,658
322,082
Total prepayment of royalty (net of amortisation)
1,960,740
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
33
Pro-Pac Packaging Limited and Controlled Entities
Notes to the Financial Statements
For the year to 30 June 2009
Note 17: Employee Benefits
Executive Long Term Incentive Plan
In March 2005 the Company established an ESPP to encourage employees to share in the ownership of the Company
and promote the long-term success of the Company as a goal shared by the employees. The ESPP has been approved by
members of the Company for the purposes of sections 260C(4)(a), 259B(2)(a), 257B(1) and paragraph (b) of the definition
of employee share scheme buy-back in section 9 of the Corporations Act.
The following are the key terms and conditions of the ESPP:
• No Shares under the ESPP will be allotted unless the requirements of the Corporations Act 2001 and the ASX Listing
Rules have been complied with.
• Performance hurdles apply to the ESPP. The key performance hurdle is that the total shareholder return to shareholders
of the Company must exceed the rate of growth over the same period for the S&P/ASX Small Ordinaries Accumulation
Index (or any equivalent or replacement of that index).
• Shares are allocated to employees at either the value of shares as detailed in the latest disclosure document issued by the
Company or the 5-day weighted average price immediately prior to the offer being made to employee.
• The Company may provide loans to participants to acquire shares under the ESPP. As security for the loans, Participants
will pledge the shares acquired under the ESPP to the Company at the time the loans are provided and will grant a
charge over any benefits attributable to the Shares, including bonus shares, rights, and dividends. Any dividends paid on
the shares by Pro-Pac Packaging Limited are treated as interest on the loan.
• The term of the loans and the vesting period for the shares from the date of issue of the ESPP is 3 years.
• The Shares will be registered in the names of the Participants from allotment, but will remain subject to restrictions on
dealing while they are pledged as security for a loan or subject to performance hurdles specified.
• If the employee leaves the employment of the Group, the loan balance must be repaid in full or the shares would be
surrendered in full settlement of the outstanding loan balance.
• During the year, no further shares were issued to staff and executives under the ESPP, while 1,480,000 shares were
cancelled due to termination of service of staff. At the end of the year 675,000 shares were in issue under the ESPP.
• No other features of the benefit provided (including vesting conditions) were incorporated into the measurement of fair
value.
• The fair value of the employee benefit provided under the ESPP plan is estimated at the date of grant using the
binomial model, and the following assumptions:
Expected volatility (%)
Risk-free interest rate (%)
Expected life of option (years)
Share price ($)
Dividend yield (%)
Probability of achievement (%)
40
7
3
0.328
5.7
30
No other features of the benefit provided (including vesting conditions) were incorporated into the measurement
of fair value.
• Under AIFRS, shares issued to executives under the Long Term Executive Incentive Plan are now considered to be
options granted. As such, the contributed equity (share capital) as well as the related receivable are not recognised on
the balance sheet and do not form part of the asset base in the calculation of the basic net assets and basic net tangible
assets per security. Comparative figures for the prior financial year have been adjusted accordingly.
34 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Note 18: Trade and Other Payables
Unsecured:
Trade payables
GST payable
Other tax payable
Sundry creditors and accruals
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
8,175,857
421,870
243,476
1,092,051
8,156,226
324,934
93,226
1,236,626
-
-
-
122,627
9,933,254
9,811,012
122,627
-
-
-
81,443
81,443
All payables are non interest bearing and are normally settled on 60 day terms. The net of GST payable and GST
receivable is remitted to the appropriate tax body on a quarterly basis.
Note 19: Interest Bearing Loans and Borrowings
Current
Finance lease and hire purchase (see note 26)
Bank loan (secured)
1,298,467
269,758
1,128,781
235,847
Non-current
Finance lease and hire purchase (see note 26)
Bank loan (secured)
1,568,225
1,364,628
1,954,240
7,009,428
1,772,174
5,600,000
8,963,668
7,372,174
-
-
-
-
-
-
-
-
-
-
-
-
a) The bank loan is secured as follows:
first ranking registered equitable mortgage over Pro-Pac Packaging Limited and all wholly owned subsidiaries;
i)
ii) cross interlocking guarantees from Pro-Pac Packaging Limited and all wholly owned subsidiaries.
b) The bank loan is subject to the following covenants:
i)
ii)
it will ensure that for each 2 consecutive reporting periods ending 30 June and 31 December, the ratio of EBITDA
to total debt service will not fall below 2.00:1 and further ensure that the ratio of EBITDA to total debt service will
not fall below 1.5:1 for any 6 month reporting period
it will ensure that for each preceding 12 calendar month period the ratio of total senior debt to EBITDA does not
exceed 3.00:1; and
iii) it will ensure that for each 6 month period ending 30 June and 31 December, the ratio of total tangible assets to
total senior debt will not fall below 1.45:1.
c) The bank loan facility is subject to review on 31 August 2010.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
35
Pro-Pac Packaging Limited and Controlled Entities
Notes to the Financial Statements
For the year to 30 June 2009
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
Note 20: Provisions
Current
Employee entitlements
Opening balance
Arising on acquisition of business combinations
Additional provisions
Amount used
Closing balance
Non-current
Employee entitlements
1,194,918
77,015
1,099,892
(824,523)
364,592
721,039
1,008,387
(899,100)
1,547,302
1,194,918
Opening balance
Arising on acquisition of business combinations
Additional provisions
Amount used
Closing balance
310,496
38,536
71,425
(16,855)
403,602
64,804
266,531
56,789
(77,628)
310,496
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Note 21: Issued Capital
Ordinary shares
Issued and fully paid
48,153,866
47,605,676
48,153,866
47,605,676
Movement in ordinary shares on issue
Number
Share
$ Restrictions
Date
Released
Balance at 1 July 2007
43,255,437
18,729,203
Issue of shares for executive long term incentive plan
Cancellation of shares for Executive Long Term
Incentive Plan
Cost of issuing securities
Future income tax benefit associated with cost of
issuing securities
Shares issued to Plastic Bottle Group shareholders
Shares issued under share placement
Issue of shares for dividend re-investment plan
625,000
-
escrow
Nov 2010
(2,044,311)
-
-
29,738,000
46,486,486
1,967,377
-
(37,107)
11,132
11,003,060
17,200,000
699,388
Balance at 30 June 2008
120,027,989
47,605,676
Cancellation of shares for Executive Long Term
Incentive Plan
Issue of shares for dividend re-investment plan
Balance at 30 June 2009
(1,480,000)
1,612,311
-
548,190
120,160,300
48,153,866
There was no par value for the shares issued. The company has an Executive Long Term Incentive Plan under which the
company’s shares have been granted (refer note 17).
36 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Note 22: Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise bank loans, finance leases and hire purchase contracts, cash and
short-term deposits. The main purpose of these financial instruments is to finance the Group’s operations.
The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from
its operations. It is, and has been throughout the period under review, the Group’s policy that no trading in financial
instruments shall be undertaken.
The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and
credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below.
Interest rate risk
The Group’s exposure to interest rate risk is limited to interest receivable and payable on bank accounts and drawn down
bank loans. The interest rates contained in the finance lease and hire purchase agreements are fixed for the term of those
arrangements. All cash balances are at call and the average interest rate on the deposits is 3.5%.
Foreign currency risk
The Group has transactional currency exposures. Such exposure arises from purchases by the operating unit in currencies
other than the unit’s measurement currency which accounted for 8.0% of purchases of materials and capital items.
Forward contracts are used to manage foreign currency risk.
Commodity price risk
The Group’s exposure to commodity price risk is relatively low although certain petrochemical based products are affected
by the oil price.
Credit risk
The Group has policies in place to ensure that customers who wish to trade on credit terms are subject to credit verification
procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to
bad debts is not significant.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents,
the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying
amount of these instruments. There are no significant concentrations of credit risk within the Group.
Liquidity risk
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans
and finance leases and hire purchase contracts.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
37
Pro-Pac Packaging Limited and Controlled Entities
Notes to the Financial Statements
For the year to 30 June 2009
Note 23: Financial Instruments
Fair values
There are no financial instruments that are carried in the financial statements at other than fair values.
Interest rate risk
The following table sets out the interest rates applicable to financial instruments that are exposed to interest rate risk:
Weighted
average
interest rate
2009
%
3.5
8.6
8.6
5.2
5.2
Floating
interest rate
Fixed
interest rate
2009
$
2009
$
bearing
Non-interest Total carrying
amount per the
balance sheet
2009
$
2009
$
Consolidated
(i) Financial assets
Cash Assets
Receivables
2,167,220
-
-
-
7,237
12,547,094
2,174,457
12,547,094
Total financial assets
2,167,220
-
12,554,331
14,721,551
(ii) Financial liabilities
Finance Leases (current)
Finance Leases (non-current)
Bank loans (current)
Bank loans (non-current)
Payables (current)
-
-
269,759
7,009,428
-
1,298,467
1,954,240
-
-
-
-
-
-
-
9,933,254
1,298,467
1,954,240
269,759
7,009,428
9,933,254
Total financial liabilities
7,279,187
3,252,707
9,933,254
20,465,148
Net financial assets/(liabilities)
(5,111,967)
(3,252,707)
2,621,077
(5,743,597)
Parent
(i) Financial assets
Cash Assets
Intercompany receivables
Total financial assets
(ii) Financial liabilities
Finance Leases (current)
Payables (current)
Total financial liabilities
Net financial assets (liabilities)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,023,602
-
11,023,602
11,023,602
11,023,602
-
-
-
-
-
-
11,023,602
11,023,602
There is no interest rate applicable on receivables or payables.
38 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Floating
interest rate
Fixed
interest rate
2008
$
2008
$
bearing
Non-interest Total carrying
amount per the
balance sheet
2008
$
2008
$
Weighted
average
interest rate
2008
%
Consolidated
(i) Financial assets
Cash Assets
Receivables
Total financial assets
(ii) Financial liabilities
Finance Leases (current)
Finance Leases (non-current)
Bank loans (current)
Bank loans (non-current)
Payables (current)
2,556,080
-
2,556,080
-
-
235,847
5,600,000
-
-
-
-
6,650
11,537,797
2,562,730
11,537,797
11,544,447
14,100,527
1,128,781
1,772,174
-
-
-
-
-
-
-
9,811,012
1,128,781
1,772,174
235,847
5,600,000
9,811,012
7.2
9.5
9.5
8.5
8.5
Total financial liabilities
5,835,847
2,900,955
9,811,012
18,547,814
Net financial assets/(liabilities)
(3,279,767)
(2,900,955)
1,733,435
(4,447,287)
Parent
(i) Financial assets
Cash Assets
Intercompany receivables
Total financial assets
(ii) Financial liabilities
Finance Leases (current)
Finance Leases (non-current)
Payables (current)
Total financial liabilities
Net financial assets/(liabilities)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,414,314
-
10,414,314
10,414,314
10,414,314
-
-
-
-
-
-
-
-
10,414,314
10,414,314
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
39
Pro-Pac Packaging Limited and Controlled Entities
Notes to the Financial Statements
For the year to 30 June 2009
Note 23: Financial Instruments (cont.)
The following table sets out the carrying amount, by maturity, of the financial instruments that are exposed to interest rate risk:
Year ended 30 June 2009
< 1
year
>1-<2
years
>2-<3
years
>3-<4
years
>4-<5
years
> 5
years
Total
Consolidated
Cash assets
Finance leases
Bank loans
Parent
Cash assets
2,167,220
1,298,467
269,759
-
964,778
7,009,428
-
640,026
-
-
287,238
-
-
62,198
-
- 2,167,220
- 3,252,707
- 7,279,187
-
-
-
-
-
-
-
Year ended 30 June 2008
< 1
year
>1-<2
years
>2-<3
years
>3-<4
years
>4-<5
years
> 5
years
Total
Consolidated
Cash assets
Finance leases
Bank loans
Parent
Cash assets
2,556,080
1,128,781
235,847
-
819,835
5,600,000
-
487,598
-
-
295,759
-
-
168,982
-
- 2,556,080
- 2,900,955
- 5,835,847
-
-
-
-
-
-
-
The other financial instruments of the Group and Parent that are not included in the above tables are non-interest bearing and
are therefore not subject to interest rate risk.
Sensitivity analysis
The following table illustrates sensitivities to the Group’s exposures to changes in interest rates and exchange rates. The table
indicates the impact on how profit and equity values reported at balance date would have been affected by changes in the
relevant risk variable that managers considers to be reasonably possible. These sensitivities assume that the movement in a
particular variable is independent of other variables.
2009
+/- 1% in interest rates
+/- 10% in AUD/USD
2008
+/- 1% in interest rates
+/- 10% in AUD/USD
Consolidated Consolidated
Equity
$
Profit
$
Parent
Profit
$
Parent
Equity
$
+/- 74,193
+/- 291,804
+/- 74,193
+/- 291,804
+/- 60,284
+/- 97,316
+/- 60,284
+/- 97,316
-
-
-
-
-
-
-
-
40 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Note 24: Controlled Entities
The consolidated entity includes the following controlled entities. The financial years of all controlled entities are the same
as that of the parent entity. All companies are incorporated in Australia.
Country of
Incorporation
Class of
Shares
Equity
Holding
Direct Controlled Entities:
Pro-Pac Group Pty Ltd
Plastic Bottles Pty Ltd
Controlled Entities owned 100% by Pro-Pac Group Pty Ltd
Pro-Pac Packaging (Aust) Pty Ltd
Pro-Pac (GLP) Pty Ltd
Controlled Entities owned 100% by Plastic Bottles Pty Ltd
Speciality Products and Dispensers Pty Ltd
Australian Bottle Manufacturers Pty Ltd
Ctech Closures Pty Ltd
Bev Cap Pty Ltd
Australia
Australia
Ordinary
Ordinary
Australia
Australia
Ordinary
Ordinary
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Controlled Entities owned 100% by Pro-Pac Packaging (Aust) Pty Ltd
Pro-Pac Packaging Manufacturing (Syd) Pty Ltd
Pro-Pac Packaging Manufacturing (Melb) Pty Ltd
Pro-Pac Packaging Manufacturing (Bris) Pty Ltd
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Controlled Entities owned 100% by Bev Cap Pty Ltd
Great Lakes Moulding Pty Ltd
Finpact (Pty) Ltd
Entities subject to class order relief
Australia
Australia
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
All appropriate documentation has been lodged with ASIC to obtain relief pursuant to Class Order 98/1418 for Pro-Pac
Group Pty Ltd and Plastic Bottles Pty Limited from the Corporations Act 2001 requirements for preparation, audit and
lodgement of their financial reports.
As a condition of the Class Order, Pro-Pac Packaging Limited, Pro-Pac Group Pty Ltd and Plastic Bottles Pty Ltd (the “Closed
Group”), entered into a Deed of Cross Guarantee on 29 June 2009. On 10 September 2009, Pro-Pac Packaging (Aust) Pty
Ltd, joined as a party to the Deed of Cross Guarantee by executing an Assumption Deed with Pro-Pac Packaging Limited.
The effect of the deed is that Pro-Pac Packaging Limited has guaranteed to pay any deficiency in the event of winding
up of the controlled entities or if they do not meet their obligations under the terms of overdrafts, loans, leases or other
liabilities subject to the guarantee. The controlled entities have also given a similar guarantee in the event that Pro-Pac
Packaging Limited is wound up or if it does not meet its obligations under the terms of overdrafts, loans, leases or other
liabilities subject to the guarantee.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
41
Pro-Pac Packaging Limited and Controlled Entities
Notes to the Financial Statements
For the year to 30 June 2009
Note 25: Significant Events during the Year
Acquisition of businesses
Effective 1 November 2008, Pro-Pac Packaging (Aust) Pty Ltd, a wholly owned subsidiary, acquired the business and assets
of a complementary Sydney based, general packaging distributor.
Effective 3 March 2009, Pro-Pac Packaging (Aust) Pty Ltd, acquired the business and assets of the Sydney and Melbourne
based, niche general packaging distributor.
The effect of the above transactions can be summarised as follows:
Assets
Current assets
Inventories
Total current assets
Non-current assets
Property, plant and equipment
Total non-current assets
TOTAL ASSETS
Liabilities
Current liabilities
Other liabilities
Total current liabilities
Non-current liabilities
Other liabilities
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
Consideration paid
Cash
Deferred Consideration
Total
GOODWILL
592,608
592,608
340,023
340,023
932,631
77,015
77,015
38,536
38,536
115,551
817,080
1,757,439
470,000
2,227,439
1,410,359
Profit of the Fastway and Packstrap businesses included in the consolidated profit of the Group since their respective
acquisition dates amounted to $265,000. Had these businesses been consolidated from 1 July 2008, revenue would have
been approximately $77,500,000 and consolidated profit $2,500,000 for the year ended 30 June 2009.
42 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Note 26: Commitments and Contingencies
Operating lease commitments – Group as lessee
The Group has entered into commercial leases which are non cancellable. The leases have varying terms, escalation clauses
and renewal rights. On renewal, the terms of the leases are renegotiated. Renewals are at the option of the specific entity
that holds the lease.
The Group also leases various items of machinery under cancellable operating leases.
There are no restrictions placed upon the lessee by entering into these leases.
Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows:
Within one year
After one year but not more than five years
More than five years
Figures exclude GST
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
1,886,025
1,720,720
-
1,911,529
1,828,633
-
3,606,745
3,740,162
-
-
-
-
-
-
-
-
Finance lease and hire purchase commitments
The Group has finance leases and hire purchase contracts for various items of plant and machinery.
Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net
minimum lease payments are as follows:
2009
Minimum
Payments
$
2009
Present Value
of Payments
$
2008
Minimum
Payments
$
2008
Parent Value
of Payments
$
Within one year
After one year but not more than five years
Total minimum lease payments
1,511,629
2,144,961
3,656,590
1,298,467
1,954,240
1,329,102
2,000,207
3,252,707
3,329,309
1,128,781
1,772,174
2,900,955
Less amounts representing future finance charges
(403,883)
-
(428,354)
-
Present value of minimum lease payments
3,252,707
3,252,707
2,900,955
2,900,955
Representing lease liabilities
Current
Non-current
2009
$
1,298,467
1,954,240
3,252,707
2008
$
1,128,781
1,772,174
2,900,955
The weighted average interest rate implicit in the leases is 8.6%.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
43
Pro-Pac Packaging Limited and Controlled Entities
Notes to the Financial Statements
For the year to 30 June 2009
Note 26: Commitments and Contingencies (cont.)
Contingent Liability
As at balance sheet date the Company issued security deposit guarantees to the value of $46,743 to the landlords of rented premise.
Capital Expenditure Commitments
As at balance sheet date the Company had commitments for future capital expenditure of $290,582.
Note 27: Impairment Testing of Indefinite Lived Goodwill
Carrying amount of goodwill
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
Carrying amount of goodwill
38,195,247
36,784,888
-
-
The Group and all of its subsidiaries are divided into two major cash generating units as these are the smallest groups
of identifiable assets that generate cash inflows that are largely independent of the cash inflows from other assets or
groups of assets. Goodwill acquired through business combinations has been allocated to the cash-generating-units for
impairment testing.
The recoverable amount of the cash generating unit has been determined based on a value-in-use calculation.
Key assumptions used in value in use calculation for 30 June 2009
Cash flow projections are based on financial budgets approved by senior management covering a 12 month period,
extrapolated over 20 years. The period of 20 years has been chosen based on the historical performance of the company
since its commencement in 1987. Assumptions used in the Group’s budgets reflect the Group’s past experience and the
future expectations regarding sales growth, gross margins and increases in overhead.
The discount rate applied to cash flow projections is 8.585% and cash flows beyond the 12 month period are extrapolated
using a zero growth rate for the sake of conservatism. This is despite expectations that the Group will continue to expand its
business. On this basis there has been no impairment of Goodwill during the year.
Note 28: Related Party Disclosure
Parent Entity
Pro-Pac Packaging Limited is the ultimate parent entity of the Group.
Subsidiaries
Interests in subsidiaries are set out in note 24.
44 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Transactions with Directors
The Company or members of the Group have entered into the following agreements with the following directors or entities
related to them: John Read, Elliott Kaplan, Hadrian Morrall and Brandon Penn.
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
John Read
• Consultation and acquisition services fees paid to
CVC Limited (inc GST)
44,550
165,000
• Consultation and facilitation services fees paid to
CVC Private Equity Pty Limited (inc GST)
Elliott Kaplan
• Consultation and facilitation services fees paid to
CVC Private Equity Pty Limited (inc GST) (as shown above)
-
-
82,500
82,500
Hadrian Morrall
• Remuneration paid
• Payments to Morrall Penn Holdings Pty Ltd and
The Penn Morrall Partnership for rental related to
the Sydney and Brisbane properties (inc GST)
Brandon Penn
• Remuneration paid
• Consultation and facilitation services fees paid to
206,938
214,360
732,728
749,448
95,683
-
the Penn Family Trust (inc GST)
58,666
88,000
• Payments to Morrall Penn Holdings Pty Ltd and
The Penn Morrall Partnership for rental related to
the Sydney and Brisbane properties (inc GST)
(as shown above)
732,728
749,448
-
-
-
-
-
-
-
-
165,000
-
-
-
-
-
-
-
Total payments to related parties during the year ended 30 June 2009 was $1,138,565 (2008: $1,299,308).
Note 29: Events after the Balance Sheet Date
There are no significant events subsequent to year end.
Consolidated Consolidated
2008
$
2009
$
Parent
2009
$
Parent
2008
$
Note 30: Auditors’ Remuneration
Amounts received or due and receivable by UHY Haines Norton for:
- audit or review of the financial report
- due diligence relating to acquisitions
89,000
-
100,500
31,000
-
-
-
-
Note 31: Accounting Standards Issued or Amended
A number of accounting standards have either been issued or amended since year end but are not effective for the financial
year ended 30 June 2009. The Group does not at this time believe these have any material impact on the 2010 financial
report or for the ensuing year.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
45
Pro-Pac Packaging Limited and Controlled Entities
Directors’ Declaration
The directors of the company declare that:
1.
the financial statements and notes, as set out on pages 18 to 45, are in accordance with the Corporations Act 2001
and:
a. comply with Accounting Standards; and
b.
give a true and fair view of the Company’s financial position at 30 June 2009 and of its performance for the year
ended on that date of the company and consolidated group;
2.
the Joint Chief Executive Officers and Chief Financial Officer have each declared that:
a.
the financial records of the company for the financial year have been properly maintained in accordance with
section 286 of the Corporations Act 2001;
b.
the financial statements and notes for the financial year comply with the accounting standards; and
c.
the financial statements and notes for the financial year give a true and fair view; and
3.
in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and
when they become due and payable.
The Company and two of its wholly owned subsidiaries, Pro-Pac Group Pty Ltd and Plastic Bottles Pty Limited, have
entered into a Deed of Cross Guarantee under which the Company and these subsidiaries guarantee the debts of each
other. Pro-Pac Packaging (Aust) Pty Ltd, joined as party to the Deed of Cross Guarantee by executing an Assumption Deed
with the Company, subsequent to year end.
At the date of this declaration, there are reasonable grounds to believe that the companies which are party to this Deed
of Cross Guarantee will be able to meet any obligations or liabilities to which they are, or may become subject to, by virtue
of the deed.
This declaration is made in accordance with a resolution of the Board of Directors.
On behalf of the Board this 29th day of September 2009.
John Read
Chairman
Elliott Kaplan
Director
46 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9
Independent Audit Report
To the members of Pro-Pac Packaging Limited
Report on the Financial Report
We have audited the accompanying financial report of
Pro-Pac Packaging Limited (the company) and Controlled
Entities (the consolidated entity), which comprises
the balance sheet as at 30 June 2009, and the income
statement, statement of changes in equity and cash flow
statement for the year ended on that date, a summary of
significant accounting policies and other explanatory notes
and the directors’ declaration of the consolidated entity
comprising the company and the entities it controlled at the
year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the
preparation and fair presentation of the financial report
in accordance with Australian Accounting Standards
(including the Australian Accounting Interpretations) and
the Corporations Act 2001. This responsibility includes
establishing and maintaining internal control relevant
to the preparation and fair presentation of the financial
report that is free from material misstatement, whether
due to fraud or error; selecting and applying appropriate
accounting policies; and making accounting estimates
that are reasonable in the circumstances. In Note 2,
the directors also state, in accordance with Accounting
Standard AASB 101: Presentation of Financial Statements
that compliance with the Australian equivalents to
International Financial Reporting Standards (IFRS)
ensures that the financial report, comprising the financial
statements and notes, complies with IFRS.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial
report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. These
Auditing Standards require that we comply with relevant
ethical requirements relating to audit engagements and plan
and perform the audit to obtain reasonable assurance whether
the financial report is free from material misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks
of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial report
in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control.
An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of
accounting estimates made by the directors, as well as
evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Independence
In conducting our audit, we have complied with the
independence requirements of the Corporations Act 2001.
We confirm that the independence declaration required by
the Corporations Act 2001, provided to the directors of
Pro-Pac Packaging Limited on 24 September 2009, would
be in the same terms if provided to the directors as at the
date of this auditor’s report.
Auditor’s Opinion
In our opinion:
(a)
the financial report of Pro-Pac Packaging Limited
and Controlled Entities is in accordance with the
Corporations Act 2001, including:
(i) giving a true and fair view of the company and
consolidated entity’s financial position as at 30 June
2009 and of their performance for the year ended
on that date; and
(ii) complying with Accounting Standards (including
the Australian Accounting Interpretations) and the
Corporations Regulations 2001;
(b)
the financial report also complies with International
Financial Reporting Standards as disclosed in Note 2.
Report on the Remuneration Report
We have audited the Remuneration Report included in
pages 6 to 9 of the report of the directors for the year ended
30 June 2009. The directors of the company are responsible
for the preparation and presentation of the Remuneration
Report in accordance with s300A of the Corporations Act
2001. Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Auditor’s Opinion
In our opinion the Remuneration Report of Pro-Pac
Packaging Limited for the year ended 30 June 2009,
complies with s300A of the Corporations Act 2001.
M. D. Nicholaeff
Partner
UHY Haines Norton
Chartered Accountants
Signed at Sydney on 29 September 2009.
A n n u a l R e p o r t 0 9 P r o - Pa c Pa c k a g i n g
47
Pro-Pac Packaging Limited and Controlled Entities
Additional Company Information
Additional information required by the Australian Stock Exchange Limited and not shown elsewhere in this report is as follows.
The information is current as at 15 September 2009.
(a) Distribution of equity securities
Table 1: The number of holders, by size of holding, in each class of security are (includes ESPP shares):
Holdings Ranges
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 and over
Totals
Holders
50
145
119
380
53
747
Total Units
8,298
514,335
984,175
12,091,779
106,561,711
120,160,298
%
0.007
0.428
0.819
10.063
88.683
100.00
There are forty four holders of unmarketable parcels totalling 2,702 shares representing 0.002% of the Company’s issued capital.
(b) Twenty largest holders
Table 2: The names of the twenty largest holders, in each class
of security are:
Rank Holder
No. Ordinary Shares
%
(c) Substantial shareholders
The names of substantial shareholders who have notified
the Company in accordance with Section 671B of the
Corporations Act 2001 are:
CVC Limited
27,750,887 ordinary shares
Benammon Pty Limited
22,400,000 ordinary shares
Mr Brandon Penn
18,484,698 ordinary shares
Mr Hadrian Morrall
12,629,985 ordinary shares
CVC Private Equity Limited
7,636,221 ordinary shares
(d) Voting rights
All ordinary shares carry one vote per share without
restriction.
(e) Restricted securities
Restricted securities total 15,544,000. Shares are restricted in
four categories:
ESPP Shares under escrow
until 18 January 2010
ESPP Shares under escrow
until 27 November 2010
100,000 ESPP shares
575,000 ESPP shares
(f) Business objectives
The Company has used its cash and assets that are readily
convertible to cash in a way consistent with its business
objectives.
27,750,887 23.1
22,400,000 18.6
18,484,698 15.4
12,629,985 10.5
6.4
7,636,221
2.8
3,390,892
1 CVC LIMITED
BENNAMON PTY LTD
2
3 MR BRANDON PENN
4 MR HADRIAN MORRALL
5
6
7
CVC PRIVATE EQUITY LIMITED
NIGHTINGALE PARTNERS PTY LTD
CVC SUSTAINABLE
INVESTMENTS LIMITED
1,946,321
DERRIN BROTHERS PROPERTIES LTD 1,230,110
1,200,344
8
9 MRS NATALIE PENN
10
L J K NOMINEES PTY LTD
1,000,000
893,972
867,329
11 POSERE PTY LTD
12
13
511,755
FORTRIS CLEARING NOMINEES
MR ELLIOTT KAPLAN &
MRS BRENDA KAPLAN
CANNINGTON CORPORATION
PTY LIMITED
M J H NIGHTINGALE & CO PTY LTD
SYVEST PTY LTD
KEISER SHIPPING & TRANSPORT
PTY LTD
313,500
ROGAND PTY LTD 313,500
MR NOEL ROBERT INGRAM &
MRS JENNIFER MARY INGRAM
MR ROBERT LINDSAY SHIRLEY
& MRS GINA MICHELLE SHIRLEY
395,843
384,337
318,312
300,000
300,000
14
15
16
17
18
19
20
1.6
1.0
1.0
0.8
0.7
0.7
0.4
0.3
0.3
0.3
0.3
0.3
0.2
0.2
Top 20
Total
102,268,006 85.1
120,160,298
48 P r o - Pa c Pa c k a g i n g A n n u a l R e p o r t 0 9