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P a c k a g i n g L i m i t e d 2
ACN: 112 971 874
For personal use only
Industry leader in the design, engineering and
installation of protective packaging systems
Manufacturer of biodegradable voidfill packaging
Range of technological services including: package
design and development; tool making and custom
molding of blow and injection molded components
General warehouse packaging
One-stop shop for rigid, flexible and industrial
packaging
Extensive range of domestic and imported
containers, closures and decorations
For personal use only Pro-Pac Packaging Limited and Controlled Entities
general information
Directors
David Herlihy (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
Thomsons Lawyers
Australia Square Tower
Sydney NSW 2000
Bankers
Commonwealth Bank of Australia
Premium Business Services
Level 1, 430 Forest Road
Hurstville 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
19
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
20
Consolidated Statement of Cash Flows
21
Consolidated Statement of
Changes in Equity
22 Notes to the Financial Statements
49 Directors’ Declaration
50
Independent Auditor’s Report
51 Additional Company Information
Pro-Pac Packaging Limited ACN: 112 971 874
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
1
For personal use only Chairman’s Report
It gives me great pleasure to present on behalf of the Board of Directors of Pro-Pac Packaging Ltd the Annual Report
for the year ended 30th June 2010.
The year was a particularly dynamic one for the Company in many areas and was capped by record revenue and
earnings results for the period. Revenue was up 23% to $91m and profit before tax up 133% to $7.2m resulting in
earnings per share of 4.1 cents which is significantly higher than the 1.9 cents of the previous year.
As well as meeting the continuing challenges of the business, in a difficult and competitive environment,
management embarked on a significant consolidation of its manufacturing and distributing sites in each state.
Planning was conducted through the financial year and the first amalgamation of sites commenced in Victoria
in June. Subsequent to June 2010, the first stage of the New South Wales site amalgamation began with the
Company planning for further amalgamation in New South Wales and Queensland in the 2011 financial year.
These exercises involve capital expenditure and investment, in some cases without immediate quantifiable return.
We are well aware of this potential drain on short term profitability and planning to keep any adverse impact to a
minimum. Our results in the medium and longer term are however expected to be significantly improved by these
initiatives.
Additionally, we completed two acquisitions during the 2010 financial year, Creative Packaging in Queensland and
Ruscon Plastics in Victoria. Goodman Packaging with operations in New South Wales and Western Australia was
acquired soon after June 2010.
Whilst there can be no certainty as to the economic conditions that will prevail in the 2011 financial year, the Board
and management are clearly focused on building on the 2010 results and initiatives. It is not unreasonable therefore
to expect efficiency gains from the site consolidations and further earnings accretive acquisitions.
During the year, Mr John Read retired as Chairman from the Board after almost five years of dedicated service.
I was appointed to the Board in February 2010 with several changes to the senior management structure following
in March 2010. Mr Brandon Penn as CEO, assumed overall responsibility for the Group while Mr Hadrian Morrall
and Ms Wendy Penn were appointed Managing Directors of the Rigid Packaging and Industrial Packaging divisions,
respectively.
On behalf of the Board I would like to acknowledge and thank management and all staff for their efforts and loyalty
in achieving the outstanding and very pleasing results.
David J Herlihy
Chairman
6 October 2010
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PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only Pro-Pac Packaging Limited and Controlled Entities
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 2010, together with
the Auditors’ report thereon.
Directors
The Directors in office at the date of this report and
during the year are as follows:
David Herlihy
BA (UNSW)
(Chairman and Non-Executive Director – appointed
Director 8 February 2010; Chairman 1 March 2010)
Mr Herlihy is an experienced director and business
professional, whose Board and corporate advisory
responsibilities have covered public, government, “not
for profit” and private enterprise following a successful
career in capital markets. Mr Herlihy has held a diverse
range of directorships over the past three decades,
including as a former Chairman of the State Transit
Authority of NSW. Mr Herlihy is presently Chairman of
the ASX listed entity, Mosaic Oil NL and concurrently
holds directorships on several other unlisted Boards
including representation of international entities.
Mr Herlihy 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, a non-executive director of Dolomatrix
Limited (ASX code: DMX) and a director of a number of
unlisted companies. Mr Kaplan is also a former director
of The Environmental Group Limited (ASX Code: EGL).
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 the founding director of the 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.
John Read
B.Sc. (Hons) (Cant.), MBA (AGSM), FAICD
(Chairman and Non-Executive Director – appointed
23 August 2005; resigned 1 March 2010)
Mr Read was Chairman of the Remuneration Committee
and a member of the Audit Committee until 1 March 2010.
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 Re p o r t 2 010 P R o - PA C P A CkAg i n g
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For personal use only 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:
David Herlihy
Elliott Kaplan
Hadrian Morrall
Brandon Penn
Ordinary Shares
Interest in Ordinary Shares
through Directorships of
Corporate Shareholders
Nil
1,483,096
12,517,618
19,561,565
Nil
8,127,252
-
-
Meetings of Directors
Attendances by each director during the year were:
Board
Number of Meetings
meetings held
while in office
attended meetings held
while in office
Audit committee
Number of Meetings
attended
David Herlihy
John Read
Elliot Kaplan
Hadrian Morrall
Brandon Penn
4
7
10
10
10
4
7
10
10
10
1
4
4
-
-
1
3
4
-
-
Remuneration committee
Number of Meetings
attended
meetings held
while in office
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
Pro-Pac Packaging Limited is a diversified manufacturing
and distribution company, providing innovative, flexible
and rigid packaging solutions for a broad group of
customers. PPG is headquartered in Sydney with
operations in Adelaide, Brisbane, Melbourne and Perth.
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
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PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
entities (“the Group”) for the financial year ended
30 June 2010.
Results for the Year Ended 30 June 2010
The company continued to deliver strong top and bottom
line growth achieving record revenue and earnings for
the 2010 financial year.
Sales grew 23% to $90.9m with EBITDA of $10.1m
increasing by 77%. Profit before tax was up 133% to
$7.2m and after tax was $5m. Earnings per share were
4.1 cents, a significant increase on the 1.9 cents per
share earned in the 2009 financial year.
Significant investment in working capital required for the
continued growth of the Company resulted in cash flow
from operations being restricted to approximately $3.5m.
The first half of the financial year, leading up to the peak
Christmas trading season, traditionally generates stronger
revenues and profits and while this pattern was repeated
in the 2010 financial year, trading for the second half was
satisfactory and in line with expectations.
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
The company continued to expand its operations and
its product offering with the acquisition of Creative
Packaging with effect from 1 March and the acquisition
of Ruscon Plastics with effect from 16 June 2010.
Subsequent to the end of the financial year, the
company announced the acquisition of the business of
Goodman Packaging.
Despite the recent acquisitions being funded partly by
way of debt, the company’s gearing ratio (net interest
bearing debt/shareholders’ equity) remains reasonably
conservative at approximately 22%.
outlook
The strong organic and acquisitive growth has resulted
in the company operating out of a number of disparate
sites in each of its major geographic markets. In relation
to the Industrial division, the company announced in
June the consolidation of its Victorian businesses into
one large modern site and a similar consolidation for
the division’s New South Wales operation is scheduled
for the end of the first quarter of the current financial
year. Plans to consolidate this division’s Queensland
businesses are also currently under review. These
consolidation projects provide the necessary platforms
and infrastructure for the anticipated continued growth
of the businesses and while there are abnormal
relocation and rationalisation costs associated with these
consolidations, there are significant efficiency benefits
and savings to be gained.
The company has forecast further growth for the
2011 financial year and with management focused on
consolidation, operational efficiencies and business
development, the Board is optimistic that earnings per
share before “once off” relocation and consolidation
costs, will continue to grow.
Dividends
Following the payment of a fully franked 1 cent per
share interim dividend on 9 April 2010, the Board
has resolved to declare a fully franked final dividend of
1 cent per share. The company’s dividend reinvestment
plan will apply. The record date for determining
entitlements to the dividend will be 8 September 2010
and the dividend will be paid on 22 October 2010.
Financial Position
The Group’s balance sheet continues to strengthen
as a consequence of its earnings performance with
shareholders’ equity of the consolidated Group
increasing by $7,160,000 to $57,854,000. The Group’s
organic and acquisitive growth required additional
investment in working capital and together with debt
raised to partly fund acquisitions made during the
year, resulted in increased borrowings. Despite this,
the Group’s gearing ratio (net interest bearing debt/
shareholders’ equity) remains reasonably conservative
at approximately 22%.
Capital Structure
During the year 5,747,000 shares were issued under
the Dividend Reinvestment Plan while 7,235,712 shares
were issued as part consideration for the acquisition
of Creative Packaging (Pty) Ltd. At 30 June 2010 there
were 133,143,012 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
Effective 1 July 2010, Pro-Pac Packaging (Aust) Pty Ltd,
acquired the business and assets of Dysher Pty Ltd,
trading as Goodman Packaging, a Sydney and Perth
based distributor of industrial packaging products with
a current annualised turnover of approximately $6.5m.
Likely Developments
The Group proposes to continue with the consolidation
and integration projects discussed under “Outlook”
above and will continue to assess new business
initiatives and synergistic acquisitions.
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;
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
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For personal use only Directors’ Report
• 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.
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 David Herlihy
(Chairman effective 1 March 2010), and Elliott Kaplan
each of whom is a Non-Executive Director.
John Read (former Chairman of the Remuneration
Committee; resigned 1 March 2010).
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
6
PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
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 2010 is detailed
in Table 1 of this Remuneration Report.
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 Officer. The Chief Executive Officer
determines 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 2010 is
set out in Table 1 of this report.
Employment contracts
Chief Executive Officer
The Company has entered into an executive service
agreement with Mr Brandon Penn in relation to his role
as Chief Executive Officer of the Group. The agreement
expires on 31 August 2011. In his executive service
For personal use only Pro-Pac Packaging Limited and Controlled Entities
agreement, Mr Penn agrees that all intellectual property
rights created, developed or acquired by him in the
course of his 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 his employment
contract (less any served notice period) Mr Penn will not
compete with Pro-Pac in Australia.
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
1,325,000 shares issued to employees under the Plan.
(675,000 shares have been returned to the Company
pending cancellation at the next Annual General Meeting
of the shareholders.)
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.
• 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 2010
David Herlihy
– Chairman (non-executive)
Elliot Kaplan
– Director (non-executive)
Hadrian Morrall – Director (executive - appointed
Divisional Managing Director
1 March 2010)
Brandon Penn
– Director (executive - appointed
Group CEO 1 March 2010)
Wendy Penn
– Divisional Managing Director
(appointed 1 March 2010, previously
CEO from 1 April 2008 until
28 February 2009 and Divisional
director until 28 February 2010)
Mark Saus
– Chief Financial Officer
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
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For personal use only 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
David Herlihy
John Read
Elliott Kaplan
2010
2009
2010
2009
2010
2009
Hadrian Morrall 2010
2009
Brandon Penn
Wendy Penn
Mark Saus
2010
2009
2010
2009
2010
2009
Total
2010
Remuneration 2009
$
22,500
-
36,667
55,000
40,000
40,000
197,003
187,023
224,185
91,028
55,000
165,000
171,739
154,380
747,094
692,431
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
3,300
4,950
-
-
17,861
19,915
19,816
4,655
-
-
15,350
18,416
56,327
47,936
$
-
-
-
-
-
-
22,980
16,823
-
-
-
-
-
-
22,980
16,823
$
-
-
-
-
-
-
-
-
-
-
-
-
1,218
2,160
1,218
2,160
$
22,500
-
39,967
59,950
40,000
40,000
237,844
223,761
244,001
95,683
55,000
165,000
188,307
174,956
827,619
759,350
-
-
-
-
-
-
-
-
-
-
-
-
6.0%
1.2%
-
-
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For personal use only
Pro-Pac Packaging Limited and Controlled Entities
Options issued as part of remuneration for the year ended 30 June 2010
No options were granted as remuneration during the year ended 30 June 2010.
Shares and Loans issued under the ESPP during the year ended 30 June 2010
No shares or loans were issued under the ESPP during the year ended 30 June 2010.
ESPP Shares of Key Management Personnel as at the date of this report
2010
Mark Saus
Total
ESPP Shares
(number)
ESPP Shares
$
ESPP Loans
Outstanding
$
300,000
300,000
97,500
97,500
97,500
97,500
ESPP Issue Price
$
ESPP Expiry Date
$
0.325
30 August 2013
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 $740,076 (inc. GST) to entities associated with directors Hadrian Morrall and
Brandon Penn for property rental and outgoings, based on normal commercial terms and conditions.
Share options
During the prior 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.
Rounding of Accounts
The company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments
Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Class
Order to the nearest thousand dollars, or in certain cases, the nearest dollar.
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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 2010 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 27th day of September 2010.
Elliott Kaplan
Director
Hadrian Morrall
Director
10 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
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 2010, 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 2010.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
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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 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
12 P r o - Pa c Pa c k a g i n g an n u a l r e p o r t 2 010
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 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.
For personal use only Pro-Pac Packaging Limited and controlled Entities
The primary role of the Board is the protection and
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. (ppgaust.com.au)
Pro-Pac has in place systems designed to fairly review
and actively encourage enhanced Board and manage-
ment 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
Elliott Kaplan
Non-Executive Director
Hadrian Morrall
Executive Director
Brandon Penn
Executive Director
Reason for non-compliance
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 Chairman and Non-Executive Director, Mr David
Herlihy is considered to be an independent Director.
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.
an n u a l r e p o r t 2 010 Pro - Pa c Pa c k a g i n g
13
For personal use only Corporate governance Statement
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.
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.
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
• 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.
14 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
Name
David Herlihy
Elliott Kaplan
Hadrian Morrall
Brandon Penn
Term in office
7 months
68 months
37 months
37 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 2010:
• having a majority of independent Directors;
• 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 ora summary
of the code as to:
- the practices necessary to maintain confidence
in the company’s integrity;
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
- 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.
In line with ASX Principle 3, the Board has established a
Code of Conduct and Securities Trading Policy.
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 4.3: The audit committee should
have a formal charter.
• 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.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
15
For personal use only
Corporate governance Statement
The Committee comprises Mr Kaplan and Mr Herlihy.
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.
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.
16 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
• 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.
For personal use only Pro-Pac Packaging Limited and Controlled Entities
• 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, 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. The board has received the relevant
declarations on 24 September 2010.
Note 21 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.
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 Herlihy and Mr Kaplan. In addition to the
members, the Chief Executive is invited to the meetings
at the discretion of the Committee. Refer schedule of
meetings of directors on page 4.
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.
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.
• 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
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.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
17
For personal use only Consolidated Statement of Comprehensive income
For the year to 30 June 2010
Notes
Consolidated
2010
$000’s
Consolidated
2009
$000’s
Revenue from continuing operations
Sale of goods
Interest income
Total Revenue
Expenses
Amortisation of prepaid royalty
Depreciation expense
Distribution costs
Employee benefits expense
Finance costs
Occupancy costs
Other expenses from ordinary activities
Raw materials and consumables used
Total Expenses
Profit before income tax from continuing operations
Income tax expense
Profit after tax expense for the year
Other comprehensive income
Total comprehensive income for the year
15
4
5
90,944
72
91,016
322
1,959
3,389
16,189
695
2,992
5,594
52,714
83,854
7,162
(2,085)
5,077
-
5,077
73,873
72
73,945
322
1,658
2,785
14,080
708
2,465
4,947
43,900
70,865
3,080
(817)
2,263
-
2,263
Earnings per share (cents per share)
- Basic earnings per share
- Diluted earnings per share
6
6
4.11
4.11
1.90
1.90
The above statements should be read in conjunction with the accompanying notes.
18 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
Consolidated Statement of Financial Position
As at 30 June 2010
Notes
Consolidated
2010
$000’s
Consolidated
2009
$000’s
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepayments
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Prepayments
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
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued Capital
Reserves
Retained earnings
TOTAL EQUITY
8
10
11
15
12
13
14
15
17
18
19
5
19
18
20
2,071
15,301
11,074
1,095
29,541
11,930
44,477
805
1,317
58,529
88,070
11,717
1,503
1,837
1,536
16,593
437
13,186
13,623
30,216
57,854
52,057
30
5,767
57,854
2,175
12,547
7,622
766
23,110
9,846
38,195
635
1,639
50,315
73,425
9,933
1,568
1,547
315
13,363
404
8,964
9,368
22,731
50,694
48,154
20
2,520
50,694
The above statement of financial position should be read in conjunction with the accompanying notes.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
19
For personal use only
Consolidated Statement of Cash Flows
For the year to 30 June 2010
Notes
Consolidated
2010
$000’s
Consolidated
2009
$000’s
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
9
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
Net cash flows used in investing activities
Cash flows from financing activities
Payment of hire purchase and finance lease liabilities
Finance leases raised
Proceeds from borrowing
Proceeds from issue of shares
Dividend paid
Net cash flows provided/(used in) by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Cash and cash equivalents at end of financial year
8
Non-cash financing transactions
Hire purchase and finance lease liabilities raised
Issue of shares for dividend re-investment plan
90,509
(85,433)
72
(673)
(984)
3,491
(3,038)
232
(4,945)
(1,373)
(9,124)
(1,853)
2,079
3,230
2,533
(459)
5,530
(103)
2,174
2,071
2,079
1,371
73,326
(69,090)
72
(699)
(797)
2,812
(2,320)
155
-
(2,227)
(4,392)
(1,327)
1,678
1,477
-
(637)
1,191
(388)
2,563
2,174
1,678
548
The above statements should be read in conjunction with the accompanying notes.
20 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
Consolidated Statement of Changes in Equity
For the year to 30 June 2010
Issued
capital
$000’s
Retained
earnings
$000’s
Option
reserve
$000’s
Total
equity
$000’s
Consolidated
Balance as at 1 July 2008
47,606
1,442
Issue of shares for dividend re-investment plan
Dividend paid
Recognition of share based payments
Total comprehensive income for the year
Balance as at 30 June 2009
Issue of shares for dividend re-investment plan
Dividend paid
Shares issued to Creative Packaging vendors
Recognition of share based payments
Total comprehensive income for the year
Balance as at 30 June 2010
548
-
-
-
48,154
1,371
-
2,532
-
-
52,057
-
(1,185)
-
2,263
2,520
-
(1,830)
-
-
5,077
5,767
The above statement should be read in conjunction with the accompanying notes.
9
-
-
11
-
20
-
-
-
10
-
30
49,057
548
(1,185)
11
2,263
50,694
1,371
(1,830)
2,532
10
5,077
57,854
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
21
For personal use only
notes to the Financial Statements
For the year to 30 June 2010
note 1: Corporate information
The financial report of Pro-Pac Packaging Limited and
its subsidiaries (“the Group”) for the year ended
30 June 2010 was approved for issue in accordance with
a resolution of the Directors on 27 September 2010.
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) New, revised or amending Standards and
Interpretations
The consolidated entity has adopted all of the new,
revised or amending Standards and Interpretations
issued by the Australian Accounting Standards Board
(‘AASB’) that are relevant and effective for the current
reporting period.
Any significant impact on the accounting policies of
the consolidated entity from the adoption of these
accounting standards and interpretations are disclosed in
the relevant accounting policy.
The adoption of these Standards and Interpretations
did not have any impact on the financial performance
or position of the consolidated entity. The following
Standards and Interpretations are most relevant to the
consolidated entity:
AASB 101 Presentation of Financial Statements
(‘AASB 101’)
The consolidated entity has applied the revised AASB
101 from 1 July 2009 and now presents a statement
of comprehensive income, which incorporates the
statement of comprehensive income and all non-owner
changes in equity. As a result, the consolidated entity
now presents all owner changes in the statement of
changes in equity. The statement of financial position is
now referred to as the statement of financial position.
There is a requirement to present a third statement of
financial position if there is restatement of comparatives
through either a correction of error, change in accounting
22 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
policy or a reclassification. The statement of cash flow is
now referred to as the statement of cash flows.
AASB 3 Business Combinations (‘AASB 3’)
The consolidated entity has applied the revised AASB 3
for all new business combinations acquired on or after
1 July 2009. As well as the expensing of transaction
costs and minority interest now being referred to as
non-controlling interest, there are a number of significant
changes - refer to the ‘business combinations’
accounting policy for further details.
AASB 127 Consolidated and Separate Financial
Statements (‘AASB 127’)
The consolidated entity has applied the revised AASB
127 from 1 July 2009. The revised standard requires
changes in ownership interest of a subsidiary without a
change in control to be accounted for as a transaction
with owners in their capacity as owners. It also changes
the accounting for losses incurred by a partially owned
subsidiary as well as the loss of control of a subsidiary -
refer to the ‘principles of consolidation’ accounting policy
for further details.
AASB 2008 -7 Amendments to Australian Accounting
Standards - Cost of an Investment in a Subsidiary,
Jointly Controlled Entity or Associate
This amendment is applicable from 1 July 2009 and
removes references to the cost method. The distinction
between pre and post acquisition profits is no longer
relevant as all dividends are now recognised in profit or
loss - refer to the ‘principles of consolidation’ accounting
policy for further details.
AASB 7 Financial Instruments: Disclosure (‘AASB 7’)
This amended standard is applicable from 1 July 2009
and requires additional disclosure about fair value
measurement of financial instruments, using a three level
fair value hierarchy. The amendments also clarify the
disclosure requirements about liquidity risks for derivative
transactions and assets used for liquidly management.
AASB 8 Operating Segments (‘AASB 8’)
The consolidated entity has applied AASB 8, which
replaces AASB 114 ‘Segment Reporting’, from 1 July
2009. AASB 8 requires a management approach to
segment reporting based on the information reported
internally. Refer to note 3.
(b) 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
For personal use only Pro-Pac Packaging Limited and Controlled Entities
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.
In accordance with the Corporations Act 2001,
these financial statements present the results of the
consolidated entity only, supplementary information
about the parent entity are disclosed in note 28.
value or at the proportionate share of the acquiree’s
identifiable net assets. All acquisition costs are expensed
as incurred.
Where the business combination is achieved in stages,
the consolidated entity remeasures its previously held
equity interest in the acquiree at the acquisition-date fair
value and the difference between the fair value and the
previous carrying amount is recognised in profit or loss.
(c) Statement of compliance
The financial report complies with Australian Accounting
Standards. This ensures that the financial report,
comprising the financial statements and notes thereto,
complies with International Financial Reporting Standards.
(d) Basis of consolidation
The consolidated financial statements comprise the
financial statements of Pro-Pac Packaging Limited and
its subsidiaries as at 30 June 2010.
A list of controlled entities is contained in Note 23 to the
Financial Statements.
The financial statements of subsidiaries are prepared for
the reporting year ended 30 June 2010 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.
(e) Business combinations
Change in accounting policy from 1 July 2009
The acquisition method of accounting is used to account
for business combinations regardless of whether equity
instruments or other assets are acquired.
The consideration transferred is the sum of the
acquisition-date fair values of the assets transferred,
equity instruments issued or liabilities incurred by the
acquirer to former owners of the acquiree and the
amount of any non-controlling interest in the acquiree.
For each business combination, the non-controlling
interest in the acquiree is measured at either fair
Contingent consideration to be transferred by the
acquirer is recognised at the acquisition-date fair value.
Subsequent changes in the fair value of contingent
consideration classified as an asset or liability is
recognised in profit or loss. Contingent consideration
classified as equity is not remeasured and its
subsequent settlement is accounted for within equity.
The difference between the acquisition-date fair value
of assets acquired, liabilities assumed and any non-
controlling interest in the acquiree and the fair value of
the consideration transferred and the fair value of any
pre-existing investment in the acquiree is recognised
as goodwill. If the consideration transferred and the
pre-existing fair value is less than the fair value of
the identifiable net assets acquired, being a bargain
purchase to the acquirer, the difference is recognised
as a gain directly in profit or loss by the acquirer on
the acquisition-date, but only after a reassessment of
the identification and measurement of the net assets
acquired, the non-controlling interest in the acquiree,
if any, the consideration transferred and the acquirer’s
previously held equity interest in the acquirer.
Business combinations are initially accounted for on a
provisional basis. The acquirer retrospectively adjusts
the provisional amounts recognised and also recognises
additional assets or liabilities during the measurement
period, based on new information obtained about the
facts and circumstances that existed at the acquisition-
date. The measurement period ends on either the earlier
of (i) 12 months from the date of the acquisition or (ii)
when the acquirer receives all the information possible
to determine fair value.
The change in accounting policy has been applied
prospectively.
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.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
23
For personal use only notes to the Financial Statements
For the year to 30 June 2010
note 2: Summary of Significant
Accounting Policies (cont.)
(f) 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 proceeds and the carrying amount of the item)
is included in the statement of comprehensive income 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.
(g) Borrowing costs
Borrowing costs are recognised as an expense when
incurred.
(h) 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
24 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
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.
(i) 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.
(j) 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.
For personal use only Pro-Pac Packaging Limited and Controlled Entities
(k) 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.
(l) Cash and cash equivalents
Cash and short-term deposits in the statement of
financial position 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 Statement of cash flow, cash and
cash equivalents consist of cash and cash equivalents as
defined above, net of outstanding bank overdrafts.
(m) 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.
(n) 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.
(o) 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.
(p) 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.
(q) 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.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
25
For personal use only notes to the Financial Statements
For the year to 30 June 2010
note 2: Summary of Significant
Accounting Policies (cont.)
(r) 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.
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.
26 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
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.
Pro-Pac Packaging Ltd (the “head entity”) and its wholly
owned Australian controlled entities have formed a tax
consolidated group under the tax consolidated regime.
Each entity in the Group recognizes 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.
(s) 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 statement of financial position. Cash
flows are included in the Statement of cash flow 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.
(t) 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
For personal use only Pro-Pac Packaging Limited and Controlled Entities
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.
(u) 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.
(v) 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 statement of
comprehensive income.
(w) 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 has identified its operating segments based
on the internal reports that are reviewed and used by
the Board of Directors (chief operating decision makers)
in assessing performance and determining the allocation
of resources.
The Group is managed primarily on the basis of product
category and service offerings since the diversification of
the Group’s operations inherently have notably different
risk profiles and performance assessment criteria.
Operating segments are therefore determined on the
same basis.
Reportable segments disclosed are based on
aggregating operating segments where the segments
are considered to have similar economic characteristics
and are also similar with respect to the following:
• The products sold and/or services provided by the
segment;
• The manufacturing process.
Types of products and services by segment
Industrial packaging
The Industrial packaging division manufactures, sources
and distributes industrial packaging materials and
related products and services. All products produced or
distributed are aggregated as one reportable segment
as the products are similar in nature and are distributed
to similar types of customers. The industrial packaging
segment also installs, supports and maintains packaging
machines.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
27
For personal use only notes to the Financial Statements
For the year to 30 June 2010
Unallocated items
The following items of revenue, expenses, asset and
liabilities are not allocated to operating segments as they
are not considered part of the core operations of any
segment:
• impairment of assets and other non-recurring revenue
or expenses;
• income tax expense;
• deferred tax asset and liabilities;
• current tax liabilities;
• other financial liabilities;
• intangible assets.
note 3: Segment information (cont.)
Rigid packaging
The Rigid packaging division manufactures, sources and
distributes containers and closures and related products
and services. All products produced or distributed
are aggregated as one reportable segment as the
products are similar in nature and are manufactured and
distributed to similar types of customers.
Basis of accounting for purposes of reporting by
operating segments
Accounting policies adopted
Unless stated otherwise, all amounts reported to the
Board of Directors as the chief decision maker with
respect to operating segments are determined in
accordance with accounting policies that are consistent
to those adopted in the annual financial statements of
the Group.
Inter-segment transactions
An internally determined transfer price is set for all inter-
entity sales. This price is re-set quarterly and is based on
what would be realised in the event the sale was made
to an external party at arm’s length. All such transactions
are eliminated on consolidation for the Group’s financial
statements.
Inter-segment loans payable and receivable are initially
recognised at the consideration received net of
transaction costs. If inter-segment loans receivable and
payable are not on commercial terms, these are not
adjusted to fair value based on market interest rates.
This policy represents a departure from that applied to
the statutory financial statements.
Segment Assets
Where an asset is used across multiple segments, the
asset is allocated to the segment that receives the
majority of economic value from the asset. In the majority
of instances segment assets are clearly identifiable on the
basis of their nature and physical location.
Unless indicated otherwise in the assets role, investments
in financial assets, deferred tax assets and intangible
assets have not been allocated to operating segments.
Segment Liabilities
Liabilities are allocated to segments where there is
direct nexus between the incurrence of the liability and
the operations of the segment. Borrowings and tax
liabilities are generally considered to relate to the Group
as a whole and are not allocated. Segment liabilities
include trade and other payables and certain borrowings.
28 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only Pro-Pac Packaging Limited and Controlled Entities
note 3: Segment information (cont.)
Comparative information
This is the first reporting period in which AASB 8: Operating Segments has been adopted. Comparative information
has been stated to conform to the requirements of the Standard.
Rigid
packaging
$000’s
Industrial
packaging
$000’s
Total
$000’s
46,917
6,910
53,827
44,027
2,458
90,944
9,368
46,485
100,312
5,658
3,870
(i) Segment performance
Twelve months ended 30.06.2010
Revenue
External sales
Inter-segment sales
Total segment revenue
Reconciliation of segment revenue to group revenue
Interest Income
Inter-segment elimination
Total group revenue
Segment net profit before tax
Reconciliation of segment result to group net profit before tax
Amounts not included in segment result but reviewed by the Board:
Unallocated items:
* Corporate and finance charges
* Head office costs
* Inter-segment elimination
Net profit before tax from continuing operations
Twelve months ended 30.06.2009
Revenue
External sales
Inter-segment sales
Total segment revenue
Reconciliation of segment revenue to group revenue
Interest Income
Inter-segment elimination
Total group revenue
Segment net profit before tax
43,094
5,306
48,400
30,779
1,958
32,737
4,031
1,550
Reconciliation of segment result to group net profit before tax
Amounts not included in segment result but reviewed by the Board:
Unallocated items:
* Corporate and finance charges
* Head office costs
* Inter-segment elimination
Net profit before tax from continuing operations
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
29
72
(9,368)
91,016
9,528
(994)
(1,286)
(86)
7,162
73,873
7,264
81,137
72
(7,264)
73,945
5,581
(1,164)
(1,325)
(12)
3,080
For personal use only
notes to the Financial Statements
For the year to 30 June 2010
note 3: Segment information (cont.)
As at 30.06.2010
(ii) Segment assets
Reconciliation of segment assets to group assets
Inter-segment eliminations
Unallocated assets
* Deferred tax assets
* Intangibles
* Other
Total group assets from continuing operations
Rigid
packaging
$000’s
Industrial
packaging
$000’s
Total
$000’s
20,732
20,449
41,181
(1,786)
48,675
805
44,477
3,393
88,070
Segment assets
19,643
13,605
33,248
Reconciliation of segment assets to group assets
Inter-segment eliminations
Unallocated assets
* Deferred tax assets
* Intangibles
* Other
Total group assets from continuing operations
As at 30.06.2010
(iii) Segment liabilities
Reconciliation of segment liabilities to group liabilities
Inter-segment eliminations
Unallocated liabilities
* Deferred tax liabilities
* Other liabilities
Total group liabilities from continuing operations
As at 30.06.2009
Segment liabilities
Reconciliation of segment liabilities to group liabilities
Inter-segment eliminations
Unallocated liabilities
* Deferred tax liabilities
* Other liabilities
Total group liabilities from continuing operations
(2,476)
42,653
635
38,195
3,823
73,425
10,663
9,012
19,675
(1,630)
12,171
-
12,171
30,216
10,299
7,124
17,423
(2,408)
7,716
-
7,716
22,731
(iv) The Group operates solely within Australia. As such there is only one geographical segment.
30 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
Consolidated
2010
$000’s
Consolidated
2009
$000’s
695
99
2,769
313
2,255
-
(170)
2,085
708
189
2,386
145
901
(50)
(34)
817
note 4: 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 5: income Tax
Major components of income tax for the year ended 30 June are:
Statement of comprehensive income
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 statement of comprehensive income
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 2010 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
7,162
2,149
(64)
-
3,080
924
(57)
(50)
At effective income tax rate of 29.1% (2009: 26.5%)
Income tax expense reported in statement of comprehensive income
2,085
2,085
817
817
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 2010 and 30 June 2009.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
31
For personal use only
notes to the Financial Statements
For the year to 30 June 2010
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:
Consolidated
2010
Consolidated
2009
Net profit attributable to equity holders ($000’s)
Weighted average number of ordinary shares for basic earnings per share
5,077
123,505,913
2,263
119,011,351
Basic earnings per share (cents per share) *
Diluted earnings per share (cents per share) *
4.11
4.11
1.90
1.90
* 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 17 August 2010, the Company declared a fully franked final dividend of 1.0 cent per share. The record date for
determining entitlements to the dividend was 8 September 2010 and the dividend will be paid on 22 October 2010.
The Company’s Dividend Reinvestment Plan was applied to the final dividend. When combined with PPG’s interim
dividend of 1.0 cent, paid on 9 April 2010, this brings total fully franked dividends for the 2009/10 financial year to
2.0 cents per share.
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 2010 and 30 June 2009. As such franking credits arising
from the other Group companies totalling $9,016,823 (2009: $8,585,311) will be available to the parent entity.
Franking credits available at the reporting date based on a tax rate of 30%
Franking credits that will arise from the payment of the amount of the provision
for income tax at the reporting date based on a tax rate of 30%
Franking credits available for subsequent financial years based on a tax rate of 30%
Franking debits that will arise from the payment of dividends declared subsequent
to the reporting date based on a tax rate of 30%
Net franking credits available based on a tax rate of 30%
2010
$000’s
8,585
1,215
9,800
(784)
9,016
2009
$000’s
8,390
709
9,099
(514)
8,585
32 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
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
Consolidated
2010
$000’s
Consolidated
2009
$000’s
2,071
2,175
The fair value of cash and cash equivalents
2,071
2,175
Reconciliation of cash
For the purposes of the Statement of cash flow, cash and
cash equivalents comprise the following at 30 June:
Cash at bank and in hand
2,071
2,175
note 9: Cash Flow information
a) Reconciliation from the net profit after tax to the net cash flows from operations
Net profit after tax
Add/(Less) non-cash items:
Depreciation and amortisation of plant and equipment
Amortisation of pre paid royalty
(Profit)/Loss on disposal of assets
Movement in income tax provision
Movement in deferred tax assets & liabilities
Movement in provision for bad debts
Other non-cash movements
Changes in assets and liabilities:
Receivables
Inventories
Payables
Provisions
Prepayments
Net cash flows from operating activities
5,077
1,959
322
31
1,272
(170)
(60)
10
(1,152)
(2,927)
(861)
231
(241)
3,491
2,263
1,658
322
(5)
54
(35)
97
20
(1,106)
(853)
231
330
(164)
2,812
b) Non-cash financing and investing activities
1. During the year, the company issued shares to the value of $1,370,250
(2009: $548,190) in terms of the dividend reinvestment plan.
2. During the year, the consolidated Group acquired plant with an aggregate
value of $2,079,290 (2009: $1,678,307) by means of finance leases.
These acquisitions are not reflected in the statement of cash flow.
c) Credit standby arrangements with banks
Credit facility
Amount utilised
Loan facilities
Amount utilised
1,300
-
16,000
10,532
1,050
270
12,000
7,009
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
33
For personal use only
notes to the Financial Statements
For the year to 30 June 2010
note 10: Trade and other Receivables
Current:
Trade receivables
Provision for impairment of receivables
Other debtors
Total current receivables
Consolidated
2010
$000’s
Consolidated
2009
$000’s
15,044
(191)
448
15,301
12,424
(199)
322
12,547
Trade receivables are non-interest bearing and are generally on terms between 30 and 60 days.
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
$000’s
$000’s
Past due but
not impaired
> 90
$000’s
Past due but
not impaired
61 - 90
$000’s
Within initial
trade terms
$000’s
Consolidated
2010
Trade and term receivables
Other receivables
15,044
448
191
-
Total
15,492
191
106
-
106
892
-
13,855
488
892
14,343
2009
Trade and term receivables
Other receivables
12,424
322
199
-
22
-
976
-
11,227
322
Total
12,746
199
22
976
11,549
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.
34 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
note 11: inventories
Raw materials (lower of cost and net realisable value)
Finished goods (lower of cost and net realisable value)
Total inventories at lower of cost and net realisable value
note 12: Property, Plant and Equipment
At 30 June
Plant and equipment
At cost
Accumulated depreciation
Leased plant and equipment
Capitalised leased plant and equipment
Accumulated depreciation
Total property, plant and equipment
Consolidated
2010
$000’s
Consolidated
2009
$000’s
801
10,273
11,074
16,627
(4,823)
11,804
217
(91)
126
11,930
831
6,791
7,622
12,854
(3,243)
9,611
368
(133)
235
9,846
(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.
Balance at the beginning of the year
Additions arising from acquisitions
Additions
Disposals
Reclassifications
Depreciation charge for the year
Carrying amount at the end of the year
Consolidated
2010
$000’s
Owned
9,611
1,358
2,888
(263)
90
(1,880)
11,804
Consolidated
2010
$000’s
Leased
235
-
60
-
(90)
(79)
126
Consolidated
2010
$000’s
Total
9,846
1,358
2,948
(263)
-
(1,959)
11,930
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
35
For personal use only
notes to the Financial Statements
For the year to 30 June 2010
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
2010
$000’s
Consolidated
2009
$000’s
38,195
6,282
44,477
44,477
-
44,477
36,785
1,410
38,195
38,195
-
38,195
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 26).
note 14: Deferred 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
Charge to statement of comprehensive income
Closing balance
729
76
805
635
170
805
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
Credit/(charge) to statement of comprehensive income
At 30 June
Transaction cost to equity issue at 01 July
Reclassification
Charge to statement of comprehensive income
At 30 June
36 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
552
-
177
729
83
-
(7)
76
552
83
635
600
35
635
527
(85)
110
552
73
85
(75)
83
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
note 15: Prepayments
(a) Current prepayments
Other prepayments
Prepaid royalty
Total current prepayments
(b) Non-current prepayments
Prepaid royalty
Total non-current prepayments
Consolidated
2010
$000’s
Consolidated
2009
$000’s
773
322
1,095
1,317
1,317
444
322
766
1,639
1,639
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 2010
amounted to $322,082 (2009: $322,082).
note 16: 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. At the end of the year
550,000 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.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
37
For personal use only
notes to the Financial Statements
For the year to 30 June 2010
note 16: Employee Benefits (cont.)
• 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,
share price, dividend yield and probability of achievement.
• Under Australian Accounting Standards, 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 statement of financial position 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.
note 17: Trade and other Payables
Unsecured:
Trade payables
GST payable
Other tax payable
Sundry creditors and accruals
Consolidated
2010
$000’s
Consolidated
2009
$000’s
9,326
423
218
1,750
11,717
8,176
422
243
1,092
9,933
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 18: interest Bearing Loans and Borrowings
Current
Finance lease and hire purchase (see note 25)
Bank loan (secured)
Non-current
Finance lease & hire purchase (see note 25)
Bank loan (secured)
1,503
-
1,503
2,654
10,532
13,186
1,298
270
1,568
1,955
7,009
8,964
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 2011.
38 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
Consolidated
2010
$000’s
Consolidated
2009
$000’s
1,547
71
1,184
(965)
1,837
404
21
116
(104)
437
1,195
77
1,100
(825)
1,547
311
39
71
(17)
404
52,057
48,154
note 19: Provisions
Current
Employee entitlements
Opening balance
Arising on acquisition of business combinations
Additional provisions
Amount used
Closing balance
Non-current
Employee entitlements
Opening balance
Arising on acquisition of business combinations
Additional provisions
Amount used
Closing balance
note 20: issued Capital
Ordinary shares
Issued and fully paid
Movement in ordinary shares on issue
Number
$000’s
Balance at 1 July 2008
Cancellation of shares for Executive Long Term Incentive Plan
Issue of shares for dividend re-investment plan
Balance at 30 June 2009
Shares issued to Creative Packaging vendors
Issue of shares for dividend re-investment plan
Balance at 30 June 2010
120,027,989
(1,480,000)
1,612,311
120,160,300
7,235,712
5,747,000
133,143,012
47,606
-
548
48,154
2,533
1,370
52,057
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 16).
Share buy-back
There is no current on-market share buy-back.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
39
For personal use only
notes to the Financial Statements
For the year to 30 June 2010
note 20: issued Capital (cont.)
Capital risk management
The consolidated entity’s and parent entity’s objectives when managing capital are to safeguard their ability to
continue as a going concern, so that they can provide returns for shareholders and benefits for other stakeholders and
to maintain an optimum capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the consolidated entity and parent entity may adjust the amount of
dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The consolidated entity and parent entity would look to raise capital when an opportunity to invest in a business or
company was seen as value adding relative to the current parent entity’s share price at the time of the investment.
The consolidated entity and parent entity are not actively pursuing additional investments in the short term as it
continues to integrate and grow its existing businesses in order to maximise synergies.
The consolidated entity and parent entity are subject to certain financing arrangements covenants and meeting these
are given priority in all capital risk management decisions. There have been no events of default on the financing
arrangements during the financial year.
The capital risk management policy remains unchanged from the 30 June 2009 Annual Report.
note 21: 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 4.5%.
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 15.7% 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.
40 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only Pro-Pac Packaging Limited and Controlled Entities
note 22: 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:
Floating
interest rate
Fixed
interest rate
Non-interest
bearing
Total carrying
amount per the
statement of
financial position
Weighted
average
interest rate
2010
$000’s
2010
$000’s
2010
$000’s
2010
$000’s
2010
%
Consolidated
(i) Financial assets
Cash assets
Receivables
2,062 -
-
-
9
15,301
2,071
15,301
Total financial assets
2,062
-
15,310
17,372
(ii) Financial liabilities
Finance leases (current)
Finance leases (non-current)
Bank loans (current)
Bank loans (non-current)
Payables (current)
Total financial liabilities
-
-
-
10,532
-
10,532
1,503
2,654
-
-
-
4,157
Net financial assets/(liabilities)
(8,470)
(4,157)
There is no interest rate applicable on receivables or payables.
-
-
-
-
11,717
11,717
3,593
1,503
2,654
-
10,532
11,717
26,406
(9,034)
4.5
9.7
9.7
6.9
2009
$000’s
2009
$000’s
2009
$000’s
2009
$000’s
2009
%
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)
Total financial liabilities
2,167
-
2,167
-
-
270
7,009
-
7,279
-
-
-
1,298
1,955
-
-
-
3,253
Net financial assets/(liabilities)
(5,112)
(3,253)
7
12,547
12,554
-
-
-
-
9,933
9,933
2,621
2,174
12,547
14,721
1,298
1,955
270
7,009
9,933
20,465
(5,744)
3.5
8.6
8.6
5.2
5.2
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
41
For personal use only
notes to the Financial Statements
For the year to 30 June 2010
note 22: 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 2010
< 1
year
$000’s
>1 - <2
years
$000’s
>2 - <3
years
$000’s
>3 - <4
years
$000’s
>4 - <5
years
$000’s
> 5
years
$000’s
Total
$000’s
Consolidated
Cash assets
Finance leases
Bank loans
2,062
1,503
-
-
1,218
10,532
-
752
-
-
442
-
-
242
-
-
-
-
2,062
4,157
10,532
Year ended 30 June 2009
< 1
year
$000’s
>1 - <2
years
$000’s
>2 - <3
years
$000’s
>3 - <4
years
$000’s
>4 - <5
years
$000’s
> 5
years
$000’s
Consolidated
Cash assets
Finance leases
Bank loans
2,167
1,299
270
-
965
7,009
-
640
-
-
287
-
-
62
-
-
-
-
Total
$000’s
2,167
3,253
7,279
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 reporting 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.
Consolidated
Profit
$000’s
Consolidated
Equity
$000’s
+/- 88
+/- 742
+/- 74
+/- 292
+/- 88
+/- 742
+/- 74
+/- 292
2010
+/- 1% in interest rates
+/- 10% in AUD/USD
2009
+/- 1% in interest rates
+/- 10% in AUD/USD
42 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
note 23: 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
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
Creative Packaging Pty Ltd
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
Australia
Australia
Ordinary
Ordinary
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Australia
Australia
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The following entities are party to a deed of cross guarantee under which each company guarantees the debts of
the others:
Pro-Pac Packaging Limited
Plastic Bottles Pty Ltd
Pro-Pac Group Pty Ltd
Pro-Pac Packaging (Aust) Pty Ltd
By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare a financial
report and directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and
Investments Commission (‘ASIC’).
note 24: Business Combinations
Acquisition of businesses
The following complimentary and synergistic businesses were acquired during the year.
Effective 1 March 2010, Pro-Pac Packaging (Aust) Pty Ltd (PPA), a wholly owned subsidiary, acquired all of the issued
equity of Queensland-based Creative Packaging Pty Ltd a manufacturer, converter and distributor of corrugated
products, settlement of which comprised both cash and issue of Pro-Pac Packaging Limited (PPG) shares. Part of the
purchase consideration included a deferred payment contingent upon both a profit target and the PPG share price.
The maximum undiscounted amount payable would be $600,000.
Effective 16 June 2010, PPA acquired the business and assets of Ruscon Plastics Pty Ltd, a Melbourne based film
extruder for a cash consideration.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
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notes to the Financial Statements
For the year to 30 June 2010
note 24: Business Combinations (cont.)
The effect of the above transactions can be summarised as follows:
Fair Value
$000’s
Assets
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Total Current Assets
Non-Current Assets
Property, plant and equipment
Total Non-Current Assets
Total Assets
Liabilities
Current Liabilities
Trade and other payables
Total Current Liabilities
Non-Current Liabilities
Other liabilities
Total Non-Current Liabilities
Total Liabilities
NET ASSETS
Acquisition date fair value of total consideration paid
Cash
Securities
Present value of deferred consideration
Total
GOODWILL
19
1,683
525
2,227
1,358
1,358
3,585
3,043
3,043
209
209
3,252
333
3,836
2,532
247
6,615
6,282
Profit of the Creative Packaging business included in the consolidated profit of the Group since their respective
acquisition dates amounted to $154,603. Had this business been consolidated from 1 July 2009, revenue would
have been approximately $97,903,000 and consolidated profit $5,387,000 for the year ended 30 June 2010.
Effective 1 July 2010, Pro-Pac Packaging (Aust) Pty Ltd, acquired the business and assets of Dysher Pty Ltd,
trading as Goodman Packaging, a Sydney and Perth based distributor of industrial packaging products with a
current annualised turnover of approximately $6.5m. At the time of signing of this report the acquisition accounting
had not been finalised.
44 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
note 25: 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
2010
$000’s
Consolidated
2009
$000’s
3,180
4,556
52
7,788
1,886
1,721
-
3,607
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:
Within one year
After one year but not more than five years
Total minimum lease payments
Less amounts representing future finance charges
Present value of minimum lease payments
Representing lease liabilities
Current
Non-current
2010
Minimum
payments
$000’s
2010
Present value
of payments
$000’s
2009
Minimum
payments
$ $000’s
2009
Parent value
of payments
$000’s
1,298
1,955
3,253
-
3,253
1,806
2,973
4,779
(622)
4,157
2010
$000’s
1,503
2,654
4,157
1,503
2,654
4,157
-
4,157
1,512
2,145
3,657
(404)
3,253
2009
$000’s
1,298
1,955
3,253
The weighted average interest rate implicit in the leases is 9.7%.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
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notes to the Financial Statements
For the year to 30 June 2010
note 25: Commitments and Contingencies (cont.)
Contingent Liability
As at statement of financial position date the Company issued security deposit guarantees to the value of $1,493,573
to the landlords of rented premise.
Capital Expenditure Commitments
As at statement of financial position date the Company had commitments for future capital expenditure of $273,757.
Capital commitments - Property, plant and equipment
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
Consolidated
2010
$
Consolidated
2009
$
273,557
-
273,757
290,582
-
290,582
$000’s
$000’s
note 26: impairment Testing of indefinite Life goodwill
Carrying amount of goodwill
Carrying amount of goodwill Industrial Division
Carrying amount of goodwill Rigid Division
Total carrying amount of goodwill
22,660
21,817
44,477
21,818
16,377
38,195
The Group and all of its subsidiaries are divided into two major cash generating units, the industrial and rigid divisions,
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 consolidated entity’s goodwill has been determined by a value-in-use calculation using
a discounted cash flow model, based on a one year projection period approved by management and extrapolated for a
further 4 years using a steady rate, together with a terminal value.
Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive.
The following key assumptions were used in the discounted cash flow model for the industrial and rigid divisions:
a) 12.9% pre-tax discount rate;
b) 5% for industrial division and 3% for rigid division per annum projected revenue growth rate;
c) 5% for industrial division and 3% for rigid division per annum increase in operating costs and overheads.
The discount rate of 12.9% pre-tax reflects management’s estimate of the time value of money and the consolidated
entity’s weighted average cost of capital, the risk free rate and the volatility of the share price relative to market
movements.
Projected growth rates are based on historical performance over the last three years and current trends which
management believes are achievable during the forecasted period.
46 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only
Pro-Pac Packaging Limited and Controlled Entities
note 27: 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 23.
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
2010
$
Consolidated
2009
$
John Read
• Consultation and acquisition services fees paid to CVC Limited (inc GST)
-
44,550
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 the
Penn Family Trust (inc GST)
• 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)
219,982
790,680
224,184
-
206,938
732,728
95,683
58,666
790,680
732,728
Total payments to related parties during the year ended 30 June 2010 was $1,234,846 (2009: $1,138,565).
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
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notes to the Financial Statements
For the year to 30 June 2010
note 28: Parent Entity information
Set out below is the supplementary information about the parent entity.
Profit for the year
Total comprehensive income
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Contributed equity
Reserves
Retained profits/(accumulated losses)
Total equity
Parent
2010
$000’s
1,814
1,814
1,185
52,361
246
246
52,057
-
58
52,115
Parent
2009
$000’s
1,158
1,158
13
48,666
438
438
48,154
-
74
48,228
The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in
note 2, except for the following:
• Investments in subsidiaries are accounted for at cost, less any impairment.
note 29: Events After the Statement of Financial Position Date
Effective 1 July 2010, Pro-Pac Packaging (Aust) Pty Ltd, acquired the business and assets of Dysher Pty Ltd,
trading as Goodman Packaging, a Sydney and Perth based distributor of industrial packaging products with a
current annualised turnover of approximately $6.5m.
Consolidated
2010
$
Consolidated
2009
$
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
96,185
21,500
89,000
-
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 2010. The Group does not at this time believe these have any material impact on the
2010 financial report or for the ensuing year.
48 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
For personal use only
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 48, 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 2010 and of its performance for the
year ended on that date of the company and consolidated group;
2.
the Chief Executive Officer 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.
This declaration is made in accordance with a resolution of the Board of Directors
.
On behalf of the Board on 27 September 2010.
Elliott Kaplan
Director
Hadrian Morrall
Director
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
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For personal use only
independent Auditor ’s 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 Ltd, which comprises the statement of
financial position as at 30 June 2010, and the statement
of comprehensive income, statement of changes in equity
and statement of cash flow 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 controls 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
ensures that the financial report, comprising the financial
statements and notes, complies with International
Financial Reporting Standards.
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 judgement, 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
50 PRo - P A C P A CkAg i n g A n n u a l Re p o r t 2 010
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 Ltd on 24 September 2010, 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 Ltd is in
accordance with the Corporations Act 2001, including:
i)
ii)
giving a true and fair view of the company’s
financial position as at 30 June 2010 and of its
performance for the year ended on that date; and
complying with Australian Accounting
Standards (including the Australian Accounting
Interpretations) and the Corporations Regulations
2001; and
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 2010. The directors of the company are
responsible for the preparation and presentation of the
Remuneration Report in accordance with s 300A 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 2010,
complies with s 300A of the Corporations Act 2001.
M. D. Nicholaeff
Partner
UHY Haines Norton
Chartered Accountants
Signed at Sydney on 28 September 2010.
For personal use only
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 17 September 2010.
(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
54
125
119
359
64
721
Total Units
8,286
421,598
923,250
10,890,700
120,899,176
133,143,010
%
0.006
0.317
0.693
8.180
90.804
100.00
There are seventy five holders of unmarketable parcels totalling 37,363 shares representing 0.028% 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:
22.2
17.9
14.7
9.4
6.1
1.6
1.4
1.4
1.4
1.3
1.2
1.2
0.9
0.9
0.8
0.7
1 CVC LIMITED
2 BENNAMON PTY LTD
3 MR BRANDON PENN
4 MR HADRIAN MORRALL
29,535,348
23,840,384
19,561,565
12,517,618
5 CVC PRIVATE EQUITY LIMITED
8,127,252
6
CVC SUSTAINABLE
INVESTMENTS LIMITED
7
FOX INVESTMENTS PTY LTD
2,071,476
1,808,928
8 MISCHKE INVESTMENTS PTY LTD
1,808,928
9
SONHILL INVESTMENTS PTY LTD
1,808,928
10 NIGHTINGALE PARTNERS PTY LTD
1,746,080
11 WENDON HOLDINGS PTY LTD
1,578,028
12 STREAM GROUP HOLDINGS PTY LTD 1,538,462
13 DERRIN BROTHERS PROPERTIES LTD 1,230,110
14 MRS NATALIE PENN
1,200,344
15
L J K NOMINEES PTY LTD
16 POSERE PTY LTD
17
18
19
ABN AMRO CLEARING SYDNEY
NOMINEES PTY LTD
MR ELLIOTT KAPLAN &
MRS BRENDA KAPLAN
CANNINGTON CORPORATION
PTY LIMITED
1,000,000
938,434
867,329
0.7
544,662
0.4
CVC Limited
29,535,348 ordinary shares
Bennamon Pty Limited
23,840,384 ordinary shares
Mr Brandon Penn
19,561,565 ordinary shares
Mr Hadrian Morrall
12,517,618 ordinary shares
CVC Private Equity Limited
8,127,252 ordinary shares
(d) Voting rights
All ordinary shares carry one vote per share without
restriction.
(e) Restricted securities
Restricted securities total 2,330,000. Shares are
restricted in four categories:
ESPP Shares under escrow
until 18 January 2010
Pending cancellation at the forthcoming AGM
100,000 ESPP shares
ESPP Shares under escrow
until 27 November 2010
Pending cancellation at the forthcoming AGM
575,000 ESPP shares
ESPP Shares under escrow
until 30 November 2013
1,325,000 ESPP shares
20 M J H NIGHTINGALE & CO PTY LTD
409,052
421,296
0.3
0.3
Ordinary shares held as security by the
Company in terms of a sub-lease 330,000 Ordinary shares
Top 20
Total
112,554,224
84.5
133,143,010
(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.
A n n u a l Re p o r t 2 010 P R o - PA C P A CkAg i n g
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For personal use only
Pro-Pac Packaging Limited
9 Widemere Road, Wetherill Park NSW 2164
T: (02) 8787 1955 F: (02) 8787 1989
www.ppgaust.com.au ACN: 112 971 874
Printed on recycled paper Kettle of Fish Design
For personal use only