PPG Industries Annual Report 2013

Plain-text annual report

Pro-Pac Packaging Limited For personal use onlyRigid Containers and Closures Flexible Films Industrial and Protective Packaging Cartons Food Service Food Processing Produce Packaging Safety & PPE Machinery and Service Washroom and Janitorial Online Chairman’s 02 Report 03 Directors’ Report 10 Auditors’ Independence Declaration 1 1 Corporate Governance Statement 17 Consolidated Statement of Profit or Loss and other Comprehensive Income 18 Consolidated Statement of Financial Position For personal use onlyPro-Pac Packaging Limited + Controlled Entities Corporate information Corporate Information Corporate information PPG is a ‘one stop shop’ for all customers packaging, safety and hygiene needs. This is based on the range of products we source and supply as well as exceptional service, the highest level of packaging expertise and genuine economic benefits to our customers, partners, and shareholders. Pro-Pac Packaging Limited ACN: 112 971 874 ABN: 36 112 971 874 Directors Elliott Kaplan (Chairman) Brandon Penn Dr Gary Weiss Solicitors Thomsons Lawyers Level 25, 1 O’Connell Street Sydney NSW 2000 Company Secretary Mark Saus Registered Office 147 - 151 Newton Road Wetherill Park NSW 2164 Principal Place of Business 147 - 151 Newton Road Wetherill Park NSW 2164 Share Register Boardroom Pty Limited Level 7, 207 Kent Street 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 Stock Exchange Listing Pro-Pac Packaging Limited shares are listed on the Australian Securities Exchange (ASX code: PPG) 19 Consolidated Statement of Cash Flows 20 Consolidated Statement of Changes in Equity 21 Notes to the Financial Statements 50 Directors’ Declaration 5 1 Independent Auditor’s Report 52 Additional Company Information 1 2013 Annual ReportFor personal use onlyFocus for the first half of the 2014 financial year will be on reaping the benefits of the investments made in expanding and enhancing the Company’s national capability and infrastructure, on implementing the identified cost reduction programs and on maximising the opportunities presented by the recent acquisitions. I would like to express my thanks to my fellow directors, senior management and all of the Pro-Pac staff for their effort and contribution in what has been a particularly challenging year. Their dedication and commitment augurs well for the continued growth and future success of Pro-Pac. Elliott Kaplan Chairman 02 Chairman’s report On behalf of the Board of Directors and the management it is my pleasure to present Pro-Pac’s annual report for the year ended 30 June 2013. During the 2013 Financial Year, the Company continued to achieve good top line growth, both organically and through acquisitions. Revenue increased by 30% or $40 million to $173 million, of which acquisitions made during the 2013 financial year contributed approximately $25 million. Despite the increased revenue, difficult trading conditions particularly over the final quarter of the financial year, combined with the impact of increased costs associated with the significantly enhanced infrastructure which was put in place during the financial year to cope with future anticipated growth, negatively impacted reported earnings. The 2013 result included $1.7 million of relocation, restructuring and business combination costs relating predominantly to the integration of new acquisitions and the consolidation of the Industrial Division’s operations in WA, SA and NSW. After inclusion of these costs, EBITDA was down 8% to $11.1 million and after tax profit was down 11% to $5.2 million. In line with the Company’s strategy of continuing to expand its product and service offering to the food manufacturing and food processing industries, five of the eight acquisitions completed during the financial year were involved in the distribution or manufacture of primary packaging to the meat, poultry, baking and prepared meals sectors. While the Company will continue to assess synergistic and accretive acquisitions, focus for the first half of the 2014 financial year will be on reaping the benefits of the investments made in expanding and enhancing the Company’s national capability and infrastructure, on implementing the identified cost reduction programs and on maximising the opportunities presented by the recent acquisitions. A fully franked interim dividend of 1 cent per share was paid in May and the Board declared a fully franked final dividend of 1 cent per share which was paid on 25 September 2013. 2 Annual Report 2013For personal use onlyThe Directors present their report, together with the financial statements, on the consolidated entity consisting of Pro-Pac Packaging Limited (“the Company”) and entities it controlled for the year ended 30 June 2013. Directors The Directors in office at the date of this report and during the whole of the financial year are as follows: Elliott Kaplan BAcc, CA (Chairman and Non-Executive Director – appointed Director 16 February 2005 and Chairman 25 February 2011) 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 Cellnet Limited and a director of a number of unlisted companies. Mr Kaplan is also a former director of DoloMatrix Limited and The Environmental Group Limited. Mr Kaplan is a member of the Audit and Remuneration Committees. Brandon Penn B. Com (Executive Director – appointed 16 August 2007) Mr Penn has had a number of business interests including the establishment of a software development company, Dealing Information Systems (DIS), which developed wholesale banking systems that were implemented and sold throughout the world. DIS was acquired in 1996 by Sungard Data Systems NYSE. Mr Penn has co-invested in a number of business ventures in both executive and non-executive capacities in the information technology and wholesale market sectors. Mr Penn was a founding director of Plastic Bottles Pty Ltd (PB Group) and was pivotal in negotiating and integrating a number of acquisitions transforming the PB Group into a rapid growth multi-state importation, manufacturing and distribution business. In 2007, Mr Penn negotiated the sale of the PB Group to PPG. In his capacity as PPG Group CEO since 2010, Mr Penn has been instrumental in the formulation and execution of the Company’s strategy of transforming and broadening the Company’s position into that of a dominant packaging company in the Australian market. Pro-Pac Packaging Limited + Controlled Entities Directors’ report 03 Dr Gary Weiss LL.B (Hons), LL.M (with dist.), Doctor of Juridical Science (JSD) (Non-Executive Director – appointed 28 May 2012) Dr Weiss holds the degrees of LL.B (Hons) and LL.M (with dist.) from Victoria University of Wellington, as well as a Doctor of Juridical Science (JSD) from Cornell University, New York. Dr Weiss has extensive international business experience and has been involved in numerous cross-border mergers and acquisitions. Dr Weiss is Chairman of ClearView Wealth Limited and Secure Parking Pty Ltd, Executive Director of Ariadne Australia Ltd, and a director of Premier Investments Limited, Ridley Corporation Ltd, Mercantile Investment Company Limited, Pro-Pac Packaging Limited, Victor Chang Cardiac Research Institute and The Centre for Independent Studies. He was Chairman of Coats plc from December 2003 until April 2012 and executive director of Guinness Peat Group plc from November 1990 to April 2011 and has held directorships of numerous companies, including Westfield Group, Tower Australia Ltd, Australian Wealth Management Limited, Tyndall Australia Ltd (Deputy Chairman), Joe White Maltings Ltd (Chairman), CIC Ltd, Whitlam Turnbull & Co Ltd and Industrial Equity Ltd. He has authored numerous articles on a variety of legal and commercial topics. Dr Weiss is Chairman of the Audit and Remuneration Committees. 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 26 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. Past roles include head of finance positions in high growth environments. Mr Saus is also the Chief Financial Officer of the Group. 3 2013 Annual ReportFor personal use only04 Directors’ report Interests in the Shares and Options of the Company As at the date of this report, the relevant interests of the directors in the shares and options of Pro-Pac Packaging Limited are shown in the table below: Ordinary Shares 216,357 24,438,842 - Interest in Ordinary Shares through Directorships of Corporate Shareholders - - - Elliott Kaplan Brandon Penn Dr Gary Weiss Meetings of Directors Attendances by each director during the year were: Board Audit committee Number of meetings held while in office Meetings attended Number of meetings held while in office Meetings attended Remuneration committee Meetings Number of meetings held attended while in office Elliott Kaplan Dr Gary Weiss Brandon Penn 10 10 10 10 10 10 3 3 - 3 3 - 2 2 - 2 2 - Principal Activities 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 end to end solutions for general industrial and primary packaging, safety and PPE, food services and food processing sectors with a national footprint. Operating and Financial Review Results for the year ended 30 June 2013 The Company continues to grow strongly both organically and through acquisitions. The Company grew revenue by 30% to $173m. During the year the Company incurred relocation, restructuring and business combination costs of $1.7m which relate predominantly to the integration of new acquisitions and the consolidation of the Industrial Division’s operations in WA and NSW. Profit before tax, relocation, restructuring and business combination costs from ordinary activities was up 1% to $9.0m. After inclusion of these costs, EBITDA was down 8% to $11.1m and profit after tax was down 11% to $5.2m. Revenue in the Industrial Division grew 40% to $130m (2012: $93m) while pre-tax earnings for the Industrial Division were $6.0m (2012: $6.9m) having being adversely affected by the abnormal costs mentioned above. The Rigid Division’s sales grew 9% to $59.5m (2012: $54.8m) with pre-tax divisional earnings of $4.9m (2012: $4.6m). These figures include intercompany sales. Financial position The Group’s balance sheet continues to strengthen with total assets increasing by $29m to $152m. This growth was partly funded by interest bearing debt which increased by $18.2m to $22.5m at 30 June 2013. Net interest bearing debt to net interest bearing debt plus equity remains relatively low at 17.2%. 4 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Capital structure During the year 430,000 ordinary shares were issued as part of the Employee Long Term Incentive Plan (“ESPP”) while 160,000 shares were forfeited and cancelled under the plan. There were no other changes to the capital structure during the year. At 30 June 2013 there were 211, 257, 804 shares on issue. Operating activities During the year the Group completed eight acquisitions as detailed in note 24 (Business Combinations). In accordance with the Company’s strategy of continuing to expand its product and service offering to the food manufacturing and processing industries, five of the eight acquisitions completed during the financial year were involved in the distribution or manufacturing of primary packaging to the meat, poultry, baking and prepared meals sectors. The company also completed the consolidation of the Industrial Division’s sites and operations in both NSW and WA which will have a favourable effect on the division’s operational efficiencies in future trading periods. Outlook While the Company will continue to assess synergistic and accretive acquisitions, focus for the first half of FY14 will be on reaping the benefits of the investments made in expanding and enhancing the Company’s national capability and infrastructure and on maximising the opportunities presented by the recent acquisitions. Dividends A fully franked interim dividend of one cent per share was paid on 16 May 2013. In August 2013, the Company declared a fully franked final dividend of one cent per share. The record date for determining entitlement to the dividend is 11 September 2013 and the dividend will be paid on 25 September 2013. The Company’s Dividend Reinvestment Plan will not apply to this dividend. Significant Changes in the State of Affairs The Group completed eight acquisitions during the year under review. Significant Events Subsequent to Balance Date Effective 1 August 2013 Pro-Pac Packaging Manufacturing (Syd) Pty Ltd, a wholly owned subsidiary, acquired the business and assets of Labels Plus (NSW) Pty Ltd trading as Fast Labels. Fast Labels is a niche label manufacturer operating in Sydney with annualised turnover of circa $800,000. On 28 August 2013, the company declared a fully franked final dividend of one cent per share. For more details please refer to ‘Dividends’ above. Likely Developments Apart from the commentary outlined above, the directors have excluded from this report any further information on the likely developments in the operations of the company and the expected results of those operations in future financial years, as the directors consider that it would be likely to result in unreasonable prejudice to the Company. 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 Officers and the Auditor The Company has entered into a deed of access, indemnity and insurance with each of the Directors, under which the Company has agreed to: • continue to provide the Directors with access to certain relevant information after they cease to be Directors; • to the extent permitted by law, indemnify the Directors against liabilities incurred in their capacity as directors of the Company and its subsidiaries; and • maintain certain Directors’ liability insurance in respect of Directors, both during and after the period they are Directors. The Company has paid insurance premiums in respect of Directors’ and Officers’ liability and legal expense insurance for the Directors of the Company. These contracts of insurance prohibit the disclosure of the nature of the liabilities covered and amount of the premium paid. The Corporations Act 2001 does not require disclosure of the information in these circumstances. 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 (Audited) 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 Dr Gary Weiss (Chairman) and Mr Elliott Kaplan both of whom are Non-Executive Directors. The Remuneration Committee assesses the appropriateness 5 2013 Annual ReportFor personal use only06 Directors’ report of the nature and amount of remuneration of directors on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. It is intended that the manner of payments chosen will be optimal for the recipient without creating undue cost for the Group. Further details on the remuneration of Directors and executives are set out in this Remuneration Report. In accordance with best practice corporate governance, the structure of non-executive Director and executive remuneration is separate and distinct. Non-Executive Director remuneration The Company seeks to set aggregate remuneration at a level which provides the Company with the ability to attract, retain and motivate directors of the highest quality, whilst incurring a cost which is acceptable to shareholders. The Constitution of the Company and the ASX Listing Rules specify that non-executive directors are entitled to receive remuneration for their services as determined by the Company in a General Meeting. The Company has resolved that the maximum aggregate amount of directors’ fees (which does not include remuneration of executive directors and other non-director services provided by directors) is $200,000 per annum. Non-executive directors are entitled to be reimbursed for their reasonable expenses incurred in connection with the affairs of the Company. A director may also be remunerated as determined by the directors if that director performs additional or special duties for the Company. The remuneration of the Company’s Non-Executive Directors for the period ending 30 June 2013 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 6 Company in accordance with compensation guidelines set by the Board. The remuneration of the Chief Executive Officer and senior management for the year ending 30 June 2013 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. In his executive service 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. The Company or the executive may terminate the service agreement by giving the other party three 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 3 months 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 2,905,000 shares issued to employees under the Plan. The following are the key terms and conditions of the ESPP: • No Shares under the ESPP will be allotted unless the requirements of the Corporations Act 2001 and the ASX Listing Rules have been complied with. Annual Report 2013For personal use onlyPro-Pac Packaging Limited + Controlled Entities • Performance hurdles apply to the ESPP. The key • The term of the loans and the vesting period for the shares 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 the employee. 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 2013 • The Company may provide loans to participants to Elliott Kaplan – Non-executive Chairman 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. Dr Gary Weiss – Non-executive Director Brandon Penn – Executive Director Hadrian Morrall – Divisional Managing Director Wendy Penn – Divisional Managing Director Mark Saus – Chief Financial Officer and Company Secretary Remuneration of Key Management Personnel Excluding the Directors, there are only three 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. Short-term benefits Post employment benefits Other long term benefits Share based payment Total Cash, salary and fees $ 60,000 60,000 51,691 4,000 198,598 193,938 226,973 220,184 185,000 180,000 186,397 191,000 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Elliott Kaplan Gary Weiss Hadrian Morrall Brandon Penn Wendy Penn Mark Saus Total Remuneration 2013 908,659 2012 849,122 Non monetary benefits $ - - - - 22,980 22,980 - - 8,000 8,000 - - 30,980 30,980 Super- annuation Other Equity and options Performance based $ $ $ $ % 5,400 - 4,652 - 18,109 17,590 20,411 19,816 16,685 16,200 18,388 17,189 83,645 70,795 - - - - - - - - - - - - - - - - - - - - - - - - 2,402 2,402 65,400 60,000 56,343 4,000 239,687 234,508 247,384 240,000 209,685 204,200 207,187 210,591 2,402 1,025,686 2,402 953,299 - - - - - - - - - - - 5% - - 7 2013 Annual ReportFor personal use only 08 Directors’ report Options issued as part of remuneration for the year ended 30 June 2013 No options were granted as remuneration during the year ended 30 June 2013. Shares and Loans issued under the ESPP during the year ended 30 June 2013 430,000 shares and related loans with a total value of $208,550 were issued under the ESPP during the year ended 30 June 2013. ESPP Shares of Key Management Personnel as at the date of this report ESPP Shares (number) ESPP Shares $ 300,000 300,000 600,000 97,500 137,400 234,900 ESPP Loans Outstanding $ 97,500 137,400 234,900 ESPP Issue Price $ ESPP Expiry Date $ 0.325 0.458 30 August 2013 21 July 2016 Mark Saus Mark Saus Total 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 $796,405 (inc. GST) to entities associated with Key Management Personnel Hadrian Morrall and Brandon Penn for property rental and outgoings, based on normal commercial terms and conditions. This concludes the remuneration report, which has been audited. Share Options As at the date of this report (and at the balance date) there were no 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. Officers of the Company who are former Partners of the Auditor There are no officers of the company who are former audit partners of UHY Haines Norton, the auditor of the company. 8 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Auditors’ Independence Declaration and Non-Audit Services UHY Haines Norton continues in office in accordance with section 327 of the Corporations Act 2001. During the year ended 30 June 2013, there were no non-audit services provided by the entity’s auditors UHY Haines Norton. The Auditors’ independence declaration as required under section 307C of the Corporations Act 2001 for the year end 30 June 2013 has been received and can be found on page 10 of the Directors’ report. This Directors’ Report is signed in accordance with a resolution of the Board of Directors pursuant to section 298 (2) (a) of the Corporations Act 2001. Signed at Sydney on 25 September 2013. Elliott Kaplan Chairman Brandon Penn Director 9 2013 Annual ReportFor personal use only 10 Auditors’ Independence declaration under section 307C of the Corporations Act 2001 To the Directors of Pro-Pac Packaging Limited As auditor for the audit of Pro-Pac Packaging Limited for the year ended 30 June 2013, I declare that, to the best of my knowledge and belief, there have been: ( i ) no contraventions of the independence requirements of the Corporations Act 2001 in relation to the audit; and ( i i ) no contraventions of any applicable code of professional conduct in relation to the audit. M.D. Nicholaeff Partner UHY Haines Norton Chartered Accountants Signed at Sydney on 25 September 2013. 10 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Corporate Governance statement 1 1 The Board of Directors of Pro-Pac Packaging Limited is responsible for the corporate governance of the Company and its controlled entities (Pro-Pac) and to ensure that Pro-Pac is directed and managed appropriately. In this regard, the Board is committed to ensuring accountability and that control systems are commensurate with the risks involved to enable Pro-Pac to create value and optimise its performance. During August 2007, the ASX Corporate Governance Council released its Corporate Governance Principles and Recommendations – 2nd edition (ASX Principles). The ASX Listing Rules require Pro-Pac to provide a statement in its Annual Report disclosing the extent to which they have followed the best practice recommendations during the reporting period, and if any recommendations are not followed, an explanation is provided. The Company’s Corporate Governance Statement is structured with reference to the Australian Securities Exchange (“ASX”) Corporate Governance Council’s (the “Council”) “Corporate Governance Principles and Recommendations”, which are as follows: Principle 1 – Lay solid foundations for management and oversight Principle 2 – Structure the Board to add value Principle 3 – Promote ethical and responsible decision making Principle 4 – Safeguard integrity in financial reporting Principle 5 – Make timely and balanced disclosure Principle 6 – Respect the rights of shareholders Principle 7 – Recognise and manage risk Principle 8 – Remunerate fairly and responsibly A copy of the “Corporate Governance Principles and Recommendations” can be found on the ASX’s website at www.asx.com.au However, the ASX Corporate Governance Council acknowledged that “a one size fits all” approach is inappropriate and that it is unwise to require all companies to apply the same rules because different companies face different circumstances hence some recommendations are unnecessary or may even be counter-productive. In particular it acknowledged that it may be inappropriate or uneconomic for smaller companies, such as Pro-Pac, to follow the same rules as Australia’s largest listed companies. Instead the Council chose to issue a full suite of recommendations and require companies to adopt an ‘if not why not’ approach to reporting compliance with the recommendations. Companies are at liberty to determine whether each recommendation is appropriate to them. They are required to disclose in the Corporate Governance Statement of their annual reports those recommendations which they have not adopted during each reporting period and provide explanations for their decisions. A number of the best practice recommendations require the formal documentation of policies and procedures that Pro-Pac already substantially performs. Pro-Pac considers that to create such further documentation independently and specifically for Pro-Pac would have minimal additional benefit but substantial additional expense. Pro-Pac is also mindful to not adopt such procedures solely for the sake of adoption or where they could actually inhibit the proper function or opportunities of Pro-Pac. However it recognises that it has to put in place a compliance program which includes the documentation of its compliance policies and procedures and a Risk Management Statement which considers the major risks to Pro-Pac operations, the rating and ranking of these risks to set priorities in the treatment of the risks. The Board has determined that the adoption of such formal policies and procedures must be tailored to Pro- Pac at minimal expense and must be appropriate for Pro-Pac, taking into account the size and complexity of its operations. This statement summarises the corporate governance practices currently in place at Pro-Pac. The Board recognises that in a changing world, it is important to review these practices and policies from time to time to ensure they continue to reflect local and international developments and assist Pro-Pac in optimising its corporate performance and accountability. Pro-Pac will continue to keep its corporate governance practices under review. Key summaries of the corporate governance practices and policies and other key documents can be found on Pro-Pac’s website at www.ppgaust.com.au ASX Principle 1 – Lay solid foundations for management and oversight Companies should establish and disclose the respective roles and responsibilities of board and management. • Recommendation 1.1: Companies should establish the functions reserved to the board and those delegated to senior executives and disclose those functions. • Recommendation 1.2: Companies should disclose the process for evaluating the performance of senior executives. • Recommendation 1.3: Companies should provide the information indicated in the Guide to reporting on Principle 1. Role of the Board The Board has adopted a charter that establishes the role of the Board and its relationship with management. The primary role of the Board is the protection and 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 1 1 2013 Annual ReportFor personal use only1 2 Corporate Governance statement management are consistent with ASX Principle 1. A summary of the matters reserved for the Board can be found in the corporate governance section of the Pro-Pac website. www.ppgaust.com.au Pro-Pac has in place systems designed to fairly review and actively encourage enhanced Board and management effectiveness. The Chairman has the responsibility to review continually the performance of each director and the Board as a whole. The performance of the Board is reviewed regularly against both measurable and qualitative indicators. The performance criteria against which Directors and Executives are assessed is aligned with the financial and non-financial objectives of Pro-Pac. From time to time and, as considered appropriate, the Chairman will seek external assistance and advice to undertake these performance reviews. A performance evaluation for senior executives was undertaken during the reporting period. This entails an evaluation of the executive against a pre-determined set of objectives and key performance areas. ASX Principle 2 – Structure the board to add value Companies should have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties. • Recommendation 2.1: A majority of the board should be independent directors. • Recommendation 2.2: The chair should be an independent director. • Recommendation 2.3: The roles of chair and chief executive officer should not be exercised by the same individual. • Recommendation 2.4: The board should establish a nomination committee. • Recommendation 2.5: Companies should disclose the process for evaluating the performance of the board, its committees and individual directors. • Recommendation 2.6: Companies should provide the information indicated in the Guide to reporting on Principle 2. Structure of the Board The skills, experience and expertise relevant to the position of director held by each Director in office at the date of this Report is included in the Directors’ Report. Corporate Governance Council Recommendation 2.1 recommends that a majority of the Board to be independent Directors. The Corporate Governance Council defines independence as being free from any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with – the independent exercise of their judgement. When determining the independent status of a director the Board would consider whether the Director is, inter alia: • a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company • 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 Director is not considered to be independent: Name Reason for non-compliance Brandon Penn Executive Director Mr Penn is employed by the Company in an executive capacity, is a substantial shareholder and a supplier of leasehold premises. Mr Kaplan and Dr Weiss are considered to be independent and as such the Company does satisfy Corporate Governance Council Recommendation 2.1 as it does have a majority of independent directors. The Board distinguishes between the concept of independence and the issues of conflict of interest or material personal interests which may arise from time to time. Wherever there is an actual or potential conflict of interest or material personal interest, the Board’s policies and procedures ensure that the directors: • fully and frankly inform the Board about the circumstances giving rise to the conflict; and • 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; 12 Annual Report 2013For personal use onlyPro-Pac Packaging Limited + Controlled Entities • perform the functions of office and exercise the powers – the practices necessary to maintain confidence in the attached to that office with a degree of care and diligence that a reasonable person would exercise if he were a Director in the same circumstances; and • consider matters before the Board having regard to any possible personal interests, the amount of information appropriate to properly consider the subject matter and what is in the best interests of the Company. The Company considers industry experience and specific expertise, as well as general corporate experience, to be important attributes of its Board members. The Directors noted above have been appointed to the Board due to their considerable industry and corporate experience. There are procedures in place, agreed by the Board, to enable Directors, in furtherance of their duties, to seek independent professional advice at the Company’s expense. The term in office held by each Director in office at the date of this report is listed below. Note that the Company was incorporated in February 2005. Name Term in office Elliott Kaplan Brandon Penn Gary Weiss 8 years and 8 months 6 years and 1 month 1 year and 4 months The Company complied with the following best practice recommendations throughout the financial year ended 30 June 2013: • having a majority of independent Directors; • having an independent Chairman for its Audit Committee; Evaluation of the Board, its committees and directors is undertaken by the Chairman during the course of the year. Nomination and appointment of new directors The Board has elected not to establish a formal Nominations Committee to oversee the appointment and induction process for Directors. The Board has determined that it may deal more effectively with such matters as a single body. The ASX Guidelines contemplate that a Nomination Committee may not always be appropriate for Company’s with smaller boards of directors. ASX Principle 3 – Promote ethical and responsible decision-making Companies should actively promote ethical and responsible decision-making. • Recommendation 3.1: Companies should establish a code of conduct and disclose the code or a summary of the code as to: company’s integrity; – the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders; and – the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. • Recommendation 3.2: Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity for the board to assess annually both the objectives and progress in achieving them. • Recommendation 3.3: Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. • Recommendation 3.4: Companies should disclose in each annual report the proportion of women employees in the whole, organisation, women in senior executive positions and women on the board. • Recommendation 3.5: 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. Diversity at Pro-Pac The company respects people as individuals and values their differences. It is committed to creating a working environment that is fair and flexible, promotes personal and professional growth, and benefits from the capabilities of its diverse 13 2013 Annual ReportFor personal use only 1 4 Corporate Governance statement workforce. The organisation employs people of each gender as well as with varying skills, cultural backgrounds, ethnicity and experience. Pro-Pac believes it’s diverse workforce is the key to its continued growth, improved productivity and performance. The company continually monitors the number of females in executive, manager, supervisory and other roles in the business. A summary of the number of females and males in the company records: • 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. Executive Managers Managers Staff Total Women 1 10 151 162 Men 3 14 272 289 The company also maintains a flexible working policy to provide flexible working arrangements including part time and working from home. This is to ensure employees with children are able to continue working and meet their home responsibilities. The table below indicates the number of people who have accessed the flexible working arrangement during the year. Full time Part time Casual Total Women 141 15 6 162 Men 268 2 19 289 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 4.3: 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 safe- guarding of assets, the maintenance of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators. The Board has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the management of the Company to the Audit Committee. The Committee also provides the Board with additional assurance regarding the reliability of financial information for inclusion in the financial reports. The Committee comprises Dr Weiss and Mr Kaplan. 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 although both members are independent. 14 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities 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. • 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 Officer. Annual reports are distributed to all shareholders by mail or email (unless a shareholder has specifically requested not to receive these documents). A representative from the auditors of Pro-Pac attends the annual general meeting and any other meeting as required by the Board and is available to answer shareholder questions about the conduct of the audit and preparation and content of the auditor’s report. Shareholders are given the opportunity to raise questions with any of the Directors at shareholder meetings, both formally and informally. The External communications policy also elaborates on the Company’s continuous disclosure policy. ASX Principle 7 – Recognise and manage risk Companies should establish a sound system of risk oversight and management and internal control. • Recommendation 7.1: Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. • Recommendation 7.2: The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. • Recommendation 7.3: The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. • Recommendation 7.4: Companies should provide the information indicated in the Guide to reporting on Principle 7. ASX Principle 7 recommends that a company “establish a sound system of risk and oversight and management and internal control.” In addition to its financial reporting obligations, the Audit Committee is responsible for reviewing the risk management framework and policies of Pro-Pac. The structure of the Audit Committee and its responsibilities reflect in part the requirements of ASX Principle 7 and are set out in the Company’s Audit committee charter, published on its website. In performing this function, the Committee receives periodic reports from the external auditor, senior management and, 15 2013 Annual ReportFor personal use only1 6 Corporate Governance statement This Committee is responsible for ensuring that the recruitment and remuneration policies and practices of Pro-Pac are consistent with its strategic goals and human resources objectives and are designed to enhance corporate and individual performance as well as meet the appropriate recruitment and succession planning needs. To do this the Committee, among other things, is responsible for reviewing and monitoring executive performance, remuneration and incentive policies and the manner in which they should operate, the introduction and operation of share plans, executive succession planning and development programs to ensure that they are appropriate to the Group’s needs and the remuneration framework for Directors (as approved by shareholders). The Committee may consult with remuneration advisors to Pro-Pac to assist in its role. The remuneration committee is also responsible to determine and review compensation arrangements for the directors and to ensure that the Board continues to operate within the established guidelines, including when necessary, selecting candidates for the position of director. In carrying out its functions the Remuneration Committee considers remuneration issues annually and otherwise as required in conjunction with the regular meetings of the Board. Compensation arrangements are determined subject to the Company’s constitution and prior shareholder approvals. Remuneration of non-executive Directors is in accordance with resolutions of shareholders in general meeting. The Company does not have any schemes for retirement benefits, other than statutory superannuation for non-executive Directors. Details of the directors and key executives remuneration are set out in the Directors’ Report. in some instances, external consultants detailing compliance with statutory requirements and the adequacy of the risk management programs and systems in place. In addition, the Committee reviews the adequacy of the group’s insurance program. In line with ASX Principle 7, Pro-Pac adopted the policy requiring the Chief Executive Officer and Chief Financial Officer to confirm in writing that, to the best of their knowledge, the integrity of the financial statements is founded on a sound system of risk management and internal compliance and control which operates efficiently and effectively in all material respects. The board has received the relevant declarations on 25 September 2013. 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: The remuneration committee should be structured. • Recommendation 8.3: Clearly distinguish the structure of non-executive director’s remuneration from that of executive directors and senior executives. • Recommendation 8.4: Provide the information indicated in the Guide to reporting on Principle 8. It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and Executive team by remunerating directors and key executives fairly and appropriately with reference to relevant employment market conditions. To assist in achieving this objective, the Board will link the nature and amount of 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 Dr Weiss (Chairman) 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. 16 Annual Report 2013For personal use onlyPro-Pac Packaging Limited + Controlled Entities Consolidated statement of Profit or Loss and Other Comprehensive Income for the year to 30 June 2013 1 7 Revenue Sale of goods Other income 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 Rationalisation and relocation expenses Total Expenses Profit before income tax from continuing operations Income tax expense Profit after income tax expense for the year Other comprehensive income net of tax Total comprehensive income for the year Earnings per share (cents per share) – Basic earnings per share – Diluted earnings per share Notes Consolidated 2013 $000’s Consolidated 2012 $000’s 173,131 234 62 173,427 322 2,747 6,220 28,054 839 6,228 11,316 108,733 1,740 166,199 7,228 (2,074) 5,154 - 5,154 133,053 - 106 133,159 322 2,493 4,050 23,785 1,160 4,771 7,129 80,545 763 125,018 8,141 (2,373) 5,768 - 5,768 2.46 2.44 3.65 3.61 15 5 6 6 The above statements should be read in conjunction with the accompanying notes. 17 2013 Annual ReportFor personal use only 1 8 Consolidated statement of Financial Position as at 30 June 2013 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 Trade finance Borrowings Provisions Current tax liabilities Total current liabilities Non-current liabilities Other payables Provisions Borrowings Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued Capital Reserves Retained earnings TOTAL EQUITY Notes Consolidated 2013 $000’s Consolidated 2012 $000’s 8 10 11 15 12 13 14 15 17 18 18 19 5 17 19 18 20 2,247 30,645 28,091 3,125 64,108 17,610 67,867 2,101 350 87,928 3,911 25,599 18,698 1,370 49,578 14,921 56,226 1,559 672 73,378 152,036 122,956 24,681 2,036 1,666 3,651 569 32,603 2,625 695 18,780 22,100 54,703 97,333 18,323 - 1,745 2,597 474 23,139 360 498 2,572 3,430 26,569 96,387 85,285 71 11,977 85,285 56 11,046 97,333 96,387 The above statements of financial position should be read in conjunction with the accompanying notes. 18 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Consolidated statement of Cash Flows for the year to 30 June 2013 1 9 Notes Consolidated 2013 $000’s Consolidated 2012 $000’s Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Finance costs Income tax paid Relocation, restructuring and business combination costs Net cash flows provided by operating activities 9 Cash flows from investing activities Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Payments for unincorporated businesses net of cash acquired Working capital for businesses acquired during the period 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 Repayment of loans Proceeds from issue of shares Dividend paid Share issue transaction costs Net cash flows provided 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 176,071 (167,194) 62 (777) (2,353) (1,740) 4,069 (2,938) 61 (10,907) (5,839) (19,623) (2,040) 1,267 18,886 - - (4,223) - 13,890 (1,664) 3,911 2,247 1,267 - 128,887 (123,180) 106 (1,160) (3,096) (740) 817 (4,268) 336 (7,628) - (11,560) (2,135) 2,220 6,400 (19,469) 28,000 (918) (905) 13,193 2,450 1,461 3,911 2,220 1,914 The above statements of cash flow should be read in conjunction with the accompanying notes. 19 2013 Annual ReportFor personal use only 20 Consolidated statement of Changes in Equity for the year to 30 June 2013 Issued capital $000’s Retained earnings $000’s Option reserve $000’s Total equity $000’s Consolidated Balance as at 30 June 2011 54,005 8,110 Issue of shares for dividend re-investment plan Dividend paid Shares issued to vendors of businesses acquired Recognition of share based payments Shares issued under share placement Cost of raising shares Tax effect on cost of raising shares Total comprehensive income for the year Balance as at 30 June 2012 Dividend paid Recognition of share based payments Total comprehensive income for the year Balance as at 30 June 2013 1,914 - 1,998 - 28,000 (905) 273 - 85,285 - - - 85,285 - (2,832) - - - - - 5,768 11,046 (4,223) - 5,154 11,977 44 - - - 12 - - - - 56 - 15 - 71 62,159 1,914 (2,832) 1,998 12 28,000 (905) 273 5,768 96,387 (4,223) 15 5,154 97,333 The above statements of changes in equity should be read in conjunction with the accompanying notes. 20 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Notes to the Financial Statements for the year to 30 June 2013 21 Note 1: Corporate Information The financial report of Pro-Pac Packaging Limited and its subsidiaries (“the Group”) for the year ended 30 June 2013 was approved for issue in accordance with a resolution of the Directors on 25 September 2013. 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 adopted The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. 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 significant impact on the financial performance or position of the consolidated entity. As at the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective. Standard/Interpretation Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending AASB 9 ‘Financial Instruments’, and the relevant amending standards 1 January 2015 30 June 2016 AASB 10 ‘Consolidated Financial Statements’ and AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the consolidation and Joint Arrangements standards’ AASB 11 ‘Joint Arrangements’ and AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the consolidation and Joint Arrangements standards’ AASB 12 ‘Disclosure of Interest in Other Entities’ and AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the consolidation and Joint Arrangements standards’ AASB 127 ‘ Separate Financial Statements’ (2011) and AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the consolidation and Joint Arrangements standards’ AASB 128 ‘Investments in Associates and Joint Ventures’ (2011) and AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the consolidation and Joint Arrangements standards’ 1 January 2013 30 June 2014 1 January 2013 30 June 2014 1 January 2013 30 June 2014 1 January 2013 30 June 2014 1 January 2013 30 June 2014 21 2013 Annual ReportFor personal use only 22 Notes to the Financial Statements for the year to 30 June 2013 Note 2: Summary of Significant Accounting Policies (Cont.) Standard/Interpretation Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending AASB 13 ‘Fair Value Measurements’ and AASB 2011-8 ‘Amendments to Australian Accounting Standards arising from AASB13’ 1 January 2013 30 June 2014 AASB 119 ‘Employee Benefits’ (2011) and AASB 2011-10 ‘Amendments to Australian Accounting Standards arising from AASB 119 (2011)’ 1 January 2013 30 June 2014 AASB 2011-4 ‘Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements’ 1 July 2013 30 June 2014 AASB 2012-2 ‘Amendments to Australian Accounting Standards - Disclosures - Offsetting Financial Assets and Financial Liabilities’ 1 January 2013 30 June 2014 AASB 2012-3 ‘Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities” 1 January 2014 30 June 2015 AASB 2012-5 ‘Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle’ 1 January 2013 30 June 2014 AASB 2012-10 ‘Amendments to Australian Accounting Standards - Transition Guidance and Other Amendments’ 1 January 2013 30 June 2014 (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 requirements of the Corporations Act 2001. The financial report has 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 is disclosed in note 29. (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 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 2013 using accounting policies consistent with the consolidated 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 The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consolidated financial statements comprise the financial statements of Pro-Pac Packaging Limited and its subsidiaries as at 30 June 2013. 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 22 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities 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 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. 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. 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. (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 1 to 25 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 profit or loss and other 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 at reporting date 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. 23 2013 Annual ReportFor personal use only24 Notes to the Financial Statements for the year to 30 June 2013 Note 2: Summary of Significant Accounting Policies (Cont.) (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. (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, lease assets are established at the fair value of the leased assets or, if lower, the present value of minimum lease payments and amortised on a straight line basis over the expected economic life. A corresponding liability is also established and 24 Annual Report 2013For personal use onlyPro-Pac Packaging Limited + Controlled Entities 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. (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. 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 recognises its own current and deferred tax liabilities, except for any deferred tax liabilities resulting from unused tax losses and tax credits which are immediately assumed by the parent entity. The current tax liability of each group entity is then subsequently assumed by the parent entity (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 25 2013 Annual ReportFor personal use only26 Notes to the Financial Statements for the year to 30 June 2013 Note 2: Summary of Significant Accounting Policies (Cont.) 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 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 profit or loss and other comprehensive income. 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. 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: Operating Segments 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 (w) Critical Accounting estimates and judgements The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and The Industrial packaging division manufactures, sources and distributes industrial packaging materials and related products and services. All products produced or distributed 26 Annual Report 2013For personal use onlyare 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. 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. Pro-Pac Packaging Limited + Controlled Entities 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 assets and liabilities; • current tax liabilities; • other financial liabilities; 27 2013 Annual ReportFor personal use only28 Notes to the Financial Statements for the year to 30 June 2013 Note 3: Operating Segments (Cont.) Rigid Industrial packaging packaging $000’s 2013 $000’s 2013 Intersegment eliminations/ unallocated $000’s 2013 Rigid Total packaging $000’s 2012 $000’s 2013 Intersegment Industrial eliminations/ unallocated $000’s 2012 packaging $000’s 2012 Total $000’s 2012 (i) Segment performance 12 months ended 30 June Revenue External sales Inter-segment sales 51,815 7,687 121,316 8,338 - 173,131 (16,025) - 47,901 6,850 85,152 7,756 - 133,053 - (14,606) Total segment revenue 59,502 129,654 (16,025) 173,131 54,751 92,908 (14,606) 133,053 6,724 7,349 (2,999) 11,074 (3,069) 62 (839) 7,228 (2,074) 5,154 6,262 8,045 (2,297) 12,010 (2,815) 106 (1,160) 8,141 (2,373) 5,768 EBITDA Depreciation & amortisation Interest revenue Finance costs Profit before income tax Income tax expense Profit after income tax (ii) Segment assets As at 30 June Segment assets 45,538 103,257 - 148,795 45,534 73,206 - 118,740 Reconciliation of segment assets to group assets Inter-segment eliminations Unallocated assets – Deferred tax assets – Other Total group assets from continuing operations (iii) Segment liabilities As at 30 June (1,497) 4,738 2,101 2,637 152,036 (1,959) 6,175 1,559 4,616 122,956 Segment liabilities 10,479 27,846 - 38,325 10,988 16,531 - 27,519 Reconciliation of segment liabilities to group liabilities Inter-segment eliminations Unallocated liabilities – Deferred tax liabilities – Other liabilities Total group liabilities from continuing operations (1,451) 17,829 - 17,829 54,703 (1,665) 715 - 715 26,569 (iv) The Group operates solely within Australia. As such there is only one geographical segment. 28 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Note 4: Expenses Profit before income tax includes the following expenses: Bad and doubtful debts – trade Rental expense on operating leases: – minimum lease payments Note 5: Income Tax Major components of income tax for the year ended 30 June are: Current income tax Current income tax charge Adjustments in respect of previous years Adjustments in respect of permanent differences Deferred income tax Relating to temporary differences Income tax expense in statement of profit or loss and other 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 2013 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 Adjustments in respect of permanent differences At effective income tax rate of 28.7% (2012: 28.0%) Income tax expense reported in statement of profit or loss and other comprehensive income 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 2013 and 30 June 2012. Consolidated 2013 $000’s Consolidated 2012 $000’s 110 5,949 2,398 (17) (94) (213) 2,074 7,228 2,168 - - (94) 2,074 199 4,453 2,664 34 - (325) 2,373 8,141 2,442 (17) (52) - 2,373 2,074 2,373 Current tax liability 569 474 29 2013 Annual ReportFor personal use only 30 Notes to the Financial Statements for the year to 30 June 2013 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 2013 Consolidated 2012 Net profit attributable to equity holders ($000’s) Weighted average number of ordinary shares for basic earnings per share 5,154 209,452,804 5,768 158,176,354 Basic earnings per share (cents per share) * Diluted earnings per share (cents per share) * 2.46 2.44 3.65 3.61 * The difference between basic and diluted shares on issue represents the PPG Executive Long Term Incentive Plan (ESPP) shares on issue which are treated as an option grant. Note 7: Dividends Paid and Proposed On 28 August 2013, the Company declared a fully franked final dividend of 1.0 cent per share. The record date for determining entitlements to the dividend is 11 September 2013 and the dividend will be paid on 25 September 2013. The Company’s Dividend Reinvestment Plan did not apply to the final dividend. When combined with PPG’s interim dividend of 1.0 cent, paid on 16 May 2013, this brings total fully franked dividends for the 2012/13 financial year to 2.0 cents per share. Declared and paid during the year: Final dividend for 2012 – 1 cent per ordinary share (2011 – 1 cent per ordinary share) Interim dividend for 2013 – 1 cents per ordinary share (2012 – 1 cent per ordinary share) Proposed for approval at the Directors Meeting (not recognised as a liability as at 30 June): Final dividend for 2013 – 1 cent per ordinary share (2012 – 1 cent per ordinary share) 2013 $000’s 2012 $000’s 2,111 1,397 2,112 4,223 1,435 2,832 2,122 2,110 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 2013 and 30 June 2012. As such franking credits arising from the other Group companies totalling $13,025,190 (2012: $12,481,697) 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% 12,482 2,544 15,026 (2,001) 13,025 10,599 3,097 13,696 (1,214) 12,482 30 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Consolidated 2013 $000’s Consolidated 2012 $000’s Note 8: Cash and Cash Equivalents Cash at bank and in hand 2,247 3,911 Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates The fair value of cash and cash equivalents 2,247 3,911 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 2,247 3,911 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 and 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 (b) Non-cash financing and investing activities During the year, the consolidated Group acquired plant with an aggregate value of $1,267,451 (2012: $2,219,825) by means of finance leases. (c) Credit standby arrangements with banks Credit facility Amount utilised Loan facilities Amount utilised 5,154 2,727 322 69 95 (542) (54) 29 941 (1,772) (1,558) 414 (1,756) 4,069 1,500 - 28,100 21,525 5,768 2,493 322 257 (441) (283) 87 11 (5,830) (1,973) 227 378 (199) 817 1,000 - 24,100 - 3 1 2013 Annual ReportFor personal use only 32 Notes to the Financial Statements for the year to 30 June 2013 Note 10: Trade and Other Receivables Current: Trade receivables Provision for impairment of receivables Opening balance Additional provision recognised Receivables written off during the year as uncollectable Other debtors Total current receivables Consolidated 2013 $000’s Consolidated 2012 $000’s 29,767 (338) (309) (139) 110 1,216 30,645 23,779 (309) (219) (289) 199 2,129 25,599 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 below 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 2013 Trade and term receivables Other receivables 29,767 1,216 338 - 325 - Total 30,983 338 325 2012 Trade and term receivables Other receivables 23,779 2,129 309 - Total 25,908 309 83 - 83 2,163 - 2,163 1,594 - 1,594 26,941 1,216 28,157 21,793 2,129 23,922 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. 32 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Consolidated 2013 $000’s Consolidated 2012 $000’s 983 27,108 28,091 913 17,785 18,698 27,787 (10,177) 17,610 22,601 (7,680) 14,921 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 Total property, plant and equipment (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 business acquisitions during the year Additions Disposals Depreciation charge for the year Carrying amount at the end of the year Consolidated 2013 $000’s Consolidated 2012 $000’s Owned 14,921 2,629 2,938 (131) (2,747) 17,610 Owned 13,099 663 4246 (594) (2,493) 14,921 33 2013 Annual ReportFor personal use only 34 Notes to the Financial Statements for the year to 30 June 2013 Notes Consolidated 2013 $000’s Consolidated 2012 $000’s Note 13: Intangible Assets Goodwill Carrying amount at beginning of the year Acquisition through business combinations 24 Closing value At 30 June Gross Accumulated impairment losses Net carrying value 56,226 11,641 46,758 9,468 67,867 56,226 67,867 - 67,867 56,226 - 56,226 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 Tax effect of share issue cost Tax effect of AL and LSL on acquisitions Other permanent differences brought to account Charge to statement of comprehensive income Closing balance Deferred tax assets The movement in deferred tax assets for each temporary difference during the year is as follows: Provisions and other timing differences at 1 July Reclassification Credit/(charge) to statement of comprehensive income At 30 June Transaction cost to equity issue at 1 July Tax effect of share issue cost Reclassification Charge to statement of comprehensive income At 30 June 34 1,940 161 2,101 1,559 - 235 94 213 2,101 1,338 - 602 1,940 221 - - (60) 161 1,338 221 1,559 962 272 - - 325 1,559 893 73 372 1,338 69 289 (73) (64) 221 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Consolidated 2013 $000’s Consolidated 2012 $000’s 2,803 1,048 322 322 3,125 1,370 350 350 672 672 Note 15: Prepayments (a) Current prepayments Other prepayments Prepaid royalty Total current prepayments (b) Non-current prepayments Prepaid royalty Total non-current prepayments 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 2013 amounted to $322,082 (2012: $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 430,000 shares were issued to staff and executives under the ESPP while 160,000 were forfeited and cancelled. At the end of the year 1,805,000 shares were in issue under the ESPP. 35 2013 Annual ReportFor personal use only 36 Notes to the Financial Statements for the year to 30 June 2013 Note 16: Employee Benefits (Cont.) • No other features of the benefit provided (including vesting conditions) were incorporated into the measurement of fair value. • The fair value of the employee benefit provided under the ESPP plan is estimated at the date of grant using the binomial model, and the following assumptions: expected volatility, risk-free interest rate, expected life of option, 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. Grant Date Expiry Date Price Balance at beginning of year Granted Exercised Expired/ forfeited Balance at end of year 2013 30/08/2010 12/04/2011 05/04/2012 17/10/2012 2012 30/08/2010 12/04/2011 05/04/2012 30/08/2013 11/04/2014 04/04/2015 16/10/2015 0.325 0.325 0.500 0.485 1,325,000 10,000 200,000 430,000 150,000 10,000 1,175,000 - 200,000 430,000 1,535,000 430,000 - 160,000 1,805,000 30/08/2013 11/04/2014 04/04/2015 0.325 0.325 0.500 1,325,000 10,000 200,000 1,535,000 1,325,000 10,000 200,000 - - - 1,535,000 Note 17: Trade and other Payables Current Unsecured: Trade payables GST payable Other tax payable Sundry creditors and accruals Contingent deferred payments to vendors for acquisitions Non-current Unsecured: Contingent deferred payments to vendors for acquisitions Consolidated 2013 $000’s Consolidated 2012 $000’s 15,355 808 525 4,431 3,562 24,681 2,625 2,625 13,278 609 448 3,988 - 18,323 360 360 Trade 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. 36 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Note 18: Interest Bearing Loans and Borrowings Current Finance lease and hire purchase (see note 25) Trade Finance Bank loan (secured) Non-current Finance lease and hire purchase (see note 25) Bank loan (secured) Consolidated 2013 $000’s Consolidated 2012 $000’s 1,666 2,036 - 3,702 1,869 16,911 18,780 1,737 - 8 1,745 2,572 - 2,572 (a) The bank loan is secured as follows: i) first ranking registered equitable mortgage over Pro-Pac Packaging Limited and all wholly owned subsidiaries; 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) 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 1.50:1 for any 6 month reporting period ii) 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 30 November 2014. 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 2,597 686 2,138 (1,770) 3,651 498 150 159 (112) 695 2,212 53 1816 (1,484) 2,597 395 58 140 (95) 498 37 2013 Annual ReportFor personal use only 38 Notes to the Financial Statements for the year to 30 June 2013 Note 20: Issued Capital Ordinary shares Issued and fully paid Movement in ordinary shares on issue Balance at 1 July 2011 Issue of shares under the Executive Long Term Incentive Plan Capital raising Cost of raising shares Issue of shares under the dividend re-investment plan Shares issued to vendors of businesses acquired Balance at 30 June 2012 Issue of shares under the Executive Long Term Incentive Plan Cancellation of shares under Executive Long Term Incentive Plan Consolidated 2013 $000’s Consolidated 2012 $000’s 85,285 85,285 Number 139,735,576 200,000 62,222,223 - 4,746,673 4,083,332 210,987,804 430,000 (160,000) $000’s 54,005 - 28,000 (632) 1,914 1,998 85,285 - - Balance at 30 June 2013 211,257,804 85,285 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. 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 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 2012 Annual Report. 38 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities 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 3.1%. 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 33.9% 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. Note 22: Financial Instruments Unless otherwise stated the carrying amounts of financial instruments reflect their fair value. The carrying amounts of trade receivables and trade payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial instruments. 39 2013 Annual ReportFor personal use only40 Notes to the Financial Statements for the year to 30 June 2013 Note 22: Financial Instruments (Cont.) 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 2013 $000’s 2013 $000’s 2013 $000’s 2013 $000’s 2013 % Consolidated (i) Financial assets Cash assets Receivables 2,237 - - - 10 30,645 2,247 30,645 Total financial assets 2,237 - 30,655 32,892 (ii) Financial liabilities Finance leases (current) Finance leases (non-current) Trade finance (current) Bank loans (current) Bank loans (non-current) Payables (current) Total financial liabilities - - 2,036 - 16,911 - 18,947 1,666 1,869 - - - 3,535 - - - - 24,681 24,681 1,666 1,869 2,036 - 16,911 24,681 47,163 Net financial assets/(liabilities) (16,710) (3,535) 5,974 (14,271) There is no interest rate applicable on receivables or payables. 3.1 7.8 7.8 5.6 5.6 5.6 2012 $000’s 2012 $000’s 2012 $000’s 2012 $000’s 2012 % Consolidated (i) Financial assets Cash assets Receivables 3,898 - - - 13 25,599 3,911 25,599 Total financial assets 3,898 - 25,612 29,510 (ii) Financial liabilities Finance leases (current) Finance leases (non-current) Bank loans (current) Bank loans (non-current) Payables (current) Total financial liabilities - - - - - - 1,745 2,572 - - - 4,317 - - - - 18,683 18,683 1,745 2,572 - - 18,683 23,000 Net financial assets/(liabilities) 3,898 (4,317) 6,929 6,510 4.0 7.9 7.9 7.0 7.0 40 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities 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 2013 < 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 2,237 1,666 - - 1,160 16,911 - 470 - - 215 - - 24 - - - - 2,237 3,535 16,911 Year ended 30 June 2012 < 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 3,898 1,745 - - 1,372 - - 840 - - 253 - - 107 - - - - Total $000’s 3,898 4,317 - 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. 2013 +/- 1% in interest rates +/- 10% in AUD / USD 2012 +/- 1% in interest rates +/- 10% in AUD / USD Consolidated Profit $000’s Consolidated Equity $000’s +/- 89 +/- 4,267 +/- 110 +/- 1,586 +/- 89 +/- 4,267 +/- 110 +/- 1,586 41 2013 Annual ReportFor personal use only 42 Notes to the Financial Statements for the year to 30 June 2013 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 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 Specialty 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 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Class of Shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Equity Holding 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Entities subject to class order relief 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 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’). As parent entity, Pro-Pac Packaging Limited and other group entities, Pro-Pac Group Pty Ltd and Plastic Bottles Pty Ltd as disclosed above are party to the deed of cross guarantee, the Statement of Profit and Loss and Other Comprehensive Income and the Statement of Financial Position of the entities that are party to the deed of cross guarantee are as presented in the Consolidated Statement of Profit and Loss and Other Comprehensive Income on page 17 and Consolidated Statement of Financial Position presented on page 18. 42 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Note 24: Business Combinations Acquisition of businesses The Group acquired the business and assets of the following: Effective date Acquired Location Business description 1/07/12 Start Food-Tech Australia Geelong National supplier of packaging consumables and products to the meat, chicken and fish processing industries 1/07/12 1/11/12 1/11/12 1/02/13 1/02/13 1/05/13 1/06/13 Metro Cartons Source & Sell Stronghold Abpak Melbourne Niche carton and industrial products distributor Sydney Melbourne Niche distributor of general industrial products Sydney Packaging supplier to the food industry including growers, packers and bakers Adelaide Poly Products Sydney Eco Food Pack Australian Flexographic Printers Sydney Niche supplier of packaging consumables and products to the meat processing industry Flexible extruder, printer and converter Packaging supplier to fresh meat, seafood and poultry industries Printing and laminating flexible films The effect of the above transactions can be summarised as follows: Assets Current Assets Inventories Trade debtors Other receivables 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 Consideration Paid Cash Contingent deferred payments Total GOODWILL Acquisition costs expensed to profit or loss Fair Value $000’s 3,107 2,146 816 6,069 2,629 2,629 8,698 3,199 3,199 406 406 3,605 5,093 10,907 5,827 16,734 11,641 123 43 2013 Annual ReportFor personal use only 44 Notes to the Financial Statements for the year to 30 June 2013 Note 24: Business Combinations (Cont.) Part of the Groups business plan is to grow through both organic growth and acquisitions. Acquisitions are undertaken to expand the product offering and the sectors in which the Group operates. Goodwill comprises inter alia the loyalty attached to trading names and brands acquired, contracts secured with major customers and established chains of supply. For the year ended 30 June 2013, the acquired business contributed the following earnings to the consolidated Group. Acquisition to 30 June 2013 Revenue $000’s Acquisition to 30 June 2013 Profit before income tax $000’s Annualised to June 2013 Revenue $000’s Annualised to June 2013 Profit before income tax $000’s Start Food-Tech Source & Sell Stronghold Eco Poly Products AFP Total business acquisitions 11,207 4,058 2,741 1,696 5,726 164 25,592 Cash used to acquire businesses Cash consideration paid Less: Cash and cash equivalents acquired Total 971 419 167 305 274 56 2,192 10,907 - 10,907 11,207 6,087 4,112 10,176 13,742 1,968 47,292 971 629 251 1,830 658 672 5,011 44 Annual Report 2013For personal use only Pro-Pac Packaging Limited + 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 2013 $000’s Consolidated 2012 $000’s 4,565 10,819 1,272 16,656 3,950 11,544 1,352 16,846 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 2013 Minimum payments $000’s 1,857 1,996 3,853 Less amounts representing future finance charges (318) Present value of minimum lease payments 3,535 Representing lease liabilities Current Non-current 2013 $000’s 1,666 1,869 3,535 The weighted average interest rate implicit in the leases is 7.8%. 2013 Present value of payments $000’s 2012 Minimum payments $000’s 2012 Present value of payments $000’s 1,666 1,869 3,535 - 3,535 2,031 2,797 4,828 (519) 4,309 2012 $000’s 1,737 2,572 4,309 1,737 2,572 4,309 - 4,309 45 2013 Annual ReportFor personal use only 46 Notes to the Financial Statements for the year to 30 June 2013 Note 25: Commitments and Contingencies (Cont.) Contingent Liability As at statement of financial position date, the Company issued security deposit guarantees and standby letters of credits to the value of $674,780 to the landlords of rented premises and overseas suppliers. Capital Expenditure Commitments As at statement of financial position date the Company had no commitments for future capital expenditure. Capital commitments - Property, plant and equipment Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years Note 26: Impairment Testing of Goodwill Carrying amount of goodwill Carrying amount of goodwill Industrial Division Carrying amount of goodwill Rigid Division Total carrying amount of goodwill Consolidated 2013 $ Consolidated 2012 $ 158,170 - 158,170 45,772 22,095 67,867 - - - 34,131 22,095 56,226 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 growth 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) 11.0% pre-tax discount rate; (2012: 12.2%) (b) 5.5% for industrial division (2012: 8%) and 2.2% for rigid division (2012: 1.6%) per annum projected revenue growth rate; (c) 5.5% for industrial division (2012: 8%) and 2.2% for rigid division (2012: 1.6%) per annum increase in operating costs and overheads. The discount rate of 11.0% 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 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Note 26: Impairment Testing of Goodwill (Cont.) Sensitivity The directors have made judgements and estimates in respect of impairment testing of goodwill. Should these judgements and estimates not occur the resulting goodwill may vary in the carrying amount. The sensitivities are as follows: (a) the discount rate would need to increase to 14.5% for the Industrial division and to 14% for the Rigid division before goodwill would be impaired. A rate of 11.0% was used in the assessment of goodwill. (b) the EBITDA growth rate would need to decrease to negative 2% in the Industrial division and to negative 1% in the Rigid division before goodwill would be impaired. EBITDA growth rates of 3% and 2% respectively, were used in the assessment of goodwill for the Industrial and Rigid divisions respectively. 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 Key Management Personnel The Company or members of the Group have entered into the following agreements with the following Key Management Personnel or entities related to them: Hadrian Morrall and Brandon Penn. Hadrian Morrall • Remuneration paid • Payments to Morrall Penn Holdings Pty Ltd and The Penn Morrall Partnership for rental related to the Sydney, Melbourne and Brisbane properties (inc GST) – 9 Widemere Road, Wetherill Park, NSW – Unit 15/129 Robinson Road, Geebung, QLD – 32 Hinkler Road, Mordialloc, VIC Brandon Penn • Remuneration paid • Payments to Morrall Penn Holdings Pty Ltd and The Penn Morrall Partnership for rental related to the Sydney, Melbourne and Brisbane properties (inc GST) – 9 Widemere Road, Wetherill Park, NSW – Unit 15/129 Robinson Road, Geebung, QLD – 32 Hinkler Road, Mordialloc, VIC Consolidated 2013 $ Consolidated 2012 $ 239,687 234,508 796,405 581,505 125,203 89,697 790,680 587,055 116,351 87,274 247,384 240,000 796,405 581,505 125,203 89,697 790,680 587,055 116,351 87,274 Total payments to related parties during the year ended 30 June 2013 was $1,283,836 (2012: $1,265,188). 47 2013 Annual ReportFor personal use only 48 Notes to the Financial Statements for the year to 30 June 2013 Note 28: Key Management Personnel Disclosure Key Management Personnel at 30 June 2013 Elliott Kaplan Dr Gary Weiss Brandon Penn Hadrian Morrall Wendy Penn Mark Saus Non-executive Chairman Non-executive Director Executive Director Divisional Managing Director Divisional Managing Director Chief Financial Officer and Company Secretary Remuneration of Key Management Personnel Excluding the Directors, there are only three staff members of the Company who qualify as “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. For more details refer to the remuneration report as included in directors’ report. Note 29: 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 2013 $’000 2012 $’000 4,237 4,237 1,214 87,822 2,513 2,513 85,285 - 24 85,309 4,258 4,258 3,008 87,336 2,042 2,042 85,285 - 9 85,294 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. 48 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Note 30: Events after the Statement of Financial Position Date Effective 1 August 2013 Pro-Pac Packaging Manufacturing (Syd) Pty Ltd, a wholly owned subsidiary, acquired the business and assets of Labels Plus (NSW) Pty Ltd trading as Fast Labels. Fast Labels is a niche label manufacturer operating in Sydney with annualised turnover of circa $800,000. On 28 August 2013, the Company declared a fully franked final dividend of one cent per share. For details refer to the Directors’ Report on page 5. Note 31: Auditors’ Remuneration Amounts paid or due payable to UHY Haines Norton for: – audit or review of the financial report and half-year financial report – due diligence relating to acquisitions Consolidated 2013 $ Consolidated 2012 $ 109,000 - 105,000 51,000 Note 32: 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 2013. The Group does not at this time believe these have any material impact on the 2013 financial report or for the ensuing year. 49 2013 Annual ReportFor personal use only 50 Directors’ declaration The directors of the company declare that: 1. The financial statements and notes, as set out on pages 17 to 49, are in accordance with the Corporations Act 2001 and: (a) comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; (b) give a true and fair view of the consolidated entity’s financial position at 30 June 2013 and of its performance for the year ended on that date; (c) comply with International Financial Reporting Standards as disclosed in Note 2 (c) to the financial statements. 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. 4. 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. At the date of this declaration, there are reasonable grounds to believe that the entities that are party to the deed of cross guarantee as described in note 23 to the financial statements will be able to meet any obligation or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. Signed in accordance with a resolution of the Board of Directors pursuant to section 295 (5) (a) of the Corporations Act 2001. On behalf of the Board on 25 September 2013. Elliott Kaplan Chairman Brandon Penn Director 50 Annual Report 2013For personal use only Pro-Pac Packaging Limited + Controlled Entities Independent Auditor’s report 5 1 Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Opinion In our opinion: (a) the financial report of Pro-Pac Packaging Limited, is in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and ii. complying with the Australian Accounting Standards and the Corporations Regulations 2001; and (b) the consolidated financial report also complies with International Financial Reporting Standards as disclosed in Note 2(c). Report on the Remuneration Report We have audited the Remuneration Report included in pages 5 to 8 of the directors’ report for the year ended 30 June 2013. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 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. Opinion In our opinion, the Remuneration Report of Pro-Pac Packaging Limited, for the year ended 30 June 2013, complies with section 300A of the Corporations Act 2001. M.D. Nicholaeff UHY Haines Norton Partner Chartered Accountants Signed at Sydney on 25 September 2013. To the members of Pro-Pac Packaging Limited Report on the Financial Report We have audited the accompanying financial report of Pro-Pac Packaging Limited, which comprises the consolidated statement of financial position as at 30 June 2013, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, 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 of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001, and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2(c), the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply 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. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about 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 of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 5 1 2013 Annual ReportFor personal use only 52 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 16 September 2013. (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 Total Units 82 127 135 681 108 10,316 413,895 1,104,719 25,810,590 185,018,284 1,133 212,357,804 % 0.005 0.195 0.520 12.154 87.126 100.00 There are eighty five holders of unmarketable parcels totalling 13,831 shares representing 0.0065% 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: 1 BENNAMON PTY LTD 2 MR BRANDON ARI PENN 108,006,266 50.86 Bennamon Pty Limited 108,006,266 ordinary shares 21,815,015 10.27 Mr Brandon Penn 24,438,842 ordinary shares (d) Voting rights All ordinary shares carry one vote per share without restriction. (e) Restricted securities Restricted securities total 2,905,000. ESPP Shares under escrow until 30 August 2013 ESPP Shares under escrow until 4 April 2015 ESPP Shares under escrow until 16 October 2015 ESPP Shares under escrow until 21 July 2016 1,175,000 ESPP shares 200,000 ESPP shares 430,000 ESPP shares 1,100,000 ESPP shares (f) Business objectives The Company has used its cash and assets that are readily convertible to cash in a way consistent with its business objectives. 3 NATIONAL NOMINEES LIMITED 6,406,600 3.02 4 5 AUST EXECUTOR TRUSTEES LTD BNP PARIBAS NOMINEES PTY LTD ACF PENGANA 6 MR GRANT JULIAN MADDOCK 7 8 RUBI HOLDINGS PTY LTD MR BRANDON PENN & MRS WENDY PENN 9 MRS NATALIE PENN 10 INVIA CUSTODIAN PTY LIMITED 6,222,465 2.93 3,333,333 3,187,864 1.57 1.50 3,000,000 1.41 2,250,000 1,200,344 1.06 0.57 1,000,000 0.47 11 J K M SECURITIES PTY LIMITED 1,000,000 0.47 12 MISCHKE INVESTMENTS PTY LTD 13 MISCHKE INVESTMENTS PTY LTD 14 NIGHTINGALE PARTNERS PTY LTD 15 RUBICON NOMINEES PTY LTD 16 MR CRAIG STEWART FOX & MRS TONI ROSEMARY FOX 957,850 0.45 938,841 904,625 900,000 0.44 0.43 0.42 759,780 0.36 17 SM & RS PTY LTD 750,000 0.35 18 SONHILL INVESTMENTS PTY LTD 19 EQUITY TRUSTEES LIMITED 20 MR MARK SAUS Top 20 Total 52 723,310 0.34 720,604 600,000 0.34 0.28 164,676,897 77.55 212,357,804 Annual Report 2013For personal use only Our environment We believe very strongly in the conservation of our environment, its resources and the recycling of as much product as possible. We believe in living the practice of ‘reduce’, ‘reuse’, ‘recover’ and ‘recycle’. These four practices are at the centre of our commitment to a better environment. Wherever possible we endeavour to provide environmentally friendly solutions to our customers, whether these are in the form of biodegradable voidfill, plastics alternatives and formulas and/or an effort to reduce the amount or type of packaging a customer requires. We recognise that protecting the environment is the responsibility of us all. Printed on Maine Recycled Silk design – Kettle of Fish Design For personal use onlyPro-Pac Packaging Limited 147-151 Newton Road Wetherill Park NSW Australia 2164 phone (02) 8781 0500 (02) 8781 0599 fax email sales@pro-pac.com.au web www.ppgaust.com.au For personal use only

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