PRO
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WHOLE
PACKAGE
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PPG
WITHIN THE PPG INDUSTRIAL DIVISION WE NOT ONLY MANUFACTURE
OUR OWN BIODEGRADABLE VOID-FILL PRODUCTS AND CARTONS
BUT WE ALSO IMPORT AND DISTRIBUTE SOME OF THE WORLD’S
LEADING BRANDS OF GENERAL INDUSTRIAL PACKAGING PRODUCTS
ALONGSIDE OUR OWN HOUSE BRANDED PRODUCTS. SERVICING THE
PHARMACEUTICAL, PERSONAL CARE, FOOD SERVICE, AGRICULTURAL,
INDUSTRIAL, CHEMICAL AND AUTOMOTIVE INDUSTRIES, THE PPG
RIGID CONTAINERS AND CLOSURES DIVISION ARE YOUR ONE STOP
SHOP FOR RIGID PACKAGING. THE PPG SAFETY AND PPE DIVISION
IS YOUR MOST DEPENDABLE AND TRUSTED SOURCE FOR ALL OF
YOUR HEALTHCARE, INDUSTRIAL SAFETY AND HYGIENE NEEDS.
SERVICING THE PHARMACEUTICAL, HEALTH, AGED CARE, PERSONAL
CARE, FOOD SERVICE, INDUSTRIAL, CHEMICAL AND AUTOMOTIVE
INDUSTRIES OUR PRODUCTS ARE MANUFACTURED TO THE HIGHEST
QUALITY. PPG FOOD SERVICE SUPPLIES A RANGE OF PRODUCTS
AND DISPOSABLE CONSUMABLES TO THE FOOD AND HOSPITALITY
SECTOR. WITH A NATIONAL FOOTPRINT AND A COMPREHENSIVE
RANGE OF PRODUCTS, THE END USERS OF OUR PRODUCTS INCLUDE
RESTAURANTS, CAFES, TAKEAWAY STORES, FOOD MANUFACTURERS/
PACKERS, DELIS, BUTCHERS, CATERERS AND FRESH FOOD STORES.
THE PPG WASHROOM AND JANITORIAL DIVISION PROVIDE
EVERYTHING TO KEEP YOUR BUSINESS CLEAN AND HYGIENIC. PPG
FOOD PROCESSING PROVIDES THE FRESH MEAT, FISH, POULTRY AND
SMALLGOODS SECTOR WITH AN EXTENSIVE RANGE OF QUALITY
PRODUCTS. WE DELIVER AN END TO END SOLUTION OF ALL INDUSTRY
SPECIFIC PRODUCTS AND CONSUMABLES USED BY OUR CLIENTS.
PRO-PAC
PACKAGING
LIMITED
COMPANY SECRETARY
Mark Saus
REGISTERED OFFICE
147 - 151 Newton Road
Wetherill Park NSW 2164
DIRECTORS
Elliott Kaplan (Chairman)
Ahmed Fahour
Brandon Penn
Dr Gary Weiss
CORPORATE INFORMATION
PRO-PAC PACKAGING LIMITED ACN: 112 971 874 ABN: 36 112 971 874
PRO-PAC
PACKAGING
LIMITED2014 Annual Report
BANKERS
Commonwealth Bank of Australia
Premium Business Services
Level 1, 430 Forest Road
Hurstville NSW 2220
STOCK EXCHANGE LISTING
Pro-Pac Packaging Limited shares
are listed on the Australian Securities
Exchange (ASX code: PPG)
SOLICITORS
Thomson Geer
Level 25, 1 O’Connell Street
Sydney NSW 2000
PRINCIPAL PLACE OF BUSINESS
147 - 151 Newton Road
Wetherill Park NSW 2164
SHARE REGISTER
Boardroom Limited
Level 7, 207 Kent Street
Sydney NSW 2000
AUDITORS
UHY Haines Norton
Level 11 , 1 York Street
Sydney NSW 2000
CONTENTS
02 Chairman’s Report
Consolidated Statement of Profit or
Loss and Other Comprehensive Income
Consolidated Statement of
Cash Flows
Consolidated Statement of
Financial Position
10 Auditors’ Independence Declaration
11 Corporate Governance Statement
20 Consolidated Statement of
Notes to the Financial Statements
Additional Company Information
03 Directors’ Report
Independent Auditor’s Report
Directors’ Declaration
Changes in Equity
52
53
18
19
21
51
17
1
CHAIRMAN’S REPORT
“...THE ONGOING FOCUS ON CONTINUING TO GROW
THE TOP LINE AND ENHANCING THE BOTTOM-LINE
PERFORMANCE HAS ENABLED THE COMPANY TO
REPORT AN IMPROVED AND PLEASING RESULT.”
In this regard, in March we were extremely pleased to
announce the appointment of Mr Ahmed Fahour as
an additional non-executive director. The matter of
renewal applies equally to the role of Chairman and
having now served as your Chairman over the past four
financial years, I have decided to retire from that role
at the conclusion of our annual general meeting to be
held on 25 November 2014. I am pleased to advise that
Mr Fahour has agreed to take on the role of Chairman
and the Board has accordingly resolved to appoint
Ahmed as Chairman with effect from the conclusion of
the 2014 annual general meeting.
I would like to thank my fellow directors for their
input and counsel and, on behalf of the Board, I would
also like to again express thanks to our hard working
and dedicated CEO Brandon Penn, CFO Mark Saus,
divisional MD’s Wendy Penn and Hadrian Morrall and all
the rest of our management team and staff.
Elliott Kaplan
Chairman
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 2014.
While the 2014 financial year could be categorised
as a year of consolidation - with the integration of
the 10 acquisitions made since the beginning of the
2013 financial year and the implementation of major
cost reduction strategies - the ongoing focus on
continuing to grow the top line and enhancing the
bottom-line performance has enabled the Company
to report an improved and pleasing result.
In difficult trading conditions revenue grew by 26%
to $218 million, approximately half of which was
organic growth, and EBITDA increased by 22% to
$13.5 million. Profit after tax was up by 19% to $6.1
million. The cost out strategies have started to yield
results with administration, distribution and selling
expenses reducing year on year from 25.7% to 22.1%
as a percentage of sales. However, margins were
negatively impacted through a mixture of adverse
foreign exchange movements, rising raw material
input prices and an increase in lower margin direct
drop ship sales.
In addition to organic growth, the Company continues
to seek value enhancing acquisition opportunities and
a current pipeline of potential acquisitions is under
assessment.
A fully franked interim dividend of one cent per share
was paid on 20 May 2014 and the Board has also
declared a fully franked final dividend of one cent
per share.
As I have mentioned on previous occasions, an
important element of a growing company is the
periodic strengthening and renewal of the Board.
2
Pro-Pac Packaging Limited + Controlled Entities
DIRECTORS’ REPORT
The 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 2014.
DIRECTORS
The Directors in office at the date of this report and during
the whole of the financial year, other than Mr Fahour who
joined the Board on 28 March 2014, 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 ASX listed Mnemon 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.
Ahmed Fahour
B. Econ, MBA
(Non-Executive Director – appointed 28 March 2014)
Mr Fahour was appointed Managing Director and CEO of
Australia Post in February 2010. He has held a number of
senior executive positions within the finance and banking
industries in Australia and overseas and was previously
CEO of Citigroup (Australia and New Zealand) and National
Australia Bank (Australia), and he is the former chairman of
Rip Curl Group. Mr Fahour is currently Executive Chairman
of Our Neighbourhood and Star Track, as well as a director
of Methodist Ladies’ College (Melbourne) and the Carlton
Football Club. He is also an Adjunct Professor in the Faculty
of Business, Economics and Law at La Trobe University.
Mr Fahour is a member of the Remuneration Committee of
Pro-Pac.
Brandon Penn
B. Com
(Executive Director – appointed 16 August 2007)
Mr Penn is the founding director of the PB Group which
merged with PPG in 2007. He has had a number of
business interests alongside the PB Group including
the establishment of a dominant software development
company, Dealing Information Systems (DIS), which
developed wholesale banking systems. DIS was acquired
in 1996 by Sungard Data Systems NYSE. Mr Penn assumed
Asia-Pacific responsibility for the Sungard companies and
offices throughout the Asia Pacific region.
On 1 March 2010 Mr Penn was appointed to the position of
Group CEO.
Dr Gary Weiss
LL.B (Hons), LL.M (with dist.), Doctor of Juridical Science
(JSD)
(Non-Executive Director – appointed 28 May 2012)
Dr Weiss is Chairman of ClearView Wealth Limited
(appointed 22 October 2012) and Secure Parking Pty Ltd
(appointed 1 November 2004). He is a Director of Ariadne
Australia Limited (appointed 28 November 1989), Premier
Investments Limited (appointed 11 March 1994), Ridley
Corporation Ltd (appointed 21 June 2010), Mercantile
Investment Company Limited (appointed 6 March 2012),
Tag Pacific Limited (appointed 1 October 1988) and The
Straits Trading Company Limited (appointed 1 June 2014).
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 27 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 SME environments. Mr Saus is also
the Chief Financial Officer of the Group.
3
2014 Annual Report 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:
Elliott Kaplan
Ahmed Fahour
Brandon Penn
Dr Gary Weiss
Opening balance
Additions
Disposals
Closing balance
ORDINARY SHARES
216,357
-
-
10,000,000
24,438,842
-
519,975
500,000
-
-
-
-
216,357
10,000,000
24,958,817
500,000
Opening balance
Additions
Disposals
Closing balance
OPTIONS
Elliott Kaplan
-
1,200,000
-
1,200,000
MEETINGS OF DIRECTORS
Attendances by each director during the year were:
BOARD
Number of Meetings
attended
meetings held
while in office
AUDIT COMMITTEE
Number of Meetings
attended
meetings held
while in office
REMUNERATION COMMITTEE
Number of Meetings
attended
meetings held
while in office
Elliott Kaplan
Ahmed Fahour
Dr Gary Weiss
Brandon Penn
8
2
8
8
8
2
7
8
3
-
3
-
3
-
3
-
1
-
1
-
1
-
1
-
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
Momentum in top line growth continued with year on
year revenue growing strongly by 26% ($45 million) to
$218 million, of which organic growth accounted for
approximately 50% of the total increase in sales. Despite
continued difficult general industry trading conditions,
rising resin and raw material input prices and adverse
margin impacts from the material downward movement in
the A$/US$ exchange rate during the year, the strategies
adopted together with the investment in infrastructure over
the past couple of years enabled the Company to record a
22% increase in EBITDA, up from $11.1m in FY13 to $13.5m
in FY14. Profit after tax was up 19% to $6.1m.
The focus on cost out strategies has started to yield results
with administration, distribution and selling expenses
reducing from 25.7% in FY13 to 22.1% as a percentage of
sales in FY14.
The Company’s balance sheet continues to strengthen
with total assets increasing by $12.9m to $164.9m. This
growth was partly funded by the issue of 10.5 million shares
($4.5m) and a modest increase in interest bearing debt
which increased by $1.4m to $23.9m at 30 June 2014.
4
Pro-Pac Packaging Limited + Controlled Entities
Net interest bearing debt to net interest bearing debt plus
equity remains relatively low at 16.1%
During the year, 2,150,000 ordinary shares were issued as
part of the Employee Long Term Incentive Plan (“ESPP”)
while 150,000 shares were forfeited and cancelled under
the plan. 1,125,000 ESPP shares vested during the year. In
addition 10,500,000 shares were issued during the year
as approved at a shareholders’ meeting. At 30 June 2014
there were 226, 693,758 shares on issue.
During the year the Company completed two niche
acquisitions as detailed in note 24 of the financial
statements (Business Combinations) to support the
Company’s continuing strategy of expanding its product
and service offering to the food manufacturing and
processing industries.
The Company also completed the integration of two
facilities in NSW for the Rigid Division’s injection moulding
facilities, as well as the integration of information systems
in the Industrial Division’s Queensland operations which
will have a favourable effect on the division’s operational
efficiencies in future trading periods. During the year,
a support centre was also established in Malaysia to
complement the local infrastructure.
DIVIDENDS
A fully franked interim dividend of one cent per share was
paid on 20 May 2014. In August 2014, 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 2014 and the dividend will
be paid on 4 November 2014. The Company’s Dividend
Reinvestment Plan will not apply to this dividend.
SIGNIFICANT CHANGES IN THE STATE OF
AFFAIRS
There were no changes in the state of affairs of the
Company during the year.
SIGNIFICANT EVENTS SUBSEQUENT TO
BALANCE DATE
There were no significant events subsequent to balance
date.
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), Mr Ahmed Fahour and Mr Elliott Kaplan who
are Non-Executive Directors.
The Remuneration Committee assesses the appropriateness
of the nature and amount of remuneration of directors on a
periodic basis by reference to relevant employment market
conditions with the overall objective of ensuring maximum
stakeholder benefit from the retention of a high quality
Board and executive team. It is intended that the manner of
payments chosen will be optimal for the recipient without
creating undue cost for the Group. Further details on the
remuneration of Directors and executives are set out in this
Remuneration Report.
5
2014 Annual Report DIRECTORS’ REPORT
In accordance with best practice corporate governance,
the structure of non-executive Director and executive
remuneration is separate and distinct.
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.
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 2014 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 also responsible for
providing advice to the Board with respect to non-
executive directors’ remuneration.
The Board is responsible for determining remuneration
packages applicable to the Board members and the Chief
Executive Officer. The Chief Executive Officer determines
the remuneration packages for the senior executives of the
Company in accordance with compensation guidelines set
by the Board.
The remuneration of the Chief Executive Officer and senior
management for the year ending 30 June 2014 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
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 2,680,000
shares issued to employees under the Plan.
The following are the key terms and conditions of the ESPP:
• No shares under the ESPP will be allotted unless the
requirements of the Corporations Act 2001 and the ASX
Listing Rules have been complied with.
• Performance hurdles apply to the ESPP. The key
performance hurdle is that the total shareholder return
to shareholders of the Company must exceed the rate
of growth over the same period for the S&P/ASX Small
Ordinaries Accumulation Index (or any equivalent or
replacement of that index).
• Shares are allocated to employees at either the value
of shares as detailed in the latest disclosure document
issued by the Company or the 5-day weighted average
price immediately prior to the offer being made to the
employee.
• The Company may provide loans to participants to
acquire shares under the ESPP. As security for the loans,
6
Pro-Pac Packaging Limited + Controlled Entities participants will pledge the shares acquired under the
ESPP to the Company at the time the loans are provided
and will grant a charge over any benefits attributable to
the Shares, including bonus shares, rights, and dividends.
Any dividends paid on the shares by Pro-Pac Packaging
Limited are treated as interest on the loan.
• The term of the loans and the vesting period for the
shares from the date of issue of shares is 3 years.
Key Management Personnel at 30 June 2014
Elliott Kaplan – Non-executive Chairman
Ahmed Fahour – Non-executive Director
Dr Gary Weiss – Non-executive Director
Brandon Penn – Executive Director
Hadrian Morrall – Divisional Managing Director
• The Shares will be registered in the names of the
Wendy Penn
– Divisional Managing Director
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.
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
Cash, salary
and fees
$
60,000
60,000
11,923
-
46,153
51,691
200,689
198,598
226,793
226,973
185,393
185,000
181,196
186,397
912,147
908,659
Non-
monetary
benefits
$
-
-
-
-
-
-
22,980
22,980
-
-
8,000
8,000
-
-
30,980
30,980
Elliott Kaplan
Ahmed Fahour
Gary Weiss
Hadrian Morrall
Brandon Penn
Wendy Penn
Mark Saus
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Total Remuneration 2014
2013
Super-
annuation
Other
$
5,550
5,400
1,103
-
4,269
4,652
20,280
18,109
20,978
20,411
17,149
16,685
25,000
18,388
94,329
83,645
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Share
based
payment
Equity and
options
Total
Performance
based
$
$
%
12,440
-
-
-
-
-
-
-
-
-
-
-
4,667
2,402
77,990
65,400
13,026
-
50,422
56,343
243,949
239,687
247,771
247,384
210,542
209,685
210,863
207,187
17,107
2,402
1,054,563
1,025,686
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7
2014 Annual Report
DIRECTORS’ REPORT
Options issued as part of remuneration for the year ended 30 June 2014
1,200,000 options were granted to Mr Kaplan as remuneration during the year ended 30 June 2014 as approved by a
shareholders’ meeting.
Shares and Loans issued under the ESPP during the year ended 30 June 2014
2,150,000 shares and related loans with a total value of $986,800 were issued under the ESPP during the year ended
30 June 2014.
ESPP Shares of Key Management Personnel as at the date of this report
ESPP Shares
(number)
ESPP Shares
$
ESPP Loans
Outstanding
$
ESPP Issue Price
$
ESPP Expiry Date
$
Mark Saus
Mark Saus
Total
300,000
150,000
450,000
137,400
69,000
137,400
69,000
206,400
206,400
0.458
0.46
21 July 2016
24 March 2017
Option Holdings of Key Management Personnel
1,200,000 options were granted to Mr Kaplan during the year ended 30 June 2014 as approved by a shareholders’ meeting.
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 directors 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 1,200,000 unissued ordinary shares under options.
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings
to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of
those proceedings. The Company was not a party to any such proceedings during the year.
ROUNDING OF ACCOUNTS
The company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments
Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Class Order
to the nearest thousand dollars, or in certain cases, the nearest dollar.
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
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 2014, there were no non-audit services provided by the entity’s auditors UHY Haines
Norton.
The Auditor’s independence declaration as required under section 307C of the Corporations Act 2001 for the year end
30 June 2014 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 22 September 2014.
Elliott Kaplan
Chairman
Brandon Penn
Director
9
2014 Annual Report
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 2014, 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
( ii )
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 22 September 2014.
10
Pro-Pac Packaging Limited + Controlled Entities
CORPORATE GOVERNANCE STATEMENT
The Board of Directors of Pro-Pac Packaging Limited is
responsible for the corporate governance of the Company
and its controlled entities (Pro-Pac) and to ensure that
Pro-Pac is directed and managed appropriately. In this
regard, the Board is committed to ensuring accountability
and that control systems are commensurate with the risks
involved to enable Pro-Pac to create value and optimise
its performance.
During August 2007, the ASX Corporate Governance
Council released its Corporate Governance Principles and
Recommendations – 2nd edition (ASX Principles). The
ASX Listing Rules require Pro-Pac to provide a statement
in its Annual Report disclosing the extent to which they
have followed the best practice recommendations during
the reporting period, and if any recommendations are not
followed, an explanation is provided. In March 2014, the
ASX Corporate Governance Council released its Corporate
Governance Principles and Recommendations – 3rd
edition. The latter is effective for the financial year ended
30 June 2015 and has not been implemented for this
report.
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
11
2014 Annual Report CORPORATE GOVERNANCE STATEMENT
responsibilities include the overall strategic direction
of Pro-Pac, establishing goals for management and
monitoring the achievement of these goals. The functions
and responsibilities of the Board and management are
consistent with ASX Principle 1. A summary of the matters
reserved for the Board can be found in the corporate
governance section of the Pro-Pac website.
www.ppgaust.com.au
Pro-Pac has in place systems designed to fairly review
and actively encourage enhanced Board and management
effectiveness. The Chairman has the responsibility to review
continually the performance of each director and the
Board as a whole. The performance of the Board is
reviewed regularly against both measurable and qualitative
indicators. The performance criteria against which
Directors and Executives are assessed is aligned with the
financial and non-financial objectives of Pro-Pac. From
time to time and, as considered appropriate, the Chairman
will seek external assistance and advice to undertake these
performance reviews.
A performance evaluation for senior executives was
undertaken during the reporting period. This entails an
evaluation of the executive against a pre-determined set
of objectives and key performance areas.
ASX PRINCIPLE 2 - STRUCTURE THE BOARD
TO ADD VALUE
Companies should have a board of an effective
composition, size and commitment to adequately
discharge its responsibilities and duties.
• Recommendation 2.1: A majority of the board should be
independent directors.
• Recommendation 2.2: The chair should be an
independent director.
• Recommendation 2.3: The roles of chair and chief
executive officer should not be exercised by the same
individual.
• Recommendation 2.4: The board should establish a
nomination committee.
• Recommendation 2.5: Companies should disclose the
process for evaluating the performance of the board, its
committees and individual directors.
• Recommendation 2.6: Companies should provide the
information indicated in the Guide to reporting on
Principle 2.
Structure of the Board
The skills, experience and expertise relevant to the position
of director held by each Director in office at the date of
this Report is included in the Directors’ Report. Corporate
Governance Council Recommendation 2.1 recommends
that a majority of the Board to be independent Directors.
The Corporate Governance Council defines independence
as being free from any business or other relationship that
could materially interfere with – or could reasonably be
perceived to materially interfere with – the independent
exercise of their judgement.
When determining the independent status of a director the
Board would consider whether the Director is, inter alia:
• a substantial shareholder of the company or an officer
of, or otherwise associated directly with, a substantial
shareholder of the company; and
• employed, or has previously been employed in an
executive capacity by the company or another group
member, and there has not been a period of at least
three years between ceasing such employment and
serving on the board.
In accordance with the above criteria, the following
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.
Messrs Kaplan and Fahour 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.
12
Pro-Pac Packaging Limited + Controlled Entities 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
ASX PRINCIPLE 3 - PROMOTE ETHICAL AND
RESPONSIBLE DECISION-MAKING
Companies should actively promote ethical and
responsible decision-making.
Company as a whole;
- perform the functions of office and exercise the powers
attached to that office with a degree of care and
diligence that a reasonable person would exercise if he
were a Director in the same circumstances; and
- consider matters before the Board having regard to any
possible personal interests, the amount of information
appropriate to properly consider the subject matter and
what is in the best interests of the Company.
The Company considers industry experience and specific
expertise, as well as general corporate experience, to be
important attributes of its Board members. The Directors
noted above have been appointed to the Board due to their
considerable industry and corporate experience.
There are procedures in place, agreed by the Board,
to enable Directors, in furtherance of their duties, to
seek independent professional advice at the Company’s
expense.
The term in office held by each Director in office at the
date of this report is listed below. Note that the Company
was incorporated in February 2005.
Name
Term in office
Elliott Kaplan
9 years and 8 months
Brandon Penn
7 years and 1 month
Gary Weiss
2 year and 4 months
Ahmed Fahour
3 months
The Company complied with the following best practice
recommendations throughout the financial year ended 30
June 2014:
- 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.
• Recommendation 3.1: Companies should establish a
code of conduct and disclose the code or a summary of
the code as to:
– the practices necessary to maintain confidence in the
company’s integrity;
– the practices necessary to take into account their legal
obligations and the reasonable expectations of their
stakeholders; and
– the responsibility and accountability of individuals
for reporting and investigating reports of unethical
practices.
• Recommendation 3.2: Companies should establish a
policy concerning 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.
13
2014 Annual Report CORPORATE GOVERNANCE STATEMENT
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 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:
Executive managers
Managers
Staff
Total
Women
1
8
161
170
Men
3
23
245
271
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
143
21
6
170
Men
256
4
11
271
Securities Trading Policy
A securities trading policy has been adopted and is binding
on all Directors, officers and employees of Pro-Pac.
This policy imposes trading restrictions on all Directors,
officers and employees of Pro-Pac in possession of ‘inside
information’. A copy of the Securities Trading Policy is
posted on the Pro-Pac website.
Directors are required to comply with the requirements of
the ASX Listing Rules and their letter of appointment and
promptly advise Pro-Pac of any dealing in Pro-Pac shares
to allow Pro-Pac to make the necessary disclosures to
the ASX.
ASX PRINCIPLE 4 - SAFEGUARD INTEGRITY
IN FINANCIAL REPORTING
Companies should have a structure to independently
verify and safeguard the integrity of their financial
reporting.
• Recommendation 4.1: The board should establish an
audit committee.
• Recommendation 4.2: The audit committee should be
structured so that it:
– consists only of non-executive directors
– consists of a majority of independent directors
– is chaired by an independent chair, who is not chair of
the board
– has at least three members.
• Recommendation 4.3: The audit committee should have
a formal charter.
• Recommendation 4.4: Companies should provide the
information indicated in the Guide to reporting on
Principle 4.
ASX Principle 4 requires Pro-Pac to “have a structure to
independently verify and safeguard the integrity of the
company’s financial reporting”. The Board believes its
practices are in accordance with this principle.
Audit Committee
To assist in the execution of its responsibilities, the Board
has established an Audit Committee.
The structure of the Audit Committee and its responsibilities
reflect in part the requirements of ASX Principle 4. A
summary of the Charter setting out the Committee’s
responsibilities is posted on the Pro-Pac website.
It is the Board’s responsibility to ensure that an effective
internal control framework exists within the Company.
This includes internal controls to deal with both the
effectiveness and efficiency of significant business
processes, the safeguarding of assets, the maintenance of
proper accounting records, and the reliability of financial
information as well as non-financial considerations such
as the benchmarking of operational key performance
indicators. The Board has delegated the responsibility for
the establishment and maintenance of a framework of
internal control and ethical standards for the management
of the Company to the Audit Committee.
The Committee also provides the Board with additional
assurance regarding the reliability of financial information
for inclusion in the financial reports.
14
Pro-Pac Packaging Limited + Controlled Entities
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.
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.
15
2014 Annual Report CORPORATE GOVERNANCE STATEMENT
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 Messrs Kaplan and Fahour. In
addition to the members, the Chief Executive is invited to
the meetings at the discretion of the Committee. Refer
schedule of meetings of directors on page 4.
A charter setting out the responsibilities of the Committee
has been adopted and a summary of this charter is posted
on the Pro-Pac website.
This Committee is responsible for ensuring that the
recruitment and remuneration policies and practices
of Pro-Pac are consistent with its strategic goals and
human resources objectives and are designed to enhance
corporate and individual performance as well as meet the
appropriate recruitment and succession planning needs.
To do this the Committee, among other things, is
responsible for reviewing and monitoring executive
performance, remuneration and incentive policies and the
manner in which they should operate, the introduction and
operation of share plans, executive succession planning
and development programs to ensure that they are
appropriate to the Group’s needs and the remuneration
framework for Directors (as approved by shareholders).
The Committee may consult with remuneration advisors to
Pro-Pac to assist in its role.
The remuneration committee is also responsible to
determine and review compensation arrangements for
the directors and to ensure that the Board continues
to operate within the established guidelines, including
when necessary, selecting candidates for the position of
director. In carrying out its functions the Remuneration
Committee considers remuneration issues annually and
otherwise as required in conjunction with the regular
meetings of the Board. Compensation arrangements are
determined subject to the Company’s constitution and
prior shareholder approvals.
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.
ASX Principle 7 recommends that a company “establish a
sound system of risk and oversight and management and
internal control.”
In addition to its financial reporting obligations, the
Audit Committee is responsible for reviewing the risk
management framework and policies of Pro-Pac. The
structure of the Audit Committee and its responsibilities
reflect in part the requirements of ASX Principle 7 and
are set out in the Company’s Audit committee charter,
published on its website.
In performing this function, the Committee receives
periodic reports from the external auditor, senior
management and, in some instances, external consultants
detailing compliance with statutory requirements and the
adequacy of the risk management programs and systems
in place. In addition, the Committee reviews the adequacy
of the group’s insurance program. In line with ASX Principle
7, Pro-Pac adopted the policy requiring the Chief Executive
Officer and Chief Financial Officer to confirm in writing
that, to the best of their knowledge, the integrity of the
financial statements is founded on a sound system of risk
management and internal compliance and control which
operates efficiently and effectively in all material respects.
The board has received the relevant declarations on
22 September 2014.
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.
16
Pro-Pac Packaging Limited + Controlled Entities CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
FOR THE YEAR TO 30 JUNE 2014
Revenue
Sale of goods
Other income
Interest income
Total Revenue
Expenses
Raw materials and consumables used
Employee benefits expense
Other expenses from ordinary activities
Distribution costs
Occupancy costs
Depreciation expense
Finance costs
Rationalisation and relocation expenses
Amortisation of prepaid royalty
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
2014
$000’s
Consolidated
2013
$000’s
218,273
415
74
218,762
144,405
33,558
11,025
8,067
7,531
3,128
1,372
600
322
210,008
8,754
(2,623)
6,131
-
6,131
173,131
234
62
173,427
108,733
28,054
11,316
6,220
6,228
2,747
839
1,740
322
166,199
7,228
(2,074)
5,154
-
5,154
2.91
2.88
2.46
2.44
12
15
5
6
6
The above statements should be read in conjunction with the accompanying notes.
17
2014 Annual Report
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2014
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
Interest bearing trade finance
Borrowings
Provisions
Current tax liabilities
Total current liabilities
Non-current liabilities
Other payables
Borrowings
Provisions
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued Capital
Reserves
Retained earnings
TOTAL EQUITY
Notes
Consolidated
30 June 2014
$000’s
Consolidated
30 June 2013
$000’s
8
10
11
15
12
13
14
15
17
18
18
19
5
17
18
19
20
3,580
35,592
34,235
3,399
76,806
16,962
68,793
2,323
28
88,106
164,912
30,385
2,559
1,550
3,705
648
38,847
-
19,791
773
20,564
59,411
105,501
2,247
30,645
28,091
3,125
64,108
17,610
67,867
2,101
350
87,928
152,036
24,681
2,036
1,666
3,651
569
32,603
2,625
18,780
695
22,100
54,703
97,333
91,548
99
13,854
85,285
71
11,977
105,501
97,333
The above statements of financial position should be read in conjunction with the accompanying notes.
18
Pro-Pac Packaging Limited + Controlled Entities
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR TO 30 JUNE 2014
Notes
Consolidated
2014
$000’s
Consolidated
2013
$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
217,434
(208,256)
74
(1,448)
(2,766)
(600)
176,071
(167,194)
62
(777)
(2,353)
(1,740)
Net cash flows provided by operating activities
9
4,438
4,069
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
(2,872)
377
(1,051)
(3,062)
(2,938)
61
(10,907)
(5,839)
Net cash flows (used) in investing activities
(6,608)
(19,623)
Cash flows from financing activities
Payment of hire purchase and finance lease liabilities
Finance leases raised
Proceeds from borrowing
Proceeds from issue of shares
Proceeds from vesting of ESPP shares
Dividend paid
(2,091)
1,803
1,783
4,515
368
(2,875)
(2,040)
1,267
18,886
-
-
(4,223)
Net cash flows provided by financing activities
3,503
13,890
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
1,333
2,247
(1,664)
3,911
Cash and cash equivalents at end of financial year
8
3,580
2,247
Non-cash financing transactions
Hire purchase and finance lease liabilities raised
Issue of shares for dividend re-investment plan
1,803
1,380
1,267
-
The above statements of cash flows should be read in conjunction with the accompanying notes.
19
2014 Annual Report
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR TO 30 JUNE 2014
Issued
capital
$000’s
Retained
earnings
$000’s
Option
reserve
$000’s
Total
equity
$000’s
Consolidated
Balance as at 30 June 2012
85,285
11,046
Dividend paid
Recognition of share based payments
Total comprehensive income for the year
Balance as at 30 June 2013
Issue of shares for dividend re-investment plan
Dividend paid
Recognition of share based payments
Vesting of ESPP shares
Shares issued under share placement
Total comprehensive income for the year
Balance as at 30 June 2014
-
-
-
85,285
1,380
-
-
368
4,515
-
91,548
(4,223)
-
5,154
11,977
-
(4,254)
-
-
-
6,131
13,854
56
-
15
-
71
-
-
28
-
-
-
99
96,387
(4,223)
15
5,154
97,333
1,380
(4,254)
28
368
4,515
6,131
105,501
The above statements of changes in equity should be read in conjunction with the accompanying notes.
20
Pro-Pac Packaging Limited + Controlled Entities
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 1: CORPORATE INFORMATION
The financial report of Pro-Pac Packaging Limited and its
subsidiaries (“the Group”) for the year ended 30 June 2014
was approved for issue in accordance with a resolution of
the Directors on 18 September 2014.
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.
NOTE 2: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The principal accounting policies adopted in the
preparation of the financial statements are set out below.
These policies have been consistently applied to all the
years presented, unless otherwise stated.
(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 below. The
adoption of these Accounting Standards and Interpretations
did not have any significant impact on the financial
performance or position of the consolidated entity.
The following Accounting Standards and Interpretations are
most relevant to the consolidated entity:
AASB 10 Consolidated Financial Statements
The consolidated entity has applied AASB 10 from 1 July
2013, which has a new definition of ‘control’. Control exists
when the reporting entity is exposed, or has the rights, to
variable returns from its involvement with another entity
and has the ability to affect those returns through its ‘power’
over that other entity. A reporting entity has power when
it has rights that give it the current ability to direct the
activities that significantly affect the investee’s returns. The
consolidated entity not only has to consider its holdings and
rights but also the holdings and rights of other shareholders
in order to determine whether it has the necessary power
for consolidation purposes. The application of AASB 10 does
not impact the current or prior year consolidation of the
controlled entities within the group.
AASB 12 Disclosure of Interests in Other Entities
The consolidated entity has applied AASB 12 from 1 July
2013. The standard contains the entire disclosure
requirement associated with other entities, being
subsidiaries, associates, joint arrangements (joint operations
and joint ventures) and unconsolidated structured entities.
The disclosure requirements have been significantly
enhanced when compared to the disclosures previously
located in AASB 127 ‘Consolidated and Separate Financial
Statements’, AASB 128 ‘Investments in Associates’, AASB
131 ‘Interests in Joint Ventures’ and Interpretation 112
‘Consolidation - Special Purpose Entities’.
AASB 13 Fair Value Measurement and AASB 2011-8
Amendments to Australian Accounting Standards arising
from AASB 13
The consolidated entity has applied AASB 13 and
its consequential amendments from 1 July 2013.
The standard provides a single robust measurement
framework, with clear measurement objectives, for
measuring fair value using the ‘exit price’ and provides
guidance on measuring fair value when a market becomes
less active. The ‘highest and best use’ approach is used
to measure non-financial assets whereas liabilities are
based on transfer value. The standard requires increased
disclosures where fair value is used.
AASB 119 Employee Benefits (September 2011) and AASB
2011-10 Amendments to Australian Accounting Standards
arising from AASB 119 (September 2011)
The consolidated entity has applied AASB 119 and its
consequential amendments from 1 July 2013. The standard
eliminates the corridor approach for the deferral of gains
and losses; streamlines the presentation of changes in
assets and liabilities arising from defined benefit plans,
including requiring remeasurements to be presented in
other comprehensive income; and enhances the disclosure
requirements for defined benefit plans. The standard also
changed the definition of short-term employee benefits,
from ‘due to’ to ‘expected to’ be settled within 12 months.
Annual leave that is not expected to be wholly settled
within 12 months is now discounted allowing for expected
salary levels in the future period when the leave is expected
to be taken.
AASB 127 Separate Financial Statements (Revised),
AASB 128 Investments in Associates and Joint Ventures
(Reissued) and AASB 2011-7 Amendments to Australian
Accounting Standards arising from the Consolidation
and Joint Arrangements Standards
The consolidated entity has applied AASB 127, AASB 128
and AASB 2011-7 from 1 July 2013. AASB 127 and AASB 128
have been modified to remove specific guidance that is
now contained in AASB 10, AASB 11 and AASB 12 and AASB
2011-7 makes numerous consequential changes to a range
of Australian Accounting Standards and Interpretations.
AASB 128 has also been amended to include the
application of the equity method to investments in
joint ventures.
21
2014 Annual Report NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 2: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT.)
AASB 2012-5 Amendments to Australian Accounting
Standards arising from Annual Improvements 2009-2011
Cycle
The consolidated entity has applied AASB 2012-5 from
1 July 2013. The amendments affect five Australian
Accounting Standards as follows: Confirmation that repeat
application of AASB 1 ‘First-time Adoption of Australian
Accounting Standards’ is permitted; Clarification of
borrowing cost exemption in AASB 1; Clarification of the
comparative information requirements when an entity
provides an optional third column or is required to present
a third statement of financial position in accordance
with AASB 101 ‘Presentation of Financial Statements’;
Clarification that servicing of equipment is covered by AASB
116 ‘Property, Plant and Equipment’, if such equipment is
used for more than one period; clarification that the tax
effect of distributions to holders of equity instruments and
equity transaction costs in AASB 132 ‘Financial Instruments:
Presentation’ should be accounted for in accordance with
AASB 112 ‘Income Taxes’; and clarification of the financial
reporting requirements in AASB 134 ‘Interim Financial
Reporting’ and the disclosure requirements of segment
assets and liabilities.
AASB 2012-10 Amendments to Australian Accounting
Standards - Transition Guidance and Other Amendments
The consolidated entity has applied AASB 2012-10
amendments from 1 July 2013, which amends AASB 10 and
related standards for the transition guidance relevant to
the initial application of those standards. The amendments
clarify the circumstances in which adjustments to an
entity’s previous accounting for its involvement with other
entities are required and the timing of such adjustments.
AASB 2011-4 Amendments to Australian Accounting
Standards to Remove Individual Key Management
Personnel Disclosure Requirement
The consolidated entity has applied 2011-4 from 1 July
2013, which amends AASB 124 ‘Related Party Disclosures’
by removing the disclosure requirements for individual
key management personnel (‘KMP’). Corporations and
Related Legislation Amendment Regulations 2013 and
Corporations and Australian Securities and Investments
Commission Amendment Regulation 2013 (No.1) now
specify the KMP disclosure requirements to be included
within the directors’ report.
(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 unless
otherwise stated 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) Principles of consolidation
The consolidated financial statements incorporate the
assets and liabilities of all subsidiaries of Pro-Pac Packaging
Limited (‘company’ or ‘parent entity’) as at 30 June 2014
and the results of all subsidiaries for the year then ended.
Pro-Pac Packaging Limited and its subsidiaries together
are referred to in these financial statements as the
‘consolidated entity’.
Subsidiaries are all those entities over which the
consolidated entity has control. The consolidated entity
controls an entity when the consolidated entity is exposed
to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns
through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which
control is transferred to the consolidated entity. They are
de-consolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains
on transactions between entities in the consolidated entity
are eliminated. Unrealised losses are also eliminated unless
the transaction provides evidence of the impairment of the
asset transferred. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency with
the policies adopted by the consolidated entity.
The acquisition of subsidiaries is accounted for using the
acquisition method of accounting. A change in ownership
interest, without the loss of control, is accounted for as
an equity transaction, where the difference between the
consideration transferred and the book value of the share
of the non-controlling interest acquired is recognised
directly in equity attributable to the parent.
Non-controlling interest in the results and equity of
subsidiaries are shown separately in the statement of profit
or loss and other comprehensive income, statement of
financial position and statement of changes in equity of the
consolidated entity. Losses incurred by the consolidated
entity are attributed to the non-controlling interest in full,
even if that results in a deficit balance.
Where the consolidated entity loses control over a
subsidiary, it derecognises the assets including goodwill,
22
Pro-Pac Packaging Limited + Controlled Entities liabilities and non-controlling interest in the subsidiary
together with any cumulative translation differences
recognised in equity. The consolidated entity recognises
the fair value of the consideration received and the fair
value of any investment retained together with any gain or
loss in profit or loss.
Foreign operations
The assets and liabilities of foreign operations are translated
into Australian dollars using the exchange rates at the
reporting date. The revenues and expenses of foreign
operations are translated into Australian dollars using the
average exchange rates, which approximate the rate at
the date of the transaction, for the period. All resulting
foreign exchange differences are recognised in other
comprehensive income through the foreign currency
reserve in equity.
The foreign currency reserve is recognised in profit or loss
when the foreign operation or net investment is disposed of.
(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 consideration transferred is the sum of the acquisition-
date fair values of the assets transferred and equity
instruments issued or liabilities incurred by the acquirer
to former owners of 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 to profit or loss.
On the acquisition of a business, the consolidated entity
assesses the financial assets acquired and liabilities
assumed for appropriate classification and designation
in accordance with the contractual terms, economic
conditions, the consolidated entity’s operating or
accounting policies and other pertinent conditions in
existence at the acquisition-date.
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 the fair value of
the consideration transferred 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.
(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.
Depreciation rates used for each class of assets vary to the estimated useful lives at the time of acquisition, and are
typically:
Class of fixed asset
Plant and equipment
Motor vehicles
Computer equipment
Furniture and Fittings
Office equipment
Depreciation rates
Method
7.5% - 33%
Straight-line and diminishing value
20% - 25%
20% - 40%
5% - 20%
10% - 25%
Straight-line and diminishing value
Straight-line and diminishing value
Straight-line and diminishing value
Straight-line and diminishing value
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. Low value fixed assets are written off
at 100%.
23
2014 Annual Report NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 2: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT.)
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
the 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.
(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 30-60 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 flows, 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.
24
Pro-Pac Packaging Limited + Controlled Entities (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 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 or benefit for the period is the
tax payable on that period’s taxable income based on the
applicable income tax rate for each jurisdiction, adjusted
by changes in deferred tax assets and liabilities attributable
to temporary differences, unused tax losses and the
adjustment recognised for prior periods, where applicable.
Deferred tax assets and liabilities are recognised for
temporary differences at the tax rates expected to apply
when the assets are recovered or liabilities are settled,
based on those tax rates that are enacted or substantively
enacted, except for:
• When the deferred income tax asset or liability arises
from the initial recognition of goodwill or an asset or
liability in a transaction that is not a business combination
and that, at the time of the transaction, affects neither
the accounting nor taxable profits; or
• When the taxable temporary difference is associated
with interests in subsidiaries, associates or joint ventures,
and the timing of the reversal can be controlled and it is
probable that the temporary difference will not reverse in
the foreseeable future.
Deferred tax assets are recognised for deductible
temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to
utilise those temporary differences and losses.
The carrying amount of recognised and unrecognised
deferred tax assets are reviewed each reporting date.
Deferred tax assets recognised are reduced to the extent
that it is no longer probable that future taxable profits
will be available for the carrying amount to be recovered.
Previously unrecognised deferred tax assets are recognised
to the extent that it is probable that there are future taxable
profits available to recover the asset.
Deferred tax assets and liabilities are offset only where
there is a legally enforceable right to offset current tax
assets against current tax liabilities and deferred tax
assets against deferred tax liabilities; and they relate to
the same taxable authority on either the same taxable
entity or different taxable entity’s which intend to settle
simultaneously.
25
2014 Annual Report NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 2: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT.)
Pro-Pac Packaging Limited (the ‘head entity’) and its
wholly-owned Australian subsidiaries have formed an
income tax consolidated group under the tax consolidation
regime. The head entity and each subsidiary in the tax
consolidated group continue to account for their own
current and deferred tax amounts. The tax consolidated
group has applied the ‘separate taxpayer within group’
approach in determining the appropriate amount of taxes
to allocate to members of the tax consolidated group.
In addition to its own current and deferred tax amounts,
the head entity also recognises the current tax liabilities
(or assets) and the deferred tax assets arising from unused
tax losses and unused tax credits assumed from each
subsidiary in the tax consolidated group.
Assets or liabilities arising under tax funding agreements
with the tax consolidated entities are recognised as amounts
receivable from or payable to other entities in the tax
consolidated group. The tax funding arrangement ensures
that the intercompany charge equals the current tax liability
or benefit of each tax consolidated group member, resulting
in neither a contribution by the head entity to the subsidiaries
nor a distribution by the subsidiaries to the head entity.
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 the 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 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
26
Pro-Pac Packaging Limited + Controlled Entities 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-derivative 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 the
Group’s 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. PPG Service
SDN BHD, a wholly owned subsidiary, operates in Malaysia.
The profit and loss results are translated at the average
AUD:MYR foreign exchange rate for the year ended 30
June 2014, with the balance sheet being translated at the
spot rate prevailing as at the reporting date.
(w) Critical Accounting estimates and judgements
The directors evaluate estimates and judgements
incorporated into the financial report based on historical
knowledge and best available current information. Estimates
assume a reasonable expectation of future events and are
based on current trends and economic data, obtained both
externally and within the Group.
Key estimates
(i) Impairment
The Group assesses impairment at each reporting date
by evaluating conditions and events specific to the Group
that may be indicative of impairment triggers. Recoverable
amounts of relevant assets are reassessed using value
in-use calculations which incorporate various key
assumptions.
No impairment is considered necessary in respect of
goodwill based on key estimates used in assessing
recoverable amounts.
Key Judgements
(i) Provision for impairment of receivables
Current trade and term receivables are non-interest
bearing loans and generally on 30-60 days terms. 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.
ii) Provision for stock obsolescence
Management has recently reviewed the aged inventory
policy and has created an aged stock schedule. The ageing
schedule reflects the age of the stocks and a percentage
is applied to the ageing groups. Based on experience and
market knowledge, Pro-Pac believes that the percentages
assigned are a fair and reasonable basis for formulating the
inventory provision for obsolescence.
(x) Rounding of amounts
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.
(y) New Accounting Standards and Interpretations
not yet mandatory or early adopted
Australian Accounting Standards and Interpretations
that have recently been issued or amended but are not
yet mandatory, have not been early adopted by the
consolidated entity for the annual reporting period ended
30 June 2014. The consolidated entity’s assessment of the
impact of these new or amended Accounting Standards
and Interpretations, most relevant to the consolidated
entity, are set out below.
AASB 9 Financial Instruments and its consequential
amendments
This standard and its consequential amendments are
applicable to annual reporting periods beginning on or
after 1 January 2017 and completes phases I and III of
the IASB’s project to replace IAS 39 (AASB 139) ‘Financial
Instruments: Recognition and Measurement’. This standard
introduces new classification and measurement models
for financial assets, using a single approach to determine
whether a financial asset is measured at amortised cost or
fair value. The accounting for financial liabilities continues
to be classified and measured in accordance with AASB
139, with one exception, being that the portion of a change
of fair value relating to the entity’s own credit risk is to
27
2014 Annual Report NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 2: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT.)
be presented in other comprehensive income unless it
would create an accounting mismatch. Chapter 6 ‘Hedge
Accounting’ supersedes the general hedge accounting
requirements in AASB 139 and provides a new simpler
approach to hedge accounting that is intended to more
closely align with risk management activities undertaken
by entities when hedging financial and non-financial
risks. The consolidated entity will adopt this standard and
the amendments from 1 July 2017 but the impact of its
adoption is yet to be assessed by the consolidated entity.
AASB 2013-3 Amendments to AASB 136 - Recoverable
Amount Disclosures for Non-Financial Assets
These amendments are applicable to annual reporting
periods beginning on or after 1 January 2014. The
disclosure requirements of AASB 136 ‘Impairment of Assets’
have been enhanced to require additional information
about the fair value measurement when the recoverable
amount of impaired assets is based on fair value less costs
of disposals. Additionally, if measured using a present value
technique, the discount rate is required to be disclosed.
The adoption of these amendments from 1 July 2014 may
increase the disclosures by the consolidated entity.
Annual Improvements to IFRSs 2010-2012 Cycle
These amendments are applicable to annual reporting
periods beginning on or after 1 July 2014 and affects
several Accounting Standards as follows: Amends the
definition of ‘vesting conditions’ and ‘market condition’ and
adds definitions for ‘performance condition’ and ‘service
condition’ in AASB 2 ‘Share-based Payment’; Amends
AASB 3 ‘Business Combinations’ to clarify that contingent
consideration that is classified as an asset or liability shall
be measured at fair value at each reporting date; Amends
AASB 8 ‘Operating Segments’ to require entities to disclose
the judgements made by management in applying the
aggregation criteria; Clarifies that AASB 8 only requires
a reconciliation of the total reportable segments assets
to the entity’s assets, if the segment assets are reported
regularly; Clarifies that the issuance of AASB 13 ‘Fair Value
Measurement’ and the amending of AASB 139 ‘Financial
Instruments: Recognition and Measurement’ and AASB
9 ‘Financial Instruments’ did not remove the ability to
measure short-term receivables and payables with no
stated interest rate at their invoice amount, if the effect
of discounting is immaterial; Clarifies that in AASB 116
‘Property, Plant and Equipment’ and AASB 138 ‘Intangible
Assets’, when an asset is revalued the gross carrying
amount is adjusted in a manner that is consistent with
the revaluation of the carrying amount (i.e. proportional
restatement of accumulated amortisation); and Amends
AASB 124 ‘Related Party Disclosures’ to clarify that an
entity providing key management personnel services to the
reporting entity or to the parent of the reporting entity is a
‘related party’ of the reporting entity. The adoption of these
amendments from 1 July 2014 will not have a material
impact on the consolidated entity.
Annual Improvements to IFRSs 2011-2013 Cycle
These amendments are applicable to annual reporting
periods beginning on or after 1 July 2014 and affects four
Accounting Standards as follows: Clarifies the ‘meaning of
effective IFRSs’ in AASB 1 ‘First-time Adoption of Australian
Accounting Standards’; Clarifies that AASB 3 ‘Business
Combination’ excludes from its scope the accounting
for the formation of a joint arrangement in the financial
statements of the joint arrangement itself; Clarifies that
the scope of the portfolio exemption in AASB 13 ‘Fair Value
Measurement’ includes all contracts accounted for within
the scope of AASB 139 ‘Financial Instruments: Recognition
and Measurement’ or AASB 9 ‘Financial Instruments’,
regardless of whether they meet the definitions of
financial assets or financial liabilities as defined in AASB
132 ‘Financial Instruments: Presentation’; and Clarifies
that determining whether a specific transaction meets the
definition of both a business combination as defined in
AASB 3 ‘Business Combinations’ and investment property
as defined in AASB 140 ‘Investment Property’ requires
the separate application of both standards independently
of each other. The adoption of these amendments
from 1 July 2014 will not have a material impact on the
consolidated entity.
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
The Industrial packaging division manufactures, sources
and distributes industrial packaging materials and related
28
Pro-Pac Packaging Limited + Controlled Entities products and services. All products produced or distributed
are aggregated as one reportable segment as the products
are similar in nature and are distributed to similar types of
customers. The industrial packaging segment also installs,
supports and maintains packaging machines.
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.
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. All inter-segment loans
payable and receivable are eliminated on consolidation for
the Group’s 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 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.
29
2014 Annual Report NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 3: OPERATING SEGMENTS (CONT.)
Rigid
Industrial
packaging packaging
$ 000’s
2014
$ 000’s
2014
Intersegment
eliminations
/ unallocated
$ 000’s
2014
Total
$ 000’s
2014
Rigid
packaging
$ 000’s
2013
Industrial
packaging
$ 000’s
2013
Intersegment
eliminations
/ unallocated
$ 000’s
2013
Total
$ 000’s
2013
(i) Segment performance
12 months ended 30 June
Revenue
External sales
Inter-segment sales
53,653
9,247
164,620
8,989
- 218,273
-
(18,236)
51,815
7,687
121,316
8,338
-
(16,025)
173,131
-
Total segment revenue
62,900
173,609
(18,236)
218,273
59,502
129,654
(16,025)
173,131
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
6,372
(1,502)
9,705
(1,775)
(2,575)
(173)
13,502
(3,450)
74
(1,372)
8,754
(2,623)
6,131
6,724
(1,427)
7,349
(1,498)
(2,999)
(144)
11,074
(3,069)
62
(839)
7,228
(2,074)
5,154
Segment assets
46,442
113,047
- 159,489
45,538
103,257
- 148,795
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
(1,463)
6,886
2,323
4,563
164,912
(1,497)
4,738
2,101
2,637
152,036
Segment liabilities
11,314
28,109
- 39,423
10,479
27,846
- 38,325
Reconciliation of segment
liabilities to group liabilities
Inter-segment eliminations
Unallocated liabilities
– Deferred tax liabilities
– Other liabilities
Total group liabilities from
continuing operations
(1,538)
21,526
-
21,526
59,411
(1,451)
17,829
-
17,829
54,703
(iv) Pro-Pac Packaging Limited have an operation, PPG Services SDN BHD, which is a company incorporated in Malaysia. This
company provides support services for all Group companies. The financial statements for this company are prepared under
Malaysian Financial Reporting Standards, which are compliant with International Financial Reporting Standards.
30
Pro-Pac Packaging Limited + Controlled Entities
Consolidated
2014
$000’s
Consolidated
2013
$000’s
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
226
6,908
2,807
38
(1)
(221)
Income tax expense in statement of profit or loss and other comprehensive income
2,623
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 2014 is as follows:
110
5,949
2,398
(17)
(94)
(213)
2,074
Accounting profit before tax
At the statutory income tax rate of 30%
Which is adjusted by the tax effect of:
Different rates of tax on overseas income
Adjustments in respect of permanent differences
At effective income tax rate of 30.0% (2013: 28.7%)
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 2014
and 30 June 2013.
8,754
7,228
2,626
2,168
(2)
(1)
2,623
2,623
-
(94)
2,074
2,074
Current tax liability
648
569
31
2014 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 6: EARNINGS PER SHARE
Basic and diluted earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity
holders of the parent by the weighted average number of ordinary shares outstanding during the period.
The following reflects the income and share data used in the total operations basic and diluted earnings per share
computations:
Net profit attributable to equity holders ($000’s)
Weighted average number of ordinary shares for basic earnings per share
Basic earnings per share (cents per share) *
Diluted earnings per share (cents per share) *
Consolidated
2014
6,131
210,854,244
2.91
2.88
Consolidated
2013
5,154
209,452,804
2.46
2.44
*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 22 August 2014, 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 2014 and the dividend will be paid on 4 November 2014. 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 20 May 2014, this brings total fully franked dividends for the 2013/14 financial year to 2.0 cents per share.
Declared and paid during the year:
Final dividend for 2013 – 1 cent per ordinary share
(2012 – 1 cent per ordinary share)
Interim dividend for 2014 – 1 cents per ordinary share
(2013 – 1 cent per ordinary share)
Proposed for approval at the Directors Meeting
(not recognised as a liability as at 30 June):
Final dividend for 2014 – 1 cent per ordinary share
(2013 – 1 cent per ordinary share)
2014
$000’s
2013
$000’s
2,122
2,111
2,132
4,254
2,112
4,223
2,267
2,122
Franking credits
Franking credits available for subsequent financial years based on a tax rate of 30%
13,968
13,025
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
• franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date
• franking debits that will arise from the payment of dividends recognised as a liability at the reporting date
• franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date
32
Pro-Pac Packaging Limited + Controlled Entities
NOTE 8: CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Consolidated
2014
$000’s
Consolidated
2013
$000’s
3,580
2,247
Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates
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
3,580
2,247
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 $1,803,090 (2013: $1,267,451) by means of finance leases.
c) Credit standby arrangements with banks
Credit facility
Amount utilised
Loan facilities
Amount utilised
6,131
3,128
322
108
78
(221)
183
34
(3,831)
(4,450)
3,137
92
(273)
4,438
1,500
-
29,750
23,659
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
33
2014 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 10: TRADE AND OTHER RECEIVABLES
Current:
Trade receivables
Provision for impairment of receivables
Other debtors
Total current receivables
Movements in the provision for impairment of receivables are as follows:
Opening balance
Additional provision recognised
Receivables written off during the year as uncollectable
Closing balance
Consolidated
2014
$000’s
Consolidated
2013
$000’s
34,784
(510)
1,318
35,592
(338)
(398)
226
(510)
29,767
(338)
1,216
30,645
(309)
(139)
110
(338)
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 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 and
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
2014
Trade and term receivables
Other receivables
34,784
1,318
510
-
Total
36,102
510
2013
Trade and term receivables
Other receivables
29,767
1,216
338
-
Total
30,983
338
346
-
346
325
-
325
1,656
-
1,656
2,163
-
2,163
32,272
1,318
33,590
26,941
1,216
28,157
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. The consolidated entity did not consider a credit risk on the aggregate balance that are
past due but not impaired based on recent collection practices.
34
Pro-Pac Packaging Limited + Controlled Entities
NOTE 11: INVENTORIES
Raw materials
Finished goods
Total inventories
NOTE 12: PROPERTY, PLANT AND EQUIPMENT
At 30 June
Plant and equipment
At cost
Accumulated depreciation
Total property, plant and equipment
Consolidated
2014
$000’s
Consolidated
2013
$000’s
985
33,250
34,235
983
27,108
28,091
28,670
(11,708)
16,962
27,787
(10,177)
17,610
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.
2014
$000’s
2014
$000’s
2014
$000’s
2014
$000’s
2014
$000’s
Plant and
Equipment
Motor
Vehicles
Computer
Equipment
Furniture
& Fittings
Office
Equipment
2014
$000’s
Total
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
13,722
2,376
100
1,874
(288)
(2,079)
-
651
(204)
(628)
681
-
308
-
(315)
13,329
2,195
674
386
-
22
-
(46)
362
445
17,610
-
17
-
(60)
100
2,872
(492)
(3,128)
402
16,962
2013
$000’s
2013
$000’s
2013
$000’s
2013
$000’s
2013
$000’s
Plant and
Equipment
Motor
Vehicles
Computer
Equipment
Furniture
& Fittings
Office
Equipment
2013
$000’s
Total
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
11,200
2,322
2,576
1,895
(58)
(1,891)
11
545
(46)
(456)
604
42
330
(1)
(294)
13,722
2,376
681
410
-
44
(21)
(47)
386
385
14,921
-
124
(5)
(59)
2,629
2,938
(131)
(2,747)
445
17,610
35
2014 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 13: INTANGIBLE ASSETS
Goodwill
Carrying amount at beginning of the year
Acquisition through business combinations
Closing value
At 30 June
Gross
Accumulated impairment losses
Net carrying value
Consolidated
2014
$000’s
Consolidated
2013
$000’s
Notes
24
67,867
926
68,793
68,793
-
68,793
56,226
11,641
67,867
67,867
-
67,867
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 AL and LSL on acquisitions
Other permanent differences brought to account
Charge to statement of comprehensive income
Closing balance
2,189
134
2,323
2,101
-
1
221
2,323
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
36
1,940
(27)
276
2,189
161
11
27
(65)
134
1,940
161
2,101
1,559
235
94
213
2,101
1,338
-
602
1,940
221
-
-
(60)
161
Pro-Pac Packaging Limited + Controlled Entities
NOTE 15: PREPAYMENTS
(a) Current prepayments
Other prepayments
Prepaid royalty
Total current prepayments
(b) Non-current prepayments
Prepaid royalty
Total non-current prepayments
Consolidated
2014
$000’s
Consolidated
2013
$000’s
3,077
322
3,399
28
28
2,803
322
3,125
350
350
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 2014
amounted to $322,082 (2013: $322,082).
NOTE 16: EMPLOYEE BENEFITS
Executive Long Term Incentive Plan
In March 2005 the Company established an ESPP (Executive Long Term Incentive Plan) 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 2,150,000 shares were issued to staff and executives under the ESPP while 1,125,000 were exercised and
150,000 were forfeited and cancelled. At the end of the year 2,680,000 shares were in issue under the ESPP.
• No other features of the benefit provided (including vesting conditions) were incorporated into the measurement of fair
value.
37
2014 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 16: EMPLOYEE BENEFITS (CONT.)
• The fair value of the employee benefit provided under the ESPP plan is estimated at the date of grant using the binomial
model, and the following assumptions: expected volatility, risk-free interest rate, expected life of option, share price,
dividend yield and probability of achievement.
• Under Australian Accounting Standards, shares issued to executives under the Long Term Executive Incentive Plan are
now considered to be options granted. 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
2014
30/08/10
05/04/12
17/10/12
22/07/13
25/03/14
2013
30/08/10
12/04/11
05/04/12
17/10/12
30/08/13
04/04/15
16/10/15
21/07/16
24/03/17
0.325
0.500
0.485
0.458
0.460
1,175,000
200,000
430,000
1,125,000
50,000
100,000
1,100,000
1,050,000
-
200,000
330,000
1,100,000
1,050,000
1,805,000
2,150,000
1,125,000
150,000
2,680,000
30/08/13
11/04/14
04/04/15
16/10/15
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
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
2014
$000’s
Consolidated
2013
$000’s
18,222
741
672
6,760
3,990
30,385
15,355
808
525
4,431
3,562
24,681
-
-
2,625
2,625
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.
38
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
2014
$000’s
Consolidated
2013
$000’s
1,550
2,559
-
4,109
1,696
18,095
19,791
1,666
2,036
-
3,702
1,869
16,911
18,780
a) The bank loan is secured as follows:
i)
ii)
first ranking registered equitable mortgage over Pro-Pac Packaging Limited and all wholly owned subsidiaries;
cross interlocking guarantees from Pro-Pac Packaging Limited and all wholly owned subsidiaries.
b) The bank loan is subject to the following covenants:
i)
ii)
iii)
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
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
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)
In respect of the 2015 financial year, the bank loan is subject to the following covenants on a 12 month rolling basis:
i)
ii)
iii)
the Interest Coverage Ratio for the Group will at all times be greater than 4.00:1;
the Gross Leverage Ratio for the Group will at all times not be greater than 3.00:1; and
the Net Tangible Asset Cover Ratio for the Group will at all times be greater than 1.50:1.
d) The bank loan facility is subject to review on 31 July 2016.
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
3,651
20
2,236
(2,202)
3,705
695
21
315
(258)
773
2,597
686
2,138
(1,770)
3,651
498
150
159
(112)
695
39
2014 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 19: PROVISIONS (CONT.)
Amounts not expected to be settled within the next 12 months
The current provision for employee benefits includes all unconditional entitlements where employees have completed the
required period of service and also those where employees are entitled to pro-rata payments in certain circumstances.
The entire amount is presented as current, since the consolidated entity does not have an unconditional right to defer
settlement. However, based on past experience, the consolidated entity does not expect all employees to take the full
amount of accrued leave or require payment within the next 12 months.
NOTE 20: ISSUED CAPITAL
Ordinary shares
Issued and fully paid
Movement in ordinary shares on issue
Balance at 1 July 2012
Issue of shares under the Executive Long Term Incentive Plan
Cancellation of shares under Executive Long Term Incentive Plan
Balance at 30 June 2013
Vesting of ESPP shares
Issue of shares for Executive Long Term Incentive Plan
Cancellation of shares for Executive Long Term Incentive Plan
Issue of shares
Issue of shares under the dividend re-investment plan
Balance at 30 June 2014
Consolidated
2014
$000’s
Consolidated
2013
$000’s
91,548
85,285
Number
210,987,804
430,000
(160,000)
211,257,804
-
2,150,000
(150,000)
10,500,000
2,935,954
226,693,758
$000’s
85,285
-
-
85,285
368
-
-
4,515
1,380
91,548
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 2013 Annual Report.
40
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 2.5%.
Foreign currency risk
The Group has transactional currency exposures. Such exposure arises from purchases by the operating unit in currencies
other than the unit’s measurement currency which accounted for 39.9% of purchases of materials and capital items.
Commodity price risk
The Group’s exposure to commodity price risk is relatively low although certain petrochemical based products are affected
by 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.
41
2014 Annual Report NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
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
2014
$000’s
2014
$000’s
2014
$000’s
2014
$000’s
2014
%
Consolidated
(i) Financial assets
Cash assets
Receivables
3,569
-
-
-
11
35,592
3,580
35,592
Total financial assets
3,569
-
35,603
39,172
(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
-
-
2,559
-
18,095
-
20,654
1,550
1,696
-
-
-
3,246
-
-
-
-
30,385
30,385
1,550
1,696
2,559
-
18,095
30,385
54,285
Net financial assets/(liabilities)
(17,085)
(3,246)
5,218
(15,113)
There is no interest rate applicable on receivables or payables.
2.5
7.9
7.9
5.7
5.7
5.7
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)
3.1
7.8
7.8
5.6
5.6
5.6
42
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 2014
Consolidated
Cash assets
Trade Finance
Finance leases
Bank loans
Year ended 30 June 2013
Consolidated
Cash assets
Trade Finance
Finance leases
Bank loans
Less
than one
year
$000’s
Between
1 and 2
years
$000’s
Between
2 and 3
years
$000’s
Between
3 and 4
years
$000’s
Between
4 and 5
years
$000’s
More
than 5
years
$000’s
Total
$000’s
3,569
2,559
1,550
-
-
-
890
18,095
-
-
559
-
-
-
189
-
-
-
40
-
-
-
18
-
3,569
2,559
3,246
18,095
Less
than one
year
$000’s
Between
1 and 2
years
$000’s
Between
2 and 3
years
$000’s
Between
3 and 4
years
$000’s
Between
4 and 5
years
$000’s
More
than 5
years
$000’s
Total
$000’s
2,237
2,036
1,666
-
-
-
1,160
16,911
-
-
470
-
-
-
215
-
-
-
24
-
-
-
-
-
2,237
2,036
3,535
16,911
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 the 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.
2014
+/- 1% in interest rates
+/- 10% in AUD / USD
2013
+/- 1% in interest rates
+/- 10% in AUD / USD
Consolidated
Profit
$000’s
Consolidated
Equity
$000’s
+/- 196
+/- 6,689
+/- 89
+/- 4,267
+/- 196
+/- 6,689
+/- 89
+/- 4,267
43
2014 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 23: CONTROLLED ENTITIES
The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned
subsidiaries in accordance with the accounting policy described in note 2. The financial years of all controlled entities are
the same as that of the parent entity.
Country of
Incorporation
Class of
Shares
Equity
Holding
2014
Equity
Holding
2013
Direct Controlled Entities:
Pro-Pac Group Pty Ltd
Plastic Bottles Pty Ltd
PPG Services SDN BHD
Australia
Australia
Malaysia
Ordinary
Ordinary
Ordinary
Controlled Entities owned 100% by Pro-Pac Group Pty Ltd
Pro-Pac Packaging (Aust) Pty Ltd
Pro-Pac (GLP) Pty Ltd
Australia
Australia
Ordinary
Ordinary
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
Australia
Australia
Australia
Australia
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
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Controlled Entities owned 100% by Bev-Cap Pty Ltd
Great Lakes Moulding Pty Ltd
Finpact (Pty) Ltd
Australia
Australia
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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. PPG Services SDN BHD does not form part of the deed of cross guarantee.
The impact on the net assets and profit for the year of the Group is not considered to be material.
44
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
01/08/2013
14/02/2014
Fast Labels
Australian Film Manufacturers
Sydney
Brisbane
Niche label manufacturer
Niche film importer and distributor
The effect of the above transactions can be summarised as follows:
Assets
Current assets
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
Total
GOODWILL
Acquisition costs expensed to profit or loss
Fair Value
$000’s
66
66
100
100
166
20
20
21
21
41
125
1,051
1,051
926
39
45
2014 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
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. The Fast Labels acquisition was integrated into
Pro-Pac Packaging Manufacturing (Syd) Pty Ltd and Australian Film Manufacturers acquisition was integrated into Pro-Pac
Packaging (Aust) Pty Ltd.
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 2014, the acquired business contributed the following earnings to the consolidated Group.
Acquisition to
30 June 2014
Revenue
$000’s
Acquisition to
30 June 2014
Profit before income tax
$000’s
Annualised to
30 June 2014
Revenue
$000’s
Annualised to
30 June 2014
Profit before income tax
$000’s
Fast Labels
Australian Film Manufacturers
Total business acquisitions
773
1,256
2,029
Cash used to acquire businesses
Cash consideration paid
Less: Cash and cash equivalents acquired
Total
153
-
153
1,051
-
1,051
843
2,740
3,583
167
-
167
46
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
2014
$000’s
Consolidated
2013
$000’s
4,292
9,538
-
13,830
4,565
10,819
1,272
16,656
Finance lease and hire purchase commitments
The Group has finance leases and hire purchase contracts for various items of plant and machinery.
Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the
net minimum lease payments are as follows:
Within one year
After one year but not more than five years
Total minimum lease payments
Less amounts representing future finance charges
Present value of minimum lease payments
Representing lease liabilities
Current
Non-current
2014
Minimum
payments
$000’s
2014
Present value
of payments
$000’s
2013
Minimum
payments
$000’s
2013
Present value
of payments
$000’s
1,666
1,869
3,535
-
3,535
1,718
1,823
3,541
(295)
3,246
2014
$000’s
1,550
1,696
3,246
1,550
1,696
3,246
-
3,246
1,857
1,996
3,853
(318)
3,535
2013
$000’s
1,666
1,869
3,535
The weighted average interest rate implicit in the leases is 7.9%.
Contingent Liability
As at statement of financial position date, the Company issued security deposit guarantees and standby letters of credits to
the value of $1,673,781 (2013: $674,780) to the landlords of rented premises and overseas suppliers.
47
2014 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
NOTE 25: COMMITMENTS AND CONTINGENCIES (CONT.)
Capital Expenditure Commitments
As at statement of financial position date the Company had commitments for future capital expenditure of $318,729
(2013: $158,170).
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
2014
$000’s
Consolidated
2013
$000’s
318,729
-
158,170
-
318,729
158,170
46,698
22,095
68,793
45,772
22,095
67,867
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) 6.7% pre-tax discount rate; (2013: 11.0%)
b) 5.0% for industrial division (2013: 5.5%) and 2.2% for rigid division (2013: 2.2%) per annum projected revenue growth rate;
c) 5.0% for industrial division (2013: 5.5%) and 2.2% for rigid division (2013: 2.2%) per annum increase in operating costs
and overheads.
The discount rate of 6.7% 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.
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 11.0% for the Industrial division and to 15.0% for the Rigid division before
goodwill would be impaired. A rate of 6.7% was used in the assessment of goodwill.
b) the EBITDA growth rate would need to decrease to negative 3.5% in the Industrial division and to negative 8.0% in the
Rigid division before goodwill would be impaired. EBITDA growth rates of 3% and 2.2% respectively, were used in the
assessment of goodwill for the Industrial and Rigid divisions respectively.
48
Pro-Pac Packaging Limited + Controlled Entities
NOTE 27: RELATED PARTY DISCLOSURE
Parent Entity
Pro-Pac Packaging Limited is the ultimate parent entity of the Group.
Subsidiaries
Interests in subsidiaries are set out in note 23.
Transactions with 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.
Consolidated
2014
$
Consolidated
2013
$
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
243,949
796,405
581,505
125,203
89,697
247,771
796,405
581,505
125,203
89,697
Total payments to related parties during the year ended 30 June 2014 was $1,288,125 (2013: $1,283,476).
239,687
796,405
581,505
125,203
89,697
247,384
796,405
581,505
125,203
89,697
NOTE 28: KEY MANAGEMENT PERSONNEL DISCLOSURE
Key Management Personnel at 30 June 2014
Elliott Kaplan
Ahmed Fahour
Dr Gary Weiss
Brandon Penn
Hadrian Morrall
Wendy Penn
Mark Saus
Non-executive Chairman
Non-executive Director
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.
49
2014 Annual Report
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR TO 30 JUNE 2014
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
2014
$’000
5,788
5,788
591
93,104
1,535
1,535
91,548
-
21
91,569
Parent
2013
$’000
4,237
4,237
1,214
87,822
2,513
2,513
85,285
-
24
85,309
The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 2,
except for the following:
• Investments in subsidiaries are accounted for at cost, less any impairment.
NOTE 30: EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE
On 22 August 2014, the Company declared a fully franked final dividend of one cent per share. For details refer to the
Directors’ Report on page 5.
Consolidated
2014
$000’s
Consolidated
2013
$000’s
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
112,000
109,000
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 2014. The Group does not at this time believe these have any material impact on the 2014 financial
report or for the ensuing year.
50
Pro-Pac Packaging Limited + Controlled Entities
DIRECTORS’ DECLARATION
The directors of the company declare that:
1.
The financial statements and notes, as set out on pages 17 to 50, 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 2014 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 22 September 2014.
Elliott Kaplan
Chairman
Brandon Penn
Director
51
2014 Annual Report
INDEPENDENT AUDITOR’S REPORT
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our
audit opinion.
Independence
In conducting our audit, we have complied with the
independence requirements of the Corporations Act 2001.
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 2014 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 2014. 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 2014,
complies with section 300A of the Corporations Act 2001.
M.D. Nicholaeff
Partner
UHY Haines Norton
Chartered Accountants
Signed at Sydney on 22 September 2014.
To the members of Pro-Pac Packaging Limited
Report on the Financial Report
We have audited the accompanying financial report of
Pro-Pac Packaging Limited (the Company), which
comprises the consolidated statement of financial position
as at 30 June 2014, 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 controls as the directors determine are
necessary to enable the preparation of the financial
report that gives a true and fair view and is free from
material misstatements, 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.
52
Pro-Pac Packaging Limited + Controlled Entities
ADDITIONAL COMPANY INFORMATION
Additional information required by the Australian Stock Exchange Limited and not shown elsewhere in this report is as
follows. The information is current as at 9 September 2014.
(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
89
113
123
709
133
1,167
10,306
362,859
986,202
28,145,799
197,188,592
226,693,758
%
0.005
0.160
0.435
12.416
86.985
100.00
There are ninety holders of unmarketable parcels totalling 11,346 shares representing 0.005% of the Company’s issued capital.
(b) Twenty largest holders
(c) Substantial shareholders
Table 2: The names of the twenty largest holders, in each
class of security are:
Number
%
110,304,272
22,279,165
48.66
9.83
15,340,901
6.77
The names of substantial shareholders who have notified
the Company in accordance with Section 671B of the
Corporations Act 2001 are:
Bennamon Pty Limited
110,304,272 ordinary shares
Mr Brandon Penn
24,958,817 ordinary shares
Trustees Australia Limited for
Lanyon Australian Value Fund
15,134,214 ordinary shares
10,000,000
3,673,951
2,297,872
1,477,184
1,200,344
4.41
1.62
1.01
0.65
0.53
(d) Voting rights
All ordinary shares carry one vote per share without
restriction.
(e) Restricted securities
Restricted securities total 2,680,000.
ESPP Shares under escrow
until 4 April 2015
ESPP Shares under escrow
until 16 October 2015
ESPP Shares under escrow
until 21 July 2016
ESPP Shares under escrow
until 24 March 2017
(f) Business objectives
200,000 ESPP shares
330,000 ESPP shares
1,100,000 ESPP shares
1,050,000 ESPP shares
The Company has used its cash and assets that are readily
convertible to cash in a way consistent with its business
objectives.
Rank Holder
1 BENNAMON PTY LTD
2 MR BRANDON ARI PENN
3
AUST EXECUTOR TRUSTEES LTD
EQUITAS NOMINEES PTY LIMITED
4
5 BNP PARIBAS NOMS PTY LTD
6
MR BRANDON PENN & MRS WENDY PENN
7 NATIONAL NOMINEES LIMITED
8 MRS NATALIE PENN
9
RBC INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED
RUBI HOLDINGS PTY LTD
MISCHKE INVESTMENTS PTY LTD
MISCHKE INVESTMENTS PTY LTD
HSBC CUSTODY NOMINEES
(AUSTRALIA) LIMITED
14 CVC LIMITED
15
723,310
SONHILL INVESTMENTS PTY LTD
D & M TULLOCH PTY LTD
PHILANTHROPIC INVESTORS CLUB PTY LTD
WILBOW GROUP PTY LTD
MR CRAIG STEWART FOX & MRS TONI
ROSEMARY FOX 559,780
MR GREGORY RIDDER & MRS LEE RIDDER
600,000
600,000
567,375
531,724
1,000,000
0.44
1,000,000
0.44
958,816
0.42
957,850
0.42
770,603
765,957
0.34
0.34
0.32
0.26
0.26
0.25
0.25
0.23
10
11
12
13
16
17
18
19
20
TOP 20
TOTAL
175,609,104
77.47
226,693,758 100.00
2014 Annual Report 53
PRO-PAC
PACKAGING LIMITED
147 - 151 NEWTON ROAD, WETHERILL PARK NSW AUSTRALIA 2164
T (02) 8781 0500 F (02) 8781 0599 E sales@pro-pac.com.au www.ppgaust.com.au
design – Kettle of Fish Design