PRO-PAC PACKAGING LIMITED
ACN 112 971 874
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED 30 JUNE 2017
Pro-Pac Packaging Limited and Controlled Entities
Corporate Information
ABN No. 36 112 971 874
Directors
Ahmed Fahour (Chairman)
Elliott Kaplan
Brandon Penn
Dr Gary Weiss
Company Secretary
Mark Saus
Registered Office
Building 1, 147 -151 Newton Rd,
Wetherill Park NSW 2164
Principal Place of Business
Building 1, 147 -151 Newton Rd,
Wetherill Park NSW 2164
Share Register
Boardroom Limited
Level 12, 225 George Street
Sydney NSW 2000
Solicitors
Thomson Geer
Level 25, 1 O’Connell Street
Sydney NSW 2000
Bankers
Commonwealth Bank of Australia
Premium Business Services
Level 1, 430 Forest Road
Hurstville NSW 2220
Auditors
UHY Haines Norton
Level 11, 1 York Street
Sydney NSW 2000
Stock exchange listing
Pro-Pac Packaging Limited shares are listed on the Australian Securities Exchange (ASX code: PPG)
Website
www.ppgaust.com.au
2
Pro-Pac Packaging Limited and Controlled Entities
CONTENTS
DIRECTORS’ REPORT
AUDITORS’ INDEPENDENCE DECLARATION
CORPORATE GOVERNANCE STATEMENT
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
ADDITIONAL COMPANY INFORMATION
4
13
14
24
25
26
27
28
61
62
67
3
Pro-Pac Packaging Limited and Controlled Entities – Directors’ Report
DIRECTORS' REPORT
The Directors present their report, together with the financial statements, on the consolidated entity (“the Group”)
consisting of Pro-Pac Packaging Limited (“the Company”) and the entities it controlled at the end of the year
ended 30 June 2017.
DIRECTORS
The Directors in office at the date of this report and during the whole of the financial year are as follows:
Ahmed Fahour
B Econ, MBA
(Non-Executive Director – appointed director 28 March 2014 and Chairman 25 November 2014)
Mr Fahour is also Non-Executive Chairman of BCG Digital Ventures Asia Pacific. Mr Fahour was the former
Managing Director and Group CEO of Australia Post including Executive Chairman of StarTrack. He has held a
number of senior executive positions in Australia and overseas and was previously CEO of Citigroup (Australia and
New Zealand) and National Australia Bank & MLC (Australia/Asia). He is also an Adjunct Professor in the Faculty
of Business, Economics and Law at La Trobe University.
Mr Fahour is Chairman of the Remuneration Committee of Pro-Pac.
Elliott Kaplan
BAcc, CA
(Non-Executive Director – appointed Director 1 March 2005)
Mr Kaplan is a Chartered Accountant with extensive Board experience 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 a Director of a number of unlisted companies
and is a former director of Eildon Capital Limited (formerly CVC Private Equity Limited), Cellnet Limited and
Grays Ecommerce Group Limited.
Mr Kaplan is Chairman of the Audit and a member of the Remuneration Committees of Pro-Pac.
Brandon Penn
B. Com
(Non-Executive Director – appointed 16 August 2007, resigned as CEO 12 May 2015, appointed Acting CEO
13 July 2016, resigned as CEO 29 May 2017)
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.
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 Ridley Corporation Ltd. He is Executive Director of Ariadne Australia Ltd and a director
of several other public companies including Premier Investments Ltd, Thorney Opportunities Ltd and The Straits
Trading Company Ltd.
Dr Weiss is a member of both the Audit and Remuneration Committees of Pro-Pac.
4
Pro-Pac Packaging Limited and Controlled Entities – Directors’ Report
CHIEF EXECUTIVE OFFICER
Grant Harrod
BA, MBA, FAICD
(Chief Executive Officer – appointed CEO 29 May 2017)
Mr Harrod is the former CEO of LJ Hooker Group Ltd. Mr Harrod also has extensive experience in distribution
services, as well as commercial services and FMCG marketing. He has held a number of senior executive positions
including 11 years as CEO/MD for ASX listed companies. Mr Harrod served as CEO and Managing Director of
Corporate Express Ltd and CEO/MD of Salmat Ltd.
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 17 years’ experience in CFO/Finance Director and senior 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 and M&A environments. Mr Saus is also the Chief Financial Officer of the Group.
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:
Ahmed Fahour
Elliott Kaplan
Brandon Penn
Dr Gary Weiss
Elliott Kaplan
Opening
balance
10,674,153
216,357
24,958,817
300,000
Opening
balance
1,200,000
Ordinary Shares
Disposals
Additions
Closing balance
-
50,000
-
-
-
-
-
-
10,674,153
266,357
24,958,817
300,000
Options
Additions
Lapsed
Closing
balance
-
1,200,000
-
MEETINGS OF DIRECTORS
Attendances by each director during the year were:
Board
Audit committee
Remuneration committee
Number of
meetings held
while in office
Meetings
attended
Number of
meetings held
while in office
Meetings
attended
Number of
meetings held
while in office
Meetings
attended
Elliott Kaplan
Ahmed Fahour
Dr Gary Weiss
Brandon Penn
7
7
7
7
6
7
7
7
3
-
3
-
3
-
3
-
1
1
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.
5
Pro-Pac Packaging Limited and Controlled Entities – Directors’ Report
OVERVIEW OF THE COMPANY’S BUSINESS
Revenue for the year ended 30 June 2017 of $229.2 million was 4.8% below the prior year. However, revenue in
2H17 was only 1% below the previous corresponding period (pcp), which was an encouraging result given the soft
trading conditions experienced in 1H17. Volume growth in flexible packaging for the food & beverage market was
the driver behind the stronger result in 2H17 following a number of strategic initiatives aimed at marketing Pro-
Pac’s business and expanding its product offering into this key segment. As previously announced, trading
conditions remained soft throughout the year, although there were improving signs towards the end of 2H17.
Profit Before Tax (PBT) was $6.9m, impacted by significant one-off costs
Notwithstanding the challenging market conditions in FY17, the Company maintains a strong market position and
a pipeline of growth opportunities.
The Company’s balance sheet remains solid with a low gearing ratio of 12.9% and cash of $12.3m at the end of the
financial year after paying dividends of $4.1m during the financial year.
Directors have declared a fully franked final dividend of 1.0 cent per ordinary share with a record date of 5th
September 2017 and a payment date of 19th October 2017. This brings the total dividend paid in respect of FY17
to 2.0 cents.
Pro-Pac is implementing a number of strategic initiatives to support revenue growth, particularly in its key growth
markets of flexible and industrial packaging. The Company is also undertaking a digital transformation strategy to
support its future growth platform by:
•
•
launching an online sales strategy targeting SMEs;
rolling out a national merchandising strategy to improve procurement efficiencies and inventory
management;
increasing focus into lucrative primary packaging market, via product and salesforce expansion; and,
increasing scalability to support organic and acquisitive growth.
•
•
Once implemented, these initiatives are expected to increase volumes and improve margins.
A healthy pipeline of new business opportunities is being secured and the Company continues to evaluate a number
of potential accretive acquisitions in line with its growth strategy. FY17 saw a strong contribution from our key
flexible and industrial packaging growth segments. The Company is focusing on new opportunities within those
segments to provide future revenue and earnings growth.
The Company’s position as one of the leading distributors and manufacturers of innovative packaging products and
systems is being enhanced by the development of several strategic initiatives. Investments made in the Company’s
digital platform will benefit Pro-Pac’s customers, suppliers and employees by improving operational efficiency and
scalability. In particular, the Company sees strong future demand in flexible packaging and it looks forward to
consolidating a leadership position in this market in FY18 and beyond.
DIVIDENDS
Dividend paid during the year:
Final dividend for 2016 – 1.5 cents per ordinary share
(2015 – 1.5 cents per ordinary share)
Interim dividend for 2017 – 1.0 cent per ordinary share
(2016 – 1.25 cents per ordinary share)
2017
$000’s
2016
$000’s
3,573
2,419
5,992
3,427
2,953
6,380
In August 2017, the Company declared a fully franked final dividend of 1.0 cent per share. The record date for
determining entitlement to the dividend is 5 September 2017 and the dividend will be paid on 19 October 2017. 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.
6
Pro-Pac Packaging Limited and Controlled Entities – Directors’ Report
SIGNIFICANT EVENTS SUBSEQUENT TO BALANCE DATE
On 22 August 2017, the Company declared a fully franked final dividend of one cent per share.
As announced on 11 September 2017, the Company has entered into a Share Sale Agreement to acquire the entire
issued capital (Sale Shares) of Integrated Packaging Group Pty Ltd (IPG), the leading engineered films and flexible
films packaging producer in Australia, from funds managed by Advent Partners Pty Ltd (Advent) and IPG senior
management shareholders (Other Vendors) (together, the Vendors).
As consideration for the acquisition of the Sale Shares, the Company has agreed to pay $177.5 million on effectively
a cash-free, debt-free valuation basis with the consideration to be made part by way of cash consideration and part
by way of an issue of Shares in the Company to the Vendors. The cash consideration is comprised of $117.5 million
in cash with the equity consideration comprising $60 million in scrip issued to the Vendors. The equity component
of the consideration translates to the issue of 158,421,024 Shares in the Company to the Vendors (which includes
the issue of the [145,925,090] Consideration Shares to Advent). The company has also arranged further debt
facilities with the ANZ Bank.
The Company is seeking the approval of Shareholders in accordance with item 7 of section 611 of the Corporations
Act for the issue and allotment of the Consideration Shares to Advent in accordance with the terms and conditions
of the Share Sale Agreement. The issue of the Consideration Shares is part of a larger series of transactions required
to give effect to the Share Sale Agreement.
As a result of the acquisition of IPG, the Company will transform in size, becoming significantly larger with more
diverse operations and enhanced growth prospects, providing the Company with the opportunity to become a leader
in the flexible & industrial packaging distribution sector.
LIKELY DEVELOPMENTS
In support of the Company’s new growth platform in flexible and industrial packaging, it is reviewing a number
of highly synergistic acquisitions. These are both domestic and international businesses that will add new clients
and markets. The Company will update the market if and when these opportunities come to fruition.
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 Company 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.
7
Pro-Pac Packaging Limited and Controlled Entities – Directors’ Report
The Remuneration Committee comprises Mr Ahmed Fahour (Chairman), Mr Elliott Kaplan and Dr Gary Weiss
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.
In accordance with best practice corporate governance, the structure of non-executive Director and executive
Director remuneration is separate and distinct.
Non-Executive Director remuneration
The Company seeks to set aggregate remuneration at a level which provides the Company with the ability to attract,
retain and motivate directors of the highest quality, whilst incurring a cost which is acceptable to shareholders.
The Constitution of the Company and the ASX Listing Rules specify that non-executive directors are entitled to
receive remuneration for their services as determined by the Company in a General Meeting. The Company has
resolved that the maximum aggregate amount of directors’ fees (which does not include remuneration of executive
directors and other non-director services provided by directors) is $400,000 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 2017 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 2017 is set
out in Table 1 of this report.
Employment contracts
Chief Executive Officer
Mr Grant Harrod was appointed 29 May 2017.
The Company has entered into an executive service agreement with Mr Grant Harrod in relation to his role as Chief
Executive Officer of the Group. In his executive service agreement, Mr Harrod agrees that all intellectual property
rights created, developed or acquired by him in the course of his employment, belong to the Company.
The Company or the executive may terminate the service agreement by giving the other party three months’ notice.
In the event of a completion of a sale of all or substantially all of the assets or shares in the Company (a Change of
Control) or the sale of a significant part of the Company that would materially change the scope and responsibilities
of the CEO role, then the notice period required to be given to Mr Harrod is six months, which he may elect to
receive in payment in lieu of notice instead of working part or all of the notice period.
8
Pro-Pac Packaging Limited and Controlled Entities – Directors’ Report
The Company may terminate the agreement at any time with immediate effect in the event of misconduct. The
agreement provides that for a period of six months after termination of his employment contract (less any served
notice period) Mr Harrod will not compete with the Group in Australia.
Senior Management
Employment agreements entered into with senior management contain the following key terms:
Resignation / notice period
Serious misconduct
Payouts upon resignation or termination, outside industrial regulations (ie ‘golden handshakes’)
6 months or less
Company may terminate at any time
None
Event
Company Policy
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 2,050,000
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,
participants will pledge the shares acquired under the ESPP to the Company at the time the loans are provided
and will grant a charge over any benefits attributable to the Shares, including bonus shares, rights, and dividends.
Any dividends paid on the shares by Pro-Pac Packaging Limited are treated as interest on the loan.
▪ The term of the loans and the vesting period for the shares from the date of issue of shares is 3 years.
▪ The Shares will be registered in the names of the participants from allotment, but will remain subject to restrictions
on dealing while they are pledged as security for a loan or subject to performance hurdles specified.
▪ If the employee leaves the employment of the Group, the loan balance must be repaid in full or the shares
surrendered in full settlement of the outstanding loan balance.
▪ During the year 2,850,000 shares were forfeited and were cancelled or await cancellation. At the end of the year
2,050,000 shares were in issue under the ESPP.
▪ No other features of the benefit provided (including vesting conditions) were incorporated into the measurement
of fair value.
▪ The fair value of the employee benefit provided under the ESPP plan is estimated at the date of grant using the
binomial model, and the following assumptions: expected volatility, risk-free interest rate, expected life of option,
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 years have been
adjusted accordingly.
9
Pro-Pac Packaging Limited and Controlled Entities – Directors’ Report
Key Management Personnel at 30 June 2017
Ahmed Fahour
Elliott Kaplan
Dr Gary Weiss
Brandon Penn
Grant Harrod
Mark Saus
Non-executive Chairman
Non-executive Director
Non-executive Director
Non-executive Director (acting CEO effective 13 July 2016, resigned as CEO 29 May
2017)
Chief Executive Officer (appointed 29 May 2017)
Chief Financial Officer and Company Secretary
Remuneration of Key Management Personnel
Excluding the Directors, there are only two staff members of the Company who qualify as a “Key Management
Personnel” for the purposes of this report. The executive key management personnel are also the most highly paid
officers of the consolidated entity for the year under review.
Table 1
Short-term benefits
Cash,
salary &
fees
Non
monetary
benefits
Post
employment
benefits
Other long
term
benefits
Super-
annuation
Other
Share
based
payment
Equity and
options
Total
Performance
based
$
$
$
$
$
$
Gary Weiss
Grant Harrod
Elliott Kaplan
Brandon Penn
117,493
Ahmed Fahour
107,417
65,700
60,000
48,000
48,000
411,365
105,577
32,330
-
42,528
404,688
213,433
215,641
261,934
210,924
1,192,783
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
Hadrian Morrall
Peter Sutton
Mark Saus
Total
Remuneration
-
-
-
-
-
-
-
-
-
-
-
-
-
22,980
-
-
-
-
2,083
-
5,700
4,560
4,560
23,913
5,280
2,966
-
4,014
34,950
700
22,269
34,929
34,900
70,382
2016
1,152,247
22,980
109,742
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,368
-
-
2,244
6,877
2,244
117,493
109,500
65,700
65,700
52,560
52,560
435,278
110,857
35,296
-
46,542
447,006
214,133
260,890
299,107
252,701
1,266,109
14,245
1,299,214
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5%
5%
-
-
10
2017Grant dateExpiry datePriceBalance at GrantedExercisedExpired/Balance atbeginning of yearforfeitedend of year22-07-1321-07-160.458800,000 - - 800,000 - 25-03-1424-03-170.460850,000 - - 850,000 - 07-10-1506-10-180.4173,250,000 - - 1,200,000 2,050,000 4,900,000 - - 2,850,000 2,050,000 2016Grant dateExpiry datePriceBalance at GrantedExercisedExpired/Balance atbeginning of yearforfeitedend of year17-10-1216-10-150.485280,000 - - 280,000 - 22-07-1321-07-160.458800,000 - - - 800,000 25-03-1424-03-170.460950,000 - - 100,000 850,000 07-10-1506-10-180.417- 3,300,000 - 50,000 3,250,000 2,030,000 3,300,000 - 430,000 4,900,000
Pro-Pac Packaging Limited and Controlled Entities – Directors’ Report
Shares and Loans issued under the ESPP during the year ended 30 June 2017
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
Total
300,000
300,000
125,100
125,100
125,100
0.417
6 October 2018
125,100
150,000 shares awarded to Mark Saus did not qualify and were returned to the Company pending cancellation at
the next AGM.
Option Holdings of Key Management Personnel
1,200,000 options granted to Mr Kaplan during the year ended 30 June 2014, lapsed and were cancelled.
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 $1,274,035 (incl. GST) to entities associated with Key Management Personnel
being 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.
SHARES UNDER OPTION
As at the date of this report (and at the balance date) there were no unissued ordinary shares under options.
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave 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 amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where
rounding is applicable) and where noted ($‘000) under the option available to the Company under ASIC Instrument
2016/191. The Company is an entity to which this Instrument applies.
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.
11
Pro-Pac Packaging Limited and Controlled Entities – Directors’ Report
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 2017, there were no non-audit services provided by the Company’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 2017 has been received and can be found on page 13 of the financial report.
This Directors’ Report is signed in accordance with a resolution of the Board of Directors pursuant to section 298
(2) (a) of the Corporations Act 2001.
Signed at Sydney on 25 September 2017.
Ahmed Fahour
Chairman
Elliott Kaplan
Director
12
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
Level 11| 1 York Street | Sydney | NSW | 2000
GPO Box 4137 | Sydney | NSW | 2000
t: +61 2 9256 6600 | f: +61 2 9256 6611
sydney@uhyhn.com.au
www.uhyhnsydney.com.au
Auditor's 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 2017, I
declare that, to the best of my knowledge and belief, there have been:
(a) no contraventions of the independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b) no contraventions of any applicable code of professional conduct in relation to the
audit.
This declaration is in respect of Pro-Pac Packaging Limited and the entities it controlled during
the year.
25th September 2017
An association of independent firms in Australia and New Zealand and a member
of UHY International, a network of independent accounting and consulting firms.
UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826
Liability limited by a scheme approved under Professional Standards Legislation.
13
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
CORPORATE GOVERNANCE STATEMENT
This Corporate Governance Statement of Pro-Pac Packaging Limited (the ‘company’) has been prepared in accordance
with the Australian Securities Exchange’s (‘ASX’) Corporate Governance Principles and Recommendations of the ASX
Corporate Governance Council (‘ASX Principles and Recommendations’) and is included in the company’s Annual
Report pursuant to ASX Listing Rule 4.10.3. This listing rule requires the company to disclose the extent to which it has
followed the recommendations during the financial year, including reasons where the company has not followed a
recommendation and any related alternative governance practice adopted.
The company’s ASX Appendix 4G, which is a checklist cross-referencing the ASX Principles and Recommendations to
the relevant disclosures in either this statement, our website or Annual Report, is contained on our website at
www.ppgaust.com.au.
Both this Corporate Governance Statement and the ASX Appendix 4G have been lodged with the ASX. This statement
has been approved by the company’s Board of Directors (‘Board’) and is current as at 19 September 2017.
The ASX Principles and Recommendations and the company’s response as to how and whether it follows those
recommendations are set out below.
Principle 1: Lay solid foundations for management and oversight
Recommendation 1.1 - A listed entity should disclose:
(a) the respective roles and responsibilities of its board and management; and
(b) those matters expressly reserved to the board and those delegated to management.
The company’s Board maintains the following roles and responsibilities:
• providing leadership and setting the strategic objectives of the company;
• appointing the Chair and/or the “senior independent director”;
• appointing, and when necessary replacing, the Chief Executive Officer (‘CEO’);
• assessing the performance of the CEO and overseeing succession plans for senior executives;
• overseeing management’s implementation of the company’s strategic objectives;
• approving operating budgets and major capital expenditure;
• overseeing the integrity of the company’s accounting and corporate reporting systems, including the external audit;
• overseeing the company’s process for market disclosure of all material information concerning the company that a
reasonable person would expect to have a material effect on the price or value of the company’s securities;
• ensuring that the company has in place an appropriate risk management framework and setting the risk parameters
within which the Board expects management to operate;
• approving the company’s remuneration framework;
• monitoring the effectiveness of the company’s governance practices; and
•
reporting to and communications with shareholders.
The Board has delegated the day-to-day management of the company to the CEO and other senior executives
(‘management’). The company’s management is responsible for the following:
• being accountable for the performance of the company;
•
implementing the strategic objectives set by the Board;
• operating within the risk parameters set by the Board;
• operational and business management of the company;
• managing the company’s reputation and operating performance in accordance with parameters set by the Board;
• day-to-day running of the company;
• providing the Board with accurate, timely and clear information to enable the Board to perform its responsibilities;
and
• approving capital expenditure (except acquisitions) within delegated authority levels.
Senior executives have their roles and responsibilities defined in specific position descriptions.
Recommendation 1.2 - A listed entity should:
(a) undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for
election, as a director; and
(b) provide security holders with all material information in its possession relevant to a decision on whether or not to
elect or re-elect a director.
14
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
Before appointing a director, or putting forward to shareholders a director for appointment, the company undertakes
comprehensive reference checks that cover elements such as the person’s character, experience, employment history,
qualifications and other appropriate checks.
An election of directors is held each year. A director that has been appointed during the year must stand for election at
the next Annual General Meeting (‘AGM’). Directors are generally appointed for a term of three years. Retiring directors
are not automatically re-appointed.
The company provides to shareholders for their consideration information about each candidate standing for election or
re-election as a director that the Board considers necessary for shareholders to make a fully informed decision. Such
information includes the person’s biography, which include experience and qualifications, details of other directorships,
adverse information about the person that the Board is aware of including material that may affect the person’s ability to
act independently on matters before the Board, and whether the Board supports the appointment or re-election.
Recommendation 1.3 - A listed entity should have a written agreement with each director and senior executive setting out
the terms of their appointment.
The terms of the appointment of a non-executive director are set out in writing and cover matters such as the term of
appointment, time commitment envisaged, required committee work and other special duties, requirements to disclose
their relevant interests which may affect independence, corporate policies and procedures, indemnities, and remuneration
entitlements.
Executive directors and senior executives are issued with service contracts which detail the above matters as well as the
person or body to whom they report, the circumstances in which their service may be terminated (with or without notice),
and any entitlements upon termination.
Recommendation 1.4 - The company secretary of a listed entity should be accountable directly to the board, through the
chair, on all matters to do with the proper functioning of the board.
advising the Board and its Committees on governance matters;
The Company Secretary reports directly to the Board through the Chairman and is accessible to all directors. The
Company Secretary’s role, in respect of matters relating to the proper functioning of the Board, includes:
•
• monitoring compliance of the Board and associated committees with policies and procedures;
•
•
•
•
coordinating all Board business;
retaining independent professional advisors;
ensuring that the business at Board and committee meetings is accurately minuted; and
assisting with the induction and development of directors.
Recommendation 1.5 - A listed entity should:
(a) have a diversity policy which includes requirements for the board or a relevant committee of the board to set
measurable objectives for achieving gender diversity and to assess annually both the objectives and the entity’s
progress in achieving them;
(b) disclose that policy or a summary of it; and
(c) disclose as at the end of each reporting period the measurable objectives for achieving gender diversity set by the
board or a relevant committee of the board in accordance with the entity’s diversity policy and its progress towards
achieving them, and either:
(1) the respective proportions of men and women on the board, in senior executive positions and across the whole
organisation (including how the entity has defined “senior executive” for these purposes); or
(2) if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s most recent “Gender
Equality Indicators”, as defined in and published under that Act.
The company currently has a formal diversity policy that is monitored at the end of each reporting period. 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 its diverse workforce is the key to its continued growth, improved productivity and performance.
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.
15
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
The respective proportion of women and men in the company including its subsidiaries (‘consolidated entity’) as at 30
June 2017 are as follows:
On the Board
In senior executive positions
Across the whole organisation
Portion of
women
-
24%
40%
Proportion
of men
100%
76%
60%
For this purpose, the Board defines a senior executive as a person who makes, or participates in the making of, decisions
that affect the whole or a substantial part of the business or has the capacity to affect significantly the company’s financial
standing. This therefore includes all senior management and senior executive designated positions as well as senior
specialised professionals.
The company is a ‘relevant employer’ for the purposes of the Workplace Gender Equality Act 2012 on the basis that the
entity employs 100 or more employees in Australia. The company makes annual filings of Gender Equality Indicators
with the Workplace Gender Equality Agency (WGEA). This information is accessible on https://www.wgea.gov.au
Recommendation 1.6 - A listed entity should:
(a) have and disclose a process for periodically evaluating the performance of the board, its committees and individual
directors; and
(b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting
period in accordance with that process.
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 review was conducted by the Chairman during the year.
Recommendation 1.7 - A listed entity should:
(a) have and disclose a process for periodically evaluating the performance of its senior executives; and
(b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting
period in accordance with that process.
The Board conducts an annual performance assessment of the CEO against agreed performance measures determined at
the start of the year. The CEO undertakes the same assessments of senior executives. In assessing the performance of the
individual, the review includes consideration of the senior executive’s function, individual targets, group targets, and the
overall performance of the company.
The CEO provides a report to the Board on the performance of senior executives together with remuneration
recommendations which must be approved by the Board after consultation with the Nomination and Remuneration
Committee. A review of the CEO and senior executives was undertaken during the year.
Principle 2: Structure the board to add value
Recommendation 2.1 - The board of a listed entity should:
(a) have a nomination committee which:
is chaired by an independent director,
(1) has at least three members, a majority of whom are independent directors; and
(2)
and disclose:
(3)
(4)
(5) as at the end of each reporting period, the number of times the committee met throughout the period and the
the charter of the committee;
the members of the committee; and
individual attendances of the members at those meetings; or
(b) if it does not have a nomination committee, disclose that fact and the processes it employs to address board succession
issues and to ensure that the board has the appropriate balance of skills, knowledge, experience, independence and
diversity to enable it to discharge its duties and responsibilities effectively.
16
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
The Board maintains a combined Nomination and Remuneration Committee, whose members during the financial year,
were as follows:
Director’s name
Ahmed Fahour - Chair
Elliott Kaplan
Dr Gary Weiss
Executive status
Non-Executive Director
Non-Executive Director
Non-Executive Chairman
Independence status
Independent
Independent
Independent
The Charter of the Committee is available at the company’s website. It details the roles and responsibilities of the
Committee.
The number of Committee meetings held and attended by each member is disclosed in the ‘Meetings of directors’ section
of the Directors’ report.
Recommendation 2.2 - A listed entity should have and disclose a board skills matrix setting out the mix of skills and
diversity that the board currently has or is looking to achieve in its membership.
The Board’s skills matrix indicates the mix of skills, experience and expertise that are considered necessary at Board level
for optimal performance of the Board. It is therefore used when recruiting new directors and assessing which skills need
to be outsourced based on the attributes of the current Board members. The existence of each attribute is assessed by the
Board as either, High, Medium or Low.
Skill category
Description of attributes required
Risk and compliance
Financial and audit
Strategic
Operating policies
Information technology
Executive management
Age and gender
Identification of key risks to the company related to each
key area of operations. Monitoring of risks, satisfy
compliance issues and knowledge of legal and regulatory
requirements.
Analysis and interpretation of accounting and finance
issues including assessment and resolution of audit and
financial reporting risks, contribution to budgeting and
financial management of projects and company, assessing
and supervising capital management.
Development of strategies to achieve business objectives,
oversee implementation and maintenance of strategies, and
identification and critical assessment of strategic
opportunities and threats to the company.
Key issue identification representing operational and
reputational risks and development of policy responses and
parameters within which the company should operate.
Knowledge of IT governance including privacy, data
management and security.
Performance assessments of senior executives, succession
planning for key executives, setting of key performance
hurdles, experience in industrial relations and
organisational change management programmes.
Board aims for equal gender representation and range of
experienced individuals to contribute towards better Board
outcomes.
Level of
importance
High
Existence in
current Board
High
High
High
High
High
Medium
Medium
Medium
Medium
High
High
Medium
Medium
The Board currently believes that its membership adequately represents the required skills as set out in the matrix and
therefore does not intend to seek any new or alternative candidates. External consultants may be brought in with specialist
knowledge to address areas where this is an attribute deficiency in the Board.
In addition to the specific areas that are required at Board level identified the matrix above, all members of the Board
are assessed for the following attributes before they are considered an appropriate candidate.
17
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
Board Member Attributes
Leadership
Ethics and integrity
Communication
Negotiation
Corporate governance
Represents the company positively amongst stakeholders and external parties;
decisively acts ensuring that all pertinent facts considered; leads others to action;
proactive solution seeker.
Awareness of social, professional and legal responsibilities at individual, company and
community level; ability to identify independence conflicts; applies sound professional
judgement; identifies when external counsel should be sought; upholds Board
confidentiality; respectful in every situation.
Effective in working within defined corporate communications policies; makes
constructive and precise contribution to the Board both verbally and in written form;
an effective communicator with executives.
Negotiation skills which engender stakeholder support for implementing Board
decisions.
Experienced director that is familiar with the mechanisms, controls and channels to
deliver effective governance and manage risks.
Recommendation 2.3 - A listed entity should disclose:
(a) the names of the directors considered by the Board to be independent directors;
(b) if a director has an interest, position, association or relationship of the type described in Box 2.3 but the board is of
the opinion that it does not compromise the independence of the director, the nature of the interest, position,
association or relationship in question and an explanation of why the board is of that opinion; and
(c) the length of service of each director.
The Board assesses annually the independence of each director to ensure that those designated as independent do not have
any alliance to the interests of management, substantial shareholders or other relevant stakeholders. They must be free of
any interest, position, association or relationship that might influence, or reasonably be perceived to influence, in a
material respect, their capacity to bring an independent judgement to bear on issues before the Board and to act in the best
interests of the company and its security holders generally.
Details of the Board of directors, their appointment dated, length of service as independence status is as follows:
Director’s name
Appointment date Length of service at reporting date
Independence status
Ahmed Fahour
28 March 2014
3 years and 3 months
Elliott Kaplan
1 March 2005
12 years and 8 months
Brandon Penn
16 August 2007
10 years and 1 month
Gary Weiss
28 May 2012
5 years and 4 months
Independent
Non-executive
Independent
Non-executive
Not-independent
Substantial shareholder
Independent
Non-executive
The Board may determine that a director is independent notwithstanding the existence of an interest, position, association
or relationship of the kind identified in the examples listed under Recommendation 2.3 of the ASX Principles and
Recommendations.
As part of its independence assessment, the Board considers the length of time that the director has been on the Board, as
a prolonged service period may also be seen to impair independence. The Board concluded that no non-executive director
has been on the Board for a period which could be seen to compromise their independence.
Where it is determined that a non-executive director should no longer be considered independent, the company shall make
an announcement to the market.
Recommendation 2.4 - A majority of the board of a listed entity should be independent directors.
Having regard to the response to Recommendation 2.3 above, the majority of the Board at the reporting date were
independent.
Recommendation 2.5 - The chair of the board of a listed entity should be an independent director and, in particular,
should not be the same person as the CEO of the entity.
18
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
Ahmed Fahour is Chair of the Board and is considered to be an independent director of the company. Brandon Penn was
the acting Chief Executive Officer until 29 May 2017 and was succeeded by Grant Harrod on this date as Chief Executive
Officer.
Recommendation 2.6 - A listed entity should have a program for inducting new directors and provide appropriate
professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform
their role as directors effectively.
New directors undertake an induction program coordinated by the Company Secretary on behalf of the Nomination and
Remuneration Committee. The program includes strategy briefings, explanations of company policies and procedures,
governance frameworks, cultures and values, company history, director and executive profiles and other pertinent
company information
Principle 3: Act ethically and responsibly
Recommendation 3.1 - A listed entity should:
(a) have a code of conduct for its directors, senior executives and employees; and
(b) disclose that code or a summary of it.
The company maintains a code of conduct. The purpose of the Code of Conduct is to guide all employees,
including Directors as to:
• the practices necessary to maintain confidence in Pro-Pac’s honesty and integrity;
• the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.
The overriding principle is that all business affairs of Pro-Pac must be conducted legally, ethically and with strict
observance of the highest standards of propriety and business ethics. If there are any doubts as to how to respond to a
particular circumstance, Directors and employees are encouraged to consult with the Chairman or Company Secretary
and, if necessary, seek external professional advice.
Pro-Pac has in place a code of conduct which sets standards for the Board and employees in dealing with Pro-Pac’s
customers, suppliers, shareholders and other stakeholders. A copy of this code of conduct is available on the Pro-Pac
website.
Principle 4: Safeguard integrity in corporate reporting
Recommendation 4.1 - The board of a listed entity should:
(a) have an audit committee which:
(1) has at least three members, all of whom are non-executive directors and a majority of whom are independent
(2)
(3)
(4)
(5)
directors; and
is chaired by an independent director, who is not the chair of the board,
and disclose:
the charter of the committee;
the relevant qualifications and experience of the members of the committee; and
in relation to each reporting period, the number of times the committee met throughout the period and the
individual attendances of the members at those meetings; or
(b) if it does not have an audit committee, disclose that fact and the processes it employs that independently verify and
safeguard the integrity of its corporate reporting, including the processes for the appointment and removal of the
external auditor and the rotation of the audit engagement partner.
To assist in the execution of its responsibilities, the Board has established an Audit and Risk Committee.
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.
19
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
The Committee comprises Mr Kaplan and Dr Weiss. 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 4.1 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.
Recommendation 4.2 - The board of a listed entity should, before it approves the entity’s financial statements for a
financial period, receive from its CEO and CFO a declaration that, in their opinion, the financial records of the entity
have been properly maintained and that the financial statements comply with the appropriate accounting standards and
give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on
the basis of a sound system of risk management and internal control which is operating effectively.
In relation to the financial statements for the financial year ended 30 June 2017 and the half-year ended 31 December
2016, the company’s CEO and CFO have provided the Board with declarations, that in their opinion:
•
•
the financial records of the company have been properly maintained;
the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial
position and performance of the company; and
• has been formed on the basis of a sound system of risk management and internal control which is operating effectively.
Recommendation 4.3 - A listed entity that has an AGM should ensure that its external auditor attends its AGM and is
available to answer questions from security holders relevant to the audit.
The engagement partner for the company’s audit attends the AGM and is available to answer shareholder questions from
shareholders relevant to the audit.
Principle 5: Make timely and balanced disclosure
Recommendation 5.1 - A listed entity should:
(a) have a written policy for complying with its continuous disclosure obligations under the Listing Rules; and
(b) disclose that policy or a summary of it.
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.
Principle 6: Respect the rights of security holders
Recommendation 6.1 - A listed entity should provide information about itself and its governance to investors via its
website.
The company maintains information in relation to governance documents, directors and senior executives, Board and
committee charters, annual reports, ASX announcements and contact details on the company’s website.
Recommendations 6.2 and 6.3
A listed entity should design and implement an investor relations program to facilitate effective two-way communication
with investors (6.2).
A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at
meetings of security holders (6.3).
20
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
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.
Recommendation 6.4 - A listed entity should give security holders the option to receive communications from, and send
communications to, the entity and its security registry electronically.
This option is available to security holders.
Principle 7: Recognise and manage risk
Recommendations 7.1 and 7.2
The board of a listed entity should:
(a) have a committee or committees to oversee risk, each of which:
(1) has at least three members, a majority of whom are independent directors; and
(2) is chaired by an independent director,
and disclose:
(3) the charter of the committee;
(4) the members of the committee; and
(5) as at the end of each reporting period, the number of times the committee met throughout the period and
the individual attendances of the members at those meetings; or
(b) if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the processes it employs
for overseeing the entity’s risk management framework (7.1).
The Board or a committee of the Board should: (a) review the entity’s risk management framework at least annually to
satisfy itself that it continues to be sound; and (b) disclose, in relation to each reporting period, whether such a review
has taken place (7.2).
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.
Details of directors’ attendance at Audit Committee meetings are disclosed in the Directors’ Report. The Audit Committee
has reviewed the Company’s risk management framework during the reporting period.
In performing this function, the Committee receives periodic reports from the Group’s Risk Committee (comprising key
stakeholders from the management team and the Group’s insurance advisers), external auditor 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 19 September 2017.
Recommendation 7.3 - A listed entity should disclose:
(a) if it has an internal audit function, how the function is structured and what role it performs; or
(b) if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually
improving the effectiveness of its risk management and internal control processes.
21
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
The company does not have an internal audit function. 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.
Recommendation 7.4 - A listed entity should disclose whether it has any material exposure to economic, environmental
and social sustainability risks and, if it does, how it manages or intends to manage those risks.
The management of the company and the execution of its growth strategies are subject to a number of risks which could
adversely affect the company’s future development. The following is not an exhaustive list or explanation of all
risks and uncertainties associated with the company (and its subsidiaries), but those considered by management to be the
principal material risks:
Financial risk
Loss of people
The company is exposed to financial risks such as foreign currency risk and interest rate risk.
Refer to the ‘Financial Instrument’ note to the financial statements for further information on
these risks and how they are managed.
The company’s senior executive team is instrumental in implementing the company’s strategies
and executing business plans which support the business operations and growth. Service
agreements are in place and the risk of the loss of key personnel is mitigated by regular reviews
of remuneration packages (including short and long term incentive schemes) and succession
planning within the team.
Refer to commentary at Recommendations 7.1 and 7.2 for information on the company’s risk
management framework.
Principle 8: Remunerate fairly and responsibly
Recommendation 8.1 - The board of a listed entity should:
(a) have a remuneration committee which:
(1) has at least three members, a majority of whom are independent directors; and
(2) is chaired by an independent director,
and disclose:
(3) the charter of the committee;
(4) the members of the committee; and
(5) as at the end of each reporting period, the number of times the committee met throughout the period and
the individual attendances of the members at those meetings; or
(b) if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and
composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate
and not excessive.
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’ remuneration to the Company’s financial and operations performance.
The Board has in place a Remuneration Committee to assist the Board in relation to human resources issues affecting the
Pro-Pac Group. The structure of this Committee and its responsibilities reflect in part the requirements of ASX Principle
8. The Committee comprises Messrs Fahour (Chairman) and Kaplan and Dr Weiss all of whom are independent Directors.
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 5.
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.
22
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
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 as is the number of times that
the Remuneration Committee met during the year.
Recommendation 8.2 - A listed entity should separately disclose its policies and practices regarding the remuneration of
non-executive directors and the remuneration of executive directors and other senior executives.
Non-executive directors are remunerated by way of cash fees and superannuation contributions. The level of remuneration
reflects the anticipated time commitments and responsibilities of the position. Performance based incentives are not
available to non-executive directors as it could be perceived to impair their independence in decision making. For the
same reason, equity based remuneration is limited to non-performance based instruments such as shares.
Executive directors and other senior executives are remunerated using combinations of fixed and performance based
remuneration. Fees and salaries and set at levels reflecting market rates having regard to the individual’s performance
and responsibilities. Performance based remuneration is linked directly to specific performance targets that are aligned to
both short and long term objectives. Share options and rights are aligned to longer term performance hurdles. Termination
payments are detailed in individual contracts and payable on early termination with the exclusion of termination in the
event of misconduct.
Further details in relation to the company’s remuneration policies are contained in the Remuneration Report, within the
Directors’ report.
Recommendation 8.3 - A listed entity which has an equity-based remuneration scheme should:
(a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives
or otherwise) which limit the economic risk of participating in the scheme; and
(b) disclose that policy or a summary of it.
The company operates an Executive Long Term Incentive Plan to encourage employees to share ownership of the
company and promote long-term success of the company as a goal shared by the employees. Please see the Directors’
report for further details of the plan.
23
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2017
Revenue
Sale of goods
Interest income
Total Revenue
Expenses
Raw materials and consumables used
Employee benefits expense
Other expenses from ordinary activities
Distribution costs
Occupancy costs
Depreciation and amortisation expense
Finance costs
Acquisition, rationalisation and relocation expenses
Amortisation of prepaid royalty
Total Expenses
Profit bef Profit before income tax from continuing operations
Income tax expense
Profit after income tax expense for the year
Other comprehensive income
Items that will be reclassified to profit & loss
Movements in reserves
Total comprehensive income for the year
Earnings per share (cents per share)
- Basic earnings per share
- Diluted earnings per share
Notes
Consolidated
2017
$000’s
Consolidated
2016
$000’s
229,244
149
229,393
153,498
33,134
12,670
10,053
7,690
3,225
1,307
914
-
222,491
240,774
166
240,940
162,512
33,521
12,150
9,806
7,479
3,353
1,482
489
28
230,820
6,902
(1,886)
5,016
10,120
(3,182)
6,938
1,390
6,406
(1,214)
5,724
2.11
3.01
2.06
2.95
12
5
6
6
The above statements should be read in conjunction with the accompanying notes.
24
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2017
Notes
Consolidated
30 June 2017
$000’s
Consolidated
30 June 2016
$000’s
15,345
36,772
33,112
80
-
4,332
89,641
15,831
70,721
2,068
88,620
178,261
29,509
504
3,000
1,156
3,941
38,110
1,683
27,104
28,787
66,897
111,364
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax assets
Derivative financial asset
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
TOTAL ASSETS
Liabilities
Current liabilities
Trade and other payables
Derivative financial liability
Interest bearing trade finance
Interest bearing borrowings
Provisions
Total current liabilities
Non-current liabilities
Provisions
Interest bearing borrowings
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Other reserves
Retained earnings
TOTAL EQUITY
8
10
11
5
24
15
12
13
14
16
24
17
17
18
18
17
19
20
21
12,259
37,732
35,093
181
886
5,125
91,276
15,158
71,281
2,224
88,663
179,939
31,435
-
800
1,098
4,171
37,504
1,636
27,116
28,752
66,256
113,683
98,194
1,062
14,427
113,683
96,304
(343)
15,403
111,364
The above statements of financial position should be read in conjunction with the accompanying notes.
25
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2017
Notes
Consolidated
2017
$000’s
Consolidated
2016
$000’s
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Finance costs
Income tax paid
Relocation, restructuring and business combination costs
Net cash flows provided by operating activities
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
Net cash flows used in investing activities
Cash flows from financing activities
Payment of hire purchase and finance lease liabilities
Finance leases raised
Proceeds from borrowing
Dividend paid
Net cash flows used in financing activities
229,244
(217,819)
149
(1,307)
(2,140)
(914)
7,213
243,281
(224,552)
166
(1,482)
(2,771)
(489)
14,153
9
(2,770)
278
(1,407)
(55)
(3,954)
(1,980)
176
(502)
(75)
(2,381)
(1,480)
1,435
(2,200)
(4,100)
(6,345)
(1,533)
1,339
449
(2,802)
(2,547)
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Cash and cash equivalents at end of financial year
89 8
(3,086)
15,345
12,259
9,225
6,120
15,345
Non-cash financing transactions
Hire purchase and finance lease liabilities raised
1,435 1,339
Issue of shares for dividend re-investment plan
1,890 3,578
The above statements of cash flows should be read in conjunction with the accompanying notes.
26
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2017
Consolidated
Issued
capital
$ 000
Retained
earnings
$ 000
Reserves
$ 000
Total
equity
$ 000
Balance as at 1 July 2015
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Issue of shares for dividend re-investment plan
Recognition of share based payment
Dividends paid
At 30 June 2016
92,726
-
-
-
3,578
-
-
96,304
14,845
6,938
-
6,938
830
-
(1,214)
(1,214)
108,401
6,938
(1,214)
5,724
-
-
(6,380)
15,403
-
41
-
3,578
41
(6,380)
(343)
111,364
Consolidated
Issued
capital
$ 000
Retained
earnings
$ 000
Reserves
$ 000
Total
equity
$ 000
Balance as at 1 July 2016
Profit after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Issue of shares for dividend re-investment plan
Recognition of share based payment
Dividends paid
At 30 June 2017
96,304
-
-
-
1,890
-
-
98,194
15,403
5,016
-
5,016
(343)
-
1,390
1,390
111,364
5,016
1,390
6,406
-
-
(5,992)
14,427
-
15
-
1,890
15
(5,992)
1,062
113,683
The above statements of changes in equity should be read in conjunction with the accompanying notes.
27
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: CORPORATE INFORMATION
The financial report of Pro-Pac Packaging Limited and its subsidiaries (“the Group”) for the year ended 30 June 2017
was approved for issue in accordance with a resolution of the Directors on 25 September 2017.
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 Accounting 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.
The adoption of these Accounting Standards and Interpretations did not have any significant impact on the
financial performance or position of the consolidated entity.
(b)
(c)
(d)
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. These financial
statements also comply with International Financial Reporting Standards as issued by the International
Accounting Standards Board ('IASB').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.
Parent entity information
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 31.
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 2017 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.
28
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(e)
(f)
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,
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.
Operating segments
Operating segments are presented using the 'management approach', where the information presented is on the
same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is
responsible for the allocation of resources to operating segments and assessing their performance.
Foreign currency translation
The financial statements are presented in Australian dollars, which is Pro-Pac Packaging Limited’s functional
and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised 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.
(g)
Revenue recognition
Revenue is recognised when it is probable that the economic benefit will flow to the consolidated entity and the
revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or
receivable.
Sale of goods
Sale of goods revenue is recognised at the point of sale, which is where the customer has taken delivery of the
goods, the risks and rewards are transferred to the customer. Amounts disclosed as revenue are net of sales
returns and trade discounts.
Interest
Interest revenue is recognised as interest accrues using the effective interest method. This is a method of
calculating the amortised cost of a financial asset and allocating the interest income over the relevant period
using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through
the expected life of the financial asset to the net carrying amount of the financial asset.
Other revenue
Other revenue is recognised when it is received or when the right to receive payment is established.
(h)
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, equity
instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any
non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the
acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All
acquisition costs are expensed as incurred to profit or loss.
29
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Where the business combination is achieved in stages, the consolidated entity remeasures its previously held
equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the
previous carrying amount is recognised in profit or loss.
Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value.
Subsequent changes in the fair value of contingent consideration classified as an asset or liability is recognised
in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is
accounted for within equity.
The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-
controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any
pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-
existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to
the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-
date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-
controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity
interest in the acquirer.
The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-
controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any
pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-
existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to
the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-
date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-
controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity
interest in the acquirer.
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the
provisional amounts recognised and also recognises additional assets or liabilities during the measurement
period, based on new information obtained about the facts and circumstances that existed at the acquisition-date.
The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when
the acquirer receives all the information possible to determine fair value.
(i)
Property, plant and equipment
Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost
includes expenditure that is directly attributable to the acquisition of the items. 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 & Fittings
Office equipment
Depreciation rates
5% - 40%
20% - 25%
10% - 40%
5% - 25%
5% - 33%
Method
Straight-line and diminishing value
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 derecognised upon disposal or when there is no future economic
benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are
taken to profit or loss.
30
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(j)
Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement
and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific
asset or assets and the arrangement conveys a right to use the asset.
A distinction is made between finance leases, which effectively transfer from the lessor to the Company
substantially all the risks and benefits incidental to ownership of leased assets, and operating leases, under which
the lessor effectively retains substantially all such risks and benefits.
Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or
if lower, the present value of minimum lease payments. Lease payments are allocated between the principal
component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining
balance of the liability.
Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the
asset's useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain
ownership at the end of the lease term.
Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a
straight-line basis over the term of the lease.
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually
for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and
is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss
and are not subsequently reversed.
Impairment of non-financial assets
Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are
tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might
be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for
the amount by which the asset's carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-
use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate
specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash
flows are grouped together to form a cash-generating unit.
(k)
(l)
(m)
Inventories
Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost
in relation to work in progress and finished goods comprises direct materials and delivery costs, direct labour,
import duties and other taxes, an appropriate proportion of variable and fixed overhead expenditure based on
normal operating capacity. Costs of purchased inventory are determined after deducting rebates and discounts
received or receivable.
Stock in transit is stated at the lower of cost and net realisable value. Cost comprises purchase and delivery costs,
net of rebates and discounts received or receivable.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.
(n)
Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair
value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item
being hedged.
Derivatives are classified as current or non-current depending on the expected period of realisation.
31
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash flow hedges
Cash flow hedges are used to cover the consolidated entity's exposure to variability in cash flows that is
attributable to particular risk associated with a recognised asset or liability or a firm commitment which could
affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised directly in
equity, whilst the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred out
of equity and included in the measurement of the hedged transaction when the forecast transaction occurs.
Cash flow hedges are tested for effectiveness on a regular basis both retrospectively and prospectively to ensure
that each hedge is highly effective and continues to be designated as a cash flow hedge. If the forecast transaction
is no longer expected to occur, amounts recognised in equity are transferred to profit or loss.
If the hedging instrument is sold, terminated, expires, exercised without replacement or rollover, or if the hedge
becomes ineffective and is no longer a designated hedge, amounts previously recognised in equity remain in
equity until the forecast transaction occurs.
(o)
Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the
effective interest method, less any provision for impairment. Trade receivables are generally due for settlement
within 30-60 days.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable
are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised
when there is objective evidence that the consolidated entity will not be able to collect all amounts due according
to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor
will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days
overdue) are considered indicators that the trade receivable may be impaired.
Other receivables are recognised at amortised cost, less any provision for impairment.
(p)
Current and non-current classification
Assets and liabilities are presented in the statement of financial position based on current and non-current
classification.
An asset is current when: it is expected to be realised or intended to be sold or consumed in normal operating
cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the
reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle
a liability for at least 12 months after the reporting period. All other assets are classified as non-current.
A liability is current when: it is expected to be settled in normal operating cycle; it is held primarily for the
purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional
right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities
are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
(q)
(r)
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-
term, highly liquid investments with original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of
cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown
within borrowings in current liabilities on the statement of financial position.
Trade and other payables
These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of
the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and
are not discounted. The amounts are unsecured and are usually paid within 30-60 days of recognition.
32
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(s)
Borrowings
Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction
costs. They are subsequently measured at amortised cost using the effective interest method.
Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting
date, the loans or borrowings are classified as non-current.
(t)
Finance costs
Finance costs are expensed in the period in which they are incurred, including:
•
•
•
•
interest on the bank overdraft
interest on short-term and long-term borrowings
interest on finance leases
unwinding of the discount on provisions
(u)
(v)
Provisions
Provisions are recognised when the consolidated entity has a present (legal or constructive) obligation as a result
of a past event, it is probable the consolidated entity will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate
of the consideration required to settle the present obligation at the reporting date, taking into account the risks
and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted
using a current pre-tax rate specific to the liability.
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 entities which intend to settle
simultaneously.
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.
33
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Pro-Pac Packaging Ltd (the “head entity”) & 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
(w)
Goods and Services Tax (‘GST’) and other similar taxes
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is
not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the
asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of
GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the
statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax
authority.
(x)
Employee benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected
to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees'
services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are
settled.
Other long-term employee benefits
The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting
date are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the
liability. The liability is measured as the present value of expected future payments to be made in respect of
services provided by employees up to the reporting date using the projected unit credit method. Consideration is
given to expected future wage and salary levels, experience of employee departures and periods of service.
Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms
to maturity and currency that match, as closely as possible, the estimated future cash outflows.
Share-based payments
Equity-settled transactions are awards of shares, or options over shares that are provided to employees in
exchange for the rendering of services.
The cost of equity-settled transactions is measured at fair value on grant date. Fair value is independently
determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of
the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying
share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-
vesting conditions that do not determine whether the consolidated entity receives the services that entitle the
employees to receive payment. No account is taken of any other vesting conditions.
34
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The cost of equity-settled transactions is recognised as an expense with a corresponding increase in equity over
the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the
award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting
period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each
reporting date less amounts already recognised in previous periods.
Market conditions are taken into consideration in determining fair value. Therefore, any awards subject to market
conditions are considered to vest irrespective of whether or not that market condition has been met, provided all
other conditions are satisfied.
If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the
condition is treated as a cancellation.
(y)
Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure
purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date; and assumes that the transaction
will take place either: in the principal market; or in the absence of a principal market, in the most advantageous
market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or
liability, assuming they act in their economic best interest. For non-financial assets, the fair value measurement
is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
(z)
Issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction,
net of tax, from the proceeds.
(aa)
(bb)
Dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the company.
Investments and other financial assets
Investments and other financial assets are initially measured at fair value. Transaction costs are included as part
of the initial measurement. They are subsequently measured at either amortised cost or fair value depending on
their classification. Classification is determined based on the purpose of the acquisition and subsequent
reclassification to other categories is restricted.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or
have been transferred and the consolidated entity has transferred substantially all the risks and rewards of
ownership.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are either: i) held for trading, where they are acquired for the
purpose of selling in the short-term with an intention of making a profit; or ii) designated as such upon initial
recognition, where they are managed on a fair value basis or to eliminate or significantly reduce an accounting
mismatch. Except for effective hedging instruments, derivatives are also categorised as fair value through profit
or loss. Fair value movements are recognised in profit or loss.
35
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of financial assets
The consolidated entity assesses at the end of each reporting period whether there is any objective evidence that
a financial asset or group of financial assets is impaired. Objective evidence includes significant financial
difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender
granting to a borrower concessions due to economic or legal reasons that the lender would not otherwise do; it
becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance
of an active market for the financial asset; or observable data indicating that there is a measurable decrease in
estimated future cash flows.
The amount of the impairment allowance for financial assets carried at cost is the difference between the asset's
carrying amount and the present value of estimated future cash flows, discounted at the current market rate of
return for similar financial assets.
(cc)
Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts in the financial statements. Management continually evaluates its judgements
and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its
judgements, estimates and assumptions on historical experience and on other various factors, including
expectations of future events, management believes to be reasonable under the circumstances. The resulting
accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and
assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities (refer to the respective notes) within the next financial year are discussed below.
Provision for impairment of receivables
The provision for impairment of receivables assessment requires a degree of estimation and judgement. The
level of provision is assessed by taking into account the recent sales experience, the ageing of receivables,
historical collection rates and specific knowledge of the individual debtors financial position.
Provision for impairment of inventories
The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level
of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and
other factors that affect inventory obsolescence.
Estimation of useful lives of assets
The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges
for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly
as a result of technical innovations or some other event. The depreciation and amortisation charge will increase
where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that
have been abandoned or sold will be written off or written down.
Goodwill
The consolidated entity tests annually, or more frequently if events or changes in circumstances indicate
impairment, whether goodwill have suffered any impairment, in accordance with the accounting policy stated in
note 2(l). The recoverable amounts of cash-generating units have been determined based on value-in-use
calculations. These calculations require the use of assumptions, including estimated discount rates based on the
current cost of capital and growth rates of the estimated future cash flows.
Income tax
The consolidated entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement
is required in determining the provision for income tax. There are many transactions and calculations undertaken
during the ordinary course of business for which the ultimate tax determination is uncertain. The consolidated
entity recognises liabilities for anticipated tax audit issues based on the consolidated entity's current
understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts,
such differences will impact the current and deferred tax provisions in the period in which such determination is
made.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences only if the consolidated entity considers
it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
36
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Employee benefits provision
As discussed in note 2(x), the liability for employee benefits expected to be settled more than 12 months from
the reporting date are recognised and measured at the present value of the estimated future cash flows to be made
in respect of all employees at the reporting date. In determining the present value of the liability, estimates of
attrition rates and pay increases through promotion and inflation have been taken into account.
Lease make good provision
A provision has been made for the present value of anticipated costs for future restoration of leased premises.
The provision includes future cost estimates associated with closure of the premises. The calculation of this
provision requires assumptions such as application of closure dates and cost estimates. The provision recognised
for each site is periodically reviewed and updated based on the facts and circumstances available at the time.
Changes to the estimated future costs for sites are recognised in the statement of financial position by adjusting
the asset and the provision. Reductions in the provision that exceed the carrying amount of the asset will be
recognised in profit or loss.
Business combinations
Business combinations are initially accounted for on a provisional basis. The fair value of assets acquired,
liabilities and contingent liabilities assumed are initially estimated by the consolidated entity taking into
consideration all available information at the reporting date. Fair value adjustments on the finalisation of the
business combination accounting is retrospective, where applicable, to the period the combination occurred and
may have an impact on the assets and liabilities, depreciation and amortisation reported.
(dd)
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of Pro-Pac Packaging
Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of
ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued
during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary
shares and the weighted average number of shares assumed to have been issued for no consideration in relation
to dilutive potential ordinary shares.
(ee)
(ff)
Rounding of amounts
The company is of a kind referred to in ASIC Instrument 2016/191 (issued in 2016), and in accordance with that
instrument all financial information presented in AUD has been rounded to the nearest one thousand dollars
($’000), unless otherwise stated.
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
2017. 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.
37
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
AASB 9 Financial Instruments
This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard
replaces all previous versions of AASB 9 and completes the project to replace IAS 39 'Financial Instruments:
Recognition and Measurement'. AASB 9 introduces new classification and measurement models for financial
assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective
is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and
interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss
unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity
instruments (that are not held-for-trading) in other comprehensive income ('OCI'). For financial liabilities, the
standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented
in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are
intended to more closely align the accounting treatment with the risk management activities of the entity. New
impairment requirements will use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment
will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased
significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces
additional new disclosures. The consolidated entity will adopt this standard from 1 July 2018 but the impact of
its adoption is yet to be assessed by the consolidated entity.
AASB 15 Revenue from Contracts with Customers
This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard
provides a single standard for revenue recognition. The core principle of the standard is that an entity will
recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard
will require: contracts (either written, verbal or implied) to be identified, together with the separate performance
obligations within the contract; determine the transaction price, adjusted for the time value of money excluding
credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-
alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist;
and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately
as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when
the customer obtains control of the goods. For services, the performance obligation is satisfied when the service
has been provided, typically for promises to transfer services to customers. For performance obligations satisfied
over time, an entity would select an appropriate measure of progress to determine how much revenue should be
recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity's
statement of financial position as a contract liability, a contract asset, or a receivable, depending on the
relationship between the entity's performance and the customer's payment. Sufficient quantitative and qualitative
disclosure is required to enable users to understand the contracts with customers; the significant judgments made
in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract
with a customer. The consolidated entity will adopt this standard from 1 July 2018 but the impact of its adoption
is yet to be assessed by the consolidated entity.
AASB 16 Leases
This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard
replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance
leases. Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position,
measured as the present value of the unavoidable future lease payments to be made over the lease term. The
exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal
computers and small office furniture) where an accounting policy choice exists whereby either a 'right-of-use'
asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the
capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct
costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating
lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating
costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods
of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease
expenses under AASB 117. However, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation)
results will be improved as the operating expense is replaced by interest expense and depreciation in profit or
loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated
into both a principal (financing activities) and interest (either operating or financing activities) component. For
lessor accounting, the standard does not substantially change how a lessor accounts for leases. The consolidated
entity will adopt this standard from 1 July 2019 but the impact of its adoption is yet to be assessed by the
consolidated entity.
38
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
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; and
The manufacturing process.
Types of products and services by segment
Industrial packaging
The Industrial packaging division manufactures, sources and distributes industrial packaging materials and
related products and services. All products produced or distributed are aggregated as one reportable segment as
the products are similar in nature and are distributed to similar types of customers. The industrial packaging
segment also installs, supports and maintains packaging machines.
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.
39
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 3: OPERATING SEGMENTS (continued)
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; and
other financial liabilities.
40
Rigid packaging Industrial packagingIntersegment eliminations / unallocatedTotalRigid packaging Industrial packagingIntersegment eliminations / unallocatedTotal$ 000$ 000$ 000$ 000$ 000$ 000$ 000$ 00020172017201720172016201620162016(i) Segment performance12 month ended 30 JuneRevenueExternal sales59,802 169,442 - 229,244 65,615 175,159 - 240,774 Inter-segment sales8,162 7,030 (15,192) - 8,754 7,827 (16,581) - Total segment revenue67,964 176,472 (15,192) 229,244 74,369 182,986 (16,581) 240,774 EBITDA7,011 9,206 (4,932) 11,285 8,825 10,415 (4,423) 14,817 Depreciation and amortisation(1,512) (1,580) (133) (3,225) (1,496) (1,697) (188) (3,381) Interest revenue149 166 Finance costs(1,307) (1,482) Profit before income tax6,902 10,120 Income tax expense(1,886) (3,182) Profit after income tax5,016 6,938 (ii) Segment assetsAs at 30 JuneSegment assets46,375 120,865 - 167,240 46,844 115,788 - 162,632 Reconciliation of segment assets to group assetsInter -segment eliminations(2,020) (1,870) Unallocated assets14,719 17,499 * Deferred tax assets2,224 2,068 * Other12,495 15,431 Total group assets from continuing operations179,939 178,261 (iii) Segment liabilitiesAs at 30 JuneSegment liablities13,208 29,409 - 42,617 13,216 29,356 - 42,572 Reconciliation of segment liablities to group liabilitiesInter -segment eliminations(2,116) (1,866) Unallocated liabilities25,755 26,191 * Deferred tax liabilities- - * Other liabilities25,755 26,191 Total group liabilities from continuing operations66,256 66,897 (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
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 4: EXPENSES
Profit befor Profit before income tax includes the following expenses:
Cost of sales
Superannuation expense
Bad & doubtful debts – trade
Rental expense on operating leases:
- minimum lease payments
Depreciation
Amortisation
Finance costs
NOTE 5: INCOME TAX
Major components of income tax for the year ended 30 June are:
Current income tax
Current income tax charge
Adjustments in respect of previous years
Adjustments in respect of permanent differences
Deferred income tax
Relating to temporary differences
Income tax expense in statement of profit or loss and other
comprehensive income
Consolidated
2017
$000’s
Consolidated
2016
$000’s
153,625
2,831
135
7,086
3,058
167
1,307
162,639
2,792
150
6,926
3,127
254
1,482
Consolidated
2017
$000’s
Consolidated
2016
$000’s
2,042
-
113
(269)
1,886
2,730
-
148
304
3,182
Consolidated
2017
$000’s
Consolidated
2016
$000’s
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 2017 is as
follows:
Accounting profit before tax
6,902
10,120
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
Adjustment in respect of previous years
At effective income tax rate of 27.3% (2016: 31.4%)
(2)
113
(296)
1,886
(2)
148
-
3,182
3,036
2,071
Income tax expense reported in statement of profit or loss and other
comprehensive income
1,886
3,182
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 2017 and 30 June 2016.
Current tax asset
Consolidated
2017
$000’s
181
Consolidated
2016
$000’s
80
41
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 6: EARNINGS PER SHARE
Basic and diluted earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary
equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.
The following reflects the income and share data used in the total operations basic and diluted earnings per share
computations:
Consolidated Consolidated
2016
$000’s
2017
$000’s
Net profit attributable to equity holders ($000’s)
5,016
6,938
Weighted average number of ordinary shares for basic earnings per share
237,980,248
230,470,499
Basic earnings per share (cents per share) *
Diluted earnings per share (cents per share) *
2.11
2.06
3.01
2.95
* 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 2017, the Company declared a fully franked final dividend of 1.0 cent per share. The record date for
determining entitlements to the dividend is 5 September 2017 and the dividend will be paid on 19 October 2017. The
Company’s Dividend Reinvestment Plan will not apply to the final dividend. When combined with PPG’s interim
dividend of 1.0 cent, paid on 20 May 2017, this brings total fully franked dividends for the 2016/17 financial year to 2.0
cents per share.
Declared and paid during the year:
Final dividend for 2016 – 1.5 cent per ordinary share
(2015 – 1.5 cents per ordinary share)
Interim dividend for 2017 – 1.0 cent per ordinary share
(2016 – 1.25 cents per ordinary share)
Proposed for approval at the Directors Meeting
(not recognised as a liability as at 30 June):
Final dividend for 2017 – 1.0 cent per ordinary share
(2016 – 1.5 cents per ordinary share)
Franking credits
Franking credits available for subsequent financial years based on a tax rate of 30%
2017
$000’s
2016
$000’s
3,573
3,427
2,419
5,992
2,953
6,380
2,419
3,606
2017
$000’s
14,965
2016
$000’s
15,372
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;
and
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
42
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 8: CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Cash at bank and in hand earns interest at floating rates based on daily bank
deposit rates
Reconciliation of cash
For the purposes of the Statement of cash flow, cash and cash equivalents
comprise the following at 30 June:
Consolidated Consolidated
2016
$000’s
2017
$000’s
12,259
15,345
Cash at bank and in hand
12,259
15,345
NOTE 9: CASH FLOW INFORMATION
a.) Reconciliation from the net profit after tax to the net cash flows from
operations
Net profit after tax
5,016
6,938
Consolidated Consolidated
2016
$000’s
2017
$000’s
Add/(Less) non-cash items:
Depreciation and amortisation of plant and equipment
Amortisation of pre paid royalty
(Profit)/Loss on disposal of assets
Movement in income tax provision
Movement in deferred tax assets & liabilities
Movement in provision for bad debts
Other non-cash movements
Changes in assets and liabilities:
Receivables
Inventories
Payables
Provisions
Prepayments
3,225
0
(40)
(104)
(156)
49
4
(837)
(1,089)
1,763
174
(792)
3,353
28
20
(65)
452
(244)
76
2,206
(583)
2,703
(212)
(519)
Net cash flows from operating activities
7,213
14,153
b) Non-cash financing and investing activities
During the year, the consolidated Group acquired plant with an aggregate value of $1,435,059 (2016: $1,339,233) by
means of finance leases.
c) Credit standby arrangements with banks
Credit facility
Amount utilised
Loan facilities
Amount utilised
Consolidated Consolidated
2016
$000’s
1,500
-
2017
$000’s
1,500
-
44,700
32,466
44,700
33,627
43
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 10: TRADE & 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 Consolidated
2016
$000’s
2017
$000’s
37,164
(407)
975
37,732
35,767
(358)
1,363
36,772
Consolidated Consolidated
2016
$000’s
(602)
94
150
(358)
2017
$000’s
(358)
(184)
135
(407)
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 &
impaired
Past due but
not impaired
Past due but
not impaired
Within initial
trade terms
$000’s
$000’s
> 90
$000’s
61- 90
$000’s
37,164
975
38,139
407
-
407
-
-
-
35,767
1,363
37,130
358
-
358
90
-
90
1,132
-
1,132
1,879
-
1,879
$000’s
35,625
975
36,600
33,440
1,363
34,803
Consolidated
2017
Trade and term receivables
Other receivables
Total
2016
Trade and term receivables
Other receivables
Total
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.
44
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 11: INVENTORIES
Raw materials
Finished goods
Provision for obsolete stock
Total inventories
Opening balance
Additional provision recognised
Obsolete stock written off
Closing balance
NOTE 12: PROPERTY, PLANT AND EQUIPMENT
At 30 June
Plant and equipment
At cost
Accumulated depreciation
Total property, plant and equipment
Consolidated Consolidated
2016
$000’s
2017
$000’s
1,770
33,812
(489)
35,093
1,071
32,691
(650)
33,112
Consolidated Consolidated
2016
$000’s
2017
$000’s
(650)
(478)
639
(489)
(1,506)
(468)
1,324
(650)
Consolidated Consolidated
2016
$000’s
2017
$000’s
34,881
(19,723)
15,158
33,119
(17,288)
15,831
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.
2017
$000’s
Plant and
Equipment
2017
$000’s
Motor
Vehicles
2017
$000’s
Computer
Equipment
2017
$000’s
Furniture
& Fittings
2017
$000’s
Office
Equipment
2017
$000’s
Leasehold
Improvement
2017
$000’s
Total
Balance at the
beginning of the year
Additions arising from
business acquisitions
during the year
Additions
Make good provision
capitalised
Disposals
Reclassification
Depreciation charge for
the year
Carrying amount at
the end of the year
12,574
1,449
-
1,891
-
(124)
-
-
520
-
(108)
-
491
-
277
-
-
-
(2194)
(406)
(286)
12,147
1,455
482
393
529
395
15,831
-
10
-
(2)
-
(51)
350
-
72
-
(5)
-
(121)
475
-
-
25
(4)
-
-
2770
25
(243)
-
(167)
(3,225)
249
15,158
45
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 12: PROPERTY, PLANT AND EQUIPMENT (continued)
2016
$000’s
Plant and
Equipment
2016
$000’s
Motor
Vehicles
2016
$000’s
Computer
Equipment
2016
$000’s
Furniture
& Fittings
2016
$000’s
Office
Equipment
2016
$000’s
Leasehold
Improvement
2016
$000’s
Total
Balance at the
beginning of the year
Additions arising from
business acquisitions
during the year
Additions
Make good provision
capitalised
Disposals
Depreciation charge for
the year
Carrying amount at
the end of the year
13,509
1,748
-
1,245
-
(30)
26
295
-
(128)
552
-
253
-
-
(2,150)
(492)
(314)
12,574
1,449
491
397
-
59
-
(3)
(60)
393
546
-
102
-
(8)
(111)
529
614
17,366
-
-
28
(21)
26
1,954
28
(190)
(226)
(3,353)
395
15,831
NOTE 13: INTANGIBLE ASSETS
Goodwill
Consolidated Consolidated
2016
$000’s
2017
$000’s
Notes
Carrying amount at beginning of the year
Acquisition through business combinations
Closing value
70,721
560
71,281
70,337
384
70,721
At 30 June
Gross
Accumulated impairment losses
Net carrying value
71,281
-
71,281
70,721
-
70,721
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 28).
NOTE 14: DEFERRED TAX ASSETS
Deferred tax assets
Deferred tax assets comprise:
Provisions and other timing differences
Transactions costs on equity issue
Closing balance
Reconciliation of gross movements
The overall movement in the deferred tax account is as follows:
Opening balance
Other permanent differences brought to account
Charge to statement of comprehensive income
Closing balance
Consolidated Consolidated
2016
$000’s
2017
$000’s
2,215
9
2,224
2,068
(113)
269
2,224
2,059
9
2,068
2,520
(148)
(304)
2,068
46
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 14: DEFERRED TAX ASSETS (continued)
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
NOTE 15: OTHER ASSETS
Current assets
Other prepayments
Total current assets
NOTE 16: TRADE AND OTHER PAYABLES
Current
Unsecured:
Trade payables
GST payable
Other tax payable
Sundry creditors and accruals
Contingent deferred payments to vendors for acquisitions
Total
2,059
(2)
158
2,215
9
2
2
(4)
9
2,424
33
(398)
2,059
96
6
(33)
(60)
9
Consolidated Consolidated
2016
$000’s
2017
$000’s
5,125
5,125
4,332
4,332
Consolidated Consolidated
2016
$000’s
2017
$000’s
21,917
579
386
8,508
45
31,435
21,391
580
358
7,065
115
29,509
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.
NOTE 17: INTEREST BEARING LOANS AND BORROWINGS
Current
Finance lease & hire purchase (see note 23)
Trade Finance
Total
Non-current
Finance lease & hire purchase (see note 23)
Bank loan (secured)
Total
Consolidated Consolidated
2016
$000’s
2017
$000’s
1,098
800
1,898
1,616
25,500
27,116
1,156
3,000
4,156
1,604
25,500
27,104
47
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 17: INTEREST BEARING LOANS AND BORROWINGS (continued)
a.) The bank loan and trade finance facilities are secured as follows:
i) first ranking registered equitable mortgage over Pro-Pac Packaging Limited and all wholly owned subsidiaries; and
ii) cross interlocking guarantees from Pro-Pac Packaging Limited and all wholly owned subsidiaries.
b.) In respect of the 2017 financial year, the bank loan is subject to the following covenants on a 12 month rolling
basis:
i) the Interest Coverage Ratio for the Group will at all times be greater than 4.00:1;
ii) the Gross Leverage Ratio for the Group will at all times not be greater than 3.00:1; and
iii) the Net Tangible Asset Cover Ratio for the Group will at all times be greater than 1.50:1.
c.) Pro-Pac Packaging Limited undertakes to the bank that any dividends or distribution payments paid to shareholders
or members for a financial year will not exceed more than 70% of net profit after tax for that financial year.
d.) The bank loan facility is subject to review on 31 July 2018.
NOTE 18: 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
Make good provision
Opening balance
Additional provisions
Amount used
Closing balance
Total non-current provisions
Opening balance
Arising on acquisition of business combinations
Additional provisions
Amount used
Closing balance
Consolidated Consolidated
2016
$000’s
2017
$000’s
3,941
-
2,257
(2,027)
4,171
3,973
7
2,270
(2,309)
3,941
745
-
259
(315)
689
938
32
(23)
947
1,683
-
291
(338)
1,636
912
12
271
(450)
745
889
49
-
938
1,801
12
320
(450)
1,683
48
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 18: PROVISIONS (continued)
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 19: ISSUED CAPITAL
Ordinary shares
Issued and fully paid
Movement in ordinary shares on issue
Balance at 1 July 2015
Issue of shares for Executive Long Term Incentive Plan
Cancellation of shares for Executive Long Term Incentive Plan
Issue of shares under the dividend re-investment plan
Balance at 30 June 2016
Balance at 1 July 2016
Cancellation of shares for Executive Long Term Incentive Plan
Issue of shares under the dividend re-investment plan
Balance at 30 June 2017
Consolidated Consolidated
2016
$000’s
2017
$000’s
98,194
96,304
Number
$000’s
229,073,257
3,300,000
(575,000)
8,629,936
240,428,193
240,428,193
(2,430,000)
3,773,626
241,771,819
92,726
-
-
3,578
96,304
96,304
-
1,890
98,194
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 remuneration report on page 11).
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in
proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and
the company does not have a limited amount of authorised capital.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each
share shall have one vote.
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.
49
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 19: ISSUED CAPITAL (continued)
The capital risk management policy remains unchanged from the 30 June 2016 Annual Report.
NOTE 20: RESERVES
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.
Option reserve
Cashflow hedge reserve
Closing balance
Consolidated Consolidated
2016
$000’s
161
(504)
(343)
2017
$000’s
176
886
1062
Option reserve
The reserve is used to recognise the value of share options at an agreed price, where certain employees are granted options
for shares that vest at a future date subject to the employee still being employed at that vesting date.
Hedging reserve - cash flow hedges
The reserve is used to recognise the effective portion of the gain or loss of cash flow hedge instruments that is determined
to be an effective hedge.
NOTE 21: RETAINED EARNINGS
Retained profits at the beginning of the year
Net profit attributable to members of the company
Dividends paid
Retained profits at the end of the year
Consolidated Consolidated
2016
$000’s
14,845
6,938
(6,380)
15,403
2017
$000’s
15,403
5,016
(5,992)
14,427
NOTE 22: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s principal financial instruments comprise bank loans, finance leases and hire purchase contracts, cash and
short-term deposits. The main purpose of these financial instruments is to finance the Group’s operations.
The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its
operations. It is, and has been throughout the period under review, the Group’s policy that no trading in financial
instruments shall be undertaken.
The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk
and credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below.
Interest rate risk
The Group’s exposure to interest rate risk is limited to interest receivable and payable on bank accounts and drawn down
bank loans. The interest rates contained in the finance lease and hire purchase agreements are fixed for the term of those
arrangements. All cash balances are at call and the average interest rate on the deposits is 1.2%.
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 44.5% 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.
50
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 22: FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
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 23: 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.
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
2017
$000’s
2017
$000’s
2017
$000’s
Total carrying
amount per the
statement of
financial position
2017
$000’s
Weighted
average
interest rate
2017
%
12,248 - 11
12,259
1.2
-
12,248
-
-
37,732
37,743
-
-
1,098
1,616
800
25,500
-
26,300
(14,052)
-
-
-
2,714
(2,714)
-
-
-
-
31,435
31,435
6,308
37,732
49,991
1,098
1,616
800
25,500
31,435
60,449
(10,458)
CONSOLIDATED
(i) Financial assets
Cash Assets
Receivables
Total financial assets
(ii) Financial liabilities
Finance Leases (current)
Finance Leases (non-current)
Trade Finance (current)
Bank loans (non-current)
Payables (current)
Total financial liabilities
Net financial assets/(liabilities)
There is no interest rate applicable on receivables or payables.
6.7
6.7
4.4
4.4
51
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 23: FINANCIAL INSTRUMENTS (continued)
Floating
interest rate
Fixed
interest rate
Non-interest
bearing
2016
$000’s
2016
$000’s
2016
$000’s
Total carrying
amount per the
statement of
financial position
2016
$000’s
Weighted
average
interest rate
2016
%
15,335 - 10
15,345
1.3
-
15,335
-
-
36,772
36,782
-
-
1,156
1,604
3,000
25,500
-
28,500
(13,165)
-
-
-
2,760
(2,760)
-
-
-
-
30,013
30,013
6,769
36,772
52,117
1,156
1,604
3,000
25,500
30,013
61,273
(9,156)
6.3
6.3
4.5
4.5
CONSOLIDATED
(i) Financial assets
Cash Assets
Receivables
Total financial assets
(ii) Financial liabilities
Finance Leases (current)
Finance Leases (non-current)
Trade Finance (current)
Bank loans (non-current)
Payables (current)
Total financial liabilities
Net financial assets/(liabilities)
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 2017
Less
than one
year
Between
1 and 2
years
Between
2 and 3
years
Between
3 and 4
years
Between
4 and 5
years
More
than 5
years
Total
$000’s
$000’s
$000’s
$000’s
$000’s
$000’s
$000’s
CONSOLIDATED
Cash assets
Trade Finance
Finance leases
Bank loans
12,248
800
1,098
-
-
-
848
25,500
-
-
518
-
-
-
198
-
-
-
52
-
-
-
-
-
Year ended 30 June 2016
Less
than one
year
Between
1 and 2
years
Between
2 and 3
years
Between
3 and 4
years
Between
4 and 5
years
More
than 5
years
12,248
800
2,714
25,500
Total
$000’s
$000’s
$000’s
$000’s
$000’s
$000’s
$000’s
CONSOLIDATED
Cash assets
Trade Finance
Finance leases
Bank loans
15,335
3,000
1,156
-
-
-
770
25,500
-
-
544
-
-
-
249
-
-
-
41
-
-
-
-
-
15,335
3,000
2,760
25,500
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.
52
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 23: FINANCIAL INSTRUMENTS (continued)
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
2017
+/- 1% in interest rates
+/- 10% in AUD / USD
2016
+/- 1% in interest rates
+/- 10% in AUD / USD
Consolidated
Profit
$000’s
Consolidated
Equity
$000’s
+/- 260
+/- 260
+/- 8,294
+/- 8,294
+/- 287
+/- 287
+/- 8,467
+/- 8,467
Market risk
Foreign currency risk
The consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign
currency risk through foreign exchange rate fluctuations.
Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities
denominated in a currency that is not the entity's functional currency. The risk is measured using sensitivity analysis and
cash flow forecasting.
In order to protect against exchange rate movements, the consolidated entity has entered into forward foreign exchange
contracts. These contracts are hedging highly probable forecasted cash flows for the ensuing financial year. Management
has a risk management policy to hedge 100% of anticipated USD foreign currency transactions for the subsequent 3
months (2016: 3 months).
The maturity, settlement amounts and the average contractual exchange rates of the consolidated entity's outstanding
forward foreign exchange contracts at the reporting date were as follows:
Buy US dollars
Maturity:
0 - 3 months
3 - 6 months
6 - 12 months
Sell Australian dollars
2016
2017
$'000
$'000
Average exchange rates
2017
2016
23,845
21,513
799
20,877
1,996
1,098
0.7510
0.7508
0.7586
0.7275
0.7315
0.7386
53
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 24: DERIVATIVE FINANCIAL INSTRUMENTS
Consolidated
2017
$000’s
Consolidated
2016
$000’s
Forward foreign exchange contracts - cash flow hedges – current asset
Forward foreign exchange contracts - cash flow hedges – current liability
886
-
-
504
Refer to note 25 for further information on fair value measurement.
NOTE 25: FAIR VALUE MEASUREMENT
Fair value hierarchy
The following tables detail the consolidated entity's assets and liabilities, measured or disclosed at fair value, using a three
level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly
Level 3: Unobservable inputs for the asset or liability
Consolidated - 2017
Assets
Derivative asset
Total assets
Consolidated - 2016
Liabilities
Derivative liability
Total liabilities
Level 1
$'000
Level 2
$'000
Level 3
$'000
Total
$'000
Level 1
$'000
-
-
-
-
886
886
Level 2
$'000
Level 3
$'000
504
504
-
-
-
-
886
886
Total
$'000
504
504
Derivative financial instruments have been valued using market rates. This valuation technique maximises the use of
observable market data where it is available and relies as little as possible on entity specific estimates.
The carrying amounts of trade and other receivables and trade and other 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 liabilities.
NOTE 26: 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.
54
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 26: CONTROLLED ENTITIES (continued)
Direct Controlled Entities:
Pro-Pac Group Pty Ltd
Plastic Bottles Pty Ltd
PPG Services SDN BHD
Country of
Incorporation
Class of
Shares
Equity
Holding
2017
Equity
Holding
2016
Australia Ordinary
Australia Ordinary
Malaysia Ordinary
100%
100%
100%
100%
100%
100%
Controlled Entities owned 100% by Pro-Pac Group Pty Ltd
Pro-Pac Packaging (Aust) Pty Ltd
Pro-Pac (GLP) Pty Ltd
Australia Ordinary
Australia Ordinary
100%
100%
100%
100%
Controlled Entities owned 100% by Plastic Bottles Pty Ltd
Australian Bottle Manufacturers Pty Ltd
Bev-Cap Pty Ltd
Ctech Closures Pty Ltd
Specialty Products and Dispensers Pty Ltd
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
Controlled Entities owned 100% by Pro-Pac Packaging
(Aust) Pty Ltd
Creative Packaging Pty Ltd
Pro-Pac Packaging Manufacturing (Syd) Pty Ltd
Pro-Pac Packaging Manufacturing (Melb) Pty Ltd
Pro-Pac Packaging Manufacturing (Bris) Pty Ltd
Controlled Entities owned 100% by Bev-Cap Pty Ltd
Finpact Pty Ltd
Great Lakes Moulding Pty Ltd
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
Australia Ordinary
Australia Ordinary
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 24 and Consolidated
Statement of Financial Position presented on page 25. 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.
NOTE 27: 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.
55
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 27: COMMITMENTS AND CONTINGENCIES (continued)
Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows:
Within one year
After one year but not more than five years
More than five years
Figures exclude GST
Consolidated Consolidated
2016
$000’s
2017
$000’s
5,531
14,245
117
19,893
5,764
9,798
-
15,562
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
2017
Minimum
payments
$000’s
2017
Present value
of payments
$000’s
2016
Minimum
payments
$000’s
2016
Present value
of payments
$000’s
1,156
1,604
2,760
-
2,760
1,098
1,616
2,714
-
2,714
1,230
1,726
2,956
(242)
2,714
2017
$000’s
1,098
1,616
2,714
1,292
1,724
3,016
(256)
2,760
2016
$000’s
1,156
1,604
2,760
The weighted average interest rate implicit in the leases is 6.7%.
Contingent Liability
As at statement of financial position date, the Company issued security deposit guarantees and standby letters of credits
to the value of $5,749,389 (2016: $4,970,175) to the landlords of rented premises and overseas suppliers.
As of the date of this report, the Company is defending a legal claim part of which has been determined and part referred
for expert determination. In relation to this matter, the Company believes it has adequate provision recorded in the
financial statements as at reporting date.
Capital Expenditure Commitments
As at reporting date the company had commitments for future capital expenditure of $2,095,518.
56
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 28: 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 Consolidated
2017
2016
$000’s $000’s
49,186
22,095
71,281
48,626
22,095
70,721
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. 4.1% pre-tax discount rate; (2016: 4.9%)
b. 3.2% for industrial division (2016: 4.0%) and 2.9% for rigid division (2016: 3.9%) per annum projected revenue
growth rate; and
c. 3.2% for industrial division (2016: 4.0%) and 2.9% for rigid division (2016: 3.9%) per annum increase in operating
costs and overheads.
The discount rate of 4.1% 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 7.5% for the Industrial division and to 11.5% for the Rigid division before
goodwill would be impaired. A rate of 4.1% was used in the assessment of goodwill.
b. the EBITDA growth rate would need to decrease to negative 68.9% in the Industrial division and to negative 60.8% in
the Rigid division before goodwill would be impaired. EBITDA growth rates of 3.2% and 2.9% respectively, were used
in the assessment of goodwill for the Industrial and Rigid divisions respectively.
NOTE 29: 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 26.
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 Brandon Penn and Hadrian Morrall.
57
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 29: RELATED PARTY DISCLOSURE (continued)
Hadrian Morrall
• Remuneration paid (Consultant from 1 July 2016)
• Payments to Morrall Penn Holdings Pty Ltd and The Penn Morrall
Partnership for rental related to the Sydney, Melbourne and Brisbane
properties (including GST)
Consolidated
2017
$
Consolidated
2016
$
214,133
260,890
624,624
751,557
o 9 Widemere Road, Wetherill Park, NSW
514,800
581,505
o Unit 15/129 Robinson Road, Geebung, QLD
109,824
125,203
o 32 Hinkler Road, Mordialloc, VIC
-
44,849
Brandon Penn
• Remuneration paid (salary and fees)
• Payments to Morrall Penn Holdings Pty Ltd and The Penn Morrall
Partnership for rental related to the Sydney, Melbourne and Brisbane
properties (including GST)
435,278
110,857
624,624
751,557
o 9 Widemere Road, Wetherill Park, NSW
514,800
581,505
o Unit 15/129 Robinson Road, Geebung, QLD
109,824
125,203
o 32 Hinkler Road, Mordialloc, VIC
-
44,849
Total payments to related parties during the year ended 30 June 2017 was $1,274,035 (2016: $1,123,304).
NOTE 30: KEY MANAGEMENT PERSONNEL DISCLOSURE
Key Management Personnel at 30 June 2017
Non-executive Chairman
Non-executive Director
Non-executive Director
Non-executive Director (acting CEO effective 13 July 2016, resigned as CEO 29 May 2017)
Ahmed Fahour
Elliott Kaplan
Dr Gary Weiss
Brandon Penn
Grant Harrod Chief Executive Officer (appointed 29 May 2017)
Mark Saus
Peter Sutton
Hadrian Morrall
Chief Financial Officer and Company Secretary
Chief Executive Officer (resigned 13 July 2017)
Business Consultant (former Divisional Managing Director, resigned 30 June 2016)
Total remuneration made to above key management personnel during the year ended 30 June 2017 was $1,266,109 (2016:
$1,299,214). Details of remuneration made to above key management personnel are disclosed in the directors’ report on
page 10.
Remuneration of Key Management Personnel
Excluding the Directors, there are only two 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.
58
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 31: 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
Retained profits/(accumulated losses)
Total equity
Parent
2017
$'000
7,715
7,715
8,415
99,440
1,222
1,222
98,194
24
98,218
2016
$'000
8,672
8,672
11,698
96,539
213
213
96,304
22
96,326
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 32: EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE
On 22 August 2017, the Company declared a fully franked final dividend of one cent per share. For details refer to the
Directors’ Report on page 7.
As announced on 11 September 2017, the Company has entered into a Share Sale Agreement to acquire the entire issued
capital (Sale Shares) of Integrated Packaging Group Pty Ltd (IPG), the leading engineered films and flexible films
packaging producer in Australia, from funds managed by Advent Partners Pty Ltd (Advent) and IPG senior management
shareholders (Other Vendors) (together, the Vendors).
As consideration for the acquisition of the Sale Shares, the Company has agreed to pay $177.5 million on effectively a
cash-free, debt-free valuation basis with the consideration to be made part by way of cash consideration and part by way
of an issue of Shares in the Company to the Vendors. The cash consideration is comprised of $117.5 million in cash with
the equity consideration comprising $60 million in scrip issued to the Vendors. The equity component of the consideration
translates to the issue of 158,421,024 Shares in the Company to the Vendors (which includes the issue of the [145,925,090]
Consideration Shares to Advent). The company has also arranged further debt facilities with the ANZ Bank.
The Company is seeking the approval of Shareholders in accordance with item 7 of section 611 of the Corporations Act
for the issue and allotment of the Consideration Shares to Advent in accordance with the terms and conditions of the
Share Sale Agreement. The issue of the Consideration Shares is part of a larger series of transactions required to give
effect to the Share Sale Agreement.
As a result of the acquisition of IPG, the Company will transform in size, becoming significantly larger with more diverse
operations and enhanced growth prospects.
NOTE 33: AUDITORS' REMUNERATION
Amounts paid or due payable to UHY Haines Norton for:
- audit or review of the financial report and half-year financial report
126,500
123,250
Consolidated
2017
$
Consolidated
2016
$
59
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
NOTE 34: 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 2017. The Group does not at this time believe these have any material impact on the 2017 financial
report or for the ensuing year.
60
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
DIRECTORS' DECLARATION
The directors of the company declare that:
1. The financial statements and notes, as set out on pages 24 to 60, are in accordance with the Corporations Act 2001
and:
a) comply with Australian 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 2017 and of its performance
for the year ended on that date;
c) comply with International Financial Reporting Standards as disclosed in Note 2 (b) 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.
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.
4. 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 26 to the financial statements will be able to meet any obligation or liabilities to
which they are, or may become, subject by virtue of the deed of cross guarantee.
Signed in accordance with a resolution of the Board of Directors pursuant to section 295 (5) (a) of the Corporations Act
2001.
On behalf of the Board on 25 September 2017.
Ahmed Fahour
Chairman
Elliott Kaplan
Director
61
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
INDEPENDENT AUDITOR’S REPORT
To the Members of Pro-Pac Packaging Limited
Report on the Audit of the Financial Report
Opinion
Level 11| 1 York Street | Sydney | NSW | 2000
GPO Box 4137 | Sydney | NSW | 2000
t: +61 2 9256 6600 | f: +61 2 9256 6611
sydney@uhyhn.com.au
www.uhyhnsydney.com.au
We have audited the financial report of Pro-Pac Packaging Limited (the Company) and its subsidiaries (the Group), which
comprises the consolidated statement of financial position as at 30 June 2017, 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, and notes to the financial statements, including a summary of significant accounting
policies, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:
i.
giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance
for the year then ended; and
ii.
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are
further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and
the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial report of the current year. These matters were addressed in the context of our audit of the financial report as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
An association of independent firms in Australia and New Zealand and a member
of UHY International, a network of independent accounting and consulting firms.
UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826
Liability limited by a scheme approved under Professional Standards Legislation.
62
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
IMPAIRMENT ASSESSMENT FOR GOODWILL
Why a key audit matter
How our audit addressed the risk
As per note 13 of
the Consolidated Financial
Statements, the goodwill balance as at 30 June 2017 was
$71.3 million (2016: $70.7 million).
We focused on this area because of:
▪ Significance of the assets to the Group’s
consolidated statement of financial position.
The goodwill balance allocated to two cash
generating units (CGUs)/business segments
represents approximately 40% of the total
assets; and; and
▪ The inherent uncertainty and subjectivity is
associated with the impairment testing due to
the significant level of judgement involved in
estimating the future cash flows, discount rates,
terminal growth rate etc.,
Our audit procedures included, amongst others:
▪ We
evaluated management’s
goodwill
impairment assessment process and tested
controls such as the review of forecasts by
management;
▪ We assessed management’s determination of the
Group’s CGUs based on our understanding of the
nature of the Group’s business units. We compared
this to the internal reporting of the Group to assess
how earnings are monitored and reported;
▪ We compared the previous year’s forecasts for 2016
with the actual results for 2016 to assess the
accuracy of forecasting. We applied increased
scepticism to current period forecast in areas where
previous forecast was not achieved and/or where
is
future uncertainty
expected;
is greater or volatility
▪ We assessed the assumptions and methodology
used by management for the impairment test, in
the
particular,
discount rate and EBITDA growth rates. To do this
we:
those assumptions relating
to
o
o
o
the appropriateness of
evaluated
the
discount rate adopted. We developed an
acceptable range of discount rates based
on market data and industry research. We
found that the discount rate used by the
Group was within the acceptable range;
flow
evaluated
assumptions at each CGU with reference
to current year results and expected
customer
considered
external industry information and market
data;
checked the calculations in the valuation
model for mathematical accuracy;
the underlying cash
pipelines
and
▪ We performed sensitivity analysis on all CGUs in
key areas being the discount rate, revenue growth
and terminal growth rate assumptions;
▪ We assessed the Group’s disclosures of the
quantitative and qualitative considerations
in
relation to the valuation of goodwill, by comparing
these disclosures to our understanding of the matter
and as per the requirements of the accounting
standards.
An association of independent firms in Australia and New Zealand and a member
of UHY International, a network of independent accounting and consulting firms.
UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826
Liability limited by a scheme approved under Professional Standards Legislation.
63
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
REVENUE RECOGNITION
Why a key audit matter
As per the Consolidated Statement of Profit or Loss
and Other Comprehensive Income, the Group’s
revenue for the year ended 30 June 2017 was $229
million (2016: $240 million)
We focused on revenue recognition because:
▪ Revenue is an important measure used to
evaluate the performance of the company;
▪ Quantum of amounts involved; and
▪ Revenue is generally recognized when the risks
and rewards of the underlying products have
been transferred to the customer and tend not
to have multiple deliverable elements. There is
a risk that sales may be materially misstated if
recognized before the risks and rewards have
been transferred.
How our audit addressed the risk
Our audit procedures included, amongst others:
▪ Assessing
the
appropriateness
the
Company’s revenue recognition accounting
policies and its compliance with the Australian
accounting standards;
of
▪ Where appropriate, we tested the operating
effectiveness of the internal controls over the
recording of revenue;
▪ We tested the accuracy of the revenue recorded
by checking that the revenue was recognised
based on the transfer of the risks and rewards
of ownership of goods, or in the accounting
period in which services were rendered by
agreeing a sample of revenue items to contract
and delivery dockets, with specific focus on
transactions which occurred near 30 June 2017;
▪ We also tested journal entries posted to revenue
accounts to identify any unusual or irregular
items, and assess their reasonableness; and
▪ We assessed the quantitative and qualitative
disclosures made in the financial report, by
comparing
our
understanding of the matter and as per the
requirements of the accounting standards.
disclosures
these
to
An association of independent firms in Australia and New Zealand and a member
of UHY International, a network of independent accounting and consulting firms.
UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826
Liability limited by a scheme approved under Professional Standards Legislation.
64
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
PROVISION FOR INVENTORY OBSOLESCENCE
Why a key audit matter
As per note 11 of the Consolidated Financial
Statements, the provision for inventory obsolescence
balance as at 30 June 2017 was $489,000 (2016:
$650,000).
We focused on this area because:
The inventory provision is an estimate based on certain
assumptions relating to obsolescence. Management has
identified a risk of obsolescence predominantly with
inventory aged over 24 months. The Group’s policy is
to review inventory aged over 24 months on a line by
line basis and remove 'dead stock' from the inventory
and write it off completely and create a proportional
write-down by way of a provision on the remaining
stock items over 24 months. Thus, the obsolescence
provision requires significant judgement
BORROWINGS
Why a key audit matter
As per note 17 of the Consolidated Financial
Statements, the bank loan balance as at 30 June 2017
was $25.5 million (2016: $25.5 million).
We focused on this area because:
▪ The Group has a significant balance of borrowings
with banks, which have been used to fund
acquisitions in previous periods and working
capital requirements. As at 30 June 2017, the Group
had a borrowing liability of $25.5M representing
38% of total liabilities; and
▪ There is a risk that if loan covenants are not
complied with, the Group would be required to
repay the balance on demand thus creating a going
concern risk.
How our audit addressed the risk
Our audit procedures included, amongst others:
▪ Evaluating the assumptions and estimates
applied to the obsolescence calculations by
testing the accuracy of historical information
and data trends, as well as by performing
analytical procedures on obsolescence levels
and write down rates;
How our audit addressed the risk
Our audit procedures included, amongst others:
▪ We obtained confirmations from
the
Group’s banks to confirm all borrowings,
including amounts and terms;
▪ We reviewed the Group’s compliance with
debt covenants; and
▪ Where debt is regarded as non-current, we
tested whether
the
unconditional right to defer payment such
that there were no repayments required
within 12 months from the balance date.
the Group has
An association of independent firms in Australia and New Zealand and a member
of UHY International, a network of independent accounting and consulting firms.
UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826
Liability limited by a scheme approved under Professional Standards Legislation.
65
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
Other Information
The directors are responsible for the other information. The other information comprises the information included in the
Group’s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report
thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in
the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the
directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free
from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian
Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance
Standards Board website at: http://www.auasb.gov.au/Home.aspx. This description forms part of our auditor’s report.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 7 to 11 of the directors’ report for the year
ended 30 June 2017.
In our opinion, the Remuneration Report of Pro-Pac Packaging Limited, for the year ended 30 June 2017,
complies with section 300A of the Corporations Act 2001.
Responsibilities
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.
An association of independent firms in Australia and New Zealand and a member
of UHY International, a network of independent accounting and consulting firms.
UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826
Liability limited by a scheme approved under Professional Standards Legislation.
66
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
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 25 September 2017.
(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
%
99
122
119
734
137
11,353
399,261
981,214
29,939,453
210,440,538
1,211
241,771,819
0.005
0.165
0.406
12.383
87.041
100.00
There are 104 holders of unmarketable parcels totalling 17,083 shares representing 0.007% of the Company’s issued
capital.
(b)
Twenty largest holders
Table 2: The names of the twenty largest holders, in each class of security are:
Rank
Holder Number %
1
BENNAMON PTY LTD 123,792,009 51.20
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
MR BRANDON ARI PENN
AUST EXECUTOR TRUSTEES LTD
EQUITAS NOMINEES PTY LIMITED
BNP PARIBAS NOMS PTY LTD
MR BRANDON PENN & MRS WENDY PENN
MISCHKE INVESTMENTS PTY LTD
CVC LIMITED
MRS NATALIE PENN
MISCHKE INVESTMENTS PTY LTD
SONHILL INVESTMENTS PTY LTD
WILBOW GROUP PTY LTD
W & S SEJA INVESTMENTS PTY LTD
MR GREGORY RIDDER & MRS LEE RIDDER
RUBI HOLDINGS PTY LTD
MR CRAIG STEWART FOX & MRS TONI ROSEMARY FOX
DONALD CANT PTY LTD
DR JEFFREY CHAITOW & MRS TANYA CHAITOW
SONHILL INVESTMENTS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
Top 20
22,279,165
18,424,015
10,674,153
3,859,597
2,297,872
1,076,058
859,616
830,388
748,716
723,310
636,752
601,972
531,724
514,146
487,530
450,000
416,171
415,618
9.21
7.62
4.41
1.60
0.95
0.45
0.36
0.34
0.31
0.30
0.26
0.25
0.22
0.21
0.20
0.19
0.17
0.17
390,799
190,009,609
0.16
78.59
(c)
Substantial shareholders
The names of substantial shareholders who have notified the Company in accordance with Section 671B of the
Corporations Act 2001 are:
Bennamon Pty Limited
Mr Brandon Penn
Trustees Australia Limited for Lanyon Australian Value Fund
123,792,009 ordinary shares
24,958,817 ordinary shares
18,424,015 ordinary shares
67
Pro-Pac Packaging Limited and Controlled Entities – Financial Report 2017
(d)
Voting rights
All ordinary shares carry one vote per share without restriction.
(e)
Restricted securities
Restricted securities total 2,050,000.
ESPP Shares under escrow until 6 October 2018
2,050,000 ESPP shares
(f)
Business objectives
The Company has used its cash and assets that are
readily convertible to cash in a way consistent with its
business objectives
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