Pro-Pac Packaging Limited
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ANNUAL REPORT 2018
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES CONTENTS
Chairman’s Report ...............................................................................................2
Directors’ Report .....................................................................................................3
Auditor’s Independence Declaration ................................1 1
Corporate Governance Statement ........................................ 12
Consolidated Statement of Profit or Loss
and Other Comprehensive Income ..................................... 21
Consolidated Statement of
Financial Position .............................................................................................22
Consolidated Statement of Cash Flows ......................23
Consolidated Statement of Changes
in Equity ...........................................................................................................................24
Notes to the Financial Statements .....................................25
Directors’ Declaration ...............................................................................60
Independent Auditor’s Report ....................................................61
Additional Company Information........................................66
“PRO-PAC
UNDERWENT A
SUBSTANTIAL
CHANGE AS IT
TRANSITIONED FROM
A DISTRIBUTOR
OF GENERAL
PACKAGING, TO A
MANUFACTURER
AND A DISTRIBUTOR
OF SPECIALISED
AND MORE DIVERSE
PACKAGING
PRODUCTS, IN
PARTICULAR
FLEXIBLE
PACKAGING...”
Ahmed Fahour Chairman
PRO-PAC PACKAGING LIMITED
+ CONTROLLED ENTITIES
CORPORATE INFORMATION
ACN: 112 971 874 ABN: 36 112 971 874
DIRECTORS
Ahmed Fahour Chairman (appointed 28 March 2016)
SOLICITORS
Thomson Geer
Rupert Harrington (appointed 6 November 2017)
Level 25, 1 O’Connell Street
Darren Brown (appointed 2 July 2018)
Marina Go (appointed 1 August 2018)
Leonie Valentine (appointed 1 August 2018)
Elliott Kaplan (resigned 31 August 2018)
Brandon Penn (resigned 16 February 2018)
Dr Gary Weiss (resigned 27 November 2017)
COMPANY SECRETARY
Mark Saus
REGISTERED OFFICE
Suite 2.02, 657 Pacific Highway
St Leonards NSW 2065
PO Box 228 St Leonards NSW 1590
PRINCIPAL PLACE OF BUSINESS
Suite 2.02, 657 Pacific Highway
St Leonards NSW 2065
SHARE REGISTER
Boardroom Limited
Level 12, 225 George Street
Sydney NSW 2000
Sydney NSW 2000
BANKERS
Australia and New Zealand Banking Group Limited in
its capacity as Agent of the Lenders and each other
lender specifically nominated to be Australia and New
Zealand Banking Group Limited; ANZ Bank New Zealand
Limited; HSBC Bank Australia Limited; The Hong Kong
and Shanghai Banking Corp. Limited (incorporated in
HK SAR, acting through NZ Branch); Westpac Banking
Corporation; Westpac New Zealand Limited; and the
State Bank of India, Sydney Branch.
AUDITORS
UHY Haines Norton
Level 11, 1 York Street
Sydney NSW 2000
KPMG (component auditor)
Tower Two, Collins Square, 727 Collins Street
Melbourne VIC 3008
STOCK EXCHANGE LISTING
Pro-Pac Packaging Limited shares are listed on the
Australian Securities Exchange (ASX code: PPG)
WEBSITE
www.ppgaust.com.au
1
2018 ANNUAL REPORT CHAIRMAN’S REPORT
Dear Fellow Shareholders,
On behalf of the Board of Directors of the Pro-Pac Group,
I am pleased to present to you our 2018 Annual Report.
A transformational year
During the year Pro-Pac underwent a substantial change
as it transitioned from a distributor of general packaging,
to a manufacturer and a distributor of specialised and
more diverse packaging products, in particular flexible
packaging and into the higher growth food categories.
Driving this transformation was the acquisition of
Integrated Packaging, completed in November 2017, and
followed more recently with the PolyPak and Perfection
Packaging acquisitions, to complete our focus on
establishing the business as a manufacturer and market
leader in flexible packaging.
This strategy is transforming your Company into a more
resilient and diverse business with an established platform
for future growth and is now ideally positioned to fulfil its
objectives of becoming a leader in flexible and distribution
packaging.
We now have a very well defined growth path capable
of delivering sustainable organic sales and profit
growth, with further M&A opportunities to continue our
consolidation journey and a business model capable of
delivering a high conversion of earnings to cash.
FY18 financial summary
The transformation of the business saw significant
disruption and one-off costs impacting the Company’s
performance in the FY18 period.
Pro-Pac announced revenues of $371 million for FY18 and
a statutory loss after tax of $5.1 million. This result included
eight months of trading for Integrated Packaging and
one-off rationalisation, relocation and restructuring costs
of $11.7 million, mainly stemming from the acquisition.
FY18 also saw strong increases in volume into industrial,
food processing and beverage markets, but were
contrasted by weaker sales in agriculture due to the
drought. In addition, rising energy and resin costs,
along with the steady decline in A$, adversely impacted
margins. We are however anticipating some recovery here,
as we implement our rise and fall clauses in customer
contracts.
Integration synergies following the Integrated Packaging
acquisition exceeded forecast with a number of major site
consolidations and rationalisation being completed, or
well underway.
The underlying EBITDA for the Group of $16.1 million was
in line with the guidance provided, while Profit Before Tax
(PBT) for the Group was $5.3 million, after adjusting for the
one-off items.
Strategic direction
With our growth platform in manufacturing and
distribution now well established, our strategic focus
is to utilise this platform and drive volume expansion
through increasing share in our core flexible, industrial
and rigid packaging markets. And margin improvement
via increasing the efficiency of all our operations. Key
to our margin focus will be our digital transformation
program including the consolidation of our IT systems,
moving infrastructure into the cloud and establishing
our new online sales channels targeting SME customer. I
am pleased to confirm all are well underway and we look
forward to updating these initiatives as they unfold.
Board changes
I would like to take this opportunity to highlight changes
to your Board of Directors since our last annual report.
Dr Gary Weiss, Mr Brandon Penn and Mr Elliott Kaplan
announced their retirements and stepped down as non-
executive directors. In their replacement we welcomed Mr
Darren Brown, Ms Marina Go and Ms Leonie Valentine to
the Pro-Pac Board as non-executive directors. We are very
pleased to have secured their services, which significantly
expands the skills and experiences of your Board to meet
the changing needs of the Company.
Strengthening our management team
In addition to Board changes and reflecting the increased
size and complexity of the business, our CEO, Mr Grant
Harrod, has strengthened his executive team with the
appointments of a new Chief Financial Officer, Chief
Information Officer, Chief Commercial Officer, Head of
Merchandising and Company Secretary. All appointments
are highly experienced and seasoned executives,
substantially strengthening the executive leadership team
of our Company.
Dividends
I am also pleased to report the Board of Directors declared
a final dividend of 1.0 cent per share, fully franked. This
brought the total dividend declared in respect of FY18 to
2.0 cents per share, reflecting the Board’s confidence in
the Company’s strategy.
Thank you
On behalf of the Board of Directors, I would like to thank
all our shareholders for their support along with our
customers, suppliers and other stakeholders. I appreciate
this has been a year of significant change. I would also like
to convey our thanks and appreciation to our leadership
team and employees for their continued hard work and
support of our Company.
Ahmed Fahour
Chairman
2
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 2018.
Mr Brown is a Chartered Accountant with a Graduate
Diploma in Applied Finance and Investment and holds a
Bachelor of Business qualification.
Mr Brown is Chairman of the Audit Business Risk and
Compliance Committee.
DIRECTORS
The Directors in office at the date of this report and during
the financial year are as follows:
Marina Go
B Arts, Exec MBA, AICD
(Non-Executive Director – appointed 1 August 2018)
Ahmed Fahour
B Econ, MBA
(Non-Executive Chairman 1 August 2018, Executive
Chairman 27 October 2017 to 31 July 2018, Non-Executive
Chairman 25 November 2014, Non-Executive Director
28 March 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 and MLC (Australia/
Asia). He is also an Adjunct Professor in the Faculty of
Business, Economics and Law at La Trobe University.
Mr Fahour is also Chairman of the People, Innovation and
Culture Committee.
Rupert Harrington
B Technology, Cert Dipl Acc & Fin, MBM
(Non-Executive Director – appointed 6 November 2017)
Rupert Harrington is an experienced Director with a
wealth of experience in business strategy and M&A.
Mr. Harrington’s earlier career was in operational
management in the UK and Australia. His career since
1987 has been in Private Equity where he has an excellent
track record of delivering results for investors in sectors
including: health, technology, industrial services and
manufacturing. He is currently Chairman of Advent
Partners, a pre-eminent mid-market Australian PE firm.
Mr. Harrington is Non-Executive Director of Clover
Corporation and Integral Diagnostics (ASX: IDX). At the
end of 2017 he resigned as a Non-Executive Director of
Bradken Ltd following it’s successful acquisition Hitachi.
Mr Harrington is a member of the Audit Business Risk and
Compliance Committee.
Darren Brown
B Business, Grad Dipl Fin & Investment, CA
(Non-Executive Director – appointed 2 July 2018)
Mr Brown’s experience includes over 20 years in a variety of
commercial and financial roles particularly in packaging,
including several years as CFO of publicly listed Pact Group
Holdings Limited, Southcorp Packaging and Amcor.
Ms Go’s executive career includes over 20 years’ experience
in branding, marketing, digital technologies and change
leadership in the media industry.
Ms Go is currently a Non-Executive Director for 7 Eleven,
Energy Australia and Autosports Group. Marina was
previously Country CEO for The Hearst Corporation
and held a variety of senior positions across the media
industry, including Fairfax, Independent Digital Media,
Pacific Magazines and EMAP Australia.
Ms Go is a member of the People, Innovation and Culture
Committee and the Audit Business Risk and Compliance
Committee.
Leonie Valentine
B Science, M Arts, Exec Cert B Admin, GAICD
(Non-Executive Director – appointed 1 August 2018)
Ms Valentine’s executive experience includes over 25 years’
experience in sales, marketing and operations, including
19 years in technology and telecommunications sectors.
Ms Valentine is currently Managing Director, Sales and
Operations of Google Hong Kong, originally joining
Google in 2014 as APAC Director of Customer Experience.
Prior to joining Google, Leonie was Executive Vice
President, Customer Service and Operations at CSL
Limited. Earlier, she held a number of senior management
positions with Telstra Corp and was a member of the
Executive Leadership Team charged with managing
Telstra International Group’s business growth and assets
outside of Australia and New Zealand.
Ms Valentine is a member of the People, Innovation and
Culture Committee.
Elliott Kaplan
B. Acc, CA
(Non-Executive Director – appointed Director 1 March
2005, resigned 31 August 2018)
Resigned as Chairman of the Audit Committee and as a
member of the Remuneration Committee 23 August 2018.
Brandon Penn
B. Com
(Non-Executive Director – appointed 16 August 2007,
resigned 16 February 2018).
3
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT DIRECTORS’ REPORT
Dr Gary Weiss
LL.B (Hons), LL.M (with dist.), Doctor of Juridical
Science (JSD)
(Non-Executive Director – appointed 28 May 2012, resigned
27 November 2017)
Resigned as a member of the Audit Committee and the
Remuneration Committee 27 November 2018.
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 extensive 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 Company.
As announced on 14 September, 2018 Mr Saus is resigning
as CFO and Company Secretary and Mr Rick Rostolis will
be appointed as CFO on 1 October 2018 and appointment
of new Company Secretary will be announced shortly.
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
Rupert Harrington
Darren Brown
Marina Go
Leonie Valentine
Opening balance
Additions
Disposals
Closing balance
ORDINARY SHARES
10,674,153
23,855,455
-
-
-
-
3,295,109
496,138
-
-
-
-
-
-
-
34,529,608
3,295,109
496,138
-
-
Elliott Kaplan
-
1,200,000
-
1,200,000
Opening balance
Additions
Lapsed
Closing balance
OPTIONS
MEETINGS OF DIRECTORS
Attendances by each director during the year were:
BOARD
AUDIT COMMITTEE
Number of
meetings held
while in office
Meetings
attended
Number of
meetings held
while in office
Meetings
attended
REMUNERATION COMMITTEE
Meetings
attended
Number of
meetings held
while in office
9
9
4
6
6
8
9
2
5
6
3
-
2
-
1
3
-
2
-
1
1
1
-
-
1
1
1
-
-
1
Elliott Kaplan
Ahmed Fahour
Dr Gary Weiss
Brandon Penn
Rupert Harrington
4
PRINCIPAL ACTIVITIES
The principal activities of the consolidated entity during
the year were the manufacture and distribution of
industrial, flexible and rigid packaging products.
There have been no significant changes in the nature of
these activities during the year.
OVERVIEW OF THE COMPANY’S BUSINESS
Revenues of $371 million for the year ended 30 June 2018
(‘FY18’) and a statutory loss after tax of $5.1 million were
reported. This result includes eight months of trading for
Integrated Packaging Group (‘IPG’) following its acquisition
on 6 November 2017 and one-off abnormals and write-offs of
$11.7 million stemming predominantly from the acquisition.
Revenue for PPG (excluding IPG) was $240 million, up
$11 million on the previous corresponding period. FY18 has
seen volumes increase in key industrial, food processing
and beverage markets for the Group, however, rising raw
material costs and the drought have adversely impacted
sales and margins.
Integration synergies achieved $6 million of annual
cost savings, following the acquisition of the Integrated
Packaging Group in November 2017, which continues
to exceed forecast with major site consolidations and
rationalisation well underway.
Underlying EBITDA of $16.1 million was reported while
Profit Before Tax (PBT) for the Group was a loss of -$5.1
million, after $11.7 million of one-off items attributed to
the IPG acquisition and resulting rationalisation, relocation
and restructuring costs.
The Board renewal program was completed with the
appointments of Mr Darren Brown on 2 July 2018, and
Ms Leonie Valentine and Ms Marina Go on 1 August 2018.
Mr Ahmed Fahour resumed his role of Non-Executive
Chairman with management renewal well underway.
OUTLOOK
The acquisitions of IPG, PolyPak and Perfection Packaging
provides the company with an exciting platform into the
higher growth flexible packaging sector, where Pro-Pac
has a unique opportunity as both manufacturer and
distributor to grow these markets. In addition, these
acquisitions provide further scope for rationalisation of
facilities and infrastructure with the resultant extraction of
synergies in the short to medium term.
FY18 was a year of substantial change and cost,
transforming PPG into a more resilient and diversified
business. The business is now very well placed with a
clear growth strategy into the flexibles and distribution
packaging markets, both growing quicker than GDP.
The PPG Group is now on track to achieve higher revenues
and earnings in FY19 and beyond. The Group expects:
– to benefit from the strong outlook in its core markets
of fresh and dry foods, industrial and logistics, and
beverage markets;
– to achieve additional synergies with further site
consolidations and improved operational effectiveness;
– expansion into new markets will reduce the company’s
reliance on the more volatile agricultural markets;
– the continued headwinds of a declining AUD, will be
offset by improvements in resin pricing and improved
price recovery via its customer contracts; and
– the Perfection Packaging and PolyPak acquisitions,
will continue trading ahead of expectation, as both
businesses benefit from strong underlying growth
within their markets.
The Company updated its FY19 underlying EBITDA to a
range of $37 to $42 million, including acquisitions.
DIVIDENDS
Dividend paid during the year:
Final dividend for 2017 –
1.0 cent per ordinary share
(2016 – 1.5 cents per ordinary share)
Interim dividend for 2018 –
1.0 cent per ordinary share
(2017 – 1.0 cent per ordinary share)
2018
$000’s
2017
$000’s
2,390
3,573
5,751
2,419
8,141
5,992
In August 2018, the Company declared a fully franked
final dividend of 1.0 cent per share. The record date for
determining entitlement to the dividend is 11 September
2018 and the dividend will be paid on 6 November 2018.
The Company’s Dividend Reinvestment Plan will apply to
this dividend.
SIGNIFICANT CHANGES IN THE STATE OF
AFFAIRS
There were no changes in the state of affairs of the
Company during the year.
SIGNIFICANT EVENTS SUBSEQUENT TO
BALANCE DATE
On 28 August 2018, the Company declared a fully franked
final dividend of one cent per share.
In July 2018, PPG acquired New Zealand based soft flexible
packaging manufacturer and distributor PolyPak. PPG has
also acquired Victorian based hard flexible manufacturer
Perfection Packaging, effective 1 September 2018.
5
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
DIRECTORS’ REPORT
The Acquisitions were funded by a combination of:
$9.96 million shares (Consideration Shares) issued to
the vendors of Perfection Packaging at an issue price
of $0.39 per share, a $55.8 million fully underwritten
placement of shares in two tranches at an issue price of
$0.34 per share (Placement), approved by shareholders
at the EGM held on 3 September 2018; and a $4.0 million
fully underwritten Share Purchase Plan (SPP) at an issue
price of $0.34 per share (Placement and SPP together,
Capital Raising).
annually and are reported to the Executive Management
Group through Risk Management meetings.
The Company has met its social responsibility to the
community and its shareholders and continues to work
hard at improving its processes and performance for a
sustainable future.
The Directors are not aware of any material breaches of
environmental regulations or site-specific licenses during
or since the financial year ending 30 June 2018.
LIKELY DEVELOPMENTS
The Company is focused on bedding down the
acquisitions made since November 2017 in flexible
packaging namely Integrated Packaging, Perfection
Packaging and Poly Pak.
The integration of these businesses, extraction of projected
synergies and rationalisation of facilities are key areas of
focus for the Management team.
ENVIRONMENTAL REGULATION AND
PERFORMANCE
The Company is committed to environmental
sustainability and ethical standards. This is built around
the Company’s Environment Sustainability and Ethical
Standards policy and provides a framework that promotes
the sourcing of sustainable products, the implementation
of energy efficient workplace practices and a resolution to
continual improvement.
The Company is a signatory to the Australian Packaging
Covenant. As signatories, the Group is committed to
providing the industry sustainable solutions for all
packaging handled by its business activities. The Group’s
commitment is published in the public domain by way
of the Australian Packaging Covenants website (www.
packagingcovenant.org.au) and is available on the Group’s
website.
In addition, The Company is a participant in the Packaging
Recyclability Evaluation Portal (“PREP”) and Australian
Recycling Label (“ARL”) programs, an industry first initiative
developed to provide the public with the appropriate
information to allow consumers to make better choices
when recycling packaging.
The Company is a member of Sedex and BSCI,
internationally recognised programs that assist to regulate
companies to ensure they meet ethical standards
and provide a high level of social responsibility to the
community and its partners.
The Company is compliant with all applicable Australian
Standards, National Codes, State Legislation, and Local
Council Guidelines. All Acts and Regulations are reviewed
across all states by the Compliance Management Team
and covers all of the Group’s environmental aspects for
air, land, water and natural resources. Full reviews are held
6
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 Company depends upon the
quality of its directors and executives. To prosper, the
Company must attract, motivate and retain highly skilled
directors and executives.
The People, Innovation and Culture Committee,
incorporates the Remuneration and Nomination
Committee. The committee comprises Mr Ahmed Fahour
(Chairman), Ms Marina Go (appointed 1 August 2018)
and Ms Leonie Valentine (appointed 1 August 2018) who
are Non-Executive Directors. Mr Elliott Kaplan resigned
31 August 2018 and Dr Gary Weiss resigned 27 November
2017 as members of the former Remuneration and
Nomination Committee.
The 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 Company.
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 $600,000 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 2018 is detailed in
Table 1 of this Remuneration Report.
Executive Director and Senior Management
remuneration
The Company 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 Committee is responsible for reviewing and providing
recommendations to the Board with respect to the
remuneration packages of senior management and
executive directors.
The 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 2018 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 as payment in lieu of notice instead of
working part or all of the notice period.
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:
Event
Company Policy
Resignation / notice period
6 months or less
Serious misconduct
Company may
terminate at any time
Payouts upon resignation or
termination, outside industrial
regulations (ie ‘golden handshakes’) None
Executive Long Term Incentive Plan (ESPP)
The Company has established an ESPP to encourage
employees to share in the ownership of the Company and
promote the long-term success of the Company as a goal
shared by the employees. The ESPP has been approved
by members of the Company for the purposes of sections
260C(4)(a), 259B(2)(a), 257B(1) and paragraph (b) of the
definition of employee share scheme buy-back in section
9 of the Corporations Act. There are currently 16,810,000
shares issued to employees under the Plan.
7
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT DIRECTORS’ REPORT
The following are the key terms and conditions of the ESPP:
– The Shares will be registered in the names of the
– 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.
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 150,000 shares were forfeited and were
cancelled and 530,000 shares await cancellation. At the
end of the year 16,810,000 shares were in issue under
the ESPP.
– The fair value of the employee benefit provided under
the ESPP plan is estimated at the date of grant using
the Monte Carlo simulation 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.
Grant date
Expiry Date
Price
Balance at
beginning of year
Granted
Exercised
Expired/
forfeited
Balance at
end of year
2018
27-10-15
30-11-17
2017
22-07-13
25-03-14
07-10-15
06-10-18
0.417
2,050,000
-
29-11-20
0.380
-
14,910,000
2,050,000
14,910,000
21-07-16
24-03-17
06-10-18
0.458
0.460
0.417
800,000
850,000
3,250,000
4,900,000
-
-
-
-
-
-
-
-
-
-
-
150,000
1,900,000
-
14,910,000
150,000
16,810,000
800,000
850,000
-
-
1,200,000
2,050,000
2,850,000
2,050,000
Key Management Personnel at 30 June 2018
Ahmed Fahour
– Non-executive Chairman
Elliott Kaplan
– Non-executive Director
Rupert Harrington – Non-executive Director (appointed 6 November 2017)
Grant Harrod
– Chief Executive Officer
Mark Saus
– Chief Financial Officer and Company Secretary
8
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.
Table 1
Short-term benefits
Post
employment
benefits
Other
long term
benefits
Share
based
payment
Total
Cash, salary
Non-
and fees monetary
benefits
$
$
Super-
annuation
Other Equity and
options
Performance
based
$
$
$
$
%
Ahmed Fahour
Elliott Kaplan
Dr Gary Weiss
Brandon Penn
Rupert Harrington
Grant Harrod
Mark Saus
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
156,199
117,493
81,744
65,700
21,231
48,000
39,231
411,365
62,154
-
562,270
32,330
302,129
261,934
Total Remuneration 2018
2017
1,224,958
936,822
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,546
-
-
-
2,017
4,560
3,727
23,913
5,904
-
20,049
2,966
24,800
34,929
67,043
66,368
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
122,553
-
29,448
-
-
-
-
-
-
-
49,266
-
4,061
2,244
289,298
117,493
111,192
65,700
23,248
52,560
42,958
435,278
68,058
-
631,585
35,296
330,990
299,107
205,328
2,244
1,497,329
1,005,434
-
-
-
-
-
-
-
-
-
-
-
-
5%
5%
-
-
Shares and Loans issued under the ESPP during the year ended 30 June 2018
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
Ahmed Fahour
10,600,000
4,028,000
4,028,000
0.380
29 November 2020
Grant Harrod
1,000,000
380,000
380,000
0.380
29 November 2020
Mark Saus
Mark Saus
Total
300,000
300,000
114,000
125,100
114,000
125,100
0.380
29 November 2020
0.417
6 October 2018
12,200,000
4,647,100
4,647,100
150,000 shares awarded to Mark Saus did not qualify, were returned to the Company and cancelled at the AGM on
27 November 2017.
9
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
DIRECTORS’ REPORT
Performance Rights issued during the year ended 30 June 2018
Performance Rights
(number)
Date granted
Grant Harrod
3,000,000
30 November 2017
Performance Rights granted with vesting conditional upon the achievement of certain performance conditions. Each
Performance Right entitles the holder to subscribe for one share.
The Performance Rights granted as an STI will be subject to certain vesting conditions. The STI vesting conditions will be
tested at the end of the financial year and, if met, vesting will occur in respect of the relevant year.
Option Holdings of Key Management Personnel
1,200,000 options were granted to Mr Kaplan during the year ended 30 June 2018. Issue of options at a nil issue price and
exercise price of $0.38 per option, exercisable on the basis set out in the Notice of AGM lodged on 26 October 2017.
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.
This concludes the remuneration report, which has been audited.
SHARES UNDER OPTION
1,200,000 options were granted to Mr Kaplan during the year ended 30 June 2018.
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 2017/191. 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.
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 2018, 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 2018 has been received and can be found on page 1 1 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 20 September 2018.
Ahmed Fahour - AO
Chairman
10
Darren Brown
Director
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 2018, 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.
M.D. Nicholaeff
Partner
Sydney
20 September 2018
UHY Haines Norton
Chartered Accountants
11
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT CORPORATE GOVERNANCE
STATEMENT
This Corporate Governance Statement of Pro-Pac
Packaging Limited (the ‘Company’) has been
prepared in accordance with the Australian Securities
Exchanges (‘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 20 September 2018.
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
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)
(b) those matters expressly reserved to the board and
within delegated authority levels.
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
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.
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.
12
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.
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:
– advising the Board and its Committees on governance
matters;
– 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)
(2)
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
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. It is the
committee’s intention to set measurable objectives for
achieving gender diversity in FY19. 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 with
varying skills, cultural backgrounds, ethnicities and experience.
The Company 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.
The respective proportion of women and men in the
Company including its subsidiaries (‘consolidated entity’)
as at 30 June 2018 are as follows:
Portion of Proportion of
men
women
On the Board
-
In senior executive positions
21%
Across the whole organisation
28%
100%
79%
72%
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
13
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
CORPORATE GOVERNANCE
STATEMENT
Recommendation 1.6 - A listed entity should:
(4) the members of the committee; and
(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.
The Company 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 the Company. 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.
(5)
(b)
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
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.
The Board maintains a People, Innovation and Culture
Committee (PIC) which incorporates the Remuneration
and Nomination Committee, whose members during the
financial year, were as follows:
Director’s
name
Executive
status
Ahmed Fahour Non-Executive Director
- Chair
Independence
status
Independent
Recommendation 1.7 - A listed entity should:
Elliott Kaplan Non-Executive Director
Independent
Dr Gary Weiss Non-Executive Director
Independent
Following the resignation of Dr Garry Weiss (27 November
2017) and Elliot Kaplan (31 August 2018), Leonie Valentine
and Marina Go were appointed to the PIC Committee on
3 September 2018.
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.
(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 People, Innovation and
Culture Committee (PIC). 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:
(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;
14
Skill category
Description of attributes required
Level of
importance
Existence in
current Board
Risk and compliance
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.
High
High
Financial and audit
Strategic
Operating policies
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.
Information technology
Knowledge of IT governance including privacy, data
management and security.
High
High
High
High
Medium
Medium
Medium
Medium
Executive management
Age and gender
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.
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.
Board member attributes
Leadership
Represents the Company positively amongst stakeholders and external parties; decisively acts
ensuring that all pertinent facts considered; leads others to action; proactive solution seeker.
Ethics and integrity
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.
Communication
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
Negotiation skills which engender stakeholder support for implementing Board decisions.
Corporate governance
Experienced director that is familiar with the mechanisms, controls and channels to deliver
effective governance and manage risks.
15
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
CORPORATE GOVERNANCE
STATEMENT
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
4 years and 3 months
Independent Non-executive
Elliott Kaplan
1 March 2005
Brandon Penn
16 August 2007
Dr Gary Weiss
28 May 2012
13 years and 4 months
(resigned 31 August 2018)
10 years and 6 months
(resigned 16 February 2018)
5 years and 6 months
(resigned 27 November 2017)
Independent Non-executive
Not-independent
Substantial shareholder
Independent Non-executive
Independent Non-executive
Independent Non-executive
Independent Non-executive
Independent Non-executive
Rupert Harrington
6 November 2017
8 months
Darren Brown 2 July 2018
Leonie Valentine
1 August 2018
Marina Go
1 August 2018
-
-
-
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.
16
Ahmed Fahour is Chair of the Board and is considered to
be an independent director of the Company. Grant Harrod
is the 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
People, Innovation and Culture 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 the
Company’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 the
Company 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.
The Company has in place a code of conduct which sets
standards for the Board and employees in dealing with
the Company’s customers, suppliers, shareholders and
other stakeholders. A copy of this code of conduct is
available on the Company’s 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 directors; and
(2)
is chaired by an independent director, who is
not the chair of the board,
and disclose:
(3) the charter of the committee;
(4)
(5)
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 Business Risk and Compliance
Committee. A summary of the Charter setting out the
Committee’s responsibilities is posted on the Company’s
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 Business Risk
and Compliance Committee.
The Committee also provides the Board with additional
assurance regarding the reliability of financial information
for inclusion in the financial reports.
The Committee comprises Mr Brown (Chairman), Mr
Harrington and Ms Go. Each member is financially
literate (i.e. they are able to read and understand financial
statements) and Mr Brown has financial expertise (i.e.
he is a Chartered Accountant). All members have some
understanding of the industry in which the Company
operates. Previous Committee Chairman, Mr Kaplan resigned
31 August 2018 and Dr Weiss resigned 27 November 2017.
Recommendation 4.1 requires that the composition
of Audit Business Risk and Compliance Committee
comprises a majority of independent Directors and that
the committee have at least three members. Effective
2 July 2018, the Company satisfies this requirement.
For additional details of Directors’ attendance at Audit
Business Risk and Compliance Committee meetings
and to review the qualifications of the members of the
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 2018 and the half-year ended 31 December
2017, 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.
17
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
CORPORATE GOVERNANCE
STATEMENT
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
A representative from the auditors of the Company
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.
(b) disclose that policy or a summary of it.
This option is available to security holders.
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 Company’s 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).
The Company 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 Company’s 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).
18
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
Business Risk and Compliance Committee is responsible
for reviewing the risk management framework and
policies of the Company. The structure of the Committee
and its responsibilities reflect in part the requirements
of ASX Principle 7 and are set out in the Company’s
Audit Business Risk and Compliance Committee charter,
published on its website. Details of directors’ attendance
at Committee meetings are disclosed in the Directors’
Report. The 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 Management 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, the Company 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 20 September 2018.
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.
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 Business Risk and Compliance 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
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.
Loss of people
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 People, Innovation and Culture
Committee to assist the Board in relation to human
resources issues affecting the Group. The structure of
this Committee and its responsibilities reflect in part the
requirements of ASX Principle 8. The Committee comprises
Mr Fahour (Chairman), Ms Go and Ms Valentine all of
whom are independent Directors. Mr Kaplan resigned
31 August 2018 and Dr Weiss resigned 27 November 2017
from the Committee. In addition to the members, the Chief
Executive is invited to the meetings at the discretion of the
Committee. Refer schedule of meetings of directors on page 4.
19
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
CORPORATE GOVERNANCE
STATEMENT
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.
A charter setting out the responsibilities of the Committee
has been adopted and a summary of this charter is posted
on the Company’s website.
This Committee is responsible for ensuring that the
recruitment and remuneration policies and practices of
the Company are consistent with its strategic goals and
human resources objectives and are designed to enhance
corporate and individual performance as well as meet the
appropriate recruitment and succession planning needs.
To do this the Committee, among other things, is
responsible for reviewing and monitoring executive
performance, remuneration and incentive policies
and the manner in which they should operate, the
introduction and operation of share plans, executive
succession planning and development programs to
ensure that they are appropriate to the Group’s needs and
the remuneration framework for Directors (as approved
by shareholders). The Committee may consult with
remuneration advisors to the Company to assist in its role.
The 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 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 executive’s 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.
20
CONSOLIDATED STATEMENT OF PROFIT OR
LOSS & OTHER COMPREHENSIVE INCOME
For the Year ended 30 June 2018
Notes
Consolidated
2018
$000’s
Consolidated
2017
$000’s
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
Total expenses
Profit before income tax expense and acquisition,
rationalisation, relocation and restructuring expenses
Acquisition, rationalisation and relocation expenses
(Loss)/Profit before income tax expense for the year
Income tax benefit/(expense)
(Loss)/Profit after income tax expense for the year
Other comprehensive income
Items that will be reclassified to profit and loss
Movements in reserves
Total comprehensive (loss)/income for the year
Earnings per share (cents per share)
- Basic earnings per share
- Diluted earnings per share
371,455
222
371,677
236,499
63,174
24,876
16,409
14,184
5,910
5,291
366,343
5,334
11,671
(6,337)
1,212
(5,125)
(415)
(5,540)
(1.15)
(1.12)
12
22
5
6
6
The above statements should be read in conjunction with the accompanying notes.
229,244
149
229,393
153,498
33,134
12,670
10,053
7,690
3,225
1,307
221,577
7,816
914
6,902
(1,886)
5,016
1,390
6,406
2.11
2.06
21
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
As at 30 June 2018
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
Interest bearing trade finance
Interest bearing borrowings
Current tax liability
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
Notes
Consolidated
30 June 2018
$000’s
Consolidated
30 June 2017
$000’s
8
10
11
5
25
15
12
13
14
16
17
17
14
18
18
17
19
20
21
3,206
83,346
95,463
-
470
9,126
191,611
36,490
184,689
14,530
235,709
427,320
93,265
-
6,004
292
8,210
107,771
8,219
91,224
99,443
207,214
220,106
217,695
1,250
1,161
220,106
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
The above statements of financial position should be read in conjunction with the accompanying notes.
22
CONSOLIDATED STATEMENT OF
CASH FLOWS
For the Year ended 30 June 2018
Notes
Consolidated
2018
$000’s
Consolidated
2017
$000’s
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Finance costs
Income tax paid
Net cash flows provided by operating activities
9
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Payment for controlled entity net of cash acquired
Payments for unincorporated businesses net of cash acquired
Relocation, restructuring and business combination costs
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/(repayments)
Funds raised from share issue
Dividend paid
Net cash flows used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of financial year
Cash and cash equivalents at end of financial year
8
376,156
(355,427)
222
(7,329)
(518)
13,104
(13,549)
757
(119,940)
(2,761)
(5,479)
(140,972)
(1,255)
510
70,777
53,320
(4,537)
118,815
(9,053)
12,259
3,206
229,189
(217,819)
149
(1,307)
(2,140)
8,072
(2,770)
278
-
(1,407)
(914)
(4,813)
(1,480)
1,435
(2,200)
-
(4,100)
(6,345)
(3,086)
15,345
12,259
Non-cash financing transactions
Issue of shares for dividend re-investment plan
3,604
1,890
The above statements of cash flows should be read in conjunction with the accompanying notes.
23
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
For the Year ended 30 June 2018
Consolidated
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
Consolidated
Balance as at 1 July 2017
(Loss) 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
Shares issued to vendors of businesses acquired
Cost of raising shares
Shares issued under share placement
Recognition of share based payment
Recognition of other reserves
Dividends paid
At 30 June 2018
Issued
capital
$000’s
Retained
earnings
$000’s
Reserves
$000’s
Total
equity
$000’s
96,304
-
-
-
1,890
-
-
98,194
98,194
-
-
-
3,604
62,577
(1,482)
54,802
-
-
-
217,695
15,403
5,016
-
5,016
-
-
(5,992)
14,427
14,427
(5,125)
-
(5,125)
-
-
-
-
-
-
(8,141)
1,161
(343)
-
1,390
1,390
-
15
-
1,062
1,062
-
(415)
(415)
-
-
-
-
102
501
-
111,364
5,016
1,390
6,406
1,890
15
(5,992)
113,683
113,683
(5,125)
(415)
(5,540)
3,604
62,577
(1,482)
54,802
102
501
(8,141)
1,250
220,106
The above statements of changes in equity should be read in conjunction with the accompanying notes.
24
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
NOTE 1: CORPORATE INFORMATION
The financial report of Pro-Pac Packaging Limited and
its subsidiaries (‘the Group’ or ‘Consolidated entity’) for the
year ended 30 June 2018 was approved for issue
in accordance with a resolution of the Directors on
20 September 2018.
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) 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.
(c) 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.
(d) Principles of consolidation
The consolidated financial statements incorporate
the assets and liabilities of all subsidiaries of Pro-Pac
Packaging Limited (‘company’ or ‘parent entity’) as at
30 June 2018 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’ or ‘Group’.
Subsidiaries are all those entities over which the
consolidated entity has control. The consolidated entity
controls an entity when the consolidated entity is exposed
to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns
through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which
control is transferred to the consolidated entity. They are
de-consolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains
on transactions between entities in the consolidated
entity are eliminated. Unrealised losses are also
eliminated unless the transaction provides evidence of the
impairment of the asset transferred. Accounting policies
of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the
consolidated entity.
The acquisition of subsidiaries is accounted for using the
acquisition method of accounting. A change in ownership
interest, without the loss of control, is accounted for as
an equity transaction, where the difference between the
consideration transferred and the book value of the share
of the non-controlling interest acquired is recognised
directly in equity attributable to the parent.
Non-controlling interest in the results and equity of
subsidiaries are shown separately in the statement of
profit or loss and other comprehensive income, statement
of financial position and statement of changes in
equity of the consolidated entity. Losses incurred by the
consolidated entity are attributed to the non-controlling
interest in full, even if that results in a deficit balance.
Where the consolidated entity loses control over a
subsidiary, it derecognises the assets including goodwill,
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.
(e) 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.
25
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
NOTE 2: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT.)
(f) 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.
26
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.
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 the contingent
consideration classified as an asset or liability is recognised
in profit or loss. Contingent consideration classified as
equity is not remeasured and its subsequent settlement is
accounted for within equity.
The difference between the acquisition-date fair value
of assets acquired, liabilities assumed and any non-
controlling interest in the acquiree and the fair value of
the consideration transferred and the fair value of any
pre-existing investment in the acquiree is recognised
as goodwill. If the consideration transferred and the
pre-existing fair value is less than the fair value of the
identifiable net assets acquired, being a bargain purchase
to the acquirer, the difference is recognised as a gain
directly in profit or loss by the acquirer on the acquisition-
date, but only after a reassessment of the identification
and measurement of the net assets acquired, the
non-controlling interest in the acquiree, if any, the
consideration transferred and the acquirer’s previously
held equity interest in the acquirer.
Business combinations are initially accounted for on a
provisional basis. The acquirer retrospectively adjusts
the provisional amounts recognised and also recognises
additional assets or liabilities during the measurement
period, based on new information obtained about the
facts and circumstances that existed at the acquisition-
date. The measurement period ends on either the earlier
of (i) 12 months from the date of the acquisition or (ii)
when the acquirer receives all the information possible to
determine fair value.
(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.
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.
Depreciation rates used for each class of assets vary to the
estimated useful lives at the time of acquisition, and are
typically:
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.
Class of fixed asset/method
Depreciation rates
Plant and equipment
Method: Straight-line and diminishing value
Motor vehicles
Method: Straight-line and diminishing value
5% - 40%
7% - 25%
Computer equipment
Method: Straight-line and diminishing value
20% - 50%
Furniture and Fittings
Method: Straight-line and diminishing value
Office equipment
Method: Straight-line and diminishing value
5% - 25%
5% - 33%
The residual values, useful lives and depreciation
methods are reviewed, and adjusted if appropriate, at
each reporting date. Leasehold improvements and plant
and equipment under lease are depreciated over the
unexpired period of the lease or the estimated useful life
of the assets, whichever is shorter.
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.
(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
(k) Intangible assets
Intangible assets acquired as part of a business combination,
other than goodwill, are initially measured at their fair value
at the date of the acquisition. Intangible assets acquired
separately are initially recognised at cost. Indefinite life
intangible assets are not amortised and are subsequently
measured at cost less any impairment. Finite life intangible
assets are subsequently measured at cost less amortisation
and any impairment. The gains or losses recognised in
profit or loss arising from the derecognition of intangible
assets are measured as the difference between net disposal
proceeds and the carrying amount of the intangible asset.
The method and useful lives of finite life intangible assets
are reviewed annually. Changes in the expected pattern of
consumption or useful life are accounted for prospectively
by changing the amortisation method or period.
(i) 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.
(ii) Trademarks
Trademarks are assigned an indefinite life and tested
for impairment at each reporting date unless there are
indications of impairment.
(iii) Customer contracts
Customer contracts acquired in a business combination
are amortised on a straight-line basis over the period of
their expected benefit, being their finite life of 4 years.
(l) 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.
27
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
NOTE 2: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT.)
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.
(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.
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.
28
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) 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.
(r) 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 30-90 days of recognition.
(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 and unwinding of the discount on
provisions.
(u) 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.
(v) 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 ‘parent entity’) and
its wholly-owned Australian subsidiaries have formed
an income tax consolidated group under the tax
consolidation regime. The parent entity and each
subsidiary in the tax consolidated group continue to
account for their own current and deferred tax amounts.
The tax consolidated group has applied the ‘separate
taxpayer within group’ approach in determining the
appropriate amount of taxes to allocate to members of
the tax consolidated group.
In addition to its own current and deferred tax amounts,
the parent 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
parent entity to the subsidiaries nor a distribution by the
subsidiaries to the parent entity.
29
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
NOTE 2: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT.)
(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
30
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.
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) Dividends
Dividends are recognised when declared during the
financial year and no longer at the discretion of the
company.
(bb) 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.
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) 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.
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.
(dd) 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.
(ee) 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 2018. The consolidated entity’s assessment of the
impact of these new or amended Accounting Standards
and Interpretations, most relevant to the consolidated
entity, are set out below.
AASB 9 financial instruments
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 and the impact of its
adoption is expected to be minimal on the consolidated
entity.
31
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
NOTE 2: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONT.)
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 and the impact of this adoption is expected to be
minimal on 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 at 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
32
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.
(ff) 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
debtor’s 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 and other indefinite life intangible assets
The consolidated entity tests annually, or more
frequently if events or changes in circumstances indicate
impairment, whether goodwill and other indefinite
life intangible assets have suffered any impairment, in
accordance with the accounting policy stated in note 2
(k). 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.
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.
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 and flexibles packaging
The Industrial and Flexibles packaging division
manufactures, sources and distributes industrial and
flexible packaging materials and related products and
services, incorporating products such as stretch and shrink
wrap, agricultural silage packaging, fresh produce bags,
barrier and lidding films and industrial protective films. All
products produced or distributed are aggregated as one
33
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
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.
NOTE 3: OPERATING SEGMENTS (CONT.)
reportable segment as the products are similar in nature
and are distributed to similar types of customers. The
Industrial and Flexibles 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.
34
Industrial
Intersegment
Rigid & flexibles eliminations
/unallocated
Industrial
Intersegment
Rigid & flexibles eliminations
/unallocated
packaging packaging
$000’s
2018
$000’s
2018
$000’s $000’s
2018
2018
Total packaging packaging
$000’s
$000’s
2017
2017
Total
$000’s $000’s
2017
2017
(i) Segment performance
12 months ended 30 June
Revenue
External sales
Inter-segment sales
61,093
9,660
310,362
12,116
(21,776)
371,455
-
59,802
8,162
169,442
7,030
- 229,244
-
(15,192)
Total segment revenue
70,753
322,478
(21,776) 371,455
67,964
176,472
(15,192) 229,244
6,739
UNDERLYING EBITDA
Acquisition, rationalisation,
relocation and
738
restructuring expenses
EBITDA
6,001
Depreciation and amortisation (1,627)
Interest revenue
Finance costs
Profit before income tax
Income tax expense
Profit after income tax
(ii) Segment assets
As at 30 June
14,738
(5,336)
16,141
7,011
9,219
(4,031)
12,199
7,494
7,244
(3,740)
3,439
(8,775)
(371)
11,671
4,470
(5,738)
222
(5,291)
(6,337)
1,212
(5,125)
-
7,011
(1,512)
13
9,206
(1,580)
901
(4,932)
(133)
914
11,285
(3,225)
149
(1,307)
6,902
(1,886)
5,016
Segment assets
45,934
365,133
- 411,067
46,375
120,865
- 167,240
Reconciliation of segment
assets to group assets
Inter-segment eliminations
Unallocated assets
– Deferred tax assets
– Other
Total group assets from
continuing operations
(iii) Segment liabilities
As at 30 June
(2,707)
18,960
14,530
4,430
427,320
(2,020)
14,719
2,224
12,495
179,939
Segment liablities
12,383
99,307
- 111,690
13,208
29,409
-
42,617
Reconciliation of segment
liablities to group liabilities
Inter-segment eliminations
Unallocated liabilities
– Deferred tax liabilities
– Other liabilities
Total group liabilities from
continuing operations
(1,387)
96,911
-
96,911
207,214
(2,116)
25,755
-
25,755
66,256
(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. IPG have operations in Canada, New Zealand and United States. The financial statements for these
companies are prepared to ensure compliance with International Financial Reporting Standards.
35
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
Consolidated
2018
$000’s
Consolidated
2017
$000’s
NOTE 4: EXPENSES
Profit before income tax includes the following expenses:
Cost of sales
Superannuation expense
Bad and 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
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 2018 is as follows:
Accounting (loss)/profit before tax
At the statutory income tax rate of 30%
Which is adjusted by the tax effect of:
Different rates of tax on overseas income
Adjustments in respect of permanent differences
Adjustment in respect of previous years
At effective income tax rate of 19.1% (2017: 27.3%)
Income tax expense reported in statement of profit or loss and other
comprehensive income
236,454
5,151
587
13,583
5,677
233
5,291
(763)
-
703
(1,152)
(1,212)
(6,337)
(1,901)
(14)
703
-
(1,212)
(1,212)
153,625
2,831
135
7,086
3,058
167
1,307
2,042
-
113
(269)
1,886
6,902
2,071
(2)
113
(296)
1,886
1,886
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 2018 and 30 June 2017.
Current tax asset
-
181
36
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
2018
$000’s
Consolidated
2017
$000’s
Net profit attributable to equity holders ($000’s)
Weighted average number of ordinary shares for basic earnings per share
(5,125)
446,961,654
5,016
237,980,248
Basic earnings per share (cents per share) *
Diluted earnings per share (cents per share) *
(1.15)
(1.12)
2.11
2.06
* The difference between basic and diluted shares on issue represents the PPG Executive Long Term Incentive Plan (ESPP)
shares on issue which are treated as an option grant.
NOTE 7: DIVIDENDS PAID AND PROPOSED
On 28 August 2018, the Company declared a fully franked final dividend of 1.0 cent per share. The record date for
determining entitlements to the dividend is 11 September 2018 and the dividend will be paid on 6 November 2018.
The Company’s Dividend Reinvestment Plan will apply to the final dividend. When combined with PPG’s interim dividend
of 1.0 cent, paid on 23 May 2018, this brings the total of fully franked dividends for the 2017/18 financial year to 2.0 cents
per share.
Declared and paid during the year:
Final dividend for 2017 – 1.0 cent per ordinary share
(2016 – 1.5 cents per ordinary share)
Interim dividend for 2018 – 1.0 cent per ordinary share
(2017 – 1.0 cent per ordinary share)
Proposed for approval at the Directors Meeting
(not recognised as a liability as at 30 June):
Final dividend for 2018 – 1.0 cent per ordinary share
(2017 – 1.0 cent per ordinary share)
2018
$000’s
2017
$000’s
2,390
5,751
8,141
3,573
2,419
5,992
7,595
2,419
Franking credits
Franking credits available for subsequent financial years based on a tax rate of 30%
12,333
14,965
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.
37
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
NOTE 8: CASH AND CASH EQUIVALENTS
Cash at bank
Cash at bank earns interest at floating rates based on daily bank deposit rates
Reconciliation of cash
For the purposes of the Statement of cash flow, cash and cash equivalents comprise
the following at 30 June:
Cash at bank
Bank overdraft
Cash at bank
NOTE 9: CASH FLOW INFORMATION
a) Reconciliation from the net profit after tax to the net cash flows from operations
Net profit after tax
Relocation, restructuring and business combination costs
Add/(Less) non-cash items:
Depreciation and amortisation of plant and equipment
(Profit)/loss on disposal of assets
Movement in income tax provision
Movement in deferred tax assets and liabilities
Movement in provision for bad debts
Other non-cash movements
Changes in assets and liabilities:
Receivables
Inventories
Payables
Provisions
Prepayments
Net cash flows from operating activities
b) Non-cash financing and investing activities
During the year, the consolidated Group acquired plant with an aggregate value
of $510,436 (2017: $1,435,059) by means of finance leases.
c) Credit standby arrangements with banks
Credit facility
Amount utilised
Loan facilities
Amount utilised
38
Consolidated
2018
$000’s
Consolidated
2017
$000’s
3,206
12,259
8,124
(4,918)
3,206
(5,125)
11,671
5,910
885
15
(1,776)
(10)
(845)
10,474
(14,697)
9,406
(228)
(2,576)
13,104
5,000
4,916
102,016
97,301
12,268
(9)
12,259
5,016
914
3,225
(40)
(104)
(156)
49
4
(1,009)
(1,089)
1,880
174
(792)
8,072
1,500
-
25,500
25,500
NOTE 10: TRADE AND OTHER RECEIVABLES
Current:
Trade receivables
Provision for impairment of receivables
Other debtors
Total current receivables
Movements in the provision for impairment of receivables are as follows:
Opening balance
Additional provision recognised
Receivables written off during the year as uncollectable
Closing balance
Consolidated
2018
$000’s
Consolidated
2017
$000’s
81,335
(957)
2,968
83,346
(407)
(916)
366
(957)
37,164
(407)
975
37,732
(358)
(184)
135
(407)
Trade receivables are non-interest bearing and are generally on terms between 30 and 90 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.
Consolidated
2018
Trade and term receivables
Other receivables
Total
2017
Trade and term receivables
Other receivables
Total
Gross
amount
Past due and
impaired
$000’s
$000’s
Past due but
not impaired
> 90
$000’s
Past due but Within initial
not impaired
trade terms
61 - 90
$000’s
$000’s
81,335
2,968
84,303
37,164
975
38,139
957
-
957
407
-
407
2,894
-
2,894
-
-
-
7,889
-
7,889
1,132
-
1,132
69,595
2,968
72,563
35,625
975
36,600
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.
39
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
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
2018
$000’s
Consolidated
2017
$000’s
23,267
77,294
(5,098)
95,463
(489)
(9,101)
4,492
(5,098)
1,770
33,812
(489)
35,093
(650)
(478)
639
(489)
59,785
(23,295)
36,490
34,881
(19,723)
15,158
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.
Plant &
Equipment
Motor Computer Furniture
Leasehold
Vehicles Equipment & Fittings Equipment Improvement
Office
Total
2018
$000’s
2018
$000’s
2018
$000’s
2018
$000’s
2018
$000’s
2018
2018
$000’s $000’s
12,147
1,455
482
350
475
249
15,158
12,731
12,089
-
(402)
-
(4,319)
-
592
-
(123)
-
(411)
1,513
-
420
-
(4)
-
(383)
515
-
292
-
(67)
-
(123)
452
-
156
-
(39)
-
(134)
458
1,092
-
284
(12)
-
(307)
13,823
13,549
284
(647)
-
(5,677)
1,306 36,490
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
32,246
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
12,147
2017
$000’s
2017
$000’s
2017
$000’s
2017
$000’s
2017
$000’s
2017
2017
$000’s $000’s
12,574
1,449
491
-
1,891
-
(124)
(2,194)
-
520
-
(108)
(406)
1,455
-
277
-
-
(286)
482
393
-
10
-
(2)
(51)
350
529
-
72
-
(5)
(121)
475
395
15,831
-
-
25
(4)
(167)
-
2,770
25
(243)
(3,225)
249
15,158
Refer to note 24 for further information on property, plant and equipment secured under finance leases.
40
NOTE 13: INTANGIBLE ASSETS
Goodwill
Less: Impairment
Customer contracts - at cost
Less: Accumulated amortisation
Brand names – at cost
Less: Accumulated amortisation
Consolidated
2018
$000’s
Consolidated
2017
000’s
162,050
-
162,050
1,400
(233)
1,167
21,472
-
21,472
184,689
71,281
-
71,281
-
-
-
-
-
-
71,281
Reconciliation
Reconciliation of the written down values at the beginning and end of the current and previous financial year are set out
below:
Goodwill
$’000
Brand names
$’000
Customer
contracts
$’000
Consolidated
Balance at 1 July 2016
Additions through business combinations
Impairment of assets
Amortisation expense
Balance at 30 June 2017
Additions through business combinations
Impairment of assets
Amortisation expense
Balance at 30 June 2018
70,721
560
-
-
71,281
90,769
-
-
162,050
-
-
-
-
-
21,472
-
-
21,472
-
-
-
-
-
1,400
-
(233)
1,167
Total
$’000
70,721
560
-
-
71,281
113,641
-
(233)
184,689
Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair
value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life
intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible
assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit
or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds
and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed
annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the
amortisation method or period.
41
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
NOTE 13: INTANGIBLE ASSETS (CONT.)
Impairment testing of goodwill
Carrying amount of goodwill
Carrying amount of goodwill - Industrial and Flexibles Division
Carrying amount of goodwill - Rigid Division
Total carrying amount of goodwill
Indefinite life intangible assets
Carrying amount of indefinite life intangible assets Industrial and Flexibles Division
Carrying amount of indefinite life intangible assets Rigid Division
Total carrying amount of indefinite life intangible assets
Consolidated
2018
$000’s
Consolidated
2017
000’s
139,955
22,095
162,050
21,472
-
21,472
49,186
22,095
71,281
-
-
-
The Group and all of its subsidiaries are divided into two major cash generating units, the Industrial and Flexibles 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 Flexibles and Rigid
divisions:
a) 10.4% pre-tax discount rate (2017: 4.1%);
b) 3.0% for Industrial and Flexibles division (2017: 3.2%) and 2.6% for Rigid division (2017: 2.9%) per annum projected
revenue growth rate; and
c) 3.0% for Industrial and Flexibles division (2017: 3.2%) and 2.6% for Rigid division (2017: 2.9%) per annum increase in
operating costs and overheads.
The discount rate of 10.4% 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 five years and current trends which management
believes are achievable during the forecasted period.
Based on the above, the recoverable amount of the Industrial and Flexibles division exceeded the carry amount by $22.9
million and the recoverable amount of Rigid division exceeded the carry amount by $30.7 million.
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 10.9% for the Industrial and Flexibles division and to greater than 23.0% for
the Rigid division before goodwill would be impaired. A discount rate of 10.4% was used in the assessment of goodwill.
b) the EBITDA growth rate would need to decrease to negative 3.0% in the Industrial and Flexibles division and to less
than negative 12.5% in the Rigid division before goodwill would be impaired with all other assumptions remaining
constant. EBITDA growth rates of 3.0% and 2.6% respectively, were used in the assessment of goodwill for the Industrial
and Flexibles and Rigid divisions respectively.
42
Consolidated
2018
$000’s
Consolidated
2017
$000’s
NOTE 14: DEFERRED TAX ASSETS
Deferred tax assets
Deferred tax assets comprise:
Provisions and other timing differences
Benefit of tax losses
Transactions costs on equity issue
Closing balance
Reconciliation of gross movements
The overall movement in the deferred tax account is as follows:
Opening balance
Provisions and timing differences on IPG acquisition
Tax losses on IPG acquisition
Other permanent differences brought to account
Charge to statement of comprehensive income
Closing balance
9,798
4,278
454
14,530
2,224
7,288
3,421
445
1,152
14,530
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
Provisions and timing differences on IPG acquisition
Reclassification
Credit/(charge) to statement of comprehensive income
At 30 June
Losses recognised at 1 July
Tax losses on IPG acquisition
Charge to statement of comprehensive income
At 30 June
Transaction cost to equity issue at 1 July
Tax losses on IPG acquisition
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
2,215
7,288
-
295
9,798
-
3,421
857
4,278
9
445
-
-
-
454
9,126
9,126
2,215
-
9
2,224
2,068
-
-
(113)
269
2,224
2,059
-
(2)
158
2,215
-
-
-
9
9
-
2
2
(4)
9
5,125
5,125
43
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
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
Consolidated
2018
$000’s
Consolidated
2017
000’s
66,697
64
1,175
25,284
45
93,265
21,917
579
386
8,508
45
31,435
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 and hire purchase (see note 24)
Bank loan (secured)
Trade finance
Total
Non-current
Finance lease and hire purchase (see note 24)
Bank loan (secured)
Total
992
5,012
-
6,004
977
90,247
91,224
1,098
-
800
1,898
1,616
25,500
27,116
a) The bank loan and trade finance facilities are secured as follows:
first ranking registered equitable mortgage over Pro-Pac Packaging Limited and all wholly owned subsidiaries; and
i)
ii) cross interlocking guarantees from Pro-Pac Packaging Limited and all wholly owned subsidiaries.
b) In respect of the 2018 financial year, the bank loan is subject to the following covenants on a 12 month rolling basis:
the Interest Coverage Ratio for the Group will at all times be greater than or equal to 4.00:1;
For the period from November 2017 to March 2018:
i)
ii) the Gross Leverage Ratio for the Group will at all times not be greater than 3.25:1; and
iii) the Debt Service Cover Ratio for the Group will at all times be greater than or equal to 1.10:1.
the Interest Coverage Ratio for the Group will at all times be greater than or equal to 4.00:1;
For the period from April 2018 to June 2018:
i)
ii) the Gross Leverage Ratio for the Group will at all times not be greater than 4.00:1; and
iii) the Debt Service Cover Ratio for the Group will at all times be greater than or equal to 1.10:1.
c) The bank loan facility is subject to review on 2 November 2020.
44
NOTE 17: INTEREST BEARING LOANS AND BORROWINGS (CONT.)
Financing arrangements
Unrestricted access was available at the reporting date to the following lines of credit:
Consolidated
2018
$000’s
Consolidated
2017
$000’s
Total facilities
Bank overdraft
Bank loan (secured)
Contingent funding facilities
Total
Used at the reporting date
Bank overdraft
Bank loan (secured)
Contingent funding facilities
Total
Unused at the reporting date
Bank overdraft
Bank loan (secured)
Contingent funding facilities
Total
NOTE 18: PROVISIONS
Current
Employee entitlements
Opening balance
Arising on acquisition of business combinations
Additional provisions
Amount used
Closing balance
Provision – onerous contract
Additional provisions
Closing balance
Provision – restructuring
Additional provisions
Closing balance
Total current provisions
Opening balance
Arising on acquisition of business combinations
Additional provisions
Amount used
Closing balance
5,000
102,016
29,400
136,416
4,916
97,301
13,547
115,764
84
4,715
15,853
20,652
4,171
3,048
2,261
(2,074)
7,406
606
606
198
198
4,171
3,048
3,065
(2,074)
8,210
1,500
25,500
19,200
46,200
-
25,500
6,966
32,466
1,500
-
12,234
13,734
3,941
-
2,257
(2,027)
4,171
-
-
-
-
3,941
-
2,257
(2,027)
4,171
45
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
NOTE 18: PROVISIONS (CONT.)
Non–current
Employee entitlements
Opening balance
Arising on acquisition of business combinations
Additional provisions
Amount used
Closing balance
Make good provision
Opening balance
Arising on acquisition of business combinations
Additional provisions
Amount used
Closing balance
Provision – onerous contract
Additional provisions
Closing balance
Total non-current provisions
Opening balance
Arising on acquisition of business combinations
Additional provisions
Amount used
Closing balance
Consolidated
2018
$000’s
Consolidated
2017
$000’s
689
3,772
476
(387)
4,550
947
1,972
267
(140)
3,046
623
623
1,636
5,744
1,366
(527)
8,219
745
-
259
(315)
689
938
-
32
(23)
947
-
-
1,683
-
291
(338)
1,636
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.
46
NOTE 19: ISSUED CAPITAL
Ordinary shares
Issued and fully paid
Movement in ordinary shares on issue
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
Balance at 1 July 2017
Shares issued to vendors of businesses acquired
Share rights issue
Issue of shares for Executive Long Term Incentive Plan
Cancellation of shares for Executive Long Term Incentive Plan
Cost of share issue
Issue of shares for dividend re-investment plan
Balance at 30 June 2018
Consolidated
2018
$000’s
Consolidated
2017
$000’s
217,695
98,194
Number
$000’s
240,428,193
(2,430,000)
3,773,626
241,771,819
241,771,819
158,421,024
161,181,634
14,910,000
(1,000,000)
-
8,380,864
583,665,341
96,304
-
1,890
98,194
98,194
62,577
54,802
-
-
(1,482)
3,604
217,695
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 9).
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.
The capital risk management policy remains unchanged from the 30 June 2017 Annual Report.
47
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
Consolidated
2018
$000’s
Consolidated
2017
$000’s
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
Cash flow hedge reserve
Other reserve
Closing balance
278
471
501
1,250
176
886
-
1,062
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.
Other reserve
The other reserve comprises of foreign currency reserve and share premium reserve.
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
14,427
(5,125)
(8,141)
1,161
15,403
5,016
(5,992)
14,427
NOTE 22: ACQUISITION, RATIONALISATION, RELOCATION AND RESTRUCTURING COSTS
During the year ended 30 June 2018, the Company acquired Integrated Packaging and undertook a re-organisation
and restructure of the Group. These changes were undertaken to achieve rationalisation, consolidation, maximisation of
merger opportunities which will deliver cost savings, margin expansion, incremental sales growth via vertical cross selling,
elimination of duplicate costs and leveraging the collective scale of the combined group to achieve total group synergies.
Discontinued and redundant stock lines
Onerous leases and exit costs
Redundancy costs
Fixed asset disposals and write-offs
Third party consultants, temporary staff and relocations
Other costs and legal fees
Total acquisition, rationalisation, relocation and restructuring costs
$000’s
3,440
2,600
112
1,075
765
3,679
11,671
48
Interest rate risk
The Company’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 1.1%.
Foreign currency risk
The Company 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 46.7% of purchases of materials and
capital items.
Commodity price risk
The Company is exposed to commodity price risk from
resin. In managing this risk, the Group is generally able
to pass on the price risk through price increases. This
includes customers with contracts through rise and fall
adjustments.
Credit risk
The Company 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 Company, which comprise cash and cash
equivalents, the Company’s exposure to credit risk arises
from default of the counter party, with a maximum
exposure equal to the carrying amount of these
instruments.
Liquidity risk
The Company’s objective is to maintain a balance
between continuity of funding and flexibility through the
use of bank loans and finance leases and hire purchase
contracts.
NOTE 22: ACQUISITION, RATIONALISATION,
RELOCATION AND RESTRUCTURING
COSTS (CONT.)
Discontinued and redundant stock lines
As part of the first stage of the relocation and integration
exercise, the Board along with management identified
discontinued and redundant stock lines across all of
its warehouse facilities in Australia in order to free up
space to accommodate the proposed restructure of
these warehousing facilities. The objective is to eliminate
external third-party storage costs and achieve greater
efficiencies within the restructured existing warehouses
within the Group. The amount was provided for as at
31 December 2017 based on inventory held by business
units which were reviewed and selected as appropriate
for removal and dumping based on a number of criteria
including the bulkiness of the product, current demand,
alternative products and customer locations. The actual
removal and dumping of the selected stock was
completed by 30 June 2018.
Onerous leases and exit costs
As part of the integration process, the Group has decided
to close down three facilities by integrating them into the
existing facilities within the same states. Therefore, as at
30 June 2018, provision for onerous leases and exit costs
were provided in relation to the remaining lease terms for
such facilities.
Other costs and legal fees
These costs include $1.4 million of transaction costs for
Integrated Packaging (IPG) acquisition and various other
restructure costs.
NOTE 23: FINANCIAL RISK MANAGEMENT
OBJECTIVES AND POLICIES
The Company’s principal financial instruments comprise
bank loans, finance leases and hire purchase contracts,
cash, short-term deposits and forward foreign exchange
contracts. The main purpose of these financial instruments
is to finance the Company’s operations. The Company uses
foreign exchange contracts to reduce foreign currency risk.
The Company 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 Company’s policy that no trading
in financial instruments shall be undertaken.
The main risks arising from the Company’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.
49
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
NOTE 24: 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
Total carrying
amount per the
statement of
financial position
Weighted
average
interest rate
2018
$000’s
2018
$000’s
2018
$000’s
2018
$000’s
2018
%
CONSOLIDATED
(i) Financial assets
Cash assets
Bank overdraft
Receivables
Total financial assets
(ii) Financial liabilities
Finance leases (current)
Finance leases (non-current)
Bank loans (current)
Bank loans (non-current)
Payables (current)
Total financial liabilities
8,104
(4,918)
-
3,186
-
-
5,012
90,247
-
95,259
Net financial assets/(liabilities)
(92,073)
-
-
-
-
992
977
-
-
-
1,969
(1,969)
20
-
83,346
83,366
-
-
-
-
93,265
93,265
(9,899)
8,124
(4,918)
83,346
86,552
992
977
5,012
90,247
93,265
190,493
(103,941)
0.4
8.8
7.2
7.2
5.4
5.4
There is no interest rate applicable on receivables or payables.
2017
$000’s
2017
$000’s
2017
$000’s
2017
$000’s
2017
%
CONSOLIDATED
(i) Financial assets
Cash assets
Bank overdraft
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
12,257
(9)
-
12,248
-
-
800
25,500
-
26,300
-
-
-
-
1,098
1,616
-
-
-
2,714
Net financial assets/(liabilities)
(14,052)
(2,714)
11
-
37,732
37,743
-
-
-
-
31,435
31,435
6,308
12,268
(9)
37,732
49,991
1,098
1,616
800
25,500
31,435
60,449
(10,458)
1.2
8.0
6.7
6.7
3.3
3.3
50
NOTE 24: FINANCIAL INSTRUMENTS (CONT.)
The following table sets out the contractual maturities of the financial instruments that are exposed to interest rate risk:
Less
than one
year
$000’s
Between
1 and 2
years
$000’s
Between
2 and 3
years
$000’s
Between
3 and 4
years
$000’s
Between
4 and 5
years
$000’s
More
than 5
years
$000’s
Total
$000’s
Year ended 30 June 2018
CONSOLIDATED
Cash assets
Bank overdraft
Finance leases
Bank loans
Year ended 30 June 2017
CONSOLIDATED
Cash assets
Bank overdraft
Trade finance
Finance leases
Bank loans
8,124
(4,918)
1,079
10,088
-
-
692
9,817
-
-
279
86,849
12,257
(9)
800
1,230
842
-
-
-
943
26,342
-
-
-
547
-
-
-
54
-
-
-
-
206
-
-
-
-
-
-
-
-
53
-
-
-
-
-
-
-
-
-
-
8,124
(4,918)
2,104
106,754
12,257
(9)
800
2,979
27,184
The other financial instruments of the Company that are not included in the above tables are non-interest bearing and
are therefore not subject to interest rate risk.
Sensitivity analysis
The following table illustrates sensitivities to the Company’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.
2018
+/- 1% in interest rates
+/- 10% in AUD / USD
2017
+/- 1% in interest rates
+/- 10% in AUD / USD
Market risk
Foreign currency risk
Consolidated
Profit
$000’s
Consolidated
Equity
$000’s
+/- 941
+/- 18,108
+/- 260
+/- 8,294
+/- 941
+/- 18,108
+/- 260
+/- 8,294
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 (2017: 3 months).
51
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
NOTE 24: FINANCIAL INSTRUMENTS (CONT.)
Foreign currency risk (cont.)
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:
Sell Australian dollars
2018
$000’s
2017
$000’s
Average exchange rates
2018
2017
Buy US dollars
Maturity:
0 - 3 months
3 - 6 months
6 - 12 months
Buy Australian dollars
Maturity:
0 - 3 months
3 - 6 months
6 - 12 months
Buy Australian dollars
Maturity:
0 - 3 months
3 - 6 months
6 - 12 months
16,742
1,368
863
19,981
20,019
-
Sell US dollars
2018
$000’s
2017
$000’s
5,125
3,560
2,276
2018
$000’s
-
578
105
Sell GBP
3,864
1,494
799
2017
$000’s
442
163
-
0.7747
0.7499
0.7468
0.7487
0.7506
-
Average exchange rates
2018
2017
0.7722
0.7724
0.7578
0.7632
0.7539
0.7586
Average exchange rates
2018
2017
-
0.5552
0.5615
0.6203
0.6170
-
The carrying amount of the consolidated entity’s foreign currency denominated financial assets and financial liabilities at
the reporting date were as follows:
Assets
Liabilities
2018
$’000
471
545
1,168
85
2,269
2017
$’000
-
-
-
94
94
2018
$’000
-
-
10,975
93
11,068
2017
$’000
-
-
-
72
72
Consolidated
US dollars
Canadian dollars
New Zealand dollars
Malaysian ringgit
52
NOTE 24: FINANCIAL INSTRUMENTS (CONT.)
The consolidated entity had net liabilities denominated in foreign currencies of $8,799,000 (assets of $2,269,000 less
liabilities of $11,068,000) as at 30 June 2018 (2017: net assets $22,000 (assets of $94,000 less liabilities of $72,000)).
Based on this exposure, had the Australian dollar weakened by 10% / strengthened by 10% (2017: weakened by 10% /
strengthened by 10%) against these foreign currencies with all other variables held constant, the consolidated entity’s
profit before tax for the year would have been $880,000 lower / $880,000 higher (2017: $2,000 higher / $2,000 lower) and
equity would have been $627,000 lower / $627,000 higher (2017: $2,000 higher / $2,000 lower). The percentage change
is the expected overall volatility of the significant currencies, which is based on management’s assessment of reasonable
possible fluctuations taking into consideration movements over the last 6 months each year and the spot rate at each
reporting date. The actual foreign exchange loss for the year ended 30 June 2018 was $307,000 (2017: gain of $98,000).
NOTE 25: DERIVATIVE FINANCIAL INSTRUMENTS
Forward foreign exchange contracts - cash flow hedges – current asset
Refer to note 26 for further information on fair value measurement.
NOTE 26: FAIR VALUE MEASUREMENT
Consolidated
2018
$000’s
Consolidated
2017
$000’s
470
886
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 - 2018
Assets
Derivative asset
Total assets
Consolidated - 2017
Assets
Derivative asset
Total assets
Level 1
$000’s
Level 2
$000’s
Level 3
$000’s
Total
$000’s
-
-
-
-
470
470
886
886
-
-
-
-
470
470
886
886
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.
53
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
NOTE 27: CONTROLLED ENTITIES
The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned
subsidiaries in accordance with the accounting policy described in note 2. The financial years of all controlled entities are
the same as that of the parent entity.
Country of
Incorporation
Class of
Shares
Equity
Holding
2018
Equity
Holding
2017
Direct Controlled Entities:
Pro-Pac Group Pty Ltd
Plastic Bottles Pty Ltd
PPG Services SDN BHD
Pro-Pac Finance Pty Ltd
Pro-Pac Finance (NZ) limited
Integrated Packaging Group Pty Ltd
Australia
Australia
Malaysia
Australia
New Zealand
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Controlled Entities owned 100% by Pro-Pac Group Pty Ltd
Pro-Pac Packaging (Aust) Pty Ltd
Pro-Pac (GLP) Pty Ltd
Australia
Australia
Ordinary
Ordinary
Controlled Entities owned 100% by Plastic Bottles Pty Ltd
Australian Bottle Manufacturers Pty Ltd
Bev-Cap Pty Ltd
Ctech Closures Pty Ltd
Specialty Products and Dispensers Pty Ltd
Australia
Australia
Australia
Australia
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
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Controlled Entities owned 100% by Bev-Cap Pty Ltd
Finpact Pty Ltd
Great Lakes Moulding Pty Ltd
Australia
Australia
Ordinary
Ordinary
Controlled Entities owned 100% by Integrated Packaging Group Pty Ltd
Goodstone International Pty Ltd
Integrated Packaging WA Pty Ltd
Integrated Recycling Pty Ltd
IP Canada Packaging Group Ltd
Australia
Australia
Australia
Canada
Controlled Entities owned 100% by Goodstone International Pty Ltd
Integrated Packaging Ltd (NZ)
Integrated Packaging Australia Pty Ltd
IP Americas Inc.
New Zealand
Australia
United States
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Controlled Entities owned 100% by Integrated Packaging Australia Pty Ltd
Australia
Integrated Machinery Pty Ltd
Ordinary
100%
100%
54
NOTE 27: CONTROLLED ENTITIES (CONT.)
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
Integrated Packaging Group Pty Ltd
Integrated Packaging WA Pty Ltd
Goodstone International Pty Ltd
Integrated Packaging Australia Pty Ltd
Integrated Machinery Pty Ltd
Integrated Recycling 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 2016/785 (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 21 and
Consolidated Statement of Financial Position presented on page 22. 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 28: COMMITMENTS AND CONTINGENCIES
Operating lease commitments – group as lessee
The Group has entered into commercial leases which are non-cancellable. The leases have varying terms, escalation
clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Renewals are at the option of the specific
entity that holds the lease.
The Group also leases various items of machinery under cancellable operating leases.
There are no restrictions placed upon the lessee by entering into these leases.
Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows:
Within one year
After one year but not more than five years
More than five years
Figures exclude GST
Consolidated
2018
$000’s
Consolidated
2017
$000’s
10,624
22,096
5,643
38,363
5,531
14,245
117
19,893
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:
55
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
2018
Minimum
payments
$000’s
2018
Present value
of payments
$000’s
2017
Minimum
payments
$000’s
2017
Present value
of payments
$000’s
NOTE 28: COMMITMENTS AND CONTINGENCIES (CONT.)
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
1,098
1,616
2,714
-
2,714
1,079
1,026
2,105
(135)
1,970
2018
$000’s
992
978
1,970
992
978
1,970
-
1,970
1,230
1,726
2,956
(242)
2,714
2017
$000’s
1,098
1,616
2,714
The weighted average interest rate implicit in the leases is 7.2%.
Contingent liability
As at statement of financial position date, the Company issued security deposit guarantees and standby letters of credits
to the value of $13,378,029 (2017: $5,749,389) to the landlords of rented premises and overseas suppliers.
Capital expenditure commitments
As at reporting date the company had commitments for future capital expenditure of $1,873,197.
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 27.
Transactions with related party
The Company or members of the Group have entered into the following agreements with the following related party.
All transactions to related parties are on an arms length basis.
56
Consolidated
2018
$000’s
Consolidated
2017
$000’s
7,195
7,322
7,477
7,975
28,060
15
2,063
25
65
-
65
3,907
7,385
4,480
8,533
-
-
1,803
435
625
515
110
NOTE 29: RELATED PARTY DISCLOSURE (CONT.)
Benammon Holdings controlled by major shareholder
– Total sales to Pact Group Ltd of companies
– Total purchases to Pact Group Ltd of companies
– Total receipts to Pact Group Ltd of companies
– Total payments to Pact Group Ltd of companies
Equity transactions during the year
– Allotment ex rights
– Securities purchase plan
– Distribution plan and allotment
Brandon Penn (resigned 16 February 2018)
– Remuneration paid (fees)
– Payments to Morrall Penn Holdings Pty Ltd and The Penn Morrall Partnership
for rental related to the Sydney and Brisbane properties (including GST)
- 9 Widemere Road, Wetherill Park, NSW
- Unit 15/129 Robinson Road, Geebung, QLD
NOTE 30: KEY MANAGEMENT PERSONNEL DISCLOSURE
Key management personnel at 30 June 2018
Ahmed Fahour
Elliott Kaplan
Rupert Harrington
Brandon Penn
Grant Harrod
Mark Saus
Executive Chairman (Non-Executive 1 August 2018)
Non-executive Director (resigned 31 August 2018)
Non-executive Director (appointed 6 November 2017)
Non-executive Director (resigned 16 February 2018)
Chief Executive Officer
Chief Financial Officer and Company Secretary
Total remuneration made to above key management personnel during the year ended 30 June 2018 was $1,474,081
(2017: $1,005,434). Details of remuneration made to above key management personnel are disclosed in the Directors’
Report on page 9.
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. For more details refer to the remuneration report as included in Directors’
Report.
57
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
NOTES TO THE
FINANCIAL STATEMENTS
For the Year ended 30 June 2018
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
2018
$’000
8,192
8,192
231
216,186
950
950
215,160
76
215,236
2017
$’000
7,715
7,715
8,415
99,440
1,222
1,222
98,194
24
98,218
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: BUSINESS COMBINATIONS
Significant acquisition made in the twelve months to 30 June 2018:
On 6 November 2017, the Company acquired the Integrated Packaging (IPG) business, a leading Australasian flexible
packaging manufacturer. The business has four flexible packaging production sites in Australia, one in New Zealand, and
various distributions sites across Australia, New Zealand, Canada and United States.
The acquisition price of $182.5 million was paid in cash and equity. As a result of this transaction, the Company recognised
$94.7 million of preliminary acquired net identifiable assets resulting in a preliminary goodwill of $87.9 million. A detailed
purchase price allocation will be completed before 31 October 2018.
The acquired business contributed revenues of $131.1 million and earnings before, abnormals, interest and tax of
$2.9 million to the consolidated entity for the period from 6 November 2017 to 30 June 2018. If the acquisition occurred
on 1 July 2017 the full year contributions would have been revenues of $209.4 million and earnings before abnormals,
interest and tax of $9.1 million.
58
Integrated Packaging Group
NOTE 32: BUSINESS COMBINATIONS (CONT.)
Trade and other receivables
Inventories
Property, plant and equipment
Deferred tax assets
Customer contracts
Brand names
Trade and other payables
Current tax liabilities
Current provisions
Non-current provisions
Fair value of net identifiable assets acquired
Add goodwill
Acquisition date fair value of total consideration transferred
Purchase consideration
Cash paid
Equity Issued
Total purchase consideration
Cash flows on acquisition
Cash consideration - paid
Net cash used
Acquisition costs expensed to profit or loss
Acquisition costs capitalised to equity
$000’s
57,513
49,113
13,351
10,709
1,400
21,472
(49,486)
(616)
(3,048)
(5,744)
94,664
87,851
182,515
119,940
62,575
182,515
119,940
119,940
1,406
1,482
NOTE 33: EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE
In July 2018, the Company acquired New Zealand based soft flexible packaging manufacturer and distributor PolyPak.
The Company has entered into agreement to also acquire Victorian based hard flexible manufacturer Perfection
Packaging, to be completed in September 2018.
The acquisitions are funded by a combination of: $9.96 million shares (Consideration Shares) issued to the vendors of Perfection
Packaging at an issue price of $0.39 per share, a $55.8 million fully underwritten placement of shares in two tranches at an
issue price of $0.34 per share (Placement) approved by shareholders at the EGM on 3 September 2018; and a $4.0 million fully
underwritten Share Purchase Plan (SPP) at an issue price of $0.34 per share (Placement and SPP together, Capital Raising).
NOTE 34: AUDITORS’ REMUNERATION
Amounts paid or due payable to UHY Haines Norton for:
– audit of the group’s financial report
– review of the group’s half-year financial report
Amounts paid or due payable to KPMG as component auditor for:
– audit of the Integrated Packaging Group subsidiaries
Consolidated
2018
$
Consolidated
2017
$
98,400
42,600
161,864
96,500
30,000
-
NOTE 35: 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 2018. The Group does not at this time believe these have any material impact on the 2018
financial report or for the ensuing year.
59
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
DIRECTORS’ DECLARATION
The directors of the company declare that:
1.
The financial statements and notes, as set out on pages 21 to 59, 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 2018 and of its performance for
the year ended on that date; and
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.
4.
In the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as
and when they become due and payable.
At the date of this declaration, there are reasonable grounds to believe that the entities that are party to the deed of
cross guarantee as described in note 27 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 20 September 2018.
Ahmed Fahour - AO
Chairman
Darren Brown
Director
60
INDEPENDENT
AUDITOR’S REPORT
To the Members of Pro-Pac Packaging Limited
Report on the Audit of the Financial Report
Opinion
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 2018, the consolidated statement of profit or
loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement
of cash flows for the year then ended, notes 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 2018 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, but we do not provide a separate opinion on these matters.
IMPAIRMENT ASSESSMENT FOR GOODWILL AND OTHER INDEFINITE LIFE INTANGIBLE ASSETS
Why a key audit matter
How our audit addressed the risk
As per note 13 of the Consolidated Financial Statements,
the intangibles balance as at 30 June 2018 was
$184.7 million (2017: $71.3 million).
We focused on this area because of:
– The significance of this asset to the Group’s consolidated
statement of financial position. The intangible asset
balance allocated to the two cash generating units
(CGUs)/ business segments represents approximately
43% of total assets; and
– The inherent uncertainty and subjectivity associated
with impairment testing due to the significant level of
judgement involved in estimating 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 2017 with
the actual results for 2017 to assess the Group’s accuracy
of forecasting. We applied skepticism to the current
forecast in areas where the previous forecast was not
achieved and/or where future uncertainty is greater or
volatility is expected;
61
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT
IMPAIRMENT ASSESSMENT FOR GOODWILL AND OTHER INDEFINITE LIFE INTANGIBLE ASSETS (CONT.)
Why a key audit matter (cont.)
How our audit addressed the risk (cont.)
–
–
–
We assessed the assumptions and methodology used
by management for the impairment test, in particular,
those assumptions relating to the discount rate and
EBITDA growth rates. To do this we:
– evaluated the appropriateness of 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;
– evaluated the underlying cash flow assumptions of
each CGU with reference to current year results and
expected customer pipelines and considered external
industry information and market data; and
– checked the calculations in the valuation model for
mathematical accuracy;
We performed a sensitivity analysis on all CGUs in key
areas being the discount rate, revenue growth and
terminal growth rate assumptions; and
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.
ACCOUNTING FOR BUSINESS COMBINATION
Why a key audit matter
How our audit addressed the risk
As per note 32 of the Consolidated Financial Statements,
the Group acquired the Integrated Packaging (IPG)
business in November 2017.
We focused on this area because of:
–
–
The significance of the business acquired. IPG
contributed revenue of $131.1M to Group revenue; and
The inherent uncertainty and subjectivity associated in
the determination of the fair values of the identifiable
assets acquired and liabilities assumed in the
transactions.
Our audit procedures included, amongst others:
–
–
–
–
We reviewed management’s process over the
determination of the appropriate accounting treatment
to be adopted for acquisition accounting to test its
compliance with the requirements of the accounting
standards;
We reviewed management’s processes for the selection
of the external valuers for the purpose of performing
a purchase price allocation, the determination of
the scope of work of the valuers, and the review
and acceptance of the external valuation report. We
evaluated the qualifications and competence of the
external valuers. We reviewed the terms of engagement
for the valuers to determine whether there were any
matters that might have affected their objectivity or
limited the scope of their work;
Where complete, we compared the valuation
methodologies and key assumptions used in deriving
these fair values to generally accepted market practices
and market data, and tested the integrity of the inputs
in the valuation to supporting documents; and
We assessed whether disclosures presented in the financial
report were in accordance with the audited balances and
as per the requirements of the accounting standards.
62
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 2018 was $371.7 million
(2017: $229.4 million).
We focused on revenue recognition because:
–
–
–
Revenue is an important measure used to evaluate the
performance of the company;
Of the 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 of the Company’s revenue
recognition accounting policies and its compliance with
the Australian accounting standards;
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 around the 2018 year end;
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 these
disclosures to our understanding of the matter and as
per the requirements of the accounting standards.
PROVISION FOR INVENTORY OBSOLESCENCE
Why a key audit matter
How our audit addressed the risk
As per note 11 of the Consolidated Financial Statements,
the provision for inventory obsolescence balance as at
30 June 2018 was $5,098,000 (2017: $489,000).
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 18 months. The Group’s policy
is to review inventory on a line by line basis and remove
‘dead stock’ from inventory and write it off completely,
and create a proportional write-down by way of a
provision on the remaining inventory items over 18
months. Thus, the obsolescence provision requires
significant judgement.
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; and
Performing net realisable value testing on a sample of
inventory items to assess whether these appeared to be
impaired.
63
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT
BORROWINGS
Why a key audit matter
As per note 17 of the Consolidated Financial
Statements, the bank loan balance as at 30 June 2018
was $95.3 million (2017: $25.5 million).
We focused on this area because:
–
–
–
The Group has significant borrowings with banks, which
have been used to fund acquisitions and the Group’s
working capital requirements.
As at 30 June 2018, the Group had a bank loan of $95.3M
representing approximately 46% of total liabilities; and
There is a risk that if the 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:
–
–
–
–
–
We obtained confirmations from the Group’s banks to
confirm all borrowings, including amounts and terms;
We assessed whether the loan balances were stated at
amortised cost in line with AASB 139;
We reviewed the Group’s compliance with the debt
covenants;
We assessed whether the classification of borrowings
between current and non-current was reasonable; and
Where debt is regarded as non-current, we tested
whether the Group has the unconditional right to defer
payment such that there were no repayments required
within 12 months from the balance date.
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 2018, 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: https://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor’s report.
64
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 6 to 10 of the directors’ report for the year ended
30 June 2018.
In our opinion, the Remuneration Report of Pro-Pac Packaging Limited for the year ended 30 June 2018, 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.
M.D. Nicholaeff
Partner
Sydney
25 September 2017
UHY Haines Norton
Chartered Accountants
65
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT 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 14 September 2018.
(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
Holders
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Totals
104
308
295
1,348
281
2,336
Total units
10,308
1,022,905
2,488,090
53,868,983
727,695,871
785,086,157
%
0.001
0.130
0.317
6.862
92.690
100.00
There are 183 holders of unmarketable parcels totalling 147,789 shares representing 0.01882% 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
1 BENNAMON PTY LTD
2 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
3 APC I PTY LTD
4 APC II PTY LTD
5 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
6 EQUITAS NOMINEES PTY LIMITED
7
J P MORGAN NOMINEES AUSTRALIA LIMITED
8 BNP PARIBAS NOMS PTY LTD
9 SELJAX PTY LTD
10 HYLMIC PTY LTD
11 BEACHLANE PTY LTD
12 MR JOHN JOSEPH CERINI
13 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
14 BNP PARIBAS NOMINEES PTY LTD
15 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSI EDA
16 WILBOW GROUP PTY LTD
17 MR ALASTAIR SPIERS & MRS UNA SPIERS
18 MS PATSY SEOW LEE CH’NG
19 AKAT INVESTMENTS PTY LIMITED
20 SONHILL INVESTMENTS PTY LTD
Number
354,196,803
66,578,664
44,843,139
44,843,139
23,981,155
23,929,608
22,195,886
14,124,478
12,769,231
12,769,231
10,600,000
9,865,214
8,467,400
3,016,176
2,416,666
2,306,523
1,600,000
1,315,356
1,250,000
1,205,517
%
45.12%
8.48%
5.71%
5.71%
3.05%
3.05%
2.83%
1.80%
1.63%
1.63%
1.35%
1.26%
1.08%
0.38%
0.31%
0.29%
0.20%
0.17%
0.16%
0.15%
Total Securities of Top 20 Holdings
661,970,148
84.32%
66
(c) Substantial shareholders
The names of substantial shareholders who have notified the Company in accordance with Section 671B of the
Corporations Act 2001 are:
Holder
Bennamon Pty Limited
Investors Mutual
APC I PTY LTD
APC II PTY LTD
(d) Voting rights
All ordinary shares carry one vote per share without restriction.
(e) Restricted securities
Restricted securities total 16,810,000 as outlined below:
ESPP shares under escrow until 6 October 2018
ESPP shares under escrow until 29 November 2020
Total restricted securities
Number (Ordinary shares)
354,196,803
65,237,176
44,843,139
44,843,139
1,900,000 ESPP shares
14,910,000 ESPP shares
16,810,000 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.
67
PRO-PAC PACKAGING LIMITED + CONTROLLED ENTITIES2018 ANNUAL REPORT
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Pro-Pac Packaging Limited
Building 1, 147 - 151 Newton Road
Wetherill Park NSW Australia 2164
T
F
(02) 8781 0500
(02) 8781 0599
E
info@ppgaust.com.au
W www.ppgaust.com.au
Design - Kettle of Fish Design