P R O - PAC
PAC K AG I N G L IM I T E D
A N N U A L R E P O R T 2 0 1 9
CONTENTS
CORPORATE INFORMATION ...................................................................... 1
CHAIRMAN’S REPORT ................................................................................ 2
DIRECTORS’ REPORT ................................................................................. 3
REMUNERATION REPORT........................................................................ 14
AUDITOR’S INDEPENDENCE DECLARATION ........................................... 21
CORPORATE GOVERNANCE STATEMENT ............................................... 22
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ................ 34
CONSOLIDATED STATEMENT OF FINANCIAL POSITION ........................ 35
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ........................ 36
CONSOLIDATED STATEMENT OF CASH FLOWS ..................................... 37
NOTES TO THE FINANCIAL STATEMENTS .............................................. 38
DIRECTORS’ DECLARATION .................................................................... 78
INDEPENDENT AUDITOR’S REPORT ........................................................ 79
ADDITIONAL COMPANY INFORMATION .................................................. 85
CORPORATE INFORMATION
ACN 112 971 874
ABN 36 113 971 874
DIRECTORS
BANKERS
Jonathan Ling (Chair appointed 8 April 2019)
Rupert Harrington
Darren Brown (appointed 2 July 2018)
Marina Go (appointed 1 August 2018)
Leonie Valentine (appointed 1 August 2018)
Tim Welsh (appointed 28 May 2019)
Ahmed Fahour (resigned 30 June 2019)
Elliott Kaplan (resigned 31 August 2018)
COMPANY SECRETARY
Kathleen Forbes (appointed 17 October 2018)
Mark Saus (resigned 14 September 2018)
REGISTERED OFFICE
83-85 Banbury Road,
Reservoir VIC 3073
Phone: +61 3 9474 4200
PRINCIPAL PLACE OF BUSINESS
83-85 Banbury Road,
Reservoir VIC 3073
SHARE REGISTER
Boardroom Limited
Level 12, 225 George Street
Sydney NSW 2000
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
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000
STOCK EXCHANGE LISTING
Australian Securities Exchange (ASX:PPG)
WEBSITE
www.ppgaust.com.au
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 1
CHAIRMAN’S REPORT
Dear Shareholders,
As recently appointed Chair, and on behalf of your
Board of Directors of Pro-Pac Packaging Limited (the
‘Company’ or ‘Pro-Pac’), I am pleased to present to you
our 2019 Annual Report.
The result of the strategic review will enable Pro-Pac to
emerge as a leading manufacturer and distributor of
specialised and diversified packaging products with a
focus on flexible, industrial and rigid packaging.
A year of significant change
Refreshed Board
I was appointed Chair on 8 April 2019 and would like to
take this opportunity to thank outgoing Chair, Ahmed
Fahour, for his significant contribution to the Company
over the past few years. Darren Brown, Marina Go and
Leonie Valentine have all joined the Board since July
2018, expanding the skills and experiences of your
Board to meet the changing needs of the Company.
New Senior executive team
Tim Welsh joined the Company in May 2019 as our
Managing Director and Chief Executive Officer. We are
delighted to secure Tim’s services given his significant
manufacturing and packaging experience.
Tim joins new senior executives including Rick Rostolis,
Chief Financial Officer, Preevy Sackville, General
Manager, Procurement and Andrew Harris, General
Manager, Flexibles. All appointments are highly
experienced executives, substantially strengthening the
leadership capability of our Company.
Dividends
In light of current high levels of gearing and the need
to fund much-needed integration activities, no final
dividend was determined by the Board. Restoring the
business to a sustainable level of profitability is our key
priority in order to provide long-term shareholder value.
Thank you
On behalf of the Board of Directors, I would like to thank
our shareholders for their on-going support together
with our customers, suppliers and other stakeholders.
I would also like to thank our leadership team and
employees for their continued hard work and support of
our Company.
Jonathan Ling
Chairman
Pro-Pac continues to undergo substantial change as it
transitions from a distributor of general packaging, to a
manufacturer and distributor of value-add packaging
products and solutions to higher-growth segments of
the market.
The November 2017 acquisition of
Integrated
Packaging, and the recently acquired PolyPak and
Perfection Packaging businesses, has provided the
Company with an opportunity to become a market
leader in flexible packaging.
Over time, this strategy will transform your Company
into a more resilient and diverse business with an
established platform for future growth.
FY19 financial summary
Pro-Pac announced revenue of $486 million and EBITDA
(before significant items) of $28.1 million, which was in
line with our June 2019 guidance.
FY19 saw moderate sales growth in our Rigid packaging
business contrasted by weaker sales in both our
Industrial and Flexible packaging operations. The
adverse movement in FX and higher raw material costs
impacted operating margins.
The Company declared a statutory loss after tax of $151
million. This result included significant expense items of
$159 million (including non-cash goodwill impairment
losses of $149 million). This trading result, which led to
the goodwill impairment, primarily reflected the less
than expected earnings arising from the acquisition of
Integrated Packaging.
Both the Board and management are focused on the
identification and execution of integration initiatives
following recent acquisitions and the extraction of
operational efficiencies in order to improve earnings.
Pleasingly, our working capital reduction program led to
a significant decrease in our net debt of $18.4 million to
$82.9 million as at 30 June 2019, while our operating
cash flow conversion for the year was 114.6%.
Strategic imperatives
The Company is embarking on a strategic review to
facilitate the transformation of the business to become
a leader in the packaging market. This transformation
will be led by a new management team and a refreshed
Board with vast experience across ASX and packaging
& industrial environments.
Profit improvement plans including a business and
product portfolio review, extraction of integration
synergies, and strategic sourcing opportunities,
underpin the strategic review.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 2
DIRECTORS’ REPORT
The Directors present their report on Pro-Pac Packaging Limited (the ‘Company’) and the entities it controlled (the
‘Group’) during the year ended 30 June 2019.
DIRECTORS
The Directors in office at the date of this report are set out below. Directors were in office for the entire period unless
otherwise stated.
Jonathan Ling B Engineering (Mechanical), MBA
(Non-Executive Chair – appointed 8 April 2019)
Mr Ling has extensive experience in complex manufacturing businesses. He was previously Managing Director and CEO
of GUD Holdings Limited, a diversified ASX listed company with a market capitalisation of c.$1.3 billion, a role he held
for 6 years. Prior to that, Mr Ling was Managing Director and CEO of Fletcher Building Limited, a manufacturer of
construction and building materials, listed on both the ASX and NZX. He has also held senior management roles with
Austrim, Nylex, Visy Recycling and Pacifica.
Mr Ling is currently a Non-Executive Director of Pact Group Limited and has previously served on the Boards of Melbourne
Rebels Rugby Union as Chair, Pacific Brands Limited and ASB Bank Limited.
Rupert Harrington MSc, B Tech, CDipAF, MAICD
(Non-Executive Director – appointed 6 November 2017)
Mr Harrington is an experienced company Director with over 30 years’ experience as a Non-Executive Director of
companies operating in manufacturing, industrial services, health and technology.
Mr Harrington is currently Non-Executive Chair of Advent Partners, a mid-market Australian Private Equity, Non-
Executive Chair of Clover Corporation Limited (ASX: CLV), Director of Integral Diagnostics Limited (ASX: IDX) and was
previously a Director of Bradken Limited.
Darren Brown B Business, Grad Dipl Fin & Investment, CA
(Non-Executive Director – appointed 2 July 2018)
Mr Brown is an experienced finance and business professional, with a career spanning over 30 years in a variety of
commercial and financial roles. He has significant packaging industry experience gained over several years as Chief
Financial Officer of publicly listed Pact Group Holdings Limited, Southcorp Packaging and Amcor.
Mr Brown is currently Commercial Director at Kin Group.
Mr Brown is the Chair of the Audit, Business Risk and Compliance Committee.
Marina Go B Arts (Mass Communication), Exec MBA, MAICD
(Non-Executive Director – appointed 1 August 2018)
Ms Go is currently a Non-Executive Director of 7-Eleven, Energy Australia and Autosports Group and she is currently
Chair of the Super Netball Commission and Ovarian Cancer Australia. She is also a Director of the PwC Diversity Advisory
Board. Ms Go's executive career includes over 20 years’ experience in branding, marketing, digital technologies and
change leadership in the media industry. Ms Go was previously Country CEO for The Hearst Corporation and held a
variety of senior positions with Fairfax, Private Media, Pacific Magazines and EMAP Australia.
Ms Go is the Chair of the Remuneration and Nomination Committee.
Leonie Valentine B Science, M Arts (Communication), BSc, 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. Ms Valentine
is currently Managing Director, Sales & Operations of Google Hong Kong, having originally joined Google in 2014 as
APAC Director of Customer Experience.
Prior to joining Google, Ms Valentine was Executive Vice President, Customer Service & Operations at CSL Limited.
Earlier, she held the position of Chief of Staff Telstra International Group and was a member of the executive leadership
team charged with managing Telstra Corp’s business growth and assets outside of Australia and New Zealand.
Ms Valentine is currently a board member of Interactive Advertising Bureau (IAB: HK), Save the Children (HK), a
Governor for the American Chamber of Commerce HK, as well as an advisor to CUHK's EMBA Program. She actively
supports The Women’s Foundation in Hong Kong, serving on the Women on Boards Advisory Panel (30% Club) and the
Girls Go Tech Advisory Committee from 2014-2016.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 3
DIRECTORS’ REPORT
Tim Welsh B Manufacturing Technology, GAICD
(Managing Director and Chief Executive Officer – appointed 28 May 2019)
Mr Welsh is the Managing Director and Chief Executive Officer. He has extensive management experience gained at PPG
Industries, a NYSE listed global manufacturer, where he was Australian and New Zealand Vice President and General
Manager, Architectural Coatings. During his career with PPG Industries, Mr Welsh also held the roles of Manufacturing
and Supply Chain Director, and Operations Manager. In addition, he has held operational management roles at Aperio
Group, Detmold Packaging and Arnott’s Snackfoods.
Ahmed Fahour B Econ, MBA
(Non-Executive Chairman – appointed 1 August 2018, resigned 7 April 2019, Executive Chairman – appointed 27 October
2017, resigned 31 July 2018, Non-Executive Chairman – appointed 25 November 2014, resigned 26 October 2017, Non-
Executive Director – appointed 28 March 2014, resigned 30 June 2019)
Elliott Kaplan B. Acc, CA
(Non-Executive Director – appointed Director 1 March 2005, resigned 31 August 2018)
INTERESTS IN THE SHARES, RIGHTS AND OPTIONS OF THE COMPANY
The interests of the Directors in the shares, performance rights and share options of the Company are set out in the
Remuneration Report.
COMPANY SECRETARY
Kathleen Forbes B Arts, B LLB
(Company Secretary and General Counsel - appointed 17 October 2018)
Ms Forbes has over 20 years of legal and company secretarial experience. Her past roles include General Counsel and
Company Secretarial roles with ASX listed company Corporate Express Australia Limited and General Counsel at ASX
listed Salmat Limited. She started her career at national law firm Clayton Utz where she spent 5 years. Kathleen is
admitted as a solicitor of the NSW Supreme Court.
DIVIDENDS
The dividends paid or declared during the year up to the date of this report were as follows:
Final dividend for the previous year
Interim dividend for the current year
Dividends declared and paid during the year
Proposed but not recognised final dividend
PRINCIPAL ACTIVITIES
Cents/
share
1.0
0.0
1.0
0.0
$’000
7,573
-
7,573
-
The principal activities of the Group 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.
OPERATING AND FINANCIAL REVIEW
To assist in the evaluation of the financial performance of the Group, certain measures are used that are not recognised
under the Australian Accounting Standards or International Financial Reporting Standards (‘IFRS’) and therefore, these
are considered to be non-IFRS measures.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 4
DIRECTORS’ REPORT
Non-IFRS measures
This report includes the following non-IFRS measures:
• EBIT represents profit/(loss) before net finance costs, income taxes and significant items.
• EBITDA represents EBIT before depreciation and amortisation expenses.
• Significant items are identified as favourable or unfavourable transactions which are outside of normal operating
activities and are excluded from the segment results presented to the chief operating decision-maker for the
purpose of resource allocation and assessment of segment performance.
• Net Debt is calculated as interest-bearing liabilities, less cash and cash equivalents.
• Gearing is calculated as Net Debt divided by rolling 12-months EBITDA (adjusted for material acquisitions).
Although the Directors believe that these measures provide useful information about the financial position and
performance of the Group, they should be considered to be supplementary to the statement of comprehensive income
and statement of financial position presented in accordance with Accounting Standards. As these non-IFRS measures
are not defined in the Accounting Standards, the way the Group may calculate these measures may differ from similarly
titled measures used by other companies.
Financial performance
Revenue
Expenses
EBITDA
EBITDA margin
Depreciation and amortisation
EBIT
EBIT Margin
Significant items (before tax)
EBIT/(Loss)
Net finance costs
Income tax (expense)/benefit
Income tax benefit on significant items
Statutory NPAT/(Loss)
30 June
2019
30 June
2018
Change
%
485,810
457,727
28,083
5.8%
9,336
18,747
3.9%
(163,329)
(144,582)
(8,081)
(2,970)
4,299
371,455
355,142
16,313
4.4%
5,910
10,403
2.8%
(11,671)
(1,268)
(5,069)
(2,289)
3,501
30.8
28.9
72.2
1.4bps
(58.0)
80.2
1.1bps
n/a
n/a
(59.4)
(29.8)
22.8
(151,334)
(5,125)
n/a
_________________
EBITDA, EBIT and NPAT are non-IFRS financial measures and have not been subject to audit by the Company’s
external auditor.
Revenue
Sales revenue of $485.8 million increased by 30.8% ($114.3 million) compared to the previous corresponding period
(pcp), primarily due to:
• An incremental four-months sales revenue of $77.6 million from the 6 November 2017 acquisition of Integrated
Packaging Group Pty Limited (IPG);
• Twelve-month’s revenue of $15.0 million from the 1 July 2018 acquisition of the assets of Polypak Plastics Limited
(Polypak); and
• Ten-month’s revenue of $41.7 million from the 1 September 2018 acquisition of 100% of the units in the Perfection
Packaging Unit Trust (Perfection Packaging).
Excluding the contribution from recent acquisitions, sales revenue was down $20.0 million when compared to the pcp
with Rigid packaging delivering moderate sales volume growth while Industrial packaging suffered from a downturn in
market conditions (primarily relating to a decrease in sales within the food segment) in the second half of the year.
Flexibles packaging sales were impacted by weaker than anticipated sales to the agricultural sector of the market due
to drought conditions.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 5
DIRECTORS’ REPORT
EBITDA and EBIT
Group EBITDA of $28.1 million was 72.2% ahead of the pcp, with a solid contribution from recent acquisitions and Rigid
packaging offset by the negative impact on the Flexibles business of higher raw material and energy costs and adverse
foreign exchange movements. The Industrial packaging business’ second-half result was impacted by decreased sales
and margin primarily in relation to the food segment of the market.
EBITDA margin of 5.8% was 1.4 bps better than the pcp due to higher margins from recent acquisitions and improved
operational effectiveness and cost control across the business.
EBIT of $18.8 million for the year was 80.2% higher than the pcp notwithstanding additional depreciation and
amortisation from acquisitions.
Significant Items
Pre-tax significant items for the year were a net expense of $163.3 million. This included goodwill impairment ($149.0
million), acquisition and integration costs ($10.5 million) primarily relating to the acquisitions of IPG (2018), Polypak
and Perfection Packaging, and business interruption costs ($3.9 million) including the June 2019 Kewdale, WA site fire.
The pre-tax significant items of $11.7 million in the prior year related to discontinued and redundant inventory lines
($3.4 million), onerous leases and exit costs ($2.6 million), and acquisition and integration costs ($5.6 million).
The Group has insurance that covers it for losses incurred with respect to the fire in Kewdale WA, and is in the process
of finalising its claim with the insurance provider. No amounts have been recognised in respect of monies which may
be recoverable as the outcome of the claim is yet to be determined.
Net Finance Costs
Net finance costs for the year of $8.1 million were $3.0 million higher than the pcp. The increase in net finance costs
primarily related to higher average net debt as a result of funding acquisitions, and seasonal working capital
requirements in the first half of the year.
Balance sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Net debt* (included in assets and liabilities above)
30 June
2019
$’000
30 June
2018
$’000
Change
%
202,445
135,586
338,031
103,791
99,147
191,486
235,834
427,320
111,646
95,568
202,938
207,214
5.7
(42.5)
(20.9)
7.0
(3.7)
(2.1)
135,093 220,106
(38.6)
82,937
101,258
18.1
* Net debt as at 30 June 2018 has been restated to include the reclassification of trade finance from trade and other
payables to interest-bearing liabilities of $7.2 million.
The Group has a debt and working capital facility with total commitments of $100.4 million. The maturity date for the
facility is 2 November 2020.
Net debt at the end of the financial year was $82.9 million, a reduction of $18.4 million compared to the pcp. The
reduction in net debt was primarily achieved through an inventory reduction program across the Flexibles packaging
business, cash flows from operations and the proceeds of a capital raising.
Despite challenging macroeconomic conditions, the Group demonstrated disciplined management of inventories and
general working capital during the second-half of the financial year.
The increase in the Group’s current assets of $11.0 million relates primarily to receivables and inventories held by
newly acquired businesses. The non-current assets of the Group have been impacted by a non-cash goodwill
impairment of $149.0 million.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 6
DIRECTORS’ REPORT
Financing metrics
Gearing
Interest cover
30 June
2019
30 June
2018
2.8x
4.6x
3.8x
4.5x
As at 30 June 2019, gearing was 2.8x, an improvement from 3.8x in the pcp, driven by a combination of EBITDA growth
and lower net debt.
Cash flows
Net cash flows from operating activities
Payments for property, plant and equipment
Payments for businesses and controlled entities, net of cash acquired
Payments of dividends
Net proceeds from share issue
30 June
2019
$’000
30 June
2018
$’000
Change
%
15,767
(6,211)
(46,128)
(2,350)
58,740
2,207
(13,549)
(122,701)
(4,537)
53,320
614.4
54.2
62.4
48.2
10.2
Statutory net cash flows from operating activities was $15.8 million in 2019, $13.6 million higher than the pcp. Higher
underlying operating cash flows were achieved primarily due to the inventory reduction program that was implemented
across the Flexibles packaging business.
Operating cash flow conversion for the year was 114.6%.
Payments for property, plant and equipment were $6.2 million in the financial year compared to $13.5 million in the
pcp. The decrease of $7.3 million reflects lower capital expenditure throughout the Group following the recent
acquisitions, and tighter controls over non-core capital expenditure.
Payments for the acquisition of businesses and controlled entities, net of cash acquired in 2019 was $46.1 million. This
included $40.6 million for the acquisition of 100% of the units of Perfection Packaging (in addition to $10.0 million in
shares issued) and $5.5 million for the acquisition of the business assets of Polypak (excluding contingent consideration
of up to $0.8 million which may be paid in 2020).
Other key cash flows during the year were the receipt of net proceeds from the share issue completed in the first half
of the year of $58.7 million and an ordinary dividend payment of $2.4 million.
REVIEW OF OPERATING SEGMENTS
Flexibles Packaging
Revenue
EBITDA
EBITDA margin
Reconciliation from consolidated financial statements
Reported EBITDA
Add back: significant items
EBITDA
30 June
2019
$’000
30 June
2018
$’000
Change
%
271,132
18,804
6.9%
150,177
5,587
3.7%
80.5
236.6
3.2bps
30 June
2019
$’000
30 June
2018
$’000
(103,075)
121,879
18,804
2,696
2,891
5,587
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 7
DIRECTORS’ REPORT
Sales revenue in the Flexibles operating segment increased by $121.0 million, due to:
• An incremental four-months sales revenue of $77.6 million from the 6 November 2017 acquisition of IPG;
• Twelve-month’s revenue of $15.0 million from the 1 July 2018 acquisition of the assets of Polypak; and
• Ten-month’s revenue of $41.7 million from the 1 September 2018 acquisition of Perfection Packaging.
Excluding the contribution from recent acquisitions, sales revenue was down $13.3 million when compared to the pcp.
In particular, earnings were negatively impacted by weaker than anticipated sales to the agricultural sector of the
market due to drought conditions.
In addition, gross margins were impacted by higher input costs (such as resin and energy costs) and adverse foreign
exchange movements.
Industrial Packaging
Revenue
EBITDA
EBITDA margin
Reconciliation from consolidated financial statements
Reported EBITDA
Add back: significant items
EBITDA
30 June
2019
$’000
30 June
2018
$’000
Change
%
152,591
3,660
2.4%
160,185
6,004
3.7%
(4.7)
(39.0)
(1.3bps)
30 June
2019
$’000
30 June
2018
$’000
(36,550)
40,210
3,660
(959)
6,963
6,004
Sales revenue in the Industrial packaging business decreased by $7.6 million, primarily due to a reduction in customer
demand (in particular, from sales within the food segment of the market) in the New South Wales and Victorian
businesses. In addition, the relocation of the Victorian business’ warehouse facilities caused a short-term increase in
operating costs during the second-half of the year.
Rigid Packaging
Revenue
EBITDA
EBITDA margin
Reconciliation from consolidated financial statements
Reported EBITDA
Add back: significant items
EBITDA
30 June
2019
$’000
30 June
2018
$’000
Change
%
62,087
6,635
10.7%
61,063
5,222
8.6%
1.7
27.1
2.1bps
30 June
2019
$’000
30 June
2018
$’000
5,394
1,241
6,635
3,405
1,817
5,222
Sales revenue in the Rigid operating segment increased by $1.0 million due to higher sales volume while earnings were
positively impacted by operational improvements despite increased input costs.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 8
DIRECTORS’ REPORT
OTHER SIGNIFICANT EVENTS
On 1 July 2018, the Group acquired the assets of the New Zealand based Polypak for $6.3 million (as adjusted for
working capital). Polypak is a specialist soft flexibles packaging manufacturer and distributor of high-quality polythene
bags, films and tubes which are supplied to primary food processors and a range of general packaging customers. The
business is based in Glenfield, Auckland.
The cash transaction was structured as follows:
• 80% cash upfront ($4.7 million) after working capital adjustments, and
• 20% contingent consideration based on meeting certain performance criteria ($1.6 million).
In December 2018, the Group paid $0.8 million to the former owners of Polypak in satisfaction of the business meeting
the first of two performance hurdles.
On 1 September 2018, the Group acquired 100% of the units in Perfection Packaging for $50.6 million. Perfection
Packaging offers a range of hard flexible packaging solutions and focuses on customers in the fast-moving consumer
goods market.
The transaction was structured as follows:
• $40.6 million in cash, after working capital adjustments, and
• $10.0 million in shares.
The Polypak and Perfection Packaging acquisitions were partly funded by a capital raising of $58.7 million (net proceeds)
in the first half of the year.
OVERVIEW OF BUSINESS STRATEGY
The Group’s primary strategy is to maximise long-term shareholder value. The Group seeks to deliver long-term
shareholder value through:
• Organic growth - by improving the base (core) business and growing organically over the longer term:
o Strategic review to facilitate transformation of the Group into a resilient and diverse business with the objective
of becoming a leader in flexible, industrial and rigid packaging;
• Operational efficiency - by driving improved cost efficiencies and net working capital through policies, processes,
automation and integration of like activities; and
•
Inorganic growth - growth through earnings-per-share accretive acquisitions in existing and adjacent market
segments.
BUSINESS RISKS
There are various internal and external risks that may have a material impact on the Group’s future financial performance
and economic sustainability. The Group makes every effort to identify material risks and to manage these effectively.
Material risks include:
Credit Risk
Trade and related party receivables are considered to be the main source of credit risk; however, the Group does not
have a concentration of credit risk with respect to any single counterparty or group of counter-parties, which mitigates
the risk of significant losses of default.
The Group has policies in place to ensure that customers who trade on credit terms are subject to credit verification
procedures. Amounts are considered as ‘past due’ when the debt has not been settled within the credit terms and
conditions as agreed between the Group and the customer or counter-party to the transaction. Amounts past due are
assessed for impairment by ascertaining the solvency of debtors and are provided for where there are specific
circumstances indicating that the debt may not be fully repaid to the Group.
Commodity Risk
The Group is exposed to commodity price risk in relation to certain raw materials, specifically resin. In managing this
risk, the Group passes on changes in commodity prices to customers, including through contractual rise and fall
adjustments, where possible.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 9
DIRECTORS’ REPORT
Foreign Currency Risk
As a result of its international activities, the Group is exposed to changes in foreign exchange rates on sales and
purchases. In order to mitigate foreign currency risk, the Group regularly determines its net exposure to the primary
currencies it trades in based on actual sales and purchases and in some cases enters into foreign currency forward
contracts to hedge these exposures.
Liquidity Risk
The Group’s objective is to maintain a balance between:
• Continuity of funding and flexibility through the use of bank loans, trade finance, finance leases and hire purchase
arrangements; and
•
Investment in strategic growth opportunities.
The Group manages liquidity risk through cash flow forecasting.
Interest Rate Risk
Bank loans are the main sources of interest rate risk because the interest rate is floating whereas interest payable on
trade finance, hire purchase and finance lease liabilities are fixed for the term of the arrangement.
Interest earned on cash and cash equivalents is not significant.
The composition of the Group’s funding is considered annually to ensure applicable interest rates are competitive and
reflective of the Group’s future funding requirements.
Loss of People
The Company’s senior executives are instrumental in implementing the Group’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.
Environmental Risk
The Group’s activities have a level of environmental risk, particularly the manufacturing sites that utilise flammable
and toxic materials.
Mergers and Acquisition Risk
The Group’s strategy contemplates complementary acquisitions, which involve a risk during due diligence, negotiation,
integration and execution.
OUTLOOK
The Group expects to achieve an increase in EBITDA (before significant items) in 2020, subject to macroeconomic
conditions.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
As mentioned above, the Group acquired Perfection Packaging and Polypak during the year. There were no other
significant changes in the state of affairs of the Group during the year.
SIGNIFICANT EVENTS SUBSEQUENT TO BALANCE DATE
There has not been any matter or circumstance that has arisen since the end of the financial period that has significantly
affected or may significantly affect the operations of the Group, the results of the operations or the state of affairs of
the Group in future years.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
The Group is focused on identifying higher-value packaging solutions, reducing working capital and strengthening its
balance sheet to provide it with a solid foundation for organic and inorganic growth in the medium-term. The Company
continues to evaluate and integrate businesses acquired in recent years, with the extraction of projected synergies being
a key area of focus for the senior executives.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 10
DIRECTORS’ REPORT
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Group is committed to environmental sustainability and ethical standards. This is built around the Group’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 continual improvement.
The Group is a signatory to the Australian Packaging Covenant. As a signatory, the Group is committed to providing
industry sustainable solutions for packaging handled by its business activities. The Group’s commitment is published on
the Australian Packaging Covenant’s website (www.packagingcovenant.org.au) and is available on the Group’s website.
In addition, the Group 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 Group is a member of Sedex and Business Social Compliance Initiative (‘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 Group is compliant with all applicable Australian Standards, National Codes, State Legislation, and Local Council
Guidelines.
The Group seeks to meet its social responsibility to the community and its shareholders and continues to strive to
improve its processes and performance for a sustainable future.
The Directors are not aware of any breaches of environmental regulations or site-specific licenses during the year ended
30 June 2019 or subsequent to balance date.
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
The Company has entered into a deed of access, indemnity and insurance with each of the Directors, under which the
Company has agreed to:
• continue to provide the Directors with access to certain relevant information after they cease to be Directors;
•
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.
INDEMNIFICATION AND INSURANCE OF AUDITORS
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms
of its audit engagement agreement, against claims by third parties arising from the audit (for an unspecified amount).
No payment has been made to indemnify Ernst & Young during the year ended 30 June 2019 or subsequent to balance
date.
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.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 11
DIRECTORS’ REPORT
MEETINGS OF DIRECTORS
The number of meetings of Directors (including meetings of Committees of Directors) held during the year ended 30
June 2019 and the number of meetings attended by each Director were as follows:
Board
of Directors
Audit, Business
Risk & Compliance
Committee
Remuneration
& Nomination
Committee
Number of
meetings
held while
in office
Number of
meetings
attended
Number of
meetings
held while
in office
Number of
meetings
attended
Number of
meetings
held while
in office
Number of
meetings
attended
Note
Jonathan Ling
Darren Brown
Marina Go
Rupert Harrington
Leonie Valentine
Ahmed Fahour
Tim Welsh
Elliott Kaplan
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
3
11
11
11
11
11
1
1
3
11
10
11
10
9
1
1
-
10
7
10
-
-
-
3
-
10
7
9
-
-
-
3
-
-
3
1
3
2
-
-
-
-
3
1
3
2
-
-
(a) Mr Ling was appointed to the Board of Directors as Chair on 8 April 2019.
(b) Mr Brown was appointed to the Board of Directors and as a member of the Audit, Business Risk & Compliance
Committee on 2 July 2018. Mr Brown was appointed as Chair of the Audit, Business Risk & Compliance Committee
on 23 August 2018.
(c) Ms Go was appointed to the Board of Directors and as a member of the Audit, Business Risk & Compliance
Committee and Remuneration & Nomination Committee on 1 August 2018. Ms Go was appointed as Chair of the
Remuneration & Nomination Committee on 27 May 2019.
(d) Mr Harrington was appointed as a member of the Remuneration & Nomination Committee on 27 May 2019.
(e) Ms Valentine was appointed to the Board of Directors and as a member of the Remuneration & Nomination
Committee on 1 August 2018.
(f) Mr Fahour was Chair of the Remuneration & Nomination Committee until 27 May 2019. He resigned from the Board
of Directors on 30 June 2019.
(g) Mr Welsh was appointed to the Board of Directors as Managing Director on 28 May 2019.
(h) Mr Kaplan resigned as Chair of the Audit, Business Risk & Compliance Committee and as a member of the
Remuneration & Nomination Committee on 23 August 2018 and resigned from the Board of Directors on 31 August
2018.
The Remuneration and Nomination Committee was formerly known as the People Innovation and Culture Committee.
ROUNDING
The amounts contained in the Annual Report have been rounded to the nearest $1,000 (where rounding is applicable)
where noted ($‘000) under the option available to the Company under ASIC Corporations (Rounding in
Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which this Instrument applies.
REMUNERATION REPORT
The Directors present the Company’s Remuneration Report, which has been audited by Ernst & Young, on page 14 of
the Annual Report.
AUDITOR INDEPENDENCE DECLARATION
The auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 for the year ended
30 June 2019 has been received and can be found on page 21 of the Annual Report.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 12
DIRECTORS’ REPORT
NON-AUDIT SERVICES
The following non-audit services were provided by the Company’s auditor, Ernst & Young. The Directors are satisfied
that the provision of non-audit services is compatible with the general standard of independence for auditors imposed
by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor
independence was not compromised.
Ernst & Young received or are due to receive the following amounts for the provision of non-audit services:
Assurance related services
Tax compliance services
Advisory services
Non-audit services
$’000
157
34
-
191
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 in Melbourne on 27 August 2019.
Jonathan Ling
Chairman
Tim Welsh
Managing Director & CEO
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 13
REMUNERATION REPORT (AUDITED)
REMUNERATION POLICY
The performance of Pro-Pac Packaging Limited (the ‘Company’) and its controlled entities (the ‘Group’) depends upon
the quality of its Directors and senior executives. To prosper, the Company must attract, motivate and retain highly
skilled Directors and senior executives.
The Remuneration and Nomination Committee (the ‘Committee’) comprises Ms Marina Go (appointed to the Committee
1 August 2018 and as Chair on 27 May 2019), Ms Leonie Valentine (appointed 1 August 2018) and Rupert Harrington
(appointed 27 May 2019) who are Non-Executive Directors. Mr Ahmed Fahour resigned as Chair and a member of the
Committee on 27 May 2019.
The Committee assesses the appropriateness of the nature and amount of remuneration of Directors and senior
executives 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 senior executives are set out in this Remuneration Report.
This Remuneration Report forms part of the Directors’ Report and has been audited in accordance with Section 300A of
the Corporations Act 2001.
In accordance with best practice corporate governance, the structure of Non-Executive Director and Executive Director
remuneration is separate and distinct.
COMPANY PERFORMANCE
Table 1: The table below sets out information about the Company’s earnings and movements in shareholder wealth for
the past five years up to and including the current financial year.
Measure
Net profit after tax ($’000)
Share price at balance date ($)
Basic earnings per share (cents)
Total dividends per share (cents)
30 June
2019
30 June
2018
30 June
2017
30 June
2016
30 June
2015
(151,334)
0.115
(19.56)
0.00
(5,125)
0.370
(1.15)
2.00
5,016
0.359
2.11
2.00
6,938
0.405
3.01
2.75
5,842
0.395
2.60
2.50
INTERESTS IN THE SHARES, RIGHTS AND OPTIONS OF THE COMPANY
The interests of the Directors’ interests in the shares of the Company are as follows:
Darren Brown
Rupert Harrington
Leonie Valentine
Ordinary
Shares
No.
496,138
4,449,881
90,000
The Directors’ do not have any interests in performance rights or share options of the Company.
NON-EXECUTIVE DIRECTOR REMUNERATION
The Company seeks to set aggregate remuneration at a level which provides it with the ability to attract, retain and
motivate Non-Executive 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 quantum of Directors’ fees (which does not include remuneration of Executive Directors and other non-
Director services provided by Directors) is $600,000 per annum.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 14
REMUNERATION REPORT (AUDITED)
The remuneration arrangements for the Company’s Non-Executive Directors for the year ended 30 June 2019 is
comprised of Directors’ fees and committee fees (inclusive of superannuation), and are summarised in the table below:
Roles
Position
Board of Directors
Sub-committees
Chair
Non-Executive Directors
Chair
Member
$
180,000
76,650
32,850
10,950
The additional fees for service on a sub-committee or being the Chair of a sub-committee recognises the additional
responsibility and time commitment of those Non-Executive Directors who serve on those sub-committees.
Non-Executive Directors are entitled to be reimbursed for their reasonable expenses incurred in connection with the
affairs of the Company. A Non-Executive Director may also be remunerated as determined by the Directors if that Non-
Executive Director performs additional or special duties for the Company.
The remuneration of the Company’s Non-Executive Directors for the year ending 30 June 2019 is set out in Table 4 of
this Remuneration Report. The Non-Executive Directors do not participate in any incentive programs.
EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION
The Company aims to develop remuneration packages that properly reflect each person’s duties and responsibilities and
includes remuneration that 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
executives and Executive Directors; and
• 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 (‘CEO’). The Committee approves the remuneration packages for the senior executives of the Company
based on recommendations from the CEO in accordance with compensation guidelines set by the Board.
The remuneration of senior executives of the Company is comprised of the following components.
• Base salary, plus superannuation (Fixed Annual Remuneration (‘FAR’));
• Short-term incentives (‘STI’) and long-term incentives (‘LTI’).
The remuneration structure for each KMP is shown in the table below:
KMP
Position
Term as KMP
FAR
STI
LTI
Total
Executive director
Tim Welsh
Senior executives
Grant Harrod
Mark Saus
Rick Rostolis
Managing Director and CEO
14 May 2019 to present
36%
32%
32%
100%
CEO
Chief Financial Officer
Chief Financial Officer
Until 22 February 2019
Until 1 October 2018
1 October 2018 to present
63%
82%
56%
23%
10%
24%
14%
8%
20%
100%
100%
100%
The remuneration of the CEO and senior executives for the year ending 30 June 2019 is set out in Table 4 of this
Remuneration Report.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 15
REMUNERATION REPORT (AUDITED)
Short-Term Incentives
Senior executives of the Company are entitled to STIs, which are firstly based on the achievement of a Group EBITDA1
target and once that has been achieved, amounts payable are weighted according to the achievement of the following
performance measures for the year ended 30 June 2019:
Performance measure
Weighting Overview of performance against target
Achievement
Profitability
20%
Working capital management
20%
Safety
Other
10%
50%
Group EBITDA target, which is based on the achievement of 100%
of the target approved by the Board of Directors.
Working capital management is based on an improvement in the
components of net working capital (i.e. trade receivables,
inventories and trade payables), which is measured with reference
to the financial information contained in the financial statements.
Safety is based on a targeted reduction in lost time injury frequency
rate, which is measured according to reported work-place incidents.
These measures are based on certain operational and non-
financial indicators, which are measured according to whether the
item has been achieved or not by the due date.
No
No
No
No
Group EBITDA has been chosen as a gateway to align the remuneration of the senior executives with shareholder
interests. Whether the Group EBITDA target has been satisfied is determined based on the audited financial statements
of the Group.
The Group EBITDA target has not been achieved for the year ended 30 June 2019.
Working capital management, safety and certain other operational and non-financial indicators have been chosen to
ensure the actions and behaviours of senior executives are aligned with its key stakeholders, being employees and
shareholders.
Long-Term Incentives
Senior executives of the Company are entitled to LTIs, which vest subject to the senior executive remaining in service
with the Group and the satisfaction of performance hurdles linked to Total Shareholder Return (‘TSR’) over a three-year
period and is otherwise subject to the terms and conditions of the relative share plans in place.
EMPLOYMENT CONTRACTS
Chief Executive Officer
The Company has entered into an executive service agreement with Mr Tim Welsh in relation to his role as CEO of the
Group. In his executive service agreement, Mr Welsh agrees that all intellectual property rights created, developed or
acquired by him in the course of his employment, belong to the Company.
The Company or the executive may terminate the service agreement by giving the other party three months’ notice.
The Company may terminate the agreement at any time with immediate effect in the event of misconduct.
Mr Welsh is restrained for up to 6 months after termination of his employment from being in competition with the
Company in Australia and New Zealand, and for up to 12 months after termination of his employment from soliciting
the Company’s customers to cease or reduce their business with the Company and employees to leave their employment
with the Company.
Mr Grant Harrod resigned as CEO on 27 November 2018 and left the Company on 22 February 2019.
Senior Executives
Employment agreements entered into with senior executives contain the following key terms:
Event
Company Policy
Resignation / notice period
Serious misconduct
Payouts upon resignation or termination, outside
industrial regulations (i.e. ‘golden handshakes’)
Six months or less
Company may terminate at any time
None
1 EBITDA represents profit/(loss) before net finance costs, income taxes, depreciation and amortisation, and significant
items.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 16
REMUNERATION REPORT (AUDITED)
Share-Based Payments
Remuneration packaging includes the awarded shares, performance rights and share options which vest upon the senior
executive remaining in service with the Group and the achievement of certain performance hurdles by the end of the
vesting period.
All share-based payment arrangements are equity-settled and there have been no cancellations or modifications to the
awards in the current or comparative year.
The valuation technique and assumptions used to determine the fair value of each award depends on whether the vesting
conditions include a market hurdle or non-market hurdle.
•
•
The Monte Carlo simulation-based model is used to test the likelihood of attaining the market hurdle against the
comparator group of entities using the following assumptions: expected volatility, risk-free interest rate, expected
life of option, share price, dividend yield and probability of achievement. The Monte Carlo simulation incorporates
the impact of this market condition on the fair value of the awards containing a market hurdle.
The fair value of awards which do not contain a market hurdle is based on the share price on the grant date, less
any expected dividends to be received between grant date and the vesting date.
EMPLOYEE SHARE PURCHASE PLAN (‘ESPP’)
The Company has established an ESPP to encourage employees to participate in the ownership of the Company and
promote the long-term success of the Company as a common goal by the employees. The ESPP has been approved by
shareholders of the Company for the purposes of Sections 260C(4)(a), 259B(2)(a), 257B(1) and paragraph (b) of the
definition of employee share scheme buy-back in Section 9 of the Corporations Act.
The following are the key features of the ESPP:
• No shares under the ESPP will be allotted unless the requirements of the Corporations Act 2001 and the ASX Listing
Rules have been complied with;
• Performance hurdles apply to the ESPP. The key performance hurdle which has been used is that the TSR 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) over a three-year vesting period;
• 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 Volume Weighted Average Price (‘VWAP’) immediately prior to the offer being made
to the employee or the shares being issued;
• 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 the Company are treated as interest on the loan;
• The shares are registered in the names of the participants from allotment but remain subject to restrictions on
dealing while they are pledged as security for a loan or subject to performance hurdles specified and may be forfeited;
•
If the employee leaves the employment of the Group before vesting, the loan balance must be repaid in full or the
shares surrendered in full settlement of the outstanding loan balance; and
• Under Australian Accounting Standards, shares issued to employees under the ESPP are considered to be options
granted.
Table 2: A summary of the ESPP as at 30 June 2019 is as follows:
Grant date
Vesting date
Exercise
Price
Fair
Value
Balance at
beginning
of year
Granted
Exercised
Expired/
Forfeited*
Balance at
end of year
7 October 2015
6 October 2018
27 November 2017 26 November 2020
13 January 2022
14 January 2019
Total
$0.417
$0.380
$0.200
$0.075 1,900,000
$0.100 14,910,000
-
$0.020
16,810,000
-
-
2,890,000
2,890,000
-
-
-
-
(1,900,000)
(12,615,000)
-
(14,515,000)
-
2,295,000
2,890,000
5,185,000
* Of the shares that have expired or were forfeited during the year ended 30 June 2019, 2,220,000 shares have been
cancelled and 12,295,000 await cancellation or reallocation to a trustee who holds the shares for the purposes of
reallocation to employees at a later date.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 17
REMUNERATION REPORT (AUDITED)
Going forward, the Board has resolved that long-term incentives will be offered to eligible employees under the
Company’s performance rights plan.
PERFORMANCE RIGHTS PLAN (‘PRP’)
The Company has established a PRP to provide eligible employees with an opportunity to share in the growth in value
of the Company and to encourage them to improve the longer-term performance of the Company and its return to
shareholders. The PRP is also intended to assist the Company to attract and retain skilled and experienced senior
executives and provide them with an incentive to have a greater involvement with, and focus on, the longer-term goals
of the Company.
The following are the key features of the PRP:
• The Board may from time to time, in its absolute discretion, invite eligible employees to apply for rights under the
PRP on terms set out in the PRP and any other terms the Board considers appropriate, subject to the grant complying
with the Corporations Act 2001 and the ASX Listing Rules;
• A right will vest where the eligible employee remains in service at vesting date and, in some cases, upon satisfaction
of performance hurdles and other vesting conditions determined by the Board. The key performance hurdle which
has been used is that the TSR 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);
• The exercise price of a grant of rights under the PRP may be zero, although a price may be set by the Board;
• A right will automatically lapse where the right has not been exercised by the expiry date; and
• Shares issued on the exercise of rights under the PRP will rank equally in all respects with all existing shares from
the date of allotment, including in relation to voting rights and entitlements to distributions and dividends.
Table 3: A summary of the PRP as at 30 June 2019 is as follows:
Grant date
Vesting date
Exercise
Price
Fair
Value
Balance at
beginning
of year*
Granted
Exercised
Expired/
Forfeited
Balance at
end of year
27 November 2017
27 November 2017
4 December 2017
16 January 2019
31 July 2018
31 July 2020
30 June 2018
6 January 2020
14 May 2019 30 September 2019
$0.000
$0.000
$0.000
$0.000
$0.000
Total
$0.450
$0.080
$0.430
$0.190
$0.140
500,000
500,000
375,000
-
-
1,375,000
-
-
-
320,000
333,333
653,333
-
-
-
-
-
-
(500,000)
(500,000)
(375,000)
-
-
(1,375,000)
-
-
-
320,000
333,333
653,333
* The number of performance rights on issue at the beginning of the financial year has been restated as only the first
year of Grant Harrod’s three-year allotment of up to 3,000,000 performance rights had been granted by the Board of
Directors prior to receiving his notice of resignation.
Other rights due under employment contracts of eligible employees at the date of this Remuneration Report have not
been granted by the Company.
KEY MANAGEMENT PERSONNEL
In addition to the Directors, certain senior executives are considered to be key management personnel (‘KMP’) having
authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 18
REMUNERATION REPORT (AUDITED)
REMUNERATION OF KEY MANAGEMENT PERSONNEL
Table 4: A summary of the remuneration of KMP for the year ended 30 June 2019 is as follows:
Salary,
wages and
fees
$
Short-term
incentive
$
KMP
Non-executive directors
Jonathan Ling
Darren Brown
Marina Go
Rupert Harrington
Leonie Valentine
Ahmed Fahour
Elliott Kaplan
37,831
96,822
84,219
80,932
73,205
171,959
17,808
Executive director
Tim Welsh
72,325
-
-
-
-
-
-
-
-
Short-term
benefits
Non-
monetary
benefits
$
Long-term
benefits
Post-
employment
benefits
Employee
Entitlements
$
Super-
annuation
$
Share-
based
payments
Shares,
rights and
options
$
Performance
based
%
Total
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,594
9,198
8,001
7,689
6,954
16,336
1,692
-
-
-
-
-
(113,853)
158,904
41,425
106,020
92,220
88,621
80,159
74,442
178,404
-
-
-
-
-
(152.9%)
-
3,945
100
2,700
-
79,070
-
Senior executives
Grant Harrod
Mark Saus
Rick Rostolis*
Total
557,727
390,571
350,630
1,934,029
-
-
140,000
140,000
-
5,096
-
9,041
(889)
(7,269)
457
(7,601)
20,531
19,161
20,531
116,387
(10,741)
(21,631)
67,656
80,335
566,628
385,928
579,274
2,272,191
(1.9%)
(5.6%)
35.8%
2.7%
* The Board resolved to increase the remuneration package of Mr Rostolis to $605,000 whilst acting as CEO in recognition
of the responsibility over and above his existing role. Based on his contribution during this time, the Board approved a
special bonus of $200,000 of which $140,000 was settled in cash and $60,000 is to be settled in shares.
The fees for Non-Executive Directors for the year ended 30 June 2019 were $596,928. During the year, $19,312 was
paid to Ahmed Fahour in his capacity as Executive Chairman.
Table 5: A summary of the remuneration of KMP for the year ended 30 June 2018 is as follows:
Short-term
benefits
Post-
employment
benefits
Salary,
wages and
fees
$
Short-term
incentive
$
Non-
monetary
benefits
$
Super-
annuation
$
KMP
Share-
based
payments
Shares,
rights and
options
$
Termination
benefits
Redundancy
$
Performance
based
%
Total
$
Non-executive directors
Ahmed Fahour
Elliott Kaplan
Gary Weiss
Brandon Penn
Rupert Harrington
156,199
81,744
21,231
39,231
62,154
-
-
-
-
-
Senior executives
Grant Harrod
Mark Saus
Total
562,270
289,115
1,211,944
-
13,014
13,014
-
-
-
-
-
-
-
-
10,546
-
2,017
3,727
5,904
122,553
29,448
-
-
-
20,049
24,800
67,043
49,266
4,061
205,328
-
-
-
-
-
-
-
-
289,298
111,192
23,248
42,958
68,058
-
-
-
-
-
631,585
330,990
1,497,329
-
3.9%
3.9%
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 19
REMUNERATION REPORT (AUDITED)
Shares Issued under the ESPP During the Year
Table 6: A summary of shares granted to KMP and remain on foot as at 30 June 2019 is as follows:
KMP
Grant date
Exercise
Price
Fair
Value
Balance at
beginning
of year
Granted
Exercised
Expired/
Forfeited
Balance at
end of year
Grant Harrod
Mark Saus
Mark Saus
Rick Rostolis
Total
27 November 2017
7 October 2015
27 November 2017
14 January 2019
$0.380
$0.417
$0.380
$0.200
$0.100 1,000,000
300,000
$0.075
300,000
$0.100
-
$0.020
1,600,000
-
-
-
600,000
600,000
-
-
-
-
-
(1,000,000)
(300,000)
(300,000)
-
(1,600,000)
-
-
-
600,000
600,000
Performance Rights Issued During the Year
Table 7: A summary of performance rights granted to KMP and remain on foot as at 30 June 2019 is as follows:
KMP
Grant date
Exercise
Price
Fair
Value
Balance at
beginning
of year*
Granted
Exercised
Expired/
Forfeited
Balance at
end of year
Grant Harrod
Grant Harrod
Rick Rostolis
Total
27 November 2017
27 November 2017
14 May 2019
$0.000
$0.000
$0.000
$0.450
$0.080
$0.140
500,000
500,000
-
1,000,000
-
-
333,333
333,333
-
-
-
-
(500,000)
(500,000)
-
(1,000,000)
-
-
333,333
333,333
* The number of performance rights on issue at the beginning of the financial year has been restated as explained in
the footnote to Table 3 above.
Mr Welsh’s employment contract includes an entitlement to an award of performance rights as part of his STI and LTI,
which are subject to shareholder approval at the AGM. Consequently, no performance rights have been granted to Mr
Welsh at 30 June 2019.
Performance rights are granted with vesting conditional upon the achievement of certain performance conditions. Each
performance right entitles the holder to subscribe for one share.
Option Holdings of Key Management Personnel
No options were issued to KMP during the year ended 30 June 2019.
On 28 November 2017, 1,200,000 options were granted to Mr Kaplan at a nil issue price in three tranches, which become
exercisable if the following performance hurdles are met:
•
•
•
In the first year from issue date, 400,000 options may be exercised if the Company’s share price exceeds $0.38 on
a VWAP basis over a three-month period of that first year and had a fair value of $0.100 at grant date;
In the second year from issue date, 400,000 options may be exercised if the Company’s share price exceeds $0.42
on a VWAP basis over a three-month period of that second year and had a fair value of $0.080 at grant date; and
In the third year from issue date, 400,000 options may be exercised if the Company’s share price exceeds $0.46 on
a VWAP basis over a three-month period of that third year and had a fair value of $0.070 at grant date.
The tranche of options lapse where the applicable performance hurdle has not been met. However, if the performance
hurdle has been met, the options may be exercised before the third anniversary of the issue date for the exercise price
set out above. The first tranche of 400,000 options mentioned above vested during the year ended 30 June 2019 and
remains exercisable at $0.38 per share.
Loans to Key Management Personnel
Other than loans issued in relation to the Company’s ESPP shares, there were no loans to KMP during the year.
The information disclosed in this Remuneration Report is presented as at 30 June 2019 and it remains true and correct
through to the date of the Annual Report.
This concludes the Remuneration Report, which has been audited.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 20
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Auditor’s Independence Declaration to the Directors of Pro-Pac Packaging
Limited
As lead auditor for the audit of the financial report of Pro-Pac Packaging Limited for the financial year
ended 30 June 2019, I declare to the best of my knowledge and belief, there have been:
(a) no contraventions of the auditor 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
financial year.
Ernst & Young
Kester Brown
Partner
27 August 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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, its website or Annual Report, is contained on its 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 27 August 2019.
The ASX Principles and Recommendations and the Company’s response as to how and whether it follows those
recommendations are set out below.
PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
Recommendation 1.1 - A listed entity should disclose:
(a) the respective roles and responsibilities of its board and management; and
(b) those matters expressly reserved to the board and those delegated to management.
The Company’s Board maintains the following roles and responsibilities:
• providing leadership and setting the strategic objectives of the Company;
• appointing the Chair and/or the ‘senior independent Director’;
• appointing, and when necessary replacing, the Chief Executive Officer (‘CEO’);
• assessing the performance of the CEO and overseeing succession plans for senior executives;
• overseeing management’s implementation of the Company’s strategic objectives including acquisitions and
divestitures;
• approving operating budgets and major capital expenditure;
• overseeing the integrity of the Company’s accounting and corporate reporting systems, including the external audit;
• overseeing the Company’s process for market disclosure of all material information concerning the Company that a
reasonable person would expect to have a material effect on the price or value of the Company’s securities;
• ensuring that the Company has in place an appropriate risk management framework and setting the risk parameters
within which the Board expects management to operate;
• approving the Company’s remuneration framework;
• monitoring the effectiveness of the Company’s governance practices; and
•
reporting to, and communications with, security holders.
The Board has delegated the day-to-day management of the Company to the CEO and other senior executives.
The Company’s senior executives are 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;
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2019 ANNUAL REPORT | 22
CORPORATE GOVERNANCE STATEMENT
• providing the Board with accurate, timely and clear information to enable the Board to perform its responsibilities;
and
• approving capital expenditure within delegated authority levels.
Senior executives have their roles and responsibilities defined in specific position descriptions.
Recommendation 1.2 - A listed entity should:
(a) undertake appropriate checks before appointing a person, or putting forward to security holders a
candidate for election, as a director; and
(b) provide security holders with all material information in its possession relevant to a decision on
whether or not to elect or re-elect a director.
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, criminal history, bankruptcy, and other appropriate checks.
An election of Directors is held each year. A Director that has been appointed during the year must stand for election at
the next Annual General Meeting (‘AGM’). Directors are generally appointed for a term of three years. Retiring Directors
are not automatically re-appointed.
The Company provides to shareholders for their consideration information about each candidate standing for election or
re-election as a Director that the Board considers necessary for shareholders to make a fully informed decision. Such
information includes the person’s biography, experience, 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 Chair 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.
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CORPORATE GOVERNANCE STATEMENT
Recommendation 1.5 - A listed entity should:
(a) have a diversity policy which includes requirements for the board or a relevant committee of the board
to set measurable objectives for achieving gender diversity and to assess annually both the objectives
and the entity’s progress in achieving them;
(b) disclose that policy or a summary of it; and
(c) disclose as at the end of each reporting period the measurable objectives for achieving gender diversity
set by the board or a relevant committee of the board in accordance with the entity’s diversity policy
and its progress towards achieving them, and either:
(1) the respective proportions of men and women on the board, in senior executive positions and
across the whole organisation (including how the entity has defined “senior executive” for these
purposes); or
(2) if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s most
recent “Gender Equality Indicators”, as defined in and published under that Act.
The Company has a diversity policy that sets out its commitment to diversity, respecting people as individuals and
valuing their differences. The policy reflects the Company’s commitment 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 various genders 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 measurable objectives set by the Company for the achievement of gender diversity are as follows:
1.
2.
3.
4.
Foster an inclusive culture in order to support the development of all talent.
Ensure pay equity for equal work across the workforce, with strategies in place to manage pay equity
Achieve at least 33.3% female representation in Non-Executive Directors on the Board
Achieve at least 33.3% female representation in senior executive roles
These four objectives are reviewed annually by the Board, as well as the Company’s progress in achieving these
objectives. Indications of progress achieved against these objectives are outlined below:
1. Inclusive Culture
The Company maintains a working policy to provide flexible working arrangements including part-time employment,
working from home, facilitating work-life balance of employees and aiding those with family and carer commitments to
continue to work and meet their other responsibilities.
In 2019, 2.92% of workers took advantage of these flexible working arrangements (2018: 4.16%).
2. Pay Equity
In 2019, the Company measured pay equity across the top 2 managerial levels in the organisation. The gender pay gap
is 11% with males being paid more favourably than females, which the Company aims to improve in 2020. Any apparent
gaps are analysed to ensure that they can be explained with reference to market forces which may include, for example,
different rates of pay in different industries, location, the relative supply and demand for different qualifications,
individual performance and experience.
3 and 4. Non-Executive Directors and Senior Executives
The respective proportion of women and men in the Company including its controlled entities as at 30 June 2019 are as
follows:
Proportion of
women 2019
Proportion
of women
2018
Proportion
of men
2019
Proportion
of men
2018
Non-Executive Directors on the Board
In senior executive positions
Across the whole organisation
40%
40%
25%
0%
21%
28%
60%
60%
75%
100%
79%
72%
Senior executive positions include all executives and professionals reporting directly to the Chief Executive Officer.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 24
CORPORATE GOVERNANCE STATEMENT
The Board approved an updated Diversity Policy on 30 July 2019, together with additional initiatives of ensuring,
wherever possible, interview panels for senior executive and board positions shall comprise both female and male
interviewers, and short-listed candidates for such roles shall be both male and female. Further work is also being done
to improve gender related pay disparity.
The Company is a ‘relevant employer’ for the purposes of the Workplace Gender Equality Act 2012 on the basis that the
entity employs 100 or more employees in Australia. The Company makes annual filings of Gender Equality Indicators
with the Workplace Gender Equality Agency (WGEA). This information is accessible on https://www.wgea.gov.au.
Recommendation 1.6 - A listed entity should:
(a) have and disclose a process for periodically evaluating the performance of the board, its committees
and individual directors; and
(b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the
reporting period in accordance with that process.
The Company has in place systems designed to fairly review and actively encourage enhanced Board and senior
executive effectiveness. The Chair 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 senior executives are assessed is aligned with the financial and
non-financial objectives of the Company. From time to time and, as considered appropriate, the Chair will seek external
assistance and advice to undertake these performance reviews. A review was conducted by the Chair during the year.
Recommendation 1.7 - A listed entity should:
(a) have and disclose a process for periodically evaluating the performance of its senior executives; and
(b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the
reporting period in accordance with that process.
The Board conducts an annual performance assessment of the CEO against agreed performance measures determined
at the start of the year. The CEO undertakes the same assessments of senior executives. In assessing the performance
of the individual, the review includes consideration of the senior executive’s function, individual targets, group targets,
and the overall performance of the Company.
The CEO provides a report to the Board on the performance of senior executives together with remuneration
recommendations which must be approved by the Board after consultation with the Remuneration and Nomination
Committee. A review of the CEO and senior executives was undertaken during the year.
PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE
Recommendation 2.1 - The board of a listed entity should:
(a) have a nomination committee which:
(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 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.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 25
CORPORATE GOVERNANCE STATEMENT
The Board maintains a Remuneration and Nomination Committee (formerly the People, Innovation and Culture
Committee), whose members during the financial year, were as follows:
Director’s name
Executive status
Independence status
Marina Go (Chair)
Leonie Valentine
Ahmed Fahour
Rupert Harrington
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Independent
Independent
Independent
Independent
Following the resignation of Elliott Kaplan (31 August 2018), Leonie Valentine and Marina Go were appointed to the
Remuneration and Nomination Committee on 3 September 2018. Rupert Harrington replaced Ahmed Fahour on 27 May
2019.
The Charter of the Committee is available at the Company’s website. It details the roles and responsibilities of the
Committee.
The number of Committee meetings held and attended by each member is disclosed in the ‘Meetings of Directors’ section
of the Directors’ report.
Recommendation 2.2 - A listed entity should have and disclose a board skills matrix setting out the mix of
skills and diversity that the board currently has or is looking to achieve in its membership.
The Board’s skills matrix indicates the mix of skills, experience and expertise that are considered necessary at Board
level for optimal performance of the Board. It is therefore used when recruiting new Directors and assessing which skills
need to be outsourced based on the attributes of the current Board members. The existence of each attribute is assessed
by the Board as either, High, Medium or Low.
Skill category
Description of attributes required
Risk and compliance
Financial and audit
Strategic
Industry experience
Information technology
Executive management
Age and gender
Identification of key risks to the Company related to each
key area of operations. Monitoring of risks, compliance
issues and knowledge of legal and regulatory
requirements.
Analysis and interpretation of accounting and finance
issues including assessment and resolution of audit and
financial reporting risks, contribution to budgeting and
financial management of projects and Company,
assessing and supervising capital management.
Development of strategies to achieve business objectives,
oversee implementation and maintenance of strategies,
and identification and critical assessment of strategic
opportunities and threats to the Company.
Relevant industry experience and expertise particularly in
a manufacturing and/or distribution environment.
Knowledge of IT governance including privacy, data
management and security.
Performance assessments of senior executives,
succession planning for key executives, setting of key
performance hurdles, experience in industrial relations
and organisational change management programmes.
Board aims for balanced gender representation and range
of experienced individuals to contribute towards better
Board outcomes.
Level of
importance
Existence
in current
Board
High
High
High
High
High
High
High
High
Medium
High
High
High
Medium
High
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.
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2019 ANNUAL REPORT | 26
CORPORATE GOVERNANCE STATEMENT
In addition to the specific areas that are required at Board level identified in 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
Ethics and integrity
Communication
Negotiation
Corporate governance
Represents the Company positively amongst stakeholders and external parties;
decisively acts ensuring that all pertinent facts considered; leads others to action;
proactive solution seeker.
Awareness of social, professional and legal responsibilities at individual, Company and
community level; ability to identify independence conflicts; applies sound professional
judgement; identifies when external counsel should be sought; upholds Board
confidentiality; respectful in every situation.
Effective in working within defined corporate communications policies; makes
constructive and precise contribution to the Board both verbally and in written form; an
effective communicator with executives.
Negotiation skills which engender stakeholder support for implementing Board
decisions.
Experienced Director that is familiar with the mechanisms, controls and channels to
deliver effective governance and manage risks.
Recommendation 2.3 - A listed entity should disclose:
(a) the names of the directors considered by the Board to be independent directors;
(b) if a director has an interest, position, association or relationship of the type described in Box 2.3 but
the board is of the opinion that it does not compromise the independence of the director, the nature of
the interest, position, association or relationship in question and an explanation of why the board is of
that opinion; and
(c) the length of service of each director.
The Board assesses annually the independence of each Director to ensure that those designated as independent do not
have any alliance to the interests of management, substantial shareholders or other relevant stakeholders. They must
be free of any interest, position, association or relationship that might influence, or reasonably be perceived to influence,
in a material respect, their capacity to bring an independent judgement to bear on issues before the Board and to act
in the best interests of the Company and its security holders generally. In its assessment of independence as at the
date of this Corporate Governance Statement, and in respect of the Directors in office at the end of the reporting period,
the Board has considered the interests, positions, associations or relationships of the kind identified in the examples
listed under Recommendation 2.3 of the ASX Principles and Recommendations 3rd Edition.
Details of the current Board of Directors, their date of appointment, length of service, and independence status is as
follows:
Director’s name
Jonathan Ling
Rupert Harrington (1)
Darren Brown (2)
Leonie Valentine
Marina Go
Tim Welsh
Notes:
Date of
Appointment
Length of service at
reporting date
Independence status
3 months
8 April 2019
6 November 2017 1 year and 8 months
2 July 2018
1 August 2018
1 August 2018
28 May 2019
1 year
11 months
11 months
1 month
Independent Non-Executive
Independent Non-Executive
Independent Non-Executive
Independent Non-Executive
Independent Non-Executive
Executive Director
1. Mr Harrington is Non-Executive Chairman of Advent Private Capital (‘Advent‘) which currently holds 11.58% of the
issued capital of the Company as manager of two investment trusts.
Notwithstanding this relationship, the Board has resolved that Mr Harrington is an independent Director on the
basis that:
a)
he has received no directions or general instructions from Advent as to his conduct as a Director of the
Company, and in particular that he is not requested to, and does not, communicate with Advent on key issues
material to the Group on an ongoing basis (separately from the public disclosures the Company is making
from time to time);
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 27
CORPORATE GOVERNANCE STATEMENT
b)
he is functioning entirely independently of Advent in the discharge of his role as a Director of the Company;
c)
he is not aware of any circumstances in which his knowledge of confidential information of the Company will
be made available to Advent either directly or indirectly, and he recuses himself from any and all Advent
Board discussions which relate to Advent’s shareholding in the Company;
d)
his remuneration by Advent is not directly affected by decisions made by the Company’s Board or the
performance of the Company; and
e)
that he is not otherwise aware of any potential or actual conflict of interest.
2. Mr Brown is an employee of Kin Group Pty Limited, which is a 100% controlled entity of Mr Raphael Geminder.
Bennamon Pty Ltd is a wholly owned controlled entity of Kin Group Pty Limited. Bennamon Pty Ltd owns 49.7% of
the Company’s issued capital.
The Board has examined this relationship in detail, and has resolved that Mr Brown is an independent Director on
the basis that:
a)
b)
c)
he has received no directions or general instructions from Mr Geminder as to his conduct as a Director of the
Company, and in particular that he is not requested to, and does not, communicate with Mr Geminder on key
issues material to the Group on an ongoing basis (separately from the public disclosures the Company is
making from time to time);
he is functioning entirely independently of Mr Geminder in the discharge of his role as a Director of the
Company;
he is not aware of any circumstances in which his knowledge of confidential information of the Company will
be made available to Mr Geminder either directly or indirectly; and
d)
that he is not otherwise aware of any potential or actual conflict of interest.
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.
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 is 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.
Mr Jonathan Ling is Chair of the Board and is an independent Director of the Company. Mr Tim Welsh is the Chief
Executive Officer and Managing Director of the Company.
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 Remuneration
and Nomination Committee. The program includes strategy briefings, explanations of Company policies and procedures,
governance frameworks, cultures and values, Company history, Director and senior 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;
•
responsibility and accountability of individuals for reporting and investigating reports of unethical practices.
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CORPORATE GOVERNANCE STATEMENT
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.
The Code of Conduct sets standards for the Board and employees in dealing with the Company’s customers, suppliers,
shareholders and other stakeholders. A revised Code of Conduct was adopted by the Board on 30 July 2019. 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) the relevant qualifications and experience of the members of the committee; and
(5) 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 available 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 (Chair), Mr Harrington and Ms Go. Each member is financially literate (ie they are
able to read and understand financial statements) and Mr Brown has financial expertise and experience (Mr Brown is a
Chartered Accountant). All members have some understanding of the industry in which the Company operates. Previous
Committee Chair, Mr Kaplan resigned on 31 August 2018.
Recommendation 4.1 requires that the composition of the Audit Business Risk and Compliance Committee comprises a
majority of independent Directors and that the committee have at least three members. 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 2019 and the half-year ended 31 December
2018, the Company’s CEO (or Acting CEO in respect of the half-year ended 31 December 2018) and CFO have provided
the Board with declarations, that in their opinion:
•
the financial records of the Company have been properly maintained;
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2019 ANNUAL REPORT | 29
CORPORATE GOVERNANCE STATEMENT
•
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
•
is based on a sound system of risk management and internal control which is operating effectively.
Recommendation 4.3 - A listed entity that has an AGM should ensure that its external auditor attends its
AGM and is available to answer questions from security holders relevant to the audit.
The external auditor engagement partner for the Company attends the Annual General Meeting (‘AGM’) and is available
to answer questions from shareholders relevant to the audit.
PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE
Recommendation 5.1 - A listed entity should:
(a) have a written policy for complying with its continuous disclosure obligations under the Listing Rules;
and
(b) disclose that policy or a summary of it.
Consistent with ASX Principle 5, the Board aims to ensure that all investors have equal and timely access to material
information concerning the Company, that there is compliance with continuous disclosure requirements and that
announcements made by the Company are factual and presented in a clear and balanced way. During the reporting
period the Company substantially revised and adopted a new Disclosure Policy reflecting the principles set out in ASX
Principle 5. This policy replaced the previous External Communication Policy and is available 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 Disclosure 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 Chair 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). Shareholders also send queries directly to the Company which
are responded to.
A representative from the external auditors of the Company attends the AGM 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 Disclosure Policy also elaborates on the Company’s continuous disclosure policy.
Recommendation 6.4 - A listed entity should give security holders the option to receive communications
from, and send communications to, the entity and its security registry electronically.
This option is available to security holders.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 30
CORPORATE GOVERNANCE STATEMENT
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 membership and independence of the
Committee are disclosed under Principle 4. The structure of the Committee and its responsibilities reflect 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 reports from the Group’s Management Risk Committee (comprising
key stakeholders from management 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 27 August 2019.
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.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 31
CORPORATE GOVERNANCE STATEMENT
The following is not an exhaustive list or explanation of all risks and uncertainties associated with the Company (and its
controlled entities), but those considered by management to be the principal material risks:
Credit risk
Commodity risk
Foreign currency
risk
Liquidity risk
Interest rate risk
Loss of people
Environmental risk
Mergers and
acquisition risk
Trade and related party receivables are considered to be the main source of credit risk;
however, the Group does not have a concentration of credit risk with respect to any single
counterparty or group of counter-parties, which mitigates the risk of significant losses of
default.
The Group has policies in place to ensure that customers who trade on credit terms are
subject to credit verification procedures. Amounts are considered as ‘past due’ when the
debt has not been settled within the credit terms and conditions as agreed between the
Group and the customer or counter-party to the transaction. Amounts past due are assessed
for impairment by ascertaining the solvency of debtors and are provided for where there are
specific circumstances indicating that the debt may not be fully repaid to the Group.
The Group is exposed to commodity price risk in relation to certain raw materials, specifically
resin. In managing this risk, the Group passes on changes in commodity prices to
customers, including through contractual rise and fall adjustments, where possible.
As a result of its international activities, the Group is exposed to changes in foreign exchange
rates on sales and purchases. In order to mitigate foreign currency risk, the Group regularly
determines its net exposure to the primary currencies it trades in based on actual sales and
purchases and in some cases enters into foreign currency forward contracts to hedge these
exposures.
The Group’s objective is to maintain a balance between:
• Continuity of funding and flexibility through the use of bank loans, trade finance, finance
leases and hire purchase arrangements; and
Investment in strategic growth opportunities.
•
The Group manages liquidity risk through cash flow forecasting.
Bank loans are the main sources of interest rate risk because the interest rate is floating
whereas interest payable on trade finance, hire purchase and finance lease liabilities are fixed
for the term of the arrangement.
Interest earned on cash and cash equivalents is not significant.
The composition of the Group’s funding is considered annually to ensure applicable interest
rates are competitive and reflective of the Group’s future funding requirements.
The Company’s senior executives are instrumental in implementing the Group’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.
The Group’s activities have a level of environmental risk, particularly the manufacturing sites
that utilise flammable and toxic materials.
The Group’s strategy contemplates complementary acquisitions, which involve a risk during
due diligence, negotiation, integration and execution.
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.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 32
CORPORATE GOVERNANCE STATEMENT
It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high-quality Board and
senior executives by remunerating Directors and key executives fairly and appropriately with reference to relevant
employment market conditions. To assist in achieving this objective, the Board will link the nature and amount of
Directors’ remuneration to the Company’s financial and operations performance.
The Board has in place a Remuneration and Nomination Committee to assist the Board in relation to human resources
matters affecting the Group. The structure of this Committee and its responsibilities reflect in part the requirements of
ASX Principle 8. The Committee comprises Ms Go (Chair), Ms Valentine, and Mr Harrington, all of whom are independent
Directors. Mr Harrington replaced Mr Fahour on 27 May 2019. Mr Kaplan resigned on 31 August 2018. In addition to
the members, the Chief Executive Officer is invited to the meetings at the discretion of the Committee. Details of
Directors’ attendance at Committee meetings are disclosed in the Directors’ Report.
A charter setting out the responsibilities of the Committee has been adopted and a copy of this charter is available 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.
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 Director’s (as approved by shareholders). The Committee may consult with
remuneration advisors to the Company to assist in its role.
The Committee is also responsible for determining and reviewing compensation arrangements for Directors and to
ensure that the Board continues to operate within established guidelines, including where 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 set within limits approved by shareholders. 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.
Recommendation 8.2 - A listed entity should separately disclose its policies and practices regarding the
remuneration of non-executive directors and the remuneration of executive directors and other senior
executives.
Non-Executive Directors are remunerated by way of cash fees and superannuation contributions. The level of
remuneration reflects the anticipated time commitments and responsibilities of the position. Performance-based
incentives are not available to Non-Executive Directors as it could be perceived to impair their independence in decision-
making. For the same reason, equity-based remuneration is limited to non-performance-based instruments such as
shares.
Executive Directors and senior executives are remunerated using combinations of fixed and performance-based
remuneration. Fees and salaries are 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 performance 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 have ownership of the
Company and promote long-term success of the Company as a goal shared by the employees. Participants are not
permitted to enter into transactions which limit the economic risk of participating in the Plan.
Please see the Remuneration Report for further details of the plan.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 33
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
For the year ended
Revenue from contracts with customers
Raw materials and consumables used
Employee benefits expense
Occupancy, distribution, administration and selling expenses
Impairment losses
Depreciation and amortisation expense
Other income
Interest income
Finance costs
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) after income tax
Other comprehensive income/(loss):
Items that may be reclassified to profit or loss in subsequent
years (net of income tax):
Change in fair value of cash flow hedges
Exchange differences arising on translation of foreign operations
Other comprehensive income/(loss), net of income tax
Total comprehensive income/(loss)
30 June
2019
$’000
30 June
2018
$’000
Notes
3
20
11
23
23
16
4
485,810 371,455
(304,851)
(239,939)
(83,420)
(64,051)
(84,869)
(63,064)
(149,000)
(9,336)
1,084
54
(8,135)
(5,910)
241
222
(5,291)
-
(152,663)
1,329
(151,334)
(6,337)
1,212
(5,125)
(471)
541
70
(151,264)
(415)
-
(415)
(5,540)
Earnings/(losses) per share
EPS (cents) – Basic
EPS (cents) – Diluted
2
2
(19.56)
(19.56)
(1.15)
(1.15)
The Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 34
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
As at
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax assets
Derivative financial assets
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest-bearing liabilities
Current tax liability
Other liabilities
Employee entitlements
Other provisions
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Employee entitlements
Other provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
30 June
2019
$’000
30 June
2018
$’000
Notes
15
7
8
10
11
4
9
14
19
13
14
19
13
17
18
23,559
90,278
78,108
6,303
111
4,086
3,206
83,221
95,463
-
470
9,126
202,445 191,486
60,882
66,548
8,156
-
36,490
184,689
14,530
125
135,586 235,834
338,031 427,320
74,104
11,623
-
889
10,869
6,306
86,029
13,240
292
-
11,281
804
103,791 111,646
94,873
1,692
2,582
99,147
91,224
675
3,669
95,568
202,938 207,214
135,093 220,106
217,695
291,618
1,250
1,221
(157,746)
1,161
135,093 220,106
The Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 35
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
For the year ended
Notes
Balances as at 1 July 2018
Profit/(loss) after income tax
Other comprehensive income/(loss),
net of income tax
Total comprehensive income/(loss)
Issue of shares for dividend reinvestment plan
Shares issued to vendors of businesses acquired
Transaction cost of raising shares
Shares issued under share placement
Share-based payments expense
Dividends paid
Balances as at 30 June 2019
Balances as at 1 July 2017
Profit/(loss) after income tax
Other comprehensive income/(loss),
net of income tax
Total comprehensive income/(loss)
Issue of shares for dividend reinvestment plan
Shares issued to vendors of businesses acquired
Transaction cost of raising shares
Shares issued under share placement
Share-based payments expense
Other reserves
Dividends paid
Balances as at 30 June 2018
17
17
17
17
21
5
17
17
17
17
21
5
Issued
Capital
$’000
Retained
Earnings
$’000
Reserves
$’000
Total
$’000
217,695
-
1,161
(151,334)
1,250 220,106
-
(151,334)
-
-
- (151,334)
-
-
-
-
-
5,223
9,960
(1,060)
59,800
-
-
(7,573)
291,618 (157,746)
70
70
70 (151,264)
5,223
9,960
(1,060)
59,800
(99)
(7,573)
-
-
-
-
(99)
-
1,221 135,093
98,194
-
14,427
1,062 113,683
(5,125)
-
(5,125)
-
-
3,604
62,577
(1,482)
54,802
-
-
-
217,695
-
(5,125)
-
-
-
-
-
-
(8,141)
1,161
(415)
(415)
-
-
-
-
102
501
-
(415)
(5,540)
3,604
62,577
(1,482)
54,802
102
501
(8,141)
1,250 220,106
The Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 36
CONSOLIDATED STATEMENT OF
CASH FLOWS
For the year ended
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Income tax paid
Interest received
Interest paid
Net cash flows from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments for businesses acquired, net of cash acquired
Net cash flows used in investing activities
Cash flows from financing activities
Repayment of hire purchase and finance lease liabilities
Proceeds from hire purchase and finance lease liabilities
Repayment of bank loans and trade finance
Proceeds from bank loans and trade finance
Proceeds from shares issued
Payment of transaction costs from shares issued
Dividends paid
Net cash flows from financing activities
30 June
2019
$’000
30 June
2018
$’000
Notes
492,359
(464,701)
(4,424)
54
(7,521)
15,767
383,479
(373,647)
(518)
222
(7,329)
2,207
15
(6,211)
-
(46,128)
(13,549)
757
(122,701)
(52,339) (135,493)
(185)
-
(5,035)
6,638
59,800
(1,060)
(2,350)
(1,255)
510
(2,506)
78,701
54,802
(1,482)
(4,537)
57,808 124,233
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange on cash and cash equivalents
Cash and cash equivalents at the end of the year
21,236
3,206
(883)
15
23,559
(9,053)
12,259
-
3,206
The Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 37
NOTES TO THE
FINANCIAL STATEMENTS
Overview
This section provides context to enable readers to understand the information presented in the financial report.
CORPORATE INFORMATION
The consolidated financial statements of Pro-Pac Packaging Limited (the ‘Company’) and its controlled entities (the
‘Group’) for the year ended 30 June 2019 were authorised for issue in accordance with a resolution of the Directors
on 27 August 2019.
The Company is a for-profit company limited by shares incorporated and domiciled in Australia whose shares are
publicly traded on the Australian Securities Exchange.
The Group is principally engaged in the manufacture and distribution of flexible, industrial and rigid packaging products.
Further information on the nature of the operations and principal activities of the Group is provided in the Directors’
Report.
BASIS OF PREPARATION
This is a general-purpose financial report, which has been prepared in accordance with the requirements of the
Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian
Accounting Standards Board (‘AASB’). The financial report also complies with International Financial Reporting
Standards (‘IFRS’) as issued by the International Accounting Standards Board.
The financial report has been prepared on a historical cost basis, unless otherwise stated. The financial report is
presented in Australian dollars and all values have been rounded to the nearest one thousand dollars ($’000), unless
otherwise indicated under the option available to the Company under ASIC Corporations (Rounding in
Financial/Directors’ Reports) Instrument 2016/191.
The consolidated financial statements provide comparative information in respect of the previous year. Certain
amounts relating to the comparative year have been reclassified to align with the classification applied in the current
year as shown in the table below:
As at
Trade and other receivables
Other non-current assets
Trade and other payables
Interest-bearing liabilities – current
Provisions – current
Provisions – non-current
Other assets and liabilities, net
Net assets
30 June
2018
$’000
83,346
-
93,265
6,004
8,210
8,219
21,062
220,106
(a)
$’000
(b)
$’000
(c)
$’000
Restated
30 June
2018
$’000
-
-
-
-
3,875
(3,875)
-
-
-
-
(7,236)
7,236
-
-
-
-
83,221
(125)
125
125
86,029
-
13,240
-
12,085
-
4,344
-
-
21,062
- 220,106
(a) Reclassification of long service leave as current where employees have met the vesting requirements.
(b) Reclassification of trade finance from trade and other payables to interest-bearing liabilities.
(c) Reclassification of deposits paid to landlords for terms greater than twelve-months.
Net assets as at 30 June 2018 presented in the Consolidated Statement of Financial Position remain unchanged from
net assets disclosed in the Annual Report for the year ended 30 June 2018.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 38
NOTES TO THE
FINANCIAL STATEMENTS
GOING CONCERN
At balance date, the Group has secured syndicated financing facilities of $100.4 million (2018: $102.0 million), of
which $100.1 million was utilised (2018: $95.3 million) and cash and cash equivalents of $23.6 million (2018: $3.2
million).
Notwithstanding the loss after tax, the Directors believe the Group is a going concern based on the following factors:
• The Directors assessment of current trading performance; and
• The Directors consideration of forecast trading results and cash flows.
Consequently, the consolidated financial statements for the year ended 30 June 2019:
• Have been prepared on a going concern basis, which assumes continuity of normal business activities and the
realisation of assets and the settlement of liabilities in the ordinary course of business; and
• Do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to
the amounts and classification of liabilities that might be necessary should the Group not continue as a going
concern.
NEW ACCOUNTING STANDARDS & INTERPRETATIONS
The Group has adopted all applicable new, revised or amended Accounting Standards and Interpretations issued by
the AASB that are mandatory for the current year. The Group has adopted AASB 9 Financial Instruments and AASB
15 Revenue from Contracts with Customers using the full retrospective approach. There was no material impact on
balances recognised at 1 July 2018 or the start of the comparative year (i.e. 1 July 2017) from applying the recognition
and measurement requirements of AASB 9 and AASB 15.
A qualitative explanation of the impact is set out in Note 27 below.
The most significant new Accounting Standard issued, but not yet effective, is AASB 16 Leases. AASB 16 replaces
AASB 117 Leases and requires the lessees to account for all leases under a single on-balance sheet model similar to
accounting for finance leases under AASB 117, and it became effective for the Group on 1 July 2019. Consequently,
a right-of-use asset (and a corresponding lease liability) is to be recognised in the consolidated financial statements
from 1 July 2019. The Group is finalising its impact assessment, which approximates the right-of-use asset (and a
corresponding lease liability) to be the present value of the Group’s current operating lease commitments.
All other new Accounting Standards, interpretations and amendments do not have a material impact on the Group.
CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES & ASSUMPTIONS
The preparation of the consolidated financial statements requires management to make judgements, estimates and
assumptions that affect the reported amounts in the consolidated 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 within the next financial year are discussed in each note below as applicable.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 39
NOTES TO THE
FINANCIAL STATEMENTS
Our Performance
This section highlights the results and performance of the Group for the year ended 30 June 2019. A key element of
our strategy is to maximise long-term shareholder value.
NOTE 1. SEGMENT & GROUP RESULTS
@
Key accounting policy – segment reporting
Operating segments are presented using the 'management approach', where the information presented
is on the same basis as the internal reports regularly provided to the chief operating decision-maker.
The chief operating decision-maker is responsible for the allocation of resources to operating segments
and assessing their financial performance.
The Group has identified its operating segments based on the internal reports that are regularly reviewed and used
by the chief operating decision-maker in assessing financial 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.
Segments
The Group is organised into the following operating segments:
Flexibles
Industrial
Rigid
Unallocated
The Industrial packaging
segment sources and
distributes industrial
packaging materials and
related consumer
products.
The Rigid packaging
segment manufactures,
sources and distributes
containers, closures and
related products and
services.
Unallocated contains the
elimination of
intersegment transactions
within the Group and
certain Group level
charges that are not
allocated to respective
segments for the purpose
of evaluating financial
performance as they are
not considered part of the
core operations of any
operating segment.
The Flexibles packaging
segment manufactures
flexible packaging
materials incorporating
products such as stretch
and shrink wrap,
agricultural silage
packaging, fresh produce
bags, barrier and lidding
films and industrial
protective films.
The Flexibles packaging
segment also installs,
supports and maintains
packaging machines.
Segment revenues
For the year ended 30 June 2019
Flexibles
$’000
Industrial
$’000
Rigid
$’000
Un-
allocated
$’000
Total
$’000
External revenues
Inter-segment revenues
Segment revenues
271,132
8,352
152,591
3,946
279,484 156,537
62,087
10,700
72,787
- 485,810
(22,998)
(22,998) 485,810
-
For the year ended 30 June 2018
Flexibles
$’000
Industrial
$’000
Rigid
$’000
Un-
allocated
$’000
Total
$’000
External revenues
Inter-segment revenues
Segment revenues
150,177
1,878
160,185
10,238
152,055 170,423
61,093
9,660
70,753
-
371,455
-
(21,776) 371,455
(21,776)
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 40
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 1. SEGMENT & GROUP RESULTS (CONT’D)
Segment results
Non-IFRS measures
To assist in the evaluation of the financial performance of the Group, certain measures are used that are not recognised
under the Accounting Standards and therefore, these are considered to be non-IFRS measures.
This report includes the following non-IFRS measures:
• EBIT represents profit/(loss) before net finance costs, income taxes and significant items.
• EBITDA represents EBIT before depreciation and amortisation expenses.
• Significant items are identified as favourable or unfavourable transactions which are outside of normal operating
activities and are excluded from the segment results presented to the chief operating decision-maker for the
purpose of resource allocation and assessment of segment performance.
For the year ended 30 June 2019
EBITDA
Depreciation and amortisation
Segment results (EBIT)
For the year ended 30 June 2018
EBITDA
Depreciation and amortisation
Segment results (EBIT)
Group results
Segment results (EBIT)
Significant items
Interest income
Finance costs
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) after income tax
Flexibles
$’000
Industrial
$’000
Rigid
$’000
Un-
allocated
$’000
Total
$’000
18,804
(6,417)
12,387
3,660
(1,227)
2,433
6,635
(1,554)
5,081
(1,016)
(138)
(1,154)
28,083
(9,336)
18,747
Flexibles
$’000
Industrial
$’000
Rigid
$’000
Un-
allocated
$’000
Total
$’000
5,587
(1,961)
3,626
6,004
(1,951)
4,053
5,222
(1,627)
3,595
(500)
(371)
(871)
16,313
(5,910)
10,403
30 June
2019
$’000
30 June
2018
$’000
Note
18,747
(163,329)
54
(8,135)
(152,663)
1,329
(151,334)
10,403
(11,671)
222
(5,291)
(6,337)
1,212
(5,125)
23
16
4
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 41
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 1. SEGMENT & GROUP RESULTS (CONT’D)
Significant items
Impairment losses
Onerous lease and exit costs
Acquisition and integration costs
Reversal of contingent consideration
Business interruption costs
Significant items
30 June
2019
$’000
30 June
2018
$’000
Notes
(a)
(b)
(c)
(d)
(e)
149,000
962
10,450
(1,000)
3,917
163,329
-
2,600
9,071
-
-
11,671
(a)
Impairment losses relate to the impairment testing completed at 31 December 2018.
(b) Onerous leases and exit costs relate to the remaining lease term on leases sites that have been relocated and
consolidated into existing sites following the acquisition of Integrated Packaging.
(c) Acquisition and integration costs relate to business restructuring, transaction costs and business optimisation
across the Group.
(d) Reversal of contingent consideration relates to the previous acquisition of the Cosmic Packaging business on the
basis that earnings targets have not been met.
(e) Business interruption costs include asset write-offs and provisions in relation to business disruptive events during
the year (e.g. fire at Kewdale, WA). The Group has insurance that covers it for losses incurred with respect to
the fire in Kewdale, WA and is in the process of finalising its claim with the insurance provider. No amounts have
been recognised in respect of monies which may be recoverable as the outcome of the claim is yet to be
determined.
NOTE 2. EARNINGS/(LOSSES) PER SHARE (‘EPS’)
EPS (cents) – Basic
EPS (cents) – Diluted
Calculated using:
Profit/(loss) after income tax ($’000)
Weighted average of ordinary shares (number) – Basic
Weighted average of ordinary shares (number) – Diluted*
* Includes share options as disclosed in Note 21.
30 June
2019
30 June
2018
(19.56)
(19.56)
(1.15)
(1.15)
(151,334)
(5,125)
773,655,507
774,855,507
446,961,654
457,714,567
@
Key accounting policy – earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit/(loss) after tax attributable to the owners
of the Company, 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.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 42
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Set out below is the disaggregation of the Group’s revenue from contracts with customers:
Flexibles
$’000
Industrial
$’000
Rigid
$’000
Un-
allocated
$’000
Total
$’000
For the year ended 30 June 2019
Type of goods of services
Sale of manufactured goods
Sale of distribution goods
Installation and maintenance services
273,902
-
5,582
-
156,537
-
Revenue from contracts with customers
279,484 156,537
Geographic markets
Australia
New Zealand
Canada
220,827
55,907
2,750
156,537
-
-
Revenue from contracts with customers
279,484 156,537
27,047
45,740
-
72,787
(6,548)
(14,646)
(1,804)
294,401
187,631
3,778
(22,998) 485,810
72,787
-
-
72,787
(22,998)
-
-
427,153
55,907
2,750
(22,998) 485,810
Timing of revenue recognition
Goods transferred at a point in time
Services transferred over time
217,170
62,314
156,537
-
Revenue from contracts with customers
279,484 156,537
72,787
-
72,787
(22,998)
-
423,496
62,314
(22,998) 485,810
For the year ended 30 June 2018
Type of goods of services
Sale of manufactured goods
Sale of distribution goods
Installation and maintenance services
Revenue from contracts with customers
Geographic markets
Australia
New Zealand
Canada
Revenue from contracts with customers
Timing of revenue recognition
Goods transferred at a point in time
Services transferred over time
Revenue from contracts with customers
Flexibles
$’000
Industrial
$’000
Rigid
$’000
Un-
allocated
$’000
Total
$’000
149,791
-
2,264
-
170,423
-
152,055 170,423
26,120
44,633
-
70,753
123,795
24,242
4,018
170,423
-
-
152,055 170,423
70,753
-
-
70,753
149,491
2,564
170,423
-
152,055 170,423
70,753
-
70,753
(1,878)
(19,898)
174,033
195,158
2,264
(21,776) 371,455
-
(21,776)
343,195
24,242
4,018
(21,776) 371,455
-
-
(21,776)
368,891
2,564
(21,776) 371,455
-
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 43
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 3. REVENUE FROM CONTRACTS WITH CUSTOMERS (CONT’D)
@
Sale of goods
Key accounting policy – revenue recognition
The Group adopted AASB 15 Revenue from Contracts with Customers on 1 July 2018, with full
retrospective application to the beginning of the comparative year.
The Group’s contracts with customers for the sale of products generally include either one performance
obligation or are bundled together with delivery services. The Group allocates the transaction price to
each performance obligation based on a stand-alone selling price basis. The Group has concluded that
revenue from sale of products should be recognised at the point in time when control of the asset is
transferred to the customer, generally on delivery of the goods.
Manufacturing of goods
For certain bespoke products where there is a right to payment and no alternative use exists for the
product, revenue is recognised at the time of manufacturing. The transaction price recognised over
time reflects the sales invoice value and is not judgemental.
Variable consideration
Some contracts for the sale of products provide customers with a right of return and volume rebates
which give rise to variable consideration. The variable consideration is estimated at contract inception
using the expected value method based on forecast volumes and is constrained until it is highly
probable that a significant revenue reversal in the amount of cumulative revenue recognised will not
occur when the associated uncertainty is subsequently resolved.
Warranty obligations
The Group generally provides warranties for general repairs of defects that existed at the time of sale,
as required by law. As such, most warranties are assurance-type warranties under AASB 15, which the
Group accounts for under AASB 137 Provisions, Contingent Liabilities and Contingent Assets, consistent
with its practice prior to the adoption of AASB 15.
Rendering of service
Distribution services are occasionally provided together with the sale of products to a customer. In the
case of contracts with multiple performance obligations, the transaction price is allocated to different
performance obligations based on their stand-alone selling prices. Revenue from distribution services
is recognised over time, using an input method to measure progress towards complete satisfaction of
the service.
?
Key estimate and judgement – revenue recognition
A key judgement is whether the goods manufactured for customers have an alternate use to the Group,
including whether these goods can be repurposed and sold without significant economic loss to the
Group. Where the goods are manufactured for a specific customer with no alternate use and where at
all times throughout the contract the Group has the enforceable right to payment for performance
completed to date, then the performance obligation would be the service of manufacturing of the
specific goods (revenue recognised over time) rather than the sale of goods (revenue recognised at
point in time).
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 44
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 4. TAXATION
Income tax expense
Current income tax
Current income tax charge
Adjustments in respect of previous years
Deferred income tax
Relating to origination and utilisation of temporary differences
Income tax expense/(benefit)
Reconciliation of income tax to accounting profit at the statutory income tax rate:
30 June
2019
$’000
30 June
2018
$’000
202
173
(763)
703
(1,704)
(1,329)
(1,152)
(1,212)
30 June
2019
$’000
30 June
2018
$’000
Profit/(loss) before income tax
(152,663)
(6,337)
At the statutory income tax rate of 30% (2018: 30%)
Differential income tax rates
Adjustments in respect of previous years
Non-deductible impairment losses
Other items
Income tax expense/(benefit)
Deferred tax balances
Deferred tax assets
Provisions and other timing differences
Carry forward tax losses
Transaction costs
Deferred tax assets
Deferred tax liabilities
Intangibles
Other items
Deferred tax liabilities
Deferred tax assets/(liabilities), net
Movements in the deferred tax balances during the year ended:
Balance as at beginning of the year
Recognised through profit or loss
Recognised through other comprehensive income
Recognised through business combination
Balance as at end of the year
(45,799)
70
173
44,700
(473)
(1,329)
(1,901)
(14)
703
-
-
(1,212)
30 June
2019
$’000
30 June
2018
$’000
9,637
3,704
1,536
9,798
4,278
454
14,877
14,530
6,691
30
6,721
8,156
-
-
-
14,530
30 June
2019
$’000
30 June
2018
$’000
14,530
(108)
-
(6,266)
2,224
1,152
445
10,709
8,156
14,530
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 45
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 4. TAXATION (CONT’D)
?
Key estimate and judgement – taxation
Income tax
The Group 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 Group recognises liabilities for anticipated tax issues based on the Group'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 year in
which such determination is made.
Recovery of deferred tax assets
Significant judgement and estimation is involved in establishing internal earnings forecasts upon which
further taxable income is estimated.
Carry-forward losses
Entities acquired by the Group have unutilised carry-forward losses, which can only be utilised by the
consolidated group post-acquisition date where certain tests as prescribed in the income tax legislation
have been satisfied. The Group’s assessment that these carry-forward losses are available to the
consolidated group post-acquisition is based on independent tax advice.
@
Key accounting policy – current and deferred tax
The income tax expense or benefit for the year is the tax payable or receivable on that year'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 years, 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 income will be available to utilise those temporary differences and
losses.
The carrying amount of recognised and unrecognised deferred tax assets are reviewed each balance
date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future
taxable income 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 is future taxable income
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.
Tax consolidation
The Company 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.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 46
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 4. TAXATION (CONT’D)
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.
NOTE 5. DIVIDENDS
On 28 August 2018, the Company declared a fully-franked final dividend for the year ended 30 June 2018 of 1.0 cent
per share. The record date for determining entitlements to the dividend was 11 September 2018 and the dividend
was paid on 6 November 2018.
Final dividend for the previous year
Interim dividend for the current year
Dividends declared and paid during the year
Proposed but not recognised final dividend
30 June 2019
30 June 2018
Cents/
share
1.0
0.0
1.0
0.0
$’000
7,573
-
7,573
Cents/
share
1.0
1.0
2.0
$’000
2,390
5,751
8,141
-
1.0
7,595
@
Key accounting policy – dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the
Company.
Movements in the franking credit balance during the year ended:
30 June
2019
$’000
30 June
2018
$’000
Franking account balance as at the end of the year
Franking credits that will arise from the payment of income tax payable for the year
Franking credits that will be utilised upon payment of dividends at the end of the year
Franking credits available for subsequent years
12,195
(6,303)
-
5,892
12,451
292
(3,246)
9,497
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 47
NOTES TO THE
FINANCIAL STATEMENTS
Our Operational Footprint
This section provides details of acquisitions which the Group has made in the financial year, as well as details of
controlled entities.
NOTE 6. BUSINESSES ACQUIRED
On 1 July 2018, the Group acquired the business assets of Polypak Plastics Limited (‘Polypak’), a company based in
New Zealand. The investment is aimed at increasing market share and providing a platform for growth opportunities
in the New Zealand market. This business is included in the Flexibles packaging operating segment.
On 1 September 2018, the Group acquired 100% of the units in Perfection Packaging Unit Trust (‘Perfection
Packaging’), which offers a range of hard flexible packaging solutions and focuses on customers in the fast-moving
consumer goods market. This business is included in the Flexibles packaging operating segment.
In the previous year:
• On 11 September 2017, the Group acquired the business assets of Selmac Group Pty Ltd (formerly known as
Cosmic Packaging Pty Ltd (‘Cosmic Packaging’)), a business that sources produce packaging and related products
from local and international suppliers for distribution into the Australian market. This business is included in the
Industrial packaging operating segment.
• On 6 November 2017, the Group acquired 100% of the equity in Integrated Packaging Group Pty Ltd (‘Integrated
Packaging’), 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 and
Canada. This business is included in the Flexibles packaging operating segment.
The value of goodwill arising on acquisition of these businesses relates to the anticipated 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.
Fair value of consideration at acquisition date:
Cash consideration paid
Contingent consideration*
Share consideration
Fair value of gross consideration payable
Less: cash acquired
Fair value of net consideration payable
Fair value of net assets at acquisition date:
Trade and other receivables
Inventories
Other assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Trade and other payables
Income tax payable
Employee entitlements
Other provisions
Fair value of identifiable net assets
Goodwill arising on acquisition
Final
Cosmic
Packaging
$’000
Final
Integrated
Packaging
$’000
Final
Perfection
Packaging
$’000
Final
Polypak
$’000
2,761
1,046
-
3,807
-
3,807
125,519
-
60,000
185,519
42,436
-
9,960
52,396
(6,153)
(1,763)
179,366
50,633
-
897
-
471
-
-
(470)
-
(10)
-
888
2,919
57,513
48,387
-
24,741
22,872
376
(46,877)
(548)
(7,325)
(1,873)
97,266
82,100
12,749
2,236
998
10,241
-
363
(6,336)
-
-
(1,211)
19,040
31,593
4,648
1,613
-
6,261
-
6,261
857
380
6
970
-
203
(727)
-
(174)
(550)
965
5,296
* The contingent consideration for Cosmic Packaging is not payable on the basis that earnings targets have not been
met. In relation to Polypak, the performance hurdles have been met and the first payment of $806,000 was paid in
December 2018. The second payment of $807,000 is due within 3 months of 30 June 2019.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 48
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 6. BUSINESSES ACQUIRED (CONT’D)
Details of the goodwill impairment assessment is contained in Note 11 below.
The Consolidated Statement of Comprehensive Income includes the results of Cosmic Packaging and Integrated
Packaging for the year ended 30 June 2019 as they were acquired in the comparative year whereas the results of
Perfection Packaging and Polypak have been consolidated from the date of acquisition.
Impacts of each acquisition on Consolidated Statement of Comprehensive Income is:
Acquisition costs expensed through profit or loss
Revenue from date of acquisition
Profit before tax from date of acquisition
Revenue if acquisition had occurred on 1 July 2018
Profit before tax if acquisition had occurred on 1 July 2018
Final
Perfection
Packaging
$’000
25
41,709
3,374
50,052
4,423
Final
Polypak
$’000
-
15,023
2,274
15,023
2,274
@
Key accounting policy – businesses acquired
The acquisition method of accounting is used to account for business combinations regardless of
whether equity instruments or other assets are acquired.
The consideration transferred is the sum of the acquisition-date fair values of the assets transferred,
equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and
the amount of any non-controlling interest in the acquiree. All acquisition costs are expensed as
incurred to 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.
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 is recognised
as goodwill. If the consideration transferred 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.
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.
?
Key estimate and judgement – businesses acquired
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 Group taking into
consideration all available information at the balance date. Fair value adjustments on the finalisation
of the business combination accounting is retrospective, where applicable, to the year the combination
occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 49
NOTES TO THE
FINANCIAL STATEMENTS
Our Operating Assets
This section highlights the primary operating assets used and liabilities incurred to support the Group’s operating
activities.
WORKING CAPITAL
Trade and other receivables
Inventories
Other assets
Trade and other payables
Working capital
Notes
7
8
(a)
9
30 June
2019
$’000
30 June
2018
$’000
90,278
78,108
4,086
(74,104)
98,368 101,781
83,221
95,463
9,126
(86,029)
(a) Other assets are comprised of deposits paid to suppliers, prepaid insurance and other administrative costs.
NOTE 7. TRADE & OTHER RECEIVABLES
Trade receivables
Receivables from related parties
Trade and related party receivables
Allowance for expected credit losses
Trade and related party receivables, net of provision
Contract assets
Other debtors
Trade and other receivables
30 June
2019
$’000
30 June
2018
$’000
81,480
1,088
82,568
(1,065)
81,503
6,683
2,092
90,278
80,720
402
81,122
(744)
80,378
-
2,843
83,221
Trade and related party receivables are non-interest bearing and are generally due for settlement within 30-90 days.
@
Key accounting policy – trade and other receivables
Trade and related party receivables
Trade and related party receivables are initially recognised at fair value and subsequently measured at
amortised cost using the effective interest method, less any allowance for expected credit losses.
Other receivables
Other receivables are recognised at amortised cost, less any provision for impairment.
Contract assets
A contract asset is the right to consideration in exchange for goods or services transferred to the
customer. If the Group transfers goods or services to a customer before the customer pays
consideration or before payment is due, a contract asset is recognised for the earned consideration
that is conditional.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 50
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 7. TRADE & OTHER RECEIVABLES (CONT’D)
?
Key estimate and judgement – allowance for expected credit losses
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held
at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows
due in accordance with the contract and all the cash flows that the Group expects to receive, discounted
at an approximation of the original effective interest rate. The expected cash flows will include cash
flows from the sale of collateral held or other credit enhancements that are integral to the contractual
terms.
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs.
Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance
based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is
based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors
and the economic environment.
Managing credit risk
Trade and related party receivables are considered to be the main source of credit risk; however, the
Group does not have a concentration of credit risk with respect to any single counterparty or group of
counterparties, which mitigates the risk of significant losses of default.
The Group has policies in place to ensure that customers who trade on credit terms are subject to
credit verification procedures. Amounts are considered as ‘past due’ when the debt has not been settled
within the credit terms and conditions as agreed between the Group and the customer or counterparty
to the transaction. Amounts past due are assessed for impairment by ascertaining the solvency of
debtors and are provided for where there are specific circumstances indicating that the debt may not
be fully repaid to the Group.
The aging profile and related provisioning of trade and related party receivables as at:
Gross
trade and related
party receivables
30 June
2018
$’000
30 June
2019
$’000
Allowance
for expected
credit losses
30 June
2018
$’000
30 June
2019
$’000
Current to less than 30 days overdue
31 days to 60 days overdue
61 days to 90 days overdue
Greater than 90 days overdue
50,092
24,562
4,918
2,996
39,238
30,489
7,675
3,720
277
378
274
136
Trade and related party receivables
82,568
81,122
1,065
180
180
224
160
744
Movements in the allowance for expected credit losses during the year ended:
Balance as at beginning of the year
Additional amounts provided for
Amounts written-off as uncollectible
Recognised through business combination
Balance as at end of the year
30 June
2019
$’000
30 June
2018
$’000
(744)
(1,294)
1,119
(146)
(1,065)
(407)
(703)
366
-
(744)
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 51
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 8. INVENTORIES
Raw materials
Work-in-progress
Finished goods
Engineering spares
Provision for obsolete inventories
Inventories
30 June
2019
$’000
30 June
2018
$’000
15,961
4,056
64,426
804
(7,139)
23,267
4,999
71,066
1,229
(5,098)
78,108
95,463
@
Key accounting policy – 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, and an allocation 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.
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.
?
Key estimate and judgement – provision for obsolete inventories
The provision for obsolete inventories assessment requires a degree of estimation and judgement. The
level of the provision is assessed by taking into account recent sales experience, ageing of inventories
and other factors that affect inventory obsolescence.
Movements in the provision for obsolete inventories during the year ended:
Balance as at beginning of the year
Additional amounts provided for
Amounts written-off as obsolete
Recognised through business combination
Balance as at end of the year
Managing commodity risk
30 June
2019
$’000
30 June
2018
$’000
(5,098)
(2,487)
465
(19)
(7,139)
(489)
(9,101)
4,492
-
(5,098)
The Group is exposed to commodity price risk in relation to certain raw materials, specifically resin. In
managing this risk, the Group passes on changes in commodity prices to customers, including through
contractual rise and fall adjustments, where possible.
NOTE 9. TRADE & OTHER PAYABLES
Trade payables
Payables to related parties
GST and other taxes payable
Contract liabilities
Other payables
Trade and other payables
30 June
2019
$’000
30 June
2018
$’000
58,938
-
2,356
35
12,775
74,104
66,697
-
1,239
-
18,093
86,029
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 52
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 9. TRADE & OTHER PAYABLES (CONT’D)
Trade and related party payables are non-interest bearing, unsecured and are generally settled on 60-day terms, or
less. Goods & Services Tax (‘GST’) is remitted to the appropriate government body on a quarterly basis, whereas other
taxes payable are remitted on a monthly basis.
@
Key accounting policy – trade and other payables
Trade and related party payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of
the year and which remain unpaid. Due to their short-term nature, they are measured at amortised
cost and are not discounted.
GST and other taxes payable
Revenues, expenses and assets are recognised net of the amount of applicable 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 Consolidated Statement of Financial Position.
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.
Managing foreign currency risk
As a result of its international activities, the Group is exposed to changes in foreign exchange rates on
sales and purchases. In order to mitigate foreign currency risk, the Group regularly determines its net
exposure to the primary currencies listed below based on actual sales and purchases and in some cases
enters into foreign currency forward contracts to hedge these exposures.
The net carrying amount of financial assets/(liabilities) denominated in foreign currencies at balance
date were:
United States dollars
Canadian dollars
New Zealand dollars
Euros
Great British pounds
30 June
2019
$’000
30 June
2018
$’000
831
648
1,785
(2,362)
164
6,226
613
1,322
(418)
-
The table below illustrates the sensitivity of balances outstanding in foreign currencies at balance date
to reasonably possible changes in foreign exchange rates in isolation and the consequential impact on
the profit or loss of the Group:
+/- 10% in AUD/USD
+/- 10% in AUD/CAD
+/- 10% in AUD/NZD
+/- 10% in AUD/EUR
+/- 10% in AUD/GBP
30 June
2019
$’000
30 June
2018
$’000
83
65
179
(236)
16
623
61
132
(42)
-
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 53
NOTES TO THE
FINANCIAL STATEMENTS
NON-CURRENT ASSETS
?
Key estimate and judgement – estimated useful lives of non-current assets
The Group 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 and therefore, increase the
depreciation and amortisation charges.
NOTE 10. PROPERTY, PLANT & EQUIPMENT
Balances as at 1 July 2018
Acquired through business combination
Additions
Disposals
Depreciation expense
Balances as at 30 June 2019
Represented by:
At cost
Accumulated depreciation and impairment
Balances as at 30 June 2019
Balances as at 1 July 2017
Acquired through business combination
Additions
Disposals
Depreciation expense
Balances as at 30 June 2018
Represented by:
At cost
Accumulated depreciation and impairment
Balances as at 30 June 2018
Leasehold
Improvements
$’000
Plant &
Equipment
$’000
Computer
& Office
Equipment
$’000
Motor
Vehicles
$’000
1,306
77
111
(2)
(176)
1,316
32,246
22,360
8,832
(944)
(7,872)
54,622
3,773
(2,457)
1,316
93,243
(38,621)
54,622
249
1,092
284
(12)
(307)
12,147
12,731
12,089
(402)
(4,319)
1,306
32,246
1,425
44
2,320
(61)
(643)
3,085
4,574
(1,489)
3,085
1,307
-
868
(110)
(640)
1,425
Total
$’000
36,490
22,799
11,921
(1,296)
(9,032)
60,882
1,513
318
658
(289)
(341)
1,859
4,478
(2,619)
1,859
106,068
(45,186)
60,882
1,455
-
592
(123)
(411)
1,513
15,158
13,823
13,833
(647)
(5,677)
36,490
4,083
(2,777)
1,306
98,410
(66,164)
32,246
4,962
(3,537)
1,425
3,826
(2,313)
1,513
111,281
(74,791)
36,490
@
Key accounting policy – property, plant and equipment
Property, 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 and costs incurred to get the asset to a location and condition ready for use.
Depreciation rates and methods used for each class of assets are as follows:
Class of asset
Plant and equipment
Motor vehicles
Computer equipment
Office equipment
Depreciation rates Method
5% - 40%
7% - 25%
20% - 50%
5% - 33%
Straight-line and diminishing value
Straight-line and diminishing value
Straight-line and diminishing value
Straight-line and diminishing value
Leasehold improvements and plant and equipment acquired under a finance lease are depreciated over
the asset's useful life or the lease term, whichever is shorter.
An item of property, plant and equipment is derecognised upon disposal or when there is no future
economic benefit to the Group. Gains and losses being the difference between the carrying amount
and disposal proceeds are taken to profit or loss.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 54
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 11. INTANGIBLE ASSETS
Balances as at 1 July 2018
Acquired through business combination
Amortisation expense
Impairment loss
Movement in foreign exchange rates
Balances as at 30 June 2019
Represented by:
At cost
Accumulated amortisation and impairment
Balances as at 30 June 2019
Balances as at 1 July 2017
Acquired through business combination
Amortisation expense
Balances as at 30 June 2018
Goodwill
$’000
162,050
31,161
-
(149,000)
-
44,211
193,211
(149,000)
44,211
71,281
90,769
-
162,050
21,472
-
-
-
-
21,472
21,472
-
21,472
-
21,472
-
21,472
Represented by:
At cost
Accumulated amortisation and impairment
Balances as at 30 June 2018
162,050
-
162,050
21,472
-
21,472
Brand
Names
$’000
Customer
Contracts
$’000
Other
$’000
Total
$’000
1,167
-
(304)
-
2
865
1,402
(537)
865
-
1,400
(233)
1,167
1,400
(233)
1,167
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
184,689
31,161
(304)
(149,000)
2
66,548
216,085
(149,537)
66,548
71,281
113,641
(233)
184,689
184,922
(233)
184,689
@
Key accounting policy – goodwill and other 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. Changes in the expected pattern of consumption or useful
life are accounted for prospectively by changing the amortisation method or period.
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.
Trademarks
Trademarks are assigned an indefinite life and tested for impairment at each balance date unless there
are indications of impairment.
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.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 55
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 11. INTANGIBLE ASSETS (CONT’D)
Impairment testing of goodwill and other intangible assets
Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested
for impairment annually, or more frequently if events or changes in circumstances indicate that they might be impaired.
Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's
carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset's fair value less costs of disposal (‘FVLCD’) and its value-in-use (‘VIU’).
The VIU is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate
specific to the asset. Assets that do not have independent cash flows are grouped together to form a cash-generating
unit (‘CGU’).
The Group performs its annual impairment test in June; however, an indication of impairment existed at 31 December
2018 as the Company’s market capitalisation was below the carrying amount of the Group’s net assets. Following a
detailed assessment under VIU, it was identified that the carrying amount of goodwill was impaired by $149.0 million
in the Industrial & Flexibles segment.
Upon the departure of the previous CEO, Grant Harrod, a reorganisation was completed such that the Group now has
three operating segments, each with their own General Manager reporting to the new CEO, Tim Welsh. Consequently,
the annual impairment test as at 30 June 2019 was performed on this basis and no further impairment losses were
recognised.
As at balance date, the carrying amount of goodwill and other intangibles has been allocated to the following
businesses, representing the smallest group of identifiable assets that generate cash inflows that are largely
independent of the cash inflows from other assets and group of assets.
Goodwill
Other intangibles
Total
Flexibles
$’000
Industrial
$’000
Rigid
$’000
Un-
allocated
$’000
Total
$’000
22,116
22,337
44,453
-
-
-
22,095
-
22,095
-
-
-
44,211
22,337
66,548
Of the $149.0 million impairment loss, $96.9 million has been recognised in the Flexibles packaging division and $52.1
million has been recognised in the Industrial packaging division.
Methodology and Testing of Recoverable Amount
Value-in-Use
The recoverable amount of each group of CGUs is based on VIU, which has been determined using a discounted cash
flow model based on a one-year projection approved by the Directors and extrapolated for a further four years based
on steady growth rates, together with a terminal value.
The cash flow forecasts are comprised of earnings before interest, income tax, depreciation and amortisation
(‘EBITDA’) as a proxy for operating cash flows, less expected working capital movements and sustainable levels of
maintenance capital expenditure.
?
Key estimate and judgement – recoverability of carrying amounts
The recoverable amounts of CGUs have been determined based on VIU calculations. These calculations
require the use of assumptions, which may not be observable (e.g. earnings growth rates) and
estimated discount rates based on the current cost of capital and growth rates of the estimated future
cash flows.
The residual values, useful lives and depreciation methods are reviewed at each balance date and
adjusted where there is evidence that the expected pattern of consumption differs from the useful life
assumed.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 56
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 11. INTANGIBLE ASSETS (CONT’D)
Key assumptions
The following key assumptions have been used to determine the recoverable amounts of each group of CGUs and the
assumptions adopted are set out below.
• Discount rates
Discount rates applied in determining the recoverable amounts are based on the pre-tax weighted average cost of
capital of the respective industries in which the group of CGU’s operates, which is considered reflective of the
current market assessment of the risks specified to each CGU taking into consideration the time value of money.
The pre-tax discount rates adopted were 11.26% (2018: 10.40%) for Rigid packaging, 11.55% (2018: 10.40%)
for Industrial packaging and 11.41% (2018: 10.40%) for Flexibles packaging.
• Growth rates
The earnings forecast in the first year of the forecast period is consistent with the budget approved by the Directors.
The EBITDA assumptions adopted to determine the forecast cash flows for the second year and each subsequent
year within the forecast period (‘EBITDA compound annual growth rates’) are in line with, or below, independent
published expectations of growth in these industries.
The EBITDA compound annual growth rates adopted were 1.90% (2018: 2.60%) for Rigid packaging, 8.42%
(2018: 3.00%) for Industrial packaging and 0.79% (2018: 3.00%) for Flexibles packaging.
• Long-term growth rate
A long-term growth rate adopted to extrapolate cash flows beyond the five-year forecast period is considered in
line with, or below, external market expectations of long-term growth in these industries.
The long-term growth rates adopted were 2.00% (2018: 2.00%) for Rigid packaging, 2.00% (2018: 2.00%) for
Industrial packaging and 2.00% (2018: 2.00%) for Flexibles packaging.
Sensitivity analysis
The table below includes details of the amount by which the recoverable amount exceeded its carrying amount
(‘Headroom’) for each group of CGUs at 30 June 2019, together with value assigned to each key assumption used in
determining the recoverable amount (‘Adopted assumption’) and the value of each key assumption at which the
recoverable amount is equal to its carrying amount when moved in isolation (‘Breakeven assumption’).
Flexibles Industrial
Rigid
Headroom ($’000)
17,417
5,720
18,187
Discount rates
Adopted assumption (%)
Breakeven assumption (%)
EBITDA compound annual growth rates
Adopted assumption (%)
Breakeven assumption (%)
Long-term growth rates
Adopted assumption (%)
Breakeven assumption (%)
11.41
12.68
11.55
13.10
11.26
16.16
0.79
(1.65)
8.42
5.02
1.90
(6.63)
2.00
(1.20)
2.00
(8.47)
2.00
(9.45)
The Directors consider that a reasonably possible unfavourable movement in key assumptions used to determine the
recoverable amount may result in impairment.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 57
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 11. INTANGIBLE ASSETS (CONT’D)
The table below discloses the sensitivity of the recoverable amount of each group of CGUs to reasonable possible
changes in each key assumption when moved in isolation.
Discount rates
Revised assumption (%)
Impact on recoverable amount ($’000)
EBITDA compound annual growth rates
Revised assumption (%)
Impact on recoverable amount ($’000)
Long-term growth rates
Revised assumption (%)
Impact on recoverable amount ($’000)
Flexibles Industrial
Rigid
12.41
(14,105)
12.55
(3,896)
12.26
(5,118)
(0.21)
(7,282)
7.42
(1,737)
0.90
(2,364)
1.00
(6,598)
1.00
(1,037)
1.00
(3,206)
NOTE 12. COMMITMENTS & CONTINGENCIES
Operating lease commitments
The Group has entered into commercial leases for production, warehousing and office space as lessee under non-
cancellable arrangements. These leases have varying terms, rent review and escalation clauses, and renewal rights
at the option of the lessee. On renewal, the terms of the leases are renegotiated.
Future minimum lease payments under operating leases as at:
Less than one year
Greater than one year, but less than five years
Greater than five years
Operating lease commitments
Finance lease and hire-purchase commitments
30 June
2019
$’000
30 June
2018
$’000
13,540
30,577
8,783
52,900
10,624
22,096
5,643
38,363
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 as at:
Less than one year
Greater than one year, but less than five years
Finance lease and hire-purchase commitments
30 June
2019
$’000
30 June
2018
$’000
879
875
1,754
1,079
1,026
2,105
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 58
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS & CONTINGENCIES (CONT’D)
@
Key accounting policy – 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 Group
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.
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.
Capital expenditure commitments
Less than one year
Capital expenditure commitments
Contingencies
Security deposit guarantees given to landlords
Standby letters of credits given to overseas suppliers
Contingent liabilities
30 June
2019
$’000
30 June
2018
$’000
169
169
1,873
1,873
30 June
2019
$’000
30 June
2018
$’000
4,831
6,057
10,888
806
12,572
13,378
Additional contingent liabilities may exist in respect of product claims and other legal matters. By their nature, the
outcome of these cases is uncertain. Where practicable, amounts have been provided in the consolidated financial
statements to recognise the estimated costs to settle the claims based on legal advice and best estimate assumptions.
@
Key accounting policy – contingencies
A contingent liability is, either:
• A possible obligation that arises from past events and whose existence will be confirmed only by
the occurrence or non-occurrence of one or more uncertain future events not wholly within the
control of the entity; or
• A present obligation that arises from past events but is not recognised because (a) it is not probable
that an outflow of resources embodying economic benefits will be required to settle the obligation;
or (b) the amount of the obligation cannot be measured with sufficient reliability.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 59
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 13. OTHER PROVISIONS
Current
Onerous contracts
Business restructuring
Lease make-good
Other
Current other provisions
Non-current
Onerous contracts
Lease make-good
Non-current other provisions
30 June
2019
$’000
30 June
2018
$’000
649
1,805
1,039
2,813
6,306
606
198
-
-
804
-
2,582
2,582
623
3,046
3,669
Movements in other provisions during the year ended:
Business
Restructuring
$’000
Onerous
Contracts
$’000
Balances as at 1 July 2018
Additional amounts provided for
Amounts utilised
Recognised through business combination
Unwinding of discounting
Balances as at 30 June 2019
198
1,805
1,229
-
(198)
(580)
-
-
1,805
-
-
649
Lease
Make-
Good
$’000
3,046
-
-
550
25
3,621
Other
$’000
Total
$’000
-
2,813
-
-
-
2,813
4,473
4,618
(778)
550
25
8,888
@
?
Key accounting policy – other provisions
Provisions are recognised when the Group has a present (legal or constructive) obligation as a result
of a past event, it is probable the Group 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 balance 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.
Key estimate and judgement – other provisions
A provision has been made for the present value of anticipated costs for future restoration of leased
premises (make-good). 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.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 60
NOTES TO THE
FINANCIAL STATEMENTS
Our Capital Structure
This section outlines the Group’s capital structure.
The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern and
ensure the lowest cost of capital available to the Group, so that the Company can provide returns for shareholders
and to maintain an optimum capital structure to reduce the cost of capital.
The Group’s financing arrangements contain financial 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. In order to maintain or adjust the capital structure, the Group may adjust the quantum of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
NET DEBT
Interest-bearing liabilities
Cash and cash equivalents
Net debt
NOTE 14. INTEREST-BEARING LIABILITIES
Current
Finance lease and hire purchase
Trade finance
Bank loans
Current interest-bearing liabilities
Non-current
Finance lease and hire purchase
Bank loans
Non-current interest-bearing liabilities
Notes
14
15
30 June
2019
$’000
30 June
2018
$’000
106,496
(23,559)
82,937 101,258
104,464
(3,206)
30 June
2019
$’000
30 June
2018
$’000
815
4,659
6,149
11,623
992
7,236
5,012
13,240
969
93,904
94,873
977
90,247
91,224
Bank loans are secured by first ranking registered equitable mortgage over the Company and all controlled entities
and cross-interlocking guarantees from the Company and all controlled entities.
@
Key accounting policy – interest-bearing liabilities
Bank loans
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 balance date, the loans or borrowings are classified as non-current.
Finance lease and hire purchase
Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased
assets, or if lower, the present value of minimum lease payments. Lease payments are allocated
between the principal component of the lease liability and the finance costs, so as to achieve a constant
rate of interest on the remaining balance of the liability.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 61
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 14. INTEREST-BEARING LIABILITIES (CONT’D)
At balance date, the bank loans were subject to the following financial covenants:
Interest coverage ratio
Leverage ratio
Debt service cover ratio
30 June
2019
$’000
30 June
2018
$’000
≥ 4.0:1
≤ 3.5:1
≥ 1.1:1
≥ 4.0:1
≤ 4.0:1
≥ 1.1:1
At balance date, the Group had unrestricted access to the following lines of credit:
As at 30 June 2019
Bank overdraft
Bank loans
Contingent funding facilities
Total facilities
As at 30 June 2018
Bank overdraft
Bank loans
Contingent funding facilities
Total facilities
Utilised
$’000
Unutilised
$’000
Total
$’000
-
100,100
7,872
107,972
5,000
5,000
100,382
282
28,870
20,998
26,280 134,252
Utilised
$’000
Unutilised
$’000
Total
$’000
4,916
97,301
13,547
115,764
5,000
84
102,016
4,715
15,853
29,400
20,652 136,416
Managing liquidity risk
The Group’s objective is to maintain a balance between:
• Continuity of funding and flexibility through the use of bank loans, trade finance, finance leases
and hire purchase arrangements; and
•
Investment in strategic growth opportunities.
The Group manages liquidity risk through cash flow forecasting.
The contractual maturities of financial liabilities of the Group at balance date were:
30 June 2019
Trade and other payables
Other liabilities
Interest-bearing liabilities
Total
30 June 2018
Trade and other payables
Other liabilities
Interest-bearing liabilities
Total
On
demand
$’000
Less
than 3
months
$’000
3 to 12
months
$’000
1 to 5
years
$’000
Greater
than 5
years
$’000
Total
$’000
-
-
-
-
74,104
889
6,012
81,005
-
-
5,611
5,611
-
-
94,873
94,873
74,104
-
889
-
-
106,496
- 181,489
On
demand
$’000
Less
than 3
months
$’000
3 to 12
months
$’000
1 to 5
years
$’000
Greater
than 5
years
$’000
Total
$’000
-
-
-
-
85,984
45
7,496
93,525
-
-
5,744
5,744
-
-
91,224
91,224
85,984
-
45
-
-
104,464
- 190,493
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 62
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 15. CASH & CASH EQUIVALENTS
Cash on hand
Cash at bank
Bank overdrafts
Cash and cash equivalents
30 June
2019
$’000
30 June
2018
$’000
21
23,538
-
23,559
20
8,104
(4,918)
3,206
Cash at bank earns, and bank overdrafts incur, interest based on floating daily bank deposit rates.
@
Key accounting policy – cash and cash equivalents
Cash and cash equivalents include cash at bank and on hand, bank overdrafts and deposits held with
short-term 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.
Reconciliation of net cash flows from operating activities to accounting profit for the year ended:
30 June
2019
$’000
30 June
2018
$’000
Notes
Profit/(loss) before income tax
(152,663)
(6,337)
Non-cash items:
Impairment losses
Depreciation and amortisation expense
Loss/(gain) on disposal of assets
Share-based payments expense
Amortisation of borrowing costs
Changes in assets and liabilities:
Decrease/(increase) in trade and other receivables
Decrease/(increase) in inventories
Decrease/(increase) in derivatives
Decrease/(increase) in other assets
Increase/(decrease) in trade and other payables
Increase/(decrease) in other liabilities
Increase/(decrease) in employee entitlements
Increase/(decrease) in other provisions
Income tax paid
Net cash flows from operating activities
11
20
16
149,000
9,336
313
(99)
614
-
5,910
885
102
-
6,549
19,971
359
6,169
(23,010)
889
(1,102)
3,865
(4,424)
15,767
12,024
(11,257)
416
(5,877)
5,029
-
266
1,564
(518)
2,207
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 63
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 16. FINANCE COSTS
Interest expense
Amortisation of borrowing costs
Finance costs
30 June
2019
$’000
30 June
2018
$’000
7,521
614
8,135
5,291
-
5,291
@
Key accounting policy – finance costs
Finance costs are expensed in the year 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.
Managing interest rate risk
Bank loans are the main source of interest rate risk because the interest rate is floating whereas
interest payable on trade finance, hire purchase and finance lease liabilities are fixed for the term of
the arrangement.
Interest earned on cash and cash equivalents is not significant.
The composition of the Group’s funding is considered annually to ensure applicable interest rates are
competitive and reflective of the Group’s future funding requirements.
The table below illustrates the sensitivity of interest-bearing balances outstanding at balance date to
reasonably possible changes in interest rates in isolation and the consequential impact on the profit or
loss of the Group:
30 June
2019
$’000
30 June
2018
$’000
+/- 1% in interest rates
1,091
941
EQUITY
NOTE 17. ISSUED CAPITAL
Movements in the issued, authorised and fully-paid ordinary shares during the year ended:
30 June 2019
$’000
Number
30 June 2018
$’000
Number
Ordinary shares as at beginning of the year
Issue of shares for dividend reinvestment plan
Shares issued to vendors of businesses acquired
Shares issued under share placement
Shares issued under Executive LTI plan
Cancellation of shares issued under Executive LTI plan
Cost of raising shares
Ordinary shares as at beginning of the year
583,665,341 217,695 241,771,819
8,380,864
158,421,024
161,181,634
14,910,000
(1,000,000)
-
24,964,031
25,538,462
175,882,354
-
(2,220,000)
-
5,223
9,960
59,800
-
-
(1,060)
98,194
3,604
62,577
54,802
-
-
(1,482)
807,830,188 291,618 583,665,341 217,695
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.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 64
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 17. ISSUED CAPITAL (CONT’D)
@
Key accounting policy – issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are recognised in equity
as a deduction, net of tax, from the proceeds.
NOTE 18. RESERVES
Share-based payments reserve
Cash flow hedge reserve
Foreign currency translation reserve
Reserves
Notes
(a)
(b)
(c)
30 June
2019
$’000
30 June
2018
$’000
179
-
1,042
1,221
278
471
501
1,250
(a) The share-based payments reserve is used to recognise the fair value of share options and performance rights
granted to certain employees over the vesting period, subject to the employee still being employed at that vesting
date.
(b) The cash flow hedge 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.
(c) The foreign currency translation reserve is used to accumulate differences that arise on translation of foreign
operations where the functional currency is other than Australian dollars.
@
Key accounting policy – reserves
Share-based payments reserves
The fair value of equity-settled transactions determined at grant date is amortised over the vesting
year with a corresponding increase in equity. The cumulative charge to profit or loss is calculated based
on the 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 year is the
cumulative amount calculated at each balance date less amounts already recognised in previous years.
Cash flow hedge reserve
The Group uses forward currency contracts as hedges of its exposure to foreign currency risk in forecast
transactions and firm commitments, as well as forward commodity contracts for its exposure to
volatility in the commodity prices.
Where hedging documentation is in place, the effective portion of the gain or loss on the hedging
instrument is recognised in other comprehensive income in the cash flow hedge reserve, while any
ineffective portion is recognised immediately in profit or loss. The cash flow hedge reserve is adjusted
to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in
fair value of the hedged item. The ineffective portion relating to foreign currency contracts is recognised
as other expense and the ineffective portion relating to commodity contracts is recognised in other
operating income or expenses.
Foreign currency translation reserve
The consolidated financial statements are presented in Australian dollars, which is the Company’s
functional and presentation currency.
The assets and liabilities of foreign operations are translated into Australian dollars using the exchange
rates at the balance 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 year. All resulting foreign exchange differences are recognised in other
comprehensive income through the foreign currency reserve in equity.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 65
NOTES TO THE
FINANCIAL STATEMENTS
Remunerating Our People
This section provides financial insight into employee reward and recognition designed to attract, retain, reward and
motivate high performing individuals so as to achieve the objectives of the Group in alignment with the interests of
our shareholders.
This section should be read in conjunction with the Remuneration Report, contained within the Directors’ Report,
which provides specific details on the setting of remuneration of Key Management Personnel.
NOTE 19. EMPLOYEE ENTITLEMENTS
Current
Annual leave
Time off in lieu and rostered days off
Long service leave
Current employee entitlements
Non-current
Long service leave
Non-current employee entitlements
30 June
2019
$’000
30 June
2018
$’000
5,554
58
5,257
10,869
5,258
-
6,023
11,281
1,692
1,692
675
675
?
@
Key estimate and judgement – employee entitlements
The liability for employee entitlements expected to be settled more than twelve months from the
balance date is measured at the present value of the estimated future cash flows to be made in respect
of all employees at the balance date, irrespective of whether the liability is classified as current.
In determining the present value of the liability, estimates of attrition rates and pay increases through
promotion and inflation have been taken into account.
Key accounting policy – 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 twelve months of the balance date are recognised in current liabilities in
respect of employees' services up to the balance date and are measured at the amounts expected to
be paid when the liabilities are settled.
Other long-term employee benefits
The liability for long service leave that does not meet the vesting conditions within twelve months of
balance date is recognised in non-current liabilities. 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 balance
date. 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
balance date on corporate bonds with terms to maturity and currency that match, as closely as possible,
the estimated future cash outflows.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 66
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 20. EMPLOYEE BENEFITS EXPENSE
Wages and salaries
Superannuation contributions
Share-based payments expense
Other employee benefits
Employee benefits expense
NOTE 21. SHARE-BASED PAYMENTS
30 June
2019
$’000
30 June
2018
$’000
74,272
5,895
(99)
3,352
83,420
58,798
5,151
102
-
64,051
The Company aims to develop remuneration packages that properly reflect each person’s duties and responsibilities
and includes remuneration that is competitive in attracting, retaining and motivating people of the highest quality.
Remuneration packaging include the awarded shares, performance rights and share options which vest upon the
eligible employee remaining in service with the Group and the achievement of certain performance hurdles by the end
of the vesting period.
All share-based payment arrangements are equity settled and there have been no cancellations or modifications to
the awards in the current or comparative year.
The valuation technique and assumptions used to determine the fair value of each award depends on whether the
vesting conditions include a market hurdle or non-market hurdle.
•
•
The Monte Carlo simulation-based model is used to test the likelihood of attaining the market hurdle against the
comparator group of entities using the following assumptions: expected volatility, risk-free interest rate, expected
life of option, share price, dividend yield and probability of achievement. The Monte Carlo simulation incorporates
the impact of this market condition on the fair value of the awards containing a market hurdle.
The fair value of awards which do not contain a market hurdle is based on the share price on the grant date, less
any expected dividends to be received between grant date and the vesting date.
Employee Share Purchase Plan (‘ESPP’)
The Company has established an ESPP to encourage employees to participate in the ownership of the Company and
promote the long-term success of the Company as a common goal by the employees.
The key performance hurdle which has been used is that the Total Shareholders Return (‘TSR’) 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) over a three-year vesting period. 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 Volume Weighted
Average Price (‘VWAP’) immediately prior to the offer being made to the employee or the shares being issued.
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 the Company are treated as interest on the loan.
The shares are registered in the names of the participants from allotment but remain subject to restrictions on dealing
while they are pledged as security for a loan or subject to performance hurdles specified and may for forfeited.
If the employee leaves the employment of the Group before vesting, the loan balance must be repaid in full or the
shares surrendered in full settlement of the outstanding loan balance.
Under Australian Accounting Standards, shares issued to senior executives under the ESPP are considered to be options
granted.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 67
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 21. SHARE-BASED PAYMENTS (CONT’D)
A summary of the shares granted during the year ended 30 June 2019 is as follows:
Grant date
Vesting date
Fair
Value
Number
Exercise
Price
14 January 2019
13 January 2022
$0.020
2,890,000
$0.200
The following table shows the number and weighted average exercise prices (‘WAEP’) of, and movements in, shares
granted under the ESPP during the year ended:
Outstanding as at beginning of the year
Granted
Forfeited *
Expired *
Outstanding as at end of the year
Exercisable
30 June 2019
WAEP
Number
30 June 2018
WAEP
Number
16,810,000
2,890,000
(13,315,000)
(1,200,000)
5,185,000
2,050,000
$0.384
14,910,000
$0.200
(150,000)
$0.382
$0.417
-
$0.280 16,810,000
$0.417
$0.380
$0.417
-
$0.384
-
-
-
-
* Of the shares that have expired or were forfeited during the year ended 30 June 2019, 2,220,000 shares have been
cancelled and 12,295,000 await cancellation or reallocation to a trustee who holds the shares for the purposes of
reallocation to employees at a later date.
Going forward, the Board has resolved that long-term incentives will be offered to eligible employees under the
Company’s performance rights plan.
Performance Rights Plan (‘PRP’)
The Company has established a PRP to provide eligible employees with an opportunity to share in the growth in value
of the Company and to encourage them to improve the longer-term performance of the Company and its returns to
shareholders. The PRP is also intended to assist the Company to attract and retain skilled and experienced senior
executives and provide them with an incentive to have a greater involvement with and focus on the longer-term goals
of the Company.
The Board may from time to time, in its absolute discretion, invite eligible employees to apply for rights under the PRP
on terms set out in the PRP and any other terms the Board considers appropriate, subject to the grant complying with
the Corporations Act 2001 and the ASX Listing Rules. A right will vest where the eligible employee remains in service
at vesting date and, in some cases, upon satisfaction of performance hurdles and other vesting conditions determined
by the Board.
The key performance hurdle which has been used is that the TSR to shareholders of the Company must exceed the
rate of growth over the same period of the S&P/ASX Small Ordinaries Accumulation Index (or equivalent or
replacement of that index).
The exercise price of a grant of rights under the PRP may be zero, although a price may be set by the Board. A right
will automatically lapse where a vesting condition has not been satisfied. Shares issued on the exercise of rights under
the PRP will rank equally in all respects with all existing shares from the date of allotment, including in relation to
voting rights and entitlements to distributions and dividends.
A summary of the performance rights granted during the year ended 30 June 2019 is as follows:
Grant date
Vesting date
Fair
Value
Number
Exercise
Price
16 January 2019
14 May 2019
6 January 2020
30 September 2019
$0.190
$0.140
320,000
333,333
$0.000
$0.000
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 68
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 21. SHARE-BASED PAYMENTS (CONT’D)
The following table shows the number and weighted average exercise prices (‘WAEP’) of, and movements in,
performance rights under the PRP during the year ended:
Outstanding as at beginning of the year*
Granted
Forfeited
Expired
Outstanding as at end of the year*
Exercisable
30 June 2019
WAEP
Number
30 June 2018
WAEP
Number
1,375,000
653,333
(1,000,000)
(375,000)
653,333
$0.000
$0.000
$0.000
$0.000
$0.000
-
1,375,000
-
-
1,375,000
-
$0.000
-
-
$0.000
-
-
-
-
* The number of performance rights on issue at the beginning of the financial year has been restated as only the first
year of Grant Harrod’s three-year allotment of up to 3,000,000 performance rights had been granted by the Board of
Directors prior to receiving his notice of resignation.
Share Options
No options were issued during the year ended 30 June 2019.
On 28 November 2017, 1,200,000 options were granted to Mr Kaplan at a nil issue in three tranches, which become
exercisable if the following performance hurdles are met:
•
•
•
In the first year from issue date, 400,000 options may be exercised if the Company’s share price exceeds $0.38
on a VWAP basis over a three-month period of that first year;
In the second year from issue date, 400,000 options may be exercised if the Company’s share price exceeds $0.42
on a VWAP basis over a three-month period of that second year; and
In the third year from issue date, 400,000 options may be exercised if the Company’s share price exceeds $0.46
on a VWAP basis over a three-month period of that third year; and
The tranche of options lapse where the applicable performance hurdle has not been met. However, if the performance
hurdle has been met, the options may be exercised before the third anniversary of the issue date for the exercise price
set out above.
The first tranche of 400,000 options mentioned above vested during the year ended 30 June 2019 and remains
exercisable at $0.38 per share.
The following table shows the number and weighted average exercise prices (‘WAEP’) of, and movements in, share
options during the year ended:
30 June 2019
WAEP
Number
30 June 2018
WAEP
Number
Outstanding as at beginning of the year
Granted
Outstanding as at end of the year
Exercisable
1,200,000
-
1,200,000
$0.420
-
$0.420
-
1,200,000
1,200,000
-
$0.420
$0.420
400,000
$0.380
-
-
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 69
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 21. SHARE-BASED PAYMENTS (CONT’D)
@
Key accounting policy – 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 fair value of equity-settled transactions is measured at grant date. Fair value is independently
determined using the Black-Scholes option pricing model that takes into account the exercise price,
the term of the option, the impact of dilution, the share price at grant date and expected price volatility
of the underlying share, the expected dividend yield and the risk free interest rate for the term of the
option, together with non-vesting conditions that do not determine whether the Group receives the
services that entitle the employees to receive payment. No account is taken of any other vesting
conditions.
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 (e.g. continuity of service).
NOTE 22. KEY MANAGEMENT PERSONNEL
Employee benefits expense
Short-term employee benefits
Long-term benefits
Post-employment benefits
Share-based payments
Compensation to key management personnel
Other Disclosures
30 June
2019
$’000
30 June
2018
$’000
2,083
(7)
116
80
2,272
1,225
-
67
205
1,497
This section includes additional financial information that is required under the accounting standards and the
Corporations Act 2001.
NOTE 23. OTHER GAINS & INCOME
Interest income
Other
Other income
30 June
2019
$’000
30 June
2018
$’000
54
1,084
1,138
222
241
463
@
Key accounting policy – other gains and income
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 gains and income
Other gains and income are recognised when it is received or when the right to receive payment is
established.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 70
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 24. PARENT ENTITY FINANCIAL INFORMATION
Supplementary financial information for the Company is as follows:
Statement of financial position
As at
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Issued capital
Retained earnings
Equity
Statement of comprehensive income
For the year ended
Other income
Expenses
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) after income tax
Other comprehensive income/(loss)
Total comprehensive income/(loss)
NOTE 25. AUDITORS’ REMUNERATION
Amounts paid or payable by the Group to its auditors are as follows:
Audit and assurance services
Audit and review of the financial statements
Other assurance related services
Total remuneration for audit and other assurance services
Other services
Tax compliance services
Total remuneration for other services
Total auditors’ remuneration
30 June
2019
$’000
30 June
2018
$’000
229,111
121,941
231
215,955
351,052 216,186
(72,180)
(950)
-
(950)
278,872 215,236
-
(72,180)
291,710
(12,838)
215,160
76
278,872 215,236
30 June
2019
$’000
30 June
2018
$’000
3,259
-
3,259
(4,207)
(948)
-
(948)
3,923
-
3,923
(661)
3,262
-
3,262
30 June
2019
$’000
30 June
2018
$’000
376
157
533
34
34
567
303
-
303
-
-
303
The auditor of the Group for the year ended 30 June 2019 was Ernst & Young (2018: Haines Norton and KPMG) and
amounts shown above reflect amounts paid or payable by the Group whilst each firm was appointed as the auditor of
the Group.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 71
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 26. FAIR VALUE MEASUREMENT
Fair value hierarchy
The following tables detail the consolidated entity's assets and liabilities, measured or disclosed at fair value, using a
three-level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:
• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at
the measurement date.
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly.
• Level 3: Unobservable inputs for the asset or liability.
As at 30 June 2019
Notes
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
Derivative financial instruments
Contingent consideration payable
Total
(a)
(b)
-
-
-
111
-
111
-
(883)
(883)
111
(883)
(772)
As at 30 June 2018
Notes
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
Derivative financial instruments
Contingent consideration payable
Total
(a)
(b)
-
-
-
470
-
470
-
(1,093)
(1,093)
470
(1,093)
(623)
(a) Derivative financial instruments have been valued using external valuations, leveraging 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.
(b) Contingent consideration has been valued based on management’s best estimate of the amounts to be settled
using internal earnings forecasts.
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.
@
Key accounting policy – 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 (a) in the principal market, or (b) 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.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 72
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 27. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
AASB 15 Revenue from Contracts with Customers
AASB 15 supersedes AASB 118 Revenue and related Interpretations and it applies to all revenue arising from contracts
with customers, unless those contracts are in the scope of other Accounting Standards. The new standard establishes
a five-step model to account for revenue arising from contracts with customers. Under AASB 15, revenue is recognised
when, or as control transfers to the customer at an amount that reflects the consideration to which an entity expects
to be entitled in exchange for transferring goods or services to a customer.
The Group adopted AASB 15 using the full retrospective method of adoption, with the initial application date of 1 July
2018 and adjusting the comparative year beginning 1 July 2017 (if applicable). The assessment of the impact of
adopting AASB 15 for the Group identified certain bespoke products which are manufactured to customer specifications
with no alternative use, including whether the goods can be repurposed and sold without significant economic loss to
the group.
Specifically, all the products manufactured by Perfection Packaging and PolyPak are customised and manufactured for
its customers upon receipt of a sales order resulting in a change to revenue recognition over time. This resulted in a
change in accounting policy upon acquisition to align revenue recognition with Group accounting policies and
consequently, the provisional purchase price accounting disclosed in the interim financial report for the half-year ended
31 December 2018 has been adjusted following completion of the AASB 15 impact assessment.
In addition, whilst the Flexibles packaging business sells certain bespoke products to its customers, the products are
manufactured for stock in advance of receiving a sales order from the customer for efficiency reasons. As the Group
doesn’t have an enforceable right to payment for the performance completed until it receives the sales order, revenue
continues to be recognised at a point in time when control of the asset is transferred to the customer, generally on
delivery of the goods.
AASB 9 Financial instruments
AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement bringing together all three aspects
of accounting for financial instruments; classification and measurement, impairment, and hedge accounting.
The Group has applied AASB 9 retrospectively, with the initial application date of 1 July 2018 and adjusting the
comparative year beginning 1 July 2017 (if applicable).
Classification and measurement
Except for certain trade receivables, under AASB 9, the Group initially measures a financial asset at its fair value plus,
in the case of a financial asset not at fair value through profit or loss, transaction costs. Under AASB 9, debt financial
instruments are subsequently measured at fair value through profit or loss (‘FVPL’), amortised cost, or fair value
through other comprehensive income (‘FVOCI’). The classification is based on two criteria: the Group’s business model
for managing the assets; and whether the instruments’ contractual cash flows represent ‘solely payments of principal
and interest’ on the principal amount outstanding on specified dates (the ‘SPPI criterion’).
The new classification and measurement of the Group’s debt financial assets are that debt instruments at amortised
cost are held within a business model with the objective to hold the financial assets in order to collect contractual cash
flows that meet SPPI criterion. This category includes the Group’s trade and other receivables.
Impairment
The adoption of AASB 9 has changed the Group’s accounting for impairment losses for financial assets by replacing
AASB 139’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. AASB 9 requires the
Group to record an allowance for ECL’s for all debt financial assets not held at FVPL. ECL’s are based on the difference
between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects
to receive. The short fall is then discounted at an approximation to the asset’s original effective interest rate.
For trade and other receivables, the Group has applied AASB 9’s simplified approach and has calculated ECL’s based
on lifetime expected credit losses. The Group has established a provision matrix that is based on the Group’s historical
credit loss experience, adjusted to forward-looking factors specific to the debtors and the economic environment.
Individual debts that are known to be uncollectible are written off when identified.
The adoption of the ECL requirements of AASB 9 did not result in a material change in impairment allowances of the
Group’s debt financial assets as at 1 July 2018 or 1 July 2017 and hence, the comparative information has not been
restated.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 73
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 28. RELATED PARTY TRANSACTIONS
Parent entity
Pro-Pac Packaging Limited is the ultimate parent entity for the Group.
Transactions with related parties
The Group entered into the following transactions with entities considered to be related parties of the Group:
For the year ended 30 June 2019
Notes
Sales
$’000
Purchases
$’000
Rents
$’000
Entity with significant influence over the Group
Kin Group Pty Ltd
Pact Group Limited
For the year ended 30 June 2018
Entity with significant influence over the Group
Kin Group Pty Ltd
Pact Group Limited
Other director interests of key management personnel
Morrall Penn Holdings Pty Ltd and The Penn Morrall Partnership
(a)
(a)
5,353
2,427
-
(4,734)
-
-
Notes
Sales
$’000
Purchases
$’000
Rents
$’000
(a)
(a)
(b)
-
7,195
-
(7,322)
-
-
-
-
65
(a) Sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length
transactions. Amounts outstanding at balance date are unsecured, interest free and settlement occurs in cash.
(b) Transactions with Morrall Penn Holdings Pty Ltd and The Penn Morrall Partnership related to the following
properties:
•
•
9 Widemere Road, Wetherill Park NSW
Unit 15/129 Robinson Road, Geebung QLD
Kin Group Pty Ltd
Mr Raphael Geminder owns 49.7% (2018: 45.1%) of the Company through Bennamon Pty Ltd. Kin Group Pty Ltd
owns 100% of the shares in Bennamon Pty Ltd and the Group supplies flexible film packaging and other food packaging
products to Kin Group Pty Ltd and its controlled entities.
Pact Group Limited
The Group is an exclusive supplier of certain raw materials such as flexible film packaging, plastic bags and tapes to
Pact Group Limited under an agreement through to 31 December 2021. The supply arrangement is at arm’s length.
Mr Jonathan Ling is an Independent Non-Executive Director of Pact Group Limited.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 74
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 29. CONTROLLED ENTITIES
The consolidated financial statements incorporate the assets, liabilities and results of the following entities, which have
the same financial year as that of the Company.
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*
Controlled Entities owned 100% by Pro-Pac Group
Pty Ltd
Pro-Pac Packaging (Aust) Pty Ltd
Pro-Pac (GLP) Pty Ltd
Controlled Entities owned 100% by Plastic Bottles
Pty Ltd
Australian Bottle Manufacturers Pty Ltd
Bev-Cap Pty Ltd
Ctech Closures Pty Ltd
Specialty Products and Dispensers Pty Ltd
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
Country of
Incorporation
Class of
Shares
Equity Holding
30 June
2018
30 June
2019
Australia
Australia
Malaysia
Australia
New Zealand
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Australia
Australia
Ordinary
Ordinary
100%
100%
100%
100%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Controlled Entities owned 100% by Bev-Cap Pty Ltd
Finpact Pty Ltd
Great Lakes Moulding Pty Ltd
Australia
Australia
Ordinary
Ordinary
100%
100%
100%
100%
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
Perfection Packaging Pty Ltd
Controlled Entities owned 100% by Goodstone
International Pty Ltd
Integrated Packaging Ltd (NZ)
Integrated Packaging Australia Pty Ltd*
IP Americas Inc.
Controlled Entities owned 100% by Integrated
Packaging Australia Pty Ltd
Integrated Machinery Pty Ltd*
Australia
Australia
Australia
Canada
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
New Zealand
Australia
United States
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
Australia
Ordinary
100%
100%
* Party to a deed of cross-guarantee with the Company, under which each entity guarantees the debts of the entities
within the closed group.
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 75
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 29. CONTROLLED ENTITIES (CONT’D)
@
Key accounting policy – controlled entities
The consolidated financial statements incorporate the assets and liabilities of the Company and the
entities it controlled at balance date.
The Group controls an entity when the Group 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. Controlled entities are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date that control ceases.
Where the Group loses control over an entity, it derecognises the assets including goodwill, liabilities
and non-controlling interest in the entity together with any cumulative translation differences
recognised in equity. The Group 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.
Intercompany transactions, balances and unrealised gains on transactions between entities in the
Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence
of the impairment of the asset transferred. Accounting policies of controlled entities have been changed
where necessary to ensure consistency with the policies adopted by the Group.
NOTE 30. SUBSEQUENT EVENTS
There were no matters or circumstances that have occurred subsequent to balance date that has significantly affected,
or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the
Group or economic entity in subsequent years.
NOTE 31. DEED OF CROSS-GUARANTEE
By entering into the deed of cross-guarantee, the wholly-owned entities have been relieved from the requirement to
lodge an audited financial report with ASIC under Class Order 2016/785 (as amended).
The consolidated financial statements of the closed group are set out below.
Consolidated statement of comprehensive income
For the year ended
Revenue from contracts with customers
Raw materials and consumables used
Employee benefits expense
Occupancy, distribution, administration and selling expenses
Impairment losses
Depreciation and amortisation expense
Other income
Finance costs
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) after income tax
Other comprehensive income/(loss):
Items that may be reclassified to profit or loss in subsequent
years (net of income tax):
Change in fair value of cash flow hedges
Exchange differences arising on translation of foreign operations
Total other comprehensive income/(loss)
Total comprehensive income/(loss)
30 June
2019
$’000
30 June
2018
$’000
427,153
(267,632)
(77,086)
(75,757)
(141,777)
(8,672)
1,080
(7,257)
(149,948)
2,043
(147,905)
343,156
(217,300)
(62,545)
(59,148)
-
(5,577)
463
(4,910)
(5,861)
956
(4,905)
-
-
-
-
-
-
(147,905)
(4,905)
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 76
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 31. DEED OF CROSS GUARANTEE (CONT’D)
Summary of movements in consolidated retained earnings
For the year ended
Balance as at beginning of the year
Profit/(loss) after income tax
Dividends provided for or paid
Balance as at end of the year
Consolidated statement of financial position
As at
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax receivable
Derivative financial assets
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest-bearing liabilities
Employee entitlements
Other provisions
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Employee entitlements
Other provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
30 June
2019
$’000
30 June
2018
$’000
(5,754)
(147,905)
(7,573)
7,292
(4,905)
(8,141)
(161,232)
(5,754)
30 June
2019
$’000
30 June
2018
$’000
17,400
80,083
66,285
6,061
111
3,954
1,715
72,433
81,649
55
470
8,718
173,894 165,040
54,496
68,357
8,074
3,108
31,328
179,560
8,199
14,548
134,035 233,635
307,929 398,675
64,258
10,833
10,445
6,036
75,586
12,629
10,984
804
91,572 100,003
82,129
1,692
2,008
85,829
81,137
675
3,669
85,481
177,401 185,484
130,528 213,191
291,611
149
217,695
1,250
(5,754)
(161,232)
130,528 213,191
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 77
DIRECTORS’ DECLARATION
The directors of the Pro-Pac Packaging Limited (the ‘Company’) declare that:
1. The consolidated financial statements and notes, as set out on pages 34 to 77 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 Group’s financial position at 30 June 2019 and of its performance for the year
ended on that date; and
c) comply with International Financial Reporting Standards as disclosed in the notes to the consolidated 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 consolidated financial statements and notes for the financial year comply with the accounting standards;
and
c)
the consolidated financial statements and notes for the financial year give a true and fair view; and
3.
in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts
as and when they become due and payable.
4. At the date of this declaration, there are reasonable grounds to believe that the entities that are party to the deed
of cross-guarantee as described in Note 31 of the consolidated 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 27 August 2019.
Jonathan Ling
Chairman
Tim Welsh
Managing Director and CEO
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 78
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
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
(collectively the Group), which comprises the consolidated statement of financial position as at
30 June 2019, the consolidated statement of comprehensive income, consolidated statement of financial
position, consolidated statement of changes in equity and 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:
(a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019 and
of its consolidated financial performance for the year ended on that date; and
(b) 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. For each matter below, our description of how our audit addressed the matter
is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
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Liability limited by a scheme approved under Professional Standards Legislation
1.
Impairment assessment of non-current assets, including goodwill
Why significant
How our audit addressed the key audit matter
As detailed in Note 6 to the financial report, the Group
has made four acquisitions in the last two years. As a
consequence of the acquisitions, the Group recognised
goodwill and identifiable intangibles.
AASB 136 requires an impairment test to be
performed at least annually for cash generating units
(“CGUs”) to which goodwill or intangibles with an
indefinite useful life have been allocated. Management
identified three CGUs – Flexibles, Industrial and Rigid.
Impairment assessments are complex and judgemental
as they include the modelling of a range of
assumptions and estimates will be impacted by future
performance and market conditions. As a result, this
was considered a key audit matter.
Details of the Group’s impairment assessment are set
out in Note 11 to the financial report. The assessment
result in an impairment of goodwill of $149.0 million
was recorded in the profit and loss for the year ended
30 June 2019. The balance of Intangibles as at
30 June 2019 was $66.5 million.
Our audit procedures included an evaluation of the
assumptions and methodologies used in the impairment
assessments, with an emphasis on those relating to the
determination of cash generating units, forecast cash
flows, growth rates, discount rates, comparative industry
valuation multiples and other market evidence.
We involved our valuation specialists to evaluate the
appropriateness of key inputs, where relevant to the
impairment tests, including:
► Discount rates
► Terminal growth rates
► Market evidence of industry earnings valuation
multiples
► Long-term inflation and growth rate assumptions
► Performing sensitivity analysis on the model forecasts
and key assumptions.
We also considered the adequacy of the financial report
disclosures regarding the impairment testing approach,
key assumptions and sensitivity analysis as disclosed in
Note 11.
2. Acquisition accounting and integration
Why significant
How our audit addressed the key audit matter
The Group made two acquisitions during 2019
financial year and two in the 2018 financial year as
detailed in Note 6 to the financial report. All four
acquisitions were finalised during the year.
We read the acquisition agreements, including
amendments where applicable, for both acquisitions to
understand the key terms of the agreement in considering
the accounting applied.
The PolyPak Plastics Limited (PolyPak) and Perfection
Packaging Unit Trust (Perfection) acquisitions made in
2019 financial year resulted in goodwill of
$37.6 million.
The Integrated Packaging Pty Ltd (IPG) acquisition
made on 1 November 2017 resulted in goodwill of
$82.1 million.
The Cosmic acquisition made on 11 September 2017
resulted in the goodwill of $2.9 million.
The accounting for the businesses acquired was a key
audit matter due to the value of the acquisitions made,
contingent consideration included and the allocation
of the purchase consideration to the fair value of the
acquired assets and liabilities.
With respect to the contingent consideration applicable to
PolyPak acquisitions, we assessed:
► The nature of the milestones associated with the
contingent consideration;
► The Group’s assessment of the timing and probability
of the milestones being achieved; and
► The adequacy of the Group’s disclosures in relation to
contingent consideration and the factors relevant in
determining the balances.
With respect to the identification and fair value
measurement of the acquired assets and liabilities, we
assessed:
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Why significant
How our audit addressed the key audit matter
► The tangible assets and liabilities that were
acquired and the method for determining the fair
value allocated to them;
► Whether the Group appropriately identified the
intangible assets acquired and its methodology for
determining fair value, including the recognised
deferred tax liabilities and the assessment of the
useful life of the assets; and
► The value of goodwill recognised and the
allocation of goodwill to the Group’s cash-
generating units.
3. Bank loans and covenant compliance
Why significant
How our audit addressed the key audit matter
The Group has $100.1 million of bank loans as at
30 June 2019, as disclosed in Note 14 to the financial
report. The maturity of the bank loan is November
2020 with some of the facility being repaid
throughout the term of the loan. The company has
$0.3 million of facility available to be drawn upon at
30 June 2019. In addition, the Group had
$23.6 million of cash at 30 June 2019.
This is a key audit matter because of the amount of
borrowings as at 30 June 2019 and the importance of
access to adequate funding for the Group.
As part of our audit procedures over bank loans we:
► Read the bank facility agreement and related
amendments, to understand the key terms of the
agreement;
► Obtained the bank confirmation of the Group’s
borrowings and bank balances as at 30 June 2019;
► Reviewed the Group’s assessment of compliance with
covenants at year-end and for the next financial year;
and
► Assessed the classification of borrowings as current
and non-current.
4.
Inventory costing and valuation
Why significant
How our audit addressed the key audit matter
At 30 June 2019, the Group held inventories of
$84.0 million which were recorded at the lower of cost
and net realisable value.
Our audit procedures in respect of the valuation of
inventories included the following:
► The existence of inventories has been tested
substantively through attendance at year-end
inventory stocktakes conducted close to the year end
in all locations with significant stock holdings;
► Selected a sample of inventory items and agreed the
cost price of inventory recorded to supporting
documentation such as supplier invoices; and
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Why significant
How our audit addressed the key audit matter
Provisions can be recognised for all components of
inventories, including raw materials, work in progress
and finished goods. Given judgement was required to
be exercised by the Group to determine the net
realisable value for items which may be ultimately sold
below cost, this was considered a key audit matter.
These judgements include consideration of
expectations for future sales based on historical
experience. The Group’s disclosures with respect to
inventories are included in Note 8 to the financial
report.
► Assessed the basis for inventory provisions recorded
by the Group for slow moving and surplus inventories.
In doing so, we assessed the Group’s judgements in
identifying slow moving and surplus inventories.
Considered the impact of sales subsequent to year end on
the value of inventories at balance date by comparing the
actual selling price to the carrying value of the relevant
product line.
Information Other than the Financial Report and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the information
included in the Company’s 2019 Annual Report, 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, with the exception of the Remuneration Report and
our related assurance opinion.
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 Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating 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 have no realistic alternative but to do so.
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Liability limited by a scheme approved under Professional Standards Legislation
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.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
·
·
·
·
·
·
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
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Liability limited by a scheme approved under Professional Standards Legislation
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 14 to 20 of the directors' report for the year
ended 30 June 2019.
In our opinion, the Remuneration Report of Pro-Pac Packaging Limited for the year ended 30 June 2019,
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.
Ernst & Young
Kester Brown
Partner
Melbourne
27 August 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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 18 August 2019.
DISTRIBUTION OF EQUITY SECURITIES
Table 1: The number of holders, by size of holding, of ordinary shares (including ESPP shares) are:
Holdings Ranges
Holders
Total Units
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 and over
Totals
109
283
243
1,309
304
2,248
12,235
955,180
1,992,950
54,270,339
750,599,484
807,830,118
%
0.002
0.118
0.247
6.718
92.915
100.00
There are 262 holders of unmarketable parcels of ordinary shares totalling 375,232 shares representing 0.056% of the
Company’s issued capital.
Table 2: The number of holders, by size of holding, of performance share rights are:
Holdings Ranges
Holders
Total Units
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001 and over
Totals
-
-
-
-
2
2
-
-
-
-
653,333
653,333
TWENTY LARGEST HOLDERS
Table 3: The names of the twenty largest holders of ordinary shares are:
%
-
-
-
-
100
100.00
Rank Holder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
BENNAMON PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
APC I PTY LTD
APC II PTY LTD
BENNAMON PTY LTD
EQUITAS NOMINEES PTY LIMITED
SELJAX PTY LTD
HYLMIC PTY LTD
BEACHLANE PTY LTD
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
MR JOHN JOSEPH CERINI
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
CORLETTE POINT ROAD PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSI EDA
15 WILBOW GROUP PTY LTD
16
17
18
19
20
MR HAMID ROBOUBI & MRS JILLIAN ANNE ROBOUBI
MR ALASTAIR SPIERS & MRS UNA SPIERS
MS PATSY SEOW LEE CH'NG
MR PHILIP WEINMAN & MS ROCHELLE WEINMAN & MR DEAN WEINMAN
FORUM INVESTMENTS PTY LIMITED
Total Securities of Top 20 Holdings
Number
%
366,565,794
45.377
75,556,424
46,949,439
46,949,439
36,789,449
25,000,000
12,769,231
12,769,231
10,600,000
10,306,585
9,865,214
4,371,470
3,657,000
2,416,666
2,414,863
2,115,330
2,000,000
1,565,356
1,300,000
1,250,000
9.353
5.812
5.812
4.554
3.095
1.581
1.581
1.312
1.276
1.221
0.541
0.453
0.299
0.299
0.262
0.248
0.194
0.161
0.155
675,211,491
83.586
PRO-PAC PACKAGING LIMITED
2019 ANNUAL REPORT | 85
ADDITIONAL COMPANY INFORMATION
SUBSTANTIAL SHAREHOLDERS
Table 4: 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 & Kin Group Pty Limited
Advent Partners Pty Limited
Investors Mutual Limited
VOTING RIGHTS
Number
402,018,176
86,292,672
65,237,176
All ordinary shares carry one vote per share without restriction. Performance share rights carry no voting rights.
RESTRICTED SECURITIES
Table 5: The following shares are restricted securities subject to voluntary escrow and disclosed below in accordance
with Listing Rule 4.10.14:
Description
Shares related to the Integration Packaging acquisition
Shares related to the Perfection Packaging acquisition
Escrow Date
Number
6 November 2019
13 September 2020
98,788,606
25,538,462
ON MARKET BUY-BACK
There is no current on market buy-back. No securities were purchased on-market during the financial year ended
30 June 2019.
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2019 ANNUAL REPORT | 86
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