PRO-PAC PACKAGING LIMITED
Annual Report
FOR THE YEAR ENDED 30 JUNE 2020
ANNUAL REPORT 2019
Contents
CORPORATE INFORMATION .................................................................................... 1
CHAIRMAN’S REPORT .............................................................................................. 2
CEO & MANAGING DIRECTOR’S REPORT ................................................................. 3
DIRECTORS’ REPORT ................................................................................................ 4
REMUNERATION REPORT ...................................................................................... 16
AUDITOR’S INDEPENDENCE DECLARATION ........................................................... 24
CORPORATE GOVERNANCE STATEMENT ............................................................... 25
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ................................ 41
CONSOLIDATED STATEMENT OF FINANCIAL POSITION ......................................... 42
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY .......................................... 43
CONSOLIDATED STATEMENT OF CASH FLOWS ...................................................... 44
NOTES TO THE FINANCIAL STATEMENTS ............................................................... 45
DIRECTORS’ DECLARATION .................................................................................... 90
INDEPENDENT AUDITOR’S REPORT ....................................................................... 91
ADDITIONAL COMPANY INFORMATION ................................................................ 97
Corporate Information
ACN 112 971 874
ABN 36 112 971 874
Bankers
Australia and New Zealand Banking Group Limited;
Commonwealth Bank of Australia;
HSBC Bank Australia Limited; and
Westpac Banking Corporation.
Auditors
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000
Stock exchange listing
Australian Securities Exchange (ASX: PPG)
Website
www.ppgaust.com.au
Directors
Jonathan Ling
Rupert Harrington
Darren Brown
Marina Go
Leonie Valentine
Tim Welsh
Company secretary
Kathleen Forbes
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
Annual General Meeting
Thursday, 26 November 2020 – 11am
PRO-PAC PACKAGING LIMITED
1 | ANNUAL REPORT 2020
Chairman’s Report
Dear Shareholders,
Strategic imperatives
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 2020 Annual Report.
A year like no other
Our communities comprised of our customers,
suppliers and employees have been faced with, and
continue to face, some of the most catastrophic
events in recent history.
In January, the bushfires caused widespread
devastation up and down the Eastern seaboard.
During this time, Australians came together providing
voluntary support to those regions most affected and
donated generously to help those communities seek
relief. Meanwhile, a new strain of coronavirus
(‘COVID-19’) was starting to spread throughout the
world and no one anticipated the threat to human life
which unfolded in the following months. As long as
COVID-19 remains a threat, our highest priority is the
safety, health and wellbeing of our employees.
Pro-Pac, through the leadership of our CEO and
Managing Director, Tim Welsh, has managed the
business well through these difficult operating
conditions. Strict protocols have been established to
ensure continuity of our operations during the year,
while supporting our suppliers and customers
supplying essential services.
The financial implications of COVID-19 have been
severe in many parts of the business community;
however, Pro-Pac’s earnings have exceeded the
previous corresponding period and the Company now
has a stronger balance sheet.
FY20 financial summary
• Revenues of $478.2M (2019: $485.8M)
• Profit after tax1 of $8.7M (2019: $151.3M loss)
• EBITDA1 before significant items of $32.4M (2019:
$28.1M)
Earnings growth has been achieved by a combination
of improved business mix, increased contribution
from a strategic focus on the Flexibles business,
operational efficiencies and centralised procurement
disciplines including improved resin price outcomes.
In addition, recent acquisitions, Perfection Packaging
and PolyPak, continue to grow above expectations
providing complementary flexible packaging solutions.
Impressively, our earnings and cash management
disciplines have led to a reduction in net debt by
$38.8M during the year to $46.1M (2019: $82.9M),
while our operating cash flow conversion for the year
increased to 150.0% (2019: 114.6%) of EBITDA1.
1 Excluding adjustments relating to AASB 16 Leases
PRO-PAC PACKAGING LIMITED
2 | ANNUAL REPORT 2020
Our objective is to transform the business to become
a leading manufacturer and distributor of specialised
and diversified packaging products with a focus on
flexible, industrial and rigid packaging.
Tim Welsh has been in the seat now for more than 12-
months and he has completed his strategic review of
the entire portfolio of businesses to assess the
maturity of each business according to the following
key phases:
• Established business fundamentals
• Being ‘match fit’; and
• Ready for growth
Profit improvement plans including a product
portfolio review, extraction of integration synergies
and strategic sourcing opportunities have improved
EBITDA1 margin for the year to 6.8% (2019: 5.8%).
Further, our decision to close the Chester Hill
manufacturing facility is a demonstrable first phase in
our commitment to lower our overheads and
consolidate the property footprint.
Dividends
While the current trading environment is uncertain,
gearing levels have significantly reduced and earnings
have improved. Consequently, the Board has
declared a final dividend of 0.4 cents per share.
Thank you
On behalf of the Board of Directors, I would like to
thank our shareholders for their ongoing support and
patience over the past 12-24 months while the new
leadership team has set about re-establishing business
fundamentals, embedding operating disciplines and
improving the overall ‘match fitness’ of Pro-Pac as a
larger, combined group.
As a result, Pro-Pac has emerged from the year ended
30 June 2020 with momentum and in a position of
financial flexibility enabling future investment in
growth – it’s an exciting time to be a shareholder.
I would also like to thank our customers and suppliers
for their partnership throughout the year, as well as
our employees for their continued hard work,
commitment and loyalty to Pro-Pac.
Jonathan Ling
Chairman
CEO & Managing Director’s Report
As I reflect on my first year as CEO & Managing
Director, I am proud of the achievements of the Pro-
Pac team and the positive steps we have taken in
progressing our strategy.
Embedding the Right Team
During the year, we implemented a new structure for
the Executive Leadership Team and the recruitment of
high calibre individuals to fill this team is now largely
complete.
Of particular note is the investment we have made in
establishing dedicated and experienced teams in
Health Safety & Environment (HSE) and in People &
Culture. The positive impacts of establishing these
teams is already evident within the business and is
also reflected in our improved safety metrics.
I am confident that we now have the right team on
board to deliver on our strategic imperatives and to
continue to improve our business.
Strengthening the Balance Sheet
Key strategic objectives during the year were to
strengthen our balance sheet and to refinance our
debt facilities to ensure we had the right
arrangements in place with our bankers. We have
achieved both.
During the year, we reduced our net debt1 by $36.8m
to $46.1m (FY19: $82.9m). This improved our balance
sheet gearing1 to 1.4x (FY19: 2.8x) and was achieved
through improved earnings and a strong focus on
working capital management.
In March, we refinanced our senior debt facilities for 3
years and combined with the improved net debt
position, this now gives us the flexibility and capacity
to fund growth and transformational projects.
Zero Harm Focus
A Zero Harm Focus is our commitment to driving a
culture of safety through leadership, systems,
education and compliance.
As well as establishing the HSE team, we have rolled
out a best practice safety management system across
the organisation, and have embedded safe systems of
work and life saving standards across every site.
The prioritised focus on HSE cadence and engagement
of the workforce has seen a strong improvement in
our LTIFR, reducing by 14.1% to 6.9 and further
improvements in this metric are expected.
Transformational projects
Strengthening the balance sheet has enabled us to
embark on two transformational projects that will
help us deliver on our strategy of improving earnings
through operational efficiencies. These projects are
the Chester Hill transition and the ERP Replacement
Project.
1 Excluding adjustments relating to AASB 16 Leases
PRO-PAC PACKAGING LIMITED
3 | ANNUAL REPORT 2020
Chester Hill - in May, in line with its strategy to
optimise its operational footprint and increase
manufacturing capability, the company announced its
decision to close the manufacturing facility at Chester
Hill, NSW. Production will be relocated to existing
facilities across Australia and the transition will be
completed in FY21. The project will involve capital
investment of circa $7m and one-off costs of circa
$12.6m. Non-cash asset write offs will be circa $4.0m.
Annualised benefits of $7.0m are expected to be
realised from FY22.
ERP Replacement - in June, in line with its strategy to
ensure efficiency in operations, Pro-Pac commenced
its ERP replacement project. This will consolidate
multiple disparate existing systems onto a single,
integrated ERP platform for Pro-Pac and create a
standard business framework to support effective and
efficient operational and financial management.
Strategic Partnership
A strategic partnership was established with global
agricultural packaging company Tama Group in June,
with Pro-Pac divesting its Australian agricultural
forage distribution business in conjunction with
signing a 10 year agreement for Tama to exclusively
distribute Pro-Pac’s range of SilaWRAP film to the
agricultural sector. This is a very positive outcome for
Pro-Pac, underpinning our earnings with guaranteed
and increasing minimum annual volumes and
providing improvements in working capital.
Looking to the future
FY21 to date has started well and carried forward
positive momentum with volumes currently tracking
ahead of prior year.
The broader macroeconomic conditions remain
uncertain due to the ongoing impact of COVID-
19. Our commitment is to continue to prioritise the
safety, health & wellbeing of our people in Australia,
New Zealand and Malaysia, while doing everything
within our control to ensure continuing operations
and the supply of essential products and services to
our customers.
Thank you
The Pro-Pac team has risen to the challenges of
improving safety, strengthening the balance sheet and
executing operational improvements to increase
earnings. Their achievements in FY20 have laid a solid
foundation for further improvements in FY21. I would
like to thank them for their outstanding contribution
and look forward to working with them to deliver
successful outcomes in the year ahead.
Tim Welsh
CEO & Managing Director
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 2020.
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 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 Chairman of Planet Innovation Limited. He 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.
Mr Harrington is a member of the Audit, Business Risk and Compliance Committee, and the Remuneration and
Nomination Committee.
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, Ovarian Cancer Australia and The Walkley Foundation. She is also a Director of
the PwC Diversity Advisory Board and a Member of the UNSW Business Advisory Council. 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 and a member of the Audit, Business Risk and
Compliance Committee.
PRO-PAC PACKAGING LIMITED
4 | ANNUAL REPORT 2020
Directors’ Report
Leonie Valentine B Science, M Arts (Communication), Exec Cert B Admin, GAICD, FT NED Diploma Asia
(Non-Executive Director – appointed 1 August 2018)
Ms Valentine is an IT&T executive with over 25 years’ experience in sales, marketing and operations. Ms Valentine is
currently Managing Director, Sales & Operations of Google Hong Kong.
Ms Valentine is currently a Board member of Save the Children (HK) and Governor for the American Chamber of
Commerce HK. 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 2014-2019.
Ms Valentine is a member of the Remuneration and Nomination Committee.
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 Arnotts Snackfoods.
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, BA LLB
(Company Secretary and General Counsel - appointed 17 October 2018)
Ms Forbes has over 25 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
$’000
0.0
0.0
0.0
0.4
-
-
-
3,244
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.
PRO-PAC PACKAGING LIMITED
5 | ANNUAL REPORT 2020
Directors’ Report
Operating and financial review
COVID-19
During the year, a new strain of coronavirus (‘COVID-19’) spread throughout the world and has impacted the business
community in different ways, with some industries have been impacted more than others.
How has COVID-19 impacted the Group during the year ended 30 June 2020?
• All administrative team members were quickly relocated and have been working from home since mid-March.
• On-site team members are exercising strict protocols of social distancing, hygiene, segregation of teams working on
site, with restricted access to third parties visiting site.
• Temporary supply chain disruption while countries around the world adjusted to operating during the pandemic
and border restrictions in place.
• Nimble, domestic manufacturing capability in Australia and New Zealand provided security of supply to existing and
new customers.
•
Increased demand for products in the grocery, personal care and household segments.
• Nil operating days lost at any of our manufacturing and distribution sites within the Group.
• Nil Government JobKeeper assistance or rent relief received.
• Less than $0.2M in bad debt write-offs, while aging of amounts due for collection improved significantly.
While the Group has managed the business well through these difficult operating conditions during the financial year,
the future is increasingly uncertain. Strict protocols have been established and are ongoing to ensure continuity of our
operations, while supporting our suppliers and customers supplying of essential goods and services.
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 Australian Accounting Standards or International Financial Reporting Standards (‘IFRS’) 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.
• 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.
The analysis below of the financial performance, balance sheet and cash flows of the Group compares financial
information for the year ended 30 June 2020 before adjusting for AASB 16 Leases (‘AASB 16’) to the previous
corresponding period (pcp) because the comparative financial information has not been restated to account for AASB
16.
PRO-PAC PACKAGING LIMITED
6 | ANNUAL REPORT 2020
Directors’ Report
Financial performance
Revenue
Expenses
EBITDA
EBITDA margin
Depreciation and amortisation
EBIT
EBIT Margin
Significant items
Net finance costs
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) after income tax
Revenue
Post-
AASB 16
$’000
30 June 2020
AASB 16
Adjustments
$’000
Pre-
AASB 16
$’000
30 June
2019
$’000
Change
478,200
(431,800)
46,400
9.7%
(20,245)
26,155
5.5%
(5,041)
(11,672)
9,442
(2,799)
6,643
-
13,990
13,990
2.9%
(11,015)
2,975
0.6%
-
(5,915)
(2,940)
882
(2,058)
478,200
(445,790)
32,410
6.8%
(9,230)
23,180
4.8%
(5,041)
(5,757)
12,382
(3,681)
8,701
485,810
(457,727)
28,083
5.8%
(9,336)
18,747
3.9%
(163,329)
(8,081)
(152,663)
1,329
(151,334)
(1.6)%
(2.6)%
15.4%
100bps
(1.1)%
23.6%
99bps
(96.9)%
28.8%
(108.1)%
(377.0)%
(105.7)%
Revenues of $478.2M decreased by 1.6% compared to the previous corresponding period (pcp), primarily due to a
targeted and successful focus on shifting business mix towards higher margin products in the Flexibles and Rigid
businesses, offset by lower revenue levels from the Industrial business.
Despite the challenging trading conditions with the bushfires and COVID-19 continuing to impact the business
community, the Group was able to identify opportunities in the market and capitalise on being a nimble, domestic
manufacturer of packaging solutions. This enabled the Group to provide security of supply to existing customers and
convert new customers where their supply chains had been disrupted by COVID-19 restrictions overseas.
The domestic agriculture season benefited from the unseasonal rains from late summer into early spring, while New
Zealand suffered a number of damaging weather events which brought a premature end to their season.
EBITDA
EBITDA of $32.4M increased by 15.4% and EBITDA margin increased to 6.8% (2019: 5.8%) driven by a combination of
improved business mix, increased contribution from a strategic focus on Flexibles business, improved resin price
outcomes and centralised procurement disciplines.
Significant items
Pre-tax significant items for the year were a net expense of $5.0M (2019: $163.3M). This included restructuring costs
($3.2M), program costs related to the closure of the Chester Hill manufacturing facility ($9.2M), site rationalisation
costs ($2.1M) partially offset by the profit on divestment of our forage business ($4.7M) , insurance proceeds net of
business interruption costs stemming from the Kewdale fire in June 2019 ($2.0M) and reversal of excess provisions and
other liabilities ($2.8M).
The Group has insurance that covers it for losses incurred with respect to the fire at the Kewdale manufacturing facility
in Western Australia in June 2019 and progressed its claim with the insurance provider. As at 30 June 2020, the Group
has received insurance proceeds of $5.9M in settlement instalments against losses incurred, which has been
recognised as income during the year.
The pre-tax significant items of $163.3M in the prior year related to goodwill impairment ($149.0M), acquisition and
integration costs ($10.5M) primarily relating to the acquisitions of Integrated Packaging (November 2017), Polypak (July
2018) and Perfection Packaging (September 2018), and business interruption costs ($3.9M).
PRO-PAC PACKAGING LIMITED
7 | ANNUAL REPORT 2020
Directors’ Report
Net finance costs
Net finance costs for the year of $5.8M were $2.3M lower than the pcp. The decrease in net finance costs primarily
related to lower average net debt and lower interest margins partially off-set by $0.6M in unamortised borrowing costs
on the legacy facility expensed upon refinancing the senior debt facility.
Balance sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Working capital
Net debt
Gearing
Post-
AASB 16
$’000
30 June 2020
AASB 16
Adjustments
$’000
Pre-
AASB 16
$’000
30 June
2019
$’000
Change
172,566
188,759
361,325
107,888
113,889
221,777
139,548
82,346
103,804
2.2x
-
53,788
53,788
7,101
48,745
55,846
(2,058)
-
56,690
0.8x
172,566
134,971
307,537
100,787
65,144
165,931
141,606
82,346
46,093
1.4x
202,445
135,586
338,031
103,791
99,147
202,938
135,093
98,368
82,937
2.8x
(14.8)%
(0.5)%
(9.0)%
(2.9)%
(34.3)%
(18.2)%
4.8%
(16.3)%
(44.4)%
(1.4)x
The Group has a senior debt facility and an overdraft facility with total commitments of $102.5M. The maturity date
for the senior debt facility is in March 2023.
Net debt at the end of the financial year was $46.1M, a reduction of $36.8M compared to the pcp. The reduction in
net debt was primarily achieved through further reductions in working capital ($16.0M) and other cash flows from
operations ($29.2M) partially offset by net capital expenditure ($5.8M).
As at 30 June 2020, gearing was 1.4x reduced from 2.8x in the pcp.
Cash flows
Post-
AASB 16
$’000
30 June 2020
AASB 16
Adjustments
$’000
Pre-
AASB 16
$’000
30 June
2019
$’000
Change
Net cash flows from operating activities
Payments for plant and equipment, net of
proceeds
Payments for intangible assets
Payments for businesses, net of cash acquired
Payments of dividends
Proceeds from/(repayments of) interest-bearing
liabilities
Proceeds from share issue, net of transaction
costs
53,445
8,523
44,922
15,767
184.9%
(5,836)
(368)
(889)
-
-
-
-
-
(5,836)
(368)
(889)
-
(6,211)
-
(46,128)
(2,350)
(6.0)%
(100.0)%
(98.1)%
(100.0)%
(48,033)
(8,523)
(39,510)
1,418 2,886.3%
-
-
-
58,740
(100.0)%
Net cash flows from operating activities were $44.9M (2019: $15.8M), an increase of $29.1M on pcp. Higher
underlying operating cash flows were achieved primarily due to the working capital reduction program, resulting in
operating cash flow conversion for the year of 150.0% (2019: 114.6%).
Payments for property, plant and equipment were $5.8M (2019: $6.2M) net of proceeds on disposal, which included
$2.2M on the 7-layer machine being installed at our manufacturing facility in Reservoir, Victoria.
PRO-PAC PACKAGING LIMITED
8 | ANNUAL REPORT 2020
Directors’ Report
Payments for the acquisition of businesses and controlled entities, net of cash acquired was $0.9M (2019: $46.1M),
which was the second and final deferred consideration instalment paid to the vendors of Polypak in New Zealand. The
acquisition payments in the prior year related to the acquisition of 100% of the units of Perfection Packaging ($40.6M)
and the acquisition of the business assets of Polypak ($5.5M).
Other key cash flows during the year were the repayment of interest-bearing liabilities of $39.5M.
Review of operating segments
Flexibles packaging
30 June
2020
$’000
30 June
2019
$’000
Change
Revenue
EBITDA*
EBITDA margin*
* Based on EBITDA before accounting for AASB 16 (refer Note 3 of the Financial Report)
285,136
24,022
8.4%
271,132
18,804
6.9%
5.2%
27.7%
149bps
Revenue in the Flexibles packaging business increased by $14.0M compared to pcp, primarily due to a combination of
new and existing customer growth, an improved agricultural season in Australia following better weather conditions
and an incremental two-months revenue of $8.4M from the 1 September 2018 acquisition of Perfection Packaging.
A highlight was the EBITDA margin expansion during the year to 8.4% (2019: 6.9%) through effective execution of profit
improvement initiatives, improved resin price outcomes, and a continuing focus on customer engagement and value-
added products.
Industrial packaging
30 June
2020
$’000
30 June
2019
$’000
Change
Revenue
EBITDA*
EBITDA margin*
* Based on EBITDA before accounting for AASB 16 (refer Note 3 of the Financial Report)
123,226
658
0.5%
152,591
3,660
2.4%
(19.2)%
(82.0)%
(186)bps
Revenue in the Industrial packaging business decreased by $29.4M compared to pcp, primarily due to a reduction in
customer demand (in particular, from sales within the food segment) in the New South Wales and Victorian businesses,
supply chain and sourcing disruption through COVID-19, which are now improving.
In addition, the Group divested a small non-core business in the half-year ended 31 December 2019, which resulted in
a decrease in revenues of $7.9M and EBITDA of $0.2M compared to pcp.
Rigid packaging
30 June
2020
$’000
30 June
2019
$’000
Change
Revenue
EBITDA*
EBITDA margin*
* Based on EBITDA before accounting for AASB 16 (refer Note 3 of the Financial Report)
69,838
8,686
12.4%
62,087
6,635
10.7%
12.5%
30.9%
175bps
Revenue in the Rigid packaging business increased by $7.7M compared to pcp, primarily due to higher sales volume in
food, beverage, personal care and household segments while earnings were positively impacted by operational
improvements.
PRO-PAC PACKAGING LIMITED
9 | ANNUAL REPORT 2020
Directors’ Report
Other significant events
Debt refinance
On 23 March 2020, the Group announced the successful refinancing of its senior debt facility for a further 3 years, with
total committed facilities of $95.0M maturing in March 2023.
This facility provided the Group with:
• Lower cost of debt, which contributed to lower gearing; and
• Financial flexibility and stability to embark on the Chester Hill closure program with confidence as part of our
commitment to lower the overall cost base of the Group.
Strategic partnership in agriculture
On 20 May 2020, the Group agreed to enter into a strategic partnership with the Tama group of companies. The Group
has been trading with Tama as a customer and a supplier in the Australian agricultural market for over 15 years.
This agreement resulted in the following benefits to the Group:
• 5 year extension to current supply agreement for cotton wrap manufactured at our Kewdale facility in Western
Australia;
• 10 year exclusive supply and distribution agreement to license the Group’s silage brands, with guaranteed minimum
annual volumes;
• An exclusive licence agreement for Tama to use the know-how and technical support services; and
• Divestment of our Australian forage business comprised of non-manufactured product including netting, twine,
grain bags and pit covers for $5.0M in sale proceeds payable in annual instalments over 4 years.
Nil proceeds were received during the year ended 30 June 2020.
Chester Hill closure program
In May, in line with its strategy to optimise its operational footprint and increase manufacturing capability, the Group
announced its decision to close the manufacturing facility at Chester Hill, New South Wales, and relocate production
requirements to existing facilities in Sydney, Melbourne, Adelaide and Perth.
The key features of this initiative are as follows:
• Relocation of valuable existing assets and retirement of obsolete assets; and
• Redeployment of production volumes to existing manufacturing facilities.
The following amounts have been recognised in the financial statements for the year ended 30 June 2020:
•
Investment of $2.5M in new technology and state of the art equipment
• Redundancy provisions ($5.2M), asset write-offs of plant and equipment ($3.2M) and discontinued inventories
($0.8M); and
Annualised benefits of $7.0M to be realised from the year ending 30 June 2022.
ERP replacement project
In June, in line with its strategy to ensure efficiency in operations, Pro-Pac commenced its ERP replacement project.
This will consolidate multiple disparate existing systems onto a single, integrated ERP platform for Pro-Pac and create a
standard business framework to support effective and efficient operational and financial management
PRO-PAC PACKAGING LIMITED
10 | ANNUAL REPORT 2020
Directors’ Report
Refocused on core business
Following a detailed review of the portfolio of businesses and the operating footprint during the year, the Group has
exited a small non-core business and certain sites that weren’t considered complementary or adjacent to our core
business, and which lacked scale and strategic purpose to make a meaningful contribution to the Group’s operations in
the near term.
Overview of business strategy
The Group’s primary strategy is to maximise 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.
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 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, lease liabilities; and
•
Investment in strategic growth opportunities.
The Group manages liquidity risk through cash flow forecasting.
PRO-PAC PACKAGING LIMITED
11 | ANNUAL REPORT 2020
Directors’ Report
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, 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.
Health and safety risk
The Group has a safety management system and processes. In the reporting period, the additional risks posed by
COVID-19 were monitored and managed by an extended senior management committee on a daily basis.
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.
Cyber security risk
IT application and data security are fundamental not only in protecting confidential and commercially sensitive
information, but also enables day to day operations. COVID-19 has increased the risk of cyber crime with all
administrative staff working from home and increased reliance on electronic documents and other correspondence.
Cyber-attacks, if successful, could have implications ranging from reputational damage to cessation of business trading.
Supply risk
Continuity of supply of critical raw materials and consumables is critical to ensure an effective and efficient
manufacturing resource and demand planning. Unfavourable changes in price and availability of raw materials and
consumables are likely to impact upon financial performance. Supply arrangements are in place for key raw materials
and consumables (particularly resin) with a number of suppliers in different geographical locations, which provides the
Group with sourcing options and diversifies the risk of a localised event disrupting operations.
Outlook
Looking forward, the broader macroeconomic conditions remain uncertain due to the ongoing impact of COVID-19.
Consequently, the Group will continue to drive and prioritise a culture of health, safety and wellbeing and enforcing the
rigorous protocols across all sites in Australia, New Zealand and Malaysia to reduce the risk of potential transmission of
COVID-19. The security of supply of essential products and services to our customers will be at the forefront of
everything we do.
Against that backdrop, the Group will continue to focus on its primary strategy of maximising long-term shareholder
value through:
• Organic growth – by improving the core business and growing organically over the longer term;
PRO-PAC PACKAGING LIMITED
12 | ANNUAL REPORT 2020
Directors’ Report
• Operational efficiency – by driving further improved cost efficiencies and net working capital through centralised
procurement, process improvements, automation and integration of like activities; and
•
Inorganic growth – growth through earnings accretive acquisitions in existing and adjacent market segments.
Next year will be a period of consolidation as the Group delivers on critical transformational projects that will drive a
step change in our cost base from the year ended 30 June 2020 and beyond. Key objectives for management over the
coming 12 months include:
• Transitioning production from the facility at Chester Hill and the deployment of new and existing equipment to our
other sites to consolidate the Group’s operational footprint; and
• Successfully delivering on the implementation of a new ERP to enable business rationalisation and efficiency.
Significant changes in the state of affairs
Other than the decision to close the manufacturing facility at Chester Hill, New South Wales, as announced to the
market on 27 May 2020, there were no other significant changes in the state of affairs of the Group during the year.
Significant events subsequent to balance date
On 2 August 2020, the Victorian Government announced Stage 4 restrictions for the metropolitan Melbourne area in
response to the COVID-19 pandemic, which required workplaces in Melbourne to close unless the workplace is part of
a permitted activity or all employees are working from home. On 12 August 2020, the New Zealand Government
announced the Auckland Region moved up to alert level 3, while the rest of the country was moved to level 2 to
contain a localised outbreak of COVID-19 cases.
The Group’s manufacturing and distribution sites in Melbourne and Auckland have been permitted to continue
operating as a supplier of essential packaging solutions.
Whilst the future remains uncertain, 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, minimising working capital and maintaining a
strong balance sheet to provide it with a solid foundation for organic and inorganic growth in the medium-term. The
Company continues to evaluate its operating model and integrate businesses acquired in recent years, with the
extraction of projected synergies and further opportunities to leverage operational and cost reductions being key areas
of focus for the senior executives.
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.
PRO-PAC PACKAGING LIMITED
13 | ANNUAL REPORT 2020
Directors’ Report
The Directors are not aware of any breaches of environmental regulations or site-specific licenses during the year
ended 30 June 2020 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 2020 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.
Meetings of Directors
The number of meetings of Directors (including meetings of Committees of Directors) held during the year ended 30
June 2020 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
11
11
11
11
11
11
10
11
11
10
9
11
-
7
7
7
-
-
-
7
7
7
-
-
-
-
5
5
5
-
-
-
5
3
4
-
J. Ling
D. Brown
M. Go
R. Harrington
L. Valentine
T. Welsh
Note
(a)
(b)
(c)
(d)
(e)
(f)
(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.
PRO-PAC PACKAGING LIMITED
14 | ANNUAL REPORT 2020
Directors’ Report
(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 Welsh was appointed to the Board of Directors as Managing Director on 28 May 2019.
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 16 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 2020 has been received and can be found on page 24 of the Annual 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:
Other assurance related services
Tax compliance services
Advisory services
Non-audit services
$’000
59
163
-
222
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 25 August 2020.
Jonathan Ling
Chairman
Tim Welsh
Managing Director and CEO
PRO-PAC PACKAGING LIMITED
15 | ANNUAL REPORT 2020
Remuneration Report
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.
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 senior 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 total returns attributable to
shareholders for the past five years up to and including the current financial year.
Measure
30 June
2020
30 June
2019
30 June
2018
30 June
2017
30 June
2016
Profit after tax ($’000)*
Share price at balance date ($)
Basic earnings per share (cents)
Total dividends per share (cents)
6,938
0.405
3.01
2.75
* Before accounting for AASB 16 for the years ended 30 June 2016, 2017, 2018 and 2019 as AASB 16 was adopted on 1
July 2019
(151,334)
0.115
(19.56)
0.00
(5,125)
0.370
(1.15)
2.00
5,016
0.359
2.11
2.00
6,643
0.180
0.82
0.40
Interests in the shares, rights and options of the Company
The Directors’ interests in the shares of the Company are as follows:
Director
J. Ling
D. Brown
M. Go
R. Harrington
L. Valentine
T. Welsh
Ordinary
Shares
No.
1,405,000
496,138
81,598
6,164,881
442,000
181,818
Tim Welsh holds 3,333,333 performance rights of the Company. The Non-Executive Directors’ do not have any interests
in performance rights or share options of the Company.
PRO-PAC PACKAGING LIMITED
16 | ANNUAL REPORT 2020
Remuneration Report
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.
The remuneration arrangements for the Company’s Non-Executive Directors for the year ended 30 June 2020 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 ended 30 June 2020 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’).
PRO-PAC PACKAGING LIMITED
17 | ANNUAL REPORT 2020
Remuneration Report
The remuneration structure for each KMP for the year ended 30 June 2020 is shown in the table below:
KMP
Position
Term as KMP
FAR
STI
LTI
Total
Executive director
T. Welsh
Senior executives
R. Rostolis
I. MacPherson
Managing Director and CEO
Full year
36%
32%
32%
100%
Chief Financial Officer
Chief Financial Officer
Until 4 Mar-20
30 Mar-20 to present
52%
52%
24%
24%
24%
24%
100%
100%
The remuneration of the CEO and senior executives for the year ended 30 June 2020 is set out in Table 4 of this
Remuneration Report. The Board of Directors may consider remuneration structures that incentivise and reward senior
executives for outperformance against targets for future years.
Short-term incentives
Senior executives of the Company are entitled to STIs, which are firstly based on the Company’s Statement of Values
and Code of Conduct, the achievement of a Group EBITDA1 and Lost Time Injury Frequency Rate (LTIFR) targets. Once
those gateways have been achieved, amounts payable are weighted according to the achievement of the following
performance measures for the year ended 30 June 2020:
Performance measure
Weighting Overview of performance against target
Achievement
Profitability
Operating Cash
Conversion
80%
20%
Group EBITDA target, which is based on the achievement of
100% of the target approved by the Board of Directors.
Operating Cash Conversion is based on an improvement
year on year, which is measured with reference to
Operating Cash Flow from Operations (excluding interest,
tax payments and cash impacts of significant items) divided
by Group EBITDA1.
Yes
Yes
Group EBITDA and LTIFR have been chosen as the gateways 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 and LTIFR targets have been achieved for the year ended 30 June 2020.
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 LTI’s, 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.
1 EBITDA represents profit/(loss) before accounting for AASB 16, net finance costs, income taxes, depreciation and
amortisation, and significant items.
PRO-PAC PACKAGING LIMITED
18 | ANNUAL REPORT 2020
Remuneration Report
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 Chief Executive Officer 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.
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’)
Share-based payments
Six months or less
Company may terminate at any time
None
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.
Historical LTI Plan – Employee Share Purchase Plan (‘ESPP’)
The Company 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 2001.
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;
PRO-PAC PACKAGING LIMITED
19 | ANNUAL REPORT 2020
Remuneration Report
• 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 2020 is as follows:
Grant date
Vesting date
Exercise
Price
Fair
Value
Balance at
beginning
of year
Granted Exercised Forfeited*
Balance at
end of
year
27 Nov-17
14 Jan-19
Total
26 Nov-20
13 Jan-22
$0.380 $0.100 2,295,000
$0.200 $0.020 2,890,000
5,185,000
-
-
-
-
-
-
885,000
(1,410,000)
(2,110,000)
780,000
(3,520,000) 1,665,000
* Of the shares that have expired or were forfeited during the year ended 30 June 2020, nil shares have been cancelled.
The shares are held by the share plan trustee for 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.
Current LTI 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.
PRO-PAC PACKAGING LIMITED
20 | ANNUAL REPORT 2020
Remuneration Report
Table 3: A summary of the PRP as at 30 June 2020 is as follows:
Grant date
Vesting date
Exercise
Price
Fair
Value
Balance at
beginning
of year
Granted Exercised
Forfeited
Balance at
end of year
16 Jan-19
14 May-19
9 Dec-19
Total
6 Jan-20
30 Sep-19
30 Jun-22
$0.000 $0.190
$0.000 $0.140
$0.000 $0.046
320,000
333,333
-
-
- 8,359,273
653,333 8,359,273
-
(333,333)
(320,000)
-
-
-
-
(1,166,667) 7,192,606
(320,000) (1,500,000) 7,192,606
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 (‘KMP’)
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.
Remuneration of KMP
Table 4: A summary of the remuneration of KMP for the year ended 30 June 2020 is as follows:
Salary,
wages and
fees
$
KMP
Non-executive directors
J. Ling
D. Brown
M. Go
R. Harrington
L. Valentine
164,384
100,000
110,000
90,000
80,000
Short-term
benefits
Non-
monetary
benefits
$
Short-
term
incentive
$
Long-term
benefits
Post-
employment
benefits
Employee
entitlements
$
Super-
annuation
$
Share-
based
payments
Shares,
rights and
options
$
Performance
based
%
Total
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,616
9,500
10,450
8,550
7,600
-
-
-
-
-
180,000
109,500
120,450
98,550
87,600
-
-
-
-
-
Executive director
T. Welsh
527,996
500,000
30,000
758
20,531
33,345 1,112,630
47.9%
Senior executives
R. Rostolis1
I. MacPherson2
Total
263,987
142,213
1,478,580
-
65,000
565,000
-
-
30,000
(457)
192
493
13,856
5,217
91,320
39,011
-
316,397
212,622
72,356 2,237,749
12.3%
30.6%
28.5%
1 Mr Rostolis ceased to be a KMP of the Company on 4 March 2020.
2 Ms MacPherson became a KMP of the Company on 30 March 2020.
The fees for Non-Executive Directors for the year ended 30 June 2020 were $596,100.
PRO-PAC PACKAGING LIMITED
21 | ANNUAL REPORT 2020
Remuneration Report
Table 5: A summary of the remuneration of KMP for the year ended 30 June 2019 is as follows:
Salary,
wages and
fees
$
KMP
Non-executive directors
J. Ling1
D. Brown2
M. Go3
R. Harrington
L. Valentine4
A. Fahour5
E. Kaplan6
37,831
96,822
84,219
80,932
73,205
171,959
17,808
Executive director
T. Welsh7
72,325
Senior executives
G. Harrod8
M. Saus9
R. Rostolis10
Total
557,727
390,571
350,630
1,934,029
Short-term
benefits
Non-
monetary
benefits
$
Short-
term
incentive
$
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
-
-
-
140,000
140,000
-
5,096
-
9,041
(889)
(7,269)
457
(7,601)
20,531
19,161
20,531
116,387
566,628
(10,741)
385,928
(21,631)
67,656
579,274
80,335 2,272,191
(1.9%)
(5.6%)
35.8%
2.7%
1 Mr Ling became a KMP of the Company on 8 April 2019.
2 Mr Brown became a KMP of the Company on 2 July 2018.
3 Ms Go became a KMP of the Company on 1 August 2018.
4 Ms Valentine became a KMP of the Company on 1 August 2018.
5 Mr Fahour ceased to be a KMP of the Company on 30 June 2019.
6 Mr Kaplan ceased to be a KMP of the Company on 31 August 2018.
7 Mr Welsh became a KMP of the Company on 28 May 2019.
8 Mr Harrod ceased to be a KMP of the Company on 22 February 2019.
9 Mr Saus ceased to be a KMP of the Company on 1 October 2018.
10 Mr Rostolis became a KMP of the Company on 1 October 2018.
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 was settled in shares.
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 2020 is as follows:
KMP
Grant date
Exercise
Price
Fair
Value
Balance at
beginning
of year
Granted Exercised
Forfeited
Balance at
end of year
R. Rostolis
Total
14 Jan-19
$0.200 $0.020
600,000
600,000
-
-
-
-
(600,000)
(600,000)
-
-
PRO-PAC PACKAGING LIMITED
22 | ANNUAL REPORT 2020
Remuneration Report
Performance rights issued during the year
Table 7: A summary of performance rights granted to KMP and remain on foot as at 30 June 2020 is as follows:
KMP
Grant date
Exercise
Price
Fair
Value
Balance at
beginning
of year
Granted Exercised
Forfeited
Balance at
end of year
R. Rostolis*
T. Welsh
Total
14 May-19
9 Dec-19
$0.000 $0.140
$0.000 $0.046
333,333
-
- 3,333,333
333,333 3,333,333
-
-
-
(333,333)
-
- 3,333,333
(333,333) 3,333,333
* Performance rights were forfeited by mutual agreement between the Board of Directors and Mr Rostolis, whereby
Mr Rostolis was paid a $50,000 cash bonus.
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 KMP
No options were issued to KMP during the year ended 30 June 2020.
Option holdings of former KMP
On 28 November 2017, 1,200,000 options were granted to Mr Kaplan (who ceased to be a KMP on 31 August 2018) 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 until 28 November 2020. The performance hurdle of the second tranche of 400,000 options mentioned
above has not been met and therefore, lapsed during the year ended 30 June 2020.
Loans to KMP
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 2020 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
23 | ANNUAL REPORT 2020
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 2020, 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
25 August 2020
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 4th Edition (‘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 25 August 2020.
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;
• defining the Company’s purpose, approving its Statement of Values and its Code of Conduct;
• 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, within the parameters of the delegations of
management authority set by the Board:
• being accountable for the performance of the Company;
•
implementing the strategic objectives set by the Board;
PRO-PAC PACKAGING LIMITED
25 | ANNUAL REPORT 2020
Corporate Governance Statement
• operating within the risk parameters set by the Board;
• operational and business management of the Company;
• managing the Company’s reputation and operating performance in accordance with parameters set by the Board;
• day-to-day running of the Company;
• providing the Board with accurate, timely and clear information to enable the Board to perform its responsibilities;
and
• approving capital expenditure 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 director or senior executive, or putting forward 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 senior executive, 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 and time
commitments, 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 and the reasons why.
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 entered into with each director personally, 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 any interest or relationships which may affect independence or
represent a conflict, requirements to comply with corporate policies and procedures (including the Company’s Code of
Conduct, Anti-Bribery Policy and its Securities Trading Policy), indemnity, access and insurance arrangements,
confidentiality obligations 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.
A Director is entitled to access independent professional advice when he or she judges it to be necessary to carry out
his or her duties, at the Company’s expense, with the Chairman's consent, which may not be unreasonably withheld.
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;
PRO-PAC PACKAGING LIMITED
26 | ANNUAL REPORT 2020
Corporate Governance Statement
• 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 professional development of Directors.
Recommendation 1.5 - A listed entity should:
(a) have and disclose a diversity policy;
(b)
through its board or a committee of the board set measurable objectives for achieving gender diversity in the
composition of its board, senior executives, and workforce generally; and
(c) disclose as at the end of each reporting period:
(1)
(2)
the measurable objectives set for that period to achieve gender diversity;
the entity’s progress towards achieving those objectives; and
(3) either:
(A) the respective proportions of men and women on the board, in senior executive positions and across
the whole workforce (including how the entity has defined “senior executive” for these purposes); or
(B) 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.
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
3. Achieve at least 33.3% female representation in Non-Executive Directors on the Board
4. 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 2020, 38% of workers took advantage of these flexible working arrangements, significantly more than last year due
to COVID-19 impacts. (2019: 2.92%).
2. Pay Equity
In 2020, the Company measured pay equity across the top 2 managerial levels in the organisation. The gender pay gap
is 11% (2019:11%) with males being paid more favourably than females. 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.
PRO-PAC PACKAGING LIMITED
27 | ANNUAL REPORT 2020
Corporate Governance Statement
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 2020 are as
follows:
Non-Executive Directors on the Board
In senior executive positions
Across the whole organisation
Proportion
of women
2020
Proportion
of women
2019
Proportion
of men
2020
Proportion
of men
2019
40%
44%
26%
40%
40%
25%
60%
56%
74%
60%
60%
75%
Senior executive positions include all executives reporting directly to the Chief Executive Officer. Where an executive
has changed during the financial year, the measurement is taken as at 30 June 2020.
The Remuneration and Nomination Committee of the Board approved an updated Diversity Policy on 20 February
2020.Wherever possible, interview panels for senior executive and board positions comprise both female and male
interviewers, and short-listed candidates for such roles are both male and female.
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 or in
respect of 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, in conjunction with an annual self-assessment and feedback process. 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 or in
respect of 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.
PRO-PAC PACKAGING LIMITED
28 | ANNUAL REPORT 2020
Corporate Governance Statement
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.
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)
Non-Executive Director
Independent
Leonie Valentine
Non-Executive Director
Independent
Rupert Harrington
Non-Executive Director
Independent
The Charter of the Committee is available at the Company’s website. It details the roles and responsibilities of the
Committee. The Charter was reviewed by the Board during the reporting period.
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
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.
Level of
importance
Existence in
current
Board
High
High
High
High
PRO-PAC PACKAGING LIMITED
29 | ANNUAL REPORT 2020
Corporate Governance Statement
Skill category
Description of attributes required
Strategic
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.
Level of
importance
Existence in
current
Board
High
High
Industry experience
Relevant industry experience and expertise particularly in
a manufacturing and/or distribution environment.
High
High
Information technology
Knowledge of IT governance including privacy, data
management and security.
Medium
High
Executive management
Performance assessments of senior executives, succession
planning for key executives, setting of key performance
hurdles, experience in industrial relations and
organisational change management programmes.
High
High
Age and gender
Board aims for balanced gender representation and range
of experienced individuals to contribute towards better
Board outcomes.
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.
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
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.
Communication
Effective in working within defined corporate communications policies; makes
constructive and precise contribution to the Board both verbally and in written form; an
effective communicator with executives.
Negotiation
Negotiation skills which engender stakeholder support for implementing Board
decisions.
Corporate governance
Experienced Director that is familiar with the mechanisms, controls and channels to
deliver effective governance and manage risks.
Recommendation 2.3 - A listed entity should disclose:
(a)
(b)
the names of the directors considered by the Board to be independent directors;
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.
PRO-PAC PACKAGING LIMITED
30 | ANNUAL REPORT 2020
Corporate Governance Statement
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 4th Edition.
Details of the current Board of Directors, their date of appointment, length of service, and independence status is as
follows:
Director’s name
Date of
Appointment
Length of service at
reporting date
Independence status
Jonathan Ling
8 April 2019
1 year and 3 months
Independent Non-Executive
Rupert Harrington (1)
6 November 2017 2 years and 8 months
Independent Non-Executive
Darren Brown (2)
2 July 2018
2 years
Non-Independent Non-Executive
Leonie Valentine
1 August 2018
1 year and 11 months
Independent Non-Executive
Marina Go
Tim Welsh
Notes:
1 August 2018
1 year and 11 months
Independent Non-Executive
28 May 2019
1 year and 1 month
Executive Director
1. Mr Harrington is Non-Executive Chairman of Advent Private Capital (‘Advent‘) which until 6 July 2020, held 11.6%
of the issued capital of the Company as manager of two investment trusts. Advent is no longer a shareholder. The
Board has resolved that Mr Harrington is an independent Director. The Board notes that, during the reporting
period, Mr Harrington:
(a)
received no directions or general instructions from Advent as to his conduct as a Director of the Company,
and in particular that he was not requested to, and did 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);
(b)
functioned entirely independently of Advent in the discharge of his role as a Director of the Company;
(c) was 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 recused himself from any and all Advent
Board discussions which relate to Advent’s shareholding in the Company;
(d)
remuneration by Advent was not directly affected by decisions made by the Company’s Board or the
performance of the Company; and
(e) was 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. As at 30 June 2020, Bennamon Pty
Ltd owned 49.7% of the Company’s issued capital.
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.
The majority of the Board is independent.
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31 | ANNUAL REPORT 2020
Corporate Governance Statement
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. Regular professional development sessions are held, in conjunction with regular
in-depth business briefings.
Principle 3: Act ethically and responsibly
Recommendation 3.1 - A listed entity should articulate and disclose its values.
The Company maintains a Statement of Values, which was adopted by the Board on 28 July 2020. A copy is available on
the Company’s website. Our Values underpin all our actions and are embedded in our culture. These are:
• Deliver Sustainability – We seek to deliver high quality outcomes in a socially responsible and safe way.
• Unite – We develop and empower high functioning, collaborative, inclusive and supportive teams. We engage
employees through fair treatment, open communication, and active collaboration with purpose.
•
Innovate & Simplify – We find smarter and more efficient ways of doing things. We seek new products and
markets. We challenge the status quo.
• Win/Win Relationships – We anticipate the needs and exceed expectations of our customers, stakeholders, and
partners. We develop respectful and mutually beneficial relationships, which are critical to our business’ success
and optimizing outcomes
•
Integrity & Accountability – We act honestly, ethically and with integrity. We are true to our word and we stand by
our principles. We are accountable for our actions and treat each other and all our stakeholders authentically and
with respect.
Our values guide our behaviour and reflect our commitment to our customers, communities, and each other, and are
referenced and reinforced by our senior executive team across the organization.
Recommendation 3.2 - A listed entity should
(a) have a code of conduct for its directors, senior executives, and employees; and
(b) ensure that the board or a committee of the board is informed of any material breaches of that code.
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.
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 and material breaches are reported to the Board. The Code of Conduct was
reviewed and revised by the Board in March 2020. A copy of this code of conduct is available on the Company’s
website.
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32 | ANNUAL REPORT 2020
Corporate Governance Statement
Recommendation 3.3 - A listed entity should
(a) have and disclose a Whistleblower policy; and
(b) ensure that the board or a committee of the board is informed of any material incidents reported under that
policy.
Under the Whistleblower Policy, the Company encourages employees, contractors, suppliers, and other stakeholders to
raise any concerns about activities or behaviours that may be unlawful or unethical. Senior management are
committed to protecting the dignity, well-being, career, and good name of anyone reporting wrongdoing, as well as
providing them with the necessary support. The Company does not tolerate retaliation or adverse action relating to a
whistleblowing disclosure. The Whistleblower Policy sets out how someone can raise a concern using the
whistleblowing channels, including online or by using a Whistleblower Hotline. Reporting may be on an anonymous
basis.
When a whistleblower raises a concern, they may choose to involve the Whistleblower Protection Officer, who is
responsible for protecting the whistleblower against personal disadvantage as a result of making a report. The
Company investigates reported concerns in a manner that is confidential, fair, and objective. If the investigation shows
that wrongdoing has occurred, the Company is are committed to changing processes and taking action in relation to
those parties who have behaved incorrectly. Outcomes may also involve reporting the matter to relevant authorities
and regulators. The ABRCC is charged with overseeing the Company’s whistleblower program and receives a report at
each meeting as to any material incidents which have been raised. A copy of the Whistleblower policy is available on
the Company’s website.
Recommendation 3.4 - A listed entity should
(c) have and disclose an anti-bribery and corruption policy; and
(d) ensure that the board or a committee of the board is informed of any material breaches of that policy.
The Company has an Anti-Bribery Policy, a copy of which is available on its website.
Under the policy, the Company is committed to fostering a culture of ethical behaviour and good corporate governance
and is committed to doing business in an honest and ethical manner. The Company takes a zero-tolerance approach to
bribery and corruption and is committed to acting professionally, fairly and with integrity in all its business dealings and
relationships, wherever it operates, and to implementing and enforcing effective systems to counter bribery.
As part of this commitment, the Company will not tolerate any form of bribery or corruption in the Group. The
Company expects its directors, officers and employees and all of its suppliers, service providers, distributors,
consultants, agents, joint venture partners, sponsors, contractors, and any third-party representatives associated with
the Group or acting on the Company’s behalf to adopt a similar zero tolerance approach to bribery and corruption.
The Board is informed of any material incidents of bribery and corruption which occur.
PRO-PAC PACKAGING LIMITED
33 | ANNUAL REPORT 2020
Corporate Governance Statement
Principle 4: Safeguard integrity in corporate reporting
Recommendation 4.1 - The board of a listed entity should:
(a) have an audit committee which:
(1) has at least three members, all of whom are non-executive directors and a majority of whom are
independent directors; and
(2)
is chaired by an independent director, who is not the chair of the board,
and disclose:
(3)
the charter of the committee;
(4)
(5)
the relevant qualifications and experience of the members of the committee; and
in relation to each reporting period, the number of times the committee met throughout the period and
the individual attendances of the members at those meetings; or
(b)
if it does not have an audit committee, disclose that fact and the processes it employs that independently
verify and safeguard the integrity of its corporate reporting, including the processes for the appointment and
removal of the external auditor and the rotation of the audit engagement partner.
To assist in the execution of its responsibilities, the Board has established an Audit Business Risk and Compliance
Committee. A summary of the Charter setting out the Committee’s responsibilities is available on the Company’s
website. The Charter is reviewed by the Board annually.
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.
Recommendation 4.1 requires that the composition of the Audit Business Risk and Compliance Committee comprises a
majority of independent Directors, that the committee have at least three members and that it is chaired by an
independent director who is not chairman of the board. The Company satisfies all but the last of these requirements.
The committee chairman, Mr Brown, as an employee of Kin Group Pty Limited, which is a related entity of major
shareholder Bennamon Pty Limited, is not an independent director. However, the Board believes that Mr Brown is the
most appropriate person to lead the Audit Business Risk and Compliance Committee as Chairman, that he is able to and
does bring quality and independence of judgement to all relevant issues falling within the scope of the role of chairman
of the committee and that the committee benefits from his long-standing experience in the manufacturing and
packaging industry and as an experienced financial professional. In addition, the Board has obtained confirmation from
Mr Brown that:
(a) he has received no directions or general instructions from his employer or its associates as to his conduct as
chairman of the committee;
(b) he is functioning entirely independently of his employer and its associates in the discharge of his role as
chairman of the committee;
(c) he is not aware of any circumstances in which his knowledge of confidential information of the Company will
be made available to his employer or its associates either directly or indirectly; and
(d) that he is not otherwise aware of any potential or actual conflict of interest.
PRO-PAC PACKAGING LIMITED
34 | ANNUAL REPORT 2020
Corporate Governance Statement
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 2020 and the half-year ended 31 December
2019, the Company’s CEO and CFO have provided the Board with declarations, that in their opinion:
•
•
•
the financial records of the Company have been properly maintained;
the financial statements comply with the appropriate accounting standards and give a true and fair view of the
financial position and performance of the Company; and
is based on a sound system of risk management and internal control which is operating effectively.
Recommendation 4.3 - A listed entity should disclose its process to verify the integrity of any periodic corporate
report it releases to the market that is not audited or reviewed by an external auditor.
The external auditor reviews and/ or audits all periodic corporate reports released by the Company to the market.
Principle 5: Make timely and balanced disclosure
Recommendation 5.1 - A listed entity should have and disclose a written policy for complying with its continuous
disclosure obligations under Listing Rule 3.1
The Company has adopted a Disclosure Policy a copy of which is available on its website. The policy 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.
Recommendation 5.2 - A listed entity should ensure that its board receives copies of all material market
announcements promptly after they have been made.
The Board receives a copy of all material market announcements promptly after they have been released.
Recommendation 5.3- A listed entity that gives a new and substantive investor or analyst presentation should
release a copy of the presentation materials in the ASX Market Announcements Platform ahead of the
presentation.
The Company releases all new and substantive investor or analyst presentations to the ASX Market Announcements
Platform ahead of the presentation.
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, policies, 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).
PRO-PAC PACKAGING LIMITED
35 | ANNUAL REPORT 2020
Corporate Governance Statement
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 Chief Executive Officer and Chief Financial 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 or ahead
of 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 ensure that all substantive resolutions at a meeting of security holders
are decided on a poll rather than by a show of hands
The Company first conducted a poll in respect of all resolutions at its 2019 annual general meeting and will continue to
do so at all shareholder meetings.
Recommendation 6.5 - A listed entity should give security holders the option to receive communications from, and
send communications to, the entity and its security registry electronically.
This option is available to security holders.
Principle 7: Recognise and manage risk
Recommendations 7.1 and 7.2
The board of a listed entity should:
(a) have a committee or committees to oversee risk, each of which:
(1) has at least three members, a majority of whom are independent directors; and
(2)
is chaired by an independent director,
and disclose:
(3)
the charter of the committee;
(4)
the members of the committee; and
(5) as at the end of each reporting period, the number of times the committee met throughout the period
and the individual attendances of the members at those meetings; or
(b)
if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the processes it
employs for overseeing the entity’s risk management framework (7.1).
The Board or a committee of the Board should: (a) review the entity’s risk management framework at least
annually to satisfy itself that it continues to be sound; and (b) disclose, in relation to each reporting period,
whether such a review has taken place (7.2).
In addition to its financial reporting obligations, the Audit 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.
PRO-PAC PACKAGING LIMITED
36 | ANNUAL REPORT 2020
Corporate Governance Statement
In performing this function, the Committee receives reports from the Group’s Management Risk Committee
(comprising key stakeholders from management as informed by 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 25 August 2020.
Recommendation 7.3 - A listed entity should disclose:
(a)
(b)
if it has an internal audit function, how the function is structured and what role it performs; or
if it does not have an internal audit function, that fact and the processes it employs for evaluating and
continually improving the effectiveness of its risk management and internal control processes.
The Company does not have an internal audit function. It is the Board’s responsibility to ensure that an effective
internal control framework exists within the Company. This includes internal controls to deal with both the
effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper
accounting records, and the reliability of financial information as well as non-financial considerations such as the
benchmarking of operational key performance indicators. The Board has delegated the responsibility for the
establishment and maintenance of a framework of internal control and ethical standards for the management of the
Company to the Audit Business Risk and Compliance Committee.
Recommendation 7.4 - A listed entity should disclose whether it has any material exposure to economic,
environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks.
The management of the Company and the execution of its growth strategies are subject to a number of risks which
could adversely affect the Company’s future development.
The following is not an exhaustive list or explanation of all risks and uncertainties associated with the Company (and its
controlled entities), but those considered by management to be the principal material risks:
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.
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 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.
PRO-PAC PACKAGING LIMITED
37 | ANNUAL REPORT 2020
Corporate Governance Statement
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, lease liabilities are fixed for the term of the
arrangement.
Health & Safety
risk
Loss of people
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 Group has a safety management system and processes. In the reporting period, the
additional risks posed by COVID-19 were monitored and managed by an extended senior
management committee on a daily basis.
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.
Cyber security risk
IT application and data security are fundamental not only in protecting confidential and
commercially sensitive information, but also enables day to day operations. COVID-19 has
increased the risk of cyber crime with all administrative staff working from home and
increased reliance on electronic documents and other correspondence.
Supply risk
Cyber-attacks, if successful, could have implications ranging from reputational damage to
cessation of business trading.
Continuity of supply of critical raw materials and consumables is critical to ensure an effective
and efficient manufacturing resource and demand planning. Unfavourable changes in price
and availability of raw materials and consumables are likely to impact upon financial
performance. Supply arrangements are in place for key raw materials and consumables
(particularly resin) with a number of suppliers in different geographical locations, which
provides the Group with sourcing options and diversifies the risk of a localised event
disrupting operations.
Refer to commentary at Recommendations 7.1 and 7.2 for information on the Company’s risk management framework.
PRO-PAC PACKAGING LIMITED
38 | ANNUAL REPORT 2020
Corporate Governance Statement
Principle 8: Remunerate fairly and responsibly
Recommendation 8.1 - The board of a listed entity should:
(a) have a remuneration committee which:
(1) has at least three members, a majority of whom are independent directors; and
(2)
is chaired by an independent director,
and disclose:
(3)
the charter of the committee;
(4)
the members of the committee; and
(5) as at the end of each reporting period, the number of times the committee met throughout the period
and the individual attendances of the members at those meetings; or
(b)
if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the
level and composition of remuneration for directors and senior executives and ensuring that such
remuneration is appropriate and not excessive.
It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high-quality Board and
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 links the nature and amount of
executive 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 having regard to the response to Recommendation 2.3. 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.
PRO-PAC PACKAGING LIMITED
39 | ANNUAL REPORT 2020
Corporate Governance Statement
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
40 | ANNUAL REPORT 2020
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)
Earnings/(losses) per share
EPS (cents) – Basic
EPS (cents) – Diluted
Notes
3
22
10,28
25
18
4
30 June
2020
$’000
30 June
2019
$’000
478,200
(283,042)
(94,891)
(65,319)
(5,030)
(20,245)
11,441
98
(11,770)
9,442
(2,799)
6,643
485,810
(304,851)
(85,225)
(83,064)
(149,000)
(9,336)
1,084
54
(8,135)
(152,663)
1,329
(151,334)
(1,803)
(560)
(2,363)
4,280
(471)
541
70
(151,264)
2
2
0.82
0.82
(19.56)
(19.56)
The Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes
PRO-PAC PACKAGING LIMITED
41 | ANNUAL REPORT 2020
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
Right-of-use assets
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Derivative financial liabilities
Borrowings
Lease liabilities
Current tax liability
Other liabilities
Employee entitlements
Other provisions
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Employee entitlements
Other provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
30 June
2020
$’000
30 June
2019
$’000
Notes
17
7
8
27
13
10
28
11
4
13
9
27
16
28
14
21
15
16
28
21
15
19
20
21,380
77,559
70,608
-
-
3,019
172,566
53,830
54,054
66,351
10,807
3,717
188,759
361,325
67,840
2,536
7,500
7,836
831
2,123
11,526
7,696
107,888
58,952
50,896
1,472
2,569
113,889
221,777
139,548
23,559
90,278
78,108
6,303
111
4,086
202,445
60,882
-
66,548
8,156
-
135,586
338,031
74,104
-
11,623
-
-
889
10,869
6,306
103,791
94,873
-
1,692
2,582
99,147
202,938
135,093
291,678
(1,027)
(151,103)
139,548
291,618
1,221
(157,746)
135,093
The Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes
PRO-PAC PACKAGING LIMITED
42 | ANNUAL REPORT 2020
CONSOLIDATED STATEMENT OF
Changes in Equity
For the year ended
Balances as at 1 July 2019
Profit/(loss) after income tax
Other comprehensive income/(loss),
net of income tax
Total comprehensive income/(loss)
Share-based payments expense
Dividends declared or paid
Balances as at 30 June 2020
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 declared or paid
Balances as at 30 June 2019
19
19
19
19
22
5
Issued
Capital
$’000
Retained
Earnings
$’000
Reserves
$’000
Total
$’000
Notes
291,618
-
(157,746)
6,643
1,221
-
135,093
6,643
19,22
5
-
-
60
-
291,678
-
6,643
-
-
(151,103)
(2,363)
(2,363)
115
-
(1,027)
(2,363)
4,280
175
-
139,548
217,695
-
1,161
(151,334)
1,250
-
220,106
(151,334)
-
-
5,223
9,960
(1,060)
59,800
-
-
291,618
-
(151,334)
-
-
-
-
-
(7,573)
(157,746)
70
70
-
-
-
-
(99)
-
1,221
70
(151,264)
5,223
9,960
(1,060)
59,800
(99)
(7,573)
135,093
The Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes
PRO-PAC PACKAGING LIMITED
43 | ANNUAL REPORT 2020
CONSOLIDATED STATEMENT OF
Cash Flows
For the year ended
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Income tax refund/(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 intangible assets
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
Repayment of bank loans and trade finance
Proceeds from bank loans and trade finance
Repayment of lease liability principal
Proceeds from shares issued
Payment of transaction costs from shares issued
Dividends paid
Net cash flows (used in)/from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange
Cash and cash equivalents at the end of the year
30 June
2020
$’000
30 June
2019
$’000
Notes
490,919
(429,497)
2,445
98
(10,520)
53,445
492,359
(464,701)
(4,424)
54
(7,521)
15,767
(6,149)
313
(368)
(889)
(7,093)
(6,211)
-
-
(46,128)
(52,339)
-
(44,056)
5,500
(9,477)
-
-
-
(48,033)
(1,681)
23,559
(498)
21,380
(185)
(5,035)
6,638
-
59,800
(1,060)
(2,350)
57,808
21,236
3,206
(883)
23,559
17
28
17
The Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes
PRO-PAC PACKAGING LIMITED
44 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
Overview
This section provides context to enable readers to understand the information presented in the financial report.
CORPORATE INFORMATION
The consolidated financial statements of Pro-Pac Packaging Limited (the ‘Company’) and its controlled entities (the
‘Group’) for the year ended 30 June 2020 were authorised for issue in accordance with a resolution of the Directors
on 25 August 2020.
The Company is a for-profit company limited by shares incorporated and domiciled in Australia whose shares are
publicly traded on the Australian Securities Exchange. The Group is principally engaged in the manufacture and
distribution of flexible, industrial and rigid packaging products. Further information on the nature of the operations
and principal activities of the Group is provided in the Directors’ Report.
BASIS OF PREPARATION
This is a general-purpose financial report, which has been prepared in accordance with the requirements of the
Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian
Accounting Standards Board (‘AASB’). The financial report also complies with International Financial Reporting
Standards (‘IFRS’) as issued by the International Accounting Standards Board.
The financial report has been prepared on a historical cost basis, unless otherwise stated. The financial report is
presented in Australian dollars and all values have been rounded to the nearest one thousand dollars ($’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 for the year ended 30 June 2020 have been prepared following the adoption of
AASB 16 Leases (‘AASB 16’), which became effective for the Group on 1 July 2019. The comparative financial
information has not been restated and therefore, may not be comparable.
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.
AASB 16 supersedes AASB 117 Leases, Interpretation 4 Determining whether an Arrangement contains a Lease,
Interpretation 115 Operating Leases-Incentives and Interpretation 127 Evaluating the Substance of Transactions
Involving the Legal Form of a Lease. AASB 16 sets out the principles for the recognition, measurement, presentation
and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to
accounting for finance leases under AASB 117.
The Group adopted AASB 16 using the modified retrospective method of adoption with the date of initial application
of 1 July 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially
applying the standard recognised at the date of initial application. The Group elected to adopt the modified
retrospective alternative which allows the right-of-use asset to equal to the calculated lease liability on transition as
at 1 July 2019, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in
the consolidated statement of financial position immediately before the date of initial application. Consequently, a
right-of-use asset (and a corresponding lease liability) has been recognised in the consolidated financial statements
from 1 July 2019. Further details on the accounting policies relating to leases and an explanation of the impact of
adopting AASB 16 is set out in Note 28 below.
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
45 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
Our Performance
This section highlights the results and performance of the Group and its operating segments. 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 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.
Segment revenues
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.
For the year ended 30 June 2020
External revenues
Inter-segment revenues
Segment revenues
For the year ended 30 June 2019
External revenues
Inter-segment revenues
Segment revenues
PRO-PAC PACKAGING LIMITED
46 | ANNUAL REPORT 2020
Flexibles
$’000
Industrial
$’000
Rigid
$’000
Un-
allocated
$’000
Total
$’000
285,136
3,956
289,092
123,226
427
123,653
69,838
79
69,917
-
(4,462)
(4,462)
478,200
-
478,200
Flexibles
$’000
Industrial
$’000
Rigid
$’000
Un-
allocated
$’000
Total
$’000
271,132
8,352
279,484
152,591
306
152,897
62,087
102
62,189
-
(8,760)
(8,760)
485,810
-
485,810
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:
• EBIT1 represents profit/(loss) before net finance costs, income taxes and significant items.
• EBITDA1 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 2020
EBITDA
Depreciation and amortisation
Segment results (EBIT)
For the year ended 30 June 2019
EBITDA
Depreciation and amortisation
Segment results (EBIT)
Group results
For the year ended
Segment results (EBIT)
Significant items
Interest income
Finance costs
Operating lease expense
Depreciation of right-of-use assets
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
24,022
(5,446)
18,576
658
(2,638)
(1,980)
8,686
(1,146)
7,540
(956)
-
(956)
32,410
(9,230)
23,180
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
30 June
2020
$’000
30 June
2019
$’000
Notes
23,180
(5,041)
98
(11,770)
13,990
(11,015)
9,442
(2,799)
6,643
18,747
(163,329)
54
(8,135)
-
-
(152,663)
1,329
(151,334)
18
28
28
4
1 EBIT and EBITDA are measured before accounting for AASB 16 for internal purposes and the segment results have
been disclosed in Note 1 on this basis.
PRO-PAC PACKAGING LIMITED
47 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 1. SEGMENT & GROUP RESULTS (CONT’D)
Significant items
For the year ended
Goodwill impairment losses
Surplus lease and exit costs
Restructuring costs
Chester Hill closure program
Reversal of provisions and other liabilities
Profit on disposal of business
Kewdale fire losses, net of insurance proceeds
Significant items
30 June
2020
$’000
30 June
2019
$’000
Notes
(a)
(b)
(c)
(d)
(e)
(f)
(g)
-
2,099
3,223
9,219
(2,784)
(4,717)
(1,999)
5,041
149,000
962
10,450
-
(1,000)
-
3,917
163,329
(a) Goodwill impairment losses recognised at 31 December 2018.
(b) Surplus lease and exit costs relate to the remaining lease term where operations have been relocated.
(c) Costs relate to business restructuring, strategy and business optimisation.
(d) Redundancy provisions and non-cash asset write-offs associated with the closure of the Chester Hill facility.
(e) Reversal of provisions and other liabilities recognised, which are no longer required.
(f) Profit on divestment of the Australian forage business, discounted to present value.
(g) Costs associated with Kewdale fire, less in insurance proceeds recognised as income.
The income tax impact of significant items is $1,512,000 (2019: $4,299,000), while payments in respect of significant
items were $1,595,000 (2019: $4,512,000).
Impact of COVID-19
During the year, a new strain of coronavirus (‘COVID-19’) spread throughout the world and has impacted the business
community in different ways, with some industries impacted more than others.
How has COVID-19 impacted the financial performance and position of the Group during the year ended 30 June
2020?
•
Increased demand for products in the grocery, personal care and household segments.
• Nil operating days lost at any of our manufacturing and distribution sites within the Group.
• Nil Government JobKeeker assistance or rent relief received.
• $168,000 in bad debt write-offs, while aging of amounts due for collection improved significantly.
While the Group has managed the business well through these difficult operating conditions during the financial year,
the future is increasingly uncertain. Judgement’s and estimates with respect to provisions, expected credit losses and
forecast earnings are based on the information available.
PRO-PAC PACKAGING LIMITED
48 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 2. EARNINGS/(LOSSES) PER SHARE (‘EPS’)
EPS (cents) – Basic
EPS (cents) – Diluted
Calculated using:
Profit/(loss) after income tax ($’000)
Weighted average of ordinary shares (number) – Basic
Weighted average of ordinary shares (number) – Diluted*
* Includes share options as disclosed in Note 23.
30 June
2020
30 June
2019
0.82
0.82
(19.56)
(19.56)
6,643
(151,334)
811,040,471 773,655,507
812,002,663 774,855,507
@
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.
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
284,972
-
4,120
289,092
-
123,653
-
123,653
234,038
51,822
3,232
289,092
123,653
-
-
123,653
24,618
45,299
-
69,917
69,917
-
-
69,917
(3,828)
(427)
(207)
(4,462)
305,762
168,525
3,913
478,200
(4,462)
-
-
(4,462)
423,146
51,822
3,232
478,200
213,594
75,498
289,092
123,653
-
123,653
69,917
-
69,917
(4,462)
-
(4,462)
402,702
75,498
478,200
For the year ended 30 June 2020
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
PRO-PAC PACKAGING LIMITED
49 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 3. REVENUE FROM CONTRACTS WITH CUSTOMERS (CONT’D)
For the year ended 30 June 2019
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
273,902
-
5,582
279,484
-
152,897
-
152,897
220,827
55,907
2,750
279,484
152,897
-
-
152,897
24,618
37,571
-
62,189
62,189
-
-
62,189
(6,650)
(306)
(1,804)
(8,760)
291,870
190,162
3,778
485,810
(8,760)
-
-
(8,760)
427,153
55,907
2,750
485,810
217,170
62,314
279,484
152,897
-
152,897
62,189
-
62,189
(8,760)
-
(8,760)
423,496
62,314
485,810
?
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
50 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 3. REVENUE FROM CONTRACTS WITH CUSTOMERS (CONT’D)
Key accounting policy – revenue recognition
Sale of goods
@
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.
NOTE 4. TAXATION
Income tax expense
For the year ended
Current income tax
Current income tax charge
Adjustments in respect of previous years
Deferred income tax
Relating to origination and utilisation of timing differences
Income tax expense/(benefit)
30 June
2020
$’000
30 June
2019
$’000
4,816
(127)
202
173
(1,890)
2,799
(1,704)
(1,329)
PRO-PAC PACKAGING LIMITED
51 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 4. TAXATION (CONT’D)
Reconciliation of income tax to accounting profit at the statutory income tax rate:
For the year ended
Profit/(loss) before income tax
At the statutory income tax rate of 30% (2019: 30%)
Differential income tax rates
Adjustments in respect of previous years
Non-deductible impairment losses
Other items
Income tax expense/(benefit)
Deferred tax balances
As at
Deferred tax assets
Provisions and other timing differences
Derivative financial instruments
Lease liabilities
Carry forward tax losses
Transaction costs
Deferred tax assets
Deferred tax liabilities
Intangibles
Right-of-use assets
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
30 June
2020
$’000
30 June
2019
$’000
9,442
2,833
(113)
(127)
-
206
2,799
(152,663)
(45,799)
70
173
44,700
(473)
(1,329)
Balance Sheet
30 June
2019
$’000
30 June
2020
$’000
Profit or Loss
30 June
2019
$’000
30 June
2020
$’000
9,845
761
17,620
4,348
1,417
33,991
6,582
16,216
386
23,184
10,807
9,637
-
-
3,704
1,536
14,877
6,691
-
30
6,721
8,156
208
-
17,620
644
(119)
18,353
(109)
16,216
356
16,463
1,890
(616)
-
-
(574)
1,082
(108)
-
-
-
-
(108)
30 June
2020
$’000
30 June
2019
$’000
8,156
1,890
761
-
10,807
14,530
(108)
-
(6,266)
8,156
PRO-PAC PACKAGING LIMITED
52 | ANNUAL REPORT 2020
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.
The initial recognition exception is not applied to deferred tax related to assets and liabilities arising
from a single transaction (e.g. leases).
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.
PRO-PAC PACKAGING LIMITED
53 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 4. TAXATION (CONT’D)
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.
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 25 August 2020, the Company declared a fully-franked final dividend for the year ended 30 June 2020 of 0.4 cent
per share and suspended its dividend reinvestment plan.
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 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 2020
30 June 2019
Cents/
share
$’000
Cents/
share
$’000
0.0
0.0
0.0
0.4
-
-
-
3,244
1.0
0.0
1.0
0.0
7,573
-
7,573
-
@
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:
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
30 June
2020
$’000
30 June
2019
$’000
9,685
-
(1,390)
8,295
13,200
(100)
-
13,100
PRO-PAC PACKAGING LIMITED
54 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
Our Operational Footprint
This section provides details of acquisitions and other changes in the composition of the Group which the been
made in either the current or comparative year.
NOTE 6. BUSINESS COMBINATIONS
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.
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
Deferred tax assets
Trade and other payables
Employee entitlements
Other provisions
Fair value of identifiable net assets
Goodwill arising on acquisition
Final
Perfection
Packaging
$’000
Final
Polypak
$’000
42,436
-
9,960
52,396
(1,763)
50,633
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 Polypak became payable upon satisfaction of the performance hurdles and the
first payment of $806,000 was paid in December 2018. The second payment of $807,000 was paid in August 2019.
Details of the goodwill impairment assessment is contained in Note 11 below.
The Consolidated Statement of Comprehensive Income includes the results of Perfection Packaging and Polypak for
the year ended 30 June 2020 as they were acquired in the comparative year.
PRO-PAC PACKAGING LIMITED
55 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 6. BUSINESS COMBINATIONS (CONT’D)
@
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 of 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.
Refocused on core business
Following a detailed review of the portfolio of businesses and the operating footprint during the year, the Group has
exited a non-core business and certain sites that weren’t considered complementary or adjacent to our core
business, and which lacked scale and strategic purpose to make a meaningful contribution to the Group’s operations
in the near term.
Strategic partnership in agriculture
On 20 May 2020, the Group agreed to enter into a strategic partnership with the Tama group of companies. The
Group has been trading with Tama as a customer and a supplier in the Australian agricultural market for over 15
years.
This agreement resulted in the following benefits to the Group:
• 5 year extension to current supply agreement for cotton wrap manufactured at our Kewdale facility in Western
Australia;
• 10 year exclusive supply and distribution agreement to license the Group’s silage brands, with guaranteed
minimum annual volumes;
• An exclusive licence agreement for Tama to use the know-how and technical support services; and
• Divestment of our Australian forage business comprised of non-manufactured product including netting, twine,
grain bags and pit covers for $5.0M in sale proceeds receivable in annual instalments over 4 years.
Nil proceeds were received during the year ended 30 June 2020.
PRO-PAC PACKAGING LIMITED
56 | ANNUAL REPORT 2020
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
As at
Trade and other receivables
Inventories
Deposits and prepayments
Trade and other payables
Working capital
NOTE 7. TRADE & OTHER RECEIVABLES
As at
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
Notes
7
8
13
9
30 June
2020
$’000
30 June
2019
$’000
77,559
70,608
2,019
(67,840)
82,346
90,278
78,108
4,086
(74,104)
98,368
30 June
2020
$’000
30 June
2019
$’000
65,892
1,125
67,017
(628)
66,389
9,114
2,056
77,559
81,480
1,088
82,568
(1,065)
81,503
6,683
2,092
90,278
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 the transaction price 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.
Contract assets relate to revenue earned from bespoke products. As such, the balances of this
account vary and depend on the number of bespoke products produced at the end of the year.
Contract assets are subject to impairment assessment through expected credit losses.
PRO-PAC PACKAGING LIMITED
57 | ANNUAL REPORT 2020
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.
The Group considers a financial asset to be in default when internal or external information indicates
that the Group is unlikely to receive the outstanding contractual amounts in full before taking into
account any credit enhancements held by the Group. A financial asset is written off when there is no
reasonable expectation of recovering the contractual cash flows.
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:
As at
Current to less than 30 days overdue
31 days to 60 days overdue
61 days to 90 days overdue
Greater than 90 days overdue
Trade and related party receivables
Contract assets
Gross
trade and related
party receivables
30 June
2019
$’000
30 June
2020
$’000
Allowance
for expected
credit losses
30 June
2019
$’000
30 June
2020
$’000
65,780
1,164
34
39
67,017
9,114
50,092
24,562
4,918
2,996
82,568
6,683
536
68
23
1
628
-
277
378
274
136
1,065
-
Movements in the allowance for expected credit losses during the year ended:
Balance as at beginning of the year
Additional amounts provided
Amounts written-off as uncollectible
Reversal of doubtful amounts provided, subsequently collected
Recognised through business combination
Balance as at end of the year
PRO-PAC PACKAGING LIMITED
58 | ANNUAL REPORT 2020
30 June
2020
$’000
30 June
2019
$’000
(1,065)
(515)
168
784
-
(628)
(744)
(1,294)
1,119
-
(146)
(1,065)
NOTES TO THE
Financial Statements
NOTE 8. INVENTORIES
As at
Raw materials
Work-in-progress
Finished goods
Engineering spares
Provision for obsolete inventories
Inventories
30 June
2020
$’000
30 June
2019
$’000
14,640
4,006
57,237
161
(5,436)
70,608
15,961
4,056
64,426
804
(7,139)
78,108
@
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
Amounts written-off as obsolete
Reversal of obsolete amounts provided, subsequently sold
Recognised through business combination
Balance as at end of the year
30 June
2020
$’000
30 June
2019
$’000
(7,139)
(1,337)
2,665
375
-
(5,436)
(5,098)
(2,487)
465
-
(19)
(7,139)
Managing 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
59 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 9. TRADE & OTHER PAYABLES
As at
Trade payables
Payables to related parties
Trade and related party payables
GST and other taxes payable
Contract liabilities
Other payables
Trade and other payables
30 June
2020
$’000
30 June
2019
$’000
47,215
1,679
48,894
5,595
576
12,775
67,840
58,938
-
58,938
2,356
35
12,775
74,104
Trade and related party payables are non-interest bearing, unsecured and are generally settled on 60-day terms, or
less. Goods and 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 hedge foreign currency risk, the Group regularly determines its net
exposure to the primary currencies listed below and enters into foreign exchange forward contracts to
hedge committed and highly probable forecast foreign currency transactions in accordance with its
treasury policy.
The net carrying amount of financial assets/(liabilities) denominated in foreign currencies at balance
date were:
As at
United States dollars
Canadian dollars
New Zealand dollars
Euros
Great British pounds
PRO-PAC PACKAGING LIMITED
60 | ANNUAL REPORT 2020
30 June
2020
$’000
30 June
2019
$’000
3,706
-
1,857
33
3
831
648
1,785
(2,362)
164
NOTES TO THE
Financial Statements
NOTE 9. TRADE & OTHER PAYABLES (CONT’D)
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:
As at
+/- 10% in AUD/USD
+/- 10% in AUD/CAD
+/- 10% in AUD/NZD
+/- 10% in AUD/EUR
+/- 10% in AUD/GBP
30 June
2020
$’000
30 June
2019
$’000
370
-
186
3
-
83
65
179
236
16
A 10% movement is considered reasonable movement based on historical movements in foreign
exchange rates.
PRO-PAC PACKAGING LIMITED
61 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NON-CURRENT ASSETS
DRAFT
?
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
Leasehold
Improvements
$’000
Plant &
Equipment
$’000
Computer
& Office
Equipment
$’000
Motor
Vehicles
$’000
Balances as at 1 July 2019*
Additions
Impairment loss^
Disposals
Depreciation expense
Balances as at 30 June 2020
Represented by:
At cost
Accumulated depreciation and impairment
Balances as at 30 June 2020
Balances as at 1 July 2018
Acquired through business combination
Additions
Disposals
Depreciation expense
Balances as at 30 June 2019
-
-
-
-
-
-
-
-
-
1,306
77
111
(2)
(176)
1,316
53,622
7,728
(3,165)
(500)
(5,965)
51,720
98,566
(46,846)
51,720
32,246
22,360
8,832
(944)
(7,872)
54,622
Represented by:
At cost
Accumulated depreciation and impairment
Balances as at 30 June 2019
3,773
(2,457)
1,316
93,243
(38,621)
54,622
3,085
822
-
(174)
(2,258)
1,475
5,222
(3,747)
1,475
1,425
44
2,320
(61)
(643)
3,085
4,574
(1,489)
3,085
Total
$’000
57,774
8,560
(3,165)
(674)
(8,665)
53,830
1,067
10
-
-
(442)
635
3,256
(2,621)
635
107,044
(53,214)
53,830
1,513
318
658
(289)
(341)
1,859
36,490
22,799
11,921
(1,296)
(9,032)
60,882
4,478
(2,619)
1,859
106,068
(45,186)
60,882
* The carrying amount of property, plant and equipment of $3,108,000 recognised at 30 June 2019 was reclassified
on adoption of AASB 16 on 1 July 2019, including $1,316,000 for leasehold improvements, $1,000,000 for plant and
equipment and $792,000 for motor vehicles.
^ Impairment relates to written down value of plant and equipment, which will become idle under the Chester Hill
closure program.
PRO-PAC PACKAGING LIMITED
62 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 10. PROPERTY, PLANT & EQUIPMENT (CONT’D)
DRAFT
@
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
Depreciation rates
Method
Plant and equipment
Motor vehicles
Computer equipment
Office equipment
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
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.
Brand
Names
$’000
Customer
Contracts
$’000
Other
$’000
Total
$’000
865
304
(560)
609
1,739
(1,130)
609
1,167
-
(304)
-
2
865
1,402
(537)
865
-
64
(5)
59
64
(5)
59
-
-
-
-
-
-
-
-
-
66,548
368
(565)
66,351
216,486
(150,135)
66,351
184,689
31,161
(304)
(149,000)
2
66,548
216,085
(149,537)
66,548
NOTE 11. INTANGIBLE ASSETS
Balances as at 1 July 2019
Additions
Amortisation expense
Balances as at 30 June 2020
Represented by:
At cost
Accumulated amortisation and impairment
Balances as at 30 June 2020
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
Goodwill
$’000
44,211
-
-
44,211
193,211
(149,000)
44,211
162,050
31,161
-
(149,000)
-
44,211
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 2019
193,211
(149,000)
44,211
21,472
-
21,472
PRO-PAC PACKAGING LIMITED
63 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 11. INTANGIBLE ASSETS (CONT’D)
@
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.
Brand names
Brand names are assigned an indefinite life because of a perpetual legal right that can be easily
renewed 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. Customer contracts also include up-
front payments paid at the commencement of a contract, which is amortised over the contract term.
?
Key estimate and judgement – recoverability of carrying amounts
Where the recoverable amounts of CGUs are determined based on value-in-use 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 amortisation 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.
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 largely independent cash flows are grouped together to form a cash-
generating unit (‘CGU’).
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.
Flexibles
$’000
Industrial
$’000
Rigid
$’000
Un-
allocated
$’000
22,116
22,140
44,256
-
-
-
22,095
-
22,095
-
-
-
Total
$’000
44,211
22,140
66,351
Goodwill
Other intangibles
Total
PRO-PAC PACKAGING LIMITED
64 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 11. INTANGIBLE ASSETS (CONT’D)
Methodology and Testing of Recoverable Amount
Value-in-use
The recoverable amount of the Flexibles packaging and Rigid packaging 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 assumptions
The following key assumptions have been used to determine the recoverable amounts of the Flexibles packaging and
Rigid packaging 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 11.23% (2019: 11.26%) for Rigid packaging and 11.17% (2019: 11.41%)
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 1.88% (2019: 1.90%) for Rigid packaging and 5.99%
(2019: 0.79%) 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% (2019: 2.00%) for Rigid packaging and 2.00% (2019: 2.00%) for
Flexibles packaging.
The Directors consider that a reasonably possible unfavourable movement in the key assumptions used to determine
the recoverable amount of the Flexibles and Rigid group of CGUs is unlikely to cause the carrying amount to exceed
its recoverable amount.
Fair value less costs of disposal
The fair value of the Industrial packaging group of CGUs was determined based on an independent valuation of plant
and equipment, and management’s assessment of the fair value of working capital which form the carrying value of
the Industrial packaging group of CGUs at 30 June 2020.
The independent valuation of plant and equipment was undertaken using a depreciated replacement cost
methodology; the replacement costs represent Level 3 inputs under AASB 13 Fair Value Measurement.
PRO-PAC PACKAGING LIMITED
65 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 12. COMMITMENTS & CONTINGENCIES
Capital expenditure commitments
As at
Less than one year
Capital expenditure commitments
Contingencies
As at
Security deposit guarantees given to landlords
Standby letters of credits given to overseas suppliers
Contingent liabilities
30 June
2020
$’000
30 June
2019
$’000
2,439
2,439
169
169
30 June
2020
$’000
30 June
2019
$’000
2,870
2,059
4,929
4,831
6,057
10,888
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 claims or matters meet the accounting policy discussed below, 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.
NOTE 13. OTHER ASSETS
As at
Current
Deposits and prepayments
Accrued proceeds on sale
Current other assets
Non-current
Accrued proceeds on sale
Non-current other assets
PRO-PAC PACKAGING LIMITED
66 | ANNUAL REPORT 2020
30 June
2020
$’000
30 June
2019
$’000
Notes
6,27
6,27
2,019
1,000
3,019
3,717
3,717
4,086
-
4,086
-
-
NOTES TO THE
Financial Statements
NOTE 14. OTHER LIABILITIES
As at
Current
Deferred consideration
Accrued capital expenditure
Current other liabilities
NOTE 15. OTHER PROVISIONS
As at
Current
Onerous contracts
Business restructuring
Lease make-good
Other
Current other provisions
Non-current
Lease make-good
Non-current other provisions
Notes
6,27
30 June
2020
$’000
30 June
2019
$’000
-
2,123
2,123
889
-
889
30 June
2020
$’000
30 June
2019
$’000
-
6,300
1,003
393
7,696
649
1,805
1,039
2,813
6,306
2,569
2,569
2,582
2,582
Movements in other provisions during the year ended:
Balances as at 1 July 2019*
Additional amounts provided
Amounts utilised
Reversal of amounts provided
Unwinding of discounting
Balances as at 30 June 2020
Business
Restructuring
$’000
Onerous
Contracts
$’000
1,805
6,001
(1,506)
-
-
6,300
-
-
-
-
-
-
Lease
Make-
Good
$’000
3,621
-
(66)
-
17
3,572
Other
$’000
Total
$’000
2,813
-
(420)
(2,000)
-
393
8,239
6,001
(1,992)
(2,000)
17
10,265
* The carrying amount of onerous contracts of $649,000 recognised at 30 June 2019 was reclassified on adoption of
AASB 16 on 1 July 2019.
@
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.
PRO-PAC PACKAGING LIMITED
67 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 15. OTHER PROVISIONS (CONT’D)
?
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.
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
As at
Borrowings
Lease liabilities
Cash and cash equivalents
Net debt
NOTE 16. BORROWINGS
As at
Current
Bank loans
Trade finance
Finance lease and hire purchase*
Current borrowings
Non-current
Bank loans
Finance lease and hire purchase*
Non-current borrowings
Notes
16
28
17
30 June
2020
$’000
30 June
2019
$’000
66,452
58,732
(21,380)
103,804
106,496
-
(23,559)
82,937
30 June
2020
$’000
30 June
2019
$’000
7,500
-
-
7,500
6,149
4,659
815
11,623
58,952
-
58,952
93,904
969
94,873
* The carrying amount of finance lease and hire purchase liabilities of $1,784,000 recognised at 30 June 2019 was
reclassified on adoption of AASB 16 on 1 July 2019.
On 31 March 2020, the Group refinanced its senior debt facility for a three-year term, maturing in March 2023. Bank
loans are interest-bearing at a rate floating between 2.0% and 3.5% above BBSY.
Bank loans are secured by first ranking registered equitable mortgage over the Company and controlled entities and
cross-interlocking guarantees from the Company and controlled entities.
PRO-PAC PACKAGING LIMITED
68 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 16. BORROWINGS (CONT’D)
@
Key accounting policy – borrowings
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 (applicable prior to 1 July 2019)
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.
At balance date, the Group had unrestricted access to the following lines of credit:
As at 30 June 2020
Bank overdraft
Bank loans
Contingent funding facilities
Total facilities
As at 30 June 2019
Bank overdraft
Bank loans
Contingent funding facilities
Total facilities
Utilised
$’000
Unutilised
$’000
Total
$’000
-
67,160
4,993
72,153
10,000
25,340
5,652
40,992
10,000
92,500
10,645
113,145
Utilised
$’000
Unutilised
$’000
Total
$’000
-
100,100
7,872
107,972
5,000
282
20,998
26,280
5,000
100,382
28,870
134,252
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 and lease
liabilities; and
•
Investment in strategic growth opportunities.
The Group manages liquidity risk through cash flow forecasting.
PRO-PAC PACKAGING LIMITED
69 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 16. BORROWINGS (CONT’D)
The contractual maturities of financial liabilities of the Group at balance date were:
30 June 2020
Trade payables
Other payables
Other liabilities
Derivatives
Borrowings
Lease liabilities
Total
30 June 2019
Trade payables
Other payables
Other liabilities
Borrowings
Total
On
demand
$’000
Less
than 3
months
$’000
3 to 12
months
$’000
1 to
5 years
$’000
Greater
than 5
years
$’000
Gross
Total
$’000
Carrying
Amount
$’000
-
-
-
-
-
-
-
48,894
18,946
-
1,456
2,500
3,161
74,957
-
-
2,123
1,043
5,000
9,483
17,649
-
-
-
37
59,660
47,311
107,008
48,894
-
18,946
-
2,123
-
2,536
-
67,160
-
76,102
16,147
16,147 215,761
48,894
18,946
2,123
2,536
66,452
58,732
197,683
On
demand
$’000
Less
than 3
months
$’000
3 to 12
months
$’000
1 to 5
years
$’000
Greater
than 5
years
$’000
Gross
Total
$’000
Carrying
Amount
$’000
-
-
-
-
-
58,938
15,166
889
6,012
81,005
-
-
-
5,611
5,611
-
-
-
94,873
94,873
58,938
-
15,166
-
889
-
-
106,496
- 181,489
58,938
15,166
889
106,496
181,489
At balance date, all financial covenant requirements under the senior debt facility have been met.
PRO-PAC PACKAGING LIMITED
70 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 17. CASH & CASH EQUIVALENTS
As at
Cash on hand
Cash at bank
Cash and cash equivalents
30 June
2020
$’000
30 June
2019
$’000
12
21,368
21,380
21
23,538
23,559
Cash at bank earns 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 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:
For the year ended
Profit/(loss) before income tax
Non-cash items:
Impairment losses
Depreciation and amortisation expense
Loss/(gain) on disposal of property, plant and equipment
Share-based payments expense
Amortisation of borrowing costs
Change in fair value of derivatives recognised in equity
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 refund/(paid)
Net cash flows from operating activities
30 June
2020
$’000
30 June
2019
$’000
Notes
22
18
9,442
(152,663)
5,030
20,245
73
175
1,250
(2,564)
12,719
7,500
2,647
(2,650)
(5,330)
-
437
2,026
2,445
53,445
149,000
9,336
313
(99)
614
-
6,549
19,971
359
6,169
(23,010)
889
(1,102)
3,865
(4,424)
15,767
PRO-PAC PACKAGING LIMITED
71 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 18. FINANCE COSTS
For the year ended
Interest expense
Amortisation of borrowing costs
Unwinding of discounting on lease liabilities
Finance costs
30 June
2020
$’000
30 June
2019
$’000
Notes
28
4,605
1,250
5,915
11,770
7,521
614
-
8,135
@
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 lease liabilities 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 and 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 borrowings 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:
As at
+/- 1% in interest rates
30 June
2020
$’000
30 June
2019
$’000
672
1,091
The assumed movement in basis points for the interest rate sensitivity analysis is based on the
currently observable market environment.
EQUITY
NOTE 19. ISSUED CAPITAL
Movements in the issued, authorised and fully-paid ordinary shares during the year ended:
30 June 2020
$’000
Number
30 June 2019
$’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 as special bonus to employee
Shares issued under Executive LTI plan
Cancellation of shares issued under Executive LTI plan
Cost of raising shares
Ordinary shares as at end of the year
810,720,188
-
-
-
387,097
-
-
-
811,107,285
291,618
-
-
-
60
-
-
-
291,678
583,665,341
24,964,031
25,538,462
175,882,354
-
2,890,000
(2,220,000)
-
810,720,188
217,695
5,223
9,960
59,800
-
-
-
(1,060)
291,618
PRO-PAC PACKAGING LIMITED
72 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 19. ISSUED CAPITAL (CONT’D)
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.
@
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 20. RESERVES
As at
Share-based payments reserve
Cash flow hedge reserve
Foreign currency translation reserve
Reserves
Notes
(a)
(b)
(c)
30 June
2020
$’000
30 June
2019
$’000
294
(1,803)
482
(1,027)
179
-
1,042
1,221
(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
period 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 is the
cumulative amount calculated at each balance date less amounts recognised in previous years.
Cash flow hedge reserve
The Group uses forward currency contracts to hedge its exposure to foreign currency risk in forecast
transactions and firm commitments.
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 in other expenses. 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.
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.
PRO-PAC PACKAGING LIMITED
73 | ANNUAL REPORT 2020
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 21. EMPLOYEE ENTITLEMENTS
As at
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
2020
$’000
30 June
2019
$’000
5,994
62
5,470
11,526
5,554
58
5,257
10,869
1,472
1,472
1,692
1,692
?
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
74 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 22. EMPLOYEE BENEFITS EXPENSE
For the year ended
Wages and salaries
Superannuation contributions
Share-based payments expense
Other employee benefits
Employee benefits expense
NOTE 23. SHARE-BASED PAYMENTS
30 June
2020
$’000
30 June
2019
$’000
Notes
23
85,179
5,887
175
3,650
94,891
76,077
5,895
(99)
3,352
85,225
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 includes 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 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
75 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 23. SHARE-BASED PAYMENTS (CONT’D)
No shares were issued during the year ended 30 June 2020.
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 2020
WAEP
Number
30 June 2019
WAEP
Number
5,185,000
-
(3,520,000)
-
1,665,000
-
$0.280
-
$0.272
-
$0.297
-
16,810,000
2,890,000
(13,315,000)
(1,200,000)
5,185,000
-
$0.384
$0.200
$0.382
$0.417
$0.280
-
* Of the shares that have expired or were forfeited during the year ended 30 June 2020, nil shares have been
cancelled. The shares are held by the share plan trustee for 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 2020 is as follows:
Grant date
Vesting date
Fair
Value
Number
Exercise
Price
9 December 2019
30 June 2022
$0.046
8,359,273
$0.000
PRO-PAC PACKAGING LIMITED
76 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 23. 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
Exercised
Expired
Outstanding as at end of the year
Exercisable
Share Options
30 June 2020
WAEP
Number
30 June 2019
WAEP
Number
653,333
8,359,273
(1,166,667)
(653,333)
-
7,192,606
-
$0.000
$0.000
$0.000
$0.000
-
$0.000
-
1,375,000
653,333
(1,000,000)
-
(375,000)
653,333
-
$0.000
$0.000
$0.000
-
$0.000
$0.000
-
No options were issued during the years ended 30 June 2019 and 30 June 2020.
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.
The following table shows the number and weighted average exercise prices (‘WAEP’) of, and movements in, share
options during the year ended:
Outstanding as at beginning of the year
Expired
Outstanding as at end of the year
Exercisable
30 June 2020
WAEP
Number
30 June 2019
WAEP
Number
1,200,000
(400,000)
800,000
400,000
$0.420
$0.420
$0.420
$0.380
1,200,000
-
1,200,000
400,000
$0.420
-
$0.420
$0.380
@
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).
PRO-PAC PACKAGING LIMITED
77 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 24. KEY MANAGEMENT PERSONNEL
Employee benefits expense
For the year ended
Short-term employee benefits
Long-term benefits
Post-employment benefits
Share-based payments
Compensation to key management personnel
30 June
2020
$’000
30 June
2019
$’000
1,509
-
91
72
1,672
2,083
(7)
116
80
2,272
Other Disclosures
This section includes additional financial information that is required under the accounting standards and the
Corporations Act 2001.
NOTE 25. OTHER INCOME
For the year ended
Profit on disposal of assets
Insurance proceeds
Other
Other income
30 June
2020
$’000
30 June
2019
$’000
4,717
5,850
874
11,441
-
-
1,084
1,084
@
Key accounting policy – other 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
78 | ANNUAL REPORT 2020
30 June
2020
$’000
30 June
2019
$’000
4
(2,018)
(2,014)
604
(1,410)
-
(1,410)
-
(3,259)
(3,259)
4,207
948
-
948
30 June
2020
$’000
30 June
2019
$’000
202,070
122,371
324,441
46,979
-
46,979
277,462
291,710
(14,248)
277,462
229,111
121,941
351,052
72,180
-
72,180
278,872
291,710
(12,838)
278,872
NOTES TO THE
Financial Statements
NOTE 26. PARENT ENTITY FINANCIAL INFORMATION
Supplementary financial information for the Company is as follows:
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)
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
PRO-PAC PACKAGING LIMITED
79 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 27. FAIR VALUE MEASUREMENT
Fair value hierarchy
The following tables detail the Group'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 2020
Accrued proceeds on sale
Borrowings
Derivative financial instruments
Total
As at 30 June 2019
Derivative financial instruments
Borrowings
Contingent consideration payable
Total
Notes
13
16
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
-
-
-
-
4,717
(66,452)
(2,536)
(64,271)
-
-
-
-
4,717
(66,452)
(2,536)
(64,271)
Notes
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
16
14
-
-
-
-
111
(106,496)
-
(106,385)
-
-
(883)
(883)
111
(106,496)
(883)
(107,268)
(a)
(b)
(c)
(c)
(b)
(d)
(a) Accrued proceeds on sale on the sale of the Australian forage business has been valued based on the
contractual amount receivable ($5.0M), discounted to present value.
(b) Borrowings primarily relate to bank loans which are interest-bearing at a floating interest rate and has been
valued at amortised cost using the effective interest rate method.
(c) Derivative financial instruments relate to foreign exchange forward contracts and 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.
(d) Contingent consideration relating to the acquisition of Polypak 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
80 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 28. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
Nature of changes to accounting for leases
The Group has lease contracts for various items of plant, machinery, vehicles and other equipment. Before the
adoption of AASB 16 on 1 July 2019, the Group classified each of its leases (as lessee) at the inception date as either a
finance lease or an operating lease.
A lease was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to
ownership of the leased asset to the Group; otherwise it was classified as an operating lease. Finance leases were
capitalised at the commencement of the lease at the inception date fair value of the leased premises or, if lower, at
the present value of the minimum lease payments. Lease payments were apportioned between interest (recognised
as finance costs) and reduction of the lease liability.
In an operating lease, the leased asset was not capitalised, and the lease payments were recognised as rent expense
in profit or loss on a straight-line basis over the lease term. Any prepaid rent and accrued rent were recognised under
prepayments and trade and other payables, respectively.
Upon adoption of AASB 16, the Group applied a single recognition and measurement approach for all leases, except
for short-term leases and leases of low-value assets.
Leases previously classified as finance leases
The Group did not change the initial carrying amounts of recognised assets and liabilities at 1 July 2019 for leases
previously classified as finance leases (i.e., the right-of-use assets and lease liabilities equal the lease assets and
liabilities recognised under AASB 117). The requirements of AASB 16 was applied to these leases from 1 July 2019.
Leases previously classified as operating leases
The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases,
except for short-term leases and leases of low-value assets. The right-of-use assets for leases were recognised based
on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously
recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted
using the incremental borrowing rate at the date of initial application.
The Group also applied the available practical expedients on transition to AASB 16 on 1 July 2019:
• Used a single discount rate to a portfolio of leases with reasonably similar characteristics;
• Relied on the Group’s assessment of whether leases are onerous at 30 June 2019 as an alternative to performing
an impairment review;
• Applied the short-term leases exemptions to leases with a remaining lease term of less than 12-months; and
• Excluded the initial direct costs from the measurement of the right-of-use asset at 1 July 2019.
PRO-PAC PACKAGING LIMITED
81 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 28. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Impact of adopting AASB 16 on 1 July 2019
The impact on the consolidated statement of financial position at 1 July 2019 was:
As at
Property, plant and equipment
Right-of-use assets
Trade and other payables
Other provisions
Borrowings
Lease liabilities
Increase/(decrease) in net assets
Notes
(a)
(b)
(c)
(d)
1 July
2019
$’000
(3,108)
67,428
934
649
1,784
(67,687)
-
(a) Finance leases reclassified as right-of-use assets (Note 10).
(b) Straight-line rent liability reclassified against right-of-use assets.
(c) Onerous contracts reclassified against right-of-use assets (Note 15).
(d) Finance lease and hire purchase liabilities reclassified as lease liabilities (Note 16).
Reconciliation of the operating lease commitments to the lease liabilities adopted on implementation of AASB 16:
As at
Operating lease commitments
Discounted operating lease commitments*
Finance lease commitments
Payments in renewal options not previously recognised*
Lease liabilities
1 July
2019
$’000
52,900
46,245
1,784
19,658
67,687
* Discounted to present value using a weighted average incremental borrowing rate of 6.50% on 1 July 2019.
Impact of AASB 16 for the year ended 30 June 2020
Amounts recognised in the consolidated statement of profit or loss
For the year ended
Operating lease expense
Depreciation of right-of-use assets
Interest expense on lease liabilities
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) after income tax
There was no impact on other comprehensive income for the year ended.
30 June
2020
$’000
13,990
(11,015)
(5,915)
(2,940)
882
(2,058)
PRO-PAC PACKAGING LIMITED
82 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 28. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Amounts recognised in the consolidated statement of financial position
The movement in the carrying amount of the Group’s right-of-use assets and lease liabilities during the year are
shown below:
Right-of-use assets
Premises
$’000
Plant &
Equipment
$’000
Motor
Vehicles
$’000
Other
Equipment
$’000
Total
$’000
Lease
Liabilities
$’000
As at 1 July 2019
Disposals
Depreciation expense
Impairment loss*
Interest expense
Payments
Movement in foreign exchange rates
As at 30 June 2020
63,001
(424)
(10,183)
(1,865)
-
-
(70)
50,459
3,124
-
(566)
-
-
-
-
2,558
1,059
-
(162)
-
-
-
-
897
244
-
(104)
-
-
-
-
140
67,428
(424)
(11,015)
(1,865)
-
-
(70)
54,054
67,687
(432)
-
-
5,915
(14,438)
-
58,732
* Impairment relates to the estimated economic loss arising from surplus lease space over the remaining lease term.
The Group recognised rent expense and payments for short-term leases of $90,000, leases of low-value assets of nil
and variable lease expense and payments of $2,424,000 for the year ended 30 June 2020.
Amounts recognised in the consolidated statement of cash flows
The increase/(decrease) on the consolidated statement of cash flows for the year ended:
As at
Payments to suppliers and employees
Interest paid
Net cash flows from operating activities
Repayment of hire purchase and finance lease liabilities
Repayment of lease liability principal
Net cash flows used in financing activities
Increase/(decrease) in cash and cash equivalents
Accounting policy for leases from 1 July 2019
Right-of-use assets
30 June
2020
$’000
14,438
(5,915)
8,523
954
(9,477)
(8,523)
-
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset
is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of
lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement
date less any lease incentives received. Right-of-use assets include an estimate of costs to be incurred by the lessee in
dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying
asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce
inventories. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease
term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated
useful life and the lease term. Right-of-use assets are subject to impairment.
PRO-PAC PACKAGING LIMITED
83 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 28. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and
amounts expected to be paid under residual value guarantees, these payments are initially measured using the index
or rate as at the commencement date. The lease payments also include the exercise price of a purchase option
reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term
reflects the Group exercising the option to terminate.
The variable lease payments that do not depend on an index or a rate are recognised as expense in the period in
which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses lessee’s incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement
date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease
payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change
in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the
underlying asset.
Short-term leases
The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment
(i.e., those leases that have a lease term of twelve months or less from the commencement date and do not contain a
purchase option).
Lease payments on short-term leases are recognised as expense on a straight-line basis over the lease term.
Low value leases
The Group applied practical expedient whereby low value assets less than $1,000 have not recognised. Lease
payments on low value assets are recognised as expense on a straight-line basis over the lease term.
Lease and non-lease components
The Group applied practical expedient whereby it does not separate the lease and non-lease components.
Significant judgements and estimates
Renewal options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by
an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to
terminate the lease, if it is reasonably certain not to be exercised.
The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it
considers all relevant factors that create an economic incentive for it to exercise the renewal. In assessing the
likelihood of a lease option being exercised, the Group considers the costs of termination, the extent of any leasehold
improvements, the strategic importance of the lease location and the current market rent for the site.
After the commencement date, the Group reassesses the lease term if there is a significant event or change in
circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g.,
a change in business strategy).
PRO-PAC PACKAGING LIMITED
84 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 28. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Set out below are the undiscounted potential future rental payments relating to periods following the exercise date
of extension options that are not included in the lease term:
Less than
5 years
$’000
Greater
than 5
years
$’000
Total
$’000
Extension options expected not to be exercised
10,191
31,007
41,198
Incremental borrowing rates
The Group cannot readily determine the interest rate implicit in the lease contracts and therefore, the incremental
borrowing rate applied is based on the interest that the Group would be required to pay to borrow over a similar
term, the funds necessary to obtain an asset of a similar value to the right-of-use asset.
NOTE 29. 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 2020
Entity with significant influence over the Group
Kin Group Pty Ltd
Pact Group Limited
For the year ended 30 June 2019
Entity with significant influence over the Group
Kin Group Pty Ltd
Pact Group Limited
Notes
(a)
(a)
Notes
Sales
$’000
Purchases
$’000
6,455
4,758
-
(8,536)
Sales
$’000
Purchases
$’000
(a)
(a)
2,427
5,352
-
(4,734)
(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.
Kin Group Pty Ltd
Mr Raphael Geminder owns 49.73% (2019: 49.70%) 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 Group also purchases goods from Pact
Group Limited.
Mr Jonathan Ling is an Independent Non-Executive Director of Pact Group Limited.
PRO-PAC PACKAGING LIMITED
85 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 30. 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.
As at
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*
Country of
Incorporation
Class of
Shares
Equity Holding
30 June
2019
30 June
2020
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%
Controlled Entities owned 100% by Pro-Pac Group Pty Ltd
Pro-Pac Packaging (Aust) Pty Ltd*
Pro-Pac (GLP) Pty Ltd
Australia
Australia
Ordinary
Ordinary
100%
100%
100%
100%
Controlled Entities owned 100% by Plastic Bottles Pty Ltd
Australian Bottle Manufacturers Pty Ltd
Bev-Cap Pty Ltd
Ctech Closures Pty Ltd
Specialty Products and Dispensers Pty Ltd
Australia
Australia
Australia
Australia
Controlled Entities owned 100% by Pro-Pac Packaging (Aust) Pty Ltd
Creative Packaging Pty Ltd
Pro-Pac Packaging Manufacturing (Syd) Pty Ltd
Pro-Pac Packaging Manufacturing (Melb) Pty Ltd
Pro-Pac Packaging Manufacturing (Bris) Pty Ltd
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
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
Australia
Australia
Australia
Canada
Australia
Controlled Entities owned 100% by Goodstone International Pty Ltd
Integrated Packaging Ltd (NZ)
Integrated Packaging Australia Pty Ltd*
IP Americas Inc.
New Zealand
Australia
United States
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Controlled Entities owned 100% by Integrated Packaging Australia Pty Ltd
Integrated Machinery Pty Ltd*
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
86 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 30. 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 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
30 June
2020
$’000
30 June
2019
$’000
319,711
(198,774)
(66,213)
(44,116)
(5,030)
(15,862)
11,415
(5,631)
(4,500)
1,350
(3,150)
342,128
(222,579)
(59,195)
(70,784)
(139,383)
(6,282)
941
(1,183)
(156,337)
821
(155,516)
1,970
-
1,970
(1,180)
-
-
-
(155,516)
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)
PRO-PAC PACKAGING LIMITED
87 | ANNUAL REPORT 2020
NOTES TO THE
Financial Statements
NOTE 31. DEED OF CROSS GUARANTEE (CONT’D)
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
Right-of-use assets
Intangible assets
Investments
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Derivative financial liabilities
Borrowings
Lease liabilities
Current tax liability
Other liabilities
Employee entitlements
Other provisions
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Employee entitlements
Other provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
PRO-PAC PACKAGING LIMITED
88 | ANNUAL REPORT 2020
30 June
2020
$’000
30 June
2019
$’000
6,025
49,055
52,398
-
-
2,402
109,880
31,401
43,603
27,576
25,223
8,905
3,717
140,425
250,305
77,224
2,344
-
6,407
-
6,669
8,291
5,531
106,466
-
41,335
576
2,008
43,919
150,385
99,920
13,300
57,105
59,680
4,147
111
3,699
138,042
34,616
-
27,881
25,032
6,606
-
94,135
232,177
104,832
-
5,023
-
-
-
7,975
5,736
123,566
675
-
977
2,008
3,660
127,226
104,951
291,122
(1,846)
(189,356)
99,920
291,062
95
(186,206)
104,951
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
NOTE 32. AUDITORS’ REMUNERATION
Amounts paid or payable by the Group to its auditors are as follows:
For the year ended
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
2020
$’000
30 June
2019
$’000
(186,206)
(3,150)
-
(189,356)
(23,117)
(155,516)
(7,573)
(186,206)
30 June
2020
$’000
30 June
2019
$’000
Notes
(a)
(b)
(c)
352
59
411
163
163
574
426
157
583
34
34
617
(a) Fees for auditing the statutory financial reports of the Group and any of its controlled entities.
(b) Fees for other assurance and agreed-upon-procedures services under other legislation or contractual
arrangements where there is discretion as to whether the service is provided by the auditor or another firm.
(c) Fees for tax compliance services where there is discretion as to whether the service is provided by the auditor or
another firm.
The auditor of the Group for the years ended 30 June 2019 and 30 June 2020 was Ernst & Young.
NOTE 33. SUBSEQUENT EVENTS
On 2 August 2020, the Victorian Government announced Stage 4 restrictions for the metropolitan Melbourne area in
response to the COVID-19 pandemic, which required workplaces in Melbourne to close unless the workplace is part
of a permitted activity or all employees are working from home. On 12 August 2020, the New Zealand Government
announced the Auckland Region moved up to alert level 3, while the rest of the country was moved to level 2 to
contain a localised outbreak of COVID-19 cases.
The Group’s manufacturing and distribution sites in Melbourne and Auckland have been permitted to continue
operating as a supplier of essential packaging solutions.
Whilst the future remains uncertain, 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.
PRO-PAC PACKAGING LIMITED
89 | ANNUAL REPORT 2020
Directors’ Declaration
The directors of the Pro-Pac Packaging Limited (the ‘Company’) declare that:
1. The consolidated financial statements and notes 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 2020 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 25 August 2020.
Jonathan Ling
Chairman
Tim Welsh
Managing Director and CEO
PRO-PAC PACKAGING LIMITED
90 | ANNUAL REPORT 2020
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 2020, the consolidated statement of comprehensive income, 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 2020 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
(including Independence Standards) (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 the 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
2
1.
Impairment assessment of non-current assets, including goodwill
Why significant
How our audit addressed the key audit matter
As a consequence of recent acquisitions, the Group
recognised goodwill and identifiable intangibles. The
balance of intangibles as at 30 June 2020 was
$66.5 million.
Australian Accounting Standards require 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 which will be
impacted by future performance and market
conditions, including ongoing uncertainty
associated with the impacts of COVID-19. As a
result, this was matter was considered to be a key
audit matter.
Details of the Group’s impairment assessment are
set out in Note 11 to the financial report.
Our audit procedures included the following:
Assessed whether the impairment testing
methodology met the requirements of
Australian Accounting Standards, including the
Group’s identification of its CGUs and the
allocation of goodwill to those CGUs.
In conjunction with our valuation specialists, we:
Tested the mathematical accuracy of the
impairment testing model.
Assessed whether the forecast cash flows,
used in the impairment testing model, were
consistent with the most recent Board
approved cash flow forecasts and
contemplated existing and emerging effects
of COVID-19.
Assessed the historical accuracy of the
Group’s previous forecasts by performing a
comparison of historical forecasts to actual
results.
Assessed the appropriateness of key
assumptions, such as the discount rates and
long-term growth rates, including
performing our own sensitivity analyses
around these key assumptions.
Considered earnings multiples of
comparable businesses as a valuation cross
check to the Group’s determination of
recoverable amount of its CGUs.
(cid:0)Assessed the reasonableness of the Group’s
estimate of fair value less costs of disposal of
the assets in the Industrial Division cash
generating unit.
Assessed the adequacy of the disclosures
associated with the goodwill impairment
assessment as disclosed in Note 11.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
3
2.
Inventory existence and valuation
Why significant
How our audit addressed the key audit matter
At 30 June 2020, the Group held inventories of
$70.1 million which were recorded at the lower of
cost and net realisable value.
At each reporting date, the Group assesses whether
net realisable value adjustments and provisions for
slow-moving and obsolete stock are required to be
recognised for all components of inventories,
including raw materials, work in progress and
finished goods.
The existence and valuation of inventories was a
key audit matter due to the size of the recorded
asset, which represents 19.5% of the Group’s total
assets and the judgement required in estimating the
net realisable value of inventory at period end.
Our audit procedures included the following:
► Understood the Group’s process for inventory
management and associated controls at the key
operations across the business.
► Attended (physically and virtually) inventory
stock-takes conducted close to the year end at
locations with significant inventory holdings.
► Selected a sample of inventory items and
agreed the cost price of purchased inventory to
supplier invoices.
► Tested the standard costing of manufactured
inventory, including recalculation of the
standard cost of a sample of inventory items.
The key judgements include estimating future sales
prices based on prevailing market conditions and
historical experience.
► Assessed the basis for inventory provisions
recorded by the Group for slow moving and
obsolete stock.
The Group’s disclosures with respect to inventories
are included in Note 8 to the financial report.
► Compared the actual selling price to the
carrying amount of the relevant product lines at
year-end.
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 2020 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
4
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.
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
5
·
·
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.
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, actions taken to eliminate
threats or safeguards applied.
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 16 to 23 of the directors' report for the year
ended 30 June 2020.
In our opinion, the Remuneration Report of Pro-Pac Packaging Limited for the year ended 30 June 2020,
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
6
Ernst & Young
Kester Brown
Partner
Melbourne
25 August 2020
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 27 July 2020.
Twenty largest holders
Table 1: The names of the twenty largest holders of ordinary shares are:
Rank Holder
Number
%
BENNAMON PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
CS THIRD NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
EQUITY TRUSTEES LIMITED
SELJAX PTY LTD
HYLMIC PTY LTD
MR JOHN JOSEPH CERINI
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSI EDA
1
2
3
4
5
6
7
8
9
10
11 WILBOW GROUP PTY LTD
12 MR PHILIP WEINMAN & MS ROCHELLE WEINMAN & MR DEAN WEINMAN
FORUM INVESTMENTS PTY LIMITED
13
14 MR PHILIP WEINMAN & MRS ROCHELLE WEINMAN & MR DEAN WEINMAN
15 MR ALASTAIR SPIERS & MRS UNA SPIERS
16 MS PATSY SEOW LEE CH'NG
17
GEE SUPER PTY LTD
18 MR ALAN GRAHAM ROCHFORD
19
20
20
CORLETTE POINT ROAD PTY LTD
ASHLAW PTY LIMITED
AKAT INVESTMENTS PTY LIMITED
Total Securities of Top 20 Holdings
Total of Securities
405,470,243
130,862,036
23,141,808
22,137,664
16,605,591
15,495,000
12,769,231
12,769,231
9,865,214
9,315,551
4,414,863
49.990%
16.134%
2.853%
2.729%
2.047%
1.910%
1.574%
1.574%
1.216%
1.148%
0.544%
3,575,000
3,200,000
0.441%
0.395%
3,125,000
2,000,000
1,765,356
1,685,000
1,650,000
1,607,000
1,500,000
1,500,000
684,453,788
811,107,285
0.385%
0.247%
0.218%
0.208%
0.203%
0.198%
0.185%
0.185%
84.385%
100.000%
Distribution of equity securities
Table 2: The number of holders, by size of holding, of ordinary shares (including ESPP shares) are:
Holdings Ranges
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001-9,999,999,999
Totals
Holders
119
258
214
1,166
297
2,054
Total Units
12,376
881,210
1,763,618
48,996,488
759,453,593
811,107,285
%
0.000
0.110
0.220
6.040
93.630
100.000
There are 244 holders of unmarketable parcels of ordinary shares totalling 299,037 shares representing 0.037% of the
Company’s issued capital.
PRO-PAC PACKAGING LIMITED
97 | ANNUAL REPORT 2020
ADDITIONAL
Company Information
Table 3: The number of holders, by size of holding, of performance share rights are:
Holdings Ranges
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001-9,999,999,999
Totals
Substantial shareholders
Holders
0
0
0
0
6
6
Total Units
0
0
0
0
6,872,606
6,872,606
%
0.000
0.000
0.000
0.000
100.000
100.000
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
Investors Mutual Limited
Voting rights
Number
402,018,176
65,237,176
All ordinary shares carry one vote per share without restriction. Performance share rights carry no voting rights.
Restricted securities
The following shares are restricted securities subject to voluntary escrow and disclosed below in accordance with Listing
4.10.14:
Description
Escrow Date
Number
Shares related to the Perfection Packaging purchase agreement
13 September 2020
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 ending 30
June 2020.
PRO-PAC PACKAGING LIMITED
98 | ANNUAL REPORT 2020