PRO-PAC PACKAGING LIMITED — Annual Report 2008

Aug 27, 2008

PRO-PAC PACKAGING LIMITED (ASX: PPG) RESULTS FOR THE YEAR ENDED 30 JUNE 2008

1. INTRODUCTION

The Directors of Pro-Pac Packaging Limited (ASX: PPG) are pleased to provide this commentary on the performance of the company and its controlled entities ("the Company") for the financial year ended 30 June 2008.

2. DISCUSSION

The Company's financial performance was dominated by two opposing themes.

On a positive note, the acquisition of Plastic Bottles Pty Limited, effective 1 July 2007, and the acquisition of Ctech Closures Pty Limited, effective 1 December 2007 contributed to strong group revenue growth and aggregate profit growth. Group revenues grew by 175% over the previous corresponding period to $ 71.7 million. Profit before tax (PBT) also grew by 45% to $2.6 million. These positive outcomes were supported by strong operating cash flows of $3.7 million for the period.

In the current reporting period the Company has also begun to realise the synergistic benefits of these acquisitions through cross selling and improved operational efficiencies and reduced managerial overheads.

Opposing these positive developments, the Company's performance was adversely impacted by a material decline in the trading performance of the industrial packaging division and in particular its NSW operations. This adversely impacted profitability for the second six months ended 30 June 2008.

To enhance the performance of its NSW operations, on 30 June 2008, the Company closed the Marrickville general packaging distribution centre and merged the NSW general packaging distribution operations with the Company's rigid container distribution centre based in Wetherill Park. Costs incurred as part of this rationalisation and relocation program included the writing off of certain Marrickville based fixed and leasehold assets, stock provisions, redundancies and relocation costs. These costs adversely impacted 2007/08 profit by approximately $647 000. The NSW rationalisation program has already resulted in improved servicing and trading performance with results for the first 6 weeks of the 2009 financial year showing a significant improvement and it is expected that the NSW rationalisation program will continue to generate enhanced service capability, significant savings and improved bottom line performance going forward.

3. DIVIDENDS

PPG today declared a fully franked final dividend of one (1c) cent per share. The Record Date for determining entitlements to the dividend is 26 September 2008. The dividend will be paid on 16 October 2008. The Company's Dividend Reinvestment Plan will apply to this final dividend at a discount of 2%. Total fully franked dividends for the 2008 financial year are 2 cents per share following an interim dividend of 1 cent per share paid by PPG on 11 April 2008.

4. OUTLOOK

Notwithstanding tightening economic conditions amongst Australian consumers, the integration of the Company's NSW operations onto a single site at Wetherill Park has yielded immediate sales and efficiency gains.

PPG continues to aggressively pursue opportunities for organic and acquisitive growth. The Company continues to expand by integrating new products, new customers and new geographic locations. Having successfully completed 3 acquisitions in the 2007/08 financial year, PPG continues to actively evaluate new acquisition opportunities

Based on the encouraging start to trading in 2008/09 and an active expansion agenda, the Company is cautiously optimistic for the new financial year.

JOHN D READ CHAIRMAN 28 AUGUST 2008

Appendix 4E

Preliminary Final Report Results for announcement to the market

Pro-Pac Packaging Limited for the year ended 30 June 2008

Reporting period	: year to June 2008
Previous corresponding period	: year to June 2007

Results

Revenues from ordinary activities	up	175%	to	$ 71,722,898
Profit from ordinary activities after tax attributable tomembers	up	47%	to	$ 1,807,751
Net profit for the year attributable to members	up	47%	to	$ 1,807,751

Dividends (distributions)

	Amount per security	Franked amount persecurity
Final Dividend	1.00¢	1.00 ¢
Interim Dividend	1.00¢	1.00 ¢

Information on Dividends:

The Company has declared a fully franked final dividend of 1 cent per share which will be paid on 16 October 2008.

As with the interim dividend, the Company's Dividend Reinvestment Plan will apply to this dividend. A discount of 2% to the volume weighted average sale price per share during the four trading days up to and including the record date for determining the entitlements, will apply to shareholders who elect to participate in the Company's Dividend Reinvestment Plan.

Record date for determining entitlements to the final dividend	26 September 2008
Last date for elections to participate in the Dividend Reinvestment Plan	26 September 2008

Commentary

Please refer to the attached commentary for a more detailed review of the Group and the ongoing operations and expectations for the future of the underlying Pro-Pac Packaging business.

INCOME STATEMENT

FOR THE YEAR TO 30 JUNE 2008

	Notes	Consolidated	Consolidated
		2008	2007
		$	$
Revenue from sale of goods		71,722,898	26,073,845
Interest income		163,838	126,198
Other income		-	86,449
Total Revenues From Ordinary Activities		────────71,886,736────────	────────26,286,492────────
Expenses
Raw materials and consumables used		42,379,230	16,699,184
Amortisation of pre paid royalty		293,160	272,736
Depreciation		1,642,430	327,168
Distribution expenses		1,638,957	482,285
Employee expenses		12,789,308	4,411,685
Financing costs		679,242	213,277
Occupancy expenses		2,411,724	761,065
Other expenses from ordinary activities		6,826,663	1,344,959
Rationalisation and relocation expenses	20	647,053────────	-────────
Profit from Ordinary Activities Before Related Income Tax Expense		2,578,969	1,774,133
Income tax expense	5	771,218────────	548,399────────
Net Profit	14	1,807,751════════	1,225,734════════

════════ ════════

PRO-PAC PACKAGING LIMITED (AND ITS CONTROLLED ENTITIES)

BALANCE SHEET

AS AT 30 JUNE 2008

	Notes	Consolidated	Consolidated
		2008	2007
		$	$
CURRENT ASSETS
Cash and cash equivalents	15	2,562,730	1,677,490
Trade and other receivables	6	11,537,797	4,302,104
Inventories	7	6,181,090	1,964,557
Prepayments		707,851────────	381,563────────
Total Current Assets		20,989,468────────	8,325,714────────
NON-CURRENT ASSETS
Property, plant and equipment	8	9,003,040	1,813,360
Intangible assets	9	36,784,888	14,369,928
Deferred tax assets		600,133	358,845
Prepayments		1,988,563	2,303,247
Other assets		4,223	12,674
Total Non-Current Assets		────────48,380,847	────────18,858,054
TOTAL ASSETS		────────69,370,315	────────27,183,768
CURRENT LIABILITIES		────────	────────
Trade and other payables	10	9,811,012	3,620,635
Interest bearing borrowings		1,364,628	289,017
Provisions	11	1,194,918	364,592
Current tax liabilities		260,705	90,788
Total Current Liabilities		────────12,631,263────────	────────4,365,032────────
NON-CURRENT LIABILITIES
Provisions	11	310,496	64,804
Interest bearing borrowings		7,372,174	2,790,933
Total Non-Current Liabilities		────────7,682,670	────────2,855,737
TOTAL LIABILITIES		────────20,313,933	────────7,220,769
NET ASSETS		────────49,056,382	────────19,962,999
		════════	════════
EQUITY
Contributed equity	12	47,605,676	18,729,203
Other reservesRetained profits	1314	8,8841,441,822	11,3001,222,496
TOTAL EQUITY		────────49,056,382	────────19,962,999

STATEMENT OF CASH FLOWS

FOR THE YEAR TO 30 JUNE 2008

	Notes	Consolidated2008	Consolidated2007
		$	$
Cash flows from operating activities
Receipts from customers		71,925,474	25,394,352
Payments to suppliers and employees		(67,101,477)	(23,213,912)
Interest received		170,545	126,198
Interest paid		(775,254)	(213,277)
Income tax paid		(547,586)────────	(6,409)────────
Net Cash flows from operating activities	15	3,671,702────────	2,086,952────────
Cash flows from investing activities
Payments for property, plant and equipment		(1,091,716)	(628,707)
Proceeds from sale of property, plant and equipment		222,672	83,764
Payment for controlled entities net of cash		(12,984,737)	-
Payment for unincorporated business net of cash acquired		(193,508)	(1,691,266)
Net Cash flows used in investing activities		────────(14,047,289)────────	────────(2,236,209)────────
Cash flows from financing activities
Payment of finance lease liabilities		(1,328,518)	(132,833)
Proceeds from borrowings		2,955,851	234,605
Bank bills repaid		(6,630,000)	-
Proceeds from issue of shares		17,200,000	-
Dividends paid		(899,399)	(473,118)
Costs of issue of shares		(37,107)────────	-────────
Net cash flows provided by / (used in) financing activities		11,260,827────────	(371,346)────────
Net increase / (decrease) in cash and cash equivalents		885,240	(520,603)
Cash and cash equivalents at beginning of financial year		1,677,490────────	2,198,093────────
			1,677,490

Finance lease liabilities raised	1,372,500
Issue of shares for dividend re-investment plan	699,388

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR TO 30 JUNE 2008

Issued	Retained	Option	Total
Capital	Earnings	Reserve	Equity
$	$	$	$
18,366,273	832,810	-	19,199,083
			362,930
			11,300
			1,225,734
-	( 836,048)	-	( 836,048)
18,729,203	1,222,496	11,300	───────19,962,999
11,003,060	-	-	11,003,060
17,200,000	-	-	17,200,000
(37,107)	-	-	(37,107)
11,132	-	-	11,132
699,388	-	-	699,388
-	(1,598,787)	-	(1,598,787)
-	-	7,946	7,946
-	10,362	(10,362)	-
-	1,807,751	-	1,807,751───────
47,605,676	1,441,822	8,884	49,056,382───────
	362,930--─────────────────────	--1,225,734─────────────────────	-11,300-─────────────────────

NOTES TO THE PRELIMINARY FINAL REPORT

NOTE 1: AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

This financial report is prepared in accordance with Australian Equivalents to International Financial Reporting Standards ("AIFRS").

NOTE 2: EARNINGS PER SHARE

	Consolidated	Consolidated
	Year Ended	Year Ended
	30 June 08	30 June 07
	Cents	Cents
Basic earnings per share *	1.69	3.14
	═════	═════
Diluted earnings per share *	1.69	3.14
	═════	═════
Reconciliation of earnings used in calculation of earnings per share:
	$	$
Profit after income tax	1,807,751	1,225,734
	═════	═════
	No. of Shares	No. of Shares
Weighted average number of ordinary shares used in the calculation of basic and diluted
earnings per share	106,919,186	39,097,706
	═════	═════
Number of ordinary shares on issue at year end (including ESPP shares)	120,027,989	43,255,437
	═════	═════

* The difference between basic and diluted shares on issue represents the PPG Executive Long Term Incentive Plan shares on issue which are treated as an option grant. As the average exercise price of the options was higher than the average market price per share during both the current and prior years, the options would not have been exercised and therefore no dilution has occurred.

NOTE 3: DIVIDENDS

The Directors of Pro-Pac Packaging Limited have declared a final fully franked dividend of one cent (1c) per share in respect of the financial year ended 30 June 2008. When combined with the interim dividend of one cent per share paid on 11 April 2007 this represents total fully franked dividends of two cents (2c) per share for the 2007/08 financial year.

NOTE 4: NET TANGIBLE ASSETS PER SECURITY

	Consolidated	Consolidated
	Year Ended	Year Ended
	30 June 08	30 June 07
	Cents	Cents
Net tangible assets per security - basic	8.21═══════	7.60════════
Net tangible assets per security - diluted	8.07═══════	6.97════════
Net assets per security – basic	41.62═══════	50.30═══════
Net assets per security - diluted	40.87═══════	46.15═══════

NOTES TO THE PRELIMINARY FINAL REPORT

	ConsolidatedYear Ended30 June 2008$	ConsolidatedYear Ended30 June 2007$
NOTE 5: TAXATION
a) Income Tax Expense:	771,218	548,399
Income tax expense:Prima facie income tax expense calculated at 30% on the profit from ordinaryactivities	773,691	532,240
Increase in income tax expense due to:Sundry items	(2,473)	16,159
Income tax expense attributable to profit from ordinary activities	────────771,218════════	────────548,399════════
b) Current Tax Liabilities:Income tax payable	260,705════════	90,788════════
c) Non-Current Tax Assets:Deferred tax asset	600,133════════	358,845════════
NOTE 6: RECEIVABLES
CurrentTrade receivablesProvision for doubtful debts	11,300,130(101,095)────────	4,322,487(48,875)────────
	11,199,035	4,273,612
Other debtors	338,762────────	28,492────────
Total Current Receivables	11,537,797════════	4,302,104════════
NOTE 7: INVENTORIES
CurrentRaw materials and work in progressFinished goodsProvision for obsolescence	483,3135,791,282(93,505)	42,6091,954,575(32,627)
Total Inventories	────────6,181,090════════	────────1,964,557════════

NOTES TO THE PRELIMINARY FINAL REPORT

	ConsolidatedYear Ended	ConsolidatedYear Ended
	30 June 2008$	30 June 2007$
Note 8: PROPERTY, PLANT AND EQUIPMENT
Plant and Equipment
At cost	17,298,602	2,432,688
Accumulated depreciation	(8,295,562)────────	(619,328)────────
Total plant and equipment	9,003,040════════	1,813,360════════
Note 9: INTANGIBLE ASSETS
Goodwill	36,784,888════════	14,369,928════════
Reconciliation
Carrying amount at beginning of the year	14,369,928	13,412,687
Acquisition of businesses	22,414,960────────	957,241────────
Total goodwill	36,784,888════════	14,369,928════════
NOTE 10: PAYABLESCurrent
Trade creditors	8,156,226	3,233,162
GST payable	324,934	151,153
Other tax payableSundry creditors and accruals	93,2261,236,626	107,660128,660
	────────	────────
	9,811,012════════	3,620,635════════
NOTE 11: PROVISIONS
Current
Employee entitlements	1,194,918════════	364,592════════
Non-Current
Employee entitlements	310,496════════	64,804════════

NOTES TO THE PRELIMINARY FINAL REPORT

	Consolidated	Consolidated
NOTE 12: CONTRIBUTED EQUITY
2008	Number	$
Issued and Paid-Up Share Capital
Fully paid ordinary shares:	120,027,989════════	47,605,676════════
Movements during the year:
Balance at beginning of year	43,255,437	18,729,203
Issue of shares for executive long term incentive plan	625,000	-
Cancellation of shares for executive long term incentive plan	(2,044,311)	-
Cost of raising shares	-	(37,107)
Future income tax benefit associated with costs of raising shares	-	11,132
Shares issued to Plastic Bottle Group shareholders	29,738,000	11,003,060
Shares issued under share placement	46,486,486	17,200,000
Issue of shares for dividend re-investment plan	1,967,377────────	699,388────────
	120,027,989════════	47,605,676═══════
2007	Number	$
Issued and Paid-Up Share Capital
Fully paid ordinary shares:	43,255,437════════	18,729,203
Movements during the year:		════════
Balance at beginning of year	41,212,300	18,366,273
Issue of shares for executive long term incentive plan	1,200,000	-
Cancellation of shares for executive long term incentive plan	(260,000)	-
Issue of shares for dividend re-investment plan	1,103,137	362,930
	────────43,255,437	────────18,729,203
	════════	═══════

Shares issued under the Long Term Executive Incentive Plan are subject to restrictions until July 2008, January 2010 and July 2010 in accordance with the terms of the plan.

	Consolidated	Consolidated
	Year Ended30 June 2007	Year Ended30 June 2007
	$	$
NOTE 13: OTHER RESERVES
Options Reserve
Balance brought forward	11,300	-
Recognition of share based payments	7,946	11,300
Transfer to retained earnings on cancellation of ESPP shares	(10,362)	-
	────────	────────
Balance carried forward	8,884════════	11,300════════

NOTES TO THE PRELIMINARY FINAL REPORT

	Consolidated	Consolidated
	Year Ended30 June 2008	Year Ended30 June 2007
	$	$
NOTE 14: RETAINED PROFITS
Retained profits at the beginning of the year	1,222,496	832,810
Net profit attributable to members of the company	1,807,751	1,225,734
Dividend paid	(1,598,787)	(836,048)
Transfer from Other reserve	10,362────────	────────
Retained Profits at the End of the year	1,441,822	1,222,496
	════════	════════

NOTE 15: NOTES TO THE STATEMENT OF CASH FLOWS

a) Reconciliation of Cash

For the purposes of the statements of cash flows, cash includes cash on hand and at bank and short-term deposits at call, net of outstanding bank overdrafts. Cash as at the end of the financial year as shown in the statements of cash flows is reconciled to the related items in the statements of financial position as follows:

Cash Assets	2,562,730	1,677,490
	════════	════════
b) Reconciliation of profit from ordinary activities after income tax to the net cash provided by operating activities:
Profit from ordinary activities after income tax	1,807,751	1,225,734
Add/(Less) non-cash items:
Depreciation and amortisation of plant and equipment	1,642,430	327,168
Amortisation of pre paid royalty	293,160	272,736
(Profit) / loss on disposal of assets	183,464	(66,781)
Movement in income tax provision	195,916	422,055
Movement in deferred tax assets & liabilities	27,716	119,933
Movement in provision for bad debts	23,584	(5,138)
Changes in Assets and Liabilities:
Receivables	177,177	(696,364)
Inventories	(906,959)	38,425
Payables	150,618	636,181
Provisions	(68,304)	(118,549)
Prepayments	233,215	(69,995)
Other Assets	(88,066)────────	1,547────────
Net cash flows from operating activities	3,671,702════════	2,086,952════════

NOTES TO THE PRELIMINARY FINAL REPORT

NOTE 16: CONTROLLED ENTITIES

a) Particulars in Relation to Controlled Entities

The consolidated entity includes the following controlled entities. The financial years of all controlled entities are the same as that of the parent entity. All companies are incorporated in Australia.

	Parent Company
	Interest Held
Direct Controlled Entities:
Pro-Pac Group Limited	100%
Plastic Bottles Pty Ltd	100%
Controlled Entities owned 100% by Pro-Pac Group Limited
Pro-Pac Packaging (Aust) Pty Ltd	100%
Pro-Pac Manufacturing (GLP) Pty Ltd	100%
Controlled Entities owned 100% by Pro-Pac Packaging (Aust) Pty Ltd
Pro-Pac Packaging Manufacturing (Syd) Pty Ltd	100%
Pro-Pac Packaging Manufacturing (Melb) Pty Ltd	100%
Pro-Pac Packaging Manufacturing (Bris) Pty Ltd	100%
Controlled Entities owned 100% by Plastic Bottles Pty Ltd
Speciality Products and Dispensers Pty Ltd	100%
Australian Bottle Manufacturers Pty Ltd	100%
Ctech Closures Pty Ltd	100%
Bev Cap Pty Ltd	100%
Controlled Entities owned 100% by Bev Cap Pty Ltd
Great Lakes Moulding Pty Ltd	100%
Finpact (Pty) Ltd	100%

NOTE 17: SEGMENT REPORTING

The Group operates solely as a distributor and manufacturer of packaging materials within Australia. As such there is only one business and geographical segment.

NOTE 18: AUDIT STATUS

This report is based on financial reports that are in the process of being audited.

Note 19: LONG TERM EXECUTIVE INCENTIVE PLAN

Under AIFRS, shares issued to executives under the Long Term Executive Incentive Plan are considered to be options granted. As such, the contributed equity (share capital) as well as the related receivable are not recognised on the balance sheet and do not form part of the asset base in the calculation of the basic net assets and basic net tangible assets per security.

NOTE 20: SIGNIFICANT EVENTS DURING THE PERIOD

20.1. Rationalisation and relocation costs

As announced to shareholders on 22 May 2008, the Company implemented a plan to integrate the Marrickville based NSW industrial packaging distribution centre with the rigid container distribution centre based in Wetherill Park. The move to Wetherill Park occurred on 29 June 2008 and one off rationalisation and relocation costs, including writing off certain of the Marrickville based fixed assets and leasehold improvements amounted to $647,053.

20.2. Acquisition of businesses

Note 27 of the June 2007 Annual Report stated that, on 14 August 2007, Pro-Pac Packaging shareholders approved the acquisition of Plastic Bottles Pty Limited for approximately $21.2 million, to be satisfied by way of $10,197,000 in cash and the issue of 29,738,000 new fully paid PPG shares to the vendors at an issued price of $0.37. A further possible amount of $ 2 million may be paid in cash, if certain earnings targets are met.

Immediately thereafter, the Company issued 29,738,000 shares to the vendors of the Plastic Bottles Group. The Company also raised an additional $17,200,000 through the issue of 46,486,486 shares under a share purchase plan and a share placement approved by the Shareholders.

Effective 1 October 2007, Pro-Pac Packaging (Aust) Pty Ltd, a wholly owned subsidiary, acquired the business and assets of the complimentary Melbourne based niche general packaging distributor, Tape and Industrial Packaging Supplier Pty Ltd.

Effective 1 December 2007, Plastic Bottle Pty Ltd, a wholly owned subsidiary, acquired the shares of Ctech Closures Pty Ltd

The effect of the above transactions can be summarised as follows:

NET ASSETS ACQUIRED
	$
Assets
Current AssetsCash and cash equivalents	751,645
Trade and other receivables	7,598,116
Inventories	3,276,948
Tax receivables	10,094
Other assets	439,964
Total Current Assets	12,076,767
Non-Current Assets
Property, plant and equipment	6,820,436
Intangible assets	4,621,608
Deferred tax assets	257,871
Total Non-Current Assets	11,699,915
Total assets	23,776,682
Liabilities
Current liabilities
Trade and other payablesInterest bearing borrowings	6,760,2931,564,971
Total Current Liabilities
	8,325,264
Non-current liabilities
Interest bearing borrowings	7,822,600
Other liabilities	489,219
Total Non-Current Liabilities	8,311,819
Total liabilities	16,637,083
NET ASSETS	7,139,599
CONSIDERATION PAID
Cash	13,929,891
Shares	11,003,060
Total	24,932,951
GOODWILL	17,793,352

NOTE 21: CONTINGENT LIABILITIES

A contingent liability of $500,000 arose from the acquisition of a subsidiary and the potential payment of an earn out amount based on the achievement of profit targets within 12 months of this acquisition.

NOTE: 22 CAPITAL EXPENDITURE COMMITMENTS

As at balance sheet date the company had no commitments for future capital expenditure.

NOTE: 23 EVENTS SUBSEQUENT TO YEAR END

There are no significant events subsequent to year end.

Compliance statement

• 1. This preliminary report has been prepared in accordance with Australian Accounting Standards which includes Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures compliance with International Financial Reporting Standards (IFRS). The preliminary report is also in accordance with other AASB authoritative pronouncements and Urgent Issues Group Consensus Views or other standards acceptable to ASX.
• 1. This preliminary report, and the accounts upon which the report is based, use the same accounting policies.
• 1. This preliminary report does give a true and fair view of the matters disclosed.
• 1. The accounts are in the process of being audited, no audit report is attached.
• 1. The entity has a formally constituted audit committee.

(Director)

Sign here: Date: 28 August 2008

Print Name: Brandon Penn