PRO-PAC PACKAGING LIMITED — Interim / Quarterly Report 2009

Feb 25, 2009

PRO-PAC PACKAGING LIMITED

(ASX:PPG)

COMMENTARY ON RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2008

1. INTRODUCTION

In a subdued and uncertain environment Pro-Pac Packaging Limited (ASX:PPG) achieved revenues of $37.6 million for the six months ended 31 December 2008, broadly in line with the previous corresponding period. Net profit before tax (NPBT), however, declined by 58% to $1.22 million. Cash flows from operations for the period were in line with the previous corresponding period and remained positive at $687,000.

2. KEY DRIVERS OF PERFORMANCE

Performance for the six months ended 31 December 2008 was significantly influenced by:

• Subdued consumer demand and supply chain deleveraging;

• Volatile input costs and foreign exchange movements; and

• Focus on securing new business which will deliver in calendar 2009.

CONSUMER DEMAND

The six month period was characterised by weakening consumer demand particularly in the later part of the period with below budgeted sales performance in November and December 2008. This trend was accentuated by destocking in the supply chain leading to customers issuing smaller and more frequent orders placing cost pressures on the Company’s logistic operations.

VOLATILE INPUT COSTS

The industry was impacted during the half year by the most significant period of input cost and foreign exchange volatility in the Company’s history. Input costs rose in the July to September quarter. These swings in input costs were accentuated by the decline in the Australian dollar in the October to December quarter. Sudden movements in input costs and a declining Australian dollar eroded margins during the period.

NEW BUSINESS WON

On a positive note PPG has continued to win new substantial business. The Company’s focus has been on successfully winning new quality work from major corporate customers. This will provide a higher level of certainty going forward in an otherwise volatile market. Whilst there has been only a modest reduction in the number of existing customers during the period, ordering levels from existing customers were subdued. The impact of new corporate business won is expected to enhance profitability in the fourth quarter of fiscal 2008/09. In the interim working capital will be constrained as stock is purchased in advance of supply.

3. COMMENTARY ON FINANCIAL PERFORMANCE

In the six months ended 31 December 2008, revenues from continuing operations declined by 1 percent to $37.6 million. Profit before tax declined by 58% to $1.22 million reflecting subdued consumer demand and sudden input cost volatility which impacted gross margins. The Company has provided $366,000 in respect of income tax for the period. Net profit after tax of $854,000 represented a decline

of 59% over the previous corresponding period. Cash flows from operations were comparable with the previous corresponding period at $687,000.

At balance date shareholder equity grew to $49.3 million including an increase in total assets of $3.4 million to $72.8 million and a surplus of current assets over current liabilities of $8.5 million. The Company’s banking facilities are subject to review and renewal in December 2009.

The acquisition in November 2008 of the Sydney based packaging distribution business, Fastway Industrial Products, is expected to be earnings accretive in the six months ending 30 June 2009.

In order to meet the working capital requirements of recently awarded corporate accounts and to enhance PPG’s balance sheet strength, the directors have resolved not to declare an interim dividend. The Directors will consider the payment of a final dividend following the completion of the 2008/09 financial year.

4. THE BUSINESS RESPONSE

Management’s focus in 2009 is on improved margin contribution, profitability, enhanced cashflow and organic growth opportunities. This includes improved operating efficiencies through disciplined management of stock, receivables, margins and capital expenditure.

In April 2008, the Company appointed Ms Wendy Penn as interim CEO with one of the key objectives being the integration of PPG’s NSW operations onto its primary site at Wetherill Park. As this task has now been completed, Wendy has expressed a desire to migrate to a part time role to consult to the Company. The PPG Board of Directors wish to express their gratitude to Wendy for her contribution to the Company during a period of unprecedented change and are delighted to have retained Wendy’s services as a director of it’s principal operating subsidiary entity Pro-Pac Packaging (Aust) Pty Limited

The PPG Board of Directors has accordingly, with effect from 1 March 2009, determined to appoint Messrs Hadrian Morrall and Brandon Penn, as joint Chief Executive Officers (CEO) with clear roles and responsibilities and delineation of duties. Mr. Hadrian Morrall joined PPG in July 2007 as an executive director upon the Company’s acquisition of Plastic Bottles Pty Limited of which he was a major shareholder and long standing executive. Hadrian is currently the CEO of the Company’s rigid packaging division. Mr. Penn was appointed a non executive director of PPG in July 2007 upon the Company’s acquisition of Plastic Bottles Pty Limited of which he was a major shareholder. Subsequent to his appointment to PPG, Brandon has focused on acquisitive growth and special projects for the Company. Messrs Morrall and Penn’s remuneration packages comprise an annual base salary package and statutory superannuation entitlements. Messrs Morrall and Penn’s performance and remuneration are subject to annual review.

PPG continues to evaluate a number of earnings accretive acquisitions in this sector, and will look to take advantage of value opportunities as they emerge in the future.

Given a slowing domestic economy, the Company cannot reliably forecast 2008/09 fiscal year earnings. PPG will continue to provide the market with regular updates as new information becomes available.

Enquiries

For further information, please contact Mr. John Read, Chairman, Pro-Pac Packaging Limited on Tel. (02) 9087 8000.

About PPG PPG is a leading Australian provider of innovative packaging solutions. Its operations span flexible, biodegradable void fill, and rigid packaging requirements. PPG is headquartered in Sydney with offices in Adelaide, Brisbane and Melbourne. PPG’s securities are listed and quoted on the ASX. For further information on PPG visit www.pro-pac.com.au.

Appendix 4D

Half Yearly Report

Results for announcement to the market

	Pro-Pac Packaging Limited	Pro-Pac Packaging Limited	Pro-Pac Packaging Limited
ACN 112 971 874 Results	Half Year ended (‘Reporting Period’) 31 December 2008			Previous Half Year ended (‘Corresponding period’)
				31 December 2007
Revenue Down Profit before tax Down Profit after tax attributable to shareholders Down Net profit attributable to shareholders Down				1% to $37,635,670 58% to $1,219,582 59% to $853,708 59% to $853,708
**Dividends(distributions) **
		Amount per security			Franked amount per security
Interim dividend			NIL		NIL
Prior year interim dividend			1.00¢		1.00¢
Information on dividends: The Company has not declared an interim dividend. Record Date for determining entitlements to the dividend Last date for receipt of election notices for participation in the Pro-Pac Packaging Limited Dividend Reinvestment Plan
			Not applicable
			Not applicable
Commentary
Brief explanation of any of the figures reported above: Please refer to the attached Half Year Report for a detailed review.

PRO-PAC PACKAGING LIMITED ACN 112 971 874

HALF YEAR FINANCIAL REPORT

For the half-year ended 31 December 2008

PRO-PAC PACKAGING LIMITED DIRECTORS’ REPORT

Your Directors submit their report of the consolidated group for the half year ended 31 December 2008.

DIRECTORS

The names of the company’s Directors in office during the half year and until the date of this report are as below.

John Read (Chairman and Non Executive Director – appointed 23 August 2005) BSc. (Hons) (Cant.), MBA (AGSM), FAICD

Elliott Kaplan (Non Executive Director – appointed 16 February 2005) BAcc, CA

Hadrian Morrall (Executive Director – appointed 16 August 2007)

Brandon Penn (Non-Executive Director – appointed 16 August 2007) BCom

REVIEW AND RESULTS OF OPERATIONS

In the six months ended 31 December 2008, revenues from continuing operations declined by 1 percent to $37.6 million. Profit before tax declined by 58% to $1.22 million reflecting subdued consumer demand and sudden input cost volatility which impacted gross margins. Net profit after tax of $854,000 represented a decline of 59% over the previous corresponding period. Cash flows from operations were comparable with the previous corresponding period at $687,000.

The acquisition in November 2008 of the Sydney based packaging distribution business, Fastway Industrial Products, is expected to be earnings accretive in the six months ending 30 June 2009.

In order to meet the working capital requirements of recently awarded corporate accounts and to enhance PPG’s balance sheet strength, the directors have resolved not to declare an interim dividend. The Directors will consider the payment of a final dividend following the completion of the 2008/09 financial year.

AUDITOR’S INDEPENDENCE DECLARATION

The auditors have provided the Board of Directors with a signed Independence Declaration in accordance with s307C of the Corporations Act. This declaration is included on page 3 of this Half Year Report .

This report is signed in accordance with a resolution of the Board of Directors.

John Read Director

Sydney 25 February 2009

2

AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF PRO-PAC PACKAGING LIMITED

I declare that, to the best of my knowledge and belief, during the six month period ended 31 December 2008 there have been:

• (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and

• (ii) no contraventions of any applicable code of professional conduct in relation to the review.

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Mark Nicholaeff UHY Haines Norton

Partner Chartered Accountants

Signed at Sydney on 25 February 2009

3

PRO-PAC PACKAGING LIMITED

CONSOLIDATED INCOME STATEMENT

FOR THE HALF YEAR TO 31 DECEMBER 2008

Continuing operations Revenue from continuing operations Sale of goods Interest income Total Revenue Expenses Amortisation of prepaid royalty Depreciation expense Distribution expense Employee benefits expense Finance costs Occupancy costs Other expenses from ordinary activities Purchases, materials and consumables Total Expenses Profit before income tax Income tax expense Profit after tax from continuing operations Profit for the period attributable to shareholders Earnings per share (cents per share) - basic and diluted for profit for the year - basic and diluted for profit from continuing operations	Consolidated 2008 $ 37,635,670 59,561 37,695,231 161,042 815,018 725,860 6,541,961 402,237 1,141,369 4,034,621 22,653,540 36,475,648 1,219,583 365,875 853,708 853,708 0.72 0.72	Consolidated 2007 $
		38,053,032 82,785
		38,135,817
		146,580 771,457 883,456 6,524,175 341,403 1,157,951 3,178,980 22,238,029
		35,242,031 2,893,786 804,240
		2,089,546
		2,089,546
		2.16 2.16

The above statements should be read in conjunction with the accompanying notes.

4

PRO-PAC PACKAGING LIMITED

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2008

Assets Current Assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Total Current Assets Non-Current Assets Prepayments Property, plant and equipment Intangible assets Deferred tax assets Total Non-Current Assets TOTAL ASSETS Liabilities Current liabilities Trade and other payables Interest bearing borrowings Provisions Current tax liabilities Total Current Liabilities Non-current liabilities Provisions Interest bearing borrowings Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Retained earnings TOTAL EQUITY	Consolidated December 2008 $ 1,761,948 13,091,245 7,002,968 922,308 22,778,469 1,667,499 9,428,443 38,242,737 656,000 49,994,679 72,773,148 11,399,196 1,485,192 1,333,549 94,225 14,312,162 416,475 8,771,711 9,188,186 23,500,348 49,272,800 48,153,866 8,884 1,110,050 49,272,800	Consolidated June 2008 $
		2,562,730 11,537,797 6,181,090 707,851
		20,989,468
		1,992,786 9,003,040 36,784,888 600,133
		48,380,847
		69,370,315
		9,811,012 1,364,628 1,194,918 260,705
		12,631,263
		310,496 7,372,174
		7,682,670
		20,313,933
		49,056,382
		47,605,676 8,884 1,441,822
		49,056,382

The above balance sheets should be read in conjunction with the accompanying notes.

5

PRO-PAC PACKAGING LIMITED

CONSOLIDATED CASH FLOW STATEMENT

FOR THE HALF YEAR TO 31 DECEMBER 2008

Cash flows from operating activities Receipts from customers Payments to suppliers & employees Interest received Interest paid Income tax 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 Payment for controlled entities net of cash Payment for unincorporated business Net cash flows used in investing activities Cash flows from financing activities Payment of finance lease liabilities Finance lease raised Proceeds from borrowings Bank bills repaid Proceed from issue of shares Dividend paid Costs of issue of shares Net cash flows generated by financing activities Net decrease in cash and cash equivalents Cash & cash equivalents at beginning Cash & cash equivalents at end of period	Consolidated 2008 $ 36,430,296 (34,822,678) 59,561 (392,198) (588,222) 686,759 (1,107,514) 67,727 - (1,320,525) (2,360,312) (772,215) 1,019,540 1,262,737 - - (637,291) - 872,771 (800,782) 2,562,730 1,761,948	Consolidated 2007 $
		36,330,779 (34,995,066) 87,479 (434,970) (298,903)
		689,319
		(1,019,678) 69,436 (12,871,692) (179,492)
		(14,001,426)
		(747,479) 440,495 2,938,807 (6,630,000) 17,200,000 (228,520) (37,107)
		12,936,196
		(375,911) 1,677,490
		1,301,579

The above statements should be read in conjunction with the accompanying notes.

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PRO-PAC PACKAGING LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE HALF YEAR TO 31 DECEMBER 2008

	Issued	Other	Retained	Total
	capital	reserves	earnings	equity
	$	$	$	$
Consolidated
Balance as at 1 July 2008	47,605,676	8,884	1,441,822	49,056,382
Issue of shares for Dividend re-investment plan	548,190	-	-	548,190
Dividends	-	-	(1,185,480)	(1,185,480)
Profit for theperiod	-	-	853,708	853,708
At 31 December 2008	48,153,866	8,884	1,110,050	49,272,800
Balance as at 1 July 2007	18,729,203	11,300	1,222,496	19,962,999
Issue of shares for Dividend re-investment plan	185,791	-	-	185,791
Dividends	-	-	(414,311)	(414,311)
Shares issued to Plastic Bottle Group shareholders	11,003,060	-	-	11,003,060
Share issued under share placement	17,200,000	-	-	17,200,000
Costs of raising shares	(37,107)	-	-	(37,107)
Future income tax benefit associated with costs of
raising shares	11,132	-	-	11,132
Profit for theperiod	-	-	2,089,546	2,089,546
At 31 December 2007	47,092,079	11,300	2,897,731	50,001,110

The above statement should be read in conjunction with the accompanying notes.

7

PRO-PAC PACKAGING LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR TO 31 DECEMBER 2008

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

The half year financial report is a general-purpose financial report, which has been prepared in accordance with Australian Accounting Standards, Urgent Issues Group Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the requirements of the Corporations Act 2001.The half year financial report does not include full disclosures of the type normally included in an annual report. It is recommended that this financial report be read in conjunction with the most recent annual financial report and any public announcements made by ProPac Packaging Limited during the half year in accordance with continuous disclosure requirements arising under the Corporations Act 2001. The half-year financial report has also been prepared on an accruals basis and is based on historical cost. The half-year financial report is presented in Australian dollars.

The accounting policies and methods of computation are the same as compared with the most recent financial report.

The half-year financial report covers the economic entity of Pro-Pac Packaging Limited and controlled entities, and Pro-Pac Packaging Limited an individual parent entity.

(b)

Statement of compliance

The half year financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standard (‘AIFRS’). Compliance with AIFRS ensures that the half year financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (‘IFRS’).

(c)

Basis of consolidation

The consolidated financial statements comprise the financial statements of Pro-Pac Packaging Limited and its subsidiaries as at 31 December 2008.

The financial statements of subsidiaries are prepared for the reporting period ended 31 December 2008 using accounting policies consistent with the parent entity.

Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits or losses arising from intra-group transactions, have been eliminated in full.

Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which Pro-Pac Packaging Limited had control.

(d)

Business combinations

Business combinations occur where control over another business is obtained and results in the consolidation of its assets and liabilities. All business combinations, including those involving entities under common control, are accounted for by applying the purchase method.

The purchase method requires an acquirer of the business to be identified and for the cost of the acquisition and fair values of identifiable assets, liabilities and contingent liabilities to be determined as at acquisition date, being the date that control is obtained. Cost is determined as the aggregate of fair values of assets given, equity issued and liabilities assumed in exchange for control together with costs directly attributable to the business combination. Any deferred consideration payable is discounted to present value using the entity’s incremental borrowing rate.

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PRO-PAC PACKAGING LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR TO 31 DECEMBER 2008

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Goodwill is recognised initially at the excess of cost over the acquirer’s interest in net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If the fair value of the acquirer’s interest is greater than cost, the surplus is immediately recognised in profit or loss.

(e) Property, plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Plant and Equipment is depreciated using the straight line and diminishing value methods over the estimated useful lives.

The current depreciation rates are over 3 to 20 years.

An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is de-recognised.

Impairment

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

(f) Borrowing costs

Borrowing costs are recognised as an expense when incurred.

(g) Goodwill

Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of, is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of

9

PRO-PAC PACKAGING LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR TO 31 DECEMBER 2008

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained.

(h) Recoverable amount of assets

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

(i) Inventories

Inventories are valued at the lower of cost and net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:

• Raw materials – purchase cost on a first-in, first-out basis.

• Finished goods and work-in-progress – cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

(j) Trade and other receivables

Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.

An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.

(k) Cash and cash equivalents

Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

10

PRO-PAC PACKAGING LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR TO 31 DECEMBER 2008

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(l) Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

(m) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

(n) Equity-settled compensation

The group operates equity-settled share-based payment employee share and option schemes. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase in an equity account. The fair value of shares is ascertained as the market bid price. The fair value of options is ascertained using a BlackScholes model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at each reporting date such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

(o) Leases

A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of the leased property, without transferring the legal ownership, and operating leases under which the lessor effectively retains substantially all the risks and benefits.

Where assets are acquired by means of finance leases, the present value of minimum lease payments is established as an asset at the beginning of the lease term and amortised on a straight line basis over the expected economic life. A corresponding liability is also established and each lease payment is allocated between such liability and interest expense. Operating lease payments are charged to expense on a basis which is representative of the pattern of benefits derived from the leased property.

(p) Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Sale of goods

Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery of the goods to the customer.

11

PRO-PAC PACKAGING LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR TO 31 DECEMBER 2008

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Interest

Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset.

Dividends

Revenue is recognised when the shareholders’ right to receive the payment is established.

(q)

Income tax

The income tax expense (revenue) for the interim period comprises current income tax (income) and deferred tax expense (income).

Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority.

Deferred income tax expense reflects movements in the deferred tax asset and deferred tax liability balances during the year as well as unused tax losses.

Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity.

Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantially enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability.

Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.

Where temporary differences exist in relation to investments in subsidiaries, branches, associates and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future.

Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of setoff exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets are expected to be recovered or settled.

The income tax calculations are based on the premise that the Group has been consolidated for income tax purposes. Each entity in the Group recognizes its own current and deferred tax liabilities, except for any deferred tax liabilities resulting from unused tax losses and tax

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PRO-PAC PACKAGING LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR TO 31 DECEMBER 2008

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

credits which are immediately assumed by the parent entity. The current tax liability of each group entity is then subsequently assumed by the parent entity

(r) Other taxes

Revenues, expenses and assets are recognised net of the amount of GST except:

• where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(s) Employee benefits

Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave and long service leave. Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled within 12 months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date.

(t) Financial instruments

Recognition

Financial instruments are initially measured at cost on trade date, which includes transactions costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below.

Loans and receivables

Loans and receivables are non-derivate financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method.

Financial liabilities

Non-derivate financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation.

(u) Foreign currency transactions and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Exchange differences arising on the translation of monetary items are recognised in the income statements.

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PRO-PAC PACKAGING LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR TO 31 DECEMBER 2008

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(v) Critical Accounting estimates and judgements

The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group.

Key estimates – Impairment.

No impairment is considered necessary in respect of goodwill based on key estimates used in assessing recoverable amounts.

NOTE 2: SEGMENT INFORMATION

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

NOTE 3: EARNINGS PER SHARES

Basic and diluted earnings per share amounts are calculated by dividing net profit for the half year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

The following reflects the income and share data used in the total operations basic and diluted earnings per share computations:

	Consolidated	Consolidated
	2008	2007
Net profit attributable to equity holders ($)	853,708	2,089,546
Weighted average number of ordinary shares for basic earnings per share	118,542,581	96,906,091
Basic earnings per share (cents per share) *	0.72	2.16
Diluted earnings per share (cents per share) *	0.72	2.16

• 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 4: DIVIDENDS PAID AND PROPOSED

No dividends have been declared in respect of the half year ended 31 December 2008.

Franking credit balance

The half-year financial report has been prepared on the basis that the Group has adopted the provisions of the tax consolidation regime for the year ending 30 June 2008 and 30 June 2007. As such franking credits arising from the other Group companies totalling $8,377,116 will be available to the parent entity.

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PRO-PAC PACKAGING LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR TO 31 DECEMBER 2008

NOTE 5: CONTRIBUTED EQUITY

NOTE 5: CONTRIBUTED EQUITY
Ordinary shares Issued and fully paid Movement in ordinary shares on issue Balance at beginning of the half year Shares issued under the dividend re-investment plan Issue of shares for Executive Long Term Incentive Plan Cancellation of shares for Executive Long Term Incentive Plan Cost of raising shares Future Income Tax Benefit associated with costs of raising shares Shares issued to Plastic Bottle Group shareholders Shares issued under share placement Balance at the end of the half year	Consolidated 2008 $ 48,153,866 Number $ 120,027,989 47,605,676 1,612,311 548,190 - - (1,480,000) - - - - - - - - -	Consolidated 2007 $ 47,092,079 Number $ 43,255,437 18,729,203 387,027 185,791 625,000 - (2,044,311) - - (37,107) - 11,132 29,738,000 11,003,060 46,486,486 17,200,000
	120,160,300 48,153,866 118,447,639 47,092,079

There was no par value for the shares issued. The company has an Executive Long Term Incentive Plan under which the company’s shares have been granted.

NOTE 6: ASSETS PER SECURITY

Net assets per share Net tangible assets per share	Consolidated 2008 Cents 41.24 6.91	Consolidated 2007 cents
		43.00 8.87

NOTE 7: SIGNIFICANT EVENTS DURING THE PERIOD

Acquisition of businesses

Effective 1 November 2008, Pro-Pac Packaging (Aust) Pty Ltd, a wholly owned subsidiary, acquired the business and assets of the complimentary Sydney based general packaging distributor, Fastway Industrial Products Pty Ltd.

NOTE 8: CONTINGENT LIABILITIES AND COMMITMENTS

A contingent liability of a maximum of $2.0m exists that arises from the acquisition of a subsidiary company and the potential payment of earn out amounts based on the achievement of profit targets for the 2009 financial year.

As at balance sheet date the company had commitments for future capital expenditure totalling $191,296.

NOTE 9: EVENTS AFTER THE BALANCE SHEET DATE

There are no significant events after balance sheet date.

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DIRECTORS' DECLARATION

In accordance with a resolution of the Directors of Pro-Pac Packaging Limited, I state that:

In the opinion of the Directors:

• (a) The financial statements and notes of the consolidated entity:

• (i) give a true view of the financial position as at 31 December 2008 and the performance for the half year ended on that date of the consolidated entity; and

• (ii) comply with Accounting Standard AASB 134 “Interim Financial Reporting” and the Corporations Regulations 2001; and

• (b) There are reasonable grounds to believe the Company will be able to pay its debts as and when they become due and payable.

On behalf of the Board

John Read Director Sydney 25 February 2009

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Independent Review Report to the members of Pro-Pac Packaging Limited

Report on the Half-Year Financial Report

We have reviewed the accompanying half-year consolidated financial report of Pro-Pac Packaging Limited and controlled entities (the consolidated entity), which comprises the condensed balance sheet as at 31 December 2008, and the condensed income statement, condensed statement of changes in equity and condensed cash flow statement for the half-year ended on that date, other selected explanatory notes and the directors’ declaration.

Directors’ Responsibility for the Half-Year Financial Report

The directors of the company are responsible for the preparation and fair presentation of the half-year financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 . This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the half-year financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity’s financial position as at 31 December 2008 and their performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As the auditor of Pro-Pac Packaging Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001 .

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Pro-Pac Packaging Limited is not in accordance with the Corporations Act 2001 including:

• (a) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2008 and of their performance for the half-year ended on that date; and

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• (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations 2001.

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M. D. Nicholaeff Partner

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UHY Haines Norton Chartered Accountants

Signed on 25 February 2009

At Sydney

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