PRO-PAC PACKAGING LIMITED — Interim / Quarterly Report 2011

Feb 24, 2011

(ASX: PPG)

Commentary on Results for the Six Months Ended 31 December 2010

Given the impact of the Company's site consolidations in Victoria and New South Wales and the slowdown in consumer spending, the Company returned a solid performance for the six-month period ending 31 December 2010.

Revenue of $59 million was 27% up on the previous corresponding period ($46m), while EBITDA was $6 million for the half-year as compared to $5.6 million for the previous corresponding period. Profit after tax of $3 million was marginally higher than the previous corresponding period.

During the half year the Company continued with its site consolidations, expensing approximately $300,000 during the period on the related relocation and restructuring costs. The amalgamation of the various Victorian industrial packaging division"s sites was completed during the period and in New South Wales, the reorganisation of the rigid division"s distribution operations and the amalgamation of the industrial division"s various distribution sites were progressed and completed in January 2011. Relocation and restructuring exercises of this magnitude have the obvious consequences of some operational disruption and additional costs which impact on earnings in the short term but which provide the necessary platforms and the essential improved infrastructure for continued future growth.

During the half year the Company also incurred capital expenditure of approximately $2.3 million in upgrading its IT systems and hardware, improving efficiencies in its manufacturing operations and in improving and expanding the capacity of its plastic film extrusion business, Ruscon, at a cost of $700,000.

Despite the increased working capital investment required to fund the top line growth, the acquisition of the business and assets of Goodman Packaging with effect from 1 July 2010 and the capital expenditure referred to above, the Company"s gearing (net debt/equity plus debt) remained conservative at approximately 20%.

The Company has a current pipeline of acquisition opportunities and organic growth strategies under review. Further operational and capital management improvement strategies are being assessed and implemented and consolidation of the industrial packaging division"s various Brisbane operations is under consideration.

A fully franked final dividend of one cent per share was paid on 22 October 2010. The Company has today declared a fully franked interim dividend of one cent per share. The record date for determining entitlements to the dividend is 11 March 2011 and the dividend will be paid on 12 April 2011. The Company's Dividend Reinvestment Plan (DRP) will apply to this dividend with zero discount.

While it is still too early to provide definitive guidance, the Company does anticipate reporting further increases in both top and bottom line results for the 2011 financial year.

Enquires

For further information please contact Mr. Brandon Penn CEO, Pro-Pac Packaging Limited on Tel (02) 8781 0500.

About PPG

Pro-Pac Packaging Limited is a diversified manufacturing and distribution company, providing innovative, flexible and rigid packaging solutions for a broad group of clients. PPG is headquartered in Sydney with operations in Adelaide, Brisbane, Melbourne and Perth. 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
ACN	Half Year ended("Reporting Period")31 December 2010			Previous Half Year ended("Corresponding period")
112 971 874				31 December 2009
Results
Revenue from continuing operations		Up	27.4 %	to	$ 00058,572
Earnings from continuing operations before interest,tax, depreciation and amortisation (EBITDA) excludingone off relocation costs		Up	12.3 %	to	6,291
Profit before tax from continuing operations		Down	3.3 %	to	4,104
Profit from continuing operations after tax attributable toshareholders		Down	3.7 %	to	2,861
Net profit attributable to shareholders		Up	2.2 %	to	3,034

Dividends (distributions)

	Amount per security	Franked amount persecurity
Interim dividend	1.0¢	1.0¢
Prior year interim dividend	1.0¢	1.0¢

Information on dividends:

The Company will pay an interim dividend of one cent per share on 12 April 2011.

The Company"s Dividend Reinvestment Plan has been activated. Under the Plan, shareholders can acquire shares in the Company at the volume weighted average sale price per share during the four trading days up to and including the Record Date for determining entitlements. No discount will apply to the issue price.

Record Date for determining entitlements to the dividend	11 March 2011
Last date for receipt of election notices for participation in thePro-Pac Packaging Limited Dividend Reinvestment Plan	11 March 2011

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 2010

PRO-PAC PACKAGING LIMITED DIRECTORS' REPORT

Your Directors submit their report of the consolidated group for the half year ended 31 December 2010.

DIRECTORS

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

David Herlihy (Chairman and Non Executive Director) BA (UNSW)

Elliott Kaplan (Non Executive Director) BAcc, CA

Hadrian Morrall (Executive Director)

Brandon Penn (Executive Director) BCom

REVIEW AND RESULTS OF OPERATIONS

Revenue for the six months ended 31 December 2010 of $59m was 27% up on the previous corresponding period and after tax profits were marginally higher at $3.0m. EBITDA was $6.0m for the half as compared to $5.6m for the previous corresponding period. Earnings per share for the half were 2.27c

The Directors declared a fully franked interim dividend of one (1c) cent per share. The Record Date for determining entitlements to the dividend is 11 March 2011. The dividend will be paid on 12 April 2011. The Company"s Dividend Reinvestment Plan (DRP) will apply to this interim dividend at a zero discount.

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.

Brandon Penn Director

Sydney 24 February 2011

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 half year ended 31 December 2010 there has been:

• (i) No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
• (ii) No contraventions of any applicable code of professional conduct in relation to the audit.

Sydney 24 February 2011

	LPLI Haines Norton - Am as 160 7kg the number of 123 EB
Level 11, 1 York Street, Sydney, NSW 2000.	$f + 61.2.92566600$	· sydney@uhyhn.com.au
GPD Box 4137 Sydney, NSW 2001.	$7 + 61292566611$	w www.utyhainesnorton.com.au

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE HALF YEAR TO 31 DECEMBER 2010

	Consolidated2010$ 000	Consolidated2009$ 000
RevenueSales of goods and services	58,572	45,964
Interest income	47	18
Total Revenue	58,619	45,982
Expenses
Amortisation and depreciation expense	1,285	1,066
Distribution costs	815	690
Employee benefits expenseFinance costs	9,750601	7,307293
Occupancy costs	1,872	1,320
Other expenses from ordinary activities	5,641	4,496
Purchases, materials and consumables	34,250	26,567
Relocation and rationalisation costs	301	-
Total Expenses	54,515	41,739
Profit before income tax from continuingoperations	4,104	4,243
Income tax expense	1,243	1,273
Profit after tax from continuing operations	2,861	2,970
Other comprehensive incomeReversal of deferred acquisition consideration, net of
tax	173	-
Total comprehensive income for the period	3,034	2,970
Earnings per share (cents per share)
- Basic earnings per share	2.27	2.47
- Diluted earnings per share	2.27	2.47

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

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2010

	Consolidated	Consolidated
	December	June
	2010	2010
	$ 000	$ 000
Assets
Current Assets
Cash and cash equivalents	2,304	2,071
Trade and other receivables	20,726	15,301
Inventories	12,603	11,074
Prepayments	1,474	1,095
Total Current Assets	37,107	29,541
Non-Current Assets
Property, plant and equipment	13,047	11,930
Intangible assets	46,490	44,477
Deferred tax assets	915	805
Prepayments	1,156	1,317
Total Non-Current Assets	61,608	58,529
TOTAL ASSETS	98,715	88,070
Liabilities
Current liabilities
Trade and other payables	17,315	11,717
Interest bearing borrowings	1,732	1,503
Provisions	2,135	1,837
Current tax liabilities	1,053	1,536
Total Current Liabilities	22,235	16,593
Non-current liabilities
Provisions	430	437
Interest bearing borrowings	15,535	13,186
Total Non-Current Liabilities	15,965	13,623
TOTAL LIABILITIES	38,200	30,216
NET ASSETS	60,515	57,854
EQUITY
Issued capital	53,021	52,057
Reserves	30	30
Retained earnings	7,463	5,767
TOTAL EQUITY	60,514	57,854

The accompanying notes form part of these financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE HALF YEAR TO 31 DECEMBER 2010

	Consolidated	Consolidated
	2010	2009
	$ 000	$ 000
Cash flows from operating activities
Receipts from customers	54,339	43,951
Payments to suppliers & employees	(49,605)	(40,321)
Interest received	47	18
Interest paid	(633)	(293)
Income tax paid	(1,911)	(528)
Net cash flows provided by operating activities	2,237	2,827
Cash flows from investing activities
Payments for property, plant and equipment	(2,327)	(1,225)
Proceeds from sale of property, plant and equipment	68	128
Payment for unincorporated business	(1,982)	0
Net cash flows used in investing activities	(4,241)	(1,097)
Cash flows from financing activities
Payment of finance lease liabilities	(1,055)	(1,293)
Hire purchase and finance leases raised	1,082	949
Proceeds from borrowings	2,583	114
Dividend paid	(373)	(155)
Net cash flows provided by / (used in) financingactivities	2,237	(385)
Net increase / (decrease) in cash and cash equivalents	233	1,345
Cash & cash equivalents at beginning of period	2,071	2,174
Cash & cash equivalents at end of period	2,304	3,519
Non-cash financing transactions
Issue of shares for dividend re-investment plan	964	446

The accompanying notes form part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF YEAR TO 31 DECEMBER 2010

	Issuedcapital$ 000	Otherreserves$ 000	Retainedearnings$ 000	Totalequity$ 000
Consolidated
Balance as at 1 July 2010	52,057	30	5,767	57,854
Issue of shares for dividend re-investment plan	964	-	-	964
Dividends	-	-	(1,338)	(1,338)
Total comprehensive income for the period	-	-	3,034	3,034
At 31 December 2010	53,021	30	7,463	60,514

	Issuedcapital$ 000	Otherreserves$ 000	Retainedearnings$ 000	Totalequity$ 000
Consolidated
Balance as at 1 July 2009	48,154	20	2,520	50,694
Issue of shares for dividend re-investment plan	446	-	-	446
Dividends	-	-	(601)	(601)
Total comprehensive income for the period	-	-	2,970	2,970
At 31 December 2009	48,600	20	4,889	53,509

The accompanying notes form part of these financial statements.

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

These general purpose financial statements for the interim half-year reporting ended 31 December 2010 have been prepared in accordance with requirements of the Corporations Act 2001 and Australian Accounting Standards including AASB 134: Interim Financial Reporting. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards.

This interim financial report is intended to provide users with an update on the latest annual financial statements of Pro-Pac Packaging Limited and its controlled entities (the Group). As such, it does not contain information that represents relatively insignificant changes occurring during the half-year within the Group. The half year financial report does not include full disclosures of the type normally included in an annual report. It is therefore recommended that this financial report be read in conjunction with the annual financial statements of the Group for the year ended 30 June 2010, together with any public announcements made during the half-year.

The same accounting policies and methods of computation have been followed in this interim financial report as were applied in the most recent annual financial statements.

(b) New, revised or amending Accounting Standards and Interpretations adopted

The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ("AASB") that are mandatory for the current reporting period.

Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.

The adoption of these Accounting Standards and Interpretations did not have any impact on the financial performance or position of the consolidated entity. The following Accounting Standards or Interpretations are most relevant to the consolidated entity:

AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project

The consolidated entity has applied AASB 2010-3 amendments from 1 July 2010. The amendments result in some accounting changes for presentation, recognition or measurement purposes, while some amendments that relate to terminology and editorial changes are expected to have no or minimal effect on accounting. The main changes are:

AASB 127 "Consolidated and Separate Financial Statements" ("AASB 127") and AASB 3 Business Combinations ("AASB 3").

NOTE 2: SEGMENT INFORMATION

The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources.

The Group is managed primarily on the basis of product category and service offerings since the diversification of the Group"s operations inherently have notably different risk profiles and performance assessment criteria. Operating segments are therefore determined on the same basis.

Reportable segments disclosed are based on aggregating operating segments where the segments are considered to have similar economic characteristics and are also similar with respect to the following:

• The products sold and/or services provided by the segment;
• The manufacturing process;

NOTE 2: SEGMENT INFORMATION (continued)

Types of products and services by segment

Industrial packaging

The Industrial packaging division manufactures, sources and distributes industrial packaging materials and related products and services. All products produced or distributed are aggregated as one reportable segment as the products are similar in nature and are distributed to similar types of customers. The industrial packaging segment also installs, supports and maintains packaging machines.

Rigid packaging

The Rigid packaging division manufactures, sources and distributes containers and closures and related products and services. All products produced or distributed are aggregated as one reportable segment as the products are similar in nature and are manufactured and distributed to similar types of customers.

Basis of accounting for purposes of reporting by operating segments

Accounting policies adopted

Unless stated otherwise, all amounts reported to the Board of Directors as the chief decision maker with respect to operating segments, are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group.

Inter-segment transactions

An internally determined transfer price is set for all inter-entity sales. This price is re-set regularly and is usually based on what would be realised in the event the sale was made to an external party at arm"s length. All such transactions are eliminated on consolidation for the Group"s financial statements.

Inter-segment loans payable and receivable are initially recognised at the consideration received net of transaction costs. If inter-segment loans receivable and payable are not on commercial terms, these are not adjusted to fair value based on market interest rates. This policy represents a departure from that applied to the statutory financial statements.

Segment Assets

Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of economic value from the asset. In the majority of instances segment assets are clearly identifiable on the basis of their nature and physical location.

Unless indicated otherwise in the assets role, investments in financial assets, deferred tax assets and intangible assets have not been allocated to operating segments.

Segment Liabilities

Liabilities are allocated to segments where there is direct nexus between the incurrence of the liability and the operations of the segment. Borrowings and tax liabilities are generally considered to relate to the Group as a whole and are not allocated. Segment liabilities include trade and other payables and certain borrowings.

Unallocated items

The following items of revenue, expenses, asset and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment: impairment of assets and other non-recurring revenue or expenses; income tax expense; deferred tax asset and liabilities; current tax liabilities; other financial liabilities; intangible assets.

NOTE 2: SEGMENT INFORMATION (continued)

	$ 000
(i) Segment performanceSix months ended 31 December20102009
Revenue
External sales24,80033,77258,57224,44421,520	45,964
Inter-segment sales3,2562,3635,6193,8191,296Total segment revenue28,05636,13564,19128,26322,816	5,11551,079
Reconciliation of segment revenue to group revenue
Interest Income47	18
Inter-segment elimination(5,619)	(5,115)
Total group revenue58,619	45,982
Segment net profit before tax3,0102,9495,9593,2072,232	5,439
Reconciliation of segment result to group net profit before tax
Amounts not included in segment result but reviewed by the Board:
Unallocated items:
* Corporate and finance charges(684)* Head office costs(1,167)	(501)(662)
* Inter-segment elimination(4)	(33)
Net profit before tax from continuing operations4,104	4,243
(ii) Segment assets
As at 31 December (2009: 30 June)20102009
Segment assets22,90727,02749,93420,73220,449	41,181
Reconciliation of segment assets to group assets
Inter -segment eliminations(2,107)	(1,786)
Unallocated assets50,888	48,675
* Deferred tax assets915* Intangibles46,490	80544,477
* Other3,483	3,394
Total group assets from continuing operations98,715	88,070
(iii) Segment liabilitiesAs at 31 December (2009: 30 June)20102009
Segment liablities11,76114,17925,94010,6639,012	19,675
Reconciliation of segment liablities to group liabilities
Inter -segment eliminations(1,949)	(1,630)
Unallocated liabilities14,209	12,171
* Deferred tax liabilities-* Other liabilities14,209	-12,171

(iv) The Group operates solely within Australia. As such there is only one 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:

	Consolidated2010	Consolidated2009
Net profit attributable to equity holders ($000)	3,034	2,970
Weighted average number of ordinary shares for basic earnings per shareBasic earnings per share (cents per share) *	133,549,9622.27	120,154,8942.47
Diluted earnings per share (cents per share) *	2.27	2.47

* 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

The Directors have declared an interim dividend of 1.0 cent per share in respect of the half year ended 31 December 2010. The company has determined a record date of 11 March 2011 and a payment date of 12 April 2011. Shareholders may elect to participate in the Company"s Dividend Reinvestment Plan in respect of this dividend.

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 2010 and 30 June 2009. As such franking credits arising from the other Group companies totalling $10,287,639 will be available to the parent entity.

NOTE 5: CONTRIBUTED EQUITY

Ordinary shares		Consolidated2010$000	Consolidated2009$000
Issued and fully paid		53,021	48,600
Movement in ordinary shares on issue	Number	$ 000	Number	$ 000
Balance at beginning of the half year	133,143,012	52,057	120,160,298	48,154
Shares issued under the dividend re-investment plan	2,828,527	964	2,858,405	446
Issue of shares for Executive Long Term IncentivePlan	1,325,000	-	-	-
Cancellation of shares for Executive Long TermIncentive Plan	(675,000)	-	-	-
Balance at the end of the half year	136,621,539	53,021	123,018,703	48,600

NOTE 5: CONTRIBUTED EQUITY (continued)

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 7: ASSETS PER SECURITY

	Consolidated2010	Consolidated2009
	Cents	cents
Net assets per share	44.73	44.19
Net tangible assets per share	8.60	10.63

NOTE 8: SIGNIFICANT EVENTS DURING THE PERIOD

Business Combinations Acquisition of business

Effective 1 July 2010, Pro-Pac Packaging (Aust) Pty Ltd, a wholly owned subsidiary, acquired the business and assets of Dysher Pty Ltd trading as Goodman Packaging, a Sydney & Perth based distributor of industrial packaging products.

	Fair Value
	$000
Assets
Current Assets
Inventories	554
Total Current Assets	554
Non-Current Assets
Property, plant and equipment	105
Total Non-Current Assets	105
Total Assets	659
Liabilities
Current Liabilities
Provision for AL	22
Other liabilities	77
Total Current Liabilities	99
Non-Current Liabilities
Provision for LSL	37
Total Non-Current Liabilities	37
Total Liabilities	136
NET ASSETS	523
CONSIDERATION PAID
Cash	1,982
Vendor Loan	554
Total	2,536
GOODWILL	2,013

NOTE 9: CONTINGENT LIABILITIES AND COMMITMENTS

As at statement of financial position date the company had commitments for future capital expenditure totalling $159,600.

As at statement of financial position date, the company issued security deposit guarantees to the landlords of rented premises to the value of $704,448 and standby letters of credit to suppliers to the value of $1,307,782.

NOTE 10: EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE

There are no significant events after statement of financial position date.

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 2010 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

Brandon Penn Director

Sydney 24 February 2011

Independent auditor's review report

To the members of Pro-Pac Packaging Limited

Report on the condensed half-year financial report

We have reviewed the accompanying half-year financial report of Pro-Pac Packaging Limited, which comprises the consolidated statement of financial position as at 31 December 2010 and consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half-year ended on that date, other selected explanatory notes and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the half-year end or from time to time during the half-year.

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 establishing and maintaining internal controls relevant to the preparation and fair presentation of the half-year financial report that it 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 Interim and Other Financial Reports 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 2010 and its 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 and the entities it controlled during the half-year, 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:

(i) Giving a true and fair view of the consolidated entity's financial position as at 31 December 2010 and of its performance for the half-year ended on that date; and

(ii) Complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

Sydney 24 February 2011