Pro Pac Packaging : 21/10/16 Confirmation of Release - PPG - Annual Report to Shareholders

Annual Report 1

&

Pro-Pac Packaging Limited Annual Report

02 Chairman's Report

03 Directors' Report

11 Auditor's Independence Declaration 12 Corporate Governance Statement 21 Consolidated Statement of Profit or

Loss and Other Comprehensive Income

1. Consolidated Statement of Financial Position

2. Consolidated Statement of Cash Flows

3. Consolidated Statement of Changes in Equity

4. Notes to the Financial Statements

54 Directors' Declaration 55 Independent Auditor's Report 56 Additional Company Information

Pro-Pac Packaging Limited + Controlled Entities

2016 Annual Report

Corporate Information

Pro-Pac Packaging Limited

ACN: 112 971 874 ABN: 36 112 971 874

DIRECTORS

Ahmed Fahour (Chairman) Elliott Kaplan

Brandon Penn Dr Gary Weiss

COMPANY SECRETARY

Mark Saus

REGISTERED OFFICE

Building 1, 147-151 Newton Road, Wetherill Park NSW 2164

PRINCIPAL PLACE OF BUSINESS

Building 1, 147-151 Newton Road, Wetherill Park NSW 2164

SHARE REGISTER

Boardroom Limited

Level 12, 225 George Street, Sydney NSW 2000

SOLICITORS

Thomson Geer

Level 25, 1 O'Connell Street, Sydney NSW 2000

BANKERS

Commonwealth Bank of Australia Premium Business Services

Level 1, 430 Forest Road, Hurstville NSW 2220

AUDITORS

UHY Haines Norton

Level 11, 1 York Street, Sydney NSW 2000

STOCK EXCHANGE LISTING

Pro-Pac Packaging Limited shares are listed on the Australian Securities Exchange (ASX code: PPG)

WEBSITE

www.ppgaust.com.au

"THE COMPANY CONTINUES TO LOOK FOR

ATTRACTIVE ACQUISITIONS THAT ARE ACCRETIVE

AND MEET RETURN ON INVESTMENT HURDLES."

Annual Report 1

Chairman's Report

On behalf of the Board of Directors and the management it is my pleasure to present Pro-Pac Packaging Limited's annual report for the year ended 30 June 2016.

At the outset, I am pleased to note that for the year ended 30 June 2016, the Company reported a solid and pleasing set

of results including profit after tax up 19% to $6.9 million which translates to an increase in earnings per share of 16% to 3.01 cents and dividends per share up 10% to 2.75 cents. Net cash from operating activities was also up 162% to $14.2 million.

These results were achieved despite continued difficult general industry trading conditions, rising raw material input prices and adverse margin impacts from the significant downward movement in the A$/US$ exchange rate during the year.

Sales were down 1% on the prior year reflecting a sluggish Australian economy and competitive markets. As previously reported, demand from the manufacturing, distribution, resources and meat processing sectors was soft, particularly later in the first half and continued for the remainder of the financial year. However, the Company experienced good growth in the pharmaceutical, healthcare, retail and dairy sectors.

Despite hedging strategies, adverse forex movements due mainly to the ongoing decline of the AUD increased the cost of imported goods sold relative to the prior year, particularly during H1. Consequently, throughout the year the Company progressively increased prices to its customers to recover this cost increase. As a result, margins were maintained broadly in line with the prior year but sales volumes were adversely affected.

The maintenance of margins and the continued focus on cost out strategies yielded substantial savings in administration, distribution and selling expenses that enabled the Company to record a profit before tax of $10.1 million, an increase of 20% up on the prior year.

Rigid Division had an excellent year, with good top line growth and lower resin costs resulting in EBITDA increasing 18% on the prior year.

Industrial Division, which imports most of its products, was adversely affected by the declining AUD. As alluded to above, steps taken to stabilise margins within the division adversely effected sales which finished lower than the prior year. EBITDA for the division was however up 3% on the prior year, largely due to effective cost control.

The Company expects the Australian economy and the Company's markets to remain subdued. Cost reduction initiatives and measures to stabilise margins will continue during FY17. The Company continues to look for attractive acquisitions that are accretive and meet return on investment hurdles.

Despite the challenging business conditions the Board remains confident in the Company's ability to continue to grow profitably and when considered in conjunction with a strong balance sheet and solid cash flows the Board decided to maintain the final dividend at 1.5 cents per share for the second half. This, combined with the interim dividend, resulted in shareholders receiving a total dividend of 2.75 cents per share fully franked for the financial year, an increase of 10% over the prior year.

In July 2016 Peter Sutton resigned as CEO to pursue private business interests and the Board and I thank Peter for his contribution to the Group during his tenure. As previously advised, former long term CEO, major shareholder and

Non-Executive Director, Brandon Penn, was appointed "acting CEO" while an active formal executive search is finalised.

A leading executive search firm has been appointed by the Board to recruit the next CEO.

Finally, I would like to thank my fellow Directors and the management team which are focused on looking after our employees and customers and together continuing to grow a successful packaging and distribution company in Australia that creates shared value.

Ahmed Fahour

Chairman

2 Pro-Pac Packaging Limited + Controlled Entities