PaperlinX Limited ABN 70 005 146 350 7 Dalmore Drive, 28 September 2012 Scoresby, Victoria 3179 Australia Company Announcements Office Tel: +61 3 9764 7300 Australian Stock Exchange Limited Fax: +61 3 9730 9741 Level 4, 20 Bridge Street Sydney NSW 2000

PaperlinX 2012 Annual Report & Annual General Meeting

Dear Sirs,

Please find attached the PaperlinX 2012 Annual Report. Please note below an explanation of a revision published in the Annual Report and notification of a date change for the Annual General Meeting.

1) Revision to Note 5 Operating Segments in Full Financial Report

The 2011 comparative information contained in Note 5 Operating Segments (page 51) of the Full Financial Report has been revised from the Preliminary 4E accounts (page 19) lodged with the ASX on 22 August 2012.

This is due to the incorrect apportionment of restructure costs between ‘Merchanting Europe’, ‘Australia, New Zealand and Asia’ and ‘Unallocated’ segments for 2011. The revision is outlined in the table below.

Merchanting - Merchanting - ANZA Unallocated Europe Appendix Annual Appendix Annual Appendix Annual 4E Report 4E Report 4E Report Profit/(loss) before net finance costs, tax and significant items 5.7 3.7 14.9 11.1 (24.0) (18.2) Significant items (pre-tax) (46.6) (44.6) (40.6) (36.8) (20.9) (26.7) Net other finance costs - - - - (2.9) (2.9) (Loss)/profit before interest and tax (40.9) (40.9) (25.7) (25.7) (47.8) (47.8)

Importantly, the continuing, discontinued and group totals in the Note 5 are unchanged, as are the disclosures by segment of profit/(loss) before interest and tax.

2) Notification of Annual General Meeting (‘AGM’) date change As a result of the recent Board changes, the AGM has now been rescheduled to be held on Thursday, 15 November 2012, at 9.30am at the Melbourne Convention Centre, Meeting Room 106, Level 1, 1 Convention Centre Place, South Wharf, Melbourne, Victoria 3006, Australia. The Notice of AGM will be lodged with the ASX and despatched to shareholders in early October.

Regards,

For personal use only use personal For

Michelle Wong Company Secretary

Encl.

PaperlinX

Annual Report 2012 For personal use only use personal For Forward Looking Statements Certain statements in this Annual Report relate to the future, including forward looking statements relating to PaperlinX’s financial position and strategy. These forward looking statements involve known and unknown risks, uncertainties, assumptions and other important factors that could cause the actual results, performance or achievements of PaperlinX to be materially different from future results, performance or achievements expressed or implied by such statements. Neither PaperlinX nor any other person gives any representation, assurance or guarantee that the occurrence expressed or implied in any forward looking statements in this document will actually occur and you are cautioned not to place undueonly use personal For reliance on such forward looking statements. Subject to any continuing obligations under applicable law or any relevant listing rules of the Australian Securities Exchange, PaperlinX disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statements in this document to reflect any change in expectations in relation thereto or any change in events, conditions or circumstances on which any such statement is based. PaperlinX is one of the world’s leading merchants of paper, communication materials and diversified products and services.

Contents 2012 at a glance 2 Summary financials 3 Chairman’s message 4 Chief Executive Officer’s message 5 Operational review 6 Sustainability 8 Directors of PaperlinX 10 Senior management 11

For personal use only use personal For Directors’ report 12 Corporate governance 28 Full financial report of PaperlinX Limited 33 Shareholding information 94 Five year history 96 Investor information IBC Corporate directory BC

1 2012 at a glance

These results reflect a company in transition as it responds to the reality of continuing structural decline in paper demand, current weak market conditions and the continuing poor economic outlook in Europe. The implementation of the Strategic Review involved taking substantial measures to reshape the Company. Cash generated from asset disposals and the close-out of a currency option has provided liquidity, reduced debt and funded crucial restructuring. When completed, the expanded and accelerated restructuring programme will provide a significantly lower operating cost base. And there is a clear strategy to drive the growth and margin of our diversified business, particularly in Packaging and Sign and Display. The remaining businesses in the Group have significant positions in sizeable markets and moving forward with a lower cost base, the Company is better positioned to become a successful broad-based material supplier.

• The statutory loss after tax of $(266.7) million for the year • Impairment of goodwill and other non-current assets ended 30 June 2012 compared to a loss of $(108.0) million of $(125.9) million after tax, primarily in the Benelux for the prior corresponding period (pcp). This is significantly and the UK. increased from the expected loss of $171 million announced • After tax loss on the sale of businesses in the US and Italy on 26 June 2012, primarily due to the Board’s decision to of $(62.4) million. write-off all remaining goodwill on European operations. • Currency option close-out, generated $39 million in cash. • Revenue was $4.11 billion, down from $4.67 billion for pcp due to weaker sales and negative translation impact • Lower net debt of $148 million versus prior year of arising from the strength of the Australian dollar. $172 million primarily reflects the repayment of debt, proceeds from the currency option, the stronger Australian • Diversified revenue grew by 3.4 per cent (constant currency) dollar, partly offset by negative operating cashflow. over pcp. • The sale of businesses in the US and Italy have now • Volumes of 2.45 million tonnes, down from 2.63 million completed. In addition, the sale of businesses in tonnes for pcp reflecting a further deterioration in demand south-eastern Europe and South Africa are expected in our key markets, in particular Europe. to complete in the first half of FY13. Total net cash • Restructuring costs of $(31.1) million pre-tax in line with proceeds from these disposals are expected to generate plans announced in June. approximately $90 million. • Negative operating cash flow of $(62) million was • Extensive restructuring in the UK, Australia and Corporate unfavourable to $55 million for pcp following deterioration was undertaken. The restructuring programme has been in trading results and adverse working capital movements. significantly expanded, particularly in Europe, and is now expected to generate ongoing benefits of $73 million per

annum by the end of FY14 for a total cost of $45 million. For personal use only use personal For

2 Summary financials

Results for the year ended 30 June 2012 The following table shows statutory earnings and sales revenue by region in Australian dollars. Segment results exclude significant items but include the benefits arising from restructuring activities. Included is a reconciliation of underlying sales revenue and earnings. The difference between statutory results and underlying results is the loss on sale of businesses, impairment of non-current assets, restructuring costs, valuation impact of the currency option, net benefits related to the closure of the Tasmanian operations and transaction costs related to the sale of Australian Paper. Earnings Sales Revenue For the year ended 30 June 2012 2011 2012 2011 $m $m $m $m Europe (23.6) 3.7 2,333.8 2,698.5 Canada 8.3 6.6 442.1 463.8 Australia, New Zealand and Asia 10.9 11.1 472.2 515.7 Unallocated (16.4) (18.2) (4.9) (6.2) Total continuing operations (20.8) 3.2 3,243.2 3,671.8 Discontinued operations 8.6 17.7 870.0 1,003.1 (Loss)/profit before net finance costs, tax and significant items (12.2) 20.9 Net other finance costs (7.0) (3.5) (Loss)/profit before interest, tax and significant items (19.2) 17.4 Significant items (pre-tax) (214.0) (109.3) Loss before interest and tax (233.2) (91.9) Net interest (18.3) (18.9) Loss before tax (251.5) (110.8) Tax relating to pre-significant items (16.9) (6.4) Tax relating to significant items 1.7 9.2 Tax (expense)/benefit (15.2) 2.8 Group eliminations (0.1) (4.6) Statutory loss for the period/Total revenue (266.7) (108.0) 4,113.1 4,670.3 Adjust for following (gains)/losses included in statutory loss: Loss on the sale of controlled entities 62.4 – Impairment of assets held for sale 1.7 – Impairment of property, plant and equipment 4.9 – Impairment of intangible assets 119.3 68.5 Restructuring costs 28.4 17.6 Net benefit related to closure of Tasmanian operations (1.4) (5.9) Currency option (3.0) 15.4 Transaction costs related to sale of Australian Paper – 4.5 Underlying loss for the period (54.4) (7.9) Net interest 18.3 18.9 Tax relating to pre-significant items 16.9 6.4 Underlying EBIT (19.2) 17.4 Less: Discontinued underlying EBIT 8.0 17.1 Continuing underlying EBIT (27.2) 0.3 Key ratios Underlying earnings before interest and income tax to average funds employed % (2.1) 1.6 Basic earnings per share post SPS distribution cps (43.8) (21.4) Dividend per ordinary share cps nil nil

As at As at 30 June 30 June Balance sheet 2012 2011 Current assets $m 1,104 1,540 Non-current assets $m 195 390 Total assets $m 1,299 1,930

For personal use only use personal For Current liabilities $m 675 846 Non-current liabilities $m 177 348 Total liabilities $m 852 1,194 Shareholders equity $m 447 736 Key balance sheet ratios Funds employed (net debt + net assets) $m 595 908 Gross debt $m 228 297 Net debt $m 148 172 Net debt/net debt and equity % 24.8 18.9 Net tangible assets per share $ 0.06 0.27 3 Chairman’s message

It has been an intensely challenging year for PaperlinX The senior management team and the Board have also as we continue to work toward a sustainable footing for the changed to reflect the different scale and needs of the business. Your new Board has acted decisively to improve business. Corporate costs have been dramatically reduced the financial stability and progress the transformation of the and there is a new, smaller executive structure. With the Company in the face of continuing structural decline in global retirement of Tony Kennedy as Chief Financial Officer, we consumption of our core paper products. welcomed Richard Barfield as his successor. Toby Marchant We expect the paper market to decline by 3–5 per cent per left as Chief Executive Officer (CEO) and Dave Allen was annum for the foreseeable future. In addition, the poor appointed interim CEO from 1 August. I would like to thank economic outlook in our key markets in Continental Europe both Toby and Tony for their contributions and commitment continues to weigh heavily on the business’ operating and for their part in leading the Strategic Review during such performance. Despite this, we improved our results in difficult circumstances. Canada and several markets within the ANZA region. I would particularly like to thank my fellow Directors and all In the past 12 months, substantial measures have been taken our employees for taking on the heavy workload required to improve our ability to respond to these realities. Critical to during this challenging time. Tony Clarke spent several this has been the disposal of assets to create liquidity. We months based in the UK Office providing advisory support recently announced the sale of our businesses in Italy, the to management. In addition, your Directors voluntarily took United States, South Africa, Croatia, Hungary, Serbia, Slovakia a cut in fees from April 2012 (the second cut since 2010), and Slovenia. The proceeds, together with the close-out and most senior managers voluntarily took a temporary of a currency option, are being used to reduce debt, fund pay cut between 7.5 and 10 per cent. crucial restructuring and improve our operational liquidity. We welcome Andrew Price to the Board as a Non-executive We have expanded and accelerated the internal restructuring Director from 1 September. program. The Board is overseeing this program to ensure The Board is very aware of shareholders’ and other rapid completion, with the goal of a significantly lower stakeholders’ expectations that PaperlinX returns to operating operating cost base that is better aligned to compete profitability in the shortest possible time. Having secured successfully in our markets. sufficient near-term liquidity for the Group through the Our results in 2012 are reflective of a business in transition. Strategic Review, we have created the platform from which We reported a loss after tax of $(266.7) million, reflecting to deliver restructuring and seek additional opportunities a 7 per cent reduction in paper volumes, restructuring costs, to grow our Diversified Products business. There is much a loss on the sale of businesses in the United States and Italy, more hard work to come as we drive this restructuring and the Board’s decision to write-off the remaining goodwill phase while simultaneously reorientating the business in Europe. The underlying loss after tax was $(54.4) million. toward growing and profitable markets. With a view to the medium term, we have accelerated our transition to a broad-based material supply business in addition to the focus on restructuring. This has involved leveraging the strengths of our traditional business to sell a broader range of non-paper products, which we call Diversified Products, and which offer significant growth opportunities and higher margins than paper. Harry Boon

Chairman For personal use only use personal For

4 Chief Executive Officer’s message

As we implement initiatives from the Strategic Review, we Broad-Based Materials Supply are now a very different company from this time last year. A critical element of our future business model is to Our operations have changed significantly, particularly with leverage our existing logistics capability and customer the sale of businesses in eight countries and the restructuring relationships in our traditional paper business to sell more undertaken to reduce our cost base. Our remaining profitable diversified products. Our two main categories businesses have critical mass and should enable us are Packaging and Sign and Display and they offer growth to grow our diversified activities. The Executive team has opportunities and higher margins than paper. These also been streamlined and we have reduced our corporate costs. present opportunities to develop our customer base beyond Our statutory loss for 2012 after tax of $(266.7) million, the commercial print sector. We already have successful includes significant non-cash charges but also reflects organic growth programmes running in these categories an underlying loss after tax of $(54.4) million which we are in several countries, and we will roll these out on a wider addressing through restructuring and growing our diversified basis. Our recent packaging investment in New Zealand business. The ongoing decline in the market for our paper is an example of how we will use our existing operational products is anticipated to continue at 3 to 5 per cent per footprint to roll-out a new diversified product in a market. annum and therefore additional restructuring combined I would like to take this opportunity to thank all our with actions to drive efficiency and margin improvement employees who have worked with us through this year within our traditional paper business is essential. Rebalancing of turbulent change. They have shown dedication and our business will also require faster growth of our diversified professionalism in continuing to provide our customers businesses such as Packaging and Sign and Display. with the high level of service that our industry requires. This declining demand is being driven by the technology Our suppliers have also been supportive and we value transition, away from the use of office papers, business our partnership with them. correspondence and print media, and towards electronic I would like to thank Harry Boon, our Chairman, and our document management, online processing and new Directors for their guidance and support throughout the communication tools like smart phones, tablets, e-readers Strategic Review process. I would also like to thank our and social media forums. And while our industry has been previous CEO Toby Marchant who successfully led us focused on cost reductions to offset the decline, we are through the lengthy and challenging Strategic Review. now also beginning to see much needed rationalisation This year’s result shows the impact of the dramatic changes of merchants, for example, in North America. and the difficult trading conditions we have been facing. Driving Restructuring As our traditional paper market continues to decline, Management are working to swiftly deliver the continued restructuring and business process changes, restructuring programme, with all plans clearly defined combined with a drive to accelerate growth in our diversified and closely monitored. sectors will be a feature of the year ahead. The Strategic Review has provided a platform of increased liquidity and We have already significantly reduced corporate overheads reduced debt and we have a very clear set of actions to by streamlining the Melbourne corporate head office and improve our business. the global office in the United Kingdom (UK). The UK office has been integrated into the existing Northampton site. Major restructuring has also been completed in Australia and the UK, and to further reduce complexity, our businesses in Australia, Asia, Canada and New Zealand each consolidated to one unified company brand ‘Spicers’. We have further expanded the restructuring programme in Europe, focused on further actions in the UK and also introduced significant restructuring programmes in Germany Dave Allen and Benelux. The revised total cost of the restructuring Interim Chief Executive Officer will be $45 million with expected annualised benefits

of $73 million by the end of the 2014 financial year. For personal use only use personal For

5 Operational review

Business Activities

PaperlinX is a leading merchant of paper, communication materials and diversified products and services. During the year, we operated in 26 countries, with around 5,850 employees and sales of 2.45 million tonnes of paper. The continuing business operates in 18 countries, with approximately 4,620 employees and sales of 1.93 million tonnes of paper. We link customers and suppliers through an international network of locally focused operating companies. We source, stock, market and distribute a broad range of quality products to customers while adding value through excellent service and efficient supply chains. Around the world, we work hard to ensure that our product ranges continue to meet the changing needs of our customers. Now we are expanding our customer base as we extend our product range beyond the traditional realm of the paper merchant, encompassing diversified products such as sign and display, industrial packaging and graphics materials. We source our products with consideration of environmental and social criteria as specified in our Sustainable Supply Chain Policy. Many of our operations have FSC or PEFC chain-of-custody certifications and we are committed to providing a wide range of products with good environmental credentials.

Results Summary

• Demand continued to be weak with the decline in volume of 7 per cent • For North America, Canada delivered a positive continuing underlying EBIT of US$8.4 million, which was ahead of prior of US$6.3 million. Europe’s continuing underlying EBIT was below prior with a loss of €(17.8) million versus a profit of €2.6 million pcp. ANZA’s continuing underlying EBIT of $10.9 million was slightly down from prior. • In Europe, market declines in paper demand varied by country but averaged 5 per cent and there was some loss of market share due to withdrawal from low-margin and high-cash requirement business. The European restructuring programme is underway. • In North America, the Canadian operation had a successful account acquisition programme, a company brand consolidation and growth in its diversified Packaging segment. • In Australia, New Zealand and Asia, overall volumes were down 2 per cent but Australia was down 10 per cent and strong margin and expense control substantially offset this decline. In Asia, selling price and margin were under pressure but offset by effective trading expense control. A company brand consolidation programme was implemented. June 2012 June 2011 % change Volume ‘000 tonnes 2,448 2,631 (7) Sales revenue $m 4,113 4,670 (12) Continuing underlying EBIT $m (27.2) 0.3 Discontinued underlying EBIT $m 8.0 17.1 Underlying EBIT $m (19.2) 17.4 Statutory loss after tax $m (266.7) (108.0) Working capital $m 479 641 25 Operating cash flow $m (62) 55 Net debt $m 148 172 14 Average daily net debt $m 368 n/a NTA per share cents 6 27 (78) Gross profit/sales % 19.5 19.8 (30) bpts Expense/sales % 19.9 19.4 (50) bpts Discontinued operations reflect the US and Italy operations sold in FY12, the operations in South Africa, Croatia, Hungary, Serbia, Slovakia and Slovenia whose sale was announced in July 2012 and the closure costs associated with Tas Paper operations, including the remaining remediation costs and

realisation on asset sales. For personal use only use personal For

6 Europe

Our European network of merchants across 10 countries provides a range of communication materials and diversified products to thousands of customers in the commercial print, office, packaging and display markets. The focus is ‘local businesses serving local customers’ backed by technical support services and efficient local logistics. Our sales teams have an in-depth knowledge and strong expertise in the industry. As part of the Strategic Review, the Italian business was sold and the sales of the five businesses in south-eastern Europe and the business in South Africa are expected to complete in the first half of FY13.

% change June 2012 June 2011 Total June 2012 Continuing Discontinued Total Continuing Discontinued Total vs June 2011 Continental Europe ´000 tonnes 666 245 911 707 261 968 (6) UK, Ireland, Spain and South Africa ´000 tonnes 743 20 763 839 21 860 (11) Total sales volume ´000 tonnes 1,409 265 1,674 1,546 282 1,828 (8) Sales revenue €m 1,759 309 2,067 1,876 342 2,217 (7) Underlying EBIT €m (17.8) 3.5 (14.3) 2.6 7.0 9.6 (249) Underlying EBIT/ sales revenue % (1.0) 1.1 (0.7) 0.1 2.0 0.4 (110) bpts Average working capital/sales revenue % 16.5 21.5 17.1 16.3 21.5 17.1 0 bpts Diversified margin/ total margin % 30.7 8.9 27.1 24.9 10.8 22.5 460 bpts

North America

In North America, our continuing business is our operation in Canada, after we disposed of our US-based business as part of the Strategic Review. In Canada we are a leading distributor of fine paper, graphic arts, sign and display, industrial packaging equipment and consumables, with 15 distribution centres strategically located throughout the country. With a commitment to ‘simplicity and delivering value’, the Canadian operation is focused on the reliable delivery of respected products and solutions by a team dedicated to the success of our customers.

% change June 2012 June 2011 Total June 2012 Continuing Discontinued Total Continuing Discontinued Total vs June 2011 Sales volume ´000 tonnes 222 250 472 214 268 482 (2) Sales revenue US$m 447 466 913 446 477 923 (1) Underlying EBIT US$m 8.4 4.6 13.0 6.3 8.0 14.3 (9) Underlying EBIT/ sales revenue % 1.9 1.0 1.4 1.4 1.7 1.5 (10) bpts Average working capital/ sales revenue % 13.3 10.6 11.9 13.8 10.3 12.0 10 bpts Diversified margin/ total margin % 17.7 27.7 23.0 17.4 25.2 21.4 160 bpts

Australia, New Zealand and Asia

We are a leading merchant group in Australia and New Zealand, and also have significant merchant operations in Asia. The primary focus is on commercial print, with an increased level of focus in our diversified businesses on packaging, sign and display, and graphics supplies. Our network of merchants offers compelling benefits to local markets by way of customer service, product range, quality and availability, supported by our international supply chain. June 2012 June 2011 % change Sales volume ´000 tonnes 307 314 (2) Sales revenue A$m 472 516 (8) Underlying EBIT A$m 10.9 11.1 (2) Underlying EBIT/sales revenue % 2.3 2.2 10 bpts Average working capital/sales revenue % 21.3 23.3 200 bpts For personal use only use personal For Diversified margin/total margin % 8.7 7.4 130 bpts

7 Sustainability

1. Our people In terms of managing risk, we continue to work closely As PaperlinX responds to structural and industry change with our property insurance providers in three key areas and recalibrates operations through multi-phase major covering human safety, flammable liquids and low-cost restructuring, each of our businesses has had to make physical risks. Each component has annual targets for tough decisions that impact our people. closing out recommendations made by independent risk insurance engineers. All regions globally achieved their With approximately 4,620 employees across 18 countries, targets during the past twelve months, reducing the our continuing businesses are united by a common set of Group’s overall risk profile. Values, Core Operating Principles and our Code of Conduct. As business moves into diversified products, we have In this period of significant change for the Group, the Lost aligned resource levels and skills to this changing orientation. Time Injury Frequency Rate (LTIFR) for this fiscal year to With significant organisational changes due to continued June 2012 is 3.4, representing a 13 per cent improvement deterioration in trading and general economic conditions, over prior year. In addition to this, 79 per cent of our particularly in our key European markets, our focus remains operational sites worked the full fiscal year without suffering on motivating and engaging our employees to maximise our a Lost Time Injury (LTI). Significantly, over a five-year period, business performance. The Company organises a range of the Group LTIFR has reduced by 39 per cent. activities that support employee safety, health, wellbeing and Supporting the health and wellbeing of our employees development and these are outlined here: extends beyond our operations and safety. It requires an investment in understanding their concerns and providing Safety, health and wellbeing them with information and opportunities to proactively The Group has maintained its focus on providing high manage their own health. We again participated in the Global standards of safety for employees in every warehouse, Corporate Challenge and continued with a range of local logistics and office location worldwide. The PaperlinX health and wellness activities organised at individual sites. Safety Programme incorporates a particular focus on educating and training managers to create a safe working Engaging and supporting our people environment for employees. In times of transition, we must provide timely and useful Safety policies and procedures have been simplified information for our international employee base and we to reflect the business transition from manufacturing do this using a number of communication channels such to the merchant-only model, whilst the internal safety as newsletters, websites, email updates and meetings. audit programme has been enhanced through a stronger We continue to listen to the needs of our employees, focus on measurement, action planning and continuous seeking their feedback on aspects of the employment improvement at each location. cycle through surveys and focus groups. This year we conducted ‘In-Touch’ Pulse surveys with employees Our focus on training, coupled with the structured internal in Australia and the UK. audit process, continues to have a positive impact on the safety culture by embedding ownership at site and line To promote gender diversity throughout our business, manager level. we adopted a Diversity Policy, with the single objective to increase the proportion of females in senior leadership roles to 25 per cent by 30 June 2016. Currently, 19 per cent Safety Performance of senior leadership roles are held by females. A quarterly Rolling 12-month average (injuries per million hours worked) data gathering process monitors performance towards 35 this objective. 30 To further strengthen our expectations of professional business behaviour, a Code of Conduct that overarches our 25 company policies and values has recently been developed and is being rolled out across the business. We continue to 20 conduct our competition law and fair practices compliance training programme. Our Speak Up reporting service, which 15 helps employees to raise concerns about improper conduct, was refined as an online web-based service. 10 We provide a variety of internally and externally led 5 development programmes at a global and regional

level to meet local needs and continue to offer an For personal use only use personal For 0 interactive web-based leadership and management learning programme. Jun−11 Jun−10 Jun−12 Jun−01 Jun−07 Jun−09 Jun−02 Jun−03 Jun−05 Jun−08 Jun−06 Jun−04 Month/Year

Medically Treated Injury Frequency Rate (MTIFR) Lost Time Injury Frequency Rate (LTIFR)

8 Advancing through this restructuring phase, we need the Operational footprint right blend of leadership talent to develop a successful The Group’s operations include office sites, warehouses business and meet the challenges ahead. To drive and and transport. Operating companies within PaperlinX take track performance we launched an online performance responsibility for legal compliance and the management management system in Australia, Canada and the US. of environmental impacts related to business activities. A particular emphasis is placed on initiatives that also 2. Environmental sustainability reduce operating costs, such as energy efficiency and Sustainable development creates value for PaperlinX’s waste management. stakeholders, including customers, suppliers, employees, communities and investors, as well as the environment. Decommissioning of Tasmanian operations As a merchant business, the Company’s main sustainability With the closure of the Burnie and Wesley Vale manufacturing focus is on improving our supply chain. We also continue sites, work has focused on the environmental remediation to manage environmental initiatives that impact our of the sites to a level approved by the Environment Protection operational footprint. Authority (EPA) and in preparation for sale of the sites. The Company has maintained a small team of specialists Supply chain focus to oversee the decommissioning process. PaperlinX has a Sustainable Supply Chain Policy, which makes At the Wesley Vale site, the demolition and remediation clear the expectations the Company has of its suppliers. of the Cell Plant was completed in July 2011, and the It also makes commitments to assess and consider their EPA is satisfied that the site has been remediated and sustainability performance as part of the procurement all contamination removed. A final Environmental Site process. In order to do this efficiently, consistently and Assessment was presented to the EPA and the Environmental reliably, a centralised supply chain sustainability programme Protection Notice for the site was lifted in August 2011. called ‘ecosure’ has been developed. This benefits suppliers The site is on the market for sale. by simplifying how they provide data and offering them useful feedback. Performance improvements are encouraged Remediation of the Burnie site was largely completed in a partnership approach, which is intended to address by June 2012, with the EPA satisfied that all but the any risks identified and aid the development of more Burnie Cell Plant area has been acceptably remediated sustainable products and supply chains. and contamination removed. In 2011, PaperlinX participated in the Forest Footprint Accordingly, the Environmental Protection Notice for the Disclosure Project for the second year, this time achieving site with the exception of the Cell Plant area was lifted an improved rating in nine out of twelve criteria. The project during the year. Demolition, removal and remediation advises investors on their exposure to deforestation risks. of the Cell Plant commenced in January 2012 and will be finalised in August 2012. As at June 2012, demolition The European Union’s (EU) Timber Regulation comes into of the older redundant buildings had commenced. force on 3 March 2013 and sets out procedures which Approximately 50 per cent of the land has been sold those trading timber within the EU must put in place to and the balance is on the market. minimise the risk of illegally harvested timber being sold. The Company is monitoring developments and taking 3. Community connections the appropriate steps to ensure that all relevant operating Our community support is led by management companies and products fulfil the requirements. at each operating company to support local issues Given commercial constraints of price and availability, and organisations. This includes charitable contributions challenges remain in influencing good forest management of cash and paper donations, employee giving, employee principles in some of our supply chains. We continue to involvement activities, cause-related marketing initiatives engage with stakeholders to work towards satisfactory and commercial sponsorships for industry support. resolutions to complex issues. Once again, our businesses have reduced some of their The development of sustainable products and services community activities over the year due to the difficult helps PaperlinX customers and their clients achieve their economic times and the changes across PaperlinX. sustainability goals. Trading in paper products originating Many of our businesses are actively involved in supporting from certified forests (against third party standards such professional education and development of printing and as Forest Stewardship Council and Programme for the design communities around the world. We also work with Endorsement of Forest Certification) now accounts for a number of industry groups in Europe, North America,

48 per cent of the volume of the continuing business. In our Australia, New Zealand and Asia to tackle issues specific For personal use only use personal For various markets, product developments continue, such as to the paper industry. with recycled paper ranges and low-energy lighting systems, as do service innovations such as carbon offsetting and recycling collection services.

9 Directors of PaperlinX

Harry Boon Michael (Mike) McConnell LLB (Hons), BComm BA (Economics), MBA (Honours) Independent Non-executive Director (Chairman) Independent Non-executive Director Appointed a director in May 2008 and Chairman effective First appointed a director in August 2011. Mike brings to 1 September 2011. An experienced director with a strong the Board extensive experience in corporate strategy, finance, background in international marketing, sales, manufacturing capital allocation and general management. Since 2009, he operations and restructuring. A former Chief Executive Officer has been the Chief Executive Officer of Collectors Universe and Managing Director of Ansell Limited, a former Chairman (NASDAQ: CLCT). He currently serves as a director of Redflex of Gale Pacific Limited (August 2005 – November 2009) and Holdings Limited (since August 2011) and as a member of the a former director of Hastie Group Limited (February 2005 – Board of Governors of the global micro-finance organisation May 2012). Currently, Harry is Chairman of Tatts Group Limited, Opportunity International. Since 1995, he has served on and a director of Toll Holdings Limited. He is the Chairman numerous other public and private company boards in the of the Nomination & Governance Committee and a member US, Australia, New Zealand, Ireland and Israel. He was formerly of the Audit Committee and Remuneration & HR Committee. a Managing Director of Shamrock Capital Advisors and a manager of various investment vehicles on behalf of the Roy E. Disney M Lyndsey Cattermole, AM family and institutional investors. He is the Chairman of the BSc, FACS Remuneration & HR Committee and a member of the Audit Independent Non-executive Director Committee and Nomination & Governance Committee.

Appointed a director in December 2010. An experienced Toby Marchant company director with a strong background in information Ceased employment with the Company as Executive technology and telecommunications experience. Currently, Director (Managing Director and Chief Executive Officer) a director of Tatts Group Limited (since May 2005) and Treasury on 31 July 2012. Wines Estates Ltd (since May 2011). A former director of Foster’s Group Limited (October 1999 – May 2011). She was the founder Andrew Price and Managing Director of Aspect Computing Pty Limited and has also held many board and other membership positions on Will join the Board as a Non-executive Director a range of government, advisory, association and not-for-profit on 1 September 2012. committees. She is a member of the Audit Committee, the Nomination & Governance Committee and the Remuneration & HR Committee.

Anthony (Tony) Clarke BComm, FCPA Independent Non-executive Director Appointed a director in June 2011. Tony has a strong financial background having held senior finance positions in the paper, packaging, automotive and property trust industries. Executive positions include Chief Financial Officer Amcor Europe and Finance Director Pacifica Ltd. More recently Tony has worked in a financial turnaround role for Centro Properties as their Chief Financial Officer and Chief Executive of the Australian operations. He is the Chairman of the Audit Committee and

a member of the Nomination & Governance Committee. For personal use only use personal For

10 Senior management

Dave Allen Marcus Gillioen Interim Chief Executive Officer and Executive Vice President, Continental Europe Executive Vice President, Canada, Ireland & UK Marcus was appointed Executive Vice President Continental Dave was appointed Interim Chief Executive effective Europe on 1 July 2012. He was appointed Executive Vice 1 August 2012. He was appointed Executive Vice President President, Europe Region 1, in February 2011, having held Canada, Ireland and UK on 1 July 2012. He was Executive Vice responsibility for this region since 2009. With broad international President Europe Region 2 since February 2011, having held business experience, he has held various senior positions responsibility for this region since July 2008. Prior to this role, in the paper merchanting industry. he was Managing Director of Robert Horne Group in the UK. Dave has broad experience in corporate and product strategy, Andy Preece sales and marketing and general management in a range of Executive General Manager, Australia, New Zealand & Asia sectors, including abrasives, industrial diamonds and automotive. Andy was appointed Executive General Manager, Australia, New Zealand and Asia in July 2012. Previously, he was Richard Barfield appointed Group General Manager Australia in 2011, and Group Chief Financial Officer prior to that was General Manager, Spicers New Zealand Richard was appointed Group Chief Financial Officer of from 2007. He originally joined the Company in 2001 as the PaperlinX Limited on 1 June 2012. Previously, he was Chief New Zealand Manager for Australian Paper before joining Financial Officer of Bezier Group, where he completed the Spicers New Zealand as the National Operations Manager. turnaround and sale of the Group. Richard was previously His market experience spans some 20 years, originating Chief Financial Officer Northgate Plc and Chief Executive in the UK carton industry. Officer of Spring Plc, and his earlier career involved roles at KPMG, SmithKline Beecham and Bell South. Richard is a Fellow of the Institute of Chartered Accountants.

Toby Marchant Toby ceased employment as Managing Director and Chief Executive Officer effective 31 July 2012. Tony Kennedy

Tony retired as Chief Financial Officer effective 30 June 2012. For personal use only use personal For

11 Directors’ report

The Directors of PaperlinX Limited present their Report Dividends for the year ended 30 June 2012. The Company did not pay any dividends on its ordinary shares during the financial year. Directors The names of the Directors of PaperlinX Limited Environmental regulation (‘the Company’) in office at any time during or since PaperlinX’s most significant environmental activity relates the end of the financial year are: to the decommissioning of its previous manufacturing Current Directors: sites in Tasmania to a standard required by the Tasmanian H Boon (Chairman and Independent Non-executive Director) Environmental Protection Authority (‘EPA’). M L Cattermole, AM (Independent Non-executive Director) The demolition and remediation of the Wesley Vale A J Clarke (Independent Non-executive Director) Cell plant was completed to the satisfaction of the EPA. M J McConnell first appointed on 1 August 2011 Accordingly, the Environmental Protection Notice for the (Independent Non-executive Director) site was lifted in August 2011. Past Directors: With the exception of the Cell plant area, the remediation of the Burnie site was completed to the satisfaction of the D E Meiklejohn, AM retired on 31 August 2011 EPA. Accordingly, the Environmental Protection Notice for J W Hall retired on 30 September 2011 the site except the Cell Plant was lifted in November 2011. L J Yelland retired on 21 October 2011 Remediation work at the Cell Plant is expected to be T R Marchant resigned on 31 July 2012 completed in August 2012. Details of the qualifications, experience and special responsibilities of each of the Directors are set out Matters subsequent to the reporting date on page 10 of this Annual Report. Subsequent to 30 June 2012, except for matters disclosed in Note 41 of the consolidated financial statements, no In addition, Andrew Price will join the PaperlinX Board as matter or circumstance of a material and unusual nature a Non-executive Director on 1 September 2012. This was has arisen (other than those occurring as a result of the announced to the ASX on 1 August 2012. normal volatility of business) that has significantly affected or may significantly affect: Principal activities and significant changes The principal activities of the Company and its subsidiaries (a) PaperlinX operations in future financial years; or (‘PaperlinX’) during the financial period were to distribute (b) the results of those operations in future financial fine paper and sign and display, graphics and industrial years; or packaging materials to a wide range of customers in (c) PaperlinX state of affairs in future financial years. Europe, UK, North America, Australia, New Zealand and Asia. There were no significant changes in the nature Indemnities and insurance of the principal activities of PaperlinX during the financial period as the sale of the US and Italian operations were Under its Constitution, the Company indemnifies each completed at year end. Officer (including Directors) of the Company or subsidiary, to the relevant extent (as permitted by law) against any Review and results of operations and overall state liability incurred by the Officer in or arising out of the of affairs conduct of the business of the Company or its subsidiary or arising out of the discharge of their duties as an Officer. A review of the operations of PaperlinX during the financial year, the results of those operations and overall The Company has an agreement with each of the state of affairs of PaperlinX are contained in pages 6–7 Directors of the Company at the date of this Report, of this Annual Report. and certain present and former Officers of the Company, indemnifying those Officers against liabilities to any person Future developments/outlook other than the Company or a related body corporate that Certain likely developments in the operations of PaperlinX may arise from their acting as Officers of the Company known at the date of this Report have been covered notwithstanding that they may have ceased to hold office, on pages 4–5, and generally within this Annual Report. except where the liability arises out of conduct involving a lack of good faith or unlawful activity. In the opinion of the Directors, any further disclosure of information would be likely to result in unreasonable The Company has in place Directors’ and Officers’ liability prejudiceonly use personal For to PaperlinX. insurance. The premium paid for this cover insurance is determined by the insurance market and is considered reasonable given the circumstances of the Company. Details of the nature of the liabilities covered or the amount of the premium paid in respect of the Directors’ and Officers’ Insurance are not disclosed because such disclosure is prohibited under the terms of the contracts.

12 Directors’ meetings The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each of the Directors of the Company during the financial year are detailed in the table below.

Nomination & Board Audit Governance Remuneration & of Directors Committee Committee HR Committee Directors A B A B A B A B H Boon 18 18 6 6 2 2 2 2 T R Marchant (1) 17 16 M L Cattermole 18 18 6 5 2 2 2 1 A J Clarke 18 18 6 6 2 2 M J McConnell (2) 16 15 5 5 1 1 1 1 D E Meiklejohn (3) 4 3 3 3 2 2 1 1 J W Hall (4) 4 4 3 3 2 2 1 1 L J Yelland (5) 5 5 3 3 2 2 1 1 A – Number of meetings held during the time the Director held office or was a member of the relevant committee during the year. B – Number of meetings attended. (1) Resigned as a director on 31 July 2012 (2) First appointed on 1 August 2011 (3) Retired on 31 August 2011 (4) Retired on 30 September 2011 (5) Retired on 21 October 2011

Directors’ interests The relevant interests of each Director in the share capital of PaperlinX at the date of this report is set out below:

Fully paid ordinary shares H Boon 250,000 M L Cattermole 2,248,790 A J Clarke 250,000 M J McConnell 251,000 Mr T R Marchant’s shareholding as at 30 June 2012 was 1,024,902. His entitlements to 600,442 performance options and 543,568 performance rights

lapsed upon cessation of employment on 31 July 2012. For personal use only use personal For

13 Directors’ report continued

Company Secretary services of other accounting firms to perform a variety James Orr, LLB, BComm Company Secretary of PaperlinX of non-audit assignments. Limited left the Company on 30 June 2012. Rounding Michelle Wong, Dip. Applied Corporate Governance, The Company is of the kind referred to in the ASIC Class ICSA (UK), ACIS, joined PaperlinX Limited in March 2006 Order 98/100 dated 10 July 1998 (updated by CO 05/641 as Assistant Company Secretary and was appointed the effective 28 July 2005 and CO 06/51 effective 31 January Company Secretary effective 1 July 2012. She has more 2006) and, in accordance with that Class Order, amounts than 15 years’ experience in company secretarial and in the Financial Report and Directors’ Report have been governance functions. rounded off to the nearest hundred thousand dollars Wayne Johnston, B. Bus (Acc), ASCPA, joined PaperlinX unless otherwise stated. in 2009, and was appointed as an additional Company Secretary of PaperlinX Limited effective 1 July 2012. Remuneration Report He is Deputy Chief Financial Officer and Executive The Remuneration Report is set out on pages 15 to 27 General Manager Corporate Services. and forms part of the Directors’ Report.

Non-audit services Auditor’s Independence Declaration In addition to the statutory audit work during the year, The Auditor’s Independence Declaration is set out below the Company’s auditors, KPMG, have provided certain and forms part of the Directors’ Report. non-audit services, being taxation services totalling This report is made in accordance with a resolution $14,000 and other assurance services totalling $102,000. of the Directors. Details are provided in Note 38 of the consolidated Dated at Melbourne 31 August 2012 financial statements. PaperlinX has strict criteria relating to the engagement of the auditor for non-audit services. The Directors have reviewed the nature of non-audit services being provided, as well as their cost, and believe the provision of these services does not impair the integrity and objectivity of the auditors and is compatible with the general standard Harry Boon Anthony J Clarke of independence for auditors imposed by the Corporations Chairman Director Act. In the current year, PaperlinX has also engaged the

LEAD AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 To: Directors of PaperlinX Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2012 there have 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.

KPMG For personal use only use personal For

KPMG, an Australian partnership and a member firm of the KPMG Paul J McDonald network of independent member firms affiliated with KPMG Partner International Cooperative (“KPMG International”), a Swiss entity.

Melbourne Liability limited by a scheme approved under Professional 22 August 2012 Standards Legislation.

14 Remuneration report

1. Introduction and executive summary Long-term incentive outcome for FY2012 This Remuneration Report has been prepared for shareholders No new grants were made under the LTI plan during FY2012. by Directors to explain the philosophy, policies and processes Equity grants made under historical LTI plans were measured underlying the determination of remuneration arrangements in FY2012: specifically, targets for relative total shareholder for Key Management Personnel (KMP). KMP are defined return (TSR) and earnings per share (EPS) growth under the under Accounting Standard AASB 124 as ‘those persons long-term incentive plan grants made in 2007, 2008 and 2009. having authority and responsibility for planning, directing The required performance was not achieved and no and controlling the activities of the entity, directly or indirectly, performance rights or performance options have vested including any director (whether executive or otherwise) of that under these plans. Further, in accordance with the plan rules: entity’. KMP, excluding Non-executive Directors, are referred (a) rights and options granted under the 2007 plan have lapsed to throughout this report as senior executives. and the plan has now terminated; and (b) a portion of the This Remuneration Report has been adopted by the Board rights and options granted under the 2008 and 2009 plans on 22 August 2012 and it forms part of the Directors’ Report have lapsed (refer section 3.2.1). Performance in relation to for the year ended 30 June 2012. the remaining portion of rights and options under both the 2008 and 2009 plans will be re-tested in December 2012, The roles of the Nomination & Governance Committee but it is unlikely any targets will be met. and the Remuneration & HR Committee in relation to Board and executive remuneration are explained in the Corporate Share rights granted under the 2009 Senior Management Governance section on page 28. Share Rights Plan and qualifying performance rights granted under the 2008 Short-term Incentive (Deferred Equity) Plan vested and were exercised during the year. Key elements of remuneration structure for FY2012 The following summarises the three key elements of the Key Management Personnel during FY2012 remuneration structure for senior executives: The senior executives disclosed in this Report are listed • Total Fixed Remuneration (TFR) includes fixed remuneration in the table below. costs such as base salary, motor vehicle, health insurance and mandatory superannuation/pension plan. Table 1: Disclosed senior executives The majority of executives of the PaperlinX Group voluntarily Name Position agreed to temporary salary reductions of between 7.5 per cent T R Marchant Managing Director and Chief Executive Officer and 10 per cent during the year. D S Allen Executive Vice-President Europe Region 2 • The short-term incentive (STI) plan focused on three R T Barfield Chief Financial Officer (from 1 June 2012) key financial performance metrics: profitability, average C B Creighton President, PaperlinX North America & Australia, New Zealand and Asia working capital and expenses. In certain individual cases, M Gillioen Executive Vice-President Europe Region 1 strategic metrics were incorporated. The maximum payment opportunity under the STI for the Chief Executive Officer A J Kennedy Chief Financial Officer (to 30 June 2012) and senior executives remained at 100 per cent of TFR. KMP changes during FY2012 • No new grants were made under the long-term incentive During the year, Mr D E Meiklejohn retired as Chairman (LTI) plan during FY2012. of PaperlinX Limited, and Mr J W Hall and Mr L J Yelland Non-executive Director fees were reduced by approximately retired as Non-executive Directors. 13 per cent, effective from 1 April 2012. (Refer to section Mr H Boon was appointed as Chairman on 1 September 2011. 5.2 for details.) Mr M McConnell was first appointed as a Non-executive Short-term incentive outcome for FY2012 Director on 1 August 2011 and for the purposes of the Under the STI plan, targets for profitability, expenses as Corporations Act 2001 and the Company, has served as a percentage of revenue and average working capital were a Director since that date. Mr McConnell was appointed achieved in a small number of instances. However, in light of Chair of the Remuneration & HR Committee on 10 April 2012. the overall trading result for the Company, the Remuneration Mr A J Kennedy resigned as Chief Financial Officer and & HR Committee and Board determined that no payments ceased to be a KMP on 30 June 2012. would be made to continuing employees under the STI for Mr R T Barfield joined the Company as Chief Financial FY2012. (Refer to section 3.1.1 for details.) Officer on 1 June 2012 and is included in the Remuneration

Report for the first time. For personal use only use personal For

15 Directors’ report continued

Subsequent to 30 June 2012, the following additional 2.3 Evaluating the performance of senior executives KMP changes have occurred: PaperlinX has formal structures for evaluating the • Mr C B Creighton and Mr A J Kennedy separated performance of its senior executives. employment from PaperlinX on 2 July 2012 as part of the The first of these relates to a performance appraisal, sale of Spicers US to Central National – Gottesman Inc. coaching and development process under which the • Mr T R Marchant stepped down as Chief Executive executive and the CEO conduct a joint review, on an Officer as from 31 July 2012. Further details regarding annual basis, of: his separation arrangements are included in section 1. the executive’s progress towards achievement of goals 2.5 of this Report. agreed for the previous 12 months, and agreement on the setting of goals to be achieved during the following 2. Executive remuneration 12 months; 2.1 Remuneration philosophy, policy and principles 2. the extent to which the executive demonstrates specific The policy of the Company is to design its remuneration leadership/management competencies; and practices so that they are sufficiently competitive to attract and retain the quality of staff that it seeks, while 3. personal and career development actions completed at the same time aligning executive remuneration by the executive during the prior period and planned with shareholder interests. Rewards are linked to the for the following 12 months which could enhance achievement of financial targets, as well as business their opportunity for progression to more senior roles strategies and goals, which the Board believes correlates within the Company in accordance with succession to long-term shareholder value creation. planning initiatives. The key principles upon which this remuneration policy The second process is to set specific financial, strategic, is based include: business, safety and/or personal targets which form the elements of the executives’ short-term incentive plans. • All elements of remuneration will be set at appropriate levels in relation to market practice for comparable roles. Higher level targets, including those for long-term incentive plans (if applicable) and key financial objectives, are • A significant component of senior executive remuneration common to all participants, whilst personal and business- should be ‘at risk’. specific targets are agreed between the CEO and each • Payment of incentive-based rewards will be dependent executive. All targets for the CEO’s direct reports are ratified upon achieving specific definable, controllable and by the Board before implementation. measureable performance hurdles. An evaluation of the performance of senior executives takes • Reward outcomes will be determined having place at the end of the financial year in accordance with regard to the performance of both the Company the processes outlined above. For the CEO’s direct reports, and individual executives. proposed payments for achievement of targets under incentive plans are reviewed and ratified by the Board. 2.2 Setting executive remuneration Whilst targets were set and performance against these For FY2012, the Board aimed to position executive TFR targets has been measured during the year under review, at the median of the relevant market, and to provide the formal annual reviews between the CEO and direct above-median total remuneration when including ‘at risk’ reports did not all happen due to recent management (or variable) remuneration. and organisational changes. The TFR for the Chief Executive Officer (CEO) is reviewed 2.4 Executive remuneration mix FY2012 annually by the Nomination & Governance Committee. The TFR for direct reports to the CEO is reviewed annually Remuneration for PaperlinX’s senior executives during by the Remuneration & HR Committee on the basis FY2012 consisted of two main elements: of recommendations from the CEO and, as required 1. Total Fixed Remuneration (TFR) which included fixed or appropriate, remuneration information provided by remuneration costs such as base salary, motor an independent consultant for similar roles in relevant vehicle, health insurance and mandatory superannuation/ local and international businesses. pension plan. Further information on the variable remuneration plans 2. Variable or ‘At-Risk’ Pay which comprised the short-term for FY2012 is provided in section 3 of this Report. incentive (STI) plan.

For personal use only use personal For No grants were made under PaperlinX’s long-term incentive (LTI) plan during 2012. The mix between fixed and variable pay for senior executives based on maximum potential reward is shown in Table 2.

16 Table 2: Fixed and variable remuneration as a percentage • the sum of £21,648 in lieu of accrued but untaken of maximum potential reward annual leave; and

Fixed remuneration Maximum variable – STI • continuation of his membership of the Company private medical plan until 31 December 2012 and life assurance

T R Marchant 50% 50% cover until 30 September 2012.

D S Allen 50% 50% In entering into the compromise agreement, Mr Marchant relinquished certain entitlements under UK law and under R T Barfield 40% 60% the Company equity incentive plan. C B Creighton 50% 50% 3. Description of link between remuneration M Gillioen 50% 50% and performance for FY2012 A J Kennedy 50% 50% Consequences of performance on shareholder wealth 0% 20% 40% 60% 80% 100% The consequences of the Company’s performance for Percentage of maximum potential reward shareholder wealth are demonstrated by the following indices in respect of the current financial year and the 2.5 Managing Director’s remuneration previous four financial years. 2012 2011 2010 2009 2008 The remuneration for the Managing Director and Chief Executive Officer (CEO), Mr T R Marchant, was reviewed Profit/(loss) attributable to and increased by 3 per cent as from October 2011, owners of the Company ($M) (266.7) (108.0) (225.3) (798.2) 72.2 in accordance with his contract. Mr Marchant subsequently Dividends per ordinary agreed to a temporary voluntary salary reduction of share (cents) – – – 3.5 6.5 15 per cent on 1 April 2012 and, reflecting this temporary Change in share price (%) (64.4) (74.2) 45.9 (73.0) (53.9) adjustment, his annual base salary as at 30 June 2012 was Return on average £363,545 (with his contractual base salary remaining fixed). funds employed (%) (25.5) (8.3) (12.9) (26.3) 5.7 The FY2012 STI opportunity for the CEO was 30 per cent Profit is one of the key financial performance targets used of TFR at minimum payment level and 100 per cent of TFR in the STI plan and carries the most significant individual at maximum (stretch) performance. weighting in determining payments to senior executives. The structure of the CEO’s remuneration package is consistent PaperlinX’s profitability has suffered significantly in recent with the principles and structure of remuneration for years as a result of the global financial crisis (followed other senior executives. Details of the CEO’s remuneration closely by the Eurozone crisis), the structural decline in the are provided in Table 11 of this Report. Table 9 provides paper industry due to the increased use of electronic media details of the CEO’s service agreement provisions. in business communication, and the general economic Subsequent to the balance date of 30 June 2012, malaise affecting most countries globally. Mr Marchant reached agreement with the Board to step The Company has taken measures described in other down as CEO and entered into a compromise agreement sections in this Remuneration Report to reduce costs with the Company relating to his separation of employment in line with the adverse market conditions. from PaperlinX. The terms of that agreement included: • twelve months payment of his TFR as payment in lieu of his contractual notice period, in compliance with the termination benefits cap under the Corporations Act 2001; • the sum of £26,000 in satisfaction of his accrued entitlement to an award under the STI Plan for the

completion of certain asset sales during 2011/12; For personal use only use personal For

17 Directors’ report continued

3.1 Short-term incentive plan The performance targets focused on profitability, working capital and expenses. In certain individual cases, strategic metrics were incorporated. These factors, taken as a whole, were identified as key drivers to achieving budgets, improving performance and enhancing shareholder returns. The STI plan for senior executives for FY2012 comprised only a cash component. Full details are included in Table 3 below. Table 3: Key features of the FY2012 STI plan Purpose of the STI plan • Focus performance on achieving profitability and other key financial measures • Link part of executives’ remuneration with the Company’s annual performance Remuneration base for payment of STI Total fixed remuneration (for senior executives) Percentage of STI that can be earned: min/max 30%/100% – for achievement of stretch performance Performance period 12 months Performance assessed August 2012 following release of audited accounts Payment made August 2012 Performance requirements Group Office roles – PAT, average working capital, expenses as a percentage of sales, strategic accountabilities Regional roles – EBIT, average working capital to sales, expenses as a percentage of sales New executives New executives are eligible to participate in the STI plan in the year in which they commence with a pro rata entitlement Terminating executives There is no STI entitlement where an executive’s employment terminates prior to the end of the financial year Board discretion The Board has the right to vary these conditions to resolve anomalies or in other exceptional circumstances

The newly appointed Chief Financial Officer, Mr R T Barfield, has a short-term incentive arrangement which provides for a maximum earnings opportunity of 150 per cent of TFR with reward provided equally in both cash and equity. Any equity award will be held as restricted shares for two years.

3.1.1 Short-term incentive for FY2012 Targets for profitability, expenses as a percentage of revenue and average working capital were achieved in only a small number of instances. However, in light of the overall trading result for the Company, the Board, on the recommendation of the Remuneration & HR Committee, exercised its discretion by determining that payments would not be made to continuing STI participants in relation to the FY2012 STI. 3.1.2 Short-term incentive for FY2012 – deferred equity component The operation of the equity component of the STI was suspended for FY2012. Table 4 sets out details of the maximum potential entitlement, actual entitlements earned and entitlements forfeited for the CEO and other senior executives under the deferred equity plans for prior years, subject to performance achievement and

service period requirements. For personal use only use personal For

18 Table 4: Short-term equity plans A. Short-term Incentive Deferred Equity Plans

Qualifying Qualifying Performance Rights Performance Rights Qualifying for plan period for plan period Performance Rights 1/7/08 – 30/6/09 1/7/09 – 30/6/10 for plan period Vested and exercised Due to vest and 1/7/10 – 30/6/11 31/8/11 be exercised 31/8/12 Deferred to 30/6/13 Lapsed on Balance Lapsed on Balance Name Entitlement termination at 30/6/12 termination at 30/6/12 T R Marchant 112,602 48,560 134,738 (1) D S Allen 37,022 0 0 C B Creighton 105,866 107,120 0 116,997 0 A J Kennedy 28,073 0 90,901 0

(1) Granted to Mr Marchant when he was CEO, Europe. The grant date fair value of lapsed rights is: C B Creighton – $98,653; A J Kennedy – $35,451.

B. Share Rights Plans Granted subject to completion of a two-year service period. Share Rights Plan 2009 Share Rights Plan 2010 Vested and exercised Due to vest and be exercised 31/10/11 31/8/12 D S Allen 75,000 75,000 M Gillioen 75,000 75,000 A J Kennedy 75,000 75,000 lapsed on termination Note: Rights granted prior to these executives becoming Key Management Personnel. The grant date fair value of lapsed rights is: A J Kennedy – $45,225.

3.2 Long-term incentive plans The LTI plan has historically comprised performance rights and performance options. A small number of the most senior executives worldwide participated in the LTI plan which provided enhanced incentives for them to improve shareholder value over the long term. Eligibility has been by invitation of the Board and has been reviewed annually. Annual grants historically have been made and performance is measured over a three-year period. The plans only deliver rewards to executives if shareholders have also gained significantly through improvements in TSR and EPS. Under current circumstances, it is unlikely the historical LTI plans will deliver value to its participants during the relevant time periods for measurement. No new grants were made under these plans during FY2012 and none will be made in FY2013. Performance in relation to plans commenced in earlier years continues to be measured. Performance measures were not

achieved for the 2007 plan and all rights and options granted under this plan have now lapsed and the plan has terminated. For personal use only use personal For

19 Directors’ report continued

Table 5 provides a summary of the key features of the Plan when grants were last made. Table 5: Key features of LTI plan Structure Performance rights – provide the right to potentially acquire fully paid ordinary shares in PaperlinX of LTI grant Limited at nil cost to participants when performance conditions are met. Performance options – provide the opportunity to purchase PaperlinX shares at a predetermined exercise price when performance conditions are met. No amount is payable on the grant of the performance rights or options. LTI quantum Performance rights 20% of salary Performance options 10% of salary Exercise price The volume weighted average price of PaperlinX ordinary shares on the ASX over the 30-day period prior (performance options) to 30 June at the commencement of the relevant performance period. Performance Relative total shareholder return (TSR) and earnings per share (EPS) growth. Each measure applies conditions(1) to 50% of the grant to each executive. Service condition Executives must be employed for the whole of the three-year measurement period and continue to be employed at the measurement date. Vesting TSR vesting TSR growth One-half the number of rights/options Target is the growth in PPX (percentage growth in PPX TSR measured relative to the TSR relative to growth in TSR of all stocks included in Comparator TSRs) the S&P/ASX 200 for the whole 1. At 80th percentile or above 100% of the measurement period 2. Between the 50th Pro rata between (Comparators(2)). and 80th percentiles 50% and 100% 3. At 50th percentile 50% 4. Below 50th percentile Nil EPS vesting(3) EPS growth One-half the number of rights/options Target of 15% compound 1. Target (or above) 100% growth per year over 3 years. 2. More than 10% Pro rata between but less than 15% 50% and 100% 3. 10% compound per year 50% 4. Below 10% Nil Measurement period Three years Further measurement periods Testing periods Percentage of grant (in relation to TSR performance 3.5 years 100% of proportion condition only). measured against TSR No further measurement 4 years and 4.5 years 50% of proportion occurs once a positive vesting measured against TSR is achieved. Termination provisions If an executive ceases to be employed by the PaperlinX Group before the measurement date then rights/options automatically lapse. Source of securities PaperlinX reserves the right to determine the most appropriate source of securities at the time of vesting. This may be via purchase on-market or newly issued securities. Accounting expense The fair value is expensed on a straight-line basis over the vesting period, being the period during which the securities are subject to performance and service conditions. The fair value is determined as at the grant date, using appropriate valuation models. Board discretion The Board has discretion to allow some or all performance rights/options to vest in the event of a takeover bid or scheme of arrangement in relation to PaperlinX. The Board has a broad discretion to resolve anomalies and other aspects of the Plan and its operation. (1) Performance conditions as approved by shareholders at the Company’s Annual General Meeting in October 2004 for the Chief Executive Officer. (2) Both PPX’s and the Comparators’ TSRs are based on ASX share price movements plus dividends paid on the shares (on a pre-tax basis) notionally For personal use only use personal For reinvested to purchase additional shares at the market price prevailing on the date the shares begin trading ‘ex’ the relevant dividend. (3) EPS hurdles strengthened in July 2009.

20 3.2.1 Long-term rights and options plans – details of grants made Details of grants of performance rights and performance options that can be earned by senior executives under the LTI plans, subject to the achievement of the TSR and EPS performance criteria, are set out in Table 6. Although the table below details the potential entitlement for senior executives, no vesting under the LTI plan has occurred over the past five years and Mr Marchant and other senior executives have received no benefit from the plans.

Table 6: Long-term incentive plans – maximum potential entitlement (Rights and options will only vest to executives to the extent performance is achieved.) Performance rights Senior For period For period For period For period Executives 1/7/07 – 30/6/10 (1) 1/7/08 – 30/6/11 (3) 1/7/09 – 30/6/12 (5) 1/7/10 – 30/6/13 (7) Potential Potential subject subject to further to further Lapsed Lapsed measurement Lapsed measurement Lapsed Potential T R Marchant 7,689 20,055 6,685 117,055 117,055 0 236,530 D S Allen 2,662 11,568 3,857 0 0 0 0 C B Creighton 8,707 26,075 0 247,600 0 190,310 0 A J Kennedy 2,938 8,065 0 0 0 169,550 0

Performance options Senior For period For period For period For period Executives 1/7/07 – 30/6/10 (2) 1/7/08 – 30/6/11 (4) 1/7/09 – 30/6/12 (6) 1/7/10 – 30/6/13 (8) Potential Potential subject subject to further to further Lapsed Lapsed measurement Lapsed measurement Lapsed Potential T R Marchant 5,127 33,423 11,142 195,090 195,090 0 394,210 D S Allen 3,549 19,282 6,428 0 0 0 0 C B Creighton 5,804 43,455 0 412,670 0 317,180 0 A J Kennedy 3,918 26,885 0 0 0 282,590 0

(1) Performance rights issued at an exercise price of $nil; allocation date 24/8/07. No entitlement has been earned under the plan and the rights have lapsed. The grant date fair value of lapsed rights is: T R Marchant – $16,454; D S Allen – $5,697; C B Creighton – $18,633; A J Kennedy – $6,287. (2) Performance options issued at an exercise price of $3.80; allocation date 24/8/07. No entitlement has been earned under the plan and the options have lapsed. The grant date fair value of lapsed options is: T R Marchant – $4,819; D S Allen – $3,336; C B Creighton – $5,456; A J Kennedy – $3,683. (3) Performance rights issued at an exercise price of $nil; allocation date 30/10/08. No entitlement has been earned based on performance for this period and a further portion of the entitlement has lapsed. The remaining portion, relating to the TSR performance hurdle, will be further measured at 31/12/12 in accordance with the Plan rules. The grant date fair value of lapsed rights is: T R Marchant – $21,058; D S Allen – $12,146; C B Creighton – $27,379; A J Kennedy – $8,468. (4) Performance options issued at an exercise price of $2.05; allocation date 30/10/08. No entitlement has been earned based on performance for this period and a further portion of the entitlement has lapsed. The remaining portion, relating to the TSR performance hurdle, will be further measured at 31/12/12 in accordance with the Plan rules. The grant date fair value of lapsed options is: T R Marchant – $16,043; D S Allen – $9,255; C B Creighton – $20,858; A J Kennedy – $12,905. (5) Performance rights issued at an exercise price of $nil; allocation date 11/12/09. No entitlement has been earned based on performance for this period and half the entitlement has lapsed. The remaining portion, relating to the TSR performance hurdle will be further measured at 31/12/12 in accordance with the Plan rules. The grant date fair value of lapsed rights is: T R Marchant – $60,752; C B Creighton – $116,620. (6) Performance options issued at an exercise price of $0.491; allocation date 11/12 /09. No entitlement has been earned based on performance for this period and half the entitlement has lapsed. The remaining portion, relating to the TSR performance hurdle, will be further measured at 31/12/12 in accordance with the Plan rules. The grant date fair value of lapsed rights is: T R Marchant – $61,648; C B Creighton – $123,388. (7) Performance rights issued at an exercise price of $nil; allocation date 19/10/10; exercisable subject to satisfaction of performance conditions, after measurement period ending 30/6/13. The grant date fair value of lapsed rights is: C B Creighton – $59,948; A J Kennedy – $53,408. (8) Performance options issued at an exercise price of $0.637; allocation date 19/10/10; exercisable subject to satisfaction of performance conditions, after measurement period ending 30/6/13; expiry date 7/8/17. The grant date fair value of lapsed options is: C B Creighton – $50,749; A J Kennedy – $45,214.

For personal use only use personal For Shaded figures indicate performance rights and options that were not earned and have lapsed as at 30 June 2012. Note that, subsequent to the end of the reporting period, all rights and options for Mr Marchant have lapsed following his termination of employment from PaperlinX.

21 Directors’ report continued

3.3 Options plans In addition to the above elements of the Company’s LTI plans, the Company has historically issued options to certain senior executives over a specified number of shares at fixed exercise prices as set out in Table 7. Except where indicated, options were issued subject to performance conditions. No new option grants were made in FY2012. Table 7: Options plans Exercise Date of When Senior executives Number price $ grant exercisable C B Creighton (3) 50,000 (1) $3.50 19/4/01 19/4/04 (2) 8,300 $4.12 13/9/01 13/9/04 (2) 8,000 $5.13 20/9/02 20/9/05 (2) (1) Grant made following merger of PaperlinX and Spicers Paper. (2) Options vested and became exercisable on the dates indicated. (3) All options lapsed on Mr Creighton’s separation of employment as part of the sale of Spicers US on 2 July 2012. Each option entitles the holder to purchase one fully paid ordinary share in the Company at the exercise price. Options cannot be exercised for three years from the date of being granted, except on termination of employment. Options do not entitle the holder to participate in any dividends or share issues of the Company. In the year ended 30 June 2012, options were exercisable by the senior executive referred to above; however, no options were exercised during or since the end of the financial year up to the date of this Report. The exercise price of the options was calculated based on an average price of PaperlinX shares in the relevant period prior to the options being granted. In all cases, the exercise price is in excess of the current share price. Options outstanding at 30 June 2012 have been independently valued, as at the grant date, in the range of $0.47 to $0.92. The total value of options outstanding at the date of this Report in relation to the senior executive specified above, based on those valuations, was $55,021. 3.4 Grant of share rights Mr R T Barfield, appointed as Chief Financial Officer on 1 June 2012, was granted 400,000 share rights on the basis that he purchase an equivalent number of shares in PaperlinX Limited. Mr Barfield purchased the required number of shares prior to commencing employment with PaperlinX. The granted share rights will vest to Mr Barfield on 1 August 2013 provided he is still employed with the PaperlinX Group at that time. 3.5 Prohibition on hedging of incentive remuneration PaperlinX’s policy is that where any executive or their closely related parties hedge or attempt to hedge the executive’s incentive remuneration, including performance rights or options, or the executive’s initial grant of options (whether rights and options are vested or unvested), the executive will forfeit those rights or options. This policy is included in the plan rules and in communication materials when making a new grant to executives. Shares are not transferred into the executive’s name until vested rights or options are exercised and therefore, until that time, the executive has no ownership of PaperlinX securities. Any attempt by an executive or their closely related parties to dispose of the rights or options has no legal basis and the transaction would not be recognised by PaperlinX. In such a case, the executive would forfeit their rights or options, and those entitlements would automatically lapse. 3.6 Long-term incentive: performance – reward link Table 8 shows the performance of PaperlinX’s LTI plans over the past five years. The table shows that PaperlinX’s earnings per share growth performance and relative total shareholder return have not been sufficient to produce reward under the plan. No rights or options have vested to senior executives during the period covered by the table. Table 8: Relationship between performance and LTI vesting Value of equities vested or exercisable as a percentage of fixed remuneration in relation to only use personal For EPS growth TSR ranking EPS TSR Year (% of target) (percentile) performance performance 2011/12 <10%(1) <50th 0% 0% 2010/11 <10%(1) <50th 0% 0% 2009/10 <10%(1) <50th 0% 0% 2008/09 <50%(2) <50th 0% 0% 2007/08 <50%(2) <50th 0% 0% (1) Target = 15% compound growth per year over 3-year measurement period. (2) Target = increase in Consumer Price Index over 3-year measurement period plus 5%.

22 All plans covered in this table are the same in design and have the same performance conditions as the plan approved for the Managing Director by shareholders at the 2004 Annual General Meeting and, as subsequently amended, at the 2009 Annual General Meeting.

4. Senior executive service agreement provisions PaperlinX has entered into service agreements with its senior executives, none of which are for fixed terms. Details of the periods of notice required to terminate the contract and the termination payments provided under each contract are outlined in Table 9. Actual payments may also depend on local legal requirements. Payment in lieu of notice is calculated using the senior executive’s TFR. In addition to the specified termination payments, on termination all senior executives are entitled to receive their statutory entitlements of accrued leave, together with any superannuation or pension plan benefits. The Company may terminate the employment of any of the senior executives summarily without notice or payment in lieu if the senior executive is found guilty of serious misconduct, becomes of unsound mind, becomes insolvent or is declared bankrupt. Table 9: Service agreement provisions Senior executive Company notice/payment period Executive notice T R Marchant 12 months 6 months D S Allen 12 months 6 months R T Barfield 12 months 6 months C B Creighton (1) 18 months if years of service between 30 and 35 3 months 24 months if years of service 35+ M Gillioen 12 months 6 months A J Kennedy 12 months 6 months (1) Mr Creighton separated employment from PaperlinX as part of the sale of Spicers US on 2 July 2012.

5. Non-executive Director remuneration 5.1 Policy on Non-executive Director remuneration The remuneration of individual Non-executive Directors is approved by the Board as a whole on the recommendation of the Nomination & Governance Committee, and having regard to the principles that the remuneration should: • be competitive with other listed Australian companies to attract and retain suitably qualified and experienced Non-executive Directors; • reflect the complexity of the PaperlinX Group arising from its business and geographic diversity; and • provide additional remuneration for the responsibilities of specific Non-executive Directors in chairing the Board and its committees. Non-executive Directors do not receive any performance-based remuneration. 5.2 Non-executive Director Fees Non-executive Director fees were reduced by approximately 13 per cent with effect from 1 April 2012 – the second reduction in fees since 1 December 2010. The current aggregate fees are within the maximum sums previously approved by shareholders. The schedule of annual fee rates, excluding the Superannuation Guarantee contribution, for the Board and Chairs of Board Committees is set out in Table 10. Table 10: Fees for Board and Chairs of Board Committees Board position Annual fee Chairman $240,000 (down from $275,000) Non-executive Director (base fee) $100,000 (down from $115,000) Chair of Board Committee Additional annual fee Audit Committee $15,000 (no change)

Remuneration & HR Committee $15,000 (no change) For personal use only use personal For 6. Engagement of remuneration consultants The Board and management have engaged Ernst & Young as an adviser to assist with a range of matters during FY2012. During FY2012 no remuneration recommendations, as defined by the Corporations Act 2001, were provided by Ernst & Young.

23 Directors’ report continued

7. Directors’ and senior executives’ remuneration – FY2012 Details of the nature and amount of each element of the remuneration of each Director and each senior executive of the Company are set out in Tables 11 and 12. Table 11: Directors’ remuneration

Short-term benefits

Discretionary Salary Short-term Non-cash share Other and fees incentives benefits purchase income Directors $ $ $ $ $ H Boon, Chairman (3) 2012 241,250 5,937 2011 129,167 T R Marchant, Managing Director and Chief Executive Officer (4)(5) 2012 639,368 40,778 24,162 2011 610,671 182,713 24,793 M L Cattermole, Non-executive Director 2012 111,250 2011 61,250 (6) A J Clarke, Non-executive Director 2012 239,190 (7) 2011 7,405 (8) M McConnell, Non-executive Director (9) 2012 105,059 Total 2012 1,336,117 40,778 24,162 0 5,937 2011 808,493 182,713 24,793 0 0 Former Directors D E Meiklejohn, Chairman (10) 2012 45,833 2011 297,917 J W Hall, Non-executive Director (11) 2012 32,500 2011 134,167 L J Yelland, Non-executive Director (12) 2012 28,238 2011 132,083

(1) Retirement scheme terminated and accumulated retirement entitlements at 31/12/06 frozen and held in individual accounts for Directors until retirement. Annual adjustments were made in accordance with the 5 Year Australian Government Bond rate. Accumulated retiring allowances, excluding superannuation, paid at retirement date: D E Meiklejohn – $1,043,097; L J Yelland – $359,525. (2) The value of equity plans included as remuneration in the table represents the aggregate of amounts determined for both market based and non-market based performance hurdles: • Market based – represents the number of share rights and options granted to the Executive Director under the Company’s equity incentive plans at the grant date valuation; • Non-market based – represents the proportion of the value of the maximum potential number of share rights and options to which the Executive Director may become entitled under the Company’s equity incentive plans, which is calculated based on an estimate of the probability of the performance criteria being achieved.

only use personal For The value of options plans and rights plans is calculated using appropriate valuation models and allocated evenly over the vesting period of each plan. All amounts are calculated in accordance with AASB2 Share Based Payments. (3) Appointed as Chairman on 1 September 2011. (4) Mr Marchant is paid in GBP and this table is shown in A$. Yearly variations due to currency fluctuations will exist. (5) Ceased employment and resigned as a Director on 31 July 2012, and therefore any termination payments will be reflected in FY13 accounts.

24 Termination Post-employment benefits benefits Equity plans (2) Total Directors’ retiring Termination allowances. payment Annual adjustments including Proportion of Percentage of excluding annual and remuneration remuneration Superannuation superannuation. long service performance consisting of contribution Plan terminated (1) leave Rights Options Total related rights and options $ $ $ $ $ $ $ %

15,775 262,962 11,625 140,792

163,099 (22,135) (14,795) 830,477 3,848 (4.4) 173,623 254,287 83,517 1,329,604 520,517 25.4

10,012 121,262 5,513 66,763

45,144 284,334 666 8,071

9,455 114,514

243,485 0 0 (22,135) (14,795) 1,613,549 191,427 0 0 254,287 83,517 1,545,230

4,125 8,395 58,353 15,321 51,147 364,385

2,925 35,425 12,075 146,242

15,621 5,330 49,189 11,888 17,508 161,479

(6) Appointed as a Non-executive Director on 21 December 2010. (7) Received a special payment of $50,000 per month whilst located in the UK from April to June 2012 overseeing the European restructuring program and financing arrangements. (8) Appointed as a Non-executive Director on 8 June 2011. (9) Appointed as a Non-executive Director on 1 August 2011. (10) Retired as Chairman on 31 August 2011. (11) Retired as a Director on 30 September 2011.

(12) Retired as a Director on 21 October 2011. For personal use only use personal For

25 Directors’ report continued

Table 12: Senior executives’ remuneration

Short-term benefits Base remuneration (salary and Short-term Non-cash Other fees) incentives benefits income Company Executives (excluding Directors) $ $ $ $ Existing D S Allen, Executive Vice-President Europe Region 2 2012 374,864 0 1,492 23,526 2011 157,062 (3) 34,057 623 10,434 R T Barfield, Chief Financial Officer (4) 2012 42,476 0 3,022 0 C B Creighton, President North America and ANZA (5) 2012 642,483 0 31,698 0 2011 519,852 150,614 24,969 0 M Gillioen, Executive Vice-President Europe Region 1 2012 427,375 0 292 25,481 2011 209,133 (3) 0 147 12,777 A J Kennedy, Chief Financial Officer (5) 2012 539,836 0 49,163 0 2011 399,035 (6) 125,304 32,847 0 Total 2012 2,027,034 0 85,667 49,007 2011 1,285,082 309,975 58,586 23,211

(1) The value of equity plans included as remuneration in the table represents the aggregate of amounts determined for both market based and non-market based performance hurdles: • Market based – represents the number of share rights and options granted to each executive under the Company’s equity incentive plans at the grant date valuation; • Non-market based – represents the proportion of the value of the maximum potential number of share rights and options to which each executive may become entitled under the Company’s equity incentive plans, which is calculated based on an estimate of the probability of the performance criteria being achieved. The value of options plans and rights plans is calculated using appropriate valuation models and allocated evenly over the vesting period of each plan. All amounts are calculated in accordance with AASB2 Share Based Payments. (2) Negative balance due to reversal of prior year’s allocation as a result of non-achievement of performance targets and service condition. (3) Classified as Key Management Personnel from 2 February 2011 and remuneration relates to the period 2 February 2011 to 30 June 2011 only. (4) Appointed as Chief Financial Officer on 1 June 2012 and remuneration relates to the period 1 June 2012 to 30 June 2012 only. (5) Ceased employment with PaperlinX as part of the sale of Spicers US on 2 July 2012. (6) Appointed as Chief Financial Officer on 30 August 2010 and remuneration relates to the period 30 August 2010 to 30 June 2011 only. The senior executives included in this table are based in countries other than Australia and are not paid in Australian dollars. As this table is shown

in A$, yearly variations due to currency fluctuations will occur. For personal use only use personal For

26 Post-employment Termination benefits benefits Equity plans (1) Total Termination Proportion of Percentage of payment including remuneration remuneration Superannuation annual and long performance consisting of contribution service leave Rights Options Total related rights and options $ $ $ $ $ %

62,943 28,846 0 491,671 28,846 5.9 24,578 13,153 (8,338) (2) 231,569 38,872 2.1

6,562 724 0 52,784 724 1.4

130,972 (167,459) (2) (97,674) (2) 540,020 (265,133) (2) (49.1) 128,690 244,992 84,280 1,153,397 479,886 28.5

65,268 28,846 547,262 28,846 5.3 31,155 16,732 269,944 16,732 6.2

118,771 (64,461) (2) (17,421) (2) 625,888 (81,882) (2) (13.1) 99,089 77,307 7,459 741,041 210,070 11.4

384,516 0 (173,504) (115,095) 2,257,625 (288,599)

283,512 0 352,184 83,401 2,395,951 745,560 For personal use only use personal For

27 Corporate governance

PaperlinX supports and is committed to the principles of Matters that are reserved to the Board and are not within best practice in corporate governance, applied in a manner the authority delegated to the Managing Director include: that is appropriate to the Company’s particular circumstances. (a) appointment and remuneration of the Managing The Board has established a framework of processes and Director and general approval of policies relating guidelines for the governance of the Company that includes to any sub-delegation by him; policies and monitoring procedures, internal control systems, (b) all matters relating to the issue of securities a business risk management programme and standards for of the Company; ensuring lawful and ethical conduct with the aim of protecting and enhancing shareholder value. (c) adoption of annual business plans and budgets and approval of longer-term strategic plans for the Company The Board regularly reviews the content and application of the and all business units; governance framework, the composition and performance of the Board and the membership and operation of the (d) acquisition and disposal of major capital items; committees of the Board with a view to achieving the highest (e) major external borrowings and commitments as agreed standards of Board performance and corporate governance. with the Chief Financial Officer; PaperlinX considers that its corporate governance practices (f) major guarantees of third parties and subsidiaries; substantially follow the ASX Corporate Governance Council’s (g) approval of Directors’ Reports and financial statements Principles and Recommendations in all material respects for release to shareholders and the ASX; during the financial year ended 30 June 2012. (h) approval of the Annual Report and any other significant Principle 1: Lay Solid Foundation report or release to the ASX or shareholders. Any media for Management and Oversight releases that relate to price-sensitive information require approval by the Chairman who will liaise with the Board Role of the Board and management as necessary; Management and control of the business and affairs of (i) declaration of dividends; the Company is vested in the Board under the Company’s Constitution. In particular, the Board has the overall (j) approval of appointment of the Company Secretary and responsibility for the conduct and governance of the the most senior executives who report directly to the Company, including its strategic direction, the review of the Managing Director and approval of the terms of strategic plans established by the management team and appointment and remuneration of those executives; the monitoring of performance targets. Non-executive (k) approval, oversight and review of: Directors meet regularly without management present. • audit functions and their performance, including The Board does not itself manage the business of the the appointment of internal and external auditors; Company as it is delegated to the Managing Director • control and corporate governance functions and and the management team. It is the Managing Director’s their performance; and responsibility to manage the day-to-day operation of the business, subject to the oversight and supervision of the • human resources and remuneration policies Board. As at the date of the Annual Report, this responsibility and performance; is being carried out by the Interim Chief Executive Officer. (l) approval, oversight and review of the Company’s A search for a permanent Chief Executive Officer/Managing risk management framework, including: Director is underway. • environmental protection and sustainability policies Responsibilities of the Board and performance; and The Board, amongst other things: • workplace and public safety policies and performance; • reviews and approves management’s plans for (m) approving any major donations proposed by the conducting and developing the Company’s business; Managing Director. • approves any material changes to plans that have PaperlinX’s Guidelines for Board Operation and previously been approved by the Board; Membership (“Board Guidelines”) which contain the Board • places limits on the extent to which management can and Committee Charters along with other information about commit resources or dispose of assets or raise funds the Company’s corporate governance practices, are posted without specific approval; on the Company’s website at

•only use personal For reviews monthly reports from the Chief Financial Officer covering financial performance against budget and reasons if there are any material variations and trends; • regularly reviews reports from the Managing Director and other executives covering all material aspects of the Company’s business and operations, including key areas of risk and importance; and • monitors the performance of senior management.

28 Performance evaluation for Senior Executives Upon their appointment, each Director enters into a Deed Remuneration levels are set competitively to attract with the Company covering matters such as Directors’ rights and retain suitably qualified and experienced senior to access Board Papers and independent advice as well executives. The Remuneration & Human Resources as indemnity and insurance arrangements. A Letter of Committee also considers independent advice from Appointment is also provided, which assists Directors time to time on appropriate remuneration packages in understanding the Company’s expectations of them. and policies. To enable Directors to properly perform their duties, Directors PaperlinX has remuneration policies that link remuneration have the right to seek independent professional advice at paid to key executives to company performance. These the Company’s expense after consultation with the Chairman. policies are summarised in the Remuneration Report section of the Directors’ Report. The process for Board operation evaluating the performance of executives is described Other than the Managing Director, pursuant to Rule 65 of the in the Remuneration Report. Constitution, up to one-third of the Directors must retire from office at each Annual General Meeting but are eligible for Principle 2: Structure the Board to Add Value re-election. Non-executive Directors may only hold office up to a maximum term of 11 years. Directors’ appointment Board composition and independence and election/re-election dates are as follows: The Board includes Directors with a range of skills, experience and expertise to promote Board effectiveness. Last AGM The skills, qualifications and experience of the Directors of Date at which the Company in office at the date of this statement are set appointed elected/ out on page 10. Director to Board re-elected H Boon, The Company’s Constitution provides for a minimum Independent Non-executive of three Directors. During the financial year, the Board’s Director (Chairman) 05/05/2008 2011 succession programme continued with three Directors M L Cattermole AM, Independent leaving the Board and one new Director joining the Board. Non-executive Director 21/12/2010 2011 Toby Marchant, an Executive Director ceased employment A J Clarke, Independent and resigned as a Director of PaperlinX on 31 July 2012. Non-executive Director 8/06/2011 2011 Currently there are four Non-executive Directors. Andrew Price, a new Director will join the Board on 1 September 2012. M J McConnell, Independent Non-executive Director 1/08/2011 2011 The Board considers its size, mix of skills and gender diversity is appropriate given the scaled-down operations of PaperlinX. The Board conducts regular reviews of the internal guidelines Additional appointments may be made to facilitate Board relating to corporate governance, Board membership and succession or for other purposes. operation and committee structures. This process ensures All of the Non-executive Directors, including the high standards of governance and effectiveness Chairman, are independent (in accordance with the are maintained. definition in the ASX Corporate Governance Principles and Recommendations) and have no business or other Board Performance Review relationships that could compromise their independence. A review of the performance of the Board, its Committees The test of whether a relationship is material enough to and individual Directors took place during the reporting compromise the Director’s independence is based on the period according to the process as disclosed in the Board nature of the relationship and the circumstances of the Guidelines which can be found on the Company’s website Directors. Directors are required to inform the Chairman at and Board of any interests that could potentially conflict . with those of the Company. If a potential conflict of interest should arise, the Director concerned may be required Board Committees to leave the Board meeting while the matter is considered. To assist in the execution of its responsibilities, the Board The Board assesses the independence of Directors on has established the following committees: a regular basis and as changes in Directors’ interests occur. • Audit Between April to June 2012, Mr Clarke was based in the UK Corporate Office to provide advisory support to the CEO • Nomination & Governance

For personal use only use personal For and CFO in relation to the European restructuring programme, • Remuneration & Human Resources financing arrangements, the management of cash and All committees have written Charters, which are set working capital and the search for a successor to replace out in full in the Board Guidelines which is available the retiring CFO. The Board is of the view that Mr Clarke’s on the Company’s website at involvement had no material impact on his ability to exercise independent judgement.

29 Corporate governance continued

The Committees operate principally in a review or advisory Code of Conduct capacity, except where powers are expressly conferred on The Board recognises the need for the highest standards or delegated to a Committee by the Board. Each Committee of ethical conduct by all Directors and employees. The Board reports to the full Board following a Committee meeting. has adopted a code of ethics that sets out the fundamental Given the small number of Non-executive Directors during ethical values to guide, and be observed by, Directors in their the reporting period, the Board took on some of the participation as members of the Board and its committees. responsibilities which would have otherwise been delegated PaperlinX’s Code of Conduct encompasses its Values, Core to Committees. Accordingly, there were fewer meetings Operating Principles and company policies. The Code was of some Committees such as the Remuneration & HR developed so that the expected ethical standards, appropriate Committee and Nomination & Governance Committee, behaviours and accountabilities are understood by everyone than in previous periods. who works for PaperlinX businesses including employees Details of the number of Committee meetings and and contractors. the attendance record of members in the year ended PaperlinX’s Code of Conduct is posted on the Company’s 30 June 2012 are set out on page 13 of the Annual Report. website at . Nomination & Governance Committee The current members of the Nomination & Governance PaperlinX has a policy designed to prevent improper conduct Committee are all independent Non-executive Directors: and to encourage and protect persons who report suspected fraud or illegal activities. Information about the policy and • H Boon (Chairman) the ‘Speak Up’ reporting service (for reporting improper • M L Cattermole conduct) can be found on the Company’s website and has been communicated to employees throughout the Group. • A J Clarke • M J McConnell Principle 4: Safeguard Integrity The primary responsibilities of the Nomination & Governance in Financial Reporting Committee are to make recommendations to, and assist, Audit Committee the Board in connection with the appointment and The current members of the Audit Committee are all performance evaluation of Directors, corporate governance, independent Non-executive Directors: the appointment and remuneration arrangements of the Managing Director and related matters. • A J Clarke (Chairman) Where a vacancy exists or if the Board considers that it • H Boon would benefit from the services of an additional director, • M L Cattermole the Nomination & Governance Committee will determine and make recommendations to the Board to identify the • M J McConnell appropriate qualities, expertise, diversity, experience and The Audit Committee comprises members of diverse competencies required. The Board’s policy and procedures backgrounds who have industry and requisite financial on nomination, selection and appointment of new directors experience. Qualifications of the committee members is available in the Board Guidelines which is posted on the are set out on page 10 of this Annual Report. Company’s website at h The Managing Director, Chief Financial Officer, relevant senior . staff and the internal and external auditors are invited to Principle 3: Promote Ethical and Responsible Audit Committee meetings at the discretion of the Committee. On a regular basis, the Audit Committee meets with the Decision-making external auditor in the absence of management. Diversity The Audit Committee’s primary responsibilities are to make PaperlinX has established a single objective to increase recommendations to, and assist, the Board in relation to: the proportion of females in senior leadership roles to • financial reporting, including adequacy of disclosures 25 per cent by 30 June 2016. To work towards this objective, and application of accounting policies; focus areas will include identifying, developing and mentoring high-potential females as well as reviewing recruitment, • the external audit and internal audit function; personal development and employment practices. • tax compliance; As at 30 June 2012, there is one female Director representing For personal use only use personal For • monitoring the Company’s internal compliance and 20 per cent of the Board. 19 per cent of senior leadership control framework. This includes a comprehensive roles are performed by females. 28 per cent of all employees quarterly compliance reporting system, an operational are females. risk management programme and an internal audit The Company’s policy on diversity is available on the function; and Company’s website at • the insurance programme. .

30 The Audit Committee is responsible for the procedures for Principle 6: Respect the Rights of Shareholders appointing the external auditor and rotating external audit engagement partners. It is PaperlinX’s policy that the senior Rights of shareholders and communications audit partner be rotated every five years. PaperlinX is committed to promoting constructive and effective communication with its shareholders. The Audit Committee annually reviews the fee and independence of the external auditor, and obtains The Board aims to ensure that shareholders and the confirmation from the auditor that, in their professional investment market generally are informed in a timely judgment, they are independent. manner of all major developments affecting the Company’s business and affairs. As a matter of general policy, the auditor is not engaged for non-statutory audit services. In special circumstances the As part of the drive to reduce costs, PaperlinX no longer auditor may, however, provide non-audit services that do publishes a separate non-statutory Annual Review or not detract from the auditor’s independence. Various authority Sustainable Development Report. However, the Annual levels for non-audit work undertaken by the Company’s Report is available to all shareholders. The Annual Report auditor have been established by the Company’s Board can be accessed and downloaded from the PaperlinX depending upon the estimated cost of the non-audit work. website at . The performance of the Audit Committee was evaluated At the Annual General Meeting, the Chairman and during the year. The review process was coordinated by Managing Director address the meeting on the results the Audit Committee Chairman. for the financial year under report and other relevant issues, including developments during the period Safety & Environment Committee since the end of that financial year. Consistent with streamlining corporate activity, the Shareholders are encouraged to attend General Meetings responsibility of this Committee has been assumed where ample opportunity is given for questions and directly by the Board. The Committee ceased on 1 July 2011. answers. Questions can be lodged with the Company The Company remains committed to the highest standards via email to or by facsimile in safety and environment. Safety and environment matters to +61 3 9730 9741, in advance of the meeting. are dealt with at all Board and senior management meetings. The external auditor attends the Annual General Meeting and is available to answer shareholder questions about Principle 5: Make Timely and Balanced Disclosure the conduct of the audit and the preparation and content Disclosure Policy of the Auditor’s Report. Shareholders may also lodge their The Company has established policies and procedures questions to the auditor in advance of the meeting. designed to guide compliance with ASX Listing Rules The Company’s website is used to provide information disclosure requirements, and to ensure accountability generally on the Group and complement the official release at a senior management level for that compliance. of material information to the ASX. The Continuous Disclosure Policy sets out vetting and The Company’s annual and half-year result announcements authorisation processes designed to ensure any relevant together with all other relevant announcements made information requiring disclosure to the market: to the market are posted on the website as soon as • is made in a timely manner; practically possible. The website also contains other relevant material, including: • is factual; • the Chairman’s and Managing Director’s addresses • does not omit material information; and at the Annual General Meeting; • is expressed in a clear and objective manner. • materials as recommended in the ASX Corporate The Board and senior managers of PaperlinX are aware Governance Principles and Recommendations; of the need to advise the ASX of information that may • a dedicated Investor Relations section; and have a material effect on the price or value of PaperlinX Limited’s securities. • profiles of the Board and senior management. The Disclosure Committee comprises the Managing Director, PaperlinX’s communication policy is incorporated in its Chief Financial Officer and the Executive General Manager Continuous Disclosure and Investor Relations Policy which Corporate Services, and together they are responsible for is available on its website at reviewing all information of which it becomes aware for .

For personal use only use personal For the purposes of ASX Listing Rule 3.1. Releases which relate to price-sensitive information require the approval of the Other stakeholders Chairman and, where appropriate, review by the Nomination The Board and management recognise the legitimate & Governance Committee prior to being provided to the interests of all stakeholders in the Company, including Board for final approval. Disclosure issues are a standing shareholders, employees, suppliers, customers and the item at meetings of the Board of Directors. The Continuous wider community. PaperlinX is committed to policies and Disclosure and Investor Relations Policy is available on practices that are aimed at improving these relationships the Company’s website at through mutually beneficial outcomes. .

31 Corporate governance continued

Principle 7: Recognise and Manage Risk Principle 8: Remunerate Fairly and Responsibly Risk oversight and management Remuneration & Human Resources Committee PaperlinX has a risk oversight and management programme The current members of the Remuneration that involves an analysis of the material risks to the & Human Resources Committee are all independent business of PaperlinX worldwide and operates at various Non-executive Directors: levels underpinned by specific systems and procedures. • M McConnell (Chairman) As part of this programme, material risks are identified and assessed by key executives and management of PaperlinX, • H Boon as are procedures and other actions for managing and • L Cattermole mitigating them. The Remuneration & Human Resources Committee’s primary In addition to ongoing monitoring, the Board has formally responsibilities are to make recommendations to, and assist, reviewed the PaperlinX Group Business Risk Assessment the Board in relation to human resources, diversity and Programme together with reports from management on the remuneration policies and practices for PaperlinX. activities and results of the programme. The Committee’s role also includes responsibility for The Risk Oversight and Management Policy and procedures share option plans, incentive performance packages together with categories of risk are reviewed and monitored and succession planning, including reviewing recruitment, by the Board, and are updated as appropriate. A copy retention and termination policies. It is also responsible of the policy is available on the Company’s website. for establishing and reviewing the Diversity Policy and Monitoring of implementation and compliance with risk the measurable objectives set by the Board for achieving oversight and management policies is conducted through: gender diversity and it will assist the Board to assess PaperlinX’s progress towards achieving those objectives • regular internal management reporting; on an annual basis. • reporting at Board and committee meetings by relevant managers; Fees for Non-executive Directors • site visits by the Board and senior management; Non-executive Directors are paid fees which are not dependent on the Company’s performance. They are also • internal and external audits; and entitled to receive statutory superannuation contributions • training. from the Company. Directors are not entitled to receive The Interim Chief Executive Officer and the Chief Financial Retirement Benefits upon leaving office. Whilst Chairmen Officer have provided assurance to the Board that the of Board Committees receive a fee, committee members declaration given in accordance with section 295A of the do not receive any fees. Details of the Non-executive Corporations Act is founded on a sound system of risk Directors’ remuneration are in the Remuneration Report. management, internal compliance and internal control, which are operating effectively in all material respects Hedging of Incentive Remuneration Policy in relation to financial reporting risks. A summary of the Company’s policy on prohibiting hedging of incentive remuneration is disclosed in the Group Internal Audit Remuneration Report. The Group Internal Audit function provides further assurance in relation to PaperlinX’s internal controls, governance processes, risk management and integrity of financial reporting. Group Internal Audit has unrestricted access to review all aspects of the Company’s worldwide operations. Group Internal Audit uses a risk-based methodology, including the use of the organisation’s risk assessment programme, in planning the annual internal audit plan. Oversight of the Group Internal Audit function is performed by the Audit Committee, which receives regular reports from Group Internal Audit on its work and reviews in detail, the

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32 Full financial report of PaperlinX Limited

As at 30 June 2012 For personal use only use personal For

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FULL FINANCIAL REPORT OF PAPERLINX LIMITED

AS AT 30 JUNE 2012

Contents Page No Consolidated Income Statement 35 Consolidated Statement of Comprehensive Income 36 Consolidated Statement of Financial Position 37 Consolidated Statement of Changes in Equity 38 Consolidated Statement of Cash Flows 40 Notes to the Consolidated Financial Statements 41 Note 1. Reporting entity 41 Note 2. Basis of preparation 41 Note 3. Accounting policies 42 Note 4. Determination of fair values 48 Note 5. Operating segments 50 Note 6. Individually significant items 52 Note 7. Earnings per share 52 Note 8. Other income from continuing operations 53 Note 9. Net finance costs from continuing operations 53 Note 10. Income tax expense 53 Note 11. Discontinued operations 54 Note 12. Dividends and distributions 56 Note 13. Cash and cash equivalents 56 Note 14. Trade and other receivables 56 Note 15. Inventories 56 Note 16. Assets and liabilities held for sale 57 Note 17. Receivables - non-current 57 Note 18. Investments 57 Note 19. Property, plant and equipment 58 Note 20. Intangible assets and impairment of non-current assets 59 Note 21. Deferred tax balances 62 Note 22. Trade and other payables 62 Note 23. Loans and borrowings 63 Note 24. Employee benefits 64 Note 25. Provisions 65 Note 26. Payables - non-current 66 Note 27. Share capital 66 Note 28. Reserves 67 Note 29. PaperlinX Step-up Preference Securities 67 Note 30. Share-based payments arrangements 67 Note 31. Financial risk management and financial instrument disclosures 70 Note 32. Employee retirement benefit obligations 77 Note 33. Reconciliation of cash flows from operating activities 80 Note 34. Parent entity disclosures 81 Note 35. Capital expenditure commitments 81 Note 36. Lease commitments 82 Note 37. Contingent liabilities 82 Note 38. Auditors' remuneration 83 Note 39. Related parties 84 Note 40. Subsidiaries 88 Note 41. Events subsequent to balance date 91 Directors' Declaration 92 Independent Auditor's Report to the Members of PaperlinX Limited 93

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CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2012

2012 2011 Restated (1) Note $m $m

Continuing operations Revenue from sale of goods 3,243.2 3,671.8 Cost of inventory sold (2,619.8) (2,952.3) Gross profit 623.4 719.5 Other income 8 5.0 3.2 Personnel costs (339.9) (380.0) Logistics and distribution (172.1) (187.4) Sales and marketing (7.9) (8.2) Impairment of assets held for sale 16,20 (0.5) - Impairment of property, plant and equipment 20 (3.8) - Impairment of intangible assets 20 (105.1) (68.5) Other expenses (158.7) (163.1) Result from operating activities (159.6) (84.5) Net movement in fair value of currency option and loan 6 4.0 (20.8) Net finance costs 9 (20.0) (16.7) Loss before tax (175.6) (122.0) Tax (expense)/benefit 10 (11.8) 5.3 Loss from continuing operations (187.4) (116.7)

Discontinued operations (Loss)/profit from discontinued operations, net of tax 11 (79.3) 8.7

Loss for the period (266.7) (108.0)

Loss for the period attributable to: Equity holders of PaperlinX Limited (266.7) (108.0)

Basic earnings per share (cents) 7 (43.8) (21.4) Basic earnings per share from continuing operations (cents) 7 (30.8) (22.8) Diluted earnings per share (cents) 7 (43.8) (21.4) Diluted earnings per share from continuing operations (cents) 7 (30.8) (22.8) (1) Refer Note 11 – Discontinued operations.

Notes 1 to 41 form part of these financial statements and are to be read in conjunction therewith.

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2012

2012 2011 Note $m $m

Loss for the period (266.7) (108.0)

Other comprehensive income: Exchange differences on translation of overseas subsidiaries (20.0) (62.7) Reclassification of exchange differences on disposal of controlled entities to Income Statement 29.3 - Reclassification of exchange differences on liquidation of controlled entities to Income Statement 0.4 - Actuarial adjustments on defined benefit plans 32 (39.2) 4.1 Net change in fair value of cash flow hedges 1.1 (39.5) Net change in fair value of cash flow hedges reclassified to Income Statement (2.4) 40.4 Income tax benefit/(expense) on other comprehensive income 10 8.0 (2.4) Other comprehensive loss for the period, net of tax (22.8) (60.1) Total comprehensive loss for the period, net of tax (289.5) (168.1)

Total comprehensive loss for the period attributable to: Equity holders of PaperlinX Limited (289.5) (168.1)

Notes 1 to 41 form part of these financial statements and are to be read in conjunction therewith.

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2012

2012 2011 Note $m $m Current assets Cash and cash equivalents 13 80.0 125.3 Trade and other receivables 14 671.6 967.9 Income tax receivable 3.4 7.3 Inventories 15 305.5 439.4 Assets held for sale 16 43.4 0.5 Total current assets 1,103.9 1,540.4

Non-current assets Receivables 17 13.3 6.8 Investments 18 1.0 1.5 Property, plant and equipment 19 43.3 71.5 Intangible assets 20 96.6 257.3 Deferred tax assets 21 40.6 52.6 Total non-current assets 194.8 389.7 Total assets 1,298.7 1,930.1

Current liabilities Bank overdrafts - 9.8 Trade and other payables 22 441.7 731.9 Loans and borrowings 23 175.8 63.1 Income tax payable 2.7 1.9 Employee benefits 24 9.8 15.4 Provisions 25 30.0 23.5 Liabilities held for sale 16 14.8 - Total current liabilities 674.8 845.6

Non-current liabilities Payables 26 1.3 1.4 Loans and borrowings 23 52.0 224.2 Deferred tax liabilities 21 2.2 12.6 Employee benefits 24 109.1 95.0 Provisions 25 12.1 14.9 Total non-current liabilities 176.7 348.1 Total liabilities 851.5 1,193.7 Net assets 447.2 736.4

Equity Issued capital 27 1,893.5 1,890.7 Reserves 28 (149.4) (155.3) Accumulated losses (1,573.4) (1,275.5) Total equity attributable to holders of ordinary shares of PaperlinX Limited 170.7 459.9 PaperlinX step-up preference securities 29 276.5 276.5 Total equity 447.2 736.4

Notes 1 to 41 form part of these financial statements and are to be read in conjunction therewith.

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2012

Attributable to equity holders of PaperlinX Limited

Issued Issued capital Exchange fluctuation reserve Hedging reserve for Reserve own shares Employee plans share reserve Accumulated losses PaperlinX step-up preference securities $m Note Total equity

Balance at 1 July 2011 1,890.7 (162.3) 1.2 (1.0) 6.8 (1,275.5) 276.5 736.4 Total comprehensive loss for the period Loss for the period - - - - - (266.7) - (266.7) Other comprehensive income • Exchange differences on translation of overseas subsidiaries - (20.0) - - - - - (20.0) • Reclassification of exchange differences on disposal of controlled entities to Income Statement - 29.3 - - - - - 29.3 • Reclassification of exchange differences on liquidation of controlled entities to Income Statement - 0.4 - - - - - 0.4 • Net change in fair value of cash flow hedges - - 1.1 - - - - 1.1 •reclassified Net change to inIncome fair value Statement of cash flow hedges reclassified to Income Statement - - (2.4) - - - - (2.4) • Actuarial adjustments on defined benefit plans - - - - - (39.2) - (39.2) • Income tax benefit on other comprehensive income - - - - - 8.0 - 8.0 Total other comprehensive (loss)/income - 9.7 (1.3) - - (31.2) - (22.8) Total comprehensive (loss)/income for the period - 9.7 (1.3) - - (297.9) - (289.5) Transactions with owners recorded directly in equity • Employee share-based payment transactions 0.6 - - (0.6) (1.8) - - (1.8) • Write off on disposal of controlled entities - - - - (1.6) - - (1.6) • Issue of shares to employees 2.0 - - 1.5 - - - 3.5 • Employee loans forgiven - forfeited entitlements 27 0.2 ------0.2 Total transactions with owners 2.8 - - 0.9 (3.4) - - 0.3 Balance at 30 June 2012 1,893.5 (152.6) (0.1) (0.1) 3.4 (1,573.4) 276.5 447.2

Notes 1 to 41 form part of these financial statements and are to be read in conjunction therewith.

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONTINUED

FOR THE YEAR ENDED 30 JUNE 2012

Attributable to equity holders of PaperlinX Limited

capital Exchange fluctuation reserve Hedging reserve for Reserve own shares Employee plans share reserve Accumulated losses PaperlinX step-up preference securities Total equity $m Note Issued

Balance at 1 July 2010 1,894.9 (99.6) 0.3 (6.7) 6.5 (1,148.0) 276.5 923.9 Total comprehensive loss for the period Loss for the period - - - - - (108.0) - (108.0) Other comprehensive income • Exchange differences on translation of overseas subsidiaries - (62.7) - - - - - (62.7) • Effective portion of changes in fair value of cash flow hedges - - (39.5) - - - - (39.5) • Net change in fair value of cash flow hedges transferred to Income Statement - - 40.4 - - - - 40.4 • Actuarial adjustments on defined benefit plans - - - - - 4.1 - 4.1 • Income tax expense on other comprehensive income - - - - - (2.4) - (2.4) Total other comprehensive (loss)/income - (62.7) 0.9 - - 1.7 - (60.1) Total comprehensive (loss)/income for the period - (62.7) 0.9 - - (106.3) - (168.1) Transactions with owners recorded directly in equity • Employee share-based payment transactions - - - - 1.8 - - 1.8 • Issue of shares to employees (4.3) - - 5.7 (1.5) - - (0.1) • Employee loans forgiven - forfeited entitlements 27 0.1 ------0.1 • Distributions paid on PaperlinX step-up preference securities 12 - - - - - (21.2) - (21.2) Total transactions with owners (4.2) - - 5.7 0.3 (21.2) - (19.4) Balance at 30 June 2011 1,890.7 (162.3) 1.2 (1.0) 6.8 (1,275.5) 276.5 736.4

Notes 1 to 41 form part of these financial statements and are to be read in conjunction therewith.

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CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2012

2012 2011 Note $m $m Cash flows from operating activities Receipts from customers 4,207.5 4,735.3 Payments to suppliers and employees (4,250.0) (4,658.7) Interest received 2.6 2.5 Interest paid (19.6) (20.2) Income taxes paid (2.8) (4.3) Net cash (used in)/from operating activities 33 (62.3) 54.6

Cash flows from investing activities Acquisition of: • Controlled entities and businesses (net of cash and bank overdraft acquired) - (0.4) • Property, plant and equipment and intangibles (14.0) (18.0) Net (payments)/proceeds from the sale of: • Controlled entities and businesses (proceeds less transaction costs) - net of cash and bank overdraft disposed (6.3) (0.8) • Property, plant and equipment and intangibles 1.5 5.7 • Investments - 4.9 Tasmanian manufacturing operations closure payments (5.5) (32.1) Loans repaid by other persons - 0.7 Net cash used in investing activities (24.3) (40.0)

Cash flows from financing activities Step-up preference securities distributions paid - (21.2) Proceeds from borrowings 44.5 60.0 Repayment of borrowings (30.1) (30.0) Principal finance lease repayments (0.1) - Currency option close out 39.2 - Cash flow hedges - (3.6) Capitalised borrowing costs paid (2.6) (0.1) Other borrowing costs paid (0.4) (0.9) Net cash from financing activities 50.5 4.2

Net (decrease)/increase in cash and cash equivalents (36.1) 18.8 Cash and cash equivalents at the beginning of the period 33 115.5 107.6 Net bank overdraft transferred to liabilities held for sale 0.6 - Effect of exchange rate changes on cash held - (10.9) Cash and cash equivalents at the end of the period 33 80.0 115.5

Notes 1 to 41 form part of these financial statements and are to be read in conjunction therewith.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS AT 30 JUNE 2012

Note 1. Reporting entity discussions with the financier and other alternative providers of PaperlinX Limited (the “Company”) is a company domiciled in funding about the Consolidated Entity‟s future borrowing needs Australia. The address of the Company‟s registered office is 7 and to date no matters have arisen to suggest that renewal of the Dalmore Drive, Scoresby VIC 3179, Australia. The consolidated existing facility or an alternative line of funding may not be financial statements of the Company as at and for the year ended forthcoming on acceptable terms before the expiration of the 30 June 2012 comprise the Company and its subsidiaries existing facility. Given this main facility may either be renewed or (together referred to as “the Consolidated Entity”). The refinanced prior to 30 June 2013, the borrowing has been Consolidated Entity is a for-profit entity and is primarily involved in reclassified as a current liability. the merchanting of paper, communication materials and diversified products and services. The ability of the Consolidated Entity to meet its operational cash requirements and remain within the limits of the existing debt Note 2. Basis of preparation facilities in the foreseeable future is dependent in part on meeting forecast trading results and cash flows. These forecasts are (a) Statement of compliance necessarily based on best-estimate assumptions that may or may The Financial Report is a general purpose financial report not occur as expected and are subject to influences and events prepared in accordance with Australian Accounting Standards outside of the control of the Consolidated Entity. The forecasts, (“AASBs”) adopted by the Australian Accounting Standards Board taking into account reasonably possible changes in trading (“AASB”) and the Corporations Act 2001. The Financial Report performance, show that the Consolidated Entity should be able to complies with the International Financial Reporting Standards operate within the level and terms of its current facilities. This (“IFRS”) adopted by the International Accounting Standards Board notwithstanding, the current economic environment in some of the (“IASB”). major operating jurisdictions and structural changes in the traditional paper markets present challenges in terms of sales The Financial Report was authorised for issue by the Directors of volume, pricing and input costs. Whilst Management has the Company on 22 August 2012. implemented restructuring plans and applied a significant part of (b) Basis of measurement the proceeds of recent asset sales towards reducing cost structures and paying down debt, the current trading environment The consolidated financial statements have been prepared on the creates uncertainties about future trading results and cash flows. historical cost basis except for the following: In addition, the existing facilities include regional specific Derivative financial instruments are measured at fair value; and covenants and restrictions on the ability to draw down debt Financial instruments at fair value through profit or loss are facilities and move cash within the Consolidated Entity. measured at fair value. Should the ability of the Consolidated Entity to realise sufficient The methods used to measure fair values are discussed further in cash flows from trading operations be restricted, the Consolidated Note 4. Entity will actively pursue alternative funding arrangements and (c) Functional and presentation currency implement additional measures to preserve cash. These may include (but are not limited to) drawing down committed but These consolidated financial statements are presented in undrawn debt facilities, working capital reductions and further Australian dollars, which is the Company‟s functional currency. restrictions of trading expenditures. The Company is of the kind referred to in ASIC Class Order After making enquiries, and considering the uncertainties 98/100 dated 10 July 1998 (updated by CO 05/641 effective 28 described above, the Directors have a reasonable expectation July 2005 and CO 06/51 effective 31 January 2006) and in that the Consolidated Entity will have adequate resources to accordance with that Class Order, amounts in the Financial continue to operate and meet its obligations as they fall due and Report and Directors‟ Report have been rounded off to the remain within the limits of its debt facilities. For these reasons, nearest hundred thousand dollars, unless otherwise stated. they continue to adopt the going concern basis in preparing the (d) Use of estimates and judgements Consolidated Financial Report. The preparation of a financial report in conformity with Australian (f) New and amended standards adopted Accounting Standards requires management to make The following new standards and amendments to standards are judgements, estimates and assumptions that affect the application mandatory for the first time for the financial year beginning 1 July of policies and reported amounts of assets and liabilities, income 2011: and expenses. Actual results may differ from these estimates. Revised AASB 124 Related Party Disclosures The estimates and underlying assumptions are reviewed on an AASB 1054 Australian Additional Disclosures and AASB 2011- ongoing basis. Revisions to accounting estimates are recognised 1 Amendments to Australian Accounting Standards arising from in the period in which the estimate is revised if the revision affects the Trans-Tasman Convergence Project only that period or in the period of the revision and future periods AASB 2009-14 Amendments to Australian Interpretation - if the revision affects both current and future periods. Prepayments of a Minimum Funding Requirement Judgements made by management in the application of Australian AASB 2010-4 Further Amendments to Australian Accounting Accounting Standards that have a significant effect on the Standards arising from the Annual Improvements Project Financial Report and estimates with a significant risk of material AASB 2010-5 Amendments to Australian Accounting Standards adjustment in the next year are discussed in Note 3(u). AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets (e) Going concern basis of accounting AASB 2011-5 Amendments to Australian Accounting Standards In preparing the Consolidated Financial Report, the Directors - Extending Relief from Consolidation, the Equity Method and made an assessment of the ability of the Consolidated Entity to Proportionate Consolidation For personal use only use personal For continue as a going concern, which contemplates the continuity of business operations, realisation of assets and settlement of The adoption of these standards only affects disclosures and had liabilities in the ordinary course of business and without the no impact on consolidated net income. The changes have been necessity to curtail materially the scale of its operations. applied retrospectively. The Consolidated Entity is primarily funded by receivables-backed and inventory-backed facilities. As disclosed in Note 23, the major line of finance is due to expire in September 2013. Management will open renewal negotiations with the financier in due course and has, at this stage, not sought any written commitment that the facility will be renewed. However, Management has held

41

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 3. Accounting policies The following significant accounting policies have been applied by Deferred tax is recognised for temporary differences between the the Consolidated Entity, having regard to its activities, in the carrying amounts of assets and liabilities for financial reporting preparation of the Consolidated Financial Report (“the Financial purposes and the amounts used for taxation purposes. The Report”). following temporary differences are not recognised:

Certain comparative amounts have been reclassified to conform initial recognition of goodwill;

with the current year‟s presentation. In addition, the comparative the initial recognition of assets or liabilities in a transaction that consolidated income statement has been re-presented as if the is not a business combination that affect neither accounting nor operations discontinued during the current year had been taxable profit or loss; and

discontinued from the start of the comparative year. differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. (a) Basis of consolidation The amount of deferred tax recognised is based on the expected The Financial Report of the Consolidated Entity is in accordance manner of realisation or settlement of the carrying amount of with Accounting Standard AASB 127 Consolidated and Separate assets and liabilities, using tax rates enacted or substantively Financial Statements. In preparing the Financial Report, all enacted at the reporting date. balances and transactions between entities included in the Consolidated Entity have been eliminated. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and Subsidiaries they relate to income taxes levied by the same tax authority on Subsidiaries are entities controlled by the Company. Control the same taxable entity, or on different tax entities, but they intend exists when the Company has the power, directly or indirectly, to to settle current tax liabilities and assets on a net basis or their tax govern the financial and operating policies of an entity so as to assets and liabilities will be realised simultaneously. obtain benefits from its activities. Investments in subsidiaries are A deferred tax asset is recognised only to the extent that it is carried at cost less accumulated impairment losses. probable that future taxable profits will be available against which The financial statements of subsidiaries are included from the the asset can be utilised. Deferred tax assets are reduced to the date that control commences until the date that control ceases. extent that it is no longer probable that the related tax benefit will be realised. Dividend distributions from subsidiaries are recognised by the Company when they are declared by the subsidiaries. Dividends Tax consolidation - Australia received out of pre-acquisition reserves are recognised in the The Australian Federal Government enacted legislation in 2003 to Income Statement, subject to impairment review. allow companies comprising a parent entity and Australian wholly owned subsidiaries to elect to consolidate and be treated as a Other entities single entity for Australian income tax purposes. The Company is Dividends from other investments are recognised when dividends the head entity of the Australian tax consolidated group. are received or declared as being receivable. The Company has elected to form a tax consolidated group PaperlinX Step-up Preference Securities effective from 1 July 2003. Under the consolidation rules, the The PaperlinX Step-up Preference Securities are recorded in Company has chosen to reset the tax cost base of certain equity, based on the terms and conditions attached thereto, and depreciable assets which will result in additional tax depreciation are measured as the proceeds received on issue net of the issue over the lives of the assets. costs. The distributions paid/payable thereon are recorded as a Current tax expense/income, deferred tax liabilities and deferred distribution from retained earnings. tax assets arising from temporary differences of the members of (b) Revenue recognition the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group Sales revenue comprises revenue earned measured at the fair using the “separate taxpayer within the group” approach by value of the consideration received or receivable (net of returns, reference to the carrying amounts of assets and liabilities in the discounts, allowances and the amount of goods and services tax) separate financial statements of each entity and the tax values from the provision of products to entities outside the Consolidated applying under tax consolidation. Entity. Sales revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, Current tax liabilities and assets and deferred tax assets arising recovery of the consideration is probable, the associated costs from the unused tax losses and tax credits of the members of the and possible return of goods can be estimated reliably, there is no tax-consolidated group are recognised by the Company (as head continuing management involvement with the goods, and the entity in the tax-consolidated group). Deferred tax assets and amount of revenue can be measured reliably. deferred tax liabilities are measured by reference to the carrying amounts of the assets and liabilities in the Company‟s statement (c) Government grants of financial position and their tax values applying under tax Grants are recognised initially as deferred income when received. consolidation. Grants that compensate the Consolidated Entity for expenses incurred are recognised in profit or loss on a systematic basis in Any current tax liabilities (or assets) and deferred tax assets the same periods in which the expenses are recognised. Grants arising from unused tax losses assumed by the head entity from that compensate the Consolidated Entity for the cost of an asset the subsidiaries in the tax consolidated group are recognised as are recognised in profit or loss as other income on a systematic amounts receivable or payable to other entities in the tax basis over the useful life of the asset. consolidated group in conjunction with any tax funding arrangement amounts (refer below). Any difference between

(d) Taxation these amounts is recognised by the Company as an equity For personal use only use personal For contribution to or distribution from the subsidiary. Distributions Income tax firstly reduce the carrying amount of the investment in the Income tax comprises current and deferred tax. Income tax is subsidiary and are then recognised as revenue. recognised in the Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is The Company recognises deferred tax assets arising from unused recognised in equity or in other comprehensive income. tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group Current tax is the expected tax payable on the taxable income for will be available against which the asset can be utilised. Any the year, using tax rates enacted or substantively enacted at the subsequent period adjustments to deferred tax assets arising from reporting date, and any adjustment to tax payable in respect of unused tax losses as a result of revised assessments of the previous years. probability of recoverability is recognised by the head entity only.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 3. Accounting policies – (continued)

Nature of tax funding arrangements and tax sharing Government bonds at the reporting date which have maturity agreements - Australia dates approximating the terms of the Consolidated Entity‟s The head entity in conjunction with other members of the tax- obligations. consolidated group has entered into a tax funding arrangement Liabilities for employee benefits for wages, salaries, annual leave which sets out the funding obligations of members of the tax- and sick leave that are expected to be settled within 12 months of consolidated group in respect of tax amounts. the reporting date represent present obligations resulting from The tax funding arrangements require payments to/from the head employees‟ services provided to reporting date and are calculated entity equal to the current tax liability (asset) assumed by the at undiscounted amounts based on remuneration wage and salary head entity and any tax-loss deferred tax asset assumed by the rates that the Consolidated Entity expects to pay as at reporting head entity, resulting in the head entity recognising inter-entity date including related on-costs, such as workers compensation receivables (payables) in the separate financial statements of the insurance and payroll tax. Non-accumulating non-monetary members of the tax consolidated group equal in amount to the tax benefits, such as medical care, housing, cars and subsidised liability (asset) assumed. The inter-entity receivables/payables goods and services, are expenses based on the net marginal cost are at call. to the Consolidated Entity as the benefits are taken by the employees. Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head Employee benefits include, where appropriate, forecast future entity‟s obligation to make payments for tax liabilities to the increases in wages and salaries, grossed up for on-costs, and are relevant tax authorities. based on the Consolidated Entity‟s experience with staff departures. The Company, as the head entity of the Australian tax consolidated group, in conjunction with other members of the tax- Workers’ compensation consolidated group, has also entered into a tax sharing Provision is made for workers‟ compensation claims in agreement. The tax sharing agreement provides for the accordance with self-insurance licences held. The amount of this determination of the allocation of income tax liabilities between provision is confirmed at each year end by an independent the entities should the head entity default on its tax payment actuary. obligations. No amounts have been recognised in the financial statements in respect of this agreement as payment of any Share-based payments amounts under the tax sharing agreement is considered remote. Equity-settled share-based payments to employees are measured (e) Goods and Services Tax – Australia at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled Revenues, expenses and assets are recognised net of the share-based transactions are set out in Notes 4 and 30. amount of Goods and Services Tax (“GST”), except where the amount of GST incurred is not recoverable from the Australian The fair value determined at the grant date of the equity-settled Taxation Office (“ATO”). In these circumstances, the GST is share-based payments is expensed on a straight-line basis over recognised as part of the cost of acquisition of the asset or as an the vesting period, based on the Consolidated Entity's estimate of expense. equity instruments (share options and rights) that will eventually vest. At the end of each reporting period, the Consolidated Entity Receivables and payables are stated with the amount of GST revises its estimate of the number of equity instruments expected included. to vest. The impact of the revision of the original estimates, if any, The net amount of GST payable to the ATO is included as a is recognised in profit or loss, where the change is unrelated to current liability in the statement of financial position. market conditions, such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity- Cash flows are included in the statement of cash flows on a gross settled employee share plans reserve. basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, The policy described above is applied to all equity-settled share- the ATO are classified as operating cash flows. based payments that were granted after 7 November 2002 and vested after 1 January 2005. For options and performance rights (f) Depreciation granted before 7 November 2002 and/or vested before 1 January Property, plant and equipment, excluding freehold land, are 2005, no expense has been recognised. The shares are depreciated at rates based upon their expected useful lives using recognised when the options and rights are exercised and the the straight-line method. Freehold land is not depreciated. proceeds received are allocated to share capital. Depreciation rates used for each class of asset are as follows: Land improvements: between 1% - 3% (2011: 1% - 3%) Buildings: between 1% - 4% (2011: 1% - 4%) Plant and equipment: between 4% - 20% (2011: 4% - 20%) Finance leases for equipment: between 4% - 20% (2011: 4% - 20%) Depreciation is expensed except to the extent it is included in the carrying amount of an asset as an allocation of production overheads. For personal use only use personal For The residual value, the useful life and the depreciation method applied to an asset are reviewed at least annually. (g) Employee benefits The Consolidated Entity‟s net obligation in respect of long-term service benefits, other than defined benefit superannuation funds, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted using the rates attached to

43

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 3. Accounting policies – (continued)

Employee retirement benefit obligations include transfers from equity of any gain or loss on qualifying cash The Consolidated Entity has both defined benefit and defined flow hedges of foreign currency purchases of property, plant and contribution plans. The defined benefit plans provide defined equipment. Borrowing costs related to the acquisition, lump sum benefits based on years of service and final average construction or production of qualifying assets are capitalised as salary. The defined contribution plans receive fixed contributions part of the cost of that asset. from the Consolidated Entity and the Consolidated Entity‟s legal When parts of an item of property, plant and equipment have or constructive obligation is limited to these contributions. different useful lives, they are accounted for as separate items A liability or asset in respect of defined benefit plans is recognised (major components) of property, plant and equipment. in the statement of financial position, and is measured as the Gains and losses on disposal of an item of property, plant and present value of the defined benefit obligation at the reporting equipment are determined by comparing the proceeds from date less the fair value of the plan's assets at that date and any disposal with the carrying amount of property, plant and unrecognised past service cost. The present value of the defined equipment and are recognised net within “other income” in profit benefit obligation is based on expected future payments which or loss. arise from membership of the plan to the reporting date, calculated annually by independent actuaries using the projected (j) Inventories unit credit method. Consideration is given to expected future Inventories are valued at the lower of cost (including an wage and salary levels, experience of employee departures and appropriate proportion of fixed and variable overheads) and net periods of service. realisable value in the normal course of business. Expected future payments are discounted using market yields at The cost of inventories is based on the first-in first-out or weighted the reporting date on corporate bonds with terms to maturity and average principle and includes expenditure incurred in acquiring currency that match, as closely as possible, the estimated future the inventories and bringing them to their existing location and cash outflows. condition. In the case of manufactured inventories and work in Actuarial gains and losses arising from experience adjustments progress, cost includes an appropriate share of overheads based and related changes in actuarial assumptions are charged or on normal operating capacity. The provision for impairment credited to other comprehensive income. losses is based on an ageing analysis. Past service costs are recognised immediately in profit or loss, Net realisable value is the estimated selling price in the ordinary unless the related changes to the plan are conditional on the course of business, less the estimated costs of completion and employees remaining in service for a specified period of time (the selling expenses. vesting period). In this case, the past service costs are amortised (k) Cash and cash equivalents on a straight-line basis over the vesting period. Cash and cash equivalents comprise cash balances, short term Future taxes that are funded by the entity and are part of the bills and call deposits. Bank overdrafts that are repayable on provision of the existing benefit obligation (eg. taxes on demand and form an integral part of the Consolidated Entity‟s investment income and employer contributions) are taken into cash management are included as a component of cash and cash account in measuring the net liability or asset. equivalents for the purpose of the Statements of Cash Flows. (h) Net financing costs (l) Foreign currency Net financing costs comprise interest, amortisation of transaction Functional currency costs directly attributable to obtaining debt facilities, unwind of discount on provisions and other financing charges including net The financial statements of foreign subsidiaries are measured foreign exchange gains and losses, net of interest income on using the currency of the primary economic environment in which funds invested. These costs are recognised in profit or loss, the entity operates, being the entity‟s functional currency. The except to the extent the interest incurred relates to construction of consolidated financial statements are presented in Australian major capital items in which case interest is capitalised as a cost dollars, which is the Company‟s functional and presentation of the asset up to the time it is ready for its intended use or sale. currency. Interest income is recognised in the Income Statement as it Transactions accrues, using the effective interest method. The interest The Consolidated Entity is exposed to changes in foreign expense component of finance lease payments is recognised in currency exchange rates as a consequence of the need to the Income Statement using the effective interest method. purchase items denominated in foreign currency as part of its activities. Transactions in foreign currencies are translated at the For fixed assets, the capitalised interest and charges are foreign exchange rate ruling at the date of transaction. Monetary amortised over the expected useful economic lives. assets and liabilities at balance date are translated to Australian Transaction costs directly attributable to obtaining debt facilities dollars at the foreign exchange rate ruling at that date. Non- are capitalised on initial recognition of the facility and amortised monetary assets and liabilities measured at historical cost are over the term of the facility. translated using the exchange rate at the date of the transaction. All material foreign currency transactions, which are not offset by (i) Property, plant and equipment a natural hedge, are subject to forward exchange contracts or Depreciable property, plant and equipment are shown in the currency options and any exchange gains/losses arising from the Financial Report at cost or deemed cost less accumulated effect of currency fluctuations on the underlying transactions are depreciation and impairment losses. offset by the exchange gains/losses on the forward exchange

For personal use only use personal For contract or currency option. As a result, exchange rate Certain items of property, plant and equipment that had been movements on such foreign currency transactions are largely revalued to fair value prior to 1 July 2004, the Australian offset within the Income Statement. Where an entity designates Equivalent of International Financial Reporting Standards transactions to be accounted for as a cash flow hedge, any (“AIFRS”) transition date, are measured on the basis of deemed gains/losses are recorded in other comprehensive income as cost, being the revalued amount at the date of that revaluation. outlined below. Costs include expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets include the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Costs may

44

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 3. Accounting policies – (continued)

Translation of foreign subsidiaries non-current assets unless management intends to dispose of the The assets and liabilities of foreign operations, including goodwill investment within 12 months of the reporting date. and fair value adjustments arising on consolidation, are translated Financial assets are derecognised when the rights to receive cash to Australian dollars at foreign exchange rates ruling at the flows from the financial assets have expired or have been reporting date. The revenues and expenses of foreign operations transferred and the Consolidated Entity has transferred are translated to Australian dollars at rates approximating the substantially all the risks and rewards of ownership. foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are Loans and receivables and held-to-maturity financial assets are recognised in other comprehensive income and presented in the initially recognised at fair value plus any directly attributable exchange translation reserve in equity. transaction costs. Subsequent to initial recognition, loans and receivables and held-to-maturity financial assets are measured at Any exchange gains/losses arising on transactions entered into to amortised cost using the effective interest method, less any hedge the currency fluctuations on the net investment in foreign impairment losses. subsidiaries are recorded, net of tax, in the exchange fluctuation reserve on consolidation where it is determined to be an effective Cash and cash equivalents comprise cash balances and call hedge. When a foreign operation is disposed of, the cumulative deposits. amount in the exchange translation reserve related to that foreign operation is reclassified to profit and loss as part of the gain or (n) Leased assets loss on disposal. Leases under which the Consolidated Entity assumes substantially all the risks and rewards of ownership are classified (m) Financial instruments as finance leases. Upon initia recognition the leased asset is The Consolidated Entity is exposed to changes in interest rates, measured at an amount equal to the lower of its fair value and the foreign exchange rates and commodity prices from its activities. present value of the minimum lease payments. Subsequent to The Consolidated Entity uses the following financial instruments initial recognition, the asset is accounted for in accordance with to hedge these risks: interest rate swaps, forward exchange the accounting policy applicable to that asset. The corresponding contracts, currency options and interest rate options. Financial liability to the lessor is recognised as a finance lease obligation. instruments are not held for trading purposes. Lease payments are apportioned between finance expenses and Derivative instruments a reduction of the lease obligation so as to achieve a constant Derivative instruments are initially recognised at fair value on the periodic rate of interest on the remaining balance of the liability. date the derivative contract is entered into and are subsequently Other leases are operating leases. Operating lease payments are remeasured to their fair value. Attributable transaction costs are recognised as an expense on a straight-line basis over the lease recognised in profit or loss as incurred. term, except where another systematic basis is more Changes in the fair value of derivative instruments are recognised representative of the time pattern in which economic benefits from immediately in the Income Statement, except for those derivatives the leased asset are consumed. designated as cash flow hedges which are recognised in other (o) Intangible assets comprehensive income as outlined below. Goodwill Cash flow hedges Goodwill is not amortised but is tested for impairment annually, or Changes in the fair value of the derivative hedging instrument more frequently if events or changes in circumstances indicate designated as a cash flow hedge are recognised in other that it might be impaired. Goodwill is carried at cost less comprehensive income to the extent that the hedge is effective. impairment losses where applicable. To the extent that the hedge is ineffective, changes in fair value are recognised in the Income Statement. Gains and losses on the disposal of an entity include the carrying value of goodwill relating to the entity sold. Goodwill is allocated If the hedging instrument no longer meets the criteria for hedge to cash generating units for the purpose of impairment testing. accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative Brand names gain or loss previously recognised in equity remains there until the Brand names acquired are carried at cost less any impairment forecast transaction occurs. When the hedged item is a non- losses and are not amortised on the basis that they have financial asset, the amount recognised in equity is transferred to indefinite useful lives. The associated brands are supported by the carrying amount of the asset when it is recognised. In other expenditure annually, consistent with the stated strategy to further cases the amount recognised in equity is transferred to the develop the brands. Income Statement in the same period that the hedged item affects profit or loss. Brand names are allocated to cash generating units for the purpose of impairment testing. Financial instruments included in liabilities Trade and other payables are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the Consolidated Entity and are stated at amortised cost. Interest bearing loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest bearing borrowings are stated at amortised For personal use only use personal For cost. Any difference between cost and redeemable value is recognised as interest expense, on an effective interest basis in net financing costs over the period of the borrowings.

Financial instruments included in assets Trade debtors and other receivables are carried at amortised cost less any impairment losses. Collectability of overdue accounts is assessed on an ongoing basis. Specific provision is made for all doubtful accounts. Investments are initially recorded at cost and are subject to impairment testing at each reporting date. They are included in

45

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 3. Accounting policies – (continued)

Other intangible assets market-based value of the acquiree‟s awards and the extent to Other intangible assets that are acquired by the Consolidated which the replacement awards relate to past and/or future service. Entity are stated at cost less accumulated amortisation and Acquisitions between 1 July 2004 and 1 July 2009 impairment losses (see Note 3(q)). For acquisitions between 1 July 2004 and 1 July 2009, goodwill Amortisation is calculated over the cost of the asset less its represents the excess of the cost of the acquisition over the residual value. Amortisation is recognised in profit or loss on a Consolidated Entity‟s interest in the recognised amount (generally straight-line basis over the estimated useful lives of the assets fair value) of the identifiable assets, liabilities and contingent from the date that they are available for use, since this most liabilities of the acquiree. When the excess was negative, a closely reflects the expected pattern of consumption of the future bargain purchase gain was recognised immediately in profit or economic benefits embodied in the assets. loss. Amortisation rates used for other intangible assets are as follows: Transaction costs, other than those associated with the issue of Computer software: 10.0% - 40.0% (2011: 10% - 40.0%) debt or equity securities, that the Consolidated Entity incurred in connection with business combinations were capitalised as part of Customer lists: 6.7% - 14.3% (2011: 6.7% - 14.3%) the cost of the acquisition. Amortisation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. Acquisitions prior to 1 July 2004 (date of transition to IFRSs) (p) Business combinations As part of its transition to IFRSs, the Consolidated Entity elected Business combinations are accounted for by applying the to restate only those business combinations that occurred on or acquisition method as at the acquisition date. The acquisition after 1 July 2003. In respect of acquisitions prior to 1 July 2003, date is the date on which control is transferred to the acquirer. goodwill represents the amount recognised under the Judgement is applied in determining the acquisition date and Consolidated Entity‟s previous accounting framework, Australian determining whether control is transferred from one party to GAAP. another. Acquisitions of non-controlling interests are accounted for as For every business combination, the Consolidated Entity identifies transactions with owners in their capacity as owners and therefore the acquirer, which is the combining entity that obtains control of no goodwill is recognised as a result of such transactions. The the other combining entities or businesses. Control is the power adjustments to non-controlling interests are based on a to govern the financial and operating policies of an entity so as to proportionate amount of the net assets of the subsidiary. obtain benefits from its activities. In assessing control, the If the initial accounting for a business combination is incomplete Consolidated Entity takes into consideration potential voting rights by the end of the reporting period in which the combination that are currently exercisable. occurs, the Consolidated Entity reports provisional amounts for The consideration for each acquisition is measured at the the items for which the accounting is incomplete. Those aggregate of the fair values (at the date of exchange) of assets provisional amounts are adjusted during the measurement period given, liabilities incurred or assumed, and equity instruments (see below), or additional assets or liabilities are recognised, to issued by the Consolidated Entity in exchange for control of the reflect new information obtained about facts and circumstances acquiree. that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. The Acquisitions on or after 1 July 2009 measurement period is the period from the date of acquisition to the date the Consolidated Entity obtains complete information For acquisitions on or after 1 July 2009, the Consolidated Entity about facts and circumstances that existed as of the acquisition measures goodwill at the acquisition date as: date – and is subject to a maximum of one year. the fair value of the consideration transferred; plus (q) Impairment of assets the recognised amount of any non-controlling interests in the Assets that have an indefinite useful life are not subject to acquiree; plus if the business combination is achieved in amortisation and are tested annually for impairment. Assets that stages, the fair value of the existing equity interest in the are subject to amortisation are reviewed at each reporting date to acquiree; less determine whether there is any indication of impairment. If any the net recognised amount (generally fair value) of the such indication exists the asset‟s recoverable amount is identifiable assets acquired and liabilities assumed. estimated. An impairment loss is recognised for the amount by When the excess is negative, a bargain purchase gain is which the asset‟s carrying amount exceeds its recoverable recognised immediately in profit or loss. amount. The recoverable amount is the higher of an asset‟s fair The consideration transferred does not include amounts related to value less costs to sell and value in use. For the purposes of the settlement of pre-existing relationships. Such amounts are assessing impairment, assets are grouped at the lowest levels for generally recognised in profit or loss. which there are separately identifiable cash flows (cash generating units). Impairment losses recognised in respect of Costs related to the acquisition, other than those associated with cash generating units are allocated first to any goodwill allocated the issue of debt or equity securities, that the Consolidated Entity to the cash generating unit, and then to other assets in the unit on incurs in connection with a business combination are expensed as a pro rata basis. incurred. Recoverable amount Any contingent consideration payable is recognised at fair value The recoverable amount of receivables carried at cost is

For personal use only use personal For at the acquisition date. If the contingent consideration is classified calculated as the present value of estimated future cash flows, as equity, it is not remeasured and settlement is accounted for discounted at the original effective interest rate. Receivables with within equity. Otherwise, subsequent changes to the fair value of a short duration are not discounted. the contingent consideration are recognised in profit or loss. The recoverable amount of other assets is the greater of their fair When share-based payment awards (replacement awards) are value less costs to sell and value in use. In assessing value in required to be exchanged for awards held by the acquiree‟s use, the estimated future cash flows are discounted to their employees (acquiree‟s awards) and relate to past services, then present value using an appropriate pre-tax discount rate that all or a portion of the amount of the acquirer‟s replacement reflects current market assessments of the time value of money awards is included in measuring the consideration transferred in and the risks specific to the asset. the business combination. This determination is based on the market-based value of the replacement awards compared with the

46

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 3. Accounting policies – (continued)

Reversals of impairment (t) Discontinued operation An impairment loss in respect of goodwill recorded in profit or loss in one period is not permitted to be reversed to profit or loss in a A discontinued operation is a component of the Consolidated subsequent period. Entity‟s business that represents a separate major line of business or geographical area of operations that has been In respect of other assets, an impairment loss is reversed only if disposed of or is held for sale, or is a subsidiary acquired there is an indication that the impairment loss may no longer exist exclusively with a view to resale. Classification as a discontinued or there has been a change in estimates used to determine the operation occurs upon disposal or when the operation meets the recoverable amount. criteria to be classified as held for sale, if earlier. When an operation is classified as discontinued, the comparative An impairment loss is reversed only to the extent that the asset‟s consolidated income statement is re-presented as if the operation carrying amount does not exceed the carrying amount that would had been discontinued from the start of the comparative period. have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (u) Accounting estimates and judgements (r) Provisions The Consolidated Entity makes estimates and assumptions concerning the future. Actual results may at times vary from A provision is recognised when there is a present legal or estimates. The estimates and judgements that have a significant constructive obligation that can be estimated reliably, as a result risk of causing a material adjustment to the carrying amounts of of a past event and it is probable that an outflow of economic assets and liabilities within the next financial year are discussed benefits will be required to settle the obligation. Provisions are below. determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time Revisions of accounting estimates value of money and, where appropriate, the risks specific to the Revisions to accounting estimates are recognised prospectively in liability. current and future periods when the estimates are revised. Dividends on ordinary shares Impairment of non-current assets A provision for dividends payable is recognised in the reporting The Consolidated Entity assesses whether non-current assets period in which the dividends are declared, for the entire (including assets held for sale) are impaired at least annually. undistributed amount, regardless of the extent to which they will These calculations involve an estimation of the recoverable be paid in cash. amount of the cash generating units to which the non-current Distribution on PaperlinX Step-up Preference Securities assets are allocated based on forecast future cash flows and certain related assumptions. These assumptions are discussed in A provision for distributions payable is recognised in the reporting Note 20. period in which the distributions are declared, for the entire undistributed amount. Defined benefit plan obligations Surplus leased premises Various actuarial assumptions are utilised in the determination of the Consolidated Entity‟s defined benefit plan obligations. These Provision is made for non-cancellable operating lease rentals assumptions are discussed in Note 32. payable on surplus leased premises when the expected future benefits to be obtained are lower than the unavoidable costs of Sale of USA and Italy operations meeting the obligations under these contracts. During the current reporting period, the Consolidated Entity sold The provision is measured at the present value of the lower of the its USA and Italian merchanting operations. The calculation of the expected cost of terminating the contract and the expected net profit or loss on sale of these businesses includes estimates of cost of continuing with the contract. Before a provision is transaction costs and net asset adjustments based on preliminary established, the Consolidated Entity recognises any impairment results as at the sale date. Completion accounts have not yet loss on the assets associated with that contract. been finalised. Any differences from preliminary estimates will be reflected in the 2013 accounts as an adjustment to the net profit Restructuring or loss from discontinued operations. A provision for restructuring is recognised when the Consolidated Tasmania closure costs Entity has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been publicly Management have made estimates and judgements to determine announced. Future operating costs are not provided for. the costs associated with the closure of the Tasmanian manufacturing operations. The closure costs have been Environmental remediation disclosed in discontinued operations. If the final amounts relating A provision for environmental remediation is recognised when a to the site closures differ from the current estimate, variations will legal or constructive obligation to remediate exists due to the be brought to account in future periods. If required, these impact of a past event, and the provision can be reliably adjustments will be disclosed in the Income Statement as income estimated. or expense from discontinued operations. (s) Earnings per share Sale of Australian Paper The Company presents basic and diluted Earnings per Share The results for this reporting period include additional costs (“EPS”) data for its ordinary shares. related to the sale of the Australian Paper business. The sale of Australian Paper occurred in a prior period. Any changes to these

Basic EPS is calculated by dividing the profit or loss attributable to amounts will be reflected in future reporting periods as an For personal use only use personal For members of the Company after deduction of the distribution on adjustment to the net loss from discontinued operations. the PaperlinX step-up preference securities by the weighted average number of ordinary shares outstanding during the period, adjusted for any bonus issue. Diluted EPS is calculated by dividing the basic EPS earnings, adjusted by the after tax effect of financing costs associated with dilutive potential ordinary shares and the effect on revenues and expenses of conversion to ordinary shares associated with dilutive potential ordinary shares, by the weighted average number of ordinary shares and dilutive potential ordinary shares adjusted for any bonus issue.

47

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 3. Accounting policies – (continued)

(v) Segment reporting The Consolidated Entity determines and presents operating AASB 2011-7 Amendments to Australian Accounting Standards segments based on the information that is internally provided to arising from the Consolidation and Joint Arrangements the Managing Director and Chief Executive Officer (CEO), who is Standards includes consequential amendments as a result of the Consolidated Entity's chief operating decision maker. An the issuance of AASB 10, AASB 11, AASB 12, AASB 127 and operating segment is a component of the Consolidated Entity that AASB 128. The amendments will become applicable to annual engages in business activities from which it may earn revenues reporting periods beginning on or after 1 January 2013. and incur expenses, including revenues and expenses that relate AASB 2011-9 Amendments to Australian Accounting Standards to transactions with any of the Consolidated Entity's other – Presentation of Items of Other Comprehensive Income components. All operating segments' operating results are includes requirements to group items that may be potentially regularly reviewed by the CEO to make decisions about resources reclassifiable to profit or loss and to show tax on these items to be allocated to the segment and assess its performance, and separately from other tax amounts. The amendments will for which discrete financial information is available. become applicable to annual reporting periods beginning on or after 1 July 2012. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be The Consolidated Entity has not yet determined the potential allocated on a reasonable basis. Unallocated items comprise effect, if any, of the new and amending standards and mainly corporate assets, head office expenses, income tax assets interpretations on the Consolidated Entity‟s Financial Report. and liabilities and centrally managed funding balances. Note 4. Determination of fair values Segment information is further split between continuing operations A number of the Consolidated Entity‟s accounting policies and and discontinued operations. disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have (w) Non-current assets held for sale been determined for measurement and/or disclosure purposes Non-current assets that are expected to be recovered through based on the following methods. When applicable, further sale are classified as held for sale. The assets have been valued information about the assumptions made to determine fair values and are measured at the lower of their carrying amount and fair is disclosed in the notes specific to that asset or liability. value less cost to sell. Non-current assets held for sale are also subject to an impairment assessment. (a) Property, plant and equipment The fair value of property, plant and equipment recognised as a (x) New standards and interpretations not yet adopted result of a business combination is based on market values. The The following standards, amendments to standards and market value of property is the estimated amount for which a interpretations which may be relevant to the Company or property could be exchanged on the date of the valuation between Consolidated Entity were available for early adoption but have not a willing buyer and a willing seller in an arm‟s length transaction been applied by the Consolidated Entity in these financial after proper marketing wherein the parties had each acted statements: knowledgeably, prudently and without compulsion. The market value of items of plant, equipment, fixtures and fittings are based AASB 9 Financial Instruments (Dec 2009) includes on the quoted market prices for similar items. requirements for the classification and measurement of financial assets resulting from the first part of Phase 1 of the (b) Intangible assets project to replace AASB 139 Financial Instruments: Recognition The fair value of intangible assets is based on the discounted and Measurement. AASB 9 will become applicable to annual cash flows expected to be derived from the use and eventual sale reporting periods beginning on or after 1 January 2013. of the assets. AASB 9 Financial Instruments (Dec 2010) includes requirements for the classification and measurement of (c) Inventories financial liabilities resulting from Phase 2 of the project to The fair value of inventories acquired in a business combination is replace AASB 139 Financial Instruments: Recognition and determined based on its estimated selling price in the ordinary Measurement. AASB 9 will become applicable to annual course of business less the estimated costs of completion and reporting periods beginning on or after 1 January 2013. sale, and a reasonable profit margin based on the effort required AASB 10 Consolidated Financial Statements includes to complete and sell the inventories. requirements for parent entities to present consolidated financial statements as those of a single economic entity, which (d) Trade and other receivables replaces the requirements of AASB 127 Consolidated and The fair value of trade and other receivables is estimated at the Separate Financial Statements. AASB 10 will become present value of future cash flows, discounted at the market rate applicable to annual reporting periods beginning on or after 1 of interest at the reporting date. January 2013. AASB 13 Fair Value Measurement includes definitions for fair value, provides guidance on how to determine fair value and required disclosures about fair value measurement in a single standard. AASB 13 will become applicable to annual reporting periods beginning on or after 1 January 2013. AASB 119 Employee Benefits (2011) amendments include enhanced disclosure requirements for defined benefit plans and clarification of various miscellaneous issues. AASB 119 will become applicable to annual reporting periods beginning on or

For personal use only use personal For after 1 January 2013. AASB 127 Separate Financial Statements (2011) amends the prior version of the standard to remove requirements relating to consolidated financial statements which are now contained in AASB 10. AASB 127 will become applicable to annual reporting periods beginning on or after 1 January 2013. AASB 128 Investments in Associates and Joint Ventures (2011) amends the prior version of the standard and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. AASB 128 will become applicable to annual reporting periods beginning on or after 1 January 2013.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 4. Determination of fair values – (continued) (e) Derivatives The fair value of forward exchange contracts is determined by reference to the contractual forward price and the forward price from external sources at balance date for the same currency pair, amount and maturity date. The fair value of foreign exchange option contracts is determined by using option pricing models that include externally sourced inputs for a comparable contract at balance date. The fair value of interest rate option contracts is determined by using option pricing models that include externally sourced inputs for a comparable contract at balance date. (f) Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases, the market rate of interest is determined by reference to similar lease agreements. (g) Share-based payment transactions The fair value of employee share options and rights are measured utilising either: a discounted cash flow technique. The value of the share- based payments is the face value of the share at grant date less the present value of the dividends expected to be paid on the share but not received by the holder during the vesting period; or the Black-Scholes methodology to produce a Monte-Carlo simulation model which allows for the incorporation of the total shareholder return performance hurdles that must be met before the share-based payments vest to the holder. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining the fair value. (h) Financial guarantees For financial guarantee contract liabilities, the fair value at initial recognition is determined using a probability weighted discounted cash flow approach. The method takes into account the probability of default by the guaranteed party over the term of the contract, the loss given default (being the proportion of the exposure that is not expected to be recovered in the event of default) and exposure at default (being the maximum loss at the time of default).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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Note 5. Operating segments The Consolidated Entity comprises the following main business segments, based on the Consolidated Entity's management and internal reporting system. Segment Description of operations Merchanting International merchant supplying the printing and publishing industry and office supplies. North America comprises Canada and Europe comprises the United Kingdom, Ireland and Continental Europe. Discontinued Comprises merchanting operations in United States of America (sale announced 26 June 2012); Italy (sale announced 9 operations March 2012); South Africa (sale announced 17 July 2012); and Hungary, Slovakia, Slovenia, Serbia and Croatia (sale announced 17 July 2012). Also comprises paper manufacturing - Australian Paper business (sale completed May 2009) and Tas Paper (closure completed in June 2010). Refer Note 11 for further details.

Corporate operations, continuing eliminations and amounts which have not been allocated to the Merchanting or Discontinued

operations segments are classified as Unallocated.

Merchanting Merchanting Europe Merchanting America North Merchanting New Australia, Zealand, Asia Unallocated Total Continuing Operations Discontinued Operations Group Eliminations Group Note $m $m $m $m $m $m $m $m For the year ended 30 June 2012

External sales revenue 2,333.8 442.1 467.3 - 3,243.2 869.9 - 4,113.1 Inter-segment sales revenue - - 4.9 (4.9) - 0.1 (0.1) - Total revenue 2,333.8 442.1 472.2 (4.9) 3,243.2 870.0 (0.1) 4,113.1

(Loss)/profit before net finance costs, tax and significant items (23.6) 8.3 10.9 (16.4) (20.8) 8.6 - (12.2) Significant items (pre-tax) 6 (133.0) (1.5) (1.0) 0.7 (134.8) (79.2) - (214.0) Net other finance costs 9,11 - - - (6.4) (6.4) (0.6) - (7.0) (Loss)/profit before interest and tax (156.6) 6.8 9.9 (22.1) (162.0) (71.2) - (233.2) Net interest 9,11 (13.6) (13.6) (4.7) - (18.3) Loss before tax (35.7) (175.6) (75.9) - (251.5) Tax expense - pre-significant items (13.5) (13.5) (3.4) - (16.9) Tax benefit - significant items 6,11 1.7 1.7 - - 1.7 Loss for the period (47.5) (187.4) (79.3) - (266.7) The loss before tax includes: Depreciation and amortisation 19,20 (11.3) (2.1) (2.0) (0.7) (16.1) (3.9) - (20.0) Impairment of non-current assets (109.2) - (0.2) - (109.4) (16.5) - (125.9) Depreciation, amortisation and impairment (120.5) (2.1) (2.2) (0.7) (125.5) (20.4) - (145.9)

Capital expenditure 10.3 0.4 0.6 0.1 11.4 2.5 - 13.9 As at 30 June 2012 Total assets 764.8 150.3 225.4 48.7 1,189.2 109.5 - 1,298.7 Total liabilities 405.9 73.4 79.3 258.2 816.8 34.7 - 851.5 Net assets/(liabilities) 358.9 76.9 146.1 (209.5) 372.4 74.8 - 447.2

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 5. Operating segments – (continued)

Merchanting Merchanting Europe Merchanting America North Merchanting New Australia, Zealand, Asia Unallocated Total Continuing Operations Discontinued Operations Group Eliminations Group Note $m $m $m $m $m $m $m $m For the year ended 30 June 2011 - Restated (1)

External sales revenue 2,698.5 463.8 509.4 - 3,671.7 998.6 - 4,670.3 Inter-segment sales revenue - - 6.3 (6.2) 0.1 4.5 (4.6) - Total revenue 2,698.5 463.8 515.7 (6.2) 3,671.8 1,003.1 (4.6) 4,670.3

Profit/(loss) before net finance costs, tax and significant items 3.7 6.6 11.1 (18.2) 3.2 17.7 - 20.9 Significant items (pre-tax) 6 (44.6) (0.4) (36.8) (26.7) (108.5) (0.8) - (109.3) Net other finance costs 9,11 - - - (2.9) (2.9) (0.6) - (3.5) (Loss)/profit before interest and tax (40.9) 6.2 (25.7) (47.8) (108.2) 16.3 - (91.9) Net interest 9,11 (13.8) (13.8) (5.1) - (18.9) (Loss)/profit before tax (61.6) (122.0) 11.2 - (110.8) Tax expense - pre-significant items (3.3) (3.3) (3.1) - (6.4) Tax benefit - significant items 6,11 8.6 8.6 0.6 - 9.2 (Loss)/profit for the period (56.3) (116.7) 8.7 - (108.0) The (loss)/profit before tax includes: Depreciation and amortisation 19,20 (13.5) (2.0) (2.1) (0.5) (18.1) (4.6) - (22.7) Impairment of non-current assets (33.4) - (35.1) - (68.5) - - (68.5) Depreciation, amortisation and impairment (46.9) (2.0) (37.2) (0.5) (86.6) (4.6) - (91.2)

Capital expenditure 11.3 1.1 1.8 0.6 14.8 3.2 - 18.0 As at 30 June 2011 Total assets 1,057.3 160.1 252.0 57.1 1,526.5 403.6 - 1,930.1 Total liabilities 486.7 64.4 85.3 325.1 961.5 232.2 - 1,193.7 Net assets/(liabilities) 570.6 95.7 166.7 (268.0) 565.0 171.4 - 736.4 (1) The comparative period has been restated to reflect the sale of the USA and Italy merchanting operations, and the reclassification of Hungary, Slovakia, Slovenia, Serbia, Croatia and South Africa as held for sale. Refer Note 11 – Discontinued operations and Note 16 – Assets and liabilities held for sale.

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Note 6. Individually significant items Continuing Discontinued Total Pre Tax Post Pre Tax Post Pre Tax Post -tax impact -tax -tax impact -tax -tax impact -tax For the year ended 30 June Note $m $m $m $m $m $m $m $m $m 2012 Loss on sale of controlled entities 11 - - - (62.4) - (62.4) (62.4) - (62.4) Impairment of assets held for sale 16 (0.5) - (0.5) (1.2) - (1.2) (1.7) - (1.7) Impairment of property, plant and equipment 20 (3.8) - (3.8) (1.1) - (1.1) (4.9) - (4.9) Impairment of intangible assets 20 (105.1) - (105.1) (14.2) - (14.2) (119.3) - (119.3) Restructuring costs (29.4) 2.7 (26.7) (1.7) - (1.7) (31.1) 2.7 (28.4) Net movement in fair value of currency option and loan (1) 4.0 (1.0) 3.0 - - - 4.0 (1.0) 3.0 Net benefits related to closure of discontinued Tasmanian operations - - - 1.4 - 1.4 1.4 - 1.4 Total individually significant items (134.8) 1.7 (133.1) (79.2) - (79.2) (214.0) 1.7 (212.3)

2011 - Restated (2) Impairment of intangible assets (68.5) - (68.5) - - - (68.5) - (68.5) Restructuring costs (19.2) 3.2 (16.0) (2.2) 0.6 (1.6) (21.4) 3.8 (17.6) Net movement in fair value of currency option and loan (1) (20.8) 5.4 (15.4) - - - (20.8) 5.4 (15.4) Transaction costs related to sale of Australian Paper - - - (4.5) - (4.5) (4.5) - (4.5) Net benefits related to closure of discontinued Tasmanian operations - - - 5.9 - 5.9 5.9 - 5.9 Total individually significant items (108.5) 8.6 (99.9) (0.8) 0.6 (0.2) (109.3) 9.2 (100.1) (1) During a prior period, the Consolidated Entity entered into a currency option to hedge a foreign currency exposure on an intercompany loan. AASB 139 Financial Instruments: Recognition and Measurement (AASB 139) permits reporting entities to separate the intrinsic value and time value of an option. AASB 139 allows for the intrinsic value of an option to be designated as part of a hedging relationship. However, the time value component does not qualify for hedge accounting and changes in fair values are recognised immediately in the income statement for the financial period as they do not form part of a hedging relationship. This methodology can cause volatility in the amount of the time value expense, even though the cash cost of the option was fixed at the time of purchase. (2) Refer Note 11 – Discontinued operations.

Note 7. Earnings per share Continuing Discontinued Total 2012 2011 2012 2011 2012 2011 Restated (1) Restated (1) Note $m $m $m $m $m $m (Loss)/profit for the period (187.4) (116.7) (79.3) 8.7 (266.7) (108.0) Less PaperlinX step-up preference securities distributions 12 - (21.2) - - - (21.2) (Loss)/profit for the period attributable to holders of ordinary shares in PaperlinX Limited (187.4) (137.9) (79.3) 8.7 (266.7) (129.2) Weighted average number of shares - basic (millions) 608.3 603.6 608.3 603.6 608.3 603.6 Basic EPS (cents) (30.8) (22.8) (13.0) 1.4 (43.8) (21.4) Weighted average number of shares - diluted (millions) 608.3 603.6 608.3 603.6 608.3 603.6 Diluted EPS (cents) (30.8) (22.8) (13.0) 1.4 (43.8) (21.4) (1) Refer Note 11 – Discontinued operations. The options to purchase shares and rights on issue during the years ended 30 June 2012 and 30 June 2011 have not been included in

determining the basic earnings per share. For personal use only use personal For The options to purchase shares and rights on issue during the year ended 30 June 2012 (weighted average 9.5 million shares) have not been included in determining the diluted earnings per share because they are anti-dilutive. The options to purchase shares and rights on issue during the year ended 30 June 2011 (weighted average 18.1 million shares) have not been included in determining the diluted earnings per share for the prior period because they are anti-dilutive. Nil options or rights have been issued since 30 June 2012 up to the date of this report. No options or rights have been exercised, resulting in the issuing of nil shares since 30 June 2012 up to the date of this report. Nil rights have vested since 30 June 2012 and are exercisable as at the date of this report. In addition, 589,300 options and 545,452 rights have lapsed since 30 June 2012 in respect of the plan period ended 30 June 2012.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 8. Other income from continuing operations 2012 2011 Restated (1) $m $m Net profit on disposal of non-current assets 0.2 0.3 Other 4.8 2.9 Total other income 5.0 3.2 (1) Refer Note 11 – Discontinued operations.

Note 9. Net finance costs from continuing operations 2012 2011 Restated (1) $m $m Net interest Interest expense (16.2) (16.4) Interest income 2.6 2.6 Total net interest (13.6) (13.8) Other finance costs Net other foreign exchange losses (2.4) (0.4) Other borrowing costs (4.0) (2.5) Total other finance costs (6.4) (2.9) Total net finance costs (20.0) (16.7) (1) Refer Note 11 – Discontinued operations.

Note 10. Income tax expense 2012 2011 $m $m Prima facie income tax benefit attributable to loss from continuing and discontinued operations at the Australian tax rate of 30% (2011: 30%) 75.4 33.2

(Add)/deduct the tax effect of: • Tax losses not brought to account (19.3) (16.7) • Prior year booked tax losses written off in the current year (6.9) (0.7) • Overseas tax rate differential (8.6) (3.5) • Other non-deductible/non-assessable items (3.4) 0.2 • Amortisation of goodwill allowable 0.7 1.5 • Tax benefit of deductions in foreign operations 2.7 6.5 • (Under)/over provision in prior years (1.6) 2.8 • Non-deductible impairment expenses - significant item (35.5) (19.2) • Non-deductible loss on sale of Australian Paper business - discontinued significant item - (1.3) • Non-deductible loss on sale of merchanting businesses - discontinued significant item (18.7) - Total tax (expense)/benefit in income statement (15.2) 2.8 comprising: Tax (expense)/benefit from continuing operations (11.8) 5.3 Tax expense from discontinued operations (3.4) (2.5) (15.2) 2.8

Recognised in the income statement Current tax expense • Current year (8.7) 5.9 • (Under)/over provision in prior years (1.6) 2.8

For personal use only use personal For Deferred tax expense (4.9) (5.9) Total tax (expense)/benefit in income statement (15.2) 2.8

Recognised in other comprehensive income Tax effect of actuarial adjustments on defined benefit plans 8.0 (2.4) Total tax benefit/(expense) recognised in other comprehensive income 8.0 (2.4) The balance of the consolidated franking account as at the reporting date was $Nil (2011: $Nil).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 11. Discontinued operations On 9 March 2012, the Company announced the sale of its Italian merchanting business (Polyedra), part of the Europe segment. On 26 June 2012, the Company announced the sale of its USA merchanting operations, Spicers USA and Kelly Paper. The USA merchanting operations were part of the North America segment. On 17 July 2012, the Company announced that it had entered into agreements to sell: its merchanting operations in Slovakia, Hungary, Slovenia, Croatia and Serbia (Europe segment); and its merchanting operations in South Africa (Europe segment). Accordingly, these operations have been treated as assets held for sale as at 30 June 2012 and have been disclosed as discontinued in the current and comparative reporting periods. They were sold in order to improve liquidity and provide funds for major restructuring in key European markets. Discontinued operations also includes the Consolidated Entity‟s paper manufacturing businesses. Australian Paper was sold effective 31 May 2009 and Tas Paper was closed the following year.

Result from discontinued operations 2012 2011 2012 2011 2012 2011 2012 2011 Europe North America Manufacturing Restated & Group Elims $m $m $m $m $m $m $m $m Revenue 409.5 491.4 460.5 495.7 - 16.0 870.0 1,003.1 Other income - 0.7 0.9 0.7 1.2 0.6 2.1 2.0 Trading expenses (404.8) (482.0) (456.9) (488.1) (1.8) (17.3) (863.5) (987.4) Result from operating activities before significant items, net finance costs, interest and tax 4.7 10.1 4.5 8.3 (0.6) (0.7) 8.6 17.7 Significant items - operating activities (19.0) (2.2) - - 2.2 1.4 (16.8) (0.8) Significant items - loss on sale of discontinued operations (1) (9.2) - (53.2) - - - (62.4) - Net other finance costs (0.3) (0.1) (0.3) (0.5) - - (0.6) (0.6) Result before interest and tax (23.8) 7.8 (49.0) 7.8 1.6 0.7 (71.2) 16.3 Net interest (1.4) (1.6) (0.9) (1.3) (2.4) (2.2) (4.7) (5.1) Result before tax (25.2) 6.2 (49.9) 6.5 (0.8) (1.5) (75.9) 11.2 Tax expense pre-significant items (1.8) (3.2) (1.6) 0.1 - - (3.4) (3.1) Tax expense significant items - operating activities - 0.6 - - - - - 0.6 (Loss)/profit for the period (27.0) 3.6 (51.5) 6.6 (0.8) (1.5) (79.3) 8.7 (1) There was no tax benefit applicable to the loss on sale of discontinued operations.

Cash flows from discontinued operations 2012 2011 $m $m Net cash (used in)/from operating activities (13.4) 25.1 Net cash used in investing activities (13.2) (33.0) Net cash from financing activities (excluding internal transactions) 7.7 35.6 Net cash (used in)/from discontinued operations (18.9) 27.7

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Note 11. Discontinued operations – (continued)

Effect of disposal on the financial position of the Consolidated Entity The effect of the disposal of the USA (North America segment) and Italy (Europe segment) merchanting operations on the financial position of the Consolidated Entity is set out below. North Europe America Total 2012 2012 2012 $m $m $m Current assets Cash and cash equivalents 2.3 11.9 14.2 Trade and other receivables 112.8 45.0 157.8 Inventories 31.1 54.1 85.2 Income tax receivable - 2.3 2.3 Other - 0.2 0.2 Total current assets 146.2 113.5 259.7

Non-current assets Receivables 0.0 0.5 0.5 Property, plant and equipment 2.6 7.7 10.3 Intangible assets 0.5 28.2 28.7 Deferred tax assets 3.0 10.5 13.5 Total non-current assets 6.1 46.9 53.0 Total assets 152.3 160.4 312.7

Current liabilities Bank overdraft 8.7 - 8.7 Trade and other payables 84.7 51.5 136.2 Loans and borrowings 20.0 35.6 55.6 Income tax payable 0.7 0.2 0.9 Employee benefits - 2.2 2.2 Provisions 3.6 - 3.6 Total current liabilities 117.7 89.5 207.2

Non-current liabilities Loans and borrowings - (0.0) (0.0) Deferred tax liabilities - 8.8 8.8 Employee benefits 3.8 - 3.8 Provisions 2.3 - 2.3 Total non-current liabilities 6.1 8.8 14.9 Total liabilities 123.8 98.3 222.1 Total net assets disposed 28.5 62.1 90.6

Gross consideration 59.7 77.1 136.8 Cash and cash equivalents disposed (6.4) 11.9 5.5 Debt disposed (20.0) (35.6) (55.6) Working capital and other adjustments (8.1) (15.5) (23.6) Net proceeds 25.2 37.9 63.1 less Proceeds receivable (1) (25.2) (37.9) (63.1) Net proceeds received, satisified in cash - - - Transaction costs paid (0.8) (0.3) (1.1) Net cash outflow for the period (0.8) (0.3) (1.1) (1) Consideration receivable in the subsequent reporting period. $56.0m of the net proceeds was received in July 2012.

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Note 12. Dividends and distributions (a) Dividends on PaperlinX Limited ordinary shares No dividends have been declared or paid on PaperlinX Limited ordinary shares during the current or comparative reporting periods. Refer Note 29 for restrictions on dividend payments. (b) Distributions on PaperlinX step-up preference securities 2012 2011 $m $m Final distribution paid: • Rate of 7.5317% for the period 1 January 2011 to 30 June 2011 10.6 Interim distribution paid: • Rate of 7.365% for the period 1 July 2010 to 31 December 2010 - 10.6 Total distributions on PaperlinX step-up preference securities - 21.2 The interim distribution rate for the period 1 July 2012 to 31 December 2012 is 8.1933%. The distribution is payable at the discretion of the directors of the Company. In addition, the main lending facility in Europe contains a requirement to obtain lender approval for future hybrid distributions.

Note 13. Cash and cash equivalents 2012 2011 $m $m Cash on hand and at bank 60.0 120.0 Deposits at call 20.0 5.3 Total cash and cash equivalents 80.0 125.3 Under certain regional asset backed loan facilities, lender approval is required to move cash within the Consolidated Entity. Balances subject to these approvals at reporting date were $71.4m (2011: $118.9m).

Note 14. Trade and other receivables 2012 2011 $m $m Trade debtors 583.3 899.4 Provision for impairment losses (26.4) (53.9) Net trade debtors 556.9 845.5 Accrued rebates 27.8 38.3 Amounts receivable on sale of property, plant and equipment, controlled entities and investments 60.9 6.9 Currency option - 31.7 Other debtors 4.6 15.1 Prepayments 21.4 30.4 Total trade and other receivables 671.6 967.9 The Consolidated Entity's exposure to credit and currency risk and impairment losses related to trade and other receivables are disclosed in Note 31. The amount of receivables pledged as part of the regional loan facilities at balance date was $211.1 million (2011: $271.5 million).

Note 15. Inventories 2012 2011 $m $m Finished goods 311.1 445.8 Provision for impairment losses (5.6) (6.4)

Net finished goods 305.5 439.4 For personal use only use personal For Total inventories 305.5 439.4 The amount of provision charged to the Income Statement for diminution in value of inventories was $0.5 million for continuing operations (2011: $(1.7) million) and $0.7 million for discontinued operations (2011: $(4.7) million). The amount of inventories pledged as part of the regional loan facilities in Canada and New Zealand at balance date was $6.8 million (2011: USA, Canada and New Zealand $15.8 million).

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AS AT 30 JUNE 2012

Note 16. Assets and liabilities held for sale On 17 July 2012, the Company announced that it had entered into agreements to sell: its merchanting operations in Slovakia, Hungary, Slovenia, Croatia and Serbia; and its merchanting operations in South Africa. In accordance with AASB 5 – Non-current Assets Held for Sale and Discontinued Operations, the assets and liabilities of these operations have been reclassified as held for sale. An impairment loss of $2.0m was recognised on the remeasurement of the South African disposal group to the lower of its carrying amount and fair value less costs to sell. An impairment reversal of $0.8m was recognised in relation to Tas Paper plant and equipment to reinstate items previously impaired, which were subject to a contract of sale at reporting date. A warehouse, part of the Europe continuing segment, was reclassified as held for sale during the current reporting period. On remeasurement to fair value less costs to sell, an impairment loss of $0.5m was recognised. Refer Note 6 for a summary of impairment charges and reversals for assets held for sale. 2012 2011 $m $m Cash 1.7 - Trade and other receivables 26.3 - Inventories 9.5 - Property, plant and equipment and intangibles 5.8 0.5 Other 0.1 - Total assets held for sale 43.4 0.5 Trade and other payables 12.3 - Loans and borrowings 2.3 - Income tax payable 0.2 - Total liabilities held for sale 14.8 -

Note 17. Receivables - non-current 2012 2011 $m $m Amounts receivable on sale of property, plant and equipment, controlled entities and investments 12.7 4.4 Other debtors 0.6 2.4 Total receivables non-current 13.3 6.8

Note 18. Investments 2012 2011 $m $m Shares in other companies - not listed on stock exchanges: • At cost 2.0 2.5 • Impairment (1.0) (1.0) Total investment in shares in unlisted companies 1.0 1.5 Total investments 1.0 1.5

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AS AT 30 JUNE 2012

Note 19. Property, plant and equipment Land $ million improve- Plant and Leased Land ments Buildings equipment assets Total Cost or deemed cost: Balance at 1 July 2011 7.4 1.6 100.0 442.0 0.8 551.8 Additions - - 0.6 8.2 - 8.8 Disposals (1) - - (2.4) (142.5) - (144.9) Disposal of businesses - - (7.9) (54.2) - (62.1) Transfers from/(to) assets held for sale - - (9.7) (3.9) (0.6) (14.2) Foreign currency movements (0.4) - (2.6) (16.7) (0.2) (19.9) Balance at 30 June 2012 7.0 1.6 78.0 232.9 - 319.5

Depreciation and impairment losses: Balance at 1 July 2011 (2.1) (1.6) (77.1) (398.8) (0.7) (480.3) Depreciation - - (2.0) (10.9) - (12.9) Impairment (1.7) - (2.3) (0.8) (0.1) (4.9) Disposals (1) - - 2.4 142.2 - 144.6 Disposal of businesses - - 7.4 44.5 - 51.9 Transfers (from)/to assets held for sale - - 4.6 3.2 0.6 8.4 Foreign currency movements 0.3 - 1.6 14.9 0.2 17.0 Balance at 30 June 2012 (3.5) (1.6) (65.4) (205.7) - (276.2)

Carrying amount as at 30 June 2012 3.5 - 12.6 27.2 - 43.3

Cost or deemed cost: Balance at 1 July 2010 5.7 1.6 110.4 473.4 0.8 591.9 Additions - - 0.7 9.5 - 10.2 Disposals (0.1) - (2.5) (16.8) - (19.4) Transfers 2.3 - (2.3) (0.7) - (0.7) Foreign currency movements (0.5) - (6.3) (23.4) - (30.2) Balance at 30 June 2011 7.4 1.6 100.0 442.0 0.8 551.8

Depreciation and impairment losses: Balance at 1 July 2010 (2.1) (1.6) (80.1) (420.8) (0.7) (505.3) Depreciation - - (2.5) (12.5) (0.0) (15.0) Disposals - - 1.9 15.6 - 17.5 Foreign currency movements - - 3.6 18.9 - 22.5 Balance at 30 June 2011 (2.1) (1.6) (77.1) (398.8) (0.7) (480.3)

Carrying amount as at 30 June 2011 5.3 - 22.9 43.2 0.1 71.5 (1) Includes $130.8m of fully depreciated Tas Paper plant and equipment scrapped during the reporting period.

Refer Note 20 for details of the impairment review. For personal use only use personal For

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Note 20. Intangible assets and impairment of non-current assets $ million Computer Brand Goodwill software names Other Total Cost or deemed cost: Balance at 1 July 2011 277.3 95.0 16.8 8.4 397.5 Additions - 5.1 - - 5.1 Disposal of businesses (39.7) (16.3) - - (56.0) Transfers - 2.4 - - 2.4 Foreign currency movements (13.0) (8.9) (0.5) (0.2) (22.6) Balance at 30 June 2012 224.6 77.3 16.3 8.2 326.4

Amortisation and impairment losses: Balance at 1 July 2011 (68.4) (62.8) (5.2) (3.8) (140.2) Amortisation - (5.9) - (1.2) (7.1) Impairment (116.3) 0.1 (3.1) - (119.3) Disposal of businesses 14.2 13.7 - - 27.9 Transfers - (2.4) - - (2.4) Foreign currency movements 5.3 5.6 0.3 0.1 11.3 Balance at 30 June 2012 (165.2) (51.7) (8.0) (4.9) (229.8)

Carrying amount as at 30 June 2012 59.4 25.6 8.3 3.3 96.6

Cost or deemed cost: Balance at 1 July 2010 305.1 114.4 19.4 9.7 448.6 Additions - 7.8 - - 7.8 Disposals/retirements - (20.4) - - (20.4) Transfers - 0.7 - - 0.7 Foreign currency movements (27.8) (7.5) (2.6) (1.3) (39.2) Balance at 30 June 2011 277.3 95.0 16.8 8.4 397.5

Amortisation and impairment losses: Balance at 1 July 2010 (1.8) (81.6) (6.1) (3.4) (92.9) Amortisation - (6.8) - (0.9) (7.7) Impairment (68.5) - - - (68.5) Disposals/retirements - 20.4 - - 20.4 Foreign currency movements 1.9 5.2 0.9 0.5 8.5 Balance at 30 June 2011 (68.4) (62.8) (5.2) (3.8) (140.2)

Carrying amount as at 30 June 2011 208.9 32.2 11.6 4.6 257.3

Impairment loss and reversals A summary of the impairment charges/reversals by asset category is as follows:

Property, plant and equipment Intangibles Assets Plant $ million held Build- and Leased Good- Computer 2012 for sale Land ings equip't assets Total will Brands software Total Impairment charges: • Continental Europe (0.5) (1.7) (1.4) - - (3.1) (57.8) (0.5) 0.1 (58.2) • United Kingdom, Ireland, Spain and South Africa - - (0.3) (0.2) - (0.5) (44.3) (2.6) - (46.9) • Australia, New Zealand For personal use only use personal For and Asia - - - (0.2) - (0.2) - - - - Total continuing operations (0.5) (1.7) (1.7) (0.4) - (3.8) (102.1) (3.1) 0.1 (105.1) • Continental Europe - - - (0.1) - (0.1) (14.2) - - (14.2) • United Kingdom, Ireland, Spain and South Africa (2.0) - (0.6) (0.3) (0.1) (1.0) - - - - • Australia, New Zealand and Asia 0.8 ------Total discontinued operations (1.2) - (0.6) (0.4) (0.1) (1.1) (14.2) - - (14.2) Total (1.7) (1.7) (2.3) (0.8) (0.1) (4.9) (116.3) (3.1) 0.1 (119.3)

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Note 20. Intangible assets and impairment of non-current assets – (continued)

Property, plant and equipment Intangibles Assets Plant $ million held Build- and Leased Good- Computer 2011 for sale Land ings equip't assets Total will Brands software Total Impairment charges: • United Kingdom, Ireland, Spain and South Africa ------(33.4) - - (33.4) • Australia, New Zealand and Asia ------(35.1) - - (35.1) Total continuing operations ------(68.5) - - (68.5)

Total ------(68.5) - - (68.5)

Impairment review As required under AASB 136 Impairment of Assets, the Consolidated Entity performs an impairment assessment when there is an indication or „trigger‟ of a possible impairment of its non-current assets and in addition, at least annually performs an impairment review of goodwill and indefinite life intangible assets, regardless of whether an impairment trigger has been identified. An impairment review was performed at 30 June 2012. Cash generating units For the purposes of undertaking impairment testing for goodwill and indefinite life intangible assets, cash generating units (“CGUs”) are identified. CGUs are the smallest group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The carrying amount of goodwill and intangible assets with an indefinite useful life are as follows: Intangible assets with Goodwill indefinite useful lives

2012 2011 2012 2011 $m $m $m $m Merchanting CGU's • Continental Europe - 78.8 1.1 1.8 • United Kingdom, Ireland, Spain and South Africa (1) - 42.8 7.2 9.8 • USA (2) - 25.1 - - • Canada 34.7 36.7 - - • Australia, New Zealand and Asia 24.7 25.5 - - 59.4 208.9 8.3 11.6 (1) South Africa is held for sale and presented as part of discontinued operations – refer Note 11. South Africa has no goodwill or intangible assets with indefinite useful lives. (2) Sale of USA operations announced 26 June 2012 - refer Note 11. Goodwill reversed to profit and loss on disposal. Impairment testing Impairment testing compares the carrying value of an individual asset or CGU with its recoverable amount based on a value in use calculation.

For personal use only use personal For

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Note 20. Intangible assets and impairment of non-current assets – (continued)

Assumptions The assumptions used for determining the recoverable amount of each asset and CGU are based on past experience and expectations for the future. Cash flow projections have been based on Management approved budgets and forecasts. These budgets and forecasts use management estimates to determine income, expenses, working capital movements, capital expenditure and cash flows for each CGU. The projected cash flows for each CGU are discounted using an appropriate discount rate and terminal growth rate for the CGU. The following assumptions have been used in determining the recoverable amount of CGUs to which goodwill or indefinite life intangible assets have been allocated: Discount rates: Continental Europe – 11.4% (2011: 12.1%), United Kingdom, Ireland, Spain and South Africa – 12.5% (2011: 12.4%), Canada – 12.3% (2011: 12.3%) and Australia, New Zealand and Asia – 14.1% (2011: 14.1%). The discount rates represent the pre-tax discount rate applied to the cash flow projections. The discount rates reflect the market determined, risk adjusted discount rates. Terminal growth rate: Terminal growth rate: 2.0% (2011: 2.0%). The terminal growth rate represents the growth rate applied to extrapolate cash flows beyond the five year forecast period. The growth rate is based upon expectations of the CGUs' long-term performance. Gross margin: An overall improvement in gross profit percentage as a result of a change in the sales mix from lower margin core paper to higher margin diversified products over the forecast period and operational efficiencies in the core paper business. Trading expenses: An overall improvement in the ratio of trading expenses to sales as a result of certain Board approved restructuring programs and operating efficiencies over the forecast period. Sales volumes: For the core paper business, sales volumes are forecast to remain flat or decline based on industry forecasts for each CGU. For the diversified business, volume growth is based on management‟s estimates of market growth and market share. Sales prices: Forecast to increase or decrease based on assumptions about local industry conditions and, where relevant, exchange rates.

Results - goodwill The valuations for Continental Europe CGU and United Kingdom, Ireland, Spain and South Africa CGU exceed net assets. However, testing at the country level within both CGUs highlighted several operations where the carrying value of net assets exceeded the valuation. Ongoing weak demand for core paper products in Continental Europe and the United Kingdom combined with a subdued outlook for paper in the foreseeable future has resulted in an impairment charge of $72.0m being booked against the carrying value of goodwill in the Continental Europe CGU and an impairment charge of $44.3m being booked against the carrying value of goodwill in the United Kingdom, Ireland, Spain and South Africa CGU. The impairment charges both fall within the merchanting Europe segment and have been disclosed as impairment of intangible assets in the income statement. In the prior comparative period, an impairment charge of $35.1m was booked against the carrying value of goodwill in the Australia, New Zealand and Asia CGU, and goodwill impairment of $33.4m was booked in the United Kingdom, Ireland, Spain and South Africa CGU.

Sensitivity analysis - goodwill Continental Europe: Following the impairment charge of $72.0m, there is no goodwill remaining in the Continental Europe CGU. United Kingdom, Ireland, Following the impairment charge of $44.3m, there is no goodwill remaining in the United Kingdom, Ireland, Spain and South Africa: Spain and South Africa CGU. Canada: The recoverable amount for this CGU comfortably exceeds the carrying value. There would need to be a significantly adverse movement in one or more key assumptions, being core paper volumes, gross margin, trading expenses to sales or selling prices, in order for an impairment to arise in future reporting periods. Australia, New Zealand Following the impairment charge of $35.1m booked against goodwill in Australia in the prior reporting period, and Asia: the recoverable amount of the CGU comfortably exceeds the carrying value. There would need to be a significantly adverse movement in one or more key assumptions, particularly paper gross margin or trading expenses to sales, in order for an impairment to arise.

Results – other intangible assets Brand names are valued based upon a royalty stream valuation methodology. Using this methodology, management identified several brands which have experienced volume reductions and projected a similar negative outlook in the forecast period used for the valuation model. As a result, an impairment charge of $3.1m has been booked against the carrying value of brand names. The impairment,

For personal use only use personal For relating to the merchanting Europe segment, has been disclosed as impairment of intangible assets in the Income Statement. In the comparative period, no impairment of other intangible assets was identified.

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Note 21. Deferred tax balances 2012 2011 $m $m Deferred taxes Deferred tax assets 40.6 52.6 Deferred tax liabilities (2.2) (12.6) Net deferred tax balances 38.4 40.0 Movement in net deferred tax balances during the reporting period: Opening balance 40.0 48.3 Recognised in profit or loss (4.9) (5.9) Recognised in other comprehensive income 8.0 (2.4) Disposal of controlled entities and businesses (1) (4.7) - Closing balance 38.4 40.0 Deferred tax balances are attributable to the following: Provisions and employee benefits 26.4 23.4 Tax losses 13.2 21.9 Foreign tax credits carried forward - 3.1 Inventories - (6.8) Property, plant and equipment (0.8) (3.2) Intangible assets (1.8) (3.2) Accrued expenses not claimed - 0.3 Other items 1.4 4.5 Net deferred tax balances 38.4 40.0

Unrecognised deferred tax assets (2) Capital losses - no expiry date 149.8 149.2 Revenue losses - no expiry date 240.2 228.8 Total unrecognised deferred tax assets 390.0 378.0 (1) This amount relates to deferred tax balances for the USA and Italian merchanting operations on disposal during the current reporting period. (2) Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Consolidated Entity can utilise the benefits thereon.

Note 22. Trade and other payables 2012 2011 $m $m Trade creditors 332.7 548.8 Accrued expenses 9.3 17.3 Sales tax, GST and VAT 27.4 38.3 Rebates 16.7 19.6 Other creditors 55.6 107.9 Total trade and other payables 441.7 731.9

For personal use only use personal For

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Note 23. Loans and borrowings (a) Current Nominal interest Year of 2012 2011 Currency rate (1) Maturity $m $m • Bank loans - secured (2) EUR CP Rate (3) 2013 (9) 34.3 1.3 • Bank loans - secured (2) GBP CP Rate (3) 2013 (9) 112.4 3.3 • Bank loans - secured (2) AUD BBSR (5) 2016 (10) 16.0 23.7 • Bank loans - secured (2) NZD BKBM (6) 2014 (10) 2.7 3.8 • Bank loans - secured (2) EUR Euribor (7) 2012-13 - 27.7 • Other bank loans - secured EUR various various 5.8 0.6 • Capitalised borrowing costs (0.6) (0.7) Bank loans - secured 170.6 59.7 Bank loans - unsecured various various various 5.2 3.3 Finance lease liabilities - 0.1 Total loans and borrowings - current 175.8 63.1

(b) Non-current

• Bank loans - secured (2) EUR CP Rate (3) 2013 (9),(10) - 47.9 • Bank loans - secured (2) GBP CP Rate (3) 2013 (9),(10) - 122.7 • Bank loans - secured (2) GBP BBLR (8) 2014 34.0 16.3 • Bank loans - secured (2) AUD BBSR (5) 2016 (10) - 3.8 • Bank loans - secured (2) USD Prime 2016 - 22.7 • Bank loans - secured (2) CAD C Prime (4) 2016 16.4 13.7 • Bank loans - secured (2) NZD BKBM (6) 2014 (10) 2.2 - • Capitalised borrowing costs (0.6) (3.0) Bank loans - secured 52.0 224.1 Other loans - unsecured - 0.1 Total loans and borrowings - non-current 52.0 224.2 (1) Excludes company specific margins. (2) These bank loans are facilities secured by certain assets. (3) CP Rate: Commercial Paper Rate. (4) C Prime: Canadian Prime rate. (5) BBSR: Bank Bill Swap Rate. (6) BKBM: Bank Bill Market Rate. (7) Euribor: Euro Inter Bank Offer Rate (8) BBLR: Bank Based Lending Rate. (9) As this facility may either be renewed or refinanced prior to 30 June 2013, the borrowing has been reclassified as a current liability. (10) The Consolidated Entity has the discretion and intention to extend a portion of these facilities for at least twelve months from balance date. The amount that has been determined as non-current is the lowest expected balance of these facilities in the twelve month period post balance date based upon Management approved budgets.

The regional asset backed facilities in Australia, NZ, Canada and Europe have availability periods of between 1 to 4 years, and include regional covenant measures. These will vary by region and may include fixed charge coverage ratios, interest cover, EBITDA, net worth tests and gearing levels. These facilities have restrictions on the ability to draw down and move cash within the Consolidated Entity. The regional asset backed facilities in Australia, New Zealand and Europe involve the sale of receivables. In Canada, the regional facility is secured by both receivables and inventory. In the United Kingdom, the facility is secured by receivables.

(c) Reconciliation of consolidated loans and borrowings

2012 2011 Note $m $m Current loans and borrowings 175.8 63.1 Non-current loans and borrowings 52.0 224.2

For personal use only use personal For Total loans and borrowings 227.8 287.3 Cash and cash equivalents 13 (80.0) (125.3) Bank overdrafts - 9.8 Net loans and borrowings 147.8 171.8

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Note 24. Employee benefits (a) Current 2012 2011 Note $m $m Leave entitlements 6.4 9.2 Workers' compensation (1) 3.1 4.9 Other entitlements 0.3 1.3 Total current employee benefits 9.8 15.4

(b) Non-current Defined benefit obligations 32 105.9 88.5 Leave entitlements 0.6 0.8 Directors' retirement allowances (2) - 1.4 Other entitlements 2.6 4.3 Total non-current employee benefits 109.1 95.0 (1) Amounts provided for self-insured workers’ compensation in Victoria and Tasmania. (2) In the comparative period, these benefits related to Non-executive Directors of the Company appointed before 31 December 2006 and were in accordance with the Company’s Constitution and with agreements between the Company and individual Directors, and were frozen in 2006. An earnings rate equal to the 5 year Australian Government Bond Rate applied to frozen entitlements. All outstanding entitlements were paid out during the current reporting period.

(c) Total employee benefits

Current 9.8 15.4 Non-current 109.1 95.0 Total employee benefits 118.9 110.4

For personal use only use personal For

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Note 25. Provisions (a) Current Step-up Preference Securities $ million distrib- Tas Paper Restruct- utions closure uring Other Total Balance at 1 July 2011 - 8.4 12.6 2.5 23.5 Provided/(released) during the year - - 19.0 1.4 20.4 Paid during the year - (5.5) (10.5) (1.1) (17.1) Transfers - 5.7 1.8 0.7 8.2 Disposal of businesses - - (3.0) (0.6) (3.6) Foreign currency movements - - (1.3) (0.1) (1.4) Balance at 30 June 2012 - 8.6 18.6 2.8 30.0

Balance at 1 July 2010 - 34.4 2.6 4.1 41.1 Provided/(released) during the year 21.2 0.5 9.5 0.9 32.1 Paid during the year (21.2) (32.1) (4.5) (3.1) (60.9) Transfers - 5.6 5.4 0.9 11.9 Foreign currency movements - - (0.4) (0.3) (0.7) Balance at 30 June 2011 - 8.4 12.6 2.5 23.5

(b) Non-current

Balance at 1 July 2011 - 4.6 2.8 7.5 14.9 Provided/(released) during the year - (0.1) 6.9 0.1 6.9 Paid during the year - - - (0.3) (0.3) Transfers - (5.7) (1.8) (0.7) (8.2) Unwind of discount - 1.2 - 0.6 1.8 Disposal of businesses - - - (2.3) (2.3) Foreign currency movements - - (0.5) (0.2) (0.7) Balance at 30 June 2012 - - 7.4 4.7 12.1

Balance at 1 July 2010 - 12.0 3.6 5.0 20.6 Provided/(released) during the year - (3.4) 3.5 4.7 4.8 Transfers - (5.6) (4.1) (2.2) (11.9) Unwind of discount - 1.6 - 0.4 2.0 Foreign currency movements - - (0.2) (0.4) (0.6) Balance at 30 June 2011 - 4.6 2.8 7.5 14.9

(c) Total provisions Balance at 30 June 2012 Current - 8.6 18.6 2.8 30.0 Non-current - - 7.4 4.7 12.1 Total provisions - 8.6 26.0 7.5 42.1

Balance at 30 June 2011 Current - 8.4 12.6 2.5 23.5 Non-current - 4.6 2.8 7.5 14.9 Total provisions - 13.0 15.4 10.0 38.4

Dividends

A provision for dividends is raised when a dividend is declared. Refer Note 12 for further details of dividends. No dividends were For personal use only use personal For declared during the current or comparative reporting periods.

Step-up preference securities distributions A provision for step-up preference securities distributions is raised when a distribution is declared. Refer Note 12 for further details of distributions.

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Note 25. Provisions – (continued)

Tas Paper closure The decision to close the Tasmanian paper manufacturing operations (refer Note 11) resulted in provisions being raised in prior reporting periods for: Environmental works at the Burnie and Wesley Vale mills. The remaining work is expected to be completed within the next 12 months. Redundancy payments to be made in accordance with employee's rights under their contract of employment or industrial awards (excluding entitlements to annual and long service leave and accrued wages). Other costs associated with the Tas Paper closure, including transaction costs (e.g. legal and consulting fees), additional labour and termination of long-term supply agreements. The remaining costs are expected to be incurred within the next 12 months.

Restructuring Provisions have been raised for the costs associated with employee redundancies, relocation, office/warehouse closure costs and onerous contracts arising from restructuring programs in the United Kingdom, Europe, Canada and Australia.

Other Other provisions relate to remediation for the discontinued Australian Paper operations, and provisions relating to agents and onerous contracts in Europe.

Note 26. Payables - non-current 2012 2011 $m $m Other creditors 1.3 1.4 Total payables non-current 1.3 1.4

Note 27. Share capital 2012 2011 $m $m Issued capital Issued and paid-up share capital - 609,280,761 ordinary shares (2011: 603,580,761) 1,894.0 1,891.4 Employee share plan loans (0.5) (0.7) Total issued capital 1,893.5 1,890.7

Movement in employee share plan loans: Balance at beginning of reporting period (0.7) (0.8) Loans forgiven - forfeited entitlements 0.2 0.1 Balance at end of reporting period (0.5) (0.7)

2012 2011 thousands thousands of shares of shares Movement in issued shares Ordinary shares on issue at beginning of reporting period 603,580.8 603,580.8 Shares issued under employee short and long-term incentive plans 5,700.0 - Ordinary shares on issue at end of reporting period 609,280.8 603,580.8 The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid. Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders‟ meetings. In the event of winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation. The Consolidated Entity has granted share options and rights to executives and other employees. Share options and rights granted under employee share plans carry no entitlement to dividends and no voting rights. Refer Note 30 for details of rights and options issued under employee share plans.

For personal use only use personal For

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Note 28. Reserves

Reserve for own shares The reserve for own shares represents the cost of shares held by an equity compensation plan by the Consolidated Entity. This reserve will be reversed against share capital when the underlying shares vest to the employee. No gain or loss is recognised in the Income Statement on the purchase, sale, issue or cancellation of the Consolidated Entity‟s own equity instruments. Further information on own shares is contained in Note 30.

Exchange fluctuation reserve The exchange fluctuation reserve records the foreign currency differences arising from the translation of the financial statements of foreign subsidiaries and the impact of transactions that form part of the Company‟s net investment in a foreign operation, net of tax. Refer to Note 3(l).

Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of the cash flow hedging instruments relating to the hedged transactions that have not yet occurred.

Employee share plans reserve The reserve relates to equity settled share options and rights granted to employees under employee share plans. Further information on share-based payments is set out in Note 30.

Note 29. PaperlinX Step-up Preference Securities The PaperlinX SPS Trust was established for the purpose of issuing a new security called PaperlinX Step-up Preference Securities ("PSPS"). The PSPS are perpetual, preferred units in the PaperlinX SPS Trust and on 30 March 2007, 2,850,000 PSPS were issued at an issue price of $100 per security, raising $285 million. The PSPS are listed on the ASX under „PXUPA‟. Distributions on the PSPS are at the discretion of The Trust Company (RE Services) Limited (“the Responsible Entity”) and ultimately, the Directors of PaperlinX Limited. Distributions are paid on a floating rate, unfranked, non-cumulative, discretionary and semi-annual basis. If a distribution is not paid in full, the distribution does not accumulate and may never be paid on the PSPS. If a distribution is not paid in full, the Company will be restricted from paying dividends or making other distributions on any class of its share capital until such time as two consecutive distributions are paid by the PaperlinX SPS Trust or an optional distribution is paid equal to the unpaid amount of scheduled distributions for the 12 months preceding (but not including) the payment date of the optional distribution. In addition, the main lending facility in Europe contains a requirement to obtain lender approval for future hybrid distributions. The distribution rate was the 180 day bank bill swap rate plus a margin of 2.40%. On the first periodic remarketing date 30 June 2012 the PSPS were stepped-up so that the distribution rate for future discretionary distributions will be the 180 day bank bill swap rate plus a margin of 4.65%. The next remarketing date is 31 December 2012. During the reporting period no distribution (2011: $21.2 million) was paid on the PSPS - refer Note 12(b) for details of distributions.

Note 30. Share-based payments arrangements At 30 June 2012, the Consolidated Entity has the following share-based payment arrangements:

Employee share plan loans Loans to Executive Directors, officers and employees in the full-time employment of the Consolidated Entity were made in accordance with the Employee Share Purchase (Non-recourse Loan) Plan to provide financial assistance to enable Executive Directors and employees of the Consolidated Entity to purchase shares in the Company as approved by the Company shareholders. The plan ceased in 2004. The shares were treated as options, and the fair value of those options was recognised in the accounts of the Consolidated Entity in prior reporting periods. The loans are interest free and are reduced either by dividends paid on the shares or by proceeds from sale of the shares in case of forfeiture. Loans to executives to acquire shares in an entity subsequently acquired by the Company were made under an Executive Share Purchase Plan in 1989. The plan is closed. The loans are interest free. 50% of dividends are used to pay down the loans, and employees have two years after termination of employment to repay outstanding loan balances. Loans remaining under both loan plans will be repaid. Refer Note 27 for a reconciliation of movements in employee share plan loan balances.

For personal use only use personal For

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Note 30. Share-based payments arrangements – (continued)

Employee shares In prior reporting periods, as part of a senior executive long-term incentive plan, shares in the Company were purchased "on market" at a cost of $9.7 million. The shares did not vest and are recorded in the statement of financial position in the reserve for own shares - refer Note 28. The fair value of the shares was expensed over the applicable measurement period of the specified performance criteria in prior reporting periods. The shares are held in trust. The voting rights attached to the shares are held in trust, and the dividends attached to the shares are retained by the trust. Shares retained in the trust are available to satisfy future issues under other share-based payment arrangements. During the reporting period 4,886,832 shares were distributed from the reserve to satisfy issues under other share-based payment plans. The reconciliation of the number of shares purchased under the plan that are available for distribution under current share-based payment arrangements is as follows: New shares Opening issued Closing balance Distributed to plan balance 2012 Number of shares 191,280 (4,886,832) 5,700,000 1,004,448 2011 Number of shares 1,364,510 (1,173,230) - 191,280 None of the shares retained by the trust at 30 June 2012 or 30 June 2011 have vested. The shares on hand at the reporting date have an aggregate fair value of $0.06 million (2011: $0.03 million).

Options The Company has issued options to certain senior management at a fixed exercise price at a date in the future subject to specific performance criteria being achieved. If exercised, the exercise price is recognised in equity. The options are independently valued at the grant date. These values have been determined using an appropriate valuation model (either Monte Carlo simulation model or a discounted cash flow technique, as appropriate) incorporating assumptions in relation to the following: the life of the option; the vesting period; the volatility in the share price (range of 20.0 per cent to 70.0 per cent); the dividend yield (range of Nil per cent to 7.25 per cent); and the risk-free interest rate (range of 4.4 per cent to 5.95 per cent). The value of the option is expensed to the Income Statement over the applicable measurement period. In the event that the specified performance criteria are not fully achieved, the number of options will be proportionally reduced. At balance date there are 744,153 (2011: 4,494,454) unissued shares of the Company which are under option. Each option entitles the holder to purchase one fully paid ordinary share in the Company at the exercise price, subject to the satisfaction of the terms of the option agreements. The details of options on issue at balance date and movements during the reporting period are as follows:

2012 Number of options Initial Fair measurement/ Exer- value at Exercisable service cise date of Balance 1 Balance 30 at balance Grant date date Expiry date price grant July 2011 Granted Lapsed Exercised June 2012 date 14/4/2000 14/4/2003 (1) $3.13 $0.36 25,000 - - - 25,000 25,000 20/11/2000 20/11/2003 (1) $3.32 $0.33 20,000 - - - 20,000 20,000 19/4/2001 19/4/2004 (1) $3.50 $0.92 110,000 - (90,000) - 20,000 20,000 13/9/2001 13/9/2004 (1) $4.12 $0.47 56,200 - (27,000) - 29,200 29,200 20/9/2002 20/9/2005 20/9/2012 $5.13 $0.64 35,000 - (19,000) - 16,000 16,000 18/6/2003 18/6/2006 (1) $4.76 $0.50 150,000 - (150,000) - - - 24/8/2007 24/8/2010 24/8/2017 $3.80 $1.05 89,654 - (89,654) - - - 30/10/2008 30/10/2011 30/10/2018 $2.05 $0.51 916,700 - (872,047) - 44,653 44,653 11/12/2009 30/12/2012 11/12/2016 $0.49 $0.30 1,430,860 - (1,235,770) - 195,090 - 19/10/2010 31/8/2013 7/8/2017 $0.64 $0.16 1,661,040 - (1,266,830) - 394,210 - 4,494,454 - (3,750,301) - 744,153 154,853 Weighted average For personal use only use personal For exercise price $1.25 - $1.28 - $1.15 $3.28 (1) Options issued to employees on commencement of employment are not subject to performance conditions and do not have an expiry date. However, on termination, vested options must be exercised within a specified period of the termination date (not exceeding twelve months).

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Note 30. Share-based payments arrangements – (continued)

2011 Number of options Initial Fair measurement/ value at Exercisable service Exercise date of Balance 1 Balance 30 at balance Grant date date Expiry date price grant July 2010 Granted Lapsed Exercised June 2011 date 14/4/2000 14/4/2003 (1) $3.13 $0.36 35,000 - (10,000) - 25,000 25,000 20/11/2000 20/11/2003 (1) $3.32 $0.33 25,000 - (5,000) - 20,000 20,000 19/4/2001 19/4/2004 (1) $3.50 $0.92 270,000 - (160,000) - 110,000 110,000 13/9/2001 13/9/2004 (1) $4.12 $0.47 66,200 - (10,000) - 56,200 56,200 20/9/2002 20/9/2005 20/9/2012 $5.13 $0.64 89,000 - (54,000) - 35,000 35,000 18/6/2003 18/6/2006 (1) $4.76 $0.50 150,000 - - - 150,000 150,000 24/8/2007 24/8/2010 24/8/2017 $3.80 $1.05 502,430 - (412,776) - 89,654 89,654 30/11/2007 30/6/2010 30/11/2017 $3.80 $0.37 500,000 - (500,000) - - - 30/11/2007 30/11/2010 30/11/2017 $3.80 $0.47 149,120 - (149,120) - - - 30/10/2008 30/10/2011 30/10/2018 $2.05 $0.51 1,334,370 - (417,670) - 916,700 - 11/11/2008 11/11/2011 11/11/2018 $2.05 $0.53 293,010 - (293,010) - - - 14/11/2008 14/11/2011 (1) $1.35 $0.57 150,000 - (150,000) - - - 11/12/2009 30/12/2012 11/12/2016 $0.49 $0.30 4,044,931 - (2,614,071) - 1,430,860 - 19/10/2010 31/8/2013 7/8/2017 $0.64 $0.16 - 1,661,040 - - 1,661,040 - 7,609,061 1,661,040 (4,775,647) - 4,494,454 485,854 Weighted average exercise price $1.64 $0.64 $1.65 - $1.25 $4.11 (1) Options issued to employees on commencement of employment are not subject to performance conditions and do not have an expiry date. However, on termination, vested options must be exercised within a specified period of the termination date (not exceeding twelve months).

Since balance date up to the date of this report, 589,300 options have lapsed in respect of the plan period ended 30 June 2012. In addition, no options on issue at balance date have been exercised up to the date of this report.

Rights The Company has offered rights to certain senior management to receive shares at an exercise price of $Nil at a date in the future, subject to specific performance criteria being achieved. The rights are independently valued at the grant date using the Monte Carlo simulation model or a discounted cash flow technique. The value of the right is expensed to the Income Statement over the applicable measurement period. In the event that the specified performance criteria are not fully achieved, the number of rights will be proportionally reduced. At reporting date there are 4,000,553 (2011: 12,336,327) unissued shares of the Company which are subject to performance rights. Each performance right entitles the holder to receive one fully paid ordinary share in the Company when the relevant performance conditions are met. The details of the performance rights on issue at balance date and movements during the reporting period are as follows:

2012 Number of rights Initial Fair value measurement/ Exercise at date Balance 1 Balance 30 Grant date service date Expiry date price of grant July 2011 Granted Lapsed Exercised June 2012 24/8/2007 31/8/2010 27/8/2017 $nil $2.65 193,010 - (193,010) - - 30/10/2008 30/6/2011 (1) $nil $1.30 1,295,567 - - (1,295,567) - 30/10/2008 31/8/2011 27/8/2018 $nil $1.18 387,120 - (368,450) - 18,670 30/11/2009 31/10/2011 (1) $nil $0.47 3,099,000 - (10,000) (3,089,000) - 11/12/2009 31/8/2012 11/12/2016 $nil $0.47 858,520 - (741,465) - 117,055 11/12/2009 29/8/2012 (1) $nil $0.50 391,730 - (107,120) (236,050) 48,560 7/8/2010 7/8/2012 (1) $nil $0.60 3,425,000 - (135,000) (245,000) 3,045,000 19/10/2010 30/6/2013 (1) $nil $0.39 1,689,760 - (1,533,807) (21,215) 134,738 19/10/2010 31/8/2013 (1) $nil $0.32 996,620 - (760,090) - 236,530 20/6/2012 1/8/2013 (1) $nil $0.06 - 400,000 - - 400,000 12,336,327 400,000 (3,848,942) (4,886,832) 4,000,553

For personal use only use personal For (1) These performance rights have no expiry date. They vest and are automatically exercised at the end of the service period, subject to meeting performance criteria.

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Note 30. Share-based payments arrangements – (continued)

2011 Number of rights Initial Fair value measurement/ Exercise at date Balance 1 Balance 30 Grant date service date Expiry date price of grant July 2010 Granted Lapsed Exercised June 2011 24/8/2007 31/8/2010 27/8/2017 $nil $2.65 1,030,090 - (837,080) - 193,010 27/8/2007 31/8/2010 (1) $nil $3.19 244,524 - - (244,524) - 30/11/2007 30/6/2010 30/11/2017 $nil $2.25 500,000 - (500,000) - - 30/11/2007 31/8/2010 27/8/2017 $nil $1.54 313,160 - (313,160) - - 30/10/2008 30/6/2011 (1) $nil $1.30 1,733,564 - (197,471) (240,526) 1,295,567 30/10/2008 31/8/2011 27/8/2018 $nil $1.18 595,680 - (208,560) - 387,120 11/11/2008 31/8/2011 27/8/2018 $nil $1.22 439,510 - (439,510) - - 30/11/2009 31/10/2011 (1) $nil $0.47 3,744,000 - (275,000) (370,000) 3,099,000 11/12/2009 31/8/2012 11/12/2016 $nil $0.47 3,583,042 - (2,724,522) - 858,520 11/12/2009 29/8/2012 (1) $nil $0.50 3,501,953 - (3,012,043) (98,180) 391,730 7/8/2010 7/8/2012 (1) $nil $0.60 - 3,820,000 (175,000) (220,000) 3,425,000 19/10/2010 30/6/2013 (1) $nil $0.39 - 1,689,760 - - 1,689,760 19/10/2010 31/8/2013 (1) $nil $0.32 - 996,620 - - 996,620 15,685,523 6,506,380 (8,682,346) (1,173,230) 12,336,327 (1) These performance rights have no expiry date. They vest and are automatically exercised at the end of the service period, subject to meeting performance criteria.

Since balance date up to the date of this report, 545,452 rights have lapsed in respect of the plan period ended 30 June 2012. No rights on issue at balance date have been exercised. In addition, no rights have been issued since balance date up to the date of this report. No rights were exercisable as at balance date.

Share-based payments expense 2012 2011 $m $m Equity settled share-based payments expense (0.4) (1.8) Total share-based payments expense (0.4) (1.8)

Note 31. Financial risk management and financial instrument disclosures

Overview The Consolidated Entity has exposure to the following risks from its use of financial instruments: Credit risk Liquidity risk Market risk. This note presents information about the Consolidated Entity‟s exposure to each of the above risks, its objectives, policies and processes for measuring and managing risk, and the management of capital. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has established the Audit Committee, which is responsible for developing and monitoring risk management policies. The Audit Committee reports periodically to the Board of Directors on its activities. Risk management policies and procedures have been established to identify and analyse the risks faced by the Consolidated Entity, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Consolidated Entity‟s activities. The Consolidated Entity, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Audit Committee oversees how management monitors compliance with the Consolidated Entity‟s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Consolidated Entity. The Audit Committee is assisted in its oversight role by the Internal Audit and Risk Management function. Internal Audit and Risk Management personnel undertake both regular and ad hoc reviews of risk management controls and procedures, the results of which

are reported to senior management and the Audit Committee. For personal use only use personal For

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Note 31. Financial risk management and financial instrument disclosures – (continued)

Credit risk Credit risk is the risk of financial loss to the Consolidated Entity if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Trade and other receivables The credit risk on financial assets of the Consolidated Entity, other than investments in shares, is the carrying amount of receivables, net of provisions for impairment loss against doubtful debts. The Consolidated Entity minimises its concentrations of this credit risk by undertaking transactions with a large number of customers and counterparties in various countries. Apart from the United Kingdom, no country has more than 10 percent of the Consolidated Entity‟s trade and other receivables. With the exception of one customer in Denmark and Slovenia, no individual customers comprise more than 10 percent of an individual country‟s trade and other receivables balance at balance date. The Consolidated Entity has established a credit policy under which each new customer is analysed individually for creditworthiness before appropriate payment and delivery terms and conditions are offered. The Consolidated Entity‟s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer and approved per authority levels outlined in the credit policy. These limits are reviewed in accordance with the credit policy frequency guidelines. Customers that fail to meet the Consolidated Entity‟s benchmark creditworthiness may transact with the Consolidated Entity only on a prepayment or cash only basis. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, geographic location, industry, ageing profile, maturity and existence of previous financial difficulties. The Consolidated Entity‟s trade and other receivables relate mainly to the Consolidated Entity‟s wholesale customers. Sales to customers that are graded as “high risk” are on a prepayment or cash only basis. Goods are sold subject to retention of title clauses or, where applicable, the registration of a security interest, so that in the event of non- payment the Consolidated Entity may have a secured claim. In certain circumstances the Consolidated Entity requires collateral or personal guarantees in respect of trade and other receivables. The Consolidated Entity has established an allowance for impairment that represents their estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on amounts owing beyond specified credit terms. The Consolidated Entity also utilises credit insurance in certain jurisdictions as a further measure to mitigate credit risk.

Foreign exchange contracts In order to manage any exposure which may result from non-performance by counterparties, foreign exchange contracts are only entered into with major financial institutions. In addition, the Board must approve these financial institutions for use, and specific internal guidelines have been established with regard to instruments, limits, dealing and settlement procedures. The maximum credit risk exposure on foreign exchange contracts is the full amount of the foreign currency the Consolidated Entity pays when settlement occurs, should the counterparty fail to pay the amount which it is committed to pay the Consolidated Entity. Guarantees Details of guarantees provided by the Company and the Consolidated Entity are detailed in Note 34 and Note 37 respectively.

Liquidity risk Liquidity risk is the risk that the Consolidated Entity will not be able to meet its financial obligations as they fall due. The Consolidated Entity‟s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Consolidated Entity‟s reputation. Typically the Consolidated Entity ensures that it has sufficient cash on demand to meet expected operational expenses including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In managing liquidity risk around debt maturing in the short-term, management commence negotiation with the relevant counterparties at the earliest opportunity in order to obtain a satisfactory extension of required funding beyond the maturity date. Where appropriate, other courses of action are taken in parallel in order to minimise liquidity risk. Such action could include sourcing of new finances, the raising of capital, or sale of non-core assets.

Market risk Market risk is the risk that changes in the market prices, such as foreign exchange rates and interest rates, will affect the Consolidated Entity‟s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

For personal use only use personal For The Consolidated Entity enters into Board approved instruments including derivatives, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the policies approved by the Board. The Consolidated Entity does not enter into commodity contracts.

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Note 31. Financial risk management and financial instrument disclosures – (continued)

Currency risk - transactional The Consolidated Entity is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the group entities. The major functional currencies of the group entities are the Australian dollar (AUD), the Euro (EUR), Sterling (GBP) and Canadian dollar (CAD). Primarily the transactions undertaken by the group entities are denominated in their functional currency. In relation to recognised assets and liabilities denominated in a currency other than the entity's functional currency, the Consolidated Entity‟s policy is to hedge all individual foreign currency trading exposures in excess of A$100,000. This is done via a natural hedge, such as a similarly denominated receivable or cash balance, or through approved derivative contracts as soon as a firm and irrevocable commitment is entered into or known. It is the Consolidated Entity‟s policy to recognise both the cost of entering into a forward foreign exchange contract and the net exchange gain/loss arising thereon, between the date of inception and year end, as a net foreign currency receivable or net foreign currency payable in the financial statements. This is calculated by reference to the movement in the fair value of the derivative contract from the date of inception of the contract to that at year end. Changes in the fair value of forward exchange contracts that economically hedge monetary assets and liabilities or forecast future cash flows in foreign currencies and for which no hedge accounting is applied are recognised in the Income Statement. Both the changes in fair value of the forward contracts and the unrealised gains and losses relating to the monetary items are recognised as part of “net finance costs” (see Note 9). Accounts payable and interest bearing liabilities, which include amounts repayable in foreign currencies, are shown at their Australian dollar equivalents. All material foreign currency liabilities are either fully hedged or matched by equivalent assets in the same currencies, such assets representing a natural hedge. Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Consolidated Entity, primarily AUD, GBP, EUR and CAD. This provides an economic hedge and no derivatives are entered into for currency risk on interest payments. In respect of other monetary assets and liabilities denominated in foreign currencies, the Consolidated Entity ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

Currency risk - translational Foreign currency earnings translation risk arises predominantly as a result of earnings in EUR, GBP and CAD being translated into AUD and from the location of other individually minor foreign currency earnings. The Consolidated Entity does not enter into derivative contracts to hedge this exposure. Foreign currency net investment translation risk is partially hedged through the Consolidated Entity's policy of originating debt in the currency of the asset, resulting in an overall reduction in the net assets that are translated. The remaining translation exposure is not hedged. Interest rate risk The Consolidated Entity adopts a practice of targeting approximately 40 to 60 percent of its exposure to changes in interest rates on borrowings to be on a fixed rate basis. This can be achieved by entering into interest rate swaps and interest rate options. The Consolidated Entity is exposed to adverse movements in interest rates under various debt facilities. The Consolidated Entity from time to time enters into interest rate swaps that swap floating rate interest bearing liabilities into a fixed rate of interest. The Consolidated Entity, from time to time, enters into interest rate cap options to protect a known worst case rate whilst having the ability to participate in more favourable lower variable interest rates.

Capital management The Consolidated Entity engages in active capital management so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Consolidated Entity defines as net profit before interest and tax divided by total shareholders‟ equity, excluding non-redeemable preference shares. The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. The Consolidated Entity‟s target is to achieve a return on average funds employed (net debt plus total equity) of between 12 and 15 percent. During the year ended 30 June 2012 the return was (25.5) percent (2011: (8.3) percent). This underperformance is largely due to weaker trading performance, losses on sale of USA and Italy, restructuring costs and impairments. In comparison the weighted average interest rate on interest-bearing borrowings was 4.5 percent (2011: 3.4 percent). The Board has established various incentive plans whereby remuneration is through shares in the Company. For this purpose the Consolidated Entity may purchase its own shares on the market. Primarily the shares are intended to be used for issuing shares under the Consolidated Entity‟s share options and rights programme. Buy and sell decisions are made on a specific transaction basis by the Remuneration Committee. The Consolidated Entity has the option to issue „new‟ shares to satisfy these same obligations. The Consolidated Entity does not have a defined share buy-back plan.

For personal use only use personal For

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Note 31. Financial risk management and financial instrument disclosures – (continued)

Exposure to credit risk The carrying amount of the financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: 2012 2011 Note $m $m Current net trade receivables 556.9 845.5 Currency option - 31.7 Forward exchange contracts 0.5 0.2 Current other receivables 114.2 90.5 Total current trade and other receivables 14 671.6 967.9 Interest rate option - 0.2 Non-current other receivables 13.3 6.6 Total non-current trade and other receivables 17 13.3 6.8 Total trade and other receivables 684.9 974.7 Cash and cash equivalents 13 80.0 125.3 764.9 1,100.0 The Consolidated Entity‟s maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was:

2012 2011 $m $m Australia, Asia, New Zealand 138.7 110.8 Europe 496.1 760.7 North America 50.1 103.2 Total trade and other receivables 684.9 974.7 Receivables relate to wholesale and end-user customers. The ageing of trade debtors at the reporting date was: Gross Gross 2012 2011 Note $m $m Not past due 483.6 743.6 Past due 0-30 days 58.9 74.1 Past due 31-120 days 18.4 30.7 Past due 121 days to one year 4.9 7.0 Past due more than one year 17.5 44.0 Total gross trade debtors 14 583.3 899.4

Impairment losses The movement in allowance for impairment in respect of trade debtors during the reporting period was as follows: 2012 2011 Note $m $m Balance at 1 July (53.9) (54.1) Impairment loss recognised (15.4) (23.9) Net write-off 16.4 20.9 Disposal of businesses 22.0 - Foreign currency movements 4.5 3.2 Balance at 30 June 14 (26.4) (53.9) Impairment losses are provided for based on a review of specific amounts receivable at year-end, and a further percentage allowance is made based on an escalating scale of amounts due past credit terms. The percentage is primarily based on historical default rates and management estimates.

For personal use only use personal For When a specific receivable is considered uncollectable it is written off to the Income Statement in the current period. Any provision held in respect of this trade receivable is written back to the Income Statement in the same period. In a number of jurisdictions the Consolidated Entity has credit risk insurance to mitigate its exposure to doubtful debts. Given the difficult trading conditions within the paper industry, the Consolidated Entity cannot guarantee the availability of this insurance in the future to the levels previously provided by the external insurers.

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Note 31. Financial risk management and financial instrument disclosures – (continued)

Exposure to liquidity risk The following are the contractual maturities of financial liabilities, excluding the impact of netting arrangements. Contractual Cash Flows Carrying 1 year or 1 to 5 More than amount Total less years 5 years $m $m $m $m $m 2012 Non-derivative financial liabilities Trade and other payables 442.9 442.9 441.6 1.3 - Interest bearing loans and borrowings 227.8 229.0 176.4 52.6 - Derivative financial liabilities Other foreign exchange contracts 0.1 0.1 0.1 - - 2011 Non-derivative financial liabilities Trade and other payables 729.4 729.4 728.0 1.4 - Bank overdrafts 9.8 9.8 9.8 - - Interest bearing loans and borrowings 287.2 290.9 63.7 227.2 - Finance lease liabilities 0.1 0.1 0.1 - - Derivative financial liabilities Cash flow hedges (1) 3.0 3.0 3.0 - - Other foreign exchange contracts 0.9 0.9 0.9 - -

(1) All cash flow hedges mature within twelve months of balance date.

Exposure to currency risks The Consolidated Entity‟s exposure to foreign currency risk arising on transactions entered into by operating entities of the Consolidated Entity where the transaction currency was not the functional currency of the operating entity was as follows, based on notional amounts: 2012 2011 Currency AUD EUR USD GBP CAD AUD EUR USD GBP CAD Exposure (in AUD) $m $m $m $m $m $m $m $m $m $m Trade and other receivables 0.6 10.3 47.0 0.1 - 1.1 37.5 7.6 1.0 - Trade and other payables (1.0) (32.2) (39.3) (8.6) - (1.3) (56.8) (33.6) (2.1) - Loans and borrowings (1) - (11.8) (1.8) - 40.4 (285.0) (27.2) (24.6) (191.3) 46.1 Gross balance sheet exposure (0.4) (33.7) 5.9 (8.5) 40.4 (285.2) (46.5) (50.6) (192.4) 46.1 Foreign exchange contracts 0.2 25.7 15.5 (2.2) - 285.3 5.5 46.8 126.0 - Net balance sheet exposure (0.2) (8.0) 21.4 (10.7) 40.4 0.1 (41.0) (3.8) (66.4) 46.1 (1) Included in the AUD borrowings in the comparative period is an intercompany AUD loan to an overseas entity. The foreign currency exposure related to this loan was hedged by a currency option.

The following exchange rates were used to translate significant foreign denominated balances into the Consolidated Entity‟s functional currency (AUD) at the end of the reporting period: Reporting date spot rate 2012 2011 EUR 0.8065 0.7032 USD 0.9881 1.0279 GBP 0.6468 0.6335 CAD 1.0370 0.9828

Sensitivity analysis A 10 percent strengthening of the Australian dollar against the following currencies at the reporting date would have increased/(decreased) pre-tax profit by the amounts shown below. This analysis assumes that all other variables, in particular interest

For personal use only use personal For rates, remain constant. The analysis is performed on the same basis for the comparative reporting period. 2012 2011 $m $m EUR 0.7 3.7 USD (1.9) 0.3 GBP 1.0 6.0 CAD (3.7) (4.2)

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Note 31. Financial risk management and financial instrument disclosures – (continued) A 10 percent weakening of the Australian dollar against the above currencies at the reporting date would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

Exposure to interest rate risks

Profile At the reporting date the interest rate profile of the Consolidated Entity‟s interest bearing financial instruments was: Effective Floating Fixed interest interest interest Total rate $m $m $m % (1) 2012 Financial assets Cash and cash equivalents 80.0 - 80.0 0.4 Financial liabilities Interest bearing loans and borrowings (2) 229.0 - 229.0 4.5

2011 Financial assets Cash and cash equivalents 125.3 - 125.3 0.3 Financial liabilities Bank overdrafts 9.8 - 9.8 5.5 Interest bearing loans and borrowings 290.9 - 290.9 3.4 Finance lease liabilities - 0.1 0.1 - (1) Excludes company specific margins. (2) €85m of floating interest rate debt is hedged via an interest rate cap.

Fair value sensitivity analysis for fixed rate instruments The Consolidated Entity does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Consolidated Entity does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss.

Cash flow sensitivity analysis for variable rate instruments An increase of 100 basis points in interest rates at the reporting date would have decreased profit by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for the comparative reporting period. 2012 2011 $m $m Floating interest (2.2) (3.0) A decrease of 100 basis points in interest rates at the reporting date would have an equal and opposite effect on profit by the amounts shown above, on the basis that all other variables remain constant.

For personal use only use personal For

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Note 31. Financial risk management and financial instrument disclosures – (continued)

Fair values Instruments traded on organised markets are valued by reference to market prices prevailing at the reporting date. The carrying values and net fair values of financial assets and liabilities approximate each other as at the reporting date for the Consolidated Entity. The net fair value of foreign exchange contracts is assessed as the estimated amount that the Consolidated Entity expects to pay or receive to terminate the contracts or replace the contracts at their current market rates as at the reporting date. This is based on independent market quotations and determined using standard valuation techniques. The fair value of foreign exchange option contracts is determined by using option pricing models that include externally sourced inputs for a comparable contract at balance date. For forward foreign exchange contracts, the net fair value is taken to be the unrealised gain or loss at the reporting date. The carrying values and net fair values of financial assets and liabilities shown in the statement of financial position are as follows:

Fair value Loans Other Other Total hedging in- and financial financial carrying Fair struments receivables assets liabilities amount value Note $m $m $m $m $m $m 2012 Cash and cash equivalents 13 - 80.0 - - 80.0 80.0 Trade and other receivables - 684.4 - - 684.4 684.4 Foreigh exchange contracts 0.5 - - - 0.5 0.5 Income tax receivable 3.4 3.4 3.4 Investments 18 - - 1.0 - 1.0 1.0 0.5 767.8 1.0 - 769.3 769.3 Trade and other payables - - - (442.9) (442.9) (442.9) Foreign exchange contracts (0.1) - - - (0.1) (0.1) Bank loans - secured - - - (222.6) (222.6) (223.8) Bank loans - unsecured 23 - - - (5.2) (5.2) (5.2) (0.1) - - (670.7) (670.8) (672.0)

2011 Cash and cash equivalents 13 - 125.3 - - 125.3 125.3 Trade and other receivables - 942.6 - - 942.6 942.6 Currency option 14 31.7 - - - 31.7 31.7 Interest rate option 0.2 - - - 0.2 0.2 Foreign exchange contracts 0.2 0.2 0.2 Investments 18 - - 1.5 - 1.5 1.5 32.1 1,067.9 1.5 1,101.5 1,101.5 Bank overdrafts 23 - - - (9.8) (9.8) (9.8) Trade and other payables - - - (729.4) (729.4) (729.4) Foreign exchange contracts (3.9) - - - (3.9) (3.9) Bank loans - secured - - - (283.8) (283.8) (287.5) Bank loans - unsecured - - - (3.4) (3.4) (3.4) Finance lease liabilities 23 - - - (0.1) (0.1) (0.1) (3.9) - - (1,026.5) (1,030.4) (1,034.1)

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Note 31. Financial risk management and financial instrument disclosures – (continued)

Fair value hierarchy The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: inputs for assets or liabilities that are not based on observable market data (unobservable inputs). Level 1 Level 2 Level 3 Total $m $m $m $m 2012 Foreign exchange contracts - receivables - 0.5 - 0.5 - 0.5 - 0.5 Foreign exchange contracts - payables - (0.1) - (0.1) - (0.1) - (0.1)

2011 Foreign exchange contracts - receivables - 0.2 - 0.2 Interest rate option - 0.2 - 0.2 Currency option - 31.7 - 31.7 - 32.1 - 32.1 Cash flow hedges (3.0) (3.0) Foreign exchange contracts - payables - (0.9) - (0.9) - (3.9) - (3.9)

Note 32. Employee retirement benefit obligations The Consolidated Entity participates in a variety of retirement benefit arrangements around the world. The following tables cover the material defined benefit plans, that is those with benefits linked to years of service and/or final salary. The principal benefits of these plans are provided in either a lump sum or pension form, depending on each plan's rules. Many of these plans have been closed off to future new employees, and/or future accrual of benefits for employees. Some plans are backed by external assets such as separate sponsored funds or those backed by insurance policies whereby the Consolidated Entity's cash contributions are either determined by the local plan's actuary, or based on insurance premiums set by the insurer providing the insurance policy. Employee contributions are paid in accordance with each plan's rules. There are other plans that are backed by the assets of the local operating company and therefore there is no requirement for external asset funding. The Consolidated Entity also participates in a variety of other retirement arrangements of a defined contribution nature i.e. where Consolidated Entity and member contributions are fixed according to the plan rules. These plans are accounted for on a cash basis, and their details are not included in the schedules below.

Basis of estimation The expected return on assets assumption has been determined by each local actuary, based on their expectations of future returns for each asset class, as applied to the asset allocation of each fund. The defined benefit obligations have been determined in accordance with the measurement and assumption requirements of AASB119. This requires the projected unit credit method to attribute the defined benefits of employees to past service.

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Note 32. Employee retirement benefit obligations – (continued) 2012 2011 $m $m The amounts recognised in the Statement of Financial Position are determined as follows: Present value of the defined benefit obligation 435.7 428.9 Less fair value of plan assets (333.6) (342.3) Add limitation on recoupment of net surplus position 3.8 1.9 Net liability in the Statement of Financial Position 105.9 88.5

Changes in the present value of the defined benefit obligations are as follows: Balance at the beginning of year 428.9 476.9 Current service costs 4.0 5.0 Interest on obligation 22.5 23.2 Past service costs - (3.4) Actuarial losses on defined benefit obligations 22.5 0.2 Contributions by members 0.4 0.5 Disposal of business (1) (3.9) - Curtailment gain - (0.7) Exchange differences on foreign plans (21.9) (52.2) Benefits paid (17.3) (20.0) Other 0.5 (0.6) Balance at end of year 435.7 428.9

Changes in the fair value of plan assets are as follows: Balance at the beginning of year 342.3 358.8 Expected return on plan assets 21.8 20.7 Actuarial (losses)/gains on fair value of plan assets (14.4) 6.2 Contributions by employer 15.7 14.8 Contributions by members 0.4 0.5 Exchange differences on foreign plans (17.3) (40.4) Benefits paid (15.2) (17.4) Other 0.3 (0.9) Closing fair value of plan assets 333.6 342.3 Less limitation on recoupment of net surplus position (3.8) (1.9) Balance at end of year 329.8 340.4 (1) Due to the sale of Italy during the current reporting period. Refer Note 11 – Discontinued operations. 2012 2011 $m $m Expense recognised in the Income Statement: Current service costs 4.0 5.0 Interest on obligation 22.5 23.2 Expected return on plan assets (21.8) (20.7) Past service costs - (3.4) Curtailment gain - (0.7) Other 0.3 0.3 Total recognised expense 5.0 3.7

Amount recognised in the Statement of Comprehensive Income: Actuarial losses on defined benefit obligations (22.5) (0.2) Actuarial (losses)/gains on fair value of plan assets (14.4) 6.2 Movement in limitation on recoupment of net surplus position (2.3) (1.9) (39.2) 4.1

For personal use only use personal For Less tax effect, where applicable 8.0 (2.4) Total recognised comprehensive (loss)/income (31.2) 1.7

Cumulative actuarial gains and losses recognised in the Statement of Comprehensive Income: Cumulative losses at beginning of year 76.4 92.2 Actuarial losses/(gains) recognised during the year 36.9 (6.0) Exchange differences on foreign plans (4.6) (9.8) Cumulative losses at end of year 108.7 76.4

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Note 32. Employee retirement benefit obligations – (continued)

Principal actuarial assumptions The principal actuarial assumptions at the reporting date used to calculate the net liability and the principal economic assumptions used in making recommendations to determine the employer companies‟ contributions are detailed below. 2012 2011 Discount rate 3.1% to 4.9% 4.0% to 5.75% Salary increase rate 1.7% to 4.0% 1.0% to 4.0% Inflation 2.0% to 3.0% 2.0% to 3.6% Expected asset return 4.7% to 7.6% 4.4% to 7.36%

Plan assets Plan assets are invested in the following categories expressed as a weighted average: 2012 2011 Equity securities 46% 48% Bonds 43% 41% Property 3% 3% Other 8% 8% Total plan assets 100% 100%

Defined benefit plans

Plans as at 30 June 2012 Plans as at 30 June 2011 Defined Defined Plan benefit Surplus/ Plan benefit Surplus/ assets obligation (deficit) assets obligation (deficit) $m $m $m $m $m $m Plans with funded obligations: PaperlinX Superannuation Fund (Australia) 11.7 12.2 (0.5) 9.6 11.0 (1.4) Pension Plan for Employees of PaperlinX Canada 39.2 55.1 (15.9) 45.7 52.1 (6.4) PaperlinX Pensioenfonds (Netherlands) 42.8 42.8 - 43.8 43.8 - Pension Plan for Bührmann Ubbens employees with Nationale Nederlanden (Netherlands) 23.9 29.2 (5.3) 25.0 37.2 (12.2) The Howard Smith Paper Group Pension Scheme (UK) 48.9 56.7 (7.8) 48.7 54.5 (5.8) Robert Horne Group Pension Scheme (UK) 148.4 211.0 (62.6) 150.7 196.2 (45.5) Other 14.9 20.2 (5.3) 16.9 19.9 (3.0) 329.8 427.2 (97.4) 340.4 414.7 (74.3) Other plans funded directly by employer subsidiaries - 8.5 (8.5) - 14.2 (14.2) 329.8 435.7 (105.9) 340.4 428.9 (88.5)

Historical information

2012 2011 2010 2009 2008 $m $m $m $m $m Present value of defined benefit obligation 435.7 428.9 476.9 464.8 521.6 Fair value of plan assets (333.6) (342.3) (358.8) (354.0) (439.1) Deficit in the plans (1) 102.1 86.6 118.1 110.8 82.5

Plan asset (gain)/loss due to experience 14.4 (6.2)

Plan liability (gain)/loss due to experience (4.7) (18.0) For personal use only use personal For (1) Before limitation on recoupment of net surplus positions $3.8 million (2011: $1.9 million; 2010: $nil; 2009: $9.7 million; 2008: $2.5 million).

Future contributions Based on the periodic funding valuations and local funding requirements, the Consolidated Entity estimates $12.5 million in contributions to be paid to its defined benefit plans during the year ending 30 June 2013 (Actual contributions for year ended 30 June 2012: $15.7 million).

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Note 33. Reconciliation of cash flows from operating activities 2012 2011 Note $m $m Reconciliation of loss after tax to net cash from operating activities

Loss for the period (266.7) (108.0) Add back non-cash items: • Depreciation and amortisation of property, plant, equipment and intangibles 20.0 22.7 • Impairment of property, plant, equipment and intangibles 6 125.9 68.5 • Loss on disposal of controlled entities 6 62.4 - • Profit on disposal of property, plant and equipment (0.9) (1.4) • Revaluations of assets held for sale - (1.8) • Employee share based payments expense 0.4 1.8 • Movement in fair value of currency option and loan 6 (4.0) 20.8 • Amortisation of capitalised borrowing costs 4.0 2.3 Add back other items classified as investing/financing: • Provision for costs related to closure of discontinued Tasmanian operations 0.2 (5.9) • Additional transaction costs relating to the sale of Australian Paper - 4.5 • Borrowing costs expensed 0.4 0.6 Decrease in trade and other receivables 71.6 78.8 Decrease in inventories 12.0 39.3 Decrease in trade and other payables (109.8) (53.6) Increase/(decrease) in provisions 9.8 (6.9) Decrease/(increase) in current and deferred taxes 12.4 (7.1) Net cash (used in)/from operating activities (62.3) 54.6

Reconciliation of cash For the purposes of the Statement of Cash Flows, cash includes cash on hand and at bank and short-term money market investments, net of outstanding bank overdrafts. Cash as at 30 June as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position as follows: Cash and cash equivalents 80.0 125.3 Bank overdrafts - (9.8) 80.0 115.5

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Note 34. Parent entity disclosures As at and throughout the financial year ended 30 June 2012, the parent company of the Consolidated Entity was PaperlinX Limited. Parent Entity For the year ended 30 June 2012 2011 $m $m Comprehensive Income Other income 25.8 7.9 Other expenses (5.3) (8.3) Individually significant items (556.7) (13.3) Result from operating activities (536.2) (13.7) Net finance costs (0.9) (0.3) Loss before tax (537.1) (14.0) Tax expense - (0.1) Total comprehensive loss for the period, net of tax (537.1) (14.1)

Parent Entity As at 30 June 2012 2011 $m $m Statement of Financial Position Current assets Other receivables 692.7 669.5 Non-current assets Investments in subsidiaries 41.3 407.0 Total assets 734.0 1,076.5 Non-current liabilities Loans and borrowings 191.0 - Total liabilities 191.0 - Net assets 543.0 1,076.5

Equity Issued capital 1,893.5 1,890.7 Reserve for own shares (0.1) (0.9) Accumulated losses (1,350.4) (813.3) Total equity 543.0 1,076.5

Parent Entity 2012 2011 $m $m Contingent liabilities Contingent liabilities arising in respect of related bodies corporate: • Bank guarantees (government) 2.2 3.6 • Bank guarantees (trade) 3.2 3.7 • Loan guarantees (subsidiaries) 253.7 310.7 Total contingent liabilities 259.1 318.0 The Company does not have any contractual commitments for the acquisition of property, plant or equipment.

Note 35. Capital expenditure commitments 2012 2011 $m $m Capital expenditure contracted but not provided for: • Property, plant and equipment 0.6 0.2

For personal use only use personal For • Intangibles - 0.1 Total capital expenditure commitments 0.6 0.3

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Note 36. Lease commitments 2012 2011 Note $m $m Finance lease liability Lease expenditure contracted and provided for: • Not later than one year - 0.1 Minimum lease payments - 0.1 Less: Future finance charges - - Total finance lease liability - 0.1 Current lease liabilities 23 - 0.1 Total finance lease liability - 0.1

Operating lease commitments Lease expenditure contracted but not provided for: • Not later than one year 58.4 83.2 • Later than one year but not later than five years 146.9 199.7 • Later than five years 141.1 175.1 Total operating lease commitments 346.4 458.0

The Consolidated Entity enters into operating leases from time to time in relation to property, plant and equipment. The major component relates to the leases of buildings. Leases generally provide the Consolidated Entity with a right of renewal at which time all terms are renegotiated. Lease payments comprise a base amount plus an incremental contingent rental. Contingent rentals are based on the relevant index or operating criteria.

Note 37. Contingent liabilities 2012 2011 $m $m Contingent liabilities arising in respect of related bodies corporate: • Bank guarantees (trade) 6.8 6.0 • Other guarantees 2.9 3.6 • Other 0.4 0.6 Total contingent liabilities 10.1 10.2 The bank guarantees (trade), the beneficiaries of which are third parties, are primarily in relation to rental leases. Other guarantees, the beneficiaries of which are government departments, include bank guarantees in relation to the specific requirement of self-insurance licences for workers‟ compensation in Australia. Under the terms of the ASIC Class Order 98/1418 dated 13 August 1998 (as amended), the Company and certain subsidiaries have entered into approved deeds for the cross guarantee of liabilities with those subsidiaries identified in Note 40. The Consolidated Entity has given certain warranties and indemnities to the purchasers of the USA and Italian businesses that were sold during the period. Warranties have been given in relation to matters including the sale assets, taxes, people, legal, environmental and intellectual property. Indemnities have also been given in relation to matters including legal and employee claims and pre- completion taxes. At the time of signing this report, no claims have been made by the buyers under any such warranties and indemnities and, accordingly, it is not possible to quantify the potential financial obligation (if any) of the Consolidated Entity under these indemnities.

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Note 38. Auditors' remuneration 2012 2011 $m $m Audit services Auditors of the Consolidated Entity • KPMG - Australia 0.960 0.895 • KPMG - other member firms 1.985 2.442 2.945 3.337 • Other auditors (1) 0.164 0.170 3.109 3.507 Other services Auditors of the Consolidated Entity • KPMG - Australia Other assurance services 0.044 0.034 • KPMG - other member firms Other assurance services 0.058 0.125 Taxation services 0.014 0.014 Other services - 0.036 0.116 0.209 Total auditors' remuneration 3.225 3.716 (1) Four businesses use other auditors to provide audit services for local statutory accounts.

The auditors of the Company are KPMG Australia. From time to time, KPMG provides other services to the Company, which are subject to the corporate governance procedures adopted by the Company which encompass the restriction of non-audit services provided by the auditor of the Company, the selection of service providers and the setting of their remuneration. The guidelines adopted by KPMG for the provision of other services are designed to ensure their statutory independence is not compromised. In the current year, the Company has engaged the services of other accounting firms to perform a variety of non-audit assignments.

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Note 39. Related parties

Key management personnel (KMP) compensation 2012 2011 $ $ Short-term benefits 3,675,273 4,528,687 Post-employment benefits 664,397 658,016 Equity plans (325,529) 471,526 Termination benefits - 3,292,075 4,014,141 8,950,304

Directors and Senior Executives compensation contracts Disclosures of remuneration policies, service contracts and details of remuneration are included in the Remuneration Report.

Loans to KMP and their related parties The Company has not made any loan to any KMP and their related parties other than those in accordance with the terms of the Employee Share Purchase Plan (up to 2004) – refer Note 30. No individual loan is greater than $100,000. The reconciliation of the aggregate movement in the Employee Share Purchase Plan loans to the KMP of the Company and the Consolidated Entity is as follows: Opening Other move- Repay- Closing Number balance ments ments (1) balance of loans $ $ $ $ 2012 Executive Directors - - - - - Senior Executives 3 24,968 - (24,968) - Total 3 24,968 - (24,968) - 2011 Executive Directors - - - - - Senior Executives 3 24,663 305 - 24,968 Total 3 24,663 305 - 24,968 (1) Loans forgiven on disposal of businesses.

The plan has been dormant since 2004. For personal use only use personal For

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Note 39. Related parties – (continued)

Shareholdings of KMP The reconciliation of the movement in the relevant interest in the share capital of the Company, held by KMP, excluding the potential entitlement amounts is as follows: Shares held Earned as Ceased Exercise nominally Opening Purch- remuner- employ- of Closing at reporting balance ased ation ment options Sold balance date 2012 Directors T R Marchant (1) 12,300 900,000 112,602 - - - 1,024,902 - H Boon 21,000 229,000 - - - - 250,000 - M L Cattermole 226,510 2,022,280 - - - - 2,248,790 - A J Clarke - 250,000 - - - - 250,000 - M J McConnell (2) - 1,000 - - - - 1,000 - D E Meiklejohn (3) 194,657 - - (194,657) - - - - J W Hall (4) 19,800 - - (19,800) - - - - L J Yelland (5) 95,468 - - (95,468) - - - - Senior Executives D S Allen (6) 8,520 - 112,022 - - - 120,542 - C B Creighton (7) 208,744 - 105,866 (314,610) - - - - M Gillioen - - 75,000 - - - 75,000 - P L Jackson (8) 8,825 - - (8,825) - - - - A J Kennedy (9) 16,600 - 103,073 (119,673) - - - - R Barfield (10) - 400,000 - - - - 400,000 - Total 812,424 3,802,280 508,563 (753,033) - - 4,370,234 - 2011 Directors D E Meiklejohn 194,657 - - - - - 194,657 - T R Marchant - - 12,300 - - - 12,300 - T P Park 860,000 - - (860,000) - - - - H Boon 21,000 - - - - - 21,000 - M L Cattermole 6,730 219,780 - - - - 226,510 - A J Clarke ------J W Hall 19,800 - - - - - 19,800 - M R Hooper ------B J Jackson 57,372 - - (57,372) - - - - L J Yelland 95,468 - - - - - 95,468 - Senior Executives D S Allen - - 8,520 - - - 8,520 - C B Creighton 91,700 102,250 14,794 - - - 208,744 - M Gillioen ------P L Jackson 1,055 - 7,770 - - - 8,825 - A J Kennedy 7,200 - 9,400 - - - 16,600 - Total 1,354,982 322,030 52,784 (917,372) - - 812,424 - (1) Ceased employment and resigned as a Director on 31 July 2012. (2) Appointed as a Director on 1 August 2011. (3) Retired as a Director and Chairman of the Company on 31 August 2011. (4) Retired as a Director effective 30 September 2011. (5) Retired as a Director on 21 October 2011. (6) Appointed Interim Chief Executive Officer from 1 August 2012. (7) Classification as KMP ended on 30 June 2012 with the sale of the USA merchanting operations. (8) Ceased employment on 31 July 2011. (9) Resigned effective 30 June 2012.

(10) Appointed Group Chief Financial Officer on 1 June 2012. For personal use only use personal For

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Note 39. Related parties – (continued)

Option holdings of KMP Options are exercisable subject to the satisfaction of the terms of the option agreement – refer Note 30. The reconciliation of the movement in the equity compensation in the form of options for the KMP for the reporting period is as follows:

Maximum potential entitlement - number of options Vested and Granted as exercis- Opening Other compen- Closing able at 30 balance movements sation(1) Exercised Lapsed balance June 2012 Executive Directors T R Marchant (2) 883,773 - - - (283,331) 600,442 - Senior Executives D S Allen (3) 58,518 - - - (52,090) 6,428 - C B Creighton (4) 894,668 - - - (894,668) - - M Gillioen ------P L Jackson (5) 620,058 - - - (620,058) - - A J Kennedy (6) 344,195 - - - (344,195) - - R Barfield (7) ------2011 Executive Directors T R Marchant 520,320 - 394,210 - (30,757) 883,773 - T P Park 2,226,651 - - - (2,226,651) - - M R Hooper 721,790 - - - (721,790) - - Senior Executives D S Allen - 79,810 - - (21,292) 58,518 - C B Creighton 612,310 - 317,180 - (34,822) 894,668 66,300 M Gillioen ------P L Jackson 404,770 - 234,720 - (19,432) 620,058 21,100 A J Kennedy - 85,110 282,590 - (23,505) 344,195 - (1) Options granted during the year are outlined in Note 30. (2) Ceased employment and resigned as a Director on 31 July 2012. (3) Appointed Interim Chief Executive Officer from 1 August 2012. (4) Classification as KMP ended on 30 June 2012 with the sale of the USA merchanting operations. (5) Ceased employment on 31 July 2011. (6) Resigned effective 30 June 2012. (7) Appointed Group Chief Financial Officer on 1 June 2012.

Up to the date of this report, 589,300 options on issue at balance date in respect of KMP have lapsed. For personal use only use personal For

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Note 39. Related parties – (continued)

Rights holdings of KMP The maximum number of shares that may be earned by KMP under long and short-term incentive plans comprising service based rights and performance rights, subject to the satisfaction of specified performance criteria (refer Note 30) are as follows: Maximum potential entitlement - number of rights

Granted as Opening Other compen- Closing balance movements sation(1) Exercised Lapsed balance 2012 Executive Directors T R Marchant (2) 1,157,400 - - (112,602) (501,230) 543,568 Senior Executives D S Allen (3) 223,195 - - (112,022) (32,316) 78,857 C B Creighton (4) 1,080,449 - - (105,866) (974,583) - M Gillioen 150,000 - - (75,000) - 75,000 P L Jackson (5) 817,226 - - (197,258) (619,968) - A J Kennedy (6) 700,178 - - (103,073) (597,105) - R Barfield (7) - - 400,000 - - 400,000 2011 Executive Directors T R Marchant 942,702 - 693,270 (12,300) (466,272) 1,157,400 T P Park 3,950,165 - - - (3,950,165) - M R Hooper 934,990 - - - (934,990) - Senior Executives D S Allen - 172,682 75,000 (8,520) (15,967) 223,195 C B Creighton 954,290 - 550,300 (14,794) (409,347) 1,080,449 M Gillioen - 75,000 75,000 - - 150,000 P L Jackson 633,928 - 400,450 (7,770) (209,382) 817,226 A J Kennedy - 152,103 575,100 (9,400) (17,625) 700,178 (1) Rights granted during the year are outlined in Note 30. (2) Ceased employment and resigned as a Director on 31 July 2012. (3) Appointed Interim Chief Executive Officer from 1 August 2012. (4) Classification as KMP ended on 30 June 2012 with the sale of the USA merchanting operations. (5) Ceased employment on 31 July 2011. (6) Resigned effective 30 June 2012. (7) Appointed Group Chief Financial Officer on 1 June 2012.

The closing balance represents the rights on hand at 30 June 2012 which have not vested. Rights automatically vest after the qualifying period, subject to performance and/or service conditions being achieved. Nil rights vested to the Executive Director and Senior Executives during the current reporting period. Up to the date of this report, 543,568 rights on issue at balance date in respect of KMP have lapsed.

Transactions with entities in the Consolidated Entity The Company provided management, accounting and administrative services to other entities in the Consolidated Entity during the current and comparative reporting periods. These services were provided on commercial terms and conditions.

Other related party disclosures The ownership interest in subsidiaries is disclosed in Note 40. Loans to Directors of subsidiaries total $384 (2011: $25,352). This amount is comprised of employee share plan loans only.

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Note 40. Subsidiaries The Company and the specified subsidiary companies listed in this note have entered into an approved deed for the cross guarantee of liabilities. Pursuant to ASIC Class Order 98/1418 dated 13 August 1998 (as amended), these wholly owned subsidiaries are relieved from the Corporations Act 2001 requirements for the preparation, audit and lodgement of Financial Reports. It is a condition of the Class Order that the Company and each of these subsidiaries enter into a deed of cross guarantee. The effect of the deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up any of these subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in full. These subsidiaries have also given similar guarantees in the event that the Company is wound up. The consolidated Income Statement and consolidated Statement of Financial Position comprising the Company and the wholly-owned subsidiaries which are a party to the deed as at the reporting date, after eliminating all transactions between parties to the deed of cross guarantee, are set out below: Deed of Cross Guarantee Consolidated For the year ended 30 June 2012 2011 $m $m Income Statement Loss before tax (182.1) (240.0) Tax (expense)/benefit (1.3) 1.2 Loss for the period (183.4) (238.8) Accumulated losses at beginning of period (1,222.8) (982.7) Actuarial losses on defined benefit plans (0.8) (1.3) Accumulated losses at end of period (1,407.0) (1,222.8)

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Note 40. Subsidiaries – (continued) Deed of Cross Guarantee Consolidated As at 30 June 2012 2011 $m $m Statement of Financial Position Current assets Cash and cash equivalents 6.0 4.6 Trade and other receivables 135.8 112.3 Inventories 54.6 65.3 Assets held for sale 0.9 0.5 Income tax receivable 2.3 - Total current assets 199.6 182.7

Non-current assets Receivables 6.8 4.4 Investments in other Consolidated Entity subsidiaries 604.8 712.3 Property, plant and equipment 6.3 7.9 Intangible assets 0.3 0.6 Total non-current assets 618.2 725.2 Total assets 817.8 907.9

Current liabilities Trade and other payables 65.8 63.2 Loans and borrowings 56.1 140.0 Income tax payable 2.1 1.0 Employee benefits 9.5 13.0 Provisions 11.3 13.8 Total current liabilities 144.8 231.0

Non-current liabilities Payables 0.5 1.4 Loans and borrowings 191.0 3.6 Employee benefits 0.5 2.1 Provisions 3.5 8.3 Total non-current liabilities 195.5 15.4 Total liabilities 340.3 246.4 Net assets 477.5 661.5

Equity Issued capital 1,893.5 1,890.7 Reserves (0.5) 2.1 Accumulated losses (1,407.0) (1,222.8) 486.0 670.0 PaperlinX Step-up Preference Securities (8.5) (8.5) Total equity 477.5 661.5

No entities/businesses were acquired during the current or prior reporting periods. For personal use only use personal For

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 40. Subsidiaries – (continued) Consolidated subsidiary Country of interest Note incorporation 2012 2011 PaperlinX Services Pty Ltd (1) Australia 100% 100% Tas Paper Pty Ltd (1) Australia 100% 100% PaperlinX SPS Trust Australia 100% 100% PaperlinX SPS LLC USA 100% 100% PaperlinX Australia Pty Ltd (1) Australia 100% 100% Pebmis Pty Ltd (1) Australia 100% 100% Paper Associates Pty Ltd (1) Australia 100% 100% PaperlinX (UK) Ltd United Kingdom 100% 100% PaperlinX (Europe) Ltd United Kingdom 100% 100% PaperlinX Brands (Europe) Ltd United Kingdom 100% 100% PaperlinX Services (Europe) Ltd United Kingdom 100% 100% PaperlinX Investments (Europe) Ltd United Kingdom 100% 100% PaperlinX Treasury (Europe) Ltd United Kingdom 100% 100% 1st Class Packaging Ltd United Kingdom 100% 100% The Paper Company Ltd United Kingdom 100% 100% Parkside Packaging Ltd United Kingdom 100% 100% Donnington Packaging Supplies Ltd United Kingdom 100% 100% The M6 Paper Group Ltd United Kingdom 100% 100% Howard Smith Paper Group Ltd United Kingdom 100% 100% Contract Paper Ltd United Kingdom 100% 100% Howard Smith Paper Ltd United Kingdom 100% 100% Precision Publishing Papers Ltd United Kingdom 100% 100% Trade Paper Ltd United Kingdom 100% 100% Robert Horne UK Ltd United Kingdom 100% 100% PaperlinX UK Pensions Trustees Ltd (2) United Kingdom 100% 100% Robert Horne Group Ltd United Kingdom 100% 100% W Lunnon & Company Ltd United Kingdom 100% 100% Pinnacle Film & Board Sales Ltd United Kingdom 100% 100% Sheet & Roll Converters Ltd United Kingdom 100% 100% Deutsche Papier Holding GmbH Germany 100% 100% Deutsche adp Wilhelm GmbH Germany 100% 100% Deutsche Papier Vertriebs GmbH Germany 100% 100% PaperlinX Holdings Cooperatieve UA Netherlands 100% 100% PaperlinX Netherlands Holdings BV Netherlands 100% 100% PaperlinX Netherlands BV Netherlands 100% 100% BührmannUbbens BV (3) Netherlands 100% 100% PaperNet GmbH Austria 100% 100% PN Beteiligungs GmbH (4) Austria 0% 100% Tulipel - Comercio de Paperis Lda Portugal 100% 100% Adria Papir D.o.o. (5) Croatia 100% 100% Budapest Papir Kft (5) Hungary 100% 100% Alpe Papir Trgovina na Veliko D.o.o. (5) Slovenia 100% 100% Dunav Papir D.o.o. (5) Serbia 100% 100% Bratislavska Papierenska Spolocnost (5) Slovakia 100% 100% Polyedra SpA (6) Italy 0% 100% Carthago Srl (6) Italy 0% 100% Ospap AS (7) Czech Republic 100% 100% PaperlinX Denmark Holdings ApS Denmark 100% 100% CC&Co AS Denmark 100% 100%

Bührmann Ubens NV Belgium 100% 100% For personal use only use personal For Zing Sp.z.o.o Poland 100% 100% Union Papelera Merchanting SL Spain 100% 100% Polyedra AG (6) Switzerland 0% 100%

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

AS AT 30 JUNE 2012

Note 40. Subsidiaries – (continued) Consolidated subsidiary Country of interest Note incorporation 2012 2011 Spicers (2), (6) USA 0% 100% Kelly Paper Company (6) USA 0% 100% Spicers Paper Inc (6) USA 0% 100% Spicers Canada Ltd (2) Canada 100% 100% PaperlinX Holdings (Asia) Pte Ltd Singapore 100% 100% Spicers Paper (Singapore) Pte Ltd Singapore 100% 100% Winpac Paper Pte Ltd Singapore 100% 100% Spicers Paper (Hong Kong) Ltd Hong Kong 100% 100% Spicers Paper (Malaysia) Sdn Bhd Malaysia 100% 100% Finwood Papers (Pty) Ltd (5) South Africa 100% 100% Finwood Properties Pty Ltd (5) South Africa 100% 100% PaperlinX Ireland Holdings Ltd Ireland 100% 100% PaperlinX Ireland Ltd Ireland 100% 100% Paper Sales Ltd Ireland 100% 100% Contact Papers Ltd Ireland 100% 100% Supreme Paper Company Ltd Ireland 100% 100% DM Paper Ltd Ireland 100% 100% PPX Insurance Ltd (8) New Zealand 0% 100% PaperlinX Investments Pty Ltd (1) Australia 100% 100% PaperlinX (N.Z.) Ltd New Zealand 100% 100% (1) Subsidiaries entered into an approved deed for the cross guarantee of liabilities. (2) Subsidiaries renamed since 30 June 2011: PaperlinX UK Pensions Trustees Ltd (formerly Robert Horne Pensions Trustees Ltd) Spicers (formerly PaperlinX North America Inc) Spicers Canada Ltd (formerly PaperlinX Canada Ltd) (3) Velpa Enveloppen BV was merged into BuhrmannUbbens BV effective 1 May 2012. Proost en Brandt BV was merged into BuhrmannUbbens BV effective 30 June 2012. (4) PN Beteiligungs GmbH was liquidated effective 15 May 2012. (5) Subsidiaries subject to a sale agreement entered into after 30 June 2012. (6) Subsidiaries sold since 30 June 2011 - Refer Note 11. (7) Multiexpo Spol sro was merged into Ospap AS effective 31 Dec 2011. (8) PPX Insurance Ltd was liquidated effective 27 Jan 2012.

Note 41. Events subsequent to balance date

Dividends on the Company’s ordinary shares No final dividend has been declared for the reporting period ended 30 June 2012.

Sale of European businesses On 17 July 2012, the Company announced that it had entered into agreements to sell its operations in: Slovakia, Hungary, Slovenia, Croatia and Serbia to the Heinzel Group; and South Africa to local management. Refer Note 16 for further details.

Departure of Chief Executive Officer On 17 July 2012, the Company announced that the Chief Executive Officer, Toby Marchant, would be leaving the Company at the end of July 2012 and that Dave Allen had been appointed Interim Chief Executive.

Appointment of additional Director On 1 August 2012, the Company announced the appointment of Andrew Price as a non-executive Director of the Company, effective 1 September 2012.

Acquisition of Canterbury Packaging Limited For personal use only use personal For On 6 August 2012, the Company announced that it had entered an agreement to acquire the business and assets of Canterbury Packaging Limited, based in Christchurch, New Zealand. Canterbury Packaging has annual turnover of $2.9m.

91

DIRECTORS' DECLARATION

1 In the opinion of the Directors of PaperlinX Limited (the “Company”): (a) the consolidated financial statements and notes, and the Remuneration report in the Directors‟ report are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Consolidated Entity‟s financial position as at 30 June 2012 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

2 There are reasonable grounds to believe that the Company and the consolidated entities identified in Note 40 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those consolidated entities pursuant to ASIC Class Order 98/1418.

3 The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Interim Chief Executive and Chief Financial Officer for the financial year ended 30 June 2012.

4 The Directors draw attention to Note 2(a) to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards.

Signed in accordance with a resolution of the Directors:

Harry Boon Anthony J Clarke Chairman Director

Dated at Melbourne, in the State of Victoria this 22 August 2012.

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92 For personal use only

SHAREHOLDING INFORMATION AS AT 24 AUGUST 2012

1. Number of shareholders There were 44,619 shareholders and all issued shares carry voting rights on a one-for-one basis.

2. Distribution of shareholding Number of % of Number % of Range of holdings shareholders holders of shares shares 1 - 1,000 24,780 55.54 9,496,011 1.56 1,001 - 5,000 14,759 33.07 33,207,865 5.45 5,001 - 10,000 2,459 5.51 17,677,192 2.90 10,001 - 100,000 2,243 5.03 65,474,847 10.75 100,001 - over 378 0.85 483,424,846 79.34 Total 44,619 100.00 609,280,761 100.00

3. Unmarketable parcels There were 40,915 members holding less than a marketable parcel of shares in the Company (i.e. a parcel of shares valued at less than $500), based on the Company‟s share price of $0.0710.

4. Listing The Company‟s ordinary shares are quoted on the Australian Securities Exchange.

5. Twenty largest shareholders Number % of of shares shares J P Morgan Nominees Australia Limited 67,234,872 11.04 National Nominees Limited 64,433,237 10.58 Citicorp Nominees Pty Limited 60,515,003 9.93 RBC Global Services Australia Nominees Pty Limited 42,787,522 7.02 HSBC Custody Nominees (Australia) Limited 36,279,819 5.96 UBS Wealth Management Australia Nominees Pty Ltd 16,229,933 2.66 BNP Paribas Noms Pty Ltd 11,830,405 1.94 Communications Power Incorporated (Aust) Pty Ltd 10,000,000 1.64 J P Morgan Nominees Australia Limited 5,769,695 0.95 Hishenk Pty Ltd 5,100,000 0.84 Loong Phoong Pty Ltd 4,549,940 0.75 Fortis Clearing Nominees Pty Ltd 3,796,694 0.62 Medi Info Pty Ltd 3,743,146 0.61 CK Super Pty Ltd 3,500,000 0.57 Hyecorp Property Fund No 1 Pty Ltd 3,100,000 0.51 Model Sites Pty Ltd 3,000,000 0.49 Interprac Financial Planning Pty Ltd 2,884,000 0.47 AJP Investment Services Pty Ltd 2,872,872 0.47 Ace Property Holdings Pty Ltd 2,800,000 0.46 T H Brown Furniture Pty Ltd 2,665,000 0.44 Total top 20 shareholders 353,092,138 57.95 Total remaining holders balance 256,188,623 42.05 Total issued shares 609,280,761 100.00

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SHAREHOLDING INFORMATION AS AT 24 AUGUST 2012 CONTINUED

6. Geographic location of shareholders by registered address: Number of Number of shareholders shares Australian Capital Territory 623 2,935,155 New South Wales 11,182 283,138,304 Northern Territory 84 786,115 Queensland 5,437 27,233,130 South Australia 2,382 20,097,047 Tasmania 1,011 3,628,517 Victoria 17,986 247,798,652 Western Australia 2,207 12,398,223 Total Australia 40,912 598,015,143 Canada 404 597,570 Germany 70 37,082 Hong Kong 27 143,363 Ireland 22 2,745 New Zealand 668 2,689,395 Singapore 28 104,218 Spain 82 44,928 Switzerland 114 47,799 United Kingdom 638 2,312,789 United States of America 1,560 3,348,530 Other 94 1,937,199 Total Overseas 3,707 11,265,618

7. Register of substantial shareholders The names of substantial shareholders of the Company as disclosed in the substantial shareholder notifications to the Company are as follows: Number Percentage of shares held Orbis Group 111,432,010 18.29% Maple - Brown Abbot Ltd 49,048,082 8.05% Schroder Investment Management Australia Ltd 60,621,478 9.95%

8. Unquoted equity securities Issued pursuant to the PaperlinX Employee Share/Option Plan. Options Options over ordinary shares issued at either no cost or a cost of one cent per option exercisable at prices ranging from $Nil to $5.13 per share. The vesting of certain options depends on the achievement of PaperlinX‟s long-term incentive plan performance conditions. Number of employees participating 10 Number of securities 135,433 Performance rights The Company has issued performance rights to certain senior management. Each performance right gives a contingent interest to one PaperlinX ordinary share. The vesting of performance rights depends upon the achievement of PaperlinX‟s long-term incentive plan performance conditions. Number of employees participating 116 Number of securities 2,175,101

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9. Company Secretaries Mr Wayne Johnston and Ms Michelle Wong.

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FIVE YEAR HISTORY

FOR YEARS ENDED 30 JUNE

Actual Actual Actual Actual Actual ($AUD million except where indicated) 2011/2012 2010/2011 2009/2010 2008/2009 2007/2008 Paperlinx consolidated financial performance Sales revenue 4,113 4,670 5,225 7,107 7,485 Sales growth (%) (11.9) (10.6) (26.5) (5.1) (4.5) Earnings from ordinary activities before interest and income tax (233.2) (91.9) (174.9) (718.2) 160.4 (Loss)/Profit from ordinary activities before income tax (251.5) (110.8) (202.4) (800.0) 100.4 (Loss)/Profit from ordinary activities after income tax (266.7) (108.0) (225.3) (798.2) 72.3 Financial statistics Depreciation, amortisation and impairment expense (145.9) (91.2) (28.3) 682.2 93.9 Net interest expense (18.3) (18.9) (27.5) 81.8 60.0 Cash flow from operating activities (62.3) 54.6 23.1 (6.0) 117.1 Capital expenditure - acquisitions - 0.4 0.4 3.4 17.8 Capital expenditure - plant & equipment 14.0 18.0 18.4 180.1 326.0 Earnings from ordinary activities before interest and income tax by segments Merchanting (1) (4.4) 21.4 24.5 82.3 185.7 Discontinued Paper Manufacturing and Merchanting (1) 8.0 17.1 (27.1) 27.8 4.7 Unallocated (1) (22.8) (21.1) (33.0) (93.7) (30.0) Total EBIT pre significant Items (1) (19.2) 17.4 (35.6) 16.4 160.4 Significant Items (1) (214.0) (109.3) (139.3) (734.6) - Total EBIT post significant Items (233.2) (91.9) (174.9) (718.2) 160.4 Financial position summary Current assets 1,104 1,540 1,774 2,312 2,678 Non-current assets 195 390 531 636 1,700 Total assets 1,299 1,930 2,305 2,948 4,378 Current liabilities 675 846 996 1,503 1,536 Non-current liabilities 177 348 385 174 917 Total liabilities 852 1,194 1,381 1,677 2,453 Net assets / total shareholders' equity 447 736 924 1,271 1,925 Financial ratios Basic earning per share (cents) (43.8) (21.4) (38.9) (145.6) 10.1 Earnings per share growth (%) (104.7) 45.0 73.3 (1,541.6) (38.4) Return on average funds employed (%) (25.5) (8.3) (12.9) (26.3) 5.7 Return on average shareholders' equity (%) (40.5) (12.7) (20.7) (46.3) 3.8 Dividend per ordinary share (cents) - - - 3.5 6.5 Dividend franking (%) - - - - - Net tangible asset per ordinary share ($) 0.06 0.27 0.40 0.85 2.59 Net interest cover (2) (times) (12.7) (4.9) (6.4) (7.7) 2.0 Gearing (Net debt/net debt and shareholders' equity) (%) 24.8 18.9 15.1 14.6 28.7 Gearing (Net debt/shareholders' equity) (%) 33.0 23.3 17.7 17.1 40.3 Other information Fully paid ordinary shares as at 30 June (millions) 609.3 603.6 603.6 603.6 453.1 Weighted average number of shares (millions) 608.3 603.6 603.6 558.7 450.8 Number of shareholders as at 30 June 44,619 46,652 49,444 54,551 57,002 Employee numbers as at 30 June 4,850 6,212 6,508 7,199 9,365 (1) 2010/2011 figures have been restated. Refer Note 11 – Discontinued operations.

(2) Includes capitalised interest in 2012 of $nil, $nil in 2011, $nil in 2010, $11.3m in 2009 and $18.8m in 2008. For personal use only use personal For

96 Investor information

Share Registry Sources of information Shareholders with queries about anything related to their Annual Report 2012 shareholding, including updating their personal details, should PaperlinX will continue to prepare the Annual Report which contact the PaperlinX Share Registry in Melbourne, Australia: is available to all shareholders. The Annual Report can by telephone (within Australia) 1300 662 058 be accessed and downloaded from the PaperlinX website or (outside Australia) +61 3 9415 4021 at . A printed copy will be sent to those by facsimile +61 3 9473 2500 shareholders who have elected to receive it. If you wish by email at to change your prior Annual Report election, please go by going online at to . Alternatively, call Alternatively, shareholders may wish to write to: Computershare on 1300 662 058 (within Australia) PaperlinX Share Registry or +61 3 9415 4021 (outside Australia). GPO Box 4768 PaperlinX website Melbourne, Victoria, 3001 Australia. A range of corporate information, including ASX Releases, Details of individual shareholdings can be checked conveniently Financial Reports, webcasts and the address of the Chairman and simply by visiting our Share Registry’s website at and the Managing Director to the Annual General Meeting, . For security reasons, may be obtained from . This investor you then need to key in your Securityholder Reference Number information is available from the ‘Investor Information’ section (SRN) or Holder Identification Number (HIN) plus company of the website. Shareholders can also ‘register for news’ name or ASX code, your postcode, choose a User ID and on the website and receive PaperlinX ASX announcements password, enter the Security code (shown in the box) and via email. agree to the Terms and Conditions to enable access to personal information.

Tax file numbers PaperlinX is required to withhold tax at the rate of 46.5 per cent on any unfranked component of dividends or interest paid to investors resident in Australia who have not supplied the Company with a tax file number (TFN) or exemption form. Investors are not required by law to provide their TFN if they do not wish to do so.

Transfer of shares off-market Following the introduction of new legislation, a fee of A$50 (incl. GST) is required to cover a fraud prevention security check on the authenticity of the seller details. Details of fees and the process required can be obtained from the PaperlinX Share Registry. No stamp duty is payable on off-market transfers.

Annual General Meeting The Annual General Meeting is normally held in October. The 2012 Annual General Meeting will be held at 9:30am on Wednesday, 31st October at the Sofitel Melbourne On Collins, 25 Collins Street, Melbourne, Victoria, 3000 Australia.

Financial calendar Full Year Results 2012 22 August 2012 Interim Results 2013 February 2013 Full Year Results 2013 August 2013

Securities exchange listing PaperlinX shares are listed on the ASX. All shares are recorded on the principal share register, which is located in Victoria, For personal use only use personal For the state of incorporation of PaperlinX. The Company’s ASX code is ‘PPX’. Annual Report 2012 The high-quality paper used in this Report is distributed exclusively by PaperlinX merchants. The cover stock is Pacesetter Laser Pro 140gsm and the text stock is Pacesetter Laser Pro 80gsm. Pacesetter Laser Pro is FSC® Mix Certified and the Mill operates under ISO 14001 environmental systems and practices. Pulp used in the manufacture of Pacesetter Laser Pro is Elemental Chlorine Free (ECF). When you have finished with this publication, PaperlinX urges you to recycle it to avoid landfill.

Registered Office and Head Office PaperlinX Limited ABN 70 005 146 350 7 Dalmore Drive Scoresby Victoria 3179 Australia Telephone: +61 3 9764 7300 Facsimile: +61 3 9730 9741 Internet: Email:

Share Registry PaperlinX Share Registry Yarra Falls, 452 Johnston Street Abbotsford Victoria 3067 Australia Telephone: 1300 662 058 or +61 3 9415 4021 Facsimile: +61 3 9473 2500 Internet:

Email: For personal use only use personal For