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Report on aspects of the initial public offering of Vertex Group Holdings Limited in 2002

Nature of Vertex's Business

Vertex is primarily a plastics packaging company, with four well-established "core" businesses: Food Trays, Dairy Packaging, Industrial Containers and Household Products. It also has two "growth" businesses: Technical Injection (an injection moulding business that evolved from Industrial Containers) and Securefresh (a business utilising technology acquired in 2001, selling meat packaging machinery and trays).

The separate business units were identified and separated out as part of the restructuring of the business following its acquisition in October 2000 from Carter Holt Harvey Plastics and incorporation as a new company. The restructuring involved significant capital expenditure with the aim of increasing efficiency and maximising the potential of the business. The name given to the restructuring programme was "Project New Age". This project was ongoing at the time of the IPO.

As a result of the restructuring, internal management reporting systems were put in place from April 2002 to record the monthly financial and operating performance of the business units, for communication to Vertex's executive management and to the Board.

Technical Injection

Technical Injection grew out of the Industrial Containers business unit of Vertex, and was established as a separate business unit in 2001. It makes injection-moulded products to order and specialises in agri-tech and human health products. At the time of the IPO it relied on four main customers for its business: Prima, Zee Tags, Fisher & Paykel Healthcare and Fernz Health & Science. The largest proportion of its business came from Prima.

Prima develops and markets animal health applicators, such as vaccinators and drench guns. It is primarily an export business with operations in Hamilton and agents in the USA. Vertex has had a close relationship with Prima since 2000, when Prima commenced business. Vertex manufactures the animal health applicators and shares intellectual property with Prima. Vertex has also financed $1.3 million of Prima's tooling. This is amortised over three years. Vertex and Prima have a supply agreement in place, although in common with Vertex's other supply agreements, no particular volume or frequency of order is required. Vertex and Prima are in regular contact, both at an informal discussion level and on a more formal basis with Prima providing Vertex with regular updates of forecast orders.

Securefresh

The Securefresh business unit of Vertex was created as a result of the purchase of assets, including patents and supply contracts, from Securefresh Pacific Limited. Vertex has the right to use the technology and the name in New Zealand, Australia and the Asia-Pacific region. The Securefresh system is a meat packaging system that involves the use of patented machinery to remove oxygen from bags that contain primal cuts (i.e. large cuts of meat) or from wrapped meat trays (case ready). Carbon dioxide is then flushed into the bag, and the meat is held in an effective "suspended animation" to remain fresh until it is re-opened by the meat packer (for primal cuts) or supermarket (for case-ready meat). The technology was purchased in response to the increasing trend towards case-ready meat (i.e. supermarkets purchasing meat that is already packed in trays, rather than preparing the meat and packing it into trays themselves).

The case-ready section of the business involves the sale of Securefresh machinery, accompanied by a packaging supply agreement. That section of the business is the growth part of the Securefresh business unit, and involves the sale of machinery and packaging materials. The primal cuts packaging segment of the business involves the sale of packaging materials only. The primal cuts packaging business is established and has a sales history, whereas the history of the case-ready section of the business consisted of customer trials and a very limited number of machine sales.