annual report - norco
TRANSCRIPT
annual 2020 report
www.norco.com.au
REGISTERED OFFICE
Norco Co-operative Limited ARBN 009 717 417 / ABN 17 009 717 417 ‘Windmill Grove’, 107 Wilson Street South Lismore NSW 2480 Telephone: 02 6627 8000 Facsimile: 02 6627 8099 Web Site: www.norco.com.au
AUDITORS
Ernst & Young Chartered Accountants Level 51, 111 Eagle Street BRISBANE QLD 4000
FINANCIERS/BANKERS
Rabobank Australia Level 14, Waterfront Place, 1 Eagle Street BRISBANE QLD 4000
St George Bank Level 12, Waterfront Place, 1 Eagle Street BRISBANE QLD 4000
SOLICITORS
Thomson Geer Lawyers BRISBANE QLD 4000Addisons Lawyers SYDNEY NSW 2000S+P Walters Solicitors LISMORE NSW 2480Piper Alderman Lawyers SYDNEY NSW 2000
thank youThank you to our Co-operative Members,
Employees, Norco Milk Distributors and Customers who feature in this
Annual Report photography.Your time and participation
is greatly appreciated.
CORPORATE DIRECTORY
125YEARS
Congratulations
In this special year in which we collectively celebrate Norco’s 125th
anniversary, we would like to share with you some congratulatory
messages the Co-operative has received throughout this report.
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PRIME MINISTER
MESSAGE FROM THE PRIME MINISTER
125TH ANNIVERSARY OF NORCO CO-OPERATIVE
Congratulations to Norco for a tremendous 125 years of history. The Norco story is about giving back – to your members and employees, to the community, and to Australia. Your success is part of our story, and we’re grateful for what you do.
The dairy farmers of northern New South Wales and south-eastern Queensland have worked their herds for generations. You produce a core staple, as well as some of life’s simplepleasures.
The wonderful quality of your milk, cream, cheese and ice cream is part of our Australian fare.
In the face of the challenges of 2020, Norco has been true to the resilient spirit of its community. By committing to business as usual, you’ve provided jobs and income to Australians at a time when they need them most. I know you’ll keep delivering on that promise, as you have throughout your long history.
When you reassure your members and your customers that the work continues – on the land, in the dairies and in the shops – you give us all confidence in the road ahead. Your example is why we can lift our heads as Australians and know that the future is bright.
Good on you, Norco, and thanks very much.
Happy 125th Anniversary!
The Hon Scott Morrison MPPrime Minister of Australia
August 2020
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CONTENTS
Norco applies a common set of values to everything it does. These values include:
RESPECT
- We respect our shareholders, employees, business partners and customers - We respect a diversity of views and opinions - We encourage and support people to grow as individuals and contributors to our organisation - We respect our heritage and legacy - We respect our natural environment.
RESPONSIBLE
- We are responsible for preserving the co-operative principles - We are responsible for our actions and our performance - We are responsible for providing a safe work environment.
EFFICIENT
- We seek to add value in everything we do.
INNOVATION
- We seek to consistently improve through innovation.
COMMUNITY
- We seek active involvement in our communities.
Norco’s purpose is to build wealth, security and sustainability for our shareholders, business partners and employees. We achieve this by:
- maintaining a diverse and strong range of businesses;
- being a competitive regional purchaser and supplier of milk; and
- creating integrated solutions for our partners.
NORCO’S VALUES
NORCO’S PURPOSE
3 Corporate Profile 6 Facts At A Glance 8 Chairman’s Report
12 Chief Executive Officer’s Report 19 Directors’ Report
27 Auditor’s Independence Declaration 30 Corporate Governance Statement
37 Financial Statements 59 Independent Auditor’s Report
64 Corporate And Branch Directories
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CORPORATE PROFILE This time last year we reported that we were hoping for a more settled outlook for our dairy farming community
and for the Co-operative. Well, 2019/20 has not quite followed the script as all Australians would know.
Our Members / Milk Suppliers continued to be severely affected by the ongoing drought conditions during the
first half of the financial year, and some continue to battle the effects of the drought even now. These conditions
then fuelled a devastating bush fire season which created some very anxious and worrying times for everyone in
the path of these fierce fires. In many areas, particularly coastal regions, the drought was broken and fire danger
extinguished in early 2020 with significant rain events which resulted in some minor to moderate flooding in the
Norco supply area.
Australians were then further tested by mid to late March 2020 with the very real threat of the global pandemic
COVID-19 which has profoundly changed the way we now live and carry on business activities.
How has Norco responded to these challenges?
Norco continued to drive milk pricing for our Members / Milk Suppliers in the 2019/20 financial year with the
average base milk price paid being 70.63 cents per litre, an increase of more than 10 cents per litre over the
2018/19 financial year. This significant increase was in recognition of the continuing difficult climatic conditions
and high dairy input costs for fodder and grain.
The onset of the bush fires thankfully did not impact too many Norco farms directly but there were consequences
for our farmers and our processing facilities. Widespread road closures meant that there were significant
challenges in transporting milk from farm to factory and in many cases it was impossible to move the milk.
Norco ensured that all our dairy farmers were paid at full rates for all milk produced, even if the milk was not able
to be transported off farm.
The widespread threat posed by the bush fires ensured that the Leadership Team, led by Chief Executive Officer,
Michael Hampson was prepared and could enact business continuity plans and contingencies in the event of
disruption to business, whether that was at a Foods’ factory, Norco Stockfeed Mill or a Norco Rural Store. This
close and detailed look at the business, including reviewing supply chain interdependencies from the farm to
consumers stood the business in good stead for when COVID-19 took hold and further disrupted business (not
that we necessarily envisaged a pandemic being the next issue to face the business at that time). However, the
business resilience work that was undertaken that allowed the Co-operative to adapt quickly to the changing
environment in both the Foods’ and Rural sectors, as witnessed by the initial panicked spending and changed
consumer trends, allowed Norco to not only survive the challenge of COVID-19 but to take opportunities to
service our markets and customers in new and innovative ways that created some significant wins for the Co-
operative. This, together with a strong desire to continue to drive business performance by ensuring internal
projects that create operating efficiencies and reduce costs were realised, has resulted in strong business
performance for the 2019/20 financial year.
We have pleasure in presenting to you the reports and financial statements for the Co-operative for the 2019/20
financial year, a year that has tested us all but has also provided us with the opportunity to improve our resilience
and point of difference as a Co-operative.
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Acknowledging Greg McNamara
After serving 24 years as a Director, Greg McNamara has recently announced his resignation from the Board of
Directors effective 1 October 2020. Greg was elected to the Board of Directors on 4 October 1996 as a Supplier
Director from the Central Region.
Greg was then elected Chairman of the Co-operative on 15 November 1999 and served an initial term in that
position until 27 August 2002. After a series of special general meetings in February 2003 that resulted in major
changes to the makeup of the Board, Greg was again elected Chairman on 12 February 2003, a position he has
held continuously until 30 July this year.
During his time as Chairman, Greg has presided over 18 annual general meetings, three special general meetings
and many, many Board meetings. These are impressive numbers but they only tell a very small part of Greg’s
story as a Member, Milk Supplier, Director and Chairman of what is now Australia’s most significant dairy co-
operative and one of the largest co-operatives in Australia.
It is not possible to even start to succinctly articulate Greg’s achievements as a Director and Chairman over these
24 years of total dedication to the Co-operative. What should be noted is that Greg’s passion and commitment
to Norco and the northern dairy industry is second to none. He has worked tirelessly over these years to ensure
that dairy farmers in northern New South Wales and south-east Queensland have a home for their milk and that
their processor has a significant point of difference. It is not an exaggeration to state that without the vision Greg
always had for Norco and the personal sacrifices he made, Norco may not have survived the period leading up,
and subsequent to deregulation of the dairy industry.
Greg’s family has played a pivotal role in him being able to devote much of his time to Norco. Their support,
particularly from partner Sue and son Todd, has enabled Greg to spend significant amounts of time and energy
in the Norco business knowing the family dairy farm was in good hands.
Greg’s legacy as a Director and Chairman of Norco is that the Co-operative is in a much better position today
than it was when he first came onto the Board in 1996. He has acted with the greatest care and diligence in
undertaking his role as a custodian of the Co-operative’s substantial assets to ensure that Norco has a long and
successful future.
There is not much more that can be said to Greg other than a collective and heartfelt “THANK YOU” from all
members, milk suppliers, staff, business partners, customers and consumers.
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from all members, milk suppliers, staff, business partners, customers and
consumers.
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$5.4m
860
$4.4m
$683m
TOTAL NET PROFIT(before Significant Items)
STAFF EMPLOYEDas at 30 June 2020
TOTAL NET PROFIT(after Significant Items)
TOTAL REVENUE
2018/19 - $1.2m 2017/18 - $1.9m
Norco Foods 613Norco Rural 181Norco Agribusiness 42Corporate 24
2018/19 - $0.0m 2017/18 - $0.7m
214TOTAL MEMBERS’
MILK INTAKEMillions Litres
2018/19 - 195 2017/18 - 220
1,056AVERAGE MILK
PRODUCTION PER MEMBER FARM
000’s Litres
2018/19 - 1,003 2017/18 - 1,104
203MEMBER FARMS
2018/19 - 194 2017/18 - 201
2018/19 - $603m 2017/18 - $552m
includes permanent, part-time and casual staff
FACTS AT A GLANCE2019/20
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financialyear
ave base milk price
step ups
ave total milk pay
dividend suppliers’ patronage
total ave member returns
total member returns
TOTAL MEMBER SUPPLY
2019/20 70.63 - 70.63 0.21* 0.76 71.60
2018/19 60.14 - 60.14 0.19 0.76 61.09
2017/18 57.07 - 57.07 0.27 0.64 57.98
2016/17 57.29 0.13 57.42 0.25 0.51 58.18
2015/16 57.30 - 57.30 0.24 0.52 58.06
NORTHERN REGION CONTRACT PRICE
2019/20 70.98 - 70.98 0.25* 0.82 72.05
2018/19 60.30 - 60.30 0.20 0.75 61.25
2017/18 57.29 - 57.29 0.28 0.64 58.21
2016/17 57.40 0.13 57.53 0.26 0.51 58.30
2015/16 57.28 - 57.28 0.24 0.55 58.07
financialyear
ave base milk price
step ups
ave total milk pay
dividend suppliers’ patronage
total ave member returns
SOUTHERN REGION CONTRACT PRICE
2019/20 69.24 - 69.24 0.08* 0.55 69.87
2018/19 58.74 - 58.74 0.13 0.89 59.76
2017/18 55.29 - 55.29 0.16 0.60 56.05
2016/17 56.34 0.13 56.47 0.17 0.47 57.11
2015/16 57.52 - 57.52 0.16 0.35 58.03
*Dividend proposed for consideration at 2020 Annual General Meeting
financialyear
ave base milk price
step ups
ave total milk pay
dividend suppliers’ patronage
total ave member returns
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CHAIRMAN’S REPORTI report on behalf of the Board of Directors and as the recently
elected Chairman of the Co-operative. After taking a leave of
absence from the Board for health reasons, Greg McNamara
recently announced that he was standing down as Chairman and
would be retiring from the Board of Directors before ultimately
deciding to resign from the Board, effective 1 October 2020.
Having served on the Board with Greg for the last eight years, I
would like to acknowledge Greg’s dedication and commitment
to Norco during his time on the Board and we extend our best
wishes to Greg for the future. In conjunction with my election
as Chairman, Heath Hoffman has subsequently been elected to
fill the role of Deputy Chairman and I congratulate Heath on his
appointment.
As reported last year, Michael Hampson was recruited into the
Co-operative on 4 March 2019 as Chief Operating Officer. After
a period of settling in and getting to know the business, Michael
quickly demonstrated to the Board that he had the necessary
skills, knowledge and acumen to lead the business and was
elevated to the position of Chief Executive Officer on 3 October
2019. Prior to Michael’s appointment as Chief Executive Officer,
Greg McNamara had been performing the role on an interim
basis.
The year in review has been dominated by natural disasters
including severe drought, bush fires that shocked the nation
and even the threat of floods in part of our supply area.
However, we have also been witness to the onset of the
COVID-19 pandemic that continues to have far-reaching social
and economic effects on all Australians and the markets in
which Norco operates. We at Norco are therefore very fortunate
that as an essential food manufacturer, rural reseller and stock
feed manufacturer, the Co-operative has not only been able to
sustain our Members’ / Milk Suppliers’ returns and our business
operations, but we have in fact improved our Members’ returns
and the performance of the business. In these uncertain and
challenging times, being a 100% Australian farmer owned dairy
co-operative is a proposition that certainly resonates with our
customers and consumers alike and we appreciate the growing
support our brand continues to have in the market place we
service as it continues to outperform competitors’ brands.
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Business overview 2019/20
It is very pleasing to report to you that the Co-operative has
achieved a 13.2 percent increase in total revenue to reach
$683 million with a net profit (before significant items) of $5.4
million which compares very favourably with the equivalent
2018/19 result of a net profit (before significant items) of $1.2
million. This result was achieved after increasing the base farm
gate milk price paid to our Members / Milk Suppliers during the
financial year by $17.1 million in an effort to address the severe
increases in production costs experienced on farm. During the
year the Co-operative’s debt position continued to improve
with a reduction of $8 million resulting in a comfortable level
of headroom over banking covenants.
The financial performance for the 2019/20 year has been very
pleasing given the challenging environment experienced as
a consequence of continued drought and now COVID-19.
A major contributor to the improvement in the financial
results has been the continued support from our customers
for the Norco brand. In the aftermath of the devastating
fires experienced in early 2020, we saw an example of the
importance of the strong relationship Norco has with our
customers and the importance of the Norco brand when the
Coles Chief Executive Officer, Steven Cain, whilst visiting the
Mid North Coast to survey the impact of the fires, extended an
invitation to meet with Michael Hampson and myself at one
of the Coles stores. The visit provided a unique opportunity for
us to walk around the supermarket with the Coles executive
discussing the dairy cabinet, consumer support of the 100%
Australian farmer owned Norco brand and opportunities
to expand the ranging of Norco products within the Coles’
network. The store visit was followed by a visit to one of our
Member’s farms, which further reinforced the values of the
Co-operative and the unique offering of the Norco brand.
During the year, the brand has continued to gain the support
of the major retailers with improved ranging in Coles,
Woolworths and Aldi, in addition to a large number of new
independent retailers and route trade customers responding
to the growing consumer support for the 100% Australian
farmer owned proposition.
The Norco Rural / Agri business has continued its strong
performance again in 2019/20 through further sales growth in
the rural stores network and record volumes achieved in the
feed mills and grain trade divisions.
A significant contributor to the improved financial result has
been the continued focus on the delivery of the strategic
plan set by the Board. Actions from the strategic plan such as
achieving operational efficiencies through the implementation
of the continuous improvement program, growing the
geographical reach and profile of the brand, moving milk into
high returning categories, creating value in everything we do,
improving safety and implementing positive change across
the business, have all played a part in achieving the improved
result.
A Year of Change
During the course of the year, the Board of Directors and
the Senior Executive Team have remained focussed on
progressing the strategic plan and implementing change
within the business.
Change has become a new and consistent theme within the
business and we have seen change occur in many forms
under the leadership of Michael Hampson, including the
recruitment of a number of new senior members of staff with
new skill sets who have been welcomed into the business
and the implementation of several new initiatives and ways of
thinking about how we do things and how we create value in
everything we do such as the activity projects in Foods.
A major catalyst for change has been how we cope with the
changing working environment and a significantly changing
market place as a result of the COVID-19 pandemic. As the
pandemic unfolded, the development and implementation
of a comprehensive crisis management plan became the
major focus of the Board, the Senior Executive Team and the
Leadership Team. Specialist consultants from Ernest & Young
were engaged to assist with the development of the crisis
management strategy, which centred on identifying areas of
risk and mitigation strategies to ensure the impacts on the
business operations were kept to a minimum whilst always
ensuring the safety of our employees was maintained as a
priority.
One of the major mitigation measures employed to ensure
that the continuity of business was maintained during the
pandemic has been that large numbers of our staff were
required to work remotely from their homes by connecting
electronically to Norco’s IT system. Social distancing and
hygiene requirements have meant change had to occur
at all sites with new work practices being developed
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and implemented. The way in which the Board and the
management team communicate also required a major
change. As the pandemic unfolded, the Board moved from
holding monthly face-to-face meetings to meeting bi-weekly
electronically with more regular meetings with the senior
executive occurring on a weekly basis.
Safety continues to be of paramount importance to both the
Board and the management team, the COVID-19 pandemic
has required a heightened level of awareness and a renewed
focus on safety within the business.
Members
Norco’s Members / Milk Suppliers continued to endure some
of the harshest weather conditions on record, in particular
during the first half of 2019/20. This was on top of the ever
increasing costs of doing business on farm and the highly
inflated grain and fodder prices which we hope will ease
somewhat with the new season crop to be harvested in the
near future. Unfortunately the northern dairy industry has lost
many good dairy farmers as a result of the prolonged period
of drought including some who supplied the Co-operative.
On behalf of the Board, I wish to thank all our Members / Milk
Suppliers, both current and now retired for their extraordinary
efforts in supplying milk under such difficult conditions.
Norco’s milk pricing in the 2019/20 financial year did however
allow Norco to attract and recruit many new Member farms
in South East Queensland and Northern New South Wales
which have helped to replace the volume lost from farm
retirements and to ensure that Norco is able to continue to
service our increasing customer base with fresh milk. Sales of
Norco branded milk continues to grow significantly as does
the reach of our brand and we have welcomed 32 new farms
to the Co-operative. From an RD&E perspective we are excited
that Tocal Agricultural College transferred their milk supply to
Norco during the year and this now means the Norco milk
supply area is bookended by two very prestigious institutions
supplying milk to the Co-operative, being the University of
QLD Gatton Campus and Tocal Agricultural College. We look
forward to continuing to strengthen our partnerships with
these two institutions for the benefit of our Members / Milk
Suppliers and the broader industry.
The Co-operative has continued to receive outstanding
support from Members with 100 percent of Member farms
signing the new code compliant Milk Supply Agreements as
a result of the introduction of the Dairy Industry Mandatory
Code with the majority of Members electing to enter into a
new contract term or increase the length of their previous
contract.
Director elections
Directors Elke Watson (Northern Region) and Greg Billing
(Southern Region) completed their respective three year
terms as supplier Directors in 2019. Member nominations
were received for both regions and a ballot was conducted
resulting in Matthew Trace (Northern Region) and Heath Cook
(Southern Region) being elected to the Board. I would like
to take this opportunity to thank both Elke and Greg for the
contribution they made during their time as Directors.
On behalf of the Board of Directors, I would like to thank
everyone associated with the Co-operative for your collective
strength, resilience and support in what has been an
extraordinary year for many reasons as outlined in my report.
Our Members / Milk Suppliers, senior executives, management
and staff, business partners, customers and consumers have
all played very important roles in ensuring that Norco has not
only continued to grow but additionally, a very strong platform
has been established during the year for the future ahead. I
personally would like to thank the Board and Management
Team for their contributions and support throughout the year
and I look forward to the 2020/21 year with enthusiasm as
Chairman of “Our Norco”.
MICHAEL JEFFERY
Chairman
Board of Directors
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CHIEF EXECUTIVE OFFICER’S REPORTI feel quite privileged to present my first report to Members as
Chief Executive Officer of Norco Co-operative Limited, in our
125th year. Norco has a long history that we should remain
proud of, supporting farmers across a significant geographical
footprint and holding an important role in the industry as
Australia’s largest dairy farmer owned co-operative.
The events that occurred in the 2019/20 financial year provided
us all with many challenges. Together, we successfully fought off
the crippling drought and the widespread fires in many of our
dairy farming regions. We then welcomed the rains that had been
scarce from our country for so long, only to see these rains turn
into floods. As we pulled through the floods, COVID-19 came
very quickly into our lives. Our country’s leaders put in place
measures to control the spread of the virus in our communities,
however our markets then became disrupted.
2019/20 has been a year like no other. However, there have
been some quite significant wins that our Co-operative has
delivered, which attests to the activity management program
that was put in place across the business in May 2019. Through
the help and support of our customers and consumers, made
possible through the relationships held and the messaging of
our brand, we were able to increase the base farm gate milk
price we paid to our Members during the financial year by $17.1
million. In addition to this, we have increased the operating
profit before significant items from $1.2 million to $5.4 million,
an increase of $4.2 million.
In this challenging year, our change process and realignment
under a focused activity management program, has seen
the Norco management team increase the value created for
Members by $21.3 million, a record year on year increase in
Member value.
Operating Result
For the 2019/20 financial year, we have recorded an operating
profit before significant items of $5.4 million, being an increase
of $4.2 million over last year. What is pleasing to see in this
result, is that each of the business units of Norco improved
their financial performance over the last financial year, with
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the combined Dairy business improving their contribution by
over 100 percent.
A special mention needs to be made to our team members
within our Agri business, whom delivered record volumes of
formulated feeds, hay and grain to a wide range of customers,
including many of our Members during the drought. The
team work that was displayed and the willingness to assist our
customers and the Norco business was excellent, all during an
incredibly stressful time for all participants in the supply chain.
Brand Performance
The Norco brand accounted for $154.7 million in milk sales
during the 2019/20 year, representing an overall growth rate
of 15.9 percent. This is a pleasing result, as it enabled Norco to
support Members through the drought and also provided an
excellent outlet for our Members’ milk.
Within the retail channel, the Norco brand enjoyed value
growth of 39.3 percent, the highest of all major brands, where
the total milk category only grew by 10.4 percent, due to
increased retail pricing. Our volume growth was 28.4 percent
within a total milk category that grew by only 1 percent -
Norco’s growth represented circa 75 percent of the national
growth in retail milk sales – an exceptional result considering
we are only ranged in NSW and QLD, and not all stores in
these states.
Consumers are buying into the Norco 100% Farmer Owned
proposition, and the results are showing us this. Our retail
partners are assisting with providing us further ranging
opportunities to enable us to reach a wider group of
consumers, and we look towards the future confident that our
unique selling point will hold us in good stead.
Sales Performance
2019/20 saw our total sales exceed $683 million, representing
growth of 13.3 percent, with all of our business segments
delivering growth on the prior year.
The stock feed and grain trading business, fuelled by
significant drought demand and increased commodity prices,
grew by $34.4 million or 32.9 percent over last year. This
increased level of sales is a credit to our teams in this area of
our business, as volume records were regularly set and then
broken as the growth tested the capacity of our plant, process
and, at times, our people.
Notwithstanding the market disruption that was caused by
the COVID-19 restrictions, our branded milk business grew by
$21.1 million, reflecting the additional volumes we have sold
to consumers that prefer purchasing a milk brand owned by
famers, and the additional value we were able to take from the
market as we increased prices to support Members through
the drought.
Norco, as recognised by other industry participants, took a
leading position with regard to the value of dairy products
in the market place, and the value of milk at the farm gate.
This has created value in the market that we have been able
to share with our Members via improved milk prices, and a
broader benefit to the industry as a whole.
Our ice cream business sales grew by $14.7 million, or 13.6
percent, as more customers gained an appreciation for the
higher end quality products in Norco’s portfolio of capabilities.
Our services are coming under significant demand in the ice
cream category, the model of combining quality products
with an organisation that is easy to deal with, resonates well
with our contract manufacturing customer base.
Milk Supply
Due to the harsh drought that we continued to experience
during the year, we acknowledge both the significant financial
and non-financial pressures that our Members endured to
supply us milk during the last year.
Norco collected 214.4 million litres of milk from our Members,
an increase of 19.9 million litres from the prior financial year. On
a like for like farms basis, our total supply for the year was down
1.1 percent, with the largest reductions from the South East
Queensland, Taree/Hunter and Kempsey collection regions.
Norco welcomed 32 new farms into the membership of
our Co-operative as we secured our milk supply for our
growing branded business. This recruitment ensured that
we maintained supply of high quality fresh milk to our broad
customer base across retail, route and industrial channels.
Across our milk pool, our average farm gate milk price increased
to 70.63 cents per litre in 2019/20, inclusive of retail levies. This
was an improvement of over 10 cents per litre over 2018/19,
which delivered critical cash flow to members to assist with
the ever increasing demands of fodder procurement during
the drought.
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Debt Performance
Over the course of the financial year, Norco’s net debt
reduced by $8.0 million to $28.9 million, whilst still investing
$9.2 million in capital improvement projects for the year and
increasing the milk price by $17.1 million.
Norco is well in compliance with the covenants of our bankers,
Rabobank, and recently renewed our funding facilities, which
incorporated an increase in our facilities to provide us flexibility
to make investments where we see strong value to be created
for the Co-operative and our Members.
Safety
At Norco, we have an absolute commitment to improve the
work health and safety outcomes of our people.
Norco commenced the IPaM project at our Labrador
facility and the P2 program in NSW, which are both State
Government assisted behavioural based safety improvement
programs. These programs will assist Norco and our people
in the delivering of safe working practices, and importantly,
highlight and remove at risk behaviour that may occur within
the workplace.
These programs, whilst in their infancy, are being well supported
and resourced by the business, and well received by our team
members. Our safety journey is an important one, and that is
top of mind for all managers within the Leadership Team.
Norco has also invested heavily in Chain of Responsibility
leadership, creating a new department and engaging experts
to help us ensure we are operating our logistics operations
within a best practice framework for the safety of our people
and the wider community. We expect that these initiatives
will roll out within the next financial year, including the
implementation of new technologies to improve safety of the
transport fleet at Norco.
Acknowledgement
2019/20 has been a year of significant change. We have made
a number of structural realignments within the business to
improve the communication, collaboration and cohesion
within the business. These changes have shown to be quite
effective and have driven the significantly improved financial
performance of the Co-operative and the farm gate milk
payout to a new record level.
This would not have been possible without the dedication and
commitment of the management team and all 860 members
of the wider team at Norco. I would like to acknowledge their
significant contribution in making such an improvement to
the financial outcomes and collaboration across the business,
they have done an exceptional job.
Lastly, I would like to share my appreciation of the support
that the Board has provided me and I am looking forward
to the year ahead under the leadership of the Chair, Michael
Jeffery. Being able to work with this Board that is very invested
in improving the business and outcomes for our Members is
motivating, and provides the management team with the
necessary support to continue the growth and change in our
business.
MICHAEL HAMPSON
Chief Executive Officer
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Well done to
Norco on meeting the significant milestone
of 125 years of continuous operations.
Norco is so vital to the Australian dairy
industry, particularly across Northern New
South Wales and South Eastern Queensland,
and its brands have made an enormous
contribution to driving the strong reputation
that the Australian dairy industry is world-
renowned.
As Australia’s largest remaining dairy co-
operative, Norco has demonstrated the
power of what can be done when dairy
farmers partner together to create a better
future for their families.
Contribution from Dr David Nation –
Managing Director of Dairy Australia
It is a privilegeto offer my heartfelt congratulations
to Norco Co-operative for its growth
and great success over 125 years: to
its farmer owners and shareholders
and it’s loyal, hardworking staff across
two states.
As a regional co-operative it has
grown from a small local organization
to one recognized across Australia.
This has been achieved despite
major changes in the dairy industry,
deregulation of the national market
milk industry and a contracting dairy
farmer base across Australia.
May Norco continue to grow and
prosper for many years to come.
Contribution from Mr Alan Hoskins –
past Norco General Manager
125YRS
It is an honour to congratulate Norco Co-operative Limited on its 125th
anniversary of continuous operations in Australia this year. This is a fantastic and rare achievement
for which everyone associated with Norco, past and present, should be proud. Norco is a recognised
Australian owned and run dairy business supporting Aussie farmers throughout northern New South
Wales and south-east Queensland. Its dairy exports overseas have grown from strength to strength.
As Minister for Trade, Tourism and Investment, I am proud to see Aussie businesses such as Norco
develop such strong trading relationships around the world, growing and promoting Australia’s
exports of premium agricultural goods and introducing consumers to new and different Australian
dairy products. Through connecting Aussie milk and ice-cream producers to global consumers,
Norco has demonstrated its enduring resilience despite the significant challenges posed by the
COVID-19 pandemic and tough ongoing seasonal conditions.
Contribution from Senator the Hon Simon Birmingham – Minister for Trade, Tourism and
Investment, and Deputy Leader of the Government in the Senate
I congratulate Norco on their proud 125 years as a prominent part of the
Australian Dairy industry.
Norco has strived to and become a major and respected player in the Australian dairy industry.
Despite the challenges 125 years bring through droughts, floods and fires, Norco has always remained
committed to its founding values - delivering for our local communities and farmers.
Contribution from the Hon Melinda Pavey MP – State Minister for Water, Property and Housing
17
Norco Co-operative Limited celebrating 125 years
of continuous operations is a fantastic milestone. It is the best example of the important
role co-operatives play in supporting regional communities and their economies. This
was most evident during the recent difficult year with most people battling drought,
fires, floods and now a pandemic. Congratulations on a most wonderful effort!
Contribution from the Hon Mick Veitch MLC – Shadow Minister for Industry and
Trade, Shadow Minister for Rural Roads, Shadow Minister for Rural Affairs, and
Shadow Minister for Western NSW
Looking back over the 125 years of Norco’s History there were many successful and
disappointing times. I am reminded of this present year Norco has just gone through.
Now Australia’s largest and most successful dairy co-operative yet still battling with
drought, fires, floods and Coronavirus all in one year. Yet Norco has survived and
prospered thanks to its dedicated Suppliers and Staff.
They are, and always will be, Norco’s purpose and strength.
Amazing! Congratulations Norco.
Contribution from Mr Warren Noble – past Norco Chairman and Director
It is often written that Norco’s
history, from its
very humble beginnings in 1895, is
the history of the North Coast region
of NSW. With the early settlers of this
region coming together to form a
Co-operative which was to become a
significant influence in the Australian
dairy industry, and that also saw the
introduction of new and improved
farming systems. This led to major
increases in agricultural productivity in
this region.
I acknowledge all those who believed
in, and contributed to Norco and its
very strong and proud history of 125
years in this region.
Contribution from Mr John
Seccombe – Chairman of the
Northern Co-operative Meat
Company and Cooperatives Alliance
Norco has a proud
place in Northern NSW, as does the
Westpac Rescue Helicopter.
Our first Northern service mission was
in December 1982 and in March 2020
we marked 10,000 missions on the
North Coast.
Since 1985, Norco has been a part
of each mission, with sponsorship
support and other initiatives.
Norco’s support has been integral to
changing thousands of lives and I’d
like to thank and congratulate Norco
on this milestone.
Contribution from Mr Richard Jones
OAM – Chief Executive Officer –
Westpac Rescue Helicopter
YRS
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DIRECTORS’ REPORTThe Directors present their report together with the financial reports for Norco Co-operative Limited (‘the Co-operative’) for the year
ended 30 June 2020 and the Auditors’ report.
The Board of Directors currently comprises six supplier Directors (non-executive) and there are currently no Independent Directors
elected to the Board.
As part of the standard agenda items for each Board meeting, time is always allocated to strategic discussions which allows the Directors
and Chief Executive Officer to look forward and discuss emerging opportunities and trends as well as future challenges. The Directors
have a shared desire to ensure Norco’s strategic business objectives are met while at all times, acting in the best interests of the Members
as a whole.
The Board and management continued to spend a significant amount of time in the last financial year formulating strategies to assist
Members who continued to deal with severe drought conditions on their farms, in particular during the first half of the 2019/20 financial
year. This strategic focus, in addition to management undertaking activities and initiatives to strengthen business performance led
to significantly higher milk prices being paid to Members in 2019/20 as detailed earlier in this Annual Report. The onset of COVID-19
during late March 2020 also ensured that the Board and management maintained a sharp focus on business performance and strategic
resilience business planning to guide the business through this unprecedented pandemic emergency.
During the year, the Chairman invited members of the management team to Board meetings to provide in depth information regarding
various aspects of the business in addition to usual monthly business updates. Marketing, brand plans and campaign updates were
presented by Mr B Menzies (General Manager Marketing and Brands) during the year for both the Norco Foods’ business unit and the
Rural / Agri business unit. Mr G Vaughan (Health and Safety Manager) provided information regarding Norco’s Work Health and Safety
(WHS) performance and Dr M Callow (Milk Supply Manager) provided updates regarding matters relevant to Norco’s milk suppliers.
The Directors also continue to be committed to their ongoing professional development and during the year have had the opportunity
to attend, and represent Norco, at a range of industry conferences as can be seen from their profiles. This has been somewhat disrupted
with the onset of COVID-19 from March 2020 onwards, however Directors have adapted well to the use of on-line conferencing facilities
as a means of participating in industry events.
The Co-operative maintains Australian Institute of Company Directors (AICD) membership for all Directors on an annual basis and is
supportive of Directors participating in AICD educational courses and attendance at functions as well as industry events. Directors are
constantly on a path of learning as the Co-operative has a diversified business model. Continually improving the knowledge and skills
base in the Boardroom assists to ensure that the Directors are able to govern the Co-operative in the most effective manner possible,
using all relevant information, tools and resources available to them to ensure they fully inform themselves of important and emerging
issues.
COVID-19 played a disruptive role in relation to Norco’s most recently elected Directors attending the AICD Company Directors’ Course
(residential). It is a requirement that Directors complete this course within the first year of their appointment as supplier Directors. Both
Mr HS Cook and Mr MT Trace were enrolled into the Company Directors’ Course in QLD from 17 to 24 August 2020 but only Mr Trace
was able to attend and complete the residential course as he is a QLD resident. Being a resident of NSW, Mr Cook was unable to attend
due to the NSW-QLD border closure, however he will attend a NSW-based course 12 to 16 October 2020.
20
All of the six non-
executive supplier
Directors listed below
are Active Members
under the Rules of the
Co-operative and have
a direct interest in their
dairy farms that supply
milk produce to the
Co-operative.
Heath B J Hoffman – Deputy
Chairman
Heath Hoffman has been a Director
of Norco Co-operative Limited for six
years, having been first elected to the
Board on 12 November 2014 and is a
supplier Director from the Northern
Region. Heath was recently elected
as Deputy Chairman of the Board of
Directors and he is the Chairperson
of the Audit and Risk Management
Committee.
Heath is a member of the Australian
Institute of Company Directors.
During the year, Heath attended
the Dairy Research Foundation
Symposium in July 2019 with Michael
Jeffery. He also attended the Australian
Dairy Conference in Melbourne with
Heath Cook and Matthew Trace in
February 2020.
Heath S Cook - Director
Heath Cook was elected to the Board
of Directors on 27 November 2019 and
is a supplier Director from the Southern
Region. Heath is a member of both the
Audit and Risk Management Committee
and the Human Resources Committee.
Heath is an affiliate member of the
Australian Institute of Company Directors.
Since joining the Board, Heath has
undertaken induction activities and site
visits and has also attended the Australian
Dairy Conference in Melbourne with Heath
Hoffman and Matthew Trace in February
2020. As reported earlier Heath was
enrolled into the AICD Company Directors’
Course (residential) in QLD from 17 to 24
August 2020 but due to Heath being a
resident of NSW, he was unable to attend
due to the NSW-QLD border closure,
however he will attend a NSW-based
course 12 to 16 October 2020.
Michael C Jeffery – Chairman
Michael Jeffery has been a Director of Norco Co-operative Limited for eight years, having been
first elected to the Board on 14 November 2012 and is from the Southern Region. Michael is
Chairman of the Board of Directors, having been elected to the role on 30 July 2020. Michael
is a member of both the Member Services Committee and Human Resources Committee and
was the Chairman of the Audit and Risk Management Committee during the year until being
appointed Chairman of the Board.
Michael is a member of the Australian Institute of Company Directors and the Governance
Institute of Australia. Michael has completed the AICD Finance for Directors course, the AICD
Company Directors Course and holds an Advanced Diploma in Agriculture.
During the year, Michael attended the Dairy Research Foundation Symposium in Bega during
July 2019 with Heath Hoffman and in August 2019 Michael was a speaker and a member of the
processor panel at the NSW Dairy Industry Forum held at Parliament House Sydney. Michael
represented Norco at the China International Import Expo in Shanghai during November 2019
and in March 2020 joined an Ernst & Young webinar titled “Managing Working Capital in a
Crisis (COVID-19)”. Michael has represented Norco at numerous industry meetings relating
to the impacts of COVID-19 during the year and was appointed to the NSW Dairy Industry
Advisory Panel in January 2020.
DIRECTORS
21
Gregory J McNamara – Director
Greg McNamara has been a Director of
Norco Co-operative Limited for 24 years
and is from the Central Region.
Greg is a member of the Australian
Institute of Company Directors.
During the year Greg attended the
Australian Dairy Products Federation
dinner and discussion regarding the
Australian Dairy Plan. Later in July 2019
Greg attended the Australian Dairy
Plan National Workshop. Greg was a
presenter at the DIAA Conference in
Brisbane and was a speaker as part
of the dairy panel at the ICA Pacific
Research Conference at the University
of Newcastle in December 2019.
Greg stood down from the role of
Chairman of the Board on 30 July 2020
and has now resigned from the Board of
Directors effective 1 October 2020.
Matthew T Trace – Director
Matthew Trace was elected to the Board
of Directors on 27 November 2019 and
is a supplier Director from the Northern
Region. Matthew is a member of the
Audit and Risk Management Committee.
Matthew is a member of the Australian
Institute of Company Directors.
Since joining the Board, Matthew has
undertaken induction activities and site
visits and has also attended the Australian
Dairy Conference in Melbourne with
Heath Hoffman and Heath Cook in
February 2020. As reported earlier
Matthew recently attended the AICD
Company Directors’ Course (residential)
in QLD from 17 to 24 August 2020.
Leigh Shearman - Director
Leigh Shearman has been a Director of
Norco Co-operative Limited for eight
years having been first elected to the
Board on 14 November 2012 and is from
the Central Region. Leigh is Chairperson
of both the Member Services Committee
and the Human Resources Committee.
Leigh is a member of the Australian
Institute of Company Directors.
Leigh has continued with her speaking
roles during the year, attending and
speaking to groups such as Probus
in the local heartland areas of Norco.
The people in these groups are great
supporters of the Norco brand and Leigh
enjoys sharing Norco’s story with an
enthusiastic and appreciative audience.
22
External consultants and professional advice
The Board continues to engage the professional services of
a number of external consultants and advisors that specialise
in the areas of governance, operational performance, legal,
human resources and corporate management. During the
year consultants have attended Board meetings as invitees to
provide additional skill sets to Board discussions and specific
advice when required.
DIRECTOR ELECTIONS – 2019/20
In accordance with the annual rotation of Directors, the
Directors due to retire at the 2019 Annual General Meeting
were Mrs E Watson (Northern Region) and Mr GJ Billing
(Southern Region). Mrs E Watson, being eligible, offered herself
for re-election however Mr GJ Billing did not seek re-election.
Member nominations were also received from Mr MT Trace
(Northern Region) and from Mr HS Cook and Mrs SE McGinn
OAM (Southern Region) and accordingly a postal ballot was
held for both the Northern and Southern Regions resulting in
Mr MT Trace (Northern Region) and Mr HS Cook (Southern
Region) being elected for three year terms effective from the
2019 Annual General Meeting on 27 November 2019.
The positions of Chairman and Deputy Chairman are voted
on annually by the Directors following the Annual General
Meeting.
Directors’ Meetings
The number of Board meetings (and meetings of the Audit
and Risk Management Committee) and number of meetings
attended by each of the Directors of the Co-operative during
the financial year are:
As a result of COVID-19 and the need to adhere to social
distancing practices in the workplace, from late-March 2020
the Directors commenced holding meetings using on-line
conferencing facilities (rather than face to face) which has
proven very successful. A programme of more frequent on-
line meetings were scheduled in the April to June 2020 period
to not only conduct the Board’s usual business but for the
Board to receive regular updates on the changing business
environment brought about by COVID-19 and the resilience
planning activities to manage the business through this
unprecedented period. Similar to the Board meetings being
held on-line from late-March 2020, meetings of the Audit and
Risk Management Committee were also held this way during
the same time frame.
During the course of the 2019/20 financial year there were
also 14 Directors’ meetings held by teleconference (primarily
in the period of the financial year prior to on-line conferencing
facilities being used). Teleconferences are organised to discuss
and resolve specific issues that cannot be held over until the
next scheduled monthly meeting and generally the duration
of such teleconferences is one hour or less.
CORPORATE INFORMATION
Corporate structure
Norco Co-operative Limited is a co-operative limited by
shares which is incorporated and domiciled in Australia.
Nature of operations and principal activities
The principal activities of the Co-operative during the
financial year were the processing, manufacture and sale of
dairy products, the manufacture and sale of stockfeeds and
rural retailing.
Employees
The Co-operative employed 563 full-time, 55 part-time
permanent and 242 casual employees at 30 June 2020
(2019 541 full-time, 62 part-time permanent and 231 casual
employees).
Results of operations
The net amount of the total comprehensive income for the
financial year of the Co-operative after providing for income
tax was $4.8 million (2019: $41,000).
Derivatives and other financial instruments
The Co-operative’s activities expose it to changes in interest
rates, foreign exchange rates and commodity prices. It is
also exposed to credit, liquidity and cash flow risks from its
Directors’ Meetings
Audit and Risk Management Committee Meetings
A B A B
MC Jeffery 18 18 12 12
HBJ Hoffman 18 18 12 11
HS Cook 14 14 - -
GJ McNamara 18 17 - -
L Shearman 18 18 - -
MT Trace 14 14 8 8
GJ Billing 4 4 - -
E Watson 4 4 4 4
A Reflects the number of meetings held during the time the Director held office during the year
B Number of meetings attended
23
operations. During the year, the Board has maintained policies
and procedures in each of these areas to manage these
exposures. Management reports to the Board on a monthly
basis on the monitoring of and compliance with the policies
in place.
Dividends
Dividends paid during the 2019/20 financial year totalled
$445,000 (being a dividend rate of 4.0% [four percent] on
issued capital), declared and approved by Members at the 2019
Annual General Meeting, which was held on 27 November
2019.
Operations review
The Directors’ have reviewed the Co-operative’s operations
during the financial year and the results of those operations,
which are discussed in the Chairman’s Report for the financial
year ended 30 June 2020 (see page 8).
Events subsequent to balance date
During the interval between the end of the financial year
and the date of this report, there has not arisen any item,
transaction or event of a material and unusual nature which, in
the opinion of the Directors, is likely to significantly affect the
operations of the Co-operative, the results of those operations
or the state of affairs of the Co-operative in subsequent
financial years.
Future developments
In the opinion of the Directors, disclosure of information
regarding the likely developments in the operations of Norco
in future financial years and the expected results of those
operations is likely to result in unreasonable prejudice to the
Co-operative. Accordingly, this information has not been
disclosed in this report.
Indemnification and insurance of Directors and Officers
The Co-operative has entered into agreements to indemnify
all Directors named at the beginning of this report, former
Directors and current and former Officers of the Co-operative
against all liabilities to persons (other than to the Co-operative
or to a related body corporate) which arise out of the
performance of their normal duties as a Director or Officer,
unless the liability relates to conduct involving a lack of good
faith.
The Co-operative has agreed to indemnify the Directors and
Officers against all costs and expenses incurred in defending
an action that falls within the scope of the indemnity and
any resulting payments. The relevant insurances cover legal
liabilities and associated costs arising from the performance
of their duties as Directors and Officers and compensation for
loss or injury sustained in the course of such duties.
Indemnification of Auditors
To the extent permitted by law, the Co-operative has agreed
to indemnify its Auditors, Ernst & Young Australia, as part of
the terms of its audit engagement agreement against claims
by third parties arising from the audit (for an unspecified
amount). No payment has been made to indemnify Ernst &
Young during or since the financial year.
Options over unissued shares
Options over unissued shares have not been granted to any
person or Director since the end of the previous financial year
to date of this report.
Directors’ benefits
Since the end of the previous financial year, except as declared
below, no Director of the Co-operative has received or become
entitled to receive any benefit (other than a benefit included
in the aggregate amount of emoluments received or due and
receivable by Directors shown in the financial statements or
the fixed salary of a full time employee of the Co-operative
or of a related corporation) by reason of a contract made by
the Co-operative or a related corporation with the Director
or with a firm of which the Director is a member, or with a
company in which the Director has a substantial financial
interest, except for that benefit which may be deemed to
accrue to those Directors in their capacity as dairy farmers in
the supply of milk to the Co-operative in the ordinary course
of business.
Directors’ declarations of interest
On 30 January 2020 Mr MC Jeffery advised that he has been
appointed as a panel member on the NSW Dairy Industry
Advisory Panel. On 15 July 2020 Mr Jeffery advised that as
a panel member of the NSW Dairy Industry Advisory Panel,
he had an involvement in high level preliminary discussions
regarding the H4 RD&E Dairy Project proposal. This is a
collaborative co-investment project to de-risk the NSW dairy
industry for sustainable future growth and which Norco has
provided indicative funding support towards. Mr Jeffery has
declared his interest in accordance with Section 208 of the
Co-operatives National Law (NSW) and, in addition, excluded
himself from any discussions or decisions relating to this
entity and project.
On 27 November 2019 Mr HS Cook advised that he is a member
of the NSW Farmers’ Association Dairy Committee and is the
Regional Chairperson of Subtropical Dairy Programme Ltd.
24
25
Congratulations Norco!
Farmers, staff, management, directors – and our communities – can reflect on an outstanding
record over 125 years. For Norco, change has meant opportunities, not problems. Barriers
have been demolished – fresh milk into China has shifted from pipedream to reality. As a
strong regional 100% Aussie company, Norco is backing its heartland and delivering what its
consumers want – which points to great times ahead.
While Norco’s celebrations may have been curtailed a little due to necessary restrictions,
the Australian Government will continue to back communities and industries during this
pandemic as we all look to a strong future for regional Australia.
Contribution from the Hon Michael McCormack MP – Deputy Prime Minister, Minister for
Infrastructure, Transport and Regional Development and Leader of the National Party
Iconically Aussie, Norco has shown
that resilience runs deep in the veins of our farmers. Through world wars, depression,
drought and disasters, generations of families have come to trust Norco’s famously healthy
dairy produce. The Australian Government congratulates the Co-op’s significant 125-year
contribution to its communities and our worldwide clean green food reputation. Agriculture
will be at the heart of our COVID-19 recovery and innovative farmer-owned success stories
like Norco will play a critical role.
Contribution from the Hon David Littleproud MP – Minister for Agriculture, Drought and
Emergency Management and Deputy Leader of the National Party
Thank you and congratulations Norco on 125 years of
continuous service to our community. This is a remarkable milestone, unmatched
by few in any industry.
Your 125th year has been extraordinary. Our farmers have been on the frontline
through drought, fires, flooding and a pandemic. You have continued to serve
our community and keep milk products on our shelves – we thank you for
your unwavering dedication.
Thank you to all our farmers and processors, and to
everyone who buys Norco products, for supporting
our local farmer owned co-operative. Norco – an icon.
Contribution from the Hon Kevin Hogan MP – Assistant Minister
to the Deputy Prime Minister, Federal Member for Page
26
Mr Cook has declared his interest in accordance with Section
208 of the Co-operatives National Law (NSW) and, in addition,
excluded himself from any discussions or decisions relating
to these entities.
On 26 September 2019 Mr GJ McNamara advised that he has
been selected as a team member of the Australian Dairy Plan
Joint Transition Team (JTT). Mr McNamara has declared his
interests in accordance with Section 208 of the Co-operatives
National Law (NSW) and, in addition, excludes himself from
any discussions or decisions relating to this entity.
On 30 July 2020 as Chairperson of Dairy Industry Group
(DIG), Ms L Shearman advised that DIG has an interest in the
H4 RD&E Dairy Project (mentioned above), with DIG providing
an in-kind contribution to the project. Ms Shearman has
declared her interest in accordance with Section 208 of the
Co-operatives National Law (NSW) and, in addition, excluded
herself from any discussions or decisions relating to this entity
and project.
On 27 November 2019 Mr MT Trace advised that he is the
Vice President of the Queensland Dairyfarmers’ Organisation
(QDO) and a Director of Subtropical Dairy Programme Ltd. Mr
Trace has declared his interest in accordance with Section
208 of the Co-operatives National Law (NSW) and, in addition,
excluded himself from any discussions or decisions relating
to these entities.
On 30 August 2019 Mrs E Watson advised that she has been
appointed to the Board Selection Committee of Subtropical
Dairy Programme Ltd. Mrs Watson has declared her interest
in accordance with Section 208 of the Co-operatives
National Law (NSW) and, in addition, excluded herself from
any discussions or decisions relating to this entity up to 27
November 2019 when she ceased being a Director of the
Co-operative.
Rounding off of amounts
The amounts in this report and the accompanying financial
statements have been rounded to the nearest one thousand
dollars in accordance with the Co-operatives National Law
(NSW).
Auditor’s independence declaration to the directors
The Directors received a declaration of independence from
the Co-operative’s auditor, Ernst & Young. A copy of that
declaration is included after this Directors’ Report.
Appreciation
The efforts and contribution of our management and staff
during the year were greatly appreciated by Directors.
Signed in accordance with a resolution of the Directors.
MC Jeffery
Chairman
Lismore, 30 September 2020
26
A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation
Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001
Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au
Auditor’s Independence Declaration to the Directors of Norco Co-operative Limited As lead auditor for the audit of the financial report of Norco Co-Operative Limited for the financial year ended 30 June 2020, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Norco Co-Operative Limited and the entities it controlled during the financial year. Ernst & Young Brad Tozer Partner 30 September 2020
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Over many decades,
Norco Co-operative Limited has contributed greatly to
Australia’s dairy industry and regional economies. I would
like to congratulate Norco Co-operative Limited and all its
members for reaching 125 years of business.
There is at least one litre of milk in every Australian
household at any given time and 195 million litres of milk
will come from Norco every year.
After a summer of devastating bushfires, made worse by
prolonged drought and now the COVID-19 pandemic, I
would like to recognise the resilience that dairy farmers
have shown during this time and thank the community for
its continued support to help strengthen the dairy industry.
125 years of continual production and Australian ownership
is an incredible achievement and a great opportunity
to reflect on the great contribution Norco Co-operative
Limited has made to regional Australia and households
right across the country.
Again, congratulations on this fantastic milestone!
Contribution from the Hon John Barilaro MP – Deputy
Premier, Minister for Regional New South Wales,
Minister for Industry and Trade
‘‘
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30
CORPORATE GOVERNANCE STATEMENTThis statement outlines the main corporate governance
practices that were in place throughout the 2019/20 financial
year, unless otherwise stated. These practices are dealt with
under the headings: Board of Directors and its Committees;
Internal Control Framework; Ethical Standards; Business Risks
and Emergency Planning; and The Role of Members.
Board of Directors and its Committees
The Board of Directors is responsible for the overall corporate
governance of the Co-operative and aims to align and
maximise effort and decision-making across the business to
ensure that strategic objectives are achieved and that decisions
are made within the risk appetite set by the Board. The key
functions of the Board include establishing and overseeing
the desired organisational culture and values for Norco, testing
and approving strategy, setting policy, monitoring financial
performance (including approving the annual budget) and also
monitoring non-financial performance. In addition to setting
risk appetite, the Board also monitors risk and compliance
in a business environment of increasing legislative and
regulatory requirements. The selection and appointment of
the Chief Executive Officer is also a key function of the Board,
as is the ongoing monitoring of the Chief Executive Officer’s
performance and also ensuring there is adequate succession
planning in place. The Board of Directors is also responsible for
reporting to members and being accountable to, and focussed
on the needs of members.
The Board has established committees to assist in the
performance of its functions. The standing committees are
the Audit and Risk Management Committee, Member Services
Committee and the Human Resources Committee. The Board
may form or convene other ad hoc committees for specific
purposes.
To better understand the operations of the Co-operative’s
businesses the Board receives regular management reports,
presentations and briefing papers on key aspects and makes
site visits to the Co-operative’s operations.
Composition of the Board
Under the Rules of the Co-operative the Board of Directors
is comprised of a minimum of six non-executive (supplier)
Directors who represent the members from the Northern,
Central and Southern regions. Each region is represented
by two supplier Directors, with Directors serving a three year
term. At each Annual General Meeting two Directors retire in
accordance with the Rules of the Co-operative. The Rules also
allow for two Independent Directors to be elected to the Board
however both Independent Director positions remain vacant.
An active member of the Co-operative may seek election
as a supplier Director in accordance with the Rules and, if
elected, serve a term of three years after which time they retire.
Independent Directors, when nominated and elected, are
elected for a term of three years after which time they retire.
The Directors regularly consider whether or not the skills and
characteristics which might be contributed by Independent
Directors should be added to the Board to maximise its
effectiveness. Independent Directors are to be nominated by
the Board and elected by members.
While there are presently no Independent Directors appointed,
the Board continues to engage the professional services of a
number of external consultants and advisors that specialise
in the areas of governance, operational performance, legal,
human resources and corporate management. During the
year consultants have attended Board meetings as invitees to
provide additional skill sets to Board discussions and specific
advice when required.
Regarding potential conflicts of interest, it is the practice of
the Norco Board to open every meeting by giving Directors
the opportunity to declare any actual, potential or perceived
conflicts. If a conflict of interest should arise, the Director
concerned takes no part in discussions at the Board meeting
on the issue, nor exercises any influence over other Board
members.
The total remuneration package for Directors is voted on at
each Annual General Meeting. The amount paid may vary
between Directors depending on their level of responsibilities.
Remuneration of Directors is set out in the notes to the financial
statements.
Board Corporate Governance Policy and Emerging Corporate
Governance Issues
The purpose of the Corporate Governance Policy Statement is
to provide guidance to Directors and management on how the
Co-operative is to be governed in practice. The document was
developed having regard to the Co-operatives National Law
31
(NSW) and Norco’s Rules. All current Directors have signed Deed
Polls and Statutory Declarations to ensure their commitment to
the Corporate Governance Policy Statement and the duties and
responsibilities specifically addressed in the Deed Polls.
A review of the Corporate Governance Policy Statement is
undertaken annually by the Directors to ensure that issues of
governance are dealt with in accordance with the policy. At the
same time, the policy is reviewed to ensure it is still relevant
and up to date.
All current Directors except for Mr HS Cook have attended
and completed the comprehensive residential AICD Company
Directors’ Course. Mr Cook was registered to attend a Company
Directors’ Course during August 2020 at a QLD venue but
due to the NSW / QLD border closure as a result of COVID-19
restrictions, he was not able to attend that event, however he
will attend a NSW-based course 12 to 16 October 2020.
Co-operatives National Law in NSW
The Co-operative continues to operate under the Co-operatives
National Law (CNL) which was introduced on 3 March 2014.
Board Committees
The Directors seek to achieve best practice in corporate
governance and accountability through the following standing
Board Committees which assist the Board in the execution of
its responsibilities. These committees are subject to Charters
which have been approved by the Board and which define their
respective objectives, powers, roles and responsibilities.
Audit and Risk Management Committee
The objective of the Audit and Risk Management Committee
is to assist the Board of Directors in fulfilling its statutory and
fiduciary responsibilities relating to accounting and reporting
practices of the Co-operative and subsidiaries. The Committee
advises on the establishment and maintenance of an overall
framework of internal control and appropriate ethical
standards for the management of the Co-operative. The
Committee gives the Board additional assurance regarding the
quality and reliability of financial information prepared for use
by the Board in determining policies for inclusion in financial
statements. The Audit and Risk Management Committee
also embraces, as part of its Charter, the Co-operative’s Risk
Management Program.
The Audit and Risk Management Committee ensures:
• compliance with statutory responsibilities relating to financial
disclosure;
• focus on significant changes in accounting policies, standards
and practices or other reporting requirements likely to affect
developments in financial reporting;
• regular reviews of operations and policies are conducted;
• review of the audit and annual financial statements and
interim financial information and the adequacy of existing
external audit arrangements with particular emphasis on the
scope and quality of the audit; and
• risk management reporting systems are in place to effectively
identify and manage strategic, operational and financial
risks. To give further effect to identifying and quantifying
risks faced by the Co-operative, a risk register has been
developed which is managed under the scope of the Audit
and Risk Management Committee. The risk register details the
probability and impact of various business risks and creates a
risk score together with a mitigation plan.
The Audit and Risk Management Committee reviews the
performance of the external auditors on an annual basis and
meets them during the year as follows:
• to review the results and findings of the audit, the adequacy
of financial and operating controls, and to monitor the
implementation of any recommendations made; and
• to review the draft financial statements and the audit report
and to make the necessary recommendation to the Board for
the approval of the financial statements.
The Audit and Risk Management Committee also reviews
the Co-operative’s Executive Authority Limits on at least an
annual basis to ensure that the delegated levels of authority are
appropriate for key employee positions.
The Committee is comprised of three Directors and meets at
least six times per year. The Chairperson of the Co-operative
shall not be a member of the Committee.
Member Services Committee
The objective of the Member Services Committee is to make
properly considered recommendations to the Board of
Directors in relation to the adoption of policies pertaining to
non-milk supply, member issues.
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In giving effect to this objective, the Committee will make
recommendations to the Board of Directors in relation to
policies regarding:
• developing and encouraging the sustainability of the Norco
farm base through initiatives such as improving farming
techniques, study tours and improving business skills;
• assisting with the ongoing wellbeing of the Norco farm base
by helping members with succession planning, mental health
issues and social networking / support;
• providing and disseminating information from external
sources relating to issues such as the education and training
of potential Directors, government assistance and climate
variability; and
• providing support to the Norco farm base through the
management of issues such as exceptional circumstances,
disaster recovery planning and other critical farm issues (such
as tick infestations).
The Committee is comprised of up to three Directors and
meets at least every quarter.
Human Resources Committee
The objective of the Human Resources Committee is to
make properly considered recommendations to the Board of
Directors in relation to the adoption of policies pertaining to
Human Resources within Norco.
In giving effect to this objective, the Committee will make
recommendations to the Board of Directors in relation to
policies regarding:
• Developing and monitoring succession plans within Norco;
• Remuneration, salary and staff entitlements;
• The effective use of Human Resources throughout Norco;
• Performance management culture;
• Efficiency and value of Human Resources;
• Training and development;
• Continuous improvement;
• Work Health and Safety (WHS); and
• The review and updating of the Committee’s Charter from
time to time.
The Committee is comprised of up to three Directors and
meets at least every quarter.
INTERNAL CONTROL FRAMEWORK
The Board acknowledges that it is responsible for the overall
internal control framework, but recognises that no cost-
effective internal control system will preclude all errors and
irregularities. To assist in discharging this responsibility, the
Board has instigated an internal control framework which can
be categorised under the following headings:
• Corporate Strategy – there are clearly defined short, medium
and long term strategic objectives set and reviewed by
the Board of Directors on at least an annual basis and an
operational strategic plan developed by management to
meet these objectives. Strategic issues are considered at each
meeting of the Board of Directors.
• Financial reporting - there is a comprehensive budgeting
system with an annual budget approved by the Board. Monthly
actual results are reported against budget and revised rolling
year end forecasts are prepared monthly.
• Quality and integrity of personnel - the Co-operative’s policies
are detailed in a policy and procedures manual. New policies
and procedures are developed, or amendments made to
existing policies and procedures, as the need arises.
• Investment appraisal - the Co-operative has clearly defined
guidelines for capital expenditure. These include annual
budgets, detailed appraisal and review procedures and due
diligence requirements where businesses are being acquired
and divested.
• Executive authority limits – the Co-operative has clearly
defined financial authority limits for management positions
in relation to capital expenditure, foreign exchange, forward
purchase agreements, forward grain sale agreements and
general expenses.
Quality Accreditation and Auditing
The Norco Foods division strives to ensure that its products are
of the highest standard. The Lismore Ice Cream Business Unit
is licensed by the NSW Food Authority and has certification
against SQF Code Edition 8 Level 3: Comprehensive Food Safety
and Quality Management System, Coles Food Manufacturing
Supplier Requirements V2 March 2017 (CFMSR), Woolworths
Quality Assurance Standard, ALDI Quality Assurance, U.S. Food
and Drug Administration registered and has an Approved
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Arrangement with the Department of Agriculture for export.
The Labrador milk factory is licensed by SafeFood QLD and has
certification against SQF Code Edition 8 Level 3: Comprehensive
Food Safety and Quality Management System, Coles Food
Manufacturing Supplier Requirements V2 March 2017 (CFMSR),
ALDI Quality Assurance and has an Approved Arrangement
with the Department of Agriculture for export. The Raleigh milk
factory is licensed with the NSW Food Authority and certified
for SQF Code Edition 8 Level 3: Comprehensive Food Safety
and Quality Management System, ALDI Quality Assurance,
Walmart Supply Chain Security, ACO accreditation and has an
Approved Arrangement with the Department of Agriculture for
export. Raleigh is also Kosher certified for the production of all
A2 products.
In the Norco Agribusiness unit both the Norco Stockfeeds
manufacturing mills at Lismore New South Wales and
Windera Queensland have FeedSafe accreditation under
the Stockfeed Manufacturers’ Association of Australia and
HACCP accreditation. Norco is a member of the Stockfeed
Manufacturers’ Association of Australia.
Norco maintains accreditation against AS4801:2001 -
Occupational Health and Safety Management Systems.
Norco Rural Stores are audited internally in line with AS4801 as
well as requirements under the following Australian Standards:
• AS 3833:2007 – The storage and handling of mixed classes of
dangerous goods, in packages and IBC’s.
• AS 4775:2007 – Emergency eyewash and shower equipment.
• AS 4084:2012 – Steel Storage Racking.
To maintain currency of knowledge and skills, Rural employees
undergo various ongoing safety related training in the following
areas:
• Norco Agvet Awareness course developed in line with the
above mentioned standards as well as following nationally
accredited units of competency relating to:
o AHCCHM101A – Follow basic chemical safety rules.
o AHCCHM304A – Transport, handle and store chemicals.
• Heavy and light vehicle load restraint.
• Online safety courses in areas such as:
o Manual handling.
o Forklift safety.
o Fire safety training.
o Chain of Responsibility.
o Safety data sheets.
In response to the COVID-19 restrictions, the WHS Team is
developing a distance learning mode of delivery for the Norco
Agvet Awareness course. The WHS Team is also implementing
a new safety database system which meets the requirements
for AS4801 and ISO45001 with a goal to transition to the
international standard for Occupational Health and Safety
Management Systems.
Safety
Norco is committed to the safety and wellbeing of staff across
its entire operations. Norco strives to comply with the provisions
of a safe working environment and continues to make safety
an integral part of our organisation, which is essential if we are
to continue building a successful business into the future. On
a monthly basis, the Board of Directors receives management
reports detailing the safety performance and trends for the
business and monitors this information closely. The Board
also receives a copy of all minutes of the various site WHS
committee meetings that are held. In addition, a detailed
WHS report is provided to the Human Resources Committee
when the Committee meets. As noted above Norco maintains
accreditation against AS4801:2001 Occupational Health and
Safety Management Systems. This accreditation is current to 15
February 2022.
Environment
Norco aims to ensure that the highest standard of environmental
care is achieved. The Co-operative recognises that it has a
responsibility to ensure that its operations are sensitive to
the environment and comply with the letter and spirit of all
applicable environmental legislation. Norco is also a party to
the Australian Packaging Covenant and has a ‘Buy Recycled’
procurement practice as part of our obligations under the
Covenant.
ETHICAL STANDARDS
All Directors, managers and employees are expected to act
with the utmost integrity and objectivity, striving at all times
to enhance the reputation and performance of Norco. Every
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35
My Great Grandfather attended the very first meeting which was held at Clunes
which led to the eventual establishment of NORCO as we know it today. I was an
employee for 29 years from 1967 until 1996.
I list just a few of the major milestones during my time:
o The Labor Government (Minister Don Day) changing quota milk allocations to a
fairer system so it enabled farmers in non-metropolitan areas to have a better share
which improved their four weekly pay cheque massively. A number of Directors
of the Co-operative were heavily involved in this process which went against their
political persuasion.
o The Amalgamation with Casino Dairy and Central Dairy (Raleigh/Dorrigo). Many
others followed all strengthening Norco for all farmers involved.
o The purchase of the PDS Rural Store businesses which when added to the existing
Norco Rural Stores allowed some rationalisation and allowed Norco into new
territory particularly the Tablelands. This has been further expanded. The promotion
by using farmers such as Denzil Thomas, Hugh and Warren Gallagher and the
Shearman Family has been the best I have seen. Many other farming families have
been included.
o Diversification of the Norco distribution business which enabled distribution of
many products not made by the Co-operative. This part of the business, built up by
the employees, became valuable when the Co-operative needed financial support.
o The market milk joint venture with QUF/Gold Coast Milk which I understand
Norco owns outright today due to pre-emptive rights agreements and some
courageous decision making by those at the time.
There have been many honest hardworking farmers and employees over
125 years. I remember so many during my time. I found that when
the Board and Senior Management were stable the Co-operative
performed to its best.
There will always be challenges but to operate for 125 years
is a truly remarkable achievement. Congratulations
NORCO.
Contribution from Mr Graeme Hancock past
Norco Commercial Manager/Secretary
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employee has a nominated manager or supervisor to whom
they may refer any issue arising from their employment and
there is a suite of Human Resource policies and procedures
that assist in ensuring employees’ conduct is of the highest
standard possible. In addition, the Corporate Governance Policy
Document serves to provide guidance to Directors on how the
Co-operative should be governed from a practical perspective.
The Norco Foods division also has an Ethical Sourcing Policy
which sets out the standards that the business expects all
suppliers to comply with when producing and supplying
products and/or services for Norco Foods, no matter where
they operate in the world.
BUSINESS RISKS AND EMERGENCY PLANNING
Management has identified, and continues to identify, business
risks and potential emergencies with the aim of minimising any
consequential adverse effects on the Co-operative.
Business risks arise from such matters as:
• action by competitors and industry rationalisation;
• government policy changes;
• physical loss of assets through fire or another natural disaster
and the resultant business interruption that may occur;
• the impact of exchange rate movements on the price of raw
materials and on sales
• variations in interest rates;
• difficulties in sourcing raw materials; and
• the purchase, development and use of information systems,
and other emergencies that may occur.
THE ROLE OF MEMBERS
The Board of Directors aims to ensure that the members are
informed of all major developments affecting the Co operative’s
state of affairs. Information is communicated to members as
follows:
• The Annual Report is distributed to all members. The Annual
Report includes relevant information about the operations of
the Co-operative for the financial year just ended, changes
in the state of affairs of the Co-operative and details of future
developments, in addition to the other disclosures required by
the Co operatives Legislation;
• Meetings are held at least twice yearly with supplier members
at various locations to personally inform them about the affairs
of the Co-operative. The impact of COVID-19 has meant a
change in format of these meetings to on-line meetings and
this has been embraced well by supplier members;
• In addition to the meetings with supplier members, a more
informal communication network called ‘NorcoNet’ is active
in some localities within the Norco supply area. The purpose
of ‘NorcoNet’ is to bring small groups of members together on
a regular basis to form a local network to discuss general dairy
industry issues and issues that relate to the Co-operative;
• The preparation and distribution of a monthly Norco Bulletin
and ad hoc newsletters;
• Some proposed major changes in the Co-operative which
relate to the core businesses, Rules and compulsory schemes
are required by the Co operatives National Law (NSW) to be
submitted to a vote of members; and
• Communication is a two-way process, and the Board
encourages individual members or groups of members
to apply to attend Board Committee and / or meetings by
appointment.
The Board encourages full participation of members at the
Annual General Meeting to ensure a high level of accountability
and identification with the Co-operative’s strategies and goals.
Due to the geographical spread of members, the holding of the
Annual General Meeting is rotated between the three member
regions. Important issues are presented to the members as
single resolutions for their consideration.
The members are responsible for the election of Directors.
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STATEMENT OF PROFIT OR LOSS & OTHER COMPREHENSIVE INCOME For the year ended 30 June 2020
2020 2019
Before Before
Significant Significant Significant Significant
Items Items (1) Total Items Items (1) Total
Notes $000 $000 $000 $000 $000 $000
Revenue from contracts with customers 4 683,426 - 683,426 602,961 - 602,961
Other income 5.1 543 - 543 249 - 249
Finance income 474 - 474 512 - 512
Milk payments to suppliers 5.3 (155,310) - (155,310) (125,840) - (125,840)
Cost of sales (376,901) - (376,901) (338,317) - (338,317)
Employee expenses 5.4 (72,659) - (72,659) (68,828) - (68,828)
Depreciation expense 5.5 (10,199) - (10,199) (6,177) - (6,177)
Borrowing costs/finance costs 5.2 (2,675) - (2,675) (2,369) - (2,369)
Occupancy expenses (3,759) - (3,759) (6,191) - (6,191)
Administration and other costs (57,482) (305) (57,787) (54,907) - (54,907)
(Loss)/gain on disposal of non-current assets (104) - (104) 140 - 140
Restructure costs - (192) (192) - (597) (597)
Profit/(loss) before tax from ordinary activities before income tax expense and member distributions 5,354 (497) 4,857 1,233 (597) 636
Member distributions 7 - (445) (445) - (626) (626)
Profit/(loss) before income tax 5,354 (942) 4,412 1,233 (1,223) 10
Income tax expense 6 - - - - - -
Net profit/(loss) attributable to members 5,354 (942) 4,412 1,233 (1,223) 10
Other comprehensive income Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Net gain on cash flow hedges - 423 423 - 31 31 Other comprehensive income for the year, net of tax - 423 423 - 31 31
Total comprehensive income/(loss) for the year, net of tax 5,354 (519) 4,835 1,233 (1,192) 41
(1) Significant items are presented separately due to their nature and size.
The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
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STATEMENT OF FINANCIAL POSITION As at 30 June 2020
2020 2019
Assets Notes $000 $000Current assetsCash and cash equivalents 20.1 4,686 5,332 Trade and other receivables 8 61,000 61,932 Inventories 9 39,339 41,632 Other assets 1,991 1,279
Total current assets 107,016 110,175
Non-current assets Investments 10 3 3 Property, plant and equipment 11 66,879 64,166 Right-of-use assets 12 19,628 - Intangible assets and goodwill 13 37,038 37,038
Total non-current assets 123,548 101,207
Total assets 230,564 211,382
Liabilities
Current liabilities Trade and other payables 14 85,460 82,307 Interest-bearing loans and borrowings 15 5,471 1,818 Derivative financial instruments 16 - 423 Employee benefit liabilities 17 9,886 9,669
Total current liabilities 100,817 94,217
Non-current liabilitiesTrade and other payables 14 397 397 Interest-bearing loans and borrowings 15 47,966 40,428 Employee benefit liabilities 17 1,554 1,138
Total non-current liabilities 49,917 41,963
Total liabilities 150,734 136,180
Net assets attributable to members 79,830 75,202 Members’ interest 18.1 10,087 10,294 Net assets 69,743 64,908 EquityRetained earnings 30,656 26,244 Reserves 19 39,087 38,664Total equity 69,743 64,908
The above statement of financial position should be read in conjunction with the accompanying notes.
STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2020 Cash flow Asset Retained hedge revaluation earnings reserve reserve Total equity $000 $000 $000 $000At 1 July 2019 26,244 (423) 39,087 64,908 Profit for the year 4,412 - - 4,412 Other comprehensive income - 423 - 423 Total comprehensive income for the year 4,412 423 - 4,835 At 30 June 2020 30,656 - 39,087 69,743 At 1 July 2018 27,289 (454) 39,087 65,922 Effect of adoption of new accounting standards (1,055) - - (1,055) At 1 July 2018 (restated) 26,234 (454) 39,087 64,867 Profit for the year 10 - - 10 Other comprehensive income - 31 - 31 Total comprehensive income for the year 10 31 - 41 At 30 June 2019 26,244 (423) 39,087 64,908
The above statement of changes in equity should be read in conjunction with the accompanying notes.
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STATEMENT OF CASH FLOWS For the year ended 30 June 2020
2020 2019
Notes $000 $000
Operating activities
Receipts from customers 684,756 596,662 Payments to suppliers and employees (509,169) (463,359) Interest received 474 512 Interest paid 5.2 (2,675) (2,369) Milk supplier payments (152,372) (128,561)
Net cash flows from operating activities 20.2 21,014 2,885
Investing activities
Proceeds from sale of property, plant and equipment 116 273 Purchase of property, plant and equipment 11 (9,186) (7,573)
Net cash flows used in investing activities (9,070) (7,300)
Financing activities
Suppliers’ share contribution 18 (207) 101 Distributions paid to members 7 (445) (626) Payment of finance lease liabilities 20.2 - (305) Payment of principal portion of lease liabilities 20.2 (3,537) - (Repayments of)/proceeds from borrowings 20.2 (8,401) 5,959
Net cash flows (used in)/from financing activities (12,590) 5,129
Net (decrease)/increase in cash and cash equivalents (646) 714 Cash and cash equivalents at 1 July 5,332 4,618
Cash and cash equivalents at 30 June 20.1 4,686 5,332
The above statement of cash flows should be read in conjunction with the accompanying notes.
NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2020
1. Corporate information
The financial statements of Norco Co-operative Limited and its controlled entities (the “Co-operative”) for the year ended 30 June 2020 were authorised for issue in accordance with a resolution of the directors on 30 September 2020.
Norco Co-operative Limited is a for-profit Co-operative under the Co-operatives National Law (NSW), incorporated and domiciled in Lismore, Australia. The Co-operative operates out of its registered place of business at “Windmill Grove” 107 Wilson Street, South Lismore, New South Wales. The principal operations of the Co-operative are the processing, manufacture and sale of dairy products, the manufacture of stockfeed and rural retailing.
2. Summary of significant accounting policies
2.1 Basis of preparation
The general purpose financial report has been prepared on the basis of historical cost (except for certain land and building assets where in 2004 fair value was deemed to be cost and derivative financial instruments which are at fair value) and in accordance with the requirements of the Corporations Act 2001. Cost is based on the fair values of the consideration given in exchange for assets.
In the application of Australian equivalents to International Financial Reporting Standards (‘IFRS’) management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgements. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made by management in the application of IFRS that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements and Note 3. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.
The accounting policies set out below have been applied in preparing the financial statements for the year ended 30 June 2020 and the comparative information presented in these financial statements for the year ended 30 June 2019. Where necessary, comparatives have been reclassified to conform to current year classification.
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The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Co-operative under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Co-operative is an entity to which the instrument applies.
Statement of compliance
The financial report complies with Australian Accounting Standards, which include International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
2.2 Changes in accounting policies, disclosures, standards and interpretations
New and amended standards and interpretations
The Co-operative applied AASB 16 Leases for the first time. The nature and effect of the changes as a result of adoption of this new accounting standard is described below.
Several other amendments and interpretations apply for the first time in 2020, but do not have a material impact on the financial statements of the Co-operative.
AASB 16 Leases
AASB 16 supersedes AASB 117 Leases and it replaces AASB 117 Leases, AASB Interpretation 4 Determining whether an Arrangement contains a Lease, AASB Interpretation 115 Operating Leases-Incentives and AASB Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the statement of financial position.
Lessor accounting under AASB 16 is substantially unchanged from AASB 117. Lessors will continue to classify leases as either operating or finance leases using similar principles as in AASB 117. Therefore, AASB 16 does not have an impact for leases where the Co-operative is the lessor.
The Co-operative adopted AASB 16 using the modified retrospective method of adoption, with the date of initial application of 1 July 2019. Under this method, the standard is applied retrospectively with the cumulative effect on initially applying the standard recognised at the date of initial application. The Co-operative elected to use the transition practical expedient to not reassess whether a contract is, or contains, a lease at 1 July 2019. Instead, the Co-operative applied the standard only to contracts that were previously identified as leases applying AASB 117 and AASB Interpretation 4 Determining whether an Arrangement contains a Lease at the date of initial application.
The Co-operative has lease contracts for various items of vehicles and properties. Before the adoption of AASB 16, the Co-operative classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease.
Upon adoption of AASB 16, the Co-operative applied a single recognition and measurement approach for all leases except for short-term leases and leases of low-value assets. The standard provides specific transition requirements and practical expedients, which have been applied by the Co-operative.
Leases previously accounted for as finance leases
The Co-operative did not change the initial carrying amounts of recognised assets and liabilities at the date of initial application for leases previously classified as finance leases (i.e., the right-of-use assets and lease liabilities equal the lease assets and liabilities recognised under AASB 117). The requirements of AASB 16 were applied to these leases from 1 July 2019.
Leases previously accounted for as operating leases
The Co-operative also applied the available practical expedients wherein it:
• Used a single discount rate to a portfolio of leases with reasonably similar characteristics
• Relied on its assessment of whether leases are onerous immediately before the date of initial application
• Applied the short-term leases exemptions to leases with lease term that ends within 12 months of the date of initial application
• Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application
• Used hindsight in determining the lease term where the contract contained options to extend or terminate the lease
Based on the above, as at 1 July 2019:
• Right-of-use assets of $18,346,000 were recognised and presented separately in the statement of financial position. This includes the lease assets recognised previously under finance leases of $895,000 that were reclassified from property, plant and equipment.
• Lease liabilities of $18,005,000 (included in Interest bearing loans and borrowings) were recognised in addition to liabilities previously recognised as finance lease liabilities of $341,000.
The lease liabilities as at 1 July 2019 can be reconciled to the operating lease commitments as at 30 June 2019, as follows:
$000
Operating lease commitments as at 30 June 2019 14,563
Weighted average incremental borrowing rate as at 1 July 2019 3%
Discounted operating lease commitments as at 1 July 2019 13,429 Less: Commitments relating to short-term leases (545) Commitments relating to leases of low-value assets (63)
Add: Commitments relating to leases previously classified as finance leases 341 Lease payments relating to renewal periods not included in operating lease commitments as at 30 June 2019 5,184
Lease liabilities as at 1 July 2019 18,346
Accounting Standards and Interpretations issued but not yet effective
The following Australian Accounting Standards and Interpretations have recently been issued or amended but are not yet effective and have not been adopted by the Co-operative for the annual reporting period ended 30 June 2020:
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• AASB 2019-1 Amendments to Australian Accounting Standards - References to the Conceptual Framework
• AASB 2018-6 Amendments to Australian Accounting Standards - Definition of a Business
• AASB 2019-3 Amendments to Australian Accounting Standards - Interest Rate Benchmark Reform
• AASB 2018-7 Amendments to Australian Accounting Standards - Definition of Material
• AASB 2019-7 Amendments to Australian Accounting Standards - Disclosure of GFS Measures of Key Fiscal Aggregates and GAAP/GFS Reconciliations
• AASB 2019-5 Amendments to Amendments to Australian Accounting Standards - Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia
• AASB 1059 Service Concession Arrangements: Grantors
• AASB 2019-2 Amendments to Australian Accounting Standards - Implementation of AASB 1059
• AASB 2020-4 Amendments to Australian Accounting Standards - Covid-19-Related Rent Concessions
• AASB 17 Insurance Contracts
• AASB 1060 General Purpose Financial Statements - Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities
• AASB 2020-2 Amendments to Australian Accounting Standards - Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities
• AASB 2020-1 Amendments to Australian Accounting Standards - Classification of Liabilities as Current or Non-current
• AASB 2020-3 Amendments to Australian Accounting Standards - Annual Improvements 2018-2020 and Other Amendments
• AASB 2014-10 Amendments to Australian Accounting Standards - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
• Amendments to IFRS 17 Insurance Contracts
• Amendments to IFRS 4 Insurance Contracts, Extension of the Temporary Exemption from Applying IFRS 9
The Co-operative anticipates that the adoption of these standards in the period of initial application have no material impact on the financial statements.
2.3 Significant accounting policies
a) Basis of consolidation
The financial statements comprise the financial statements of the Co-operative and its subsidiaries as at 30 June 2020. Control is achieved when the Co-operative is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Co-operative controls an investee if, and only if, the Co-operative has:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
• Exposure, or rights, to variable returns from its involvement with the investee; and
• The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Co-operative has less than a majority of the voting or similar rights of an investee, the Co-operative considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
• The contractual arrangement with the other vote holders of the investee;
• Rights arising from other contractual arrangements; and
• The Co-operative’s voting rights and potential voting rights.
The Co-operative re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Co-operative obtains control over the subsidiary and ceases when the Co-operative loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of profit or loss and other comprehensive income from the date the Co-operative gains control until the date the Co-operative ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Co-operative and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Co-operative’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Co-operative are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Co-operative loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
b) Current versus non-current classification
The Co-operative presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is:
• Expected to be realised or intended to be sold or consumed in the normal operating cycle;
• Held primarily for the purpose of trading;
• Expected to be realised within twelve months after the reporting period; or
• Cash or a cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when it is:
• Expected to be settled in the normal operating cycle;
• Held primarily for the purpose of trading;
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• Due to be settled within twelve months after the reporting period; or
• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
The Co-operative classifies all other liabilities as non-current.
c) Revenue from contracts with customers
Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Co-operative expects to be entitled in exchange for those goods or services. The Co-operative has generally concluded that it is the principal in its revenue arrangements and that it typically controls the goods or services before revenue transferring them to the customer.
Variable consideration
If the consideration in a contract includes a variable amount, the Co-operative estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the sale of dairy products provide customers with discounts. The discounts give rise to variable consideration.
Sale of goods
Revenue from contracts with customers is recognised when the performance obligation has been satisfied. The performance obligation is satisfied at the point of delivery to the customer when the risks and rewards of the item is transferred. For the Foods division, the performance obligation is satisfied when goods are transferred to the central distribution centre. For Rural, the performance obligation is at the point of sale.
d) Finance income
Interest income is recorded using the effective interest rate (EIR). The EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. Interest income is included in other income in the statement of profit or loss and other comprehensive income.
e) Government grants
Grants received for the construction of non-current assets are deferred and recorded as revenue over the life of the funded asset.
f) Dividends
Dividend income is recognised when control of a right to receive consideration for the investment in assets is attained, usually evidenced by approval of the dividend at a meeting of shareholders.
g) Borrowing costs
Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.
h) Leases
The Co-operative assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Co-operative as a lessee
The Co-operative applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Co-operative recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
(i) Right-of-use assets
The Co-operative recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:
• Property 5 to 10 years
• Motor vehicles 3 to 5 years
If ownership of the leased asset transfers to the Co-operative at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in Note 2.3(r) Impairment of non-financial assets.
(ii) Lease liabilities
At the commencement date of the lease, the Co-operative recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Co-operative and payments of penalties for terminating the lease, if the lease term reflects the Co-operative exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Co-operative uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
The Co-operative’s lease liabilities are included in interest-bearing loans and borrowings.
(iii) Short-term leases and leases of low-value assets
The Co-operative applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e.,
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those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Co-operative will obtain ownership by the end of the lease term.
i) Cash and cash equivalents
Cash and short-term deposits in the statement of financial position comprise cash at bank and on hand and short-term deposits with an original maturity of three months or less. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.
j) Trade and other receivables
A receivable represents the Co-operative’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). They are generally due for settlement within 30-90 days and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components when they are recognised at fair value. The Co-operative holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest rate (EIR) method.
For trade receivables, the Co-operative applies a simplified approach in calculating ECLs. Therefore, the Co-operative does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Co-operative has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
k) Inventories
Inventories are valued at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and condition are accounted for, as follows:
• Raw materials: purchase cost on a first in, first out basis.
• Finished goods and work in progress: cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
Maintenance spares are recognised as inventories and expensed when utilised.
l) Foreign currencies
Transactions in foreign currencies are initially recorded by the Co-operative’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.
Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Co-operative’s net investment in a foreign operation. These are recognised in OCI until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recognised in OCI.
In determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which the Co-operative initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Co-operative determines the transaction date for each payment or receipt of advance consideration.
m) Taxes
Current income tax
Current income tax assets and liabilities for the current year are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Co-operative operates and generates taxable income.
Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except:
• When the GST incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable.
• When receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
n) Investments
Investments in subsidiaries held by the Co-operative are accounted for at cost in the statement of financial position of the Parent entity less any impairment charges.
The Co-operative has designated to account for its investments in unlisted entities at fair value through profit and loss. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss and other comprehensive income.
o) Property, plant and equipment
Items of property, plant and equipment including buildings and leasehold property, but excluding freehold land, are measured at cost less accumulated depreciation and less any impairment losses recognised. Freehold land is held at cost and is not depreciated.
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Plant and equipment is depreciated on a straight-line basis over the estimated useful life of the assets, units of output, life of project or other appropriate basis.
Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is shorter, using the straight-line method.
The following estimated useful lives are used in the calculation of depreciation:
- Buildings 2 - 5%
- Plant and vehicles 8 - 33%
- Leasehold plant and equipment 10 - 20%
The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.
Impairment
The carrying values of items of property, plant and equipment are reviewed for impairment at each reporting date, with recoverable amounts being estimated when events or changes in circumstances indicate that the carrying value may be impaired.
The recoverable amount of property, plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs, unless the asset’s value in use can be estimated to be close to its fair value.
An impairment exists when the carrying value of an asset or CGU exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount.
Derecognition and disposal
An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised.
p) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination are their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in the statement of profit or loss and other comprehensive income in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss and other comprehensive income as the expense category that is consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of profit or loss and other comprehensive income when the asset is derecognised.
q) Goodwill
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Co-operative’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Co-operative’s CGUs, or groups of CGUs, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Co-operative are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:
• Represents the lowest level within the Co-operative at which the goodwill is monitored for internal management purposes; and
• Is not larger than a segment based on the Co-operative’s primary reporting format determined as if applying AASB 8 Operating Segments.
Impairment is determined by assessing the recoverable amount of the CGU (group of CGUs), to which the goodwill relates. When the recoverable amount of the CGU (group of CGUs) is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of a CGU (group of CGUs) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion of the CGU retained. Impairment losses recognised for goodwill are not subsequently reversed.
r) Impairment of non-financial assets
The Co-operative assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Co-operative estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those
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from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
s) Trade and other payables
Trade and other payables are carried at amortised cost and due to their short-term nature they are not discounted. They represent liabilities for goods and services provided to the Co-operative prior to the end of the financial year that are unpaid and arise when the Co-operative becomes obliged to make future payments in respect of the purchase of these goods and services.
t) Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.
Gains or losses are recognised in profit or loss when the liabilities are derecognised.
u) Employee benefit liabilities
Provisions are recognised when the Co-operative has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Co-operative expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of profit or loss and other comprehensive income net of any reimbursement.
Wages, salaries and sick leave
Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave which are expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.
Long service leave and annual leave
The Co-operative does not expect its long service leave or annual leave benefits to be settled wholly within 12 months of each reporting date. The Co-operative recognises a liability for long service leave and annual leave measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.
v) Members’ interest
In periods before 1 July 2004, members units in the Co-operative were recorded in equity as contributed equity. On 1 July 2004, the Co-operative re-classified these instruments to non-current interest-bearing liabilities in accordance with generally accepted International Accounting Practice. Any distributions paid on these instruments are treated as a borrowing cost.
This position which was clarified by UIG 2 Members’ Shares in Co-operative Entities and Similar Instruments, which the Co-operative adopted effective 1 July 2004.
w) Norco capital units
Norco Capital Units are carried at the principal amount. Interest is accrued at the entitlement rate and is included in “Note 15 Interest-bearing loans and borrowings”.
x) Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement The Co-operative uses interest rate swaps (derivative financial instruments) to hedge its interest rate risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognised in Other Comprehensive Income (OCl) and later reclassified to profit or loss when the hedge item affects profit or loss.
For the purpose of hedge accounting, hedges are classified as:
• Cash flow hedges: when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.
At the inception of a hedge relationship, the Co-operative formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the
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entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
Hedges that meet all the qualifying criteria for hedge accounting are accounted for, as described below:
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognised in OCI in the cash flow hedge reserve, while any Ineffective portion is recognised immediately in the statement of profit or loss as other operating expense.
The Co-operative uses interest rate swaps to hedge the exposure to cash flow movements in loan movements. The Co-operative has entered into interest rate swaps which are economic hedges, which are fair valued by comparing the contracted rate to the future market rates for contracts with the same length of maturity. During 30 June 2020, there were no swaps that have been designated as effective interest rate swaps (2019: $0.4 million).
If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognised in equity is transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit or loss.
y) Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Co-operative.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Co-operative uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
• Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For the purpose of fair value disclosures, the Co-operative has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above.
3. Significant accounting judgements, estimates and assumptions
Significant judgements The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgments and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgments and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.
Management has identified the following critical accounting policies for which significant judgments, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods.
Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements.
Impairment of non-financial assets other than goodwill The Co-operative assesses impairment of all assets at each reporting date by evaluating conditions specific to the Co-operative and to the particular asset that may lead to impairment. These include product and manufacturing performance, technology, economic and political environments and future product expectations. If an impairment trigger exists the recoverable amount of the asset is determined.
Provision for expected credit losses of trade receivables and contract assets
The Co-operative uses a provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e., customer type and rating and age profile of debt).
The provision matrix is initially based on the Co-operative’s historical observed default rates. The Co-operative will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic conditions (i.e., gross domestic product) are expected to deteriorate over the next year which can lead to an increased number of defaults in the manufacturing sector, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Co-operative’s
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historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. The information about the ECLs on the Co-operative’s trade receivables is disclosed in Note 8.
Provision for inventory obsolescence The Co-operative periodically reviews the inventory ledger to identify inventory items that may be held in excess of their net realisable value. For such items that are identified, a provision for inventory obsolescence amount is raised which represents the amount for which the Co-operative may not recover through use of sale of the goods. Obsolete stock is written off when identified.
Leases - Estimating the incremental borrowing rate
The Co-operative cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Co-operative would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Co-operative ‘would have to pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Co-operative estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating).
Determining the lease term of contracts with renewal and termination options – Co-operative as lessee
The Co-operative determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
The Co-operative has several lease contracts that include extension and termination options. The Co-operative applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Co-operative reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g., construction of significant leasehold improvements or significant customisation to the leased asset).
The Co-operative included the renewal period as part of the lease term for leases of property, motor vehicles and other equipment with shorter non-cancellable periods (i.e., 3 to 10 years). The renewal periods for leases of property with longer non-cancellable periods (i.e., > 10 years) are not included as part of the lease term as these are not reasonably certain to be exercised. In addition, the renewal options for leases of motor vehicles are not included as part of the lease term because the Co-operative typically leases motor vehicles for not more than five years and, hence, is not exercising any renewal options. Furthermore, the periods covered by termination options are included as part of the lease term only when they are reasonably certain not to be exercised.
Refer to Note 12 for information on potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term.
4. Revenue from contracts with customers
Disaggregated revenue information
Set out below is the disaggregation of the Co-operative’s revenue from contracts with customers: 2020 2019 $000 $000
Type of goods or service
Sale of goods - Foods 375,818 337,652
Sale of goods - Rural 280,951 244,996
Sale of goods - Milk supply 26,657 20,313
Total revenue from contracts with customers 683,426 602,961
Geographical markets
Australia 678,926 598,663
Other 4,500 4,298
Total revenue from contracts with customers 683,426 602,961
Timing of revenue recognition
Goods transferred at a point in time 683,426 602,961
Total revenue from contracts with customers 683,426 602,961
5. Other income and expenses 5.1 Other income 2020 2019 $000 $000
Rental income 131 152
Sundry income 412 97
543 249
5.2 Borrowing costs/finance costs 2020 2019 $000 $000
Interest on lease liabilities 566 21
Borrowing costs 2,109 2,348
2,675 2,369
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5.3 Milk payments to suppliers 2020 2019 $000 $000
Milk payments to Norco member suppliers 151,450 117,010
Milk payments to external suppliers 3,860 8,830
155,310 125,840
5.4 Employee expenses 2020 2019 $000 $000
Salaries and wages (including contractors) 62,633 59,495
Workers compensation 2,534 2,144
Superannuation costs 4,709 4,557
Payroll tax 2,783 2,632
72,659 68,828
5.5 Depreciation expense 2020 2019 $000 $000
Plant and equipment 5,846 5,673
Buildings 511 504
Right-of-use assets 3,842 -
10,199 6,177
5.6 Administration and other costs
Administration and other costs include the following: 2020 2019 $000 $000
Inventory obsolescence 53 63
Expected credit losses (Note 8) 145 417
6. Income tax expenseThe major components of income tax expense for the years ended 30 June 2020 and 2019 are: 2020 2019 $000 $000 Current income tax:
Current income tax charge - -
Adjustments for current tax of prior periods - -
Deferred tax:
Relating to origination and reversal of temporary differences - -
Income tax expense reported in the statement of profit or loss and other comprehensive income - -
A reconciliation between tax expense and the product of accounting profit before income tax multiplied by Co-operative applicable income tax rate is as follows: 2020 2019 $000 $000
Accounting profit before income tax 4,412 10
At Australia’s statutory income tax rate of 30% (2019: 30%) 1,323 3
Non-deductible amounts 316 1,056
Movement in temporary differences 181 (936)
Other movements in tax (380) -
Tax loss movement (1,440) (123)
- -
Tax losses
At 30 June 2020, the Co-operative had an estimated gross $0.9m in carry forward losses (actual 2019: $5.7m). These tax losses have not been brought to account in the statement of financial position. There are no available franking credits.
Temporary Differences – Net
The Co-operative has a surplus of deductible temporary differences. In effect the deferred tax liabilities are recorded, however are 100% offset by deferred tax assets so a net $Nil position is seen in the balance sheet. At 30 June 2020 and 2019 a surplus of temporary difference assets was present as disclosed below. 2020 2019 Unrecognised deferred tax assets and liabilities $000 $000
Provision for expected credit losses 778 763
Provision for employee benefits 3,432 3,242
Trademark (819) (819)
Provision for obsolescence 506 477
Property, plant and equipment (2,344) (2,199)
Right-of-use asset (5,888) -
Lease liability 5,980 -
1,645 1,464
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7. Member distributions 2020 2019 $000 $000
Expensed in the year 445 626
8. Trade and other receivables 2020 2019 $000 $000
Trade receivables 62,832 63,354
Allowance for expected credit losses (2,593) (2,542)
60,239 60,812
Other receivables 761 1,120
61,000 61,932
Set out below is the movement in the allowance for expected credit losses of trade receivables and contract assets:
2020 2019 $000 $000
As at 1 July 2,542 923
Adjustment on adoption of AASB 9 - 1,055
Charge for the year (Note 5.6) 145 417
Other (94) 147
As at 30 June 2,593 2,542
Trade receivables are generally on 30-90 day terms. An allowance for expected credit losses is made where there is objective evidence that a trade receivable is impaired. The carrying value of trade and other receivables approximates fair value.
At 30 June, the ageing analysis of trade receivables is as follows:
< 30 30-60 61-90 Total days days days 91+ days $000 $000 $000 $000 $000
2020 62,832 42,607 12,648 4,934 2,643
2019 63,354 41,447 14,330 4,571 3,006
Receivables past due have been considered for impairment and are partially included in the $2.6m expected credit loss provision based on management’s expectation of cash to be collected.
9. Inventories 2020 2019 $000 $000
Raw materials 11,447 11,929
Finished goods and work in progress 29,580 31,294
Provision to net realisable value (1,688) (1,591)
Total inventories at the lower of cost and net realisable value 39,339 41,632
An allowance for inventory obsolescence is made where there is objective evidence that inventories are carried in excess of their net realisable value.
10. Investments 2020 2019 $000 $000
Shares Unlisted corporations 3 3
11. Property, plant and equipment 2020 2019 $000 $000
Land and buildings At cost 29,022 28,943 Accumulated depreciation (7,258) (6,747) Net carrying amount 21,764 22,196
Plant, equipment and vehicles At cost 97,102 98,030 Accumulated depreciation (58,429) (60,898) Net carrying amount 38,673 37,132
Capital expenditure work in progress At cost 6,442 4,838 Net carrying amount 6,442 4,838
Total property, plant and equipment At cost 132,566 131,811 Accumulated depreciation (65,687) (67,645) Net carrying amount 66,879 64,166
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Reconciliation of carrying amounts at the beginning and the end of the year 2020 2019 $000 $000
Land and buildings At 1 July 22,196 22,397 Transfers from work in progress 79 303 Depreciation expense (511) (504) At 30 June 21,764 22,196
Plant, equipment and vehicles At 1 July 37,132 37,060 Disposals (116) (118) Transfers from work in progress 7,503 5,863 Depreciation expense (5,846) (5,673) At 30 June 38,673 37,132
Capital expenditure work in progress At 1 July 4,838 3,431 Additions 9,186 7,573 Transfers to property, plant and equipment (7,582) (6,166) At 30 June 6,442 4,838
Total property, plant and equipment At 1 July 64,166 62,888 Additions 9,186 7,573 Disposals (116) (118) Depreciation expense (6,357) (6,177) At 30 June 66,879 64,166
There were no impairment losses recognised in the 2020 or 2019 financial years.
The Co-operative’s property, plant and equipment is subject to a first charge as security over its interest-bearing liabilities. See Note 15(c) for further information.
The Co-operative adopted AASB 16 Leases for the year ended 30 June 2020, under which all operating and finance lease commitments are now included a right-of use assets and lease liabilities (see Notes 2.3 (h), 12 and 15).
12 Leases
Co-operative as a lessee
The Co-operative has lease contracts for various items of property and motor vehicles used in its operations. All the leases generally have lease terms between 3 and 10 years. The Co-operative’s obligations under its leases are secured by the lessor’s title to the leased assets. Generally, the Co-operative is restricted from assigning and subleasing the leased assets and some contracts require the Co-operative to maintain certain financial ratios. There are several lease contracts that include extension and termination options and variable lease payments, which are further discussed below.
The Co-operative also has certain leases of machinery with lease terms of 12 months or less and leases of office equipment with low value. The Co-operative applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases.
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period:
Property Motor vehicles Total $000 $000 $000As at 1 July 2019 (on adoption of AASB 16) 15,234 3,112 18,346 Additions 2,603 2,521 5,124 Depreciation expense (2,343) (1,499) (3,842) As at 30 June 2020 15,494 4,134 19,628
Set out below are the carrying amounts of lease liabilities (included under interest-bearing loans and borrowings) and the movements during the period: 2020 $000 As at 1 July 2019 (on adoption of AASB 16) 18,346 Additions 5,124 Accretion of interest 566 Payments (4,103) At 30 June 2020 19,933 Current 3,887 Non-current 16,046
The following are the amounts recognised in profit or loss: 2020 $000
Depreciation expense of right-of-use assets 3,842
Interest expense on lease liabilities 566
Expense relating to short-term leases (included in occupancy expenses) 2,176
Expense relating to leases of low-value assets (included in occupancy expenses) 1,584
Total amount recognised in profit or loss 8,168
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The Co-operative had total cash outflows for leases of $7,863,000 in 2020. The Co-operative also had non-cash additions to right-of-use assets and lease liabilities of $5,124,000 in 2020.
Set out below are the undiscounted potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term: Total 2020 $000
Extensions options expected not to be exercised 12,173 Termination options expected to be exercised - 12,173
13. Intangible assets and goodwill 2020 2019 $000 $000
Acquired goodwill 34,309 34,309 Trademark 2,729 2,729
Net carrying amount 37,038 37,038
(a) Impairment test of acquired goodwill
Goodwill acquired through business combinations has been allocated at an entity level to the relevant cash generating units (CGUs). The CGUs for the Co-operative are Norco Foods, Norco Rural Retail and Norco Agribusiness. The goodwill acquired and trademark are allocated to the Norco Foods CGU.
The discount rate applied to cash flow projections is 12% pre-tax (2019: 12%).
Key assumptions used in the value in use calculation are:
• Revenue: based on projected growth predictions; • Cost of sales: based on revenue growth; and • Other costs: based on rural store growth and expected wage increases.
No reasonably possible change in the key assumptions noted would result in an impairment.
14. Trade and other payables 2020 2019 $000 $000
Current
Trade payables 67,940 66,871 Accruals 17,520 15,436 85,460 82,307 Non-current
Other payables 397 397
Trade payables are generally on 30 day terms. The fair value of trade and other payables approximates their carrying value.
15. Interest-bearing loans and borrowing 2020 2019 $000 $000
Current Lease liability (Note 12) 3,887 233 Norco Capital Units 84 85 Term loans - secured 1,500 1,500
5,471 1,818
Non-current Lease liability (Note 12) 16,046 108 Term loans - secured 31,920 40,320
47,966 40,428
The Co-operative finance facility with Rabobank was amended during the year, the Borrowing Base Facility is scheduled to expire on 30 September 2021 and the Term Loan Facility is scheduled to expire on 30 September 2023. Bank Guarantees and Credit Card Facilities remain in place with St George Bank.
Refer to Note 15(d) for financing facilities available to the Co-operative.
(a) Fair values The carrying amount of the Co-operative’s current and non-current borrowings approximates their fair value. The fair values have been calculated by discounting the expected future cash flows at prevailing market interest rates.
(b) Interest rate, foreign exchange and liquidity risk Details regarding interest rate, foreign exchange and liquidity risk is disclosed in Note 30.
(c) Assets pledged as security The carrying amounts of assets pledged as security for current and non-current interest-bearing liabilities are:
2020 2019 $000 $000
Property asset charges 66,879 64,166 Trademark 2,729 2,729 Total assets pledged as security 69,608 66,895
There are no specific terms and conditions related to the above pledges.
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(d) Financing facilities The following financing facilities are available for the Co-operative at 30 June: 2020 2019 $000 $000
Term loan facilities Used facilities 33,420 41,820 Unused facilities 35,580 21,305 69,000 63,125 Bank guarantees and finance leases Used facilities 1,298 1,353 Unused facilities 402 347 1,700 1,700 Business credit card facility Used facilities 19 34 Unused facilities 135 106 154 140
Total finance facilities Used facilities 34,737 43,207 Unused facilities 36,117 21,758 70,854 64,965
16. Derivative financial instruments 2020 2019 $000 $000Financial liabilities at fair value through OCI
Current Interest rate swap contracts - cash flow hedges - 423
The Co-operative has entered into cash flow interest rate swaps, which are measured at fair value by comparing the contract rate to the future market rates for contracts with the same maturity terms. During 2019, an amount of $0.4m of swaps have been designated as effective interest rate swaps and therefore satisfy the accounting standard requirements for hedge accounting. The timing of the interest rate payments for the swaps are in line with the interest rate payments of the bank facility. As at 30 June 2020, the Co-Operative had no interest rate swaps.
The Co-operative has applied fair value factors in accordance with AASB 13. The inputs used in the valuation method are classified as Level 2 (2019: Level 2).
16.1 Hedging activities and derivatives
Cash flow hedges The Co-operative does not hold interest rate swaps as at 30 June 2020.
As at 30 June 2019 Notional amount
Carrying amount
Line item in the statement of financial position
Change in fair value used for measuring ineffectiveness for
the period
$000 $000 $000
Interest rate swaps 25,188 423 Derivative financial instruments -
The impact of hedged items on the statement of financial position is, as follows:
30 June 2020 30 June 2019
Change in fair value used
for measuring ineffectiveness
Cash flow hedge reserve
Change in fair value used for measuring
ineffectivenessCash flow hedge
reserve
$000 $000 $000 $000
Interest rate swaps - - - (423)
The effect of the cash flow hedge in the statement of profit or loss and other comprehensive income is, as follows: Amount Total hedging Ineffectiveness reclassified from gain/(loss) recognised in OCI to profit or Year ended 30 June 2020 recognised in OCI profit or loss loss
$000 $000 $000 Interest rate swaps 423 - - Year ended 30 June 2019 Interest rate swaps 31 - -
2020 2019 17. Employee benefit liabilities $000 $000
Current Employee entitlements 9,886 9,669
Non-current Employee entitlements 1,554 1,138
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18. Members’ interest
18.1 Movements in shares on issue $000
Opening balance - 10,193,000 fully paid shares 10,193 Repurchases of cancelled shares (353) Subscriptions 454 At 30 June 2019 - 10,294,000 fully paid shares 10,294
Opening balance - 10,294,000 fully paid shares 10,294 Repurchases of cancelled shares (945) Subscriptions 738 At 30 June 2020 - 10,087,000 fully paid shares 10,087
18.2 Terms and conditions of contributed equity Contributed equity has rights in accordance with the Co-operatives National Law (NSW).
19. Reserves
Asset revaluation reserveEffective 1 July 2004, the Co-operative changed the valuation basis applied to non-current land and buildings. Under historical AGAAP, the Co-operative carried land and buildings at fair value. From 1 July 2004, the Co-operative deemed the fair value to be cost. The asset revaluation reserve represents the historical accumulation of revaluation adjustments. The reserve will no longer be available to offset decrements in the value of land and buildings and will be transferred to retained earnings on impairment and/or disposal of land and buildings.
Cash flow hedge reserveThis reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge.
20. Cash and cash equivalents
20.1 Reconciliation of cash
For the purpose of the statement of cash flows, cash and cash equivalents compose of the following at 30 June: 2020 2019 $000 $000
Cash at bank and on hand 4,686 5,332
20.2 Cash flow reconciliation 2020 2019 $000 $000
Reconciliation of net profit before tax to net cash flows: Profit before tax 4,412 10
Adjustments for: Depreciation of property, plant and equipment 6,357 6,177 Depreciation of right-of-use assets 3,842 - Member distribution expense 445 626 Expected credit losses 145 417 Inventory obsolescence 53 63 Net loss/(gain) on disposal of property, plant and equipment 104 (140)
Changes in assets and liabilities: Decrease/(increase) in trade and other receivables 787 (6,548) Decrease/(increase) in inventories 2,240 (2,841) (Increase)/decrease in other assets (712) 404 Increase in trade and other payables 2,708 4,468 Increase in employee benefit liabilities 633 249
Net cash flows from operating activities 21,014 2,885
Changes in liabilities from financing activities
2019Cash inflows/
(outflows)Adoption of
AASB 16 New leases 2020
$000 $000 $000 $000 $000
Liabilities with cash flows from financing activities
Interest bearing loans and borrowings (excluding lease liabilities) 41,905 (8,401) - - 33,504
Suppliers’ share contribution 10,294 (207) - - 10,087
Distribution paid to members - (445) - - (445)
Lease liabilities 341 (3,537) 18,005 5,124 19,933
52,540 (12,590) 18,005 5,124 63,079
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Cash inflows/ 2018 (outflows) 2019 $000 $000 $000 Liabilities with cash flows from financing activities Interest bearing loans and borrowings (excluding lease liabilities) 35,946 5,959 41,905 Suppliers’ share contribution 10,193 101 10,294 Distribution paid to members - (626) (626) Lease liabilities 646 (305) 341 46,785 5,129 51,914
21 Controlled entities % equity interest Investment $000
Name Principal activities 2020 2019 2020 2019
Logan Valley Dairies Pty Ltd Dormant 100% 100% 165 165 Norco Wholesalers Pty Ltd* Wholesaler 100% 100% - - Fieldco Pty Ltd* Dormant 100% 100% - - Norcofields Pty Ltd* Dormant 100% 100% - - Beaudesert Milk Pty Ltd* Dormant 100% 100% - - Norco Milk Pty Ltd** Dormant 100% 100% - - Gold Coast Milk Pty Ltd Property Holder 100% 100% 15,783 15,783 ACN 146 859 074 Pty Ltd* Dormant 100% 100% - - 15,948 15,948 * Investment <$101 ** 100 shares at $1 each
22. Commitments
Capitalised finance lease commitments for plant and vehicles: 2019 $000
Within one year 233 After one year but not more than five years 108 Total minimum lease payments 341 341
Non-cancellable operating lease commitments for equipment, land and buildings: 2019 $000
Within one year 2,591 After one year but not more than five years 6,787 More than five years 2,351 11,729
Cancellable operating lease commitments for vehicles and plant: 2019 $000
Within one year 1,350 After one year but not more than five years 1,484 2,834
The Co-operative adopted AASB 16 Leases for the year ended 30 June 2020, under which operating and finance lease commitments are now included as lease liabilities (see Notes 2.3 (h), 12 and 15).
23. Contingent liabilities
Legal Actions The directors are not aware of any material legal actions being brought against the Co-operative, its controlled entities or any joint venture to which the Co-operative holds an interest which has not been provided for.
Bank Guarantees Contingent liabilities exist in respect of bank guarantees given to various parties that amount to $1,298,000 (2019: $1,353,000) and are not included as creditors.
24. Financial guarantee contracts
A letter of financial support is provided by Norco Co-operative Limited to Norco Wholesalers Pty Limited. The Co-operative has no other outstanding financial guarantee contracts at 30 June 2020 (2019: $Nil).
25. Capital management
The Co-operative manages its capital structure through regular reviews of its exposure to debt and members as shareholders. The Co-operative has no set levels for equity and debt. The management of the Co-operative views members shares as equity. Members’ interests are managed in line with the requirements of the Co-operatives National Law (NSW). The Co-operative has complied with all requirements of the Co-operatives National Law (NSW) during the year.
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26. Directors and executive disclosures
26.1 Directors
(i) The directors of Norco Co-operative Limited during the financial year were: Michael Jeffery (Non-Executive) Heath Hoffman (Non-Executive) Greg McNamara (Non-Executive) Leigh Shearman (Non-Executive) Greg Billing (Non-Executive) (a) Elke Watson (Non-Executive) (b) Heath Cook (Non-Executive) (c) Matthew Trace (Non-Executive) (d)
(a) Retired as Non-Executive Director effective 27 November 2019 (b) Ceased as Non-Executive Director effective 27 November 2019 (c) Elected Non-Executive Director effective 27 November 2019 (d) Elected Non-Executive Director effective 27 November 2019
26.2 Key management personnel
(i) The executives of Norco Co-operative Limited during the financial year were: Michael Hampson (Chief Executive Officer) (a) Sean Southwood (Chief Financial Officer) (b) Andrew Burns (EGM Foods) (c) Damon Bailey (EGM Rural/Agribusiness) Brett Arthur (GM Commercial Foods) (d)
(a) Appointed Chief Executive Officer effective 3 October 2019, formerly Chief Operating Officer (b) Appointed Chief Financial Officer 13 November 2019, formerly Financial Controller (c) Resigned as EGM Norco Foods effective 28 February 2020. (d) Appointed GM Commercial Foods effective 28 February 2020
26.3 Compensation of key management personnel and Directors 2020 2019 $ $
Short term - wages and salaries 1,712,406 1,601,434 Termination benefits 121,130 173,364 Superannuation 140,334 158,934 Non-cash 16,931 16,932 Total compensation 1,990,801 1,950,664
The above amounts only relate to the cash and other benefits paid to Directors and key management personnel for the period of their employment with the Co-operative or for the period they held a position as a Director or key management person.
26.4 Transactions with and balances with key management personnel
Purchases Purchases of milk from key management personnel and related entities are on the same commercial terms and conditions as enjoyed by other non key management personnel members.
Sales Purchases of milk from key management personnel and related entities are on the same commercial terms and conditions as enjoyed by other non key management personnel members.
26.5 Share transactions 2020 2019 Aggregate number of shares held by Co-operative Directors and their related entities at 30 June 500,847 677,022
Aggregate number of shares acquired by Co-operative Directors and their related entities during the year 29,825 27,574
27. Superannuation commitments All employees participate in an employer sponsored defined contribution/accumulation style superannuation plan. Contributions by the Co-operative of 9.5% (2019: 9.5%) of employees’ wages and salaries are legally enforceable except employees of the Ice Cream division who are paid 11% (2019: 11%) superannuation commitments in line with their Enterprise Bargaining Agreement.
28. Auditor’s remuneration
The auditor of Norco Co-operative Limited is Ernst & Young (Australia). 2020 2019 $ $
Amounts received or due and receivable by Ernst & Young (Australia) for: An audit or review of the financial report 164,000 144,000
Other services Financial statements compilation 11,500 11,000
175,500 155,000
In the year ended 30 June 2020 an additional initial fee of $17,500 was paid to Ernst & Young associated with additional audit requirements associated with the first-time adoption and audit of AASB 16 Leases.
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29. Information relating to the Norco Co-operative Limited (the Parent) 2020 2019 $000 $000
Information relating to Norco Co-operative Limited:
Current assets 107,016 110,180 Total assets 214,782 195,605 Total liabilities (149,745) (135,191) Net assets attributable to members 65,037 60,414
Members’ interest 13,312 13,519 Net assets 51,725 46,895
Asset revaluation reserve 31,215 31,215 Cash flow hedge reserve - (423) Retained earnings 20,510 16,103 Total equity 51,725 46,895
Profit of the Parent entity 4,413 9 Total comprehensive income of the Parent for the year 4,836 40
Details of any guarantees entered into by the Parent entity in relation to the debts of its subsidiaries The Parent’s share of the jointly controlled entities financial guarantees is included in disclosures in Note 24.
Details of any contingent liabilities of the Parent entity The Parent’s share of the jointly controlled entities contingent liabilities is included in disclosures in Note 23.
Details of any contractual commitments by the Parent entity for the acquisition of property, plant or equipment The Parent’s share of the jointly controlled entities commitments is included in disclosures in Note 22.
30. Financial risk management objectives and policies
The Co-operative’s principal financial liabilities, other than derivatives, comprise of loans and borrowings, trade and other payables, and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Co-operative’s operations and to provide guarantees to support its operations. The Co-operative’s principal financial assets include trade and other receivables and cash and short-term deposits that derive directly from its operations.
The Co-operative is exposed to market risk, credit risk and liquidity risk. The Co-operative’s senior management oversees the management of these risks. The Co-operative’s senior management is supported by the Audit and Risk Management Committee that advises on financial risks and the appropriate financial risk governance framework for the Co-operative. The Audit and Risk Management Committee provides assurance to the Co-operative’s Board of Directors that the Co-operative’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Co-operative’s policies and risk objectives. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Co-operative’s policy that no trading in derivatives for speculative purposes shall be undertaken. The board of directors reviews and agrees policies for managing each of these risks which are summarised below.
Risk exposures and responses
Interest rate risk The Co-operative’s exposure to interest rate risks relates primarily to the Co-operative’s long-term debt and associated obligations. The level of debt is disclosed in Note 15.
At balance date, the Co-operative had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk: 2020 2019 $000 $000 Financial assets and liabilities Cash and cash equivalents 4,686 5,332 Derivative financial instruments - (423) Net exposure 4,686 4,909
Interest rate swap contracts during 2019 outlined in Note 16, with a fair value of $0.4m loss are exposed to fair value movements if interest rates change. The Co-operative’s policy is to manage its finance costs using variable rate debt with an appropriate level of instruments to fix interest exposure. The Co-operative constantly analyses its interest rate exposure. To manage this mix in a cost-efficient manner, the Co-operative has entered into interest rate swaps, in which they agree to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. Consideration is given to potential renewals of existing positions, alternative financing and the mix of fixed and variable interest rates.
The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date:
Judgements of reasonably possible movements: Post tax profit Equity Higher/(Lower) Higher/(Lower)
2020 2019 2020 2019 $’000 $’000 $’000 $’000
+1.0% (100 basis points) - (53) - -
-1.0% (100 basis points) - 53 - -
The movements in post-tax profit are due to the movement in fair value of cash, based on movements in interest rates only.
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Significant assumptions used in the interest rate sensitivity analysis include:
• A price sensitivity of derivatives based on a reasonably possible movement of interest rates at balance dates by applying the change as a parallel shift in the forward curve.
• The net exposure at balance date is representative of what the Co-operative was and is expecting to be exposed to in the next twelve months from balance date.
Foreign currency risk
The Co-operative has no material exposure to foreign currency therefore this is not an applicable risk.
Commodity price risk
The Co-operative’s exposure to commodity price risk is present through the grain purchasing requirements for the Agribusiness business. It is the Co-operatives policy to secure grain quantities and prices through forward grain contracts. As these contracts are regular advance purchase contracts for process inputs, derivative accounting is not applied and contract fair value movements are not recorded.
Credit risk
Credit risk arises from the financial assets of the Co-operative, which comprise cash and cash equivalents and trade and other receivables. The Co-operative’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note.
The Co-operative does not hold any credit derivatives to offset its credit exposure.
The Co-operative trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Co-operative’s policy to securitise its trade and other receivables.
It is the Co-operative’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. Risk limits are set for each individual customer in accordance with parameters set by the board. These risk limits are regularly monitored.
In addition, receivable balances are monitored on an ongoing basis with the result that the Co-operative’s exposure to bad debts is not significant.
There are no significant concentrations of credit risk within the consolidated entity.
Liquidity risk
The Co-operative’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, finance leases and committed available credit lines.
The table below reflects contractual finance principal repayments and interest resulting from recognised financial liabilities as of 30 June 2020. Cash flows for financial liabilities without fixed amount or timing are based on the conditions existing at 30 June 2020.
The remaining contractual maturities of the consolidated entity’s and parent entity’s financial liabilities are presented with an analysis of the financial assets. 2020 2019 $000 $000
0-1 year 90,847 84,040 1-5 years 49,352 40,825
140,199 124,865
Maturity analysis of financial assets and liability based on management’s expectation.
The risk implied from the values shown in the table below reflects a balanced view of cash inflows and outflows. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in our ongoing operations such as property, plant, equipment and investments in working capital e.g. inventories and trade receivables. These assets are considered in the consolidated entity’s overall liquidity risk.
Year ended 30 June 2020
Cash and cash equivalents 4,686 - - 4,686 Trade and other receivables 61,000 - - 61,000 Interest-bearing loans and borrowings (1,500) (31,920) - (33,420) Lease liabilities (3,887) (16,046) - (19,933) Trade and other payables (85,460) (397) - (85,857) Net maturity (25,161) (48,363) - (73,524)
Year ended 30 June 2019
Cash and cash equivalents 5,332 - - 5,332 Trade and other receivables 61,932 - - 61,932 Interest-bearing loans and borrowings (1,500) (40,320) - (41,820) Lease liabilities (233) (108) - (341) Trade and other payables (82,307) (397) - (82,704) Net maturity (16,776) (40,825) - (57,601)
Fair value
The methods for estimating fair value are outlined in the relevant notes to the financial statements.
31. Events after the reporting period
There have been no significant events occurred after the reporting period which may affect either the Co-operative’s operations or results of those operations or the Co-operative’s state of affairs.
<12 months 1 to 5 years Over 5 years Total $000 $000 $000 $000
<12 months 1 to 5 years Over 5 years Total $000 $000 $000 $000
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DIRECTORS’ DECLARATION30 June 2020
In accordance with a resolution of the directors of Norco Co-operative Limited, I state that:
In the opinion of the directors:
(a) the financial statements and notes of the Co-operative are in accordance with the Corporations Act 2001 and Co-operatives National Law (NSW), including:
(i) giving a true and fair view of the Co-operative’s financial position as at 30 June 2020 and of its performance for the year ended on that date; and
(ii) complying with Accounting Standards, as required by the Co-operatives National Law (NSW);
and
(b) there are reasonable grounds to believe that the Co-operative will be able to pay its debts as and when they become due and payable.
On behalf of the Board
M.C. Jeffery
Chairman
Lismore
30 September 2020
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A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation
Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001
Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au
Independent Auditor’s Report to the Members of Norco Co-operative Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Norco Co-operative Limited (“the Co-operative”), which comprises the statement of financial position as at 30 June 2020, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the Directors’ Declaration.
In our opinion:
the accompanying financial report of Norco Co-operative Limited is in accordance with the Corporations Act 2001 and Co-operatives National Law (NSW), including:
(i) giving a true and fair view of the Co-operative’s financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Co-operative in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
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We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report.
1. Recoverable value of intangible assets and goodwill
Why significant How our audit addressed the key audit matter
The annual non-current asset impairment assessment was a key audit matter due to the value of these assets relative to total assets and the degree of estimation and assumptions required to be made by the Co-operative, specifically concerning future discounted cash flows.
Note 13 of the financial report discloses the individual intangible assets and goodwill and the key assumptions used in the Co-operative’s cash flow model to test these assets for impairment.
Our audit procedures included the following:
• Assessed whether the impairment testing methodology used by the Co-operative complied with the requirements of Australian Accounting Standards.
• Tested the mathematical accuracy of the cash flow forecasts and impairment model.
• Assessed the key assumptions within the cash flow model including growth rates and discount rate.
• Considered the accuracy of historical cash flow forecasts in order to evaluate the Co-operative’s forecasting capability.
• We applied our knowledge of the business and corroborated our work with external information where possible.
• Assessed the impairment related disclosures included in Note 13 of the financial report.
2. Interest bearing loans and borrowings
Why significant How our audit addressed the key audit matter
The Co-operative’s interest-bearing loans and borrowings was a key audit matter due to their value and the importance of the loan facility in funding the Co-operative’s operations. In addition, the facility is subject to the Co-operative complying with financial covenants.
The Co-operative assessed it is in compliance with the applicable financial covenants as at 30 June 2020 and expects to continue to be compliant for the remaining period of the facility.
Note 15 of the financial report discloses the details of the interest bearing loans and borrowings.
Our audit procedures included the following:
• Confirmed the loans and borrowings outstanding with the each of the Co-operative’s financiers at 30 June 2020.
• Examined the Co-operative’s calculations to support their testing of compliance with applicable financial covenants.
• Assessed the adequacy of the disclosures relating to funding and covenants included the financial report.
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3. Milk payments to suppliers
Why significant How our audit addressed the key audit matter
The Co-operative’s milk payments to suppliers was a key audit matter due to the significance the milk supply process to members and on the operations of the business.
Payments are made to milk suppliers based upon the quantity and quality of milk supplied. The price paid is based on rates approved by the Co-operative’s Board.
Our audit procedures included the following:
• Selected a sample of payments made to milk suppliers during the year and determined whether the payment was based upon Board approved rates.
• Tested, on a sample basis, the effectiveness of selected controls over the Co-operative’s monthly milk supply reconciliation process where volumes of milk paid for were reconciled to the volumes of milk supplied and other quality measures such as fat and protein percentages were addressed.
• Tested, on a sample basis customer receipts to invoice and bank statement.
Information Other than the Financial Report and Auditor’s Report
The Directors of the Co-operative are responsible for the other information. The other information comprises the information in the Co-operative’s Annual Report for the year ended 30 June 2020 but does not include the financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based upon the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report The Directors of the Co-operative are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards, the Corporations Act 2001 and Co-operatives National Law (NSW) and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the Directors are responsible for assessing the Co-operative’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Co-operative or cease operations, or have no realistic alternative but to do so.
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Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s or the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s or Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company or the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
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We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Ernst & Young
Bradley Tozer Partner 30 September 2020
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HEAD OFFICES
NORCO CORPORATE ‘Windmill Grove’, 107 Wilson Street SOUTH LISMORE NSW 2480 (PO Box 486 LISMORE NSW 2480) Phone: 02 6627 8000 Fax: 02 6627 8099
NORCO RURAL ‘Windmill Grove’, 107 Wilson Street SOUTH LISMORE NSW 2480 (PO Box 3107 LISMORE DC NSW 2480) Phone: 02 6627 8000 Fax: 02 6627 8099
NORCO AGRIBUSINESS Windmill Grove’, 107 Wilson Street SOUTH LISMORE NSW 2480 (PO Box 3107 LISMORE DC NSW 2480) Phone: 02 6627 8000 Fax: 02 6627 8099
MILK SUPPLY Windmill Grove’, 107 Wilson Street SOUTH LISMORE NSW 2480 (PO Box 486, LISMORE NSW 2480) Phone: 02 6627 8029 Fax: 02 6627 8095
NORCO FOODS
NORCO MILK – LABRADOR Cnr Pine Ridge Road & Gold Coast Highway LABRADOR QLD 4215 (PO Box 530, SOUTHPORT QLD 4215) Phone: 07 5511 7200 Fax: 07 5511 7298
NORCO MILK – RALEIGH North Street RALEIGH NSW 2454 Phone: 02 5641 6100 Fax: 02 5641 6198
ICE CREAM BUSINESS UNIT Union Street SOUTH LISMORE NSW 2480 (PO Box 486, LISMORE NSW 2480) Phone: 02 6627 8000 Fax: 02 6627 8102
NORCO AGRIBUSINESS – NORCO STOCKFEEDS AND NORCO GRAIN
NORCO STOCKFEEDS Krauss Avenue SOUTH LISMORE NSW 2480 Phone: 02 66278299 Fax: 02 6627 8298
NORCO STOCKFEEDS 2814 Murgon – Gayndah Road WINDERA QLD 4605 Phone: 07 4168 6300 Fax: 07 4168 6399
NORCO GRAIN – TOOWOOMBA 22 Carrel Drive HARRISTOWN QLD 4350 Phone: 07 4637 3313 Fax: 07 4637 3399
NORCO RURAL BRANCHES
ALSTONVILLE 17 Kays Lane Russelton Estate ALSTONVILLE NSW 2477 Phone: 02 6625 8400 Fax: 02 6625 8499
ARMIDALE 252 Mann Street ARMIDALE NSW 2350 Phone: 02 6775 4300 Fax: 02 6775 4399
BEAUDESERT 9A Thiedke Road BEAUDESERT QLD 4285 Phone: 07 5542 4500 Fax: 07 5542 4599
BELLINGEN 1076 Waterfall Way BELLINGEN NSW 2454 Phone: 02 6692 3800 Fax: 02 6692 3899
BOWRAVILLE 51 Carbin Street BOWRAVILLE NSW 2449 Phone: 02 6564 5400 Fax: 02 6564 5499
BUNDABERG 96 Mount Perry Road BUNDABERG QLD 4670 Phone: 07 4326 3500 Fax: 07 4326 3599
CASINO 136 Dyraaba Street CASINO NSW 2470 Phone: 02 6661 2100 Fax: 02 6661 2199
COFFS HARBOUR 25 Wingara Drive COFFS HARBOUR NSW 2450 Phone: 02 6691 2800 Fax: 02 6691 2899
DUNGOG Stroud Road DUNGOG NSW 2420 Phone: 02 4999 2600 Fax: 02 4999 2699
GAYNDAH 59 Dalgangal Road GAYNDAH QLD 4625 Phone: 07 4140 8542 Fax: 07 4140 8572
GLEN INNES 165 Lang Street GLEN INNES NSW 2370 Phone: 02 6739 7400 Fax: 02 6739 7499
GLOUCESTER Cnr Church & Phillip Streets GLOUCESTER NSW 2422 Phone: 02 6558 9600 Fax: 02 6558 9666
GRAFTON 19 Queen Street GRAFTON NSW 2460 Phone: 02 6641 3400 Fax: 02 6641 3499
GYMPIE 11 Station Road GYMPIE QLD 4570 Phone: 07 5481 4600 Fax: 07 5481 4699
HEATHERBRAE 9 Hank Street HEATHERBRAE NSW 2324 Phone: 02 4988 5300 Fax: 02 4988 5399
KEMPSEY 3 Kemp Street WEST KEMPSEY NSW 2440 Phone: 02 6563 3700 Fax: 02 6563 3799
KINGAROY 97 River Road KINGAROY QLD 4610 Phone: 07 4336 2400 Fax: 07 4336 2409
KYOGLE Willis Street KYOGLE NSW 2474 Phone: 02 6632 5900 Fax: 02 6632 5999
LISMORE 105 Wilson Street SOUTH LISMORE NSW 2480 Phone: 02 6627 8266 Fax: 02 6627 8094
MACKSVILLE Tilly Willy Street MACKSVILLE NSW 2447 Phone: 02 6598 8700 Fax: 02 6598 8799
MURGON 21 Lamb Street MURGON QLD 4605 Phone: 07 4168 3060 Fax: 07 4168 2996
MURWILLUMBAH 17 Buchanan Street MURWILLUMBAH NSW 2484 Phone: 02 6671 3600 Fax: 02 6671 3699
STUARTS POINT 906 Stuarts Point Road STUARTS POINT NSW 2441 Phone: 02 6569 0955 Fax: 02 6569 0983
TAREE 3 Grey Gum Road TAREE NSW 2430 Phone: 02 5594 2500 Fax: 02 5594 2599
TENTERFIELD 445 Rouse Street TENTERFIELD NSW 2372 Phone: 02 6736 7300 Fax: 02 6736 7399
TOOWOOMBA 22 Carrel Drive TOOWOOMBA QLD 4350 Phone: 07 4637 3300 Fax: 07 4637 3399
WAUCHOPE 4/6 Wallace Street WAUCHOPE NSW 2446 Phone: 02 5514 0334
WOOLGOOLGA 16 Featherstone Drive WOOLGOOLGA NSW 2456 Phone: 02 6690 4800 Fax: 02 6690 4899BRAN
CH D
IREC
TORY
REGISTERED OFFICE
Norco Co-operative Limited ARBN 009 717 417 / ABN 17 009 717 417 ‘Windmill Grove’, 107 Wilson Street South Lismore NSW 2480 Telephone: 02 6627 8000 Facsimile: 02 6627 8099 Web Site: www.norco.com.au
AUDITORS
Ernst & Young Chartered Accountants Level 51, 111 Eagle Street BRISBANE QLD 4000
FINANCIERS/BANKERS
Rabobank Australia Level 14, Waterfront Place, 1 Eagle Street BRISBANE QLD 4000
St George Bank Level 12, Waterfront Place, 1 Eagle Street BRISBANE QLD 4000
SOLICITORS
Thomson Geer Lawyers BRISBANE QLD 4000Addisons Lawyers SYDNEY NSW 2000S+P Walters Solicitors LISMORE NSW 2480Piper Alderman Lawyers SYDNEY NSW 2000
thank youThank you to our Co-operative Members,
Employees, Norco Milk Distributors and Customers who feature in this
Annual Report photography.Your time and participation
is greatly appreciated.
CORPORATE DIRECTORY
125YEARS
Congratulations
In this special year in which we collectively celebrate Norco’s 125th
anniversary, we would like to share with you some congratulatory
messages the Co-operative has received throughout this report.
annual 2020 report
www.norco.com.au