Murray Goulburn Co-Operative Co. Limited

5 3 R D A N N U A L R E P O R T 2 0 0 3

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Murray Goulburn Overview

The Annual General Meeting

of Murray Goulburn

Co-Operative Co. Limited

will be held at 1.30pm on

Wednesday 26th November 2003

in the Members’ Lounge

Moonee Valley Racecourse

McPherson Street, Moonee Ponds

Registered Office & Principal Place of Business140 Dawson Street

Brunswick Victoria 3056

ACN 004 277 089

ABN 23 004 277 089

BankersABN - AMRO Bank N.V.

ANZ Banking Group Limited

BNP Paribas

Commonwealth Bank of Australia

Rabo Australia Limited

Rural Finance Corporation of Victoria

Westpac Banking Corporation

SolicitorsPiper Alderman Lawyers

Phillips Fox Lawyers

DH von Bibra (LL.B)

AuditorDeloitte Touche Tohmatsu

Contents

Directors 2

Chairman’s Report 4

Operations Review 6

Financial Statements 13

Facts at a glance ($ Millions) 2003 2002 2001 2000 1999

Sales Revenue 1,663 2,012 1,613 1,420 1,320

Operating Profit (After Tax) 16 59 45 27 26

Total Shareholders’ Equity 527 500 404 345 304

Issued Ordinary Capital 123 105 84 66 43

Reserves and Retained Profits 295 298 238 206 195

Total Assets 1,212 1,302 1,065 887 828

Milk Intake ex Suppliers (Million Litres) 3,635 4,130 3,393 3,134 2,776

Total Export Revenue 1,003 1,312 1,103 863 807

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93/9

4

02/0

3

01/0

2

00/0

1

99/0

0

98/9

9

97/9

8

96/9

7

95/9

6

94/9

5

Sales, Export & Domestic Revenue $ millions

Export Revenue

Sales Revenue

Domestic Revenue

500

1000

1500

2000

2500

93/9

4

02/0

3

01/0

2

00/0

1

99/0

0

98/9

9

97/9

8

96/9

7

95/9

6

94/9

5

Milk Intake, Primary Production, Export Sales Volume

Primary Production

Milk Intake

Export Sales Volume

000's metric tonnes

250

500

750

1000

billion litres

1.2

2.4

3.6

4.8

93/9

4

02/0

3

01/0

2

00/0

1

99/0

0

98/9

9

97/9

8

96/9

7

95/9

6

94/9

5

Assets, Liabilities & Equity $ millions

Liabilities

Assets

Equity

300

600

900

1200

1500

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2

Directors

Ian W. MacAulay ChairmanDairyfarmerDirector since 1991B. Agr. Sc. FAICDDirector Geoffrey Gardiner Foundation

Stephen J. O’Rourke Managing DirectorB.Comm, ACADirector since 1993Director, Australian Dairy Corporation

Wayne B. SandersonPhDExecutive DirectorDirector since 1994

Lindsay A. Jarvis OAM Deputy ChairmanDairyfarmerDirector since 1985Chairman Compliance CommitteeGrad. Dip. System Agriculture FAICDBoard Member North East Catchment -Management AuthorityChairperson Goulburn Murray Water -Murray Systems Water Service Committee

William M. BrownDairyfarmerDirector since 1994Chairman Finance CommitteeCert. Company Directors (ANU)FAICDDirector Dairy Technical Services Ltd.

Kenneth J. BruhnDairyfarmerDirector since 1982Dip. Agr. Sc.Dip. Company Directors (UNE)

Donald F. HowardDairyfarmerDirector since 1997Dip. Company Directors (ANU)Dip. Company Directors (Monash)

Trevor D. KeeleDairyfarmerDirector since 1993Chairman Audit CommitteeFAICD

John C. MasonDairyfarmerDirector since 1987Chairman Supplier Relations CommitteeDip. Agr. Dip. Company Directors (UNE)FAICD

Alan L. MillarDairyfarmerDirector since 1986Chairman Zone CommitteeDip. Company Directors (UNE)FAICD

Stephen T. MillsDairyfarmerDirector since 2001FAICDChairman Goulburn - Broken CatchmentManagement AuthorityChairman - Australian NationalCommittee on Irrigation & DrainageDirector - Co-operative Research Centrefor Irrigation Futures

John VardyDairyfarmerDirector since 1998Dip. Company Directors (ANU)

Ian C. BirdCompany SecretaryB.Bus. ASA.

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Mr I C BirdCompany Secretary

Mr D F Howard Mr T D Keele Mr J C Mason

Mr A L Millar Mr J Vardy

Mr W M Brown

Mr I W MacAulay Mr S J O’Rourke Dr W B Sanderson

Mr L A Jarvis Mr K J Bruhn

Mr S T Mills

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4

Chairman’s Report

Mr Ian MacAulay

Chairman

The dairy industry endured its most difficult year in recent memory. Much of the southern area of Australia

suffered the worst drought in history, meaning not only was there very limited irrigation water available but

poor crop yields and fodder harvests equated to extreme and uneconomic prices being paid for water,

grain and feed. This occurred following an unprecedented drop in world export prices for dairy products

in the last half of the previous season which carried on into the first half of 2002/03.

In order to assist our suppliers through the drought a series of measures were introduced, but the

overriding endeavour of the Co-operative was to pay the highest milk price possible and to pay step-ups as

early as possible. In the recovery phase we will maintain this same philosophy. This approach meant that

the Co-operative’s net profit after tax was limited to $15.9 million, sufficient to allow a 10% dividend on D

Class ordinary shares held by suppliers.

Overall Victorian milk production fell by 11.1%. Drought impacted on all Murray Goulburn supply zones,

but most particularly in the Co-operative’s stronghold areas in northern Victoria and East Gippsland.

Exports were at a record volume, but this was at the expense of our stock levels, which at year-end were

well below our desired reserves. It was disappointing to have to restrict sales to some of our developing

markets due to the drought affected milk supply.

The company maintained a strong presence in the domestic market strengthening our position in some

key categories. Both our Devondale and Food Service divisions performed well, increasing both sales

volume and value. Corporate brands and Industrial sales performed well but were affected by supplies and

aggressive price competition.

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The Co-operative continues to pay a dividend on shares well above market interest rates. As further assistance to farmers the 2002/03

final dividend on D Class shares was brought forward and combined with the interim dividend and paid on 1 May 2003. This dividend

needs to be taken into account when assessing the total benefit received by supplier/shareholders from the Co-operative.

Major projects completed during the year were the new Integrated Logistics Centre opened by the Premier the Hon. Steve Bracks on 16

May 2003 and the new Lactoferrin plant at Leongatha which was commissioned just prior to year-end. This plant will produce a high

value low volume product for our new MG Nutritionals business.

In March 2003 Murray Goulburn acquired a full equity position in a previous joint venture infant formula business operating at

Cobram. This business will now be integrated with MG Nutritionals. Existing supply contracts with our former joint venture

partner will be maintained. These new arrangements will give your Co-operative more flexibility to utilise the plant and add value to

your milk solids.

Field Services and Murray Goulburn Trading extended their activities during the year to provide various measures to assist suppliers

through the drought. Significant effort was made to develop packages to support farmers. Fodder loans, special deals on fertiiliser and

stock feed as well as cash-flow loans were well accepted by our suppliers.

In February 2003 we were approached by Bonlac Foods to fold Bonlac into Murray Goulburn. We considered the possibility seriously

and undertook a thorough due diligence process, but it became apparent that it would not be possible to add value for the existing

Murray Goulburn shareholder base and as such we withdrew from negotiations.

The Murray Goulburn board continues to operate with its supporting committees. The key Audit and Compliance committees are

complimented by the appointment of professional independent members.

Murray Goulburn has taken a keen interest in the current water issues debate as the sustainable future of irrigation, stock water and

commercial supply to our factories is crucial to our ongoing growth and development. The debate has been brought into strong focus by

the drought and the “Living Murray” document. Solutions will be difficult with conflicting demands for water. But sensible solutions

must be found. We expect that the outcome will give greater security of supply to all users thus protecting our productive base and

capital investments.

The end of the year also saw the end of the Australian Dairy Corporation and the Dairy Research and Development Corporation. The

organisations have now been combined into a new entity called Dairy Australia Ltd. Our members will now have a more direct say in the

direction of this organisation and we look forward to the potential gains materialising. Our appreciation goes to the previous bodies for

assisting the industry during their years of operation.

In an endeavour to maintain strong support for our Co-operative a Young Suppliers group was established. This group has shown keen

interest in the industry and the workings of our Co-operative. We have seen evidence of the effectiveness of this initiative during the

recent director elections. Our desire is to create a new group each year supported by existing participants.

Early in the last financial year we also conducted a series of Co-operative education seminars around our supply area. These

one-day seminars created strong interest and a better understanding of some of the issues fundamental to the operation of

our Co-operative.

Considering the season I believe our performance for 2002/03 was very creditable. 2003/04 is likely to be another difficult year as our

supplier shareholders in many cases struggle to restore their businesses. Some suppliers have left the industry but we continue to attract

new supply. At the end of the year 3,356 farms were members of the Co-operative. It will most likely take a few years for milk supply to

return to the record levels of 2001/02 however early signs are that the drought is breaking and we have a good chance of returning to

normal weather patterns during 2003/04.

The Co-operative’s capital expenditure program over recent years leaves it well placed to take full advantage of the rebound in milk

supply. In the meantime capital expenditure, particularly on capacity can be significantly reduced during the next couple of seasons.

Change continues in the Australian Dairy Industry as several companies move away from their Co-operative base. The few remaining

Co-operatives are left with the responsibility of driving the industry for the benefit of all Australian dairy farmers. Murray Goulburn will

remain a Co-operative, but we need the support of all dairy farmers to get the best value back on farm.

The industry will recover. We look forward to the continued support of our customers, bankers, service suppliers and employees.

It has been an extraordinarily difficult year for not just our farmers but also for staff and management. Thank you all for your support

and co-operation.

“DROUGHT IMPACTED ON ALL MURRAY GOULBURN SUPPLY ZONES, BUT MOST PARTICULARLY IN THE

CO-OPERATIVE’S STRONGHOLD AREAS IN NORTHERN VICTORIA AND EAST GIPPSLAND.”

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6

Operations Review

Mr Stephen O’Rourke

Managing Director

2002/03 proved to be an extremely difficult year for Murray Goulburn and its supplier/shareholders.

Net returns to suppliers were severely impacted as a result of poor world dairy market prices, a rising

Australian dollar and drought conditions which caused significantly reduced milk production and

excessive supplementary stock feed prices.

The year started with world market prices down 46% from the peaks of the previous year. In some

categories such as SMP, world prices were at 30 year lows. As well, the year started with a much firmer

Australian dollar compared with the previous season.

Consequently the milk price opened 27% down on the previous year’s record but with a commitment by

the Co-operative that all profit would be distributed to suppliers by way of milk price and dividend as

soon as possible throughout the season and that no profit would be retained at year-end. The

Co-operative’s strong underlying financial position enabled this declaration to be made at that time.

As the year progressed world prices improved however much of the benefit was eroded by further

strengthening in the Australian dollar.

Then, post the peak of the season, drought started to impact on milk production. During the second half

of the season milk production collapsed as the worst drought recorded gripped a significant proportion of

Murray Goulburn’s supply zones. Not only did drought mean less water for dairyfarmers but also

exorbitant supplementary feed costs.

Milk intake finished the year 495 million litres below last season and 704 million litres below budget with

most of the decline attributable to the second half of the season. As a result Murray Goulburn struggled to

fill orders during that period falling some 70,000 tonnes short of budgeted production available for sale

for the year by year-end. Further, the Co-operative couldn’t capitalise on improving world prices and

couldn’t fully recover the fixed costs of operations during the January to June period.

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“MURRAY GOULBURN PAID ALL AVAILABLE PROFIT IN MILK PRICE AND DIVIDENDS, AS COMMITTED AT

THE BEGINNING OF THE SEASON AND, MOST IMPORTANTLY, MAINTAINED A STRONG BALANCE SHEET...”

Under such trying conditions the milk price finished the year 25% down on the previous record year, while dividends paid on D Class

Ordinary shares for the year were maintained at 10% per share.

Murray Goulburn paid all available profit in milk price and dividends, as committed at the beginning of the season and, most

importantly, maintained a strong balance sheet which enables it to cope with another trying season if it eventuates in 2003/04 or to take

advantage of an upturn in market and seasonal conditions when they occur.

ResultsThe drought severely impacted on milk supply for the year. Milk intake was down 12% from last year’s record levels to

3.6 billion litres.

Sales revenue for the year was $1.7 billion, down from last year’s record of $2.0 billion. Sales were affected by a combination of lower

world prices, a strengthening Australian dollar and lower production as a consequence of the drought.

Total assets at year-end were $1.2 billion down $90 million compared with 30 June 2002. Lower stocks and debtors were the major

cause of the reduction. Liabilities were $685 million, down $118 million on the previous year. Interest bearing debt fell by $68 million

from the previous year-end. Total equity at year-end was $528 million, up $28 million compared with 30 June 2002. As a result the

Co-operative’s equity ratio increased from 38% to 43% demonstrating a strengthening of the Co-operative’s financial position under

extremely adverse business conditions.

Net profit for the year was $16 million compared with a record $59 million in 2001/02. Lower profit was directly attributable to reduced

sales revenue as explained earlier, and the Co-operative’s conscious decision at the beginning of the season to distribute all available

profit by way of milk price and dividend. Total Operating costs were reduced from the 2001/02 year as the Co-operative strived to take

all possible costs out of the business to help compensate for the forced contraction in income.

Although export volumes for the year reached a record high of 418,300 tonnes compared with 401,900 tonnes during 2001/02, weaker

world prices and a stronger Australian dollar meant export revenues fell from $1.3 billion to $1.0 billion in 2001/02. Export volumes

tracked well ahead of the previous year during the first half of the season, albeit at low prices, as milk flow kept pace with the previous

year. However as milk flow collapsed post the peak to be as much as 30% down on the previous year by April, exports dried up. The

Co-operative was forced to strictly allocate stocks to customers and could not pursue developing markets . Stock volumes needed to be

driven down to low levels at year-end to compensate for lower production towards year-end. Also the Co-operative could not take

advantage of rising world prices during this period. This severely impacted the Co-operative’s ability to pay milk price step-ups

towards year-end.

Domestic revenue for the year was $660 million down 6% from the previous year due primarily to lower prices received in the food

ingredients market. A pleasing result was the growth of Devondale retail sales to $125 million from $112 million the previous year.

In July 2002 the Co-operative made a strategic investment in Australian blending company Intermix Pty Ltd which has enhanced

Murray Goulburn’s product mix and provided the opportunity to further add value to finished product and ultimately contribute to

higher returns for farmers.

In March 2003 the Co-operative acquired 100% of the infant formula joint venture Meiji MGC Dairy Co Pty Ltd. This business

was incorporated into Murray Goulburn Nutritionals with an expectation to grow infant and other nutritional formula sales to

the world market.

In May 2003 the Co-operative’s Integrated Logistics Centre was opened by the Victorian Premier, The Hon Steve Bracks. This is the

latest stage in Murray Goulburn’s investment in Supply Chain Management and one which represents a formidable declaration of

confidence in Murray Goulburn’s future as it continues to grow its share of international dairy trade. The centre, built at a cost of $56

million on a 29-hectare site, was designed for future expansion and selected for its proximity to the Port of Melbourne. With a total of

80,000 square metres, the facility will provide savings in storage and distribution cost, enhanced quality control and product traceability

and greater agility in order turn-around and customer response times. Funded out of the 2001/02 capital budget, this major project was

completed early and within cost expectation.

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ManufacturingManufactured volumes totalled 617,000 tonnes for the year, down 9% on the previous record year. The Co-operative’s manufacturing

strategy focussed on maximising returns from the severely limited supply of milk and minimising operational cost. The lower

throughput of milk placed extreme pressure on overhead recovery and operating costs per tonne. An all out drive on efficiency

improvement and a focus on product mix priority to high value speciality products and premium commodity products helped offset the

devastating impact of reduced milk intake and poor world prices.

Capital programs for the year were heavily cut in response to the need to channel every available cent back to farmers. A rigorous

Capital expenditure program implemented over the preceding five years has allowed the Co-operative to defer a number of current

budgeted projects without detriment to core manufacturing requirements or to the development of emerging higher value

dairy components.

Capital expenditure for the year was restricted to investments to allow expanded production of speciality nutritional powders,

preventative maintenance programs, process efficiency improvement, environmental improvement and occupational health and safety.

Specialised demineralising equipment was commissioned at Cobram during the year which enhanced the Co-operative’s speciality whey

product mix. Innovative whey solids recovery process technology was installed at Rochester and Cobram with the effect of recovering

food grade product formerly destined for lower grade sales. At Leongatha milk protein production was expanded and product

specification capability enhanced. A Lactoferrin plant with a design capacity of 30 tonne p.a. was commissioned just prior to year-end.

The sourcing of local componentry for this project was facilitated under an Australian Industry Participation Plan.

Kiewa saw the introduction of round Cheese towers, a leading edge technology. This initiative will assist the expansion of cheese sales

into the world market and also allow for further efficiency improvements. Additional quality and efficiency improvements at Kiewa in

the retail area were also completed. The drier upgrade and baghouse installation at Koroit improved yields for powder production and

significantly reduced powder emission at the site.

Environmental programs were again a priority for the Co-operative during the year. At Maffra, a speciality in-house effluent treatment

plant was commissioned. The facility, the first of its type for the Australian dairy industry, enables the Maffra operations to significantly

surpass previous waste water quality standards and is expected to enable the factory to meet future challenges of manufacturing in a

tightening regulatory environment.

At Cobram, plans were finalised for the construction of a 36-kilometre pipeline for the recycling of irrigation quality factory waste water

to dairy farms. This innovative water re-use program combines the benefits of sustainable production growth at the factory with the

recycling of water for on-farm use. The program has taken two years of planning and negotiation and will be the first private operation

of its size in Australia. The project to be mostly funded by Murray Goulburn was supported by the Environment Protection Authority,

local government, statutory authorities and the Government of Victoria.

At Rochester, employees commenced the ‘Energy Best Practice Program’. The program conducted with the assistance of the

Commonwealth Department of Industry, Tourism and Resources represents an important commercial and environmental initiative for

the Co-operative, industry and the community. Project teams implemented energy savings measures which reduced energy costs and

greenhouse gas emissions at the site. This program is now being rolled out to all other factory sites.

Research and DevelopmentThe Co-operative’s research and development team continued its work in the areas of product development and process innovation for

the manufacture of speciality ingredients, nutraceuticals, functional foods, quality assurance and food safety.

MG Nutritionals Pty. Ltd., a 100% owned subsidiary of Murray Goulburn Co-operative commenced operations during the year driving

important developments in the area of specialised milk proteins and bioactive dairy components.

Products such as Caseins, Caseinates, Whey Protein Isolates and Milk Protein Concentrates have been developed over recent years to be

applied as important proteins in a growing range of health and nutritional products. USA, Japan and Europe have emerged as the main

consumers of these proteins, although many other world markets are expressing growing interest. The Co-operative continues to drive

its opportunities through efficient production techniques and the utilisation of the latest process technology.

Murray Goulburn is now into its second year of commercialisation of colostrum. Demand for MG colostrum products grew during the

year as market activity gained momentum. Events such as the SARS outbreak saw significant sales into Asian markets.

Commercial production of Lactoferrin and Milk Minerals commenced during the year, representing important milestones for the

Co-operative. Lactoferrin has applications in the health food supplement, infant formula and functional food markets. Milk Minerals

are a combination of exact blends of Calcium, Phosphorous and Magnesium derived exclusively from milk. These have been shown to

have conclusive nutritional benefits for improved bone density in pre adolescent children. The product has been developed with the

research assistance of Deakin University, and a 5 year R&D commitment from Murray Goulburn.

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QualityMurray Goulburn recognises that the quality and safety of its products is critical to maintaining the

confidence of its customers worldwide. The Co-operative has adopted a proactive approach to food safety

and quality with Total Quality Assurance systems that are HACCP based.

During the 2003 year the Co-operative experienced a significant increase in domestic and overseas

customer quality assurance audits, with customer expectations and quality standards constantly increasing.

Audits were successfully completed across all sites. These audits are a direct reflection of the importance

placed on product security and quality manufacturing practices by customers. Not only are the

expectations and audit criteria based on current processes but there is also an emerging expectation that

customers be satisfied with the Co-operative’s future programs and development plans.

Overseas regulatory officials continued their visits to Murray Goulburn sites to ensure the Co-operative’s

compliance with international standards, carrying out quality audits and plant inspections.

Murray Goulburn continues to upgrade and enhance its quality and food safety systems. From the

pioneering on-farm quality and traceability system called MG MilkCare, to the ISO 9002 and HACCP

accredited manufacturing systems to world class storage and distribution systems, Murray Goulburn has

adopted a truly integrated quality program throughout the operation.

Information TechnologyThe Information Technology group continued to improve systems and increased information handling

capabilities during the year. Technology continues to rapidly evolve and the ability to adopt carefully

selected advancements is critical for the Co-operative to continue its strong growth in challenging

international and national dairy product markets.

Successful implementation of the second phase of the Enterprise Resource Planning system, (“SAP”), was a

major accomplishment. This coupled with an upgraded national communications network and installation

of computer based applications at the new Integrated Logistics Centre provided the company with a sound

integrated information technology capability.

Dr Wayne Sanderson

Executive Director -Research Development& Technical Services

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Implementation of SAP has had a major impact on the Co-operative’s information technology resources and has significantly improved

information management capabilities. The Information Technology group has been heavily involved in the development and

implementation of both the financial and the sales and distribution modules of SAP. The implementation of SAP represents a major

undertaking by the Co-operative and provides a sound platform for future development and growth.

During the year the Co-operative’s communication networks were upgraded to effectively double the capacity, thus reflecting the

increased business activity and need for improved systems performance. This major advance reduced operating costs and was achieved

with no impact on the Co-operative’s daily business activities.

Specialty support systems for the Integrated Logistics Centre were completed with equipment providing full security, telephone and

data communications plus purpose built warehouse management system applications. These warehouse applications actively monitor

stock location using radio frequency communication with forklifts when moving palletised stocks. These applications are fully integrated

with SAP.

With the present increasing reliance on computer-based systems, it is crucial to locate a significant quantity of back-up operational

computer hardware and associated system applications in separate secured premises. The selected site is fully integrated into the

Co-operative’s communication network and the equipment is tested “live” on a regular basis as part of the Co-operative’s Business

Continuity Plan to ensure minimum disruption to business should a catastrophe occur.

Other activities conducted by the Information Technology group have resulted in improved system performance with reductions in

maintenance and operating costs. Documentation of processes and procedures is a continuing issue that is being addressed by improved

communications with farmer suppliers, customers and vendors.

ExportAs the year progressed world prices for Skim Milk Powder and Full Cream Milk Powder recovered from historical lows of July 2002

driven by shortages from Australia, New Zealand and to a lesser extent, Argentina. This led to a large jump in take-up of EU export

licenses and a subsequent series of subsidy cuts in the last quarter of 2002, which helped contribute to the uptrend in international

prices. However, a weaker US dollar in early 2003 triggered two subsidy increases in February 2003 to keep the European Union price

competitive with the US support price of US$1,764/tonne.

EU Skim Milk Powder intervention stocks were 181,000 tonnes at the end of June 2003 compared with 114,000 tonnes a year before.

EU subsidies as at June 2003 were Euro 600/tonne (US$696/tonne) for SMP and Euro 1,024/tonne (US$ 1,199/tonne) for WMP.

USA Skim Milk Powder stocks increased to more than 600,000 tonnes, 20% higher than the previous year. Much of this stock is too old

for normal sale and instead is being committed to a range of subsidised disposal programs including conversion to casein, stock feed

and international food aid which includes US plans to ship 160,000 tonnes of Skim Milk Powder to Iraq.

The US fully utilised its annual allocation of 68,210 tonnes Dairy Export Incentive Program (DEIP) SMP with 90% going to the

Caribbean, Central and South America at an average subsidy of US$351.

EU butter intervention stocks in 2002/03 continued to grow steadily despite significant growth in export sales. EU butter stocks at the

end of June 2003 were in excess of 325,000 tonnes, compared with 263,000 tonnes in June 2002.

JUN

03

DE

C 0

2

JUN

02

DE

C 0

1

JUN

01

DE

C 0

0

JUL

00

World Commodity Prices USD/tonne

SMP

WMP

Butter

AMF

Cheddar

1000

1400

1800

2200

2600

JUN

03

DE

C 0

2

JUN

02

DE

C 0

1

JUN

01

DE

C 0

0

JUL

00

AUD/USD Exchange Rate USD

0.50

0.55

0.60

0.65

0.70

*Source Data: Dairy Australia Ltd

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The EU has left butter export subsidies unchanged since mid-2002 at Euro 1850/tonne (US$2,146/tonne) and the outlook is for

this to continue into 2003/04. EU sales to Russia rebounded strongly in the latter part of 2002 and have continued at a steady pace in

2003. However, reports that Russia may look to introduce import quotas in the future have added some uncertainty to the outlook for

this trade.

The move to a higher butter support price (US$2,315/tonne) in the US against the backdrop of a weaker domestic dairy market

generally, led to the first intervention butter purchases since 1995 (5,900 tonnes as at the end of June 2003). At the same time, the US

also activated its butterfat allocation under DEIP, shipping a total of 10,000 tonnes (out of a possible 21,097 tonnes) of product at an

average subsidy of US$1,950/tonne.

Murray Goulburn cheese exports to Japan increased 2% comparing favourably with a total Japan cheese import reduction of 5%.

Cheese exports were also encouraging into EU, Middle East, and the Americas.

In the US, the weak domestic economy during 2002/03 saw cheddar prices fall back to support levels (US$2,428/tonne) with the result

that the government was forced to purchase surplus cheese stocks for the first time in several years. Intervention cheese stocks at the

end of June 2003 were 18,700 tonnes. However, US cheese prices rebounded sharply in June, up 25%, and well above the US

intervention level.

EU subsidies as at June 2003 were Euro 1,229/tonne (US$1,426/tonne) for cheddar and Euro 1,109/tonne (US$1,286/tonne) for gouda.

DomesticDevondale

2002/03 saw strong sales growth for the Devondale brand with total sales at $125.1 million, up 12% on last year. The on-going growth of

the Devondale brand reinforces the importance of Devondale to the Co-operative. Murray Goulburn remains committed to ongoing

support and development of the retail branded business.

All categories across the business achieved improved sales levels compared to the prior year with particularly strong growth evident in

cheese and dairy spreads. Devondale continued as the leading brand in the dairy spreads category with its volume market share growing

to over 34%. In the natural cheese category market volume share increased to 7%, a 1% improvement. UHT milk share was 26% placing

it as the number one brand in this category.

During the year Murray Goulburn launched the “Devondale Cow” campaign on television screens nationally. The Devondale Cow has

been a key element of Devondale packaging for some time and has now been promoted from the packaging to television screens in a

series of animated commercials. The commercials were developed with a dual focus on Devondale’s 100% Australian farmer owned

heritage and highlighting the full range of Devondale dairy products offered to consumers. The campaign was extremely well received

and it is planned to continue to develop in future years.

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Corporate Brands

The Retail Corporate Brand division reported $172 million in revenue for the year down 10% on last year. Fierce competition resulted

in lost volume sales and value and forced the Co-operative to look at better returning options outside this segment of the business.

Food Service

The Food Service division achieved an excellent result, with sales value growing 15% to $38.3 million. The division continued to build

its customer base and focussed attention on achieving additional sales through the introduction of a number of new products.

IngredientsThe Domestic Ingredients divisions recorded sales for the year of $193 million down 24% on last year. The division saw good demand

for Wholemilk Powder and Skim Milk Powder but at low prices commensurate with the world market. Strong alliances have been formed

with Australian manufacturers of sports and nutrition products. They have identified Murray Goulburn as the premier supplier of

customised protein based products.

Demand for cheese remained steady during the year in the face of competitive price pressure which threatened to push prices below

cost. Growing volume to increase market share without due cognisance of profitability will never be in the best interest of returns in the

long term, therefore the Co-operative took the decision to reduce revenue on the previous year but not at the expense of profit on sales.

TradingThe main focus of the Trading Stores business during the year was to introduce initiatives to help suppliers through the crippling effects

of the drought. Sales for the year were a record $120 million, up 17% from the previous year. In contrast there was a reduction in gross

profit margin directly related to assistance measures offered to suppliers in the purchase of grain, pellets and urea. The Trading Stores

were very mindful of the cash flow needs of suppliers and assisted where possible with more favourable credit terms than in past years,

adding cost to the business.

The increases in revenues were in the main attributed to the increase in grain and feed sales during the year. All other departments

recorded a reduction in sales, a direct reflection of the reduced spending power of suppliers.

The year saw grain prices reach a record figure of $350 per tonne. In response the Co-operative struck deals with major stock food

manufacturers and passed the deals directly to suppliers. In December 2002 a program of interest free loans of $75 per tonne on grain

and bulk pellet purchases and $25 per tonne subsidy for all urea purchases was introduced. These programs assisted suppliers with

direct cash injection into their business to address the expected need for supplementary feeding in the second half of the season.

During the year the new store at Koroit was officially opened by the Federal Member for Wannon, The Hon David Hawker MP. The

facility is the largest of the trading stores with 2,000 square metres of undercover retail store set on 2 acres of land. The Yarram trading

store was also refurbished during the year. Both projects increased the level of service and convenience for customers.

Field ServicesThe Field Services division faced a very challenging year. The importance of extension services was highlighted during the year as

farmers endured drought, exorbitant input costs and lower milk prices.

Significant focus was placed on assisting suppliers in farm management. Extensive finance packages were offered to suppliers well above

usual levels to help desperately inadequate cash flow in some circumstances.

Emphasis was placed on herd maintenance. The division designed and implemented programs to allow suppliers access to hard-to-get

stock feed and coordinated, with the assistance of fellow suppliers, cow parking.

During the year the MG Milkcare program continued to grow. Auditing programs reflected success amongst suppliers with over 92% of

farms being audited. The remaining farms are scheduled for completion by the calendar year ending 2003. Of those farms audited 99%

have been successful in passing the Milkcare criteria.

Milk quality remained excellent despite the drought with 90% of milk supply attracting a quality premium although drought impacted

milk composition with the ratio of protein-to-fat deteriorating to 2000/01 levels.

Introduced in 2002, MGF@RM the Co-operative’s internet site for suppliers, continued to develop and expand by a further 200

suppliers with over 900 suppliers now involved. Further initiatives have been developed for farmers to gain expanded and improved

data on farm management programs from this website.

The Young Suppliers Development Program continued to grow and develop. Participants interacted with about 350 suppliers statewide

in a range of activities. A number of program participants undertook a tour of the New Zealand dairy industry.

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Financial Report

Contents

Directors’ Report 14

Directors in Office 15

Statement of Financial Performance 16

Statement of Financial Position 17

Statement of Cash Flows 18

Notes 19

Directors’ Declaration 40

Independent Audit Report 41

Murray Goulburn Co-Operative Co.Limited for the financial year ended 30 June 2003

The financial report covers both Murray Goulburn Co-Operative Co. Limited as an individual entity and the consolidated entity consisting of Murray Goulburn Co-OperativeCo. Limited and its controlled entities.

Murray Goulburn Co-Operative Co. Limited is a company limited by shares and domiciled in Australia.

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14

Directors’ Report

Your Directors present the following report for the financial yearended 30th June, 2003.

DirectorsThe directors listed on page 15 each held office as a director ofthe company throughout the year ended 30 June 2003.

Principal ActivitiesThe principal activities of the consolidated entity constituted bythe company and the entities it controlled during the year havebeen:

- The processing of the whole milk of its shareholder suppliers and the manufacture, marketing and distribution ofdairy products.

- The operation of retail stores as a service to the suppliers inthe areas of the manufacturing plants.

No significant change in the nature of these activities occurredduring the year.

Dividends Paid Or RecommendedThe following dividends were paid or recommended during the year :

a) In respect of the financial year ended 30th June 2002 asdetailed in the directors’ report for that financial year:

$’000Final dividend paid on 1 November 2002

On ordinary and A class preference shares at 4.0% unfranked 1,560On D and DX class ordinary shares at 5.0% unfranked 4,812

6,372

b) In respect of the financial year ended 30th June 2003:

i) Dividends on ordinary and non redeemable preference sharesInterim dividend paid on 1 May 2003On A class preference shares at 4.0% unfranked 1,008On B class preference shares at 4.0% unfranked 28

Final dividend paid on 1 May 2003On ordinary shares at 8.0% unfranked 1,214On D and DX class ordinary shares at 10.0% unfranked 10,915

Final dividend recommended for payment on 1 November 2003On A class preference shares at 4.0% unfranked 997On B class preference shares at 4.0% unfranked 95

14,257

Review Of OperationsPlease refer to the Chairman’s Report and the Review ofOperations comments.

Significant Changes in the State of AffairsNo significant change in the state of affairs of the consolidatedentity occurred during the financial year.

Events Subsequent To Balance DateNo matters or circumstances have arisen since the end of thefinancial year which significantly affected or may significantlyaffect the operations of the consolidated entity, the results ofthose operations, or the state of affairs of the consolidated entityin financial years subsequent to the financial year ended 30 June 2003.

Future DevelopmentsDisclosure of information regarding likely developments in theoperations of the consolidated entity in future financial yearsand the expected results of those operations is likely to result inunreasonable prejudice to the consolidated entity. Accordingly,this information has not been disclosed in this report.

Environmental RegulationMurray Goulburn owns and operates eight manufacturing siteslocated throughout Victoria. These sites are licensed pursuant tothe Environment Protection Act (1970). The company continued to implement its environmental programs which areaimed at maintaining and improving all environmental impacts of operations via the reduction of emissions and energyuse, reducing product losses and maximising re-use and recycling opportunities.

During the year, the company initiated and completed a numberof major programs in line with its Strategic EnvironmentImprovement Plan commitments established in 2001 and whichhave been continually reviewed with the involvement of the EPA.

At its Maffra facility the company commissioned cutting edgeanaerobic digestion treatment technology during the year inassociation with Thames Water Asia Pacific. The project is aimedat improved water quality and nutrient reduction. Commitmentsto infrastructure projects at Leongatha and Cobram werefinalised with improvements to effluent quality and volume inthe short term and increases in water recycling expected during 2004.

Murray Goulburn maintained its status as a signatory to theNational Packaging covenant, a voluntary code aimed atencouraging industry to develop more efficient solutions tocommercial and industrial packaging. Terms as agreed havebeen in place since 2001.

The company continued its work with the EPA, LocalGovernment Authorities, Commonwealth and State GovernmentAuthorities and industry and community interest groups. Issuesincluded the reviewing and maintaining of the company’sestablished programs in order to enhance overall environmentalperformance and to spread awareness of its programs objectives. The company had one reported minor event of non-compliance during the year, which was resolved in line withEPA requirements.

Insurance of OfficersDuring the financial year the company paid a premium of$141,450 to insure the directors and senior managers of the company.

The liabilities insured include costs and expenses that may beincurred in defending civil or criminal proceedings that may bebrought against the officers in their capacity as officers of theconsolidated entity.

Rounding of Amounts to the Nearest Thousand DollarsThe company is of the kind referred to in ASIC Class Order98/0100 dated 10 July 1998, and in accordance with that ClassOrder amounts in the directors’ report and the financial reporthave been rounded off to the nearest thousand dollars.

Half-Yearly Financial ReportThe Australian Securities and Investment Commission hasexempted the Company, its directors and auditor fromcompliance with any requirement in Part 2 M.3 of theCorporations Act 2001, the nature of which relates to thepreparation, audit or review, or lodgement of the half-yearfinancial report of the Company in relation to the half-yearended on 31 December 2002. The effect of this exemption is that the Company has not lodged a consolidated financialreport for the half-year ended 31 December 2002 with the ASICand that financial report has not been audited or subject to anaudit review.

Signed in accordance with a resolution of the Board of Directors.

I.W. MacAulayDirector

Melbourne 24 September 2003

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15

Meetings Attended Meetings of Committees

Director Full Meetings Audit Finance Zone Compliance Remuneration Supplier of Directors Relations

13 held 2 held 4 held 2 held 2 held 1 held 6 held

IW MacAulay 13 * 4 * * 1 5 YarramChairman

LA Jarvis OAM 13 2 4 * 2 1 *KergunyahDeputy Chairman

ST Mills 11 * * * * * 4 Numurkah

WM Brown 13 * 4 * * * *Kongwak

KJ Bruhn 13 * * 2 * * 6 Mirboo North

TD Keele 13 2 * * * * *Bamawm

JC Mason 13 * * * * * 6 Gorae West

AL Millar 13 * * 2 2 * *Koondrook

DF Howard 13 2 * * 2 * *Camperdown

J Vardy 13 * * 2 * * 6 Maffra

SJ O’Rourke 13 * 4 * * * *GisborneManaging Director

WB Sanderson 12 * * * * * *BrunswickExecutive Director,Research, Development &Technical Services

* Not a member of the relevant committeeFor qualifications and experience refer to page two.

Directors in Officeat 24 September 2003

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Statement of Financial Performancefor the Financial Year ended 30 June 2003

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

Sales revenue 2 1,663,286 2,012,565 1,540,125 1,912,010

Cost of sales (1,451,814) (1,704,047) (1,342,834) (1,619,797)

Gross profit 211,472 308,518 197,291 292,213

Other revenue from ordinary activities 2 30,329 1,072 94,523 5,828

Share of net loss of associated companiesaccounted for using the equity method 14 (947) (1,038) - -

Distribution expenses 3b (106,469) (100,882) (105,423) (100,008)

Marketing expenses 3b (42,482) (32,927) (41,212) (31,573)

Administration expenses (53,789) (56,215) (44,828) (48,020)

Borrowing costs expense 3 (23,990) (22,450) (30,076) (28,277)

Other expenses from ordinary activities (9,215) (33,210) (18,622) (35,534)

Profit from ordinary activities before income tax 3 4,909 62,868 51,653 54,629

Income tax benefit (expense) 4 11,063 (3,574) 12,555 (2,904)

Net profit 15,972 59,294 64,208 51,725

Net profit attributable to outside equity interests (3,541) (3,745) - -

Net profit attributable to members of the parent entity 12,431 55,549 64,208 51,725

Total revenues, expenses and valuation adjustments attributable to members of the parent entityand recognised directly in equity 25 315 16,226 - (1,142)

Total changes in equity other than those resulting from transactions with owners as owners 12,746 71,775 64,208 50,583

The accompanying Notes form part of these Financial Statements

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Statement of Financial Positionas at 30 June 2003

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

Current Assets

Cash 14,685 10,008 9,938 6,689Receivables 9 196,451 285,596 187,105 279,504Inventories 10 340,892 399,231 321,042 384,530Other 11 2,972 931 1,886 931

Total Current Assets 555,000 695,766 519,971 671,654

Non Current Assets

Receivables 9 48,529 43,709 95,356 49,709Investments accounted for using the Equity Method 14 5,106 3,074 - -Other Financial Assets 12 583 606 14,986 19,621Property, Plant & Equipment 15 576,712 548,129 539,409 462,383Deferred Tax Assets 16 24,611 11,371 24,182 10,963Other 11 1,826 - - -

Total Non Current Assets 657,367 606,889 673,933 542,676

Total Assets 1,212,367 1,302,655 1,193,904 1,214,330

Current Liabilities

Payables 17 182,848 229,400 158,583 212,485Interest Bearing Liabilities 18 315,903 353,900 315,852 353,900Current Tax Liability 19 - - - -Provisions 20 16,770 20,419 15,499 19,625

Total Current Liabilities 515,521 603,719 489,934 586,010

Non Current Liabilities

Payables 17 1,000 1,000 1,000 1,000Interest Bearing Liabilities 18 133,963 163,910 228,535 223,856Provisions 20 10,029 10,319 9,567 9,962Deferred Tax Liabilities 22 24,186 23,527 24,182 23,518

Total Non Current Liabilities 169,178 198,756 263,284 258,336

Total Liabilities 684,699 802,475 753,218 844,346

Net Assets 527,668 500,180 440,686 369,984

Equity

Share Capital 24 157,613 135,115 157,914 135,416Reserves 25 117,629 119,024 55,181 56,891Retained Profits 26 178,047 179,873 227,591 177,677

Shareholders’ Equity attributable to Members of the Parent Entity 453,289 434,012 440,686 369,984Outside Equity Interests in Controlled Entities 27 74,379 66,168 - -

Total Equity 527,668 500,180 440,686 369,984

The accompanying Notes form part of these Financial Statements

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Statement of Cash Flowsfor the Financial Year ended 30 June 2003

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

Cash flows from operating activities

Receipts from customers 1,775,328 1,961,844 1,641,448 1,847,025

Payments to suppliers and employees (1,616,230) (1,958,809) (1,482,787) (1,864,336)

159,098 3,035 158,661 (17,311)

Dividends received 18 4 200 2

Interest received 1,033 780 904 695

Interest paid (24,713) (21,778) (24,665) (21,778)

Dividends paid on redeemable preference shares - (182) - (182)

Income taxes paid (1,902) (2,564) - -

Net cash inflow (outflow) from operating activities 35b 133,534 (20,705) 135,100 (38,574)

Cash flows from investing activities

Payments for plant, equipment and vehicles (69,521) (136,395) (69,344) (119,592)

Investment in associated company (3,503) (2,000) (3,503) (2,000)

Proceeds from the sale of property, plant, equipment and vehicles 29,261 346 29,213 346

Net cash (outflow) from investing activities (43,763) (138,049) (43,634) (121,246)

Cash flows from financing activities

Dividends paid (17,152) (9,882) (17,189) (9,906)

Proceeds from the issue of ordinary and non-redeemable preference shares 20,105 24,498 20,105 24,498

Repayment of lease liabilities (543) (539) (449) (539)

Redemption of redeemable preference shares - (5,550) - (5,550)

Proceeds from borrowings - 195,601 - 195,601

Repayment of borrowings (90,646) - (90,646) -

Net cash (outflow) inflow from financing activities (88,236) 204,128 (88,179) 204,104

Net increase in cash 1,535 45,374 3,287 44,284

Cash held by associate at time of acquisition 35e 3,180 - - -

Cash at the beginning of the year 10,008 (32,403) 6,689 (34,632)

Effect of exchange rate changes on cash (38) (2,963) (38) (2,963)

Cash at the end of the year 35a 14,685 10,008 9,938 6,689

The accompanying Notes form part of these Financial Statements

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Notes to the Financial Statementsfor the year ended 30 June 2003

NOTE 1. Summary of Significant Accounting PoliciesThis general purpose financial report has been prepared on an accrual basis in accordance with the Corporations Act 2001, applicableAccounting Standards and Urgent Issues Group Consensus Views, and complies with other requirements of the law.

It is prepared in accordance with the historical cost convention, except for certain assets which, as noted, are at valuation. Unlessotherwise stated, the accounting policies adopted are consistent with those of the previous year.

a) Principles of ConsolidationThe consolidated financial statements incorporate the assets and liabilities of all entities controlled by Murray Goulburn Co-Operative Co Limited (“company”) as at 30 June 2003 and the results of all controlled entities for the year then ended from thedate on which the company obtained control. The company and its controlled entities together are referred to in this financialreport as the consolidated entity. The effects of all transactions between entities in the consolidated entity are eliminated in full.Outside equity interests in the equity of controlled entities are shown separately in the consolidated statement of financial position.

Investments in associated companies are accounted for under the equity method in the consolidated financial statements and thecost method in the company financial statements.

b) Income TaxThe consolidated entity adopts the liability method of tax effect accounting whereby the income tax expense shown in the statementof financial performance is based on the profit from ordinary activities before tax adjusted for any permanent differences.

Timing differences which arise due to the different accounting periods in which items of revenue and expense are included in thedetermination of profit from ordinary activities and taxable income are brought to account as either provision for deferred incometax or an asset described as future income tax benefit at the rate of income tax applicable to the period in which the benefit will bereceived or the liability will become payable.

Future income tax benefits attributable to timing differences and carried forward tax losses are not brought to account unlessrealisation of the asset is assured beyond reasonable doubt or virtually certain.

c) Foreign CurrenciesForeign currency transactions covered by specific hedges in the form of forward exchange contracts are recorded in Australiancurrency at the forward exchange contract rate.

Other forward currency transactions during the year are converted to Australian currency at the rate of exchange ruling at the dateof the transaction. Foreign currency monetary items at balance date are translated at the exchange rate ruling at that date.

d) Property, Plant and EquipmentLand and buildings are measured at fair value. Plant and equipment are included at cost being the purchase considerationdetermined as at the date of acquisition plus costs incidental to the acquisition. The cost of fixed assets constructed within theconsolidated entity includes the cost of materials and direct labour. All fixed assets including buildings and capitalised leaseholdassets, but excluding freehold land, are depreciated over their estimated useful lives commencing from the time the asset is heldready for use.

The gain or loss on disposal of all fixed assets, including revalued assets, is determined as the difference between the carryingamount of the asset at the time of disposal and the proceeds of disposal, and is included in the results of the group in the year ofdisposal. Any realised revaluation increment relating to the disposed asset which is included in the asset revaluation reserve, istransferred to the capital reserve.

The valuation of land and buildings has not taken account of the potential capital gains tax on assets acquired after the introductionof capital gains tax.

e) Recoverable Amount of Non-Current AssetsNon-current assets are written down to recoverable amount where the carrying value of any non-current asset exceeds recoverable amount. In assessing the recoverable amount of non-current assets the relevant cash flows have not been discounted totheir present value.

f) ReceivablesTrade receivables and other receivables are recorded at amounts due less any provision for doubtful debts.

g) InvestmentsControlled entities and associates are accounted for in the consolidated financial statements as set out in note 1(a). Otherinvestments are recorded at cost. Dividend revenue is recognised on a receivable basis.

h) Goods and Services TaxRevenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:

i. where the amount of GST incurred is not recoverable from the taxation authority. In this case the GST is recognised as part ofthe cost of acquisition of an asset or as part of an item of expense; or

ii. for receivables and payables which are recognised inclusive of GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.Cashflows are included in the statement of cashflows on a gross basis. The GST component of cashflows arising from investing andfinancing activities which is recoverable from, or payable to, the taxation authority is classified as operating cashflows.

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Notes to the Financial Statementsfor the year ended 30 June 2003

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 2: RevenueOperating Revenue

Sales revenue 1,663,286 2,012,565 1,540,125 1,912,010

1,663,286 2,012,565 1,540,125 1,912,010

Non-Operating Revenue

Interest received or receivable 1,050 722 1,242 962Dividends received 18 4 200 2Proceeds on disposal of vehicles, plant and equipment 29,261 346 29,213 346Service and management fees receivable 34 - - 4,436 4,518Profit on forgiveness of liabilities owing to controlled entities 34 - - 59,432 -

30,329 1,072 94,523 5,828

Revenue from ordinary activities (excluding the equity accounted net profit of associated companies) 1,693,615 2,013,637 1,634,648 1,917,838

NOTE 1. Summary of Significant Accounting Policies (continued)i) Depreciation of Property, Plant and Equipment

Depreciation is calculated on a reducing balance basis to write off the net cost or revalued amount of each item of property, plantand equipment (excluding land) over its expected useful life to the consolidated entity.

The expected useful lives are as follows:

Buildings 30 to 40 years Vehicles 3 to 15 yearsPlant and Equipment 5 to 15 years Tankers 10 to 20 years

j) Leased AssetsLeased assets classified as finance leases are capitalised as fixed assets. A finance lease effectively transfers from the lessor to thelessee substantially all the risks and benefits incidental to the ownership of the leased asset. The amount initially brought to accountis the present value of minimum lease payments. Capitalised leased assets are amortised on a reducing balance basis over theestimated useful life of the asset. Finance lease payments are allocated between interest expense and reduction of lease liability overthe term of the lease. The interest expense is determined by applying the interest rate implicit in the lease to the outstanding leaseliability at the beginning of each lease payment period.

Operating lease payments are recognised as an expense in the periods in which they are incurred, as this represents the pattern ofbenefits derived from the leased assets.

k) InventoriesDairy produce stocks have been valued at the lower of cost and net realisable value. Cost comprises direct materials, direct labour,maturation costs and an allocation of fixed factory overheads.

Stores, packing materials and Murray Goulburn Trading stocks, have been valued at the lower of cost and net realisable value. Costshave been allocated on the first in first out basis.

l) Accounts PayableTrade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make future paymentsresulting from the purchase of goods and services.

m)Employee BenefitsProvision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave and sick leavewhen it is probable that settlement will be required and they are capable of being measured reliably.

Provisions are measured at their nominal values using the remuneration rate expected to apply at the time of settlement where theyare expected to be settled within twelve months. Provisions not expected to be settled within twelve months are measured at thepresent value of the estimated future cash outflows in respect of services provided up to balance date.

Contributions are made by the consolidated entity to employee superannuation funds and are charged as expenses when incurred.The difference between the present value of accrued benefits and the net market value of the plan assets has not been recognised inthe consolidated financial statements. The consolidated entity has no legal obligation to cover any shortfall, should there be any, inthe funds’ obligation to provide benefits to employees on death, disablement or retirement.

n) Revenue RecognitionRevenue from the sale of goods and disposal of assets is recognised when the consolidated entity has passed control of the goods orassets to the buyer.

o) Interest Bearing LiabilitiesLoans are recorded at an amount equal to the net proceeds received. Interest expense is recognised on an accrual basis.

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Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 3: Profit from Ordinary Activities before Income Tax expense has been determined after:a) Charging as Expenses:

Borrowing Costs

Interest paid or payable to- controlled entities 34 - - 6,134 5,827- other persons 23,688 22,136 23,643 22,136- finance charges on finance leases 302 132 299 132

23,990 22,268 30,076 28,095

Dividends on redeemable preference shares- on “AX” class 6.5% redeemable cumulative

preference shares - 182 - 182

- 182 - 182

Total borrowing costs expensed 23,990 22,450 30,076 28,277

Depreciation of:- buildings 4,563 3,830 2,053 1,956- plant and equipment 58,297 57,682 57,386 57,444

62,860 61,512 59,439 59,400

Amortisation of:- leasehold improvements 2 2 - -- capitalised leases 547 514 539 514

549 516 539 514

Loss on sale and scrapping of non-current assets 442 122 428 120

Write down of inventories to net realisable value 798 33,300 798 33,300

Write down of investments in subsidiaries - - 8,959 -

Rental expense on operating leases 1,638 1,583 3,354 3,255

Research and development expenditure 4,003 3,209 3,925 3,209

Contributions to defined benefit superannuation funds 3,266 1,208 3,266 1,208

Transfer (from) to provision for doubtful debts (6,807) 2,346 (6,821) 2,346

b) Distribution expenses 106,469 100,882 105,423 100,008

Marketing expenses 42,482 32,927 41,212 31,573

Both marketing and distribution expenses have increased as a result of altered gross selling pricearrangements effective from the start of the current financial year. These arrangements have not impacted on net profit with both sales revenue and the associated expenses increasing by a uniform amount.

c) Crediting as Income :Dividends received from other corporations 18 4 200 2

Interest received or receivable from :- wholly controlled entities 34 - - 321 324- other persons 1,050 722 921 638

Profit on sale of vehicles, plant and equipment 15,918 193 15,903 193

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Notes to the Financial Statementsfor the year ended 30 June 2003

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 4: Income Tax Expensea) The prima facie income tax expense on pre-tax

accounting profit reconciles to the income tax expense in the financial statements as follows:

Profit from ordinary activities before income tax expense 4,909 62,868 51,653 54,629

Income tax calculated at 30% 1,473 18,860 15,496 16,389

Tax effect of permanent differences:

Non-deductible depreciation of buildings 1,335 1,149 616 587

Dividends as a co-operative (4,277) (3,748) (4,288) (3,755)

Repayment of Rural Finance and State Government loans (8,269) (13,200) (8,269) (13,200)

Special write-off of income producing buildings (1,586) (1,651) (1,102) (1,185)

Write down of investments in subsidiaries - - 2,688 -

Profit on forgiveness of liabilities - - (17,830) -

Sundry items 287 240 (89) (14)

Income tax adjusted for permanent differences (11,037) 1,650 (12,778) (1,178)

Current year assessed losses not brought to account as a future income tax benefit - 332 99 1,644

Prior year assessed losses brought to account as a future income tax benefit (150) - - -

Overprovision for income tax in prior year - (3,790) - (2,944)

Adjustment to the provision for deferred income tax arising from timing related deductions claimed with respect to prior years 124 5,382 124 5,382

Income tax (benefit) expense (11,063) 3,574 (12,555) 2,904

b) The future income tax benefit shown in note 16 includes $16,290,506 in relation to income tax losses carried forward by the parent and consolidated entity (2002: $nil). The potential future income tax benefit at 30 June 2003 in respect of tax losses not brought to account is: 15,445 3,452 2,838 3,452

The benefit for tax losses will only be obtained if:i) the consolidated entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the

deductions for the losses to be realised

ii) the consolidated entity continues to comply with the conditions for deductibility imposed by tax legislation, and

iii)no changes in tax legislation adversely affect the consolidated entity in realising the benefit from the deduction for the losses.

c) Tax Consolidation SystemLegislation to allow groups, comprising a parent entity and its Australian resident wholly-owned entities, to elect to consolidate and be treated as a single entity for income tax purposes was substantively enacted on 21 October, 2002. This legislation, whichincludes both mandatory and elective elements, is applicable to the company. The impact of the mandatory elements of the taxconsolidation system on existing deferred tax balances of the consolidated entity has been estimated based on reasonable best estimates.

At the date of this report the directors have not assessed the financial effect, if any, the implementation of the legislation may haveon the company and the consolidated entity and, accordingly, the directors have not made a decision whether or not to elect to betaxed as a single entity. The financial effect of the implementation of the tax consolidation system on the consolidated entity hasnot been recognised in the financial statements.

In the event that the tax consolidation system is implemented, the head entity has also agreed to compensate its wholly-ownedsubsidiaries for the carrying amount of their deferred tax balances.

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Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 5 : Remuneration of DirectorsIncome received or due and receivable, including amounts paid to superannuation and retirement funds, by all directors of each entity in the consolidated entity from all companies in the consolidated entity and any related party. 1,803 1,698

Income received or due and receivable, including amounts paid to superannuation and retirement funds, by all directors of the company from the company and any related party. 1,803 1,698

The numbers of parent entity directors whose total income, including amounts paid to superannuation and retirement funds, from the parent entity or related parties was within the specified bands are as follows:

Directors of the parent entity

2003 2002

$10,000 - $19,999 - 1

$20,000 - $29,999 - 1

$40,000 - $49,999 8 7

$60,000 - $69,999 1 1

$100,000 - $109,999 1 1

$260,000 - $269,999 - 1

$270,000 - $279,999 1 -

$930,000 - $939,999 - 1

$1,000,000 - $1,009,999 1 -

Amounts are paid to director-related entities for services of employment provided to the company during the financial year undernormal employee terms and conditions.

The directors listed on page 15 each held office as a director of the company throughout the year ended 30 June 2003.

Consolidated Company

2003 2002 2003 2002$000 $000 $000 $000

NOTE 6: Remuneration of Executive OfficersAn executive officer is a person who is directly accountable and responsible for the strategic direction and operational management of the Murray Goulburn Group.

Remuneration received or due and receivable, including amounts paid to superannuation and retirement funds, by Australian based executive officers (including directors) of each entity in the consolidated entity, receiving $100,000 or more from the entity for which they are executive officers, or from any related party. 2,563 2,393

Remuneration received or due and receivable, including amounts paid to superannuation and retirement funds, by Australian based executive officers (including directors) of the company, receiving $100,000 or more from the company, or from any related party. 2,563 2,393

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Notes to the Financial Statementsfor the year ended 30 June 2003

NOTE 6: Remuneration of Executive Officers (continued)The number of Australian based executive officers (including directors) whose remuneration, including amounts paid tosuperannuation and retirement funds, was within the specified bands are as follows:

Executive officers Executive officers of the consolidated entity of the parent entity

2003 2002 2003 2002

$130,000 - $139,999 - 1 - 1

$160,000 - $169,999 1 1 1 1

$170,000 - $179,999 2 - 2 -

$190,000 - $199,999 - 1 - 1

$200,000 - $209,999 - 2 - 2

$220,000 - $229,999 1 - 1 -

$230,000 - $239,999 1 - 1 -

$260,000 - $269,999 - 1 - 1

$270,000 - $279,999 1 - 1 -

$280,000 - $289,999 - 1 - 1

$320,000 - $329,999 1 - 1 -

$930,000 - $939,999 - 1 - 1

$1,000,000 - $1,009,999 1 - 1 -

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 7: Remuneration of AuditorsRemuneration received by the auditor of the parent entity:- auditing the financial report 215 165 215 165- other services 1,166 184 1,166 184

1,381 349 1,381 349

NOTE 8: Dividends Paid or ProposedFully Paid Ordinary SharesInterim dividend of nil cents (2002: 4 cents) per share unfranked (i) - 627 - 627Final dividend of 8 cents (2002: 4 cents) per share unfranked 1,214 640 1,214 640

Fully Paid D Class Ordinary SharesInterim dividend of nil cents (2002: 5 cents)per share unfranked (i) - 4,532 - 4,532Final dividend of 10 cents (2002: 5 cents) per share unfranked 10,758 4,734 10,758 4,734

Fully Paid DX Class Ordinary SharesInterim dividend of nil cents (2002: 5 cents)per share unfranked (i) - 77 - 77Final dividend of 10 cents (2002: 5 cents) per share unfranked 157 78 157 78

Fully Paid A Class Non Cumulative Non-Redeemable Preference SharesInterim dividend of 4 cents (2002: 4 cents) per share unfranked 1,008 884 1,008 884Final dividend of 4 cents (2002: 4 cents) per share unfranked 997 920 997 920

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Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 8: Dividends Paid or Proposed (continued)Fully Paid B Class Non Cumulative Non-Redeemable Preference SharesInterim dividend of 4 cents (2002: 0 cents) per share unfranked 28 - 28 -Final dividend of 4 cents (2002: 0 cents) per share unfranked 95 - 95 -

Partly Paid Ordinary SharesInterim dividend of 0.4 cents (2002: 0.4 cents) per share unfranked - - 12 12Final dividend of 0.4 cents (2002: 0.4 cents) per share unfranked - - 25 12

14,257 12,492 14,294 12,516

(i) To assist shareholders with their cashflow the final dividend, normally paid in November, was brought forward and paid with the interim dividend in May 2003.

Redeemable preference share dividends of $nil (2002: $181,864) have been included as interest expense in the Statement of Financial Performance.These dividends were unfranked.

Adjusted franking account balance 5,205 5,200 5,154 5,070

Due to changes in Australian income tax legislation, from 1 July 2002 franking accounts are maintained on a ‘tax paid’ rather than an ‘after tax distributable profits’ basis. The comparative franking account balance as at 30 June 2002 has been restated on the ‘tax paid’ basis so as to be comparablewith the disclosure as at 30 June 2003.

NOTE 9: ReceivablesCurrentTrade debtors 172,953 256,622 164,707 252,221Less: provision for doubtful debts (1,233) (8,040) (1,010) (7,831)

171,720 248,582 163,697 244,390

Other debtors 24,731 37,014 23,408 35,114Receivables from hedge contracts (i) 42,715 - 42,715 -Deferred gain on hedge contracts (i) (40,118) - (40,118) -Deferred premium on hedge contracts (i) (2,597) - (2,597) -

196,451 285,596 187,105 279,504

Non CurrentAmounts receivable from a controlled entity - - 46,827 6,000Other amounts receivable 48,529 43,709 48,529 43,709

48,529 43,709 95,356 49,709

(i) Receivables from hedge contracts represent net unrealised gains on foreign exchange contracts that are hedges against sales.Where a purchase or sale is specifically hedged, realised and unrealised gains or losses on the hedging transaction are deferred.

NOTE 10: InventoriesFinished goods- at cost 294,007 200,073 278,360 185,372- at net realisable value 18,130 178,742 18,130 178,742Raw materials and stores - at cost 28,755 20,416 24,552 20,416

340,892 399,231 321,042 384,530

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Notes to the Financial Statementsfor the year ended 30 June 2003

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 11: Other AssetsCurrentPrepayments 2,053 931 1,886 931Deferred foreign exchange loss 919 - - -

2,972 931 1,886 931

Non CurrentDeferred foreign exchange loss 1,826 - - -

NOTE12 : Other Non Current Financial AssetsInvestments

Shares in controlled entities at cost 13 - - 10,900 12,225Shares in other corporations at cost 583 606 579 596Shares in associates at cost 14 - - 3,507 6,800

583 606 14,986 19,621

NOTE 13: Controlled EntitiesAll controlled entities, except for Murray Goulburn Investment Ltd, are wholly owned. Control of all voting shares in Murray GoulburnInvestment Ltd vests in Murray Goulburn Co-operative Co. Ltd. All controlled entities are incorporated in Victoria, except forBerriquin Dairy Co. Pty Ltd which is incorporated in New South Wales. Murray Goulburn Nominees Pty Ltd and Murray GoulburnSuperannuation Pty Ltd are beneficially owned. With the exception of Meiji-MGC Dairy Co Pty Ltd no controlled entities havebeen acquired or disposed of during the year.

Entity Class of Share Company’s Investment at Book Value

Note 2003 2002$000 $000

Parent Entity:Murray Goulburn Co-operative Co. Limited - -

Controlled Entities of Murray Goulburn Co-operative Co. Limited:Murray Goulburn Trading Pty Ltd Ordinary 2,100 2,100MG Nutritionals Pty Ltd (a) Ordinary - -Meiji-MGC Dairy Co Pty Ltd (b) Ordinary 6,800 -Berriquin Dairy Co. Pty Ltd (a)(c) Ordinary - 112The Grasmere Butter Co. Pty Ltd (a)(c) Ordinary - 88Mid-Murray Dairy Co. Pty Ltd (a)(c) Ordinary - 907The Portland Co-operative Dairy Co. Pty Ltd (a)(c) Ordinary - 348The Rochester Co-operative Butter and Canning (a)(c) Ordinary - 235South Gippsland Milk Industries Pty Ltd (a)(c) Ordinary - 3,204Murray Goulburn Investment Limited Ordinary 2,000 2,000Ardare Dairy Foods Pty Ltd (a)(c) Ordinary - 786

“B” Ordinary - 208

Controlled entity of Ardare Dairy Foods Pty Ltd:Ardare Hardware Pty Ltd (a)(c) - -Gippsland Amalgamated Milk Products Pty Ltd (a)(c) Ordinary - 2,237

Controlled entity of Gippsland Amalgamated Milk Products Pty Ltd:The Maffra Co-operative Milk Products Co. Pty Ltd (a)(c) - -

10,900 12,225

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NOTE 13: Controlled Entities (continued)

(a) These wholly-owned entities are small proprietary companies pursuant to the Corporations Act 2001 and consequently are relievedfrom the requirement to prepare audited financial reports.

(b) Murray Goulburn Co-operative Co Limited acquired the remaining 60% interest in the ordinary share capital of Meiji-MGC DairyCo Pty Ltd, an unlisted company, on 19 March 2003. The original investment of 40% was previously accounted for as aninvestment in associates.

(c) These entities have applied to Australian Securities and Investments Commission on 30 June 2003 for voluntary deregistration.Prior to the application for voluntary deregistration, all assets were transferred to companies within the consolidated entity and theparent company’s investment in the subsidiary was written down to $nil.

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 14: Investments Accounted for using the Equity MethodInvestments in Associated Companies 5,106 3,074 - -

Murray Goulburn Co-operative Co. Limited accounted for its 40% (2002: 40%) interest in the ordinary share capital of Meiji-MGCDairy Co Pty Ltd, an unlisted company, using the equity method of accounting up to 19 March 2003. On 19 March 2003, Murray Goulburn Co-operative Co. Limited acquired the remaining 60% interest in the ordinary share capital of Meiji-MGC Dairy CoPty Ltd. The results of Meiji-MGC Dairy Co Pty Ltd since 19 March 2003 and the assets and liabilities at 30 June 2003 are included inthe consolidated financial statements. The principal activity of Meiji-MGC Dairy Co Pty Ltd is the manufacture of dairy products.The balance date of Meiji-MGC Dairy Co Pty Ltd is June 30th.

Murray Goulburn Co-operative Co Limited has a 33.3% (2002: nil%) interest in the ordinary share capital of an unlisted company,Intermix Australia Pty Ltd. The principal activity of Intermix Australia is food ingredient processing. The balance date of Intermix Australia Pty Ltd is June 30th.

Murray Goulburn Co-operative Co Limited has a 31.5% (2002: 31.5%) interest in the ordinary share capital of an unlisted company,Dairy Technical Services Ltd. The principal activity of Dairy Technical Services Ltd is the provision of analytical and technical servicesto the dairy and other food industries. The balance date of Dairy Technical Services Ltd is April 30th.

Investments in associated companies are accounted for in the consolidated financial statements using the equity method of accounting.The company carrying amount is at cost.

Consolidated

Note 2003 2002$000 $000

Movement in Investments in Associated Companies

Equity accounted amount at the beginning of the financial year 3,074 2,112

Acquisition of interests in associates 3,503 2,000

Previously accounted for as investment in other corporations 9 -

Investment in Meiji no longer equity accounted 35e (848) -

Share of operating loss after income tax (947) (1,038)

Share of general reserve 25 315 -

Equity accounted amount at the end of the financial year 5,106 3,074

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Notes to the Financial Statementsfor the year ended 30 June 2003

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 15: Property, Plant and EquipmentLand and Buildings

Freehold land at fair value (i) 28,868 28,868 28,708 24,569

Buildings at fair value (i) 188,250 139,625 173,889 59,765less accumulated depreciation (7,174) - (2,053) -

181,076 139,625 171,836 59,765

Leasehold ImprovementsAt cost 234 234 - -less accumulated amortisation (223) (221) - -

11 13 - -

Total Land and Buildings 209,955 168,506 200,544 84,334

Plant and EquipmentAt cost 710,955 636,785 664,015 634,216less accumulated depreciation (381,636) (315,747) (362,218) (314,158)

Total Plant and Equipment 329,319 321,038 301,797 320,058

VehiclesAt Cost 24,475 59,535 24,438 59,535less accumulated depreciation (18,486) (43,019) (18,485) (43,019)

5,989 16,516 5,953 16,516

Leased VehiclesCapitalised present value of lease payments 3,010 2,713 2,776 2,713less accumulated amortisation (1,026) (1,046) (992) (1,046)

1,984 1,667 1,784 1,667

Total Vehicles 7,973 18,183 7,737 18,183

Buildings and Plant in the course of construction 29,465 40,402 29,331 39,808

Total Property, Plant and Equipment 576,712 548,129 539,409 462,383

(i) The fair value has been determined by the directors with regard to an independent valuation and costs subsequently incurred.

Valuations of Land and BuildingsThe basis of valuation of land and buildings is fair value being the market value for existing use of all freehold land and buildings. Thelatest revaluations as at 30 June 2002 were based on independent assessments and were made in accordance with policy of revaluingproperty every three years.

No provision for deferred income tax is raised in respect of any potential capital gains tax as the consolidated entity has no plans todispose of freehold land and buildings.

ReconciliationsReconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the currentfinancial year are set out below:

Land and Plant and Vehicles In course of TotalBuildings Equipment Construction

Consolidated $’000 $’000 $’000 $’000 $’000

Carrying amount at 1 July 2002 168,506 321,038 18,183 40,402 548,129

Additions 37,543 33,088 10,632 (10,937) 70,326

Acquisition of business 8,471 26,817 163 - 35,451

Disposals - (510) (13,275) - (13,785)

Depreciation (4,563) (51,114) (7,183) - (62,860)

Amortisation (2) - (547) - (549)

Carrying amount at 30 June 2003 209,955 329,319 7,973 29,465 576,712

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NOTE 15: Property, Plant and Equipment (continued)

Land and Plant and Vehicles In course of TotalBuildings Equipment Construction

Company $’000 $’000 $’000 $’000 $’000

Carrying amount at 1 July 2002 84,334 320,058 18,183 39,808 462,383

Additions 118,263 32,451 10,505 (10,477) 150,742

Disposals - (509) (13,229) - (13,738)

Depreciation (2,053) (50,203) (7,183) - (59,439)

Amortisation - - (539) - (539)

Carrying amount at 30 June 2003 200,544 301,797 7,737 29,331 539,409

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 16: Deferred Tax AssetsFuture income tax benefit 4 24,611 11,371 24,182 10,963

NOTE 17: PayablesCurrentTrade creditors 55,850 54,603 36,965 39,182Payable to suppliers 80,806 133,025 80,806 133,025Sundry creditors and accrued expenses 46,192 41,772 40,812 40,278

182,848 229,400 158,583 212,485

Non CurrentUnsecured loan from the State Government of Victoria 1,000 1,000 1,000 1,000

1,000 1,000 1,000 1,000

NOTE 18: Interest Bearing LiabilitiesCurrentLease liability 28 1,028 909 977 909Bank loans 310,586 347,947 310,586 347,947Senior Notes 4,289 5,044 4,289 5,044

315,903 353,900 315,852 353,900

Non CurrentLease liability 28 1,320 1,011 1,172 1,011Bank loans 98,327 117,500 98,327 117,500Payable to controlled entities - - 94,720 59,946Senior notes 4,290 10,088 4,290 10,088Senior subordinated notes 30,026 35,311 30,026 35,311

133,963 163,910 228,535 223,856

The bank loans, senior notes and senior subordinated notes are covered by negative pledge agreements between the parent entity and its financiers. The lease liabilities are effectively secured over the assets leased, the current market value of which exceeds the valueof the finance lease liability.

NOTE 19: Current Tax LiabilityIncome tax payable - - - -

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Notes to the Financial Statementsfor the year ended 30 June 2003

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 20: ProvisionsCurrentDividends 1,243 6,531 1,243 6,531Employee entitlements 21 15,527 13,888 14,256 13,094

16,770 20,419 15,499 19,625

Non CurrentEmployee entitlements 21 10,029 10,319 9,567 9,962

10,029 10,319 9,567 9,962

NOTE 21: Employee EntitlementsAccrued salaries, wages and benefits (sundry creditors) 17 731 413 604 413

Provisions for employee entitlementsCurrent 20 15,527 13,888 14,256 13,094Non current 20 10,029 10,319 9,567 9,962

Aggregate employee entitlement liability 26,287 24,620 24,427 23,469

Number Number Number Number

Number of employees at balance date 2,266 2,240 2,056 2,096

At 30 June 2003, the consolidated entity includes 65 employees employed by Meiji-MGC Dairy Co Pty Ltd (2002: nil) which wasacquired by Murray Goulburn Co-operative Co. Ltd in March 2003.

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 22: Deferred Tax LiabilitiesProvision for deferred income tax 24,186 23,527 24,182 23,518

NOTE 23: Contingent LiabilitiesGuarantee relating to the borrowings of an associated company 14 - 20,000 - 20,000

Unsecured guarantees and warranties given in the normal course of business include commitments for the disposal of effluent.

NOTE 24: Share CapitalIssued Capital16,021,985 fully paid ordinary shares(2002: 16,014,958) 24(d) 16,022 16,015 16,022 16,015

106,190,623 fully paid D class ordinary shares.Dividend rate is 2% above the ordinary shares.(2002: 88,072,858) 24(d) 106,191 88,073 106,191 88,073

1,629,808 fully paid DX class ordinary shares.Dividend rate is 2% above the ordinary shares.(2002: 1,564,801) 24(d) 1,630 1,565 1,630 1,565

24,911,378 fully paid A class 8% non cumulativenon-redeemable participating preference shares.(2002: 22,990,501) 24(b) 24,911 22,990 24,911 22,990

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Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 24: Share Capital (continued)2,387,022 fully paid B class non cumulativenon-redeemable participating preference shares.(2002: nil) 24(c) 2,387 - 2,387 -

3,000,000 ordinary shares paid to 10c with 90c outstanding (2002: 3,000,000) 300 300 300 300

151,441 128,943 151,441 128,943

Less Inter-Company Shareholdings808 fully paid A class preference shares (2002: 808) (1) (1) - -

3,000,000 ordinary shares paid to 10c with 90c outstanding (2002: 3,000,000) (300) (300) - -

151,140 128,642 151,441 128,943

Former Reserves included in Share CapitalFormer Share Premium Reserve 24(a) 2,331 2,331 2,331 2,331

Former Capital Redemption Reserve 24(a) 4,142 4,142 4,142 4,142

157,613 135,115 157,914 135,416

a) Changes to the Corporations Act 2001 which became effective on 1 July 1998 abolished the par value concept in relation to sharecapital. As a consequence the amounts standing to the credit of the share premium reserve and the capital redemption reserve at 1 July 1998 were transferred to issued capital at that date.

b) A class 8% Non Cumulative Non-redeemable Preference SharesThe company has on issue to non suppliers 24,911,378 A class 8% non cumulative preference shares as at 30 June 2003. The sharesentitle holders to receive, out of profits available for dividend, a preferential dividend at a rate of 8% per annum. These holdershave no voting rights at a general meeting of the company but can convert their shares into ordinary shares, by resolution of thedirectors, if any holder becomes a supplier to the company.

Given the co-operative status of the company and the above terms and conditions, the directors consider these shares are in thenature of equity and are classified accordingly in the statement of financial position.

c) B class Non Cumulative Non-redeemable Preference SharesThe company has on issue to non suppliers 2,387,022 B class non cumulative preference shares as at 30 June 2003. The sharesentitle holders to receive, out of profits available for dividend, a preferential dividend at a variable rate. These holders have novoting rights at a general meeting of the company but can convert their shares into ordinary shares, by resolution of the directors, ifany holder becomes a supplier to the company. These shares were introduced following shareholders’ approval given at the 2002annual general meeting.

Given the co-operative status of the company and the above terms and conditions, the directors consider these shares are in thenature of equity and are classified accordingly in the statement of financial position.

d) Ordinary, D class Ordinary and DX class Ordinary SharesOrdinary, D class ordinary and DX class ordinary shares entitle the holder to participate in dividends and the proceeds onwinding up of the company in proportion to the number of shares held. On a show of hands every holder of ordinary shares presentat a meeting in person or by proxy, is entitled to one vote and upon a poll each share is entitled to one vote.

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Notes to the Financial Statementsfor the year ended 30 June 2003

NOTE 24: Share Capital (continued)e) Movements in Issued Capital

Number of Shares

Ordinary D Class DX Class A Class B Class TotalShares Ordinary Ordinary Preference Preference

Shares Shares Shares Shares

Balance at 1 July 2001 18,121,600 67,054,347 1,550,803 19,111,207 - 105,837,957

Shares issued 1,208,878 23,289,113 - 412 - 24,498,403

Dividend reinvestment plan issues 135,483 925,184 53,139 192,952 - 1,306,758

Transfers (451,003) (3,195,786) (39,141) 3,685,930 - -

Balance at 30 June 2002 19,014,958 88,072,858 1,564,801 22,990,501 - 131,643,118

Shares issued 997,511 19,107,175 - - - 20,104,686

Dividend reinvestment plan issues 230,981 1,837,402 87,703 233,566 3,360 2,393,012

Transfers (1,221,465) (2,826,812) (22,696) 1,687,311 2,383,662 -

Balance at 30 June 2003 19,021,985 106,190,623 1,629,808 24,911,378 2,387,022 154,140,816

All shares were issued at a price of $1.00 and are fully paid, with the exception of 3,000,000 ordinary shares which are paid to 10c onlywith 90c outstanding. The purpose of these issues was to provide additional working capital.

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 25: ReservesCapital reserve 36,916 36,916 24,290 24,290Asset revaluation reserve 70,558 70,558 23,345 23,345General reserve 5,257 4,942 2,648 2,648Share allotment reserve 4,898 6,608 4,898 6,608

117,629 119,024 55,181 56,891

Movements in ReservesShare Allotment Reserve

Balance at the beginning of the financial year 6,608 5,210 6,608 5,210Allotment of shares to suppliers (6,608) (5,210) (6,608) (5,210)Shares to be issued in lieu of milk payments 4,898 6,608 4,898 6,608

Balance at the end of the financial year 4,898 6,608 4,898 6,608

At 30 June 2003 an amount of $4,898,387 (2002: $6,607,995) was due to suppliers, being deductions made from milkpayments during the year. This debt was satisfied by the allotment of 4,898,387 (2002: 6,607,995) fully paid shares in September 2003 (September 2002).

Asset Revaluation ReserveBalance at the beginning of the financial year 70,558 54,332 23,345 24,487Increment (decrement) on revaluation of land and buildings - 16,226 - (1,142)

Balance at the end of the financial year 70,558 70,558 23,345 23,345

General reserveBalance at the beginning of the financial year 4,942 4,942 2,648 2,648Share of general reserve of associate 14 315 - - -

Balance at the end of the financial year 5,257 4,942 2,648 2,648

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NOTE 25: Reserves (continued)Nature and Purpose of Reserves

Capital ReserveThe capital reserve is used to accumulate realised capital profits.

Asset Revaluation ReserveThe asset revaluation reserve is used to record increments and decrements on the revaluation of non-current assets.

General ReserveThe general reserve is used from time to time to transfer profits from retained earnings. There is no policy of regular transfer.

Share Allotment ReserveThe share allotment reserve reflects the value of shares to be allotted to suppliers. The allotments arise from deductions madefrom milk payments during the year.

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 26: Retained ProfitsBalance at the beginning of the financial year 179,873 136,816 177,677 138,468Net profit attributable to members of the parent entity 12,431 55,549 64,208 51,725Dividends provided for or paid 8 (14,257) (12,492) (14,294) (12,516)

Balance at the end of the financial year 178,047 179,873 227,591 177,677

NOTE 27: Outside Equity Interests in Controlled EntitiesOutside equity interest comprises :74,378,730 fully paid A class participating non-cumulativeredeemable preference shares (2002: 66,167,992) 31 74,379 66,168 - -

NOTE 28: Capital and Leasing Commitmentsa) Finance Lease Commitments

- Due within 1 year 1,041 1,030 977 1,030- Due within 1-2 years 805 690 745 690- Due within 2-5 years 724 405 622 405

Minimum lease payments 2,570 2,125 2,344 2,125Less future finance charges (222) (205) (195) (205)

Total lease liability 2,348 1,920 2,149 1,920

Classified as :Current 18 1,028 909 977 909Non current 18 1,320 1,011 1,172 1,011

2,348 1,920 2,149 1,920

Finance leases relate to motor vehicles with lease terms of three years. The consolidated entity has options to purchase the vehicles for a residual amount at the conclusion of the lease agreements.

b) Operating Lease Commitments- Due within 1 year 9,935 1,661 9,800 1,534- Due within 1-2 years 9,664 600 9,549 535- Due within 2-5 years 11,526 1,548 11,391 1,420- Due after 5 years 8,392 8,400 8,077 8,051

39,517 12,209 38,817 11,540

Operating leases relate to Trading stores, warehousing facilities and vehicles with lease terms of between 3 to 31 years. Some leases have an option to extend the lease term. The consolidated entity does not have an option to purchase the leased assets at the expiry of the lease period.

c) Capital Expenditure CommitmentsContracted capital expenditure commitments due within one year 14,693 57,472 14,316 56,961

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Notes to the Financial Statementsfor the year ended 30 June 2003

NOTE 29: Segment InformationPrimary Reporting - Business Segments

The Murray Goulburn Group’s predominant activities are:

Dairy Produce ManufactureThe processing of the whole milk of its shareholder suppliers, the production of dairy products at its eight manufacturing plantslocated in Victoria, Australia, and the sale of dairy products on both domestic and export markets.

RetailingThe operation of retail stores in Australia as a service to milk suppliers.

Intersegment sales are made on a commercial basis.

Dairy Produce Retailing Intersegment Consolidated

2003 2002 2003 2002 2003 2002 2003 2002$000 $000 $000 $000 $000 $000 $000 $000

Sales to external customers 1,543,431 1,910,082 119,855 102,483 - - 1,663,286 2,012,565

Intersegment sales 1,117 1,928 189 230 (1,306) (2,158) - -

Non operating revenue 29,213 346 48 - - - 29,261 346

Unallocated - - - - - - 1,068 726

Total revenue 1,573,761 1,912,356 120,092 102,713 (1,306) (2,158) 1,693,615 2,013,637

Segment Results 26,053 81,475 3,042 4,167 (318) (12) 28,777 85,630

Unallocated revenue lessunallocated expenses (23,868) (22,762)

Profit from ordinaryactivities before income tax expense 4,909 62,868

Tax benefit (expense) 11,063 (3,574)

Net profit 15,972 59,294

Segment assets 1,108,840 1,218,142 28,007 26,289 (3,307) (536) 1,133,540 1,243,895

Unallocated assets 78,827 58,760

Total assets 1,212,367 1,302,655

Segment liabilitities 190,596 235,560 19,590 18,583 (1,782) (536) 208,404 253,607

Unallocated liabilities 476,295 548,868

Total liabilities 684,699 802,475

Acquisition of property,plant and equipment 70,316 136,049 10 730 - - 70,326 136,779

Depreciation and amortisation expense 63,163 61,759 246 269 - - 63,409 62,028

Secondary Reporting - Geographical Segments

Acquisition of Segment Assets Revenue fromSegment Assets External Customers

2003 2002 2003 2002 2003 2002

$000 $000 $000 $000 $000 $000

Australia 70,326 136,779 1,133,540 1,243,895 659,614 703,726

Asia - - - - 593,500 799,243

Middle East / Africa - - - - 157,169 233,449

The Americas - - - - 180,107 204,574

Other - - - - 72,896 71,573

70,326 136,779 1,133,540 1,243,895 1,663,286 2,012,565

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35

NOTE 30: Superannuation CommitmentsThe Company participates in a defined benefit superannuation plan, the MGC Superannuation Fund, which has been established andsponsored by the parent entity. This plan primarily provides a lump sum benefit on retirement, permanent disability or death.

Contributions are made by employees and the Company as percentages of salary. The Company is obliged to make contributions asspecified in the rules of the fund. All contributions are enforceable in accordance with the rules.

The last actuarial assessment of the plan was made by Andrew Sach F.I.A.A. of William M. Mercer Pty Ltd and related to the plan at 1 July 2000. The conclusion of the actuarial assessment noted that funds were considered adequate to satisfy all benefits payable in theevent of termination of each employee. The MGC Superannuation Fund is currently undergoing an actuarial review as at 1 July 2003,which will be completed within the next 12 months.

The most recent financial report of the MGC Superannuation Fund is dated 30th June 2002.

Details of the defined benefit plan are as follows : MGC Superannuation Fund$’000

Present value of accrued benefits at 1st July 2000 19,526Net market value of plan assets at 30th June 2002 22,142

Difference 2,616

Vested benefits at 30th June 2002 24,274

The difference between the accrued benefits and net market value of plan assets has not been recognised in the company financialstatements or consolidated financial statements.

NOTE 31: Murray Goulburn Group Employees Profits Participation SchemeIn 1993 Murray Goulburn established an Employees Profits Participation Scheme under which employees of the Murray GoulburnGroup with 12 months or more work experience with the Murray Goulburn Group could choose to invest in Employee ProfitsParticipation Units in MG Employees Equity Limited (“MGEE”). MGEE invests the employees’ contributions in A class participatingnon-cumulative redeemable preference shares in Murray Goulburn Investment Limited. These shares are redeemable solely at theoption of Murray Goulburn Investment Limited.

Eligible employees must borrow all monies required to pay for the MGEE shares either from MGEE or Murray Goulburn. Themaximum amount each employee is entitled to borrow is equivalent to one year’s salary, rounded up to the nearest $10,000. MGEEfunds the employee loans by borrowing from Murray Goulburn. All borrowings are interest free and employees repay their loans at 3% per annum.

At 30th June 2003 1,600 employees were eligible to participate in the Scheme. Of that number, 1,292 employees had been issued with74,378,730 $1.00 Employees Profits Participation Units. During the year ending 30th June 2003, 13,861,455 Units were issued,including 3,541,455 in satisfaction of dividends paid.

The value of the A Class redeemable preference shares issued by Murray Goulburn Investment Ltd to MGEE is recognised as OutsideEquity Interests. The loan owing by MGEE, and employee loans from Murray Goulburn, are recognised as receivables.

Amounts recognised are as follows :

Consolidated Company

2003 2002 2003 2002$000 $000 $000 $000

Outside Equity Interests 74,379 66,168 - -Loan owing by MGEE 49,851 44,858 49,851 44,858Employee loans 372 366 372 366

NOTE 32: Events Subsequent to Balance DateNo matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect theoperations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in financial yearssubsequent to the financial year ended 30 June 2003.

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Notes to the Financial Statementsfor the year ended 30 June 2003

NOTE 33: Financial Instrumentsa) Forward Foreign Exchange Contracts

The consolidated entity maintains a policy of matching anticipated future cash flows in foreign currencies with forward exchangecontracts in the same currency and with closely corresponding settlement dates. Forward exchange contracts are entered into whencommitted orders are received for the delivery of goods.

At balance date, the entity has $US68.9 million (2002: $US167.1 million) forward exchange contracts outstanding with maturitydates not exceeding one year, of which $US16.5 million (2002: $US5.1 million) relate to receivables at balance date and $US52.4million (2002: $US162.0 million) relate to future transactions.

Unrealised gains or losses at year end on specific hedges in the form of forward exchange contracts, in respect of unsettled salestransactions, are deferred to match the underlying hedge transaction.

b) Currency OptionsDuring the year the consolidated entity entered into a range of US Dollar currency options with varying maturities and strike rates.As with ‘Forward Foreign Exchange Contracts’ above, these options are not entered into for speculative purposes but strictly as ameans of hedging sales denominated in $US.

By simultaneously purchasing call options and selling put options in a barrier structure, the entity has effectively capped an exchange rate should the AUD strengthen whilst maintaining the flexibility to improve the exchange rates should the AUD trade atfavourable levels.

At balance date, the entity had purchased AUD call options to the equivalent value of $US250.0 million (2002: $US55.0 million)and sold AUD put options to the equivalent value of $US217.5 million (2002: $US67.5 million) with varying maturities and strikerates. Of these, purchased AUD call options to the equivalent value of $US10 million and sold AUD put options to the equivalentvalue of $US7.5 million relate to receivables at balance date. The remaining purchased AUD call options with an equivalent valueof $US240.0 million and sold AUD put options with an equivalent value of $US210.0 million relate to future transactions. Allcurrency options were purchased to hedge future sales and all have expiry dates not exceeding one year.

Unrealised gains or losses at year end on currency options are deferred to match the underlying hedged transaction.

c) Interest Rate RiskTrade and other receivables, trade creditors and accruals, loans from the state government of Victoria, and dividends payable, are non-interest bearing.

The AUD bank overdraft bears interest at a floating rate based on the bank prime lending rate. The USD bank overdraft bearsinterest at a floating rate based on the Interbank Offered Rate. USD cash on hand yields interest at the US Interbank Bid Rate.AUD cash on hand bears interest at a floating rate based on the bank prime deposit rate.

Bank loans consist of USD and AUD revolving loan facilities, on which interest is payable at floating rates. Rates on US Dollar loansare based on either LIBOR or SIBOR. Rates on AUD loans are based on the 30 day bank bill swap rate.

Finance lease liabilities arise from the leasing of vehicles. Leases are negotiated for a 3-year term at a fixed rate of interest. Interestrates are based on the market rate ruling at the time of entering into the individual lease agreements.

The senior notes and senior subordinated notes bear interest at fixed rates of 8.01% and 8.46% respectively. Repayment of thesenior notes commenced in September 1998 with the notes being finally repaid by September 2004. The senior subordinated notesmature in September 2004.

d) Credit Risk ExposuresThe consolidated entity’s maximum exposure to credit risk at balance date in relation to financial assets is the carrying amount, netof any provisions, of those assets as indicated in the consolidated statement of financial position. The consolidated entity minimisesconcentrations of credit risk by undertaking transactions with a large number of customers and counterparties in various countries.The consolidated entity is not materially exposed to any individual foreign country or individual customer.

e) Hedges of Anticipated Future TransactionsForward exchange contracts are utilised to hedge future committed orders. The difference between these contracts at contract ratesand at the rate ruling at balance date, is $1,654,128 (2002: $905,850). This amount will be realised during the next financial yearwhen the underlying hedge transactions take place.

f) Net Fair ValueOn-balance sheet financial instrumentsThe carrying amount recorded in the financial statements represents the net fair value of all assets and liabilities, determined inaccordance with the accounting policies in Note 1 to the financial statements, except for those mentioned below. The net fair value is derived by discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles.

Senior notes have a carrying value of $8,578,719 (2002: $15,133,171) and a net fair value of $9,225,042 (2002: $16,159,374). Seniorsubordinated notes have a carrying value of $30,025,522 (2002: $35,310,734) and a net fair value of $35,928,252 (2002:$39,408,163).

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Consolidated Company

2003 2002 2003 2002$000 $000 $000 $000

NOTE 34: Related PartiesTransactions between related parties are on normal commercial terms and conditions unless otherwise stated.

Balances and transactions with related parties :

a) Entities in the wholly owned groupProvision of a loan to Murray Goulburn Trading Pty Ltd.Repayment is variable by Murray Goulburn Co-operative with at least 12 months notice - - 6,000 6,000

Provision of a loan to Meiji-MGC Dairy Co Pty Ltd.Repayment is variable by Murray Goulburn Co-operative with at least 12 months notice - - 40,827 -

Interest received from Murray Goulburn Trading Pty Ltd on loan provided - - 321 324

Interest paid to controlled entities on intercompany loan balances - - 6,134 5,827

Purchase of goods from Murray Goulburn Trading Pty Ltd - - 189 230

Sale of finished product to Murray Goulburn Trading Pty Ltd - - 1,117 1,927

Purchase of goods from Meiji-MGC Dairy Co Pty Ltd - - 234 -

Sale of finished product to Meiji-MGC Dairy Co Pty Ltd - - 2,072 -

Rent paid to controlled entities - - 1,886 1,830

Rent received from Murray Goulburn Trading Pty Ltd - - 613 543

Dividends paid to controlled entities - - 36 24

Dividends received from controlled entities - - 196 -

Service fees and management fees charged to controlled entities for general administration duties - - 4,436 4,518

Purchase of land, buildings and investments at fair value from controlled entities - - 81,510 -

Profit on forgiveness of liabilities owing to controlled entities - - 59,432 -

Amounts payable to controlled entities arising through the intercompany accounts - - 94,720 92,452

Amounts receivable from controlled entities arising through the intercompany accounts - - - 32,506

b) Directors of the parent entityAggregate number of shares held in the parent entity by directors of the parent entity at balance date:

36,663 ordinary shares (2002: 36,256)847,348 D class ordinary shares (2002: 686,031)99,708 DX class ordinary shares (2002: 88,027)

Aggregate number of shares acquired in the parent entity by directors of the parent entity during the year:407 ordinary shares (2002: 478)161,317 D class ordinary shares (2002: 138,631)11,681 DX class ordinary shares (2002: 7,278)

Directors of the consolidated entity supply milk to the consolidated entity, are able to purchase goods at Murray Goulburn TradingPty Ltd stores at commercial prices and can obtain loans from the consolidated entity in the same manner as all other suppliers.

Executive directors of the consolidated entity participate in the employee share acquisition scheme under the same terms andconditions available to all employees and consequently indirectly hold 1,842,595 A class participating non redeemable preferenceshares in Murray Goulburn Investment Ltd which is a controlled entity of Murray Goulburn Co-operative Co. Ltd.

c) Associated companiesTransactions between the parent entity and its associates include the sale of goods and the provision of technical and consultancyservices by the parent entity. Transactions are on normal commercial terms and conditions.

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Notes to the Financial Statementsfor the year ended 30 June 2003

Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 35: Notes to the Statement of Cash Flowsa) Reconciliation of Cash

For the purposes of the statement of cash flows, cash includes cash on hand, deposits on call and investments in money market instruments, net of bank overdrafts.

Cash at the end of the year as shown in the statement of cash flows is reconciled to cash in the statement of financial position as follows:

Cash per statement of financial position 14,685 10,008 9,938 6,689

Cash per statement of cash flows 14,685 10,008 9,938 6,689

b) Reconciliation of Profit from Ordinary Activitiesafter Income Tax to Net Cash Flow from Operating ActivitiesProfit from ordinary activities after income tax 15,972 59,294 64,208 51,725Depreciation 62,860 61,512 59,439 59,400Amortisation 549 516 539 514

(Profit) on sale of fixed assets (15,476) (71) (15,475) (73)(Decrease) in income taxes payable - (3,521) - (2,944)Share of loss of associated company 947 1,038 - -(Profit) on forgiveness of liabilities - - (59,432) -Write down of investments in subsidiaries - - 8,959 -

Change in operating assets and liabilitiesDecrease (increase) in trade debtors 94,773 (52,501) 95,937 (52,957)Decrease in other debtors and prepayments 1,706 7,843 6,529 12,928Decrease (increase) in inventories 65,749 (129,342) 63,488 (126,639)(Increase) in future income tax benefit (13,240) (2,452) (13,219) (2,426)(Decrease) increase in trade creditors and amounts due to suppliers (74,805) 22,374 (72,860) 12,777Increase (decrease) in amounts payable to controlled entities - - 2,377 (5,407)(Decrease) increase in provisions (6,160) 6,870 (6,054) 6,785Increase in provision for deferred income tax 659 7,735 664 7,743

Net cash inflow (outflow) from operating activities 133,534 (20,705) 135,100 (38,574)

c) Financing ArrangementsCredit facility 622,343 565,065 622,343 565,065Amount utilised 395,228 456,439 399,975 459,758

Unused credit facility 227,115 108,626 222,368 105,307

The major facilities consist of a bank overdraft facility repayable at call, and loan facilities which are subject to yearly review toensure that the required financial ratios are met.

d) Non-cash Financing ActivitiesDuring the financial year the consolidated entity acquired plant and motor vehicles with an aggregate fair value of $1,109,201(2002: $893,256) by means of finance leases. These acquisitions are not reflected in the statement of cash flows or note 35(b).

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Consolidated Company

Note 2003 2002 2003 2002$000 $000 $000 $000

NOTE 35: Notes to the Statement of Cash Flows (continued)e) Businesses Acquired

During the financial year the consolidated entity acquired the remaining 60% interest in the ordinary share capital of Meiji-MGC Dairy Co Pty Ltd. Details of the acquisition are as follows:

Fair Value of Net Assets Acquired at 100%:

Current AssetsCash 3,180 - - -Receivables 2,681 - - -Prepayments 142 - - -Inventories 7,410 - - -Other 2,975 - - -

Non Current AssetsProperty, Plant and Equipment 35,452 - - -

Current LiabilitiesPayables (5,437) - - -Employee entitlements (629) - - -Finance lease liability (54) - - -

Non Current LiabilitiesEmployee entitlements (73) - - -Finance lease liability (115) - - -Loans (44,684) - - -

848 - - -

less investment in associate at time of acquisition 14 (848) - - -

Adjusted net assets acquired - - - -

Consideration for the 60% interest acquired - - - -

Net Cash Inflow at time of AcquisitionTotal cash held by associate at time of acquisition 3,180 - - -

NOTE 36: Additional InformationMurray Goulburn Co-operative Company Limted is a company limited by shares, incorporated and domiciled in Australia.Its registered office and principal place of business is:

Murray Goulburn Co-operative Company Limited140 Dawson StreetBrunswick VIC 3056

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40

Directors’ Declaration

The directors declare that:

a) the attached financial statements and notes thereto comply with Accounting Standards;

b) the attached financial statements and notes thereto give a true and fair view of the company’s and the consolidated entity’s financialposition as at 30 June 2003 and of their performance for the financial year ended on that date.

In the directors’ opinion:

a) the attached financial statements and notes thereto are in accordance with the Corporations Act 2001; and

b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the directors.

IW MacAulayDirector

Melbourne24 September 2003

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Independent Audit Report

To the Members of Murray Goulburn Co-Operative Co. Limited

ScopeThe financial report and directors’ responsibilityThe financial report comprises the statement of financial position, statement of financial performance, statement of cashflows,accompanying notes to the financial statements, and the directors’ declaration for both Murray Goulburn Co-Operative Co. Limited(the company) and the consolidated entity, for the financial year ended 30 June 2003 as set out on pages 16 to 40. The consolidatedentity comprises the company and the entities it controlled at the year’s end or from time to time during the financial year.

The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordancewith the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controlsthat are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in thefinancial report.

Audit approachWe have conducted an independent audit of the financial report in order to express an opinion on it to the members of the company.Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financialreport is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement,selective testing, the inherent limitations of internal controls, and the availability of persuasive rather than conclusive evidence.Therefore, an audit cannot guarantee that all material misstatements have been detected.

We performed procedures to form an opinion whether, in all material respects, the financial report is presented fairly in accordancewith the Corporations Act 2001 and Accounting Standards and other mandatory professional reporting requirements in Australia so asto present a view which is consistent with our understanding of the company’s and the consolidated entity’s financial position, andperformance as represented by the results of their operations and their cash flows.

Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financialreport, and the evaluation of accounting policies and significant accounting estimates made by the directors.

While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature andextent of our procedures, our audit was not designed to provide assurance on internal controls.

The audit opinion expressed in this report has been formed on the above basis.

IndependenceIn conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements andthe Corporations Act 2001.

Audit OpinionIn our opinion, the financial report of Murray Goulburn Co-Operative Co. Limited is in accordance with:

(a) the Corporations Act 2001, including:

(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2003 and of theirperformance for the year ended on that date; and

(ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and

(b) other mandatory professional reporting requirements in Australia.

DELOITTE TOUCHE TOHMATSU

John EtheringtonPartnerChartered Accountants

Melbourne, 24 September 2003

The liability of Deloitte Touche Tohmatsu is limited by, and to the extent of, the Accountants’ Scheme under the ProfessionalStandards Act 1994 (NSW).

Co-Operation - A way of life...

Co-Operation is more than a business,

it is a way of life.

Carried to its ultimate conclusion,

Co-Operation can bring to the world; peace

prosperity and contentment.

But individuals must play their part in the plan.

Co-Operation is based on service.

Each for all and all for each.