OurNorco

Annual Report 2017100% FARMER OWNEDAN AUSTRALIAN FARMER OWNED DAIRY CO-OPERATIVE

www.norco.com.au

CONTENTS Corporate Profile 2

Facts at a Glance 3

Chairman’s Report 4

Norco Foods - Sales and Marketing 10

Norco Foods - Operations 12

Milk Supply 14

Norco Rural / Agribusiness 15

Financial Management 17

Norco People 18

Directors’ Report 20

Auditor’s Independence Declaration 27

Corporate Governance Statement 29

Financial Statements 34

Independent Auditor’s Report 58

Corporate and Branch Directories 64

Thank you to our Norco employees, Co-operative members, Norco Milk distributors and customers who feature in the annual report photography. Your time and participation is greatly appreciated.

1

Our Purpose

Our Values

Norco’s purpose is to build wealth, security and sustainability for our shareholders, business partners and employees.

We achieve this by:

• maintaining a diverse and strong range of businesses;

• being a competitive regional purchaser and supplier of milk; and

• creating integrated solutions for our partners.

Norco applies a common set of values to everything it does. These values include:

Respect

• We respect our shareholders, employees, business partners and customers.

• We respect a diversity of views and opinions.

• We encourage and support people to grow as individuals and contributors to our organisation.

• We respect our heritage and legacy.

• We respect our natural environment.

Responsible

• We are responsible for preserving the co-operative principles.

• We are responsible for our actions and our performance.

• We are responsible for providing a safe work environment.

Efficient

• We seek to add value in everything we do.

Innovation

• We seek to consistently improve through innovation.

Community

• We seek active involvement in our communities.

What does Norco mean toyou?

Hopefully for most people the word Norco creates a

connection; a connection to the land and dairy farming; a

connection to authentic quality products; a connection to

a local community or perhaps a connection to an iconic

dairy co-operative that has been operating for more than

122 years.

Norco’s Members / Milk Suppliers are dedicated to

producing quality milk 365 days a year from 215 dairy farms

in south east Queensland and northern New South Wales.

In many cases this dedication and connection to Norco

has spanned several generations within the one family.

However our Board of Directors also understand that to

ensure dairying has a vibrant future in the northern region

of Australia, new start up dairy farmers are encouraged

to make application to supply Norco so that they too can

commence their journey and connection with Norco as

Members / Milk Suppliers. Norco also makes a commitment

to pick up 100 percent of our Members’ milk for a highly

competitive milk price.

Once our Members’ milk is received at our Foods’ factories,

we strive to create a range of high quality and authentic

fresh milk products as well as using milk as a key ingredient

in our quality range of ice cream products expertly

manufactured at our Lismore Ice Cream Business Unit. We

want our consumers to know that quality and service are

top of mind. We are keenly aware that our consumers are

making a conscious connection when deciding to choose

Norco branded milk from a supermarket, service station,

corner store or when enjoying our milk in a delicious

café bought coffee. It is a tangible connection in wanting

to be associated with a 100% Australian Farmer Owned

Dairy Co-operative and with our Members who supply

the milk. Norco is expanding its reach into new areas and

we appreciate all the support being received from new

consumers but we will never underestimate the continued

support we receive from our heartland consumers.

Norco’s reach as a co-operative also extends to rural

retailing, the manufacture of stock feed and grain

trading. Norco’s 30 Rural Stores, two Goldmix stock feed

manufacturing mills at Lismore and Windera and Norco

Grain division at Toowoomba not only provide the

opportunity for our Members to shop at their own stores

and purchase stock feeds and grain, but also allows for

a wide range of rural customers to be connected to the

Co-operative. The profitability of the Rural / Agribusiness

division is integral to supporting our overall financial results

which in turn allows Norco to pay a highly competitive milk

price to our Members.

Norco’s valued employees and business partners, such as

our Norco Milk Distributors and the many product and

services suppliers, rely on Norco remaining successful in the

market place to ensure they have a continuing connection

to the Co-operative. Norco is a major employer with more

than 830 staff employed across all sites and a viable Norco

business also helps to ensure our regional communities

prosper. In turn, we appreciate the support received from

the local communities within which we operate and

understand that we must be a responsible corporate citizen

in these communities.

When there is more than one person or a single group

benefiting from the existence of a business then it is no

longer just about “me”, it becomes about “us”. Being part of

a co-operative business such as Norco is very much about

all of us contributing and working collaboratively, because

together, we can achieve so much more than we ever could

as individuals. That’s what makes co-operatives different to

other corporate entities; we come together with a common

purpose and for mutual benefit and at the end of the day

we can proudly say that this is OUR NORCO.

Co

rpo

rate

Pro

file

2

3

Facts at a Glan

ce

2015/16 2.0M 2014/15 3.1M

2013/14 0.5M 2012/13 0.4M

includes permanent, part-time and casual staff

norco foods 604

norco rural 173

norco agribusiness 38

corporate 22

2015/16 1,016 2014/15 968 2013/14 933 2012/13 947

FINANCIALYEAR

AVE BASE MILK PRICE

STEP UPS

AVE TOTAL MILK PAY

DIVIDEND SUPPLIERS’ PATRONAGE

TOTAL AVE MEMBER RETURNS

Total Member Returns Total Member Supply CENTS / L

2016/17 57.29 0.13 57.42 0.25* 0.51 58.182015/16 57.30 - 57.30 0.24 0.52 58.062014/15 56.48 - 56.48 0.22 0.52 57.222013/14 53.25 - 53.25 0.14 0.51 53.902012/13 51.50 0.24 51.74 - 0.45 52.19

Total Member Returns Northern Region five (5) yr contract price

2016/17 57.40 0.13 57.53 0.25* 0.51 58.292015/16 57.28 - 57.28 0.24 0.52 58.04

Total Member Returns Southern Region five (5) yr contract price

2016/17 56.34 0.13 56.47 0.25* 0.51 57.232015/16 57.52 - 57.52 0.24 0.52 58.28

*Dividend proposed for consideration at 2017 Annual General Meeting

1.1

837

1,03316/17 totalnet profit

as at 30 june 17

thousand litres16/17 averagemillion

staff

milk production

215farms16/17 member

2015/16 218 2014/15 218

2013/14 181 2012/13 159

222milk intake

million litres16/17 total members’

2015/16 222 2014/15 211 2013/14 163 2012/13 151

Our unique proposition in the market place continues to resonate with a growing consumer base

Business Overview 2016/17

The dairy industry has faced many challenges during

the 2016/17 financial year as well as there being a

significant amount of change in the market place

within which Norco operates. However, we have been

able to retain our total average farm gate milk price for

our Northern Region supply as well as maintain the

previously communicated position for our Southern

Region milk supply. Additionally, we have met all

required banking covenants, exceeded our collective

budgeted net profit and achieved all other financial

KPI’s. This is an excellent result taking into account the

volatile trading conditions in the market place. This

achievement is a reflection of our market positioning

as the true 100% Australian Farmer Owned Dairy Co-

operative producing quality, innovative products and

the hard work of all our people in the Co–operative. The

support shown by our valued customers for our Co-

operative and Member farms has ensured the continued

growth of the Norco brand.

The final result for 2016/17 has enabled us to continue

to build our brand in terms of market share and growing

a national footprint, as well as developing our brand

for export opportunities. The flow on effects from the

turmoil experienced in the southern regions of Australia

continue to challenge the dairy industry, however

Norco is absolutely focused on consistently showing

that a farmer owned co-operative model with solid

strategy, direction, management and performance can

continue to prosper. Our heritage as a 122 year old

100% Australian Farmer Owned Dairy Co-operative

has allowed us to strategically position our brand and

further enhance the point of difference and competitive

edge that we have compared to other processors. Our

diversified business model, geographical positioning,

quality of product and strong long term relationships

have again been significant drivers in achieving these

financial results.

We are the only true 100% Australian Farmer Owned

Dairy Co–operative competing in a market of

multinational owned processors.

We have collectively finished the 2016/17 financial year

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Ch

airm

an’s

Rep

ort

We are the only true 100% Australian Farmer Owned Dairy Co–operative competing in a market of multinational owned processors

at an EBITDA (Earnings before Interest, Tax, Depreciation

and Amortisation) level of $8.859 million which is a net

profit result of $1.122 million. This is a good result taking

into account the volatile market due to issues in the

southern dairy regions of Australia. Our total core debt

as at 30 June 2017 reduced to $28.3 million due to $1.65

million being paid back to St George during the financial

year. We will continue to further invest in our plant

and equipment as well as our people as we grow our

business. Our collective sales for our Co-operative have

grown 2.7 percent to $555.6 million this year.

Our Norco Foods business division, consisting of the

Ice Cream Business Unit, Norco Milk and Milk Supply,

achieved an EBITDA (Earnings before Interest, Tax,

Depreciation and Amortisation) of $7.3 million. This is

a good result considering the ongoing market pricing

pressures being faced by Norco. Milk Supply improved

on last year, after taking into account the Retrospective

Milk Pay Step-Up payment paid to our Members, higher

milk component results achieved by our Members and

the large spring flush volume. Norco Milk’s sales were

up 8.9 percent on last year predominantly due to the

support shown by both Coles and Woolworths for Norco

branded milk, Route Trade business improvements

including Sydney and the continuous growth in branded

sales. The Norco branded sales volume increased 34.6

percent and the REAL volume increased 28.4 percent.

ICBU sales were down by 6.0 percent on last year’s

result which was driven by seasonality in terms of a late

summer and strong, ongoing discounting by branded

competitors.

Our Rural/Agri business division again had a strong

result in 2016/17 with a collective EBITDA result that

was up on last year by 24.4 percent after the Suppliers’

Patronage Scheme payments (Agri up by 18.7 percent /

Rural up 18.9 percent).This was driven by better trading

results achieved from our Rural Stores, our Lismore and

Windera Mills and also by the Grain Trading business.

The Rural Retail sales achieved a record level of $129.8

million. The Rural team continue to focus on operational

efficiencies, improved buying, customer service and

gross margins as well as ongoing planning of the

expansion of the Rural network over future years. The

Suppliers’ Patronage Scheme, being the rewards paid

5

6

out to our Members for shopping with Norco, totalled

$1.131 million versus the prior year’s $1.156 million.

The number of Member farms that purchased from the

business increased from 92 percent to 93 percent in

2016/17.

Corporate costs were under budget and as a percentage

of total sales finished the year at 0.9 percent of sales

versus the prior year’s 0.8 percent. This is an good result

considering the increased size of our overall business,

now with a collective turnover of more than $555

million. Corporate continues to manage and implement

tight cost and overheads control. This is reflected

in consistently being below the industry standard

spend level for a company of our turnover size. As we

consolidate our financial position and implement long

term opportunities we will continue to put further focus

on the development of our people, their skill sets and

succession planning.

Our Human Resources (HR) team continues to build

further training and development platforms for all our

teams in respect of best practices in Work Place Health

and Safety (WPHS) as well as individual professional

development programs. We again have seen great

improvement in all aspects of WPHS in the Co

operative’s business units.

Again this year there are a number of accomplishments

from all the teams at Norco. I have listed below some of

the key achievements from the 2016/17 financial year.

• Coles extended term contract for ten years signed.

• Improved Route Trade business sales up by 12.4

percent on previous year.

• Net profit of $1.122 million, budget exceeded.

• Collective Co-operative sales increase of 2.7 percent.

• Our total average milk price to our Members was

0.12 cents per litre (cpl) up on last year and achieved

57.42 cpl.

• The Rural/Agri business division achieved a net

profit improvement of 29.7 percent up on last year,

after patronage.

• Core debt reduction by $1.65 million to $28.3

million.

• Met all banking covenants and secured new banking

arrangements with Rabobank.

• Suppliers’ Patronage Scheme $1.131 million paid out.

• Norco Milk sales up 8.9 percent on last year. Norco

branded volume up 34.6 percent and REAL volume

up 28.4 percent.

• Cafe/Coffee project - two contracts signed with

Coffee brands.

• WPHS claims costs companywide improved by 30

percent on last year.

Our 2017/18 key points of focus are:

• Corporate:

- To continue to focus on cost controls and

efficiencies relating to all overheads.

- IT and systems development to meet business

growth requirements.

- People, professional development and succession

planning.

- To manage and meet all banking covenants.

• Rural/Agri Division:

- Continued focus on ongoing financial improvement

and market share growth of the Rural / Agri division.

- Explore further opportunities for expansion of the

Rural network.

- Improved Rural Stores buying, improve Rural Store

network sales, service and market share.

- Ongoing quality assurance.

- Increase volumes through Agribusiness mills.

- Further capital reinvestment as required in Stores

and Mills.

- Training and development of our sales people.

- Focus on training, reinvestment and upgrades in all

aspects of WPHS best practice at our sites.

• Foods’ Division:

- Capital upgrade at ICBU to take material costs out of

the business by 2019/20.

- Focus on Norco branded product market share and

point of difference.

- Quality assurance processes, systems and training

improvements.

- Ongoing development of strategic alliances with

Norco partners.

- Consistent milk volume pre-selling.

- Continued growth and development of our ice

cream business.

7

- Improvement of milk price at farm gate.

- Ongoing research and development of future export

opportunities.

- Continued market share growth and improvement

of profitability in the Route Trade.

- Continued development and growth in the Cafe/

Coffee market.

- Capital improvements on all Norco owned sites for

business development.

- Training and development of our teams.

• Human Resources:

- Focus on WPHS best practice across all business

units.

- Training and professional development

requirements for our teams.

- Succession planning.

- Improved communication processes and clear

strategic directional focus for all our business units.

• Focus of Senior Management Team:

- Improve core businesses’ profitability.

- Ongoing development of core strategic partnerships

across all business units.

- Continued improvement of asset values and

goodwill appreciation of the Co-operative.

- Competitive farm gate milk price and improved

shareholder return through ongoing profit

improvement across all divisions.

- Improve Member / Milk Supplier customer service,

support and communication.

- Achieve/exceed Key Performance Indicators and

budget.

- Strengthening positioning and ongoing

sustainability of the Co-operative.

- Ongoing focus on employee training, development,

mentoring and career/succession planning across

business units.

- Continued investment and improvement in all

aspects of WPHS.

- Focus on long term strategic plans.

- The continuation of the $0.0025 cpl Compulsory

Share Acquisition Scheme. The primary objective of

this scheme continues to be the timely repayment

of Dry Member capital and it is also pleasing to

report that we currently have an excess amount of

$435,000 contributed as at 30 June 2017 which can

be used for the secondary purpose of the scheme,

being to contribute to the funding of capital

projects.

Strategy

The Board continues to work with the management

team on growing our geographic footprint beyond

our traditional areas in the Norco Foods business. The

benefits of this strategy are far reaching; notably the

efficiencies created in our manufacturing facilities

and opportunities for our Members to grow their milk

supply under stable milk prices which in turn creates a

sustainable Co-operative and Member base. Our unique

proposition in the market place as a true Co-operative

owned by Australian farmers continues to resonate with

a growing consumer base.

However, provenance alone will not guarantee Norco’s

future sustainability and growth. The Co-operative

continues to maintain a strategy of having a diverse

business model that helps to safeguard both the overall

business profitability and also Member profitability.

In this regard, Rural Retail / Agri plays a key role in

supporting this strategy with its improved profit

contribution year on year over recent years. Rural /

Agri also values the support shown by the Member

farms when purchasing from this division through the

payment of loyalty rewards in the form of the Suppliers’

Patronage Scheme.

The Board is committed to pursuing a growth strategy

for the export of fresh milk and ice cream to Asia.

Progress is slow but we are committed to developing

relationships with customers that are long lasting.

Growth in the export portfolio has the potential to

reduce the Co-operative’s reliance on the Australian

retail market.

The crisis that has unfolded in Victoria over the last

18 months is a sombre reminder of the fragility of the

Australian dairy industry and although the picture is not

clear of what may occur into the future, it adds little to

speculate when our thoughts need to be with the dairy

farmers, employees, stakeholders and communities that

are reliant on a strong dairy industry in their region. As

a co-operative, what we can and must do is to learn

from these events, ensuring that our internal processes

are robust and that we communicate well and our

88

Members feel included. There is every reason to believe

that a well run and supportive co-operative can lead

the industry in milk pricing and contribute to the overall

future wellbeing of the dairy industry for all stakeholders

involved.

Board and management changes

As a result of the changes to Norco’s Rules which

became effective on 1 July 2014, the retiring Director for

the Northern Region, Mr AW (Tony) Wilson, whose dairy

farm interest is located in the Kyogle Local Government

Area of NSW, was no longer eligible to serve as a

Supplier Director for the Northern Region once his three

year term concluded and so could not offer himself for

re-election and accordingly retired at the 2016 Annual

General Meeting. Additionally, as reported last year, it

was determined that the casual vacancy created in the

Southern Region as a result of Mr PW Neal’s resignation

on 23 November 2015 would be filled as part of the 2016

ordinary election of Directors programme, as Mr Neal

was due to retire at the 2016 Annual General Meeting.

This allowed the opportunity for two new Directors

to be elected to the Board and after keenly contested

ballots, Mrs Elke Watson was elected as a supplier

Director in the Northern Region and Mr Greg Billing was

elected as a supplier Director in the Southern Region.

Mr Brett Kelly has resigned his role as Chief Executive

Officer (CEO) with effect from 29 September 2017. Brett

held the CEO position for more than nine years and

was instrumental in creating the Coles contract and

subsequent major capital projects that would allow

Norco to meet its contractual obligations to Coles. Brett

also drove the expansion of the Norco brand into China

which assisted in Norco’s brand growth domestically.

Brett doubled the size of the business in his time at

Norco and I would like to acknowledge and thank Brett

for his contribution.

Board and Member educational training

The Board continues to adhere to its established policy

9

requiring new Directors to undertake the Australian

Institute of Company Directors’ (AICD) Company

Directors’ Course within 12 months of commencing

their role. In this regard it is pleasing to report that both

Mr Greg Billing and Mrs Elke Watson completed the

Company Directors’ Course in June 2017. In addition,

all Directors are encouraged to participate in industry

events / workshops and educational programmes that

assist in Directors’ professional development.

Over the last 12 months the management team, in

consultation with the Board, conducted a media training

session for Members so that valuable skills could be

learnt in dealing with the media. Through the Member

Services Committee, the Board also continues to

support Members having the opportunity to participate

in international study tours. Our commitment to

educating our Members, employees and Directors is

absolutely critical to the future success of Norco as we

must expose ourselves to new and innovative ways of

doing business.

In conclusion, I would like to thank all Members / Milk

Suppliers, employees, stakeholders, customers and my

fellow Directors for your support, input and loyalty to

the Co-operative throughout the 2016/17 financial year.

I look forward to working with you all again to continue

to strengthen and improve the long term sustainability

of Norco in the 2017/18 financial year.

GREG McNAMARA

Chairman

Board of Directors

10

2016/17 proved to be another successful year for Norco Foods

across many facets of our sales and marketing activities as we

continue to build consumer support for Norco and our brands.

One of the many highlights for our team this year was winning

the 2017 Canstar Blue award for most satisfied customers.

Norco fresh milk achieved a 5 star rating for overall satisfaction,

the highest score possible, which is great recognition that our

consumers value high quality milk products. This quality was

further recognised with our REAL Iced Chocolate milk winning

the best flavoured milk in Australia at the Australian Grand Dairy

Awards for a second year in a row. We are extremely proud

that our Co-operative is being recognised as one of the best,

competing against all other dairy processors in the nation.

We may be a relatively small player in the national market,

however we have gained market share this year and we have

further growth aspirations. Our 100% Australian Farmer Owned

Dairy Co-operative point of difference provides a unique

proposition for existing and potential customers which is

assisting us greatly with our marketing message, our extended

geographic distribution reach, and with our award winning

products. As a result, the Norco branded milk volume grew 34.6

percent and the REAL volume 28.4 percent during 2016/17.

Our Board encouraged management to invest and strengthen

our marketing approach this year by employing Mr Ben Menzies

into the dedicated role of Norco Foods Marketing Manager.

Targeting consumers through a number of exciting strategies

including on-line marketing initiatives, Ben and his team have

developed a number of marketing activities that highlight our

Co-operative ethos, our dairy farmer Members, our quality

product offerings, the key selling story and our points of

difference, all of which make Norco uniquely stand out from the

rest of the industry.

Further incremental investment has been provided

during 2016/17 with the roll out of an external third party

merchandising team to service the grocery channel. This

investment allowed for each and every Coles and Woolworths

store that carries Norco branded products to receive a weekly

visit from a dedicated team member that assisted in ensuring

that we had our products available on shelf, in the right place

and that pricing and promotional tickets were on show.

This approach has resulted in additional sales by ensuring

compliance at each store level.

Our grocery channel sales continue to grow with the support

of the major retailers. Their support allows our core range of

products to be shipped to geographic regions outside of Norco’s

traditional territory, making our products available to new

customers who otherwise might not have the opportunity to

support Norco. The major retailers have also been supportive

Norco Foods -Sales and Marketing

Bu

sin

ess

Un

it R

epo

rts

11

34.6

Norco brandedmilk volume

%

28.4

and REAL volume

%

REAL Iced Chocolate milk

bestflavoured milk

in Australia

12

of our new and innovative product lines. Double digit

growth has been achieved in this segment this year.

Similarly, our Route Trade channel continues to grow

in strength and our reach continues to spread with

our network of dedicated Norco Milk Distributors. Our

focus on the Sydney market is working well for us.

We started supplying and gained distribution into the

Sydney based Harris Farm Markets network of stores, our

first major chain store relationship within the Sydney

basin. Additionally, we have signed up a number of new

distributors to support our growth in the Sydney region

which has primarily been back of house café sales to

date.

With the coffee market exploding in consumption and

milk making up 75 percent of the coffee cup, it’s an

important category that we have been focusing on by

establishing relationships and working alongside coffee

roasters to align their coffee beans with Norco milk. Our

heritage and provenance story works well in this segment

and the high quality profile of our milk provides the

perfect link with coffee roasters’ beans.

Our export business continues to be a sales strategy that

we are committed to and which will take time to build.

We are making grounds in this area and continue to field

inquiries for both milk and ice cream into China. We

have seen a number of clients come and go in this space

and although sales volumes have not been particularly

significant in the 2016/17 year, we do have some exciting

prospects that we are focusing on in the year ahead.

Ice cream is of particular interest given its long life and

Norco’s reputation for quality, and following on from a

successful sale of Norco ice cream through the on-line

Tmall business, we have certainly paved the way for

further sales opportunities.

Our ice cream business for the 2016/17 year was strong

yet faced challenging conditions. Price and supply

volatility in the commodity markets, in particular relating

to butter and cream, didn’t make it easy for us. In

addition, the activities of brand owners supporting half

price promotions meant the generic product market

into which we predominantly supply was affected by

softening sales. However on a more positive note, we

have won a major contract with one of the larger retailers

that will take us to new total production records in the

year ahead. There are certainly some exciting activities

to look forward to in the ice cream business unit during

2017/18.

ANDREW BURNS

General Manager Sales

and Marketing Norco Foods

I am pleased to report that Norco Foods Operations

has achieved significant progress in implementing our

business strategy during the 2016/17 financial year.

This strategy assisted us in achieving outstanding and

consistent results in safety, production efficiencies and

overall quality in all areas of our operations. By employing

this strategy, our Norco Foods Operations teams have

embraced the challenges that arise with continuous

growth at our manufacturing sites along with the need to

work through the logistics involved in an ever expanding

distribution network.

The commitment of our manufacturing teams to

continuous improvement and production line efficiencies

has resulted in increased production outputs while

ensuring quality product for our end users. First time

quality results for the year are the highest achieved to

date which is a credit to all staff given the increasing

production demands.

The Operations management team work closely with

the Sales and Marketing team to ensure the front end

Norco Foods - Operations

13

push into new sales markets is supported by cohesive

and responsive manufacturing and distribution functions

that consistently deliver solutions for the overall Norco

Foods business. Flexibility in factory operations, supply

chain management and a cross-functional focus were

all required to manage and respond to our changing

business needs during the 2016/17 year. Standout

achievements in manufacturing underpinned a year on

year volume growth of 4.5 percent in our milk plants.

At our Raleigh milk plant we increased our milk holding

capacity by installing two, 65,000 litre vats next to our

raw milk storage area. This extra holding capacity has

allowed the Raleigh team to smooth out production and

at the same time reduce tanker unloading down times.

Capital expenditure was approved to upgrade the waste

water plants at Labrador and Raleigh and both projects

are near the end of construction with an expected

completion date during September 2017.

While seeing a small reduction in volume at our Ice

Cream Business Unit (ICBU), our team still achieved an

outstanding result. This was driven by our strategy to

identify areas for improvement via the active involvement

of the manufacturing teams and through reporting

against set metrics and benchmarks. A large amount

of capital expenditure was spent at our ICBU focusing

on quality and process improvements and is expected

to provide a significant payback through improving

production and quality. Further significant amounts of

capital have also been committed to address the aging

plant and equipment and to put the business in a position

to be able to increase volume into the future.

It’s our people who ensure that Norco manufactured

products remain of the highest quality and meet our

customers’ requirements without fail. My appreciation

goes out to our highly skilled employees; it’s the people

that make our business.

As we embark on a new financial year, we look forward

to further strengthening the performance of the Norco

Foods Operations division.

ROBERT VANDERMAAT

General Manager Operations

Norco Foods

Norco Foods - Operations

4.5

MilkPlants

volume growth

%

65,000litre vats

installation of x2Raleigh Plant

14

Milk Supply

Any considered view on the Australian dairy industry for

2016/17 would largely reflect on the maelstrom that has

followed since some Victorian processors announced

retrospective farm gate price decreases in April 2016 in

the southern states.

The impacts have been wide ranging on farmers,

employees, rural communities, consumers, dairy industry

groups, government and regulatory authorities and dairy

processor operations whether large or small. The activity

and change that has followed within all these groups

has been a significant challenge for the dairy industry in

2016/17. Total Australian milk production fell 6.9 percent

or 700 million litres in 2016/17 as farmers reacted to

the management of the retrospective farm gate price

decreases and the negative outlook on price.

Norco was negatively impacted on a commercial basis

with significant market increases in external milk fat

pricing due to the availability of milk fat for our Ice Cream

Business Unit requirements. This issue was a result of the

reduced supply in Victoria and remains an industry wide

challenge. Norco’s positive relationships with customers

and suppliers ensured production continued throughout

the year.

In setting the Norco Milk Pay Rates for 2016/17, it was

important to take into account the need to balance

building in the Norco farm production increases of

2015/16 (+6.2 percent) whilst also reflecting a market

based farm gate milk price. Some difficult decisions were

made in regard to changing the volume capping of the

Collection Efficiency Bonus and, while continuing to

pay farm gate pricing over major competitors within

the region, a price decrease for the Southern Region

Members / Milk Suppliers was implemented. A Retrospect

Milk Pay Step Up payment was made for the first quarter

that reflected better than expected financial results from

an increase in Norco Branded milk sales and the higher

Rural / Agri division results.

The stability and growth of Norco within this

environment cannot be underestimated or ignored. The

level of resourcefulness, determination and resilience

of the Co-operative Members (through heat, flood and

increasing costs) and the employees to achieve success is

cause for quiet confidence for the future. A key and clear

milk supply strategy remains for Norco to manage the

overall supply position to maximise the financial return

for every litre of milk supplied for every Member of the

Co-operative.

Climate Conditions

2016/17 provided some very real and significant climatic

challenges for many, if not all, of Norco’s Members / Milk

Suppliers. After a dry spring / summer, all regions were

impacted by the very high temperatures and humidity

of late summer and finally the significant flood event in

the aftermath of Cyclone Debbie that devastated many

regions in March / April 2017. These testing events within

the year were the drivers of the lower farm production

growth which ended as a small increase of 0.9 percent

over the full year.

2016-17 Milk Supply summary

• Member supply was 221.8m litres for 2016/17 which was

steady compared to 2015/16 which saw a significant

volume growth from total supply.

• Total average farm gate milk price was 57.42 cents per

litre (cpl) versus 57.30 cpl for 2015/16.

• Northern Region average base farm gate price 57.53 cpl,

Southern Region average base farm gate price 56.47 cpl.

• Manufacturing litres were paid at base prices for the

third year in a row.

• For Member farms that supplied milk in both 2015/16

and 2016/17 there was an overall growth in volume of

+0.9 percent or 0.2 million litres versus the 2015/16 year.

• On this basis and by region, volume changes versus the

prior year were +1.0 percent for QLD, +3.2 percent for

North Coast NSW, -3.5 percent for Central North Coast

and +6.7 percent for the Southern Region.

Milk Supply Services

Through a consultation process with Members / Milk

Suppliers with a more flat line milk production curve, the

Interest Free Extended Accounts system was amended

to allow Members / Milk Suppliers to better manage their

cash flow over the different seasons and cost structures.

Further, a program to encourage on-farm generator

purchases with 12 months interest free terms was

introduced. These programs reflect Norco’s commitment

to assist Members / Milk Suppliers outside of milk price

considerations.

Other services from our Milk Supply team included

increased activity for farm / business succession planning,

quality control, industry funding applications, practical

research and development projects (both internal and in

conjunction with dairy industry groups and educational

facilities) and preparation for the transfer of the Milk

Payment System to SAP from 1 July 2017. For a small

team, these are important improvements and activities

that will ultimately benefit both the Norco Members / Milk

Suppliers and the Dairy Industry as a whole.

ROB RANDALL

General Manager

Norco Milk Supply

57.42cents per litre

Total averagefarm gatemilk price

222million litres

Member supply

15

Norco Rural / Agribusiness

Norco’s long standing and ongoing strategy of supporting

a diversified business model has definitely paid dividends

this year. Within this broader corporate strategy, the Rural

/ Agribusiness (Agri) division also has business diversity

through a network of over 30 individual business units.

This diversity helped guide the business through localised

challenges whilst delivering a record Rural / Agri profit

result to the Co-operative.

The rural sector started 2016/17 with a continuation of

the previous year’s positive seasonal conditions, coupled

with ongoing strong commodity values across most

segments of the rural market that Norco Rural / Agri

services. The cattle market remained strong with record

high prices being maintained throughout the year.

The horticultural and small crop market continued to

experience strong demand and favourable commodity

values. Within this segment our avocado and macadamia

clients experienced a period of high demand and

continuing strength in prices. The blueberry market

within our region continued with significant expansion

and we experienced plantations being established

outside traditional coastal regions. The macadamia

industry remains strong and after a several year lull in

new plantings there is renewed interest and multiple

new orchards being established. Within the dairy industry

production and pricing throughout our region remained

relatively stable and we have largely avoided the market

conditions experienced in the southern production areas.

The grain cropping side of our business, which is

primarily based within the Inner Downs and Burnett

areas of Queensland, experienced a good winter crop

but these regions experienced a significant deterioration

in seasonal conditions in the second part of the year

culminating in the smallest summer crop in 25 years.

The dry conditions continued throughout these regions

and they largely missed the opportunity to plant a winter

crop. Grain commodity prices remained relatively stable

and on the soft side throughout the first half of the

financial year, but with the onset of the big dry on the

western side of the range and a failed summer crop that

then led into a significantly reduced winter crop, the

18.9

Ruralrecorded

an EBITDA increase of

%

18.7

and Agribusiness

%10Bundaberg

& Toowoomba

YE

AR

S

16

grain market reacted abruptly with a major increase in all

commodity values.

Seasonal conditions on the eastern side of the range

remained favourable throughout the year. However, there

were notable challenges with two major rainfall events

during March 2017 resulting in major flooding throughout

south east Queensland and northern New South Wales.

This had severe negative impacts on many agricultural

producers throughout these regions.

In the Rural division major projects for the year included

the 10 year anniversary of Norco’s entry into the

Bundaberg market. The anniversary coincided with the

business unit relocating to new and significantly larger

premises in May 2017. The Bundaberg business has grown

considerably during the last few years and now stands as

one of Rural’s largest retail operations. Also celebrating 10

years is our Toowoomba business unit. Norco purchased

the BEW business in 2007 and this business unit has also

moved into a brand new custom built facility. Our Coffs

Harbour operation moved nine years ago into a new site

and this business has now outgrown its current location

as well. An agreement has been signed for a new larger

site and this business unit will relocate in May 2018.

Operationally several upgrades have been implemented

to our IT system and we’re currently rolling out a Client

Relationship Management (CRM) system to our field and

technical sales personnel to assist them in their servicing

of our valued clientele. Additionally, a new appointment

of Operations Manager Sales was made to drive our focus

in the areas of client relationship and management. Peter

Harden joined the business in this role in September

2016.

There were two major changes to the Suppliers’

Patronage Scheme during 2016/17. The first was the

amendment to the calculation of rewards applicable

to transactions facilitated by Norco Rural for the goods

and services supplied by external parties. This change

was implemented in October 2016. The second change

approved in March 2017 for implementation in July

2017 was a change in the reward matrix. Historically the

reward matrix had five reward bands however effective

from July 2017 this will change to three and will result in

higher payments to Members.

In Agri, the Crest bird seed manufacturing facility in

Toowoomba was closed effective October 2016 and the

plant and equipment sold. At our feed mills, both facilities

took delivery of new Kenworth bulk delivery vehicles.

Work Health and Safety

Work Health and Safety continues to be a high focus

area within Rural / Agri. Multiple projects and intense

engagement with Norco’s Human Resources department

has delivered strong favourable outcomes with a 47.6

percent decline in the number of Workers’ Compensation

claims and a massive 87.8 percent reduction in claims

costs versus the year prior. This is a great outcome

achieved by the division.

Financial performance

The combined EBITDA result of the Norco Rural /

Agribusiness division after the Suppliers’ Patronage

Scheme was an increase over last year of 24.4 percent.

Rural recorded an 18.9 percent increase in EBITDA

and Agribusiness produced an 18.7 percent increase in

EBITDA. At the net profit level, the division delivered a

record net profit which was an increase on last year of

29.7 percent.

Sales through the Rural division tracked strongly and

ahead of last year consistently throughout the year.

Similar to last year, we experienced a strong run home,

with substantial sales activity across all segments and

product groups. The Rural division delivered a 5.6 percent

year on year increase in sales and the total year sales

number was a record for the division. Our average

transaction value increased by 2.6 percent and the

total number of transactions facilitated increased by 2.5

percent.

The Gross Profit margin was adverse to last year by 0.1

percent, but our commitment to supporting R&D brands

and recognised industry suppliers resulted in a 12.6

percent increase in Sundry Income. Rural’s net profit was

19.8 percent up on last year and the ROCE improved 7.3

percent versus the prior year.

Within the Agri division the headline sales number was

adverse 6.7 percent to last year. However, this decline is

largely a reflection of a poor summer crop, the resultant

reduced trading opportunities and also, on average,

lower per tonne commodity values to the corresponding

periods in the previous year. Notwithstanding this, our

feed mills recorded a 1.6 percent increase in volume

manufactured with total volume mix being favourable

towards non-bulk, higher value packaged products. In

addition, our Lismore mill recorded its highest overall

volume manufactured in 10 years and set a record for

production of packaged products. The Norco Grain

business unit set another record for volume traded with

volume up 10.8 percent year on year. With the increased

volume and a favourable product mix, the Agri division

recorded a 25.8 percent increase in net profit and a ROCE

improvement of 10.8% versus last year.

Suppliers’ Patronage Scheme

With the changes to the Suppliers’ Patronage Scheme

implemented in October 2016, the final year total spend

by Members with their Co-operative business was $1.131

million which was slightly below the previous year’s

$1.156 million. The number of Members transacting with

the Co-operative increased

from 92 percent to 93

percent.

DAMON BAILEY

General Manager Norco

Rural / Agribusiness

17

Corporate - Financial Management

In the 2016/17 year Norco achieved a net profit of $1.122

million versus the prior year’s $2.003 million and an

EBITDA of $8.9 million versus the prior year’s $9.7 million.

This financial result was unfavourable to 2015/16 and

was driven by escalating cream and sugar prices which

impacted the Ice Cream Business Unit. The total sales

for the year were $555.6 million being 2.7 percent higher

than the prior year’s $541.1 million. The Norco Milk sales

increase was 8.9% percent, Rural Retail achieved 5.6

percent, Ice Cream Business Unit sales were 2.5% lower

than the prior year and the Agribusiness sales decreased

2.5 percent after a poor summer crop. Norco Milk

achieved another record volume in the 2016/17 year of

175.8 million litres and the Rural Retail business achieved a

record sales result.

Debtor and creditor days

Debtor days achieved 27.7 days versus the prior year’s

27.2 which is consistent compared to the prior year, and

it’s also pleasing to have the debtors’ days below 30 for

two years in a row. Creditor days were higher at 34.6 days

versus 32.3 days for the previous year and this was higher

due to the timing of year end creditor payments.

Debt reduction

Norco’s core bank debt with St George reduced by $1.65

million during the year from $29.92 million to $28.27

million as a result of scheduled repayments. Norco’s total

debt including finance leases and Norco Capital Units

finished the year at $29.4m versus the prior year’s $31.4m.

The total debt of $29.4 million includes $28.27 million of

core debt with St George, $1.0 million of finance leases

and $0.1 million of Norco Capital Units. Norco will move

to Rabobank as its debt financier during the new financial

year after a very competitive offer was tabled.

Bank covenants

Norco again met all bank covenants set by St George.

Norco’s EBITDA Leverage, which is total debt divided by

EBITDA for the full year, was 3.10 versus the result of 3.01

in 2015/16. The Interest Cover Ratio, which is the number

of times EBITDA covers financial commitments, achieved

a result of 2.95 versus the prior year’s 3.22.

Working capital

Working capital (made up of debtors, creditors and

inventory) as at 30 June 2017 was $4.8 million versus the

prior year’s $10.5 million, with the decrease due to the

timing of year end creditor payments.

IT Systems

During the financial year the team worked on two

computer system implementations including a new

payroll system called ICHRIS and also the Milk Supply SAP

system. Both of these implementations were successfully

completed and will result in improved business processes.

Dry Former Member repayments

Using the funds derived from the Compulsory Share

Acquisition Scheme, Norco repaid $741,461 to Dry Former

Members this financial year. This takes active Member

capital to 99 percent of

issued capital compared to

92 percent in 2015/16.

CAMILLE HOGAN

Chief Financial Officer

1.122Net profit

million

18

Staffemployed

604Norco Foods

173Norco Rural

38Norco

Agribusiness

22Corporate

19

Corporate - Norco People

Human Resources

Norco employs a range of strategic workforce initiatives

to recruit, retain, manage and train both its regular

employees and casuals. Having a committed and

competent workforce plays an instrumental role in

securing the future success of our diverse Co-operative.

During 2016/17, the Human Resources (HR) team

provided key support to the changing operating context

in Norco, while also managing substantial changes in its

own resources and structure. At the same time, HR has

focused on positioning Norco as an organisation where

talent is nurtured and where innovation and delivery of

results are promoted.

During 2016/17, HR dedicated significant time and effort

to the development and implementation of the new

ICHRIS HR and Payroll system which was implemented

across the organisation. The integrated system

allows enhanced talent management, streamlining of

processes and consistency, for both HR practitioners

and users company-wide. The new system will also

facilitate monitoring and reporting in real time on key

HR processes and metrics such as sick leave and hours

worked.

With the continued growth of Norco, HR is working with

line managers to promote an enhanced performance

culture, by increasing engagement, encouraging

managers to provide honest and constructive feedback,

as well as supporting employees in receiving it. This

strategic agenda includes several initiatives such as

effectively developing talent and enhancing leadership

capacity and addressing performance management

issues. This focus on an enhanced performance culture

will continue during the next year.

Work Health & Safety

It’s been a big year for safety at Norco with a continuous

improvement mentality resulting in a 10 percent

reduction in Workers’ Compensation claims compared

with the previous year. It is also pleasing to see that the

severity of injuries has also decreased as indicated by

the lower overall average cost per claim.

Through a series of external audits, Norco has

maintained the external third party accreditation of

our Work Health and Safety Management system. This

together with self generated internal safety audits has

resulted in the implementation of numerous physical

safety improvements across many of our sites as well as

improved Policies and Procedures.

Some of the continuous improvement actions that have

taken place over the past year which have contributed

to the positive result are:

• Continuation of the proactive guarding project

designed to reduce the risk of moving machinery, thus

reducing the risk to all employees who work around

plant and equipment.

• Instigation of a proactive working at heights project,

focusing on heights access and the tasks performed

at heights in order to determine and implement

engineering solutions to minimise the risk of this type

of work.

• The filming of a series of Norco specific WHS induction

videos for all employees with all employees being re-

inducted.

• Continued development and implementation of

a Human Resources Information System with a

focus on Work Health and Safety and Learning and

Development modules.

The WHS Information System will become an integral

part of the Norco Work Health and Safety Management

System. Implementation of the WHS database will

enable us to analyse, identify and monitor safety

improvement opportunities through capturing relevant

safety information resulting from Incident Reporting,

Hazard Analysis, Risk Assessments, Audits etc.

Going forward, we must challenge ourselves to move

further into the proactive space in terms of safety, with

the health, safety and wellbeing of our employees,

customers and contractors

paramount to all our

activities.

TOM McATEE

General Manager Human

Resources38

2020

The Directors present their report together with the financial reports for Norco Co-operative Limited (‘the Co-operative’)

for the year ended 30 June 2017 and the Auditors’ report thereon.

The Board of Directors currently comprises six supplier Directors (non executive) and no Independent Directors.

The Directors bring a range of skills and experience to the Board room in addition to their core strength of having a detailed

understanding of the dairy industry. This includes having experience in wider agricultural sectors (in addition to dairying),

extensive experience in business planning and strategy and strong leadership. In coming together as a Board, the Directors

have a shared desire to ensure Norco’s strategic business objectives are met while at all times, acting in the best interests of

the Members as a whole.

For the full 2016/17 financial year, the Board continued to utilise the consultancy services of Ms Tanya Crowther, who

actively contributed to the overall performance of the Board and attended all monthly Board meetings during the year. Ms

Crowther continues to be contracted by the Board to provide her services.

The Directors also acknowledge that the market place within which Norco operates, on both a domestic and global

platform, is changing at a fast pace. Directors are constantly on a path of learning as the Co-operative has a diversified

business model which needs to move with the market. Continually improving the knowledge and skills base in the Board

room assists to ensure that the Directors are able to govern the Co-operative in the most effective manner possible, using all

relevant information, tools and resources available to them.

During the year, the Chairman asked members of the management team to provide in depth information regarding various

aspects of the business in the form of master classes. The Directors received master classes on merchandising, the Route

Trade and the budget process. The Directors also explored the potential use of solar power on farms, inviting Mr N d’Avoine

of CommPower to speak about this emerging opportunity. The opportunity also arose to visit the University of Queensland

Gatton Campus, with the dairy farm on site being a Member farm of the Co-operative. As a result of this visit, the two

organisations have forged a much closer bond in relation to potential research and development projects and also student

placements on Norco Member farms.

The Directors also continue to be committed to their ongoing professional development and during the year have had the

opportunity to attend, and represent Norco, at a range of industry conferences. All Directors are members of the Australian

Institute of Company Directors (AICD) and are encouraged to attend various AICD educational courses and functions.

It is pleasing to report that the two Directors elected to the Board on 9 November 2016, Mr GJ Billing and Mrs E Watson,

completed the AICD Company Directors’ Course during June 2017.

Strategic discussions play an important role at each and every Board meeting and time is always allocated to this important

aspect of the business, which allows the Directors and the management team to look forward and discuss emerging

opportunities and trends as well as future challenges. In addition, a yearly strategic workshop involving Directors and the

management team is held which underpins the Co-operative’s strategic plan.

In coming together as a Board, the Directors have a shared desire to ensure Norco’s strategic business objectives are met while at all times, acting in the best interests of the Members as a whole.

Dir

ecto

rs’ R

epo

rt

21

Gregory J McNamara – Chairman

Greg McNamara has been a Director of Norco Co-

operative Limited for 21 years and is from the Central

Region. In addition to his role as Chairman of the Board

of Directors, he is a member of the Member Services

Committee.

In partnership with his wife Sue and son Todd, Greg

runs a 300 head dairy herd at Goolmangar just

outside Lismore. He has extensive experience across

the agricultural sector, including dairy, beef, pigs,

horticulture and animal genetics.

A primary focus for Greg during 2016/17 in his role as

Chairman has been to ensure the successful integration

of two new Directors into the Norco business from

November 2016 while ensuring the business stayed on

track in achieving its overall strategic objectives which

include rewarding Members’ with a sustainable and

competitive milk price through having a diverse and

successful business model.

Greg is a member of the Australian Institute of Company

Directors and continues to be a keenly sought after

speaker for industry events and forums. During the

2016/17 year, Greg attended the Australian and New

Zealand Co-operative Leaders Forum in Auckland

New Zealand. Greg is also a Board member of the

New South Wales Business Chamber and Chairperson

of the Industry Advisory Group (IAG) within the

Farm Co-operatives and Collaboration Pilot Program

(FCCPP). More recently, Greg has accepted the role of

Chairperson of the Australian Organic Industry Working

Group which has been established to facilitate a

restructure of the organic industry in Australia.

Gregory J Billing - Director

Greg was elected to the Board of Directors on 9

November 2016 and is a supplier Director from Norco’s

Southern Region. Greg is a member of the Member

Services Committee.

Greg is a fourth generation dairy farmer and in

partnership with his wife Carmen, they have grown their

dairy herd from 44 cows to over 600 at the present time

on their Dorrigo property. The large dairy herd means

that Greg and Carmen have a team of employees to

assist with milking and herd management while Greg

concentrates on the pastures and heifer raising activities.

The governance programmes for potential new

Directors run by the Co-operative in recent years

provided the groundwork for Greg to gain a good

understanding of the Norco business and governance

issues before nominating for a position on the Board

of Directors. As a Norco Board member, Greg is

enthusiastic about the future for Norco and the dairy

industry and has a passion to see more young people

come into the industry, as the future of dairying lies

with the next generation. Greg is also a supporter of the

farmer owned co-operative model and is keen to see

strategies implemented that grow a stronger business

with a positive and aggressive vision for the future and

which in turn, builds wealth for Norco’s Members.

In addition to learning about the Norco business

in depth since becoming a Director, Greg has also

completed the AICD Company Directors’ Course

(residential) during June 2017.

DIRECTORS

22

Heath B J Hoffman - Director

Heath was elected to the Board of Directors on 12

November 2014 and is a supplier Director from the

Northern Region. He is a member of the Audit and Risk

Management Committee.

Heath is a member of a family partnership that owns

and operates a dairy farm near Warwick milking 300

Holstein cows on a full TMR (total mixed ration) system.

Having now almost completed a full three year term

as a Director, Heath has proven himself as both an

effective team member in the Board room and also as

an independent thinker in relation to Norco’s strategy

going forward. For Heath, a basic strategic goal is to

ensure there is a successful future for the northern

dairy industry. Heath is also equally comfortable

discussing the strategy for the Norco Foods’ business

as he is discussing the strategy for Rural / Agri and has

demonstrated a keen interest in understanding the

business operations.

Heath is a member of the Australian Institute of

Company Directors. During the year, Heath travelled

to Victoria with the General Manager Milk Supply to

investigate the use and application of vat temperature

probes for Norco’s Member farms as a way of potentially

saving Members from needing to dispose of milk that

has been compromised during the cooling process.

Michael C Jeffery - Director

Michael Jeffery was elected as a Director on 14

November 2012 and is from the Southern Region.

Michael is Chairman of the Audit and Risk Management

Committee.

Michael has been farming at Austral Eden near Kempsey

in a family partnership for 28 years and milks a herd

of 300 cows. He has extensive business, marketing

and dairy industry experience, including in overseas

countries and has held a number of positions including

directorships in dairy related export, consulting and

genetics businesses. In addition, Michael has been

a state delegate of both the NSW Dairy Farmers’

Association and Holstein Australia for five years. He had

been on LiveCorp’s China Live Export Industry Working

Group Committee for two years and as part of the

NorcoNet communication network, has been Chairman

of the Nambucca / Kempsey group for three years.

Michael also holds an Advanced Diploma in Agriculture.

More recently, Michael has been appointed as an

Alternate Delegate to the Dairy Connect Farm Group

Board and is the current Chairman of the Kempsey Dairy

Industry Group, a position he has held for five years.

Michael is a member of the Australian Institute of

Company Directors and has also previously completed

the AICD Finance for Directors course. During the year,

Michael attended the Australian and New Zealand Co-

operative Leaders Forum in Auckland, New Zealand with

the Chairman and earlier in the 2016/17 financial year

also represented Norco at the Industry Session of the

Regional Economic Opportunities Infrastructure Project

in Coffs Harbour.

23

Leigh Shearman - Director

Leigh was elected as a Director on 14 November 2012

and is from the Central Region. Leigh is Chairperson of

the Member Services Committee.

Leigh owns and operates a dairy farm at Goolmangar

just outside Lismore milking 180 cows. Leigh also has

experience across a broad agricultural base gained over

many years, including beef, horticulture and intensive

piggery farming. She has also owned and operated a

retail franchise and has worked in the banking industry

for 10 years. Leigh has a Diploma in Rural Business

Management, Diploma of Agriculture and Certificate

III Financial Services. Leigh is the vice chairperson of

the Far North Coast Dairy Industry Group Inc (DIG),

chairperson of the Goolmangar Water Users Association

and a member of the Steering Committee for the

Northern Rivers Resource Efficiency Focus Farm.

Leigh is a strong believer in the benefits of being part

of a co-operative and is confident that this model will

ensure the long term sustainability of Norco’s Members

and other stakeholders associated with, and reliant on, a

strong and progressive Norco business.

Leigh is a member of the Australian Institute of

Company Directors. As Chairperson of the Member

Services Committee, Leigh is committed to encouraging

Members having the opportunity to improve their

skills and farming techniques to ensure the long term

sustainability of the Norco farm base. One way of

achieving this is through study tours. Over recent years

Norco, through the Member Services Committee, has

organised highly successful study tours to New Zealand

and recently an ambitious tour of Western Europe and

Ireland has been undertaken.

Elke Watson - Director

Elke was elected to the Board of Directors on 9

November 2016 and is a supplier Director from Norco’s

Northern Region. Elke is a member of the Audit and Risk

Management Committee.

Elke and her husband Peter farm at Conondale in

Queensland where they milk 250 - 300 cows. They

also have four young adult children with an interest in

the farm. Elke and Peter transferred their milk supply to

Norco in July 2014 from another processor and value

being part of a co-operative again.

Elke is in the process of studying a business

management degree on a part-time basis and has a

Diploma in Human Resource Management and has

extensive business experience outside of the farm

environment, including 25 years experience in financial

management. Elke is a past State Councillor of the

Queensland Dairyfarmers’ Organisation (QDO) and still

maintains membership in, and association with, this

organisation.

Elke enthusiastically participated in the governance

program for potential new Directors in 2016 before

nominating for a Board position. Now as a member of

the Norco Board of Directors, Elke is keen to work for

all Members of the Co-operative to ensure there is a

sustainable dairy industry in the subtropical region. In

addition to taking on the challenge of learning about

the Norco business in depth since becoming a Director,

Elke has also completed the AICD Company Directors’

Course (residential) during June 2017.

Note: At the Directors’ meeting held on 14 and 15 December 2016 it was determined that the operation of both the Milk

Supply Advisory Committee and Brand Management Advisory Committee would again be suspended for a further 12

months and that any items previously considered by these committees would be incorporated into the Directors’ meetings

until further notice.

24

DIRECTOR ELECTIONS – 2016/17

As reported last year, it was determined that the casual

vacancy created in the Southern Region as a result of Mr

PW Neal’s resignation on 23 November 2015 would be

filled as part of the 2016 ordinary election of Directors

programme, as Mr Neal was due to retire at the 2016

Annual General Meeting.

As a result of the changes to Norco’s Rules which

became effective on 1 July 2014, the retiring Director for

the Northern Region, Mr AW (Tony) Wilson, whose dairy

farm interest is located in the Kyogle Local Government

Area of NSW, was no longer eligible to serve as a

Supplier Director for the Northern Region and so could

not offer himself for re-election.

As a result of the Southern Region vacancy and Mr AW

Wilson being ineligible for re-election in the Northern

Region, Member nominations were called for both

regions. Northern Region Member nominations were

received from Mr MT Trace, Mr PJ Rough and Mrs E

Watson. Southern Region Member nominations were

received from Mrs SE McGinn, Mr CJ Brander and Mr

GJ Billing. Accordingly a postal ballot was held for both

regions resulting in Mrs E Watson (Northern Region)

and Mr GJ Billing (Southern Region) being elected for

three year terms effective from the 2016 Annual General

Meeting on 9 November 2016.

The positions of Chairman and Deputy Chairman are

voted on annually by the Directors following the Annual

General Meeting.

Directors’ Meetings

The number of Board meetings (and meetings of the

Audit and Risk Management Committee) and number of

meetings attended by each of the Directors of the Co-

operative during the financial year are:

During the course of the 2016/17 financial year there

were also seven Directors’ meetings and one Audit

and Risk Management Committee meeting held by

teleconference. Teleconferences are organised to

discuss and resolve specific issues that cannot be held

over until the next scheduled monthly meeting and

generally the duration of such teleconferences is one

hour or less. Teleconferences are a cost effective and

practical way for Directors to discuss specific issues in

a timely manner given that their residences are spread

over a large geographic area.

CORPORATE INFORMATION Corporate structure

Norco Co-operative Limited is a co-operative limited by

shares which is incorporated and domiciled in Australia.

Nature of operations and principal activities

The principal activities of the Co-operative during the

financial year were the processing, manufacture and

sale of dairy products, the manufacture and sale of

stockfeeds and rural retailing.

Employees

The Co-operative employed 540 full-time, 54 part-time

permanent and 243 casual employees at 30 June 2017

(2016: 510 full-time, 69 part-time permanent and 227

casual employees).

Results of operations

The net amount of the operating profit for the financial

year of the Co-operative after providing for income tax

was $893,000 (2016: $721,000 profit).

Derivatives and other financial instruments

The Co-operative’s activities expose it to changes in

interest rates, foreign exchange rates and commodity

prices. It is also exposed to credit, liquidity and cash flow

risks from its operations. During the year, the Board has

maintained policies and procedures in each of these

areas to manage these exposures. Management reports

to the Board on a monthly basis on the monitoring of

and compliance with the policies in place.

Dividends

Dividends paid during the 2016/17 financial year totalled

Directors’ Meetings

Audit and Risk

Management

Committee Meetings

A B A B

GJ McNamara 13 13 - -

GJ Billing 8 8 - -

HBJ Hoffman 13 13 9 9

MC Jeffery 13 13 9 9

L Shearman 13 13 - -

E Watson 8 8 6 6

AW Wilson 5 5 3 3

A Reflects the number of meetings held during the time the Director held office during the year

B Number of meetings attended

25

$550,000 (being a dividend rate of 6.0% [six percent] on

issued capital), declared and approved by Members at

the 2016 Annual General Meeting, which was held on 9

November 2016.

Operations review

The Directors’ have reviewed the Co-operative’s

operations during the financial year and the results of

those operations, which are discussed in the Chairman’s

Report for the financial year ended 30 June 2017 (see

page 4).

Events subsequent to balance date

On 1 September 2017 the Co-operative entered into a

three year term financing facility with Rabobank. This

new facility replaces the existing facility with St George

Bank as disclosed in Note 13.

Mr Brett Kelly resigned from his role as Chief Executive

Officer effective 29 September 2017. The Board is

currently recruiting to fill the vacancy.

Other than the matters listed above, during the interval

between the end of the financial year and the date of

this report, there has not arisen any item, transaction

or event of a material and unusual nature which, in the

opinion of the Directors, is likely to significantly affect

the operations of the Co-operative, the results of those

operations or the state of affairs of the Co-operative in

subsequent financial years.

Future developments

In the opinion of the Directors, disclosure of information

regarding the likely developments in the operations of

Norco in future financial years and the expected results

of those operations is likely to result in unreasonable

prejudice to the Co-operative. Accordingly, this

information has not been disclosed in this report.

Indemnification and insurance of Directors and

Officers

The Co-operative has entered into agreements to

indemnify all Directors named at the beginning of this

report, former Directors and current and former Officers

of the Co-operative against all liabilities to persons

(other than to the Co-operative or to a related body

corporate) which arise out of the performance of their

normal duties as a Director or Officer, unless the liability

relates to conduct involving a lack of good faith.

The Co-operative has agreed to indemnify the Directors

and Officers against all costs and expenses incurred in

defending an action that falls within the scope of the

indemnity and any resulting payments. The relevant

insurances cover legal liabilities and associated costs

arising from the performance of their duties as Directors

and Officers and compensation for loss or injury

sustained in the course of such duties.

Indemnification of Auditors

To the extent permitted by law, the Co-operative

has agreed to indemnify its Auditors, Ernst & Young

Australia, as part of the terms of its audit engagement

agreement against claims by third parties arising from

the audit (for an unspecified amount). No payment has

been made to indemnify Ernst & Young during or since

the financial year.

Options over unissued shares

Options over unissued shares have not been granted

to any person or Director since the end of the previous

financial year to date of this report.

Directors’ benefits

Since the end of the previous financial year, except as

declared below, no Director of the Co-operative has

received or become entitled to receive any benefit

(other than a benefit included in the aggregate amount

of emoluments received or due and receivable by

Directors shown in the financial statements or the fixed

salary of a full time employee of the Co-operative or

of a related corporation) by reason of a contract made

by the Co-operative or a related corporation with

the Director or with a firm of which the Director is a

member, or with a company in which the Director has

a substantial financial interest, except for that benefit

which may be deemed to accrue to those Directors in

their capacity as dairy farmers in the supply of milk to

the Co-operative in the ordinary course of business.

Directors’ declarations of interest

On 1 March 2017 Mr GJ McNamara advised that he

was appointed as Chairperson of the Organics Industry

Working Group. Mr McNamara has declared his interest

in accordance with Section 208 of the Co-operatives

National Law (NSW) and, in addition, excludes himself

from any discussions or decisions relating to this entity.

On 2 March 2017 Mrs E Watson advised that she is a

Director of Mary River Trading Pty Ltd ACN 110 082 089

26

which is a customer of Impact Fertilisers. Mrs Watson

has declared her interest in accordance with Section

208 of the Co-operatives National Law (NSW) and,

in addition, excludes herself from any discussions or

decisions relating to this entity.

Rounding off of amounts

The amounts in this report and the accompanying

financial statements have been rounded to the nearest

one thousand dollars in accordance with the Co-

operatives National Law (NSW).

Auditor’s independence declaration to the directors

The Directors received a declaration of independence

from the Co-operative’s auditor, Ernst & Young. A copy of

that declaration is included after this Directors’ Report.

Appreciation

The efforts and contribution of our management

and staff during the year were greatly appreciated by

Directors.

Signed in accordance with a resolution of the Directors.

GJ McNamara

Chairman

Lismore, 27 September 2017

27

2828

29

Corporate Governance Statement

This statement outlines the main corporate governance

practices that were in place throughout the 2016/17

financial year, unless otherwise stated. These practices

are dealt with under the headings: Board of Directors

and its Committees; Internal Control Framework; Ethical

Standards; Business Risks and Emergency Planning; and

The Role of Members.

BOARD OF DIRECTORS AND ITS COMMITTEES

The Board of Directors is responsible for the overall

corporate governance of the Co-operative including

strategic direction and enhancing organisational

performance, the sound management of its

business and assets, confirming financial objectives,

understanding and managing risks to maximise

opportunities, establishing goals for management and

monitoring performance against those goals. The Board

of Directors is also responsible for reporting to members

and being accountable to, and focussed on the needs

of members and meeting statutory and regulatory

requirements. To give further effect, the Audit and

Risk Management Committee assists in the execution

of the Board’s responsibilities. The Member Services

Committee meets regularly and plays an important

role in assisting the Board of Directors in managing the

important relationship between the Co-operative and

the members.

To better understand the operations of the Co-

operative’s businesses the Board receives regular

management reports, presentations and briefing

papers on key aspects and makes site visits to the Co-

operative’s operations.

Composition of the Board

Under the Rules of the Co-operative the Board of

Directors is comprised of a minimum of six non-

executive (supplier) Directors who represent the

members from the Northern, Central and Southern

regions. Each region is represented by two supplier

Directors, with Directors serving a three year term. At

each Annual General Meeting two Directors retire in

accordance with the Rules of the Co-operative. The

Rules also allow for two Independent Directors to

be elected to the Board however both Independent

Director positions remain vacant.

An active member of the Co-operative may seek

election as a supplier Director in accordance with

the Rules and, if elected, serve a term of three years

after which time they retire. Independent Directors,

when nominated and elected, are elected for a

term of three years after which time they retire. The

Directors regularly consider whether or not the skills

and characteristics which might be contributed by

Independent Directors should be added to the Board to

maximise its effectiveness. Independent Directors are to

be nominated by the Board and elected by members.

Regarding potential conflicts of interest, it is the practice

of the Norco Board to open every meeting by giving

Directors the opportunity to declare any actual or

potential conflicts. If a conflict of interest should arise,

the Director concerned takes no part in discussions

at the Board meeting on the issue, nor exercises any

influence over other Board members.

The total remuneration package for Directors is voted

on at each Annual General Meeting. The amount paid

may vary between Directors depending on their level of

responsibilities. Remuneration of Directors is set out in

the notes to the financial statements.

Board Corporate Governance Policy and Emerging

Corporate Governance Issues

The purpose of the Corporate Governance Policy

Statement is to provide guidance to Directors and

management on how the Co-operative is to be

governed in practice. The document was developed

having regard to the Co-operatives National Law (NSW)

and Norco’s Rules. All current Directors have signed

Deed Polls and Statutory Declarations to ensure their

commitment to the Corporate Governance Policy

Statement and the duties and responsibilities specifically

addressed in the Deed Polls.

A review of the Corporate Governance Policy Statement

is undertaken annually by the Directors to ensure that

issues of governance are dealt with in accordance with

the policy. At the same time, the policy is reviewed to

ensure it is still relevant and up to date.

All current Directors have attended and completed the

comprehensive residential AICD Company Directors’

Course including Norco’s two newest Directors Mr GJ

Billing and Mrs E Watson who were elected to the Board

on 9 November 2016.

Co-operatives National Law in NSW

The Co-operative continues to operate under the Co-

operatives National Law (CNL) which was introduced on

3 March 2014.

Co

rpo

rate Go

vernan

ce Statemen

t

30

Board Committees

The Directors seek to achieve best practice in corporate

governance and accountability through the following

Board Committees which assist the Board in the

execution of its responsibilities. These committees

are subject to Charters which have been approved by

the Board and which define their respective roles and

responsibilities.

Note: At the Directors’ meeting held on 14 and 15

December 2016 it was determined that the operation

of both the Milk Supply Advisory Committee and Brand

Management Advisory Committee would again be

suspended for a further 12 months and that any items

previously considered by these committees would be

incorporated into the Directors’ meetings until further

notice.

Audit and Risk Management Committee

The objective of the Audit and Risk Management

Committee is to assist the Board of Directors in fulfilling

its statutory and fiduciary responsibilities relating to

accounting and reporting practices of the Co-operative

and subsidiaries. The Committee advises on the

establishment and maintenance of an overall framework

of internal control and appropriate ethical standards for

the management of the Co-operative. The Committee

gives the Board additional assurance regarding the

quality and reliability of financial information prepared

for use by the Board in determining policies for inclusion

in financial statements. The Audit and Risk Management

Committee also embraces, as part of its Charter, the Co-

operative’s Risk Management Program.

The Audit and Risk Management Committee ensures:

• compliance with statutory responsibilities relating to

financial disclosure;

• focus on significant changes in accounting

policies, standards and practices or other reporting

requirements likely to affect developments in financial

reporting;

• regular reviews of operations and policies are

conducted;

• review of the audit and annual financial statements

and interim financial information and the adequacy

of existing external audit arrangements with particular

emphasis on the scope and quality of the audit; and

• risk management reporting systems are in place to

effectively identify and manage strategic, operational

and financial risks. To give further effect to identifying

and quantifying risks faced by the Co-operative, a

risk register has been developed which is managed

under the scope of the Audit and Risk Management

Committee. The risk register details the probability

and impact of various business risks and creates a risk

score together with a mitigation plan.

The Audit and Risk Management Committee reviews the

performance of the external auditors on an annual basis

and meets them during the year as follows:

• to review the results and findings of the audit, the

adequacy of financial and operating controls, and to

monitor the implementation of any recommendations

made; and

• to review the draft financial statements and the audit

report and to make the necessary recommendation to

the Board for the approval of the financial statements.

The Audit and Risk Management Committee also

reviews the Co-operative’s Executive Authority Limits

on at least an annual basis to ensure that the delegated

levels of authority are appropriate for key employee

positions.

The Committee is comprised of three Directors and

meets at least six times per year. The Chairperson of the

Co-operative shall not be a member of the Committee.

Milk Supply Advisory Committee

The objective of the Milk Supply Advisory Committee is

to provide properly considered recommendations to the

Board of Directors in relation to the adoption of policies

pertaining to certain matters regarding the acquisition

of milk by the Milk Supply business unit and the sale of

that milk to its external and internal customers.

In giving effect to this objective, the Committee will

make recommendations to the Board of Directors in

relation to policies regarding:

• the sourcing of milk by the Milk Supply business unit,

with specific reference to -

o the terms under which such milk is to be acquired

(including but not limited to price): and

o the location(s) from which such milk is to be

acquired; and

• the sale of milk by the Milk Supply business unit, with

specific reference to the terms under which that milk is

sold (including but not limited to price).

The composition of the Milk Supply Advisory Committee

consists of the full Board, Chief Executive Officer and

General Manager Milk Supply. The Committee meets at

least every quarter.

31

Brand Management Advisory Committee

The objective of the Brand Management Advisory

Committee is to provide properly considered

recommendations to the Board of Directors in relation

to matters that affect Norco’s brands and to the

adoption of policies pertaining to specific issues such as

animal welfare issues for both Norco and Norco’s milk

suppliers / members.

In giving effect to this objective, the Committee will

make recommendations to the Board of Directors in

relation to policies regarding:

• Animal welfare – including all aspects of animal

welfare pertaining to the Norco farm base,

understanding the requirements of retail customers,

ensuring Norco has robust policies and procedures

and working with, and making representations to, a

range of stakeholders that have an interest in animal

welfare; and

• Norco brands – including protecting and adding value

and ensuring that the reputation of the Norco brands

are maintained and improved upon as well as the

promotion of the Norco Brands.

The Committee is comprised of three Directors and the

General Manager Milk Supply and meets at least every

quarter.

Member Services Committee

The objective of the Member Services Committee is

to make properly considered recommendations to the

Board of Directors in relation to the adoption of policies

pertaining to non milk supply, member issues.

In giving effect to this objective, the Committee will

make recommendations to the Board of Directors in

relation to policies regarding:

• developing and encouraging the sustainability of the

Norco farm base through initiatives such as improving

farming techniques, study tours and improving

business skills;

• assisting with the ongoing wellbeing of the Norco

farm base by helping members with succession

planning, mental health issues and social networking /

support;

• providing and disseminating information from external

sources relating to issues such as the education and

training of potential Directors, government assistance

and climate variability; and

• providing support to the Norco farm base through

the management of issues such as exceptional

circumstances, disaster recovery planning and other

critical farm issues (such as tick infestations).

The Committee is comprised of up to three Directors

and meets at least every quarter.

The following Committees meet only on an as needs

basis:

Communication Committee

The objective of the Communication Committee is to

make properly considered recommendations to the

Board of Directors in relation to the adoption of policies

pertaining to corporate communication.

The Committee recognises that effective

communication relies on “listening as well as speaking”.

Consequently, in seeking to achieve its objective the

Committee will make recommendations to the Board of

Directors in relation to policies regarding:

• the Co-operative’s overall strategy in relation to

corporate communications;

• the Co-operative’s major corporate communications

and announcements, ensuring all stakeholders

are considered and that such communications

and announcements are through the appropriate

nominated spokesperson;

• communication plans for crisis / disaster situations;

• joint communications which may affect another

organisations or individuals, or by which Norco may

be affected; and

• the terms under which an appointment or

engagement (if any) of a public relations firm is made

to assist Norco with corporate communications.

The Committee is comprised of two Directors and

meets on an as needs basis.

Remuneration Advisory Committee

The objective of the Remuneration Advisory Committee

is to make properly considered recommendations to the

Board of Directors in relation to the remuneration of the

Senior Management Team, Chief Executive Officer and

Board of Directors and in relation to incentive programs

within the Norco business.

In giving effect to this objective, the Committee will:

• monitor and review all Senior Management Team

remuneration;

• evaluate, monitor and review any Short Term Incentive

(STI) and Long Term Incentive (LTI) programs that may

be in operation in the Norco business;

32

• evaluate the performance of the Chief Executive

Officer and make recommendations in relation to the

remuneration of the Chief Executive Officer; and

• make recommendations to the Board in relation to

Director remuneration.

The Committee is comprised of two Directors and the

Chief Executive Officer and meets on an as needs basis.

INTERNAL CONTROL FRAMEWORK

The Board acknowledges that it is responsible for the

overall internal control framework, but recognises that

no cost-effective internal control system will preclude

all errors and irregularities. To assist in discharging

this responsibility, the Board has instigated an internal

control framework which can be categorised under the

following headings:

• Corporate Strategy – there are clearly defined short,

medium and long term strategic objectives set

and reviewed by the Board of Directors on at least

an annual basis and an operational strategic plan

developed by management to meet these objectives.

Strategic issues are considered at each meeting of the

Board of Directors.

• Financial reporting - there is a comprehensive

budgeting system with an annual budget approved by

the Board. Monthly actual results are reported against

budget and revised rolling year end forecasts are

prepared monthly.

• Quality and integrity of personnel - the Co-operative’s

policies are detailed in a policy and procedures

manual. New policies and procedures are developed,

or amendments made to existing policies and

procedures, as the need arises.

• Investment appraisal - the Co-operative has clearly

defined guidelines for capital expenditure. These

include annual budgets, detailed appraisal and review

procedures and due diligence requirements where

businesses are being acquired and divested.

• Executive authority limits – the Co-operative

has clearly defined financial authority limits for

management positions in relation to capital

expenditure, foreign exchange, forward purchase

agreements, forward grain sale agreements and

general expenses.

Quality Accreditation

The Norco Foods division strives to ensure that its

products are of the highest standard. The Lismore

Ice Cream Business Unit is licensed by NSW Food

Authority and has certification against SQF Code Edition

7.2 Level 3: Comprehensive Food Safety and Quality

Management System, Coles Food Manufacturing

Supplier Requirements V2 March 2017 (CFMSR),

Woolworths Quality Assurance Standard, ALDI Quality

Assurance, U.S. Food and Drug Administration registered

and has an Approved Arrangement with Department

of Agriculture for export. The Labrador milk factory is

licensed by SafeFood QLD and has certification against

SQF Code Edition 7.2 Level 3: Comprehensive Food

Safety and Quality Management System, Coles Food

Manufacturing Supplier Requirements V2 March 2017

(CFMSR), ALDI Quality Assurance and has an Approved

Arrangement with Department of Agriculture for

export. The Raleigh milk factory is licensed with NSW

Food Authority and certified for SQF Code Edition

7.2 Level 3: Comprehensive Food Safety and Quality

Management System, ALDI Quality Assurance, NASAA

and ACO accreditation (both for organic milk) and

has an Approved Arrangement with Department of

Agriculture for export. Raleigh is also Kosher certified for

the production of all A2 products.

In the Norco Agribusiness unit both the Goldmix

Stockfeeds manufacturing mills at Lismore New

South Wales and Windera Queensland have FeedSafe

accreditation under the Stockfeed Manufacturers’

Association of Australia and HACCP accreditation.

Norco is a member of the Stockfeed Manufacturers’

Association of Australia.

Norco has attained accreditation against AS4801:2001 -

Occupational Health and Safety Management Systems,

encompassing all Norco Rural Stores. Norco Rural Stores

are audited internally in line with AS4801 as well as the

requirements under the following Australian Standards:

• AS 3833:2007 – The storage and handling of mixed

classes of dangerous goods, in packages and IBC’s.

• AS 4775:2007 – Emergency eyewash and shower

equipment.

Norco has implemented a process for Rural employees

to be trained in the internal Norco Agvet course

delivered by the WHS Team.

The Norco Agvet course has been developed from

specific requirements within the above mentioned

standards as well as following nationally accredited units

of competency relating to:

• AHCCHM101A – Follow basic chemical safety rules.

• AHCCHM304A – Transport, handle and store

chemicals.

33

Safety

Norco is committed to the safety and wellbeing of staff

across its entire operations. Norco strives to comply

with the provisions of a safe working environment

and continues to make safety an integral part of our

organisation, which is essential if we are to continue

building a successful business into the future. On

a monthly basis, the Board of Directors receives

management reports detailing the safety performance

for the business and monitors this performance closely.

The Board also receives a copy of all minutes of the

various site WHS committee meetings that are held.

Environment

Norco aims to ensure that the highest standard of

environmental care is achieved. The Co-operative

recognises that it has a responsibility to ensure that

its operations are sensitive to the environment and

comply with the letter and spirit of all applicable

environmental legislation. Norco is also a party to the

Australian Packaging Covenant and has a ‘Buy Recycled’

procurement practice as part of our obligations under

the Covenant.

ETHICAL STANDARDS

All Directors, managers and employees are expected to

act with the utmost integrity and objectivity, striving at

all times to enhance the reputation and performance

of Norco. Every employee has a nominated manager

or supervisor to whom they may refer any issue arising

from their employment and there is a suite of Human

Resource policies and procedures that assist in ensuring

employees’ conduct is of the highest standard possible.

In addition, the Corporate Governance Policy Document

serves to provide guidance to Directors on how the

Co-operative should be governed from a practical

perspective.

BUSINESS RISKS AND EMERGENCY PLANNING

Management has identified, and continues to identify,

business risks and potential emergencies with the aim

of minimising any consequential adverse effects on the

Co-operative.

Business risks arise from such matters as:

• action by competitors and industry rationalisation;

• government policy changes;

• physical loss of assets through fire or another natural

disaster and the resultant business interruption that

may occur;

• the impact of exchange rate movements on the price

of raw materials and on sales

• variations in interest rates;

• difficulties in sourcing raw materials; and

• the purchase, development and use of information

systems, and other emergencies that may occur.

THE ROLE OF MEMBERS

The Board of Directors aims to ensure that the members

are informed of all major developments affecting the Co

operative’s state of affairs. Information is communicated

to members as follows:

• The Annual Report is distributed to all members. The

Annual Report includes relevant information about

the operations of the Co-operative for the financial

year just ended, changes in the state of affairs of the

Co-operative and details of future developments, in

addition to the other disclosures required by the Co

operatives Legislation;

• Meetings are held at least twice yearly with supplier

members at various locations to personally inform

them about the affairs of the Co-operative;

• In addition to the meetings with supplier members,

a more informal communication network called

‘NorcoNet’ is active in some localities within the Norco

supply area. The purpose of ‘NorcoNet’ is to bring small

groups of members together on a regular basis to form

a local network to discuss general dairy industry issues

and issues that relate to the Co-operative;

• The preparation and distribution of a monthly Norco

Bulletin and ad hoc newsletters;

• Some proposed major changes in the Co-operative

which relate to the core businesses are required by the

Co operatives National Law (NSW) to be submitted to

a vote of members; and

• Communication is a two-way process, and the Board

encourages individual members or groups of members

to apply to attend Board Committee and / or meetings

by appointment.

The Board encourages full participation of members

at the Annual General Meeting to ensure a high level

of accountability and identification with the Co-

operative’s strategies and goals. Due to the geographical

spread of members, the holding of the Annual General

Meeting is rotated between the three member regions.

Important issues are presented to the members as single

resolutions for their consideration.

The members are responsible for the election of

Directors.

34

Statement of profit or loss and other comprehensive income For the year ended 30 June 2017

2017 2016

Before Before

Significant Significant Significant Significant

Items Items (1) Total Items Items (1) Total

Notes $000 $000 $000 $000 $000 $000

Revenue 4.1 555,625 - 555,625 541,138 - 541,138

Milk payments to suppliers (133,167) - (133,167) (132,695) - (132,695)

Cost of sales (292,102) - (292,102) (280,555) - (280,555)

Employee expenses 4.2 (67,674) - (67,674) (65,937) - (65,937)

Depreciation expense 4.3 (5,917) - (5,917) (5,853) - (5,853)

Borrowing costs expense (2,109) - (2,109) (2,150) - (2,150)

Occupancy expenses (5,701) - (5,701) (4,959) - (4,959)

Administration and other costs 4.4 (47,935) - (47,935) (47,226) - (47,226)

Gain on disposal of non-current

assets 102 - 102 240 - 240

Restructure costs - (109) (109) - (88) (88)

Profit/(loss) before tax from

ordinary activities before

income tax expense and

member distributions 1,122 (109) 1,013 2,003 (88) 1,915

Member distributions 6 - (580) (580) - (535) (535)

Profit/(loss) before income tax 1,122 (689) 433 2,003 (623) 1,380

Income tax expense 5 - - - - - -

Net profit/(loss) attributable to

members 1,122 (689) 433 2,003 (623) 1,380

Other comprehensive income

Other comprehensive income to be reclassified to profit or loss in subsequent periods:

Net gain/(loss) on cash flow

hedges - 460 460 - (659) (659)

Other comprehensive

income/(loss) for the year, net

of tax - 460 460 - (659) (659)

Total comprehensive

income/(loss) for the year, net

of tax 1,122 (229) 893 2,003 (1,282) 721

(1) Significant items are items of income and expense, presented separately due to their nature and size.

The above Statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

Fin

anci

al S

tate

men

ts

35

Statement of financial position As at 30 June 2017

2017 2016

Notes $000 $000

Assets

Current assets

Cash assets and cash equivalents 18.1 4,622 4,805

Trade and other receivables 7 50,432 49,177

Inventories 8 33,963 31,048

Other assets 1,386 1,300

Total current assets 90,403 86,330

Non-current assets

Investments 9 3 3

Property, plant and equipment 10 59,209 54,774

Intangible assets and goodwill 11 37,038 37,038

Total non-current assets 96,250 91,815

Total assets 186,653 178,145

Liabilities

Current liabilities

Trade and other payables 12 70,857 61,594

Interest-bearing loans and borrowings 13 2,249 2,141

Derivative financial instruments 14 208 274

Employee benefit liabilities 15 9,705 8,978

Total current liabilities 83,019 72,987

Non-current liabilities

Trade and other payables 12 399 398

Interest-bearing loans and borrowings 13 27,164 29,295

Derivative financial instruments 14 381 776

Employee benefit liabilities 15 1,270 1,314

Total non-current liabilities 29,214 31,783

Total liabilities 112,233 104,770

Net assets attributable to members 74,420 73,375

Members’ interest 16.1 9,313 9,161

Net assets 65,107 64,214

Equity

Retained earnings 26,610 26,177

Reserves 17 38,497 38,037

Total equity 65,107 64,214

The above Statement of financial position should be read in conjunction with the accompanying notes.

36

Statement of changes in equity For the year ended 30 June 2017

Cash flow Asset

Retained hedge revaluation

earnings reserve reserve Total equity

$000 $000 $000 $000

As at 1 July 2016 26,177 (1,050) 39,087 64,214

Profit for the year 433 - - 433

Other comprehensive income - 460 - 460

Total comprehensive income 433 460 - 893

At 30 June 2017 26,610 (590) 39,087 65,107

Cash flow Asset

Retained hedge revaluation

earnings reserve reserve Total equity

$000 $000 $000 $000

As at 1 July 2015 24,797 (391) 39,087 63,493

Profit for the year 1,380 - - 1,380

Other comprehensive loss - (659) - (659)

Total comprehensive income/(loss) 1,380 (659) - 721

At 30 June 2016 26,177 (1,050) 39,087 64,214

The above Statement of changes in equity should be read in conjunction with the accompanying notes.

37

Statement of cash flows For the year ended 30 June 2017

2017 2016

Notes $000 $000

Operating activities

Receipts from customers 552,991 539,185

Payments to suppliers and employees (406,795) (395,406)

Proceeds from insurance 1,140 -

Interest received 236 239

Interest paid (2,109) (2,496)

Milk supplier payments (132,945) (133,219)

Net cash flows from operating activities 18.2 12,518 8,303

Investing activities

Proceeds from sale of property, plant and equipment 262 513

Purchase of property, plant and equipment (10,512) (5,724)

Net cash flows used in investing activities (10,250) (5,211)

Financing activities

Suppliers’ share contribution 16 152 378

Distributions paid to members (580) (535)

Payment of finance lease liabilities (372) (366)

Repayment of borrowings (1,651) (1,990)

Net cash flows used in financing activities (2,451) (2,513)

Net (decrease)/increase in cash and cash equivalents (183) 579

Cash and cash equivalents at opening balance date 18 4,805 4,226

Cash and cash equivalents at 30 June 18.1 4,622 4,805

The above Statement of cash flows should be read in conjunction with the accompanying notes.

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Notes to the financial statements For the year ended 30 June 2017

1. Corporate information

The financial statements of Norco Co-operative Limited and its controlled entities (the Co-operative) for the year ended 30 June 2017 were authorised for issue in accordance with a resolution of the directors on 27 September 2017.

Norco Co-operative Limited is a for-profit Co-operative under the Co-operatives National Law (NSW), incorporated and domiciled in Lismore, Australia. The Co-operative operates out of its registered place of business at “Windmill Grove” 107 Wilson Street, South Lismore, New South Wales. The principal operations of the Co-operative are the processing, manufacture and sale of dairy products, the manufacture of stockfeed and rural retailing.

2. Summary of significant accounting policies

2.1 Basis of preparation

The general purpose financial report has been prepared on the basis of historical cost (except for certain land and building assets where in 2004 fair value was deemed to be cost and derivative financial instruments which are at fair value) and in accordance with the requirements of the Corporations Act 2001. Cost is based on the fair values of the consideration given in exchange for assets.

In the application of Australian equivalents to International Financial Reporting Standards (‘IFRS’) management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgements. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of IFRS that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements and note 3. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

The accounting policies set out below have been applied in preparing the financial statements for the year ended 30 June 2017 and the comparative information presented in these financial statements for the year ended 30 June 2016. Where necessary, comparatives have been reclassified to conform to current year classification.

The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Co-operative under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Co-operative is an entity to which the instrument applies.

2.2 New and amended accounting standards

Changes in accounting policies, new and amended standards and interpretations

The accounting policies adopted are consistent with those of the previous financial year.

Accounting Standards and Interpretations issued but not yet effective

Certain Australian Accounting Standards and Interpretations have recently been issued or amended but are not yet effective and have not been adopted by the Co-operative for the annual reporting period ended 30 June 2017, outlined in the table below.

The impact of these changes in standards and interpretations is in the process of being quantified.

Reference Title Summary Applicationdate of standard

Applicationdate of Co-operative

AASB 9 Financial AASB 9 (December 2014) is a new standard which replaces AASB 139. This new version supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010). AASB 9 includes requirements for a simpler approach for classification and measurement of financial assets compared with the requirements of AASB 139. There are also some changes made in relation to financial liabilities.

1 January 2018

1 July 2018

AASB 15 Revenue from Contracts with Customers

The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the five step process.

1 January 2018

1 July 2018

AASB 16 Leases The key features of AASB 16 in relation to the Company is that lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.

1 January 2019

1 July 2019

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a) Statement of compliance

The financial report complies with Australian Accounting Standards, which include International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

b) Basis of consolidation

The financial statements comprise the financial statements of the Co-operative and its subsidiaries as at 30 June 2017. Control is achieved when the Co-operative is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Co-operative controls an investee if, and only if, the Co-operative has:

• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities ofthe investee);

• Exposure, or rights, to variable returns from its involvement with the investee; and

• The ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Co-operative has less than a majority of the voting or similar rights of an investee, the Co-operative considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement with the other vote holders of the investee;

• Rights arising from other contractual arrangements; and

• The Co-operative’s voting rights and potential voting rights.

The Co-operative re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Co-operative obtains control over the subsidiary and ceases when the Co-operative loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the Statement of profit or loss and other comprehensive income from the date the Co-operative gains control until the date the Co-operative ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Co-operative and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Co-operative’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Co-operative are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Co-operative loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

c) Current versus non-current classification

The Co-operative presents assets and liabilities in the Statement of financial position based on current/non-current classification. An asset is current when it is:

• Expected to be realised or intended to be sold or consumed in the Co-operative’s normal operating cycle;

• Held primarily for the purpose of trading;

• Expected to be realised within twelve months after the reporting period; or

• Cash or a cash equivalent unless restricted from being exchanged or used to settle a liability for at leasttwelve months after the reporting period.

All other assets are classified as non-current.

A liability is current when:

• It is expected to be settled in the Co-operative’s normal operating cycle;

• It is held primarily for the purpose of trading;

• It is due to be settled within twelve months after the reporting period; or

• There is no unconditional right to defer the settlement of the liability for at least twelve months after thereporting period.

The Co-operative classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

d) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Co-operative and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

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Sale of goods

Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Risk and rewards of ownership are considered passed to the buyer at the time of delivery of the goods to the customer.

Rendering of services

Revenue is recognised on the basis of services provided, measured in accordance with agreed parameters between the customer and the Co-operative.

Interest income

Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

Dividends

Dividend revenues are recognised when control of a right to receive consideration for the investment in assets is attained, usually evidenced by approval of the dividend at a meeting of shareholders.

Government grants

Grants received for the construction of non-current assets are deferred and recorded as revenue over the life of the funded asset.

e) Borrowing costs

Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

f) Leases

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement. It requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Co-operative as a lessee

Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the Statement of profit or loss and other comprehensive income.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Co-operative will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an expense in the Statement of profit or loss and other comprehensive income on a straight-line basis over the lease term. Lease incentives are recognised in the Statement of profit or loss and other comprehensive income as an integral part of the total lease expense.

Co-operative as a lessor

Leases in which the Co-operative retains substantially all the risks and rewards of ownership of the leased asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as rental income.

g) Cash and cash equivalents

Cash and short-term deposits in the Statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

h) Trade and other receivables

Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectable amounts.

An allowance for doubtful debts is made when there is objective evidence that the Co-operative will not be able to collect the debts. Bad debts are written off when identified.

i) Inventories

Inventories are valued at the lower of cost and net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for, as follows:

• Raw materials: purchase cost on a first in, first out basis.

• Finished goods and work in progress: cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs.

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Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Maintenance spares are recognised as inventories and expensed when utilised.

j) Foreign currencies

Both the functional and presentation currency of Norco Co-operative Limited and its controlled entities is Australian dollars.

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.

k) Taxes

Current income tax

Current income tax assets and liabilities for the current year are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Co-operative operates and generates taxable income.

Goods and services tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except:

• When the GST incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable.

• When receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of financial position.

Cash flows are included in the Statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

l) Investments

Investments in subsidiaries held by the Co-operative are accounted for at cost in the Statement of financial position less any impairment charges.

m) Property, plant and equipment

Items of property, plant and equipment including buildings and leasehold property, but excluding freehold land, are measured at cost less accumulated depreciation and less any impairment losses recognised. Freehold land is held at cost and is not depreciated.

Plant and equipment is depreciated on a straight-line basis over the estimated useful life of the assets, units of output, life of project or other appropriate basis.

Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is shorter, using the straight-line method.

The following estimated useful lives are used in the calculation of depreciation:

- Buildings 2- 5%- Plant and vehicles 10- 33%- Leasehold plant and equipment 10- 20%

The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.

Impairment The carrying values of items of property, plant and equipment are reviewed for impairment at each reporting date, with recoverable amounts being estimated when events or changes in circumstances indicate that the carrying value may be impaired.

The recoverable amount of property, plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs, unless the asset’s value in use can be estimated to be close to its fair value.

An impairment exists when the carrying value of an asset or cash-generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount.

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Derecognition and disposal An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised.

n) Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination are their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in the Statement of profit or loss and other comprehensive income in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the Statement of profit or loss and other comprehensive income as the expense category that is consistent with the function of the intangible assets.

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Statement of profit or loss and other comprehensive income when the asset is derecognised.

o) Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Co-operative’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Co-operatives cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Co-operative are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

• Represents the lowest level within the Co-operative at which the goodwill is monitored for internalmanagement purposes; and

• Is not larger than a segment based on the Co-operative’s primary reporting format determined as ifapplying AASB 8 Operating Segments.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. When the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of a cash-generating unit (group of cash-generating units) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Impairment losses recognised for goodwill are not subsequently reversed.

p) Impairment of non-financial assets

The Co-operative assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Co-operative estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU’s) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

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An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

q) Trade and other payables

Trade payables and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Co-operative prior to the end of the financial year that are unpaid and arise when the Co-operative becomes obliged to make future payments in respect of the purchase of these goods and services.

r) Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains or losses are recognised in profit or loss when the liabilities are derecognised.

s) Provisions

Provisions are recognised when the Co-operative has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Co-operative expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Statement of profit or loss and other comprehensive income net of any reimbursement.

Wages, salaries and sick leave

Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave which are expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.

Long service leave and annual leave

The Co-operative does not expect its long service leave or annual leave benefits to be settled wholly within 12 months of each reporting date. The Co-operative recognises a liability for long service leave and annual leave measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.

t) Member’s interest

In periods before 1 July 2004, members units in the Co-operative were recorded in equity as contributed equity. On 1 July 2004, the Co-operative re-classified these instruments to non-current interest bearing liabilities in accordance with generally accepted International Accounting Practice. Any distributions paid on these instruments are treated as a borrowing cost.

This position which was clarified by UIG 2 Members’ Shares in Co-operative Entities and Similar Instruments, which the Co-operative adopted effective 1 July 2004.

u) Norco capital units

Norco Capital Units are carried at the principal amount. Interest is accrued at the entitlement rate and is included in “Note 13 Interest-bearing loans and borrowings”.

v) Derivative financial instruments and hedge accounting

Initial recognition and subsequent measurement

The Co-operative uses derivative financial instruments, such as interest rate swaps, to hedge interest rate risk. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognised in Other Comprehensive Income (OCI) and later reclassified to profit or loss when the hedge item affects profit or loss.

For the purpose of hedge accounting, a hedge is classified as:

• Cash flow hedges: when hedging the exposure to variability in cash flows that is either attributable to a

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particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.

At the inception of a hedge relationship, the Co-operative formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Hedges that meet the strict criteria for hedge accounting are accounted for, as described below:

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognised in OCI in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the Statement of profit or loss as other operating expense.

The Co-operative uses interest rate swaps to hedge the exposure to cash flow movements in loan movements. The Co-operative has entered into interest rate swaps which are economic hedges, which are fair valued by comparing the contracted rate to the future market rates for contracts with the same length of maturity. The $0.6 million (30 June 2016: $1.1 million) of swaps have been designated as effective interest rate swaps and therefore satisfy the accounting standard requirements for hedge accounting.

If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognised in equity is transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit or loss.

w) Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability, or

• In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible by the Co-operative.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Co-operative uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

• Level 2 - Valuation techniques for which the lowest level input that is significant to the fair valuemeasurement is directly or indirectly observable

• Level 3 - Valuation techniques for which the lowest level input that is significant to the fair valuemeasurement is unobservable

For the purpose of fair value disclosures, the Co-operative has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above.

3. Significant accounting judgements, estimates and assumptions

Significant judgements

The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgments and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgments and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

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Management has identified the following critical accounting policies for which significant judgments, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods.

Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements.

Impairment of non-financial assets other than goodwill

The Co-operative assesses impairment of all assets at each reporting date by evaluating conditions specific to the Co-operative and to the particular asset that may lead to impairment. These include product and manufacturing performance, technology, economic and political environments and future product expectations. If an impairment trigger exists the recoverable amount of the asset is determined.

Provision for doubtful debts

The Co-operative assesses the ability to recover debtors through a periodic review of overdue debtors. An allowance for doubtful debts is made when there is objective evidence that the Co-operative will not be able to collect the debts. Bad debts are written off when identified.

Provision for inventory obsolescence

The Co-operative periodically reviews the inventory ledger to identify inventory items that may be held in excess of their net realisable value. For such items that are identified, a provision for inventory obsolescence amount is raised which represents the amount for which the Co-operative may not recover through use of sale of the goods. Obsolete stock is written off when identified.

4. Revenue and expenses

4.1 Revenue

2017 2016$000 $000

Sale of goods 555,203 540,684Interest received 236 239Other 186 215

555,625 541,138

4.2 Employee expenses

2017 2016$000 $000

Salaries and wages (including contractors) 59,593 57,755Workers compensation 1,160 1,704Superannuation costs 4,387 4,007Payroll tax 2,534 2,471

67,674 65,937

4.3 Depreciation expense

2017 2016$000 $000

Plant and equipment 5,239 5,198Buildings 491 468Leased assets 187 187

5,917 5,853

4.4 Administration and other costs

Administration and other costs include the following:

2017 2016$000 $000

Inventory obsolescence 47 59Doubtful/bad debts 83 57Minimum lease payments recognised as an operating lease expense 68 69

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5. Income tax expense

The major components of income tax expense for the years ended 30 June 2017 and 2016 are:

2017 2016$000 $000

Current income tax:Current income tax charge - -Adjustments for current tax of prior periods - -

Deferred tax: Relating to origination and reversal of temporary differences - -Income tax expense reported in the Statement of profit or loss and othercomprehensive income - -

A reconciliation between tax expense and the product of accounting profit before income tax multiplied by Co-operative applicable income tax rate is as follows:

2017 2016$000 $000

Accounting profit before income tax 433 1,380

At Australia’s statutory income tax rate of 30% (2016: 30%) 130 414

Non deductible amounts 890 249Movement in temporary differences (313) (112)Tax loss movement (707) (551)

- -

Tax losses At 30 June 2017, the Co-operative had an estimated gross $9.6m in carry forward losses (2016: $11.1m). These tax losses have not been brought to account in the Statement of financial position. There are no available franking credits.

Temporary differences - not recorded The Co-operative has a surplus of deductible temporary differences. The deferred tax asset associated with these differences has not been recognised at 30 June 2017.

2017 2016$000 $000

Unrecognised deferred tax assets and liabilitiesProvision for bad debts 215 230Provision for employee benefits 3,292 3,088Provision for obsolescence 327 203

3,834 3,521

6. Member distributions

2017 2016$000 $000

Expensed in the period 580 535

7. Trade and other receivables

2017 2016$000 $000

Trade receivables 49,101 47,406Provision for doubtful debts (693) (768)

48,408 46,638

Other receivables 2,024 2,53950,432 49,177

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Doubtful debtsCarrying amount of doubtful debts $000

At 1 July 2015 1,034Utilised (323)Charge for the year 57At 30 June 2016 768Utilised (158)Charge for the year 83

At 30 June 2017 693

Trade receivables are generally on 30-90 day terms. An allowance for doubtful debts is made where there is objective evidence that a trade receivable is impaired. The carrying value of trade and other receivables approximates fair value.

At 30 June, the ageing analysis of trade receivables is as follows (in $000’s):

< 30 30-60 61-90 Total days days days 91+ days $000 $000 $000 $000 $000

2017 49,101 40,723 4,430 2,240 1,7082016 47,406 33,454 9,768 3,010 1,174

Receivables past due but not considered impaired are: $1.0m (2016: $3.9m). Payment terms have not been renegotiated, however communications with counterparties have satisfied management that payment will be received in full.

8. Inventories

2017 2016$000 $000

Raw materials 7,115 6,922Finished goods 27,938 24,802Provision to net realisable value (1,090) (676)

Total inventories at the lower of cost and net realisable value 33,963 31,048

An allowance for inventory obsolescence is made where there is objective evidence that inventories are carried in excess of their net realisable value.

9. Investments

2017 2016$000 $000

Shares

Unlisted corporations, at cost 3 3

10. Property, plant and equipment

2017 2016$000 $000

Land and buildingsAt cost 28,630 28,679Accumulated depreciation (5,753) (5,262)

Net carrying amount 22,877 23,417

Plant and vehiclesAt cost 74,719 70,296Accumulated depreciation (46,026) (42,122)

Net carrying amount 28,693 28,174

Assets under leaseAt cost 4,202 1,860Accumulated depreciation (2,933) (404)

Net carrying amount 1,269 1,456

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2017 2016 $000 $000

Capital expenditure work in progressAt cost 6,370 1,727

Net carrying amount 6,370 1,727

Total property, plant and equipmentAt cost 113,921 102,562Accumulated depreciation (54,712) (47,788)

Net carrying amount 59,209 54,774

Reconciliation of carrying amounts at the beginning and the end of the year2017 2016$000 $000

Land and buildingsAt 1 July 23,417 24,020Disposals (68) (135)Transfers 19 -Depreciation expense (491) (468)

At 30 June 22,877 23,417

Plant and vehiclesAt 1 July 28,174 27,253Disposals (92) (139)Transfers 5,850 6,258Depreciation expense (5,239) (5,198)

At 30 June 28,693 28,174

Assets under leaseAt 1 July 1,456 1,643Depreciation expense (187) (187)

At 30 June 1,269 1,456

2017 2016 $000 $000

Capital expenditure work in progressAt 1 July 1,727 2,261Additions 10,512 5,724Transfers (5,869) (6,258)

At 30 June 6,370 1,727

Total property, plant and equipmentAt 1 July 54,774 55,177Additions 10,512 5,724Disposals (160) (274)Depreciation expense (5,917) (5,853)

At 30 June 59,209 54,774

There were no impairment losses recognised in the 2017 or 2016 financial years.

Leased manufacturing plant is pledged as security for the related finance lease liabilities.

Freehold land, buildings and plant and equipment are subject to a fixed and floating first charge of the Co-operative’s assets as disclosed in note 13(c). All assets and undertakings are pledged as security on the interest bearing liabilities of the Co-operative and controlled entities.

All assets acquired under finance lease were acquired for nil cash flow and are considered to be a non-cash financing and investing activity.

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11. Intangible assets and goodwill

2017 2016 $000 $000

Acquired goodwill 34,309 34,309Trademark 2,729 2,729

Net carrying amount 37,038 37,038

(a) Impairment test of acquired goodwill

Goodwill acquired through business combinations has been allocated at an entity level to the relevant cash generating units (CGUs). The CGUs for the Co-operative are Norco Foods, Norco Rural Retail and Norco Agribusiness. The goodwill acquired and trademark are allocated to the Norco Foods CGU.

The discount rate applied to cash flow projections is 12% pre-tax (2016: 12%).

Key assumptions used in the value in use calculation are:

• Revenue: based on projected growth predictions;• Cost of sales: based on revenue growth; and• Other costs: based on rural store growth and expected wage increases.

No reasonably possible change in the key assumptions noted would result in an impairment.

12. Trade and other payables

2017 2016 $000 $000

Current

Trade payables and accrued expenses 70,857 61,594

Non-current

Other payables 399 398

Trade payables are generally on 30 day terms. The fair value of trade and other payables approximates their carrying value.

13. Interest-bearing loans and borrowings

2017 2016 $000 $000

CurrentLease liability 389 380Norco Capital Units 110 111Term loans - secured 1,750 1,650

2,249 2,141

Non-currentLease liability 644 1,025Term loans - secured 26,520 28,270

27,164 29,295

The Co-operatives St George finance facility was amended and is scheduled to expire on 31 October 2018. Under the finance facility, the facility limit will reduce by a fixed amount immediately after each quarter end date. As at 30 June 2017, the fixed amounts payable over the next twelve months have been classified as a current liability. The remainder of the liability has been classified as non-current at 30 June 2017.

Refer to Note 13(d) for financing facilities available to the Co-operative.

(a) Fair values The carrying amount of the Co-operative’s current and non-current borrowings approximates their fair value. The fair values have been calculated by discounting the expected future cash flows at prevailing market interest rates.

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(b) Interest rate, foreign exchange and liquidity risk Details regarding interest rate, foreign exchange and liquidity risk is disclosed in Note 28.

(c) Assets pledged as security The carrying amounts of assets pledged as security for current and non-current interest bearing liabilities are:

2017 2016 $000 $000

Property asset charges 57,940 53,318Leased asset charges 1,269 1,456Trademark 2,729 2,729

Total assets pledged as security 61,938 57,503

There are no specific terms and conditions related to the above pledges.

(d) Financing facilitiesThe following financing facilities are available for the Co-operative at 30 June:

2017 2016 $000 $000

Term loan facilitiesUsed facilities 28,270 29,920Unused facilities 4,000 4,100

32,270 34,020

Invoice discounting facilitiesUsed facilities - -Unused facilities 17,000 17,000

17,000 17,000

Bank guarantees and finance leasesUsed facilities 196 44Unused facilities 304 556

500 600

Business credit card facilityUsed facilities 36 23Unused facilities 104 117

140 140

Total finance facilitiesUsed facilities 28,502 29,987Unused facilities 21,408 21,773

49,910 51,760

14. Derivative financial instruments

2017 2016 $000 $000

Financial liabilities at fair value through OCI

Current

Interest rate swap contracts - cash flow hedges 208 274

Non-current

Interest rate swap contracts - cash flow hedges 381 776

The Co-operative has entered into cash flow interest rate swaps, which are measured at fair value by comparing the contract rate to the future market rates for contracts with the same maturity terms. $0.6m of swaps have been designated as effective interest rate swaps and therefore satisfy the accounting standard requirements for hedge accounting. The timing of the interest rate payments for the swaps are in line with the interest rate payments of the bank facility.

The Co-operative has applied fair value factors in accordance with IFRS 13. The inputs used in the valuation method are classified as Level 2.

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15. Employee benefit liabilities

2017 2016 $000 $000

Current

Employee entitlements 9,705 8,978

Non-current

Employee entitlements 1,270 1,314

16. Members’ interest

16.1 Movements in shares on issue

$000

Opening balance - 8,783,000 fully paid shares 8,783Repurchases of cancelled shares (487)Subscriptions 865At 30 June 2016 9,161

Opening balance - 9,161,000 fully paid shares 9,161Repurchases of cancelled shares (741)Subscriptions 893At 30 June 2017 9,313

16.2 Terms and conditions of contributed equity

Contributed equity has rights in accordance with the Co-operatives National Law (NSW).

17. Reserves

Asset revaluation reserve Effective 1 July 2004, the Co-operative changed the valuation basis applied to non-current land and buildings. Under historical AGAAP, the Co-operative carried land and buildings at fair value. From 1 July 2004, the Co-operative deemed the fair value to be cost. The asset revaluation reserve represents the historical accumulation of revaluation adjustments. The reserve will no longer be available to offset decrements in the value of land and buildings and will be transferred to retained earnings on impairment and/or disposal of land and buildings.

Cash flow hedge reserve This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge.

18. Cash and cash equivalents

18.1 Reconciliation of cash

For the purpose of the Statement of cash flows, cash and cash equivalents compose the following at 30 June:

2017 2016 $000 $000

Cash at bank and on hand 11,725 9,553Bank overdrafts (7,103) (4,748)

4,622 4,805

18.2 Cash flow reconciliation

2017 2016 $000 $000

Reconciliation of net profit before tax to net cash flows:Profit before tax 433 1,380Adjustments for:

Depreciation of property, plant and equipment 5,917 5,853Member distribution expense 580 535Net gain on disposal of property, plant and equipment (102) (240)

Changes in assets and liabilities:(Increase)/decrease in trade and other receivables (1,255) (1,714)(Increase)/decrease in inventories (2,915) 1,062(Increase)/decrease in other assets (86) (773)Increase/(decrease) in trade and other payables 9,989 2,333Increase/(decrease) in provisions (44) (133)Increase/(decrease) in other liabilities 1 -

Net cash flows from operating activities 12,518 8,303

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19. Controlled entities

% equity interest Investment $000Principal

Name activities 2017 2016 2017 2016

Logan Valley Dairies Pty Ltd Dormant 100% 100% 165 165Norco Wholesalers Pty Ltd* Wholesaler 100% 100% - -Fieldco Pty Ltd* Dormant 100% 100% - -Norcofields Pty Ltd* Dormant 100% 100% - -Beaudesert Milk Pty Ltd* Dormant 100% 100% - -Norco Milk Pty Ltd** Dormant 100% 100% - -Gold Coast Pty Ltd Property 100% 100% 15,783 15,783

HolderACN 146 859 074 Pty Ltd* Dormant 100% 100% - -

800% 800% 15,948 15,948

* Investment <$101** 100 shares at $1 each

20. Commitments

Capitalised finance lease commitments for plant and vehicles:

2017 2016$000 $000

Within one year 416 416After one year but not more than five years 633 1,049Total minimum lease payments 1,049 1,465Deduct future finance charges (18) (38)

1,031 1,427

Non-cancellable operating lease commitments for equipment, land and buildings:

2017 2016$000 $000

Within one year 2,617 2,338After one year but not more than five years 5,448 2,082More than five years 3,331 -

11,396 4,420

Cancellable operating lease commitments for vehicles and plant:

2017 2016$000 $000

Within one year 1,228 991After one year but not more than five years 2,312 1,663

3,540 2,654

21. Contingent liabilities

Legal Actions The directors are not aware of any material legal actions being brought against the Co-operative, its controlled entities or any joint venture to which the Co-operative holds an interest which has not been provided for.

Bank Guarantees Contingent liabilities exist in respect of bank guarantees given to various parties that amount to $196,000 (2016: $44,250) and are not included as creditors.

22. Financial guarantee contracts

The Co-operative has no outstanding financial guarantee contracts at 30 June 2017 (2016: Nil).

23. Capital management

The Co-operative manages its capital structure through regular reviews of its exposure to debt and members as shareholders. The Co-operative has no set levels for equity and debt. The management of the Co-operative views members shares as equity. Members’ interests are managed in line with the requirements of the Co-operatives National Law (NSW). The Co-operative has complied with all requirements of the Co-operatives National Law (NSW) during the year.

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24. Directors and executive disclosures

24.1 Key management personnel

(i) The directors of Norco Co-operative Limited during the financial year were:Greg McNamara (Non-Executive Chairman) Anthony Wilson (Non-Executive Deputy Chairman) (a) Michael Jeffery (Non-Executive) Leigh Shearman (Non-Executive) Heath Hoffman (Non-Executive) Greg Billing (Non-Executive) (b) Elke Watson (Non-Executive) (c)

(ii) The executives of Norco Co-operative Limited during the financial year were:Brett Kelly (Chief Executive Officer)Camille Hogan (Chief Financial Officer) Mark Myers (Co-operative Secretary) Andrew Burns (GM Sales & Marketing Norco Foods) Damon Bailey (GM Norco Rural / Agribusiness) Rob Randall (GM Milk Supply) Robert Vandermaat (GM Operations Norco Foods) Tom McAtee (GM Human Resources)

(a) Resigned as Non-Executive Deputy Chairman on 9 November 2016. (b) Commenced on 9 November 2016. (c) Commenced on 9 November 2016.

24.2 Compensation of key management personnel and Directors

2017 2016 $ $

Short term - wages and salaries 2,114,394 2,015,796Superannuation 192,823 196,875Non-cash 36,075 34,143

Total compensation 2,343,292 2,246,814

Total KMP excluding Directors 8 9

The above amounts only relate to the cash and other benefits paid to key management personnel for the period of their employment with the Co-operative or for the period they held a position as a key management person.

24.3 Transactions with and balances with key management personnel

Purchases Purchases of milk from key management personnel and related entities are on the same commercial terms and conditions as enjoyed by other non key management personnel members.

Sales Sale of farm supplies and stores to key management personnel and related entities are on the same commercial terms and conditions as enjoyed by other non key management personnel members.

24.4 Share transactions

2017 2016

Aggregate number of shares held by Co-operative key management personneland their related entities at 30 June 602,519 433,062Aggregate number of shares acquired by key management personnel and theirrelated entities during the year 98,976 29,037

25. Superannuation commitments

All employees participate in an employer sponsored defined contribution/accumulation style superannuation plan. Contributions by the Co-operative of 9.5% of employees’ wages and salaries are legally enforceable except employees of the Ice Cream division who are paid 11% superannuation commitments in line with their Enterprise Bargaining Agreement.

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26. Auditors’ remuneration

The auditor of Norco Co-operative Limited is Ernst & Young (Australia).

Consolidated entity 2017 2016

$ $

Amounts received or due and receivable by Ernst & Young (Australia) for:An audit or review of the financial report 138,200 135,200Other servicesTax services - 7,500Financial statement compilation 10,800 10,800

149,000 153,500

27. Information relating to the Norco Co-operative Limited (the Parent)

2017 2016 $000 $000

Information relating to Norco Co-operative Limited:Current assets 90,403 86,330Total assets 170,871 163,854Total liabilities (111,244) (105,220)

Net assets attributable to members 59,627 58,634

Members interest 12,538 12,439

Net assets 47,089 46,195

Asset revaluation reserve 31,214 31,214Cash flow hedge reserve (590) (1,050)Retained earnings 16,465 16,031

Total equity 47,089 46,195

Profit of the Parent entity 433 1,380Total comprehensive income of the Parent 893 721

Details of any guarantees entered into by the Parent entity in relation to the debts of its subsidiaries The Parent’s share of the jointly controlled entities financial guarantees is included in disclosures in Note 22.

Details of any contingent liabilities of the Parent entity The Parent’s share of the jointly controlled entities contingent liabilities is included in disclosures in Note 21.

Details of any contractual commitments by the Parent entity for the acquisition of property, plant or equipment The Parent’s share of the jointly controlled entities commitments is included in disclosures in Note 20.

28. Financial risk management objectives and policies

The Co-operative’s principal financial liabilities, other than derivatives, comprise of loans and borrowings, trade and other payables, and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Co-operative’s operations and to provide guarantees to support its operations. The Co-operative’s principal financial assets include trade and other receivables and cash and short-term deposits that derive directly from its operations.

The Co-operative is exposed to market risk, credit risk and liquidity risk. The Co-operative’s senior management oversees the management of these risks. The Co-operative’s senior management is supported by the Audit and Risk Management Committee that advises on financial risks and the appropriate financial risk governance framework for the Co-operative. The Audit and Risk Management Committee provides assurance to the Co-operative’s senior management that the Co-operative’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Co-operative’s policies and risk objectives. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Co-operative’s policy that no trading in derivatives for speculative purposes shall be undertaken. The board of directors reviews and agrees policies for managing each of these risks which are summarised below.

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Risk exposures and responses

Interest rate risk

The Co-operative’s exposure to interest rate risks relates primarily to the Co-operative’s long term debt and associated obligations. The level of debt is disclosed in Note 13.

At balance date, the Co-operative had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk:

2017 2016 $000 $000

Financial assets and liabilitiesCash and cash equivalents 4,622 4,805Derivative financial instruments (590) (1,050)

Net exposure 4,032 3,755

Interest rate swap contracts outlined in Note 14, with a fair value of $589,563 (loss) are exposed to fair value movements if interest rates change. The Co-operative’s policy is to manage its finance costs using variable rate debt with an appropriate level of instruments to fix interest exposure. The Co-operative constantly analyses its interest rate exposure. To manage this mix in a cost-efficient manner, the Co-operative has entered into interest rate swaps, in which they agree to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. Consideration is given to potential renewals of existing positions, alternative financing and the mix of fixed and variable interest rates.

The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date:

Judgements of reasonably possible movements: Post tax profit EquityHigher/(Lower) Higher/(Lower)

2017 2016 2017 2016 $’000 $’000 $’000 $’000+1.0% (100 basis points) (46) (48) 6 11-1.0% (100 basis points) 46 48 (6) (11)

The movements in post-tax profit are due to the movement in fair value of cash, based on movements in interest

rates only.

Significant assumptions used in the interest rate sensitivity analysis include:

• A price sensitivity of derivatives based on a reasonably possible movement of interest rates at balance dates by applying the change as a parallel shift in the forward curve.

• The net exposure at balance date is representative of what the Co-operative was and is expecting to beexposed to in the next twelve months from balance date.

Foreign currency risk

The Co-operative has no material exposure to foreign currency therefore this is not an applicable risk.

Commodity price risk

The Co-operative’s exposure to commodity price risk is present through the grain purchasing requirements for the Agribusiness business. It is the Co-operatives policy to secure grain quantities and prices through forward grain contracts. As these contracts are regular advance purchase contracts for process inputs, derivative accounting is not applied and contract fair value movements are not recorded.

Credit risk

Credit risk arises from the financial assets of the Co-operative, which comprise cash and cash equivalents and trade and other receivables. The Co-operative’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note.

The Co-operative does not hold any credit derivatives to offset its credit exposure.

The Co-operative trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Co-operative’s policy to securitise its trade and other receivables.

It is the Co-operative’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. Risk limits are set for each individual customer in accordance with parameters set by the board. These risk limits are regularly monitored.

In addition, receivable balances are monitored on an ongoing basis with the result that the Co-operative’s exposure to bad debts is not significant.

There are no significant concentrations of credit risk within the consolidated entity.

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1 to 5 Over <12 months years 5 years Total

$000 $000 $000 $000

4,622 - - 4,622 50,432 - - 50,432 (1,750) (26,520) - (28,270)

(416) (633) - (1,049) (70,857) (399) - (71,256)

(17,969) (27,552) - (45,521)

1 to 5 Over <12 months years 5 years Total

$000 $000 $000 $000

4,805 - - 4,805 49,177 - - 49,177 (1,650) (28,270) - (29,920)

(416) (1,049) - (1,465) (61,594) (398) - (61,992)

(9,678) (29,717) - (39,395)

Liquidity risk

The Co-operative’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, finance leases and committed available credit lines.

The table below reflects contractual finance principal repayments and interest resulting from recognised financial liabilities as of 30 June 2017. Cash flows for financial liabilities without fixed amount or timing are based on the conditions existing at 30 June 2017.

The remaining contractual maturities of the consolidated entity’s and parent entity’s financial liabilities are presented with an analysis of the financial assets.

2017 2016$000 $000

0-1 year 72,033 63,9231-5 years 26,284 29,717

98,317 93,640

Maturity analysis of financial assets and liability based on management’s expectation.

The risk implied from the values shown in the table below reflects a balanced view of cash inflows and outflows. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in our ongoing operations such as property, plant, equipment and investments in working capital e.g. inventories and trade receivables. These assets are considered in the consolidated entity’s overall liquidity risk.

Year ended 30 June 2017

Cash and cash equivalentsTrade and other receivablesInterest-bearing loans and borrowingsFinance leasesTrade and other payables

Net maturity

Year ended 30 June 2016

Cash and cash equivalentsTrade and other receivablesInterest-bearing loans and borrowingsFinance leasesTrade and other payables

Net maturity

Fair value

The methods for estimating fair value are outlined in the relevant notes to the financial statements.

29. Events after the reporting period

Mr Brett Kelly resigned from his role as Chief Executive Officer effective 29 September 2017. The Board is currently recruiting to fill the vacancy.

On 1 September 2017 the Co-operative entered into a three year term financing facility with Rabobank. This new facility replaces the existing facility with St George Bank as disclosed in Note 13.

Other than the matters listed above, during the interval between the end of the financial year and the date of this report, there has not arisen any item, transaction or event of a material and unusual nature which, in the opinion of the Directors, is likely to significantly affect the operations of the Co-operative, the results of those operations or the state of affairs of the Co-operative in subsequent financial years.

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Directors’ declaration

In accordance with a resolution of the directors of Norco Co-operative Limited, I state that:

In the opinion of the directors:

(a) the financial statements and notes of the Co-operative are in accordance with the Corporations Act 2001 and Co-operatives National Law (NSW), including:

(i) giving a true and fair view of the Co-operative’s financial position as at 30 June 2017 and of its performance for the year ended on that date; and

(ii) complying with Accounting Standards, as required by the Co-operatives National Law (NSW);

and

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

On behalf of the Board

G.J. McNamara

Chairman

Lismore

27 September 2017

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Websites

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www.norcofoods.com.au

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Keepin touch

CORPORATE DIRECTORY Registered Office: Norco Co-operative Limited ARBN 009 717 417 / ABN 17 009 717 417

‘Windmill Grove’, 107 Wilson Street South Lismore NSW 2480 Telephone: 02 6627 8000 Facsimile: 02 6621 9673 Web Site: www.norco.com.au

Financiers/Bankers: St George Bank Level 12, Waterfront Place, 1 Eagle Street BRISBANE QLD 4000

Auditors: Ernst & Young Chartered Accountants Level 51, 111 Eagle Street BRISBANE QLD 4000

Solicitors: Thomson Geer Lawyers BRISBANE QLD 4000

S+P Lawyers LISMORE NSW 2480

Piper Alderman Lawyers SYDNEY NSW 2000

BRANCH DIRECTORYHEAD OFFICES

NORCO CORPORATE ‘Windmill Grove’, 107 Wilson Street SOUTH LISMORE NSW 2480 (PO Box 486 LISMORE NSW 2480) Phone: 02 6627 8000 Fax: 02 6621 9673

NORCO RURAL ‘Windmill Grove’, 107 Wilson Street SOUTH LISMORE NSW 2480 (PO Box 3107 LISMORE DC NSW 2480) Phone: 02 6627 8000 Fax: 02 6622 1730

NORCO AGRIBUSINESS ‘Windmill Grove’, 107 Wilson Street SOUTH LISMORE NSW 2480 (PO Box 3107 LISMORE DC NSW 2480) Phone: 02 6627 8000 Fax: 02 6622 1730

MILK SUPPLY ‘Windmill Grove’, 107 Wilson Street SOUTH LISMORE NSW 2480 (PO Box 486, LISMORE NSW 2480) Phone: 02 6627 8029 Fax: 02 6622 7410

NORCO FOODS

NORCO MILK – LABRADOR Cnr Pine Ridge Road & Gold Coast Highway LABRADOR QLD 4215 (PO Box 530, SOUTHPORT QLD 4215) Phone: 07 5511 7200 Fax: 07 5594 0101

NORCO MILK – RALEIGH North Street RALEIGH NSW 2454 Phone: 02 6692 0000 Fax: 02 6655 4447

ICE CREAM BUSINESS UNIT Union Street SOUTH LISMORE NSW 2480 (PO Box 486, LISMORE NSW 2480) Phone: 02 6627 8000 Fax: 02 6621 6120

NORCO AGRIBUSINESS – GOLDMIX AND GRAIN TRADING

GOLDMIX STOCKFEEDS Krauss Avenue SOUTH LISMORE NSW 2480 Phone: 02 6621 3042 Fax: 02 6621 9170

GOLDMIX STOCKFEEDS 2814 Murgon – Gayndah Road WINDERA QLD 4605 Phone: 07 4168 6186 Fax: 07 4168 6214

GRAIN TRADING – TOOWOOMBA 22 Carrel Drive TOOWOOMBA QLD 4350 Phone: 07 4637 3313 Fax: 07 4637 3399

NORCO RURAL BRANCHES

ALSTONVILLE 17 Kays Lane Russelton Estate ALSTONVILLE NSW 2477 Phone: 02 6628 8315 Fax: 02 6628 5765

ARMIDALE 252 Mann Street ARMIDALE NSW 2350 Phone: 02 6771 4669 Fax: 02 6771 1187

BEAUDESERT 9A Thiedke Road BEAUDESERT QLD 4285 Phone: 07 5541 4882 Fax: 07 5541 1025

BELLINGEN 1076 Waterfall Way BELLINGEN NSW 2454 Phone: 02 6655 9792 Fax: 02 6655 2266

BOWRAVILLE 51 Carbin Street BOWRAVILLE NSW 2449 Phone: 02 6564 8648 Fax: 02 6564 7425

BUNDABERG 96 Mount Perry Road BUNDABERG QLD 4670 Phone: 07 4151 7883 Fax: 07 4154 4341

CASINO 136 Dyraaba Street CASINO NSW 2470 Phone: 02 6661 2100 Fax: 02 6662 6007

COFFS HARBOUR 5/24 Isles Drive SOUTH COFFS HARBOUR NSW 2450 Phone: 02 6658 0393 Fax: 02 6658 0374

DUNGOG Stroud Road DUNGOG NSW 2420 Phone: 02 4992 1087 Fax: 02 4992 3000

GAYNDAH 59 Dalgangal Road GAYNDAH QLD 4625 Phone: 07 4140 8542 Fax: 07 4140 8572

GLEN INNES 165 Lang Street GLEN INNES NSW 2370 Phone: 02 6732 2162 Fax: 02 6732 5642

GLOUCESTER Cnr Church & Phillip Streets GLOUCESTER NSW 2422 Phone: 02 6558 9600 Fax: 02 6558 9666

GRAFTON 19 Queen Street GRAFTON NSW 2460 Phone: 02 6643 5630 Fax: 02 6642 7245

HEATHERBRAE 9 Hank Street HEATHERBRAE NSW 2324 Phone: 02 4987 6500 Fax: 02 4987 6099

KEMPSEY 3 Kemp Street WEST KEMPSEY NSW 2440 Phone: 02 6562 6393 Fax: 02 6563 1020

KINGAROY 97 River Road KINGAROY QLD 4610 Phone: 07 4163 6310 Fax: 07 4162 4992

KYOGLE Willis Street KYOGLE NSW 2474 Phone: 02 6632 2920 Fax: 02 6632 1221

LISMORE 105 Wilson Street SOUTH LISMORE NSW 2480 Phone: 02 6627 8266 Fax: 02 6621 2286

MACKSVILLE Tilly Willy Street MACKSVILLE NSW 2447 Phone: 02 6568 4057 Fax: 02 6568 2308

MURGON 21 Lamb Street MURGON QLD 4605 Phone: 07 4168 3060 Fax: 07 4168 2996

MURWILLUMBAH 17 Buchanan Street MURWILLUMBAH NSW 2484 Phone: 02 6672 2311 Fax: 02 6672 5120

QUINALOW 3 Myall Street QUINALOW QLD 4403 Phone: 07 4692 1333

STUARTS POINT 906 Stuarts Point Road STUARTS POINT NSW 2441 Phone: 02 6569 0955 Fax: 02 6569 0983

TAREE 5 Grey Gum Road TAREE NSW 2430 Phone: 02 6551 2999 Fax: 02 6551 2522

TENTERFIELD 445 Rouse Street TENTERFIELD NSW 2372 Phone: 02 6736 5902 Fax: 02 6736 2270

TOOWOOMBA 22 Carrel Drive TOOWOOMBA QLD 4350 Phone: 07 4637 3300 Fax: 07 4637 3399

WAMURAN 1055 D’Aguilar Highway WAMURAN QLD 4512 Phone: 07 5496 6500 Fax: 07 5496 6406

WINDERA DEPOT 2814 Murgon – Gayndah Road WINDERA QLD 4605 Phone: 07 4168 6186 Fax: 07 4168 6214

WOOLGOOLGA 16 Featherstone Drive WOOLGOOLGA NSW 2456 Phone: 02 6654 2905 Fax: 02 6654 1031

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CONTENTS Corporate Profile 2

Facts at a Glance 3

Chairman’s Report 4

Norco Foods - Sales and Marketing 10

Norco Foods - Operations 12

Milk Supply 14

Norco Rural / Agribusiness 15

Financial Management 17

Norco People 18

Directors’ Report 20

Auditor’s Independence Declaration 27

Corporate Governance Statement 29

Financial Statements 34

Independent Auditor’s Report 58

Corporate and Branch Directories 64

Thank you to our Norco employees, Co-operative members, Norco Milk distributors and customers who feature in the annual report photography. Your time and participation is greatly appreciated.

OurNorco

Annual Report 2017100% FARMER OWNEDAN AUSTRALIAN FARMER OWNED DAIRY CO-OPERATIVE

www.norco.com.au