100% FARMER OWNEDAN AUSTRALIAN FARMER OWNED DAIRY CO-OPERATIVE

NORCO ANNUAL REPORT 2016

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

We achieve this by:

• maintaining a diverse and strong range of businesses;

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

• creating integrated solutions for our partners.

NORcO’s VAluEsNorco applies a common set of values to everything it does. These values include:

Respect

• We respect our shareholders, employees, business partners and cus-tomers.

• We respect a diversity of views and opinions.

• We encourage and support people to grow as individuals and contrib-utors to our organisation.

• We respect our heritage and legacy.

• We respect our natural environment.

Responsible

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

• We are responsible for our actions and our performance.

• We are responsible for providing a safe work environment.

Efficient

• We seek to add value in everything we do.

Innovation

• We seek to consistently improve through innovation.

Community

• We seek active involvement in our communities.

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

We achieve this by:

• maintaining a diverse and strong range of businesses;

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

• creating integrated solutions for our partners.

NORcO’s VAluEsNorco applies a common set of values to everything it does. These values include:

Respect

• We respect our shareholders, employees, business partners and cus-tomers.

• We respect a diversity of views and opinions.

• We encourage and support people to grow as individuals and contrib-utors 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.

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.

norco.com.au

1

CONTENTS Corporate Profile 2

Facts at a Glance 3

Chairman’s Report 4

Chief Executive Officer’s Report 8

Norco Foods - Sales and Marketing 12

Norco Foods - Operations 14

Milk Supply 15

Norco Rural / Agribusiness 16

Financial Management 18

Norco People 19

Directors’ Report 20

Auditor’s Independence Declaration 27

Corporate Governance Statement 29

Financial Statements 34

Independent Auditor’s Report 57

Corporate and Branch Directories 59

100% FARMER OWNEDAN AUSTRALIAN FARMER OWNED DAIRY CO-OPERATIVE

The wonderful milestone of Norco Co-operative Limited achieving 120 years of continuous operations

on 5 June 2015 was cause for celebration and some quiet re�ection, as reported in last year’s 2015

Annual Report. Equally important for Norco’s Members in 2014/15 was that the 120 year celebrations

coincided with a signi�cant uplift in both base milk price and Total Average Member Returns.

Not to be distracted by the results achieved in 2014/15, there was a strong desire by the Board of

Directors, management and sta� to ensure that 2015/16 delivered an even better outcome to our

Members. To this end, it is pleasing to report that there has been a further uplift in both milk price

and Total Average Member Returns for the 2015/16 �nancial year. The milk price moved from 56.48

cents per litre in 2014/15 to 57.30 cents per litre in 2015/16 and for the same period the Total Average

Member Returns increased from 57.22 cents per litre to 58.06 cents per litre. A six percent dividend

and record Suppliers’ Patronage Scheme reward payments also contributed to the record Total

Average Member Returns.

While these gains may seem modest to some, Norco’s ability to not only hold milk price, but to

increase it, should not be underestimated and is a testament to the work done by the Co-operative

in ensuring that all contracts add value to our Members’ quality milk and that our exposure to, and

reliance on, dairy commodity markets is reduced.

In recent times there has been much commentary about the dire situation being faced by dairy

farmers in Australia’s southern regions. As a 100% farmer owned dairy co-operative since 1895,

everyone involved with Norco is saddened by these events but it only serves to strengthen our resolve

that there must to be a vibrant dairy industry in northern Australia now and into the future so that

consumers can continue to purchase and enjoy the taste of quality assured, fresh Norco milk produced

on our Members’ farms 365 days a year.

There is of course more to Norco than processing our Members’ milk. Our Norco Rural / Agribusiness

division is integral in its contribution to the overall success of the Co-operative as a commercially

driven business and also plays an important role in providing Members with the opportunity to

improve their Total Average Member Returns by purchasing from the division and receiving Suppliers’

Patronage Scheme rewards.

Overall, there is a degree of satisfaction that a net pro�t of $2.003 million has been achieved for the

2015/16 �nancial year given that the uplift in milk price mentioned earlier resulted in an additional

$1.8 million being paid to our Members for their milk over and above the payments they received

in 2014/15. On top of this, the business had to manage a large spring �ush during the year that

impacted the bottom line by $0.7 million. The EBITDA (Earnings before Interest, Tax, Depreciation

and Amortisation) result of $9.7 million was adverse to the $10.6 million achieved in 2014/15. Further

highlights from the 2015/16 �nancial year include:

• Total sales of $541 million, a 5.9 percent increase over 2014/15.

• Core debt as at 30 June 2016 of $29.92 million, a reduction of $1.99 million from the previous year.

• Suppliers’ Patronage Scheme rewards up 9.7 percent on last year, with a record amount of $1.156

million paid out.

• Record debtor days of 27.2 days achieved versus the prior year’s 31.0.

CORPORATE PROFILE

2

3

$2M2015/16

2014/15 3.1M2013/14 0.5M

2012/13 0.4M2011/12 5.7M

TOTAL NET PROFIT

2182014/15 2182013/14 181

2012/13 1592011/12 160

NO. OF FARMS 2015/16

AVG. MILK PRODUCTION

1,0162015/16 PER MEMBER FARM

THOUSAND’S LITRES

2014/15 9682013/14 933

2012/13 9472011/12 923

AS AT 30 JUNE 2016INCLUDES PERM.,PARTTIME & CASUAL STAFF

STAFF EMPLOYED

806NORCO FOODS 573 NORCO RURAL 171

NORCO AGRIBUSINESS 43 CORPORATE 19

FACTS AT A GLANCE

NORTHERN REGION 5 YRCONTRACT AVG. MILK PRICE

57.28 2015/16

CENTS PER LITRE

SOUTHERN REGION 5 YRCONTRACT AVG. MILK PRICE

57.52 2015/16

CENTS PER LITRE

AVG. MILK PRICESTEP UPSAVG. TOTAL MILK PAYDIVIDENDSUPPLIERS’ PATRONAGETOTAL AVG. MEM. RETURNS

2014/15 56.48 56.48 0.22 0.52 57.22

2013/14 53.25 53.25 0.14 0.51 53.90

2012/13 51.50 0.24 51.74 0.45 52.19

2011/12 51.28 1.43 52.71 0.30 0.42 53.43

TOTAL MEMBER SUPPLY

TOTAL AVG. MEMBER RETURNS

58.06AVG. MILK PRICE 57.30STEP UPS -AVG. TOTAL MILK PAY 57.30

DIVIDEND 0.24*

SUPPLIERS’ PATRONAGE 0.52*DIVIDEND PROPOSED FOR CONSIDERATION AT 2016 ANNUAL GENERAL MEETING

2015/16

CENTS PER LITRE

222 2015/16 MILLION LITRES

2014/15 2112013/14 163

2012/13 1512011/12 149

TOTAL MEMBERS’ MILK INTAKE

CHAIRMAN’S REPORT

4

It is with great satisfaction that on behalf of the Board, I present

to you my report for the 2015/16 financial year, a year in which

both the domestic and global markets presented not only

challenges, but opportunities for our Co-operative.

The highlights for the 2015/16 year include:

• Total sales of $541 million, a 5.9 percent increase over 2014/15.

• Net profit of $2.003 million versus the prior year’s $3.105 million

and an EBITDA of $9.7 million versus the prior year’s $10.6

million.

• An additional $1.8m paid to our Members / Milk Suppliers via a

higher average milk price.

• Core debt as at 30 June 2016 of $29.92 million, a reduction of

$1.99 million from the previous year.

• Record Suppliers’ Patronage Scheme payments of $1.156

million paid out to Members / Milk Suppliers.

Market conditions and strategy

At the beginning of the 2015/16 financial year we were witness

to continued low opening milk price announcements in

traditionally strong dairy regions such as New Zealand. While it

is a fact that Norco does not have a large exposure to the world

commodity market with 98 percent of our product destined for

the domestic market, it would be at our peril to ignore important

global indicators regarding dairy commodities. To do so may

result in Norco being uncompetitive in the market place.

It is imperative that a business like Norco has a strategic plan

in place that addresses issues such as our competitiveness so

that we can create a sustainable business for our Members, who

first and foremost, need a sustainable and competitive milk

price to ensure there continues to be a vibrant dairy industry in

northern Australia. The Board’s strategy and the management

team’s actions to implement that strategy continued throughout

2015/16 and included:

1. Mix of customers – having longer term contracts with major

retailers gives Norco scale and allows us to be competitive

but in order to reduce our potential exposure to such large

retail customers we have invested in the Route Trade to allow

growth of the Norco footprint outside our traditional areas.

We also continue to invest in export to further reduce our

exposure to the domestic market. Having retail contracts, an

improved Route Trade volume and a growing export business

is the best way to achieve volume through our factories.

2. Ice Cream – investing in our Ice Cream Business Unit (ICBU)

has been identified as the best way of adding value to our

Members’ milk outside of the fresh milk market. The ICBU is a

large profit contributor but is near capacity so investment is a

high priority to allow Norco to increase volume and add profit

to the bottom line. In 2015/16 the ICBU achieved a net profit

of $4.3 million.

3. Rural / Agribusiness division – not only does this business

contribute to profit, having achieved a net profit in 2015/16

of $3.6 million (after patronage payments), in addition the

business also adds value to Members in the form of Suppliers’

Patronage Scheme payments (in 2015/16 this totalled $1.156

million), interest free accounts and free advice from staff.

The strategy for Rural / Agribusiness is to continue to deliver

consistent profits back to the business to contribute to the

milk price.

4. Sustainable Members – it is the role of the Board and

management to provide growth opportunities for our

Members by securing additional contracts for fresh milk and

ice cream and also by making sure that we have a home for all

Members’ milk.

5

In a market place where competitors held or reduced milk prices

during the year, it is pleasing that Norco, on average, was able

to pass on an additional 0.82 cents per litre over the 2014/15

milk price which equated to $1.8 million. When this milk price

improvement is added back to the net profit of $2.003 million,

there was in fact a trading improvement over 2014/15. On top of

this, the business had to manage a large spring flush during the

year that impacted the bottom line by $0.7 million due to the

exceptional season experienced by Members.

The world’s growing population and the “dining room boom”

is seeing the demand for food increase against a backdrop of

a decline in available agricultural land. Improving Australia’s

position as a reliable food supplier is not just an issue for the

Federal Government but for all of us associated with primary

industries including dairy. Generally speaking, there have only

been modest productivity gains in agriculture over recent years.

It is apparent that advances in technology and innovation will

be the cornerstone of increasing productivity to take advantage

of this opportunity in agriculture. A challenge that comes from

advances in technology is that we need to up skill our people

to take full advantage of the opportunities. This can come in the

form of onsite training, institutional education or even bringing

in new people to our businesses and in my view, this is what will

make Norco an exciting place to be. The challenge for Norco is

to create an environment whereby our people – by that I mean

Members, employees and business partners, are prepared to

work together to find new ways to improve our business.

Working collaboratively is not new for Norco, after all we

are a co-operative. However, the findings from the Federal

Government’s Agricultural Competitiveness White Paper

included an initiative to help build stronger farmers through

collaborative and innovative business approaches. Norco is

proud to be a founding member of the Cooperatives Alliance

based in the Northern Rivers of New South Wales and the work

of the Alliance was instrumental in helping to secure the White

Paper funding to allow the Southern Cross University to deliver

a pilot programme with the aim being to improve farm gate

returns through accessing new markets and realising greater

returns along the supply chain.

In the latter part of 2015/16 the whole Australian dairy

industry was challenged by the severe downturn in milk

prices announced to the majority of milk suppliers in southern

Australia’s major dairy regions. While it is not in anyone’s interest

for Norco to comment on this situation, first and foremost our

thoughts are with the many thousands of dairy farmers affected

by these announcements and secondly, we must ensure

through careful planning that we are not exposed to such

volatility in the future.

Ironically, the unfortunate events relating to the southern

dairy industry became very public as a result of the Federal

Government’s involvement and the high profile the issue was

given on national television. There was an unprecedented

level of public support shown for the industry with consumers’

anger targeted towards supermarket house brand milk. In

May 2016 it became apparent that consumers had changed

their buying patterns, turning away from house brand milk to

private brands such as Norco. The influence of social media in

swaying consumers towards private label brands should not

be underestimated. At this point it is too early to say whether

the swing is permanent and management is watching this very

closely.

For Norco, this created both an opportunity and a challenge.

The opportunity related to a favourable product mix and overall

higher milk sales however the challenge for Norco is that the

6

Co-operative has a major contract with Coles to supply their

house brand milk in Queensland and northern New South Wales

which suffered as a result of the change in consumer buying. To

the credit of Coles and also as a result of the excellent relationship

between the two parties, management successfully negotiated

to expand our branded distribution into all Coles stores serviced

from their distribution centre in Brisbane. This now means that

Norco milk is distributed to, and sold in each and every Coles

store from Port Macquarie in New South Wales to Port Douglas in

Queensland, an increase of some 80 plus stores.

Norco’s unique proposition of being a 100% Australian farmer

owned dairy co-operative that has been in business since 1895

is a statement of truth and one that consumers can rely on when

making a conscious decision to support the Norco brand.

Members

As foreshadowed in last year’s report, Regional Milk Pricing was

introduced on 1 January 2016. The commercial reasons for the

Board introducing this program were well documented in my

report last year and while it is fair to say that it has not been

well received by those Members who are affected by regional

pricing in Norco’s southern milk supply area, the Board, through

a rigorous budgeting process, has been able to keep the pricing

differential to a minimum moving into the 2016/17 financial

year. Norco’s pricing in our southern region remains extremely

competitive when compared to other milk processors operating

in that region.

The Board was pleased to be able to recommend to Members

at the 2015 Annual General Meeting a 6 percent dividend on

shares held which was approved. Members and Milk Suppliers

also continue to have access to Interest Free Extended

Accounts (IFEA’s) to assist with their purchase of farming

requisites from the Rural / Agribusiness division. As a result

of the support shown by Members and Milk Suppliers for

their Rural / Agribusiness division, record Suppliers’ Patronage

Scheme payments were made in 2015/16 of $1.156m which is

9.7 percent favourable to 2014/15. All of these payments and

benefits are made available to Members in addition to Norco’s

competitive milk pricing and contribute to the “Total Member

Return” which is an important consideration when comparing

Norco, as a 100% farmer owned dairy Co-operative, to other milk

processors in Australia.

On 14 December 2015 Members approved an amendment

to the terms and conditions of the existing Compulsory Share

Acquisition Scheme by Special Postal Ballot. This amendment

authorises the scheme to have a secondary purpose, being

to use funds collected (that exceed the amount required for

the primary purpose of repayment of former Members’ capital

subscriptions) to assist in funding existing and future capital

projects as approved by the Board of Directors.

In relation to the scheme’s primary purpose which is to repay the

capital of former Members, I am pleased to advise that a further

$487,440 was repaid during the 2015/16 financial year and we

continue to be in a maintenance phase with repayments made

to former Members one year after the date of cancellation in

accordance with the Co-operatives National Law (CNL). At this

stage, it is envisaged that the excess funds collected which are

not required to repay the capital of former Members will be used

in the near future as there are significant capital works to be

undertaken at the Lismore Ice Cream Business Unit.

Board of Directors

At the 2015 Annual General Meeting Ms Leigh Shearman

(Supplier Director Central Region) and Mr Michael Jeffery

(Supplier Director Southern Region) were declared elected

for their second terms, after initially joining the Board in 2012.

There was a ballot to determine the successful candidate for the

Central Region after Mrs Maureen McDonald nominated for the

position as well as Leigh offering herself for re-election. In what

turned out to be a very close result, Leigh was re-elected to the

Board. Michael was re-elected unopposed to the Board.

Not long after the 2015 Annual General Meeting, Mr Peter Neal

tendered his resignation with effect from 23 November 2015. As

Peter’s three year term was due to conclude at the 2016 Annual

General Meeting, it was decided that the vacancy would remain

unfilled until the usual Election of Directors process leading up

to the 2016 AGM. A further consideration for the Board is that

Mr Tony Wilson’s term as a Director from the Northern Region is

due to conclude at the 2016 Annual General Meeting as a result

of regional boundary adjustments approved at a Special General

Meeting on 25 June 2014. In preparing for two new Directors

to be elected to the Board later this year, a very successful and

well-attended three day intensive governance and education

programme for Members was held during April 2016.

The Board continues to undertake a program of Director

education which can be in the form of onsite training, exposure

to the expertise of external consultants and attendance at

industry events, with the key outcome being to ensure a high

standard of governance is achieved.

In closing, I would like to thank our Members for their continuing

support of the Co-operative, our management and staff for

their dedication and commitment to growing our business

and to both our loyal and new customers who have made

the conscious decision to make Norco their preferred brand,

whether buying Norco milk or rural merchandise – thank you.

Your collective support of the Co-operative is appreciated and

ensures that the communities within which we operate will

continue to be strong and resilient.

GREG McNAMARA

Chairman

Board of Directors

7

Business overview 2015/16

The 2015/16 financial year has been a difficult one to navigate

through, however a solid result has been realised for our Co-

operative in terms of achieving all financial KPI’s as set by the Board

of Directors. The collective final results for the Co-operative for the

financial year ending 30 June 2016 has seen us achieve budgeted

profit. This is a great result taking into account the volatile trading

conditions in the market place. This once again shows the ongoing

growth and strength of our brand as well as the commitment,

focus and talent of all our people in the Co-operative.

The final result for 2015/16 has enabled us to not only take a

strategic position to hold a highly competitive farm gate price

for our Members as we move into 2016/17, but to also plan

ahead to manage the current uncertainty in the market place,

in particular the flow on effects from the turmoil experienced

in the southern regions of Australia. Our heritage as a 121 year

old Australian farmer owned co-operative has allowed us to

strategically position our brand and further enhance the point

of difference and competitive edge that we have versus our

competitors. Our diversified business model, geographical

positioning, quality of product and strong long term

relationships have again been significant drivers in achieving

these financial results. The solid direction, management and

performance of the co-operative model, as practiced throughout

Norco, is proving again that our Members can control their own

destiny in terms of market place supply.

We are the only true 100% Australian dairy farmer owned

co-operative competing in a market of multinational owned

processors in the main stream.

We have collectively finished the 2015/16 financial year at

an EBITDA (Earnings before Interest, Tax, Depreciation and

Amortisation) level of $9.715 million. This is a great result taking

into account that we have been able to put $1.8 million into our

farm gate milk price versus the prior year. Our total core debt as

at 30 June 2016 reduced to $29.92 million due to $1.99 million

being paid back through the financial year. With the continuous

solid growth and financial achievements we have experienced

in the past few years, we will need to further invest in our plant

and equipment as well as our people. Our collective sales for our

Co-operative have grown 5.9 percent this year.

Our Norco Foods business division, consisting of the Ice Cream

Business Unit (ICBU), Norco Milk and Milk Supply, achieved

an EBITDA of $8.597 million. This is a great result taking into

account the increased farm gate price we have paid and the

ongoing market pricing pressures. The fluctuating demand was

managed exceptionally well by our Foods’ teams throughout

the year. Milk Supply was down on last year due to the average

milk pay collective increase as well as the higher spring flush

volume. Norco Milk’s sales were up 5.5 percent on last year

predominantly due to the Coles’ contract volume, Route Trade

business improvement and the surge in branded sales at the

end of the financial year. ICBU sales were up by 3.8 percent on

last year which was driven by higher volume and demand.

Our Rural / Agribusiness division again had a strong result in

2015/16 with a collective result that was favourable to last

year’s EBITDA by 9.5 percent after Suppliers’ Patronage Scheme

(SPS) payments (Rural up 12.8 percent / Agri up by 1.1 percent).

This was driven by better trading results achieved from both

our Rural Stores, our Windera Mill and also by the Grain Trading

business. Our Toowoomba store is now trading profitably and

completed the year with a profit of $137,000. The Rural team

8

CHIEF EXECUTIVE OFFICER’S REPORT

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 the next few years.

The SPS was up 9.7 percent on last year in terms of the increased

patronage rewards we paid out to our Members for shopping

with Norco.

Corporate costs improved on last year by 3.8 percent after

allowing for the sale of the redundant Beenleigh depot. This

is an excellent result considering the increased size of our

overall business, now with a collective turnover of $541 million.

Corporate continue to manage and implement tight cost and

overheads control. This is reflected in consistently being below

the industry standard for a company of our turnover size. Our

corporate costs were 0.77 percent of total sales versus the prior

year’s 0.84 percent and these results are materially below the

best practice measure of 1.3 percent. 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.

We have recently appointed an experienced Human Resources

General Manager, Tom McAtee, to further enhance and

resource as necessary all aspects of our Human Resources (HR)

management team to meet the growing needs of our business

units. While we are strategically focused on business growth, at

the same time we need to keep our people safe in all aspects of

Work Place Health and Safety (WPHS). Our HR team continues

to build further training and development platforms for all our

teams in respect of best practices in WPHS as well as individual

professional development programs.

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 2015/16 financial year, including:

• Continued careful development of our export opportunities in

fresh milk and ice cream.

• Improved Route Trade business sales up by 12.3 percent on the

previous year.

• Net profit, though down on last year due to increased milk

price, was on budget as planned for the 2015/16 year.

• Collective Co-operative sales increase of 5.9 percent.

• Increase of $1.8 million achieved in our farm gate milk price for

2015/16.

• All spring milk was paid at base rates and no litres were paid at

the manufacturing rate.

• Our average milk price to our Members was 0.82 cents per litre

up on last year.

• Our Members’ volume was up 5 percent on last year and

achieved a record volume of 221 million litres.

• The Rural / Agribusiness division, after Suppliers’ Patronage

Scheme payments, achieved a net profit improvement of 14.2

percent up on last year.

• ICBU achieved a sales improvement of 3.8 percent up on last

year.

• Core debt reduction by $1.99 million to $29.92 million.

• Met all banking covenants.

• Suppliers’ Patronage Scheme up 9.7 percent on last year (record

amount of $1.156 million paid out).

• Norco Milk sales up 5.5 percent on last year.

• Toowoomba store now in profit.

9

• Lost Time Injuries reduced by 14 percent on last year.

• Debtors’ days improved by 3.82 days. This has resulted in

improved cash flow across the business.

Our 2016/17 key points of focus are:

• Corporate:

- Continue to focus on cost controls and efficiencies in all

overheads.

- IT and systems development to meet business growth

requirements.

- People, professional development and succession planning.

- Manage and meet all banking covenants.

• Rural / Agribusiness Division:

- Continued focus on ongoing financial improvement and

market share growth of the Rural / Agribusiness division.

- Explore further opportunities for expansion of the Rural

network.

- Ongoing financial improvement of our Toowoomba site.

- 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 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:

- 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.

- 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 business.

- 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

returns 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 Work

Place Health and Safety.

- Focus on long term strategic plans.

In conclusion, I would like to thank all Norco employees,

Members / Milk Suppliers, stakeholders and customers for your

support, input and loyalty to the Co-operative throughout the

2015/16 financial year. I look forward to again working with

you all to continue to strengthen and improve the long term

sustainability of Norco in the 2016/17 financial year. Thank you all

again and well done everyone.

BRETT KELLY

Chief Executive Officer

10

11

12

The 2015/16 year was certainly a year of growth for Norco Foods

and the Sales and Marketing teams. In last year’s report I wrote

about our growth initiatives and product developments that

we had implemented and launched. This year we have seen the

true full year benefit of those initiatives and a continued focus

to drive our depth of distribution whilst moving into new areas

of opportunity. Additionally, as a result of the devastating milk

pricing news delivered to dairy farmers in southern Australia,

we witnessed and were involved in an amazing groundswell

of sentiment that led to heartfelt support demonstrated by

consumers making a conscious decision to support branded

milk products instead of supermarket house brands.

Let’s first look into the sales growth and the reasons Norco

continues to win within the competitive market place in which

we operate.

It all starts with our 100% Australian farmer owned dairy co-

operative that has been in business since 1895. This simple but

emotive statement is Norco’s tangible point of difference as it

clearly defines that Norco is:

BUSINESS UNIT REPORTS

NORCO FOODSSALES AND MARKETING

13

a) Farmer owned;

b) 100% Australian; and

c) A co-operative where the profits are distributed back to our

Members.

In addition to this is the quality of our milk, our production

capabilities, our brands and our product offers, all of which allow

our Sales team to highlight these features to our clients. With

such an important point of difference that we offer to the market

place, it certainly provides us with a unique story that resonates

throughout our region and client base.

Our area of distribution continues to grow, with Toowoomba

and the Sunshine Coast providing incremental gains week on

week and in a relatively small amount of time. It is pleasing to

report that we have a growing business base in Sydney which

we aim to focus on heavily in the coming months. While we

grow the fringes, we continue to develop our heartland and we

are also strengthening our position in Brisbane.

Our relatively new specialised white milk products that provide

a price premium for us, such as Jersey, Lactose free and

Unhomogenised, continue to build in sales providing us with

incremental opportunities to appeal to a wider consumer base

in addition to those consumers who enjoy our regular favourite

full cream and lite milk varieties.

I touched on the recent events experienced in southern Australia

towards the end of the 2015/16 financial year that saw a massive

swing nationally from house brands to brand owners. This

unprecedented event driven by all forms of media including

Facebook, saw consumers making the conscious decision to

walk away en masse from house branded milk to branded offers.

Norco has been impacted by this shift because our supermarket

house brand contract volume has declined and as a brand

owner Norco must compete with the offerings of other brand

owners when consumers make the decision to move from

supermarket house brands. However, as a result of our excellent

relationship, we were able to negotiate and expand our branded

distribution into all Coles stores serviced from their distribution

centre in Brisbane. This now means that Norco milk is distributed

to, and sold in each and every Coles store from Port Macquarie in

New South Wales to Port Douglas in Queensland, an increase of

some 80 plus stores. At the time of writing this report, the switch

to branded milk products continues.

Our export business continues to progress with assorted milk

and ice cream products produced by Norco now sold in China,

Japan, Philippines, America and New Zealand. Although a

difficult market to manage, export is of strategic importance to

us. We continue to grow our existing clients whilst searching for

new exciting opportunities.

ANDREW BURNS

General Manager Sales and Marketing Norco Foods

14

The 2015/16 financial year has seen another successful period for

Norco Foods Operations. With ever increasing volumes through

all three of our manufacturing sites, our focus is centred on

reducing costs, operating efficiencies, safety of our people and

the quality of our products.

We were able to accomplish outstanding results in all areas of

our business reflecting the depth of talent within our group and

the dedication of our staff in the Foods team.

The implementation of our Focus on Safety working group at

our three processing facilities has resulted in achieving excellent

results and improvements to our safety records. The health,

safety and wellbeing of our people remain our highest priority

and identifying and managing risk is a critical component of our

continued commitment to providing a safe workplace.

We have seen excellent results on the quality front this year with

reductions in customer complaints by 23.5 percent across the

Foods business and our First Time Quality at 98.9 percent. This

has been a direct result of the Norco Foods Standards being

implemented by our Quality team along with investment in

equipment, training and maintaining good work practices.

Our Procurement team’s results have been outstanding in

2015/16. The importance of the supply of quality ingredients and

packaging cannot be understated. By building new relationships

and continuing with strategic long term relationships with

suppliers, Norco can ensure delivery on our quality guarantee.

The professional way our Procurement team work with our

suppliers ensures our manufacturing sites have stock for forecast

production. This is vital for Norco in ensuring that we deliver

to our customers on time and in full. Our stock level reduction

continues to improve year on year as we work towards a ‘just in

time’ practice on deliveries and production.

With 36 Norco milk depots spread from the Sunshine Coast

down to Sydney, we continue to increase volume and grow

our footprint in the Route Trade business, with the Distribution

team meeting these logistical challenges. The team has achieved

outstanding results with current delivery in full and on time to

our customers of 98.66 percent for this period. Our team remains

focused on continual improvement and customer service.

Our main focus will be to continue to supply the best quality

products and service.

Our manufacturing teams’ commitment to continuous

improvement of line efficiencies resulted in increased

production outputs while ensuring quality product for end users.

First time quality results for the year are once again the highest

achieved to date which is a credit to all staff given the increasing

production demands.

Highlights for the 2015/16 year include:

• New milk depots to accommodate our growing Route Trade

business volume and distribution reach.

• New products launched at our Ice Cream facility at Lismore.

• Investment in quality, our people, our equipment and our

suppliers.

• Board approval for new storage vats at Lismore.

• Approval for waste water treatment plant upgrades at both

Raleigh and Labrador.

ROBERT VANDERMAAT

General Manager Operations Norco Foods

NORCO FOODSOPERATIONS

15

For the majority of our supply regions, 2015-16 brought favourable

conditions in many aspects. While many challenges remain, a steady

farm gate milk price, lower costs (fuel, fertiliser and grain prices),

historically high cattle prices and more favourable climate conditions

over extended periods resulted in strong growth in Member supplied

milk volume, increased stored feed on farm and reinvestment for

on-farm infrastructure. These are all indicators of confidence within the

Norco milk supply base when compared to previous years.

The growth in milk volumes particularly in spring 2015, did create

a challenge for the business and lower returns were experienced

due to the low commodity market pricing however on balance, the

ongoing strategy of positioning the majority of Members’ milk to the

drinking milk sales markets continued to provide conditions where

no manufacturing pricing was required within the year. However

the dynamic of continuing low commodity returns and higher milk

production in spring remains a financial risk and challenge for the whole

Co-operative, for both Members and the commercial business. Our

ongoing strategy is to pay the highest milk price the business can afford

whilst retaining sufficient profit in the business to provide growth. This

is the benefit of being a co-operative as our Members are also our Milk

Suppliers who are our 100 percent focus.

2015-16 Summary

• Member milk supply increase in total to 221.6m litres for 2015/16, up

10.6m litres or 5 percent compared to 2014/15.

• Total average farm gate milk price was 57.30 cents per litre (cpl) versus

56.48 cpl for 2014/15, a 0.82 cpl or 1.45 percent increase.

• Northern Region average farm gate price was 57.28 cpl, Southern

Region average farm gate price was 57.52 cpl versus the prior year’s

total average of 56.48 cpl.

• Manufacturing litres paid at base prices for the second year in a row.

• Milk supplied to Norco Milk increased 3.4 percent or 5.3m litres over

2014/15.

• For Norco farms that have supplied milk in both 2014/15 and 2015/16

there was an overall growth in volume of 6.2 percent for the 2015/16

year.

• On this basis and by region, volume growth included 4.8 percent for

QLD, North Coast NSW 4.2 percent, Central North Coast 12.2 percent

and Norco’s Southern region 5.3 percent.

Milk Supply programs 2015-16

The Board provided an offer to all Members / Milk Suppliers between 1

July 2015 and 30 April 2016, to extend their current three year Milk Supply

Agreement (MSA) a further two years. This was a significant success with

95 percent of farms choosing the option to extend their MSA.

The introduction of Regional Milk Pricing from 1 January 2016 provided

the basis for future growth in each region based on the relevant market

returns. As a part of this program, the Board provided a number of

commitments on farm gate pricing to provide longer term security. The

value of these commitments can now be seen with the significant farm

gate price decreases in the NSW region for processors impacted by the

Victorian milk price.

For milk logistics and transport costs, the Milk Supply team and freight

contractors worked closely to improve farm access points to allow

B-double access (Northern Rivers), improve load in facilities at Norco

factories and organise milk swaps with other processors to reduce

freight costs. Further developments such as increased vat capacity at

factory, load out facilities at Lismore and further increases in on-road

tanker volumes are in the works.

The Board and Milk Supply staff made significant investments in Member

/ Milk Supplier education through Governance training, offers to assist

attendance at conferences and industry training days, the Northern Rivers

Resource Efficenticy Focus Farm project, inter-regional study tours and

two study tours to New Zealand. All were considered a great success and

further investment by Norco in Member / Milk Supplier education and

training will certainly continue in the coming years.

ROB RANDALL

General Manager Milk Supply

MILK SUPPLY

16

2015/16 was a year of consolidation for the Norco Rural /

Agribusiness division. With seven retail sites added to the group

during the last three years, it was a period to focus on the

integration of these business units into Norco and to place focus

on operations of the broader group.

The seasonal conditions we experienced during 2015/16 were

without doubt exceptional. The seasonal break that occurred

in January 2015 continued into the new financial year and set

the scene for what has been a great year. Across the Norco Rural

/ Agribusiness division territory all regions have enjoyed very

good and timely rainfall events, with many regions enjoying the

best seasonal conditions seen for a long time. Many have stated

that the past year has been the best season they have ever had.

From a commodity price perspective the business also enjoyed

strong demand and/or strong commodity sale prices. Beef is

definitely the shining light with sale prices continually on the up

and up throughout the year. Values have been at levels never

seen before and the beef sector has now enjoyed a very strong

couple of years. The horticultural industry has endured some

challenges with major rainfall events and wind damage in some

localised regions. However, sale prices have been strong and

this has underpinned major activity in this market segment,

particularly the macadamia and blueberry industries. Despite the

turmoil that engulfed the southern dairy industry, the northern

dairy market maintained its market price and as a business we

continued to see strong demand from this customer base.

After considerable expansion in the number of retail outlets

operating under the Norco banner, 2015/16 represented an

opportunity for the business and management to focus on

operational aspects of our business. A number of improvements

have been made which are reflected in our year on year

increase in profitability and improvements in key operational

performance measures. One major structural change

implemented was the transition of the Norco Kingaroy retail

operation from a corporate site to an agency operation. This

transition has resulted in ongoing improvements within this

business unit.

Work Health and Safety

2015/16 was year two of a renewed and intense focus on WHS

within the Rural / Agribusiness division. Significant safety works

and programs have been rolled out across the group and this

focus is ongoing. Considerable progress has been made and

NORCO RURAL / AGRIBUSINESS

17

whilst an 85 percent reduction in claim costs has been achieved

across the two years, improvement in the frequency of claims

remains a key management focus.

Financial performance

The combined EBITDA result of the Norco Rural / Agribusiness

division after the Suppliers’ Patronage Scheme was an

improvement of 9.5 percent to $4.357 million. Rural recorded a

12.8 percent increase in EBITDA and Agribusiness produced a 1.1

percent increase in EBITDA.

Rural delivered strong sales growth of 10.4 percent, with the

latter part of the year producing sales numbers not seen for

many years. Late season field days, primarily Farmfest and

Primex, produced solid sales results and this in combination with

several in-store promotion events during May and June resulted

in our run through to the end of the financial year being much

stronger than forecast.

The strong late season sales had an impact on product mix

and this combined with strong competitor price pressure saw

a small decline in GP margin. However, this was countered by

a 2.2 percent increase in the number of transactions facilitated

combined with a 7.6 percent increase in the average transaction

value.

Our focus on supporting strong and reputable R&D brands

produced another solid increase in sundry income of 7 percent.

The Rural Retail net profit was favourable 14.4 percent and the

ROCE generated by the division was favourable 2.3 percent to

last year.

The favourable seasonal conditions that underpinned Rural’s

result actually dampened demand for bulk and bagged

manufactured feeds from our two feed mills. With ample

supplies of quality paddock feed across our territory, overall

demand for feed products was depressed and total volume

manufactured by our agribusiness division was down 10

percent. Grain and protein tonnages traded by our Norco Grain

business unit were up 6.3 percent.

Total sales within Norco Agribusiness were down this year.

However, despite subdued demand and lower sales, the division

recorded a net profit increase of 4.7 percent and a 2 percent

improvement in ROCE.

Suppliers’ Patronage Scheme

Norco Member spend was up 8.5 percent year on year and

the number of Members transacting with the Co-operative

was stable at 92 percent. 2015/16 was another record year for

Suppliers’ Patronage Scheme (SPS) payments to Members with

SPS payments up 9.7 percent to $1.156 million.

DAMON BAILEY

General Manager Rural / Agribusiness

18

In the 2015/16 year Norco achieved a net profit of $2.003 million versus

the prior year’s $3.105 million and an EBITDA of $9.7 million versus

the prior year’s $10.6 million. This financial result was unfavourable to

2014/15 however it was after the business paid an additional $1.8m

to our Members / Milk Suppliers via a higher average milk price so, in

trading terms, the base business performed better than the prior year.

The total sales finished the year at $541 million which was 5.9 percent

higher than the prior year’s $511 million and all business units achieved

a sales increase other than Agribusiness and that was due to the good

season that our Members / Milk Suppliers experienced. The ice cream

sales increase was 3.8 percent, Norco Milk achieved 5.5 percent, Rural

Retail achieved 10.4 percent and the Agribusiness sales decreased

2.6 percent. Norco Milk and the Ice Cream Business Unit (ICBU) both

achieved record volumes in the 2015/16 year and the Rural Retail

business achieved a record sales result.

Debtor and creditor days

Debtor days achieved a record of 27.2 days versus the prior year’s

31.0 which is a significant improvement and a pleasing record for the

business. Creditor days were consistent at 32.3 days versus 32.2 days

for the previous year.

Debt reduction

Norco’s core bank debt reduced by $1.99 million during the year from

$31.9 million to $29.92 million as a result of scheduled repayments.

Norco’s total debt including finance leases and Norco Capital Units is

now $31.437m versus the prior year’s $33.8m. The total debt of $31.437

million includes $29.92 million of core debt with St George, $1.4

million of finance leases and $0.1 million of Norco Capital Units.

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

3.01 versus the result of 3.05 in 2014/15. This improvement is driven by

the reducing total debt. The Interest Cover Ratio, which is the number

of times EBITDA covers financial commitments, achieved a result of

3.22 versus the prior year’s 3.59.

Working capital

Working capital (made up of debtors, creditors and inventory) as at

30 June 2016 was $10.5 million versus the prior year’s $11.7 million,

with the decrease due to the reduction in debtor days and reduced

inventory at the ICBU.

Dry Former Member repayments

Using the funds derived from the Compulsory Share Acquisition

Scheme, Norco repaid $487,440 to Dry Former Members this financial

year. This takes active Member capital to 92 percent of issued capital

compared to 89 percent in 2014/15.

CAMILLE HOGAN

Chief Financial Officer

FINANCIAL MANAGEMENT

19

Over the past year, the Human Resources (HR) team has

focused on continuous improvement to increase efficiency

and accountability, while improving services to our internal

customers and streamlining HR processes. The team also

continues to provide leadership with regards to corporate

projects such as implementing contemporary HR information

systems and negotiating the renewal of Enterprise Bargaining

Agreements across major divisions of Norco.

As Norco continues to grow and integrate continuous

improvement into business planning, human resources will play

a critical role in ensuring that we have a high-performing and

engaged workforce equipped to deliver ever better results for

the Co-operative.

Work Health and Safety

“Is what you are about to do safe?” This question has been posed

to Norco staff throughout the year and is aimed at ensuring all

employees are taking responsibility for working safely. Everyone

knowing that they make a difference helps Norco to provide safe

workplaces.

Our focus on safety has resulted in a 24 percent reduction in the

number of injuries recorded and a 10 percent reduction in the

Total Recordable Injury Frequency Rate over the past 12 months.

These are pleasing results for the Co-operative.

Safety however is ultimately about people − not numbers.

The policies, standards, programmes and targets we set

are important, these have helped to improve our safety

performance and we are pleased to report that in February 2016

Norco achieved third party certification across the entire Co-

operative for our WHS Management System against Australian

Standard 4801. We also focused heavily on identifying and

improving areas of recurring incidents, hazardous manual tasks

and improving hazard identification processes.

TOM McATEE

General Manager Human Resources

NORCO PEOPLE

The Directors present their report together with the �nancial reports for Norco Co-operative

Limited (‘the Co-operative’) for the year ended 30 June 2016 and the Auditors’ report thereon.

The Board of Directors currently comprises �ve supplier Directors (non executive) and no

Independent Directors. There is currently one supplier Director vacancy in the Southern Region as a

result of Mr PW Neal’s resignation e�ective from 23 November 2015.

The Directors bring a range of skills and experience to the Board room, including a detailed

understanding of the dairy industry and wider agricultural sectors, extensive experience in

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

have a shared desire to achieve a successful balance between Norco’s strategic business objectives

and the needs of Members.

However, the Directors also acknowledge that they must continually strive to learn more about the

Norco business and the market place within which Norco operates, both domestically and globally.

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 e�ective manner possible, using all

relevant information and tools available to them.

During 2015/16 the Board engaged the services of two consultants to sit alongside Directors,

being Dr Brindha Gunasingham FCA and Ms Tanya Crowther, both of whom contributed greatly

to the overall performance of the Board. Ms Crowther continues to be contracted by the Board

to provide her services. In addition, several well respected individuals have been invited to make

presentations to the Board and management team during the year. Mr Norman Repacholi of Dairy

Australia provided insightful and timely information on the domestic and global milk markets. Ms

Jingmin Qian of Jing Meridian assisted in better understanding cross cultural issues and learnings

in relation to the Asian market place. Mr Brad Tozer of Ernst & Young facilitated and delivered a

session on cost allocations and Mrs Kerry Kempton of the NSW Department of Primary Industries

discussed the �ndings from the NSW Dairy Farm Monitor project.

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

encouraged to attend various AICD educational courses and functions (some of which are listed

below in the individual Director pro�les).

Strategic discussions play an important role at each and every Board meeting 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.

DIRECTORS’ REPORT

20

Gregory J McNamara – Chairman

Greg McNamara has been a director of Norco Co-operative

Limited for 20 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 2015/16 in his role as Chairman

has been to ensure that the Board and management continue

to implement the strategic plan of having a growing, diverse

and competitive business so that our Members’ can be rewarded

with a sustainable and competitive milk price. Greg is also an

innovative thinker and is always exploring opportunities to bring

people together to work collaboratively to improve the Norco

business.

Greg is a member of the Australian Institute of Company

Directors and is a keenly sought after speaker for industry events

and forums. During the 2015/16 year, Greg was a speaker at both

the ABARES Outlook Conference and the PEI Agri Investor Forum

and also attended the Australia and New Zealand Co-operative

Leaders’ Forum. Whenever possible, Greg always tries to make

time in his busy schedule to speak to various local seniors’

groups, as members of these groups often have close ties with

the dairy industry and are valued supporters of the Co-operative.

Greg is also a Board member of the New South Wales Business

Chamber.

More recently, Greg has accepted the role of Chairperson of the

Industry Advisory Group (IAG) within the Farm Co-operatives

and Collaboration Pilot Program (FCCPP). The FCCPP is an

Agricultural Competitiveness White Paper initiative of the

Commonwealth Government which encourages farmers to work

together to improve farm gate returns by providing advice and

resources to farmers and farmer groups looking to establish co-

operatives and collaborative business models.

21

Anthony (Tony) W Wilson – Deputy Chairman

Tony Wilson was elected as a director on 4 March 2009 and

is from the Northern Region. He is Chairman of the Audit

and Risk Management Committee.

Together with his wife Jillian and sons Nicholas and James,

Tony lives and farms at The Risk, 20 kms north west of

Kyogle milking a herd of 260 cows that are Holstein based,

with a crossbreeding program in place. Tony has studied

and gained a BA, Dip Ed at UNE, Armidale. Tony also has

an interest in agri-politics which has developed over many

years and has been focussed on the welfare of the dairy

farming community.

Tony and his family operate a robotic dairy which is now

well established. This innovative robotic dairy is not only a

favourite stop-over for groups of dairy farmers but for the

wider community also. The family’s willingness to “open

their door” to dairy farmers wanting to see and experience

an operational robotic dairy is a testament to their sense of

community and their passion for the future of the industry.

Tony is a member of the Australian Institute of Company

Directors (AICD). He again supported the Norco Rural Stores

Managers’ Conference, this time held locally in July 2015.

During the year, Tony was a speaker at both the QDO-DIAA

Annual Conference and the Ag in the Asian Century National

Export and Innovation Conference. Tony was the Board’s

representative on the Norco study tour to the North Island

of New Zealand 13-18 June 2016 with a group of Norco milk

suppliers. As part of his ongoing professional development,

Tony also attended the AICD Company Directors’ Course

Update in May 2016.

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. In nearing

the end of his second year as a Director, Heath now has a

firm understanding of the complex Norco business and the

market place in which Norco operates. Heath’s time on the

Board has cemented his view that Norco, as a co-operative,

has a significant role to play in ensuring there is a successful

future for the northern dairy industry.

Heath is an affiliate member of the Australian Institute of

Company Directors and completed the AICD Company

Directors’ Course in August 2015. Heath was one of three

Norco Directors who attended the Australian Dairy Industry

Conference in Shepparton Victoria during the year and

spent an additional two days in Victoria visiting farms as part

of the pre-conference tour. Heath also travelled to the South

Island of New Zealand with a group of Norco milk suppliers

as part of the Norco study tour.

22

23

Michael C Je�ery - Director

Michael Jeffery was elected as a director on 14 November

2012 and is from the Southern Region. Michael is a member

of the Audit and Risk Management Committee.

Michael has been farming at Austral Eden near Kempsey

in a family partnership for 27 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 four years.

Michael is a member of the Australian Institute of Company

Directors and has also completed the AICD Finance for

Directors course. During the year, Michael attended the

Australian Dairy Industry Conference in Shepparton Victoria.

With the Chairman, Michael attended the Australia and

New Zealand Co-operative Leaders’ Forum in May 2016,

visited milk processing and rural retail businesses in New

Zealand and also represented Norco at the ADIC Investment

Planning Workshop.

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), secretary of Subtropical FNC, 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. Leigh was one of three Norco Directors who

attended the Australian Dairy Industry Conference in

Shepparton Victoria during the year and spent an additional

two days in Victoria visiting farms as part of the pre-

conference tour. Leigh was the Board’s representative on the

Norco study tour to the South Island of New Zealand 4-9

October 2015 with a group of Norco milk suppliers.

Note: At the directors’ meeting held on 16 and 17 December

2015 it was determined that the operation of both the

Milk Supply Advisory Committee and Brand Management

Advisory Committee would be suspended and that any

items previously considered by these committees would be

incorporated into the directors’ meetings until further notice.

director elections – 2015/16

the retiring Directors Ms l Shearman (Central Region) and Mr

MC jeffery (Southern Region) being eligible, offered themselves

for re-election. A member nomination was also received from

Mrs M McDonald (Central Region) and accordingly a postal

ballot was held for the Central Region resulting in Ms Shearman

being re-elected for a three year term effective from the 2015

Annual General Meeting on 11 November 2015. As there were

no member nominations received from the Southern Region, Mr

jeffery was re-elected unopposed for a three year term effective

from the 2015 Annual General Meeting on 11 November 2015.

A casual vacancy was created in the Southern Region when Mr

PW Neal tendered his resignation effective from 23 November

2016. Mr Neal was due to retire at the 2016 Annual General

Meeting. At the Directors’ meeting held on 16 and 17 December

2015, it was resolved that the casual vacancy created by Mr

Neal’s resignation would be filled at the time and in the manner

specified under rule 46 of the Rules of the Co-operative.

Accordingly, the vacancy will be filled as part of the ordinary

election of Directors programme leading up to the 2016 Annual

General Meeting.

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 (including meetings of the Audit

and Risk Management Committee and Milk Supply Advisory

Committee) and number of meetings attended by each of the

directors of the Co-operative during the financial year are:

Directors’ Meetings

Audit and Risk Management

Committee Meetings

Milk Supply Advisory Committee

Meetings*

A B A B A B

Gj McNamara 12 12 - - 4 4

AW Wilson 12 12 7 7 4 4

hBj hoffman 12 12 5 5 4 4

MC jeffery 12 12 5 5 4 4

l Shearman 12 12 2 2 4 4

PW Neal 5 5 2 2 4 4

A Reflects the number of meetings held during the time the director held office during the year B Number of meetings attended

* The last meeting of the Milk Supply Advisory Committee before being suspended was on 29 October 2015.

During the course of the 2015/16 financial year there were also

five directors’ meetings 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 510 full-time, 69 part-time

permanent and 227 casual employees at 30 june 2016

(2015: 494 full-time, 70 part-time permanent and 188 casual

employees).

24

results of operations

the net amount of the operating profit for the financial year of

the Co-operative after providing for income tax was $721,000

(2015: $2.3 million 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 2015/16 financial year totalled

$528,000 (being a dividend rate of 6.0% [six percent] on issued

capital), declared and approved by Members at the 2015 Annual

General Meeting, which was held on 11 November 2015.

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 and Chief

Executive Officer’s Report for the financial year ended 30 june

2016 (see pages 4 and 8).

events subsequent to balance date

During the interval between the end of the financial year and

the date of this report, there has not arisen any item, transaction

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

of the directors, is likely to significantly affect the operations of

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

affairs of the Co-operative in subsequent financial years.

future developments

In the opinion of the directors, disclosure of information

regarding the likely developments in the operations of Norco

in future financial years and the expected results of those

operations is likely to result in unreasonable prejudice to the Co-

operative. Accordingly, this information has not been disclosed

in this report.

indemnification and insurance of directors and officers

the Co-operative has entered into agreements to indemnify all

directors named at the beginning of this report, former directors

and current and former officers of the Co-operative against

all liabilities to persons (other than to the Co-operative or to a

related body corporate) which arise out of the performance of

their normal duties as a director or officer, unless the liability

relates to conduct involving a lack of good faith.

the Co-operative has agreed to indemnify the directors and

officers against all costs and expenses incurred in defending

an action that falls within the scope of the indemnity and any

resulting payments. the relevant insurances cover legal liabilities

and associated costs arising from the performance of their duties

as directors and officers and compensation for loss or injury

sustained in the course of such duties.

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

25

26

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 29 June 2016 Mr GJ McNamara advised that he has

accepted the position of Chairperson of the Industry Advisory

Group under the Farm Co-operatives and Collaboration Pilot

Program, an initiative under the Commonwealth Government’s

Agricultural Competitiveness White Paper. 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.

Rounding o� 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 AW Wilson

Chairman Deputy Chairman

Lismore, 28 September 2016

27

28

This statement outlines the main corporate governance

practices that were in place throughout the 2015/16 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. The Milk Supply Advisory

Committee and Brand Management Advisory Committee also

met regularly up to 29 October 2015, however at the December

2015 Board meeting Directors suspended these two committees

until further notice. Any items previously considered by these

committees are now incorporated into the monthly Directors’

meeting.

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. Currently

there is one supplier Director position vacant (Southern Region)

and 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.

It is also pleasing to report that all current Directors have

attended and completed the AICD Company Directors’ Course.

29

CORPORATE GOVERNANCE STATEMENT

30

Co-operatives National Law in NSW

the Co-operative continues to operate under the Co-operatives

National law (CNl) which was introduced on 3 March 2014.

Board Committees

the Directors seek to achieve best practice in corporate

governance and accountability through the following 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 16 and 17 December

2015 it was determined that the operation of both the Milk

Supply Advisory Committee and Brand Management Advisory

Committee would be suspended 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 -

- the terms under which such milk is to be acquired

(including but not limited to price): and

- 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).

31

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.

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 assisting 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.

32

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;

• 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 2014 Level 3, Coles Quality Assurance, 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 2014 Level 3, Coles Quality Assurance,

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 2014

Level 3, 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.

Rural employees are 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.

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

33

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.

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 Cooperative’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 Cooperatives 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 Cooperatives

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

2016 2015 Before Signi�cant Total Before Signi�cant Total Signi�cant Items (1) Signi�cant Items (1) Items Items Notes $000 $000 $000 $000 $000 $000

Revenue 4.1 541,138 - 541,138 510,909 - 510,909

Milk payments to suppliers (132,695) - (132,695) (123,529) - (123,529)Cost of sales (280,555) - (280,555) (264,705) - (264,705)Employee expenses 4.2 (65,598) - (65,598) (60,347) - (60,347)Depreciation expense 4.3 (5,853) - (5,853) (5,681) - (5,681)Borrowing costs expense (2,496) - (2,496) (2,552) - (2,552)Occupancy expenses (4,959) - (4,959) (4,800) - (4,800)Administration and other costs 4.4 (47,219) - (47,219) (46,162) - (46,162)Pro�t/(loss) on disposal ofnon-current assets 240 - 240 (28) - (28)Restructure costs - (88) (88) - (153) (153)Pro�t/(loss) before tax fromordinary activities beforeincome tax expense andmember distributions 2,003 (88) 1,915 3,105 (153) 2,952

Member distributions 6 - (535) (535) - (298) (298)Pro�t/(loss) before income tax 2,003 (623) 1,380 3,105 (451) 2,654

Income tax expense 5 - - - - - -Net pro�t/(loss) attributable to members 2,003 (623) 1,380 3,105 (451) 2,654

Other comprehensive income

Other comprehensive income to be reclassi�ed to pro�t or loss in subsequent periods: Net loss on cash �ow hedges - (659) (659) - (391) (391)Other comprehensive loss for the year, net of tax - (659) (659) - (391) (391)Total comprehensive income/(loss) for the year, net of tax 2,003 (1,282) 721 3,105 (842) 2,263

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

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

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIvE INCOME FOR THE yEAR ENDED 30 JuNE 2016

FINANCIAL STATEMENTS

35

STATEMENT OF FINANCIAL POSITIONAS AT 30 JUNE 2016

2016 2015 Notes $000 $000

AssetsCurrent assetsCash assets and cash equivalents 18.2 4,805 4,226Trade and other receivables 7 49,152 47,437Inventories 8 30,958 32,020Other assets 1,300 527Total current assets 86,215 84,210

Non-current assetsInvestments 9 3 3Property, plant and equipment 10 54,774 55,177Intangible assets and goodwill 11 37,038 37,038Total non-current assets 91,815 92,218Total assets 178,030 176,428

LiabilitiesCurrent liabilitiesTrade and other payables 12 61,479 59,146Interest-bearing loans and borrowings 13 2,141 2,160Derivative �nancial instruments 14 274 78Employee bene�t liabilities 15 8,978 9,085Total current liabilities 72,872 70,469

Non-current liabilitiesTrade and other payables 12 398 398Interest-bearing loans and borrowings 13 29,295 31,632Derivative �nancial instruments 14 776 313Employee bene�t liabilities 15 1,314 1,340Total non-current liabilities 31,783 33,683Total liabilities 104,655 104,152

Net assets attributable to members 73,375 72,276

Members’ interest 16.1 9,161 8,783

Net assets 64,214 63,493

EquityRetained earnings 26,177 24,797Reserves 17 38,037 38,696

Total equity 64,214 63,493

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

36

Cash �ow Asset Retained hedge revaluation earnings reserve reserve Total equity

$000 $000 $000 $000As at 1 July 2015 24,797 (391) 39,087 63,493

Pro�t for the year 1,380 - - 1,380Other comprehensive loss - (659) - (659)Total comprehensive income/(loss) 1,380 (659) - 721

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

Cash �ow Asset Retained hedge revaluation earnings reserve reserve Total equity

$000 $000 $000 $000As at 1 July 2014 22,143 - 39,087 61,230

Pro�t for the year 2,654 - - 2,654Other comprehensive loss - (391) - (391)Total comprehensive income/(loss) 2,654 (391) - 2,263

At 30 June 2015 24,797 (391) 39,087 63,493

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

STATEMENT OF CHANGES IN EquITy FOR THE yEAR ENDED 30 JuNE 2016

37

STATEMENT OF CASH FLOWSFOR THE yEAR ENDED 30 JuNE 2016

2016 2015 Notes $000 $000

Operating activitiesReceipts from customers 539,185 510,655Payments to suppliers and employees (395,406) (374,819)Interest received 239 306Interest paid (2,496) (2,552)Milk supplier payments (133,219) (123,529)Net cash �ows from operating activities 18.1 8,303 10,061

Investing activitiesProceeds from sale of property, plant and equipment 513 170Purchase of property, plant and equipment (5,724) (7,321)Net cash �ows used in investing activities (5,211) (7,151)

Financing activitiesSuppliers’ share contribution 378 613Repayment of member deposits - (335)Distributions paid to members (535) (298)Payment of �nance lease liabilities (366) (466)Repayment of borrowings (1,990) -Net cash �ows used in �nancing activities (2,513) (486)

Net increase in cash and cash equivalents 579 2,424Cash and cash equivalents at opening balance date 4,226 1,802

Cash and cash equivalents at 30 June 18.2 4,805 4,226

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

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1. Corporate informationThe �nancial statements of Norco Co-operative Limited and its controlled entities (the Co-operative) for the year ended 30 June 2016 were authorised for issue in accordance with a resolution of the directors on 28 September 2016. Norco Co-operative Limited is a for-pro�t 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. Signi�cant accounting policiesSigni�cant accounting policies a) Basis of preparation The general purpose �nancial 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 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 (‘AIFRS’) 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 di�er 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 a�ects only that period, or in the period of the revision and future periods if the revision a�ects both current and future periods. Judgements made by management in the application of AIFRS that have signi�cant e�ects on the �nancial statements and estimates with a signi�cant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the �nancial statements. Accounting policies are selected and applied in a manner which ensures that the resulting �nancial information satis�es 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 �nancial statements for the year ended 30 June 2016 and the comparative information presented in these �nancial statements for the year ended 30 June 2015. The �nancial 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. b) Changes in accounting policy, disclosures, standards and interpretations i) Changes in accounting policies, new and amended standards and interpretations The accounting policies adopted are consistent with those of the previous �nancial year. ii) Accounting Standards and Interpretations issued but not yet e�ective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet e�ective and have not been adopted by the Co-operative for the annual reporting period ending 30 June 2016, outlined in the table below:

The impact of these changes in standards and interpretations is in the process of being quanti�ed.

NOTES TO THE FINANCIAL STATEMENTSFOR THE yEAR ENDED 30 JuNE 2016

Reference Title Summary Application Application date of date for standard Co-operative

AASB 9 Financial AASB 9 (December 2014) is a new standard 1 January 1 July 2018 Instruments which replaces AASB 139. This new version 2018 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 classi�cation and measurement of �nancial assets compared with the requirements of AASB 139. There are also some changes made in relation to �nancial liabilities. AASB 15 Revenue from The core principle of AASB 15 is that an entity 1 January 1 July 2018 Contracts with recognises revenue to depict the transfer of 2018 Customers promised goods or services to customers in an amount that re�ects 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 �ve step process. AASB 16 Leases The key features of AASB 16 in relation to the 1 January 1 July 2019 Company is that lessees are required to 2019 recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.

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c) Statement of compliance The �nancial report complies with Australian Accounting Standards, which include International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. d) Basis of consolidation The �nancial statements comprise the �nancial statements of the Co-operative and its subsidiaries as at 30 June 2016. 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 a�ect those returns through its power over the investee. Speci�cally, the Co-operative controls an investee if, and only if, the Co-operative has: • Power over the investee (i.e. existing rights that give

it the current ability to direct the relevant activities of the investee);

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

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

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

holders of the investee;• Rights arising from other contractual arrangements; and• The Co-operative’s voting rights and potential voting

rights.The Co-operative re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Co-operative obtains control over the subsidiary and ceases when the Co-operative loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the Statement of pro�t 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. Pro�t 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 de�cit balance. When necessary, adjustments are made to the �nancial 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 �ows 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 pro�t or loss. Any investment retained is recognised at fair value. e) Current versus non-current classi�cation The Co-operative presents assets and liabilities in the Statement of �nancial position based on current/non-current classi�cation. 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 least twelve months after the reporting period.

All other assets are classi�ed 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 the reporting period.

The Co-operative classi�es all other liabilities as non-current. Deferred tax assets and liabilities are classi�ed as non-current assets and liabilities. f) Revenue recognition Revenue is recognised to the extent that it is probable that the economic bene�ts will �ow to the Co-operative and the revenue can be reliably measured. The following speci�c recognition criteria must also be met before revenue is recognised: Sale of goods Revenue is recognised when the signi�cant 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 e�ective interest method. This is a method of calculating the amortised cost of a �nancial asset and allocating the interest income over the relevant period using the e�ective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the �nancial asset to the net carrying amount of the �nancial asset. Dividends Dividend revenues are recognised when control of a right

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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. g) Borrowing costs Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. h) Leases The 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 ful�lment of the arrangement is dependent on the use of a speci�c 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 �nance 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 �nance costs in the Statement of pro�t 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 pro�t or loss and other comprehensive income on a straight-line basis over the lease term. Lease incentives are recognised in the Statement of pro�t 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 bene�ts of ownership of the leased asset are classi�ed 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. i) Cash and cash equivalents Cash and short-term deposits in the Statement of �nancial 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 �ows, cash and cash equivalents consist of cash and cash equivalents as de�ned above, net of outstanding bank overdrafts. j) 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 o� when identi�ed. k) Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for, as follows: • Raw materials: purchase cost on a first in, first out basis.• Finished goods and work in progress: cost of direct

materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Maintenance spares are recognised as inventories and expensed when utilised. l) Foreign currenciesBoth 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. m) Taxes Current income tax Current income tax assets and liabilities for the current year are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Co-operative operates and generates taxable income. Deferred tax Deferred tax is provided using the liability method on temporary di�erences between the tax bases of assets and liabilities and their carrying amounts for �nancial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary di�erences, except: • When the deferred income tax liability arises from the

initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, a�ects neither the accounting pro�t nor taxable pro�t or loss.

• In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary di�erences can be controlled and it is probable that the temporary di�erences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary di�erences, the carry forward of unused

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tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable pro�t will be available against which the deductible temporary di�erences, and the carry forward of unused tax credits and unused tax losses can be utilised, except: • When the deferred tax asset relating to the

deductible temporary di�erence arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, a�ects neither the accounting pro�t nor taxable pro�t or loss.

• In respect of deductible temporary di�erences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary di�erences will reverse in the foreseeable future and taxable pro�t will be available against which the temporary di�erences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that su�cient taxable pro�t will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable pro�ts will allow the deferred tax asset to be recovered. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it is no longer probable that su�cient taxable pro�t will be available to allow all or part of the deferred income tax asset to be utilised. 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 �nancial position. Cash �ows are included in the Statement of cash �ows on a gross basis and the GST component of cash �ows arising from investing and �nancing activities, which is recoverable from, or payable to, the taxation authority is classi�ed as part of operating cash �ows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. n) 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 �nancial 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 �ows are discounted to their present value using a pre-tax discount rate that re�ects current market assessments of the time value of money and the risks speci�c to the asset. For an asset that does not generate largely independent cash in�ows, 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. Derecognition and disposal An item of property, plant and equipment is derecognised upon disposal or when no further future economic bene�ts are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the di�erence between the net disposal proceeds and the carrying amount of the asset) is included in pro�t or loss in the year the asset is derecognised. o) Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is 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 re�ected in the Statement of pro�t 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 �nite or inde�nite.

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Intangible assets with �nite 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 �nite 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 bene�ts 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 �nite lives is recognised in the Statement of pro�t or loss and other comprehensive income as the expense category that is consistent with the function of the intangible assets. Intangible assets with inde�nite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of inde�nite life is reviewed annually to determine whether the inde�nite life continues to be supportable. If not, the change in useful life from inde�nite to �nite is made on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the di�erence between the net disposal proceeds and the carrying amount of the asset and are recognised in the Statement of pro�t or loss and other comprehensive income when the asset is derecognised. p) 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 identi�able 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 bene�t from the synergies of the combination, irrespective of whether other assets or liabilities of the Co-operative are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated: • Represents the lowest level within the Co-operative

at which the goodwill is monitored for internal management purposes; and

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

Impairment is determined by assessing the recoverable amount of the 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. q) Impairment of non-�nancial 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 in�ows 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 �ows are discounted to their present value using a pre-tax discount rate that re�ects current market assessments of the time value of money and the risks speci�c to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identi�ed, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in pro�t 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. r) 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 �nancial 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.

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s) 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 e�ective interest method. Gains or losses are recognised in pro�t or loss when the liabilities are derecognised. t) Provisions General 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 out�ow of resources embodying economic bene�ts 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 pro�t or loss and other comprehensive income net of any reimbursement. Wages, salaries and sick leave Liabilities for wages and salaries, including non-monetary bene�ts 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 bene�ts 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 out�ows. u) Members’ interest In periods before 1 July 2004, members’ units in the Co-operative were recorded in equity as contributed equity. On 1 July 2004, the Co-operative re-classi�ed 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 clari�ed by UIG 2 Members’ Shares in Co-operative Entities and Similar Instruments, which the Co-operative adopted e�ective 1 July 2004.

v) Norco capital units Norco Capital Units are carried at the principal amount. Interest is accrued at the entitlement rate and is included in “Interest-bearing liabilities”. w) Derivative �nancial instruments and hedge accounting Initial recognition and subsequent measurement The Co-operative uses derivative �nancial instruments, such as interest rate swaps, to hedge interest rate risk. Such derivative �nancial 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 �nancial assets when the fair value is positive and as �nancial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to pro�t or loss, except for the e�ective portion of cash �ow hedges, which is recognised in other comprehensive income (OCI) and later reclassi�ed to pro�t or loss when the hedge item a�ects pro�t or loss. For the purpose of hedge accounting, a hedge is classi�ed as: • Cash flow hedges: when hedging the exposure to

variability in cash �ows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised �rm 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 identi�cation of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the e�ectiveness of changes in the hedging instrument’s fair value in o�setting the exposure to changes in the hedged item’s fair value or cash �ows attributable to the hedged risk. Such hedges are expected to be highly e�ective in achieving o�setting changes in fair value or cash �ows and are assessed on an ongoing basis to determine that they actually have been highly e�ective throughout the �nancial reporting periods for which they were designated. Hedges that meet the strict criteria for hedge accounting are accounted for, as described below: Cash �ow hedges The e�ective portion of the gain or loss on the hedging instrument is recognised in OCI in the cash �ow hedge reserve, while any ine�ective portion is recognised immediately in the statement of pro�t or loss as other operating expense. The Co-operative uses interest rate swaps to hedge the exposure to cash �ow 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 $1.1 million (30 June 2015: $0.4 million) of swaps have been designated as e�ective interest rate swaps and

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therefore satisfy the accounting standard requirements for hedge accounting. If the forecast transaction or �rm 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 �rm commitment a�ects pro�t or loss. x) 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-�nancial asset takes into account a market participant’s ability to generate economic bene�ts 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 su�cient 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 �nancial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is signi�cant 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 signi�cant to the fair value measurement is directly or indirectly observable

• Level 3 - valuation techniques for which the lowest level input that is signi�cant to the fair value measurement is unobservable

At each reporting date, the Valuation Committee analyses the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the Co-operative’s accounting policies. For this analysis, the Valuation Committee veri�es the major inputs to contracts and other relevant documents. The Valuation Committee, in conjunction with the Co-operative’s external valuers, also compares the changes in the fair value of each asset and liability with

relevant external sources to determine whether the change is reasonable. 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. Signi�cant accounting judgements, estimates and assumptionsSigni�cant judgementsThe preparation of the �nancial statements requires management to make judgments, estimates and assumptions that a�ect the reported amounts in the �nancial 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 di�er from these estimates under di�erent assumptions and conditions. Management has identi�ed the following critical accounting policies for which signi�cant judgments, estimates and assumptions are made. Actual results may di�er from these estimates under di�erent assumptions and conditions and may materially a�ect �nancial results or the �nancial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the �nancial statements. Impairment of non-�nancial assets other than goodwill The Co-operative assesses impairment of all assets at each reporting date by evaluating conditions speci�c 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 o� when identi�ed. 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 identi�ed, 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 o� when identi�ed.

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2016 2015 $000 $000

4. Revenue and expenses

4.1 RevenueSale of goods 540,684 510,440Interest received 239 306Other 215 163 541,138 510,909

4.2 Employee expensesSalaries and wages (including contractors) 57,416 52,606Workers compensation 1,704 1,846Superannuation costs 4,007 3,631Payroll tax 2,471 2,264 65,598 60,347

4.3 Depreciation expensePlant and equipment 5,198 5,029Buildings 468 465Leased assets 187 187 5,853 5,681

4.4 Administration and other costs

Administration and other costs include the following:

Provision for employee bene�ts 339 863Inventory obsolescence 59 78Doubtful/bad debts 57 68Minimum lease payments recognised as an operating lease expense 69 43

5. Income tax expense

The major components of income tax expense for the years ended 30 June 2016 and 2015 are:

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

Deferred tax: Relating to origination and reversal of temporary di�erences - -Income tax expense reported in the Statement of pro�t or loss and othercomprehensive income - -

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

Accounting pro�t before income tax 1,380 2,654

At Australia’s statutory income tax rate of 30% (2015: 30%) 414 796

Non deductible amounts 249 347Movement in temporary di�erences (112) (334)Tax loss movement (551) (809) - -

Tax losses At 30 June 2016, the Co-operative had an estimated gross $9.0m in carry forward losses (2015: $10.0m). These tax losses have not been brought to account in the Statement of �nancial position. There are no available franking credits.

Temporary di�erences - not recorded The Co-operative has a surplus of deductible temporary di�erences. The deferred tax asset associated with these di�erences has not been recognised at 30 June 2016.

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2016 2015 $000 $000

Unrecognised deferred tax assets and liabilitiesProvision for bad debts 230 275Provision for employee bene�ts 3,088 3,128Provision for obsolescence 203 340 3,521 3,743

6. Member distributions

Expensed in the period 535 298

7. Trade and other receivablesTrade receivables 47,406 47,018Provision for doubtful debts (768) (1,034) 46,638 45,984

Other receivables 2,514 1,453 49,152 47,437

Doubtful debtsCarrying amount of doubtful debts $000

Opening balance year 2014 906(Reduction)/addition in provision 60Amount provided for during the year 68Ending balance year 2015 1,034

Opening balance year 2015 1,034(Reduction)/addition in provision (323)Amount provided for during the year 57Ending balance year 2016 768

Trade receivables are generally on 30 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

2016 47,406 33,454 9,768 3,010 1,1742015 47,018 32,207 10,099 3,158 1,554

Receivables past due but not considered impaired are: $3,855,000 (2015: $5,293,000). Payment terms have not been renegotiated, however communications with counterparties have satis�ed management that payment will be received in full.

2016 2015 $000 $000

8. InventoriesRaw materials 6,922 7,403Finished goods 24,712 26,032Provision to net realisable value (676) (1,415)

Total inventories at the lower of cost and net realisable value 30,958 32,020

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

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2016 2015 $000 $000

9. InvestmentsSharesUnlisted corporations, at cost 3 3

10. Property, plant and equipment

Land and buildingsAt cost 28,679 28,814Accumulated depreciation (5,262) (4,794)Net carrying amount 23,417 24,020

Plant and vehiclesAt cost 70,296 66,878Accumulated depreciation (42,122) (39,625)

Net carrying amount 28,174 27,253

Assets under leaseAt cost 1,860 1,860Accumulated depreciation (404) (217)

Net carrying amount 1,456 1,643

Capital expenditure work in progressAt cost 1,727 2,261

Net carrying amount 1,727 2,261

Total property, plant and equipmentAt cost 102,562 99,813Accumulated depreciation (47,788) (44,636)

Net carrying amount 54,774 55,177

Reconciliation of carrying amounts at the beginning and the end of the year

Land and buildingsAt 1 July 24,020 24,037Disposals (135) -Reclassi�cation - 306Transfers - 142Depreciation expense (468) (465)

At 30 June 23,417 24,020

Plant and vehiclesAt 1 July 27,253 23,218Disposals (139) (198)Reclassi�cation - (306)Transfers 6,258 9,568Depreciation expense (5,198) (5,029)

At 30 June 28,174 27,253

Assets under leaseAt 1 July 1,643 2,184Transfers - (354)Depreciation expense (187) (187)

At 30 June 1,456 1,643

Capital expenditure work in progressAt 1 July 2,261 4,296Additions 5,724 7,321Transfers (6,258) (9,356)

At 30 June 1,727 2,261

Total property, plant and equipmentAt 1 July 55,177 53,735Additions 5,724 7,321Disposals (274) (198)Depreciation expense (5,853) (5,681)

At 30 June 54,774 55,177

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There were no impairment losses recognised in the 2016 or 2015 �nancial years.

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

Freehold land, buildings and plant and equipment are subject to a �xed and �oating �rst 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 �nance lease were acquired for nil cash �ow and are considered to be a non-cash �nancing and investing activity.

2016 2015 $000 $000

11. Intangible assets and goodwill

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

Net carrying amount 37,038 37,038

(a) Impairment testing of 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 �ow projections is 12% pre-tax (2015: 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

Current

Trade payables and accrued expenses 61,479 59,146

Non-current

Other payables 398 398

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 borrowingsCurrentLease liability 380 374Norco Capital Units 111 111Term loans - secured 1,650 1,675 2,141 2,160

Non-currentLease liability 1,025 1,397Term loans - secured 28,270 30,235 29,295 31,632

Term loans are secured by a �xed and �oating charge over the assets of Norco Co-operative Limited.

During the period, the Group’s St George �nance facility was amended and is scheduled to expire on 31 October 2018. Under the �nance facility, the facility limit will reduce by a �xed amount immediately after each quarter end date. As at 30 June 2016, the �xed amounts payable over the next twelve months have been classi�ed as a current liability. The remainder of the liability has been classi�ed as non-current at 30 June 2016.

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

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(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 �ows at prevailing market interest rates.

(b) Interest rate, foreign exchange and liquidity risk Details regarding interest rate, foreign exchange and liquidity risk is disclosed in Note 29.

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

2016 2015 $000 $000

Property asset charges 53,318 53,534Leased asset charges 1,456 1,643Trademark 2,729 2,729

Total assets pledged as security 57,503 57,906

There are no speci�c terms and conditions related to the above pledges.

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

Term loan facilitiesUsed facilities 29,920 31,910Unused facilities 4,100 75 34,020 31,985

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

Bank guarantees and �nance leasesUsed facilities 44 25Unused facilities 556 575 600 600

Business credit card facilityUsed facilities 23 43Unused facilities 117 97 140 140

Total �nance facilitiesUsed facilities 29,987 31,978Unused facilities 21,773 17,747 51,760 49,725

14. Derivative �nancial instrumentsFinancial liabilities at fair value through OCI

Current

Interest rate swap contracts - cash �ow hedges 274 78

Non-current

Interest rate swap contracts - cash �ow hedges 776 313

The Co-operative has entered into interest rate swaps which are cash�ow, which are fair valued by comparing the contracted rate to the future market rates for contracts with the same length of maturity. The $30 million of swaps have been designated as e�ective 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 valuationmethod are classi�ed as Level 2.

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2016 2015 $000 $000

15. Employee bene�t liabilitiesCurrentEmployee entitlements 8,978 9,085

Non-currentEmployee entitlements 1,314 1,340

16. Members’ interest

16.1 Movements in shares on issue $000

Opening balance - 8,170,000 fully paid shares 8,170Transferred to deposits ex-shareholders (164)Repurchases of cancelled shares (77)Subscriptions 854At 1 July 2015 8,783

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

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 E�ective 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 o�set decrements in the value of land and buildings and will be transferred to retained earnings on depreciation and/or disposal of land and buildings.

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

2016 2015 $000 $000

18. Statement of cash �ows reconciliation

18.1 Cash �ow reconciliationReconciliation of net pro�t before tax to net cash �ows:Pro�t before tax 1,380 2,654Adjustments for:Depreciation of property, plant and equipment 5,853 5,681Member distribution expense 535 298Net (gain)/loss on disposal of property, plant and equipment (240) 28Changes in assets and liabilities:(Increase)/decrease in trade and other receivables (1,714) 52(Increase)/decrease in inventories 1,062 (2,311)(Increase)/decrease in other assets (773) (39)Increase/(decrease) in trade and other payables 2,333 2,817Increase/(decrease) in provisions (133) 881

Net cash �ows from operating activities 8,303 10,061

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2016 2015 $000 $000

18.2 Reconciliation of cash

Cash on hand and with �nancial institutions 4,805 4,226

19. Controlled entities % equity interest Investment $000 PrincipalName activities 2016 2015 2016 2015

Logan Valley Dairies Pty Ltd Dormant 100% 100% 165 165Norco Wholesalers Pty Ltd* Wholesaler 100% 100% - -Fieldco Pty Ltd* Dormant 100% 100% - -Norco�elds 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% 15,948 15,948* Investment <$101** 100 shares at $1 each

2016 2015 $000 $000

20. Commitments

Capitalised �nance lease commitments for plant and vehicles:

Within one year 416 416After one year but not more than �ve years 1,049 1,465Total minimum lease payments 1,465 1,881Deduct future �nance charges (38) (114) 1,427 1,767

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

Within one year 2,338 2,512After one year but not more than �ve years 2,082 3,766 4,420 6,278

Cancellable operating lease commitments for vehicles and plant:

Within one year 991 1,053After one year but not more than �ve years 1,663 1,921 2,654 2,974

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 $44,250 (2015: $25,000) and are not included as creditors.

22. Financial guarantee contracts

The Co-operative has no outstanding �nancial guarantee contracts at 30 June 2016 (2015: 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. Member’s 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. Related party disclosuresMaterial transactions and balances with related parties are as follows:

Net trading Net trading Goods and debt payable debt payable services (current) (non-current) purchased $000 $000 $000Wholly owned groupNorco Wholesalers Pty Limited 2016 37,957 - 455,504 2015 36,233 - 434,805Logan Valley Dairies Pty Limited 2016 - 397 - 2015 - 397 -

Shareholdings in controlled entities are outlined in Note 19.

Sales to and purchases from related parties are made in arm’s length transactions both at normal market prices and on normal commercial terms.

25. Directors and executive disclosures

25.1 Key management personnel

(i) The directors of Norco Co-operative Limited during the �nancial year were:Greg McNamara (Non-Executive Chairman) Peter Neal (Non-Executive) (a) Anthony Wilson (Non-Executive Deputy Chairman) Michael Je�ery (Non-Executive) Leigh Shearman (Non-Executive) Heath Hoffman (Non-Executive)

(ii) The executives of Norco Co-operative Limited during the �nancial year were: Brett Kelly (Chief Executive O�cer)

Camille Hogan (Chief Financial Officer) Mark Myers (Co-operative Secretary) yasmin Lawrence (Human Resource Manager) (b) Andrew Burns (GM Norco Foods) Damon Bailey (GM Norco Rural and Wholesale) Rob Randall (GM Milk Supply) Robert Vandermaat (GM Operations Norco Foods) Tom McAtee (GM Human Resources) (c)

(a) Resigned as Non-Executive Director on 23 November 2015. (b) Resigned as Human Resource Manager effective 29 April 2016.(c) Appointed as GM Human Resources on 18 April 2016. 2016 2015 $ $

25.2 Compensation of key management personnel and Directors

Short term - wages and salaries 2,015,796 1,934,035Incentives - -Superannuation 196,875 159,109Non-cash 34,143 26,167

Total compensation 2,246,814 2,119,311

Total KMP excluding Directors 9 9

The above amounts only relate to the cash and other bene�ts 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.

25.3 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.

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2016 2015

25.4 Share transactionsAggregate number of shares held by Co-operative key management personneland their related entities at 30 June 433,062 540,866Aggregate number of shares acquired by key management personnel and theirrelated entities during the year 29,037 66,288

26. Superannuation commitments

All employees participate in an employer sponsored de�ned 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.

2016 2015 $ $

27. Auditors’ remuneration

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

Amounts received or due and receivable by Ernst & Young (Australia) for:An audit or review of the �nancial report 135,200 135,200Other servicesFinancial statement compilation 10,800 10,800Tax services 7,500 - 153,500 146,000

2016 2015 $000 $000

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

Information relating to Norco Co-operative Limited:Current assets 85,844 84,210

Total assets 161,877 160,646Total liabilities (105,220) (103,163)

Net assets attributable to members 56,657 57,483

Members’ interest 12,439 12,008

Net assets 44,218 45,475

Asset revaluation reserve 31,214 31,214Cash �ow hedge reserve (1,050) (391)Retained pro�ts 16,031 14,652

Total equity 46,195 45,475

Pro�t of the Parent entity 1,380 2,654Total comprehensive income of the Parent 721 2,263

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 �nancial 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.

29. Financial risk management objectives and policies

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

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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 �nancial risks and the appropriate �nancial 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 �nancial risk-taking activities are governed by appropriate policies and procedures and that �nancial risks are identi�ed, measured and managed in accordance with the Co-operative’s policies and risk objectives. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Co-operative’s policy that no trading in derivatives for speculative purposes shall be undertaken. The board of directors reviews and agrees policies for managing each of these risks which are summarised below.

Risk exposures and responses

Interest rate risk

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

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

2016 2015 $000 $000

Financial assets and liabilitiesCash and cash equivalents 4,805 4,226Derivative �nancial instruments (1,050) (391)

Net exposure 3,755 3,835

Interest rate swap contracts outlined in Note 14, with a fair value of $1,049,949 (loss) are exposed to fair value movements if interest rates change. The Co-operative’s policy is to manage its �nance costs using variable rate debt with an appropriate level of instruments to �x interest exposure. The Co-operative constantly analyses its interest rate exposure. To manage this mix in a cost-e�cient manner, the Co-operative has entered into interest rate swaps, in which they agree to exchange, at speci�ed intervals, the di�erence between �xed 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 �nancing and the mix of �xed 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 pro�t Equity Higher/(Lower) Higher/(Lower) 2016 2015 2016 2015 $’000 $’000 $’000 $’000+1.0% (100 basis points) (48) (42) 11 (4)-1.0% (100 basis points) 48 42 (11) 4

The movements in post-tax pro�t are due to the movement in fair value of cash, based on movements in interest rates only.

Signi�cant assumptions used in the interest rate sensitivity analysis include:

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

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

Foreign currency risk

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

Commodity price risk

The Co-operative’s exposure to commodity price risk is present through the grain purchasing requirements for the Agribusiness business. It is the Co-operative’s 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 �nancial 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.

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The Co-operative does not hold any credit derivatives to o�set 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 veri�cation procedures including an assessment of their independent credit rating, �nancial 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 signi�cant.

There are no signi�cant concentrations of credit risk within the consolidated entity.

Liquidity risk

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

The table below re�ects contractual �nance principal repayments and interest resulting from recognised �nancial liabilities as of 30 June 2016. Cash �ows for �nancial liabilities without �xed amount or timing are based on the conditions existing at 30 June 2016.

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

2016 2015 $000 $000

0-1 year 63,923 61,1251-5 years 29,717 32,098 93,640 93,223

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

The risk implied from the values shown in the table below re�ects a balanced view of cash in�ows and out�ows. Leasing obligations, trade payables and other �nancial liabilities mainly originate from the �nancing 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.

1 to 5 Over Year ended 30 June 2016 <12 months years 5 years Total $000 $000 $000 $000

Cash and cash equivalents 4,805 - - 4,805 Trade and other receivables 49,152 - - 49,152Interest-bearing loans and borrowings (2,141) (28,270) - (30,411)Finance leases (416) (1,049) - (1,465)Trade and other payables (61,478) (398) - (61,876)Net maturity (10,078) (29,717) - (39,795) 1 to 5 Over Year ended 30 June 2015 <12 months years 5 years Total $000 $000 $000 $000

Cash and cash equivalents 4,226 - - 4,226Trade and other receivables 47,437 - - 47,437Interest-bearing loans and borrowings (1,675) (30,235) - (31,910)Finance leases (416) (1,465) - (1,881)Trade and other payables (59,146) (398) - (59,544)Net maturity (9,574) (32,098) - (41,672)

Fair valueThe methods for estimating fair value are outlined in the relevant notes to the �nancial statements.

30. Events after the reporting period

There have been no signi�cant events occurring after the reporting period which may a�ect either the Co-operative’s operations or results of those operations or the Co-operative’s state of a�airs.

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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 �nancial 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 �nancial position as at 30 June 2016 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 28 September 2016

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REGISTERED OFFICE Norco Co-operative LimitedARBN 009 717 417 / ABN 17 009 717 417

‘Windmill Grove’, 107 Wilson StreetSOuTH LISMORE NSW 2480

Telephone: 02 6627 8000Facsimile: 02 6621 9673Web: www.norco.com.au

FINANCIERS/BANKERSSt George BankLevel 12, Waterfront Place1 Eagle StreetBRISBANE QLD 4000 AUDITORSErnst & YoungChartered AccountantsLevel 51, 111 Eagle StreetBRISBANE QLD 4000

SOLICITORS Thomson Geer LawyersBRISBANE QLD 4000

S+P LawyersLISMORE NSW 2480

Piper Alderman LawyersSYDNEY NSW 2000

CORPORATE DIRECTORY

BRANCH DIRECTORY

HEAD OFFICES

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

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

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

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

NORCO FOODS

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

NORCO MILK – RALEIGHNorth StreetRALEIGH NSW 2454Phone: 02 6692 0000Fax: 02 6655 4447

ICE CREAM BUSINESS UNITUnion StreetSOUTH LISMORE NSW 2480(PO Box 486, LISMORE NSW 2480)Phone: 02 6627 8000Fax: 02 6621 6120

NORCO AGRIBUSINESS – GOLDMIX & GRAIN TRADING

GOLDMIX STOCKFEEDSKrauss AvenueSOUTH LISMORE NSW 2480Phone: 02 6621 3042Fax: 02 6621 9170

GOLDMIX STOCKFEEDS2814 Murgon – Gayndah RoadWINDERA QLD 4605Phone: 07 4168 6186Fax: 07 4168 6214

GRAIN TRADING – TOOWOOMBA 300 Anzac AvenueTOOWOOMBA QLD 4350Phone: 07 4637 3315Fax: 07 4637 3399

60

noRco RuRAl bRAncHes

allora 120 Allora – Clifton RoadAllORA QlD 4362Phone: 07 4666 2210Fax: 07 4666 3520

alstonville17 kays laneRusselton EstateAlStONvIllE NSW 2477Phone: 02 6628 8315Fax: 02 6628 5765

armidale252 Mann StreetARMIDAlE NSW 2350Phone: 02 6771 4669Fax: 02 6771 1187

Beaudesert9A thiedeke RoadBEAuDESERt QlD 4285Phone: 07 5541 4882Fax: 07 5541 1025

BellinGen1076 Waterfall WayBEllINGEN NSW 2454Phone: 02 6655 9792Fax: 02 6655 2266

Bowraville51 Carbin StreetBOWRAvIllE NSW 2449Phone: 02 6564 8648Fax: 02 6564 7425

BundaBerG71 Gavin StreetBuNDABERG QlD 4670Phone: 07 4151 7883Fax: 07 4154 4341

casino136 Dyraaba StreetCASINO NSW 2470Phone: 02 6661 2100Fax: 02 6662 6007

COFFS HARBOuR5/24 Isles DriveSOuth COFFS hARBOuR NSW 2450Phone: 02 6658 0393Fax: 02 6658 0374

dunGoGStroud RoadDuNGOG NSW 2420Phone: 02 4992 1087Fax: 02 4992 3000

GAyNDAH59 Dalgangal RoadGAyNDAh QlD 4625Phone: 07 4140 8542

Glen innes165 lang StreetGlEN INNES NSW 2370Phone: 02 6732 2162Fax: 02 6732 5642

GloucesterCnr Church & Phillip StreetsGlOuCEStER NSW 2422Phone: 02 6558 9600Fax: 02 6558 9666

Grafton19 Queen StreetGRAFtON NSW 2460Phone: 02 6643 5630Fax: 02 6642 7245

HEATHERBRAE9 hank StreethEAthERBRAE NSW 2324Phone: 02 4987 6500Fax: 02 4987 6099

Kempsey3 kemp StreetWESt kEMPSEy NSW 2440Phone: 02 6562 6393Fax: 02 6563 1020

KinGaroy97 River RoadkINGAROy QlD 4610Phone: 07 4163 6310Fax: 07 4162 4992

KyoGleWillis StreetkyOGlE NSW 2474Phone: 02 6632 2920Fax: 02 6632 1221

lismore105 Wilson StreetSOuth lISMORE NSW 2480Phone: 02 6627 8266Fax: 02 6621 2286

macKsvilletilly Willy StreetMACkSvIllE NSW 2447Phone: 02 6568 4057Fax: 02 6568 2308

murGon21 lamb StreetMuRGON QlD 4605Phone: 07 4168 3060Fax: 07 4168 2996

MuRWILLuMBAH17 Buchanan StreetMuRWIlluMBAh NSW 2484Phone: 02 6672 2311Fax: 02 6672 5120

Quinalow3 Myall StreetQuINAlOW QlD 4403Phone: 07 4692 1333

stuarts point906 Stuarts Point RoadStuARtS POINt NSW 2441Phone: 02 6569 0955Fax: 02 6569 0983

taree5 Grey Gum RoadtAREE NSW 2430Phone: 02 6551 2999Fax: 02 6551 2522

tenterfield445 Rouse StreettENtERFIElD NSW 2372Phone: 02 6736 5902Fax: 02 6736 2270

toowoomBa300 Anzac AvetOOWOOMBA QlD 4350Phone: 07 4637 3300Fax: 07 4637 3399

wamuran1055 D’Aguilar highwayWAMuRAN QlD 4512Phone: 07 5496 6500Fax: 07 5496 6406

windera depot 2814 Murgon – Gayndah RoadWINDERA QlD 4605Phone: 07 4168 6186Fax: 07 4168 6214

woolGoolGa16 Featherstone DriveWOOlGOOlGA NSW 2456Phone: 02 6654 2905Fax: 02 6654 1031

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

We achieve this by:

• maintaining a diverse and strong range of businesses;

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

• creating integrated solutions for our partners.

NORcO’s VAluEsNorco applies a common set of values to everything it does. These values include:

Respect

• We respect our shareholders, employees, business partners and cus-tomers.

• We respect a diversity of views and opinions.

• We encourage and support people to grow as individuals and contrib-utors to our organisation.

• We respect our heritage and legacy.

• We respect our natural environment.

Responsible

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

• We are responsible for our actions and our performance.

• We are responsible for providing a safe work environment.

Efficient

• We seek to add value in everything we do.

Innovation

• We seek to consistently improve through innovation.

Community

• We seek active involvement in our communities.

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

We achieve this by:

• maintaining a diverse and strong range of businesses;

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

• creating integrated solutions for our partners.

NORcO’s VAluEsNorco applies a common set of values to everything it does. These values include:

Respect

• We respect our shareholders, employees, business partners and cus-tomers.

• We respect a diversity of views and opinions.

• We encourage and support people to grow as individuals and contrib-utors 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.

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.

norco.com.au

100% FARMER OWNEDAN AUSTRALIAN FARMER OWNED DAIRY CO-OPERATIVE

NORCO ANNUAL REPORT 2016