“Windmill Grove” 107 Wilson Street
SOUTH LISMORE NSW 2480 Australia
NORCO CO-OPERATIVE LIMITED
annual report 2010
CORPORATE DIRECTORY
Registered Office
Financiers/Bankers
Solicitors Norco Co-operative Limited
ARBN 009 717 417 / ABN 17 009 717 417
‘Windmill Grove’, 107 Wilson Street
SOUTH LISMORE NSW 2480
St George Bank Ltd
Clayton Utz
BRISBANE QLD 4000
Telephone:
Facsimile:
Web Site:
02 6627 8000
02 6621 9673
www.norco.com.au
Auditors
Ernst & Young
Chartered Accountants
Level 5, Waterfront Place
1 Eagle Street
BRISBANE QLD 4000
S+P Lawyers
LISMORE NSW 2480
Australian Business Lawyers
NORTH SYDNEY NSW 2060
Thank you to our Norco
employees, Co-operative
members and customers
who feature in the annual
report photography.
Your time and participation
is greatly appreciated.
con t en t s
Corporate Profile
2
Facts at a Glance
3
Chairman’s Report
4
Chief Executive Officer’s Report
8
Business Unit Reports:
Norco Foods
- Milk Supply
- Manufacturing
11
12
Norco Rural Retail
13
Agribusiness
14
Financial Management
15
Norco People
16
Norco and the Environment
18
Directors’ Report
19
Auditor’s Independence Declaration
23
Corporate Governance Statement
24
Financial Statements
28
Independent Auditor’s Report
54
Branch Directory
56
1
corporat e profi l e
Norco Co-operative Limited is a diverse agricultural co-operative
celebrating 115 years of continuous operation in 2010 which is a
significant milestone. Norco is a name that is synonymous with the
manufacture of quality dairy and other food products such as milk,
ice cream and stick lines at three factory locations under the Norco
Foods business unit. Norco Foods also retails the range of Nimbin
Natural cheese which is a successful and growing brand for the cooperative. Norco also has a Rural Retail business unit operating
24 rural stores in Northern New South Wales and South East
Queensland. This business unit also operates a wholesale division at
Darra in Brisbane servicing the needs of other rural businesses along
the east coast of Australia. Norco also operates an Agribusiness
division incorporating Goldmix Stockfeeds, Crest Seeds and MeatE-Vites that manufacture quality stockfeed, bird seed products and
pet food.
profitability our core debt level has dropped over the past two years
by seven million dollars.
With 260 active shareholders on 165 dairy farms, Norco has a
membership capital base of $6.0 million and annual revenue of
$351 million. There is a Board of seven directors, comprising of six
non executive supplier directors and one independent director who
are elected by the active members.
Norco’s Values
The 2009/10 financial year has again been both a stimulating
and challenging year for Norco as the knock on effects of the
global financial crisis continue to be felt both domestically and
internationally. Many of the decisions, strategies and actions
implemented in the previous financial year flowed through to
fruition this year which has been reflected in the collective financial
results of the Co-operative. Our focus again for the 2009/10
financial year has been to reduce debt and expenses, while still
maintaining Norco’s existing business and customer base. This has
resulted in Norco achieving a record EBITDA of $9.1 million
for the 2009/10 financial year, an improvement of 12.8 percent
over the 2008/09 financial year. As well as improving our overall
2
Norco’s core business is and will always be our milk business and
our objective is to continue to focus on achieving the best overall
collective result we can to provide a sustainable and competitive
milk price and acceptable return to our shareholders.
NORCO’S PURPOSE & VALUES
Norco’s Purpose
Norco’s purpose is to build wealth, security and sustainability for
our shareholders, business partners and employees.
We achieve this by:
• maintaining a diverse and strong range of businesses
• being a competitive regional purchaser and supplier of milk
• creating integrated solutions for our partners.
Norco applies a common set of values to everything it does. These
values include:
Respect
• We respect our shareholders, business partners and employees.
• We respect a diversity of views and opinions.
• We encourage and support people to grow as individuals and
contributors to our organization.
• We respect our heritage and legacy.
Responsible
• We are responsible for preserving the co-operative principles.
• We are responsible for our actions and our performance.
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.
fac t s at a g l ance
total profit
staff 30 june 2010
Millions - $
Number of Staff
3.8
2005/06
2006/07
2007/08
360
Norco Foods
0.5
198
Rural Retail
1.0
1.1
2008/09
33
Agribusiness
Corporate 17
2.3
2009/10
(includes permanents, part-time & casual staff )
member returns
FINANCIAL
YEAR
MILK PRICE
2009/10
54.11
DIVIDEND
SUPPLIERS’
PATRONAGE
TOTAL MEMBER
RETURNS
Cents per Litre
0.18*
0.36
54.65
2008/09
55.33
0.21
0.33
55.87
2007/08
46.33
0.17
0.43
46.93
2006/07
37.33
0.10
0.35
37.78
2005/06
34.58
0.48
0.32
35.38
*
Dividend proposed for consideration at 2010 Annual General Meeting
total members’ milk intake
number of member farms
Millions - Litres
Number
131
2005/06
124
2006/07
121
2008/09
143
2009/10
160
2006/07
116
2007/08
175
2005/06
2007/08
145
2008/09
145
2009/10
165
AVERAGE MILK PRODUCTION PER MEMBER FARM
000’s - Litres
2005/06
2006/07
2007/08
2008/09
2009/10
749
776
797
837
866
3
C H A I R M A N ’ S R E P O RT
It is pleasing to report to you that, in Norco’s 115th year, we have
achieved a significantly improved financial result. This continues
a trend begun last year after several years of disappointing
results.
The efforts of your Board and Management over the 2009/10
financial year have been directed to consolidation of the gains
made last year and reducing the cost of doing business. This
approach has delivered a solid net profit of $2.26 million and a
record EBITDA (earnings before interest, taxation, depreciation
and amortisation) of $9.1 million. The improvement in the
profit performance of Norco has allowed us to reduce our core
debt at 30 June 2010 to $24 million, meaning that we have
reduced that level of debt by $4.7million over the twelve month
period. It has also allowed us to continue to offer a competitive
milk price to our member suppliers, while still maintaining a
prudent approach in safeguarding the sustainable future of our
co-operative.
While there continues to be volatility in world commodity
prices and economies, Norco’s key strength lies in our diversified
business structure. Critically, that diversification allows us to
support our suppliers’ milk price even when one or more of
our businesses may not be producing the profits we may have
anticipated as a result of, for instance, seasonal conditions or
economic turmoil in national and international markets. Some
of the key issues relating to our businesses are set out below.
Norco Foods
Foods to develop, manufacture and deliver new products at a
cost efficient price, which is a key strength of this business unit.
Coles is one of many new partners that Norco has encouraged to
enter into a business partnership with Norco Foods over the last
few years. This is a strategic approach to broadening the customer
base of Norco Foods so that the business is not significantly
reliant upon any one customer and therefore exposed to material
risk if the relationship with that customer fails.
This strategic approach is not limited to the manufacture of ice
cream, as we continue to work with a range of organisations that
have unique propositions to offer their consumers. One example
is the continuing development of the A2 relationship, which
started as a very small customer two years ago but which has
achieved incredible growth. A2 now is looking at not only having
Norco Foods manufacturing milk products for its markets across
Australia, but also sourcing milk produce from our own member
suppliers who meet the A2 herd criteria.
Our relationship with Fonterra continues to be the cornerstone
of the milk business. It is pleasing to report that sales to Fonterra
have grown by 5.3 percent. Fonterra’s recent success in winning
the Coles milk contract in Queensland is a credit to the tenacity
of Fonterra’s business development team in winning new
contracts in a very competitive market. It goes without saying
that Fonterra’s success in that regard is also Norco’s success,
and is very much a product of the sound working relationship
between the respective management teams of Norco Foods and
Fonterra.
Norco Foods has been our star performer in 2009/10.
Our ability to meet the stringent demands of our customers
in manufacturing quality products for a wide range of markets
has been recognised during the year with the Coles award for
The Housebrand Manufacturer of the Year. That award is the
culmination of a wide ranging effort over the course of the
year in which we were successful in creating a strategic alliance
with Coles that represents far more than a toll manufacturing
arrangement. That relationship also relies on the ability of Norco
4
Milk Supply
Norco continues to see on farm growth in milk supply. This can
be attributed to favourable seasonal conditions and farm gate
returns at a level which ensures that our suppliers are receiving an
appropriate return on their investment in their own businesses.
Norco’s 3 year contract suppliers finished the year with an
average milk price of 54.11 cents per litre including retrospective
step up payments. The introduction of the retrospective step up
component to the Norco Milk Pay System in 2009/10 has proved
to be an important strategy in improving supplier returns, with
$1.0 million being paid out over three quarters during the course
of the financial year.
It is pleasing to report that, as the majority of our members’ milk
supply agreements have come up for renewal over the last year
100 percent of our members have either elected to automatically
roll over their existing contracts or have subsequently signed new
contracts. This outcome indicates that our member suppliers
see significant value in their relationship with Norco, which
not only affords them a competitive milk price but also assures
them of an income stream for every litre of first grade milk they
produce. This can be contrasted, of course, with the position of
suppliers to some other processors which are not member owned
and controlled, and which do not provide the same assurance
regarding the collection of all of their first grade milk.
Norco Rural Retail and Norco
Agribusiness
The agriculture sector continues to be challenged by the high
Australian dollar, variable seasonal conditions and farmer
returns being squeezed by rising input costs. These conditions
have combined to produce a disappointing trading result for
this arm of Norco’s business. The appointment of a new General
Manager with responsibility for these business divisions early
in 2009/10 demonstrated, however, the Board’s commitment
to ensuring that Norco Rural and Norco Agribusiness return to
appropriate levels of profitability. This appointment has resulted
in the institution of many changes to these businesses, some
of which have taken time to consolidate. I am confident that,
with the support of our member suppliers in particular, these
businesses will return much better results in 2010/11. I cannot
emphasise too heavily the benefits which all of our members will
receive from the profits generated by these business divisions,
including without limitation a sustainable competitive milk
price and the ability for the Board to pay retrospective step ups.
The introduction of our improved Patronage Scheme should
also make each member’s decision as to where to shop for their
on farm inputs an easy one to make. I urge all of our members to
patronise their Norco Rural stores and Norco Agribusiness.
With the eastern states receiving widespread rains over winter,
and the emerging scenario of unseasonal dry periods in the
northern hemisphere resulting in reduced harvests, there is an
expectation that the coming winter cereal harvest will be the
best in many years. How this plays out in the rural retail and
agribusiness markets remains to be seen. All efforts on the part of
the management of Norco Rural Retail and Norco Agribusiness
in 2010/11, however, will be directed to ensuring that whatever
business opportunities arise from those market conditions will
be converted for the ongoing benefit of the shareholders of
Norco. More particularly our principal goals for 2010/11 are
to improve the Meat-E-Vite production facility, enhance our
sales and distribution activities at the Darra Distribution Centre
(both in relation to internal sales and in the external wholesale
market) and to regain lost market share in Toowoomba.
Total Supplier Returns
As always, your Board has been very focussed on ensuring that
the total financial returns to Norco’s member suppliers are
appropriate considering the investments our members make in
their dairy businesses over time. In that regard, while accepting
that there will always be more to be done, in my view the suite of
returns comprising milk price, dividend (proposed $500k in total
for the 2009/10 financial year, subject to shareholder approval)
and benefits paid under the Supplier Patronage Scheme ($519k
in total during the 2009/10 financial year), represents a fair
return for members on their investment in what has been, and
remains, a very challenging commercial environment.
Corporate Governance / Director
Training / Board Committees
Your Directors continue to maintain their commitment to
education and training in order to ensure that they are across
industry trends and the latest thinking in good corporate
governance practices. To that end all Directors have achieved
their required training and education targets in 2009/10, as
stipulated in our Corporate Governance Policy.
The Board’s adoption of an extended committee structure has
continued to prove to be effective and has allowed the Board
to utilise its time more efficiently. The principal committees
are Audit and Risk, Milk Supply Advisory, Member Services
and Communication. Each of these committees contributes
significantly to the policy development and implementation
processes of the Board, as follows:
5
C H A I R M A N ’ S R E P O RT
• The Audit and Risk Committee plays a pivotal role in
developing policies directed at safeguarding the assets
of the Co-operative and identifying and managing risks
relating to those assets;
• The Milk Supply Advisory Committee develops policies
relating to a wide range of issues regarding milk supply,
including in relation to the Norco Milk Pay System, Milk
Supply Agreements, milk quality, collection efficiency and
production issues and so on;
• The Member Services Committee has regard to policies
relating to member concerns, such as on farm quality issues
and member welfare issues; and
• The Communication Committee is responsible for
the development of policies promoting more effective
communication between Norco and its member suppliers,
its employees and its other stakeholders (eg, the media
and the wider rural community). The Norco Bulletin and
the contents of the Norcomm internet site fall under the
purview of this Committee.
Each of these Committees operates in accordance with a Charter
determined by the Board. Members are welcome to view these
Charters if they wish by contacting the Co-operative Secretary,
who will provide a copy for their perusal.
115 years, that business structure does come with its own unique
set of challenges. Accessing the capital necessary to maintain our
investment in the various business units is a strategic imperative.
With much of the business concerned with the manufacture of
product under contract, there is a real need to ensure that we
maintain our facilities in a condition which allows us to occupy
a competitive position in the markets in which we operate, both
in respect of cost of the services we offer and the quality of the
manufacturing processes we provide. To achieve this position in
the 2010/11 financial year Norco will invest over $5 million in
capital expenditure on regular maintenance and on improving
operations. These funds will come from operating cash flows.
Your Board will continue to review the Co-operative’s capital
needs and how these can best be met, both in the immediate
term and for the longer term future.
On behalf of the Board I would like to congratulate our CEO,
Brett Kelly, and our management team and employees for
delivering an excellent trading result in 2009/10.
Finally, I wish to take this opportunity to thank our many business
partners and customers and, in particular, our shareholders for
their continued support of Norco.
Compulsory Share Acquisition Scheme
Our members contributed approximately $750,000 under the
Compulsory Share Acquisition Scheme during 2009/10. This
is the highest amount contributed under such a scheme in
the ten years during which it has been in operation. All funds
accrued under the Scheme were applied to repayment of former
shareholders. As well an additional $250,000, which was made
available from operational cash flows, was used to achieve a $1.0
million payment to “dry” former shareholders during the course
of the year.
The Future
While Norco’s co-operative structure, which brings with it
democratic member control of Norco, constitutes a reason why
Norco has continued to be an effective business organisation for
6
GREG McNAMARA
Chairman
Board of Directors
7
C H I E F E X E C U T I V E O F F I C E R’ S R E P O RT
Business Overview
The 2009/10 financial year has again been both a stimulating
and challenging year for Norco. I have now been in the role of
Chief Executive Officer for a period of just on two years. Many
of the decisions, strategies and actions implemented in the
previous financial year 2008/09 flowed through to fruition this
year which has been reflected in the collective financial results
of the Co-operative this year. While being able to again improve
our overall business on last year we have been able to pay a
sustainable competitive milk price to our farmers incorporating
consistent Retrospective Step Up Payments throughout the
financial year. The Co-operative has achieved for a second
year in a row a record EBITDA (Earnings before Interest, Tax,
Depreciation and Amortization).
Norco’s EBITDA collectively for the financial year ending
30 June 2010 came in at 2.7 percent over budget and 12.8
percent up on last year. All divisions were up on last year except
for Rural Retail being 46.9 percent down on last year and
Agribusiness being 27.5 percent down on last year. For Rural
Retail seasonality, geographical lack of market penetration
(particularly in Toowoomba) and tough economic conditions as
well as our Darra Distribution Centre not yet reaching required
volumes has played a significant part in the financial result. For
Agribusiness the result was predominantly due to our Meat-EVites division not yet reaching required volumes as well as a non
repeatable extraordinary insurance item from last year. We have
some solid strategies as well as being totally focussed on these
areas in the new financial year and we are confident of improving
the profit result in these two divisions.
Our best performer was our Norco Foods division being 56.8
percent up on last year predominantly achieved through our ice
cream business. As well as improving our overall profitability
our core debt level has dropped over the past two years by seven
million dollars. This is a great result considering where we were
two years ago and puts the Co-operative in a strong position
for further improved renegotiation of our bank facility when it
comes up for renewal at the end of this financial year.
8
It is still a very tough economic environment within the markets
we trade in both internationally and domestically. A lot of the
hard commercial decisions we took in the previous year 2008/09
have now flowed thorough in terms of financial outcomes in the
year just ended 2009/10. We have seen a lot of change as well
as some good opportunities over the past financial year that
the Board and management team at Norco have acted upon
culminating in the record end result achieved. Our core business
is and will always be our milk business and our objective is to
continue to focus on achieving the best overall collective result
we can in respect to sustaining an ongoing competitive milk
price and acceptable return to our shareholders.
Since Norco introduced Retrospective Step Up Payments
we have been able to bank the profit first and then pass the
upsides onto our suppliers therefore enabling everyone to have
a more stable farm gate milk price to budget on annually for
the upcoming year with only the possibility of an upside. If the
business performs well it has the ability to then contribute back
to our farmers when reviewed by the Norco Board of Directors
every quarter. We still need to work on getting more support in
our Rural Retail/Agribusiness division from within our own
supply base. This will be a major focus of the Rural Retail/
Agribusiness team in the new financial year. Again I urge all
members/suppliers to support your own Co-operative. Much
has happened again over the past financial year and I have listed
below some of the achievements for the year.
List of Achievements for FYE 2009/10
• Core debt reduction by a further $4.7 million ($7 million
paid in two years)
• Banking facility favourably renegotiated
• Retrospective Step Ups paid totalling 0.7 cents per litre
which equals $1.044 million
• All banking covenants met
• Ice Cream wins Coles House Brand Supplier of the year
• Record EBITDA achieved in Ice Cream, 33 percent up on
last year
• Focus and improvement on all aspects of communication
with all stakeholders
• Sustainable ongoing commercial positioning of Norco
in the markets we trade in creating a sound commercial
foundation and platform for the Co-operative’s future
• Competitive farm gate milk price and shareholder returns
• Employee development, training and career/succession
planning
• Collective overall record EBITDA of $9.1million achieved
for the Co-operative
• Darra distribution gross sales up by 4.3 percent on last year
• Meat-E-Vites sales through rural store network up by 13
percent on last year
• Lismore Goldmix Mill and Winderra Goldmix Mill
volume up by 4 percent
• Head Office lease renegotiated with a rental savings of 9
percent on previous term
• Agribusiness Project Manager appointed full time • Revised and improved Supplier Patronage Scheme to be
implemented 1 July 2010
• Consolidation and Restructure of Agribusiness division
into Rural Retail commencing 1 July 2010
• Freight savings across Norco Foods of $817k versus last
year
• Norco celebrated 115 years of operations
In conclusion I would like to thank the Norco Management
teams, all Norco employees, members, suppliers and customers
for your support and loyalty to your Co-operative over the past
financial year. We still have a long way to go in positioning the
Co-operative in an ongoing sustainable competitive position but
as they say the longest journey starts with the first few steps. We
have achieved the first few steps. I look forward to continually
working with everyone through this new financial year and
further building our iconic Co-operative.
2010/11 Key Points of Focus
BRETT KELLY
• Continuous focus and improvement of costs control,
market share growth, management accountability and
achieving budgeted profitability across all core business
divisions
Chief Executive Officer
• Ongoing building of asset values and goodwill appreciation
of the Co-operative
• Ongoing review and refining of Co-operative core
business strategies
9
business uni t repor t s
10
norco foods - mi l k supp l y
Our Markets
Variable weather and input costs
Our supply base has provided 147.3 million litres of milk in the
2009/10 year.
Again the weather provided a range of challenges for our
farming base, with differing conditions in the regions from
South East Queensland through to Gloucester. Some regions
received reasonable summer rains and indications are that spring
milk volumes may be at good levels. The major flood events
experienced in some regions in 08/09 have not been repeated in
09/10, with a return to a more normal weather pattern for these
regions. Other northern regions continue to move in and out of
drought conditions providing major challenges to a number of our
suppliers.
129.7 million litres of our supply was used in servicing and
developing fresh milk customers selling into markets along the
East Coast of Australia. Again this year our major customers for
your milk have been Fonterra, Parmalat and National Foods.
17.6 million litres of our supply was utilised into manufacturing
sectors, with the majority of this milk processed through our
evaporator at the Raleigh site, with a high percentage of the cream
and skim milk concentrate generated being utilised back into our
Ice Cream operations at Lismore. During the flush of the season
we were also able to have some of the skim milk concentrate
converted into skim milk powder for use later in the season within
our business.
Fresh Milk & Manufacture Milk 2009-10
16,000,000
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10
Fresh Milk Sales
Manufactured Milk Sales
The domestic sales market for fresh milk in 2009/10 has seen
QLD increase by 0.6%.
The supply of fresh milk off farm in 2009/10 has seen Northern
New South Wales increase by 1.3% and Queensland increase
by 3.4%. With supply volume growth well above the sales in
our market, we continued to see a surplus of fresh milk in the
Queensland and Northern New South Wales markets.
Commodity prices started the year at relatively low levels, however
international markets had increased by the second quarter and
have remained relatively stable through to the end of the year.
This stability seems to have continued into the start of the new
year, with reasonable values being maintained in all markets. With
raw milk volumes continuing to drop in the Victorian market
the availability of Butter and Skim Milk Powder in the domestic
market remains tight at certain times of the season.
Feed input costs have seen moderate rises during the year, however
they maintain at levels well below the peaks experienced in recent
years. Fuel prices have seen some fluctuations, however they seem
to have remained reasonably stable across the period.
Milk Supply Team Changes
With the Milk Supply Team joining forces with the Foods group
we continue to offer a strong support base to farmers across the
entire Norco supply region. Allan Box from the manufacturing
section of our business has spent much of the year working in the
Milk Supply division working with and supporting our farmers,
Allan now moves back into the role of Operations Manager for
Norco Foods.
This year has seen two new members join the Milk Supply Team,
with Jeff Collingwood coming on board as our Milk Supply
Manager and Rodger Jensen taking up the role as our southern
field officer. Both Jeff and Rodger have extensive dairy experience
and will be valued additions to the Foods team.
Freight
In the past year we placed our New South Wales milk freight
business out to tender, with a number of carriers bidding for the
business in all regions. The successful companies in the tender
process were SRH Transport in our southern regions and Jurrs
Transport in our northern regions. These changes will take effect
from 1 July 2010.
The Norco Foods Team looks forward to supporting and working
with all of our milk suppliers in the year ahead.
11
norco foods - M anufac t uring
Continued Growth
Systems
The Norco Foods performance for the year has again seen solid
growth in volume and profitability across the business. The
packaged milk business operating from the Labrador and Raleigh
sites has seen overall volumes grow to a level of 83 million litres,
up by 4 million litres on last year. The ice cream business operating
from the Lismore site has packed 36 million litres of ice cream
products, again providing strong year on year growth.
Maintaining our Quality Assurance programs and certification
remains a high priority within each of our processing facilities.
Compliance with standards required by QLD Safe Foods, NSW
Food Authority, HACCP, ISO and various other customer
specific programs are ongoing requirements within the business.
Customers
Working with our existing customers as well as developing new
customers has again been a strong focus of our sales and operations
team. With increased volumes in each of our factories we have
seen an improved utilisation of the plant and equipment owned
and operated by Norco. Although some areas of the business are
nearing full utilisation we continue to fill the remaining gaps in
both the ice cream and packaged milk businesses.
Fonterra remains our major customer in the milk business, and
we have seen substantial volume increases this year with Fonterra
successfully gaining a supply contract for Coles in the Queensland
market. Fonterra also continued with the development of new
products and promotional activities which have seen volumes
continue to grow in a number of existing and new markets.
We have also seen continued growth from A2 and Warrnambool
Cheese & Butter, in particular the A2 volume growth in the
Queensland and New South Wales markets remains very strong.
In the ice cream business we have a broad range of customers
including Coles, Sara Lee, Aldi, Woolworths, Cold Rock,
Fonterra, Takanashi (Japan), Trader Joe’s (US) and Streets.
The Norco Foods business continues to invest capital into the
business, to not only maintain our existing operations but also to
meet the future product and volume needs of our customer base.
The ongoing maintenance and upgrading of plant and equipment
form part of our programs to ensure compliance with our customer
and regulatory requirements.
12
The ongoing review of our operating practices, the assessment of
all operating equipment and the inspection of our buildings and
surroundings are key components of our Occupational Health
and Safety programs. OHS remains a high priority and a constant
focus within Norco Foods.
Training and Development
Training and Development for members of our team continues
to be offered and undertaken in many formats throughout
the Norco Foods business unit, with programs such as Front
Line Management, Food Processing Certification, Pasteurising
Certification, apprenticeships (electrical, fitter and turner) and
many other specific training programs. Developing the skills and
qualifications of our team members is essential for both personal
development and developing value for our business.
The Norco Foods team continues to build profitability and
sustainability for shareholders and other stakeholders.
norco rura l re tai l
The Norco Rural Retail business has finished the financial year at
a disappointing 46.9% down on last year in EBITDA. This result is
mainly due to seasonal factors, margin pressures and the continued
tough economic conditions. Further impacts on the financial result
include the geographic lack of market penetration in the Toowoomba
Store catchment area and our Darra Distribution Centre not yet
reaching the required volumes to generate a profit.
The other challenge in the market has been the drive on reducing farm
inputs price with the focus now going onto generic products rather
than paying for a branded product. This change has seen volumes in
unit quantity increase but with the associated price reduction, the
revenue generated has been significantly lower than in previous years.
This recent change in the market is likely to continue for the foreseeable
future, presenting Norco Rural with an opportunity to continue to
develop home brands through our Agribusiness. These home brands
can then be sold to a broader market via our rural store network.
The North
Wholesale
In the Northern Area (excluding Toowoomba) net profit was down
18% on last year with drought conditions contributing to the first half
results. The closure of Beenleigh store, which had been making a loss,
in the second half eased the strain on profits. Lismore, Kyogle and
Casino achieved net profit well above the previous year’s result.
Norco’s wholesale division recorded an improvement in net profit on
sales of just over $8 million, up 36.8 percent on the previous year. This
growth is expected to continue with the extra capacity in the Darra
Distribution Centre and a focus on independent rural and pet stores.
End of Year Result
Our Toowoomba store has been hardest hit with the seasonal factors
and staff turnover that led to this store making a small loss for the
financial year. Plans have been put in place and the team have been
revitalized and focussed on the coming year to turn this business
around and make it a business Norco can be proud of.
Patronage Scheme
The South
Our Patronage Scheme for the financial year 2009/10 paid back a
total of $519,734 to our loyal suppliers and Norco members, which is
a positive improvement from the previous year’s payment of $381,351.
This is a trend that Norco’s Rural team want to continue and we all
thank you for your custom through last year and encourage all suppliers
to shop within your own Co-operative businesses in the future.
In the Southern Area net profit was up 11.5% on last year, which is a
good result in the current economic climate. Kempsey, Dungog, Glen
Innes, Armidale, Woolgoolga, Macksville and Inverell all achieved a
performance well above last year.
This year has presented a challenging time in the Norco Rural retail
and wholesale business and in looking to the future we will continue to
undergo change in order to improve our offer and service to customers
and adapt to the changing environment in which we operate.
Market impacts and distribution
Key Achievements
Apart from the obvious economic impacts, Norco Rural has not been
immune to market changes. In particular the farmer base requires
products to be in stock at all times to limit the amount of their working
capital tied up in inventory. As a business operating in the rural sector,
Norco faces the same challenges in our supply chain and we have been
working hard to adapt to the streamlined supply chain methodology
of ‘just in time’ supply. The Darra Distribution Centre (DC) has been
upgraded with new dual pickers that allow for more volume out of
the current premises, along with upgraded technology to streamline
ordering and operations of the site. These changes have delivered better
‘in stock’ performance of the lines carried in our DC at store level and
will make a significant contribution in the coming year.
• Beenleigh store closed due to poor performance and a shift in
demographic customer base
• Darra DC fill rate increased from 62 percent to 95 percent to our
Rural network
• Darra DC gross sales up 4.3 percent on last year
• Store ‘in stocks’ of Darra DC range increased from 60 percent to
above 85 percent
• Store pricing labels on all products for customer ease
• Promotional End Program introduced into stores to increase sales
per square metre
• Revised and improved Supplier Patronage Scheme implemented 1
July 2010
13
A gribusiness
Performance
The first half of the financial year saw strong demand and strong
performance from both the Lismore and Windera stockfeed mills.
Lismore bulk production was on target and bag demand year
on year had improved considerably after the quality issues of the
previous year.
The Windera operation was benefiting from strong pork prices and
consistent demand from this sector, and strong sales into the beef
feedlot sector. Overall production volume was well ahead of budget
in the first half of the year.
The second half of the year saw a significant decrease in demand at
both sites. Extremely good seasonal conditions, a consistently high
Australian dollar, and fickle export demand for beef resulted in a
considerable downturn in demand for all feeds and products. This
resulted in lower volumes in the two feedmills during the second
half of the year.
Lismore’s end of year results saw total mill volume up 6.2 percent
year on year and through operational improvement initiatives and
strict cost control, a significant improvement in nett profit was
achieved.
Windera experienced a 10.2 percent increase in volume year on
year, but the difficult trading conditions impacted on financial
performance and the nett profit result for this year was down.
Meat-E-Vite and Crest both continue to experience tough trading
conditions, operational issues and performance below budget
expectation.
Operations
During the last 12 months a number of staff have undergone and
continue to undergo multitask and multifunction training to ensure
all staff are conversant in the functions and operations of all operator
positions within the plants. The training program has reduced our
operational exposure to staff absenteeism and resignation, and
streamlined the overall operation of our plants thereby reducing our
reliance and use of casual labour.
We have also standardized the operational systems and tools used
by management across the three sites. Previously all three sites
operated using site specific management systems to maintain core
functions such as diet formulation, pricing and commodity position
14
management. This has now been standardized to ensure consistency,
accuracy, transparency and accountability.
Early in 2010 management commenced with its strategy
to implement the Agribusiness business unit back into the
management structure of the Norco Rural Retail business unit,
with an implementation date of 1 July 2010. The objective was to
streamline business management and ensure co-ordination in all
management and operational activities.
A key element in management’s strategic objectives is the promotion
and sale of “homebrand” products, being Norco Rural Stockfeeds,
Goldmix Stockfeeds, Meat-E-Vites Pet Food and Crest Birdseed.
To support the homebrand strategy the full range of homebrand
products have been ranged in the Darra Distribution Centre (DC).
The manufacturing facilities produce and supply products to Darra’s
requirements, and the DC is responsible for the distribution of
the Norco homebrand products to both internal and external
customers.
This DC strategy has proved to be very successful with significant
improvement in production and operation efficiency and fill rates.
Capital Projects
Three major capital projects have been committed to during the last
twelve months. The Lismore site completed a significant upgrade to
its hammer milled and rolled grain production system. This project
replaced equipment that was of considerable age, and detracted
from the sites overall production efficiency.
With the decision to remain at the current Lennox Head Petfood
production facility, a review of operations determined it necessary
to upgrade certain aspects of the sites plant and equipment to
ensure continued improvement in product quality. A completely
overhauled second hand boiler has been installed to supply
consistent high quality steam, and we are currently replacing the
oven in the extrusion production line.
A new range of dog food containing 6 new products will shortly be
launched to the market and it was determined the current oven was
incapable of performing to the standard required to produce a high
quality dry dog food. The new products will be launched under our
new brand called Supervite.
The new oven will be operational early September and the new
range launched shortly after.
F inancia l M anagemen t
Record E.B.I.T.D.A. in 2009/10
Record Debtor and Creditor Days
Norco has again achieved a record EBITDA (Earnings before
Interest, Tax, Depreciation and Amortisation) in 2009/10 of
$9.1 million versus the prior year’s result of $8.1 million. The
improved result was partly driven by our ice cream business,
which achieved an EBITDA of $3.8 million versus the 2008/09
result of $2.9 million and this was achieved by higher volumes
and higher margins. The improved result was also achieved due
to a smaller loss from the milk supply division of $0.9m versus
the prior year’s loss of $3.6m and the improvement was a result
of reduced milk price paid.
Norco achieved record debtor days of 31.6 in 2009/10 versus
the prior year’s result of 32.9 which was a pleasing result given
the tough credit market post the global financial crisis. We also
achieved record creditor days of 33.4 versus the prior year’s
result of 35.1. The improvement in creditor days resulted from
improved debtor days, lower capital expenditure and consistent
profit.
Debt Reduction and Bank Covenants
Norco reduced its debt with St George in the year by $4.7
million which is a pleasing result and adds to the $2.3million
of debt reduction in the 2008/09 year. We also improved our
performance in relation to all of our bank covenants versus the
prior year. Norco’s EBITDA Leverage for the full year was 2.60,
versus the prior year’s result of 3.46 and the interest cover ratio,
including operating leases, was 2.78 versus the prior year’s 2.12.
Working Capital
Working capital (made up of debtors, creditors and inventory)
achieved a result of 2.4 percent of sales versus the prior year’s
record low of 1.8 percent of sales. The higher working capital
in the year was directly related to the higher ice cream volume
and profit where we had to hold higher stocks to meet customer
requirements.
15
norco peop l e
The tough economic conditions continued throughout the
2009/10 year, but with a concentrated strategy and the efforts
of Norco’s hard working teams, the results continued to flow.
Norco’s management and employees have been working
throughout the year to implement strategies aimed at business
improvement and market growth and with the level of support
given to these strategies there have been some excellent results.
Congratulations to all of the Norco team and many thanks for
your continued hard work.
16
Self Improvement
That old saying ‘you can’t teach an old dog new tricks’ simply
does not apply at Norco. Even though we have a large proportion
of employees who have been with the company for many years –
including more than 80 with 20 years plus of service – that doesn’t
mean they are not keen to learn something new. Over the past few
years over one hundred employees in our foods businesses have
achieved nationally recognised training certificates. However,
this year as part of the government’s economic stimulus package
we were given the unique opportunity to provide a range of
training to our rural stores team. Certificate courses are available
in Retail Management, Frontline Management and Transport
and Logistics. Over 80 of our Rural Stores team have signed
up and are currently working through these courses to gain
their qualifications. There are also more than 20 employees in
the foods teams working toward certificates. It’s great to see
such a large number of employees engaged in self improvement
activities.
Safety culture a must
Safe workplaces are the most important tool that we can
provide to employees. Norco Foods has spent a number of years
developing excellent safety procedures, reporting and safety
committees that take action. Norco Rural, however, due to its
geographically diverse nature has found this more difficult. A
commitment from the Senior Management Team and Board of
Directors has put the focus back on ensuring that the Rural team
have the same focus on safety as the rest of the business. To this
end, the Rural Safety Committee has been reinvigorated and
has been meeting regularly to identify, discuss and address safety
issues at both the Rural stores and Agribusiness mills. With this
focus on safety it is hoped that the whole business will continue
to improve and most importantly there will be reductions to
illness and injury to our employees.
17
norco peop l e
The Fair Work Act and the NES
Changes to industrial relations laws saw the introduction of the
Fair Work Act and the National Employment Standards this
financial year. This is a federal system of workplace relations and
replaces the past state based systems. The new system means that
employees of Norco in New South Wales and Queensland now
fall under the same legislation.
Equal opportunity on track
For the fourth year in a row, Norco is proud to be compliant
with the Equal Opportunity for Women in the Workplace Act.
A program run by the Equal Opportunity for Women in the
Workplace Agency (EOWA) has businesses report on activities
designed to increase equality for women in the workplace.
Norco’s active support of schemes such as paid maternity leave,
the flexible workplace policy and merit based selection all
contribute to our compliance and a workplace that is fair and
equitable for all. Norco received an individualised letter from
the EOWA congratulating us on our work in this area.
The Year That Was
2009/2010 is the first annual production of Norco’s ‘The Year
That Was’ video. This production has been designed to give
everyone involved with Norco an overview of all of the businesses
and areas that make up the whole, as well as show the events that
the co-operative participates in. The premiere viewing will take
place at the Annual General Meeting in November, after which,
the video will be available for viewing in the rural stores, on the
intranet and Norcomm.
N orco and t he environmen t
Throughout 2009/10 our various businesses have continued to
focus on innovation that not only improves productivity and
profit, but that is also environmentally friendly.
Raising the roof on the cold
The Lismore Ice Cream Factory maintenance team spent a busy
few months installing a new roof in the freezer room. Although
mainly driven by safety, the improvement in efficiency of the
freezers motors will have a big impression on our environmental
impact through reduced energy consumption, leading to an
added bonus of decreased running costs.
18
Darra distribution goes green
The Darra distribution centre has many pallets enter and leave the
site every day, which can cause a substantial amount of packaging
waste. To attempt to combat this, the team at the distribution
centre have implemented recycling for both cardboard and
plastic product. Furthermore, they have also started keeping
slip sheets from the pallets to be reused within the agribusiness.
That’s good green sense – reduce, reuse, recycle.
D I R E C T O R S ’ R E P O RT
The Directors present their report together with the financial
reports for Norco Co-operative Limited (‘the Co-operative’) for
the year ended 30 June 2010 and the Auditors’ report thereon.
Norco’s Directors bring a range of skills and experience to the Board,
including detailed knowledge of the dairy and agricultural sectors,
extensive experience in business planning and strategy, strong
leadership and interpersonal skills, and a commitment to achieving
a harmonious balance between Norco’s strategic business objectives
and shareholders’ needs.
The Board of Directors currently comprises six supplier directors
(non executive) and one independent director. Director education
remains a strong focus of the Norco Board and during the year the
Directors attended several industry conferences as well as keeping
up to date with the latest issues faced by them through continued
membership of the Australian Institute of Company Directors.
The directors also recognise and acknowledge that they need to
continually strive to ensure they perform to their maximum potential
as members of the Board. On a regular basis, the Directors continue
to assess their own performance and provide feedback to their fellow
directors under a performance appraisal system with the aim being
to help improve individual director and overall Board performance.
Gregory J McNamara - Chairman
Greg McNamara has been a director of Norco
Co-operative Limited for 14 years and is from the
Central Region. In addition to his role as Chairman
of the Board of Directors, he is Chairman of the
Remuneration Advisory Committee and a member
of the Communication Committee.
Greg runs a 300-strong dairy herd in partnership
with his wife Sue and son Todd at Goolmangar, near
Lismore, and grows Wagyu cattle for the Japanese
export market. He has extensive experience across
the agricultural sector, including dairy, beef, pigs,
horticulture and animal genetics.
Greg is a member of the Australian Institute of
Company Directors (AICD) and has previously
completed their Company Directors’ Course. He
regularly attends AICD short courses and director
briefings to enhance and update his skills. Greg was
also a guest speaker at the Co-operative Federation
of NSW Co-operative Opportunities Conference
during February 2010.
Kerry A Wilson – Deputy Chairman
Kerry Wilson was elected to the Board in early 2003
and is from the Central Region. Kerry is a member
of the Remuneration Advisory, Milk Supply
Advisory and Member Services Committees.
Kerry maintains a diverse range of agricultural
interests in the Northern Rivers region, and is
currently involved in a dairying partnership at
Woodlawn, near Lismore, milking a dairy herd
of 300. He is also involved in a partnership that
processes and distributes an unpasteurised goats’
milk under the Nimbin Valley Dairy brand,
produced at his farm at Nimbin.
Kerry has a Bachelor of Business Degree, majoring
in Management and Marketing, and has previously
worked for a number of organisations in Brisbane
including the Endeavour Foundation, Queensland
Milk Board and the former Metway Bank.
Kerry is a member of the AICD and has previously
completed their Company Directors’ Course.
Kerry attended the ABARE Outlook conference
at Canberra during March 2010.
Thomas J Cooper – Director
Tom Cooper has been a director of Norco for eight
years and is from the Northern Region. Tom is the
Chairman of the Member Services Committee and
is a member of the Audit and Risk Management
Committee.
In partnership with his wife Vicki, Tom runs a
100-strong dairy herd at Bonalbo, west of Casino.
He is a graduate of the University of Queensland’s
Gatton Campus where he obtained a Certificate in
Animal Husbandry, and has also worked in rural
merchandising. Tom was also a licensed Auctioneer
and Livestock Agent.
Tom is a member of the AICD and has previously
completed the AICD Company Directors’ Course.
Tom attended the ABARE Outlook conference at
Canberra during March 2010.
19
David R Hodges – Independent Director
David Hodges was elected as an independent
director on 12 November 2008. He is the Chairman
of the Milk Supply Advisory Committee and is a
member of the Communication Committee.
David holds Bachelor of Arts and Bachelor of
Legal Studies degrees and a Master of Laws degree.
In addition, he also holds a Diploma of Education,
a Certificate in Community Mediation and is a
Justice of the Peace.
After a career spanning some 15 years in the public
sector, David spent over 17 years as a solicitor in
private practice. For the last six and a half years of
his career as a solicitor David was a partner in one
of Australia’s leading national law firms until he
retired from legal practice in 2005. Since leaving
legal practice, David has provided business and
commercial advice in a consultancy role, as well
as providing mediation services to a wide range of
clients.
David is a graduate and member of the AICD
and regularly attends AICD short courses and
director briefings in order to enhance and update
his skills. David also attended the Australian Dairy
Conference at Wollongong during February 2010.
Peter W Neal – Director
Peter was elected as a Director on 11 November
2009 and is from the Southern Region. He is the
Chairman of the Communication Committee
and is a member of the Milk Supply Advisory
Committee.
Peter and his family operates a 600 cow dairy near
Taree, and has been dairying for 42 years first with
his parents and now with his sons - they are the
fifth generation on this farm who wish to continue
dairying in the future for their children.
Peter has experience on boards with 14 years on
NSW Dairyfarmers Association and 10 years on
the NSW Dairy Industry Development Company
(DIDCO – now Dairy NSW), with four years as
chairman. Currently Peter chairs his local North
Oxley Island Drainage Union and the Manning
Delta Landholders Protection Committee and
is a committee member of the Mid Coast Dairy
Advancement Group (DAGs).
Peter attended the Co-operative Federation of
NSW Co-operative Opportunities Conference
during February 2010.
David S Pryor – Director
David Pryor joined the Board in early 2003 and
is from the Southern Region. He is the Chairman
of the Audit and Risk Management Committee
and sits on the Member Services Committee.
has also worked in the banking industry.
David is a member of the AICD and has
previously completed the AICD Company
Directors’ Course.
David grew up in the Bellingen area and is a
longstanding supporter of Norco. He started
farming at Bellingen in 2000 with his wife Sharon
where they run a 130-strong dairy herd. David
Anthony (Tony) W Wilson – Director
Tony Wilson was elected as a director on 4 March
2009 and is from the Northern Region. He is a
member of both the Audit and Risk Management
Committee and Member Services Committee.
Together with his wife Jillian and son Nicholas,
Tony lives and farms at The Risk, 20 kms NW
of Kyogle milking a herd of 260 cows that are
Holstein based, with a crossbreeding program in
place. Tony studied and gained a BA, Dip Ed at
20
UNE, Armidale and still works part-time teaching
at Woodenbong Central School. Tony also has an
interest in agri-politics which has developed over
the past 26 years and has been focussed on the
welfare of the dairy farming community.
Tony completed the AICD Company Directors’
Course during November 2009 and also attended
the Australian Dairy Conference at Wollongong
during February 2010.
DIRECTOR ELECTIONS – 2009/10
Directors’ Meetings
Messrs KA Wilson (Central Region) and DS Pryor (Southern
Region) were re-elected for a three year term effective from the
2009 Annual General Meeting on 11 November 2009.
Mr BJ Paff resigned from his position as a Director (Southern
Region) taking effect on 11 November 2009. The position left
vacant by BJ Paff ’s resignation was filled
by Mr Peter W Neal on 11 November
2009 following a ballot. In accordance
with the Rules, as Peter Neal is filling a
casual vacancy created by the resignation
of Mr Paff, he shall retire at the 2010
GJ McNamara
Annual General Meeting.
The positions of Chairman and Deputy
Chairman are voted on annually by
the directors following the Annual
General Meeting.
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
A
B
Audit and Risk
Management
Committee Meetings
A
B
Milk Supply Advisory
Committee
A
B
15
15
-
-
-
-
KA Wilson
15
15
3
3
8
8
TJ Cooper
15
15
6
5
-
-
DR Hodges
15
15
-
-
11
11
PW Neal
10
10
-
-
8
8
DS Pryor
15
15
3
3
3
3
AW Wilson
15
14
3
3
3
3
BJ Paff
10
10
3
3
-
-
A
B
Reflects the number of meetings held during the time the Director held office during the year
Number of meetings attended
C O R P O R AT E I N F O R M AT I O N
Corporate structure
Norco Co-operative Limited is a co-operative limited by shares that
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 of stockfeeds and rural retailing.
Employees
The Co-operative employed 389 full-time, 38 part-time permanent
and 181 casual employees at 30 June 2010 (2009: 390 full-time, 42
part-time and 139 casual employees).
Results of operations
The net amount of the operating profit for the financial year of
the Co-operative after providing for income tax was $2.3 million
(2009: $1.1 million).
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 year totalled $357,000 (being 3.5 percent
of paid up capital), approved for payment at the 2009 Annual
General Meeting held on 11 November 2009.
Operations review
The Directors’ review of the Co-operative’s operations during the
financial year and of the results of those operations are as stated
in the attached Chairman’s Report and Chief Executive Officer’s
Report for the financial year ended 30 June 2010.
Events subsequent to balance date
There has not arisen in the interval between the end of the financial
year and the date of this report, any item, transaction or event of a
material and unusual nature likely, in the opinion of the Directors,
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.
21
Future developments
Disclosure of information regarding the likely developments in the
operations of the Co-operative 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 of the company 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 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
Greg McNamara is a partner of GJ, SP & TM McNamara which
has a contract to supply Wagyu cattle to Dairy Beef Alliance. Mr
McNamara has declared his interest in accordance with Section
234 of the NSW Co-operatives Act 1992, and in addition, excludes
himself from any discussions or decisions relating to this matter.
Kerry Wilson is a member of a partnership that supplies, processes
and distributes unpasteurised goats’ milk under the Nimbin Valley
Dairy brand in the Northern Rivers region of New South Wales
and in Queensland. The Wilson Partnership has a contract to supply
Wagyu cattle to Dairy Beef Alliance. Mr Wilson has declared his
22
interest in accordance with Section 234 of the NSW Co-operatives
Act 1992, and in addition, excludes himself from any discussions or
decisions relating to these matters.
Tom Cooper is a councillor of Kyogle Shire Council. Mr Cooper
has declared his interest in accordance with Section 234 of the
NSW Co-operatives Act 1992, and in addition, excludes himself
from any discussions or decisions relating to this matter.
Peter Neal is Chairman and Director of the North Oxley Island
Drainage Union (statutory organisation under an act of NSW
Government – non paid position), he is also Chairman of the
Mid Coast Dairy Advancement Group (registered group within
consumer affairs – non paid position) and he is Chairman of the
Manning Delta Landholders Protection Committee (registered
group within consumer affairs – non paid position). Mr Neal has
declared his interest in accordance with Section 234 of the NSW
Co-operatives Act 1992, and in addition, excludes himself from any
discussions or decisions relating to these matters.
Rounding off of amounts
The amounts in this report and the accompanying financial
statements have been rounded to the nearest one thousand dollars
in accordance with the Co-operatives Regulation 2005.
Auditor’s independence declaration to
the directors
The directors received a declaration from the Co-operative’s auditor,
Ernst & Young. It 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 KA Wilson
Chairman Deputy Chairman
Lismore, 30 September 2010
23
C O R P O R AT E G O V E R N A N C E S TAT E M E N T
This statement outlines the main corporate governance practices that
were in place throughout the 2009/10 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.
Southern regions. Each region is represented by two supplier
directors, with directors having a three year term. At each Annual
General Meeting two directors shall 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 the position for one
independent director remains vacant.
Board of Directors and its committees
An active member of the Co-operative may seek election as a
supplier director in accordance with the Rules of the Co-operative
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. Currently
there is one independent director on the Board of Directors, being
Mr David Hodges.
The Board of Directors is responsible for the overall corporate
governance of the Co-operative including strategic direction and
enhancing organizational 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.
Composition of the Board
Mr Hodges’ extensive experience, skills and knowledge gained in
both the public and private corporate sectors, together with his
knowledge and understanding of Norco is well regarded by the
supplier directors. As well as providing valuable input into the
matters that come before the Board, Mr Hodges is also a resource in
terms of Board process and corporate governance.
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
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 potential conflicts. If a conflict of interest should arise,
To better understand the operations of the Co-operative’s businesses
the Board receives regular reports, presentations and briefing papers
on key aspects and makes site visits to the Co-operative’s operations.
24
the director concerned takes no part in discussions at the Board
meeting on the issue, nor exercises any influence over other Board
members.
Remuneration of 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 Cooperative is to be governed in practice. The document was developed
having regard to the NSW Co-operatives Act 1992 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 at least annually by the directors to ensure that issues
of governance are practised in accordance with the policy. At the
same time, the policy is reviewed to ensure it is still relevant and up
to date.
Audit and Risk Management Committee
The objective of the Audit and Risk Management Committee
is to advise 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 of Directors 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 Committee is comprised of three directors and meets at least
three times per year. The Chairman of the Co-operative shall not be
a member of the Committee.
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
• risk management reporting systems are in place to effectively
identify and manage strategic, operational and financial risks.
Board Education and Training
The Board of Directors has an established Director Education and
Training policy providing directors with a clear understanding of
the educational and training requirements to be met by individual
directors to ensure that they keep abreast of emerging business,
industry and corporate governance issues.
The policy ensures that each director shall maintain membership in
the Australian Institute of Company Directors (AICD) during the
period of their directorship, at the cost of the Co-operative. Newly
appointed directors shall complete the AICD Company Directors’
Course within the first 12 months of their directorship. On an
ongoing basis, directors are to ensure that they will complete not
less than 15 hours of professional development and training in each
financial year. The Co-operative bears all financial costs in relation to
approved director training.
Six of the current seven directors have completed the AICD
Company Directors’ Course with Tony Wilson being the most
recent director to complete the course during late November
2009. Peter Neal, who joined the Board on 11 November 2009, is
scheduled to undertake the course in the near future. As a result,
by the end of the year, all of the current Board members will have
completed this widely recognised and accredited course.
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 have adopted Terms of Reference defining their
respective roles and responsibilities.
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
• 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.
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 Norco Foods 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 Norco Foods 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
25
• the sale of milk by the Norco Foods business unit, with specific
reference to the terms under which that milk is sold (including
but not limited to price).
The composition of the Milk Supply Advisory Committee shall be
determined by the Board from time to time and meets at least
every quarter.
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” and so in giving effect to this 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
The Committee is comprised of four directors and meets on an asneeds basis.
Remuneration Advisory Committee
The objective of the Remuneration Advisory Committee is to make
properly considered recommendations to the Board of Directors
in relation to the remuneration of the Senior Management Team,
Chief Executive Officer and Board of Directors and in relation to
incentive programs within the Norco business.
In giving effect to this objective, the Committee will:
• monitor and review all Senior Management Team
remuneration
• evaluate, monitor and review any Short Term Incentive (STI)
and Long Term Incentive (LTI) programs that may be in
operation in the Norco business
• evaluate the performance of the Chief Executive Officer and
make recommendations in relation to the remuneration of the
Chief Executive Officer
• make recommendations to the Board in relation to director
remuneration.
• communication plans for crisis/disaster situations
The Committee is comprised of two directors and the Chief
Executive Officer and meets at least annually.
• joint communications that may impact another organization
or individual, or by which Norco may be affected
INTERNAL CONTROL FRAMEWORK
• 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 three directors and meets at least
every quarter.
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:
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.
• Financial reporting - there is a comprehensive budgeting
system with an annual budget approved by the directors.
Monthly actual results are reported against budget and revised
rolling forecasts for the year 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 as the need arises or amendments
made to existing policies and procedures.
• 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.
In giving effect to this objective, the Committee will:
26
• develop and encourage the sustainability of the Norco farm
base through initiatives such as improving farming techniques,
study tours and improving business skills
• assist with the ongoing wellbeing of the Norco farm base by
assisting with succession planning, mental health issues and
social networking / support
• provide and disseminate information from external sources
relating to issues such as government assistance, climate changes
and the emissions trading scheme
• provide support to the Norco farm base through the
management of issues such as exceptional circumstances,
disaster recovery planning, critical farm issues (such as tick
infestations) and animal welfare.
Quality Accreditation
The Norco Foods business unit strives to ensure that its products
are of the highest standard. The Lismore Ice Cream Business Unit
has accreditation in HACCP with the NSW Food Authority, SQF
2000 Level 3, Woolworths Quality Assurance Standard and has an
Approved Arrangement with AQIS for export. The Labrador milk
factory has HACCP accreditation with Safe Foods QLD, SQF 2000
Level 3, WQA, Woolworths HACCP quality assurance standards
and NCS HACCP accreditation. The Raleigh milk factory has
NSW Food Authority HACCP accreditation, NCS HACCP
accreditation, SQF 2000 Level 3, NASAA and ACO accreditation
(both for organic milk).
In the Norco Agribusiness unit, the Goldmix Stockfeeds
manufacturing mill at Lismore has achieved FeedSafe accreditation
under the Stockfeed Manufacturers’ Association of Australia and
HACCP accreditation. The Goldmix Stockfeeds manufacturing
mill at Windera in Queensland has achieved FeedSafe accreditation
under the Stockfeed Manufacturers’ Association of Australia and
has both ISO 9001 and HACCP accreditation. Norco is a member
of the Stockfeed Manufacturers’ Association of Australia.
Rural Retail staff are AgSafe accredited for the handling, transport
and recommendation of agricultural chemical products. The Rural
Retail premises are AgSafe accredited for the storage and handling
of agricultural chemical products.
Safety
Norco Co-operative Limited is committed to the safety and
wellbeing of staff across its entire operations. Norco complies
with the relevant safety legislation in both New South Wales and
Queensland. On a monthly basis, the Board of Directors receives
reports detailing the safety performance for the business and
monitors this performance closely.
Environment
The Co-operative 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 the Co-operative. Every employee
has a nominated manager or supervisor to whom they may refer any
issue arising from their employment.
BUSINESS RISKS AND EMERGENCY PLANNING
Management have identified, and are continuing to identify, business
risks and potential emergencies with the aim of minimising the
impact on the Co-operative.
Business risks arise from such matters as:
• action by competitors and industry rationalization
• 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
• interest rates
• difficulties in sourcing raw materials
• the purchase, development and use of information systems,
and other emergencies that may occur.
THE ROLE OF MEMBERS
The Board of Directors aims to ensure that the members are informed
of all major developments affecting the Co-operative’s state of affairs.
Information is communicated to members as follows:
• The Annual Report is distributed to all members. The Annual
Report includes relevant information about the operations of
the Co-operative for the financial year just ended, changes in
the state of affairs of the Co-operative and details of future
developments, in addition to the other disclosures required by
the Co-operatives Legislation.
• Meetings are held several times each year 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 is in place throughout
the Norco supply area called ‘NorcoNet’. 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.
• Proposed major changes in the Co-operative which relate to
the core businesses are required by the Co-operatives Act to
be submitted to a vote of members.
• Communication is a two-way process, and the Board
encourages individual members or groups of members to
attend Board 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. Important
issues are presented to the members as single resolutions.
The members are responsible for voting on the appointment of
directors.
27
F I N A N C I A L S TAT E M E N T S
28
S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E
FOR THE YE AR ENDED 30 JUNE 2010
2010
2009
Consolidated Consolidated
$000
$000
Note
Before Significant
Before Significant
Significant
items
Total
Significant items
Total
Items
(1)
Items
(1)
Continuing Operations
Revenue
3(a)
351,574
-
351,574
344,094
-
344,094
Profit on disposal of non-current assets
216
-
216
1,406
-
1,406
351,790
-
351,790
345,500
-
345,500
Milk payments to suppliers
(79,232)
-
(79,232)
(79,827)
-
(79,827)
Cost of sales
(198,507)
-
(198,507)
(199,830)
-
(199,830)
Employee expenses
3(d)
(36,635)
-
(36,635)
(33,858)
-
(33,858)
Depreciation expenses
3(b)
(4,494)
-
(4,494)
(4,326)
-
(4,326)
Borrowing costs expense
(2,864)
-
(2,864)
(3,076)
-
(3,076)
Occupancy costs
(2,900)
-
(2,900)
(2,787)
-
(2,787)
Administration and other costs
(24,898)
-
(24,898)
(20,686)
-
(20,686)
Restructure costs
-
(450)
(450)
-
(848)
(848)
Profit/(loss) from ordinary activities before
income tax expense and member distributions
2,260
(450)
1,810
1,110
(848)
262
-
(357)
(357)
-
(396)
(396)
2,260
(807)
1,453
1,110
(1,244)
(134)
-
-
-
-
-
-
2,260
(807)
1,453
1,110
(1,244)
(134)
2,260
(807)
1,453
1,110
(1,244)
(134)
Member Distributions
5
Profit / (loss) before tax
Income tax benefit / (loss)
4
Net profit/(loss) attributable to members
Total comprehensive Income for the period
(1) Significant items are items of income and expense, presented separately due to their nature and size.
The above Income Statement must be read in conjunction with the accompanying notes.
29
B A L A N C E S H E ET
FOR THE YE AR ENDED 30 JUNE 2010
Consolidated
Note
2010
2009
$000
$000
CURRENT ASSETS
Cash assets and cash equivalents
27(b)
1,964
3,278
Trade and other receivables
6
32,155
31,493
Inventories
7
26,115
19,700
Other assets
77
111
Total current assets
60,311
54,582
NON-CURRENT ASSETS
Investments
8
31
37
Property, plant and equipment
9
46,542
48,412
Goodwill and intangible assets
10
33,691
33,691
Total non-current assets
80,264
82,140
TOTAL ASSETS
140,575
136,722
CURRENT LIABILITIES
Trade and other payables
12
47,412
41,244
Interest-bearing liabilities
13
460
696
Provisions
14
6,083
5,639
Total current liabilities
53,955
47,579
NON-CURRENT LIABILITIES
Trade and other payables
12
341
362
Interest-bearing liabilities
13
24,878
29,356
Provisions
14
452
384
Total non-current liabilities
25,671
30,102
TOTAL LIABILITIES 79,626
77,681
NET ASSETS ATTRIBUTABLE TO MEMBERS
60,949
59,041
Members’ interest
15
6,592
6,137
NET ASSETS
54,357
52,904
EQUITY
Reserves
16
39,087
39,087
13,817
Retained profits
15,270
TOTAL EQUITY
54,357
52,904
The above Balance Sheet must be read in conjunction with the accompanying notes.
30
S TAT E M E N T O F C A S H F L O W S
FOR THE YE AR ENDED 30 JUNE 2010
Consolidated
Note
2010
2009
$000
$000
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and members
351,324
381,813
Interest received
273
269
Payments to suppliers and employees (264,252) (305,090)
Payment to milk suppliers
(78,774)
(72,827)
Interest and other costs of finance paid
(3,004)
(3,076)
Net cash flows from operating activities 27(a)
5,567
1,089
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment
1,022
1,824
Payment for property, plant and equipment
(3,377)
(2,342)
Net cash flows from investing activities
(2,355)
(518)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of borrowings
(4,714)
(1,992)
Finance lease repayments
(236)
(287)
Distribution paid to members
(357)
(396)
Repayment of member deposits
-
(110)
Suppliers’ share contribution
781
385
Net cash flows from financing activities
(4,526)
(2,400)
Net Increase/(decrease) in cash held
(1,314)
(1,829)
Cash at the beginning of the financial year
3,278
5,107
Cash at end of the financial year 1,964
3,278
The above Statement of Cash Flows must be read in conjunction with the accompanying notes.
S TAT E M E N T O F C H A N G E S I N E Q U I T Y
FOR THE YE AR ENDED 30 JUNE 2010
Asset Revaluation Reserve
$000
Consolidated
Attributable to Members
Retained Earnings
$000
Total Equity
$000
At 1 July 2008
39,087
13,951
53,038
Profit for the period
-
(134)
(134)
Total recognised income and expense
-
(134)
(134)
At 30 June 2009
39,087
13,817
52,904
At 1 July 2009
39,087
13,817
52,904
Profit for the period
-
1,453
1,453
Total recognised income and expense
-
1,453
1,453
At 30 June 2010
39,087
15,270
54,357
The above Statement of Changes in Equity must be read in conjunction with the accompanying notes.
31
N OT E S T O T H E F I N A N C I A L S TAT E M E N T S
FOR THE YEAR ENDED 30 JUNE 2010
1.CORPORATE INFORMATION
financial statements for the year ended 30 June 2009.
The financial report of Norco Co-operative Limited and
controlled entities (the Co-operative) for the year ended 30 June
2010 was authorised for issue in accordance with a resolution of
the directors on 30 September 2010.
The financial report is presented in Australian dollars and all
values are rounded to the nearest thousand dollars ($’000) unless
otherwise stated under the option available to the Co-operative
under class order 98/100. The Co-operative is an entity to which
the class order applies.
Norco Co-operative Limited is a Co-operative under the
New South Wales Co-operatives Act 1992, 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.STATEMENT OF SIGNIFICANT ACCOUNTING
POLICIES
(a) Basis of preparation
The financial report has been prepared on the basis of historical
cost (except for certain land and building assets where in 2004
fair value was deemed to be cost) and 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 differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and
future periods if the revision affects both current and future
periods.
Judgements made by management in the application of AIFRS
that have significant effects on the financial statements and
estimates with a significant risk of material adjustments in the
next year are disclosed, where applicable, in the relevant notes
to the financial statements. Accounting policies are selected and
applied in a manner which ensures that the resulting financial
information satisfies the concepts of relevance and reliability,
thereby ensuring that the substance of the underlying transactions
or other events is reported.
The accounting policies set out below have been applied in
preparing the financial statements for the year ended 30 June
2010 and the comparative information presented in these
32
(b) Statement of compliance
The financial report complies with Australian Accounting
Standards, which include Australian equivalents to International
Financial Reporting Standards (AIFRS) as issued by the
International Accounting Standards Board.
New standards and interpretations:
AASB 8 Operating Segments – AASB 8 replaced AASB 14
Segment Reporting upon its effective date. AASB 8 does not
apply to the group and therefore no disclosures are required in
the financial statements in respect of this standard.
AASB 101 Presentation of Financial Statements – The revised
standard separates owner and non-owner changes in equity.
The statement of changes in equity includes only details of
transactions with owners, with non-owner changes in equity
presented in a reconciliation of each component of equity
and included in the new statement of comprehensive income.
The statement of comprehensive income presents all items of
recognised income and expense, either in one single statement
or in two linked statements. The Group has elected to present
one single statement.
A number of revisions exist to current AIFRS Standards with
future application dates for the group including AASB 2008-2
Amendments to Australian Accounting Standards – Puttable
Financial Instruments and Obligations arising on Liquidation
which may allow current members equity to be recorded in
equity and not as a liability as is currently applied.
(c) Basis of consolidation
The consolidated financial statements include the financial
statements of the parent entity, Norco Co-operative Limited
and its controlled entities, referred to collectively throughout
these financial statements as the “Consolidated Entity”.
All inter-entity balances and transactions have been eliminated.
Where an entity either began or ceased to be controlled during
the year, the results are included only from the date control
commenced or up to the date control ceased.
(d) Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Co-operative and the revenue
can be reliably measured. The following specific recognition
criteria must also be met before revenue is recognised:
(i) Sale of Goods
Revenue is recognised when the significant risks and rewards of
2. S TAT E M E N T O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C ontinu e d )
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.
(ii) 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.
(iii) Interest Income
Revenue is recognised as interest accrues using the effective
interest method. This is a method of calculating the amortised
cost of a financial asset and allocating the interest income over
the relevant period using the effective interest rate, which is the
rate that exactly discounts estimated future cash receipts through
the expected life of the financial asset to the net carrying amount
of the financial asset.
(iv) Dividends
Dividend revenues are recognised when control of a right to
receive consideration for the investment in assets is attained,
usually evidenced by approval of the dividend at a meeting of
shareholders.
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
income statement on a straight-line basis over the lease term.
Lease incentives are recognised in the income statement as an
integral part of the total lease expense.
(ii) Co-operative as a lessor
Leases in which the Co-operative retains substantially all the
risks and benefits of ownership of the leased asset are classified
as operating leases. Initial direct costs incurred in negotiating an
operating lease are added to the carrying amount of the leased
asset and recognised as an expense over the lease term on the
same basis as rental income.
(g) Cash and cash equivalents
Cash and short-term deposits in the balance sheet 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 Cash
Flow Statement, cash and cash equivalents consist of cash and
cash equivalents as defined above, net of outstanding bank
overdrafts.
(v) Government Grants
(h) Trade receivables
Grants received for the construction of non-current assets are
deferred and recorded as revenue over the life of the funded
asset.
Trade receivables, which generally have 30-90 day terms, are
recognised and carried at original invoice amount less an
allowance for any uncollectible amounts.
(e) Borrowing Costs
An allowance for doubtful debts is made when there is objective
evidence that the Co-operative will not be able to collect the
debts. Bad debts are written off when identified.
Borrowing costs consist of interest and other costs that an
entity incurs in connection with the borrowing of funds. All
loans and borrowings are initially recognised at the fair value of
the consideration received less directly attributable transaction
costs.
(f) Leases
The determination of whether an arrangement is or contains a
lease is based on the substance of the arrangement. It requires
an assessment of whether the fulfilment of the arrangement
is dependent on the use of a specific asset or assets and the
arrangement conveys a right to use the asset.
(i) Co-operative as a lessee
Finance leases, which transfer to the Co-operative substantially
all the risks and benefits incidental to ownership of the leased
item, are capitalised at the inception of the lease at the fair
value of the leased property or, if lower, at the present value of
the minimum lease payments. Lease payments are apportioned
between the finance charges and reduction of the lease liability
so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are recognised as an
expense in profit or loss.
(i) Inventories
Inventories are valued at the lower of cost and net realisable
value.
Costs incurred in bringing each product to its present location
and conditions are accounted for as follows:
Raw Materials – purchase cost on a first-in, first-out basis;
Finished goods and work-in-progress – costs of direct materials
and labour and a proportion of manufacturing overheads based
on normal operating capacity but excluding borrowing costs;
and
Net realisable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and the
estimated costs necessary to make the sale.
Maintenance spares are recognised as inventories and expensed
when utilised.
( j) Foreign currency translation
Both the functional and presentation currency of Norco Cooperative Limited and its controlled entities is Australian dollars.
33
2. S TAT E M E N T O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C ontinu e d )
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.
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 sufficient taxable profit will be available to
allow all or part of the deferred income tax asset to be utilised.
(k) Income tax
Revenues, expenses and assets are recognised net of the amount
of the GST except:
Current tax assets and liabilities for the current and prior periods
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 enacted or substantively
enacted by the balance sheet date.
Deferred income tax is provided on all temporary differences
at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting
purposes.
Deferred income tax liabilities are recognised for all taxable
temporary differences except:
• when the deferred income tax liability arises from the
initial recognition of goodwill or of an asset or liability in
a transaction that is not a business combination and that, at
the time of the transaction, affects neither the accounting
profit nor taxable profit or loss; or
• when the taxable temporary difference is associated with
investments in subsidiaries, associates or interest in joint
ventures, and the timing of the reversal of the difference can
be controlled and it is probable that the temporary difference
will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible
temporary differences, carry-forward of unused tax assets and
unused tax losses, to the extent that it is probable that taxable
profit will be available against which the deductible temporary
differences and the carry-forward of unused tax credits and
unused tax losses can be utilised, except:
• when the deferred income tax asset relating to the deductible
temporary difference 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, affects
neither the accounting profit nor taxable profit or loss; or
• when the deductible temporary difference is associated with
investments in subsidiaries, associates or interest in joint
ventures, in which case a deferred tax asset is only recognised
to the extent that it is probable that the temporary difference
will reverse in the foreseeable future and taxable profit will
be available against which the temporary difference can be
utilised.
The carrying amount of deferred income tax assets is reviewed
at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax asset to be utilised.
34
(l) Other taxes
• where the GST incurred on the purchase of goods and 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; and
• 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 the receivables or
payables in the Balance Sheet.
Cash flows are included in the Cash Flow Statement on a
gross basis and the GST component of cash flows arising from
investing and financing activities, which is recoverable from, or
payable to, the taxation authority are classified as operating cash
flows.
Commitments and contingencies are disclosed net of the amount
of GST recoverable from, or payable to, the taxation authority.
(m) Property, plant and equipment
Items of property, plant and equipment including buildings and
leasehold property, but excluding freehold land, are measured at
cost less accumulated depreciation and less any impairment losses
recognised. Freehold land is held at cost and is not depreciated.
Plant and equipment is depreciated on a straight-line basis over
the estimated useful life of the assets, units of output, life of
project or other appropriate basis.
Leasehold improvements are depreciated over the period of
the lease or estimated useful life, whichever is shorter, using the
straight-line method.
The following estimated useful lives are used in the calculation
of depreciation:
Buildings
2 – 5%
Plant & Vehicles
10 – 33%
Leasehold plant and equipment 10 – 20%
The assets’ residual values, useful lives and amortisation methods
are reviewed, and adjusted if appropriate, at each financial year
end.
(i) Impairment
The carrying values of items of property, plant and equipment
are reviewed for impairment at each reporting date, with
recoverable amount being estimated when events or changes in
circumstances indicate that the carrying value may be impaired.
2. S TAT E M E N T O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C ontinu e d )
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 cashflows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the
risks specific to the asset.
For an asset that does not generate largely independent cash
inflows, recoverable amount is determined for the cashgenerating 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.
ii) Derecognition and disposal
An item of property, plant and equipment is derecognised
upon disposal or when no further future economic benefits are
expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated
as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in profit or loss in the
year the asset is derecognised.
(n) Goodwill
Goodwill acquired in a business combination is initially measured
at cost being the excess of the cost of the business combination
over the Co-operative’s interest in the net fair value of the
acquiree’s identifiable assets, liabilities and contingent liabilities.
Following initial recognition, goodwill is measured at cost less
any accumulated impairment losses.
Goodwill is reviewed for impairment annually or more frequently
if events or changes in circumstances indicate that the carrying
value may be impaired.
For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated
to each of the Co-operatives cash-generating units, or groups
of cash-generating units, that are expected to benefit from the
synergies of the combination, irrespective of whether other
assets or liabilities of the Co-operative are assigned to those
units or groups of units. Each unit or group of units to which the
goodwill is so allocated:
• represents the lowest level within the Co-operative at
which the goodwill is monitored for internal management
purposes; and
• is not larger than a segment based on the Co-operative’s
primary reporting format determined in accordance with
AASB 8 Operative 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 then 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.
(o) Impairment of assets
The Co-operative assesses at each reporting date whether there
is an indication that an asset may be impaired. If any such
indication exists, or when annual impairment testing for an
asset is required, the Co-operative makes an estimate of the
asset’s recoverable amount. An asset’s recoverable amount is the
higher of its fair value less costs to sell and its value in use and
is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from
other assets or groups of assets and the asset’s value in use cannot
be estimated to be close to its fair value. In such cases the asset
is tested for impairment as part of the cash-generating unit to
which it belongs. When the carrying amount of an asset or cashgenerating unit exceeds its recoverable amount, the asset or cash
generating unit is considered impaired and is written down to its
recoverable amount.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of
money and the risks specific to the asset. Impairment losses
relating to continuing operations are recognised in a separate
expense account in the income statement unless the asset is
carried at revalued amount (in which case the impairment loss
is treated as a revaluation decrease).
An assessment is also made at each reporting date as to whether
there is any indication that previously recognised impairment
losses may no longer exist or may have decreased. If such an
indication exists, the recoverable amount is estimated. A
previously recognised impairment loss is reversed only if there
has been a change in the estimates used to determine the asset’s
recoverable amount since the last impairment loss was recognised.
If that is the case the carrying amount of the asset is increased to
its recoverable amount. That increased amount cannot exceed
the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognised for the
asset in prior years. Such reversal is recognised in profit or loss
unless the asset is carried at revalued amount, in which case the
reversal is treated as a revaluation increase. After such a reversal
the depreciation charge is adjusted in future periods to allocate
35
2. S TAT E M E N T O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C ontinu e d )
the asset’s revised carrying amount, less any residual value, on a
systematic basis over its remaining useful life.
by the entity in respect of services provided by employees up to
reporting date.
(p) Trade and other payables
Contributions to defined contribution superannuation plans are
expensed when incurred.
Trade payable and other payables are carried at amortised costs
and represent liabilities for goods and services provided to the
Co-operative prior to the end of the financial year that are
unpaid and arise when the Co-operative becomes obliged to
make future payments in respect of the purchase of these goods
and services.
(q) I nterest bearing loan and
borrowings
In periods before 1 July 2004 members units in the Co-operative
were recorded in equity as contributed equity. On 1 July 2004
the Co-operative re-classified these instruments to non-current
interest bearing liabilities in accordance with generally accepted
International Accounting Practice. Any distributions paid on
these instruments are treated as a borrowing cost.
All loans and borrowings are initially recognised at the fair
value of the consideration received less directly attributable
transaction costs.
This position which was clarified by UIG 2 Members’ Shares in
Co-operative Entities and Similar Instruments, which the Cooperative adopted effective 1 July 2004.
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the effective
interest method.
(u) Norco Capital Units
Gains or losses are recognised in profit or loss when the liabilities
are derecognised.
(r) Provisions
Provisions are recognised when the Co-operative has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation.
When the Co-operative expects some or all of a provision to
be reimbursed, for example under an insurance contract, the
reimbursement is recognised as a separate asset but only when
the reimbursement is virtually certain. The expense relating to
any provision is presented in the income statement net of any
reimbursement.
If the effect of the time value of money is material, provisions
are discounted using a current pre-tax rate that reflects the risks
specific to the liability.
When discounting is used, the increase in the provision due to
the passage of time is recognised as a borrowing cost.
(s) Employee benefits
Provision is made for benefits accruing to employees in respect
of wages and salaries, annual leave and long service leave when it
is probable that settlement will be required and they are capable
of being measured reliably.
Provision made in respect of employee benefits expected to be
settled within 12 months, are measured at their nominal values
using the remuneration rate expected to apply at the time of
settlement.
Provisions made in respect of employee benefits which are not
expected to be settled within 12 months are measured as the
present value of the estimated future cash outflows to be made
36
(t) Member’s interest
Norco Capital Units are carried at the principal amount. Interest
is accrued at the entitlement rate and is included in “Interest
Bearing Liabilities”.
(v) Joint Venture Investments
Investments in joint venture entities are recorded using equity
accounting.
(w) Comparative Information
Where required, amounts presented for the year to 30 June 2009
have been re-stated and re-classified to comply with presentation
formats and requirements for the 30 June 2010 financial year.
(x) Significant Judgements
The preparation of the financial statements requires management
to make judgments, estimates and assumptions that affect the
reported amounts in the financial statements. Management
continually evaluates its judgments and estimates in relation to
assets, liabilities, contingent liabilities, revenue and expenses.
Management bases its judgments and estimates on historical
experience and on other various factors it believes to be reasonable
under the circumstances, the result of which form the basis of
the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions.
Management has identified the following critical accounting
policies for which significant judgments, estimates and
assumptions are made. Actual results may differ from these
estimates under different assumptions and conditions and
may materially affect financial results or the financial position
reported in future periods.
Further details of the nature of these assumptions and conditions
may be found in the relevant notes to the financial statements.
Operating lease commitments - Group as lessor
The Group has entered into commercial property and equipment
2. S TAT E M E N T O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C ontinu e d )
leases on its operating sites and equipment. The Group has
determined that the lessor retains all the significant risks and
rewards of ownership of these properties and assets and has thus
classified the leases as operating leases.
Impairment of non-financial assets other than goodwill
The Group assesses impairment of all assets at each reporting
date by evaluating conditions specific to the Group 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.
(y) Going Concern
The financial statements have been prepared on a going concern
basis with no adjustments to the carrying value of assets and
liabilities. The Co-operatives finance facilities are due to expire
under current terms on 28 July 2011. The Co-operative is
currently in the process of re-negotiating these facilities and has
received offers from several financial institutions. The directors
are confident in the near term these facilities will be re-negotiated
and extended to allow the Co-operative to meet its debts as and
when they fall due.
3.REVENUE AND EXPENSES
Note
Consolidated
2010
2009
$000
$000
(a)
Revenue
Sale of goods 349,916
337,746
Interest received
273
269
Other
1,385
6,079
351,574
344,094
(b)
Depreciation expense
Plant and equipment
3,791
3,648
Buildings
454
431
Leased assets
249
247
4,494
4,326
(c)
Other expense items
Provision for employee benefits
487
511
Provision for:
- Inventory obsolescence
65
37
- Doubtful / bad debts
870
76
(d)
Employee expenses
Salaries and wages (including contractors)
30,463
27,721
Workers’ compensation costs
2,999
3,301
Superannuation costs
2,036
1,728
Payroll tax
1,137
1,108
36,635
33,858
37
4.INCOME TAX
Note
The major components of income tax expense are:
Income Statement
Current income tax
Adjustments in respect of current income tax of previous years
Consolidated
2010
2009
$000
$000
-
-
-
Adjustment in respect of previous years
-
-
Income tax (expense)/benefit reported in the income statement
-
-
Deferred Income Tax
Relating to origination and reversal of temporary differences
A reconciliation between tax expense and the product of
accounting profit before income tax multiplied by the
Co-operative’s applicable income tax rate is as follows:
Accounting profit/(loss) before income tax
1,453
(134)
436
(40)
Non deductible amounts
Movements in temporary differences
Income tax loss movement
248
(978)
294
66
16
(42)
Income tax reported in the consolidated income statement
-
-
At the Co-operative’s statutory income tax rate of % (2009: 30%)
38
Tax losses
Temporary differences – not recorded
At 30 June 2010 the Co-operative had an estimated gross
$30.1m in carry forward losses (2009: $30.4m). These tax losses
have not been brought to account in the Balance Sheet. There
are no available franking credits.
The Co-operative has a surplus of deductible temporary
differences. The deferred tax asset associated with these
differences has not been recognised at 30 June 2010.
4 . I N C O M E TAX ( Continu e d )
Consolidated
Note
2010
2009
$000
$000
Unrecognised deferred tax assets and liabilities
Expenditure accruals
11
128
Provision for bad debts
374
315
Provision for employee entitlements
1,961
2,174
Accruals – Superannuation/FBT
10
54
Accelerated depreciation charges
-
(1,290)
Provision for obsolescence
318
315
Temporary difference
2,674
1,696
5.DISTRIBUTION TO MEMBER’S
Expensed in the period
357
6.TRADE
AND OTHER RECEIVABLES
Current
Trade receivables
31,612
Less provision for doubtful debts
(1,245)
30,367
Other receivables
1,788
32,155
Doubtful debts
Carrying amount at the beginning of the year
426
Additional / (reduction) in provision
1,264
Amount utilised during the year
(445)
Carrying amount at the end of the year
1,245
396
28,847
(426)
28,421
3,072
31,493
701
(199)
(76)
426
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.
At 30 June, the ageing analysis of trade receivables is as follows (in $000’s):
Total
0-30
Days
31-60
Days
61-90
Days
+91
Days
2010
Consolidated
31,612 24,770 4,362
1,014
1,466
2009
Consolidated
28,847 22,361 4,080
896
1,510
Receivables past due but not considered impaired are: Consolidated $2,338,000 (2009: $2,928,000). Payment terms have not been
renegotiated, however communications with counterparties have satisfied management that payment will be received in full.
39
7.INVENTORIES
Note
Consolidated
2010
2009
$000
$000
Raw material stock
6,246
4,847
Work in progress
351
58
Finished goods
20,912
15,844
Less provision to net realisable value
(1,394)
(1,049)
26,115
19,700
An allowance for inventory obsolescence is made where there is objective evidence that inventories are carried in excess of their
net realisable value.
8.INVESTMENTS
Shares
- unlisted corporations, at cost
31
37
31
37
9.PROPERTY,
PLANT AND EQUIPMENT
Land and buildings
At deemed cost
28,092
28,859
Less accumulated depreciation
(2,615)
(2,239)
25,477
26,620
Plant and vehicles
At cost
56,450
52,983
Less accumulated depreciation
(37,625)
(34,015)
18,825
18,968
Assets under lease At cost
2,109
2,096
Less accumulated amortisation
(718)
(467)
1,391
1,629
Capital Expenditure work in process
849
1,195
46,542
48,412
40
9. P R O P E RTY, P L A N T A N D E Q U I P M E N T (c ontinu e d )
Consolidated
Note
2010
2009
$000
$000
Reconciliations
Reconciliations of the carrying amounts of each
class of Property, Plant and Equipment
Land and buildings Carrying amount at beginning of year 26,620
27,391
Additions
25
Disposals
(714)
(340)
Depreciation expense
(454)
(431)
Carrying amount at end of year
25,477
26,620
Plant and vehicles
Carrying amount at beginning of year
18,968
19,217
Reclassification
323
81
Additions 3,364
3,370
Disposals (39)
(52)
Depreciation expense
(3,791)
(3,648)
Carrying amount at end of year
18,825
18,968
Assets under lease
Carrying amount at beginning of year
1,629
1,944
Reclassification
11
(68)
Additions -
Disposals
-
Depreciation expense
(249)
(247)
Carrying amount at end of year
1,391
1,629
There were no impairment losses recognised in the 2010 or 2009 financial years.
Leased manufacturing plant is pledged as security for the related finance lease liabilities.
Freehold land, buildings and Plant and Equipment are subject to a fixed and floating first charge of the Group’s assets as disclosed in
note 13(c). All assets and undertakings are pledged as security on the interest bearing liabilities of the Co-operative and controlled
entities.
All assets acquired under finance lease were acquired for nil cash flow and are considered to be a non-cash financing and investing
activity. There was no new finance leases entered into during the period.
41
10. GOODWILL AND INTANGIBLE ASSETS
Note
Consolidated
2010
2009
$000
$000
Acquired goodwill
33,691
33,691
33,691
33,691
11. IMPAIRMENT TESTING OF GOODWILL
Goodwill acquired through business combinations has been allocated at an entity level to the relevant cash generating units.
The discount rate applied to cash flow projections is 12% (2009: 12%).
Key assumption used in the value in use calculation are:
• Revenue: based on projected growth predictions and store numbers;
• Cost of sales: based on revenue growth; and
• Other costs: Based on store growth and expected wage increases.
No impairment was recorded in 2010 or 2009.
12. TRADE AND OTHER PAYABLES
Note
Consolidated
2010
2009
$000
$000
Current
Trade payables and accrued expenses
44,235
37,284
Member deposits
3,177
3,960
47,412
41,244
Non Current
Other payables
341
362
341
362
Trade payables are generally on 30 day terms.
13. INTEREST-BEARING LIABILITIES
Note
2010
2009
$000
$000
Current
Term Loans – secured
-
247
18(i)
322
286
Norco Capital Units
138
163
460
696
Lease Liability 42
Consolidated
13. I N T E R E S T-B E A R I N G L I A B I L I T I E S (c ontinu e d )
Consolidated
Note
2010
2009
$000
$000
Non Current
Lease Liability
18 (i)
926
1,248
Term Loans – secured
23,952
28,108
24,878
29,356
Term loans are secured by a fixed and floating charge over the assets of Norco Co-operative Ltd.
The Group’s St George finance is $23,952,485 and is scheduled to expire in July 2011 and on this basis, the liability has been
classified as non-current at 30 June 2010. The group is well advanced in negotiations to refinance these facilities and the Directors
are confident that a refinance will be in place before expiry.
Refer to Note 26 for financing facilities available to the Co-operative.
(a) Fair values
The carrying amount of the consolidated entity’s current and non-current borrowings approximates their fair value. The fair values
have been calculated by discounting the expected future cash flows at prevailing market interest rates varying from 8.0% to 9.0%,
depending on the type of borrowing.
(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:
Note
Property asset charges
Leased asset charges
Total assets pledged as security
Consolidated
2010
2009
$000
$000
45,151
1,391
46,783
1,629
46,542
48,412
There are no specific terms and conditions related to the above pledges.
43
14. PROVISIONS
Consolidated
Note
2010
2009
$000
$000
Current
Employee entitlements
6,083
5,639
Non-Current
Employee entitlements
452
366
Restoration
(i)
-
18
452
384
Total provisions
6,535
6,023
(i) A provision for restoration is made for the
expected cost of restoring property owned by
other parties to its original condition at the
termination of use by the Co-operative.
- Restoration
Carrying amount at the beginning of the year
18
-
Additional provision
-
18
Amounts utilised during the year
(18)
-
Carrying amount at the end of the year
-
18
15. MEMBERS
INTEREST
a) Movements in Shares on Issue:
Opening balance – 6,137,000 fully paid shares
(2009: 6,999,000)
6,137
6,999
Transferred to Deposits Ex-Shareholders
(327)
(1,233)
Subscriptions
782
371
Closing balance – 6,591,000 fully paid shares
(2009: 6,137,000)
6,592
6,137
b) Terms and Conditions of Contributed Equity
Contributed equity has rights in accordance with the Co-operatives Act of 1992 (NSW).
16. RESERVES
Asset Revaluation Reserve
Effective 1 July 2004 the Co-operative changed the valuation basis applied to non-current land and buildings. Under historical
AGAAP the Co-operative carried land and buildings at fair value. From 1 July 2004 the Co-operative deemed the fair value to be
cost. The asset revaluation reserve represents the historical accumulation of revaluation adjustments. The reserve will no longer be
available to offset decrements in the value of land and buildings and will be transferred to retained earnings on depreciation and/
or disposal of land and buildings.
44
17. CONTROLLED ENTITIES
Principal Activity
Domicile
% Owned
Investment at Cost
2010
2009
2010
2009
$000
$000
Logan Valley Dairies Pty Ltd
Dormant
Australia
100%
100%
165
165
Norco Wholesalers Pty Ltd
Wholesaler
Australia
100%
100%
*
*
Fieldco Pty Ltd
Dormant
Australia
100%
100%
*
*
Norcofields Pty Ltd
Dormant
Australia
100%
100%
*
*
Beaudesert Milk Pty Ltd
Dormant
Australia
100%
100%
*
*
Norco Milk Pty Ltd
Dormant
Australia
100%
100%
**
**
Gold Coast Milk Pty Ltd
Property Holder
Australia
100%
100%
15,783
15,783
15,948
15,948
* Investment <$101 ** 100 Shares at $1 each
18. COMMITMENTS
Consolidated
Note
2010
2009
$000
$000
(i) Capitalised finance lease commitments for plant and vehicles
Payable within 1 year
414
422
Payable between 1 - 5 years
1,036
1,293
Payable after 5 years
-
253
Total capitalised finance lease commitments
1,450
1,968
Deduct future finance charges
(202)
(434)
Lease Liability
1,248
1,534
Represented by:
Current liability 13
322
286
Non-current liability
13
926
1,248
Total Lease Liability
1,248
1,534
(ii)Non-cancellable operating lease commitments for equipment
land and buildings:-
Payable within 1 year
2,030
2,476
Payable between 1 - 5 years
2,227
3,082
Payable after 5 years
5,740
4,198
9,997
9,756
(iii) Cancellable operating lease commitments for vehicles and plant
Payable within 1 year
581
509
Payable within 1 – 5 years
642
558
Payable after 5 years
-
1,223
1,067
Total operating lease commitment not otherwise provided for
in the financial statements 11,220
10,823
45
19. 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 $103,000 (2009: $103,000) and
are not included as creditors.
20. FINANCIAL GUARANTEE CONTRACTS
The Co-operative has no outstanding financial guarantee contracts at 30 June 2010 (2009: Nil).
21. 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 management 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 NSW Co-operatives Act 1992.
The Board is continuing to undertake a review of the debt and equity position of the Co-operative and is currently investigating
alternative funding structures.
22. RELATED PARTY DISCLOSURE
Consolidated
Note
2010
2009
$000
$000
Wholly owned group
a) Norco Wholesalers Pty. Limited
Material transactions and balances with this entity were:
Net trading debt payable (current)
23,698
23,061
Goods and services purchased
284,372
286,202
b) Logan Valley Dairies Pty. Limited
Material transactions and balances with this entity were:
Net trading debt payable (non-current)
397
397
c)
Gold Coast Milk Pty Ltd
Material transactions and balances with this entity were:
Rental paid
151
151
Amounts outstanding
Shareholding in controlled entities are outlined in Note 17.
46
23. DIRECTOR AND EXECUTIVE DISCLOSURES
(a) Key Management Personnel
(i) The directors of Norco Co-operative during the financial year were:
Greg McNamara (Non-Executive Chairman)
Peter Neal (Non-executive) (i)
Thomas Cooper (Non-executive)
Barry Paff (Non-executive) (v)
David Pryor (Non-executive)
Kerry Wilson (Non-executive)
David Hodges (Independent Director)
Anthony Wilson (Non-executive) (ii) Executives of Norco Co-operative during the financial year were:
Brett Kelly (Chief Executive Officer)
Camille Hogan (Chief Financial Officer)
Brad Granzin (GM Milk Supply Group) (ii)
Mark Myers (Co-operative Secretary)
Daren Wallison (GM Retail & Wholesale) (iii)
Peter Daley (Acting GM Retail and Wholesale) (iv)
Ian Foote (GM Norco Foods) (viii)
Andrew Burns (GM Norco Foods) (vi)
Yasmin Lawrence (Human Resource Manager) (vii)
(i) Peter Neal became a non-executive director on 11/11/2009
(ii) Brad Granzin resigned from the Co-operative on 7/9/2009
(iii) Daren Wallison joined the Co-operative on 7/9/2009
(iv) Peter Daley commenced this role on 29/8/2008 and ceased this role on 7/9/2009
(v) Barry Paff resigned as non-executive director on 11/11/2009
(vi) Andrew Burns commenced this role on 10/5/2010
(vii) Yasmin Lawrence commenced this role on 1/7/2010
(viii) Ian Foote subsequently resigned from the Co-operative on 31/7/2010
Consolidated
2010
2009
$
$
(b) Compensation of Key Management Personnel
Short term – wages and salaries1,346,564 1,338,388
Incentive 70,639
11,332
Superannuation 126,777
162,087
Non-cash 58,291
165,479
Termination benefits 22,540
564,953
1,624,811 2,242,239
The above amounts only relate to the cash and other benefits paid to key management personnel for the period of their
employment with the Co-operative or for the period they held a position as a key management person.
(c) 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.
47
23. D I R E C TO R A N D E X E C U T I V E D I S C L O S U R E S (c ontinu e d )
Consolidated
2010
2009
$000
$000
(d) Share Transactions
(i) Aggregate number of shares held by Co-operative key
management personnel and their related entities at 30 June 356,667
271,881
(ii) Aggregate number of shares acquired by key management
personnel and their related entities during the year 84,786
18,166
24. SUPERANNUATION COMMITMENTS
All employees participate in an employer sponsored defined contribution/accumulation style superannuation plan. Contributions
by the Co-operative of 9% of employees’ wages and salaries are legally enforceable except employees of the Ice Cream division who
are paid 10.75% superannuation commitments in line with their Enterprise Bargaining Agreement.
25. AUDITOR’S REMUNERATION
Received or due and receivable by auditors:
Audit of financial report 115,000
Other services in relation to the entity 10,000
125,000
113,000
10,000
123,000
26. FINANCING ARRANGEMENTS
The following facilities existed as at 30 June:
i) Term loan facilities
Used facilities 24,110
Unused available facilities
2,220
26,330
ii) Bank overdrafts
Used facilities
-
Unused facilities
7,040
7,040
iii) Bank Guarantees
Used facilities
103
Unused facilities
-
103
iv) Business credit card facility
Used facilities
7
Unused facilities
23
30
Total Finance Facilities
Used facilities 24,220
Unused facilities
9,283
33,503
48
28,560
28,560
6,040
6,040
103
27
130
11
119
130
30,190
6,864
37,054
TO THE STATEMENT
27. NOTES
OF CASH FLOWS
28. PARENT
ENTITY INFORMATION
Consolidated
2010
2009
$
$
a) Reconciliation of Profit from Ordinary Activities after
Income Tax with Net Cash flows from Operating Activities.
Profit from ordinary activities after income tax
1,453
(134)
Members distribution expense
357
396
Depreciation
4,495
4,326
(Profit) / Loss on sale of property, plant and equipment
(216)
(1,407)
Changes in assets and liabilities:
Increase / (decrease) Provision for employee leave entitlements
489
121
(Increase) / decrease in receivables
(656)
18
(Increase) / decrease in other assets
35
106
(Increase) / decrease in inventories (5,752)
(1,352)
Increase / (decrease) in payables and other liabilities
5,362
(985)
Net cash flows from operating activities
5,567
1,089
(b) Reconciliation of Cash
Cash on hand and with financial institutions
1,964
3,278
Consolidated
2010
2009
$
$
Information relating to Norco Co-operative Ltd:
Current assets 60,322
54,582
Total assets 138,206
134,344
Total liabilities 80,093
78,149
Net assets attributable to members 58,113
56,195
Member’s interest
6,592
6,137
Net Assets 51,521
50,058
Asset revaluation reserve 39,086
39,087
Retained profits 12,435
10,971
Total equity 51,521
50,058
Profit of the parent entity
1,452
(134)
Total comprehensive income of the parent entity
-
-
Details of any guarantees entered into by the parent entity in relation to the debts of its subsidiaries
The company’s share of the jointly controlled entities financial guarantees is included in disclosures in Note 20.
Details of any contingent liabilities of the parent entity
The company’s share of the jointly controlled entities contingent liabilities is included in disclosures in Note 19.
Details of any contractual commitments by the parent entity for the acquisition of property, plant or equipment
The company’s share of the jointly controlled entities commitments is included in disclosures in Note 18.
49
29. FINANCIAL RISK MANAGEMENT OBJECTIVES AND PRINCIPLES
The Co-operative’s principal financial instruments comprise receivables, sundry receivables, payables, sundry payables, bank loans and
overdrafts, bills of exchange, finance leases and cash.
The Co-operative does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
During the year, the Co-operative’s activities exposed it primarily to interest rate risk and credit risk in relation to financial instruments.
The Board reviews and agrees policies for managing each of these risks as summarised below.
Primary responsibility for identification and control of financial risks rests with the Board. The Board reviews and agrees policies for
managing each of the risks identified below, including the setting of limits for trading derivatives, hedging foreign currency and interest
rate risk, credit allowances, and future cash flow forecast projections.
Risk Exposures and Responses
Interest rate risk
The consolidated entity’s exposure to interest rates relates primarily to the consolidated entity’s long-term debt and overdraft obligations.
The level of debt is disclosed in notes 13 and 26.
At balance date, the Co-operative had the following mix of financial assets and liabilities exposed to Australian Variable interest rate risk that
is not designated as cash flow hedges:
Consolidated
2010
2009
$’000
$’000
Financial Assets
Cash and cash equivalents
1,964
3,278
Financial Liabilities
Interest bearing loan 23,952
28,355
Net exposure
21,988
25,077
The Co-operative’s policy is to manage its finance costs using a mix of fixed and variable rate debt. The Co-operative constantly analyses
its interest rate exposure.
The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date:
At 30 June 2010, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity
would have been affected as follows:
Judgements of reasonably
possible movements:
Post Tax Profit Higher/(Lower)
2010
2009
$000
$000
Equity
Higher/(Lower)
2010
2009
$000
$000
CONSOLIDATED
50
+1.0% (100 basis points)
(240)
(284)
(240)
(284)
- 0.50% (50 basis points)
120
142
120
142
29. FI NA N C I A L R I S K M A NAG E M E N T O B J E C T I V E S A N D P R I N C I P L E S (Continue d )
The movements in profit are due to higher/lower interest costs from variable rate debt and cash balances.
There are no differences in movements in equity as no hedging instruments were in use. The effect on profit and equity is lower in
2010 than in 2009 because of the decrease in interest bearing liabilities subject to interest rate movements as at 30 June 2010.
Foreign currency risk
The Co-operative has no exposure to foreign currency therefore this is not an applicable risk.
Price risk
The Co-operatives exposure to commodity price risk is present through the grain purchasing requirements for the animal nutrition
business. It is the Co-operatives policy to secure grain quantities and prices through forward grain contracts. As these contracts
are regular advance purchase contracts for process inputs, derivative accounting is not applied and contract fair value movements
are not recorded.
Credit risk
Credit risk arises from the financial assets of the Co-operative, which comprise cash and cash equivalents and trade and other
receivables. The Co-operative’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure
equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note.
The Co-operative does not hold any credit derivatives to offset its credit exposure.
The Co-operative trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Cooperative’s policy to securitise its trade and other receivables.
It is the Co-operatives policy that all customers who wish to trade on credit terms are subject to credit verification procedures
including an assessment of their independent credit rating, financial position, past experience and industry reputation. Risk limits
are set for each individual customer in accordance with parameters set by the board. These risk limits are regularly monitored.
In addition, receivable balances are monitored on an ongoing basis with the result that the Co-operative’s exposure to bad debts
is not significant.
There are no significant concentrations of credit risk within the consolidated entity.
Liquidity risk
The Co-operatives objective is to maintain a balance between continuity of funding and flexibility through the use of bank
overdrafts, bank loans, finance leases and committed available credit lines.
The table below reflects contractual finance principal repayments and interest resulting from recognised financial liabilities as of
30 June 2010. Cash flows for financial liabilities without fixed amount or timing are based on the conditions existing at 30 June
2010.
The remaining contractual maturities of the consolidated entity’s and parent entity’s financial liabilities are presented with an analysis
of the financial assets. Co-operative and consolidated disclosures are identical and are therefore presented in a single disclosure.
Consolidated
2010
2009
$’000
$’000
0-1 years
48,194
41,747
1-5 years
26,145
30,770
Over 5 years
-
197
74,339
72,714
51
29. FI NA N C I A L R I S K M A NAG E M E N T O B J E C T I V E S A N D P R I N C I P L E S (Continue d )
Maturity analysis of financial assets and liability based on management’s expectation.
The risk implied from the values shown in the table below reflects a balanced view of cash inflows and outflows. Leasing obligations,
trade payables and other financial liabilities mainly originate from the financing of assets used in our ongoing operations such as
property, plant, equipment and investments in working capital e.g. inventories and trade receivables. These assets are considered in
the consolidated entity’s overall liquidity risk.
<12 months
1-5 years
>5 years
Year Ended 30 June 2010
$000
$000
$000
Financial assets
Cash & cash equivalents
1,964
-
-
Trade & other receivables
32,155
-
-
34,119
-
-
Financial liabilities
Interest bearing loans and borrowings
(460)
(24,878)
-
Finance leases
(322)
(926)
-
Trade and other payables
(47,412)
(341)
-
(48,194)
(26,145)
-
(25,338)
(1,248)
(47,753)
(74,339)
Net Maturity
(40,220)
(14,075)
(26,145)
Fair value
The methods for estimating fair value are outlined in the relevant notes to the financial statements.
52
-
Total
$000
1,964
32,155
34,119
D I R E C T O R S ’ D E C L A R AT I O N
30 JUNE 2010
In the opinion of the directors:
(a) t he financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001 and the NSW Cooperatives Act 1992, including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2010 and of its performance for the year
ended on that date; and
(ii) complying with Australian Accounting Standards, Corporations Regulations 2001 and the Co-operatives Regulation 2005;
(b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1; and
(c) t here are reasonable grounds to believe that consolidated entity will be able to pay its debts as and when they become due and
payable.
On behalf of the Board
GJ McNamara KA Wilson
Chairman Deputy Chairman
Lismore
30 September 2010
53
54
55
Branch Directory
NORCO CORPORATE
HEAD OFFICE
‘Windmill Grove’, 107 Wilson Street
SOUTH LISMORE NSW 2480
(PO Box 486 LISMORE NSW 2480)
Phone: 02 6627 8000
Fax: 02 6621 9673
NORCO RETAIL / WHOLESALE
HEAD OFFICE (ALSO GOLDMIX
WHOLESALE DISTRIBUTION
CENTRE - DARRA)
2/30 Bernoulli Street
DARRA QLD 4076
(PO Box 179 BRISBANE MARKETS
QLD 4106)
Phone: 07 3713 8000
Fax: 07 3375 6023
NORCO AGRIBUSINESS
HEAD OFFICE
Krauss Avenue
SOUTH LISMORE NSW 2480
(PO Box 3107 LISMORE DC
NSW 2480)
Phone: 02 6621 3042
Fax: 02 6621 9170
NORCO AGRIBUSINESS –
GOLDMIX OPERATIONS
NORCO RURAL RETAIL
BRANCHES
GOLDMIX STOCKFEEDS
Krauss Avenue
SOUTH LISMORE NSW 2480
Phone: 02 6621 3042
Fax: 02 6621 9170
ALSTONVILLE
17 Kays Lane
Russelton Estate
ALSTONVILLE NSW 2477
Phone: 02 6628 8315
Fax: 02 6628 5765
GOLDMIX STOCKFEEDS
2814 Murgon – Gayndah Road
WINDERA QLD 4605
(PO Box 346 MURGON
QLD 4605)
Phone: 07 4168 6186
Fax: 07 4168 6214
ARMIDALE
252 Mann Street
ARMIDALE NSW 2350
Phone: 02 6771 4669
Fax: 02 6771 1187
GOLDMIX CREST SEEDS
316 Anzac Avenue
(PO Box 7593)
TOOWOOMBA QLD 4350
Phone: 07 3713 8000
Fax: 07 3375 6023
GOLDMIX MEAT-E-VITE
Ross Lane
LENNOX HEAD NSW 2478
(PO Box 3107 LISMORE DC
NSW 2480)
Phone: 02 6621 3042
Fax: 02 6621 9170
NORCO FOODS
NORCO FOODS
Cnr Pine Ridge Road & Gold Coast
Highway
LABRADOR QLD 4215
(PO Box 530, SOUTHPORT
QLD 4215)
Phone: 02 6627 8000
Fax: 07 5594 0101
NORCO FOODS
North Street
RALEIGH NSW 2454
Phone: 02 6692 0000
Fax: 02 6655 4447
NORCO FOODS
Union Street
SOUTH LISMORE NSW 2480
(PO Box 486, LISMORE NSW 2480)
Phone: 02 6627 8000
Fax: 02 6621 6120
MILK SUPPLY
‘Windmill Grove’, 107 Wilson Street
SOUTH LISMORE NSW 2480
(PO Box 486 LISMORE NSW 2480)
Phone: 02 6627 8029
Fax: 02 6622 7410
56
NORCO RURAL RETAIL
BRANCHES - Norco
bowdlers
NORCO BOWDLERS –
TOOWOOMBA
300-312 Anzac Ave
TOOWOOMBA QLD 4350
Phone: 07 4637 3300
Fax: 07 4637 3399
NORCO BOWDLERS – ALLORA
120 Allora – Clifton Road
ALLORA QLD 4362
Phone: 07 4666 2210
Fax: 07 4666 3520
GOLDMIX SEED & GRAIN –
TOOWOOMBA
300-312 Anzac Avenue
TOOWOOMBA QLD 4350
Phone: 07 4637 3312
Fax: 07 4637 3399
GOLDMIX TRADING –
TOOWOOMBA
300-312 Anzac Avenue
TOOWOOMBA QLD 4350
Phone: 07 4637 3315
Fax: 07 4637 3399
BEAUDESERT
9A Thiedeke Road
BEAUDESERT QLD 4285
Phone: 07 5541 4882
Fax: 07 5541 1025
BELLINGEN
1076 Waterfall Way
BELLINGEN NSW 2454
Phone: 02 6655 9792
Fax: 02 6655 2266
BOWRAVILLE
47 Carbin Street
BOWRAVILLE NSW 2449
Phone: 02 6564 8648
Fax: 02 6564 7425
BUNDABERG
71 Gavin Street
BUNDABERG QLD 4670
Phone: 07 4151 7883
Fax: 07 4154 4341
CASINO
Dyraaba Street
CASINO NSW 2470
Phone: 02 6661 2100
Fax: 02 6662 6007
COFFS HARBOUR
24 Isles Drive
SOUTH COFFS HARBOUR
NSW 2450
Phone: 02 6658 0393
Fax: 02 6658 0374
DUNGOG
Stroud Road
DUNGOG NSW 2420
Phone: 02 4992 1087
Fax: 02 4992 3000
GLEN INNES
165 Lang Street
GLEN INNES NSW 2370
Phone: 02 6732 2162
Fax: 02 6732 5642
INVERELL
2 Ring Street
INVERELL NSW 2360
Phone: 02 6721 2126
Fax: 02 6722 2561
KEMPSEY
3 Kemp Street
WEST KEMPSEY NSW 2440
Phone: 02 6562 6393
Fax: 02 6563 1020
KINGAROY
97 River Road
KINGAROY QLD 4610
Phone: 07 4163 6310
Fax: 07 4162 4992
KYOGLE
Willis Street
KYOGLE NSW 2474
Phone: 02 6632 2920
Fax: 02 6632 1221
LISMORE
105 Wilson Street
SOUTH LISMORE NSW 2480
Phone: 02 6627 8266
Fax: 02 6621 2286
MACKSVILLE
Tilly Willy Street
MACKSVILLE NSW 2447
Phone: 02 6568 4057
Fax: 02 6568 2308
MURWILLUMBAH
17 Buchanan Street
MURWILLUMBAH NSW 2484
Phone: 02 6672 2311
Fax: 02 6672 5120
TENTERFIELD
449 Rouse Street
TENTERFIELD NSW 2372
Phone: 02 6736 5902
Fax: 02 6736 2270
WOOLGOOLGA
16 Featherstone Drive
WOOLGOOLGA NSW 2456
Phone: 02 6654 2905
Fax: 02 6654 1031
WOOLGOOLGA CARTON
SERVICES
8 Bosworth Road
WOOLGOOLGA NSW 2456
Phone: 02 6654 8078
Fax: 02 6654 0103
GRAFTON
19 Queen Street
GRAFTON NSW 2460
Phone: 02 6643 5630
Fax: 02 6642 7245
www.norco.com.au
CORPORATE DIRECTORY
Registered Office
Financiers/Bankers
Solicitors Norco Co-operative Limited
ARBN 009 717 417 / ABN 17 009 717 417
‘Windmill Grove’, 107 Wilson Street
SOUTH LISMORE NSW 2480
St George Bank Ltd
Clayton Utz
BRISBANE QLD 4000
Telephone:
Facsimile:
Web Site:
02 6627 8000
02 6621 9673
www.norco.com.au
Auditors
Ernst & Young
Chartered Accountants
Level 5, Waterfront Place
1 Eagle Street
BRISBANE QLD 4000
S+P Lawyers
LISMORE NSW 2480
Australian Business Lawyers
NORTH SYDNEY NSW 2060
Thank you to our Norco
employees, Co-operative
members and customers
who feature in the annual
report photography.
Your time and participation
is greatly appreciated.
“Windmill Grove” 107 Wilson Street
SOUTH LISMORE NSW 2480 Australia
NORCO CO-OPERATIVE LIMITED
annual report 2010