annual report - dfmc

Annual Report2020

12/60CarringtonStreet Sydney,NSW2000

T: 0281204431 F: 0282444635

www.dfmc.org.auDairyFarmersMilkCo-operativeLimited(DFMC)isa

Co-operativeincorporatedanddomiciledinAustralia.

Chairman’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Our Co-operative in 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Executive Officer’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Directors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Auditors’ Independence Declaration . . . . . . . . . . . . . . . . . . . . . 17

Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Financials at a Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Statement of Profit or Loss & Other Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 29

Directors’ Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Contents

Chairman

• AndrewBurnett

Directors

• JamesGeraghty

• GrantSherborne

• AdrianDauk

• JohnMcKillop

• BerniceLumsden

Bankers

• AustraliaandNewZealand BankingGroup

Auditors

• NexiaSydneyAuditPtyLtd

Solicitors

• AddisonsLawyers

Executive Officer & Secretary

• MarkKebbell

Organisational

DFMC DairyFarmer’sMilkCo-operative

LDD LionDairyandDrinks

RM RegionalManager

WRAC WardRepresentativeAdvisoryCouncil

FSO FarmServicesOfficer

Regions

NorthernComprisesFarNorthQueensland,SouthEastQueenslandandNew SouthWales(excludingRiverina)

SouthernComprisesVictoria,Riverinaand SouthAustralia

FNQ FarNorthQueensland

SEQ SouthEastQueensland

NSW NewSouthWales(excludesRiverina)

Vic Victoria(includesRiverina)

SA SouthAustralia

General

$perkgFat Dollarsperkilogramoffat

$perkgMS Dollarsperkilogramofmilksolids

$perkgProtein

Dollarsperkilogramofprotein

AFD

AnticipatedFullDemandrefersto themilksupplyrequiredtoalignDFMC'smilkintakewiththecommercialneedsofLDD

BMCCorSCC

BulkMilkCellCountorSomaticCellCountreferstotheconcentrationofwhitebloodcellsinthebulkmilk andismeasuredascells/ml

Cfu Colonyformingunit

cpl Centsperlitre

DMI DomesticMilkIncentive

MRL MaximumResidueLevels

MS Milksolids

MSA MilkSupplyAgreement

RBD RebateonBusinessDone

ReferencelitreForcomparativepurposes,areferencelitrecomprises4%Fat and3.2%Protein

RAM RuminantAnimalMaterial

SimplyPerfect LDDFarmQualityAssuranceProgram

TPC

TotalPlateCountistheconcentrationofviablemicro-organismsina samplesuchasbacteriaandismeasuredascfu/ml

Our core purpose is to ensure the dairy businesses of our members thrive

and prosper over the longterm.-AndrewBurnett,DFMCChairman

Glossary

Chairman’s Report

2 DFMC Annual Report 2019/20

On behalf of the board of Dairy farmers Milk Co-operative I present the Chairman’s Report for the financial year 2020.

Milkproductionwasagaininfluencedbyextremelydryconditionsforthefirstsixmonthsoftheyear.Totalproductionof185millionlitreswasareductionthatwasexpectedduetotheclimaticconditionsandfarmretirements.Astheyearwentbysomeregionsrecoveredwithbetterthanaveragerainfallwhileothershadmoremodesttotals.Theeffectsofclimatevariabilityarenowbecomingmoreofaconcernthroughoutoursupplyregions.Theboardunderstandstheimpactthishasonfarm,thereforebothDFMCandourpartnerLionwilllooktoassistinmanyways.TheCo-opmemberloansfacilitywasexpandedandwellreceived,whichallowedmembersquickandeasyaccesstoaloantosupporttheirbusinessastheyrespondandrebuildfromthedrought.Farmnumbersreducedslightlyto168.

TheCo-op’sincomewasdrasticallyreducedthisyearbyapproximately$900000.ThenewMilkSupplyAgreement(MSA)hasagreatlyreducedaggregationfee,reducedinterestratesandreturnsfromourinvestmentswerealsodown.Whilecostsarecontinuallydrivenoutofthebusiness,theCo-opwillreportitsfirstlossof$364000fromcontinuingoperationsaftertaxbeforememberdistributions.Thislosswasexpectedandindeedlessthanwebudgetedfor.TheboardexpectstheCo-optomakealossforacoupleofyearswhileittransitionstoamultisupplycontractbusiness.Itwilltaketimehowevertheboardiscommittedtoitsstrategicplanandiscommittedtoreturntoprofitinsidethreeyears.Adividendof4%waspaidwithalittlemorethan40%reinvestedbackintotheco-operative.

January2020wastheintroductionontheMandatoryCodeofConduct.DFMCwasanearlysupporteroftheCodeandMarkKebbellandtheManagementteamdidawonderfuljobpreparingtheCo-optobecodecompliant.TheCodehasmaderealchangeinthedairyindustryandallprocessorsor“firstpurchases”ofmilklikesupplyco-opandcollectivebargaininghavebeenaffected.DFMCusedthischangeasanopportunitytoimproveourcontractswithourfarmersandstrengthenourrelationshipwithourprocessingpartnerLion.

DFMChascontinuedtobeheavilyinvolvedintheindustry,supportingmanyinquiries,attendingmeetingsandworkshops,aswellassponsoringindustryevents.SomeofthemostnotablewouldbetheSenateinquiry,DairyPlanandsupportingourprocessingpartnerLionintheirsaleprocess.

TheBoardwouldliketothankLionfortheirongoingsupportoftheCo-op.CEOKathyKarabastisandherteam,especiallytheFarmServicesdivisionhavebeentheretosupportourmembersfirstlythroughtoughclimaticconditionsthenCovid19couldhavehadasevereeffectonthesupplychain.WithstrongleadershipfromLionandtherestoftheDairyindustrytheeffectofCovidonourmembershasbeenminimal.

3

TheBoardandCo-ophadtomakemanychangesduetoCovidanditsisolatingrequirements.TheBoardhasdoneallmeetingssinceFebruary2020onlineviaMicrosoftTeams,andwhilewearethousandsofkilometresaparttheworkhascontinued,anditisnowjustpartofeverydaylife.OurRegionalManagersTonyBurnettandDomBaxterhadtoadaptandchangesotheycouldstilldeliverthelevelofserviceourfarmersrequired.

AsChairmanitisimportanttocommunicatewithMembersateveryopportunity.Withfacetofacemeetingsnotpossibleweallhadtomoveonline,suppliermeetingswerestillwellattendedfrommembersinthecomfortoffarmoffices,tractors,orpaddocks.Thisnewcommunicationtoolisnowmoreflexible,andIbelievewillbemorewidelyadopted.TheuseofDFMC’ssocialmediaplatformswerealsousedwithgreatsuccess.

Again,thisyear,theCo-opsmanagementteam,ledbyExecutiveofficerMarkKebbellhaveahadaproductiveandrewardingyear.OneofthetruestrengthsofDFMCistherelationshipwebuildwithourfarmer/membersandthewiderdairycommunityandthiswouldnotbeachievedwithoutthehardworkanddedicationofthisteam.

InJunewesaidgoodbyeto2farmdirectors,astheyretiredfromtheboardandshiftedtheirfamily’smilksupply.AdrianDaukhadbeentherepresentativeforSouthAustraliasince2016andwasDeputyChairsince2018.AdrianalsochairedtheMilkPricecommitteeandwasahard-working,wellrespectedfarmerdirector.BerniceLumsdenhadbeentherepresentativeforVictoriasince2018,BernicewasonAuditandFinancecommittee,MilkPricecommitteeandcoordinatedourAGM.Bernicedisplayedgreatattentiontodetail,workethicandcommitment.TheboardandmembersthankbothAdrianandBernicefortheirserviceanddedication.

Finally,andmostimportantly,Iwishtothankthemembersfortheirmilksupplyandcommitmenttotheco-op.Togetherwehavehandledthechallengesoftheyearandpositionedourselvestotakeadvantageoftheopportunitiestocome.

Yourssincerely,

Andrew Burnett Chairman DairyFarmersMilkCo-operative

The key charter for DFMC each year is to negotiate milk price and purchasing policy with Lion Dairy & Drinks.


Our Co-operative in 2020

From Malanda in Queensland to Nowra in New South Wales and Murray Bridge in South Australia our co-operative of farms covers the length and breadth of Australia’s eastern seaboard.

2019/20 Milk Production Overview

Region No of farms Litres (000,000)

FNQ 43 44m

SEQ 37 31m

NSW 42 50m

Vic 22 34m

SA 16 16m

Total 160 185m

5

160Farms

6Board Members

185Total Farm Milk Intake Volume (ML)

353Members

4Staff Members

1.2Average Milk Volume Per Supplier (ML)

10WRAC Members

5Regions

Executive Officer’s Report

7

Wecannotforgetofcoursethatthebeginningoftheyearwasstillmarkedbydifficultdroughtconditionsinmanyofourmembers’farmingregionsandofcoursethebushfiresofJanuarythatsawacoupleofDFMCdairyregionsthreatened,inparticularNSWandSA.Thefirstquarterof2020didbringwidespreadrainandreliefformostoftheeastcoastandbringsomepositivityandoptimismbacktothedairysector.

Theworld-wideshockofCovid-19pandemicbroughtaboutsomeswiftgovernmentactionsandbigchangesinconsumerbehaviour.Theindustryresponse,ledbyDairyAustralia,wascomprehensiveandsuccessfulwithfoodproductionclearlyanessentialservice.Farmersandprocessorsdevelopedcovid-19managementplansandfurther,processorshadtoreactquicklytothebigchangesinretaildemandaslockdowns,schoolclosuresandborderclosuresreframedhowconsumerslivedandshopped.

AfteralongdrawnoutprocessLionannouncedthesaleoftheDairyanddrinksbusinesstoMengniuinlate2019,pendingregulatoryapprovals.TheACCCannouncedthattheyhadnoobjectionsinFebruaryhoweverafterafewmonthsofconsiderationtheForeignInvestmentReviewBoard(FIRB)andtheTreasurerannounceditconsideredthesalewasnotinthenationalinterest.

TheDairyIndustryCodeofConduct(Code)wasimplementedonJanuary1,2020andbroughtaboutsignificantchangestohowdairyprocessorsandfarmerscontractmilksupply.WehavebeensupportersoftheoverarchingpremiseoftheCodeaddressingtheimbalanceofpowerbetweenfarmersandprocessorsandtransparencyofcontractsandpricing.Indeed,manyoftherequirements,suchaspublishingfarmgatepricingonline,wehavelongpracticed.DFMCisdefinedasaprocessorbytheCodebyvirtueofthefactwearethe“firstpurchaser”ofmilkandthereforewemadechangestooursuppliercontracts.

ThedairyindustrycontinuedthedevelopmentoftheDairyPlanwithideasdevelopingaroundcohesioninindustrystructureandrepresentationaswellasprofitabilityandtransparency.MeanwhilevariousgovernmentinquiriesintotheDairycontinuewithafederalsenateinquiry,aNSWParliamentaryinquiry,andcontinuingreviewoftheCode.DFMCcontinuestoprovidesubmissionsandinputonourmembers’behalf.

Production

Theharshrealitiesofdroughtimpactedproduction,particularlyforthefirsthalfoftheyearandlikemuchoftheindustrywesawsignificantnumbersoffarmersexittheindustry.Acrossallregionswesadlysawaround20farmsleavedairyingwithnorthernVictoriaseeingthebiggestlosses.Themilkproductionnumberslargelyreflectedthefarmnumbersandtotalproductionwasdownto185millionlitres.DairyAustraliafiguresacrossthenationdoesshowhoweverthatthetotalmilkproductionwasdown0.2%to8.8billionlitreswasnotdowntotheextentthatDFMCregionsexperienced.

FarNorthQueenslandproductionwasdown10%to43.5millionlitres(ML)from47.9ML.TheleveldoesreflectLion’scommercialneedsintheregionandagaintherewasrelativelylittlemilktransportedfromtheregiontoSouthEastQueensland(SEQ).WesawabiggerdropinSEQwithafurther8suppliersmakingthedecisiontoleavetheindustry.Productionwasdownto31MLfromapproximately38MLtheyearprior.

InNSWproductionwasonlymarginallydowntojustunder60MLfrom61.2MLtheprioryear.Victoriaagainsawthelargestnumberofsuppliersleavetheindustrywithafurther8fewerthanthethaninJuly2019.ClearlythecostofwatercontinuedtochallengethedairyoperationsinNorthernVictoriaandtheuncertaintyledtosomemakingthedecisionthediscontinuedairying.OurSouthAustraliasuppliersareinregionsthatfaceddifferentissuesduringtheyear–feedandwatercostsduetothedroughtaswellasbushfiresinJanuary.Productionwasdowntoalittleunder20MLfrom22.2ML.

Mandatory Code of Conduct

January1,2020sawtheintroductionoftheDairyMandatoryCodeofConduct(Code).ThismajorinitiativewasanoutcomeofthemajorDairyInquirybytheACCCconcludedinApril2018and,amongstotherthings,setouttosimplifyfarmgatemilkpricingstructures,improvetransparency,andlaythefoundationsforcontractualrelationshipsbetweenfarmersandprocessors.DFMChavebeensupportiveoftheCodefromtheoutsetwithmanyofthemajorelements,forexamplepublishingofmilkpricesonline,beingpracticesofourco-operativesinceinception.

The financial year to June 30, 2020 was one that no-one will forget for the extraordinary pandemic the world faced and the subsequent changes to the ways so many tasks in farming, business and personal lives are now done.


DFMCweredeemedtobeaprocessorbytheCodeaswearethe“firstpurchaser”ofmilkandthisnecessitatedasignificantreviewofourcontractstoensuretheyarecompliant.DFMCplayedaroleintheimplementationoftheCodewithTonyBurnettjoiningtheACCCDairyConsultativeCommittee.ThetransitionwasrelativelysmoothbothfromaDFMCandanindustry-wideperspective.

Thepandemicalsonecessitatedusinganonlineplatformforsupplycontractsigningwhichwasverysuccessful.Weanticipatecontinuingwiththesemuchmoreefficientpracticesasthecountryandeconomyopensup.

Milk Price

PricingnegotiationsarealwaysanimportantperiodoftheyearforDFMCmanagementanddirectors.Asthemilkpoolshrunkinnearlyallregionsthecompetitionformilkhasrarelybeenasheightened.TogetherwiththedroughtpaymentsthatthemajorsupermarketspaidtotheprocessorsthatheldtheRetailerOwnBrand(ROB)milkcontractsmeantincreasesforfarmgatepricesacrossallregions.Itmustbeacknowledgedthatwiththeincreasedcostsofkeyinputsduetothedrought,suppliersinallregionsneededtheimprovedprices.Inthenorthernregionsweightedaveragepricesincreasedbetween4and6centsperlitreformtheprioryearwhileinVictoriaandSouthAustraliathepriceliftedabout90cperkgmilksolids.

Financial Performance

WiththenewMilkSupplyAgreement(MSA)includingangreatlyreducedaggregationfeethatreflectsthecurrentmilkproductionlevelssetat$300,000peryearwehadbudgetedforalossaswetransitiontoasupplyco-operativesupplyingmorethanoneprocessor.TheassetbasethatDFMChaswasindeedsetasideforjustsuchascenario.Wereportedourfirstloss,of$364,000fromcontinuingoperationsaftertaxwhichwasbetterthanwebudgetedforwiththeimpactofthepandemicontravelandassociatedcostsdownsignificantly.Ourinvestmentportfoliowasimpactedaswellwithcapitalgrowthanddividendincomedownonprioryears.Someofourassetsremainincashtermdepositsandwithinterestratesareathistoriclowsinterestincomeisalsodown.

Partnerships

ClearlythepartnershipwithLionDairy&Drinks(LDD)remainsforemostinouractivitiesandwecontinuetohaveterrificworkingrelationshipswithkeypersonnelAgriculturalProcurementteam,headedupbyMurrayJeffreyandtheMilkPaymentsteamledformuchoftheyearbyMelClubbandJulianMancini.

ThesaleoftheLDDbusinessesannouncedbackinSeptember2018continuedthroughtheyearwithanannouncementlatein2019thatChinaMengniuDairy,atop10globaldairyplayer,wasthesuccessfulpurchaserdependentonregulatoryapprovalsfromtheACCCandForeignInvestmentReviewBoard(FIRB).Attheendofthefinancialyearnofinaldecisionswereannounced,muchtoDFMC’sdisappointment.WeacknowledgehowdifficultthisprocessbeenforLionmanagementandstaffandcommendallonthewayinwhichbusinesshascontinued.Indeed,inAugust2020thefederalTreasurerannouncedthattheMengniupurchasecouldnotproceedasitwasdeemedtobenotinthenationalinterest.Subsequently,furtherinterestinpurchasingLDDhasbeenshownandweareallhopefulformoreclaritysoon.

Acknowledgements

Thedirectorshaveagainallplayedimportantrolesinrepresentingtheinterestsofallsuppliersbutprimarilyfortheregionstheyrepresent.Theabilitytostepbackfromindividualinterestandseethegreatergoodisoftendifficult.Inacommercialsectorboard,manyoftheissuesweaskourco-operative’sdirectorstoconsiderwouldnecessitatedeclaringaconflictofinterestandnottakingadirectpartinthedecisions.Asgeographicrepresentativeboardlikeoursthereforerequiresadegreeofselflessness.Allsuppliersoweadebtofgratitudetothedirectors.Thesupport,guidanceandcloseworkingrelationshipenjoyedbythemanagementteamwiththeboardisinstrumentaltoachievinganddeliveringformembers.

Withcoronavirusimpactingsosignificantlyonhowmuchofourbusinessactivitieshadtobecarriedoutweachievedmuchofwhatwesetoutto,albeitsomewhatcompromisedattimes.Suppliermeetingsheldonlineareagoodexample.Wecannotreplaceface-to-facemeetingscompletelyhoweverthesupplierengagementandfeedbackinmostregionssuggestsadegreeofsuccess.Mostofourboardmeetingshavebeenheldonlinefornearly2years,sothetransitionwaslessdisruptive.

9

Sadly,virtuallyallcross-borderactivitieswerenotallowedsothemovementsofregionalmanagersTonyBurnettandDomBaxterhavemeantnovisitsforsomesuppliersformanymonths.Bothhavemanagedthedifficultiesofremoteworkingandrestrictedtravelwellandhavestrivedtokeepservicelevelsupinthesedifficulttimes.FinanceManagerDanSaccahasalsobeenforcedtoworkremotelyandpulltogethertheaccounts,shareregisterandreportingfunctionsautonomouslysinceMarch.Theteamdeservepraiseandgratitudefromusallformakingitallworkseamlessly.

Andfinally,thankstoallsuppliersforyourdeterminationtocontinuesupplyingqualitymilkthroughthelastmonthsofthedrought,challengedbynearbyfiresforsomeandattendingouronlinemeetingsandimportantlyprovidingfeedbackasweneedit.Thesupportforeachotherhasagainbeenimportant.Thisisillustratedbytheriseofnewcollectivebargaininggroupsandco-operativesthroughoutthecountry.Ourmodelhasasignificantroletoplayintheindustryandwewillcontinuetoevolvewithyoursupportandfeedback.

Yourssincerely,

Mark Kebbell ExecutiveOfficer DairyFarmersMilkCo-operative

Directors’ Report

11

Principal Activities

DFMCisgovernedbytheCo-operatives(AdoptionofNationalLaw)Act2012andisdomiciledinAustralia.

TherewerenosignificantchangesinthenatureofDFMC’sactivitiesduringtheyear.

Review of Results and Operations

Lossfromcontinuingoperationsafterincometaxbeforememberdistributionsof$364thousand (2019:$676thousandprofit).

AreviewofoperationsiscontainedintheChairman’sReportwithinthisAnnualReport.

Dividends

Dividendinformationisincludedinnote5ofthefinancialreport.

Significant Changes in the State of Affairs

Therehavebeennosignificantchangestothestateofaffairsduringthe2019/20financialyear.

Directors

Thefollowingpersonsweredirectorsduringthefinancialyearand/orarecurrentsittingdirectorsatthetimeof thisreport:

• AndrewBurnett (Chairman)

• JamesGeraghty

• GrantSherborne

• AdrianDauk (resignedJune2020)

• BerniceLumsden (resignedJune2020)

• JohnMcKillop

In accordance with a resolution of Directors, the Directors of Dairy Farmers Milk Co-operative Limited (‘DFMC’ or the ‘Co-operative’) present their report on the Co-operative for the year ended 30 June 2020.

Subsequent Events

LionDairy&Drinks(LDD)hasmaintainedtheircommercialmilkrequirementsforDFMCwhichwillseesimilarcommercialrequirementsofMilkforLDDin2020/21financialyear.

DFMChassignedanAmendmentandRestatementDeedMilkSupplyAgreementwithLionDairyandDrinks.Thisextendsthetermoftheagreementby3yearsandwillexpireon30June2022.Theaggregation feeisnowafixedfeeof$330,000 peryear.

Future Developments

TheCo-operativeexpectstocontinueoperatingasanongoingentitywithasustainablecapitalbaseandhencetherearenolikelydevelopmentsintheCo-operative’soperations.

Environmental Performance

ByvirtueoftheMilk Supply Agreement,wherebymilkpurchasedfromfarmermembersissimultaneouslyon-soldtoDairyFarmersLimited,theCo-operativeisnotsubjecttoanyenvironmentallegislationofsignificance.


Director Information (Sitting Directors)

Andrew Burnett Chairman

AndrewBurnettwaselectedtotheBoardin2011andwaselectedChairmaninNovember2017.

HehasanAssociateDiplomainAppliedScienceandhascompletedtheRabobankExecutiveDevelopmentProgramforprimaryproducers.

AndrewhaspreviouslyworkedinthecottonindustryandnowrunsafarminGympieinSouthEastQueenslandwithhiswife,Fiona,andtheirtwosons.Theirdairybusinessproducesaround2.3millionlitresofmilkfrom350cows.

James Geraghty Director

JamesGeraghtyhasbeenamemberoftheDFMCBoardsince2009,andworkswithhiswifeSari,ontheirdairyfarminMillaaMillaaontheAthertonTablelandsinFarNorthQueensland.

HisfamilymovedtotheareafromLismorein1932andhavebeendairyfarmingsincethen.Jamespurchasedhisfarmwithhisparentsin1981.Jamesandhiswifecurrentlymilk230cowsyearroundandhaveanannualproductionof1.4millionlitresayear.

JamesistheDistrictChairmanandStateCouncillorforFarNorthQueenslandfortheQueenslandDairyfarmers’Organisationandhas anAdvancedDiplomainAgriculture.

Grant Sherborne Director

GrantSherbornewasappointedtotheDFMCboardinNovember2013.Hisdairy,WillowVale,islocatedatBurrawangintheSouthernHighlands,NewSouthWales.

Hehasbeeninvolvedinthedaytodayrunningofthefarmsinceheleftschool.GrantisapassionateadvocatefortheindustryandservedasaDFMCwardrepresentativeforSouthernHighlandsfrom2002to2013.HehasbeeninvolvedwiththeCowsCreateCareersprogramandhislocaldairyindustrygroup,DIGSouthCoast.

GranthasanAdvancedDiplomaofAgricultureandhasalsocompleted adirectortrainingcourse.

Adrian Dauk Director

AdrianJoinedtheDFMCBoardinNovember2016asaninterimDirector,passionateanddrivenaboutthedairyindustry.AlongwithhiswifeHollyandthreeyoungchildrenboughtHolly’sparentsdairybusiness18monthsago.Thedairyisapasturebasedsystemthatemploystwostaffandmilks180Holstiens.

AdrianparticipatesinDairybasebenchmarkingandhas10yearsexperienceinthedairyindustry.Beingapartofaco-operativesuchasDFMCisimportanttohim.Hisfarmproduces1.4millionlitresannually.

13

Bernice Lumsden Director

BernicejouinedtheBoardinJuly2018andisathirdgenerationdairyfarmerintheLeitchvilleareainNorthernVictoria.Shemilks750cowswithherhusbandScottproducing5.7millionlitresofmilkon1500acresofmainlyLucerneandryegrasssupplementaryfeedingwithapartialmixrationofhomegrownmaizeandvetchsilages.BernicehasaBachelorofBusinessandMastersofBusinessAdministrationandworkedfor8yearsinthetertiaryeducationfield.SheiscurrentlyamemberoftheTorrumbarryWaterServicesCommitteeforGoulburnMurraywater..

John McKillop IndependentDirector

JohnMcKillopjoinedtheBoardofDFMCinFebruary2019,takingontheroleasIndependentDirectorwiththecomingdepartureofJohnBywaterinJune2019.Thisaffordedaperiodofhandoverforthisimportantrole.

JohnpreviouslyheldrolesasindependentdirectorwithDairyAustralia,forsixyearsfrom2012to2018aswellasMeat&LivestockAustraliaandCubbieCotton.HewasCEOofHassadAustralia,aQatarbasedinvestorwithlargescalecroppingandlivestockoperationsacrossAustralia.PriorrolesincludeManagingDirectorofClydeAgricultureandGeneralManagerrolesatEldersandStanbrokePastoral.

HeholdsaDiplomainFarmManagement,aBachelorofBusiness,aGraduateCertificateinAgribusiness,aMasterofBusinessAdministrationandisagraduateoftheAustralianInstituteofCompanyDirectors.


Company Secretary

MarkKebbelljoinedDFMCasitsExecutiveOfficerinOctober2016andisresponsiblefortheoperationsoftheCo-operative,includingthedevelopmentandimplementationofitsstrategicvision,inconjunction withtheBoard.

BeforejoiningDFMC,Markheldgeneralmanagementpositionsintheautomotiveservicessectorincluding AssistAustralia,AllianzInsuranceandManheim.

MarkhasaBachelorofBusinessStudiesfromMasseyUniversityinNewZealandandanMBA(Exec)fromtheUniversityofQueensland.

Indemnification and Insurance

Duringthefinancialyear,theCo-operativepaidapremiumtoinsurepastandpresentdirectorsandofficers.Theinsurancecontractprohibitsfurtherdisclosure.

Inaddition,pursuanttoitsRules,theCo-operativehasindemnifiedpastandpresentdirectorsandofficersoftheCo-operative.Theindemnitycoverslegalandothercostsincurredindefendingcertaincivilorcriminalproceedingsthatmaybebroughtagainstthedirectorsorofficerswhileactinginthatcapacity.

Proceedings on Behalf of the Entity

NopersonhasappliedforleaveofcourttobringproceedingsonbehalfoftheCo-operativeorinterveneinanyproceedingstowhichtheCo-operativeisapartyforthepurposeoftakingresponsibilityonbehalfoftheCo-operativeforalloranypartofthoseproceedings.

TheCo-operativewasnotapartytoanysuchproceedingsduringtheyear.

Rounding of Amounts

TheCo-operativeisofakindreferredtointheclassorder‘RoundinginFinancialReportsandDirectors’Reports’,issuedbytheRegistrarofCo-operativesrelatingtothe‘roundingoff’ofamountsintheDirectors’Report.AmountsintheDirectors’Reporthavebeenroundedoffinaccordancewiththatclassordertothenearestthousanddollars,orincertaincases,tothenearestdollar.

15

Meetings of Directors

Thenumberofboardandcommitteemeetingsheldandattendedbyeachdirectorduringtheyearwas:

Board Meetings

Audit, Finance

and Governance Milk Policy and Price

A B A B A B

AndrewBurnett 11 11 2 2 - -

AdrianDauk 10 10 2 2 2 2

JamesGeraghty 11 11 2 2 - -

BerniceLumsden 10 10 2 2 2 2

JohnMcKillop 11 11 2 2 - -

GrantSherborne 11 11 2 2 - -

Column A Thenumberofmeetingsattended.

Column B Indicatesthenumberofmeetingsthedirectorswereeligibletoattend.

Inadditiontoformalboardandcommitteemeetings,thedirectorsattendednumerousothersub-committeeandinformalmeetingsrelatingtomilkpricenegotiations,thedevelopmentofDFMC’snewsupplymodel,monitoringDFMC’sinvestments,industrymeetings,corporategovernanceandcommunicationsmeetingsincludingwardmeetings.Thechairmanofthe boardattendscommitteemeetingsbyinvitation.


Auditors’ Independence Declaration

Theleadauditors’independencedeclarationfortheyearended30June2020asrequiredbysection307CoftheCorporationsAct2001issetoutonpagenumber17.

Thisreportissignedinaccordancewitharesolutionofthedirectors.

DFMC Current Sitting Directors

Fromlefttoright:AdrianDauk,BerniceLumsden,GrantSherborne,AndrewBurnett,JamesGeraghtyandJohnMcKillop.


29September2020


29September2020

17

Auditors’ Independence Declaration

To the Directors of Dairy Farmers Milk Co-operative Limited

Auditors Independence Declaration under Section 307C of the Corporations Act 2001 As lead audit director for the audit of the financial statements of Dairy Farmers Milk Co-operative Limited for the financial year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

(b) any applicable code of professional conduct in relation to the audit.

Nexia Sydney Audit Pty Ltd

Vishal Modi Director

ASIC registered company auditor no.: 486119

Dated at Sydney this 29th day of September 2020


Corporate Governance

• AndrewBurnett

(Chairman)

• JamesGeraghty

• GrantSherborne

• AdrianDauk

• BerniceLumsden

• JohnMcKillop

Board of Directors

Audit, Finance and Governance Committee

Member Services and Milk Policy

• JohnMcKillop(Chair)

• JamesGeraghty

• Addressedbyfullboard

• BerniceLumsden

Milk Price and Policy Committee

• AdrianDauk(Chair)

• AndrewBurnett

• BerniceLumsden

The board is responsible to members for the overall governance of the Co-operative and aims to carry out its responsibilities to create and build

value for the benefit of all members.

19

The Board of Directors

Board Composition

TheDFMCBoardcomprisedsixdirectors:fivefarmerdirectorsandoneindependentdirector.

JohnMcKillophasassumedtheindependentdirectorroleandtakenontheresponsibilityofchairingtheAudit,FinanceandGovernancecommittee.

ThechairmaniselectedbytheboardinthefirstboardmeetingfollowingtheAGM.Directorsaregenerallysubjecttore-electioneveryfouryears.

Board Responsibilities

TheboardisresponsibletomembersfortheoverallgovernanceoftheCo-operativeandaimstocarryoutitsresponsibilitiestocreateandbuildvalueforthebenefitofallmembers.

Theboardrecognisesitsresponsibilitytoacthonestly,fairly,diligentlyandinaccordancewiththelawinservingtheinterestsoftheCo-operative’smembers.Directorsandmembersofboardcommitteeshaveaccesstotheadviceofexternalexperts,whenrequired.Requestsforadviceareapprovedbytheboardandadvice,whenobtained,ismadeavailabletothewholeboard.

Theboardtypicallymeetsonamonthlybasis.Inaddition,theboardhasestablishedthefollowingcommitteestoassistwiththeexecutionofitsdutiesaswellasallowformoredetailedconsiderationofissues.Eachcommitteehasacharterwhichhasbeenapprovedbytheboard.DetailsofboardandcommitteemeetingsareprovidedintheDirectors’report.


Responsibilities

TheroleofthecommitteeistoassisttheboardofdirectorstofulfilitsresponsibilityrelatingtothefinancialmanagementandgovernanceoftheCo-operative.Tofulfilthisrole,thecommitteeendeavoursto:

• Considerthefinancialimplicationsoffuturemajordecisionsincludingpoliciesoftheboard.

• Research,prepareandpresentfiscallyresponsiblerecommendationstoimprovetheattractivenessofmembers’investmentintheCo-operative.

• Ensuretheexistenceofprocedurestomanageandmitigatemajorrisksandexposures.

• Improvethequalityoffinancialreportingandincreasecredibilityandobjectivitybyreviewingthefinancialstatementsonbehalfoftheboard.

• Strengthenthepositionoftheexternalauditorbyprovidingachannelofcommunicationandaforuminwhichtoraisespecificissuesofconcern.

External Audit Appointment and Supervision

a) Appointment:Thecommitteenominatestheexternalauditortotheboardforappointmentbymembers.

b) Independence:TheCo-operativewillnotinviteany ex-auditpartnerstobeappointedasdirectors.

c) Auditplans:Thecommitteereviewsandapprovestheoverallscopeandplansforauditactivities,includingstaffingandfees.

d) Auditreports:Thecommitteereviewsallreportsprovidedbytheexternalauditor.

Audit, Finance and Governance Committee

Thecommitteeiscomprisedoffourdirectorsappointedbytheboard,andischairedbyadirectorwhoisnotthechairmanoftheboard.

Thechairmanattendsallcommitteesbyinvitation.

Composition

Thecommitteecurrentlycomprises:

• JohnMcKillop(Chair)

• BerniceLumsden

• JamesGeraghty

Access and Reporting

Thecommitteemaintainsdirect,unfetteredaccesstotheexternalauditor.

Representativesoftheexternalauditfirmattendmeetingsofthecommitteeasandwhenrequired.ThecommitteehasfullaccesstotheCo-operative’srecords.Thekeyissuesandreportsdiscussedateachcommittee meetingarereportedtotheboardbythechairman ofthecommitteeatDFMCBoardmeetings.

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Member Services

WiththerestructuringoftheboarditwasdecidedthattheresponsibilitiesforMemberServicesbeaddressedbythefullboard.

Responsibilities

Theroleofthecommitteeistoconsiderissuesrelating tothesupplyofmilkandalsoaddressmilkpayments andpricing.

Theroleofthecommitteeistoconsiderissuesrelatingtothedevelopmentandaccountabilityoftheregionalfarmerrepresentativesystem–theWardRepresentativeAdvisoryCouncil(WRAC).

Communication with Members

TheCo-operativeensuresmembersareinformedofallmajordevelopments.Thisisachievedthrougharangeofactivitiesincluding:

• Thisannualreportbeingdistributedtoallmembers.

• Theannualgeneralmeeting,whichmembersareencouragedtoattend.

• Thenationalconventionwhichisheldeachyear.

• Newsletters,emailsandSMSmessages.

• DFMCwebsitewww.dfmc.org.au

WRAC

TheCo-operativeensuresthatanactive,functioningandaccountablefarmerrepresentativesystemismaintained.

ThefunctionoftheWRACistoconsiderissuespresentedtothembytheDFMCBoard.Typically,theseincludeissuesonpolicyandstrategy.

• IssuesareconsideredinthecontextofthefarmsandfarmersfromwithintheWRACmember’sregion.

• MembersattendedtwokeyWRAC/DFMConlinestrategicconferencesduringtheyear.

• WRACmembersareprovidedwithskills-basedtrainingtobetterpreparethemasleadersofthedairyindustry.

Farmer Development

TheCo-operativeislookingtoencouragepersonaldevelopmentamongstmemberswhilstatthesametimedevelopingasuccessionplanfortheCo-operative.This isachievedthrougharangeofactivitiesincluding:

• DevelopmentofaFarmerProgram.

• DevelopmentandmanagingtheWardRepresentativeAdvisoryCouncil.

• ElectionsandworkingcloselywiththeChairsoftheWorkingGroups.

• DevelopmentDirectortrainingandpersonaldevelopmentofWorkingGroupsChairs.


Milk Price and Policy Committee

Thecommitteeiscomprisedoffourdirectorsappointedbytheboard,andischairedbyadirectorwhoisnotthechairmanoftheboard.

Thechairmanattendsallcommitteesbyinvitation.

Composition

Thecommitteecurrentlycomprises:

• AdrianDauk(Chair)

• BerniceLumsden

Access

Thecommitteemaintainsdetailedrecordsoncompetitivemilkpricing,utilisespricingspreadsheetsandengagesinnegotiationswithLionexecutivestoestablishthemilkpriceandAnticipatedFullDemand(AFD)forourregions.

Additionallythecommitteehasaccesstoindependentindustryanalysisandretailsalesdatainestablishingthecommercialneedsoftheprocessor.

Responsibilities

TheroleofthecommitteeistonegotiateonbehalfoftheDFMCBoardandourmembersthebasemilkpriceandregionalAFDforthecomingfinancialyear.Thecommitteereportsbacktotheboardandmakesrecommendationsforboardconsiderationandapproval.Tofulfilthisrole,thecommittee:

• Collatescompetitivemilkpricespaidineachregion.

• Considersmarketsupplyanddemandconditionsincludingseasonalweatherconditions.

• Tracksfarmcostsofproductiontrends.SeeksindependentcounselandmonitorscloselyretailmarketsharetrendsandLDDcommercialsalesofmilkproductsthatdetermineDFMCRegionalAFD.

• Monitorshistoricalproductiondatatakingintoaccounttheprocessorsentiremilkintake.

Financial Statements


Financials at a Glance

TotalFarmMilkIntakeVolume(ML)

SalesRevenue(Million)

AverageMilkVolumePerSupplier(ML)

OrdinaryDividendsDeclaredin RelationtoaFinancialYear(cents)

273 269 272

225

2016 2017 2018 2019 2020

185

134

132

135

128

113

2016 2017 2018 2019 2020

1.20

2016 2017 2018 2019 2020

1.24

1.21

1.30 1.30

Ordinary Dividends Declared in Relation to a Financial Year (cents)

12 12

8 8

4

2016 2017 2018 2019 2020

With the aggregation fee down the co-op budgeted its first loss. The result was better than expected with

costs continually driven out of the business.

25

Statement of Profit or Loss & Other Comprehensive Income

For the year ended 30 June 2020 Notes2020

$’0002019

$’000

Salesrevenue 2 112,686 127,746

Costofsales (112,686) (127,746)

Gross profit - -

Aggregationfeerevenue 2 300 1,100

Operationfeerevenue 2 - 225

Administrationexpenses 3 (1,275) (1,669)

Net administration result (975) (344)

Investmentrevenue

Dividendrevenue–Equities 2 514 573

Interestrevenue 2 134 165

Feesandcharges

Portfolioadvisoryfees,interestandothercharges 3 (68) (57)

Otherincome

Otherincome 2 - 328

Net investment and financing result 580 1,009

Profit / (loss) from continuing operations before income tax (395) 665

Incometaxbenefit 4 (31) (11)

Profit / (loss) from continuing operations after income tax before member distributions

(364) 676

Members’dividendpayments*-ordinary 5 (135) (288)

Profit / (loss) for the year 17 (499) 388

Other comprehensive Income: Items that may be reclassified to profit or loss

Netprofitonrevaluationoffinancialassets,netoftax (657) 504

Othercomprehensiveincomefortheyear (657) 504

Total comprehensive income / (loss) for the year attributable to members of the Co-operative

(1,156) 892

*NotethatinaccordancewithAIFRS,dividendpayabletomembersontheirordinarysharesareincludedascostswithintheincomestatement.Accordingly,theprofitattributabletomembersoftheCo-operativeispresentedafterdeductingsuchcosts.Refertonotes1(k),5and16.

TheaboveStatementofprofitorloss&othercomprehensiveincomeshouldbereadinconjunctionwiththeaccompanyingnotes.


Statement of Financial Position

As at 30 June 2020 Notes2020

$’0002019

$’000

Current assets

Cashandcashequivalents 6 5,122 831

Receivables 7 300 793

Othercurrentassets 8 1,012 5,673

Total current assets 6,434 7,297

Non-current assets

Financialassets 9 11,823 13,061

Right-of-useassets 11 46 -

Property,plantandequipment 7 12

Total non-current assets 11,876 13,073

Total assets 18,310 20,370

Current liabilities

Payables 12 277 412

Otherliabilities 13 75 -

Leaseliability 14 22 -

Provisions 15 64 98

Total current liabilities 438 510

Non-current liabilities

Provisions 15 23 17

Members’sharecapital* 16 3,143 3,445

Leaseliability 14 24 -

Deferredtaxliabilities 10 233 793

Total non-current liabilities 3,423 4,255

Total Liabilities 3,861 4,765

Net Assets 14,449 15,605

Equity

Retainedprofits 17 12,944 13,443

Reserves 20 1,505 2,162

Total equity 14,449 15,605

*NotethatinaccordancewithAIFRS,members’sharecapital(‘ordinaryshares’)istreatedasaliability.Accordingly,netassetsarepresentedafterdeductingmembers’sharecapitalandtotalequityispresentedexcludingmembers’sharecapital.Referalsotonotes1(h),5and16.

TheaboveStatementoffinancialpositionshouldbereadinconjunctionwiththeaccompanyingnotes.

27

Statement of Changes in Equity

For the year ended 30 June 2020

Retained profits $’000

Financial assets

Reserve $’000

Total $’000

Balance at 30 June 2018* 13,055 1,658 14,713

ProfitattributabletotheCo-operative 388 - 388

Totalothercomprehensiveincomefortheyear - 504 504

Balance at 30 June 2019* 13,443 2,162 15,605

LossattributabletotheCo-operative (499) - (499)

Totalothercomprehensiveincomefortheyear - (657) (657)

Balance at 30 June 2020* 12,944 1,505 14,449

*NotethatinaccordancewithAIFRS,members’sharecapital(‘ordinaryshares’)istreatedasaliability.Accordingly,netassetsarepresentedafterdeductingmembers’sharecapitalandtotalequityispresentedexcludingmembers’sharecapital.Referalsotonotes1(h),5and16.

TheaboveStatementofchangesinequityshouldbereadinconjunctionwiththeaccompanyingnotes.


Statement of Cash Flows

For the year ended 30 June 2020 Notes2020

$’0002019

$’000

Cash flows from operating activities

Receiptsfromcustomers 868 1,439

Paymentstosuppliers,employeesanddirectors (1,479) (1,578)

Dividendsreceived 514 572

Interestreceived 134 165

Dividendsandfarmrebatespaid-ordinaryshares (78) (178)

Net operating cash flows 25 (41) 420

Cash flows from investing activities

Paymentforinvestmentinequities (98) (1,100)

Proceedsfromsaleofinvestments 150 273

Paymentforproperty,plantandequipment - (11)

Proceedsfrommaturityoftermdeposits 4,661 (103)

Net investing cash flows 4,713 (941)

Cash flows from financing activities

Sharesubscriptionsreceived 180 232

Repaymentofleaseliability (22) -

Repaymentofshareforfeitloans (539) (488)

Net financing cash flows (381) (256)

Net increase / (decrease) in cash 4,291 (777)

Cashatthebeginningofthefinancialyear 831 1,608

Cash at the end of the year 6 5,122 831

TheaboveStatementofcashflowsshouldbereadinconjunctionwiththeaccompanyingnotes.

Notes to the Financial Statements


Note 1: Summary of Significant Accounting Policies

Theprincipalaccountingpoliciesadoptedinthepreparationofthefinancialreportaresetoutbelow.Thesepolicieshavebeenconsistentlyappliedtoallyearspresented,unlessotherwisestated.ThefinancialreportincludesseparatefinancialstatementsforDairyFarmersMilkCooperativeLimited(‘DFMC’orthe‘Cooperative’).

a) Basis of preparation

ThisgeneralpurposefinancialreporthasbeenpreparedinaccordancewithAustralianAccountingStandards,otherauthoritativepronouncementsoftheAustralianAccountingStandardsBoard,AustralianAccountingInterpretations,theCo-operativesNationalLawandtheapplicablesectionsoftheCorporationsAct2001.

ThesefinancialstatementsalsocomplywithInternationalFinancialReportingStandardsasissuedbytheInternationalAccountingStandardsBoard('IASB').TheCo-operativeisafor-profitentityforthepurposeofpreparingthefinancialstatements.

Thesefinancialstatementshavebeenpreparedonanaccrualbasisandarebasedonhistoricalcostmodifiedwhereapplicablebythemeasurementatfairvalueofselectednon-currentassets,financialassetsandfinancialliabilities.

Thefinancialstatementsfortheyearended30June2020wereapprovedandauthorisedforissuebytheBoardofDirectorson29September2020.

b) Cash and cash equivalents (note 6)

Forcashflowstatementpresentationpurposes,cashandcashequivalentsincludescashonhandanddepositsheldatcallwithfinancialinstitutionswhicharesubjecttoaninsignificantriskofchangeinvalue,andbankoverdrafts.

c) Receivables (note 7)

(i) Other receivablesOtherreceivablesarerecognisedinitiallyatfairvalue,whichistypicallytheinvoicevalue,andaresubsequentlymeasuredatamortisedcostlessprovisionforimpairment.Otherreceivablesaregenerallydueforsettlementwithin30days.

(ii) Collectability Thecollectabilityofotherreceivables,subordinatedloansandfarmerloansarereviewedonanongoingbasisandaprovisionforimpairmentisestablishedwhenthereisobjectiveevidencethattheCooperativewillnotbeabletocollectallamountsdueaccordingtotheoriginaltermsofthereceivables.

d) Impairment

Assetsarereviewedforimpairmentwhenevereventsorchangeincircumstancesindicatethatthecarryingamountmaynotberecoverable.Animpairmentlossisrecognisedfortheamountbywhichtheasset’scarryingamountexceedsitsrecoverableamount.Therecoverableamountisthehigherofanasset’svalueinuseanditsfairvaluelesscoststosell.Forthepurposeofassessingimpairment,assetsaregroupedatthelowestlevelsforwhichthereareseparatelyidentifiablecashinflowswhicharelargelyindependentofthecashinflowsfromotherassetsorgroupsofassets(cash-generatingunits).Non-financialassetsthatsufferedimpairmentarereviewedforpossiblereversaloftheimpairmentateachreportingdate.

e) Payables (note 12)

TradecreditorsandaccrualstypicallyrepresentliabilitiesforgoodsandservicesprovidedtotheCooperativepriortotheendofthefinancialyearandwhichareunpaid.Theamountsareunsecuredandareusuallypaidwithin30daysofrecognition.

f) Borrowings

BorrowingsareclassifiedascurrentliabilitiesunlesstheCooperativehasanunconditionalrighttodefersettlementoftheliabilityforatleast12monthsafterthebalancesheetdate.

Shareforfeitloansareinitiallyrecognisedatfairvalueandaresubsequentlymeasuredatamortisedcost.Asaresult,theliabilityismeasuredat$1.00pershareforfeited.

g) Employee benefits (note 15)

(i) Wages, salaries and annual leaveLiabilitiesforwages,salariesandannualleaveexpectedtobesettledwithin12monthsofthereportingdatearerecognisedinotherpayablesinrespectofemployees’servicesuptothereportingdateandaremeasuredattheundiscountedamountthattheCo-operativeexpectstopayasaresultoftheunusedentitlement.

(ii) Long service leaveTheliabilityforlongserviceleaveisrecognisedintheprovisionforemployeebenefitsandmeasuredasthepresentvalueofexpectedfuturepaymentstobemadeinrespectofservicesprovidedbyemployeesuptothereportingdateusingtheprojectedunitcreditmethod.Considerationisgiventoexpectedfuturewageandsalarylevels,experienceofemployee,departuresandperiodsofservice.Expectedfuturepaymentsarediscountedusingmarketyieldsatthereportingdateonnationalgovernmentbondswithtermstomaturityandcurrencythatmatch,ascloselyaspossible,theestimatedfuturecashoutflows.

31

Note 1: Summary of Significant Accounting Policies (continued)

g) Employee benefits (note 15 continued)

(iii) Retirement benefit obligationsAllemployeesoftheCo-operativeareentitledtobenefitsfromtheCo-operative’sdefinedcontributionsuperannuationplanonretirement,disabilityordeath.Obligationsforcontributionstodefinedcontributionsuperfundsarerecognisedasanexpenseinprofitandlosswhentheyaredue.TheCo-operative’slegalorconstructiveobligationislimitedtothesecontributions.

h) Members’ share capital (note 16)

Ordinarysharesareinitiallyrecordedatfairvalueandaresubsequentlymeasuredatamortisedcost.Asaresult,theliabilityismeasuredat$1.00pershare.Whenordinarysharesarerepurchased,theconsiderationof$1.00pershareisdeductedfrommembers’sharecapital.

i) Right-of-use assets (note 11)

Aright-of-useassetisrecognisedatthecommencementdateofalease.Theright-of-useassetismeasuredatcost,whichcomprisestheinitialamountoftheleaseliability,adjustedfor,asapplicable,anyleasepaymentsmadeatorbeforethecommencementdatenetofanyleaseincentivesreceived,anyinitialdirectcostsincurred,and,exceptwhereincludedinthecostofinventories,anestimateofcostsexpectedtobeincurredfordismantlingandremovingtheunderlyingasset,andrestoringthesiteorasset.

Right-of-useassetsaredepreciatedonastraight-linebasisovertheunexpiredperiodoftheleaseortheestimatedusefullifeoftheasset,whicheveristheshorter.WheretheCo-operativeexpectstoobtainownershipoftheleasedassetattheendoftheleaseterm,thedepreciationisoveritsestimatedusefullife.Right-ofuseassetsaresubjecttoimpairmentoradjustedforanyre-measurementofleaseliabilities.

TheCo-operativehaselectednottorecognisearight-of-useassetandcorrespondingleaseliabilityforshort-termleaseswithtermsof12monthsorlessandleasesoflow-valueassets.Leasepaymentsontheseassetsareexpensedtoprofitorlossasincurred.

j) Lease liabilities (note 14)

Aleaseliabilityisrecognisedatthecommencementdateofalease.Theleaseliabilityisinitiallyrecognisedatthepresentvalueoftheleasepaymentstobemadeoverthetermofthelease,discountedusingtheinterestrateimplicitintheleaseor,ifthatratecannotbereadilydetermined,theCo-operative'sincrementalborrowingrate.Leasepaymentscompriseoffixedpaymentslessanyleaseincentivesreceivable,variableleasepaymentsthatdependonanindexorarate,amountsexpectedtobepaidunderresidualvalueguarantees,exercisepriceofapurchaseoptionwhentheexerciseoftheoptionisreasonablycertaintooccur,andanyanticipatedterminationpenalties.

Leaseliabilitiesaremeasuredatamortisedcostusingtheeffectiveinterestmethod.Thecarryingamountsareremeasuredifthereisachangeinthefollowing:futureleasepaymentsarisingfromachangeinanindexorarateused;residualguarantee;leaseterm;certaintyofapurchaseoptionandterminationpenalties.Whenaleaseliabilityisremeasured,anadjustmentismadetothecorrespondingright-ofuseasset,ortoprofitorlossifthecarryingamountoftheright-of-useassetisfullywrittendown.

k) Revenue recognition (note 2)

Revenueismeasuredatthefairvalueoftheconsiderationreceivedorreceivable.Amountsdisclosedasrevenuearenetofreturns,tradeallowances,rebatesandamountscollectedonbehalfofthirdparties.

Revenueisrecognisedwhentheamountofrevenuecanbereliablymeasured,itisprobablethatfutureeconomicbenefitswillflowtotheCo-operativeandspecificcriteriahavebeenmetforeachoftheCo-operative’sactivitiesasdescribedbelow.Theamountofrevenueisnotconsideredtobereliablymeasurableuntilallcontingenciesrelatingtothesalehavebeenresolved.

Revenueisrecognisedforthemajorbusinessactivitiesasfollows::

(i) Sale of goodsAsaleisrecordedwhenthegoodshavebeendeliveredtoandacceptedbythecustomeroritsagentandcollectabilityoftherelatedreceivableisprobable.

(ii) Revenue from contracts with customersRevenueisrecognisedatanamountthatreflectstheconsiderationtowhichtheCo-operativeisexpectedtobeentitledinexchangefortransferringgoodsorservicestoacustomer.Foreachcontractwithacustomer,theCo-operative:identifiesthecontractwithacustomer;identifiestheperformanceobligationsinthecontract;determinesthetransactionpricewhichtakesintoaccountestimatesofvariableconsiderationandthetimevalueofmoney;allocatesthetransactionpricetotheseparateperformanceobligationsonthebasisoftherelativestand-alonesellingpriceofeachdistinctgoodorservicetobedelivered;andrecognisesrevenuewhenoraseachperformanceobligationissatisfiedinamannerthatdepictsthetransfertothecustomerofthegoodsorservicespromised.

(iii) Aggregation fee revenueFeeincomeisrecognisedinaccordancewithagreedtermsasrevenueonastraightlinebasisovertheyear.

(iv) Dividends Dividendsarerecognisedasrevenuewhentherighttoreceivepaymentisestablished.

(v) Interest revenueInterestincomeisrecognisedonatimeproportionbasisusingtheeffectiveinterestmethod.



l) Finance costs (notes 3 and 5)

(i) Dividend rateAprovisionismadeforinterestpayableonmembers’sharecapital,whichiscalculatedattherateofdividendpayableonordinaryshares,whenthedividendhasbeenappropriatelyauthorisedonorbeforetheendofthefinancialyearbutnotpaidandisnolongeratthediscretionoftheCooperative.

(ii) Other finance costsInterestexpenseisrecognisedonatimeproportionbasisusingtheeffectiveinterestmethod.

m) Income tax (notes 4 and 10)

Theincometaxexpenseorrevenuefortheyearisthetaxpayableonthecurrentyear’staxableincomeadjustedbychangesindeferredtaxassetsandliabilitiesattributabletotemporarydifferencesbetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsinthefinancialstatements,andtounusedtaxlosses.

Deferredincometaxisprovidedinfull,usingtheliabilitymethod,ontemporarydifferencesarisingbetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsinthefinancialstatements.However,thedeferredincometaxisnotaccountedforifitarisesfrominitialrecognitionofanassetorliabilityinatransactionotherthanabusinesscombinationthatatthetimeofthetransactionaffectsneitheraccountingnortaxableprofitnorloss.Deferredincometaxisdeterminedusingtaxrates(andlaws)thathavebeenenactedorsubstantiallyenactedbythereportingdateandareexpectedtoapplywhentherelateddeferredincometaxassetisrealisedorthedeferredincometaxliabilityissettled.

Deferredtaxassetsarerecognisedfordeductibletemporarydifferencesandunusedtaxlossesonlyifitisprobablethatfuturetaxableamountswillbeavailabletoutilisethosetemporarydifferencesandlosses.

Deferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttooffsetcurrenttaxassetsandliabilitiesandwhenthedeferredtaxbalancesrelatetothesametaxationauthority.CurrenttaxassetsandtaxliabilitiesareoffsetwheretheCo-operativehasalegallyenforceablerighttooffsetandintendseithertosettleonanetbasis,ortorealisetheassetandsettletheliabilitysimultaneously.

Currentanddeferredtaxbalancesattributabletoamountsrecogniseddirectlyinequityarealsorecogniseddirectlyinequity.

n) Reporting period

Thefinancialreporthasbeenpreparedforthefinancialyearended30June2020.

o) Goods and services tax (GST)

Revenues,expensesandassetsarerecognisednetoftheamountofassociatedGST,unlesstheGSTincurredisnotrecoverablefromthetaxationauthority.Inthiscaseitisrecognisedaspartofthecostofacquisitionoftheassetoraspartoftheexpense.

ReceivablesandpayablesarestatedinclusiveoftheamountofGSTreceivableorpayable.ThenetamountofGSTrecoverablefromorpayabletothetaxationauthorityisincludedwithotherreceivablesortradecreditorsandaccrualsinthebalancesheet.

Cashflowsarepresentedonagrossbasis.TheGSTcomponentsofcashflowsarisingfrominvestingorfinancingactivitieswhicharerecoverablefromorpayabletothetaxationauthorityarepresentedinoperatingcashflows.

p) Rounding of amounts

TheCooperativeisofakindreferredtointheclassorder‘RoundinginFinancialReportsandDirectors’Reports’,issuedbytheRegistrarofCooperativesrelatingtothe‘roundingoff’ofamountsinthefinancialreport.Amountsinthefinancialreporthavebeenroundedoffinaccordancewiththatclassordertothenearestthousanddollars,orincertaincases,tothenearestdollar.

q) Comparative figures

Comparativesareconsistentwithpriorperiod,unlessstatedotherwise.

r) New accounting standards

New and revised standards are effective for annual periods beginning on or after 1 July 2019

TheCo-operativehasadoptedalloftheneworamendedAccountingStandardsandInterpretationsissuedbytheAustralianAccountingStandardsBoard('AASB')thataremandatoryforthecurrentreportingperiod.

AnyneworamendedAccountingStandardsorInterpretationsthatarenotyetmandatoryhavenotbeenearlyadopted.

ThefollowingAccountingStandardsandInterpretationsaremostrelevanttotheCo-operative:

AASB 16 Leases

TheCo-operativehasadoptedAASB16from1July2019.ThestandardreplacesAASB117'Leases'andforlesseeseliminatestheclassificationsofoperatingleasesandfinanceleases.Exceptforshort-termleasesandleasesoflow-valueassets,right-of-useassetsandcorrespondingleaseliabilitiesarerecognisedinthestatementoffinancialposition.Straight-lineoperatingleaseexpenserecognitionisreplacedwithadepreciationchargefortheright-of-useassets(includedinoperatingcosts)andaninterestexpenseontherecognisedleaseliabilities(includedinfinancecosts).Forclassificationwithinthestatementofcashflows,theinterestportionisdisclosedinoperatingactivitiesandtheprincipalportionoftheleasepaymentsareseparatelydisclosedinfinancingactivities.

33


Standards, amendments and interpretations to existing standards that are not yet effective for the Co-Operative and have not been adopted early

AustralianAccountingStandardsandInterpretationsthathaverecentlybeenissuedoramendedbutarenotyetmandatory,havenotbeenearlyadoptedbytheCo-operativefortheannualreportingperiodended30June2020.TheCo-operative'sassessmentoftheimpactoftheseneworamendedAccountingStandardsandInterpretations,mostrelevanttotheCo-operative,aresetoutbelow.

Conceptual Framework for Financial Reporting (Conceptual Framework)

TherevisedConceptualFrameworkisapplicabletoannualreportingperiodsbeginningonorafter1July2021andearlyadoptionispermitted.TheConceptualFrameworkcontainsnewdefinitionandrecognitioncriteriaaswellasnewguidanceonmeasurementthataffectsseveralAccountingStandards.WheretheCo-operativehasreliedontheexistingframeworkindeterminingitsaccountingpoliciesfortransactions,eventsorconditionsthatarenototherwisedealtwithundertheAustralianAccountingStandards,theCo-operativemayneedtoreviewsuchpoliciesundertherevisedframework.Atthistime,theapplicationoftheConceptualFrameworkisnotexpectedtohaveamaterialimpactontheCo-operative'sfinancialstatements.

s) Financial instruments

Initial recognition and measurement

FinancialassetsandfinancialliabilitiesarerecognisedwhentheCo-operativebecomesapartytothecontractualprovisionstotheinstrument.Forfinancialassets,thisisequivalenttothedatethatthecompanycommitsitselftoeitherpurchaseorselltheasset(ietradedateaccountingisadopted).

Financialinstrumentsareinitiallymeasuredatfairvalueplustransactionscostsexceptwheretheinstrumentisclassified‘atfairvaluethroughprofitorloss’inwhichcasetransactioncostsareexpensedtoprofitorlossimmediately.

Classification and subsequent measurement

(i) Financial assets measured at amortised costLoansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarketandarestatedatamortisedcostusingtheeffectiveinterestratemethod.Ateachreportingdate,theco-operativeassesseswhetherthereisobjectiveevidencethatafinancialinstrumenthasbeenimpaired.Suchimpairmentlossesarerecognisedintheincomestatement.

(ii) Financial assets at fair valueFollowingtheadoptionofAASB9,allinvestmentsformpartoftheco-operative’sinvestmentportfolioandhavebeenclassifiedasfinancialassetsatfairvaluethroughothercomprehensiveincome.Financialassetsatfairvaluethroughothercomprehensiveincomeincludeinvestments

intheco-operative’sinvestmentportfolio.Financialassetsatfairvaluethroughothercomprehensiveincomearereflectedatfairvalue.Unrealisedgainsandlossesarisingfromchangesinfairvaluearetakendirectlytoequity(intothefinancialassetsreserve).Realisedgainsorlossesonthesaleofinvestmentsarealsoshowninthefinancialassetsreserve,thentransferredtoretainedearningsattheendofthereportingperiod.

(iii) Financial liabilitiesNon-derivativefinancialliabilitiesarerecognisedatamortisedcost,comprisingoriginaldebtlessprincipalpaymentsandamortisation.Fairvalueisdeterminedbasedoncurrentbidpricesforallquotedinvestments.

Impairment

Ateachreportingdate,co-operativeassesseswhetherthereisobjectiveevidencethatafinancialinstrumenthasbeenimpaired.Impairmentlossesarerecognisedinthestatementofprofitorlossandothercomprehensiveincome.

Derecognition

FinancialassetsarederecognisedwherethecontractualrightstoreceiptofcashflowsexpiresortheassetistransferredtoanotherpartywherebytheCo-operativenolongerhasanysignificantcontinuinginvolvementintherisksandbenefitsassociatedwiththeasset.Financialliabilitiesarederecognisedwheretherelatedobligationsareeitherdischarged,cancelledorexpire.Thedifferencebetweenthecarryingvalueofthefinancialliabilityextinguishedortransferredtoanotherpartyandthefairvalueofconsiderationpaid,includingthetransferofnon-cashassetsorliabilitiesassumed,isrecognisedinprofitorloss.

t) Significant judgments in applying accounting policies

Recovery of deferred tax assetsDeferredtaxassetsarerecognisedfordeductibletemporarydifferencesasmanagementconsidersthatitispossiblethatfuturetaxableprofitswillbeavailabletoutilisethosetemporarydifferences.Significantmanagementjudgementisrequiredtodeterminetheamountofdeferredtaxassetsthatcanberecognised,baseduponthelikelytimingandtheleveloffuturetaxableprofits.

Valuation of investmentsTheCo-operativeBoardhasdecidedtoclassifyinvestmentsinlistedsecuritiesas‘financialassetsatfairvaluethroughcomprehensiveincome’investmentsandmovementsinfairvaluearerecogniseddirectlyinequity.

Coronavirus (COVID-19) pandemicJudgementhasbeenexercisedinconsideringtheimpactsthattheCoronavirus(COVID-19)pandemichashad,ormayhave,ontheCo-operativebasedonknowninformation.Thisconsiderationextendstothenatureoftheproductsandservicesoffered,customers,supplychain,staffingandgeographicregionsinwhichtheCo-operativeoperates.


Note 2: Revenue and Other Income2020

$’0002019

$’000

Revenue from continuing operations

Sales revenue

Salesrevenue–saleofgoodstoDFL(a) 112,686 127,746

112,686 127,746

Other administration and investment revenue

Aggregationfeerevenue(b) 300 1,100

Operationfeerevenue(c) - 225

Dividendrevenue–Equities 514 573

Interestrevenue 134 165

948 2,063

Total revenue from continuing operations 113,634 129,809

Other income

OtherIncome(d) - 328

a) Sale of goods to DFL

DFMChassignedanAmendmentandRestatementDeedMilkSupplyAgreementwithDFL.Thisextendsthetermoftheagreementby3yearsandwillexpireon30June2022.

DFMCandDFLhadenteredintoatenyearrollingMilkSupplyAgreement,whichexpiredinJune2019,sothatDFMCcouldsecurealongtermdependableoutletformilkatacommercialprice.PriortotheimplementationoftheAustralianCo-operativeFoods(ACF)Scheme,DFMCandACF(nowDFL)jointlysoughtauthorisationfromtheACCCregardingaspectsoftheMilkSupplyAgreementtoensurecompliancewiththeTradePracticesAct.TheACCCauthorisedaspectsoftheMilkSupplyAgreementforwhichapprovalwassoughtforaperiodof5yearsfromthedatethetransactionwascompleted.InJune2013,theACCCre-authorisedtheMilkSupplyagreementforaperiodof10years.

b) Aggregation fee revenue

UndertheMilkSupplyAgreementbetweenDFMCandDFL,theAggregationFeefortheyearended30June2020wasagreedat$300,000(2019:$1.1million).TheAggregationFeepartiallycoversthecostsorexpensesconnectedwiththeconsolidationoraggregationofthemilksupplyforonsaletoDFL.

c) Operation fee revenue

NoadditionalrevenuewasreceivedbyDFMCinthecurrentyearovertheagreedaggregationfeetocovertheCo-operativesdaytodayrunningcostsasagreedinthenewMilkSupplyAgreement.

d) Other income

NoadditionalrevenuewasreceivedbyDFMCinthecurrentyearovertheagreedaggregationfeetocovertheCo-operativesFarmAdvisoryServicesasagreedinthenewMilkSupplyAgreement.

35

Note 3: Expenses2020

$’0002019

$’000

Profit before income tax includes the following specific expenses

Feesandcharges

Portfolioadvisoryfeesandbankcharges 65 57

Interestexpense–leaseliability 3 -

68 57

Administrationexpenses

Employeeanddirectorbenefitsexpense 778 786

Definedcontributionsuperannuationexpense 71 78

Travelexpenses 65 100

Consultancyfees 40 166

Legalfees 86 67

Otherexpenses 235 472

1,275 1,669

Note 4: Income Tax2020

$’0002019

$’000

a) Income tax expense reconciliation

Profit/(Loss)beforeincometax (530) (377)

Incometax(benefit)/expensecalculatedat30%(2019:30%) (158) 113

Taxeffectofamountsnotdeductibleor(taxable)

Frankedamountofmembers’sharecapitalpayments 20 25

Othernon-deductibleexpenditure - 5

Frankeddividendrevenue 54 (3)

(84) 140

Recognitionofpriorperiodtaxlossesnotrecognisedinprioryears - (155)

Carriedforwardtaxlosseswherenodeferredtaxeffecthasbeenrecognised 59 -

Overprovidedinprioryears (6) 4

Incometaxbenefit (31) (11)

Averageeffectivetaxrate (5.9%) (2.8%)

b) Income tax expense analysis

Deferredtax

Changesindeferredtaxassets(Note10) (31) (11)

Incometax(benefit)/expense (31) (11)

c) Unrecognised tax losses

Unusedtaxlossesforwhichnodeferredtaxassethasbeenrecognised 15,906 14,709

Unusedcapitaltaxlossesforwhichnodeferredtaxassethasbeenrecognised - -

Potentialtaxbenefitat30% 4,772 4,413


Note 5: Dividends on Members’ Share Capital2020

$’0002019

$’000

InaccordancewithAIFRS,members’sharecapital(‘ordinaryshares’)istreatedasaliabilityanddividendspayabletomembersontheirordinarysharesareincludedascostswithintheincomestatement.Theamountofthese‘dividends’onordinarysharesareasfollows:

Dividends

a) Special dividends – recognised and paid during the financial year

Paymentdate 13/12/2019 14/12/2018

Dividendpershare $0.04 $0.08

Percentfranked 50% 50%

Paidincash 78 178

Re-investedDFMCshares 57 110

Total ordinary dividends paid during the financial year 135 288

Franking credits

b) Franking credits available for subsequent financial years 777 325

Theabovefrankingaccountbalancehasbeenadjustedfor:

(i) Frankingcredits/(debits)thatwillarisefromthepayment/(refund)ofincometaxpayable/(receivable)asattheendoftheFinancialYear.

(ii) Frankingcreditsthatwillarisefromthereceiptofdividendsrecognisedasreceivablesatthereportingdate.

Interest payable at dividend rate

c) Under Co-operatives National Law (NSW) if membership is cancelled, share capital must be repaid to the former member within one year of the cancellation . Current DFMC policy is to repay share capital as soon as possible following cancellation . Under certain specified circumstances, the amount may be retained and applied as a deposit, debenture or CCU with interest payable at the dividend rate. No amounts were retained, under these provisions, in the financial year ended 30 June 2020 and therefore no interest was paid .

Note 6: Cash and Cash Equivalents2020

$’0002019

$’000

Cashandcashequivalents 5,122 831

Cashandcashequivalentsrepresentcashondepositatcallwithafinancialinstitutionwhichderivedinterestatafloatingrateofbetween1.85%and2.75%(2019:2.35%and2.77%).

37

Note 7: Receivables2020

$’0002019

$’000

Current

Otherreceivables 300 793

Gross Amount

Past Due and

Impaired

Past Due but Not Impaired (Days Overdue)

Within Initial Trade Terms< 30 31-60 61-90 > 90

2020 $ $ $ $ $ $ $

Otherreceivables 300 - - - - - 300

Gross Amount

Past Due and

Impaired

Past Due but Not Impaired (Days Overdue)

Within Initial Trade Terms< 30 31-60 61-90 > 90

2019 $ $ $ $ $ $ $

Otherreceivables 793 - - - - - 793

Note 8: Other Current Assets2020

$’0002019

$’000

Prepayments 12 12

Termdeposits 1,000 5,661

1,012 5,673

Note 9: Financial Assets2020

$’0002019

$’000

FinancialassetsatFairValue–sharesinlistedcorporations 11,823 13,061

a) Investment in equities

DFMCapprovedtheAudit&FinancecommitteetoappointMacquariePrivateWealthinFebruary2010toinvest$8.5millionintheAustralianequitiesmarket.Therearenofixedreturnsorfixedmaturitydatesattachedtotheseinvestments.InMarch2019DFMCtransitionedinvestmentadvisoryservicestoFranklinAdvisory.


Note 10: Deferred Tax Assets & Liabilities2020

$’0002019

$’000

Deferred tax assets

Amountsrecognisedinprofitorloss

Accruals 34 (1)

Employeeprovisions 26 29

Totaldeferredtaxassets 60 28

a) Movements in deferred tax assets

Balanceatthebeginningoftheyear 28 18

Openingbalanceadjustment 6 -

Creditedtotheincomestatement 26 16

Overinprioryear - (6)

Balanceattheendoftheyear 60 28

b) Timing of recovery

Toberecovered

Within12months 53 24

After12months 7 4

60 28

Deferred tax liabilities

Thebalancecomprisestemporarydifferencesattributableto:

Mark-to-marketinvestments 293 821

Totaldeferredtaxliabilities 293 821

c) Movements in deferred tax liabilities


Chargedtoequity (528) 216


d) Timing of settlement

Tobesettled

Within12months 293 821

293 821

Total net deferred tax balances (233) (793)

39

Note 11: Right-of-use assets2020

$’0002019

$’000

Right-of-useassets–motorvehicles 68 -

Less:accumulateddepreciation (22) -

46 -

Theright-of-useassetsareinrelationtomotorvehiclesleasedbytheCo-operative.

Note 12: Payables2020

$’0002019

$’000

Tradecreditorsandaccruals 277 412

Note 13: Other liabilities2020

$’0002019

$’000

Deferredincome 75 -

Note 14: Lease liabilities2020

$’0002019

$’000

Current

Leaseliabilities 22 -

Non-current

Leaseliabilities 24 -

TheleaseliabilitiesareinrelationtomotorvehiclesleasedbytheCo-operative.

Note 15: Provisions2020

$’0002019

$’000

Current

Employeebenefits 64 98

Non-current

Employeebenefits 23 17


Chargedtothestatementofcomprehensiveincome 46 (28)

Amountsused (74) 66



Note 16: Members’ Share Capital

Number of Shares Nominal Value

2020 #

2019 #

2020 $’000

2019 $’000

Openingbalance–sharesof$1each(fullypaid) 3,444,582 3,701,105 3,445 3,701

Sharesissued 170,365 152,773 170 153

Sharelevies(a) 66,955 79,136 67 79

Sharesforfeited(b) (538,992) (488,432) (539) (488)

Closingbalance–sharesof$1each(fullypaid) 3,142,910 3,444,582 3,143 3,445

Balance at the end of the year 3,142,910 3,444,582 3,143 3,445

Ordinary shares

NotethatinaccordancewithAIFRS,members’sharecapital(‘ordinaryshares’)istreatedasaliability.ClassificationinthismanneroccursbecausetheCooperativemustforfeitandultimatelyrepaysharecapitalthatisforfeitedundertheinactivemembershiprulescontainedintheCo-operativesNationalLaw(NSW)andtheRulesoftheCo-operative.

OrdinarysharesentitletheholdertoparticipateindividendsoftheCooperativeinproportiontothenumberofsharesheld.

Onashowofhandseveryholderofordinarysharespresentatameetinginpersonorbyproxyisentitledtoonevoteanduponapolleachshareholderisentitledtoonevote.

a) Milk payment deductions

UnderthetermsofitsShareAcquisitionProgram(approvedbythemajorityofthemembersatthe2011AGM),theCooperativemakesdeductionsfrompaymentstomembersformilksupplies.Periodically,thesemoniesareappliedbytheCooperativetoissuesharestomembers.

b) Shares forfeited

UndertheCo-operativesNationalLaw(NSW)andtheRulesoftheCooperative,themembershipofaninactivememberiscancelledandthemembers’sharesareforfeitedcontemporaneouslyafteroneyearofcontinuousinactivity(i.e.nonsupplyofrawmilk).

c) Capital management

TheCo-operative’sobjectivewhenmanagingcapitalistosafeguarditsabilitytocontinueasagoingconcern,sothatitcancontinuetoprovidereturnstomembersandforotherstakeholdersandtomaintainanoptimalstructuretoreducecostsofcapital.

InordertomaintainoradjustthecapitalstructuretheCo-operativemayreduceitssharecapital,adjusttheamountofdividendspaidtoshareholdersincludingthroughthedividendre-investmentplanormayguaranteecapitalthroughdeductionsfrompaymentstomembersofmilksuppliesunderthetermsofitsshareacquisitionprogram.

Theboardofdirectorsandtheaudit,financeandgovernancecommitteemonitorthecapitalneedsoftheCo-operative.

Note 17: Retained Profits2020

$’0002019

$’000

Balanceatthebeginningoftheyear 13,443 13,055

Profit/(Loss)attributabletomembers (499) 388

Balanceattheendoftheyear 12,944 13,443

41

Note 18: Commitments for Expenditure

TheCooperativehadnilcommitmentsasat30June2020.

Note 19: Contingent Liabilities and Contingent Assets

TheCooperativehadnocontingentliabilitiesorassetsasat30June2020.

Note 20: Financial Assets Reserve2020

$’0002019

$’000

Thefinancialassetsreserverecordsrevaluationincrementsanddecrementsthatrelatetofinancialassetsthatareclassifiedasfinancialassetsatfairvalue.

1,505 2,162

Note 21: Auditors’ Remuneration2020

$2019

$

Amountreceived,ordueandreceivablebyNexiaSydneyAuditPtyLtdforauditofthefinancialreport 18,000 17,850

Amountreceived,ordueandreceivableforotherservices 21,000 6,050

Note 22: Key Management Personnel Disclosures

a) Directors

ThedirectorsoftheCooperativeduringtheyearanduptothedateoftheDirectors’Reportwere: ADRBurnett(Chairman),JBGeraghty,GSherborne,ADauk,BerniceLumsden,JohnMcKillop.

b) Executive Officer

DFMCappointedMarkKebbellasExecutiveOfficerinNovember2016.ThecompensationoftheExecutiveOfficerisincludedwithinthekeymanagementpersonnelcompensationdisclosedinnote22(d).

c) Principles used to determine the nature and amount of remuneration

Basedirectors’feeswereestablishedatthefirstannualgeneralmeetingon17November2004basedonadvicefromexternaladvisors,whichincludedreferencetofeelevelsforcomparablecompanies.Membersvotedtochangethebasefeelevelsperdirectoratthe2009annualgeneralmeeting.Atthe2009annualgeneralmeetingthemembersapprovedatotalpaymentof$20,000perannumtothechairperson/sofboardsubcommittees,anincreasetoatotalof$40,000basefeeperannumforalldirectorsandareductiontobasefeeto$85,000perannumfortheChairmanoftheBoard.Thetotalfeespaidarewithinthelimitapprovedbymembers.

Theboardcommitstofairandresponsibleremunerationpoliciesbyensuringthatthelevelandcompositionofremunerationpackagesrecognisesmarketlevelsandissufficienttoattractandretainmotivateddirectors.ThefocusoftheboardisonthelongtermstrategicdirectionandoverallperformanceoftheCo-operative.Asaconsequence,directorremunerationisnotdirectlyrelatedtoshort-termresults.TheboardengagedindependentconsultancycompanyMercertoassistinestablishingtheExecutiveOfficerremuneration,takingintoaccountreasonablemarketremunerationfortheroleandresponsibilities.


Note 22: Key Management Personnel Disclosures (continued)

2020 $

2019 $

d) Key management personnel compensation

Short-termemploymentbenefits 777,563 786,378

Post-employmentbenefits(superannuation) 71,220 78,222

Totalkeymanagementpersonnelcompensation 848,783 864,600

Thecompensationnotedabovecomprisesthefollowingperannumfixeddirectors’fees(inclusiveofsuperannuation).ThecompensationnotedabovealsoincludestheExecutiveOfficer,FarmAdvisoryServicesandFinanceManagerwhicharenowemployeddirectlybythe Co-operative.

Number of Directors

Per Annum Fee

$

Director fees for the current financial year are:

Chairman 1 70,000

Otherdirectors 5 185,000

e) Other transactions with key management personnel

a. Farmerdirectors

TheCo-operativehasundertakenthefollowingtransactionswithfarmerdirectorsandtheirrelatedentities.AlltransactionshavebeenconductedwithinnormalcommercialtermsandconditionsasisapplicabletoalloftheCo-operative’sfarmersandshareholders:

› TheacquisitionofmilkfromthefarmerdirectorsbytheCo-operative

› TheissueofordinarysharestofarmerdirectorsandtheirrelatedentitiesinrelationtotheShareAcquisitionProgramanddividendre-investmentplan.

› Theholdingofordinarysharesbyfarmerdirectorsandtheirrelatedentities,andifapplicable,theforfeitureofsuchsharesinaccordancewiththeinactivemembershipprovisions

Note 23: Related Party Transactions and Economic Dependency

DFMCiseconomicallydependentonDFLforasignificantamountofitsrevenueandfinancialsupportandaccordinglydisclosurehasbeenmadeofthesignificanttransactionsbetweenDFMCandDFLintherelevantsectionsofthefinancialreportasfollows:

› SaleofmilktoDFL(note2(a))

› Aggregationfeerevenue&OperationalfeederivedfromDFL(note2(b&c))

› OtherrevenuederivedfromDFL(note2(d))

UnderthetermsoftheMilkSupplyAgreement,DFMCpaidanAdministrativeServicesFeeof$Nil

(2019:$100,000)toDFLduringthefinancialyeartocoverthecostofprovidingadministrativefacilitiesandservicesincludingoffices,communicationservices,computerhardwareandsystems,andaccountingandsecretarialservices.

43

Note 24: Financial Facilities

TheCo-operativecurrentlyoperateswithouttheneedforbankfinancefacilities.Afixedamountofannualfundingismadeavailable toDFMCtocoveritsadministrativecoststhroughtheaggregationfeerevenuefromDFLasindicatedinnote2(b).

Note 25: Cash Flow Reconciliation2020

$’0002019

$’000

Profit/(loss)attributabletomembers (499) 388

Non-cash items in operating profit

Othernon-cashitems 556 193

Dividendandfarmrebatereinvestment 57 110

Movement in assets and liabilities

(Increase)/decreaseinprepayments - (2)

(Increase)/decreaseinreceivables 493 (212)

Increase/(decrease)indeferredtaxliabilities (560) (206)

Increase/(decrease)inpayablesandaccruals (60) 112

Increase/(decrease)inprovisions (28) 37

Netcashinflowfromoperatingactivities (41) 420

Note 26: Financial Risk Management

Financial Risk Management Policies

Thedirectors’overallriskmanagementstrategyseekstoassisttheCo-operativeinmeetingitsfinancialtargets,whilstminimisingpotentialadverseeffectsonfinancialperformance.RiskmanagementpoliciesareapprovedandreviewedbytheCo-operative’sBoardofDirectorsonaregularbasis.Theseincludethecreditriskpoliciesandfuturecashflowrequirements.

Themainpurposeofnon-derivativefinancialinstrumentsistoraisefinanceforcompanyoperations.TheCo-operativedoesnothaveanyderivativeinstruments.

Specific Financial Risk Exposures and Management

ThemainriskstheCo-operativeisexposedtothroughitsfinancialinstrumentsarecreditrisk,liquidityriskandmarketriskrelatingtointerestraterisk.

Credit risk analysis

CreditriskistheriskthatacounterpartyfailstodischargeanobligationtotheCo-operative.TheCo-operativeisexposedtothisriskforvariousfinancialinstruments,forexamplebygrantingloansandreceivablestocustomers,placingdeposits,investmentinbondsetc.TheCo-operative’smaximumexposuretocreditriskislimitedtothecarryingamountoffinancialassetsrecognisedatthereportingdate,assummarisedbelow:


Note 26: Financial Risk Management (continued)

Notes2020

$’0002019

$’000

Classes of Financial assets

Carryingamounts:


Loansandreceivables 7 300 793

Termdeposits 8 1,000 5,661

Financialassetsatfairvalue 9 11,823 13,061

TheCo-operativecontinuouslymonitorsdefaultsofcustomersandothercounterparties,identifiedeitherindividuallyorbygroup,andincorporatesthisinformationintoitscreditriskcontrols.TheCo-operative’spolicyistodealonlywithcreditworthycounterparties.

TheCo-operative’smanagementconsidersthatalltheabovefinancialassetsthatarenotimpairedorpastdueforeachofthereportingdatesunderreviewareofgoodcreditquality.Noneoftheunimpairedtradereceivablesarepastdueasatthereportingdate.

Inrespectoftradeandotherreceivables,theCo-operativeisexposedtosignificantcreditriskduetoexposuretoalimitedgroupofcounterparties.Basedonhistoricalinformationaboutcustomerdefaultratesmanagementconsiderthecreditqualityoftradereceivablesthatarenotpastdueorimpairedtobegood.

Thecreditriskforcashandcashequivalentsisconsiderednegligible,sincethecounterpartiesarereputablebankswithhighqualityexternalcreditratings.

Liquidity risk

LiquidityriskarisesfromthepossibilitythattheCo-operativemightencounterdifficultyinsettlingitsdebtsorotherwisemeetingitsobligationsrelatedtofinancialliabilities.TheCo-operativemanagesthisriskthroughthefollowingmechanisms:

• preparingforward-lookingcashflowanalysisinrelationtoitsoperational,investingandfinancingactivities;

• usingderivativesthatareonlytradedinhighlyliquidmarkets;

• monitoringundrawncreditfacilities;

• obtainingfundingfromavarietyofsources;

• maintainingareputablecreditprofile;

• managingcreditriskrelatedtofinancialassets;

• onlyinvestingsurpluscashwithmajorfinancialinstitutions;and

• comparingthematurityprofileoffinancialliabilitieswiththerealisationprofileoffinancialassets

Thetablebelowreflectsanundiscountedcontractualmaturityanalysisforfinancialliabilities.

45


At30June2020theCo-operative’sfinancialassetsandliabilitiesareasfollows::

Notes2020

$’0002019

$’000

Financial assets


Loansandreceivables 7 300 793

Termdeposits 8 1,000 5,661

FinancialAssetsatfairvalue:

–listedinvestments 9 11,823 13,061

Total financial assets 18,245 20,346

Financial liabilities

Financialliabilitiesatamortisedcost:

–tradeandotherpayables 12 277 412

–leaseliability 14 46 -

–members’sharecapital 16 3,143 3,445

Total financial liabilities 3,466 3,857

Cashflowsrealisedfromfinancialassetsreflectmanagement’sexpectationastothetimingofrealisation.Actualtimingmaythereforedifferfromthatdisclosed.Thetimingofcashflowspresentedinthetabletosettlefinancialliabilitiesreflectstheearliestcontractualsettlementdatesanddoesnotreflectmanagement’sexpectationsthatbankingfacilitieswillberolledforward.



Financialliabilityandfinancialassetmaturityanalysis

Within 1 Year 1 to 5 Years Over 5 Years Total

2020 $’000

2019 $’000

2020 $’000

2019 $’000

2020 $’000

2019 $’000

2020 $’000

2019 $’000

Financial liabilities due for payment

Tradeandotherpayables

277 412 - - - - 277 412

Leaseliabilities 22 - 24 - - - 46 -

Members’sharecapital

- - - - 3,143 3,445 3,143 3,445

Total contractual outflows

299 412 24 - 3,143 3,445 3,466 3,857

Total expected outflows

299 412 24 - 3,143 3,445 3,466 3,857

Financial assets — cash flows realisable

Cashandcashequivalents

5,122 831 - - - - 5,122 831

Termdeposits 1,000 5,661 - - - - 1,000 5,661

Trade,termandloanreceivables

300 793 - - - - 300 793

Otherinvestments - - - - 11,823 13,061 11,823 13,061

Total anticipated inflows

6,422 7,285 - - 11,823 13,061 18,245 20,346

Net inflow on financial instruments

6,123 6,873 (24) - 8,680 9,616 14,779 16,489

47


TheCo-operative’sinvestmentsareheldinthefollowingsectorsattheendofthereportingperiod:

2020 $’000

2019 $’000

Banks 2,922 3,625

Commercialservices&supplies 304 698

Diversifiedfinancials 242 291

Energy 408 643

Food&drugretailing 545 470

Healthcareequipment&services 305 293

Insurance 166 221

Materials 1,282 1,468

Pharmaceuticals&Biotechnology 817 715

Realestate 44 113

Retailing 351 283

Telecommunicationservices 215 265

Transportation 710 681

Other 3,512 3,295

11,823 13,061

Price risk

Priceriskrelatestotheriskthatthefairvalueorfuturecashflowsofafinancialinstrumentwillfluctuatebecauseofchangesinmarketpricesofsecuritiesheld.

Suchriskismanagedthroughdiversificationofinvestmentsacrossindustriesandgeographiclocations.

Sensitivity analysis

ThefollowingtableillustratessensitivitiestotheCo-operative’sexposurestochangesininterestratesandequityprices.Thetableindicatestheimpactonhowprofitandequityvaluesreportedattheendofthereportingperiodwouldhavebeenaffectedbychangesintherelevantriskvariablethatmanagementconsiderstobereasonablypossible.Thesesensitivitiesassumethatthemovementinaparticularvariableisindependentofothervariables.



Profit $

Equity $

Year ended 30 June 2020

+/-2%ininterestrates +/-127 +/-127

+/-10%inlistedinvestments N/A +/-1,258

Year ended 30 June 2019

+/-2%ininterestrates +/-128 +/-128

+/-10%inlistedinvestments N/A +/-1,196

Asinvestmentsareclassifiedasfinancialassetsatfairvaluethroughothercomprehensiveincome,movementinfairvalueisrecordedin

reserves.Therefore,thereisnoimpactonprofit/lossprojected.

Net Fair Values

Fair value estimation

Thefairvaluesoffinancialassetsandfinancialliabilitiesarepresentedinthefollowingtableandcanbecomparedtotheircarrying

valuesaspresentedinthestatementoffinancialposition.Fairvaluesarethoseamountsatwhichanassetcouldbeexchanged,ora

liabilitysettled,betweenknowledgeable,willingpartiesinanarm’slengthtransaction.

Fairvaluesderivedmaybebasedoninformationthatisestimatedorsubjecttojudgment,wherechangesinassumptionsmayhave

amaterialimpactontheamountsestimated.Areasofjudgmentandtheassumptionshavebeendetailedbelow.Wherepossible,

valuationinformationusedtocalculatefairvalueisextractedfromthemarket,withmorereliableinformationavailablefrommarkets

thatareactivelytraded.Inthisregard,fairvaluesforlistedsecuritiesareobtainedfromquotedmarketbidprices.Wheresecuritiesare

unlistedandnomarketquotesareavailable,fairvalueisobtainedusingdiscountedcashflowanalysisandothervaluationtechniques

commonlyusedbymarketparticipants.

Differencesbetweenfairvaluesandcarryingvaluesoffinancialinstrumentswithfixedinterestratesareduetothechangeindiscount

ratesbeingappliedbythemarketsincetheirinitialrecognitionbythecompany.Mostoftheseinstrumentswhicharecarriedat

amortisedcost(i.e.tradereceivables&loanliabilities)aretobehelduntilmaturityandthereforethenetfairvaluefigurescalculated

bearlittlerelevancetothecompany.

49


Footnote

2020 2019

Net Carrying Value

Net Fair Value

Net Carrying Value

Net Fair Value

$’000 $’000 $’000 $’000

Financial assets

Cashandcashequivalents (i) 5,122 5,122 831 831

Termdeposits (i) 1,000 1,000 5,661 5,661

Tradeandotherreceivables (i) 300 300 793 793

6,422 6,422 7,285 7,285

Financialassetatfairvaluethroughothercomprehensiveincome:

–atfairvalue:

–ListedInvestments 11,823 11,823 13,061 13,061

Totalfinancialassetatfairvaluethroughothercomprehensiveincome

(iii) 11,823 11,823 13,061 13,061

Total financial assets 18,245 18,245 20,346 20,346

Financial liabilities

Tradeandotherpayables (i) 277 277 412 412

Leaseliabilities (iv) 46 46 - -

Members’sharecapital (iv) 3,143 3,143 3,445 3,445

Total financial liabilities 3,466 3,466 3,857 3,857

Thefairvaluesdisclosedintheabovetablehavebeendeterminedbasedonthefollowingmethodologies:

(i) Cashandcashequivalents,tradeandotherreceivablesandtradeandotherpayablesareshort-terminstrumentsinnaturewhose

carryingvalueisequivalenttofairvalue.Tradeandotherpayablesexcludeamountsrelatingtotheprovisionofannualleavewhich

isnotconsideredafinancialinstrument.

(ii) Discountedcashflowmodelsareusedtodeterminethefairvaluesofloansandadvances.Discountratesusedonthecalculations

arebasedoninterestratesexistingattheendofthereportingperiodforsimilartypesofloansandadvances.Differencesbetween

fairvaluesandcarryingvalueslargelyrepresentmovementsintheeffectiveinterestratedeterminedoninitialrecognitionand

currentmarketrates.

(iii) Forlistedfinancialassetsthroughothercomprehensiveincome,closingquotedbidpricesattheendofthereportingperiodare

used.Indeterminingthefairvaluesoftheunlistedfinancialassetsthroughothercomprehensiveincome,thedirectorshaveused

inputsthatareobservableeitherdirectly(asprices)orindirectly(derivedfromprices).

(iv) Fairvaluesaredeterminedusingadiscountedcashflowmodelincorporatingcurrentcommercialborrowingrates.



Financial Instruments Measured at Fair Value

Thefinancialinstrumentsrecognisedatfairvalueinthestatementoffinancialpositionhavebeenanalysedandclassifiedusingafair

valuehierarchyreflectingthesignificanceoftheinputsusedinmakingthemeasurements.Thefairvaluehierarchyconsistsofthe

followinglevels:

› quotedpricesinactivemarketsforidenticalassetsorliabilities(Level1);

› inputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectly(asprices)or

indirectly(derivedfromprices)(Level2);and

› inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(unobservableinputs)(Level3).

2020Level 1 $’000

Level 2 $’000

Level 3 $’000

Financial assets


—listedinvestments 11,823 - -

11,823 - -

2019Level 1 $’000

Level 2 $’000

Level 3 $’000

Financial assets


—listedinvestments 13,061 - -

13,061 - -

IncludedwithinLevel1ofthehierarchyarelistedinvestments.Thefairvalueofthesefinancialassetshasbeenbasedontheclosing

quotedbidpricesattheendofthereportingperiod,excludingtransactioncosts.

Note 27: Events After the Reporting Period

Noothermattersorcircumstancesofsignificancehavearisenasperthedirectors’reportsincetheendofthefinancialyearwhich

significantlyaffectedormaysignificantlyaffecttheoperationsoftheCo-operative,theresultofthoseoperations,orthestateofaffairsofthe

Co-operativeinfuturefinancialyears.

Note 28: Co-operative Details

Theregisteredofficeandprincipalplaceofbusinessis:

12/60CarringtonStreet

SYDNEYNSW2000

51

ThedirectorsoftheCo-operativedeclarethat:

a) The financial statements and notes set out on pages 23 to 50 are in accordance with the Co-operatives (Adoption of National Law) Act 2012 and the Corporations Act 2001, including:

(i) complyingwithAccountingStandards,theCo-operatives(AdoptionofNationalLaw)Act2012theCorporationsRegulations2001andothermandatoryprofessionalreportingrequirements;and

(ii) givingatrueandfairviewoftheCo-operative’sfinancialpositionasat30June2020andofitsperformancefortheyearendedonthatdate

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

Thisdeclarationismadeinaccordancewitharesolutionofthedirectors.

Directors’ Declaration


29September2020


29September2020


Independent Auditor’s Report

Independent Auditor’s Report to the Members of Dairy Farmers Milk Co-operative Limited

Report on the Audit of the Financial Report

Opinion We have audited the financial report of Dairy Farmers Milk Co-operative Limited (the Co-operative), which comprises the statement of financial position as at 30 June 2020, the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration.

In our opinion, the accompanying financial report of the Co-operative is in accordance with the Corporations Act 2001, including:

i) giving a true and fair view of the Co-operative’s financial position as at 30 June 2020 and of its financial performance for the year then ended; and

ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.

Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the ‘auditor’s responsibilities for the audit of the financial report’ section of our report. We are independent of the Co-operative in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Co-operative, would be in the same terms if given to the directors as at the time of this auditor’s report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other information The directors are responsible for the other information. The other information comprises the information in Dairy Farmers Milk Co-operative Limited’s annual report for the year ended 30 June 2020, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of the other information we are required to report that fact. We have nothing to report in this regard.

53

Independent Auditor’s Report

Directors’ responsibility for the financial report The directors of the Co-operative are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the Co-operative’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Co-operative or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibility for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.

A further description of our responsibilities for the audit of the financial report is located at The Australian Auditing and Assurance Standards Board website at: www.auasb.gov.au/admin/file/content102/c3/ar2_2020.pdf. This description forms part of our auditor’s report.

Report on Other Legal and Regulatory Requirements In our opinion, the financial report of Dairy Farmers Milk Co-operative Limited gives a true and fair view of the Co-operative’s financial position as at 30 June 2020 and of its performance for the year ended on that date, in accordance with the requirements of the Co-operatives (Adoption of National Law) Act 2012.

Nexia Sydney Audit Pty Ltd

Vishal Modi Director Dated: 29th day of September 2020

DFMC is farmer-run and farmer-owned, bringing together milk, capital and

members to provide better outcomes for dairy farmers and manufacturers.

Dairy Farmers Milk Co-operative T: (02)81204431 F: (02)82444635 E: [email protected]

12/60CarringtonStreet Sydney,NSW2000

ARBN:108690384

www.dfmc.org.au

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annual report - dfmc

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