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WARRNAMBOOL CHEESE AND BUTTER FACTORY COMPANY HOLDINGS LIMITED 5331 GREAT OCEAN ROAD, ALLANSFORD VICTORIA 3277 AUSTRALIA

TELEPHONE: (03) 5565 3100 FACSIMILE: (03) 5565 3156 WEBSITE: www.wcbf.com.au ACN 071 945 232 ABN 15 071 945 232

23 September 2010 By electronic lodgment The Manager Company Announcements Office ASX Dear Sir/Madam Re Warrnambool Cheese and Butter Factory Company Holdings Limited (WCB) 2010 AGM Please find attached the following documents to be dispatched to our shareholders today and disclosed pursuant to our listing obligations: 1. WCB Annual Report; 2. Notice of AGM; 3. Proxy Form. Yours faithfully,

John Frankcom Company Secretary

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Annual Report 2010

Warrnambool Cheese and Butter Factory Company Holdings Limited

Warrnambool Vintage Cheddar, winner of several awards in the 2010 financial yearincuding a gold medal at the Melbourne Specialist Cheese Show, August 2009.

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Annual Report 2010

2 Warrnambool Cheese and Butter Factory Company Holdings Limited

Contents4 Chairman’s Report5 Chief Executive Officer’s Report6 Operations Review16 Executive Team17 Corporate Governance Report21 Directors’ Statutory and Remuneration Report32 Auditor’s Independence Declaration33 Shareholders & Additional Information34 Five Year Summary35 Financial Statements72 Directors’ Declaration73 Independent Auditor’s Report75 Corporate Directory

Warrnambool Cheese and Butter Factory CompanyHoldings Limited (WCB) is one of Australia’s largestmilk processors and is the only listed dairy company onthe Australian Securities Exchange (ASX). Situated on theGreat Ocean Road at Allansford near Warrnambool, WCBdraws milk supply from South West Victoria and SouthEast South Australia, two of the most productive dairyingregions in the country.

The Company sources approximately 900 million litresof milk annually and produces high quality cheese,milk powders, whey protein concentrate, butter, milkand cream for customers in domestic and exportmarkets. WCB also produces the fast-growing freshmilk brand, Sungold.

The 2010 Annual Report focuses on the recovery andturnaround of WCB’s financial performance and results.

Total Milk Intake

2006 2007 2009 20102008

0

960 Litres Million

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Key Highlights

Annual Report 2010 3

Financial Year Revenue

2006 2007 2009 20102008

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600 $ Million

Net Profit/Loss After Tax

2006 2007 2009 20102008

20

0

10

-10

-20

500

300

400

200

100

-30

30 $ Million

WCB export market regions

Net profit after taxUp $28.7 millionto $8.8 million

Sales volumesUp 7.4%, revenuedown 5.6%

Total milk intakeSteady at 896 million litres in amarket of total production decline

Record production levelMilk volumes processed 5.2%higher than previous record year

Total fully frankeddividend10.0 cents

Chief Executive OfficerDavid Lord commencedin June 2010

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Slightly improved credit markets, a recovery in demand and amore subdued Australian currency saw the Australian index ofdairy export prices rise from a trough of 86.9 in June 2008,to a peak of 160.0 in June 2010. These improved marketconditions meant that gross revenue reached $416.3 millionwith an EBIT amount of $16.9 million, an increase of $41.4million or 168.7% from the previous year. Milk intake was 896million litres, almost identical to the previous year.

As a result, the Company was able to record a solid profitoutcome of $8.8 million, a major turnaround from the $19.9million loss recorded in the previous year.

This has enabled us to resume our policy of rewarding all of ourstakeholders fairly and equitably. We have followed our normaldividend policy of paying out up to 45% of parent companyprofits by declaring a final dividend of 8 cents per share, whichtogether with our interim dividend of 2 cents per share made atotal dividend payout of 10 cents.

We have been able to reward the loyalty of our supplier baseby maintaining a competitive milk price throughout the 2010financial year, and by announcing a strong opening price forthe year ahead.

This year the Board established the Supplier Advisory Forum,with a view to improving the dialogue with our farmerstakeholders. The Forum will provide an opportunity for arepresentative group of suppliers to discuss their issues indetail with the Company. This is in addition to our normalsupplier communication program. We place a high valueon the relationship with our suppliers and we will continueto seek opportunities for improving our service to them.

It is pleasing that we have been able to resume normal rewardpolicies for our staff, who in common with other stakeholdersmade significant sacrifices to enable us to rebuild theCompany's health.

During the year the Company attracted unwelcomeexpressions of interest from predators seeking to capitaliseon our weakened position and acquire the Company atbargain prices. The Board, encouraged by overwhelmingsupport from shareholders and suppliers, rejected theapproaches as significantly undervaluing the Company.In addition, the highly conditional nature of the approachesmeant that they were, in our view, unlikely to be capable ofcompletion. In particular, the approach from Murray Goulburnrepresented a threat of significant decline in competition inour milk capture region, a view supported by the AustralianConsumer and Competition Commission in their Statementof Issues released on 22 April 2010. Subsequent to thisstatement being released, Murray Goulburn withdrew theirrequest to the Commission for a determination.

Although both approaches were eventually withdrawn, theyrepresented a significant distraction for us. Much managementtime and money was consumed in responding to these threatsthat would have been more constructively used within thebusiness. Many growth initiatives and opportunities were forcedto be put on hold until the predators were rebuffed. It is with asense of profound relief that we are now able to move aheadwith growing our business, and we remain strongly of the viewthat Warrnambool Cheese and Butter will grow faster and moreprofitably as an independent company. Thanks to the strongsupport of our shareholders and suppliers throughout the year,we remain in a position to pursue our full potential to the benefitof all of our stakeholders.

Looking ahead to the 2011 financial year, we anticipatecontinuing volatility in commodity prices, however buildingon an excellent start to the season in milk production weexpect to be able to deliver further benefits to stakeholdersas the year develops. Having said that, there are, as always,potential threats on the horizon. These include the possibility ofanother financial crisis fuelled by failed economies, and somepotential for softer commodity prices in the second half of thefinancial year. For these reasons we can expect all processorsto be relatively circumspect in ensuring earnings are lockedin before distribution.

On 16 June 2010 we welcomed David Lord as our new ChiefExecutive Officer and Managing Director. David comes to uswith extensive experience in all facets of the industry, but inparticular in the sale and distribution of dairy products into theAustralian retail market. He is accordingly well placed to driveour strategy of diversifying our revenue sources to lessenreliance on volatile commodity markets and exchange rates.

At the same time our former CEO and Managing Director,John McLean, moved to take a position as Associate Director.John did a great job in rebuilding our supplier relationships, andhis continuing presence at Board meetings will be invaluable tothe Company.

Throughout the year our staff have been called on to makegreater than usual contributions to meet the various threatsfacing the business, and have responded with great endeavourand effectiveness. Their efforts have been greatly appreciatedby the Board.

Francis J DavisChairman

Chairman’s Report

Following on from the difficult 2009 year and the impact of the global financial crisis,2010 has been a year of recovery and consolidation.

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The solid performances of this past year signal a very positiveoutlook for the future of the Company. Suppliers stronglysupported the business by returning to WCB and boosting itsmilk intake to 896 million litres, only slightly down on what wasa record intake in the previous year. This enabled recordproduction volumes to be achieved through the highly efficientAllansford manufacturing facilities. The Great Ocean Ingredientsplant, a joint venture operation with Royal Friesland Campinalocated on the Allansford site, completed its commissioningphase on June 30 this year and is now operating at fullcapacity, producing first grade quality product. Similarly, theWCB Japan joint venture is performing ahead of plan withboth revenues and earnings exceeding budget in its secondyear of operation.

In its export markets WCB enjoyed an excellent sales year,achieved by expanding its distribution footprint to 56 countries,leveraging off its reputation for consistent quality and itswillingness to collaborate with customers to meet theirspecification requirements.

At home in the domestic market the WCB retail divisioncontinued to grow rapidly. Expanded distribution has seenpackaged milk product sales grow at double digit rates againthis year. The new range of specialty and flavoured cheeseproducts under the Warrnambool brand is gaining favour withconsumers and a reputation for quality. Warrnambool brandmatured cheddar, vintage cheddar and garlic and pepperflavoured cheeses all received the highest awards in theirrespective classes at the Dairy Industry Association ofAustralia’s (DIAA) Dairy Product Competitions. These awardsincluded the coveted Hansen Cup and Trophy whichrecognises the highest scoring cheddar cheese.

Chief Executive Officer’s Report

I have joined the Company at the closure of a year that has undoubtedly been anextraordinary turnaround year for the business. In the wake of the difficulties of the 2009financial year, including the global financial crisis and the subsequent trading loss, it is atribute to the directors, management and staff that a stabilising of the business and a returnto profitability has been achieved so comprehensively in the following year.

As one of the largest employers in the region WCB is aware ofits responsibility to the local communities of South West Victoriaand South East South Australia. The Company employs around400 (full time equivalent) staff across its manufacturing anddistribution sites. In addition, WCB is home to hundreds ofsupplier farms in its supply regions and as such plays anintegral part in the health of the local economy. The Companyis a proud financial contributor to many community groups,charitable organisations, sporting clubs and agricultural showseach year.

I am delighted to be joining WCB at such an exciting timein its development. The Company has outstanding businessprospects due to the diversity it enjoys in the markets it servesand the relationships it has formed with joint venture associatesand trade partners. In recent years the Company has extendedits access to the international dairy market while simultaneouslybuilding a growing and profitable presence at home in theAustralian domestic market. This balanced approach tobusiness development allows WCB to selectively target highvalue opportunities across the wide ranging geographicmarkets and channels in which it operates.

I look forward to joining with WCB’s management and staff inmaking my contribution to the company’s future success.

David LordChief Executive Officer& Managing Director

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Financial ResultsFinancial Summary

• WCB achieved an $8.8 million net profit after tax for 2010,a 144.2% or $28.7 million improvement on the 2009 loss(2009: $19.9 million loss).

• Earnings before Interest and Tax (EBIT) were up by $41.4million to $16.9 million (2009: $24.6 million loss).

• Earnings before Interest, Tax, Depreciation andAmortisation (EBITDA) were up 326.7% or $42.8 million to$29.7 million (2009: $13.1 million loss).

Outlook 2011

• Dairy export commodity prices have improved but remainhighly volatile. Following the global financial crisis,international demand has been constrained and lesspredictable with customer purchasing patterns shorteningand greater emphasis being placed on dairy commodityauctions.

• Milk intake is forecast to remain stable as major playerscompete in a price-competitive and declining milk supplymarket.

• The Australian dollar remains volatile against the US dollarwith the rate recently appreciating back into the 90–93cent range.

• Although volatile, commodity export prices have improvedover equivalent pricing of the previous year, resulting in animproved opening milk pricing position for the 2011financial year.

Returns to Shareholders

• Shareholder returns reflect the return to profits. TotalShareholder Returns have been impacted by a positiveshare price and improved dividend rising by 109.3% (2009:negative 62.9%).

• Earnings per Share were up by 144.0% to 22.1 cents(2009: negative 50.2 cents). Total dividends were 10.0cents per share as a consequence of the much improvedearnings position.

Earnings Summary 2010 2009 Change(A$ million)

Operating revenue 416.3 441.1 (24.8)

EBITDA 29.7 (13.1) 42.8

Depreciation & amortisation 12.8 11.5 1.4

EBIT 16.9 (24.6) 41.4

Borrowing costs 7.2 5.5 1.7

Tax expense/(benefit) 0.9 (10.1) 11.0

Net profit/(loss) after tax 8.8 (19.9) 28.7

Business Highlights

• Dairy export commodity prices have not fully recoveredfrom the pricing collapse in the latter half of 2009, and theAustralian dollar has also appreciated significantly from prioryear lows.

• Total milk intake was 896 million litres, a net 2.8% fall fromthe record set in 2009. This compares favourably againsta 3.9% decline in national milk supply.

• Commodity production volumes, including toll productionor ‘conversion’, grew by 5.7%. This was complementedwith a further 22.4% increase in market milk and otherconsumer goods volumes.

• Average farmgate milk prices fell by 17.1% to 34 cents perlitre (2009: 41 cents). This represents a re-alignment ofinternational commodity prices and farmgate milk pricesfollowing the anomalies experienced in 2009.

• Total sales volumes were up 7.4% in 2010, howeverrevenues fell by 5.6% or $24.8 million to $416.3 million(2009: $441.0 million). Commodity sales volumes were up3.8% and consumer goods volumes were up 23.2% on2009, however average sales prices were down 12.1%.

Shareholder Return 2010 2009

Return on equity % 8.6 (20.6)

Return on invested capital % 15.9 (7.0)Tax adjusted EBITDA over totalassets less cash less totalcurrent liabilities

Earnings per share (cents) 22.1 (50.2)

Dividend per share (cents) 10.0 2.0

This represents earnings per share which theboard has elected to distribute to shareholders

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Cash Flow

• The improved EBITDA was a key factor in the $25.6million increase in net cash flow from operations. Thetrade working capital increase is temporary and will declinein the 2011 financial year.

• Net investing cash flows were down $15.3 million to $6.3million (2009: $21.6 million). Investment in property, plantand equipment was focused on essential items only anddid not include any major project initiatives. No income taxwas paid during 2010 as losses from 2009 were recouped.

Balance Sheet ($ million) 2010 2009 Variance

Trade working capital 88.4 81.3 7.1

Net property plantand equipment 96.0 102.4 (6.3)

Intangibles 1.6 1.6 –

Investment injoint ventures 18.5 14.6 3.9

Net tax (liabilities)/assets 4.0 3.7 0.3

Other liabilities (5.2) (4.9) (0.3)

203.3 198.6 4.7

Net debt

Underlying debt 87.2 84.7 2.4

Investment debt 14.2 17.1 (2.9)

Total 101.4 101.8 (0.5)

Equity 102.0 96.7 5.2

203.3 198.6 4.7

Trade workingcapital/revenue 21.2% 18.4% 2.8%

Gearing ratio 49.9% 51.5% (1.6%)

Underlying netdebt/EBITDA (times) 2.94 (6.47) 9.41

Balance Sheet

• Improved earnings are reflected in the balance sheet andbalance sheet ratios.

• Trade working capital increased by $7.1 million to $88.4million. The increase primarily reflects additional supportbeing given to suppliers following the 2009 downturn.

• Total debt decreased by $0.5 million with the increase intrade working capital being offset by the improved bottomline and reduced capital expenditure.

• Gearing based on total debt over total debt plus equityhas decreased slightly to 49.9%; within the high endof WCB’s target range. Debt reduction initiatives arecurrently being undertaken to reduce gearing to morecustomary levels.

Cash Flow ($ million) 2010 2009 Change

Net Cash Flow fromOperating Activities

EBITDA 29.7 (13.1) 42.8

Net interest paid (7.1) (5.5) (1.6)

Share of profits/(losses)of joint ventures (3.9) (1.3) (3.9)

Changes in Assets& Liabilities

Decrease/(increase) intrade working capital (7.1) 0.8 (7.9)

Increase/(decrease) inother assets/liabilities (4.1) 1.0 (3.8)

7.5 (18.1) 25.6

Cash Flows fromInvesting Activities

Proceeds from sale ofplant & equipment – 0.4 (0.4)

Payment for propertyplant & equipment (6.3) (19.5) 13.2

Payment of income tax – (2.5) 2.5

(6.3) (21.6) 15.3

Cash Flows fromFinancing Activities

(Decrease)/increasein net debt (0.5) 48.8 (49.3)

Net proceeds fromshare issue 0.1 2.3 (2.2)

Payment of dividend (0.8) (11.4) 10.6

(1.2) 39.7 (40.9)

The cash flow statement above has been configured to allowreconciliation from the EBITDA and to highlight the mostsignificant cash flow movements.

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WCB suppliers are also being recognised for their exceptionalmilk quality. WCB suppliers represented 13 out of the 30winners of the 2010 Dairy Australia Milk Quality Awards acrossWestern Victoria – an excellent result. The Company workshard to assist farmers to improve and maintain milk quality.Suppliers were provided with an updated Quality Manual thisyear, to help ensure the high standard of milk quality ismaintained and production complies with the latest requirements.

WCB maintains a strong local and industry-wide profile andcontributes to industry discussions, developments andnetworks. This year the Company was proud to be a majorsponsor of the Sharefarmer of the Year Award at the GreatSouth West Dairy Awards. WCB sponsored the Young DairyDevelopment Program, and continued its major sponsorship ofthe United Dairy Farmers of Victoria Conference and WestvicDairy. Each year the Company hosts the Montague DairyAustralia Environmental Awards and coordinates the judgingprocess. WCB coordinates several cow nutrition managementdiscussion groups around the milk supply area in conjunctionwith the Department of Primary Industries. Field Service staffalso encourage school students to consider the opportunitiesavailable in the dairy sector, through participation in the CowsCreate Careers program and through presenting at schoolcareer events.

WCB continued its work on the MilkPlus project this year,supported by a grant from the Geoffrey Gardiner DairyFoundation. This project aims to increase milk solids contentby fine-tuning cow nutrition management. Two monitor farmsdemonstrated practices that could particularly contribute toproducing more milk protein. The project consultants alsoprovided training to various advisors such as local vets, extensionofficers and feed company representatives, as well as field staff.

Milk SupplyMost supply areas experienced improved seasonal conditionsas the year progressed. A reasonable spring was followed bya good fodder harvest and a favourable autumn break. Farminput costs including hay, grain and fertiliser were also lowerthis year. At the start of the year, milk prices were verydepressed, however prices improved during the year withfour step-ups in payments to suppliers. The milk price for the2011 season has opened at a weighted average price of$4.72/kg milk solids – an increase of 25% on the openingprice of the 2010 year.

The Company continued its focus on strengthening supplierrelationships during the year. It has been pleasing to see thereturn of very strong support from suppliers after the difficult2009 year. A Supplier Advisory Forum was established duringthe year, comprising nine suppliers across the WCB supplyregions. Their role is to provide support to the SupplierRelations Committee, as a further and more formal means ofproviding supplier feedback to the Company.

WCB continues to assist suppliers with advice and supporton milk pricing, nutrition, stock health, agronomy and milkquality requirements through its field service team. This teamalso assists to develop and maintain strong relationshipswith suppliers.

The Company launched a supplier website ‘Results Plus’during the year, enabling milk suppliers to access theirproduction and milk quality information online.

The Company hosts many supplier events each year toprovide the latest information to suppliers. This year, throughan initiative of the WCB Field Service Team, the Companyhosted a highly successful factory open day for suppliers, toincrease understanding of factory processes, products, salesand marketing.

WCB suppliers have featured strongly in regional industryawards this year, being recognised for their excellent businessskills and farm management. WCB congratulates supplierWarakirri Dairies and one of their employees who received the‘Employer of the Year’ and ‘Employee of the Year’ Awards atthe Great South West Dairy Awards in April this year. This wasthe first time these awards had been presented together to theone farm and it is a great recognition of the high standard ofemployment conditions and employee dedication. WCB alsocongratulates suppliers J & L Cleggett from Glencoe who wereawarded the regional Westpac Agribusiness and Dairy AustraliaAustralian Dairy Business of the Year.

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Learnings have been shared via the MilkPlus and companynewsletters, field days, workshops and individual farm visits.At the factory level, the project is contributing to a betterunderstanding of milk supply characteristics and modelling ofintake to improve forecasting and production efficiency. Over thepast three years, WCB has shown an average lift in proteincomposition that has delivered benefits to farmers in milk incomeand to the Company through improved factory yields. Theproject is on track and is due to be completed by March 2011.

Milk collection continues to play a crucial role in the supplychain. Milk is collected from farms on a daily basis utilising amodern fleet of single and B double tankers.

Manufacturing, Sales andMarketingManufacturing

The 2010 financial year saw further increases in productionthrough the plant. Milk volumes processed were 5.2% higherthan the 2009 record year. Packaged milk productioncontinued to grow, with volume up by 22.6%, generating moreemployment opportunities. Production of butter blends alsoincreased by 50% this year, with the development of newproducts. Most butter blends were made to order for specificcustomers. Cheese, butter and skim milk production eachincreased by 3% on the previous year. Operating costs were5.5% below last year on a cost per litre of milk basis.

This year, all departments continued their focus on quality,optimising product composition, maximising yields andidentifying areas for reducing loss of milk solids. In the Cheeseplant, enhancements to carton damage detection processeshave helped to maintain WCB’s reputation for delivering wellpresented products.

“The Company has had a great recovery this year andachieved a record in volume of milk processed.”

Richard Wallace, General Manager – Operations.

Supplier Sam McCluggage with local school children on a visit to his dairy.

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Sales

The 2010 financial year saw a total of 99,094 tonnes of coreproducts (excluding consumer goods) sold throughout Australiaand exported to 56 countries as WCB experienced an excellentsales year. To achieve this, WCB expanded into new marketsand laid the strategic foundations for future growth, as well asconsolidating business in some of its traditional markets. Thefocus was also on gaining market share in categories thatattract a higher return, leveraging WCB’s reputation as a qualitysupplier of dairy products and willingness to work withcustomers to understand their requirements.

Markets by region

Australia/New Zealand

WCB’s largest outlet for sales, the Australian/New Zealandmarket, has remained very stable during a period where theexport market has been subject to the volatility of the globaleconomy. Expertise gained through recruitment of new salespersonnel has seen the refocusing of key relationships in thismarket, and a consolidation of the Company’s customer baseto build valuable business opportunities.

The past 12 months has seen a focus on growing the cheesebusiness through expertise developed in the low-fat cheesemarket, where WCB’s products are recognised as the bestavailable.

North Asia

China has been the biggest growth market for WCB in theNorth Asia sector. Market share has been expanded,particularly in nutritional offerings of whey protein concentrate(WPC80) and high-end skim milk powder specifications. TheChinese market is growing in its understanding of dairy nutritionand is becoming more discerning when it comes to quality andcomparing nutritional value between product offerings. WCBhas forged key relationships with nutrition and infant formulacompanies in China who have made the Company’s WPC80an integral part of their formulations.

Taiwan is another market where the Company was able toexpand by developing new business in the milk powder area.WCB once had a good, stable business in Taiwan, however ageneral economic downturn four years ago meant that thevalue in this market retracted. The Company has started to

rebuild its presence in this market, with value returning overthe last 12 months.

Japan and South Korea still remain very important markets forWCB and are the major export markets for cheese. Howeverboth markets were disappointing during the general marketcollapse in the 2009 year and have shown only small signs ofrecovery. Some cheese sales volume has been recovered,especially in South Korea.

South East Asia

This region has once again proven to be a very stable marketproviding opportunities to expand in the high end of thenutrition market. The Sungold milk powder brand remainsstrong in many South East Asian markets and the Companyhas established a good reputation as a consistent supplier ofhigh specification product. WCB has well establishedrelationships with companies requiring high quality milk powderproducts for applications including infant formula, probioticbeverages and yoghurts, and high heat treated products.

Indonesia and Vietnam present new growth opportunities forWCB. While the Company has been exporting to Indonesiafor many years now, the last two years have seen businessexpand in the region as demand for top quality dairyingredients grows. WCB has developed relationships with themain infant formula manufacturers in Indonesia and has beenable to leverage these relationships to expand the Company’spresence as the appetite for consistent quality grows. Vietnam,whilst a fairly well established importer of dairy products, is arelatively new market for WCB. With a record production ofmilk powder in the past 12 months, the Company has beenable to build firm exports to the region.

Singapore and Malaysia have always represented a significantmarket for WCB’s milk powders and these countries have ledthe recovery in commodity markets over the past 18 months.This is where WCB’s strongest relationships amongst buyers ofdairy ingredients are, and this business has provided a strongplatform to the Company’s exports. Thailand also sits alongsidethese markets as an important platform for the export of milkpowders, although the market remains less certain due topolitical instability. This provides for a very tenuous Governmentpolicy on imports of dairy products. While there is very strongdemand for WCB’s products in this market, the difficulty ofgetting access into Thailand means a cautious approach istaken to this market.

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The past financial year has seen the Company’s businessgrow in the Philippines, especially for cheese and WPC80.The focus has been to establish a stable platform for cheeseexports to the Philippines, providing a valuable return forWCB – something that has been difficult in a market like thePhilippines that is very much cost focused. So it is pleasing thatWCB has established a consistent outlet in this market for itsproduct, enabling the portfolio of cheese export markets tobe spread. In a similar vein, an outlet for WPC80 has beenestablished that provides some attractive value.

Middle East/North Africa

The Middle East and North Africa have remained a strongfocus for WCB, providing great growth opportunities. Effortsin the past 12 months focused on innovation work withkey customers in Saudi Arabia and Kuwait. This includedformulation work on milk powders and low fat cheeses.This puts WCB in a good position to build its market sharein this region in the coming years as part of the Company’sstrategy to expand its presence at the value end of theMiddle East market.

This year also saw the development of two new markets. WCBhas been working for quite some time to establish a presencein the lucrative and growing butter market in Iran. It has taken18 months to gain product approval and to achieve productand import registration in what is a very regulated and difficultmarket. However, this strict regulation means it is a closedmarket to many exporters and therefore a premium is paid forthose who can gain access to Iran.

In an effort to expand cheese markets WCB has establishednew business in Morocco selling to a well known andestablished company with a premium brand in this regionand in Europe. It took 12 months of sampling work to gainregistration with this company, but in the first half of 2010 WCBwas rewarded with its first order. This sets up the position forgrowth in coming years.

USA/EU

The USA and EU remain relatively closed markets to importsfrom Australia. However WCB has had significant businessgrowth in both markets in the past 12 months. Australia’s onlydirect access to the EU is through a cheese quota systemwhere, until this year, allocation was based on industrycircumstances from the 1970s. WCB has been pushing foryears for this allocation to be reviewed, to base it on the currentcommercial situation. In 2009 quotas were re-allocated and in2010 WCB’s cheese exports to the EU have grown by over400%. The EU has always been a substantial premium marketfor cheese, and while some of the value has reduced overrecent years, it still holds a premium for good quality cheddar.

In the US, WCB has built its business on the back of theAustralia-US Free Trade Agreement as the quota expands by5% per year. WCB’s focus remains on export of Cheddar to theEast Coast market, where it is marketed on the Great OceanRoad – Premium Australian Cheddar brand. The past financialyear has also seen the Company’s WPC80 business grow asvalue has started to come back into what has been adepressed market for the past 2 years.

Consumer goods

According to Dairy Australia, the total market (grocery and non-grocery) for milk, including UHT, has grown 2.2% in Victoria inthe 2010 financial year. Supermarkets have increased torepresent around 65% of the total Victorian fresh milk market.Non-grocery continued to decline, while coffee shops andsimilar type outlets have been one of the main growth areas ofthe market. The Sungold brand has outperformed most otherbrands within the Victorian fresh milk market. The Sungoldbrand has also entered the Sydney market and has enjoyedsteady growth in the 6 months to June 2010.

The specialty cheese market is also experiencing growthacross the retail sector. WCB has achieved considerablegrowth in this area from a small base.

“The 2010 financial year saw a total of 99,094 tonnes of core products (excluding consumer goods)sold throughout Australia and exported to 56 countries as WCB experienced an excellent sales year.”

John Williams, General Manager – Sales, Marketing & Innovation

Waxed cheddar being processed at the Mil Lel plant.

Production Coordinator Andrew Drake at the Cheddarmaster.

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Operations Review

Packaged Milk (Sungold)

Sungold has experienced significant growth this year insales of all products, particularly the flavoured milk (FM)range. Overall sales increased by 23.4% with the FM rangeincreasing by 191.0%. Fresh Milk sales increased 21.3%.Processing of packaged milk increased this year by 22.6%compared with last year.

The exceptional quality of Sungold products was alsorecognised at the top dairy produce competitions this year,with trophies and gold medals awarded for fresh milk andFM products.

During the year, Sungold began supplying Woolworths witha range of flavoured milks for its Select range. Sungold milkand WCB’s specialty cheeses are now being distributed intonew markets in Sydney. With expansion of milk sales intothe Sydney market, testing is now carried out to ensurethat milk has good stretching properties, as the majorityof Sungold milk going into Sydney is used in cafés forcappuccinos, lattes, etc.

Sungold has continued its strong advertising profile this yearwith wide coverage of print and radio media as well as a newtelevision advertisement for Xtra-Iced Coffee and Chocolatepremium brand flavoured milk. Joint branding of Sungold andWCB on suppliers’ farm gate signs has helped to raise greaterconsumer awareness of the link between the two brands.Loyalty to the Sungold brand in the milk supply area isvery strong.

The award winning Warrnambool retail cheese range isavailable in selected IGA, Foodworks, delicatessens andother independent specialty outlets.

Great Ocean Ingredients

WCB entered into a joint venture with Royal FrieslandCampinain 2007, resulting in the formation of a new company calledGreat Ocean Ingredients Pty Ltd. Royal FrieslandCampina isone of the five largest dairy companies in the world and hasits origins in The Netherlands.

The joint venture was formed to construct a new $75 millionplant at WCB’s Allansford site to produce functional ingredientsfor the global market. Construction of the plant was completedin 2009. The new plant produces Vivinal GOS, which is agalacto-oligosaccharide product used as a functional ingredientin infant formula, UHT milk, yoghurts, desserts and beverages.

Over the past year, the plant has passed all auditingrequirements by international customers. Production processeshave been improved and fine-tuned and production has nowramped up to full output. The Vivinal GOS produced at GreatOcean Ingredients in Allansford has been tested and approvedby all customers and is now sold worldwide to leading infantnutrition and dairy companies.

Retail cheese

Bulk cheddar produced at the Allansford plant is used to createWCB’s award winning specialty cheese range at the Mil Lelplant near Mt. Gambier in South Australia. Vintage and maturedcheddars are packaged here for the retail market along with arange of flavoured cheddars. The popular red and black waxedvintage and matured cheddars are also produced at Mil Lel.

Vivinal GOS product. Photo courtesy of FrieslandCampina Domo®.

Warrnambool Cheese and Butter Japan KK

The Warrnambool Cheese and Butter Japan KK joint venturecompany (WCBJ KK) was formed in late 2008 and has nowcompleted its second year of operations. This company wasformed to facilitate and enhance the sales, marketing andpromotion of WCB’s dairy products into the Japanese market.

WCBJ KK is owned by WCB and Mori InternationalCorporation. Mr Yoshi Mori is a principal shareholder ofMori International Corporation. Prior to the formation of theWCBJ KK he acted as WCB’s representative in Japan andwas responsible for providing sales, marketing, promotion andrelated services for the sale of WCB products into Japan.

During the year WCBJ KK was successful in attracting anumber of new customers and increasing market share.Sales of WCB’s cheese, whey protein concentrate and otherproducts have increased significantly and now represent around20% of total sales amounting to approximately ¥6 billion.

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AwardsWCB performed exceptionally well in major national andstate industry produce awards this year, providing strongendorsement of the outstanding quality of its cheese andfresh milk products. Placing gold and silver medals onproduct labels helps build the image of WCB’s retail brandsand allows consumers to identify the best quality dairyproduce for the year. These awards also greatly assist inthe marketing of WCB’s cheese in markets such as the US,UK and Asia.

At the Dairy Industry Association of Australia’s (DIAA) DairyProduct Competitions, WCB’s national awards included thecoveted Chr Hansen Cup and Trophy which recognise thehighest scoring cheddar cheese and the Tetra PakPerpetual Trophy for the highest aggregate score forcheddar cheese. The Company’s Pepper & Garlic 150gmcheese was named the best flavoured cheese in Victoriaand its cheddar collected the Kraft Perpetual Shield andTrophy for highest scoring cheddar cheese in Victoria andthe J Sharkey Memorial Trophy for best Vintage cheddar.Cheese was not the only winner on the night with the fullrange of WCB products being recognised. Sungold FMStrawberry received the highest honour possible for aflavoured milk winning the SAI Global Award. TheCompany’s white milk brand Sungold Fresh Milk was alsoacknowledged as the best in Victoria taking out the DIAAVictoria Milk award.

Earlier in the financial year, WCB collected gold medals forits Classic Cheddar and Garlic & Pepper flavoured cheddarat the South Australian Dairy Awards. A gold medal wasalso awarded for the black waxed Vintage Cheddar at theMelbourne Specialist Cheese Show Awards in August 2009.

Left to right: WCB staff Paul Pino, Anthony Best, Daryl Perry, Chris Malamidis, Jamie Harry, John Williams, Richard Wallace andAndrew Drake proudly showing some of the DIAA awards won this year. Photo courtesy of Australian Dairy Foods Magazine.

Some of WCB’s award winning cheeses.

“The Sungold brand has outperformed most other brands within the Victorian fresh milk market.”Bill Slater, General Manager – Retail Dairy

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Operations Review

WCB is an integral part of the communities of South WestVictoria and South East South Australia. WCB is one of thelargest employers in South West Victoria, with around400 (full-time equivalent) employees across all sites. TheCompany also has hundreds of supplier farms across theregion and is integral to the area’s economy. WCBappreciates its loyal workforce and suppliers, the strongcommunity support of the Company and loyalty to itsSungold brand.

Sungold supports a very wide range of community groups,charities, sporting clubs and agricultural shows each year.The Company is particularly keen to assist young people’sinvolvement in sport as a way of further encouraginghealthy lifestyles in the region. A few examples of the manysporting clubs assisted in 2010 include the Warrnambool &District Football Umpires Association, Warrnambool andDistrict Cricket Association, Colac Sungold Junior CricketAssociation, Port Fairy Cricket Club, Ballarat Red DevilsSoccer Club and the Western Border Football League (SA).

Warrnambool Cheese and Butter in the community

“Sungold Milk’s sponsorship over many years hasassisted us to develop and retain our new juniormembers so that they can be encouraged tobecome involved in the community and developinto proud young adults.”Arno Pennings, President Warrnambooland District Football Umpires Association Inc.

This year Sungold also sponsored an activity at the highlysuccessful Fun4Kids festival held in Warrnambool, givingSungold great brand exposure. Involvement in these eventsstrengthens brand awareness across the region as well ascontributing significantly to the local economy.

The Company also continued its scholarship at theWarrnambool campus of Deakin University in Business,in order to foster new talent in the region. This year thebusiness scholarship was won by a very high performingstudent who also works part time at the Allansford plant.WCB also continued the Adrian Meade scholarships fortalented Agribusiness students at Melbourne Universitythis year.

WCB’s employees are regularly involved in communityfundraising and awareness-raising events. Many employeeshave an ongoing involvement in Relay for Life, with theWCB team raising a significant amount this year forimportant cancer research. Staff in the Cheese plant alsotook part in Zaidee’s Rainbow Hairnet Day, donning specialcoloured hairnets to raise money and promote awarenessof organ and tissue donation.

Sungold has a large number of high profile sportingsponsorships including the Sungold Twenty20 CricketCompetition, the Sungold Milk Stadium, the Warrnambool,Terang and Camperdown Races, among many others.

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Human ResourcesWCB recognises that engaged, capable employees alignedwith the Company’s values are crucial to its success. TheCompany continues to strive to be a ‘Great Place to Work’,focusing on the attraction, motivation, development andretention of employees. WCB draws upon the local communityfor the majority of its labour requirements and is fortunate tohave a very hard-working and committed workforce. Theannual turnover of employees continues to remain at low levels,providing the Company with both a stable workforce and lowturnover costs.

Each year, presentation ceremonies are held to recognise thevalued contributions of the Company’s loyal and long-servingemployees. Service awards are presented to staff at 10, 15, 20and 25 years of service.

WCB has continued to invest in leadership through its‘Leadership at Work’ program, which allows employees toapply new knowledge directly into the workplace and assistswith succession planning objectives. WCB provided a numberof employees with project secondments and new roles,consistent with the goal of developing new talent and exploringways to maximise resources during a year of consolidation forthe Company.

As part of its core values of honesty and integrity, WCBremained focused on open and regular staff communicationsthis year. WCB holds regular employee communicationssessions to keep staff up-to-date with Company informationand new developments. Staff also receive a regular newsletter‘The Milky Whey’ and regular correspondence frommanagement. WCB continued its upgrade of the intranet sitethis year to assist in improving internal communication andefficient access to company information.

Through the ‘People’s Ideas Producing Excellence’ project, staffhave generated a range of innovative ideas to improveproductivity, some of which were successfully implemented thisyear. This project aims to promote a culture of innovation acrossall departments of WCB, consistent with our Company values.

The Company remains firmly committed to providing equalemployment opportunities and the ongoing development of aproactive safety culture across all sites.

Environment and SustainabilityWCB’s commitment to environmentally sustainable practicescontinued throughout the year with investment in energy andwater saving initiatives.

Cleaning Chemical & Water Reduction Project

The Cleaning Chemical and Water Reduction Project is a majorsite project, partially funded by Sustainability Victoria. The plantwas installed over a twelve month period and is now fullycommissioned. Cleaning chemicals previously disposed ofafter a single use are now collected through a central system,cleaned through nanofiltration and reused. Data collected todate indicates that the project is realising savings in water,chemicals and energy at least equal to or above expectations.

These expectations were to:

• save an estimated 50 ML of water per year from thedomestic water supply system

• save an estimated 50 ML of wastewater per year

• reduce the salt load in WCB’s trade waste stream byapprox 500 t per year

• reduce usage of process cleaning chemicals by 50%

• reduce greenhouse gas emissions by 428 tCO2e(tonnes of carbon dioxide equivalent).

Sustainability Activities

Water, energy and waste assessments continued throughoutthe year. A number of new initiatives were implementedresulting in resource and financial savings.

Energy

Ongoing maintenance of the central compressed air plantresulted in a further reduction in emissions of 1148 tCO2e.Integrating the central compressed air system with other plantshas reduced emissions by another 22 tCO2e. Biogas producedduring the wastewater treatment process continued to beutilised, saving natural gas and reducing emissions by 1490tCO2e. More lighting control systems were installed, furtherdecreasing electricity requirements and reducing emissions.

Water

A mains water replacement strategy has resulted in:

• An extra 9.3 ML of condensate being utilised

• A further 11.7 ML of membrane water being utilised

• A further 189.7 ML of condensate and membrane watergenerated and utilised by GOI

This has reduced mains water consumption by 3%. Site waterreuse contributes to 41% of site water consumption. Furtherwater saving initiatives introduced during the year are predictedto save another 5 ML/year.

Recycling

A further 69 tonnes of solid wastes were diverted from landfillfor recycling during the year, an increase of 54% on last year.

WCB continued to help farmers partly offset farm fertiliserrequirements by using 33 ML of organic sludge on pastures.

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BillSlater

RichardWallace

JohnWilliams

WilliamHannah

DavidLord

AnthonyCook

JohnFrankcom

BernardKavanagh

David LordManaging Director and Chief Executive OfficerGrad. Dip. Bus. (Mgt.) (Monash), MBA (Mt Eliza), MAICD

Mr Lord has spent 30 years in the fast moving consumergoods sector of the food industry in various sales, marketing,operational and general management roles. He spent 14 yearsat Parmalat Australia Ltd, holding the position of CEO andManaging Director for 8 years.

Anthony CookGeneral Manager – Milk SupplyB.Bus, CA

Mr Cook’s responsibilities include milk supply and trading andfield services. He joined the Company in 2000 after 12 yearsexperience in various finance and advisory roles. Mr Cookheld several senior finance positions after gaining experiencedomestically and internationally in audit and corporate advisoryroles with a focus on the manufacturing sector.

John FrankcomCompany SecretaryB Juris., LLB, Grad. Dip. App. Corp. Gov., FCIS, LIVAccredited Specialist – Business Law (2000)

Mr Frankcom is the Company Secretary and in house legalcounsel. He advises the Company and the Board in corporategovernance practices, and is responsible for statutory, ASXand company compliance issues. He has more than 30 yearsexperience as a barrister and solicitor and has been anemployee since 2001.

William HannahChief Financial OfficerB Com, MBA, FCPA, FCIS, MAICD

Mr Hannah is responsible for the provision of business financialleadership, and direction of the financial and informationtechnology functions. He has been an employee since 1998.Mr Hannah has over 40 years of experience in senior financial,secretarial and commercial management positions in a numberof ASX-listed companies.

Bernard KavanaghGeneral Manager – Corporate DevelopmentB Com, FAICD, AFAIM, FCIS

Mr Kavanagh is responsible for strategic planning, corporatedevelopment and for pursuing profitable growth opportunities.He commenced employment in 1978 and has since held anumber of senior management positions in finance, accounting,investor relations and growth.

Bill SlaterGeneral Manager – Retail Dairy

Mr Slater is responsible for management of sales, marketingand distribution of the Company’s retail dairy products in theAustralian domestic market. He joined WCB in 2002 havinggained 28 years experience in both domestic and internationalretail management. He has held several key managementpositions in enterprises involved in the sales and distribution ofretail branded products. Mr Slater has served as vice presidentof the Milk Processors Association of Victoria for seven yearsuntil it was dissolved in December 2009.

Richard WallaceGeneral Manager – OperationsDip Dairy Technology, MBA

Mr Wallace’s areas of responsibility include the management ofthe Company’s production facilities and milk transport services.He joined the Company in 1996 and has 21 years experiencein the dairy industry holding a number of key managementpositions within manufacturing.

John WilliamsGeneral Manager – Sales, Marketing & InnovationBA (Asian Studies), Grad Dip International Business, FAICD

Mr Williams is responsible for the sales, marketing anddistribution of the Company’s bulk dairy products bothinternationally and domestically. He also oversees theCompany's research and development program. He hasbeen an employee since 2000. Mr Williams has taken aleadership role in the Australian dairy industry; he is currentlythe President of the Australian Dairy Products Federation andsits on the Australian Dairy Industry Council.

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The Board is responsible for the governance of the Company,and oversees its operations and financial performance. It setsstrategic direction, determines the appropriate risk profile andmanagement systems, and monitors compliance in terms ofthe regulatory regime. Governance is of vital importance to theCompany and is discussed in this section.

Summary

The ASX has produced governance principles and guidelinesfor adoption by listed entities on an “if not, why not” basis. Byway of summary, the recommendations and their complianceor otherwise by the Company are stated in the table below.

No. Principle/Recommendation WCB Response

1 Principle 1: Lay solid foundations for management and oversight

1.1 Formalise and disclose the functions reserved to the board and those WCB has established charters for thedelegated to management. Board and its committees as well as

policies detailing executive responsibilities.

1.2 Companies should disclose the process for evaluating the performance Done in the remuneration report in thisof senior executives. document.

1.3 Companies should provide the information indicated in the Guide to Done in this report.reporting on Principle 1.

2 Principle 2: Structure the board to add value

2.1 A majority of the board should be independent directors. The constitution requires four directorsto be suppliers and thus independentdirectors are not in the majority.

2.2 The chairperson should be an independent director. Complies

2.3 The same individual should not exercise the roles of chairperson Compliesand chief executive officer.

2.4 The board should establish a nomination committee. Complies

2.5 Companies should disclose the process for evaluating the Complies, see this report.performance of the board, its committees and individual directors.

2.6 Provide the information indicated in Guide to reporting on Principle 2. Complies

3 Principle 3: Promote ethical and responsible decision making

3.1 Companies should establish a code of conduct and disclose the code Complies, see this report.or a summary of the code as to:a. the practices necessary to maintain confidence in the

company’s integrity;b. the practices necessary to take into account their legal obligations

and the reasonable expectations of their stakeholders; andc. the responsibilities and accountabilities of individuals for reporting

and investigating reports of unethical practices.

3.2 Disclose the policy concerning trading in company securities by Complies, see this report.directors, officers and employees.

3.3 Provide the information indicated in Guide to reporting on Principle 3. Complies, see this report.

4. Principle 4: Safeguard integrity in financial reporting

4.1 The board should establish an audit committee. Complies, see this report.

4.2 Structure the audit committee so that it consists of: Complies, see this report.• only non executive directors• a majority of independent directors• an independent chairperson, who is not chairperson of the board• at least three members.

4.3 The audit committee should have a formal charter. Complies, see this report.


5. Principle 5: Make timely and balanced disclosure

5.1 Establish written policies and procedures designed to ensure Complies, see this report.compliance with ASX Listing Rule disclosure requirements and to ensureaccountability at a senior management level for that compliance.


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Board Constitution

A new constitution was adopted at the February 2004 generalmeeting of the Company to enable the listing of the Company.This constitution provides for nine directors with a minimumfour supplier directors. The Board as at 30 June 2010consisted of nine directors and two associate directors. Thenine directors comprise four supplier directors (MessrsAnderson, Drake, Richardson and Vallance), four non-supplierdirectors (Messrs Bourke, Carroll, Davis and Morley) and oneexecutive director (Managing Director and Chief ExecutiveOfficer Mr Lord). The Associate Directors are Mr McLean andMr Reichelt. Further details of the directors are stated on pages30 and 31.

The Board, after adopting legal advice from the Companysolicitors, determined that the “supplier directors” – eventhough the milk supply contracts with Supplier Directors are onidentical terms as other suppliers and are not negotiatedindividually with those directors – could not be regarded as“independent” within the meaning of the ASX GovernanceCouncil Guidelines (Guidelines) having regard to their personaland material interest in milk supply contracts with theCompany.

Thus, the Board does not consist of a majority of“independent” members, as recommended by the Guidelines.The number of supplier directors on the Board has been as aresult of the culture of the Company that has been prevalentover the last century and a reflection of the shareholding in theCompany over many generations and decades. Subject to theminimum number of supplier directors required by theconstitution, shareholders will determine the proportion of andappointment of directors.

Board Structure

The Board has adopted formal written charters detailing theroles and responsibilities of the Board, Chairman and CEO toensure these roles are clearly defined and separated. This alsoenables an efficient process of Board evaluation. Differentindividuals exercise the role of Chairman and CEO. The BoardChairman, Mr Davis, is one of the directors defined by theBoard to be “independent”. Both he and the CEO Mr Lordmeet on a regular basis to discuss company issues.

The Chairman is responsible for the setting of the Boardmeeting agenda. The Board and Committee charters aresubject to regular review to ensure they are appropriate in thecurrent circumstances. The non-executive members of theBoard meet on a regular basis without a managementpresence.

No. Principle/Recommendation WCB Response

6 Principle 6: Respect the rights of shareholders

6.1 Design and disclose a communications strategy to promote effective Complies, see this report.communication with shareholders and encourage effective participationat general meetings.


7. Principle 7: Recognise and manage risk

7.1 The board or appropriate board committee should establish policies on Complies, see this report.material risk oversight and management.

7.2 The board should require management to design and implement the Complies, see this report.risk management and internal control system to manage the company’smaterial business risks and to report to it on whether those risks arebeing effectively managed. The board should disclose that managementhas reported to it as to the effectiveness of the company’s managementof its material risks.

7.3 The board should disclose whether it has received assurance from the Complies, see this report.chief executive officer and the chief financial officer that the declarationprovided in accordance with Section 295A of the Corporations Act isfounded on a sound system of risk management and internal controlwhich implements the policies adopted by the board and that thesystem is operating effectively in all material respects in relation tofinancial reporting risks.


8. Principle 8: Remunerate fairly and responsibly

8.1 The board should establish a remuneration committee. Complies, see this report.

8.2 Companies should clearly distinguish the structure of non executive Complies, see this report.directors’ remuneration from that of executive directors andsenior executives.



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Board Committees

The directors seek to achieve best practice in corporategovernance through the establishment of board committeeswhose function it is to assist the Board carry out its duties inspecific areas. In this respect the Audit & Risk, Nominations &Remuneration, Milk Pricing Review, Supplier Relations andIndustry Issues Committees assist the Board in meeting itsstatutory and stakeholder commitments and obligations.All committees report to the Board on a regular basis.

Audit & Risk Committee

An Audit committee was established in 1995 and becamethe Audit & Risk Committee in May 2009. Its charter is toreview the appropriateness of the Company accountingsystems, procedures and controls, ensure there is regulatoryand statutory compliance, risk management and review of theaudit function. The committee meets regularly and makesappropriate recommendations to the Board as required.The present committee members are Messrs Morley,Anderson, Bourke and Carroll.

A majority of members are within the adopted definition of‘independent’ and are non-executive members of the Board.Mr Morley chairs the committee with members shown above.Mr Morley has had extensive commercial, financial andaccounting experience and holds formal accountingqualifications and has previously held senior accounting andfinance positions. Other members of the committee haveextensive commercial, finance, banking and accountingexperience as set out in their profiles. The Company’s auditorsCoffey Hunt participate in the committee meetings on invitation.The auditors periodically meet with the committee withoutmanagement being present.

Nominations & Remuneration Committee

The purpose and the charter of this committee is to makerecommendations as to the appointment and retirement ofsenior executives, non-executive and executive directors,board remuneration matters, general personnel issues such assuccession planning, salary packages and to evaluate andmonitor the Board’s performance. The current members areMessrs Davis (Chair), Bourke and Richardson. Having regardto the adopted definition of ‘independent’, a majority of thecommittee are independent.

Supplier Relations Committee

The purpose of this committee is to ensure the Companyeffectively manages its relationships with milk suppliers. Thecommittee liaises with and provides an effective communicationchannel between the Company and its milk suppliers byorganising functions, events, surveys and to arrange for variouscommunications in a timely manner. Its current members areMessrs Richardson (Chairman) with Drake, Reichelt, McLeanand Vallance as members.

Milk Pricing Review Committee

This committee was established in 2000. The original purposeof this committee was to recommend the milk price to be paidto suppliers and to determine whether changes are required topayment systems and incentives. In July 2010 the role of thecommittee was revised to advise on strategic milk pricingissues, milk pricing policies and structures. The Board isresponsible for setting the milk price to be paid to suppliers.The current committee consists of Messrs Richardson (Chair),Anderson, Bourke, Carroll, Morley, McLean and Vallance. TheBoard discussed and resolved to accept there was noimpediment to supplier directors being members of thecommittee as their milk supply arrangements are notnegotiated individually and the terms are identical with othersuppliers to the Company.

Industry Issues Committee

The committee was established in October 2009. Its membersconsist of Mr Drake (Chair) with Messrs Carroll and Reichelt asmembers. It has the responsibilities of recommending to theBoard where WCB should seek representation, or shouldsupport representation by other entities or individuals, to makerecommendations to the Board regarding the Company'sposition in relation to industry policy initiatives and to ensurethat relevant issues are communicated to WCB management,suppliers, employees, shareholders, customers and thecommunity as appropriate.

Board and Management Performance

The performance of the Board, directors and seniormanagement is reviewed on a regular basis. The Board,through its Nominations & Remuneration Committee, hasimplemented a system of board and director assessmentwhich presently is by a process of self evaluation. The resultingfeedback and consideration of the assessment by the Boardhas led to a review of Board committees, proposals for thefuture composition of the Board and further director education.Senior management’s performance is formally reviewed on anannual basis by the CEO as part of an annual performance andremuneration review process. The performance of the CEO is inturn, reviewed by the Chairman and by the Board in a non-executive session.

Director and Executive Remuneration

The remuneration of the directors and management as requiredby the Corporations Act, Corporations Regulations is stated inthe Directors Statutory Report section of this report.

Recognition of the Legitimate Interests of Stakeholders

Throughout its history, the Company has recognised that inaddition to its shareholders – milk suppliers, employees,customers and the wider local community are legitimatestakeholders in the Company business. This has beenrecognised in recent years by the establishment of Supplierand Employee share plans, the creation of the SupplierAdvisory Forum and by significant donations to communityprojects and clubs. Formal recognition of these interests iscontained in the Company Statement of Vision and Goals.

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Rights of Shareholders

The Board has a communications strategy and proceduresto promote communications with shareholders to assist theexercise of their rights and to assist them in making informeddecisions in relation to their shareholding. The CEO isresponsible for investor relations matters and for theimplementation of the communications strategy. The process isassisted by a website to improve shareholder communicationand to make public various corporate governance documentsand company publications in an electronic format. Shareholdercommunications are also enhanced by conducting periodicalshareholder briefing sessions and the presence of the auditorsat the Annual General Meeting with the Chairman’sannouncement that the auditors are present and availableto answer questions regarding the conduct of their audit.

Financial Reporting

The Board, through its Audit & Risk Committee, hasimplemented steps to assist in the verification and safeguardingof the integrity of the Company financial reporting system.The Chief Executive Officer and Chief Financial Officer verifythe accuracy, correctness and compliance with accountingstandards and statutory regulation of the accounts. Thecomposition and processes of the Audit & Risk Committeehave been structured and established in accordance with theASX Guidelines further enhancing the integrity of the financialreporting process.

Market Disclosure

The Company has been a disclosing entity since January 2000.Prior to listing on the ASX, the Company had a continuousdisclosure obligation pursuant to an undertaking given to ASICas part of the capital raising in January 2000. The CorporationsAct now imposes continuous and periodic disclosureobligations to the ASX as well as its statutory obligations ofdisclosure. To enable the Company to comply with itsdisclosure obligations it has adopted a Compliance Policy andassociated procedures. In brief terms, the policy provides for aprocess of notification of matters that may be required to bedisclosed to the market.

The Company Secretary is the appointed Compliance Officer.The Company Secretary is also responsible for the disclosureto the ASX, as well as disclosure pursuant to the statutoryobligations. The Company Secretary regularly reports to theBoard and the Audit & Risk Committee as to the performanceof those obligations. There have been no departures from thepolicy. The announcements made to the ASX to date areavailable on both the ASX and the Company websites.

Risk Management

The Company, through the Audit & Risk Committee is revisingthe system of risk oversight and management. Over the lastfour years, the Company has undergone risk surveysconducted by the auditors, insurance underwriters, riskconsultants and its insurance brokers. As a result of thosesurveys, the Company has implemented an Internal RiskReview program that is addressing the risks identified by thosesurveys. Those surveys and the responses have covered boththe physical and non-physical risks such as financial risks. Riskassessments have continued on an ongoing basis resulting infurther modifications to the Company’s processes andstructure. In November 2009 the risk register was revised withthe assistance of a specialist risk management consultant.The revised register is now being integrated into the revisedcompany strategy.

Ethical Decision Making

The Board has taken steps to promote ethical and responsibledecision making within the Company. As regards directors,the Board has adopted a Code of Conduct recommended bythe Australian Institute of Company Directors. That Code isspecifically formulated for directors and aims to contribute tothe development of a culture of accountability and investorconfidence in the Board. The Code supplements the legal andstatutory obligations to which directors are already subjectedto by reason of their position. The Board has also implementeda general Code of Conduct for employees. The Code coverssuch topics as conflicts of interest, fair dealing of fellowemployees, suppliers and customers, the protection ofcompany assets and opportunities and the encouragementof the reporting of unlawful or unethical behaviours. Tocomplement the codes, the Company has adopted awhistleblower policy and anti-fraud policy. To date, there hasnot been any report made to the Company solicitors pursuantto the whistleblower policy. The Company has also adopted ashare trading policy that regulates shares trading by directors,senior management and specified employees who have dayto day access to the Company’s financial position.

The policy only allows limited share trading periods after majormarket announcements such as the release of financial resultsand the annual general meeting. The Board, Chairman andCompany Secretary monitor the policy. The statutory provisionscontained in the Corporations Act ‘insider trading’ provisionssupplement the policy.

Company Secretary

The Company Secretary is Mr John Frankcom who hasheld that position for nine years. He is a qualified member ofChartered Secretaries Australia and the holder of a number oflaw and postgraduate degrees. Prior to his appointment asCompany Secretary he had more than 20 years experienceas a barrister and solicitor, specialising in general commerciallaw matters.


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Statutory ReportYour Directors submit their report of Warrnambool Cheeseand Butter Factory Company Holdings Limited and theentities it controlled at the end of and during the year ended30 June 2010.

Principal Activities

The principal activities of the holding Company and groupduring the course of the financial year were the manufacture,processing and sale of cheese, milk powder, butter, cream,whey protein concentrate, bulk and processed milk, retailoperations and joint venture operations. There were nosignificant changes in those activities in the current year.

Results

The net profit after tax attributable to members ofWarrnambool Cheese and Butter Factory Company HoldingsLimited is $8.80 million.

Directors’ Benefits

No director of the Company, since the end of the previousfinancial year, has received or become entitled to receive abenefit of a contract made by the Company with the directoror with a firm of which he is a member, or with a Company inwhich he has a substantial interest other than:

(i) an amount paid or receivable as remuneration for acting inthe capacity of director as contained in the RemunerationReport of this report;

(ii) an amount paid or payable as a result of a contract tosupply milk and associated dealings on terms identicalto other non director milk suppliers;

(iii) an amount paid or payable in accordance with Article59.6 of the Company's constitution for reimbursementof out of pocket expenses incurred in carrying outCompany business.

(iv) A related party of the former CEO Mr John F McLeanreceived payment of $21,212 for accommodation andfood services provided in 2010.

Significant Changes in State of Affairs of the Group

In the Directors’ opinion, there were no significant changes tothe state of affairs of the Company or any of its subsidiariesduring the financial year not otherwise disclosed in this report.

Events Subsequent to Balance Date

On 3 August 2010 the Company and National Foods Ltdentered into a 5 year cheese supply agreement and tollmanufacturing agreement. Both agreements may beextended for a further 5 years by agreement.

Review of Operations, Financial Position, BusinessStrategies and Prospects

Information regarding the Company’s business operations iscontained in the Chief Executive Officer’s Report and OperationsReview. The Company’s business strategies are focused ongrowth through organic opportunities, added-value initiativesand appropriate acquisitions and alliances. These strategiesare periodically reviewed.

Future Developments and Results

The Company and its subsidiaries will continue to pursue itsvision to be Australia’s leading milk processing Company.There is a continuing general industry trend towardsglobalisation and rationalisation in the Australian dairy industry.The Company is positioned to take advantage of opportunitiesarising from this process.

The Company will continue to develop its business strategies.Any further details under this heading would in the Directors’opinion cause unreasonable prejudice to the interests ofthe Company.

Environmental Performance

The Company continues to comply with all currentenvironmental legislation and has continued to improve itsenvironmental performance throughout the year. The CleaningChemical and Water Reduction Project, funded partially bySustainability Victoria was installed over a twelve month periodand was recently fully commissioned. Cleaning chemicalspreviously disposed to the drainage system after a single useare now collected through a central system, then cleanedthrough nanofiltration and re-used. Data collected to dateindicates that the project is realising savings in water, chemicalsand energy. The effluent plant has continued to generatebiogas for hot water for cheese production and provide effluentfor use as fertiliser by milk suppliers (approximately 33 millionlitres this year). The Company participates in the EnergyEfficiency Opportunity, Environmental Resource and EfficiencyProgram and National Greenhouse and Energy Reportingprograms with details of the programs detailed in the nextparagraph. Comments on our environmental performanceare also included in the Operations Review report.

Environmental Regulation

The Company is subject to considerable environmentalregulation as part of its food manufacturing operations. Itsactivities are licensed by the Environmental Protection Agency(EPA) to enable the Company to dispose of wastes and odoursto the air from manufacturing to the environment, and thedischarge of wastes from the manufacturing process to theenvironment. The discharge of waste water to the sewersystem is with the approval of Wannon Water. The EPAlicence requires the Company to submit an EnvironmentalImprovement Plan, which it has done, and monitor and reportto the EPA on an annual basis the results of periodic samplingof air, any complaints from the local community, various gasemissions and reviews of the Environmental Improvement Plan.

The Company is also subject to the reporting requirementsof the Energy Efficiency Opportunities Act (Cth) 2006, theNational Greenhouse and Energy Reporting Act (Cth) 2007 andthe Environment and Resource Efficiency Plans Regulationsunder the Environment Protection Act (Vic) 1970.

The Energy Efficiency Opportunities Act requires theCompany to assess its energy usage, including the identification,investigation and evaluation of energy saving opportunities and toreport publicly on the assessments undertaken; including whataction the Company intends to take as a result. The Companyhas registered under the Act with the Department of Resources,Energy and Tourism as a participant entity and reported itsresults which are available on the Company’s website.

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The National Greenhouse and Energy Reporting Act requiresthe Company to report its annual greenhouse gas emissionsand energy use. The first measurement period was from 1 July2008 until 30 June 2009. The Company has implementedsystems and processes for the collection and calculation ofthe data required and was able to prepare and submit itsinitial report to the Greenhouse and Energy Data Officer by31 October 2009.

The Environment Protection Act requires the Company toregister and prepare a plan of actions to achieve relevant energy,water and waste efficiency gains, including an indication ofwhich actions have a payback period of 3 years or less, whichare required to be implemented, and those actions whichhave a payback period exceeding 3 years, which need not beimplemented. The Company has registered, prepared a planand is currently undertaking assessments according to the plan.

The EPA served upon the Company a ‘Clean Up Notice’in March 2010 which requires the Company to audit anyenvironmental damage caused by the onsite disposal ofcheese whey into an aquifer by a third party between 1935 and1991 and, if necessary, prepare a clean-up plan. Initial testingto date indicates that there has been no adverse effect to thedownstream geological structure and only a localised build upof low levels of methane gas which has been restricted to theinjection site. There has been an apparent increase in thenitrogen levels found in the downstream aquifer but the effectsof such an increase are not yet known. The Company is due tolodge a report with the EPA early in 2011. In the event itbecomes necessary to undertake any remedial works theCompany has a statutory right of contribution from thethird party.

Dividends Paid

There was no final dividend payment for the financial yearending 30 June 2009. On 26 March 2010 a fully frankedinterim dividend, of 2.0 cents per share amounting to$0.8 million was paid on shares.

Dividends Declared

The Board has declared a final fully franked dividend of10.0 cents per share amounting to $3.2 million payableon 1 October 2010.

Options

At the date of this report the Company has not issued anyoptions over unissued shares or interests to any person.There are no unissued shares or interests in the Company.

Directors’ Shareholdings

The particulars of shares held solely in the name of eachdirector as shown on the Register of Directors’ Shareholdingsand the particulars of shares in which the directors had arelevant interest at the date of this report are shown inthis report.

Indemnification/Insurance of Officers or Auditors

Details of this matter are shown in the Remuneration Reportincluding director and executives disclosures.

Proceedings on Behalf of the Company

No person has applied to the Court under Section 237 of theCorporations Act 2001 for leave to issue proceedings on behalfof the Company or to intervene in any proceedings to whichthe Company is a party, for the purpose of taking responsibilityon behalf of the Company for all or part of those proceedings.No proceedings have been brought or intervened in on behalfof the Company with leave of the court under Section 237 ofthe Corporations Act.

Company Secretary

The qualifications and experience of the Company Secretaryare shown in the Corporate Governance Report.

Auditor

Coffey Hunt continues in office in accordance with Section 327of the Corporations Act. In the course of the financial year theauditors undertook non-audit work as detailed on page 29.There are no company officers within the meaning of theCorporations Act who are former auditors. There have been nodeclarations made by ASIC pursuant to Section 342A of theCorporations Act regarding the modification of auditor rotation.

Auditors Independence Declaration

The Company received from its auditors a declaration, a copyof which is reproduced on page 32.

Remuneration ReportThe information included in this remuneration report has beenaudited as required by section 308(3C) of the CorporationsAct 2001.

Role of the Nominations & Remuneration Committee

• To determine and review remuneration arrangements forthe directors, CEO and senior executives, with due regardto independence, appropriateness and performance.

• To provide assurance to shareholders that the Company’sstrategies and decisions relating to the remuneration areformulated and implemented with the overall objective ofensuring maximum stakeholder benefit from the retentionof a high performing board and executive team.

• To make recommendations to the Board, on director feesand committee allowances; CEO remuneration; and theassessment of the appropriateness of the nature andamount of remuneration of executives, on a periodic basisby reference to relevant market conditions.

Further details of the committee functions, role, membershipand meetings are set out in the Corporate Governance sectionof this Annual Report.


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Principles Used to Determine the Nature and Amountof Remuneration

The objective of the Group’s executive reward frameworkis to ensure reward for performance is competitive andappropriate for the results delivered. The framework alignsexecutive reward with achievement of strategic objectives andthe creation of value for stakeholders, and conforms to marketpractice for delivery of reward. The Board ensures, throughthe Nominations & Remuneration Committee, that executivereward satisfies the following key criteria for good rewardgovernance practices:

• alignment to performance• competitiveness and reasonableness• acceptability to stakeholders.

In consultation with external consultants, the Group hasstructured an executive remuneration framework that ismarket competitive and complementary to the rewardstrategy of the organisation.

Alignment to stakeholder interests:

• has profit as core component• focuses on sustained growth and delivering constant

return on assets• attracts and retains high calibre executives.

Alignment to executive interests:

• rewards capability and experience• reflects competitive reward for contribution to growth

and profits• provides clear structure for earning rewards• provides recognition for contribution.

The framework provides a mix of fixed and variable pay and ablend of short-term and long-term incentives as detailed belowin CEO and Other Key Management personnel remuneration.

Non-Executive Director Remuneration for the periodending 30 June 2010

Remuneration for the non-executive directors was last fixed bymembers at the 2004 Annual General Meeting held in October2004. In accordance with the requirements of the Companyconstitution, the meeting fixed the total remuneration at$580,000. This amount is inclusive of any committee fees andstatutory superannuation. As indicated in the table below thetotal amount was subsequently allocated by directors as follows:

Chairman – $132,000Non-supplier Directors – $66,000Supplier Directors – $42,000Committee fees – $4,800 per committee with a maximumallowance of 2 committees.

Non-Executive Director remuneration consists of 3 elements:

• Director fees• Committee allowances• Superannuation

There are no shares, share options, unissued shares, interestsor rights in shares or termination benefits as part of theremuneration package.

The total amount of director fees and committee allowancesare determined by shareholders at the Annual General Meetingas and when recommended by the Board. The Nominations& Remuneration Committee provides recommendations asrequired to the Board for this purpose.

External remuneration advisors are consulted from time to time,to assist the Nominations & Remuneration Committee and theBoard in recommending director fees and committee allowancesthat are consistent and appropriate with market practice.

The recommended levels approved by the meeting were basedupon comparative levels paid by comparable listed companies,the consideration of market surveys by various remunerationadvisers and experts in the Board and Company directorremuneration area, and having regard to the increasingresponsibilities and workload undertaken by directors.

Details of Non-Executive Director Remuneration for the period ending 30 June 2010

Short-Term Employee Benefits Post-Employment Benefits

Cash Salary Short-Term Non-Monetary2010 and Fees Incentives Benefits Superannuation TOTAL

Name $ $ $ $ $

R A Andrew Anderson* 39,513 – – 3,556 43,069Paul G Bourke 69,358 – – 6,242 75,600Michael Carroll* 58,349 – – 5,251 63,600Francis J Davis 121,101 – – 10,899 132,000Craig L Drake 47,339 – – 4,261 51,600Bruce J Morley 69,358 – – 6,242 75,600Terence J Richardson 47,339 – – 4,261 51,600Bruce G Vallance 47,339 – – 4,261 51,600

TOTAL 499,696 – – 44,973 544,669

* R A Andrew Anderson was appointed as a supplier director as and from 31 July 2009 and Michael Carroll was appointed as a director as and from28 August 2009. Both directors were elected at the Annual General Meeting on 28 October 2009.

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Chief Executive Officer (CEO) Remuneration

On 15 June 2010 CEO John McLean retired with immediateeffect and was replaced by new CEO David Lord on 16 June2010. The remuneration packages of both CEOs are detailedbelow with references to former CEO relating to John McLeanand references to current CEO relating to David Lord.

Former Chief Executive Officer (CEO) Remuneration

The CEO’s remuneration (total pay) was fixed.

Included in fixed pay are the following elements:

• Base salary• Superannuation• Company vehicle benefit• Annual leave loading

The CEO’s total pay is reviewed annually by the Board, onthe recommendation of the Nominations & RemunerationCommittee, with reference to market comparative data andindividual performance.

Fixed Pay

The CEO has the option of receiving fixed pay in a variety offorms including cash and fringe benefits such as a motorvehicle. It is intended that the manner of payment is flexiblewithout creating any undue cost.

Superannuation

For the CEO, the superannuation component is based onstatutory superannuation obligations, on either the maximumearnings base, as amended each year by the ATO, or on basesalary. In either case, it was included within the total packagevalue.

Company Vehicle Benefit

The CEO has a car allowance included in his package.The Company consults annually with external remunerationconsultants as to the representation of this component.

Variable Pay (Performance Based Annual Bonus Scheme)

The CEO has no performance based annual bonus schemefor either short-term or long-term incentives.

Retirement/Termination Benefits

Other than the superannuation obligations alreadydisclosed, the Company was not required to pay anyamounts on termination.

Current Chief Executive Officer (CEO) Remuneration

The CEO’s remuneration (total pay) is made up of fixed payand variable pay.


• Base salary• Superannuation• Motor vehicle benefit or allowance• Annual leave loading• Other benefits as agreed with the company.

Variable Pay includes a Performance Based Annual BonusScheme consisting of both short-term and long-termincentives.

The CEO’s total pay is reviewed annually by the Board, onthe recommendation of the Nominations & RemunerationCommittee, with reference to market comparative data andindividual performance.

Fixed Pay

The CEO has the option of receiving fixed pay in a variety offorms including cash and fringe benefits such as a motorvehicle. It is intended that the manner of payment is flexiblewithout creating any undue cost.

Superannuation

For the CEO the superannuation component is based onstatutory superannuation obligations, on either the maximumearnings base, as amended each year by the ATO, or onbase salary. In either case, it was included within the totalpackage value.

Short-Term Employee Benefits Post-Employment Benefits

Cash Salary Short-Term Non-Monetary2009 and Fees Incentives Benefits Superannuation TOTAL

Name $ $ $ $ $

Paul G Bourke 60,688 – – 5,462 66,150Francis J Davis 64,384 – – 5,795 70,179Craig L Drake 40,851 – – 3,677 44,528David S Karpin 97,554 – – 8,780 106,334Desmond J McKinnon 38,135 – – 3,432 41,567Bruce J Morley 60,688 – – 5,462 66,150John C Renyard 38,135 – – 3,432 41,567Terence J Richardson 41,422 – – 3,728 45,150Bruce G Vallance 3,287 – – 296 3,583

TOTAL 445,144 – – 40,064 485,208


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Details of Chief Executive Officer Remuneration for period ending 30 June 2010

The remuneration amount in this and the following table includes any increases in accrued but unpaid leave entitlements andaccrued but unpaid bonuses.

Post- Share-Short-Term Employment Long-Term Based

Employee Benefits Benefits Benefits Payments

Cash Non- LongSalary Monetary Super- Service Termination

2010 and Fees Benefits annuation Leave Shares Benefits TOTAL

Name $ $ $ $ $ $ $

John F McLean(to 15/06/10) 499,798 25,004 1,613 2,003 – – 528,418

TOTAL 499,798 25,004 1,613 2,003 – – 528,418

The current CEO did not receive any remuneration nor have any amounts accrued for remuneration during the financial year.

Post- Share-Short-Term Employment Based

Employee Benefits Benefits Long-Term Benefits Payments

Long-TermIncentives

Cash Non- Accrued LongSalary Monetary Super- 2007/08 Service Termination

2009 and Fees Benefits annuation Not Paid Leave Shares Benefits TOTAL

Name $ $ $ $ $ $ $ $

Neil A Kearney 513,217 28,518 (2,363) (70,934) (2,073) – 487,500 953,865(to 13/04/09)

John F McLean 112,143 – 765 – – – – 112,908(from 14/04/09)

TOTAL 625,360 28,518 (1,598) (70,934) (2,073) – 487,500 1,066,773

Motor Vehicle Benefit or Allowance

The CEO has a car allowance included in his package.The Company consults annually with external remunerationconsultants as to the value of this component.

Variable Pay (Performance Based Annual Bonus Scheme)

The CEO has a performance based annual bonus schemecontaining short-term incentives. It is the Board’s intention toalso develop a long-term incentive program.

Short-term incentives are based on personal and Companyperformance over the course of the Company’s financialyear. The Board, in consultation with the CEO, will establishmeasures for determining whether the CEO is to be paida short-term incentive and the amount of that incentive.The short-term incentive for the 2010/11 financial year is aguaranteed minimum of $100,000 before tax. The incentivefor 2010/11 will be pro-rated if the CEO’s employmentterminates prior to 30 June 2011.


Other than the superannuation and short-term incentivesobligations already disclosed, the Company is required to pay,in lieu of notice, the equivalent to 12 months remunerationpackage where there is termination due to a change of controlof the Company. Termination due to change of control can beby either the Company or the CEO. The payment in lieu ofnotice will be reduced by any redundancy amounts requiredto be paid under legislation.

The Company, other than in the instance of change of control,can terminate the CEO’s employment agreement by giving9 months notice, alternatively the CEO can terminate theemployment agreement by giving 6 months notice. TheCompany can terminate the agreement immediately, or at anytime, after notice is given by either party by making a paymentequal to the value of the CEO’s remuneration package in lieuof the full or remaining period of notice.

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Other Key Management Personnel Remuneration

Other Key Management personnel, listed below, whose detailsare disclosed in this report are the executives required to bedisclosed by the provisions of the Corporations Act, whichincludes the six highest paid executives who are also the samepersons whose remuneration details are required to bedisclosed by the Australian IFRS Accounting Standards asbeing the Other Key Management personnel with the greatestauthority for the strategic direction and management of theCompany during the financial year.

Name Position

Anthony P Cook General Manager Milk Supply

William D Hannah Chief Financial Officer

Bernard J Kavanagh General Manager CorporateDevelopment

William J Slater General Manager Retail Dairy

Richard C Wallace General Manager Operations

John S Williams General Manager Sales, Marketing& Innovation

All Other Key Management personnel are employed by TheWarrnambool Cheese and Butter Factory Company Limited.

All of the above were key management personnel in 2009.

Other than the specific details of the quantum of remuneration,the statements and details of remuneration in this report arealso applicable to all executives of the Company.

Other Key Management personnel are offered a competitivetotal pay based upon external remuneration consultants’advice to ensure that total pay is reflective of the respectiveperformance requirements of the position and the market for acomparable role. Total pay is reviewed annually by the ChiefExecutive Officer, with reference to market comparative data,experience and performance.

Total pay is made up of fixed pay and variable pay.


• Base salary• Superannuation• Company vehicle benefit• Annual leave loading

Variable Pay includes a performance based annual bonusscheme consisting of short-term incentives based on theachievement of corporate and personal KPI’s.

Other than shares issued pursuant to the Employee Share Planthere are no shares, share options, unissued shares or interestsor rights in shares given to any executive. There is no currentobligation upon the Company to issue any further shares underthe Company Employee Share Plan.

Details of shareholdings of Other Key Management personnelare contained in note 25 to the financial statements.

Fixed Pay

Other Key Management personnel have the option of receivingfixed pay in a variety of forms including cash and fringe benefitssuch as a motor vehicle. It is intended that the manner ofpayment is flexible without creating any additional cost tothe Company.

Superannuation

For Other Key Management personnel, the superannuationcomponent is based on statutory superannuation obligations,on either the maximum earnings base, as amended eachyear by the ATO, or on base salary. In either case, it isincluded within the total package value of each Other KeyManagement person.

The Company has a target funding superannuation obligationfor one Other Key Management person, Mr Kavanagh, of thelump sum Retirement Benefits Limit at age 65.

Company Vehicle Benefit

Other Key Management personnel can be provided witha Company vehicle for both business and private use.Included in their fixed pay is an amount estimated torepresent the benefit derived from the full use of this vehicle.Executives have the option of a car allowance or to includethis value as part of their salary. The Company consultsannually with external remuneration consultants as to thevalue of this component.

Performance Based Bonus Scheme

Other Key Management personnel participate with a numberof other senior staff in a performance based bonus scheme.The scheme is designed to reward participants for theircontribution to the Company’s performance and the returnsof the shareholders. Its application in any particular year isdetermined by reference to the achievement of both corporateand individual Key Performance Indicators (KPIs).

Other Key Management personnel’s bonus is set at 10% oftheir fixed pay. Each participant in the scheme is set a numberof KPIs; designed to, if achieved, result in strengthening theCompany’s performance. KPIs are agreed to at the beginningof the financial year, and assessed at the completion of theyear. KPIs for Other Key Management personnel are set inagreement with, and assessed by, the CEO. This incentiveprogram was suspended for the 2009/10 financial year.

The amount of the bonus allocated to the achievement ofcorporate KPIs is 50% and the amount of the bonus allocatedto achievement of individual KPIs is 50%.


Other than the superannuation obligations already disclosed,the Company has no other retirement or agreed terminationobligations for any Other Key Management personnel.


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Details of Other Key Management personnel remuneration for the period ending 30 June 2010

The remuneration amount in this and the following table includes any increases in accrued but unpaid leave entitlements andaccrued but unpaid bonuses.

Post-Employment Long-Term Share-Based

Short-Term Employee Benefits Benefits Benefits Payments

Cash Short- Non- LongSalary Term Monetary Super- Service Termination

2010 and Fees Incentives Benefits annuation Leave Shares Benefits TOTAL

Name $ $ $ $ $ $ $ $

Anthony P Cook 218,394 – – 19,956 5,954 – – 244,304

William D Hannah 227,453 – 24,842 21,038 7,894 – – 281,227

Bernard J Kavanagh 223,104 – 29,581 16,536 9,961 – – 279,182

William J Slater 187,668 – 24,333 17,784 11,761 – – 241,546

Richard C Wallace 221,412 – 17,257 20,357 8,152 – – 267,178

John S Williams 200,674 – 24,332 18,673 9,152 – – 252,831

TOTAL 1,278,705 – 120,345 114,344 52,874 – – 1,566,268

Post-Employment Long-Term Share-Based

Short-Term Employee Benefits Benefits Benefits Payments

Cash Short- Non- LongSalary Term Monetary Super- Service Termination

2009 and Fees Incentives Benefits annuation Leave Shares Benefits TOTAL

Name $ $ $ $ $ $ $ $

Anthony P Cook 195,115 – 10,785 18,266 10,696 998 – 235,860

William D Hannah 221,148 – 24,723 20,765 10,837 998 – 278,471

Bernard J Kavanagh 218,473 – 29,215 16,340 13,068 998 – 278,094

William J Slater 153,882 – 24,202 15,493 6,253 998 – 200,828

Charles S Van Heerden 215,794 – – 17,634 (255) – 103,219 336,392

Richard C Wallace 216,434 – 18,915 20,085 14,593 998 – 271,025

John S Williams 188,657 – 24,332 17,385 7,221 998 – 238,593

TOTAL 1,409,503 – 132,172 125,968 62,413 5,988 103,219 1,839,263

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Additional Information

For each cash bonus included in the tables on pages 25 and27 the percentage of the available bonus that was paid orpayable and the percentage that was forfeited because thecompany’s performance and person did not meet performancecriteria is set out below.

Cash Bonus

2008/09 2009/10

Name Paid Forfeited Payable Forfeited% % % %

Anthony P Cook – 100 – –William D Hannah – 100 – –Bernard J Kavanagh – 100 – –Neil A Kearney – 100 – –John F McLean – – – –William J Slater – 100 – –Charles S Van Heerden – 100 – –Richard C Wallace – 100 – –John S Williams – 100 – –

Insurance of Officers

Amounts disclosed for remuneration of directors and OtherKey Management personnel exclude insurance premiumsof $172,079 paid by the consolidated entity in respect ofdirectors’ and officers’ liability insurance contracts as thecontracts do not specify premiums paid in respect of individualdirectors and officers.

Loans to Directors and Executives

Loans are not provided to directors of Warrnambool Cheeseand Butter Factory Company Holdings Limited or Other KeyManagement personnel.

Rounding of Amounts

The Company is of a kind referred to in class order 98/0100issued by the Australian Securities and InvestmentsCommission relating to ‘rounding-off’. Accordingly, amountshave been rounded-off to the nearest thousand dollars.

Meetings of Directors and Board Committees

The number of meetings of the Company’s Board of Directorsand of each Board committee held during the financial yearended 30 June 2010, and the number attended by eachDirector were as follows:

Committee Meetings

Board Audit Noms Milk Pricing Supplier IndustryMeetings & Risk & Rem. Review Relations Issues

Name (15) (14) (6) (2) (2) (2)

F. Davis 15 (15) – 6 (6) – – –

T. Richardson 15 (15) – 6 (6) 2 (2) 2 (2) –

R. A. A. Anderson 13 (13) 9 (10) – 2 (2) – –

P. Bourke 13 (15) 14 (14) 5 (6) – – –

M. Carroll 11 (12) 8 (9) – 2 (2) – 2 (2)

C. Drake 15 (15) – 2 (2) – 2 (2) 2 (2)

D. Lord 1(1) – – – 1 (1) –

J. McLean 15 (15) – – 2 (2) 2 (2) –

B. Morley 13 (15) 14(14) – 2 (2) – –

A. Reichelt 15 (15) – – – 2 (2) 2 (2)

B. Vallance 15 (15) 4 (4) – 2 (2) 2 (2) –

The total number of meetings held is shown in brackets at the top of the table. The number of meetings held at which a directorwas eligible to attend is shown in brackets.

Milk pricing decisions are now made by the Board with the committee considering and recommending strategic issues relating tomilk pricing.

Mr Anderson was appointed 31 July 2009 and took up his position at the 27 August 2009 meeting. Mr Carroll was appointed on27 August 2009 and took up his position at the 25 September 2009 meeting.

Mr Reichelt was an Associate Director throughout the reporting period. Mr McLean became an Associate Director on 25 June 2010.


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Non-Audit Services Provided by Auditors

The Group employs Coffey Hunt on assignments additional totheir statutory audit duties as their expertise and experiencewith the Group are important. These assignments areprincipally small in nature and link closely to work performedduring audit services. Details of the amounts paid or payableto the auditor (Coffey Hunt) for audit and non-audit servicesprovided during the year are set out below.

The board has considered the position and, in accordancewith the advice received from the Audit & Risk Committee,is satisfied that the provision of the non-audit services iscompatible with the general standard of independence forauditors imposed by Corporations Act 2001. The directorsare satisfied that the provision of non-audit services by theauditor, as set out below, did not compromise the auditorindependence requirements of the Corporations Act 2001for the following reasons:

• All non-audit services have been reviewed by the Audit& Risk Committee to ensure they do not impact theimpartiality and objectivity of the auditor.

• None of the services undermine the general principlesrelating to auditor independence as set out in ProfessionalStatement F1; including reviewing or auditing the auditorsown work, acting in a management or a decision-makingcapacity for the Company, acting as an advocate for theCompany or jointly sharing economic risks and rewards.

During the year the following fees were paid or payable forservices provided by the auditor of the parent entity, its relatedpractices and non-related audit firms:

CONSOLIDATED

2010 2009$ $

(1) Assurance services

Audit services

Coffey Hunt

Audit and review of the financial reports and other audit work under the Corporations Act 2001 138,900 123,220

Total remuneration for audit services 138,900 123,220

Other assurance services

Coffey Hunt

Review of CEO termination agreement – 3,370

Total remuneration for other assurance services – 3,370

Total remuneration for assurance services 138,900 126,590

(2) Taxation services

Coffey Hunt

Tax compliance services, including review of company income tax returns 3,000 –

Total remuneration for taxation services 3,000 –

(3) Advisory services

Coffey Hunt

Other minor accounting services 1,000 –

Total remuneration for advisory services 1,000 –For

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The names and details of the Directors of the Company in office during the whole of the financial year,unless stated otherwise, and until the date of this report are as follows:

Francis J Davis

Formal qualifications: FCPA, F.Fin, FAIM, FAICD Dip.Position: Independent non-executive Director and Chairmanfrom 8 May 2009.Experience and expertise: Independent non-executive Directorsince 2000, former executive of NAB Ltd for over 30 years.Other current directorships: Genetics Australia LtdFormer directorships in the last 3 years: noneSpecial responsibilities: Chairman of Nominations &Remuneration Committee.Interests in shares: indirect ownership of 20,000 shares.

Terence J RichardsonFormal qualifications: B Agr Econ, Dip Bus St, Cert Co Dir, MAICDPosition: Supplier Director as and from 25 October 2007 andDeputy Chairman.Experience and expertise: Supplier Director since 2007and dairy farmer for 33 years.Other current directorships: noneFormer directorships in the last 3 years: noneSpecial responsibilities: Deputy Chairman, Chairman of MilkPricing Review and Supplier Relations Committees, member ofNominations & Remuneration Committee.Interests in shares: owns 500 shares

R A Andrew AndersonFormal qualifications: B.Com. (Melb), M. Admin. (Monash),Dip. Educ. (Melb), ACISPosition: Supplier Director as and from 31 July 2009.Experience and expertise: Director since July 2009. He was theSenior Lecturer in Accounting and Finance at Deakin University(Warrnambool) and is an accountant in practice operating his ownbusiness specialising in rural accounting and finance. He and hiswife have operated Rossander Angus, a stud angus breedingenterprise for 40 years as well as a dairy farming operation for thepast ten years.Other current directorships: Brauerander Park FoundationPty Ltd and private companies.Former directorships in the last 3 years: noneSpecial responsibilities: Member of Audit & Risk andMilk Pricing Committees.Interests in shares: owns indirectly and directly 10,000 shares

Paul BourkeFormal qualifications: M. Bus Leadership, MAICD.Position: Independent non-executive Director from25 October 2007.Experience and expertise: Director since 2007. He has beenemployed 30 years in the food industry holding executivepositions with Campbell’s Soups Australasia, Arnotts Ltd andCadbury Confectionery.Other current directorships: Integro Systems Pty Ltd,Free Agent Focus Pty LtdFormer directorships in the last 3 years: noneSpecial responsibilities: Member of Audit & Risk andNominations & Remuneration Committees.Interests in shares: owns 5,155 shares.

Directors

Standing left to right: Anthony J Reichelt, Craig L Drake, John Frankcom (Company Secretary), Michael Carroll, Francis J Davis,Terence J Richardson, Paul G Bourke, Bruce J Morley. Seated left to right: R A Andrew Anderson, John F McLean, Bruce G Vallance,David J Lord.

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Michael CarrollFormal qualifications: B. Ag. Sci. (LaTrobe), M. Bus. Admin.(Melb), Ad. Mgt. Program (Harvard), MAICD.Position: Independent non-executive director from 28 August2009.Experience and expertise: Director since August 2009. He hasbeen employed in agribusiness and banking/finance industry forover 25 years including 18 years at National Australia Bank.Other current directorships: Meat & Livestock Australia, RuralFinance Corporation, Rural Funds Management, Sunny QueenPty Ltd, the Australia Farm Institute and Select Harvests Ltd.Former directorships in the last 3 years: Royal AgriculturalSociety of VictoriaSpecial responsibilities: Member of Audit & Risk, Milk PricingReview and Industry Issues Committees.Interests in shares: none.

Craig L DrakeFormal qualifications: Dip.Ag.Sci., FAICD Dip.Position: Supplier DirectorExperience and expertise: Supplier Director since 1990 anddairy farmer for 29 years.Other current directorships: Tasherd Pty LtdFormer directorships in the last 3 years: noneSpecial responsibilities: Chairman of Industry Issues Committeeand member of the Supplier Relations Committees.Interests in shares: owns 27,121 shares and joint interest in61,474 shares.

David J LordFormal qualifications: Grad. Dip. Mgt. (Monash), MBA (Mt Eliza),MAICD.Position: Managing Director and Chief Executive Officer from16 June 2010.Experience and expertise: He has spent 30 years in the foodindustry with the last 15 years in the fast moving consumer goodssector and the last 8 years as CEO and Managing Director ofParmalat Australia Ltd.Other current directorships:WCB subsidiary and joint venturecompanies.Former directorships in the last 3 years: Parmalat Australia Ltdand subsidiaries.Special responsibilities: Member of the Supplier Relations andMilk Pricing Review Committees.Interests in shares: none.

John F McLeanFormal qualifications: FIDM, FAICDPosition: Executive Director until 15 June 2010 and thenAssociate Director.Experience and expertise: Executive Director from 2000 until hisretirement in 2007. Employee of the company for over 50 yearsincluding 32 years in the role of Manager/Chief Executive Officer.Other current directorships: Chairman Dairy TechnicalServices Ltd.Former directorships in the last 3 years:Westvic DairySpecial responsibilities: member Milk Pricing Review Committee.Interests in shares: 233,684

Bruce J MorleyFormal qualifications: B.Com, ARMTC, FCPA, FCIS, FAICDPosition: Independent non-executive directorExperience and expertise: Independent non-executive directorsince 2000. Former Executive Director of Sigma Company Limited(now Sigma Pharmaceuticals Limited).Other current directorships: Lyppard Australia LimitedFormer directorships in the last 3 years: noneSpecial responsibilities: Chairman of Audit & Risk Committeeand a member of the Milk Pricing Review Committee.Interests in shares: none

Anthony J ReicheltFormal qualifications: MAICD, FAMI, CPM.Position: Associate Director.Experience and expertise: Associate Director since 1998 anddairy farmer for over 30 years.Other current directorships: noneFormer directorships in the last 3 years: noneSpecial responsibilities: member of the Industry Issues andthe Supplier Relations Committees.Interests in shares: owns a joint interest in 81,653 shares.

Bruce G VallanceFormal qualifications: Dip.App.Sci (Ag.), GAICDPosition: Supplier Director.Experience and expertise: Associate Director since 2006 andSupplier Director since May 2009. Owned and operated a dairyfarm for 17 years.Other current directorships: noneFormer directorships in the last 3 years: noneSpecial responsibilities: Member of the Supplier Relations andMilk Pricing Review Committees.Interests in shares: owns a joint interest in 55,308 shares.

This report is made in accordance with a resolutionof the Directors.


Terence J RichardsonDeputy Chairman

Dated at Allansford, 27 August 2010For

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Auditor’s Independence DeclarationAs lead auditor for the audit of Warrnambool Cheese and ButterFactory Company Holdings Limited for the year ended 30 June2010, I declare that, to the best of my knowledge and belief,there have been:

(a) no contraventions of the auditor independence requirementsof the Corporations Act 2001 in relation to the audit; and

(b) no contraventions of any applicable code of professionalconduct in relation to the audit.

This declaration is in respect of Warrnambool Cheese and ButterFactory Company Holdings Limited and the entities it controlledduring the period.

Coffey HuntChartered Accountants

M. P. GunnPartner

Dated at Warrnambool, 27 August 2010

Liability limited by a scheme approved under Professional Standards Legislation.

The Company received from its auditors a declaration,a copy of which is as follows:

Auditor’s Independence DeclarationF

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This section contains information which is not includedelsewhere in this report that is required to be included in theAnnual Report by the ASX Listing Rules and the conditionsof the Company listing on the ASX.

Shareholding Interests

The 20 largest shareholders at 30 June 2010 and at 17 August2010 are shown below. The Company constitution prohibitsa shareholding in excess of 15% of the share capital. TheCompany has received one notice of a substantial holdingfrom Murray Goulburn Co-Operative Company Ltd. Other thanthat shareholder there are no other shareholder known to theCompany to have a shareholding in excess of 5% of the issuedcapital and thus, there are no other known ‘substantial holdersin the entity’ as defined by the ASX Listing Rules.

The Number of Holders of Each Class of Share

The Company shares consist of 39,952,827 ordinary shares.This includes 181,797 issued employee shares. Over thelast financial year there were the following movements inshare capital:

• 26/03/10 – Dividend Reinvestment Plan: 33,368 shares

As at 30 June 2010, there were 3,119 shareholders. As at17 August 2010, there were 3,092 holders of ordinary shares.

The Voting Rights Attached to Shares

The ordinary shares have full voting rights. That is, on a show ofhands every member present at the meeting or by proxy shallhave one vote and upon a poll each member shall have onevote for each share.

Marketable Holdings

The number of shareholders holding less than a marketableparcel of 159 shares ($3.15 as at 17 August 2010) is 235 andthey hold 15,803 shares.

Miscellaneous Matters

The Company shares are not listed on any stock exchangeother than the ASX. The Company has not issued any equitysecurities as defined by the ASX Listing Rules that are of aclass of unquoted equity securities within the meaning of ListingRule 4.10.16. There is no current on-market buy-back.

Distribution Schedule of Shareholding

A distribution schedule as at 17 August 2010 follows.

Shares Number

1 – 1,000 1,2371,001 – 5,000 9805,001 – 10,000 29310,001 – 100,000 523100,001 + 59

Top 20 Shareholders

Murray Goulburn Co-Operative Ltd 4,005,549

Renyard Family Super Fund 1,000,000

Estate Thomas C Gall 759,200

John A Gall 603,438

Bernard J Kavanagh 511,550

Geoffrey C Marsh 511,087

Est J Bernard Kelly 469,000

Est Anne M Kelly 468,212

Keith A Bonnett & Jane M Bonnett 407,593

Myrtle I Gall 406,075

P M Campbell 400,000

Donald J Gall 373,657

Sharyn Maree Merrett 371,244

J & K McKinnon Pty Ltd 348,476

J & K McKinnon Pty Ltd 310,458

Myrtle I Gall, John A Gall & Donald J Gall 281,812

Myrtle I Gall 280,000

Berko Pastoral Co 278,000

Parsley Investments Pty Ltd 244,025

Phillip G Anders 237,397

Shareholding Restrictions

The Company constitution presently provides that no person,together with his or her associates, may hold or have thepower to vote in respect of or sell shares that represent morethan 15% of shares on issue (Shareholding Restriction).

The Shareholding Restriction as required by the constitutionwas subject to a vote by shareholders at the 2008 AnnualGeneral Meeting. Shareholders voted not to extend therestriction. The effect of the vote meant that in the terms ofthe constitution the restriction will automatically increase to:

(a) 10% on the fifth anniversary of listing, that is 26 May 2009;and

(b) 15% on the sixth anniversary of listing, that is 26 May2010; and

(c) cease on 26 May 2011.

If a person acquires shares in excess of the ShareholdingRestriction, the rights in relation to voting and dividendsattaching to those shares held in excess of the ShareholdingRestriction will be subject to suspension, and the shares maybe subject to compulsory divestment.

Shareholders and Additional InformationF

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For the Year ($’000) 2010 2009 2008 2007 2006

Revenue 416,252 441,095 525,333 371,718 352,620

Profit Before Interest and Tax 16,870 (24,559) 36,810 16,942 14,156

Profit Before Tax 9,689 (30,051) 33,098 13,889 11,063

Profit After Tax 8,804 (19,934) 24,509 9,626 7,579

Dividend 3,995 797 12,198 4,336 3,102

At Year End ($’000)

Total Assets 246,201 234,106 241,159 185,965 177,158

Total Liabilities 144,226 137,373 117,056 83,333 82,181

Equity 101,975 96,733 124,103 102,632 94,977

General

Number of Milk Suppliers 565 495 573 572 610

Number of Employees 396 397 342 309 312

Key Measures

Return on Assets (%) 3.6 (8.5) 10.2 5.2 4.3

Return on Equity (%) 8.6 (20.6) 19.7 9.4 8.0

Dividend per Share (cents) 10.0 2.0 31.0 11.1 8.0

Gearing Ratio (%) 49.9 51.3 29.9 22.5 27.7

5 Year SummaryF

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This financial report covers the consolidated entity consisting ofWarrnambool Cheese and Butter Factory Company HoldingsLimited and its subsidiaries. The financial report is presented inAustralian currency.

The Corporations Amendment (Corporate Reporting Reform)Act 2010, which received Royal Assent on 29 June 2010,amended the requirements for those entities reporting underChapter 2M that present consolidated financial statements. Theamendment removed the requirement to present parent entityfinancial statements. Summary information for the parent entityis disclosed in note 37 of the consolidated financial statements.

Warrnambool Cheese and Butter Factory Company HoldingsLimited is a company limited by shares, incorporated anddomiciled in Australia. Its registered office and principal placeof business is:

Warrnambool Cheese and Butter FactoryCompany Holdings Limited5331 Great Ocean RoadAllansford VIC 3277

A description of the consolidated entity's operations and itsprincipal activities is included in the directors' report, which isnot part of this financial report.

The financial report was authorised for issue by the directors on27 August 2010. The company has the power to amend andreissue the financial report.

Financials and NotesF

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CONSOLIDATED

Notes 2010 2009$’000 $’000

Revenue from continuing operations 2 415,523 439,931

Other income 3 729 1,164

Changes in inventories of finished goods and work in progress 1,092 8,297

Raw materials and consumables used (319,289) (395,171)

Depreciation and amortisation expense 4 (12,824) (11,456)

Finance costs 4 (7,181) (5,492)

Distribution expense (18,197) (16,139)

Employee benefits expense (37,024) (34,763)

Corporate advisory expenses 4 (697) –

Other expenses 4 (16,338) (17,761)

Share of net profits/(losses) of joint ventures accounted for using the equity method 36 3,895 1,339

Profit/(loss) before income tax (expense)/benefit 9,689 (30,051)

Income tax (expense)/benefit 5 (885) 10,117

Profit/(loss) for the year 8,804 (19,934)

Other comprehensive income

Changes in fair value of cash flow hedges (4,149) 2,077

Income tax relating to components of other comprehensive income 1,245 (622)

Other comprehensive income for the year, net of tax (2,904) 1,455

Total comprehensive income for the year 5,900 (18,479)

Profit/(loss) is attributable to owners ofWarrnambool Cheese and Butter Factory Company Holdings Limited 8,804 (19,934)

Total comprehensive income attributable to owners ofWarrnambool Cheese and Butter Factory Company Holdings Limited 5,900 (18,479)

Earnings per share for profit/(loss) attributableto the ordinary equity holders of the company Cents Cents

Basic earnings per share 34 22.1 (50.2)

Diluted earnings per share 34 22.1 (50.2)

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Consolidated Statement of Comprehensive Incomefor the year ended 30 June 2010

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CONSOLIDATED

Notes 2010 2009$’000 $’000

CURRENT ASSETS

Trade and other receivables 6 85,433 68,585

Inventories 7 40,663 39,571

Derivative financial instruments 8 – 3,772

Total Current Assets 126,096 111,928

NON-CURRENT ASSETS

Investments accounted for using the equity method 9 18,463 14,558

Other financial assets 10 5 5

Property, plant & equipment 11 86,197 92,844

Investment properties 12 9,812 9,504

Deferred tax assets 13 4,000 3,639

Intangible assets 14 1,628 1,628

Total Non-Current Assets 120,105 122,178

Total Assets 246,201 234,106

CURRENT LIABILITIES

Trade and other payables 15 37,162 30,649

Borrowings 16 72,680 74,822

Derivative Financial Instruments 8 523 –

Provisions 17 4,800 4,572

Total Current Liabilities 115,165 110,043

NON-CURRENT LIABILITIES

Borrowings 18 28,693 27,019

Provisions 20 368 311

Total Non-Current Liabilities 29,061 27,330

Total Liabilities 144,226 137,373

Net Assets 101,975 96,733

EQUITY

Contributed equity 21 29,108 28,967

Reserves 22 11,641 14,546

Retained profits 22 61,226 53,220

Total Equity 101,975 96,733

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

Consolidated Balance Sheetas at 30 June 2010

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ATTRIBUTABLE TO OWNERS OFWARRNAMBOOL CHEESE AND BUTTER FACTORY

COMPANY HOLDINGS LIMITED

Contributed Retained Totalequity Reserves earnings equity

Notes $’000 $’000 $’000 $’000

Balance at 1 July 2009 28,967 14,546 53,220 96,733

Profit for the year – – 8,804 8,804

Cash flow hedges – (4,149) – (4,149)

Income tax relating to components of othercomprehensive income – 1,245 – 1,245

Total comprehensive income for the year – (2,904) 8,804 5,900

Transactions with owners in their capacity as owners:

Contributions of equity, net of transaction costs 140 – – 140

Dividends provided for or paid 23 – – (798) (798)

140 – (798) (658)

Balance at 30 June 2010 29,108 11,641 61,226 101,975

Balance at 1 July 2008 26,435 13,091 84,577 124,103

Profit for the year – – (19,934) (19,934)

Cash flow hedges – 2,077 – 2,077

Income tax relating to components of othercomprehensive income – (622) – (622)

Total comprehensive income for the year – 1,455 (19,934) (18,479)

Transactions with owners in their capacity as owners:

Contributions of equity, net of transaction costs and tax 2,532 – – 2,532

Dividends provided for or paid 23 – – (11,423) (11,423)

2,532 – (11,423) (8,891)

Balance at 30 June 2009 28,967 14,546 53,220 96,733

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

Consolidated Statement of Changes in Equityfor the year ended 30 June 2010

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CONSOLIDATED

Notes 2010 2009$’000 $’000

CASH FLOWS FROM OPERATING ACTIVITIES

Receipts from customers (inclusive of goods and services tax) 408,893 481,364

Payments to suppliers and employees (inclusive of goods and services tax) (393,337) (495,725)

Dividends received 2 4

Interest received 108 145

Finance costs (7,181) (5,492)

Income tax paid – (2,505)

Net Cash Inflow (Outflow) from Operating Activities 31 8,485 (22,209)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of property, plant & equipment 53 423

Proceeds from sale of other financial assets – 17

Payments for property, plant & equipment (6,232) (18,833)

Payments for business acquisitions (9) (710)

Net Cash Inflow (Outflow) from Investing Activities (6,188) (19,103)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from borrowings 25,000 10,332

Proceeds from issues of shares 140 2,272

Repayment of borrowings (14,289) (8,776)

Dividends paid by parent entity 23 (798) (11,423)

Share issue transaction costs – (12)

Net Cash Inflow (Outflow) from Financing Activities 10,053 (7,607)

Net Increase (Decrease) in Cash, Cash Equivalents and Overdrafts 12,350 (48,919)

Cash, cash equivalents and overdrafts at the beginning of the financial year (66,950) (19,674)

Effects of exchange rate changes on cash, cash equivalents and overdrafts (1,172) 1,643

Cash, cash equivalents and overdrafts at the end of the financial year 16 (55,772) (66,950)

The above consolidated cash flow statement should be read in conjunction with the accompanying notes.

Consolidated Cash Flow Statementfor the year ended 30 June 2010

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Note 1. Statement of SignificantAccounting PoliciesThe principal accounting policies adopted in the preparationof the financial report are set out below. These policies havebeen consistently applied to all the periods presented unlessotherwise stated. The financial report of the consolidatedentity consists of Warrnambool Cheese and Butter FactoryCompany Holdings Limited and its subsidiaries.

(a) Basis of Preparation

This general purpose financial report has been prepared inaccordance with Australian Accounting Standards, otherauthoritive pronouncements of the Australian AccountingStandards Board, Urgent Issues Group Interpretations andthe Corporations Act 2001.

Compliance with IFRS

Australian Accounting Standards include Australianequivalents to International Financial Reporting Standards(AIFRS). Compliance with AIFRS ensures that theconsolidated financial statements and notes ofWarrnambool Cheese and Butter Factory CompanyHoldings Limited comply with International FinancialReporting Standards (IFRS).

Historical Cost Convention

These financial statements have been prepared under thehistorical cost convention, as modified by the revaluationof financial assets and liabilities (including derivativeinstruments) at fair value through profit or loss andinvestment property.

Critical Accounting Estimates

The preparation of financial statements in conformitywith AIFRS requires the use of certain critical accountingestimates. It also requires management to exercisejudgement in the process of applying the Group’saccounting policies. The areas involving a higher degree ofjudgement or complexity, or areas where assumptions andestimates are significant to the financial statements areseparately disclosed. For the 2010 year there are no itemswhich management believe require separate disclosure.

Financial Statement Presentation

The group has applied the revised AASB 101 Presentationof Financial Statements which became effective on 1January 2009. The revised standard requires the separatepresentation of a statement of comprehensive income and astatement of changes in equity. All non-owner changes inequity must now be presented in the statement ofcomprehensive income. As a consequence, the group hadto change the presentation of its financial statements.Comparative information has been re-presented so that it isalso in conformity with the revised standard.

(b) Principles of Consolidation

(i) Controlled Entities

The consolidated financial statements incorporate theassets and liabilities of all entities controlled by WarrnamboolCheese and Butter Factory Company Holdings Limited(parent entity) as at 30 June 2010 and the results of allcontrolled entities for the year then ended. A controlledentity is any entity controlled by Warrnambool Cheese and

Butter Factory Company Holdings Limited. Control existswhere Warrnambool Cheese and Butter Factory CompanyHoldings Limited has the capacity to dominate the decision-making in relation to the financial and operating policies ofanother entity so that the other entity operates withWarrnambool Cheese and Butter Factory CompanyHoldings Limited to achieve the objectives of WarrnamboolCheese and Butter Factory Company Holdings Limited.

The controlled entities are; The Warrnambool Cheese andButter Factory Company Limited, Australian Dairy ProductsPty Ltd, Warrnambool Milk Products Pty Limited and ProteinTechnology Victoria Pty Ltd. All intercompany balancesand transactions between entities in the economic entity,including any unrealised profits or losses, have beeneliminated on consolidation.

(ii) Joint Venture Entities

The interest in a joint venture is accounted for in theconsolidated financial statements using the equity method.Under the equity method, the share of profits or lossesof the joint venture is recognised in the statement ofcomprehensive income, the joint venture investment isrecognised in non-current assets (note 9) and the share ofmovements in reserves in the balance sheet. Details relatingto joint ventures are set out in note 36.

Profits or losses on establishing the joint venture andtransactions with the joint venture are eliminated to theextent of the Group’s ownership interest until such time asthey are realised by the joint venture on consumption orsale, unless they relate to an unrealised loss that providesevidence of impairment of an asset transferred.

(c) Segment Reporting

Operating segments are reported in a manner consistentwith the internal reporting provided to the chief operatingdecision maker. The chief operating decision maker, whois responsible for allocating resources and assessingperformance of the operating segments, has been identifiedas the board and executive management.

The group has adopted AASB 8 Operating Segments from1 July 2009. The new standard requires a ‘managementapproach’, under which segment information is presentedon the same basis as that used for internal reportingpurposes. Comparatives for 2009 have been restated.

(d) Income Tax

The income tax expense or revenue for the period is the taxpayable on the current period’s taxable income, based onthe current income tax rate, adjusted by changes in deferredtax assets and liabilities attributable to temporary differencesand to unused tax losses.

Deferred income tax is provided in full, using the liabilitymethod, on temporary differences arising between the taxbases of assets and liabilities and their carrying amounts inthe consolidated financial statements. However, the deferredincome tax is not accounted for if it arises from initialrecognition of an asset or liability in a transaction other thana business combination that at the time of the transactionaffects either accounting or taxable profit or loss. Deferredincome tax is determined using rates (and laws) that havebeen enacted or substantially enacted by balance date andare expected to apply when the related deferred income taxasset is realised or the deferred income tax liability is settled.

Notes to the Financial Statements30 June 2010

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Deferred tax assets are recognised for deductible temporarydifferences and unused tax losses only if it is probable thatfuture taxable amounts will be available to utilise thosetemporary differences and losses.

Deferred tax liabilities and assets are not recognised fortemporary differences between the carrying amount and taxbases of investments in controlled entities where the parententity is able to control the timing of distributions fromcontrolled entities and it is probable that the temporarydifferences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there isa legally enforceable right to offset current tax assets andliabilities and when the deferred tax balances relate to thesame taxation authority. Current tax assets and liabilities areoffset where the entity has a legally enforceable right tooffset and intends to settle on a net basis, or to realise theasset and settle the liability simultaneously.

Current and deferred tax balances attributable to amountsrecognised directly in equity are also recognised directly inequity.

Tax consolidation

Warrnambool Cheese and Butter Factory CompanyHoldings Limited and its wholly-owned Australian controlledentities implemented the tax consolidation legislation on1 July 2003.

The head entity Warrnambool Cheese and Butter FactoryCompany Holdings Limited and its controlled entities in thetax consolidation group continue to account for their owncurrent and deferred tax amounts. These tax amounts aremeasured as if each entity in the tax consolidated groupcontinues to be a stand alone tax payer in its own right.

Assets and liabilities arising under tax funding agreementswith the tax consolidated entities are recognised asamounts receivable from or payable to other entities inthe group. Details about the tax funding agreement aredisclosed in note 5.

(e) Cash and Cash Equivalents

For cash flow statements presentation purposes, cash andcash equivalents includes cash on hand, deposits at callwhich are readily convertible to cash on hand and aresubject to an insignificant risk of changes in value, net ofoutstanding bank overdrafts. Bank overdrafts are shownwithin borrowings in current liabilities on the balance sheet.

(f) Trade Receivables

Trade receivables are recognised at fair value less provisionfor impairment. Domestic trade receivables and otherreceivables are generally due for settlement within 30 daysand export trade receivables within 60 days.

Collectibility of receivables is reviewed on an ongoing basis.Debts which are known to be uncollectible are written off. Aprovision for impairment of trade receivables is establishedwhere there is historical or objective evidence and wheresufficient doubt as to collection exists. Significant financialdifficulties of the debtor, probability that the debtor will enterbankruptcy or financial reorganisation, and default ordelinquency in payments (more than 60 days overdue) areconsidered indicators that the trade receivable is impaired.

The amount of the impairment loss is recognised in thestatement of comprehensive income in other expenses.When a trade receivable for which an impairmentallowance has been recognised becomes uncollectible ina subsequent period, it is written off against the allowanceaccount. Subsequent recoveries of amounts previouslywritten off are credited against other income in thestatement of comprehensive income.

(g) Foreign Currency Translation –Transactions and Balances

Hedging is undertaken in order to avoid or minimise possibleadverse financial effects of movements in exchange rates.Foreign currency transactions are initially translated intoAustralian currency at the rate of exchange at the date ofthe transaction. At balance date amounts payable in foreigncurrencies are translated into Australian currency at rates ofexchange current at that date. At balance date amountsreceived or receivable in foreign currencies are translatedinto Australian currency at the rate of the Forward ExchangeContract to be utilised when converting the foreign currencyreceived or receivable to Australian currency. Resultingexchange differences are brought to account in determiningthe profit or loss for the year.

(h) Inventories

Store and garage trading inventories have been valuedat the lower of cost and net realisable value. Costs areassigned to individual items of stock on a latest purchaseprice or first-in first-out basis. Cost includes direct costsonly. Butter, cream, cheese, whey protein concentrate,packaged milk and milk powder inventories are measuredat the lower of cost and net realisable value. Any loss onvaluing inventory at net realisable value is brought toaccount in determining the profit or loss for the year. Thecost of butter, cream, cheese, whey protein concentrate,packaged milk and milk powder includes direct materials,direct labour and an appropriate portion of variable andfixed overheads. Costs are assigned on the basis ofweighted average costs. Net realisable value is theestimated selling price in the ordinary course of businessless estimated costs of completion less the estimatedcosts necessary to complete the sale.

(i) Impairment of Assets

Goodwill and intangible assets that have an indefinite lifeare not subject to amortisation and are tested annuallyfor impairment or more frequently if events or changesin circumstances indicate that they might be impaired.Assets that are subject to depreciation/amortisation arereviewed for impairment whenever events or changes incircumstances indicate that the carrying amount may notbe recoverable. An impairment loss is recognised for theamount by which an asset’s carrying amount exceeds itsrecoverable amount. The recoverable amount is the higherof the asset’s fair value less costs to sell and value in use.For the purposes of assessing impairment, assets aregrouped at the lowest levels for which there are separatelyidentifiable cash flows (cash-generating units).


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(j) Property, Plant and Equipment

Property, plant and equipment is initially recognised at cost,where cost includes purchase price, delivery and handling,site preparation, professional fees, installation and assembly,commissioning costs, employee benefits costs directlyattributable to the construction or purchase and borrowingcosts associated with qualifying assets.

Subsequent to initial recognition property, plant andequipment is carried at cost less any accumulateddepreciation and any accumulated impairment losses.Subsequent costs are included in the asset’s carryingamount or recognised as a separate asset, as appropriate,only when it is probable that future economic benefitsassociated with the item will flow to the Group and thecost of the item can be measured reliably. All other repairsand maintenance are charged to the statement ofcomprehensive income during the financial period inwhich they are incurred.

Land is not depreciated. Depreciation on other assets iscalculated on a straight line method to allocate their costor revalued amounts over their estimated useful lives,as follows:

Class of Fixed Asset Depreciation RateBuildings 4–5%Plant and equipment 3–33%Motor vehicles 10–25%Computer equipment 20–100%

Estimates of remaining useful lives are made on a regular basisfor all assets, with annual reassessments for major items.

An assets carrying amount is written down immediately toits recoverable amount if the carrying amount is greater thanthe estimated recoverable amount (note 1 (i)).

Gains and losses on disposal are determined by comparingproceeds with carrying amount. These are included in thestatement of comprehensive income. When revalued assetsare sold, it is the Group policy to transfer the amountsincluded in other reserves in respect of those assets toretained earnings.

(k) Leases

Leases of property, plant and equipment where the Grouphas substantially all the risks and rewards of ownership areclassified as finance leases. Finance leases are capitalised,recording an asset and a liability equal to the present valueof the minimum lease payments, including any residualvalues. Leased assets are depreciated on a straight linebasis over their estimated useful lives where it is likely thatthe consolidated entity will obtain ownership of the asset orover the term of the lease. Lease payments are allocatedbetween the reduction of the lease liability and the leaseinterest expense.

Leases in which a significant portion of the risk and rewardsof ownership are retained by the lessor are classified asoperating leases (note 27).

(l) Investments and Other Financial Assets

Classification

The Group classifies its investments in the followingcategories: financial assets at fair value through profit orloss, loans and receivables, held-to-maturity investments,available-for-sale financial assets and other financial assets.The classification depends on the purpose for which theinvestments were acquired. Management determines theclassification of its investments at initial recognition and re-evaluates this designation at each reporting date.

(i) Financial Assets at Fair Value Through Profit or Loss

Financial assets at fair value through profit or loss arefinancial assets held for trading. A financial asset is classifiedin this category if acquired principally for the purpose ofselling in the short term. Derivatives are classified as held fortrading unless they are designated as hedges. Assets in thiscategory are classified as current assets.

(ii) Loans and Receivables

Loans and receivables are non-derivative financial assetswith fixed or determinable payments that are not quoted inan active market. They are included in current assets,except for those with maturities greater than 12 monthsafter the balance sheet date which are classified as non-current assets. Loans and receivables are included in tradeand other receivables (note 6) in the balance sheet.

Recognition and Derecognition

Purchases and sales of financial assets are recognisedon trade-date – the date on which the Group commitsto purchase or sell the asset. Investments are initiallyrecognised at fair value plus transaction costs for allfinancial assets not carried at fair value through profit orloss. Financial assets carried at fair value through profit orloss are initially recognised at fair value and transactioncosts are expensed in the statement of comprehensiveincome. Financial assets are derecognised when the rightsto receive cash flows from the financial assets have expiredor have been transferred and the Group has transferredsubstantially all the risks and rewards of ownership.

Subsequent Measurement

Loans and receivables are carried at amortised cost using theeffective interest method. Gains or losses arising from changesin the fair value of the ‘financial assets at fair value throughprofit and loss’ category are included in the statement ofcomprehensive income in the period in which they arise.

Impairment

The Group assesses at each balance date whether there isobjective evidence that a financial asset or group of financialassets is impaired.


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(m) Intangible Assets

(i) Goodwill

Goodwill represents the excess of the cost of an acquisitionover the fair value of the Group’s share of the net identifiableassets of the acquired subsidiary at the date of acquisition.Goodwill on acquisition of subsidiaries is included inintangible assets. Goodwill is not amortised. Instead,goodwill is tested for impairment annually or more frequentlyif events or changes in circumstances indicate that it mightbe impaired, and is carried at cost less accumulatedimpairment losses. Gains and losses on the disposal ofan entity include the carrying amount of goodwill relatingto the entity sold.

(ii) Recognised Internally Developed Intangibles

Expenditure on the development of recognised intangibles(excluding goodwill) for internal use is capitalised as anintangible asset. Internally developed intangibles with a finiteuseful life are carried at cost less accumulated amortisationand impaired losses. Amortisation is calculated using thestraight line method to allocate the cost of internally developedintangibles over their estimated useful life.

(n) Trade and Other Payables

These amounts represent liabilities for goods and servicesprovided to the Group prior to the end of the financial yearand which are unpaid. The amounts are unsecured andare usually paid within 30 days of recognition.

(o) Borrowings

Borrowings are initially measured at fair value, net oftransaction costs incurred. Borrowings are subsequentlymeasured at amortised cost. Any difference between theproceeds (net of transaction costs) and the redemptionamount is recognised in the statement of comprehensiveincome over the period of the borrowings using the effectiveinterest rate method.

Borrowings are removed from the balance sheet when theobligation specified in the contract is discharged, cancelledor expired. The difference between the carrying amount of afinancial liability that has been extinguished or transferred toanother party and the consideration paid, including any non-cash assets transferred or assumed, is recognised in otherincome or other expenses.

Borrowings are classified as current liabilities unless the Grouphas an unconditional right to defer settlement of the liability forat least 12 months after the balance sheet date.

(p) Borrowing Costs

Borrowing costs are recognised as expenses in the periodin which they are incurred, except where they are directlyattributable to the acquisition, construction or production ofa qualifying asset in which case they are capitalised as partof the cost of that asset.

(q) Derivatives and Hedging Activities

Derivatives are initially recognised at fair value on the datea derivative contract is entered into and are subsequentlyremeasured to their fair value at each reporting date. Theaccounting for subsequent changes in fair value dependson whether the derivative is designated as a hedginginstrument, and if so, the nature of the item being hedged.The Group designates certain derivatives as either: (1)hedges of the fair value of recognised assets or liabilities ora firm commitment (fair value hedge); or (2) hedges of highlyprobable forecast transactions (cash flow hedges).

The Group documents at the inception of the transactionthe relationship between hedging instruments and hedgeditems, as well as its risk management objective and strategyfor undertaking various hedge transactions. The Group alsodocuments its assessment, both at hedge inception and onan ongoing basis, of whether the derivatives that are used inhedging transactions have been and will continue to behighly effective in offsetting changes in fair values or cashflows of hedged items.

The fair values of derivative financial instruments used forhedging purposes are disclosed in note 8. Movements inthe hedging reserve in shareholders’ equity are shown innote 22.

(i) Fair Value Hedge

Changes in the fair value of derivatives that are designatedand qualify as fair value hedges are recorded in thestatement of comprehensive income, together with anychanges in the fair value of the hedged asset or liabilitythat are attributable to the hedged risk.

(ii) Cash Flow Hedge

The effective portion of changes in the fair value ofderivatives that are designated and qualify as cash flowhedges is recognised in equity in the hedging reserve. Thegain or loss relating to the ineffective portion is recognisedimmediately in the statement of comprehensive incomewithin other income or other expense.

Amounts accumulated in equity are recycled in thestatement of comprehensive income in the periods whenthe hedged item will affect profit or loss. However, when theforecast transaction that is hedged results in the recognitionof a non-financial asset (for example, inventory) or a non-financial liability, the gains and losses previously deferred inequity are transferred from equity and included in themeasurement of the initial cost or carrying amount of theasset or liability.

When a hedging instrument expires or is sold or terminated,or when a hedge no longer meets the criteria for hedgeaccounting, any cumulative gain or loss existing in equityat that time remains in equity and is recognised when theforecast transaction is ultimately recognised in the statementof comprehensive income. When a forecast transaction isno longer expected to occur, the cumulative gain or lossthat was reported in equity is immediately transferred to thestatement of comprehensive income.


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(iii) Derivatives That Do Not Qualify for Hedge Accounting

Certain derivative instruments do not qualify for hedgeaccounting. Changes in the fair value of any derivativeinstrument that does not qualify for hedge accountingare recognised immediately in the statement ofcomprehensive income.

(r) Revenue Recognition

Revenue is measured at the fair value of the considerationreceived or receivable. Amounts disclosed as revenue arenet of returns, trade allowances, duties and taxes paid.

The Group recognises revenue when the revenue can bereliably measured, it is probable that future economicbenefits will flow to the entity and the specific criteria havebeen met for each of the Group’s activities as describedbelow. The amount of revenue is not considered to bereliably measurable until all contingencies relating to thesale have been resolved. The Group bases its estimateson historical results, taking into consideration the type ofcustomer, the type of transaction and the specifics ofeach arrangement.

Revenue is recognised for the major business activitiesas follows:

(i) Sale of Finished Goods

Revenue is recognised at the time of dispatch forcommodity products and on transfer of ownership forretail trade products.

(ii) Other

A sale is recorded when goods have been dispatched to acustomer pursuant to a sales order and the associated riskshave passed to the carrier or customer.

(s) Employee Benefits

(i) Wages and Salaries, Annual Leave, Rostered DaysOff and Sick Leave

Liabilities for wages and salaries, annual leave, and rostereddays off are recognised in other creditors and are measuredas the amount expected to be paid when the liabilities aresettled. Liabilities for vested sick leave, payable ontermination, are recognised in the provision for employeebenefits at the amounts expected to be paid when theliabilities are settled.

Annual leave and vested sick leave amounts are all recordedas current liabilities, even though it is not expected allamounts will be paid within 12 months, as the employeehas a legal entitlement to these amounts and could at theirdiscretion utilise that entitlement. In determining amountsrecognised as liabilities the Group gives consideration toexpected future wage and salary levels, experience ofemployee departures and periods of service. Expectedfuture payments greater than 12 months are discountedusing market yields on national government bonds withterms to maturity and currency that match, as closely aspossible, the estimated future cash outflows.

(ii) Long Service Leave

A liability for long service leave to which employees are legallyentitled at the reporting date is recognised in the provision foremployee benefits in accordance with (i) above. The liability forlong service leave expected for which the employee is yet tobe legally entitled and therefore settled in more than 12months from reporting date is recognised in the non-currentprovision for employee benefits and measured as the presentvalue of expected future payments to be made in respect ofservices provided by employees up to the reporting date.Consideration is given to expected future wage and salarylevels, experience of employee departures and periods ofservice. Expected future payments are discounted usingmarket yields on national government bonds with terms tomaturity and currency that match, as closely as possible,the estimated future cash outflows.

(iii) Share-Based Payments

Share-based compensation benefits are provided, at thecompany’s discretion, to employees via the WarrnamboolCheese and Butter Factory Company Holdings Limitedemployee share scheme. Information relating to thisscheme is set out in note 35.

(t) Dividends

Provision is made for the amount of any dividend declared,determined or publicly recommended by the Directors on orbefore the end of the financial year but not distributed atbalance date.

(u) Provisions

Provisions are recognised where a present obligation existsand the entity has no realistic alternative but to make afuture sacrifice of economic benefits to settle the obligation.

(v) Earnings Per Share

(i) Basic Earnings Per Share

Basic earnings per share is determined by dividing net profitafter tax attributable to members of the company, excludingany costs of servicing equity other than ordinary shares, bythe weighted average number of ordinary sharesoutstanding during the financial year, adjusted for bonuselements in ordinary shares issued during the year.

(ii) Diluted Earnings Per Share

Diluted earnings per share adjusts the figures used indetermining basic earnings per share to take into accountthe after income tax effect of interest and other financingcosts associated with dilutive potential ordinary shares andthe weighted average number of shares assumed to havebeen issued for no consideration in relation to dilutivepotential ordinary shares.


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(w) Share-Based Payments

Goods or services received or acquired in a share-basedpayment transaction shall be recognised when the goodsor as the services are received. A corresponding increasein equity shall be recognised if the goods or serviceswere received in an equity-settled share-based paymenttransaction. The equivalent increase in equity shall be basedon the fair value of the goods and services received or on afair value determined by reference to the fair value of theequity instruments granted at grant date.

When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition asassets, they shall be recognised as expenses.

(x) Investment Property

Investment property (land or a building – or part of abuilding – or both) is held for long-term rental yields orcapital appreciation or both and is not occupied by theGroup. Investment property is carried at fair value,representing open-market value determined annually by anindependent valuer who holds a recognised and relevantprofessional qualification.

Changes to fair value are recorded in the statement ofcomprehensive income as part of other income.

(y) Business Combinations

The purchase method of accounting is used to accountfor all business combinations. The cost of an acquisitionis measured as the fair value of the assets given, equityinstruments issued and liabilities incurred or assumed atthe date of exchange, plus costs directly attributable tothe acquisition. Where equity instruments are issued inan acquisition, the fair value of the instruments is theirpublished market price as at the date of exchange.

Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination are measuredinitially at their fair values at the acquisition date. The excessof the cost of acquisition over the fair value of the identifiablenet assets acquired is recorded as goodwill (refer note 1(m)).If the cost of acquisition is less than the fair value of the netassets of the subsidiary acquired, the difference isrecognised directly in the statement of comprehensiveincome.

Where the settlement of any part of the cash considerationis deferred, the amounts payable in future are discounted totheir present value as at the date of exchange. The discountrate used is the Group’s weighted average cost of capital.

A revised AASB 3 Business Combinations becameoperative on 1 July 2009. While the revised standardcontinues to apply the acquisition method to businesscombinations, there have been some changes. Acquisitionrelated costs are now expensed when incurred, as opposedto previously being included within goodwill.

(z) Government Grants

Grants from the Government are recognised at their fairvalue where there is reasonable assurance that the grantwill be received and the Group will comply with all attachedconditions.

Government grants relating to costs are deferred andrecognised in the statement of comprehensive income overthe period necessary to match them with the costs that theyare intended to compensate.

(aa) Contributed Equity

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of newshares or options are shown in equity as a deduction,net of tax, from the proceeds. Incremental costs directlyattributable to the issue of new shares or options for theacquisition of a business are not included in the cost of theacquisition as part of the purchase consideration.

(ab) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of theamount of associated GST, unless the GST incurred is notrecoverable from the taxation authority. In this case it isrecognised as part of the cost of acquisition of the assetor as part of the expense.

Receivables and payables are stated inclusive of theamount of GST receivable or payable. The net amountof GST recoverable from, or payable to, the taxationauthority is included with other receivables or payablesin the balance sheet.

(ac) Rounding of Amounts

The company is of a kind referred to in Class Order98/0100, issued by the Australian Securities andInvestments Commission, relating to the “rounding off” ofamounts in the financial report. Amounts in the financialreport have been rounded off in accordance with that ClassOrder to the nearest thousand dollars, or in certain cases,to the nearest dollar.

(ad) New Accounting Standards and UIG Interpretations

Certain new accounting standards and UIG interpretationshave been published that are not mandatory for 30 June2010 reporting periods. These new standards andinterpretations will have no impact on the Group.


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CONSOLIDATED

2010 2009$’000 $’000

Note 2. RevenueSales RevenueSale of goods 406,937 454,566Sale of services 9,576 5,546

416,513 460,112

Other RevenueRent 802 771Interest 108 145Dividends 2 4Net foreign exchange gains/(losses) (2,055) (21,606)Other 153 505

(990) (20,181)

Revenue from continuing operations 415,523 439,931

Note 3. Other IncomeNet gain on disposal of property, plant and equipment (1) 105Fair value gains on investment properties 308 480Government grants (note (a)) 422 579

729 1,164

(a) Government grants

Grants for employee training of $44,000 (2009: $27,000), energy grants credits scheme of $253,000 (2009: $258,000), saltand water re-use/reduction project of $0 (2009: $153,000) and farm productivity improvement $125,000 (2009: $141,000)were recognised as ‘other income’ by the Group during the financial year. There are no unfulfilled conditions or othercontingencies attached to these grants. The Group did not benefit from any other forms of government assistance.

Note 4. ExpensesProfit/(loss) before income tax includes the following specific expenses:

DepreciationBuildings 842 807Plant & equipment 11,982 10,649

Total depreciation 12,824 11,456

Finance CostsInterest and finance charges paid/payable 7,181 5,492Amount capitalised – –

Finance costs expensed 7,181 5,492

Write down of inventories to net realisable value 104 3,370Impairment losses – trade receivables 194 34Employee benefits provided for 3,370 3,745Corporate advisory expenses (a) 697 –Write-off of capital costs (b) – 1,995

(a) Corporate advisory expenses relate to external legal and financial advice received in 2010. These expenses have beenrecognised in ‘corporate advisory expenses’ in the statement of comprehensive income.

(b) Write-off of capital costs in 2009 related to a proposed joint venture between the Company and National Foods Limited.Amounts expensed were costs of acquisition of $1,212,000 and capital raising costs of $783,000. These expenses havebeen recognised in ‘other expenses’ in the statement of comprehensive income.


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CONSOLIDATED

2010 2009$’000 $’000

Note 5. Income Tax(a) Income tax expenseCurrent tax 2,263 (158)Deferred tax (1,045) (9,675)Under (over) provided in prior years (333) (284)

Aggregate income tax expense/(benefit) 885 (10,117)

Deferred income tax (benefit) expense included in income tax expense/(benefit) comprises:Decrease (increase) in deferred tax assets (note 13) (965) (7,651)(Decrease) increase in deferred tax liabilities (note 19) (80) (2,024)

(1,045) (9,675)

(b) Numerical reconciliation of income tax expense/(benefit) to prima facie tax payable

Profit/(loss) from operations before income tax expense/(benefit) 9,689 (30,051)

Income tax calculated @ 30% (2009 – 30%) 2,907 (9,015)

Tax effect of amounts which are not deductible (taxable) in calculating taxable income:Depreciation and amortisation 79 79Entertainment 55 46Research and development (278) (309)Non-assessable capital gain (36) (144)Tax break investment allowance (341) (87)Sundry – (1)Share of net profits/(losses) of joint ventures (1,168) (402)

1,218 (9,833)

Under (over) provision in prior years (333) (284)

Income tax expense/(benefit) 885 (10,117)

(c) Amounts recognised directly in equity

Aggregate current and deferred tax arising in the reporting period and not recognisedin net profit or loss but directly debited or credited to equity

Current tax – credited directly to equity (note 22) – –Net deferred tax – debited (credited) directly to equity (notes 13 and 19) (933) 622

(933) 622

(d) Tax consolidation legislation

Warrnambool Cheese and Butter Factory Company Holdings Limited and its subsidiaries have implemented the taxconsolidation legislation as of 1 July 2003. The accounting policy on implementation of the legislation is set out in note 1(d).

On adoption of the tax consolidation legislation, the entities in the tax consolidation group entered into a tax sharingagreement which, in the opinion of the companies, limits the joint and several liability of the wholly-owned entities in the caseof default by the head entity, Warrnambool Cheese and Butter Factory Company Holdings Limited.

The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensateWarrnambool Cheese and Butter Factory Company Holdings Limited for any current income tax payable assumed and arecompensated by Warrnambool Cheese and Butter Factory Company Holdings Limited for any current tax receivable. Entitiesare reimbursed by Warrnambool Cheese and Butter Factory Company Holdings Limited for any income tax receivable byWarrnambool Cheese and Butter Factory Company Holdings Limited in respect of their activities. The funding amounts aredetermined by reference to the wholly-owned entities financial statements.

The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the headentity, which is issued as soon as practicable after the end of the financial year. The head entity may also require payment ofinterim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as currentintercompany receivables or payables (see note 30).


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CONSOLIDATED

2010 2009$’000 $’000

Note 6. Current Assets – Trade and Other ReceivablesTrade receivables 64,437 59,330Provision for impairment of receivables (a) (800) (800)

63,637 58,530

Other receivables (c) 15,919 9,105Prepayments 5,877 950

85,433 68,585

(a) Impaired trade receivables

As at 30 June 2010 current trade receivables of the Group with a nominal value of $825,000 (2009: $918,000) wereimpaired. The amount of the provision was $800,000 (2009: $800,000). The individually impaired receivables mainly relate tosmall businesses that are in unexpectedly difficult economic situations. It was assessed that a portion of the receivable isexpected to be recovered.

The ageing of these receivables is as follows:

1 to 3 months – 1193 to 6 months 191 92Over 6 months 634 707

825 918

Movements in the provision for impairment of receivables are as follows:

At 1 July 800 800Provision for impairment recognised during the year 194 34Receivables written off during the year as uncollectible (194) (34)Unused amount reversed – –

800 800

The creation and release of the provision for impaired receivables has been included in 'other expenses' in the statement ofcomprehensive income. Amounts charged to the allowance account are generally written off when there is no expectation ofrecovering additional cash.

(b) Past due but not impaired

As of 30 June 2010, Group trade receivables of $5,162,000 (2009: $6,226,000) were past due but not impaired. Theserelate to a number of customers for whom there is no recent history of default. The ageing analysis of these tradereceivables is as follows:

The ageing analysis of these trade receivables is as follows:

Up to 3 months 3,784 5,8163 to 6 months 1,233 230Over 6 months 145 180

5,162 6,226

(c) Other receivables

These amounts generally arise from transactions outside the usual activities of the Group. Interest may be charged on advances.

(d) Foreign exchange and interest rate risk

Information about the Group's exposure to foreign currency risk and interest rate risk in relation to trade and otherreceivables is provided in note 24.

(e) Fair value and credit risk

Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value.

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentionedabove. The fair value of securities held for certain receivables is insignificant as is the fair value of any collateral sold orrepledged. Refer note 24 for more information on the risk management policy of the Group and the credit quality of theentity's trade receivables.


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CONSOLIDATED

2010 2009$’000 $’000

Note 7. Current Assets – InventoriesRaw materials and stores – at cost 6,709 5,304Work in progress – at cost 389 605Finished goods – at net realisable value 58 26,470Finished goods – at cost 33,507 7,192

40,663 39,571

(a) Inventory expense

Inventory recognised as an expense during the year ended 30 June 2010 amounted to $304,238,930 (2009: $372,818,000).

Write-downs of inventories to net realisable value recognised as an expense during the year ended 30 June 2010 amountedto $104,000 (2009: $3,370,000). This expense has been recognised in 'raw materials and consumables used' in thestatement of comprehensive income.

Note 8. Derivative Financial InstrumentsCurrent assetsForward foreign exchange contracts – cash flow hedges (a) – 3,772

– 3,772

Current liabilitiesForward foreign exchange contracts – cash flow hedges (a) 523 –

523 –

(a) Instruments used by the Group

The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure tofluctuations in foreign exchange rates.

The Group exports dairy products to numerous countries. In order to protect against exchange rate movements, the Grouphas entered into forward exchange contracts to sell US dollars, which is the common currency for international dairy sales.

The Group’s risk management policy is to hedge 100% of contracted sales and 50% of anticipated sales transaction in USdollars no more than the subsequent 12 months. The contracts are timed to mature when funds are scheduled to bereceived for major export shipments.

The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly inequity. When the cash flows occur, the Group adjusts the initial measurement of the component recognised in the balancesheet by the related amount deferred in equity.

(b) Risk exposures

Information about the Group's exposure to credit risk, foreign exchange and interest rate risk is provided in note 24.

Note 9. Non-Current Assets – InvestmentsAccounted for Using the Equity MethodInterest in joint ventures (note 36) 18,463 14,558

18,463 14,558

The interest in Great Ocean Ingredients Pty Ltd and Warrnambool Cheese and Butter Japan Company Limited areaccounted for in the consolidated financial statements using the equity method of accounting.


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CONSOLIDATED

2010 2009$’000 $’000

Note 10. Non-Current Assets – Other Financial AssetsOther unlisted securitiesEquity securities 5 5

5 5

These financial assets are carried at cost. Unlisted securities are traded in inactive markets that do not give indication as tofair value, as such they are valued at cost.

Note 11. Non-Current Assets – Property, Plant & Equipment

Furniture,Constr’n in Freehold Plant & Motor fixtures &progress land Buildings equipment vehicles fittings

Consolidated 2010 $’000 $’000 $’000 $’000 $’000 $’000

Year ended 30 June 2010Opening net book amount 3,179 2,620 14,302 55,586 1,340 730Additions – – 1,042 7,159 1 178Disposals (2,518) – – (18) (52) (7)Depreciation charge – – (842) (8,474) (416) (191)

Closing net book amount 661 2,620 14,502 54,253 873 710

At 30 June 2010Cost or fair value 661 2,620 19,893 116,598 3,084 1,935Accumulated depreciation – – (5,391) (62,345) (2,211) (1,225)

Net book amount 661 2,620 14,502 54,253 873 710

LeasedComputer Crown land Effluent plant &equipment improv’s plant equipment Total

Consolidated 2010 $’000 $’000 $’000 $’000 $’000

Year ended 30 June 2010Opening net book amount 3,742 255 7,019 4,071 92,844Additions 413 – – – 8,793Disposals (21) – – – (2,616)Depreciation charge (1,493) (26) (422) (960) (12,824)

Closing net book amount 2,641 229 6,597 3,111 86,197

At 30 June 2010Cost or fair value 9,278 486 8,615 24,391 187,561Accumulated depreciation (6,637) (257) (2,018) (21,280) (101,364)

Net book amount 2,641 229 6,597 3,111 86,197


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Note 11. Non-Current Assets – Property, Plant & Equipment (cont.)

Furniture,Constr’n in Freehold Plant & Motor fixtures &progress land Buildings equipment vehicles fittings

Consolidated 2009 $’000 $’000 $’000 $’000 $’000 $’000

At 1 July 2008Cost or fair value 4,213 2,740 18,753 97,190 3,444 1,638Accumulated depreciation – – (3,739) (48,486) (2,082) (999)

Net book amount 4,213 2,740 15,014 48,704 1,362 639

Year ended 30 June 2009Opening net book amount 4,213 2,740 15,014 48,704 1,362 639Additions – – 103 14,278 587 292Disposals (1,034) (120) (8) (148) (166) (5)Depreciation charge – – (807) (7,248) (443) (196)

Closing net book amount 3,179 2,620 14,302 55,586 1,340 730

At 30 June 2009Cost or fair value 3,179 2,620 18,851 109,464 3,205 1,768Accumulated depreciation – – (4,549) (53,878) (1,865) (1,038)

Net book amount 3,179 2,620 14,302 55,586 1,340 730

LeasedComputer Crown land Effluent plant &equipment improv’s plant equipment Total

Consolidated 2009 $’000 $’000 $’000 $’000 $’000

At 1 July 2008Cost or fair value 5,583 512 8,615 22,897 165,585Accumulated depreciation (3,758) (231) (1,175) (19,218) (79,688)

Net book amount 1,825 281 7,440 3,679 85,897

Year ended 30 June 2009Opening net book amount 1,825 281 7,440 3,679 85,897Additions 3,030 – – 1,594 19,884Disposals – – – – (1,481)Depreciation charge (1,113) (26) (421) (1,202) (11,456)

Closing net book amount 3,742 255 7,019 4,071 92,844

At 30 June 2009Cost or fair value 8,917 512 8,615 24,391 181,522Accumulated depreciation (5,175) (257) (1,596) (20,320) (88,678)

Net book amount 3,742 255 7,019 4,071 92,844

Valuation of land and buildings

On transition to Australian Equivalents of International Accounting Standards, AASB 1 First-Time Adoption of AustralianEquivalents to International Financial Reporting Standards allows companies to elect to use fair value as deemed cost. Thecompany has elected to do so, as such land and buildings fair value at 30 June 2006 was deemed cost on transition to AIFRS.

Non-current assets pledged as security

Refer note 18 for information on non-current assets pledged as security by the Group.


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CONSOLIDATED

2010 2009$’000 $’000

Note 12. Non-Current Assets – Investment PropertiesAt fair valueOpening balance 1 July 9,504 8,926Acquisitions – –Disposals – –Net gain (loss) from fair value adjustment 308 480Transfer (to) from inventories and owner occupied property – 98

Closing balance 30 June 9,812 9,504

(a) Amounts recognised in profit/(loss) for investment property

Rental income 746 696Direct operating expenses from property that generated rental income (35) (31)Direct operating expenses from property that did not generate rental income – (1)

711 664

Valuation basis

The basis of valuation of investment properties is fair value being the amounts for which properties could be exchangedbetween willing parties in an arm's length transaction, based on current prices in an active market for similar properties in thesame location and condition and subject to similar leases. The 30 June 2010 revaluations were based on independentassessments by Certified Practising Valuer C.J. Ham & Murray Pty Limited conducted on 4 March 2010.

Non-current assets pledged as security

Refer note 18 for information on non-current assets pledged as security by the Group.

Leasing arrangements

The consolidated entity has properties that are leased to tenants under long-term operating leases with rentals payable monthly.

Minimum lease payments under non-cancellable operating leases of properties notrecognised in the financial statements are receivable as follows:

Within one year 745 745

Later than one year but not later than five years 1,115 1,810

1,860 2,555


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CONSOLIDATED

2010 2009$’000 $’000

Note 13. Non-Current Assets – Deferred Tax AssetsThe balance comprises temporary differences attributable to:

Amounts recognised in profit or lossDoubtful debts 297 240Employee benefits 2,674 2,380Finance leases 306 673Audit fees 35 30Accrued expenses 1,881 787Unrealised FX Losses – 493Quality Claims 30 –Blackhole expenses 5 6Tax losses carried forward 5,010 6,590

10,238 11,199

Amounts recognised directly in equityShare issue expenses 161 8

Deferred tax assets 10,399 11,207

Set-off deferred tax liabilities pursuant to set-off provisions (note 19) 6,399 7,568

Net deferred tax assets 4,000 3,639

Movements:Opening balance at 1 July 11,207 3,555Credited (charged) to the statement of comprehensive income (note 5) (965) 7,651Credited (charged) to equity (note 5) 156 1

Closing Balance 30 June 10,399 11,207

Deferred tax assets to be recovered within 12 months 3,197 2,675Deferred tax assets to be recovered after more than 12 months 7,202 8,532

10,399 11,207

Note 14. Non-Current Assets – Intangible Assets

Goodwill TotalConsolidated 2010 $’000 $’000

Year ended 30 June 2010Opening net book amount 1,628 1,628Additions – –Impairment charge – –Amortisation charge – –

Closing net book amount 1,628 1,628

At 30 June 2010Cost 1,628 1,628Accumulated amortisation and impairment – –

Net book amount 1,628 1,628


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Note 14. Non-Current Assets – Intangible Assets (cont.)

Goodwill TotalConsolidated 2009 $’000 $’000

At 1 July 2009Opening net book amount 1,628 1,628Additions – –Impairment charge – –Amortisation charge – –

Closing net book amount 1,628 1,628

At 30 June 2009Cost 1,628 1,628Accumulated amortisation and impairment – –

Net book amount 1,628 1,628

(a) Impairment tests for goodwill

Goodwill and intangible assets with indefinite useful lives are allocated to the Groups cash-generating units (CGU's) according towhich CGU generated those assets on acquisition. A summary of amounts of goodwill and indefinite life intangibles allocated ispresented below.

CONSOLIDATED

2010 2009$’000 $’000

Cash-generating unitCheese/Whey 1,523 1,523Specialty Cheese 105 105

1,628 1,628

The recoverable amount of a CGU is based on value-in-use calculations. These calculations use cash flow projections basedon financial budgets approved by management covering no more than a five-year period. Cash flows beyond the five-yearperiod are extrapolated using a zero growth rate.

(b) Key assumptions used for value-in-use calculations

Growth Rate

2010 2009% %

Cash-generating unitCheese/Whey 2 2Specialty Cheese 10 10

In performing value-in-use calculations for applicable CGU's, the company has applied post-tax discount rate of 11% todiscount the forecast future attributable post tax cash-flows. The post-tax discount rate applied was 11% in 2009.These assumptions have been used for the analysis of each CGU. Budgeted gross margin was based on past performanceand expectations for the future. It is not considered a change in any of the key assumptions to be reasonably possible.


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CONSOLIDATED

2010 2009$’000 $’000

Note 15. Current Liabilities – Trade and Other PayablesTrade payables 30,910 24,349Other payables (a) 6,252 6,300

37,162 30,649

(a) Amounts not expected to be settled within the next 12 months

Other payables include accruals for annual leave. The entire obligation is presented as current, since the Group doesnot have an unconditional right to defer settlement. However, based on past experience, the Group does not expect allemployees to take the full amount of accrued leave within the next 12 months. The following amounts represent leave thatis not expected to be taken in the next 12 months.

Annual leave obligation expected to be settled after 12 months 1,651 931

Note 16. Current Liabilities – BorrowingsSECUREDBank overdrafts 55,772 66,950Bills payable 16,232 6,892Lease liabilities 676 980

72,680 74,822

(a) Security and fair value disclosures

Details of the security relating to each of the secured liabilities and the fair value of each of the borrowings is provided in note 18.

(b) Risk exposures

Details of the Group's exposure to risks arising from current and non-current borrowings are set out in note 24.

Note 17. Current Liabilities – ProvisionsEmployee benefits (a) 4,700 4,216Other (b) – 356Quality Claims 100 –

4,800 4,572

(a) Amounts not expected to be settled within the next 12 monthsThe current provision for long service leave included all unconditional entitlements where employees have completed therequired period of service and also where employees are entitled to pro-rata payments in certain circumstances. The entireamount is presented as current, since the Group does not have an unconditional right to defer settlement. However, basedon past experience, the Group does not expect all employees to take the full amount of accrued long service leave or requirepayment within the next 12 months. The following amounts reflect leave that is not expected to be taken or paid within thenext 12 months.

Long service leave obligation expected to be settled after 12 months 1,591 1,408

(b) Movements in provisionsMovements in each class of provision during the financial year, other than employee benefits, are set out below.

Quality Claims Other TotalConsolidated – 2010 $’000 $’000 $’000

Carrying amount at start of year – 356 356Charged/(credited) to the statement of comprehensive income– additional provisions recognised 100 – 100– unused amounts reversed – (356) (356)Amounts used during the period – – –

Carrying amount at end of year 100 – 100


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CONSOLIDATED

2010 2009$’000 $’000

Note 18. Non-Current Liabilities – BorrowingsSECUREDBills payable 27,700 25,349Lease liabilities 993 1,670

28,693 27,019

Further information relating to loans from related parties is set out in note 30.

(a) Secured liabilities and assets pledged as securityTotal secured liabilities (current and non-current) are as follows:Bank overdrafts 55,772 66,950Bills payable 43,932 32,241Lease liability 1,669 2,650

Total secured liabilities 101,373 101,841

The bank overdraft and bills payable of the Group are secured by a fixed and floating charge over the whole of the Group’sassets and an interlocking guarantee from all companies within the Group. Lease liabilities are effectively secured as therights to the leased assets revert to the lessor in the event of default.During the year the Group renegotiated its financing facilities giving it access to increased working capital funding. Under theagreement bank loans are secured by a negative pledge that imposes certain covenants on the Group.(a) Minimum capital adequacy of 40% as at 30 June 2010(b) Full year earnings before interest and tax to equal or exceed $10,000,000 as at 30 June 2010The carrying amounts of assets pledged as security for current and non-current borrowings are:

CurrentTrade and other receivables 85,433 68,585Inventories 40,663 39,571Derivative financial instruments – 3,772

Total current assets pledged as security 126,096 111,928

Non-currentInvestments accounted for using the equity method 18,463 14,558Other financial assets 5 5Property, plant & equipment 86,197 92,844Investment properties 9,812 9,504Deferred tax assets 4,000 3,639Intangible assets 1,628 1,628

Total non-current assets pledged as security 120,105 122,178

Total assets pledged as security 246,201 234,106

(b) Fair value 2010 2009

Carrying Fair Carrying Fairamount value amount value$’000 $’000 $’000 $’000

The carrying amount and fair values of borrowings atbalance date are:On-balance sheetBank overdraft 55,772 55,772 66,950 66,950Bills payable 43,932 44,561 32,241 33,472Lease liabilities 1,669 1,669 2,650 2,650

Non-traded financial liabilities 101,373 102,002 101,841 103,072

None of the classes of borrowings are readily traded on organised markets in standardised form. Fair value is inclusive ofcosts which would be incurred on settlement of liability.The fair value of on-balance sheet borrowings is based upon market prices where a market exists or by discountingexpected future cash flows by the current interest rates for liabilities with similar risk profiles.

(c) Risk exposuresInformation about the Group’s exposure to interest rate changes is provided in note 24.


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CONSOLIDATED

2010 2009$’000 $’000

Note 19. Non-Current Liabilities – Deferred Tax Liabilities

The balance comprises temporary differences attributable to:Amounts recognised in profit or lossPrepayments 51 50Inventories 217 187Depreciation 1,751 2,258Unrealised foreign exchange gains 352 43Investment property 1,697 1,640Blackhole expenses 301 270

4,369 4,448

Amounts recognised directly in equityRevaluation of land and buildings 2,030 2,030Cash flow hedges – 1,090

Deferred tax liabilities 6,399 7,568

Set-off deferred tax assets pursuant to set-off provisions (note 13) 6,399 7,568

Net deferred tax liabilities – –

Movements:Opening balance at 1 July 7,568 8,968Credited (charged) to the statement of comprehensive income (note 5) (80) (2,024)Credited (charged) to equity (note 5) (1,089) 623

Closing Balance 30 June 6,399 7,568

Deferred tax liabilities to be settled within 12 months 1,263 2,121Deferred tax liabilities to be settled after more than 12 months 5,136 5,447

6,399 7,568

Note 20. Non-Current Liabilities – ProvisionsEmployee benefits – long service leave 368 311

368 311


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PARENT ENTITY

2010 2009 2010 2009Number Number Value Valueof Shares of Shares $’000 $’000

Note 21. Contributed Equity(a) Share capitalOrdinary shares – fully paid 39,952,827 39,919,459 29,108 28,967

39,952,827 39,919,459 29,108 28,967

Number IssueDate Notes of Shares Paid $ $’000

(b) Movement in ordinary share capitalOpening balanceOrdinary share capital 01-Jul-09 39,919,459 28,967Dividend reinvestment 26-Mar-10 (c) 33,368 4.21 140

Balance 30-Jun-10 39,952,827 29,108

(c) Shareholders of Warrnambool Cheese and Butter Company Holdings Limited receive dividends paid on theirshareholdings in cash or shares or a combination of both.

(d) Under the Employee Share Plan, at the discretion of the board, an issue of $1,000 worth of shares per annum, at nocost, can be made to each eligible employee. Eligible employees are all permanent employees with at least one year'sequivalent full time service and all casual/seasonal employees with at least two year's equivalent full time service. During2010, no shares were issued to employees.

(e) A Supplier Share Plan is in place where company milk suppliers are entitled, at certain times, to purchase shares at adiscount rate to the current market. The times when this offer is open is at the discretion of the company. At 30 June theplan was not open. No shares were purchased under this plan this financial year.

(f) Capital risk management

The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they cancontinue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structureto reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount ofdividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with other listed entities, the Group and the parent entity monitor capital on the basis of the gearing ratio.The ratio is calculated as net debt divided by total capital, where net debt is borrowings less cash and cash equivalentsand total capital is equity plus net debt.

During 2010, the Group's strategy, which was unchanged from 2009, was to maintain a gearing ratio within a 25% to 50%range or above for a short-term in unforeseen circumstances. The gearing ratios at 30 June 2010 and 30 June 2009 wereas follows:

CONSOLIDATED

2010 2009$’000 $’000

Total borrowings 101,373 101,841Less cash and cash equivalents – –

Net debt 101,373 101,841

Total equity 101,975 96,733

Total capital 203,348 198,574

Gearing ratio 50% 51%


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CONSOLIDATED

2010 2009$’000 $’000

Note 22. Reserves and Retained Profits(a) Asset revaluation reserve 5,221 5,221

Movements

Balance 1 July 5,221 5,221

Balance 30 June 5,221 5,221

(b) Capital reserve 6,784 6,784

Movements


Balance 30 June 6,784 6,784

(c) Hedging reserve (364) 2,540

Movements


Revaluation – gross (4,149) 2,543

Deferred tax (note 19) 1,245 (1,089)

Balance 30 June (364) 2,540

Balance of reserves at the end of the financial year 11,641 14,546

(d) Retained profits 61,226 53,220

Movements

Balance 1 July 53,220 84,577

Net profit/(loss) for the year 8,804 (19,934)

Dividends provided for or paid (798) (11,423)

Balance 30 June 61,226 53,220

(e) Nature and purpose of reserves

(i) Asset revaluation reserve

The asset revaluation reserve is used to record increments and decrements on the revaluation of non-current assets,as described in accounting policy note 1(j).

(ii) Capital reserve

The capital reserve is used to record capital profits made on the non-reciprocal contribution of a non-current asset.

(iii) Hedging reserve

The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recogniseddirectly in equity, as described in note 1(q). Amounts are recognised in the profit and loss when the associated hedgetransaction affects profit and loss.


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PARENT ENTITY

2010 2009$’000 $’000

Note 23. Dividends(a) Dividends provided for or paid out of prior years profits

Ordinary shares – special (further interim) dividend – 6,297Ordinary shares – final dividend – 4,329

Total dividends provided for or paid out of prior years profits – 10,626

(b) Dividends provided for or paid out of current years profits

Ordinary sharesInterim dividend of 2.0 cents per fully paid share paid 26 March 2010 798 797Fully franked @ 30%

Total dividends provided for or paid out of current years profits 798 797

(c) Dividends not recognised at year end

Ordinary shares – final dividendSince year end the Directors have declared the payment of a final dividend of 3,196 –8.0 cents per fully paid share, fully franked @ 30%. The aggregate amountof the proposed dividend to be paid out of retained profits at 30 June 2010,but not recognised as a liability at year end, is

Total dividends not recognised at year end 3,196 –

(d) Franked dividends

The franked portions of the dividends declared after 30 June 2010 will be frankedout of existing franking credits or out of franking credits arising from the payment ofincome tax in the year ending 30 June 2010.Franking credits available for subsequent financial years based on a tax rate of 30%(2009 – 30%) 34,054 34,397

The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:(a) franking credits that will arise from the payment of the current tax liability(b) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date, and(c) franking credits that may be prevented from being distributed in subsequent financial years.

Note 24. Financial Risk ManagementThe Group's activities expose it to a variety of financial risks; market risk (including currency risk, interest rate risk and pricerisk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financialmarkets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group usesderivative financial instruments such as foreign exchange contracts to hedge certain risk exposures. Derivatives areexclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The Group uses differentmethods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the caseof interest rate, foreign exchange and other price risks and ageing analysis for credit risk.

Risk management is carried out by the treasury function within the finance department under practices and policies approvedby the Board of Directors. The finance department identifies, evaluates and hedges financial risks using the principles providedby the Board for overall risk management and practices and written policies covering specific areas, such as mitigating foreignexchange, interest rate and credit risk, use of derivative financial instruments and investing excess liquidity.

(a) Market risk

(i) Foreign exchange riskForeign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in acurrency that is not the entity's functional currency. The Group exports commodities and is exposed to foreign exchange riskfrom currency exposures to the US dollar. The risk is measured using sensitivity analysis and cash flow forecasting. Forwardcontracts and options are used to manage foreign exchange risk.


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Note 24. Financial Risk Management (cont.)The Group's risk management policy is to hedge 100% of contracted and 50% of anticipated sales transactions in USdollars for no more than the subsequent 12 months. 100% of projected sales qualify as "highly probable" for hedgeaccounting purposes. Further hedges may be taken outside of the above policy on resolution of the Board.

The Group’s exposure to foreign currency risk at reporting date was as follows:

2010 2009USD USD$’000 $’000

Trade receivables – –Forward Exchange Contractssell foreign currency (cash flow hedges) 47,435 22,499

Group Sensitivity

Based on financial instruments held at 30 June 2010, had the Australian dollar weakened/strengthened by 10% against theUS dollar with all other variables held constant, the Group's post-tax profit for the year would have increased $40,000/decreased $33,000 (2009 loss – increased $39,000/decreased $48,000), as a result of foreign exchange gains/losses ontranslation of US dollar denominated financial instruments as detailed in the above table. Exposure for 2010 and 2009 wasdue to an ineffective hedge position on forward exchange contracts. Equity would have been $3,584,000 lower/$4,381,000higher (2009 – $1,664,000 lower/$2,033,000 higher) had the Australian dollar weakened/strengthened by 10% against theUS dollar, arising from forward foreign exchange contracts designated as cash flow hedges. Equity is more sensitive tomovements in the Australian dollar/US dollar exchange rate in 2010 than 2009 because of the increased amount in forwardexchange contracts.

(ii) Cash flow and fair value interest rate risk

The Groups interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group tocash flow interest-rate risk. Borrowings issued at fixed rates expose the Group to fair value interest-rate risk. Group practiceis to fix rates for approximately 35% of its long-term borrowings. This practice has been continued during 2010.All borrowings were denominated in Australian dollars in 2010 and 2009.

As at the reporting date, the Group had the following variable rate borrowings outstanding:

2010 2009

Weighted Balance Weighted BalanceAverage Average

Interest Rate Interest Rate% $’000 % $’000

Bank overdrafts and bank loans 5.2% 87,367 4.1% 83,071

An analysis by maturity is provided in (c) below.

Group Sensitivity

The Group had no material sensitivity to movements in interest rates at 30 June 2010 or 30 June 2009.

(b) Credit risk

Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instrumentsand deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, includingoutstanding receivables and committed transactions.

The maximum exposure to credit risk at the reporting date is the carrying amount of financial assets (notes 6, 8 and 10).The Group generally retains title over goods until full payment is received.

The Group trades with recognised, creditworthy third parties, and as such collateral is generally not requested nor is it theGroup's practice to securitise it's trade and other receivables. It is the Group's policy that all customers who wish to tradeon credit terms are subject to credit verification procedures, including assessment of financial position, past experience,industry reputation and credit rating. For new export customers the Group may take security in the form of letters of creditwhich can be called upon if the counterparty is in default under the terms of the agreement. At 30 June 2010 the Group hadtrade credit insurance of AUD22,060,000 on selected export customers.

Receivables balances are monitored on an ongoing basis to ensure that risk limits are not exceeded and accounts aretrading within agreed terms. Receivables outside terms are proactively managed with the result that the Group's exposureto bad debts is not significant.

There are no significant concentrations of credit risk within the Group and financial instruments are spread across twofinancial institutions, who presently have Standard and Poor's rating of A1, to minimise the risk of default of counterparties.


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Note 24. Financial Risk Management (cont.)(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, through the availability of funding via adequate amountsof committed credit facilities and the ability to close-out market positions. The Group manages liquidity risk by continuouslymonitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Groupstreasury function maintains flexibility in funding by keeping committed credit lines available with its major banking partner.

The Group has access to the following undrawn borrowing facilities at the reporting date:

CONSOLIDATED

2010 2009$’000 $’000

Bank overdrafts 9,709 18,550Bank loans and bills 3,446 9,109

13,155 27,659

The bank overdraft facility may be drawn at any time and may be terminated by the bank without notice. The bank loans may bedrawn at any time and are subject to annual review. Bank loans have an average maturity of 2.0 years (2009 – 2.5 years).

Maturities of financial liabilities

The tables below analyse the Group's financial liabilities. The amounts disclosed in the table are the contractual undiscountedcash flows.

Less than 6 – 12 Between Between Over 5 Total Carrying6 months months 1 and 2 and years contractual amount

Group – 2 years 5 years cash flowsAt 30 June 2010 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Non-derivativesNon-interest bearing 37,162 – – – – 37,162 37,162Variable rate 63,658 7,625 17,517 1,888 – 90,688 86,867Fixed rate 2,764 2,687 8,107 3,431 – 16,989 14,506

103,584 10,312 25,624 5,319 – 144,839 138,535

Less than 6 – 12 Between Between Over 5 Total Carrying6 months months 1 and 2 and years contractual amount

Group – 2 years 5 years cash flowsAt 30 June 2009 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Non-derivativesNon-interest bearing 30,649 – – – – 30,649 30,649Variable rate 69,297 2,262 7,489 5,494 – 84,542 83,071Fixed rate 2,924 2,801 8,116 6,352 – 20,193 18,770

102,870 5,063 15,605 11,846 – 135,384 132,490

(d) Fair value estimation

The fair value of financial assets and liabilities must be estimated for recognition and measurement or for disclosure purposes.

The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. The quotedmarket price used for financial assets held by the Group is the current bid price.

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. TheGroup uses a variety of methods and makes assumptions that are based on market conditions existing at balance date. Quotedmarket prices or dealer quotes for similar instruments are used for long-term debt instruments held. The fair value of forwardexchange contracts is determined using forward exchange market rates at the reporting date.

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values dueto their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the futurecontractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.


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Note 25. Key Management Personnel Disclosures(a) Directors

The following persons were directors of Warrnambool Cheese and Butter Factory Company Holdings Limited during thefinancial year:

Chairman – non-executiveFrancis J Davis

Executive directorJohn F McLean, CEO (to 15 June 2010)*David J Lord, CEO (from 16 June 2010)*

Non-executive directorsR A Andrew Anderson**Paul G BourkeMichael Carroll***Craig L DrakeBruce J MorleyTerence J RichardsonBruce G Vallance

* John F McLean resigned on 15 June 2010 and was replaced by David J Lord on 16 June 2010.** R A Andrew Anderson became a supplier director on 31 July 2009.***Michael Carroll became a director on 28 August 2009.

(b) Other key management personnel

The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group,directly or indirectly, during the financial year:

Name Position EmployerAnthony P Cook General Manager Milk Supply The Warrnambool Cheese and Butter Factory Company LimitedWilliam D Hannah Chief Financial Officer The Warrnambool Cheese and Butter Factory Company LimitedBernard J Kavanagh General Manager Corporate Development The Warrnambool Cheese and Butter Factory Company LimitedWilliam J Slater General Manager Retail Dairy The Warrnambool Cheese and Butter Factory Company LimitedRichard C Wallace General Manager Operations The Warrnambool Cheese and Butter Factory Company LimitedJohn S Williams General Manager Sales, Marketing & Innovation The Warrnambool Cheese and Butter Factory Company Limited

All of the above were other key management personnel in 2009.

CONSOLIDATED

2010 2009$’000 $’000

(c) Key management personnel compensationShort-term employee benefits 2,423,548 2,640,697Post-employment benefits 160,930 164,434Long-term benefits 54,877 (10,594)Share-based payments – 5,988Termination benefits – 590,719

2,639,355 3,391,244

Under the Corporations Act 2001 and Regulation 2M.3.03 the Group is required to report remuneration information inthe Director's report. The same remuneration information is required in the financial statements in accordance with AASB124Related Party Disclosures. The standard, to avoid duplication, has provided relief so that required information if disclosed inthe Director's report does not need to be included in the financial statements. Remuneration information contained in theDirector's report is subject to audit to ensure requirements of accounting standards are met.


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Note 25. Key Management Personnel Disclosures (cont.)

(d) Equity instrument disclosures relating to key management personnelThe number of shares in the Company held during the financial year by each director of Warrnambool Cheese and Butter FactoryCompany Holdings Limited and other key management personnel of the Group, including their personally related parties, are setout below. There were no shares granted during the reporting period under the employee share plan.

Balance at Net Balance at2010 start of year change year end

DirectorsR A Andrew Anderson – 10,000 10,000Paul G Bourke 2,131 3,024 5,155Michael Carroll – – –Francis J Davis – 20,000 20,000Craig L Drake 88,595 – 88,595David J Lord – – –John F McLean 233,684 – 233,684Bruce J Morley – – –Terence J Richardson 500 – 500Bruce G Vallance 55,046 262 55,308ExecutivesAnthony P Cook 714 3 717William D Hannah 666 – 666Bernard J Kavanagh 912,216 (400,666) 511,550William J Slater – 666 666John S Williams 709 3 712Richard C Wallace 3,457 13 3,470

Balance at Net Balance at2009 start of year change year end

DirectorsDavid S Karpin 62,250 – 62,250Craig L Drake 88,595 – 88,595Paul G Bourke 2,000 131 2,131Francis J Davis – – –Neil A Kearney – – –Desmond J McKinnon 600,219 – 600,219John F McLean 233,684 – 233,684Bruce J Morley – – –John C Renyard 1,028,300 – 1,028,300Terence J Richardson – 500 500Bruce G Vallance 55,046 – 55,046ExecutivesAnthony P Cook 477 237 714William D Hannah 462 204 666Bernard J Kavanagh 1,012,012 (99,796) 912,216Charles S Van Heerden – – –John S Williams 473 236 709Richard C Wallace 3,082 375 3,457

(e) Loans to key management personnel

Loans are not provided to directors of Warrnambool Cheese and Butter Factory Company Holdings Limited or other keymanagement personnel.

(f) Other transactions with key management personnel

Former CEO Mr Neil A Kearney was paid a consultancy fee for the six months after his resignation in April 2009, $40,000 ofwhich related to the 2010 financial year.

Related parties of the former CEO Mr John F McLean received payment of $21,212 for accommodation and food servicesprovided in 2010.

Aggregate amounts of each of the above types of other transactions with key management personnel of the Group:

CONSOLIDATED

2010 2009$’000 $’000

Amounts recognised as expense

Consultancy fees 40,000 69,757Accommodation and food services 21,212 –

61,212 69,757


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CONSOLIDATED

2010 2009$’000 $’000

Note 26. Remuneration of Auditors(a) Assurance services

Audit servicesAudit and review of the financial reports and other audit work under the Corporations Act 2001 138,900 123,220

Total remuneration for audit services 138,900 123,220

Other assurance servicesCoffey HuntReview of CEO termination agreement – 3,370

Total remuneration for other assurance services – 3,370

Total remuneration for assurance services 138,900 126,590

(b) Taxation services

Coffey HuntTax compliance services, including review of company tax returns 3,000 –

Total remuneration for advisory services 3,000 –

(c) Advisory services

Coffey HuntOther minor accounting services 1,000 –

Total remuneration for advisory services 1,000 –

The Group employs Coffey Hunt on assignments additional to their statutory audit duties as their expertise and experiencewith the Group are important. These assignments are principally small in nature and linked closely to work performed duringaudit services.

Note 27. Commitments(a) Capital commitments

Commitments for the acquisition of plant & equipment contractedfor at the reporting date but not recognised as liabilities payable 3,307 5,219

Not later than one year 3,307 5,219

(b) Lease Commitments: Group as lessee

(i) Non-cancellable operating leases

The Group leases offices and storage facilities under non-cancellable operating leasesexpiring within one to four years. The leases have varying terms, escalation clauses andrenewal rights.

Commitments for minimum lease payments in relation tonon-cancellable operating leases are payable as follows:

Within one year 327 360Later than one year but not later than five years 116 410

443 770

(ii) Cancellable operating leases

The Group also has rental properties on short-termcancellable leases.

Commitments in relation to operating leases contracted forat reporting date but not recognised as liabilities, payable:

Within one year 14 14

14 14


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CONSOLIDATED

2010 2009$’000 $’000

Note 27. Commitments (cont.)

(iii) Finance Leases

The Group leases part of its tanker fleet with a carrying amount of $1,893,000(2009: $3,679,000) under finance leases expiring within one to four years.Under the terms of the lease, the Group has the option to acquire the leasedassets on expiry of the leases.

Commitments in relation to finance leases are payable as follows:

Within one year 783 1,148Later than one year but not later than five years 1,065 1,848

Minimum Lease Payments 1,848 2,996Less: Future finance charges (179) (346)

Total finance lease liability 1,669 2,650

Representing lease liabilities:Current (note 16) 676 980Non-current (note 18) 993 1,670

1,669 2,650

The weighted average interest rate implicit in the finance leases is 7.92% (2009 – 7.45%)

Note 28. Investments in Controlled EntitiesThe consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordancewith accounting policy described in note 1(b).

Country of Class of Equity Equity Cost of parentincorporation Shares Holding Holding entity investment

2010 2009 2010 2009Name of entity % % $’000 $’000

The Warrnambool Cheese & ButterFactory Company Limited Australia Ordinary 100 100 15,124 15,124Australian Dairy Products Pty Ltd Australia Ordinary 100 100 1 1Warrnambool Milk Products Pty Limited Australia Ordinary 100 100 7,964 7,964Warrnambool Milk Products Pty Limited Australia Preference 100 100 2,100 2,100Protein Technology Victoria Pty Ltd Australia Ordinary 100 100 7,082 7,082

32,271 32,271

All subsidiaries have been granted relief from the necessity to prepare financial reports in accordance with Class Order98/1418 (as amended) issued by the Australian Securities Investment Commission. For further information refer to note 29.

Note 29. Deed of Cross GuaranteeWarrnambool Cheese and Butter Factory Company Holdings Limited, The Warrnambool Cheese & Butter Factory CompanyLimited, Australian Dairy Products Pty Ltd, Warrnambool Milk Products Pty Limited and Protein Technology Victoria Pty Ltdare parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into thedeed, the wholly owned entities have been relieved from the requirement to prepare a financial report and directors' reportunder Class Order 98/1418 (as amended) issued by the Australian Securities Investments Commission.

As the above companies represent the entire Group of companies in this consolidated report there are no differences to theconsolidated financial statements from that of the Group of companies party to the deed of cross guarantee.

Note 30. Related Party Transactions(a) Parent entity

The parent entity within the Group is Warrnambool Cheese and Butter Factory Company Holdings Limited.

(b) Subsidiaries

Interest in subsidiaries are set out in note 28.


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Note 30. Related Party Transactions (cont.)

(c) Key management personnel

Disclosures relating to key management personnel are set out in note 25.

(d) Transactions with related parties

Transactions between the parent entity and other entities in the consolidated entity consist of wholemilk sales, services andtransfer of tax related amounts under a tax sharing agreement.

PARENT ENTITY

2010 2009$ $

The following transactions occurred with related parties:

Sales of good and servicesSale of wholemilk to subsidiaries 277,272,934 327,927,653

Tax consolidation legislationCurrent tax payable assumed from wholly-owned tax consolidated entities – –

Directors

At balance date R.A.A. Anderson, C.L. Drake, T.J. Richardson and B.G. Vallance weredirectors and suppliers of milk to the company. Payments to directors for milk and associateddealings are on an identical basis as other non-director milk suppliers.

(e) Outstanding balances arising from sales/purchase of goods and services

The following balances are outstanding at the reporting date in relation to transactionswith related parties:

Current receivables (tax funding agreement)Wholly-owned tax consolidated entities – –

No provision for impairment of receivables has been raised in relation to any outstanding balances,and no expense has been recognised in respect of bad or impaired debts due from related parties.

(f) Loans to/from related parties

Loans to subsidiariesBeginning of the year 51,405,051 55,489,582Loans advanced 6,343,073 –Loan repayments received – (4,084,531)

End of year 57,748,124 51,405,051

There is no interest charged on loans to subsidiaries.

CONSOLIDATED

2010 2009$’000 $’000

Note 31. Reconciliation of Profit after Income Tax toNet Cash Inflow (Outflow) from Operating ActivitiesOperating Profit/(loss) after income tax 8,804 (19,934)Depreciation and amortisation 12,825 11,456Non-cash employee benefits expense – share-based payments – 272Fair value adjustment to investment property (308) (480)Net gain on sale of non-current assets 1 (105)Share of profits/(losses) of joint ventures (3,895) (1,339)Fair value adjustments to derivatives 102 (99)Change in operating assets and liabilities:Decrease (increase) in trade debtors (15,675) 29,138Decrease (increase) in inventories (1,092) (8,297)Decrease (increase) in deferred tax assets 926 (84)Increase (decrease) in trade creditors 6,511 (21,027)Increase (decrease) in provision for income taxes payable – (2,949)Increase (decrease) in deferred tax liabilities – (9,635)Increase (decrease) in other provisions 286 874

Net Cash Inflow (Outflow) from Operating Activities 8,485 (22,209)


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Note 32. Segment InformationManagement has determined the operating segments based on the reports reviewed by the board and executive that areused to make strategic decisions. The board and executive meet regularly to discuss, review and plan strategic initiatives.

The board and executive considers the business from a product group perspective and has identified three reportablesegments. Commodities consist of dairy products, cheese, skim milk powder, butter, cream and whey protein concentrate whichare manufactured in Australia and sold in domestic and export markets to wholesale customers. Consumer goods consists ofbranded products sold for retail sale, namely Sungold (packaged milk), Enprocal (nutritional products) and Warrnambool Cheese(cheese products). Other consists of revenue generating units that do not relate to either commodities or retail segments.

(a) Strategic information provided to the board and executive

The segment information provided to the board and executive for the reportable segments for the year ended 30 June 2010is as follows:

ConsumerCommodities Goods Other Total

$’000 $’000 $’000 $’000

30 June 2010Total segment revenue 666,398 38,591 20,207 725,196Inter-segment revenue (305,357) (168) (3,527) (309,052)

Revenue from external customers 361,041 38,423 16,680 416,144

Adjusted EBIT 3,682 4,774 3,939 12,395

Share of joint ventures profits/(losses) 3,895Corporate advisory expenses (697)Unrealised financial instruments gain/(losses) 1,169

EBIT 16,762

30 June 2009Total segment revenue 759,504 31,315 14,539 805,358Inter-segment revenue (360,731) (185) (3,492) (364,408)

Revenue from external customers 398,773 31,130 11,047 440,950

Adjusted EBIT (27,884) 2,062 3,560 (22,262)

Share of joint ventures profits/(losses) 1,339Write-off of capital costs (1,995)Unrealised financial instruments gain/(losses) (1,786)

EBIT (24,704)

Total segment assets30 June 2010 200,292 17,176 10,270 227,73830 June 2009 189,573 15,710 10,493 215,776

(b) Other segment information

(i) Segment revenue

Sales between segments are carried out at arm's length and are eliminated on consolidation. The revenue from external partiesreported to the board and executive is measured in a manner consistent with the statement of comprehensive income.

Revenues from external customers are derived from the sale of dairy commodities on a wholesale basis and consumergoods on a wholesale and retail basis. A breakdown of revenue and results is provided in the table above.

Segment revenue reconciles to total revenue as follows:CONSOLIDATED

2010 2009$’000 $’000

Total segment revenue 725,196 805,358Intersegment eliminations (309,052) (364,408)Interest revenue 108 145

Total revenue (note 2 and note 3) 416,252 441,095


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Note 32. Segment Information (cont.)

(ii) Adjusted EBIT

The board and executive assess the performance of the operating segments based on a measure of EBIT. This measureexcludes effects of any non-recurring expenditure from the operating segments such as restructuring costs. Furthermore,the measure excludes the effect of equity-settled share based payments, unrealised gains/losses on financial instrumentsand equity accounted share of profits/losses from joint ventures. Interest income and expenditure are not allocated tosegments, as this type of activity is driven by the central treasury function, which manages the cash position of the group.

A reconciliation of adjusted EBIT to operating profit before income tax is provided as follows:

CONSOLIDATED

2010 2009$’000 $’000

Adjusted EBIT 12,395 (22,262)

Interest revenue 108 145Finance costs (7,181) (5,492)Share of joint venture’s profits/(losses) 3,895 1,339Corporate advisory expenses (697) –Write-off of capital costs – (1,995)Unrealised financial instrument gains/(losses) 1,169 (1,786)

Profit/(loss) before income tax (expense)/benefit 9,689 (30,051)

(iii) Segment assets

The amounts provided to the board and executive with respect to total assets aremeasured in a manner consistent with that of the financial statements. These assets areallocated based on the operations of the segment and the physical location of the asset.

Reportable segments' assets are reconciled to total assets as follows:

Segment assets 227,738 215,776

Unallocated:Interest in joint ventures 18,463 14,558Unrealised financial instrument gains – 3,772

Total assets as per balance sheet 246,201 234,106

Note 33. Contingent Liabilities(a) Milk vat loan arrangement

The Group has a contingent liability to refund existing suppliers a portion of the interest under a specific milk vat loanarrangement. The liability is extinguished immediately a supplier ceases to supply milk to the company. At 30 June 2010 themaximum amount of the contingent liability was $74,000 (2009: $79,000).

(b) Financial guarantees

(i) Great Ocean Ingredients Pty Ltd joint venture

The Group entered into an arrangement with the loan provider to guarantee 50% of the total of a loan made to its jointventure Great Ocean Ingredients Pty Ltd. The guarantee expired on 31 December 2009.

(ii) Warrnambool Cheese and Butter Japan Company Limited joint venture

The Group has entered into an arrangement with the loan provider to guarantee the working capital loan to be taken out by thejoint venture on commencement of operations late 2009. The guarantee becomes payable if Warrnambool Cheese and ButterJapan Company Limited defaults on the loan. The guarantee will be reviewed annually by the Group and the loan provider todetermine the amount to be guaranteed as the joint ventures operations expand. The guarantee has a maximum contingentliability of $38,496,086. At 30 June 2010 the Group's contingent liability, based on the loan amount in Warrnambool Cheese andButter Japan Company Ltd's audited accounts was $22,230,360. No liability is expected to arise.


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CONSOLIDATED

2010 2009Cents Cents

Note 34. Earnings Per Share(a) Basic earnings per share

Profit/(loss) attributable to the ordinary equity holders of the Company 22.1 (50.2)

(b) Diluted earnings per share

Profit/(loss) attributable to the ordinary equity holders of the Company 22.1 (50.2)

CONSOLIDATED

2010 2009Number Number

Weighted average number of shares used as the denominator

Weighted average number of ordinary shares used as the denominator in calculating basicearnings per share and alternative basic earnings per share 39,928,235 39,743,367

Note 35. Share-Based Payments(a) Employee share scheme

A scheme under which shares may be issued by the Company to employees for no consideration was approved byshareholders at the 2004 annual general meeting. Eligible employees (excluding executive directors) are employees with at leastone year's equivalent full time service and all casual/seasonal employees with at least two year's equivalent full time service.

Under the scheme, eligible employees may be granted up to $1,000 worth of fully-paid ordinary shares in Warrnambool Cheeseand Butter Factory Company Holdings Limited from time to time for no consideration. The market value of the shares issuedunder the scheme measured by the weighted average share price on the day of issue of the shares, is recognised in thebalance sheet as share capital and as part of employee benefit costs in the period the shares are granted.

Offers under the scheme are at the discretion of the Company and shares may not be sold until the earlier of three years afterissue or cessation of employment by the Group. In all other respects the shares rank equally with other fully-paid ordinaryshares on issue.

The number of shares issued to participants in the scheme is the offer amount divided by the weighted average price at which theCompany's shares are traded on the Australian Stock Exchange during the five days immediately before the date of the offer.

PARENT ENTITY

2010 2009Shares Shares

Shares issued under the plan to participating employees (2009: 24 November 2008) – 54,468Shares issued under the plan to participating employees on (2009: 18 May 2009) – 1,620

No shares were issued in 2010. Shares were issued in 2009 based on the weighted average market price of $5.05.

CONSOLIDATED

2010 2009$’000 $’000

(b) Expenses arising from share-based payment transactions

Total expenses arising from share-based payment transactions recognised during the periodas part of employee benefits expense were as follows:

Shares issued under employee share scheme – 272

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Note 36. Interest in Joint VenturesThe Group has a 50% interest in Great Ocean Ingredients Pty Ltd, which is resident in Australia and the principal activity ofwhich is to manufacture galacto-oligosaccharides (GOS) for sale to infant formula manufacturers.The Group has a 49% interest in Warrnambool Cheese and Butter Japan Company Limited, which is resident in Japan andthe principal activity of which is to trade dairy commodities in the Japanese market.The interest in Great Ocean Ingredients Pty Ltd and Warrnambool Cheese and Butter Japan Company Limited is accountedfor in the consolidated financial statements using the equity method of accounting (note 9).Information relating to the joint venture is set out below.

CONSOLIDATED

2010 2009$’000 $’000

Carrying amount of investment in joint ventures 18,463 14,558

Share of joint venture's assets and liabilitiesCurrent assets 20,630 15,319Non-current assets 33,218 31,392

Total assets 53,848 46,711

Current liabilities 18,918 12,402Non-current liabilities 18,216 21,310

Total liabilities 37,134 33,712

Net assets 16,714 12,998

Share of joint venture's revenue, expenses and resultsRevenues 43,538 18,423Expenses (38,846) (16,393)

Profit/(loss) before income tax 4,692 2,030Income tax (expense)/benefit (797) (691)

Profit/(loss) after income tax 3,895 1,339

Share of joint venture's commitmentsCapital commitments 234 641

Note 37. Parent Entity InformationPARENT ENTITY

2010 2009$’000 $’000

Parent entity assets and liabilitiesCurrent assets 73,890 61,738Non-current assets 29,143 28,393

Total assets 103,033 90,131

Current liabilities 30,029 18,659Non-current liabilities – 262

Total liabilities 30,029 18,921

Net assets 73,004 71,210

Contributed equity 29,108 28,967Retained profits 43,896 42,243

Total equity 73,004 71,210

Parent entity profit/(loss)Profit/(loss) before income tax 3,503 14,384Income tax (expense)/benefit (1,052) (4,078)

Profit/(loss) after income tax 2,451 10,306

Parent entity total comprehensive incomeTotal comprehensive income for the year 2,451 10,306


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Directors’ Declaration

In the directors’ opinion:

(a) the financial statements and notes set out on pages 35 to71 are in accordance with the Corporations Regulations2001, including

(i) complying with Accounting Standards, theCorporations Regulations 2001 and other mandatoryprofessional reporting requirements; and

(ii) giving a true and fair view of the consolidated entity’sfinancial position as at 30 June 2010 and of itsperformance for the financial year ended on that date;and

(b) there are reasonable grounds to believe that the companywill be able to pay its debts as and when they become dueand payable; and

(c) at the date of this declaration there are reasonable groundsto believe that the members of the group of companiesidentified in note 29 will be able to meet any obligations orliabilities to which they are, or may become, subject byvirtue of the deed of cross guarantee described in note 29.

The directors have been given the declarations by the ChiefExecutive Officer and the Chief Financial Officer required bySection 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution ofthe directors.


Terence J RichardsonDeputy Chairman

Allansford27 August 2010

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Independent auditor’s report to themembers of Warrnambool Cheese &Butter Factory Company Holdings LimitedReport on the financial report

We have audited the accompanying financial report ofWarrnambool Cheese and Butter Factory Company HoldingsLimited, (the consolidated entity), which comprises thebalance sheet as at 30 June 2010, and the statement ofcomprehensive income, statement of changes in equity andstatement of cash flows for the year ended on that date, asummary of significant accounting policies, other explanatorynotes and the directors’ declaration. The consolidated entitycomprises the Warrnambool Cheese and Butter FactoryCompany Holdings Limited and the entities it controlled at theyear’s end or from time to time during the financial year.

Directors’ responsibility for the financial report

The directors of the company are responsible for thepreparation and fair presentation of the financial report inaccordance with Australian Accounting Standards (includingthe Australian Accounting Interpretations) and the CorporationsAct 2001. This responsibility includes establishing andmaintaining internal controls relevant to the preparation andfair presentation of the financial report that is free from materialmisstatement, whether due to fraud or error; selecting andapplying appropriate accounting policies; and makingaccounting estimates that are reasonable in the circumstances.In note 1(a), the directors also state, in accordance withAccounting Standard AASB 101 Presentation of FinancialStatements, that the financial report, comprising the financialstatements and notes, complies with International FinancialReporting Standards as issued by the International AccountingStandards Board.

Auditor’s responsibility

Our responsibility is to express an opinion on the financialreport based on our audit. We conducted our audit inaccordance with Australian Auditing Standards. TheseAuditing Standards require that we comply with relevantethical requirements relating to audit engagements and planand perform the audit to obtain reasonable assurance whetherthe financial report is free from material misstatement.

An audit involves performing procedures to obtain auditevidence about the amounts and disclosures in the financialreport. The procedures selected depend on the auditor’sjudgement, including the assessment of the risks of materialmisstatement of the financial report, whether due to fraud orerror. In making those risk assessments, the auditor considersinternal control relevant to the entity’s preparation and fairpresentation of the financial report in order to design auditprocedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectivenessof the entity’s internal control. An audit also includesevaluating the appropriateness of accounting policies usedand the reasonableness of accounting estimates made bythe directors, as well as evaluating the overall presentationof the financial report.

Our procedures include reading the other information in theAnnual Report to determine whether it contains any materialinconsistencies with the financial report.

Our audit did not involve an analysis of the prudence ofbusiness decisions made by directors or management.

We believe that the audit evidence we have obtainedis sufficient and appropriate to provide a basis for ouraudit opinions.

Independence

In conducting our audit, we have complied with theindependence requirements of the Corporations Act 2001.

Auditor’s opinion

In our opinion,

(a) the financial report of Warrnambool Cheese and ButterFactory Company Holdings Limited is in accordance withthe Corporations Act 2001, including:

(i) giving a true and fair view, of the company’s andconsolidated entity’s financial position as at 30 June2010 and of their performance for the year endedon that date; and

(ii) complying with Australian Accounting Standards(including the Australian Accounting Interpretations)and the Corporations Regulations 2001; and

(b) the financial report also complies with International FinancialReporting Standards issued by the International AccountingStandards Board as disclosed in note 1(a).

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Independent Auditor’s Report

Report on the remuneration report

We have audited the remuneration report included in pages22 to 28 of the directors’ report for the year ended 30 June2010. The directors of the company are responsible for thepreparation and presentation of the remuneration report inaccordance with Section 300A of the Corporations Act 2001.Our responsibility is to express an opinion on the remunerationreport, based on our audit conducted in accordance withAustralian Auditing Standards.

Auditor’s opinion

In our opinion, the remuneration report of WarrnamboolCheese and Butter Factory Company Holdings Limited forthe year ended 30 June 2010, complies with Section 300Aof the Corporations Act 2001.

Coffey HuntChartered Accountants

M. P. GunnPartner

Dated at Warrnambool, 27 August 2010

Liability limited by a scheme approved under Professional Standards Legislation.

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Chairman of Directors

Francis Davis

Deputy Chairman of Directors

Terence Richardson

Directors

Andrew AndersonPaul BourkeMichael CarrollCraig DrakeDavid LordBruce MorleyBruce Vallance

Associate Directors

John McLeanAnthony Reichelt

Company Secretary

John Frankcom

Bankers

National Australia Bank Ltd330 Collins StreetMELBOURNE 3000

Australia and New Zealand Banking Group Limited530 Collins StreetMELBOURNE 3000

Solicitors

Minter Ellison525 Collins StreetMELBOURNE 3000

Auditors

Coffey Hunt199 Koroit StreetWARRNAMBOOL 3280

Subsidiary Companies

The Warrnambool Cheese and Butter Factory Company LimitedAustralian Dairy Products Pty LtdProtein Technology Victoria Pty LtdWarrnambool Milk Products Pty Limited

Joint Ventures

Great Ocean Ingredients Pty LtdWarrnambool Cheese and Butter Japan Company Limited

Registered Office

5331 Great Ocean RoadALLANSFORD 3277

Telephone (03) 5565 3200Facsimile (03) 5565 3156

Email [email protected] www.wcbf.com.au

Place of Incorporation

Victoria, Australia

Australian Company Number

071 945 232

Group Australian Business Number

15 071 945 232

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Notice of annual general meeting and explanatory notes

Warrnambool Cheese and Butter Factory Company Holdings Limited ACN 071 945 232

Date: 28 October 2010

Time: 1.00pm

Place: City Memorial Bowls Club

Cramer Street

Warrnambool

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Notice of annual general meeting

The Annual General Meeting will be held at 1.00pm on 28 October 2010 at the City Memorial Bowls Club, Cramer Street, Warrnambool.

Business

1. Financial statements and reports To receive and consider:

(a) the financial statements;

(b) the Directors' report; and

(c) the auditor's report

of the Company for the year ended 30 June 2010.

2. Election of Directors Resolution 1 – Re election of Paul Bourke

To consider and, if thought fit, to pass the following ordinary resolution:

That Paul Bourke, being a Director of the Company who retires by rotation in accordance with the Company’s Constitution and, having offered himself for re election and being eligible, be re elected as a Director of the Company.'

Resolution 2 – Re election of Craig Drake


That Craig Drake, being a Director of the Company who retires by rotation in accordance with the Company’s Constitution and, having offered himself for re election and being eligible, be re elected as a Director of the Company.

Resolution 3 –Election of Kay Antony


That Kay Antony, having signified her candidature for office and, having offered herself for election in accordance with the Company's Constitution, be elected as a Director of the Company.

Resolution 4 – Election of John Gall


That John Gall, having signified his candidature for office and, having offered himself for election in accordance with the Company's Constitution, be elected as a Director of the Company.

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Notes: There are four candidates for a maximum of two vacant Director positions. If more than two candidates receive more “for” votes than “against” votes, only the two candidates who receive the highest number of “for” votes will be elected as Directors.

The order in which the above candidates appear on the proxy ballot has been determined by the appointed Returning Officer Link Market Services who have conducted the ballot.

The Chairman will call for a poll on each resolution for the proposed election of each Director.

3. Remuneration report Resolution 5 – Adoption of remuneration report (Non binding advisory vote)

To consider and, if thought fit, pass the following ordinary non binding resolution:

That the remuneration report that forms part of the Directors' report of the Company for the financial year ended 30 June 2010 is adopted.

4. Increase in the maximum aggregate amount paid to non executive Directors Resolution 6 – Increase in the maximum aggregate amount paid to non executive Directors


"That for the purposes of clause 59 of the Constitution and ASX Listing Rule 10.17, the Company approves an increase in the total amount of Directors' fees that may be received by non executive Directors by $120,000, from $580,000 to $700,000."

5. Other business To transact any other business which may legally be brought before the meeting.

By order of the Board Date 21 September 2010

Signed

Name John Frankcom Company Secretary

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5

Voting and proxies

1. Entitlement to vote The Company has determined that a person's entitlement to vote at the Annual General Meeting will, in accordance with the Corporations Act, be the entitlement of that person set out in the register of Shareholders as at 7.00pm on Tuesday, 26 October 2010. This means that any Shareholder registered at 7.00pm on Tuesday, 26 October 2010 is entitled to attend and vote at the Annual General Meeting.

2. How to vote If you are entitled to vote at the Annual General Meeting, you may vote by attending the meeting in person or by attorney, proxy or, in the case of corporate Shareholders, corporate representative.

Voting in Person or by attorney

Shareholders or their attorneys wishing to vote in person should attend the Annual General Meeting. Persons are asked to arrive at least 30 minutes prior to the commencement of the Annual General Meeting so that their Shareholding may be checked against the relevant register and their attendance noted.

Attorneys should bring with them the original or a certified copy of the power of attorney under which they have been authorised to attend and vote at the meeting, unless it had already been provided to Link Market Services Ltd.

Voting by Proxy

Shareholders wishing to vote by proxy must complete, sign, and deliver the appropriate personalised proxy form or forms in accordance with the instructions on the forms prior to 1.00pm on Tuesday, 26 October 2010, by:

1. post in the reply paid envelope provided to:

Warrnambool Cheese and Butter Factory Company Holdings Limited C/- Link Market Services Ltd Locked bag A14 Sydney South NSW 1235;

2. hand to:

Warrnambool Cheese and Butter Factory Company Holdings Limited C/- Link Market Services Ltd Level 12, 680 George Street Sydney, NSW 2000; or

3. fax to:

Warrnambool Cheese and Butter Factory Company Holdings Limited C/- Link Market Services Ltd Level 12, 680 George Street Sydney, NSW 2000 +61 2 9287 0309.

4. Lodge online at www.linkmarketservices.com.au

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A proxy form for the Annual General Meeting is enclosed with this booklet.

Each Shareholder may appoint a proxy to attend and vote on their behalf. If a Shareholder is entitled to cast two or more votes, they may appoint one or two proxies. If more than one proxy is appointed:

(a) the appointer may specify the proportion or number of votes each proxy is appointed to exercise but if the appointer does not do so, each proxy may exercise half the votes; and

(b) neither proxy shall have the right to vote on a show of hands (but each may vote on a poll).

A proxy need not be a Member.

In the case of joint holders, all should sign the proxy form.

In the case of corporations, proxies must be executed in accordance with Section 127 of the Corporations Act or signed by an authorised officer or attorney.

To be valid, a proxy form signed under a power of attorney must be accompanied by the signed power of attorney, or a certified copy of the power of attorney.

If the abstention box on the proxy form for any item of business is marked, the proxy will be directed not to vote on a show of hands or on a poll and the relevant Shares will not be counted in calculating the required majority on a poll. If no box is marked, the proxy will not be directed as to how to vote and may vote as he or she sees fit.

If the proxy form is signed by the Shareholder but does not name the proxy or proxies in whose favour it is given, or the proxy does not, or the proxies do not attend the meeting, the Chairman of the meeting may either act as proxy or complete the proxy by inserting the names of one or more Directors.

Other than the Resolutions relating to the election of Directors, the Chairman intends to vote all undirected proxies from Shareholders in favour of the Resolutions to be voted on at the Annual General Meeting. As regards the Resolutions relating to the election of Directors, the Chairman intends to vote all undirected proxies from Shareholders in favour of the incumbent Directors and against the non incumbent Director candidates.

The sending of a proxy form will not prevent Shareholders from attending and voting at the Annual General Meeting.

Voting by corporate representative

Corporate Shareholders or corporate proxies voting by corporate representatives should:

(a) obtain an appointment of corporate representative from Link Market Services Ltd;

(b) complete and sign the form in accordance with the instructions on it; and

(c) bring the completed and signed form with them to the relevant meeting.

3. Questions and comments by Shareholders at the meeting In accordance with the Corporations Act and past practice adopted by the Company, a reasonable opportunity will be provided for Shareholders at the meeting to ask questions and to make comments on Company matters the subject of the Annual General Meeting. The Company's auditor will also be present and available to answer questions relevant to the auditor's report and the conduct of the audit.

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Explanatory notes

1. Financial statements and reports Under the Corporations Act, the directors of a public company required to hold an annual general meeting must table the financial report (which includes the financial statements and directors declaration), the directors' report and auditor's report for the previous year before members at each annual general meeting.

All relevant information concerning the Company's financial report, directors' report and auditor's report for the year ended 30 June 2010 is contained in the Annual Report. If you have elected to receive a copy of the Annual Report a copy has been forwarded to you. It is also available on the Company's website (www.wcbf.com.au) or on request to the Company Secretary. A copy of the financial report, directors' report and auditor's report will also be tabled at the Annual General Meeting.

The Company's auditors will be present at the meeting and be available to answer questions as to the conduct of the audit and the auditor's report.

Shareholders should note that the sole purpose of tabling the financial report, directors' report and auditor's report of the Company at the Annual General Meeting is to provide Shareholders with the opportunity to ask questions or discuss matters arising from them. It is not the purpose of the meeting that the financial report, directors' report and auditor's report be accepted, rejected or modified in any way. Further, as it is not required by the Corporations Act, no resolution to adopt, receive or consider the Company's financial report, directors' report and auditor's report will be put to Shareholders at the meeting.

2. Election of Directors – Resolutions 1, 2, 3 and 4 In accordance with Rule 56.1 of the Constitution, at least one third of the Directors are required to retire at each annual general meeting of the Company.

Under Rule 56.3 of the Constitution, a Director must retire from office at the conclusion of the third annual general meeting after he or she was last elected.

At this years Annual General Meeting, there are four nominations for the maximum available of two Director positions under the Constitution. As a result, for a nominee to be re elected or elected (as appropriate) as a Director, the nominee must receive more for votes than against votes and the two nominees that receive the highest number of for votes will be re elected or elected (as appropriate) Directors.

The Chairman considers that the present structure and composition of the Board has enabled the Company to recover from the impact of the global financial crisis and other threats over the past year, and that Shareholders would be best served by maintaining the current structure. Accordingly, the Chairman intends to vote undirected proxies in favour of the incumbent Directors and against the other candidates. F

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Set out below are brief details provided by nominees standing for re election or election (as appropriate): Resolution 1

Paul Bourke Paul was elected to the Board of the Company as a Non-Executive Director in 2007. He is a member of the Nominations and Remuneration Committee and the Audit and Risk Committee. He has specific expertise in Marketing, Sales, Corporate Strategy and Human Resources.

He has spent over thirty years in the Food and Grocery Industry in a range of Marketing, Sales and General Management positions. During that time he held the position of Chief Executive Officer and Managing Director at three of Australia’s leading Food Manufacturers, Campbell’s Soups, Arnott’s Biscuits and Cadbury Confectionery.

Currently, he is an Executive Director of Integro Systems Pty Ltd, a company that specialises in Leadership Development. He is a Non-Executive Director of Free Agent Focus Pty Ltd, which specialises in Human Resources Management and he is a Board Advisor to the Victoria Police Blue Ribbon Foundation, a Not for Profit Organisation.

He has a Masters Degree in Business Leadership from RMIT and is a member of the Australian Institute of Company Directors. Paul and his wife Rose reside in Melbourne and have two daughters Kate and Angela, who live in Sydney.

Resolution 2

Craig Drake First elected to the Board in 1990 and currently Chair of the Industry Issues Committee and member of the Supplier Relations Committee. Over the years Craig has been a member of most of the Board committees and the Deputy Chairman.

Craig is 54 years of age and for 29 years has owned and operated a dairy farm with his wife. Craig is currently running 400 cows.

Craig's formal qualifications are a Diploma of Agricultural Science (Dookie), a Certificate of Dairy Farm Management (Glenormiston) and a Diploma from the Australian Institute of Company Directors.

Craig has been a Director of Tasherd Pty Ltd for 10 years. Tasherd is based near Launceston and has the responsibilities of providing herd recording services for Tasmanian dairy farmers.

Resolution 3

Kay Antony Kay Antony is a dairy farmer with board room experience. She has 14 years of dairy farming experience first as a share farmer and more recently as an owner operator. She has been a board director at Westvic Dairy Inc for 2 years, and is the President of the Portland Branch UDV. She is a member of WCB’s Supplier Advisory Forum (SAF) which was recently established to improve communications between WCB and dairy farmer suppliers.

She is a Graduate of the Australian Institute of Company Directors Diploma, and a member of the AICD regional committee. Kay considers, analytical reasoning, strategy and determination are her strong points. Kay is also in the final stages of completing a Diploma of Accounting and is a current WCB shareholder.

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Resolution 4

John Gall He is aged sixty-one years and has dairy farmed at Mepunga all of his working life and now has a sharefarmer working the farm with about 220 cows and still increasing. He and his immediate family have supplied Warrnambool Cheese and Butter (WCB) for more than 70 years.

He is a fellow of the Australian Institute of Company Directors (FAICD) and has continued his interest in WCB and corporate affairs generally and also currently hold a substantial shareholding in WCB.

3. Remuneration report – Resolution 5 The remuneration report is made in accordance with Section 300A of the Corporations Act and the Corporations Amendment Regulations 2005 (No 4). Section 250R of the Corporations Act requires a resolution that this report be adopted be put to Members at the Annual General Meeting. The information contained in the remuneration report is that required by accounting standard AASB 124 - Related Party Disclosures most of which are formally contained in the financial notes to the Company's accounts.

This Resolution is an advisory resolution and it is not binding on the Company or the Directors. They need not take any action as a result of the Resolution.

The remuneration report is contained in pages 22 to 28 (inclusive) of the Annual Report and is part of the Directors' statutory report. The Annual Report is available on the Company's website (www.wcbf.com.au) or from the Company Secretary by telephoning (03) 5563 2100.

4. Increase in the maximum amount paid to non executive Directors – Resolution 6 The Constitution and ASX Listing Rule 10.17 require that any increase in the aggregate annual remuneration for non executive Directors be approved by ordinary resolution passed at a general meeting of the Company.

The Board seeks the approval of Shareholders to increase the maximum aggregate annual amount of non executive Directors' fees by $120,000 from the current level of $580,000 to $700,000.

The proposed increased aggregate annual remuneration is as a result of the Board’s desire to effect the equality of remuneration between non supplier and supplier Directors and recognise the extra workload and time given by the Deputy Chairman to his duties. As highlighted in the remuneration report of the Annual Report, there is a remuneration differential of $24,000 between supplier Directors and non supplier Directors. This differential has been in place since the introduction of non supplier Directors in 2000. The Board has accepted for a number of years that this differential cannot be justified as all Directors have the same responsibilities and duties.

The Board also recognises that the duties and the time given by Deputy Chairman have increased over the years and this is now recognised by approximately one half of listed companies in the payment of a higher salary to the Deputy Chairman. It is proposed that the fee paid to the Deputy Chairman be fixed at the midway point between the fees paid to Directors and the Chairman. The increased limit is consistent with a recent survey of ASX Listed companies by an independent body.

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Voting exclusion statement

In accordance with ASX Listing Rule 10.17, the Company will disregard any votes cast on Resolution 6 by any Director of the Company.

5. Recommendation The non candidate Directors unanimously recommend that Shareholders vote in favour of the re election of incumbent Directors for the reasons stated earlier and all Directors recommend voting in favour of all other Resolutions.

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Glossary

In this booklet:

Annual General Meeting means the annual general meeting of the Company to be held at the City Memorial Bowls Club, Cramer Street, Warrnambool at 1.00pm on Thursday, 28 October 2010.

Annual Report means the Annual Report of the Company in respect of the financial year ending 30 June 2010.

ASX means ASX Limited ACN 008 624 691 or, as the context requires, the financial market conducted by it.

ASX Listing Rules means the Official Listing Rules of ASX.

Board means the board of directors of the Company or, where the relevant powers or authorities delegated by the board to a sub committee of the board, that sub committee.

Chairman means the chairman of the Board.

Company means Warrnambool Cheese and Butter Factory Company Holdings Limited ACN 071 945 232.

Constitution means the constitution of the Company.

Corporations Act means the Corporations Act 2001 (Cth) and includes any regulations made under that Act and any exemption or modification to that Act which applies to the Company.

Director means a director of the Company as at the date of this Explanatory Memorandum.

Explanatory Memorandum means the explanatory memorandum attaching to and forming part of the Notice of Meeting.

Notice of Meeting means this notice of meeting and Explanatory Memorandum.

Resolution means a resolution put to Shareholders at the Annual General Meeting.

Share means a fully paid ordinary share in the Company.

Shareholder or Member means the registered holder of at least one Share.

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I/We being a member(s) of Warrnambool Cheese and Butter Factory Company Holdings Limited and entitled to attend and vote hereby appoint:

Resolution 1Re-election of Paul Bourke as a Director

Resolution 2Re-election of Craig Drake as a Director

Resolution 3Election of Kay Antony as a Director

For Against Abstain*Resolution 4Election of John Gall as a Director

Resolution 5Adoption of Remuneration Report (Non binding advisory vote)

Resolution 6Increase in the maximum aggregate amount paid to non executive Directors

For Against Abstain*

LODGE YOUR VOTE

www.linkmarketservices.com.auONLINE

By mail:Warrnambool Cheese and Butter Factory Company Holdings LimitedC/- Link Market Services LimitedLocked Bag A14Sydney South NSW 1235 Australia

By fax: +61 2 9287 0309

All enquiries to: Telephone: 1300 554 474 Overseas: +61 2 8280 7111

Proxies will only be valid and accepted by the Company if they are signed and received no later than 48 hours before the meeting.Please read the voting instructions overleaf before marking any boxes with an X

ShAREhOLDER VOTING FORM

or failing the person/body corporate named, or if no person/body corporate is named, the Chairman of the Meeting, as my/our proxy and to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at 1:00pm on Thursday, 28 October 2010, at the City Memorial Bowls Club, Cramer Street, Warrnambool and at any adjournment or postponement of the meeting.

APPOINT A PROXY

OR if you are NOT appointing the Chairman of the Meeting as your proxy, please write the name of the person or body corporate (excluding the registered shareholder) you are appointing as your proxy

the Chairman of the Meeting (mark box)

STEP 1

* If you mark the Abstain box for a particular Item, you are directing your proxy not to vote on your behalf on a show of hands or on a poll and your votes will not be counted in computing the required majority on a poll.

This form should be signed by the shareholder. If a joint holding, all shareholders must sign. If signed by the shareholder’s attorney, the power of attorney must have been previously noted by the registry or a certified copy attached to this form. If executed by a company, the form must be executed in accordance with the company’s constitution and the Corporations Act 2001 (Cth).

SIGNATURE OF ShAREhOLDERS – ThIS MUST BE COMPLETED

Shareholder 1 (Individual) Joint Shareholder 2 (Individual) Joint Shareholder 3 (Individual)

Sole Director and Sole Company Secretary Director/Company Secretary (Delete one) Director

*WCB PRX002*

WCB PRX002

VOTING DIRECTIONSSTEP 2

If the Chairman of the Meeting is appointed as your proxy, or may be appointed by default and you do not wish to direct your proxy how to vote as your proxy in respect of Item 6 above, please place a mark in this box. By marking this box, you acknowledge that the Chairman of the Meeting may exercise your proxy even though he/she has an interest in the outcome of that Item and that votes cast by him/her for that Item, other than as proxyholder, would be disregarded because of that interest. If you do not mark this box, and you have not directed your proxy how to vote, the Chairman of the Meeting will not cast your votes on Item 6 and your votes will not be counted in calculating the required majority if a poll is called on this Item. The Chairman of the Meeting intends to vote undirected proxies in favour of Item 6.

IMPORTANT – VOTING EXCLUSIONSSTEP 3

STEP 4

Warrnambool Cheese and Butter Factory Company Holdings Limited

ACN 071 945 232

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hOW TO COMPLETE ThIS PROXY FORM

If you would like to attend and vote at the Annual General Meeting, please bring this form with you. This will assist in registering your attendance.

Lodgement of a Proxy FormThis Proxy Form (and any Power of Attorney under which it is signed) must be received at an address given below by 1:00pm on Tuesday, 26 October 2010, being not later than 48 hours before the commencement of the meeting. Any Proxy Form received after that time will not be valid for the scheduled meeting.

Proxy Forms may be lodged using the reply paid envelope or:

www.linkmarketservices.com.auONLINE

Select the ‘Proxy Voting’ option on the top right of the home page. Choose the company you wish to lodge your vote for from the drop down menu, enter your holding details as shown on this form, and follow the prompts to lodge your vote. To use the online lodgement facility, shareholders will need their “Holder Identifier” (Securityholder Reference Number (SRN) or Holder Identification Number (HIN) as shown on the front of the proxy form).

by mail:Warrnambool Cheese and Butter Factory Company Holdings LimitedC/- Link Market Services LimitedLocked Bag A14Sydney South NSW 1235Australia

by fax:

+61 2 9287 0309

by hand:delivering it to Link Market Services Limited, Level 12, 680 George Street, Sydney NSW 2000.

Your Name and AddressThis is your name and address as it appears on the company’s share register. If this information is incorrect, please make the correction on the form. Shareholders sponsored by a broker should advise their broker of any changes. Please note: you cannot change ownership of your shares using this form.

Appointment of a ProxyIf you wish to appoint the Chairman of the Meeting as your proxy, mark the box in Step 1. If the person you wish to appoint as your proxy is someone other than the Chairman of the Meeting please write the name of that person in Step 1. If you leave this section blank, or your named proxy does not attend the meeting, the Chairman of the Meeting will be your proxy. A proxy need not be a shareholder of the company. A proxy may be an individual or a body corporate.

Votes on Items of Business – Proxy AppointmentYou may direct your proxy how to vote by placing a mark in one of the boxes opposite each item of business. All your shares will be voted in accordance with such a direction unless you indicate only a portion of voting rights are to be voted on any item by inserting the percentage or number of shares you wish to vote in the appropriate box or boxes. If you do not mark any of the boxes on the items of business, your proxy may vote as he or she chooses. If you mark more than one box on an item your vote on that item will be invalid.

Appointment of a Second ProxyYou are entitled to appoint up to two persons as proxies to attend the meeting and vote on a poll. If you wish to appoint a second proxy, an additional Proxy Form may be obtained by telephoning the company’s share registry or you may copy this form and return them both together.

To appoint a second proxy you must:

(a) on each of the first Proxy Form and the second Proxy Form state the percentage of your voting rights or number of shares applicable to that form. If the appointments do not specify the percentage or number of votes that each proxy may exercise, each proxy may exercise half your votes. Fractions of votes will be disregarded.

(b) return both forms together.

Signing InstructionsYou must sign this form as follows in the spaces provided:

Individual: where the holding is in one name, the holder must sign.

Joint holding: where the holding is in more than one name, all shareholders must sign.

Power of Attorney: to sign under Power of Attorney, you must lodge the Power of Attorney with the registry. If you have not previously lodged this document for notation, please attach a certified photocopy of the Power of Attorney to this form when you return it.

Companies: where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please indicate the office held by signing in the appropriate place.

Corporate RepresentativesIf a representative of the corporation is to attend the meeting the appropriate “Certificate of Appointment of Corporate Representative” should be produced prior to admission in accordance with the Notice of Meeting. A form of the certificate may be obtained from the company’s share registry.

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for personal use only - asx · 9/23/2010 · warrnambool cheese and butter factory company...

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