727040 Devondale Murray Goulburn Annual Report 2014

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We love
dairy foods
Devondale Murray Goulburn
Annual Report 2014

In this Annual Report
2
4
6
8
10
12
16
20
26
28
30
37

Performance overview
Building a ‘first choice dairy foods company’
MG’s target growth regions
From the Chairman
Managing Director’s Message
Our brands
Building world’s best operations
Year in Review
Board of Directors
Executive Leadership Team
Corporate Governance Statement
Financial Statements

Devondale Murray Goulburn* is Australia’s largest dairy foods
company. In 2013–14, the Company received approximately
3.4 billion litres^, or 37 per cent, of Australia’s milk and generated
sales revenue in excess of $2.9 billion. MG was formed in 1950
and remains 100 per cent dairy farmer controlled, with over
2,500 supplier/shareholders and more than 2,400 employees.
MG is also Australia’s largest dairy food exporter to the major
markets of Asia, the Middle East and North Africa, and the
Americas. MG produces a range of ingredient and nutritional
products, supplies the food service industries globally and its
flagship Devondale brand is sold nationally.
* Devondale Murray Goulburn (also MG, the Company or the Co-operative) includes Murray Goulburn Co-operative Co. Limited ABN 23 004 277 089
and subsidiaries. Devondale Murray Goulburn’s Annual Report can be viewed or downloaded from the Company’s website www.mgc.com.au.
^ Includes MG’s majority owned subsidiary, Tasmanian Dairy Products Co Ltd.

Devondale Murray Goulburn Annual Report 2014

1

Performance
overview
Strong demand from key markets in Asia and the
Middle East drove prices for world dairy ingredients
to new highs in 2013–14, delivering double digit
revenue growth for MG and a welcome record
final farmgate milk price for supplier/shareholders.

Year ended
30 June 2014

Year ended
30 June 2013

Change (%)

2,917

2,385

22

Reported statutory net profit after tax ($ million)

29.3

34.9

(16)

Final available milk price ($/kg ms)

6.81

4.97

37

8

8

0

22.1

21.1

5

Sales revenue ($ million)

Ordinary dividend declared or paid – per share (cents)
Ordinary dividend declared or paid – total value ($ million)

Sales revenue

Milk intake

(A$ 000)

2008–09
2009–10
2010–11

2,329,285
2,163,441
2,287,492

2008–09

2,864

2009–10

2010–11

2,827

2010–11

2011–12

2012–13

2,385,099

2012–13
2013–14

* Includes MG’s majority owned subsidiary, Tasmanian Dairy Products Co Ltd.

2 Devondale Murray Goulburn Annual Report 2014

3,261

2009–10

2,367,231

2,916,521

(tonnes)

2008–09

2011–12

2013–14

Production

(million litres)

2011–12

2,936
3,119*
3,391*

746,411
718,542
690,836
739,545

2012–13

776,634*

2013–14

784,299*

2013–14 Sales revenue
Total revenue
$2.9 billion
(including MG Trading stores)

International 51%

Domestic 49%

Total assets

Total volume
324,000 tonnes

Asia 77%
Middle East/Africa 7%
The Americas 4%
Other 12%

Equity

(A$ 000)

2008–09

2013–14 Export volume

(A$ 000)

1,577,529

2008–09

727,040
719,003

2009–10

1,519,281

2009–10

2010–11

1,530,134

2010–11

2011–12

1,632,228

2011–12

2012–13

1,659,054

2012–13

2013–14

1,763,436

2013–14

788,469
759,035
686,487
745,891

Devondale Murray Goulburn Annual Report 2014

3

Building a ‘first choice
dairy foods company’
Vision and Strategy 2017
At MG, our goal is to lift farmgate returns by at least $1.00 per
kilogram of milk solids(i) by 2017 and drive industry growth.
Our ‘Vision and Strategy 2017’ sets down our plan to get there –
outlining our vision to become a first choice dairy foods company
for farmers, customers and consumers and our two strategic
focal points: Operational Excellence – our strategy to reshape our
business so that we can become the most efficient supplier of
dairy foods; and Innovation – to drive our shift to higher value
products in the growth categories of nutritional powders, consumer
cheese and dairy beverages.
The strategy recognises that global demand for dairy foods is
strong and growing, particularly in Asia where dairy deficit regions
are expected to import an additional 25 billion litres by 2020(ii).

MG intends to invest up to $500 million over the next five years
to ensure we have the right manufacturing capability and capacity
to respond to the extraordinary growth opportunities ahead for
Australian dairy.
The strategy aims to deliver a $1.00 per kilogram of milk
solids(i) lift in farmgate returns to benefit our more than 2,500
supplier/shareholders across Australia and cement MG’s position
as Australia’s leading dairy foods company, a co-operative
100 per cent controlled by dairy farmers, dedicated to maximising
the price paid to farmers for their milk. By improving farmgate
returns and farm profitability, MG believes farm business owners
will invest and increase milk production. Historically growth
of three per cent per annum has been achievable.

It acknowledges that milk production in Australia has declined
to such an extent that Australia is at risk of losing relevance in
global trade and that farmgate returns need to be higher if MG
is to encourage existing and new supplier/shareholders to grow
milk production once again.

Increase
competitiveness
of Australian
dairy farming

$1.00

Facilitate on-farm�
investment to�grow
milk supply
Preserve a
�positive image of�
Australian dairy

/kg ms(i)

>3% pa
Australian
milk supply
growth

(equivalent to
incremental EBIT
of ~$300m pa
by FY2017
over FY2012)

(i) In order to measure an increase in underlying milk price, rather than use the available milk price paid to suppliers each year, an implied milk price is used, which is based on forecasted
available milk price from FY2012 plus the value of annual dividends. The available milk price targets are normalised for the movements in dairy commodity prices, foreign exchange and
impacts of inflation as well as other one off items such as opening inventory.
(ii) Rabobank 2014.

4 Devondale Murray Goulburn Annual Report 2014

Our Vision
and Strategy
Products

Ope

S
matate-o
nu ffac t
t

Ca

s
rie
go
te

t
-ar g
heurin

Innovation

Channe
ls

First choice dairy
foods company for
farmers, customers
and consumers

es/

s e

ess
E ffi ci e n t p r o c s
s yste m

yste m

r a ti o n a l Esx c e ll e n c

1st

Ri
g
a n ht pr
d f odu
or m cts
a ts

r
Geog

ap

hie

s

Operational Excellence

Innovation

Drive operating excellence
to become the most efficient
supplier of dairy foods.

Shift to higher value dairy products
portfolio with a focus on nutritional
powders (baby, toddler formula),
consumer cheese and dairy beverages.

5

MG’s target
growth regions
We have our sights set on the growth
markets, particularly South East Asia,
China and the Middle East and North
Africa where the outlook for dairy foods
is strong. MG will ‘look north and go north’,
particularly to Asia, which is expected
to be the growth engine for dairy food
demand for many years to come.

The
Americas
Devondale Murray Goulburn’s target regions

3.4 billion

*

litres of milk received

784,299

*

tonnes of dairy product produced

324,000

tonnes of dairy product exported

31

countries where MG products are sold

* Includes MG’s majority owned subsidiary, Tasmanian Dairy Products Co Ltd.

6 Devondale Murray Goulburn Annual Report 2014

Europe

China
Middle East/
North Africa

Japan

South East
Asia

Pacific
Islands

Devondale Murray Goulburn Annual Report 2014

7

From the Chairman
The past year has been an exceptional
season for Devondale Murray Goulburn’s
supplier/shareholders, who have enjoyed record
farmgate milk prices and excellent seasonal
conditions. 2013–14 was also a milestone year
for MG, as we took decisive action announcing
significant new infrastructure investment,
witnessed further growth in MG’s milk intake
and saw the Co-operative maintain its rightful
place as the dairy partner of choice for farmers.

It was an outstanding year for MG. The final milk price was
$6.81 per kilogram of milk solids on an available weighted
average basis, a 37 per cent increase over last year,
delivering a welcome boost to farm incomes.
The Board declared an unfranked final dividend of eight per cent
on ordinary shares and five per cent for B and C class preference
shares. For ordinary shares, this equates, for the average
shareholder, to $0.09 per kilogram of milk solids, in addition
to the farmgate milk price paid to supplier/shareholders. In
addition, an unfranked special dividend of $0.25 per A class
preference share was paid to A class preference shareholders
as part of the cancellation of those shares.
Total payments to supplier/shareholders(i) for the year were
more than $1.7 billion, representing 61 per cent of MG’s sales(i),
compared to 50 per cent of sales last year. When combining the
final milk price of $6.81 with the dividend of eight cents per share,
the total return to supplier/shareholders was on average
$6.90 per kilogram of milk solids.
Net profit after tax was $29.3 million, down from $34.9 million
in the previous year.
Pleasingly, MG’s milk supply grew strongly by eight per cent in
2013–14 to 3.4 billion litres(i), against a backdrop of flat Australian
milk production growth of 0.4 per cent(ii). MG’s share of Australia’s
milk pool is now 37 per cent, up from 33 per cent a year ago with
milk supply growing across all regions, particularly in western
Victoria as the region recovers from a poor season in 2013. MG’s
milk supply was also boosted by our entry into the New South Wales
(NSW) milk market – where in our first 10 months we collected
approximately 100 million litres from new member suppliers.

Investing for future growth
In 2012, the Board endorsed a five year vision and strategy for
our Co-operative to transform MG and build a ‘first choice dairy
foods company for farmers, customers and consumers’ –
through achieving operational excellence and driving innovation.
Since then, MG has focused on actioning that strategic plan and
announced a number of investments. These investments are
being made to upgrade ageing infrastructure and ensure we
have world’s best manufacturing capability to meet and serve the
growing needs of international consumers and customers. They
include the $160 million investment to build our two chilled milk
processing facilities in Melbourne and Sydney; and $19 million
for two new high speed UHT lines at Leongatha – which together
represent the most significant investment in dairy infrastructure
undertaken in Australia for at least a decade.

Defining the right capital structure for MG
Recognising the scale of investment required to reinvigorate
and revitalise MG, in mid-2013 the MG Board announced that
a comprehensive capital structure review would be undertaken
to determine the best way to prudently fund the transformation
of MG’s manufacturing footprint.
MG has identified that capital investments up to $500 million will
be required over the next three to five years to rejuvenate our
manufacturing and supply chain infrastructure.
The capital structure review was instigated to examine the
best way to raise these funds and involved a comprehensive
review of all available options, including: increasing bank debt;
sale and leaseback of assets; retention of profits; raising additional
equity from supplier/shareholders; and raising capital from
external investors.
The review determined that the recommended proposed capital
structure – a funding model that maintains 100 per cent farmer
control, but allows external investors to invest into MG via a
separate, non-voting unit trust – is the most effective and efficient
capital structure for MG to pursue.

(i) Includes Tasmanian Dairy Products Co Ltd.
(ii) Dairy Australia.

8 Devondale Murray Goulburn Annual Report 2014

Since first describing the recommended capital structure
at the 2013 Annual General Meeting (AGM), MG has undertaken
an extensive consultation process with MG supplier/shareholders
to discuss the proposal and ensure it meets the needs of the
Co-operative now and into the future. This process has involved
three rounds of supplier consultation meetings across all dairy
regions and feedback from suppliers has resulted in a number
of modifications being made to the proposal. A fourth round of
capital structure supplier meetings is planned towards the end
of the 2014 calendar year.
Throughout the consultation process with suppliers, a key area
of interest has been how we align the interests of MG supplier/
shareholders and external investors. MG has developed a Farmgate
Milk Price (FMP)/dividend model that retains FMP as the primary
measure of success and aligns higher dividends with higher FMP.

Giving back to the community
In addition to the primary role MG plays in supporting
Australia’s dairy farmers through driving farmgate milk prices
higher, the Company also looks for opportunities to support
the broader community.
For the past three years, MG has partnered with Foodbank to
support its work to match the food industry’s surplus food with the
welfare sector’s need. MG donates quality, nutrition-rich products,
primarily UHT milk, that have a real, daily impact on individuals
and communities. During the year, MG donated the equivalent of
761,958 kilograms of dairy foods, which went towards the provision
of more than one million meals to satisfy the immediate hunger
needs of vulnerable Australians. MG also donated $110,000 to
an industry-funded effort to supply milk to underprivileged families.

I look forward to further engagement with supplier/shareholders
on the best capital structure for MG and am confident that we will
be in a position to present a final, recommended capital structure
to supplier/shareholders for approval in the year ahead.

In May, we announced a cash contribution of $300,000 to support
the wider Warrnambool community’s efforts to raise $5 million to
build a specialist cancer centre in the western region. The cancer
centre will ensure those fighting cancer in the region will no longer
have to travel long distances for specialist treatment.

A class preference shares

A high performing team

In early June 2014, we were very pleased that both MG’s
ordinary and A class preference shareholders passed the special
resolutions presented at the meetings of the respective shareholder
groups. Shareholders voted to cancel all the A class preference
shares on issue and pay A class preference shareholders
$1.25 per share in return. The A class preference share was
an old class of share that had been closed to new shareholders
for more than a decade. This class consisted of mainly very
small shareholdings, 20 per cent of which could no longer be
contacted. In these circumstances, the Board’s view was that
a cancellation of the A class preference shares was the right
way forward and represented the best outcome for both A class
preference shareholders and our current supplier/shareholders.

Adding balance sheet strength
During 2013–14, the Company’s balance sheet grew in strength
due in large part to the sale of MG’s stake in Warrnambool Cheese
and Butter Factory Company Holdings Limited (WCB), but also
through the sale and leaseback of the Integrated Logistics Centre
(ILC) at Laverton.
The WCB sale delivered cash proceeds of $93 million and
the sale and leaseback arrangement for the ILC delivered
$93 million in additional cash flow.

In closing I would like to take this opportunity to thank and pay
tribute to the management and staff of MG for the role everyone
has played in this remarkable year for the Company. On behalf
of the Board, I thank you for your service and dedication to the
Co-operative. In particular, I wish to acknowledge and thank
Gary Helou and his management team for their strong leadership.
There was one change to the composition of the MG Board during
the year. We welcomed new Director Duncan Morris, who was
elected to the Board via the western region, following the retirement
of Don Howard after 16 years of service. During his time on the
Board, Don oversaw significant change at MG and in our industry
and was always a passionate advocate for change within MG. We
are indebted to his service.
I also want to thank my fellow Directors for their ongoing support
and dedication to MG in a year when their services were called
on more frequently than is usually the case.
Finally, I wish to extend my thanks to you – our supplier/shareholders.
Throughout the course of the year we have sought and received
your support as we continue on our path to revitalise and
reinvigorate MG so that we are well placed to take advantage
of the extraordinary opportunities for Australian dairy.
I look forward to welcoming you to the AGM in November.

These proceeds were welcome and support MG’s plans to
reinvest in our business, grow market share in Australia and
expand internationally.
While we were disappointed to have missed out on the opportunity
to acquire WCB, the sale of our stake represented an excellent
financial outcome for the Company and we remain proud of the
role we played in the bidding process, to drive a genuine auction
for these important Australian dairy assets.

Philip Tracy
Chairman

Devondale Murray Goulburn Annual Report 2014

9

Managing Director’s Message

It has been a strong year for Devondale
Murray Goulburn and the Australian dairy
industry. After a decade of challenges, Australian
dairy roared back to life, spurred on by strong
milk prices, heightened interest in Australia’s
dairy assets and a reinvigorated MG advocating
for industry growth and higher farmgate returns.

At MG, we are committed to delivering a $1.00 per kilogram
of milk solids(i) increase in the farmgate milk price by 2017 and
we are the only Australian dairy foods company to publicly set
such a target.
Having launched MG’s ‘Vision and Strategy 2017’ two years ago
– our five year plan to drive growth in the farmgate milk price
by becoming a ‘first choice dairy foods company for farmers,
customers and consumers’ in our chosen markets – we have
made good progress.
Our Vision and Strategy 2017 is grounded in the knowledge that
if Australia is to assume its rightful place as a globally relevant
dairying nation, we must grow milk production enabling supply
to meet the rising demand for dairy foods, particularly in
international markets. Most especially, we must ‘look north and
go north’ as Asia is clearly the epicentre driving growth in demand
for high quality dairy foods. Now and into the future MG and
Australian dairy have the prime opportunity to build sustainable
long term growth given our proximity to these markets and
impeccable record as a source of quality, clean and safe food.
This opportunity is too great to pass up.
But we know we can’t just ‘flick the switch’ and double milk
production overnight. It will take investment and a sustained
increase in the farmgate milk price to motivate Australia’s
farmers to invest in their businesses and grow production.
Our Vision and Strategy 2017 is our plan to get there. It has
two critical strategic focal points: Operational Excellence – our
strategy to reshape our business so that we can become the most
efficient supplier of dairy foods; and Innovation – to drive our shift
to higher value products in the growth categories of nutritional
powders, consumer cheese and dairy beverages.
To support our strategy, we have identified capital investments
of $500 million over the next three to five years to invest in cutting
edge, automated manufacturing technology to drive efficiency and
innovation. These are critical investments to better connect our
nutritional powders, consumer cheese and dairy beverage supply
chain assets with our target markets.

To fund this level of investment, we reviewed available funding
options and recommended that MG considers a new capital
structure, which maintains our co-operative structure and
100 per cent farmer control and raises external capital via the
issue of units, which would be listed on the Australian Securities
Exchange (ASX). We believe this is an innovative funding structure
to raise non-voting capital, that delivers profit related returns
to external investors, but keeps 100 per cent control in the hands
of MG’s supplier/shareholders.
This approach will diversify MG’s source of investment funds
away from traditional bank debt and deliver MG the financial
strength, flexibility and stability to invest in our growth strategy.

A strong year for MG
Looking at MG’s financial performance, it was an outstanding
year for the Company. Throughout the year, global demand for
dairy foods remained strong and prices for key dairy ingredients
such as whole milk powder stayed at near record levels for an
unprecedented period. These external factors, combined with our
continued focus on improving performance through reducing costs
and investing to support innovation and value growth, underpinned
the full year result and drove a record high farmgate return.
As is our custom, MG opened early and high, setting a
benchmark for other industry players to follow and giving our
supplier/shareholders confidence for the season ahead. The
final weighted average milk price for the 2013–14 season was
$6.81 per kilogram of milk solids, a 37 per cent increase on
the previous year and a record price for MG.
An unfranked final dividend of eight per cent on ordinary shares
and five per cent for B and C class preference shares was also
declared. For ordinary shares, this equated on average to
$0.09 per kilogram of milk solids, in addition to the farmgate milk
price paid to supplier/shareholders. An unfranked special dividend
of $0.25 per A class preference share was paid to A class
preference shareholders as part of the cancellation of those shares.

(i) In order to measure an increase in underlying milk price, rather than use the available milk price paid to suppliers each year, an implied milk price is used, which is based
on forecasted available milk price from FY2012 plus the value of annual dividends. The available milk price targets are normalised for the movements in dairy commodity prices,
foreign exchange and impacts of inflation as well as other one off items such as opening inventory.

10 Devondale Murray Goulburn Annual Report 2014

Total payments to supplier/shareholders(ii) for the year were
more than $1.7 billion, representing 61 per cent of MG’s sales(ii),
compared to 50 per cent of sales last year. When combining the
final milk price of $6.81 with the dividend of eight cents per share,
the total return to supplier/shareholders was on average
$6.90 per kilogram of milk solids.
MG’s milk supply grew strongly by eight per cent in 2013–14
to 3.4 billion litres(ii), compared to a stagnant total Australian
milk production. Our share of Australia’s milk pool increased
to 37 per cent, up from 33 per cent a year ago with milk supply
growing across all regions, including NSW, South Australia
and Tasmania.
Net profit after tax was $29.3 million, slightly down from
$34.9 million in the prior year. Our balance sheet was strengthened,
with total equity increasing by $59 million, including a $36 million
gain from the sale of our stake in WCB, which was recognised
directly in equity. As at 30 June 2014, MG had total assets
of $1.76 billion and total equity of $746 million.
Strong revenue growth of 22 per cent to $2.9 billion was delivered
from across our businesses, particularly in international exports
where we saw 30 per cent growth year-on-year to $1.5 billion.
Exports now account for more than 51 per cent of MG’s revenue.
Strong growth was delivered in the strategic segment of nutritional
powders, up 19 per cent, as well as a 77 per cent growth
in international consumer and food service dairy foods.

Our achievements
Across MG, the team continued the foundation work that began in
2012–13 to ensure the Company is well positioned to capitalise on
the significant opportunities we see ahead for growth in dairy foods.
A year of construction to build two new state-of-the-art chilled
milk processing plants culminated in the official opening in July
of the Melbourne plant, with Sydney commencing operation
in early August.
These facilities are the new home of Devondale’s daily pasteurised
milk brand and the processing base for the groundbreaking
10 year agreement to supply chilled milk for Coles’ private label.
Both sites employ world-leading technology and quality standards
that will assist in positioning MG as the nation’s most efficient
producer of daily pasteurised milk – a market that currently
accounts for around 20 per cent of total Australian milk production.
During the year we also delivered on a number of previously
announced capital investments including $19 million to increase
UHT capacity at Leongatha, $5 million to strengthen our
consumer butter capability at Koroit and $2 million to increase
cheese capacity at Cobram.

With these investments commissioned and operational, our focus
now is on delivery of the three new capital projects announced
in May. Worth a combined $126 million, these projects will further
support transformation of MG’s manufacturing footprint. They include:
• $74 million investment in consumer cheese at Cobram;
• $38 million in infant nutrition at Koroit and Cobram; and
• $14 million in dairy beverages at Edith Creek.
Together they will deliver world-leading technology with
state-of-the-art automation for processing and packaging a range
of dairy foods destined for Asian and Australian consumers.
Innovation is a central focus. We are investing in our brands
and supply chain to ensure we can navigate a new path to
meet and serve the growing needs of farmers, consumers
and customers for Australian made dairy foods.
At home in Australia, we further strengthened our flagship
Devondale brand, with new TV advertisements to support UHT,
consumer cheese and the launch of Devondale Smoothies. These
efforts have had a clear impact with Devondale being recognised
during the year as a top 15 Australian brand in the annual list of
the nation’s top 100 brands, compiled by Brand Finance Australia.
In international dairy foods, a new team with extensive experience
in Asian markets was recruited to support our retail, food service
and private label business in Asia. This team will be key to building
connectivity into these markets and leveraging the infrastructure
investments we are making to customise dairy foods to suit
different market and customer requirements. We also launched
Devondale UHT in Vietnam and are on track to introduce a new
consumer convenience UHT offering specifically tailored
to China in 2014–15.

Building a safe work environment
Our commitment to building a safe workplace remains a priority.
We have invested significantly to improve health and safety across
all areas of MG and to ensure that every member of our team has
had safety training so that we build a shared understanding of the
role everyone plays in creating a safe workplace. Since launching
our safety program Goal Zero, last year, we have seen a vast
improvement in our safety record and while I commend the MG
team for this strong turnaround, our goal remains firm – zero
injuries at MG.
In closing, I would like to pay tribute to and thank the incredible
people behind the Company. Firstly, my sincere thanks to our
Chairman, Philip Tracy, and our Board of Directors – whose
experience and counsel I value highly. To the broader MG team,
thank you. I am indebted to you for your passion, hard work and
commitment to the business as we continue our transformation
and pursue growth.
Finally, to the farming families across Australia who support
the co-op ideal and entrust their milk to MG, thank you for
your ongoing support and be assured we remain focused and
committed to driving sustainable growth in the farmgate milk price.

(ii) Includes Tasmanian Dairy Products Co Ltd.

Gary Helou
Managing Director

Devondale Murray Goulburn Annual Report 2014

11

Our brands
Retail

Ingredients and Nutritionals

Australian milk is predominantly produced
on pasture-based systems where dairy cows
graze fresh green pastures every day.
12 Devondale Murray Goulburn Annual Report 2014

Farm services

Joint ventures

Devondale Murray Goulburn Annual Report 2014

13

Who are these caretakers of the
morning, who harvest liquid gold*…
At Devondale Murray Goulburn, we
are a proud co-operative of more than
2,500 Australian dairy farmer/suppliers
who join together each and every day
to produce 37 per cent of Australia’s
finest milk for the world to enjoy.
* Excerpt from Ode to the Dairy Farmer by Robbie Brammall.

14 Devondale Murray Goulburn Annual Report 2014

Devondale Murray Goulburn Annual Report 2014

15

Building world’s
best operations
We have begun the largest investment in
dairy infrastructure undertaken in Australia
for more than a decade, as we transform
Devondale Murray Goulburn and pursue
our goal to become the nation’s most
efficient producer of dairy foods.

16 Devondale Murray Goulburn Annual Report 2014

Across MG we are investing in the future of the Australian
dairy industry to deliver higher farmgate returns for our
supplier/shareholders. Several key investment projects were
commissioned during the year and a further $126 million investment
in manufacturing capability and capacity was announced.
MG has commissioned its new world class Melbourne and Sydney
chilled milk processing plants. The plants were designed and built
in around 18 months and utilise the latest in milk processing and
filling technology, operating at high speeds with minimum labour
and energy requirements.
Known as the Devondale Dairy Beverages Centres (Melbourne
and Sydney) the plants use world-leading technology and quality
standards that will assist in positioning MG as the nation’s most
efficient producer of daily pasteurised milk, thereby delivering
strong ongoing returns to MG’s dairy farmer/shareholders.
At Koroit (western Victoria), MG’s investment of $5 million to build
a new retail butter line was commissioned in November 2013 and
is operating at capacity servicing the requirements for Devondale
butter in Australia and international markets. Two new high speed
UHT lines at Leongatha were also commissioned in 2013–14 and
are fully operational.

The year also saw a comprehensive review of MG’s existing
manufacturing footprint. Consequently further investments in key
infrastructure were announced to ensure MG has the capability
and capacity it needs to meet growing demand for Australian
made dairy foods, particularly in international markets. Three new
capital projects worth a combined $126 million will be undertaken
at the Company’s existing sites over the next 12 to 18 months and
involve investment in world-leading technology with state-of-the-art
automation for processing and packaging a range of dairy foods
destined for Asian and Australian consumers. The projects
announced were:
• A $74 million investment at Cobram to build a world class
cheese cut and wrap facility to serve Australian and Asian
consumer and food service markets.
• A $38 million investment at Koroit and Cobram to increase
capacity for production of nutritionals for growing international
infant nutrition markets.
• A $14 million investment at Edith Creek to install and commission
a flexible small format cup and bottle filling line to commercialise
a range of dairy beverage products for consumer markets in
Australia and Asia.

Devondale Murray Goulburn Annual Report 2014

17

Our new Devondale Dairy Beverages
Centres in Melbourne and Sydney
were designed, built and commissioned
in 18 months. The chilled milk facilities
are world-class, featuring complete
end-to-end automation, utilising the latest
milk processing and filling technology
to operate at high speeds with energy
efficiency. Each plant is capable of
processing 50,000 litres of milk per
hour and producing 150 million litres
of chilled milk per year.

18 Devondale Murray Goulburn Annual Report 2014

Devondale Murray Goulburn Annual Report 2014

19

Year in Review
Business Operations
In April 2014, Business Operations was formed bringing together
MG’s Operations function and the Ingredients and Nutritionals
business. The newly created Business Operations unit also has
responsibility for ensuring MG’s workplaces are safe and that
MG’s product quality, manufacturing efficiency and environmental
practices position MG as the dairy foods supplier of choice with
farmers, customers and consumers.

Building a safe workplace for our people
At MG our approach to safety begins with a belief that in any
circumstance harm and damage can be prevented and that
as an organisation we have a responsibility to do everything
practicable to prevent workplace injury and illness.
Our Goal Zero safety program is designed to drive safety
awareness, improve our health and safety performance and
ultimately eliminate workplace injury across all our workplace
locations including manufacturing sites, MG Trading stores,
field services and office locations.
Since launching Goal Zero in 2012–13, MG has invested in
safety training for people across all levels of the organisation and
improved safety procedures and measures across all sites. During
the year, MG’s second ‘stop for safety’ one-hour program was
held focusing on Goal Zero initiatives and to raise awareness and
further identify opportunities to improve safety. A two-day Safety
Leadership Conference was also held for people managers and
compulsory safety training at senior and middle management
levels was rolled out.
This year, these initiatives have supported further significant
reductions in lost time injury frequency rates and lost time injuries
and while we are very pleased with the improvement in our safety
record, MG will not rest until we have zero workplace injuries.

20 Devondale Murray Goulburn Annual Report 2014

Quality and cost management remain a core focus
In line with MG’s aim to become Australia’s preferred supplier
of dairy foods, Business Operations continuously seeks
opportunities to improve quality, productivity and efficiency.
During the year, our drive for greater automation and process
control across operations resulted in further significant reductions
in both cost and quality claims and led to an additional $50 million
in cost savings being achieved.

Investing in milk collection infrastructure
The roll out of flowmeters and retractable hoses commenced
at MG during the year, with Gippsland suppliers the first to have
collections measured by flowmeters. The northern and western
regions are scheduled to follow in the second half of 2014.
The introduction of flowmeters across the tanker fleet brings
MG into line with global industry best practice and delivers a
range of commercial, quality and safety benefits, including more
accurate measurement of milk volume, improved sampling and
a safer environment for tanker drivers and suppliers.
MG also invested in 52 new Volvo prime movers and 22 tankers,
which were on the road during the peak season, assisting with
operational efficiencies and at the same time delivering improved
safety benefits for MG drivers.
Volvos feature market-leading technology, including advanced
electronic braking systems and an electronic stability program
to help prevent the potential for traffic accidents and tanker
rollovers. They also lead the way in cabin strength for driver
safety and are environmentally friendly, complying with ‘Euro 5’
emission standards.

A sustainable business into the future

Ingredients and Nutritionals

At MG, we maintain a strong commitment to building a sustainable
business, which goes beyond simply ensuring we comply with
relevant legislation.

MG’s Ingredients and Nutritionals business is a globally
recognised and respected supplier of bulk and customised dairy
ingredients and nutritional milk powders, primarily in the key
markets of North Asia, South East Asia, Australia, Sri Lanka and
USA. Today, MG is the world’s second largest supplier of dairy
ingredients, with the business accounting for almost half of
MG’s annual revenue.

We want to be industry leaders when it comes to sustainable
performance and have identified 10 key areas to focus our efforts
including: environmental noise, air emissions, odour, surface
water, land and groundwater, waste, energy use, water use,
flora and fauna, and greenhouse gas.
Aspirational targets have been set and during the year MG
continued to see a positive progression towards achieving our
targets. In particular, MG delivered a substantial reduction
in energy consumption and greenhouse gas emissions despite
an increase in production output.
A number of initiatives have driven these positive results
including the impact of a portfolio of energy and greenhouse gas
abatement projects, the requirement of sites to reduce energy
by five per cent per year, the Energy Blitz program and subsequent
efficiency activities.
During 2013–14, we continued to be a signatory to the Australian
Packaging Covenant (APC). The APC was established by industry
and government to reduce the impact that packaging has on the
environment, particularly on packaging going to domestic landfills.

Strong trading conditions led to price growth across all
commodity groups during the year, largely driven by increased
demand for milk powder from China and butter from Russia.
For MG’s Ingredients and Nutritionals business it was a very
strong year with net sales revenue in 2013–14 up 23 per cent
to $1.6 billion.
MG’s infant nutrition Cobram facility was one of the first Australian
manufacturers approved by the Chinese authorities to supply
infant formula into China. This followed a comprehensive review
by Chinese authorities of infant formula manufacturers and has
led to tighter regulations around infant nutrition. Our Chinese plant
in Qingdao also received certification, providing MG with both
a premium export range and a locally manufactured range
of infant nutrition products.
MG made good progress towards establishing its reputation
as a reliable supplier of nutritional powders to world-leading
nutritional customers. The investments announced at Cobram and
Koroit to upgrade our powders capability and capacity will also
support MG to capitalise expected growth for nutritional powders.
The MG Ingredients team also continued to leverage long standing
customer relationships and its intimate understanding of customer
needs to develop ideal ingredient solutions for customers.

Devondale Murray Goulburn Annual Report 2014

21

Year in Review
MG Dairy Foods
MG Dairy Foods encompasses all consumer and food service
sales, as well as marketing and innovation, in both domestic and
international markets. The business is charged with taking our
brands to the world.

Dairy Foods Australia
In Australia, where there are multiple dairy companies competing
in a low growth dairy market, trading conditions remain competitive.
In this environment, MG seeks to differentiate itself from other
dairy companies through maintaining strong relationships with
key customers and investing in brand innovation and marketing
support to drive sales growth.
Despite a challenging trading environment, with continuing food
deflation impacting margins and further growth of private labels
leading to deep discounting amongst branded products, MG was
able to deliver double digit net sales revenue and volume growth
in 2013–14. Sales growth was underpinned by the ongoing
strength of MG’s flagship Devondale brand, growth across the
Liddells range, increased private label volumes, and continued
strong growth in food service sales.
In the domestic market, MG invested behind its key dairy
brands – Devondale and Liddells – to drive ‘cut through’ with
consumers and to build a point of difference. For Devondale,
new television advertisements were released to support the
Devondale range of products – from UHT though to cheese
slices and butter. The advertisements use humour to highlight
everyday household challenges, such as running out of milk,
and provide a Devondale solution.

22 Devondale Murray Goulburn Annual Report 2014

The launch of Devondale Smoothies was an important extension
of the brand. The product is an example of the work MG is doing
to expand and extend the dairy category in Australia to drive
growth. Smoothies were developed in response to research that
showed that consumers, particularly mothers, wanted a great
tasting dairy product for their children that is highly nutritious
and low in sugar.
For Liddells, it was another year of strong sales growth. The brand
continues to resonate with consumers and is now the number one
lactose free dairy brand in Australia. Given its success, several
brand extensions were launched, including Liddells chilled milk,
cream cheese and cheese shred, with more new products
planned for the year ahead.

Dairy Foods International
Dairy Foods International was established in 2012–13 to drive
growth of MG’s consumer dairy foods business in China,
South East Asia, the Middle East and the Pacific. The business
has focused on developing customised products to meet the
sophisticated needs of consumers and establishing product
distribution for consumers in these regions.
During the year, Devondale UHT milk was relaunched in Vietnam,
supported by a marketing campaign to communicate the unique
benefits of Australian milk. In China, where Devondale UHT is an
established brand, sales continue to grow strongly and it is one
of the country’s biggest selling imported milk brands.
New cheese and butter products were also launched in Singapore,
Malaysia and Hong Kong and a dedicated team was recruited
to focus on building MG’s food service business across Asia.

Year in Review
Supplier/Shareholder Relations
MG’s Shareholder Relations function oversees milk supply,
commercial raw milk sales and purchases, MG Trading,
shareholder services and corporate affairs.
Milk supply received exfarm increased by eight per cent in
2013–14 to 3.4 billion litres, including the southern milk pool, the
NSW/Sydney region and Tasmania(i). This represents exceptionally
strong growth when compared to Australia’s national milk pool,
which grew by 0.4 per cent and led to MG’s market share growing
by four percentage points. MG now represents 37 per cent of
Australia’s total milk supply.
Importantly, milk supply grew across all supply regions. In northern
Victoria and southern Riverina milk intake was up 1.8 per cent,
Gippsland was 3.3 per cent higher and in the western region,
which includes western Victoria and South Australia, milk supply
grew strongly, up eight per cent on the prior year.
Since announcing MG’s entry into the NSW/Sydney region in
mid-2013, MG has received an overwhelming response from dairy
farmers, with approximately 50 per cent of dairy farm businesses
in the region choosing to join the Co-operative.
MG’s majority owned subsidiary Tasmanian Dairy Products Co Ltd
also continued to grow milk supply in northern Tasmania from its
dedicated group of suppliers.

Improvements to MG’s quality structure
Making high quality and safe dairy foods is vital to MG and milk
quality at the farmgate is an important element of this outcome.
Accordingly, during 2013–14 MG completed a comprehensive
review of our raw milk quality systems, which included feedback
from our supplier consultative groups. The review showed that
the great majority of MG suppliers produce high quality milk for
most of the year. Following the review, the Board and management
recommended changes to the system including a move from five
quality bands to four, aligning MG’s quality bands with the end use
of suppliers’ milk.

Supporting the Next Generation
MG announced the Next Generation package in 2012–13 to address
some of the key barriers to growth, including access to capital
and skilled labour. In 2013–14, the first full year of operations
for the package, more than $50 million in investment in dairy
farm businesses has been facilitated with a number of suppliers
accessing one or more of the suite of Next Generation initiatives:
financial support for young farmers, farming families and new
entrants seeking to grow their business or enter the industry;
access to employment and immigration resources to address
labour market shortages; and leasing partnerships through
MG’s preferred investment providers.

MG Trading
With 23 stores and five fertiliser stores servicing most of the
south east dairy region, MG Trading is focused on reducing
the cost of farm inputs and supporting increased profitability
through providing competitively priced products and services.
Sales from MG Trading stores grew by 20 per cent during the
year to $237 million, on the back of higher farmgate returns,
improved store layouts, an expanded offering and competitive
pricing. MG also opened two new stores – Warragul and Colac
– in the second half of 2013–14, which had a positive impact
on sales growth.
MG Trading continued to develop and enhance its offering during
the year opening new fertiliser depots at Timboon and Katamatite
and launching a tailored dairy farm insurance offer in conjunction
with Marsh Advantage Insurance, and a competitively priced fuel
offer in partnership with Reliance BP.

(i) Includes MG’s majority owned subsidiary Tasmanian Dairy Products Co Ltd.

8%

increase in MG’s milk intake

37%

of Australia’s total milk supply

20%

growth in MG Trading stores’ sales

Devondale Murray Goulburn Annual Report 2014

23

Year in Review
Our People
Ensuring MG people are supported and engaged to maximise
their business contribution is an essential part of MG’s journey
to become a first choice dairy foods company.

The ‘Ready, Set, Go’ employee on-boarding and induction program
was introduced to provide new employees with important
information about MG’s business, operations and way of working.

MG’s people related initiatives are focused on accelerating
MG’s ability to leverage its people capability, enhance
performance, achieve operational excellence and facilitate
transformation. MG’s People and Culture function partners
with MG’s business leaders and people to activate and drive
activities that will deliver a high performance organisation.

Investing in our people through training and development
continued during the year. In addition to the considerable
investment MG makes to support safety training, Workplace
Behaviours Training, including a Code of Conduct Refresher,
was rolled out for all employees.

Supporting our people at work
In 2013–14, further progress was made towards building people
management processes.
A new online platform, ‘People Central’ was launched to house
and deliver further efficiencies for key people management
processes, including the Company-wide performance management
program. ‘People Central’ facilitates the alignment of key
performance measures throughout the business.
MG’s new online internal information portal was also launched
to improve our ability to share, collaborate and manage information
across multiple sites, geographies and teams. With more than
2,400 people working for MG it is critical that key procedures,
processes and information can be streamlined and accessed
online across distance and time zones.

Our People by Location

Employee engagement
A key focus throughout 2013–14, our employee engagement
was enhanced by the successful renegotiation of our
Transport Enterprise Agreement and a new Greenfields
Enterprise Agreement covering MG’s new Devondale Dairy
Beverages Centres.
We have also put in place a preferred supplier approach for
recruitment, which is generating savings, and our inaugural
talent review was completed, establishing a clear platform
to activate our Learning and Development Framework.

Organisation by Operation

Manufacturing 52%
Logistics 18%
MG Trading 13%
Corporate 11%*
Business Operations Support 4%^
Field Services 2%

Regional 76%
Metro 17%
International 7%

Regional 76%
Metro 17%
International 7%
Note: International count is a manual entry
and wil increase headcount accordingly.

24 Devondale Murray Goulburn Annual Report 2014

Manufacturing 52%

* Employees of Shareholder Relations and Business Operations located at FWP are deemed Corporate.
^ Development
and Optimisation,
MG Trading
76% Ingredients and Nutritionals, PMO and Capital Projects, Safety and

Environmental Sustainability, Technical Excellence employees are deemed Business Operations Support.

Logistics 18%

Corporate 11%*
Business Operations Support 4%^
Field Services 2%
*Employees of Shareholder Relations and
Business Operations located at FWP are

There are more than 2,400
dedicated and passionate people
who make up the MG team, with
76 per cent employed in regional
Australia, providing direct support
to our supplier/shareholders through
the trading stores, field services,
milk collections and processing.

Devondale Murray Goulburn Annual Report 2014

25

Board of Directors

1

2

3

4

5

6

1. Philip W. Tracy

4. Natalie Akers

Philip was elected to the Board in 2009 and elected Chairman
in 2011. He is also Chairman of the Remuneration and Nominations
Committee and a member of the Supplier Relations Committee.

Natalie was elected to the Board in 2011. She is a member
of the Compliance Committee and Supplier Relations Committee.

BEc/BComm, CA, SIA, GAICD

Philip is a dairy farmer, milking over 2,000 cows at Yanakie
in Gippsland, Victoria. He is a Chartered Accountant and has
a Bachelor of Economics and Commerce and is a graduate
of the Australian Institute of Company Directors.

2. Gary Helou

BE (Hons), MComm, FAICD, FAIM
Gary was appointed as Managing Director in October 2011.
Gary brings experience from a broad range of roles encompassing
the international and domestic food and agricultural industries.
Prior to joining Murray Goulburn, he was Chief Executive Officer
of SunRice for 11 years. Gary held senior leadership roles
in Hong Kong, Singapore and Indonesia with Pacific Brands
Food Group and Indofood. He has a Chemical Engineering Degree
and a Master of Commerce (Marketing) from the University
of New South Wales.

BPPM (Hons), BA, GAICD

Natalie is a dairy farmer, milking 700 cows at Tallygaroopna
in northern Victoria. She has a Bachelor of Public Policy and
Management with honours, a Bachelor of Arts and has completed
the Fairley Leadership Program. Natalie has pursued a professional
career in agriculture, including water policy and dairy research
and development. Natalie is also a graduate of the Australian
Institute of Company Directors.

5. William T. Bodman

BSc (Ag), GAICD

William (Bill) was elected to the Board in 2009 and was joint Deputy
Chairman from 2011 to November 2012. He is a member of the
Finance, Risk and Audit Committee and Supplier Relations Committee.
Bill is a dairy farmer, milking 420 cows on two farms at Won Wron
in Gippsland, Victoria. He has a Bachelor of Agricultural Science
Degree from La Trobe University and is a graduate of the
Australian Institute of Company Directors.

3. Kenneth W. Jones

6. Peter J.O. Hawkins

Kenneth (Ken) was elected to the Board in 2008 and elected
Deputy Chairman in 2011. He is a member of the Compliance
Committee, Supplier Relations Committee and Remuneration
and Nominations Committee.

Peter was elected to the Board in 2009 as a Special Director.
He is Chairman of the Finance, Risk and Audit Committee and
a member of the Remuneration and Nominations Committee.

Adv. Dip. Ag., MAICD

Ken is a dairy farmer, milking 430 cows at Kergunyah in north
east Victoria. He has an Advanced Diploma in Agriculture and
is a member of the Australian Institute of Company Directors.

BCA (Hons), FAICD, SF Fin, FAIM, ACA (NZ)

Peter has had a 41 year career in the banking and financial
services industry in Australia and overseas at both the highest
levels of management and directorship of major organisations.
He held various senior management and directorship positions
with Australia and New Zealand Banking Group Limited from 1971
to 2005, including Managing Director of ANZ Banking Group (NZ)
Ltd from 1992 to 1995 and was also a director of BHP (NZ) Steel
Limited from 1990 to 1991, ING Australia Limited from 2002
to 2005 and Esanda Finance Corporation from 2002 to 2005.
He is currently a director of Westpac Banking Corporation, Mirvac
Limited Group, Liberty Financial Pty Limited, Treasury Corporation
of Victoria, Clayton Utz and Minerva Financial Group Pty Ltd.

26 Devondale Murray Goulburn Annual Report 2014

7

8

9

10

11

12

7. Michael F. Ihlein

10. Graham N. Munzel

BBus (Acc), FCPA, FAICD, F Fin

GAICD

Michael (Mike) was elected to the Board in 2012 as a Special
Director. He is Chairman of the Compliance Committee and
a member of the Remuneration and Nominations Committee.

Graham was elected to the Board in 2008. He is a member
of the Finance, Risk and Audit Committee and Supplier
Relations Committee.

Mike is a highly experienced international executive with extensive
knowledge of international business and finance. He held senior
management and directorship positions with Brambles Limited from
2004 to 2009, including Executive Director and Chief Executive
Officer (2007 to 2009) and Executive Director and Chief Financial
Officer (2004 to 2007). Mike also held various senior management
and directorship positions with Coca-Cola Amatil Limited, including
Executive Director and Chief Financial Officer (1997 to 2004)
and Managing Director, Poland (1995 to 1997).

Graham is a dairy farmer, milking 290 cows at Gunbower
in northern Victoria. He is a graduate of the Australian
Institute of Company Directors.

He is currently a director of Scentre Group, CSR Limited, Snowy
Hydro Limited and Chair of the Australian Theatre for Young People.

8. Maxwell Jelbart
Maxwell (Max) was elected to the Board in 2012. He is a member
of the Compliance Committee and Supplier Relations Committee.
Max is a dairy farmer, milking 1,000 cows at Leongatha South and
350 cows at Caldermeade in Gippsland. He is a Nuffield Farming
Scholar, a member of the Nuffield Australia Investment Committee
and a board member of Marcus Oldham College.

9. Edwin Duncan Morris (Duncan Morris)

Dip. Bus. Studies (Accounting), CPA, GAICD

Duncan was elected to the Board in 2013. He is a member
of the Finance, Risk and Audit Committee and Supplier
Relations Committee.
Duncan is an accountant and dairy farmer, milking 260 cows
at Cobden, western Victoria. He has spent most of his accounting
career in public practice, primarily attending to the accounting
and taxation needs of dairy farmers. Duncan has had significant
board experience with local community organisations and is
a graduate of the Australian Institute of Company Directors.

11. John P. Pye

Adv. Dip. Ag., MAICD
John was elected to the Board in 2005. He is Chairman
of the Supplier Relations Committee and a member of the
Finance, Risk and Audit Committee and Remuneration and
Nominations Committee.
John is a dairy farmer, milking 500 cows at Bessiebelle in
western Victoria. He has an Advanced Diploma in Agriculture
and is a member of the Australian Institute of Company Directors.
He is a member of Powercor’s Customer Consultative Committee
and a former Director of Southern Rural Water Authority
(2002 to 2010).

12. Martin J. Van de Wouw

MAICD

Martin was elected to the Board in 2010. He is a member of
the Compliance Committee and Supplier Relations Committee.
Martin is a dairy farmer, milking 280 cows at Princetown in
western Victoria. He has supplied Murray Goulburn for 37 years.
He has completed numerous farm management courses and
is involved with the West Vic Dairy Board and United Dairy
Farmers of Victoria. He is also a member of the Australian
Institute of Company Directors.

Devondale Murray Goulburn Annual Report 2014

27

Executive Leadership Team

1

2

3

1. Gary Helou

3. David Mallinson

Managing Director

Executive General Manager Business Operations

Gary Helou was appointed as Managing Director in October 2011.

David Mallinson was appointed Executive General Manager
Business Operations in April 2014. David was previously General
Manager Project Management Office and Capital Projects from
October 2013.

BE (Hons), MComm, FAICD, FAIM

Gary brings experience from a broad range of roles encompassing
the international and domestic food and agricultural industries.
Prior to joining Murray Goulburn, he was Chief Executive Officer
of SunRice for 11 years. He held senior leadership roles in Hong
Kong, Singapore and Indonesia with Pacific Brands Food Group
and Indofood.
Gary has a Chemical Engineering Degree and a Master of
Commerce (Marketing) from the University of New South Wales.

2. Brad Hingle
Chief Financial Officer
Brad Hingle was appointed Chief Financial Officer in January 2014.
Prior to joining Murray Goulburn, Brad was the Chief Financial
Officer of SunRice, where he spent 14 years and held a number
of senior roles. Brad has also held senior roles at Deloitte Consulting
in Australia as well as at Dunlop Tyres and Mondi Limited in
South Africa. He has studied Cost and Management Accounting.

28 Devondale Murray Goulburn Annual Report 2014

Dip Bus, PG Cert Finance, MBA, CPA, FNIA, GAICD

Prior to joining Murray Goulburn David was Fonterra Australia/
New Zealand’s Chief Financial Officer for six years, having held
various senior roles within the merged business and senior roles
in Bonlac Foods Ltd and United Milk Tasmania. David has also
previously worked for ANZ and Cadbury Schweppes.
David holds various qualifications including a Master of Business
Administration from Monash University and he completed
the Executive Development Program at Stanford University
(USA) in 2004.

4

5

6

4. Robert Poole

6. Aditya Swarup

Executive General Manager Shareholder Relations

Executive General Manager Strategy

Robert Poole was appointed Executive General Manager
Shareholder Relations in November 2011. Prior to this
appointment Robert was Murray Goulburn’s General Manager
Industry and Government Affairs for three years. Robert has held
a number of senior roles throughout his career including Deputy
Chief Executive Officer of Australian Dairy Farmers’ Federation,
General Manager of the Australian Dairy Herd Improvement
Scheme and a Regional Manager with Rural Finance Corporation.

Aditya Swarup was appointed Executive General Manager
Strategy in 2012.

BAgSci, MBL

In 2011–12 Robert also held leadership roles within the dairy
industry including President of the Australian Dairy Products
Federation and Deputy Chairman of the Australian Dairy
Industry Council.
Robert studied science (Agriculture) at Melbourne University
and was inducted as a Master of Business Leadership at
RMIT University in 2004.

BA (Hons)/Economics, MBA

Aditya has broad experience in strategy consulting and corporate
roles within a broad range of industries including food, agribusiness,
manufacturing and resources across Australia and Asia.
Prior to joining Murray Goulburn, Aditya spent six years at SunRice
as General Manager of Corporate Strategy. Before SunRice, Aditya
spent over eight years in strategy consulting roles, including Monitor
Group and Accenture, advising several large Australian corporates.
Aditya has an MBA from Melbourne Business School, University
of Melbourne (1997) and a Bachelor of Arts (with Honours) and
Economics from the University of Delhi (1991).

5. Fiona Smith

BSc, LLB, GDipGov, FGIA
Company Secretary and General Counsel
Fiona Smith was appointed Company Secretary and General
Counsel in January 2012.
Prior to joining Murray Goulburn, Fiona was Deputy Company
Secretary at BHP Billiton Limited for four years. She has also
been employed as General Counsel/Company Secretary of Gasnet
Australia, an ASX listed company for seven years and has held
a number of senior legal positions including principal solicitor
with the Australian Government Solicitor. She has over 25 years’
legal experience.
Fiona has a Bachelor of Science and a Bachelor of Laws from the
Australian National University and a Graduate Diploma in Applied
Corporate Governance. Fiona is also a Fellow of the Governance
Institute of Australia.

Devondale Murray Goulburn Annual Report 2014

29

Corporate Governance Statement
1. Introduction

DELEGATION TO MANAGEMENT

This section of the Annual Report outlines Murray Goulburn’s
governance framework for the year ended 30 June 2014.

The Board has delegated to the Managing Director and, through
the Managing Director, to other senior executives, responsibility
for the day-to-day management of the Company’s affairs and
implementation of the corporate objectives, strategy and policy
initiatives. The Managing Director and the broader management
team are required to operate in accordance with Board approved
policies and delegations of authority.

Murray Goulburn remains committed to ensuring that its policies
and practices reflect a high standard of corporate governance.
The Board considers that Murray Goulburn’s governance
framework and adherence to that framework are fundamental in
demonstrating that the Directors are accountable to shareholders
and are appropriately overseeing the management of risk and the
future direction of the Company.
As an unlisted company, Murray Goulburn is not required
to comply with the ASX Corporate Governance Principles
and Recommendations; however, the Board voluntarily issues
a Corporate Governance Statement to enhance transparency
and communication with stakeholders in relation to the
Company’s corporate governance practices.
Murray Goulburn’s key governance documents, including
the Constitution, Board and Board Committee Charters and
key policies are available on the Company’s website at
www.mgc.com.au/our-story/governance.

2. Role and Responsibilities of the Board
BOARD

The role of the Board is to represent shareholders, as a whole,
and to promote and protect the interests of the Company. Its
principal objective is to create and enhance shareholder value
but in a manner that is consistent with the co-operative objective
of maximising supplier returns. The Board is accountable to the
shareholders for the Company’s performance and governance.
The Board has adopted a Board Charter, which sets out its
key responsibilities, the matters it has reserved for its own
consideration and decision making and the authority it has
delegated to the Managing Director. The Board’s responsibilities,
as set out in the Board Charter, include:
• the appointment, remuneration and succession planning of the
Managing Director and the Managing Director’s direct reports;
• approval of the corporate strategy, including setting corporate
objectives, performance objectives and approving the annual
operating budget;
• overseeing risk management, internal controls and ethical
and legal compliance, which includes reviewing procedures
to identify the main risks associated with the Company’s
businesses and the implementation of appropriate systems
to manage these risks;
• monitoring corporate performance and implementation
of corporate objectives, strategy and policy;
• approving major capital expenditure, acquisitions and
divestitures, and monitoring capital management;
• monitoring and reviewing management processes aimed
at ensuring the integrity of financial and other reporting;
• developing and reviewing the Company’s corporate
governance principles and policies; and
• performing such other functions as are prescribed by law.
In addition, the Board has specifically reserved certain
matters for its decision, including those set out in the
approved delegations of authority.

30 Devondale Murray Goulburn Annual Report 2014

The Managing Director remains accountable to the Board for
the exercise of authority that is delegated. The Board monitors
the decisions and actions of the Managing Director, and the
performance of the Company, to gain assurance that progress
is being made towards the approved corporate objectives and
the delegations of authority are being complied with. The Managing
Director, with the support of management, provides regular
reports to the Board and its Committees to enable them to
discharge their duties effectively. Senior executives also attend
all scheduled Board meetings, by invitation, where they present,
discuss and provide input on their respective areas of responsibility.
INDEPENDENT PROFESSIONAL ADVICE

The Board and its Committees may access independent experts
and professional counsel for advice where appropriate and may
invite any person from time to time to attend meetings of the Board.
ACTIVITIES DURING THE YEAR

A key activity of the Board during the year has been governing
the Company having regard to its strategic objectives, as well
as the goal to lift farmgate returns and drive industry growth, and
the vision to drive operating excellence and shift to a higher value
dairy products portfolio. The Board has focused on the principal
objectives of creating and enhancing shareholder value and
maximising supplier returns. Within this context, the Board
approved various matters, including:
• investments totalling $126 million in consumer cheese
at Cobram ($74 million), infant nutrition at Koroit and
Cobram ($38 million) and dairy beverages at Edith Creek,
Tasmania ($14 million);
• the takeover offer for Warrnambool Cheese and Butter
Factory Company Holdings Limited (WCB) and the subsequent
acceptance of Saputo Inc.’s offer, which ultimately delivered
to the Company cash proceeds of $93 million;
• six step ups in the milk price paid by the Company
throughout the year;
• the opening milk price for financial year 2015; and
• the proposal to undertake a selective capital reduction and
cancellation of the A class preference shares, which was
ultimately approved by shareholders at the general and
A class preference shareholder meetings held on 6 June 2014.
Importantly, during the year the Board has also overseen
the construction of the two new state-of-the-art chilled milk
processing plants in Melbourne and Sydney, with the plants
officially opened in July 2014 and August 2014, respectively.
In addition to the above matters, the Board spent a significant
amount of time considering a potential capital structure to provide
access to equity capital to effectively fund strategic operational
and commercial initiatives to deliver a sustainable increase

in the annual farmgate milk price, consistent with the Company’s
overarching strategy. The potential capital structure will be the
subject of further Board consideration during financial year 2015.

3. Structure of the Board
MEMBERSHIP AND MEETINGS

The Board currently has 12 Directors. Of these, nine, including
the Chairman, are elected from the shareholder base (Supplier
Directors), one is the Managing Director and two are
Special Directors.
The Supplier Directors must be current suppliers to the Company
and each must hold at least 10,000 ordinary shares to be eligible
for election.
The Special Directors are selected by taking into account the
skills and competencies that the Board considers are necessary
to augment the direct industry knowledge and other expertise
provided by the Supplier Directors.
During the year, Duncan Morris joined the Board as a Supplier
Director following the annual Director election process undertaken
in accordance with the Company’s Constitution. In effect,
Mr Morris replaced Don Howard, who retired from the Board
after 16 years as a Supplier Director. As is required with all new
Non-executive Directors, Mr Morris confirmed his acceptance
of the appointment on the standard terms, which are available on
the Company’s website at www.mgc.com.au/our-story/governance.
At the 2012 Annual General Meeting, shareholders approved
various amendments to the Constitution, which included an
increase in the maximum number of Special Directors, giving
the Board the capacity to appoint a third Special Director. During
the year, the Remuneration and Nominations Committee (with the
assistance of an external recruitment consultant) commenced
identifying potential candidates for this additional directorship
having regard to the skills and experience that would best
complement those held by existing Directors. This process will
continue with a view to the Board appointing a third Special
Director during financial year 2015.
The Chairman is Philip Tracy and the Deputy Chairman
is Ken Jones. The Chairman and Deputy Chairman are both
Supplier Directors who the Board considers to be independent,
having regard to the guidelines adopted by the Board to assist
in considering independence (as described in Section 4 of this
Corporate Governance Statement).
The Company Secretary, Fiona Smith, is accountable to
the Board, through the Chairman, on all matters to do with
the proper functioning of the Board.
The Directors of the Company, their length of service and
their biographical details are set out on pages 26 to 27.
The Board met 23 times during the year, with 10 scheduled
monthly meetings and 13 ad hoc meetings (predominantly
to consider matters relating to the Company’s takeover offer
for WCB). Details of the number of meetings attended by each
Director are set out in the Directors’ Report on page 40.
At the commencement of each scheduled monthly meeting,
the Board holds a closed session (attended by Non-executive
Directors only), which provides Non-executive Directors with
an opportunity to raise issues in the absence of management.

COMMITTEES

To assist the Board to carry out its responsibilities, the
Board has established a Finance, Risk and Audit Committee,
a Remuneration and Nominations Committee, a Compliance
Committee and a Supplier Relations Committee.
Other committees are established from time to time to deal
with specific matters. For example, a committee was established
in 2013 to specifically consider matters relating to the Company’s
capital structure.
Each of the permanent Committees has a Charter, which sets
out the membership structure, roles and responsibilities and
meeting procedures.
Generally, these Committees review matters on behalf
of the Board and, as determined by the relevant Charter:
• refer matters to the Board for decision, with
a recommendation from the Committee; or
• determine matters (where the Committee acts with delegated
authority), which the Committee then reports to the Board.
The Company Secretary provides secretarial support
for each Committee.
There were a number of changes made to the membership
of each Committee during the year as a result of the review
undertaken by the Board in December, following the change
in the Board composition.
FINANCE, RISK AND AUDIT COMMITTEE

Role and responsibilities
The role of the Finance, Risk and Audit Committee is to assist the
Board in fulfilling its responsibilities in respect of the Company’s
external audit functions, internal audit functions, risk management
and identification, preparation of financial statements and
reporting systems, and internal accounting and control systems.
The Committee’s key responsibilities and functions are:
• the appointment, independence and remuneration of the
Internal and External Auditors;
• to oversee the internal audit functions generally and approve
the annual internal audit plan;
• to assist the Board in relation to the reporting of financial
information;
• to assist the Board in relation to the approval, application
and amendment of accounting policies;
• to manage the process of identification and management
of material risk;
• to review the draft annual budget before it is submitted to the
Board for approval; and
• to oversee any other financial review matters delegated to the
Committee by the Board from time to time.
Membership and meetings
The Committee consists of:
• a minimum of three members of the Board, all of whom are
Non-executive Directors;
• a majority of independent Directors (as defined in the Board
Charter); and
• an independent Chair, who is not Chair of the Board.

Devondale Murray Goulburn Annual Report 2014

31

Corporate Governance Statement continued
Name

Membership Status for FY2014

The External Auditor attends the Company’s Annual General
Meeting and is available to answer questions from shareholders
relevant to the audit.

Peter Hawkins (Chairman)
Bill Bodman
Ken Jones
Duncan Morris
Graham Munzel
John Pye
Martin Van de Wouw

Member for the entire period
Member for the entire period
Member until 18 December 2013
Member since 18 December 2013
Member for the entire period
Member since 18 December 2013
Member until 18 December 2013

During the year, the Committee facilitated the process to
replace the Company’s External Auditor, including making
a recommendation to the Board regarding the appointment
of PricewaterhouseCoopers (which was ultimately approved
by shareholders at the Annual General Meeting held in
November 2013), agreeing the compensation and terms
of their engagement and monitoring the transition.

The members of the Finance, Risk and Audit Committee during
the year were:

Two members of the Committee have formal accounting
qualifications and experience, with the Chairman having significant
experience in the banking and financial services industry in
Australia and overseas at both the highest levels of management
and directorship of major organisations, including Australia and
New Zealand Banking Group entities, BHP (NZ) Steel Limited,
ING Australia Limited and Esanda Finance Corporation.
Other Directors, members of management and the External
Auditor may attend meetings of the Committee at the invitation
of the Committee Chair. All Board members are expected to
attend the Finance, Risk and Audit Committee meetings at which
the half year and annual financial statements and reports
are considered.
The Finance, Risk and Audit Committee met six times during
the period. Information on meeting attendance by Committee
members is included in the Directors’ Report on page 40.
Activities during the year
The key activities undertaken by the Finance, Risk and Audit
Committee during the year include:
• reviewing the scope of the annual internal and external
audit plans for 2014 and overseeing the work performed
by the auditors;
• reviewing significant accounting, financial reporting and related
issues raised by management, the Internal Auditor and the
External Auditor;
• regularly reviewing the Company’s key risks and risk
management program;
• reviewing and monitoring improvements to the Company’s
internal control and accounting practices;
• reviewing and recommending to the Board the approval
of the Company’s annual and half year financial statements;
• reviewing the performance, tenure and independence
of the External Auditor, together with their assurances that
all applicable independence requirements were met; and
• reviewing the performance of the Internal Auditor.
External audit
The Finance, Risk and Audit Committee reviews the External
Auditor’s scope of work, including the external audit plan, to
ensure it is appropriate, having regard to the Company’s key risks.
The External Auditor reports to the Committee at each meeting
and is given an opportunity to raise issues with the Committee
in the absence of management. The Committee also reviews
the performance and independence of the External Auditor
on an annual basis.

32 Devondale Murray Goulburn Annual Report 2014

Internal audit
Ernst and Young (EY) has been engaged to carry out the
Company’s internal audit function. EY’s role as the Company’s
Internal Auditor is to determine, independently of the External
Auditor, whether adequate and effective systems of risk
management and internal control are in place. The Internal Auditor
prepares its scope of work (including the annual internal audit plan)
having regard to the Company’s strategic imperatives, key risks,
key processes and reasonable site coverage and the Finance, Risk
and Audit Committee reviews the internal audit plan to ensure it is
appropriate. The relationship with the Internal Auditor is managed
by the Company Secretary and General Counsel; however, the
Internal Auditor (represented by the Internal Audit Partner and
Internal Audit Director) reports directly to the Committee at each
meeting on the progress against the internal audit plan, as well
as detailed findings and corresponding management actions
in relation to reviews undertaken in accordance with that plan.
The Internal Auditor is also given an opportunity to raise issues
with the Committee in the absence of management.
Risk management
The Board has adopted the Risk Management Policy, which sets
out the objectives regarding risk management and outlines the
approach to managing risks.
The Policy recognises that the effective identification and
management of risk reduces the uncertainty associated in
executing the Company’s business strategies. The Board plays
a key role in the oversight of key risks by providing strategic
guidance on all aspects of risk management across the Company,
reviewing and approving annually (including in financial year
2014) the Company risk profile, reviewing, ratifying and
monitoring systems of risk management and setting the risk
management tone and expectations across the Company.
The Company is considered to have a material environmental
risk exposure in that each of its sites requires an Environment
Protection Authority licence and must comply with the conditions
of that licence in its operations. In order to manage this risk, the
Company has in place an effective monitoring program to ensure
each site complies with its licence.
The Board is supported in its role of overseeing risk by the
Finance, Risk and Audit Committee, which reviews the ongoing
risk management program, procedures, auditing and operational
risk management as well as evaluating the adequacy and
effectiveness of the management reporting and control systems
associated with financial and operational risk management.

To facilitate the Finance, Risk and Audit Committee’s oversight of
the Company’s risk management program, management reports
to the Committee in an open and transparent manner, including
the provision of quarterly business risk reports, which set out
new and emerging risks, an overview of incidents and events,
and an update on key risks. These reports comprise information
prepared in accordance with:
• Company wide mandatory requirements for risk identification,
assessment (in accordance with the risk rating matrix),
response, monitoring and reporting; and
• Company wide mandatory requirements for incident management,
which include classification in accordance with the incident
rating matrix (aligned with the risk rating matrix) and timely
notification of incidents to appropriate internal stakeholders.
Further, the Managing Director and the Chief Financial Officer
make representations to the Board in respect of the Company’s
half year and annual financial statements that, in their opinion, the
financial records of the Company have been properly maintained,
the financial statements comply with the appropriate accounting
standards and give a true and fair view of the financial position
and performance of the Company, and that the opinion has been
formed on the basis of an adequate system of risk management
and internal control that is operating effectively.
Enhancements were made to the risk management program
during the year by:
• requiring all key business risks outside tolerance to be identified,
assessed and managed; and
• progressing the development of an internal control framework.
REMUNERATION AND NOMINATIONS COMMITTEE

Role and responsibilities
The primary role of the Remuneration and Nominations Committee
is to assist the Board to perform its functions in relation to all key
management personnel remuneration issues and the Company’s
human resources strategy generally.
The Committee also has a secondary role in relation to the
process for identifying and selecting Special Directors, as well
as the director induction and training programs.
The Committee’s key responsibilities and functions are to:
• oversee the Company’s remuneration, recruitment, retention
and termination policy and procedures and its application to the
Managing Director and the Managing Director’s direct reports,
and its general application to all Company employees;
• assess the performance of the Managing Director and assist
the Chair with reviews of the Managing Director’s performance;
• review and recommend arrangements for the executive
directors and the Managing Director’s direct reports, including
contract terms, annual remuneration and participation in the
Company’s short and long term incentive plans;
• review and recommend to the Board executive succession
plans, including the succession of the Managing Director;
• oversee the Company’s human resources strategy with a view
to confirming to the Board that appropriately talented and
trained people are available to achieve the corporate objectives;
• make recommendations to the Board regarding the appointment
of Special Directors from time to time, including the identification
and selection of potential candidates; and
• oversee the director induction and training programs.

Membership and meetings
The Committee must consist of:
• a minimum of three members of the Board, all of whom are
Non-executive Directors;
• a majority of independent Directors (as defined in the Board
Charter); and
• an independent Director as Chair.
The members of the Committee during this period were:
Name

Membership Status for FY2014

Philip Tracy (Chairman)
Peter Hawkins
Michael Ihlein
Ken Jones
John Pye

Member for the entire period
Member for the entire period
Member for the entire period
Member for the entire period
Member since 18 December 2013

Other Directors and members of management may attend
meetings of the Committee at the invitation of the Committee Chair.
The Remuneration and Nominations Committee met six times
during the period. Information on meeting attendance by Committee
members is included in the Directors’ Report on page 40.
Activities during the year
The key activities undertaken by the Committee during the period
in relation to the Company’s remuneration framework, the policies
and practices regarding the remuneration of Directors, as well
as the contractual arrangements, remuneration and performance
evaluation of other members of key management personnel,
are reflected in the Remuneration Report on pages 41 to 54.
The Committee also oversaw:
• the director induction program, with new Director, Duncan
Morris inducted following his appointment in November 2013; and
• the director training program, with Directors participating in
eight sessions during the year, which were designed to develop
and maintain the skills and knowledge needed to perform their
role as Directors of the Company effectively.
Further, the Committee, with the assistance of an external
recruitment consultant, commenced identifying potential
candidates for the third Special Director position during the year.
It is expected that the Committee will be in a position to make
a recommendation to the Board in relation to the appointment
of a third Special Director during financial year 2015.

Devondale Murray Goulburn Annual Report 2014

33

Corporate Governance Statement continued
COMPLIANCE COMMITTEE

Role and responsibilities
The role of the Compliance Committee is to assist the Board
to oversee and monitor the performance of the procedures and
processes implemented by management to ensure the Company’s
compliance with key legislative and regulatory requirements
relevant to the Company’s operations and business.
The Committee’s key responsibilities and functions include:
• reviewing, assessing and monitoring the Company’s activities
and overall performance having regard to the Company’s
compliance with key legislative and regulatory requirements;
• overseeing and monitoring management’s implementation
of procedures and processes to ensure the Company’s
compliance with key legislative and regulatory requirements
relevant to the Company’s operations and business; and
• advising the Board and the Finance, Risk and Audit Committee
on the overall performance of the Company having regard
to the Company’s compliance with key legislative and regulatory
requirements.
Membership and meetings
The Committee must consist of:
• a minimum of three members of the Board, all of whom are
Non-executive Directors;
• a majority of independent Directors (as defined in the Board
Charter); and
• an independent Chair, who is not Chair of the Board.
The members of the Committee during this period were:
Name

Membership Status for FY2014

Michael Ihlein (Chairman)
Natalie Akers
Don Howard
Max Jelbart
Ken Jones
John Pye
Martin Van de Wouw

Member for the entire period
Member for the entire period
Member until 22 November 2013
Member for the entire period
Member since 18 December 2013
Member until 18 December 2013
Member since 18 December 2013

Other Directors, members of management and the External
Auditor may attend meetings of the Committee at the invitation
of the Committee Chair.
The Compliance Committee met eight times during the period,
including three joint meetings with the Supplier Relations
Committee to consider matters relating to the farm milk quality
review. Information on meeting attendance by Committee
members is included in the Directors’ Report on page 40.
Activities during the year
The key activities undertaken by the Compliance Committee during
the year include:
• reviewing the procedures, policies, systems and processes
in place to ensure compliance with applicable laws and
regulations, through regular detailed reports from management,
with a particular focus on occupational
health and safety, environment and quality and food safety;
• receiving reports on significant occupational health and safety,
environment and quality and food safety incidents, including
outcomes of investigations and remedial and preventative
actions taken by management;

34 Devondale Murray Goulburn Annual Report 2014

• overseeing the matters considered and discussed
by management’s Executive Safety Leadership Committee
by reviewing minutes of its meetings; and
• reviewing the culture with respect to the observance
of appropriate ethical standards, including receiving reports
on matters raised by employees and contractors via the
Ethics Hotline.
In addition, the Compliance Committee, in conjunction with
the Supplier Relations Committee, considered the outcomes
of the independent farm milk quality review and made
recommendations to the Board in relation to the improvement
opportunities identified.
SUPPLIER RELATIONS COMMITTEE

Role and responsibilities
The primary role of the Supplier Relations Committee is to
review and monitor the Company’s effectiveness in engaging
with suppliers and its relationship with suppliers generally,
and to provide advice and guidance for management with
regard to the Company’s communication strategy with suppliers,
including the Company’s provision of regular updates of major
Company developments.
The Committee’s key responsibilities include:
• approving the overall strategy for communication with
shareholders developed by management;
• reviewing and monitoring the interface between the Company
and suppliers and reviewing matters that are likely to affect
that interface, including significant corporate communications;
• reviewing the standard terms and conditions for the supply
of milk to the Company and making recommendations
to management or the Board as appropriate;
• reviewing parameters for the variation by management
of the standard terms and conditions for the supply of milk
to the Company and making recommendations to the Board;
• where information relating to suppliers or milk supply is to be
materially relied upon by the Board, considering and advising
the Board on the reasonableness of this information;
• receiving and considering reports from the Field Services
Group in relation to their interactions with and services
provided to suppliers;
• receiving and considering reports relating to the MG Trading
stores in relation to their interactions with and services provided
to suppliers;
• reviewing any proposed amendments to Company policies
or procedures that could affect the Company’s relationship
with its suppliers, and making recommendations to the Board;
• providing advice and guidance for management with
regard to management’s processes for managing questions
and complaints lodged with the Company by suppliers; and
• providing advice and guidance for management in relation
to any complaints lodged by suppliers.

Membership and meetings
All Supplier Directors are members of the Committee, as follows:
Name

Membership Status for FY2014

John Pye (Chairman)
Natalie Akers
Bill Bodman
Don Howard
Max Jelbart
Ken Jones
Duncan Morris
Graham Munzel
Philip Tracy
Martin Van de Wouw

Member for the entire period
Member for the entire period
Member for the entire period
Member until 22 November 2013
Member for the entire period
Member for the entire period
Member since 18 December 2013
Member for the entire period
Member for the entire period
Member for the entire period

The Special Directors and Managing Director have a standing
invitation to join each meeting of the Committee. Members
of management and the External Auditor may also attend
meetings at the invitation of the Committee Chair.
The Supplier Relations Committee met eight times during
the period, including three joint meetings with the Compliance
Committee to consider matters relating to the farm milk quality
review. Information on meeting attendance by Committee
members is included in the Directors’ Report on page 40.
Activities during the year
The key activities undertaken by the Supplier Relations Committee
during the year include:
• receiving and considering regular reports from management
on the activities undertaken by the Field Services team, including
in relation to milk supply and the various services and programs
available to suppliers;
• receiving and considering regular reports from management
in relation to the activities undertaken by the MG Trading team,
including in relation to Trading Stores and the corresponding
property portfolio;
• receiving regular reports on the management of credit provided
by the Company to suppliers;
• considering significant industry issues including the Company’s
position in relation to unconventional gas exploration and
genetic modification;
• considering the milk payment system for financial year 2015;
• considering the shareholder communications strategy; and
• receiving reports on the Supplier Development Program.
In addition, the Supplier Relations Committee, in conjunction
with the Compliance Committee, considered the outcomes of the
independent farm milk quality review and made recommendations
to the Board in relation to the improvement opportunities identified.

4. Independence, Performance Evaluation
and Remuneration
INDEPENDENCE AND CONFLICTS OF INTEREST

As all Supplier Directors have a supply relationship with the
Company, they will generally not be classified as independent
if the usual best practice definitions are applied. The Board has,
however, adopted guidelines, similar to an ASX listed company
to assist in considering independence. The Board only considers
Directors to be independent of management where they are
free from any business or other relationship that can materially
interfere with, or could reasonably be perceived to interfere with,

the exercise of unfettered and independent judgement.
A copy of the guidelines can be found at Attachment 1 to the
Board Charter at www.mgc.com.au/our-story/governance.
On this basis, all Directors except for the Managing Director
are considered to be independent.
Under the Corporations Act 2001 and general law, Directors must
avoid situations where their interests and those of the Company
conflict. The Board has adopted the Related Party and Conflicts
of Interest Policy to provide guidelines to Directors in complying
with their obligations.
As Supplier Directors are constitutionally required to be suppliers
of milk to the Company, there is an acknowledged inherent conflict
of interest when the Board is required to consider setting the milk
price. To manage this particular conflict, the Board has adopted
a set of protocols, which include:
• each Director acknowledging that the interests of the Company
as a whole must take priority over any personal interest they
have and they must not favour one group of suppliers over
another group unless to do so is fair and in the best interests
of the Company as a whole;
• proposals for both the opening milk price and changes to that
milk price are to be initiated and developed by management
who then submit the proposals to the full Board for approval;
• such proposals are only submitted to the Board if management
is of the opinion that the proposal is in the best interests of the
Company as a whole (recognising the co-operative objectives
of the Company) and management must include the rationale
for supporting the proposal;
• Board discussion of a proposal to change the milk price will
be chaired by a Special Director, and if there is an equality
of votes on whether the change to the milk price should be
adopted, that Special Director will have a casting vote; and
• to avoid perceived or actual interference by Directors in
management’s initiation and development of milk price proposals:
• Directors refrain from discussing the milk price with
management outside formal Board processes;
• all queries from suppliers in relation to milk price are
directed to management within Shareholder Relations; and
• Directors refrain from discussing with suppliers any
proposals to change the milk price.
PERFORMANCE EVALUATION

The Board conducts periodic evaluations of its performance,
the performance of Board Committees, the Chairman, individual
Directors and the governance processes that support the Board’s
work. This includes analysis of how the Board and its Directors are
functioning, the time spent by the Board considering matters and
whether the Charters of the Board and its Committees have been
met. The Board assesses its performance through a combination
of internal reviews and externally facilitated evaluation.
During the year, an externally facilitated evaluation of the
Board, its Committees, the Chairman and individual Directors
was undertaken. Overall, the review indicated that the Board
and its Committees are continuing to function effectively and
in accordance with the respective Charters. The review also
highlighted a number of improvement opportunities that are
in the process of being implemented and monitored by the Board.

Devondale Murray Goulburn Annual Report 2014

35

Corporate Governance Statement continued
REMUNERATION

7. Diversity

Details of the Company’s remuneration policy and practices
and the remuneration paid to Directors and key management
personnel are set out in the Remuneration Report on pages 41
to 54 of this Annual Report.

The Company submitted its annual public report on gender
equality to the Workplace Gender Equality Agency (WGEA)
in March 2014, which included the following results:
• Board – one of the 12 Directors (eight per cent) is female;
• senior executives – three of the 11 senior executives
(27 per cent) are female; and
• employees – 584 of the 2,455 Company employees
(24 per cent) are female.

5. Conduct and ethics
We have in place a Code of Conduct, which applies to all
Directors, employees, contractors, agents and representatives
of the Company.
The key values underpinning the Code of Conduct are:
• actions must be governed by the highest standards
of integrity and fairness;
• all decisions must be made in accordance with the spirit
and letter of applicable law; and
• business must be conducted honestly and ethically, with
skill and the best judgement, and for the benefit of customers,
employees, shareholders and the Company alike.
The Code of Conduct provides clear direction and advice on
general workplace behaviour and how to conduct business both
domestically and internationally, interacting with shareholders,
business partners and the communities in which we operate.

6. Continuous Disclosure and Communications
with Shareholders
The Company appreciates the importance of timely and adequate
disclosure to its shareholders, and is committed to making timely
and balanced disclosure of all material matters and effective
communication with its shareholders so as to give them ready
access to balanced and clear information.
As an unlisted public company, Murray Goulburn has continuous
disclosure obligations under the Corporations Act 2001 and
has put in place mechanisms designed to ensure compliance
with those requirements, including the Public Disclosure
Policy adopted by the Board. These mechanisms also ensure
accountability at a senior executive level for that compliance.
One of the key communication tools is the Company website.
The website contains details of the Company’s Constitution, Board
and Board Committee Charters, core governance policies, press
announcements and communications to shareholders
and the Company’s financial information. All shareholders are
encouraged to access the website on a regular basis and provide
relevant feedback.
In addition, the Company regularly communicates with its
shareholders through supplier meetings that are held throughout
Victoria, South Australia and New South Wales at least twice
a year, as well as its Annual General Meeting. For convenience
and environmental purposes, shareholders are given the option
to receive communications from, and send communications
to, the Company (including its share registry) electronically.
Shareholders are encouraged to make their views known
and raise any issues directly with management.

36 Devondale Murray Goulburn Annual Report 2014

Following the submission to the WGEA, the Company implemented
a formal diversity statement. The statement sets out the Company’s
commitment to an inclusive workplace that embraces and
promotes diversity, where high performing people choose to work.
It also outlines the underpinning principles, accountabilities and
objectives in enhancing diversity at Murray Goulburn.
The Board sets measurable objectives to monitor progress
in addressing any diversity imbalance issues. In 2014 the Board
endorsed the following objectives in building diversity awareness
at Murray Goulburn:
1. Supplier Development Program – to increase the rate of female
participation each year.
2. Candidacy Attraction Rates (including external hires and
internal promotions) – to ensure and increase females sourced
and identified on long and short lists for all key leadership roles,
including directorship positions.
3. Employee Turnover/Retention Profiling – to assess rates
and reasons by age, tenure and gender.
Assessment of these objectives and review of progress will
be carried out on an annual basis and reported to shareholders.
This Corporate Governance Statement has been approved
by the Board of Directors.

Financial
Statements
38
41
55
56
57
58
60
61
93
94
96

Directors’ Report
Remuneration Report 2014
Consolidated Statement of Profit or Loss
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Auditor’s Independence Declaration

Devondale Murray Goulburn Annual Report 2014

37

Directors’ Report
Your Directors present the following report for the financial year ended 30 June 2014.

Directors
The Directors listed on page 40 each held office as a Director of the Company at all times during or since the end of the financial
year, except for:
• ED Morris – appointed 22 November 2013
• DF Howard – resigned 22 November 2013

Company Secretaries
F Smith (BSC/LLB, Grad Dip Applied Governance, FGIA) joined the Company and was appointed as a Company Secretary
in January 2012. She has experience in company secretarial roles arising from time spent in such roles in listed companies.
D Page (B. Bus., CA) joined the Company in 2003 and was appointed as a Company Secretary in 2011.

Principal Activities
The principal activities of the consolidated entity constituted by the Company and the entities it controlled during the year have been:
• the processing of the whole milk of its shareholder suppliers and the manufacture, marketing and distribution of dairy products; and
• the operation of retail stores as a service to the suppliers.
No significant change in the nature of these activities occurred during the year.

Dividends Paid or Recommended
The following dividends were paid or recommended in respect to:
$000

a) Dividends paid during 2013–14 in respect to the financial year ended 30 June 2013:
Final dividend paid in September 2013
On Ordinary Shares at $0.08 per share unfranked
On A Class Preference Shares at $0.08 per share unfranked

21,027
1,179

On B Class Preference Shares at $0.05 per share unfranked

485

On C Class Preference Shares at $0.08 per share unfranked

2,592
25,283

b) Dividends paid during 2013–14 in relation to the financial year ended 30 June 2014:
On A Class Preference Shares, special dividend of $0.25 per share unfranked
Total dividends paid during the financial year ended 30 June 2014

3,623
28,906

c) Dividends proposed, but not yet paid, in respect to the financial year ended 30 June 2014:
Final dividend recommended for payment during September 2014
(Dividends declared subsequent to 30 June 2014 and therefore not recognised)
On Ordinary Shares at $0.08 per share unfranked

22,104

On B Class Preference Shares at $0.05 per share unfranked

493

On C Class Preference Shares at $0.05 per share unfranked

1,754
24,351

Review of Operations
The consolidated entity reported profit after income tax of $29.3 million (2013: $34.9 million) for the financial year ended 30 June 2014.
Consolidated sales revenue was $2,916 million (2013: $2,385 million) for the financial year ended 30 June 2014, an increase
of 22 per cent on the prior year. Consolidated profit after income tax of $29.3 million (2013: $34.9 million) for the financial year
ended 30 June 2014 was 16 per cent lower than the prior year. This reflects a weighted average available milk price of
$6.81/kg MS (2013: $4.97/kg MS) for the entity’s Victorian Milk Pool.

38 Devondale Murray Goulburn Annual Report 2014

Future Developments
Disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years and the
expected results of those operations are likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information
has not been disclosed in this report.

Significant Changes in the State of Affairs
No significant change in the state of affairs of the consolidated entity occurred during the financial year.

Events Subsequent to Balance Date
With the exception of the declaration of dividends detailed in Note 7 ‘Unrecognised Amounts’, no other matters or circumstances have
arisen since the end of the financial year that significantly affected or may significantly affect the operations of the consolidated entity,
the results of those operations, or the state of affairs of the consolidated entity in financial years subsequent to the financial year ended
30 June 2014.

Environmental Regulations
Murray Goulburn maintains a strong focus on doing the right thing by the environment and the community.
We continue to report in line with federal environmental reporting requirements including our annual energy use and greenhouse gas
emissions under the National Greenhouse and Energy Reporting Act 2007, our direct carbon cost liability under the Clean Energy Act
2011, and until June 2014 our energy efficiency opportunities under the Energy Efficiencies Opportunities Act 2006. We also report our
annual environmental performance at our licensed sites through requirements outlined by the various state based environment related
Acts and authorities.
During the financial year ended 30 June 2014, the Victorian Environment Protection Authority served three statutory notices in relation
to environmental performance at our milk processing sites. Two were served to our Rochester site relating to waste stockpiling and
odour, and one served to our Cobram site relating to environmental noise. We take these notices seriously and instituted corrective
measures to address the issues at both sites. The Rochester notices were both complied with and subsequently revoked and the
Cobram notice will be complied with within the required time frame.
We were also charged a late payment penalty for a shortfall error, which was made in our mid-year carbon report. The error, which
we identified ourselves, was a timing error and did not affect our overall carbon quantity reported or tax payment. A provisional unit
shortfall interest charge of $6,107 was paid. A late payment penalty of $3,030 was issued, however, it was waived following our request.

Remuneration
The Remuneration Report containing the remuneration of key management personnel (KMP) is provided on pages 41 to 54.

Insurance of Officers
During the financial year the Company paid a premium to insure the Directors and senior managers of the Company. The liabilities
insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the
officers in their capacity as officers of the consolidated entity. The policy prohibits the disclosure of the premium paid to insure the
Company’s officers.

Auditor’s Independence Declaration
Our auditors have provided the Board of Directors with a signed Independence Declaration in accordance with section 307C of the
Corporations Act 2001. This declaration is included at page 96 of this financial report.

Rounding of Amounts to the Nearest Thousand Dollars
The Company is of the kind referred to in ASIC Class Order 98/0100 dated 10 July 1998, and in accordance with that Class Order
amounts in the Directors’ Report and the financial report have been rounded off to the nearest thousand dollars.

Devondale Murray Goulburn Annual Report 2014

39

Directors’ Report continued
Meeting Attendance by Directors
Each Director’s attendance at meetings held during the year is set out in the table below.
Committee Meetings
Full Meetings
of Directors
23 held
Director and Location Qualifications and Experience

Finance,
Risk & Audit
6 held

Compliance
8 held

Supplier
Relations
8 held

Meetings Attended (Meetings held whilst a member of the Board/Committee)

PW Tracy
Chairman
Foster

Dairy Farmer
B. Ec & Comm, CA, SIA, GAICD,
Director since 2009

G Helou
Managing Director
Melbourne

BE (Hons) MComm, FAICD, FAIM,
Director since 2011

KW Jones
Deputy Chairman
Gundowring

Dairy Farmer
Advanced Diploma Agr., MAICD,
Director since 2008

N Akers
Tallygaroopna

Dairy Farmer
B (Hons) Public Policy and Mgt,
B. Arts, GAICD, Director since 2011

WT Bodman
Won Wron

Dairy Farmer
B. Agr. SC., GAICD,
Director since 2009

PJO Hawkins
Melbourne

Special Director
BCA (Hons), FAICD, SF Fin, FAIM,
ACA (NZ), Director since 2009

DF Howard
Camperdown

Dairy Farmer
Dip. Company Directors (ANU),
MAICD, Director until 22 November 2013

MF Ihlein
Sydney

Special Director
BBus (Acc), FCPA, FAICD,
F Fin, Director since 2012

ML Jelbart
Leongatha

Dairy Farmer
Director since 2012

ED Morris
Cobden

Dairy Farmer
Dip. Bus. Studies (Accounting), CPA,
MAICD, Director since 22 November 2013

GN Munzel
Gunbower

Dairy Farmer
GAICD,
Director since 2008

23

JP Pye
Bessiebelle

Dairy Farmer
Advanced Diploma Agr., MAICD,
Director since 2005

23

3 (3)

4 (4)

MJ Van de Wouw
Timboon

Dairy Farmer
MAICD, Director since 2010

23

3 (3)

4 (4)

23

22 (23)

23

22 (23)

*

*

6

*

*

*

*

6

8

3 (3)

4 (4)

7 (8)

*

8

*

8

6

*

*

8

20 (23)

6

*

6

*

12 (12)

*

22 (23)

*

8

6

*

*

8

*

8

*

*

*

*

23

23
11 (11)

3 (3)

6

* Not a member of the relevant committee.

The Managing Director has a standing invitation to attend all Board Committee meetings.

40 Devondale Murray Goulburn Annual Report 2014

Remuneration
& Nominations
6 held

4 (4)

*

3 (3)

*

3 (3)

5 (5)

8

8

8

Remuneration Report 2014
This Remuneration Report provides an outline of the Board’s
policy for determining the nature and amount of remuneration
of the key management personnel (KMP) of the Company and
the relationship between this remuneration policy and the
Company’s performance.
The report covers the following:
1. Introduction to Remuneration
2. Remuneration Governance
3. Key Management Personnel
4. Executive Remuneration Strategy
5. Executive Remuneration Structure
6. Short Term Incentive Plan and Link to Performance
7. Long Term Incentive Plan and Link to Performance
8. Remuneration Summary Table
9. Executive Contracts
10. Non-executive Director Remuneration
11. Shareholdings

1. Introduction to Remuneration
As disclosed in last year’s Remuneration Report, there were
a number of changes made to the remuneration framework in
2013 with the most significant being the introduction of a Long
Term Incentive Plan (LTIP) for the Managing Director. This year
the Board considered it important to align the interests of the KMP
with those of shareholders by introducing an at-risk component to
their remuneration, which rewards sustainable long term value
growth for both shareholders and the Company. As a result, the
eligibility to participate in the LTIP was extended to KMP during the
2014 financial year. This is also aligned to the Managing Director’s
remuneration structure and a more detailed explanation of the
LTIP can be found in Section 7 of this report.

2. Remuneration Governance
The Board has the overall responsibility for approving the
remuneration policy of the Company and ensuring that the
Company’s remuneration arrangements are appropriate and
align with the interests of shareholders. To assist it in its role,
the Board has established the Remuneration and Nominations
Committee whose role is to oversee the Company’s remuneration
policy and framework with particular reference to its application
to the Managing Director and his direct reports. The remuneration
arrangements for all other executives are determined by the
Managing Director or relevant managers.
In performing its function in this area, the Board – through the
Remuneration and Nominations Committee – seeks and considers
advice from remuneration consultants who are independent
of management. As part of its review of the Managing Director’s
overall remuneration package, including consideration of the LTIP,
the Committee obtained the advice of Ernst and Young (EY). EY was
engaged by the Board and reported directly to the Committee.
During the year, EY provided particular advice in the following areas:
• benchmarking the Managing Director’s total remuneration
package against comparable companies;
• benchmarking the Managing Director’s direct reports total
remuneration package against comparable companies resulting
in the LTIP being extended to the KMP covered in this report; and
• provision of ongoing information and commentary on the design of
the LTIP including performance target monitoring and assessment.
During 2014 no remuneration recommendations, as defined
by the Corporations Act 2001, were provided by EY.

FINANCIAL YEAR 2014 REMUNERATION REVIEW

Financial year 2014 saw an improved performance for the
Company primarily driven by a stronger demand in world dairy
ingredients leading to high dairy commodity prices during the
year. These higher prices combined with a continued focus
by management on lowering internal costs and growing markets
resulted in high farmgate prices, which supported a strong
recovery in cash and fodder positions for our shareholders
in the second half of the year. The Company also increased
its milk supply by approximately eight per cent on financial year
2013 volumes. As a result, this performance has resulted in
payments under the Short Term Incentive Plan (STIP) for KMP
covered by this report.

Devondale Murray Goulburn Annual Report 2014

41

Remuneration Report 2014 continued
3. Key Management Personnel

4. Executive Remuneration Strategy

Murray Goulburn has determined KMP to be the Non-executive
Directors, Managing Director and selected members of the
Executive Leadership Team. The 2014 financial year KMP
disclosed in this report are:

The Board recognises that to deliver transformational change
the Company needs to be able to attract, motivate and retain high
quality employees and executives. The objective of the executive
remuneration strategy is to motivate and reward outstanding
performance and align executives’ and shareholders’ interests.
The overall objective of the remuneration policy is to provide
remuneration that:
• creates and enhances sustainable long-term value
by maximising returns for all shareholders;
• provides market competitive and equitable remuneration;
• recognises and rewards high performing individuals; and
• encourages behaviours that support a high performing
organisation.

Name

Position

Non-executive Director
PW Tracy

Chairman

KW Jones

Deputy Chairman

N Akers

Non-executive Director

WT Bodman

Non-executive Director

PJO Hawkins

Special Director (Non-executive)

DF Howard

Non-executive Director
(to 22 November 2013)

MF Ihlein

Special Director (Non-executive)

ML Jelbart

Non-executive Director

ED Morris

Non-executive Director
(from 22 November 2013)

GN Munzel

Non-executive Director

JP Pye

Non-executive Director

MJ Van de Wouw

Non-executive Director

Executive Director
G Helou

Managing Director

Executive
D Mallinson

Executive General Manager Business
Operations (from 3 April 2014)

D Noonan

Chief Financial Officer
(to 13 January 2014)

B Hingle

Chief Financial Officer
(from 13 January 2014)

F Smith

Company Secretary/General Counsel

The report incorporates the disclosure requirements of Australian
Accounting Standard AASB 124 Related Party Disclosures, as well
as those prescribed by the Corporations Act 2001. The information
provided in this Remuneration Report has been audited as required
by the Corporations Act 2001. The remuneration reported in this
report is for the period that the individual served in the relevant
capacity during the year.

42 Devondale Murray Goulburn Annual Report 2014

The remuneration framework for the KMP covered by this report
contains a mix of fixed remuneration and variable at-risk pay
to reward performance.
The Company’s remuneration policy for the KMP covered by
this report targets the median position for total remuneration
of the relevant market. In undertaking the review of the Managing
Director’s remuneration, this year the Board considered the relative
market comparator group to be companies within the ASX 200 with
similar revenue bases while also taking into account the Company
is an unlisted public company.

5. Executive Remuneration Structure
KMP covered by this report are rewarded based on the following remuneration components:
Remuneration Component

Purpose

Fixed remuneration

Fixed remuneration rewards the day to day accountabilities of the position and is made up of base
salary (including salary sacrifice benefits and applicable fringe benefits), fixed allowances and Company
contributions to superannuation (paid at the legislative minimum).

Short Term Incentive (STI)
(under the STIP)

STI is an annual at-risk cash component of remuneration and is performance based. Performance
is assessed on the achievement of approved key performance indicators (KPIs).

Long Term Incentive
(LTI) (under the LTIP)

LTI is an at-risk cash component of remuneration and is based on superior performance over
a three-year period. Performance is rewarded depending on the Company’s achievement of approved
three-year performance targets in milk price growth and on return on capital employed. Performance
is measured and any payment made at the end of the three-year period.

2014 EXECUTIVE PAY MIX

This year the Board approved eligibility of the LTIP for the KMP – further details on the LTIP can be found in Section 7 of this report.
As shown in the diagram below, the remuneration structure of the Managing Director and other KMP comprises both fixed and at-risk
remuneration. The total remuneration mix varies between the Managing Director and his direct reports.
The Managing Director’s total remuneration mix is made up of 50 per cent fixed remuneration and a maximum of 50 per cent at-risk
remuneration. Of the at-risk remuneration, 40 per cent is STI and 60 per cent is LTI. For all other KMP covered by this report, total
remuneration mix is made up of 57 per cent fixed remuneration and a maximum of 43 per cent at-risk remuneration. Of the at-risk
remuneration, 33 per cent is STI and 67 per cent is LTI.

Objective

Remuneration

Attract and retain top
executive talent

Motivate and reward
outstanding performance

At-risk remuneration

Fixed remuneration

Remuneration
Components

Managing Director:
Short Term Incentive
Paid salary, benefits
and superannuation

Pay for role size,
responsibility and
competence

Long Term Incentive

Other KMP:
Short Term Incentive

Remuneration Focus

Align executive and
shareholder wealth

Long Term Incentive

Annual cash bonus

Three-year cash plan

Pay for superior
annual performance
against Group,
business unit
and individual plans

Pay for superior longer
term performance
against milk price growth
and Return on
Capital Employed

Devondale Murray Goulburn Annual Report 2014

43

Remuneration Report 2014 continued
6. Short Term Incentive Plan and Link to Performance
The STIP is an annual cash based plan aimed at rewarding participants for the achievement of Company, business unit/function and
individual performance plans.
STI POOL FUNDING

The size of the annual Company STI pool available to be distributed to eligible participants is determined by the Board. The pool is based
on performance relative to financial and non-financial outcomes.
PERFORMANCE MEASURES

Awards are determined by the achievement of four categories of financial and non-financial performance measures with STI targets
agreed with the Board at the beginning of the financial year.
The achievement of the milk price budget is a ‘gateway’ which means that if the milk price budget is not attained then, subject to
the Board exercising its discretion, the STI pool does not open to any participant. Both the safety measure and the internal audit
measures are sequential ‘modifiers’ in that if they are not achieved, there is a reduction in the available STI pool. The following
diagram shows how these performance measures interact with each other.

Performance Measure 1
MILK PRICE PERFORMANCE
Attain Board approved milk price

Company FY2014 STI
bonus pool not generated

Performance Measure 2
SAFETY PERFORMANCE
LTIFR reduced by Board
approved percentage

Company FY2014 STI
bonus pool reduced

Company FY2014 STI
bonus pool fully retained

Performance Measure 3
BUSINESS UNIT/FUNCTION PERFORMANCE
All critical and high risk internal
audit issues resolved

Business Unit/Function FY2014
STI bonus pool reduced

Business Unit/Function FY2014
STI bonus pool fully retained

Performance Measure 4
INDIVIDUAL PERFORMANCE
Achievement of individual KPIs

FY2014 BONUS PAYMENT
Individual payment determined at
the discretion of the Board

44 Devondale Murray Goulburn Annual Report 2014

Performance measure not achieved
Performance measure achieved

6. Short Term Incentive Plan and Link to Performance continued
The Board selected these performance measures as it believes they align the KMP’s interests with the Company’s performance and
management values. Performance against each performance measure is assessed by the Remuneration and Nominations Committee
for the Managing Director and by the Managing Director for the other executive KMP. Once performance measures have been assessed,
the Board approves the amount of STI payable. The Board believes the method of assessment is rigorous and provides a balanced
evaluation of the KMP. All STI cash awards referable to performance during the 2014 financial year are payable post year end.
Performance Measure

Application

Description

Financial – milk price
performance

Gateway

As the most critical performance measure, attaining milk price budget acts as a gateway
to the payment of any STI for the Company. If the milk price budget is not achieved, no STI
will be payable. Milk price budget is set by the Board at the beginning of the financial year.
It includes both the attainment of a Board set milk price within the budget and the payment
of a dividend out of profit, not retained earnings.

Safety

Modifier

The reduction in the Lost Time Injury Frequency Rate (LTIFR) is a key measure of success
for the Company. Each year, the Board sets a percentage reduction that is challenging to
achieve. If the Company does not achieve the target, the STI pool is reduced.

Internal audit

Modifier

Internal audit reviews the performance of pre-agreed processes and reports these reviews
to the Finance, Risk and Audit Committee, which in turn reports its findings to the Board. All
findings are allocated a rating and management provides an agreed rectification time frame.
For any items that have been identified as ‘critical’ or ‘high risk’, the responsible business
unit/function needs to resolve these issues within the agreed time frame. If they remain
unresolved, the responsible business unit/function STI pools are reduced.

Individual KPIs

Modifier

Individual KPIs are set for all participants in the STIP and all KMP covered by this report
have their KPIs approved by the Board. All individual KPIs are linked to the delivery of
business strategy of the Company and typically include financial, operational excellence,
strategy and leadership objectives. The final amount the KMP is paid is determined by their
performance against these KPIs, taking into account whether their available amount has
been reduced as a result of failure to achieve safety targets or addressing internal audit
recommendations as described above.

The Board will consider revising the STI structure during the 2015 financial year with a view to potentially introducing threshold, target
and stretch levels for each performance measure.

Devondale Murray Goulburn Annual Report 2014

45

Remuneration Report 2014 continued
6. Short Term Incentive Plan and Link to Performance continued
Performance for Short Term Incentive for 2014 Financial Year:
The table below summarises the outcomes of the performance measures for 2014.
Area of Focus

Typical Achievements Required

Company Performance

Financial

Achieve milk price performance

Exceeded

Safety

Percentage reduction in LTIFR on previous year

Exceeded

Internal Audit

Resolve any ‘critical’ or ‘high risk’ recommendations in agreed time frame

Achieved

Further details on the achievements during the year are as follows:
FINANCIAL

• Despite the challenging conditions of a high Australian dollar and fluctuating commodity prices, the final milk price of $6.81 per kilogram
of milk solids outperformed the milk price budget by 14.5 per cent.
As required by the Corporations Act 2001, the following table summarises the Company’s five-year earnings and dividends.
Net Sales
Revenue
$000

Profit
After Tax
$000

Dividends*
$000

Financial year ended 30 June 2014

2,916,521

29,297

24,351

Financial year ended 30 June 2013

2,385,099

34,904

28,906

Financial year ended 30 June 2012

2,367,231

14,467

31,525

Financial year ended 30 June 2011

2,287,492

36,319

29,937

Financial year ended 30 June 2010

2,163,441

28,041

26,077

* All amounts reflect dividends paid in relation to the period except the amount for the financial year ended 30 June 2014, which reflects the dividend
declared for that period.

All shares in the Company are traded at a fixed $1.00 per share.
SAFETY

• This year had a continued focus on safety and the executives continued to show strong leadership in driving a step change in safety
throughout the business with a number of key initiatives including:
• the implementation of safety performance dashboards across all areas of the Company and a Company performance scorecard;
• the introduction of Health & Wellbeing and Safety Leadership Programs; and
• hosting the internal Annual Safety Conference and annual Stop for Safety initiative where all employees stopped for one hour
to participate in a workplace safety activity.
• As a result, the Company achieved a 37 per cent reduction in the LTIFR to 8.13.
INTERNAL AUDIT

• The internal audit program, introduced in 2012, continued with EY as the Internal Auditor with an increased focus on finalising all high
risk findings. As in the previous year, at the end of the financial year, the Internal Auditor undertook a review of all outstanding high
risk finding recommendations and management actions taken to close out these findings.
• The Internal Auditor concluded that all high risk findings were either completed by 30 June 2014 or sufficient management action had
been undertaken to reduce their risk rating from high.

46 Devondale Murray Goulburn Annual Report 2014

6. Short Term Incentive Plan and Link to Performance continued
SHORT TERM INCENTIVE OUTCOMES

The STI payments for 2014 reflect the strong achievements by the Company and of individual KMP against the applicable performance
measures. The table below shows the percentage of STI payments awarded and forfeited for KMP.
Short Term Incentive
Name

Percentage of Available STI Awarded

Percentage of Available STI Forfeited

85

15

D Mallinson

75

25

D Noonan

60

40

B Hingle

79

21

F Smith

100

0

Managing Director
G Helou
Executive

7. Long Term Incentive Plan and Link to Performance
The LTIP is designed to provide a longer term focus on economic value growth and alignment to the business strategy and the interests
of suppliers/shareholders.
The KMP included in this report (excluding those that ceased to be KMP during the year) were offered eligibility to the LTIP following
a benchmarking exercise undertaken by EY in which the total remuneration mix was compared against peers within a comparator
group of ASX 200 companies. This comparator group was chosen on the basis that it represents companies of similar operational size
and business complexity to MG, and from which key executive talent would typically be attracted from. As a result, an opportunity was
identified to introduce a long term incentive for the KMP to better align the current remuneration structure and quantum with the comparator
group. The Board agreed to the introduction of the LTIP for the KMP reporting to the Managing Director during financial year 2014.
Following the introduction of the LTIP in financial year 2013 for the Managing Director only, the Board reviewed the LTIP design for
the other KMP to ensure related costs are sustainable, aligned with business performance and supplier/shareholder and the KMP’s
expectations. Given the Board’s continued focus on these areas, the LTIP guiding principles are unchanged from financial year 2013:
LTIP Design Principle

Description

Shareholder alignment

Promotes a focus on economic value growth and an alignment to the long term interests of shareholders.

Simplicity and transparency Clear and easy for individuals to understand the plan mechanics, linkages between performance and
reward outcomes.
Performance linked

Opportunities and payments are explicitly linked to the successful and pre-determined long term
performance outcomes of the Company.

Valued

Complements the total remuneration framework and encourages the correct long term behaviours.

Market competitive

Design reflects contemporary market practice and delivers competitive remuneration aiding employee
attraction and retention.

Governance

Aligned to regulatory and legislative requirements and operated within a prudent risk management framework.

Affordability

Related costs are sustainable for the Company and aligned to the financial performance of the business
and supported by shareholders.

Devondale Murray Goulburn Annual Report 2014

47

Remuneration Report 2014 continued
7. Long Term Incentive Plan and Link to Performance continued
PERFORMANCE MEASURES

The Company’s stated business objective is to significantly increase the farmgate milk price. The LTIP has two equally weighted and
independently assessed performance measures, which are both focused on achieving this return to suppliers/shareholders through
measuring and rewarding increases in the underlying milk price and at the same time ensuring that capital employed in achieving
this increase is used in the most efficient form. The LTIP is made up of the following elements:
Element

Description

Award

Conditional rights to receive cash payment subject to meeting pre-determined performance hurdles.
The LTIP is based on two independent and separately assessed performance hurdles being:
• Implied Milk Price Growth (IMPG) (50 per cent weighting).
• Return on Capital Employed (ROCE) (50 per cent weighting).

Quantum opportunity

Quantum is based on a percentage of fixed remuneration as determined by the Board. The quantum
opportunities are based on achieving varying levels of performance with opportunities also
available for achieving performance between levels:
Managing Director
Threshold performance: 15 per cent of fixed remuneration
Target performance: 30 per cent of fixed remuneration
Stretch performance: 60 per cent of fixed remuneration
Other KMP
Threshold performance: 12.5 per cent of fixed remuneration
Target performance: 25 per cent of fixed remuneration
Stretch performance: 50 per cent of fixed remuneration
Quantum opportunities also exist for performance achieved between the performance hurdles
stated above. As there are two independent and separately assessed performance hurdles,
to achieve the maximum total opportunity, both hurdles will need to be achieved at the stretch
level of performance. The minimum total value available is nil.

Performance period

Three-year performance period from 1 July 2013 to 30 June 2016 with no retesting opportunity
available at the end of the performance period.

IMPG hurdle

• The purpose of the IMPG hurdle is to focus the KMP on delivering an optimal return to
suppliers/shareholders through an increase in underlying milk price, while also making
sure that there are sufficient funds available for reinvestment back into the business.
• In order to measure an increase in underlying milk price, rather than using the available milk
price paid to suppliers each year, an implied milk price is used that is based on forecasted
available milk price targets plus the value of annual dividends. The available milk price targets
are normalised for the movements in dairy commodity prices, foreign exchange and impacts
of inflation as well as other one off items such as opening inventory.
• In order to ensure there are sufficient funds available for reinvestment back into the business,
increases or decreases in retained earnings are translated into adjustments to the implied
milk price.

IMPG target setting

• Targets are set by determining a performance hurdle to be achieved by the end of the threeyear period, using the year prior to the grant year as the base year. For example, the current
grant performance will be assessed on the IMPG from financial year 2013 over a three-year
period by comparing the actual result in financial year 2016 to the financial year 2013 amount.
• The performance hurdle is formed on the basis of three annual notional targets that in aggregate,
equal the three-year performance hurdle.
• The hurdles and related components within the hurdle are based on forecasted levels of financial
performance, including forecasted inflation (wage, energy/utilities, transport) and Company
initiatives. This is then normalised to remove the impact of commodity prices and exchange rates.
• Three levels of growth targets are set – threshold (80 per cent of target), target (100 per cent
of target) and stretch (110 per cent of target). In order for any amount to be payable, at least
80 per cent of the forecast increase in implied milk price needs to be achieved over the
three-year period.

48 Devondale Murray Goulburn Annual Report 2014

7. Long Term Incentive Plan and Link to Performance continued
Element

Description

ROCE hurdle

• The purpose of the ROCE hurdle is to focus the KMP on achieving the maximum return
to suppliers/shareholders by incentivising the most cost efficient use of capital.
• In order to achieve the growth in milk price, significant capital will need to be employed.
The Board considers that it is important to focus management’s attention on the most efficient
use of this capital.
• The ROCE hurdle is measured by calculating the total return to shareholders (based on total
payments for milk plus dividends paid in that financial year) as a percentage of the three-year
rolling average of annual capital employed.

ROCE target setting

• ROCE hurdle is determined by the Board based on the anticipated levels of capital employed
to deliver the significant increase in milk price.
• In setting the ROCE hurdle, the Board looks at the forecasted levels of financial performance
including forecasted inflation performance, which is then normalised for currency movements
and commodity price fluctuations.
• Three levels of ROCE targets are set – threshold (96 per cent of target), target (100 per cent
of target) and stretch (104 per cent of target). In order for any amount to be payable, at least
96 per cent of the ROCE hurdle needs to be achieved over the three-year period.

Vesting schedule

Vesting (or entitlement to payment) occurs according to the following schedule for proportion
of the LTIP award (subject to each performance measure).
Implied Milk Price Growth
Achievement of hurdle
Below threshold
Threshold (80 per cent of target)
Between threshold and target
Target (100 per cent of target)
Between target and stretch
Stretch (110 per cent of target)

Proportion of LTIP award (for the 50 per cent
related to the IMPG hurdle) that is made available
0 per cent
50 per cent
Straight line correlation between 50 per cent
and 100 per cent of LTIP award opportunity
100 per cent
Straight line correlation between 100 per cent
and 200 per cent of LTIP award opportunity
200 per cent

Return on Capital Employed
Achievement of hurdle
Below threshold
Threshold (96 per cent of target)
Between threshold and target
Target (100 per cent of target)
Between target and stretch
Stretch (104 per cent of target)
Adjustments to performance hurdles

Proportion of LTIP award (for the 50 per cent related
to the ROCE hurdle) that is made available
0 per cent
50 per cent
Straight line correlation between 50 per cent
and 100 per cent of LTIP award opportunity
100 per cent
Straight line correlation between 100 per cent
and 200 per cent of LTIP award opportunity
200 per cent

Performance hurdles can be amended at the discretion of the Board during the performance
period, but only following a change to the target setting approach and/or assessment methodology
as agreed by the Board or to prevent the participant from receiving an inappropriate benefit
in certain circumstances.

Devondale Murray Goulburn Annual Report 2014

49

Remuneration Report 2014 continued
7. Long Term Incentive Plan and Link to Performance continued
Element

Description

Adjustments to LTIP award outcomes Following the end of a performance period, the Board may take into account certain items or
factors that may have assisted or hindered the participant in achieving the performance hurdles
(beyond those already factored into the forecasted targets e.g. adjustments for retained earnings
in the implied milk price). The Board has the discretion to adjust the outcome either upwards
or downwards to account for such items or factors or to prevent the participants receiving
an inappropriate benefit in certain circumstances. The Board will also take into account the
Company’s performance against that of its competitors.
Cessation of employment

On leaving the Company, rights awarded under the plan vest as follows:
• Resignation/termination with cause – all rights are forfeited, subject to Board discretion.
• Resignation for any other reason – rights will remain on foot and vest subject to performance
against existing hurdles, subject to Board discretion.

Summary of 2013–14 LTIP Grant

Grant date

23 October 2013 for the Managing Director
14 May 2014 for other KMP

Performance hurdle

IMPG and ROCE

IMPG assessment

The hurdle will not be assessed for vesting until the three-year performance period is completed
(30 June 2016)

ROCE assessment

The hurdle will not be assessed for vesting until the three-year performance period is completed
(30 June 2016)

Payment date

Any payment will be made by 30 November 2016

50 Devondale Murray Goulburn Annual Report 2014

8. Remuneration Summary Table
Short Term Benefits

Executive
Officers

Salary and
Allowances
$

STI Cash
NonBonus monetary(iv)
$
$

Long
Post
Term Employment
Benefits
Benefits

Leave Benefits

Subtotal
$

Annual
Long
Leave Service
Accrued
Leave
(taken) Accrued
$
$

Subtotal
of Leave LTI Cash
Benefits Incentives(v)
$
$

Superannuation
$

Proportion of
Remuneration
Performance
Total
Related
$
%

2014
G Helou

1,612,955

552,500

222,124

2,387,579

7,997

26,506

34,503

325,000

17,775

2,764,857

31.7

270,856

45,261

–

316,117

18,954

4,105

23,059

91,667

7,406

438,249

31.2

D Mallinson(ii)

153,693

70,313

908

224,914

11,860

2,566

14,426

108,333

4,444

352,117

50.7

D Noonan(iii)

236,932

37,419

–

274,351

(8,350)

4,278

(4,072)

–

9,403

279,682

13.4

F Smith

532,224

137,500

–

669,724

24,630

9,681

34,311

91,667

17,775

813,477

28.2

2,806,660

842,993

223,032

3,872,685

55,091

47,136

102,227

616,667

56,803 4,648,382

B Hingle(i)

Total
2013
G Helou

1,562,959

598,500

220,361

2,381,820

101,295

25,640

126,935

315,000

16,470 2,840,225

32.2

M Beniston

331,732

66,997

24,129

422,858

16,312

11,915

28,227

–

16,470

467,555

14.3

K Mentiplay

554,685

142,789

12,477

709,951

11,226

9,369

20,595

–

16,470

747,016

19.1

D Noonan

433,529

84,375

–

517,904

17,727

7,222

24,949

–

16,470

559,323

15.1

R Poole

345,533

54,257

22,299

422,089

15,048

12,812

27,860

–

16,470

466,419

11.6

F Smith

467,349

128,835

–

596,184

17,594

9,223

26,817

–

16,470

639,471

20.1

3,695,787 1,075,753

279,266

5,050,806

179,202

76,181 255,383

315,000

Total

98,820 5,720,009

Remuneration disclosed relates to the period during which each executive officer qualified as KMP.
(i) B Hingle was appointed Chief Financial Officer on 13 January 2014. The consolidated entity paid $125,086 in relocation costs, which
are not considered to form part of Mr Hingle’s remuneration.
(ii) D Mallinson was appointed Executive General Manager Business Operations on 3 April 2014.
(iii) D Noonan ceased to qualify as KMP on 13 January 2014.
(iv) Non-monetary compensation includes the provision of motor vehicles and travel benefits.
(v) LTI cash incentives reflects an accrual associated with the Managing Director’s anticipated maximum performance of $975,000 LTIP
opportunity (i.e. $975,000/three years = $325,000 per annual accrual). The accrual for the other participating KMP reflects
one-third of their anticipated maximum potential entitlement.

Devondale Murray Goulburn Annual Report 2014

51

Remuneration Report 2014 continued
9. Executive Contracts
The Company has entered into employment contracts with all KMP. The employment contracts have no fixed term and outline the
components of remuneration to be paid. All employment contracts are capable of termination by the Company or the KMP on either
six months’ written notice (for the Managing Director) or three months’ notice (for other KMP). The Company may terminate employment
immediately by providing payment in lieu of notice. Any termination payment is calculated on fixed remuneration as at the date
of termination. The details of those contracts with the relevant KMP can be seen in the table below:
Name

Title

Date of Contract

G Helou

Managing Director

3 October 2011

D Mallinson

Executive General Manager Business Operations

3 April 2014

D Noonan

Chief Financial Officer

23 March 2012

B Hingle

Chief Financial Officer

13 January 2014

F Smith

Company Secretary/General Counsel

9 January 2012

10. Non-executive Director Remuneration
Non-executive Director remuneration is dealt with separately from executive remuneration and is determined with regard for the need
of the Company to have appropriately experienced and qualified Board members. It also takes into account the considerable amount
of time that the Directors are required to devote.
For 2014, the following Non-executive Director fee structure (inclusive of superannuation contributions) was in operation:
Chairman’s remuneration

$240,000

Other Non-executive Director remuneration
Base annual fee

$85,000

Plus additional fees for:
Deputy Chairman

$40,000

Committee Chair
Finance, Risk and Audit Committee

$15,000

Compliance Committee

$15,000

Supplier Relations Committee

$15,000

Total fees

52 Devondale Murray Goulburn Annual Report 2014

$1,175,000

10. Non-executive Director Remuneration continued
Post
Employment

Short Term Benefits

Non-executive Director

Fees and
Salary
$

Non
Monetary(vi)
$

Superannuation
$

Total
$

2014
PW Tracy

222,225

27,232

17,775

267,232

N Akers

77,803

–

7,197

85,000

WT Bodman

77,803

–

7,197

85,000

PJO Hawkins

91,533

–

8,467

100,000

DF Howard(i)

30,874

–

2,856

33,730

MF Ihlein

91,533

–

8,467

100,000

ML Jelbart

77,803

–

7,197

85,000

KW Jones

114,416

–

10,584

125,000

ED Morris(ii)

47,237

–

4,369

51,606

GN Munzel

77,803

–

7,197

85,000

JP Pye

91,533

–

8,467

100,000

MJ Van de Wouw

77,803

–

7,197

85,000

1,078,366

27,232

96,970

1,202,568

232,061

Total

2013
PW Tracy

191,080

23,784

17,197

N Akers

71,025

–

6,392

77,417

WT Bodman

78,338

–

7,050

85,388

PJO Hawkins

82,112

–

7,390

89,502

DF Howard

74,740

–

6,727

81,467

MF Ihlein(iii)

61,826

1,127

5,564

68,517

ML Jelbart(iv)

46,375

–

4,174

50,549

KW Jones

97,997

–

8,820

106,817

GN Munzel

71,025

–

6,392

77,417

JP Pye

82,112

–

7,390

89,502

JT Vardy(v)
MJ Van de Wouw
Total

(i)
(ii)
(iii)
(iv)
(v)
(vi)

26,250

–

2,363

28,613

71,025

–

6,392

77,417

953,905

24,911

85,851

1,064,667

DF Howard resigned from the Board of Directors on 22 November 2013.
ED Morris was appointed to the Board of Directors on 22 November 2013.
MF Ihlein was appointed to the Board of Directors on 30 October 2012.
ML Jelbart was appointed to the Board of Directors on 28 November 2012.
JT Vardy resigned from the Board of Directors on 28 November 2012.
Non-monetary compensation includes provision of a motor vehicle to the Chairman and travel related costs.

Directors are not entitled to participate in performance based remuneration programs, namely the STIP or LTIP.
With the exception of JP Pye, Directors are not entitled to retirement benefits. At 30 June 2014, JP Pye had an accrued benefit
payable on retirement of $128,450.

Devondale Murray Goulburn Annual Report 2014

53

Remuneration Report 2014 continued
11. Shareholdings
Direct and indirect shareholdings of Directors in the parent entity allotted to them in their capacity as suppliers of milk to the Company:
Ordinary
Shares Held at
1 July 2012
No.
PW Tracy

Ordinary
Ordinary		Ordinary
Shares Shares Held at		 Shares Held at
Acquired 30 June 2013		
1 July 2013
No.(iv)
No.		No.

Ordinary
Ordinary
Shares Shares Held at
Acquired 30 June 2014
No.(iv)
No.

1,242,496

102,779

1,345,275		

1,345,275

139,714

1,484,989

204,333

48,355

252,688		

252,688

34,209

286,897

WT Bodman

138,523

26,912

165,435		

165,435

18,644

184,079

DF Howard

552,969

64,101

617,070		

617,070

3,128

ML Jelbart

1,148,977

191,901

1,340,878		

1,340,878

115,100

1,455,978

193,797

56,854

250,651		

250,651

23,995

274,646

(iii)		

28,671

3,721

32,392

229,354		

229,354

17,434

246,788

N Akers

KW Jones
ED Morris
GN Munzel

(iii)

(iii)

(ii)

196,271

33,083

JP Pye

233,441

34,903

268,344		

268,344

19,993

288,337

MJ Van de Wouw

366,458

41,862

408,320		

408,320

5,476

413,796

JT Vardy

884,420

108,055

(i)		

5,161,685

708,805

(i)

4,878,015		4,906,686

(i)
381,414

(i)
4,667,902

(i)	JT Vardy resigned from the office of Director during the previous financial year and accordingly his shareholdings
at 30 June 2013 and 2014 are not disclosed.
(ii)	DF Howard resigned from the office of Director during the current financial year and accordingly his shareholdings
at 30 June 2014 are not disclosed.
(iii)	ED Morris was appointed to the office of Director during the current financial year and accordingly his shareholdings
prior to 1 July 2013 are not disclosed.
(iv) All shares were issued for a value of $1, and accordingly the value of the issued shares equals $381,414 (2013: $708,805).
Other KMP
No other KMP hold shares in the Company as at 30 June 2014. Shares are not awarded as part of KMP remuneration,
nor does the value of the Company’s shares enter into the determination of any part of KMP remuneration.
Signed in accordance with a resolution of the Board of Directors

PW Tracy
Director
Melbourne
26 August 2014

54 Devondale Murray Goulburn Annual Report 2014

Consolidated Statement of Profit or Loss
for the financial year ended 30 June 2014

Note
Sales revenue

2

Cost of sales
Gross profit
Other income
Share of profit (loss) of associates

2014
$000

2013
$000

2,916,521

2,385,099

(2,571,469)

(2,067,009)

345,052

318,090

2

30,761

4,336

13

(10,889)

Distribution expenses

837

(152,682)

(143,522)

Selling and marketing expenses

(73,700)

(53,889)

Administration expenses

(58,306)

(49,728)

(27,156)

(28,022)

(20,833)

(9,049)

32,247

39,053

Finance costs

3

Other expenses
Profit before income tax
Income tax expense

4

Profit for the year

(2,950)

(4,149)

29,297

34,904

27,936

29,396

1,361

5,508

29,297

34,904

Attributable to:
Equity holders of the parent
Non-controlling interest
Profit for the year

24

The accompanying notes form part of these financial statements.

Devondale Murray Goulburn Annual Report 2014

55

Consolidated Statement of Comprehensive Income
for the financial year ended 30 June 2014

Note
Profit for the year

2014
$000

2013
$000

29,297

34,904

–

54,833

Other comprehensive income
Items that will not be classified subsequently to profit or loss:
Increment (decrement) on revaluation of land and buildings

23

Net change in fair value of equity instruments measured at fair
value through other comprehensive income

23

54,434

4

(15,320)

Transfer to income statement on cash flow hedges

23

31,410

(11,008)

Gain (loss) on cash flow hedges taken to equity

23

3,258

(43,566)

Exchange differences arising on translation of foreign operations

23

(984)

4,553

Income tax relating to items that may be reclassified subsequently

4

(10,092)

15,006

92,003

38,813

90,642

33,305

1,361

5,508

92,003

38,813

Income tax relating to items that will not be reclassified subsequently

541
(16,450)

Items that may be reclassified subsequently to profit or loss:

Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
Total comprehensive income for the year
The accompanying notes form part of these financial statements.

56 Devondale Murray Goulburn Annual Report 2014

Consolidated Statement of Financial Position
for the financial year ended 30 June 2014

Note

2014
$000

2013
$000

Current assets
Cash

13,858

11,809

Receivables

30(a)
8

536,252

442,137

Inventories

9

366,512

291,207

Current tax receivable

1,700

–

Other

10

8,652

3,636

Derivative financial instruments

18

1,736

49

928,710

748,838

20,607

Total current assets
Non-current assets
Investments accounted for using the equity method

13

16,994

Other financial assets

11

161

35,876

Property, plant and equipment

14

796,044

832,005

Intangible assets

15

16,121

16,121

Other

10

5,406

5,607

834,726

910,216

1,763,436

1,659,054

Total non-current assets
Total assets
Current liabilities
Payables

16

371,196

321,973

Borrowings

17

149,886

205,496

363

727

Provisions

19

46,415

44,394

Derivative financial instruments

18

Current tax payable

Total current liabilities

36

35,546

567,896

608,136

Non-current liabilities
Payables

16

1,921

1,425

Borrowings

17

380,893

324,475

Provisions

19

7,933

7,852

Deferred tax liabilities

20

58,902

30,679

Total non-current liabilities

449,649

364,431

Total liabilities

1,017,545

972,567

745,891

686,487

262,677

Net assets
Equity
Issued capital

22

268,741

Reserves

23

183,215

179,496

Retained earnings

24

287,089

233,915

739,045

676,088

6,846

10,399

745,891

686,487

Parent entity interest
Non-controlling interest
Total equity

25

The accompanying notes form part of these financial statements.

Devondale Murray Goulburn Annual Report 2014

57

Consolidated Statement of Changes in Equity
for the financial year ended 30 June 2014

Issued
Capital
$000

Capital
Reserve
$000

Asset
Revaluation
Reserve
$000

General
Reserve
$000

Note 22

Note 23

Note 23

Note 23

248,271

36,916

117,820

5,257

Profit or (loss) for the year

–

–

–

–

Other comprehensive income

–

–

38,383

–

Total comprehensive income

–

–

38,383

–

Balance at 1 July 2012

Payment of dividends

–

–

–

–

Issue of ordinary shares to milk suppliers

9,993

–

–

–

Dividend reinvestment plan issues

4,413

–

–

Transferred to retained earnings (net of tax)

–

–

Allotment of shares to suppliers

–

–

–

–

Shares to be issued in lieu of milk payments

–

–

–

–

Non-controlling interest in subsidiaries disposed

–

–

–

–

Shares bought back and cancelled

–

–

–

–

Difference on acquisition of interest in subsidiary

–

–

–

–

Other

–

–

–

–

Balance at 30 June 2013

262,677

36,916

153,883

5,257

Profit or (loss) for the year

–

–

–

–

Other comprehensive income

–

–

–

–

Total comprehensive income

–

–

–

–

Payment of dividends
Issue of ordinary shares to milk suppliers
Dividend reinvestment plan issues
Transferred to retained earnings (net of tax)
Allotment of shares to suppliers
Shares bought back and cancelled
Difference on acquisition of interest in subsidiary
Balance at 30 June 2014
The accompanying notes form part of these financial statements.

58 Devondale Murray Goulburn Annual Report 2014

(2,320)

–
–

–

–

–

–

16,799

–

–

–

3,752

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

268,741

36,916

135,451

5,257

(14,487)

(18,432)

–
–

Hedge
Reserve
$000

Investment
Revaluation
Reserve
$000

Share
Allotment
Reserve
$000

Transactions with
Non-controlling
Interests
Reserve
$000

Foreign
Currency
Translation
Reserve
$000

Retained
Earnings
$000

Attributable
to Owners of Non-controlling
the Parent
Interests
$000
$000

Note 23

Note 23

Note 23

Note 23

Note 23

Note 24

Note 25

2,971

2,354

303

233,724

661,169

97,866

759,035
34,904

17,463
–

(3,910)

Total
$000

–

–

–

–

29,396

29,396

5,508

(38,202)

541

–

–

3,187

–

3,909

–

3,909

(38,202)

541

–

–

3,187

29,396

33,305

5,508

38,813

–

–

–

–

–

(31,525)

(31,525)

–

(31,525)

–

–

–

–

–

–

9,993

–

9,993

–

–

–

–

–

–

4,413

–

4,413

–

–

–

–

–

2,320

–

–

–

–

–

(2,971)

–

–

(2,971)

–

–

–

1,957

–

–

–

1,957

–

–

–

–

–

–

–

–

(8,454)

(8,454)

–

–

–

–

–

–

–

(84,492)

(84,492)

–

–

–

–

–

–

–

–

–

–

–

–

1,957

2,101

3,490

233,915

676,088

10,399

–

(20,739)

(3,369)

(253)

(253)

(2,971)
1,957

–

(253)

(29)

(29)
686,487

–

–

–

–

27,936

27,936

1,361

29,297

24,268

39,114

–

–

(676)

–

62,706

–

62,706

24,268

39,114

–

–

(676)

27,936

90,642

1,361

92,003

–

–

–

–

–

(28,906)

(28,906)

–

(28,906)

–

–

–

–

–

–

16,799

–

16,799

–

–

–

–

–

–

3,752

–

3,752

–

–

–

54,144

–

–

–

–

(1,957)

–

(35,712)

–

–

(1,957)

–

–

–

–

–

(14,487)

–

–

–

(2,886)

–

–

(2,886)

3,529

33

–

(785)

2,814

287,089

–

739,045

–

–

(1,957)

–

(14,487)

(4,914)
6,846

(7,800)
745,891

Devondale Murray Goulburn Annual Report 2014

59

Consolidated Statement of Cash Flows
for the financial year ended 30 June 2014

Note

2014
$000

2013
$000

Cash flows from operating activities
Receipts from customers

2,892,570

2,426,267

Payments to suppliers and employees

(2,936,397)

(2,280,948)

(43,827)
Dividends received

1,761

Interest received

3,196

145,319
1,267
3,781

Interest paid

(27,617)

(27,750)

Income taxes paid

(2,518)

(5,040)

Net cash inflow (outflow) from operating activities

30(b)

(69,005)

117,577

(85,125)

(99,885)

Cash flows from investing activities
Payments for property, plant and equipment

(8,000)

(6,000)

Payments to acquire financial assets

Investment in associated company

13

(2,788)

(13,067)

Proceeds from the sale of property, plant and equipment

96,362

Proceeds from the sale of financial assets

92,937

Payments for investments in subsidiaries

(7,800)

Net cash inflow (outflow) from investing activities

3,633
–
(8,775)

85,586

(124,094)

–

(40,675)

Cash flows from financing activities
Buy-back of shares in non-controlling interests
Dividends paid
Proceeds from the issue of ordinary shares
Payment for shares bought back

(25,154)

(27,112)

16,799

9,993

(14,487)

–

Proceeds from borrowings

209,073

173,347

Repayment of borrowings

(200,683)

(131,420)

(14,452)

(15,867)

Net increase (decrease) in cash

2,129

(22,384)

Cash at the beginning of the year

11,809

34,193

Net cash outflow from financing activities

Effect of exchange rate fluctuations on cash held
Cash at the end of the year
The accompanying notes form part of these financial statements.

60 Devondale Murray Goulburn Annual Report 2014

(80)
30(a)

13,858

–
11,809

Notes to the Financial Statements
for the financial year ended 30 June 2014

NOTE 1: Summary of Significant Accounting Policies
This general purpose financial report has been prepared in
accordance with the Corporations Act 2001, Accounting Standards
and Interpretations, and complies with other requirements of
the law. Accounting Standards include Australian equivalents to
International Financial Reporting Standards (‘A-IFRS’), which ensure
that the consolidated financial statements and accompanying notes
comply with International Financial Reporting Standards (‘IFRS’).
The financial statements were authorised for issue by the Directors
on 26 August 2014. The financial report has been prepared on
the basis of historical cost, except for the revaluation of certain
non-current assets and financial instruments. The consolidated
entity is a for-profit entity.
The financial report is presented in Australian dollars and all
values are rounded to the nearest thousand dollars ($000),
unless otherwise indicated, in accordance with ASIC Class
Order 98/0100, which does apply to the consolidated entity.
In applying the consolidated entity’s accounting policies, below,
management continually evaluates judgements, estimates and
assumptions based on experience and other factors, including
expectations of future events that may have an impact on the
consolidated entity. All judgements, estimates and assumptions
made are believed to be reasonable based on the most current
set of circumstances available to management. Actual results
may differ from the judgements, estimates and assumptions.
Certain comparative information has been reclassified to align
with current year expense classification. This amendment has
no effect on the profit before income tax or the total comprehensive
income for the year attributable to equity holders of the parent
or the non-controlling interests.
A) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements incorporate the assets
and liabilities of all entities controlled by Murray Goulburn
Co-operative Co. Limited (‘Company’) as at 30 June 2014 and
the results of all controlled entities for the year then ended from
the date on which the Company obtained control. The effects
of all transactions between entities in the consolidated entity are
eliminated in full. The Company and its controlled entities together
are referred to in this financial report as the consolidated entity.
On acquisition, the assets, liabilities and contingent liabilities
of a subsidiary are measured at their fair values at the date
of acquisition. Any excess of the cost of acquisition over the fair
values of the identifiable net assets acquired is recognised as
goodwill. If, after reassessment, the fair values of the identifiable
net assets acquired exceed the cost of acquisition, the deficiency
is credited to profit and loss in the period of acquisition.
The interest of non-controlling shareholders in the equity
of controlled entities is shown separately in the consolidated
balance sheet.
The Group recognises non-controlling interests in an acquired
entity at the non-controlling interest’s proportionate share
of the acquired entity’s net identifiable assets.

B) INCOME TAX

Current tax represents income taxes payable or recoverable
in respect of the taxable profit or loss for the period. Current
tax is recognised in the income statement, except when it relates
to items credited or debited directly to equity, and is calculated
based on tax rates and tax laws current as at reporting date.
Deferred tax is accounted for using the liability method in respect
of temporary differences arising from differences between the
carrying amount of assets and liabilities in the financial statements
and the corresponding tax base of those items. Deferred tax
is recognised in the income statement except (i) when it relates
to items credited or debited directly to equity, in which case the
deferred tax is also recognised directly in equity, or (ii) where
it relates to items arising from the initial recognition of assets and
liabilities, other than as a result of business combinations, which
affects neither taxable income nor accounting profit. Furthermore,
a deferred tax liability is not recognised in relation to taxable
temporary differences arising from goodwill.
Deferred tax assets are recognised to the extent that it is
probable that sufficient taxable amounts will be available against
which deductible temporary differences or unused tax losses
can be utilised.
Deferred tax is measured at the rate of income tax expected to apply
in the period in which the benefit will be received or the liability
will become payable based on applicable tax rates and tax laws.
Deferred tax assets and liabilities are offset as the consolidated entity
intends to settle its current tax assets and liabilities on a net basis.
The Company and certain of its wholly owned Australian
entities are part of a tax consolidated group. Murray Goulburn
Co-operative Co. Limited is the head entity in the tax consolidated
group. Tax expense/income, deferred tax assets and deferred
tax liabilities arising from temporary differences of the members
of the tax consolidated group are recognised in the separate
financial statements of the members of the tax consolidated
group using a ‘group allocation’ approach. Under this approach
each entity prepares a notional taxable income or loss as if it
were a taxpayer in its own right except that distributions made and
received, capital gains and losses, gains or losses from intra-group
debt forgiveness and similar items arising on transactions
within the tax consolidated group are treated as having no tax
consequence. The tax expense/income, deferred tax assets and
deferred tax liabilities arising from temporary differences of the
members of the tax consolidated group is allocated to each entity
with reference to the individual entities notional tax calculation.
Current tax liabilities and assets and deferred tax assets arising
from unused tax losses and tax credits of the members of the tax
consolidated group are recognised by the Company (as head
entity in the tax consolidated group).
Due to the existence of a tax funding arrangement between the
entities in the tax consolidated group, amounts are recognised
as payable to or receivable by the Company and each member
of the group in relation to the tax contribution amounts paid or
payable between the parent entity and the other members of
the tax consolidated group in accordance with the arrangement.
Further information about the tax funding arrangement is detailed
in Note 4 to the financial statements.

Devondale Murray Goulburn Annual Report 2014

61

Notes to the Financial Statements continued
for the financial year ended 30 June 2014

NOTE 1: Summary of Significant Accounting Policies continued
B) INCOME TAX continued

D) FOREIGN CURRENCIES

Where the tax contribution amount recognised by each member
of the tax consolidated group for a particular period is different to
the aggregate of the current tax liability or asset and any deferred
tax asset arising from unused tax losses and tax credits in respect
of that period, the difference is recognised as a contribution from
(or distribution to) equity participants.

Foreign currency transactions during the year are converted
to Australian currency at the exchange rate ruling at the date
of the transaction. Foreign currency monetary items at balance date
are translated at the exchange rate ruling at that date. Exchange
differences are recognised in the income statement in the period
in which they arise except for differences on transactions entered
into to hedge certain foreign currency risks – refer Note 1(c) above.

C) DERIVATIVE FINANCIAL INSTRUMENTS

The consolidated entity enters into a variety of derivative financial
instruments to manage its exposure to foreign exchange and interest
rate risk, including forward exchange contracts, currency options
and interest rate swaps. Further details of derivative financial
instruments are disclosed in Note 28.
Derivatives are initially recognised at fair value at the time of
entering a derivative contract and are subsequently remeasured
to fair value at each reporting date. The fair value calculation
of derivative financial instruments is measured by using valuation
techniques based on observable market prices or rates. The
resulting gain or loss is recognised in profit or loss immediately
unless the derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition in
profit or loss depends on the nature of the hedge relationship.
The consolidated entity designates certain derivatives as either
fair value hedges when they hedge the exposure to changes in
the fair value of recognised assets, liabilities or firm commitments
or cash flow hedges when they hedge exposure to variability
in cash flows of highly probable forecast transactions.
Fair value hedge
Changes in the fair value of derivatives that are designated and
qualify as fair value hedges are recorded in profit or loss together
with any changes in the fair value of the hedged asset or liability
that is attributable to the hedged risk.
Hedge accounting is discontinued when the hedge instrument
expires or is sold, terminated, exercised, no longer qualifies for
hedge accounting or the consolidated entity revokes the hedge
relationship. The adjustment to the carrying amount of the hedged
item arising from the hedged risk is amortised to profit or loss
from that date.
Cash flow hedge
The effective portion of changes in the fair value of derivatives
that are designated and qualify as cash flow hedges are deferred
in equity. The gain or loss relating to the ineffective portion is
recognised in profit or loss. Amounts deferred in equity are
transferred to profit or loss in the period when the hedged item
is recognised in profit or loss.
Hedge accounting is discontinued when the hedge instrument
expires or is sold, terminated, exercised, no longer qualifies for
hedge accounting or the consolidated entity revokes the hedge
relationship. Any cumulative gain or loss deferred in equity at
that time remains in equity and is recognised when the forecast
transaction is ultimately recognised in profit or loss. When a
forecast transaction is no longer expected to occur, the cumulative
gain or loss that was deferred in equity is recognised immediately
in profit or loss.
Changes in the fair value of any derivative instruments that
do not qualify for hedge accounting are recognised immediately
in profit or loss.
62 Devondale Murray Goulburn Annual Report 2014

E) PROPERTY, PLANT AND EQUIPMENT

Land and buildings are measured at fair value. Plant and
equipment are included at cost being the purchase consideration
determined as at the date of acquisition plus costs incidental to the
acquisition less impairment. The cost of fixed assets constructed
within the consolidated entity includes the cost of materials and
direct labour. All fixed assets including buildings and capitalised
leasehold assets, but excluding freehold land, are depreciated
over their estimated useful lives commencing from the time the
asset is held ready for use.
Any revaluation increase arising on the revaluation of land and
buildings is credited to the asset revaluation reserve, except to the
extent that it reverses a revaluation decrease for the same asset
previously recognised as an expense in profit or loss, in which
case the increase is credited to the income statement to the extent
of the decrease previously charged. A decrease in carrying amount
arising on the revaluation of land and buildings is charged as an
expense in profit or loss to the extent that it exceeds the balance,
if any, held in the asset revaluation reserve relating to a previous
revaluation of that asset.
When an item of land and buildings is revalued, any accumulated
depreciation at the date of the revaluation is eliminated against the
gross carrying amount of the asset and the net amount restated
to the revalued amount of the asset. The amount of the adjustment
arising on the restatement or elimination of accumulated depreciation
forms part of the increase or decrease in carrying amount.
The gain or loss on disposal of all fixed assets, including revalued
assets, is determined as the difference between the carrying
amount of the asset at the time of disposal and the proceeds
of disposal, and is included in the income statement of the group
in the year of disposal. Any realised revaluation increment relating
to the disposed asset that is included in the asset revaluation
reserve is transferred to retained earnings.
F) DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT

Depreciation is calculated using the straight line method
(2013: straight line method) to write off the net cost or revalued
amount of each item of property, plant and equipment (excluding
land) over its expected useful life to the consolidated entity.
The expected useful lives are as follows:
• Buildings – 25 to 50 years
• Plant and equipment – 5 to 25 years
• Vehicles – 3 to 8 years
• Tankers – 10 to 20 years

NOTE 1: Summary of Significant Accounting Policies continued
G) IMPAIRMENT OF ASSETS

I) GOODS AND SERVICES TAX

The carrying amount of assets is reviewed each balance date
to identify any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the consolidated
entity estimates the recoverable amount of the cash generating
unit to which the asset belongs.

Revenues, expenses and assets are recognised net of the
amount of Goods and Services Tax (GST), except:
i. where the amount of GST incurred is not recoverable
from the taxation authority. In this case the GST is recognised
as part of the cost of acquisition of an asset or as part of an
item of expense; or

The recoverable amount is the greater of fair value less costs
to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash generating unit) is reduced to its
recoverable amount. Impairment losses are recognised in the
income statement unless the asset is carried at valuation, in which
case the impairment loss is recognised as a revaluation decrease
to the extent of any previous increase.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or cash generating unit) is increased to the
revised estimate of its recoverable amount, but only to the extent
that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss
been recognised for the asset (or cash generating unit) in prior
years. A reversal of an impairment loss is recognised in profit
or loss immediately.

ii. for receivables and payables which are recognised
inclusive of GST.
The net amount of GST recoverable from, or payable to, the
taxation authority is included as part of receivables or payables.
Cash flows are included in the cash flow statement on a gross
basis. The GST component of cash flows arising from investing
and financing activities that is recoverable from, or payable
to, the taxation authority is classified as operating cash flows.
J) INTANGIBLE ASSETS

Intangible assets are recorded at cost less impairment. All potential
intangible assets acquired in a business combination are identified
and recognised separately from goodwill where they satisfy
the definition of an intangible asset and their fair value can be
measured reliably.
K) LEASES

Trade receivables, loans and other receivables are recorded
at amortised cost, using the effective interest method, less
impairment through the allowance account.

Leased assets classified as finance leases are capitalised as
fixed assets. A finance lease effectively transfers from the lessor
to the lessee substantially all the risks and benefits incidental
to the ownership of the leased asset. The amount initially brought
to account is the fair value or, if lower, the present value of
minimum lease payments. Capitalised leased assets are amortised
on a reducing balance basis over the estimated useful life of the
asset. Finance lease payments are allocated between interest
expense and reduction of lease liability over the term of the lease.
The interest expense is determined by applying the interest rate
implicit in the lease to the outstanding lease liability at the beginning
of each lease payment period.

The effective interest method is a method of calculating the
amortised cost of a financial asset and of allocating interest
income over the relevant period. The effective interest rate
is the rate that exactly discounts estimated future cash receipts
(including fees and transaction costs) through the expected life
of the financial asset or, where appropriate, a shorter period.

Leases in which a significant portion of the risks and rewards
of ownership are not transferred to the consolidated entity as
lessee are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor)
are charged to profit and loss on a straight line basis over the
term of the lease.

Listed shares held by the consolidated entity that are traded in
an active market are stated at fair value. Gains and losses arising
from changes in fair value are recognised in other comprehensive
income and accumulated in the investments revaluation reserve.
Where the investment is disposed of the cumulative gain or loss
previously accumulated in the investments revaluation reserve
is transferred to retained earnings. Dividends are recognised in
profit or loss when the consolidated entity’s right to receive the
dividends is established.

Lease income from operating leases where the consolidated entity
is a lessor is recognised in income on a straight line basis over
the lease term.

H) FINANCIAL ASSETS

Investments in associated companies are accounted for under
the equity method in the consolidated financial statements.

L) INVENTORIES

Dairy produce stocks are valued at the lower of cost and net
realisable value. Cost comprises direct materials, direct labour,
maturation costs and an allocation of manufacturing overheads.
Stores, packing materials and Murray Goulburn Trading stocks,
have been valued at the lower of cost and net realisable value.
Net realisable value represents the estimated selling price less
selling, marketing and distribution costs.

Devondale Murray Goulburn Annual Report 2014

63

Notes to the Financial Statements continued
for the financial year ended 30 June 2014

NOTE 1: Summary of Significant Accounting Policies continued
M) INVESTMENT IN ASSOCIATES

Q) EMPLOYEE BENEFITS

An associate is an entity over which the consolidated entity
has significant influence and that is neither a subsidiary nor
an interest in a joint venture. Significant influence is the power
to participate in the financial and operating policy decisions of the
investee but to not control or have joint control over those policies.
The results, assets and liabilities of associates are incorporated
in these financial statements using the equity method of accounting.
Under the equity method, investments in associates are carried
in the consolidated statement of financial position at cost as adjusted
for post-acquisition changes in the consolidated entity’s share
of the net assets of the associate, less any impairment in the value
of individual investments. Any excess of the cost of acquisition
over the consolidated entity’s share of the net fair value of the
identifiable assets, liabilities and contingent liabilities of the associate
recognised at the date of acquisition is recognised as goodwill. The
goodwill is included within the carrying amount of the investment
and is assessed for impairment as part of that investment. Any
excess of the consolidated entity’s share of the net fair value of
the identifiable assets, liabilities and contingent liabilities over the
cost of acquisition, after reassessment, is recognised immediately
in profit or loss.

Provision is made for benefits accruing to employees in respect
of wages and salaries, annual leave, long service leave and sick
leave when it is probable that settlement will be required and
they are capable of being measured reliably.

N) GOODWILL

Goodwill, representing the excess of the cost of acquisition over
the fair value of the assets and liabilities acquired, is recognised
as an asset and, for the purpose of impairment testing, is allocated
to the cash generating unit to which it relates. Goodwill is tested
for impairment annually or where an indicator of impairment
is identified. Goodwill is not amortised, however, any impairment
is recognised immediately in profit or loss.
O) ACCOUNTS PAYABLE

Trade payables and other accounts payable are recognised when
the consolidated entity becomes obliged to make future payments
resulting from the purchase of goods and services. Payables are
initially measured at fair value and subsequent to initial recognition
are measured at amortised cost using the effective interest method
with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability or, where
appropriate, a shorter period.
P) PROVISIONS

Provisions are recognised when the consolidated entity has
a present obligation, the future sacrifice of economic benefits
is probable and the amount of the provision can be measured
reliably. The amount recognised as a provision is the best estimate
of the consideration required to settle the present obligation at
the reporting date. Where a provision is measured using the cash
flows estimated to settle the present obligation, its carrying amount
is the present value of those cash flows.

64 Devondale Murray Goulburn Annual Report 2014

Provisions are measured at their nominal values using the
remuneration rate expected to apply at the time of settlement
where they are expected to be settled within 12 months.
Provisions not expected to be settled within 12 months are
measured at the present value of the estimated future cash
outflows in respect of services provided up to balance date.
R) BORROWINGS

Borrowings are recorded initially at fair value, net of transaction
costs. Subsequent to initial recognition, borrowings are measured
at amortised cost with any difference between the initial
recognised amount and the redemption value being recognised
in profit and loss over the period of the borrowing using the
effective interest method.
S) BORROWING COSTS

Interest expense is recognised using the effective interest method.
Borrowing costs attributable to qualifying assets are capitalised
as part of the cost of those assets.
T) REVENUE RECOGNITION

Revenue from the sale of goods and disposal of assets is recognised
when the consolidated entity has transferred to the buyer the
significant risks and rewards of ownership of the goods. Revenue
is disclosed net of returns, trade allowances, rebates and amounts
collected on behalf of third parties. Interest revenue is recognised
on a time proportion basis using the effective interest method.
Dividend revenue is recognised when the consolidated entity’s
right to receive the dividends is established.
U) PARENT ENTITY DISCLOSURES

The financial information for the parent entity, Murray Goulburn
Co-Operative Co. Limited, as disclosed in Note 31, has been
prepared on the same basis as the consolidated financial
statements except as outlined below:
Investments in subsidiaries and associates – investments in
subsidiaries and associates are accounted for at cost in the financial
statements of Murray Goulburn Co-Operative Co. Limited. Dividends
received from associates are recognised in the parent entity’s
profit or loss when the right to receive the dividend is established.

NOTE 1: Summary of Significant Accounting Policies continued
V) CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The following are critical estimates and judgements made by
management in the process of applying the consolidated entity’s
accounting policies:
Inventories – the net realisable value of inventories is the estimated
selling price in the ordinary course of business less estimated
costs to sell. Key assumptions, including the expected selling price,
require the use of management judgement and are reviewed
semi-annually.
Taxation – the consolidated entity is subject to taxation in several
different tax jurisdictions, but most particularly Australia, Singapore
and China. Significant judgement is required in determining the
provision for income taxes payable in each jurisdiction. There
are some transactions and calculations for which the ultimate tax
determination is uncertain. Entities within the consolidated entity
may be subject to audit from the various taxation authorities from
time to time. The consolidated entity recognises a receivable
or liability for any tax that may, as a result of such audit, become
refundable by or payable to a tax authority as a result of audit
issues when the cash flow associated with the refund or payable
becomes probable. Where the final tax outcome of such matters
is different from the amounts that were initially recorded as either
receivable or payable, the differences will generally impact the
calculation of deferred tax balances and tax expense.
Fixed assets at fair value – from time to time, the consolidated
entity engages independent advisers to ascertain the fair value
of land and building assets. Key assumptions made by these experts
in the determination of fair value include: the likely selling price
of assets for which a market is likely to exist, the likely replacement
value of other assets where a market for sale may not exist
and the net present value of cash flows, which the assets may
generate over their useful lives. In determining net present values,
judgement is required in respect to adopting a discount rate and
in the estimation of gross cash flows over periods of time.
W) ADOPTION OF NEW AND REVISED STANDARDS

Except for the changes below, the consolidated entity has
consistently applied the accounting policies set out within this
financial report to all periods presented in these consolidated
financial statements.

• AASB 13 Fair Value Measurement and AASB 2011–8
Amendments to Australian Accounting Standards arising from
AASB 13 combine guidance for all fair value measurements
required in other standards.
• AASB 119 Employee Benefits and AASB 2011–10 Amendments
to Australian Accounting Standards arising from AASB 119
amend disclosure, presentation and accounting to defined
benefit plans and other employee benefits.
The following new or amended accounting standards and
interpretations issued by the AASB have been identified as those
that may have a material impact on the Group in the period
of initial application.
AASB 9 Financial Instruments
AASB 9 Financial Instruments addresses the classification,
measurement and de-recognition of financial liabilities and
includes rules relating to hedge accounting.
The new standard is not applicable until 1 January 2018 but
is available for early adoption. The consolidated entity early adopted
the classification and measurement components of AASB 9 in
a previous financial period, with the exception of those relating
to hedge accounting.
There will be no impact on the consolidated entity’s accounting
for financial assets or financial liabilities on full adoption of the
standard. The new hedging rules will align hedge accounting
more closely with the Group’s risk management practices and,
as a general rule, it will be easier to apply hedge accounting once
the standard is adopted in full. The new standard also introduces
expanded disclosure requirements and changes in presentation
with regards to financial instruments.
The consolidated entity has not yet completed the analysis on
how its own hedging arrangements would be affected by the
new rules, and therefore has not yet decided whether to adopt
any parts of AASB 9 early. In order to apply the new standard’s
hedging rules, the Group would have to adopt AASB 9 and the
consequential amendments to AASB 7 Financial Instruments:
Disclosures and AASB 139 Financial Instruments: Recognition
and Measurement in their entirety.

The consolidated entity has adopted the following new standards
and amendments to standards, including any consequential
amendments to other standards, with a date of initial application
of 1 July 2013:
• AASB 10 Consolidated Financial Statements, AASB 11 Joint
Arrangements, AASB 12 Disclosure of Interests in Other Entities,
AASB 128 Investments in Associates and Joint Ventures,
AASB 127 Separate Financial Statements and AASB 2011–7
Amendments to Australian Accounting Standards arising from
the Consolidation and Joint Arrangement Standards and
AASB 2012–10 Amendments to Australian Accounting
Standards – Transition Guidance and other Amendments
together represent a suite of related standards covering the
accounting and disclosure requirements for consolidated
financial statements, associates, joint arrangements and off
balance sheet vehicles.

Devondale Murray Goulburn Annual Report 2014

65

Notes to the Financial Statements continued
for the financial year ended 30 June 2014

NOTE 2: Revenue
Note

2014
$000

2013
$000

2,916,521

2,385,099

2,916,521

2,385,099

3,202

3,615

1,037

721

26,522

–

30,761

4,336

2,947,282

2,389,435

2014
$000

2013
$000

27,156

28,022

27,156

28,022

Revenue
Sales revenue

Other income
Interest received or receivable from:
• other persons
Dividends received from other corporations
Net gain on sale of Integrated Logistics Centre

Sales and other income

NOTE 3: Profit before Income Tax Expense has been determined after:
Note

Charging/(crediting) as losses and gains:
Borrowing costs
Interest paid or payable to:
• other persons

Depreciation of:
• buildings
• plant and equipment and vehicles
14
Impairment (reversal) of non-current property, plant and equipment
Net (gain) on sale and scrapping of non-current assets

8,870

8,237

44,367

45,813

53,237

54,050

(1,402)
(1,195)

(1,261)
(717)

Write down of inventories to net realisable value

10,669

1,207

Rental expense on operating leases

22,620

10,722

Research and development expenditure
Employee benefits (including restructuring costs)

66 Devondale Murray Goulburn Annual Report 2014

5,800

6,813

242,129

212,469

NOTE 4: Income Tax Expense
A) INCOME TAX RECOGNISED IN PROFIT OR LOSS
2014
$000

2013
$000

139

4,936

Tax expense comprises:
Current tax expense
Deferred tax expense (benefit)
Income tax expense

2,811

(787)

2,950

4,149

32,247

39,053

The prima facie income tax expense on pre-tax accounting profit reconciles
to the income tax expense in the financial statements as follows:
Profit before income tax expense
Income tax calculated at the Australian statutory tax rate of 30%
Dividends as a co-operative(i)
Effect of tax rates in foreign jurisdictions
Equity accounted loss/(profit)
Current year losses for which no deferred tax asset was recognised

9,674

11,716

(8,672)

(9,457)

(24)

(1,787)

3,471

59

–

3,776

Previously unrecognised tax losses now recouped to reduce current tax expense

(877)

–

Sundry items

(251)

(17)

Under (over) provision for income tax in prior year
Income tax expense

(371)
2,950

(141)
4,149

(i) As a co-operative, the head entity in the Australian tax consolidated group is able to claim a tax deduction for unfranked dividends
paid to shareholders. Dividends are claimed as a deduction in the financial year in which they are paid unless they are paid within
three months subsequent to the conclusion of the prior financial year, in which case they are deductible in the calculation of that
earlier year’s taxable income. Dividends declared post year end have been held to be deductible on this basis.

Devondale Murray Goulburn Annual Report 2014

67

Notes to the Financial Statements continued
for the financial year ended 30 June 2014
NOTE 4: Income Tax Expense continued
B) DEFERRED INCOME TAX AT 30 JUNE RELATES TO THE FOLLOWING:
Charged
to Income
$000

Transfer
from Equity
to Income
$000

Charged
to Equity
$000

(78,643)

7,983

–

–

(70,660)

(7,415)

863

–

–

(6,552)

–

15,305

(15,320)

(15)

–

983

(977)

(1,513)

308

(8,862)

Opening
Balance
$000

Closing
Balance
$000

2014
Gross deferred tax liabilities
Property, plant and equipment
Consumables
Investments

–

Cash flow hedges

(1,519)

Other

(1,502)

(7,668)

(89,079)

1,178

–
16,288

(15,989)

(87,602)

Gross deferred tax assets
Provisions

15,573

Tax losses

26,778

Cash flow hedges

10,406

–

5,643

6,797

Other

Net deferred tax liability

627
(11,413)

–

16,200

(15,305)

–

–

60

(10,406)

–

–

–

12,440

–

58,400

(3,989)

(25,711)

(30,679)

(2,811)

(9,423)

(59,609)

(2,584)

–

28,700

(15,989)

(58,902)

(16,450)

(78,643)

2013
Gross deferred tax liabilities
Property, plant and equipment

–

Consumables

(7,619)

204

–

–

Cash flow hedges

(7,485)

–

3,302

2,664

(1,519)

(391)

255

–

(1,366)

(1,502)

(15,152)

(89,079)

Other

(7,415)

(75,104)

(2,125)

3,302

Provisions

18,900

(3,327)

–

–

15,573

Tax losses

25,502

1,276

–

–

26,778

Gross deferred tax assets

Cash flow hedges
Other

Net deferred tax liability

–

–

–

10,406

10,406

680

4,963

–

–

5,643

45,082

2,912

–

10,406

58,400

787

3,302

(4,746)

(30,679)

(30,022)

All available tax losses have been brought to account and are included in the net deferred tax liability, except for:
• pre-tax consolidation losses of $215,715 ($64,715 tax effected); and
• carried forward losses of non-wholly owned controlled entities.
The Company and its wholly owned entities are part of a tax consolidated group. The head entity within the tax consolidated group
is Murray Goulburn Co-operative Co. Limited. The members of the tax consolidated group are identified in Note 12.
All operating entities within the tax consolidated group have entered into a tax funding arrangement and a tax sharing agreement
with the head entity.
Under the terms of the tax funding arrangement, each of the entities in the tax consolidated group has agreed to pay a tax equivalent
payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts are reflected
in amounts receivable from or payable to other entities in the tax consolidated group.

68 Devondale Murray Goulburn Annual Report 2014

NOTE 5: Compensation of Key Management Personnel
Compensation of key management personnel is included in the Remuneration Report within the Directors’ Report. Total amounts
paid as remuneration to key management personnel of the consolidated entity include:

Total short term employee benefits (excluding annual leave)

2014
$

2013
$

4,978,284

6,029,622

Total annual and long service leave benefits

102,227

255,383

Total long term employee benefits

616,667

315,000

Total post employment employee benefits

153,773

184,671

–

–

5,850,951

6,784,676

2014
$000

2013
$000

365,000

342,000

17,850

28,905

100,471

250,700

483,321

621,605

Total termination benefits
Total remuneration

NOTE 6: Remuneration of Auditors

(a) Auditor of the parent entity:
• audit and review the financial report
• assurance related services
• other consulting services

(b) Related practice of the parent entity auditor
• audit and review the financial report
• corporate finance services

45,000

–

–

90,480

528,321

712,085

36,050

–

9,000

–

10,000

–

55,050

–

(c) Non-PricewaterhouseCoopers audit firms
• audit and review the financial report
• assurance related services
• other consulting services

The auditor of the parent entity is PricewaterhouseCoopers (2013: Deloitte Touche Tohmatsu).

Devondale Murray Goulburn Annual Report 2014

69

Notes to the Financial Statements continued
for the financial year ended 30 June 2014
NOTE 7: Dividends Paid or Proposed
Note

2014
$000

2013
$000

21,027

27,551

1,179

1,208

485

514

2,592

2,252

3,623

–

28,906

31,525

22,104

21,081

–

1,183

493

454

1,754

2,378

24,351

25,096

12,390

10,887

Recognised amounts
Dividends in relation to the 2013 financial year (2012 financial year)
Fully Paid Ordinary Shares
Final dividend of 8 cents (2013: 12 cents) per share unfranked
Fully Paid A Class Non-cumulative Non-redeemable Preference Shares
Final dividend of 8 cents (2013: 8 cents) per share unfranked
Fully Paid B Class Non-cumulative Non-redeemable Preference Shares
Final dividend of 5 cents (2013: 5 cents) per share unfranked
Fully Paid C Class Non-cumulative Non-redeemable Preference Shares
Final dividend of 8 cents (2013: 8 cents) per share unfranked
Dividends in relation to the 2014 financial year (2013 financial year)
Fully Paid A Class Non-cumulative Non-redeemable Preference Shares
Special dividend of 25 cents per share unfranked (as part of share buy-back and cancellation)
Total dividends recognised

24

Dividends recognised during the current year differ to unrecognised amounts
in the prior year below due to movements in issued capital during the period between
30 June 2013 and the actual payment of the dividend.

Unrecognised amounts
Dividends in relation to the 2014 financial year (2013 financial year)
Fully Paid Ordinary Shares
Final dividend of 8 cents per share unfranked (2013: 8 cents per share unfranked)
Fully Paid A Class Non-cumulative Non-redeemable Preference Shares
Final dividend of nil cents (2013: 8 cents per share unfranked)
Fully Paid B Class Non-cumulative Non-redeemable Preference Shares
Final dividend of 5 cents per share unfranked (2013: 5 cents per share unfranked)
Fully Paid C Class Non-cumulative Non-redeemable Preference Shares
Final dividend of 5 cents per share unfranked (2013: 8 cents per share unfranked)

Adjusted franking account balance

The final dividends for Ordinary and A, B and C Class Preference Shares, in respect of the financial year, were declared by the Board
subsequent to the financial year end and have therefore not been recognised as a liability at 30 June.
The values of the unrecognised dividends disclosed above are based on the respective dividend rates declared and the total of shares
outstanding at 30 June and shares to be issued out of the share allotment reserve. The final value of the unrecognised dividends may
change when paid, depending on movements in shareholdings between 30 June and the date of payment.
Unrecognised dividends are unfranked and therefore do not impact on the adjusted franking account balance.

70 Devondale Murray Goulburn Annual Report 2014

NOTE 8: Receivables
2014
$000

2013
$000

463,484

389,733

Current
Trade receivables
Less: provision for impairment of receivables
Other receivables

(1,934)

(1,762)

461,550

387,971

74,702

54,166

536,252

442,137

All receivables are recorded at amortised cost.
Credit risk associated with these receivables is addressed in Note 28(c). The fair value of receivables is documented in Note 28(d).
The consolidated entity reviews the recoverability of receivables by reference to internal credit assessment and historical and ongoing
customer payment trends. Trade receivables of $1,934,000 (2013: $1,762,000) in the consolidated entity have been assessed as
impaired and provided for in the provision for impairment of receivables.
2014
$000

2013
$000

1,762

1,643

264

284

Movements in the provision for impairment of receivables:
Balance at the beginning of the year
Impairment losses recognised on receivables
Impairment losses reversed
Amounts written off as uncollectible

–
(92)
1,934

–
(165)
1,762

Trade receivables of customers past due but considered recoverable are not provided for in the provision for impairment of receivables.
The consolidated entity does not hold any collateral over these balances. Ageing of past due but not impaired trade receivables:
0 – 30 days

4,058

8,914

30 – 60 days

10,732

10,394

60 – 90 days

4,629

3,778

90+ days

9,208

6,101

28,627

29,187

Devondale Murray Goulburn Annual Report 2014

71

Notes to the Financial Statements continued
for the financial year ended 30 June 2014
NOTE 9: Inventories
2014
$000

2013
$000

227,410

235,260

Finished goods
• at cost
• at net realisable value

91,299

10,103

Packaging and manufacturing materials

47,803

45,844

366,512

291,207

AMOUNTS RECOGNISED IN PROFIT OR LOSS

Inventories recognised as expense during the year ended 30 June 2014 amounted to $2.571 billion (2013: $2.067 billion). These
were included in cost of goods sold. Write downs of inventories to net realisable value amounted to $10.7 million (2013: $1.2 million).
These write downs were recognised as an expense during the year ended 30 June 2014 and are also included in cost of goods sold.

NOTE 10: Other Assets
2014
$000

2013
$000

Prepayments

5,206

3,636

Deferred capital raising costs

3,446

–

8,652

3,636

5,406

5,607

5,406

5,607

2014
$000

2013
$000

161

35,876

161

35,876

Current

Non-current
Other

NOTE 11: Other Non-current Financial Assets

Investments
Shares in quoted corporations at fair value

Shares in quoted corporations are Level 1 financial instruments recorded at fair value using quoted prices. As at 30 June 2013,
the consolidated entity had an investment in Warrnambool Cheese and Butter Factory Company Holdings Limited. This investment
was sold during the 2014 financial year. A profit of $51.017 million, before tax, was realised on the sale.

72 Devondale Murray Goulburn Annual Report 2014

NOTE 12: Controlled Entities
Entity

% Ownership Interest
2014

2013

Place of
Incorporation

Class of Share

N/A

N/A

Australia

Ordinary

100
100
100
100
100
100
100
100
100
51.0
100
100
76.0
–
100
100
100
100
100
100
100
–

100
100
100
100
100
100
100
100
100
51.0
100
100
56.1
–
100
100
100
100
100
100
100
100

Australia
Australia
Australia
Australia
Australia
Australia
Australia
China
China
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
Singapore
Singapore
Australia
Australia
Australia
Australia

Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
A,B,C,D,E
Ordinary
N/A
N/A
Ordinary
Ordinary
Ordinary
Ordinary
N/A
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary

Parent entity
Murray Goulburn Co-operative Co. Limited(a)

Controlled entities of Murray Goulburn Co-operative Co. Limited:
Murray Goulburn Trading Pty Ltd(b)
Murray Goulburn Investment Limited (deregistered 13 July 2014)
MG Nutritionals Pty Ltd(b)
Meiji-MGC Dairy Co Pty Ltd(b)
Lavery International Pty Ltd(b)
Classic Food Holdings Pty Ltd(b)
Classic Foods Pty Ltd
Murray Goulburn Dairy (Qingdao) Co., Ltd
Murray Goulburn Nutritional (Qingdao) Co., Ltd.
Provico Pty Ltd
MG Agrilink Pty Ltd(b)
MG Shares Pty Ltd(b)
Tasmanian Dairy Products Co Ltd(d)
Devondale Foundation Limited (a company limited by guarantee)(e)
Murray Goulburn International Pty Ltd(b)
Murray Goulburn Asia Holding Company Pte Ltd
Murray Goulburn SEA Pte Ltd
Murray Goulburn Procurement Company Pte Ltd
MG Project Inverloch Pty Ltd(b)
MG Project Inverloch (Finance) Pty Ltd(b)
Murray Goulburn Superannuation Pty Ltd(b)
MG Employees Equity Limited (deregistered 25 December 2013)

(a)
(b)
(c)
(d)

Murray Goulburn Co-operative Co. Limited is the head entity within the tax consolidated group.
These wholly owned entities are members of the tax consolidated group.
An additional entity, namely, Murray Goulburn Nominees Pty Ltd, is beneficially owned by Murray Goulburn Co-operative Co. Limited.
During the 2014 financial year, the parent entity acquired a further 19.9 per cent interest in Tasmanian Dairy Products Co Ltd for
$7.8 million in cash consideration.
(e) Murray Goulburn Co-operative Co Limited is considered to control this entity due to certain of its Directors sitting on Devondale
Foundation Limited’s Board.

Devondale Murray Goulburn Annual Report 2014

73

Notes to the Financial Statements continued
for the financial year ended 30 June 2014
NOTE 12: Controlled Entities continued
Murray Goulburn Co-operative Co. Limited and Murray Goulburn Trading Pty Ltd are entities that are party to a deed of cross
guarantee. The consolidated Statement of Financial Position of entities, which are party to the deed of cross guarantee, is:
2014
$000

2013
$000

STATEMENT OF FINANCIAL POSITION

Current assets
Cash

2,889

4,605

Receivables

571,963

450,096

Inventories

336,288

274,285

Derivative financial instruments
Other
Total current assets

1,736

49

8,288

3,434

921,164

732,469

Non-current assets
Receivables

5,016

5,899

Investment in subsidiaries

54,844

49,044

Investment in associates

31,839

25,034

Other financial assets
Property, plant and equipment
Intangible assets
Total non-current assets
Total assets

161

35,876

691,354

727,046

4,155

4,155

787,369

847,054

1,708,533

1,579,523

Current liabilities
Payables

348,702

311,851

Borrowings

148,386

197,100

Current tax payable
Derivative financial instruments
Provisions
Total current liabilities

363

–

36

35,546

46,208

44,279

543,695

588,776

Non-current liabilities
Payables
Borrowings
Provisions
Deferred tax liabilities

1,000

1,000

343,309

286,646

7,933

7,852

63,710

30,798

Total non-current liabilities

415,952

326,296

Total liabilities

959,647

915,072

Net assets

748,886

664,451

Issued capital

268,741

262,677

Reserves

134,499

127,219

Retained earnings

345,646

274,555

Total equity

748,886

664,451

274,555

272,329

Equity

MOVEMENT IN RETAINED EARNINGS
Balance at the beginning of the financial year
Net profit
Dividends provided for or paid
Transfer from reserves
Balance at the end of the financial year

74 Devondale Murray Goulburn Annual Report 2014

45,853

31,430

(28,906)

(31,525)

54,144

2,321

345,646

274,555

NOTE 12: Controlled Entities continued
The consolidated income statement of entities, which are party to the deed of cross guarantee, is:
2014
$000

2013
$000

2,913,168

2,367,701

(2,571,348)

(2,057,377)

STATEMENT OF PROFIT OR LOSS
Sales revenue
Cost of sales
Gross profit
Other income
Impairment of associates

341,820

310,324

31,222

5,025

(1,157)

–

Distribution expenses

(149,678)

Selling and marketing expenses

(65,856)

(50,372)

Administration expenses

(60,010)

(49,609)

Finance costs

(23,514)

(34,371)

Other expenses

(19,419)

(8,393)

Profit before income tax

53,408

31,711

Income tax (expense) benefit
Profit for the period

(7,555)

(140,893)

(281)

45,853

31,430

45,853

31,430

–

55,082

STATEMENT OF COMPREHENSIVE INCOME
Profit for the year
Other comprehensive income
Items that will not be classified subsequently to profit or loss:
Increment (decrement) on revaluation of land and buildings
Net change in fair value of equity instruments measured at fair value through other comprehensive income

54,434

Income tax relating to items that will not be reclassified subsequently

(15,320)

541
(16,525)

Items that may be reclassified subsequently to profit or loss:
Transfer to income statement on cash flow hedges

31,410

(11,008)

Gain (loss) on cash flow hedges taken to equity

3,258

(43,566)

(10,401)

16,373

Income tax relating to items that may be reclassified subsequently
Total comprehensive income for the year

109,234

32,327

Devondale Murray Goulburn Annual Report 2014

75

Notes to the Financial Statements continued
for the financial year ended 30 June 2014

NOTE 13: Investments Accounted for Using the Equity Method

Investments in associated companies

2014
$000

2013
$000

16,994

20,607

Ownership
2014
%

Ownership
2013
%

Name of Associate

Principal Activity

Intermix Australia Pty Ltd

Food ingredient processing

33.3

33.3

Dairy Technical Services Ltd

Dairy analytical and technical services

25.3

25.3

Australian Milk Products Pty Ltd

Exporter of dairy products

50.0

50.0

MGM (Aust) Pty Ltd

Retail of dairy products

0.0

50.0

Progenex Pty Ltd

Retail of dairy products

0.0

50.0

Nedfarm

Milk production – dairy cattle

40.0

40.0

Danone Murray Goulburn Pty Ltd

Retail of dairy products

50.0

50.0

All associates are incorporated in Australia.
Investments in associated companies are accounted for in the consolidated financial statements using the equity method of accounting.
Movement in Investments in Associated Companies
Equity accounted amount at the beginning of the financial year

2014
$000

2013
$000

20,607

14,316

Acquisition of interests in associates

8,000

6,000

Share of (loss)/profit after income tax

(10,889)

Dividends received from associates
Equity accounted amount at the end of the financial year

Associate entities do not have any contingent liabilities.
Aggregate assets of associates is $119,630,000 (2013: $111,532,000).
Aggregate liabilities of associates is $73,152,000 (2013: $70,733,000).
Aggregate revenue of associates is $164,420,000 (2013: $159,833,000).
Aggregate profit/(loss) of associates is $(15,671,000) (2013: $3,171,000).

76 Devondale Murray Goulburn Annual Report 2014

(724)
16,994

837
(546)
20,607

NOTE 14: Property, Plant and Equipment
2014
$000

2013
$000

Land and buildings
Freehold land at fair value(i)
Buildings at fair value(i)
less accumulated depreciation and impairment losses

57,311

76,971

305,274

328,978

(9,333)

(484)

295,941

328,494

353,252

405,465

At cost

1,165,894

1,128,704

less accumulated depreciation and impairment losses

(806,367)

(773,564)

359,527

355,140

Total land and buildings

Plant and equipment

Total plant and equipment

Vehicles
At cost
less accumulated depreciation
Total vehicles
In the course of construction
Total property, plant and equipment

46,781

53,924

(30,090)

(28,307)

16,691

25,617

66,574

45,783

796,044

832,005

(i) Valuations of land and buildings
The basis of the valuation of land and buildings is fair value being market value for existing use of all freehold land and buildings.
Land and building assets at fair value are considered to be Level 3 non-financial assets.
The fair value of those assets was determined by an independent registered valuer. In respect to Level 3 land, fair value was derived
using the sales comparison approach. For land, sales prices of comparable unimproved land in close proximity to the consolidated
entity’s land assets were used as a basis for the valuation and were adjusted for differences in key attributes such as property size
and property improvements. For certain Level 3 building assets, most particularly largely generic warehousing facilities, valuations
were determined by reference to a capitalisation of market based rental yields for comparable premises adjusted for key attributes
such as available storage space measured in square metres. In respect to certain other Level 3 building assets, fair value was
determined using a depreciated replacement cost methodology.
The revaluation to fair value of land and building assets was last undertaken as at 30 June 2013. Directors have assessed
the carrying value of land and buildings as at 30 June 2014 and are satisfied that it is not materially different from its fair value.
This is in accordance with a policy of revaluing property progressively to ensure that the carrying value of land and buildings
does not differ materially from their fair value.

Devondale Murray Goulburn Annual Report 2014

77

Notes to the Financial Statements continued
for the financial year ended 30 June 2014

NOTE 14: Property, Plant and Equipment continued
RECONCILIATIONS

Reconciliations of the carrying amounts of each class of property, plant and equipment are set out below.
Land and
Buildings
$000

Plant and
Equipment
$000

Vehicles
$000

328,047

296,048

34,110

95,576

Net revaluations through asset revaluation reserve

54,833

–

–

–

Reversal of impairment loss of non-current assets

1,273

(12)

–

–

1,261

–

(8,675)

–

(54,050)

Consolidated
Carrying amount at 1 July 2012
Additions (including transfers from capital work in progress)

In Course of
Construction
$000

Total
$000

37,055

75,014

736,164

1,490

(31,291)

99,885

Disposals

(4,561)

(1,005)

(3,109)

Depreciation

(8,237)

(35,994)

(9,819)

Effect of movement in exchange rates
Carrying amount at 30 June 2013
Additions (including transfers from capital work in progress)
Net revaluations through asset revaluation reserve
Reversal of impairment loss of non-current assets
Disposals
Depreciation
Effect of movement in exchange rates
Carrying amount at 30 June 2014

78 Devondale Murray Goulburn Annual Report 2014

54,833

–

527

–

2,060

2,587

405,465

355,140

25,617

45,783

832,005

22,322

40,791

1,002

21,010

85,125

–

–

–

–

–

–

1,402

–

(65,413)

(1,208)

(2,024)

(8,870)

(36,463)

(7,904)

(252)

(135)

353,252

359,527

–
16,691

–

1,402

–

(68,645)

–

(53,237)

(219)
66,574

(606)
796,044

NOTE 15: Intangible Assets

Goodwill at cost

2014
$000

2013
$000

12,121

12,121

Brand names at cost

4,000

4,000

Total intangible assets

16,121

16,121

Intangible assets recognised by the consolidated entity have an indefinite useful life. As such, they were assessed for possible
impairment during the year ended 30 June 2014 and no impairment was evident.
RECONCILIATIONS

There was no movement in goodwill or brand names at cost during 2014 or 2013. In considering impairment, management has
considered relevant forecasted cash flow projections.

NOTE 16: Payables
2014
$000

2013
$000

Current
Trade payables

56,391

98,793

Payable to farmer suppliers

175,279

131,513

Sundry payables and accrued expenses

139,526

91,667

371,196

321,973

1,921

1,425

1,921

1,425

Non-current
Other

All payables are recorded at amortised cost. The fair value of payables is documented in Note 28(d).

Devondale Murray Goulburn Annual Report 2014

79

Notes to the Financial Statements continued
for the financial year ended 30 June 2014
NOTE 17: Borrowings
2014
$000

2013
$000

118,039

192,558

Current
Bank loans
Private placement senior notes

31,847

12,938

149,886

205,496

253,504

162,750

127,389

161,725

380,893

324,475

Non-current
Bank loans
Private placement senior notes

The bank loans and private placement senior notes are covered by negative pledge agreements between the parent entity and
its financiers.
All borrowings are recorded at amortised cost. Private placement notes are designated as effective cash flow hedges with the exception
of $53,078,556 (2013: $53,908,000).
The fair value of borrowings is documented in Note 28(d).

NOTE 18: Derivative Financial Instruments
2014
$000
Foreign currency derivatives assets
Foreign currency derivatives liabilities

2013
$000

1,736

49

36

35,546

Foreign currency derivatives represent unrealised gains and losses on foreign exchange contracts that are hedges against sales.
Unrealised gains and losses on foreign currency hedge contracts are deferred in equity or recognised in profit or loss as appropriate.
Foreign currency derivatives are Level 2 financial instruments recorded at fair value using observable market inputs.

80 Devondale Murray Goulburn Annual Report 2014

NOTE 19: Provisions
2014
$000

2013
$000

Current
Other
Employee benefits(i)

–

1

46,415

44,393

46,415

44,394

7,933

7,852

7,933

7,852

Non-current
Employee benefits

The current provision for employee benefits includes annual and long service leave referable to unconditional, vested entitlements.
The entitlements are presented as current liabilities albeit the consolidated entity does not expect to settle the full amount of accrued
leave within the next 12 months.
The following amounts reflect leave that is not expected to be taken or paid within the next 12 months.
(i) Current leave obligations expected to be settled after 12 months

29,067

27,801

Note

2014
$000

2013
$000

4

58,902

30,679

NOTE 20: Deferred Tax Liabilities

Deferred tax liability

NOTE 21: Contingent Liabilities
The consolidated entity is not aware of any contingent liabilities.

Devondale Murray Goulburn Annual Report 2014

81

Notes to the Financial Statements continued
for the financial year ended 30 June 2014
NOTE 22: Issued Capital

Issued capital

2014
$000

2013
$000

268,741

262,677

Number of Shares

Movements in Issued Capital
Balance at 30 June 2012
Shares issued
Bonus shares issued

A Class
Preference
Shares (b)

B Class
Preference
Shares (c)

225,757,565

15,174,833

10,103,587

26,446,565

9,992,219

–

–

–

9,992,219

23,270,268

–

–

–

23,270,268

Ordinary
Shares (a)

Dividend reinvestment plan issues

4,390,786

Transfers

(1,857,027)

Balance at 30 June 2013
Shares issued
Dividend reinvestment plan issues
Transfers
Share buy-back and cancellations
Balance at 30 June 2014

21,241
(407,625)

414

C Class
Preference
Shares (d)

Total
277,482,550

14

4,412,455

(1,014,877)

3,279,529

–

261,553,811

14,788,449

9,089,124

29,726,108

315,157,492

16,818,948

–

–

–

16,818,948

3,731,734

20,287

359

50

3,752,430

(5,805,836)

(321,470)

773,424

5,353,882

(14,487,266)

–

–

9,862,907

35,080,040

–
276,298,657

–

–
(14,487,266)
321,241,604

Changes to the then Corporations Law abolished the par value concept in relation to share capital from 1 July 1998. Therefore, the
Company does not have a limited amount of authorised capital and issued shares do not have a par value. All shares are fully paid.
(a) Ordinary Shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the
number of shares held. On a show of hands, every holder of ordinary shares present at a meeting in person or by proxy is entitled
to one vote and upon a poll each share is entitled to one vote. Upon ceasing supply of milk to the Company, shareholders’ ordinary
shares are converted into a class of non-cumulative, non-redeemable preference shares as determined by the Board.
(b) A class eight per cent non-cumulative non-redeemable Preference Shares
A Class eight per cent non-cumulative, non-redeemable Preference Shares entitled holders to receive, out of profits available for
dividend, a preferential dividend at a rate of eight per cent per annum. All shares were bought back and cancelled during 2013–14.
(c) B class non-cumulative, non-redeemable Preference Shares
B Class non-cumulative, non-redeemable Preference Shares entitle holders to receive, out of profits available for dividend, a preferential
dividend at a variable rate. These holders have no voting rights at a general meeting of the Company, but can convert their shares
into ordinary shares, by resolution of the Directors, if any holder becomes a supplier to the Company.
(d) C class non-cumulative non-redeemable Preference Shares
C Class non-cumulative, non-redeemable Preference Shares entitle holders to receive, out of profits available for dividend, a preferential
dividend at a variable rate. These holders have no voting rights at a general meeting of the Company, but can convert their shares into
ordinary shares, by resolution of the Directors, if any holder becomes a supplier to the Company.

82 Devondale Murray Goulburn Annual Report 2014

NOTE 22: Issued Capital continued
CAPITAL RISK MANAGEMENT

The consolidated entity manages its capital to ensure that entities within the Group will be able to continue as a going concern and to
maintain an optimal capital structure to reduce the cost of capital and ensure access to adequate capital to sustain future development.
In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of share equity milk deductions, adjust
the level of dividends paid to shareholders, issue new shares or sell assets to reduce debt. Management continually monitor the capital
structure by reference to the consolidated entity’s gearing ratio. The gearing ratio is calculated as net debt divided by total capital where
net debt is borrowings less cash and total capital is equity, including minority interest, plus net debt.
The consolidated entity’s strategy is to maintain its gearing ratio within 30 to 60 per cent.
2014
$000

2013
$000

Total borrowings

530,779

529,971

less cash

(13,858)

(11,809)

Net debt

516,921

518,162

Total equity

745,891

686,487

Total capital

1,262,812

1,204,649

40.9%

43.0%

2014
$000

2013
$000

Gearing ratio

NOTE 23: Reserves

Capital reserve (i)
Asset revaluation reserve

36,916

36,916

135,451

153,883

General reserve (i)

5,257

5,257

Hedge reserve

3,529

(20,739)

33

(3,369)

–

1,957

Investment revaluation reserve
Share allotment reserve
Transactions with non-controlling interests reserve

(785)

Foreign currency translation reserve

2,101

2,814

3,490

183,215

179,496

(i) There have been no movements in the capital reserve or general reserve in the current or prior years.

Devondale Murray Goulburn Annual Report 2014

83

Notes to the Financial Statements continued
for the financial year ended 30 June 2014
NOTE 23: Reserves continued
Note

2014
$000

2013
$000

153,883

117,820

MOVEMENTS IN RESERVES

Asset revaluation reserve
Balance at the beginning of the financial year
Increment (decrement) on revaluation of land and buildings
Related income tax

14

–

54,833

4

–

(16,450)

Transfer to retained earnings

(26,331)

Related income tax
Balance at the end of the financial year

(3,315)

7,899

995

135,451

153,883

Hedge reserve
Balance at the beginning of the financial year
Transferred to income statement
Related income tax

4

Gains (losses) on cash flow hedges
Related income tax

4

Balance at the end of the financial year

(20,739)

17,463

31,410

(11,008)

(9,423)

3,302

3,258

(43,566)

(977)
3,529

13,070
(20,739)

Investment revaluation reserve
Balance at the beginning of the financial year

(3,369)

Net change in fair value of equity instruments measured at fair value through other comprehensive income

54,434

Related income tax

4

(3,910)
541

(15,320)

–

Transfer to retained earnings

(51,017)

–

Related income tax

15,305

Balance at the end of the financial year

33

–
(3,369)

Share allotment reserve
Balance at the beginning of the financial year
Allotment of shares to suppliers

1,957

2,971

(1,957)

(2,971)

Shares to be issued in lieu of milk payments

–

1,957

Balance at the end of the financial year

–

1,957

2,101

2,354

Transactions within the non-controlling interests reserve
Balance at the beginning of the financial year
Difference on acquisition of Murray Goulburn Dairy (Qingdao) Co., Ltd

–

Difference on acquisition of Tasmanian Dairy Products Co Ltd
Balance at the end of the financial year

(253)

(2,886)

–

(785)

2,101

Foreign currency translation reserve
Balance at the beginning of the financial year

3,490

Translation of foreign operations
Related income tax
Balance at the end of the financial year

84 Devondale Murray Goulburn Annual Report 2014

4

303

(984)

4,553

308

(1,366)

2,814

3,490

NOTE 23: Reserves continued
NATURE AND PURPOSE OF RESERVES

Capital reserve
The capital reserve is used to accumulate realised capital profits.
Asset revaluation reserve
The asset revaluation reserve is used to record increments and decrements on the revaluation of non-current assets.
General reserve
The general reserve is used from time to time to transfer profits from retained earnings. There is no policy of regular transfer.
Hedge reserve
The hedge reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative
deferred gain or loss on the hedge is recognised in profit or loss when the hedged transaction impacts the profit or loss.
Investment revaluation reserve
The investment revaluation reserve represents accumulated gains and losses arising on the revaluation of investments that have been
recognised through other comprehensive income.
Share allotment reserve
The share allotment reserve reflects the value of shares to be allotted to suppliers. The allotments arise from deductions made from milk
payments during the year.
Transactions within the non-controlling interests reserve
This reserve is used to account for transactions involving non-controlling interests in accordance with accounting standards.
Foreign currency translation reserve
The foreign currency translation reserve represents exchange differences relating to the translation from the functional currencies
of the Group’s foreign controlled entities into Australian dollars.

Devondale Murray Goulburn Annual Report 2014

85

Notes to the Financial Statements continued
for the financial year ended 30 June 2014
NOTE 24: Retained Earnings
Note
Balance at the beginning of the financial year
Net profit attributable to members of the parent entity
Dividends provided for or paid
Transfer from reserves (net of tax)
Balance at the end of the financial year

7
23

2014
$000

2013
$000

233,915

233,724

27,936

29,396

(28,906)

(31,525)

54,144

2,320

287,089

233,915

2014
$000

2013
$000

NOTE 25: Non-controlling Interests

Non-controlling interests comprises:
49 ordinary shares in Provico Pty Ltd (2013: 49)
121 ordinary shares in Tasmanian Dairy Products Co Ltd (2013: 221)

935

1,004

5,911

9,395

6,846

10,399

2014
$000

2013
$000

NOTE 26: Capital and leasing commitments

a) Operating lease commitments
• Due within 1 year

42,719

9,999

• Due within 1–5 years

145,451

21,283

• Due longer than 5 years

148,734

11,172

336,904

42,454

Operating leases relate to factories, trading stores, warehousing facilities, office space, and vehicles, with lease terms of between one
and 30 years. Some leases have an option to extend the lease term. The consolidated entity does not have an option to purchase the
leased assets at expiry of the lease period.
b) Capital expenditure commitments
Contracted capital expenditure commitments due within one year

20,432

157,468

NOTE 27: Events Subsequent to Balance Date
With the exception of the declaration of dividends detailed in Note 7 ‘Unrecognised Amounts’, no matters or circumstances have arisen
since the end of the financial year that significantly affected or may significantly affect the operations of the consolidated entity, the results
of those operations, or the state of affairs of the consolidated entity in financial years subsequent to the financial year ended 30 June 2014.

86 Devondale Murray Goulburn Annual Report 2014

NOTE 28: Financial Instruments
Risk management is carried out by the treasury and finance departments under policies approved by the Board of Directors.
Financial risks are managed in accordance with written policies overseen by the Board.
The consolidated entity does not enter into or trade financial instruments, including derivative financial instruments, for speculative
purposes. The use of financial derivatives is governed by the consolidated entity’s policy approved by the Board of Directors, which
provides written principles on the use of financial derivatives. Compliance with policy and exposure limits is reviewed continuously
by senior management and by the Board of Directors.
A) MARKET RISK

The consolidated entity’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest
rates. The consolidated entity enters into a variety of derivative financial instruments to manage its exposure to foreign currency and
interest rate risk, including forward foreign currency and foreign currency option contracts to hedge the exchange rate risk arising
on the sale of exported dairy goods in $US (US dollar), and interest rate swaps to hedge fair value risk associated with rate fluctuations.
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement
and the basis on which income and expenses are recognised, in respect of financial instruments are disclosed in Note 1 to the financial
statements and below.
Foreign currency risk management
The Group undertakes transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. Exchange
rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts and foreign exchange options.
Forward foreign exchange contracts
The consolidated entity maintains a policy of matching anticipated future cash flows in foreign currencies, i.e. highly probable sales,
for cash flow hedge accounting purposes, with forward exchange contracts in the same currency and with closely corresponding
settlement dates.
At balance date, the entity has US$180 million (2013: US$420 million) forward exchange contracts outstanding with maturity dates
not exceeding one year, of which US$53.1 million (2013: US$27 million) relate to receivables at balance date and US$126.9 million
(2013: US$393 million) to future transactions. The fair value of these contracts at balance date is a gain of $1.7 million
(2013: loss of $35.5 million).
Unrealised gains or losses at year end on specific hedges in the form of forward exchange contracts, in respect of unsettled sales
transactions, are deferred and recognised in the hedge reserve to match against the underlying hedge transaction. Forward exchange
contracts are classified as Level 2 financial instruments, as their fair value measurement is derived from inputs other than quoted
prices that are observable for the asset or liability.
Currency options
During the year the consolidated entity entered into a range of US$ currency options with varying maturities and strike rates.
By simultaneously purchasing and selling options in barrier type structures, the entity has effectively capped an exchange rate
should the A$ (Australian dollar) strengthen whilst maintaining the flexibility to improve the exchange rate should the A$ trade
at more favourable levels.
At balance date, there were $nil currency options outstanding (2013: $nil).
Private placement senior notes
The private placement is designated in a cash flow hedge relationship and is hedging highly probable forecast sales denominated
in US$ to be invoiced at the time of each loan repayment. The effective portion of changes in the fair value of the private placement
due to foreign currency changes is recognised directly in equity via the hedge reserve.
Foreign currency sensitivity
The consolidated entity is exposed to US dollars (US$). The following table details the consolidated entity’s sensitivity to a one per cent
increase and decrease in the Australian dollar (A$) against the US$ as at balance date. The sensitivity includes outstanding foreign
currency derivatives and foreign currency denominated monetary items and adjusts their translation at the period end for
a one per cent change in foreign currency rates.
2014
$000
Other equity
Profit or loss

2013
$000

A$ strengthens 1% – increase (decrease)

1,669

3,774

A$ weakens 1% – increase (decrease)

(1,703)

(3,850)

A$ strengthens 1% – increase (decrease)
A$ weakens 1% – increase (decrease)

(12)

16

13

(16)

Devondale Murray Goulburn Annual Report 2014

87

Notes to the Financial Statements continued
for the financial year ended 30 June 2014
NOTE 28: Financial Instruments continued
B) INTEREST RATE RISK

Trade and other receivables, trade payables and accruals and loans from the State Government of Victoria are non-interest bearing.
The A$ overdraft bears interest at a floating rate based on the bank’s corporate overdraft reference rate. The US$ bank overdraft
bears interest at a floating rate based on the Federal Reserve’s Target Rate. US$ cash on hand yields interest at the US Interbank
Bid Rate. A$ cash on hand bears interest at a floating rate based on the targeted cash rate of the Reserve Bank of Australia.
Bank loans consist of short term and long term US$ and A$ revolving loan facilities, on which interest is payable at floating rates.
Rates on US$ loans are based on LIBOR. Rates on A$ loans are based on BBR.
The 2009 private placement will be repaid as follows and bears interest at the following fixed rates: US$30.0 million, 4.83 per cent
(29 October 2014), US$17.0 million, 5.44 per cent (29 October 2016), US$89.0 million, 5.81 per cent (29 October 2019),
US$14.0 million, 5.96 per cent (29 October 2021).
An analysis of borrowings by maturities is provided in paragraph (e) below.
Interest rate sensitivity
The consolidated entity’s sensitivity to a 50 basis point increase or decrease, representing management’s assessment of the
possible change in interest rates applicable to debt facilities subject to variable rates, holding all other variables constant would
be a decrease/increase in net profit of $1.86 million (2013: $1.22 million decrease/increase).
C) CREDIT RISK EXPOSURES

The maximum exposure to credit risk at balance date in relation to financial assets is the carrying amount, net of any allowances,
of those assets as indicated in the Statement of Financial Position. The consolidated entity has adopted a policy of dealing with
creditworthy counterparties assessed by reference to their financial position, internal and external credit assessment and historical
trading experience. Concentrations of credit risk are minimised by undertaking transactions with a large number of customers and
counterparties in various countries.
Other receivables current includes amounts receivable from suppliers and from GST paid.
D) FAIR VALUE

The fair value of other financial assets and financial liabilities, excluding derivative instruments, are determined in accordance with
generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions.
To calculate the fair value of derivative instruments, use is made of discounted cash flow analysis using the applicable yield curve
for the duration of the instruments for non-optional derivatives and option pricing models for optional derivatives.
The carrying amount recorded in the financial statements represents the fair value of all assets and liabilities, determined in accordance
with the accounting policies in Note 1 to the financial statements, except for those mentioned below. The fair value is derived by discounting
the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles.
The fair value of the private placement at balance date is $186.2 million (2013: $203.4 million).
The fair value of a government loan of $1.0 million at balance date is $0.9 million (2013: $0.8 million).

88 Devondale Murray Goulburn Annual Report 2014

NOTE 28: Financial Instruments continued
E) LIQUIDITY RISK MANAGEMENT

Liquidity risk is managed by maintaining adequate borrowing facilities, by continuously monitoring forecast and actual cash flows
and matching the maturity profiles of financial assets and liabilities. Included in Note 30(c) is a listing of additional undrawn facilities that
are available to reduce liquidity risk.
The following table analyses the consolidated entity’s non-derivative financial liabilities. The amounts disclosed in the table are the
contractual undiscounted cash flows:
0–12 months
$000

1–2 years
$000

2–5 years
$000

5+ years
$000

Total
Contractual
Cash Flows
$000

Carrying
Amount
$000

At 30 June 2014
Non-interest bearing

370,196

–

1,000

–

371,196

371,196

Variable rate

125,700

18,283

254,099

2,222

400,304

371,543

Fixed rate
Consolidated

39,717

7,357

37,499

113,238

197,811

159,236

535,613

25,640

292,598

115,460

969,311

901,975

At 30 June 2013
Non-interest bearing

357,519

–

1,000

–

358,519

358,519

Variable rate

203,753

124,521

17,548

32,947

378,769

355,308

22,187

40,338

39,082

121,483

223,090

174,663

583,459

164,859

57,630

154,430

960,378

888,490

Fixed rate
Consolidated

F) FINANCING ARRANGEMENTS AND UNUSED CREDIT FACILITIES

Total financial facilities available to the consolidated entity and the extent to which they are utilised at balance date are set out
in Note 30(c).

Devondale Murray Goulburn Annual Report 2014

89

Notes to the Financial Statements continued
for the financial year ended 30 June 2014
NOTE 29: Related Parties
Transactions between related parties are on normal commercial terms and conditions unless otherwise stated.
A) ASSOCIATED COMPANIES

Transactions between the parent entity and its associates include the sale of goods, the purchase of goods and the provision
of technical and consultancy services by the parent entity. Transactions are on normal commercial terms and conditions.
B) DIRECTORS OF THE PARENT ENTITY

Direct and indirect shareholdings of Directors in the parent entity, allotted to them in their capacity as suppliers of milk to the company:
Shares Held at
1 July 2012
Ordinary
No.
PW Tracy

Shares Held at Shares Held at
Acquired 30 June 2013
1 July 2013
Ordinary
Ordinary
Ordinary
No.(iv)
No.
No.

Shares Held at
Acquired 30 June 2014
Ordinary
Ordinary
No.(iv)
No.

1,242,496

102,779

1,345,275

1,345,275

139,714

1,484,989

N Akers

204,333

48,355

252,688

252,688

34,209

286,897

WT Bodman

138,523

26,912

165,435

165,435

18,644

184,079

DF Howard

552,969

64,101

617,070

617,070

3,128

ML Jelbart

1,148,977

191,901

1,340,878

1,340,878

115,100

1,455,978

193,797

56,854

250,651

250,651

23,995

274,646

28,671

3,721

32,392

229,354

17,434

246,788

KW Jones
ED Morris
GN Munzel

(iii)

(iii)

(iii)
229,354

(ii)

196,271

33,083

JP Pye

233,441

34,903

268,344

268,344

19,993

288,337

MJ Van de Wouw

366,458

41,862

408,320

408,320

5,476

413,796

JT Vardy

884,420

108,055

5,161,685

708,805

(i)
4,878,015

(i)
4,906,686

(i)
381,414

(i)
4,667,902

(i) JT Vardy resigned from the office of Director during the previous financial year and accordingly his shareholdings
at 30 June 2013 and 2014 are not disclosed.
(ii) DF Howard resigned from the office of Director during the current financial year and accordingly his shareholdings
at 30 June 2014 are not disclosed.
(iii) ED Morris was appointed to the office of Director during the current financial year and accordingly his shareholdings
prior to 1 July 2013 are not disclosed.
(iv) All shares were issued for a value of $1, and accordingly the value of the issued shares equals $381,414 (2013: $708,805).
Directors of the parent Company supply milk to the consolidated entity, are able to purchase goods at Murray Goulburn Trading Pty Ltd
stores at commercial prices and can obtain loans from the consolidated entity in the same manner as all other supplier shareholders.
Total purchases of goods and services from Murray Goulburn Trading Pty Ltd by Directors and their related entities was $2,323,111
(2013: $3,786,832) and the balance outstanding as at 30 June 2014 was $433,782 (2013: $1,553,947). All transactions are on the
same terms and conditions available to other supplier shareholders.
PW Tracy holds an interest in Southern Stockfeeds, which has provided products to Murray Goulburn Trading Pty Ltd on normal
commercial terms and conditions. The total amount purchased was $598,103 (2013: $531,976), with a balance outstanding at
financial year end of $2,499 (2013: $15,754). Further, during the year, Southern Stockfeeds paid $11,825 (2013: $10,693) to the
consolidated entity for services provided in collecting Southern Stockfeeds accounts receivable.
Aggregate of loans to three (2013: four) Directors as at financial year end: $25,846 (2013: $120,080).
Total interest paid by Directors: $8,394 (2013: $2,739).
Details regarding loans outstanding at the reporting date to Directors and their related parties, where the individual’s aggregate loan
balance exceeded $100,000 at any time in the reporting period, are as follows:
• ML Jelbart: total loan at financial year end: $nil (2013: $nil); peak loan balance during the year: $nil (2013: $101,697); interest paid:
$nil (2013: $nil).
PJO Hawkins is a director of Westpac Banking Corporation, which is one of the banks on the consolidated entity’s banking panel.
All transactions with Westpac Banking Corporation are on normal terms and conditions.
C) KEY MANAGEMENT PERSONNEL

R Poole holds an interest in 54,312 (2013: 54,312) C class preference shares in the Company.

90 Devondale Murray Goulburn Annual Report 2014

NOTE 30: Notes to the Statement of Cash Flows
2014
$000

2013
$000

Cash per statement of financial position

13,858

11,809

Cash per statement of cash flows

13,858

11,809

Profit for the period

29,297

34,904

Depreciation

53,237

54,050

A) RECONCILIATION OF CASH

For the purposes of the statement of cash flows, cash includes cash on hand, deposits on call
and investments in money market instruments, net of bank overdrafts.
Cash at the end of the year as shown in the statement of cash flows is reconciled to the
statement of financial position as follows:

B) RECONCILIATION OF PROFIT FOR THE PERIOD TO NET CASH FLOW FROM OPERATING ACTIVITIES

Movement in doubtful debts provision

172

119

Reversal of impairment attributable to non-current assets

(1,402)

Loss (gain) on disposal of fixed assets

(27,717)

717

11,613

(291)

–

(3,631)

Share of (profit) loss of associated company
(Gain) loss from defined benefit superannuation fund

(1,261)

Change in operating assets and liabilities
Decrease (increase) in trade receivables

(87,700)

Decrease (increase) in other receivables and prepayments

(25,170)

15,383

Decrease (increase) in inventories

(75,305)

73,685

49,441

(5,723)

Increase (decrease) in trade payables and amounts due to suppliers
Increase (decrease) in provisions
Increase (decrease) in deferred tax liability
Net cash inflow (outflow) from operating activities

1,737
2,792
(69,005)

(52,024)

2,436
(787)
117,577

C) FINANCING ARRANGEMENTS
Credit facility

1,023,083

682,345

Amount utilised

528,595

304,351

Unused credit facility

494,488

377,994

The major facilities consist of a bank overdraft facility repayable at call, and loan facilities which are subject to yearly review to ensure
that the required financial ratios are met.
D) NON-CASH FINANCING AND INVESTING ACTIVITIES

Nil.

Devondale Murray Goulburn Annual Report 2014

91

Notes to the Financial Statements continued
for the financial year ended 30 June 2014
NOTE 31: Parent Entity Disclosures
2014
$000

2013
$000

A) FINANCIAL POSITION
Total current assets

854,891

690,431

Total non-current assets

783,094

840,959

1,637,985

1,531,390

Total assets
Total current liabilities

598,354

562,198

Total non-current liabilities

331,289

343,499

Total liabilities

929,643

905,697

Net assets

708,342

625,693

Issued capital

268,741

262,677

Retained earnings

307,320

238,323

Reserves
Capital reserve

24,290

24,290

Asset revaluation reserve

101,781

119,906

General reserve

2,648

2,648

Hedge reserve

3,529

(20,739)

33

(3,369)

–

1,957

708,342

625,693

Investment revaluation reserve
Share allotment reserve
Total equity

B) FINANCIAL PERFORMANCE FOR THE YEAR
Profit for the year
Total comprehensive income (loss)

44,066

28,608

108,604

(12,634)

C) GUARANTEES ENTERED INTO BY THE PARENT ENTITY IN RELATION TO THE DEBTS OF ITS SUBSIDIARIES
Guarantee provided under the deed of cross guarantee

18,708

25,955

19,806

156,673

D) CONTINGENT LIABILITIES

The Company is not aware of any contingent liabilities.
E) COMMITMENTS FOR THE ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT
Plant and equipment

NOTE 32: Additional Information
Murray Goulburn Co-operative Co. Limited is a company limited by shares, incorporated and domiciled in Australia.
Its registered office and principal place of business is:
Freshwater Place, Level 15,
2 Southbank Boulevard, Southbank,
Victoria, 3006

92 Devondale Murray Goulburn Annual Report 2014

Directors’ Declaration
In the Directors’ opinion:
(a) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;
(b)	The attached financial statements are in compliance with International Financial Reporting Standards, as stated
in note 1 to the financial statements;
(c)	The attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance
with accounting standards; and
(d)	The attached financial statements and notes thereto give a true and fair view of the consolidated entity’s financial position
as at 30 June 2014 and performance for the financial year ended on that date.
At the date of this declaration, the Company is within the class of companies affected by ASIC Class Order 98/1418. The nature
of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full
of any debt in accordance with the deed of cross guarantee.
In the Directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order
applies, as detailed in Note 12 to the financial statements, will, as a group, be able to meet any obligations or liabilities to which they are,
or may become, subject by virtue of the deed of cross guarantee.
This declaration is made in accordance with a resolution of the Directors.

PW Tracy
Director
Melbourne
26 August 2014

Devondale Murray Goulburn Annual Report 2014

93

Independent Auditor’s Report

94 Devondale Murray Goulburn Annual Report 2014

Devondale Murray Goulburn Annual Report 2014

95

Auditor’s Independence Declaration

96 Devondale Murray Goulburn Annual Report 2014

Murray Goulburn Co-operative Co. Limited
Level 15 Freshwater Place 2 Southbank Boulevard
Southbank Victoria 3006 Australia
PO Box 4307 Melbourne Victoria 3001 Australia

Photograph of Gary Helou on pages 10, 26 and 28 courtesy of David Charles

Telephone: +61 3 9040 5000
www.mgc.com.au

www.mgc.com.au



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