Eldorado Gold
Annual Report 2014

Plain-text annual report

Since 1839 Elders has been an integral part of Australia’s rural landscape and in 2014 has celebrated 175 years of knowledge, experience and advice. In celebrating this special milestone we’ve recognised our proud history and contribution to Australian rural life and have also looked to the future, reinforcing our ongoing commitment to Australian agriculture. We thank our loyal employees, clients, shareholders and all those who have joined us on our journey over the last 175 years. We look forward to the future. 2 0 1 4 A N N U A L R E P O R T 2014 ANNUAL REPORT Company Directory Directors Mr James H Ranck, BS Econ, FAICD, Chairman Mr Mark C Allison, BAgrSC, BEcon, GDM, FAICD Mr James A Jackson, BCom, FAICD Mr Ian Wilton, FCPA, FAICD, FCCA(UK) Secretaries Mr Peter G Hastings, BA LLB GDLP Ms Nina M Abbey Registered Office Level 3, 27 Currie Street Adelaide, South Australia, 5000 Telephone: (08) 8425 4000 Facsimile: (08) 8410 1597 Email: information@elders.com.au Website: www.elderslimited.com Share Registry Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street Adelaide, South Australia, 5000 Telephone: 1300 55 61 61 Facsimile: +61 (0)8 8236 2305 Website: www.computershare.com.au Auditors Ernst & Young Bankers Australia & New Zealand Banking Group National Australia Bank Coöperative Centrale Raiffeisen – Boerenleenbank (Rabobank Australia) Stock Exchange Listings Elders Limited ordinary shares and subordinated convertible unsecured notes (Elders Hybrids) are listed on the Australian Securities Exchange under the ticker codes “ELD” and “ELDPA” Trustee for Elders Hybrids The Trust Company (Australia) Limited Level 3, 530 Collins Street Melbourne, Victoria, 3000 LOOKING TO THE FUTURE In our 175th year we’re recognising where we’ve been and we’re celebrating where we’re going. The one constant throughout the years has been our people; their pride and passion for the Elders brand and the commitment to the work they do. As we look towards the future we’re firmly focused on building on our strong platform and creating value for all stakeholders. Father and son livestock team Lindsay and Aaron Hill at the annual Hamilton weaner sales. ELDERS IS Elders is an Australian agribusiness that seeks to create real value for all its stakeholders in Australian and international markets. We do this through approximately 2,000 employees in more than 370 points of presence across Australia, China and Indonesia who use their expertise and knowledge to provide primary producers with the inputs, advice, marketing options and trading platforms they need to get the most out of their own businesses. Elders is an integral part of the Australian rural landscape and an iconic brand that draws on its proud 175 year history to build a strong future. Integrity • Accountability • Teamwork • Customer Focus • Innovation 1 Our traineeship program has been specifically designed by the top sales staff in our business to ensure it provides practical and realistic training to the next generation of stock and station agents. The combination of hands on experience, on the job training and face-to-face learning ensures our first class agricultural knowledge and experience is retained in the industry and provides valuable career opportunities for young people in rural and regional areas. Experienced livestock manager, Steve Ridley, from Goulburn passes on his knowledge to Wagga Experienced livestock manager, Steve Ridley, from Goulburn passes on his knowledge to Wagga Wagga trainee Laura Tansell, Julia Creek territory sales manager Lindsay Brown and Bendigo Wagga trainee Laura Tansell, Julia Creek territory sales manager Lindsay Brown and Bendigo trainee Jake Smith at the 49th Herefords Australia national show and sale in Wodonga. trainee Jake Smith at the 49th Herefords Australia national show and sale in Wodonga. INVESTING IN THE FUTURE 2 OUR BUSINESS Retail Products Agency Services Financial Services Feed & Processing Services Live Export Services Farm Supplies Livestock Fertiliser Wool Grain Real Estate Banking Insurance Killara Feedlot Short haul livestock Elders Indonesia Long haul livestock Financial Planning Elders China $888m retail sales 9.6m head sheep $2.9b loan book 685k tonnes fertiliser 1.7m head cattle $1.5b deposit book 352k wool bales 1.2m grain tonnes $1.4b real estate sales $580m gross written premium 144k head short haul 42k head long haul Killara 47k head turnoff Indonesia 19k head turnoff China $11m sales Online platforms Agsure Auctions Plus (50%) Kazakhstan Pakistan Japan China Vietnam Thailand Indonesia * Based on FY14 statistics, excluding discontinued operations. 3 PLANNING FOR THE FUTURE Our team of agronomists and livestock production advisers provide clients with expert advice and support to help them maximise the performance of their farming operations. By keeping up to date with the latest technical knowledge and market trends our people are able to help clients plan their production and ensure that our offering of products and services is tailored to their individual needs. Finley branch manager and agronomist Stacey Doolan Finley branch manager and agronomist Stacey Doolan conducts a soil analysis with soil specialists near Albury. conducts a soil analysis with soil specialists near Albury. 4 EIGHT POINT PLAN In 2014 we released our three year strategic plan with the aim of achieving $60 million earnings before interest and tax (EBIT) and a 20 percent return on capital (ROC) in 2017. The Eight Point Plan marks a significant step in our evolution to being an efficient user of capital that creates real value for all our stakeholders. Values, Performance & Brand Delivering our strategies through a values, safety and performance based culture that maximises the iconic Elders brand and positioning Geographical Coverage & Distribution Channels Strengthening and expanding our range of distribution channels Retail Products Business improvement of our farm supplies and fertiliser products Agency Services Strengthening and expansion of our wool, livestock, real estate and grain products STRATEGIC INTENT: Elders will be an agribusiness creating real value for all stakeholders in both Australian and international markets Financial Services Strengthening and expansion of our banking, insurance, and financial planning products Feed & Processing Services Improvement and expansion of our feed and processing business Live Export Services Controlled growth of our live export business Cost, Capital & Efficiency Continuous efficiency gains with cost and capital reduction 5 2014 THE YEAR IN BRIEF Reporting Period, Terms and Abbreviations Abbreviations and terms This Report uses terms and abbreviations relevant to the Company and its accounts. The terms “the Company”, “Elders Limited”, “Elders” and “the Group” are used in this report to refer to Elders Limited and/or its subsidiaries. The terms “2014” or “2014 financial year” refer to the 12 months ended 30 September 2014 unless otherwise stated. References to “2013” or other years refer to the 12 months ended 30 September of that year. Annual Report This document has been prepared to provide shareholders with an overview of Elders Limited’s performance for the 2014 financial year and its outlook. The Annual Report is mailed to shareholders who elect to receive a copy and is available free of charge on request (see Shareholder Information printed in this Report). The Annual Report can be accessed via the Company’s website at www.elderslimited.com. Notice of Meeting The 2014 Annual General Meeting of Elders Limited will be held on Thursday, 18 December 2014, commencing at 10.00am in The Banquet Room, Adelaide Festival Centre, King William Street, Adelaide, South Australia. A formal Notice of Meeting has been mailed to shareholders. Additional copies can be obtained from the Company’s registered office or downloaded from its website at www.elderslimited.com. Financial Highlights Year ended 30 September 2014 2013 Continuing sales revenue Underlying EBITDA Underlying EBIT Reported net financing costs Reported profit / (loss) after tax Underlying profit / (loss) after tax Net debt Term debt Operating cash flow Reported earnings per share (basic) Reported earnings per share (diluted) Underlying earnings per share (basic) Underlying earnings per share (diluted) Key Ratios EBIT margin Return on capital Gearing Key Share Data Share price Market capitalisation Number of shareholders $m $m $m $m $m $m $m $m $m cents cents cents cents % % % $ $m 1,431.5 1,422.1 30.5 27.3 (23.2) 3.0 8.8 (137.6) (34.1) 15.1 0.6 0.2 1.7 0.6 1.9 11.7 241 0.18 91.6 (43.5) (48.9) (33.2) (505.3) (68.5) (255.2) (143.8) (81.6) (99.6) (99.6) (13.5) (13.5) (3.4) (9.5) 552 0.11 50.1 30,240 31,854 Elders Limited ABN 34 004 336 636 Ordinary shares on issue 523,265,328 455,013,329 6 PROGRESS Safety performance • Lost time injuries reduced by 39.4 percent • Lost time injury frequency rate reduced from 7.4 to 4.7 • Medical treatment injury frequency rate reduced from 13.5 to 11.6 Operational performance • $76.2 million turnaround in underlying EBIT • All segments of the business have lifted earnings contribution • Eight Point Plan launched with structured implementation • EBIT margin lifted to 2 percent from -3 percent • ROC at 12 percent up from -10 percent Leadership renewal • Two new directors with agribusiness experience appointed • Chief Executive Officer with corporate strategy and agribusiness experience appointed • Executive management restructured to align capabilities with strategy • Ongoing investment in training and development Capital management • Working capital reduced 27 percent • Net debt reduced by 46 percent • Divestment of non-core assets completed • $57 million equity raising undertaken 7 CHAIRMAN’S REMARKS Hutch Ranck In my first report to shareholders as Chairman of Elders Limited, it gives me great pleasure to announce that the 2014 financial year has been one of significant positive change for the Company. One of the most significant highlights of the past year is your Company’s turnaround in financial performance. I’m pleased to advise that for the first time in six years, Elders has delivered both a statutory and underlying profit. This reinforces that Elders, now operating as a focused agribusiness, has established what we consider to be a firm foundation from which to generate further growth and value for its shareholders. Our continued focus on debt reduction has seen us again achieve significantly lower debt. Net debt is 46 percent lower than last year, with term debt subsequently eliminated in October 2014 following receipt of proceeds from recapitalisation. Investors have responded positively to our signs of turnaround with the completion of a $57 million equity raising which has seen us reset our share register and balance sheet. Underpinning our turnaround and our plans for future growth is our three year strategy. Our Eight Point Plan has been developed by Elders’ leadership and is our blueprint and goal for becoming Australia’s leading agribusiness and achieving $60 million earnings before interest and tax and 20 percent return on capital in 2017. 2014 has also been the year in which Elders celebrated its 175 year anniversary. Many people have helped build and shape Elders into the company we know today and it is timely that this year has signalled our return to what we have always done best: supporting Australian agriculture and opening up opportunities for primary producers, both domestically and overseas. Other features that will be outlined in this report are board and management renewal, our new banking facilities and our significant progress towards an injury free workforce. Financial results Elders has achieved a significant turnaround in its financial results, recording a $3 million statutory profit in the 12 months to 30 September 2014, compared with the $(505.3) million loss recorded in the previous year. The statutory result includes a number of items that are attributable to discontinued operations or unrelated to operating financial results, totalling $5.8 million. These items relate to the net impact of asset divestments during the financial year and operating losses relating to a small number of forestry leases which have been largely offset by positive tax items. The underlying profit is therefore $8.8 million, up $77.3 million on the previous year. The improved underlying profit has been achieved through an uplift in all of the Company’s business units and a 10 percent reduction in costs. Each of these areas are discussed in detail in the Chief Executive Officer’s report. These results are particularly pleasing given the seasonal and market fluctuations that are inherent in the agricultural sector. Debt reduction and finance With the support of our financiers, over the last five years Elders has worked on reducing its debt which totalled in excess of $1 billion at the commencement of the global financial crisis. In the 2014 financial year, net debt was reduced by 46 percent to $137.6 million. The Company’s term debt at 30 September 2014 was $34.1 million which has subsequently been repaid through the equity raising proceeds, received in October. 8 Safety Elders is committed to the safety of its people including staff, contractors, clients and members of public. The Elders safety statement is “we believe that nothing is so important that it cannot be done safely”. Safety performance was again a key priority for the Company during the year and the continued focus on safety has resulted in a 36.5 percent reduction in the Lost Time Injury Frequency Rate (LTIFR). The Chief Executive Officer will further outline the safety improvements made throughout the year, and whilst any improvement is commendable our safety goal is an injury and incident free workplace and we will continue to work towards this objective. Board and leadership renewal Leadership renewal has occurred at both a board and executive level which ensures the Company’s management aligns with our position as a pure agribusiness. You will see from the key management personnel table in the remuneration report on page 42 that there has been significant movement. As Chairman I am confident we have the appropriate experience and expertise at a board and executive level to implement the Eight Point Plan and create real value for all stakeholders. During the year Mr Malcolm Jackman stepped down as Chief Executive Officer and Managing Director, a role which he had held since 2008, and Ms Josephine Rozman resigned from the board, having served as a non-executive director since 2011. On behalf of the board I would like to record our appreciation for the contributions made to the company by Ms Rozman and Mr Jackman. Following Mr Jackman’s departure, then-Chairman Mr Mark Allison chaired an Executive Committee comprising all other members of the Company’s senior leadership team, pending completion of a formal executive search for a CEO successor. Concurrent with this search, two new non-executive directors, Mr James Jackson and Mr Ian Wilton, were appointed to the board in April and both bring extensive agribusiness experience and strong financial management skills to the Company. Internal and external candidates for the Chief Executive Officer and Managing Director role were examined during an extensive recruitment process conducted by an external executive search firm. The new and expanded Board concluded that Mr Allison’s extensive agribusiness and corporate strategy experience made him the best candidate and he was subsequently appointed Chief Executive Officer and Managing Director in April. In line with our commitment to reduce debt we commenced a refinancing during the financial year, which was completed in October 2014. We now enjoy the support of three core financiers, ANZ, NAB and Rabobank, and the new banking facilities comprise flexible working capital lines on normalised commercial terms suited to a focused agribusiness. The Board’s policy is for the Company to maintain minimal to zero term debt. As such the new refinance arrangement does not include any term debt facilities but instead includes a revolving working capital cash advance facility. This model is better suited to the business and the seasonal fluctuations it encounters. The modest borrowing levels are a significant achievement and without the distraction of divestment activity or high interest payments, the Company can now devote its entire focus in 2015 to being Australia’s leading agribusiness. Equity raising and shareholder value During the 2014 financial year Elders commenced a $57 million equity raising which was completed in October 2014. As mentioned above, the proceeds of the equity raising, together with the proceeds of asset sales, have been applied to debt reduction. The equity raising consisted of a $10.2 million placement to institutional and sophisticated investors and a $47 million three-for-five traditional non-renounceable entitlement offer to all eligible shareholders. We are very pleased with the interest that was shown in the equity raising and the calibre of local and offshore investors that took up the opportunity to invest in Elders. The recapitalisation of Elders provides a sound platform to generate value for all stakeholders and free of the distraction of debt reduction and divestments, the Board and management will now be totally focused on efficiency improvements, growth and improved return on capital. A question that has arisen since the equity raising is why we did not include hybrid shareholders in the offer. In undertaking the placement, the board gave due consideration to the participation of both ordinary shareholders and hybrid holders. Ultimately, the Elders Board sought to reset the Elders ordinary shareholder register by allocating shares to new high quality domestic and international institutional investors with long term investment outlooks. This allowed the Company to raise new capital and rebuild its balance sheet and normalise its banking arrangements. The Board considered this imperative in setting the appropriate capital structure and platform to create value for all stakeholders. Having now substantially addressed the Company’s debt burden, the Board and Management’s priority in the short to medium term is to direct cash flow back into reinvigorating and strengthening the business to grow earnings and returns. As a result, ordinary share dividends (and hybrid distributions) are unlikely to resume in the near term. 9 Corporate governance Your Company is committed to an unequivocal and full discharge of its corporate governance and continuous disclosure obligations. Elders’ corporate governance framework and practices are detailed in the Corporate Governance Statement commencing on page 26 of this report. Closing remarks In closing, I would like to express sincere gratitude and appreciation on behalf of directors for the hard work and dedication of our employees, the loyalty from our clients, customers and security-holders, the support of our suppliers and financiers and the faith that all other stakeholders have shown in Elders. This report includes details of the progress the Company is making towards its diversity strategy. Achieving diversity in the workplace is a critical factor in Elders attracting, retaining and leveraging a broader talent pool to most effectively deliver organisational results. Progress is being made to build diverse talent pipelines in what is traditionally a male dominated industry. Clearly further and ongoing action is required to address the representation of women in leadership roles and we have in place a Diversity Action Plan which involves a continual focus on establishing policies, processes and systems in areas such as recruitment and selection, flexible working arrangements, remuneration and leadership capability. The 2014 results reveal that Elders has established a platform from which to create value for all our stakeholders, both in Australia and overseas, and our Chief Executive Officer will outline how we plan to implement our Eight Point Plan at an operational level. As I mentioned at the start of my report, the journey to this point has been a challenging one. Elders is certainly in a much better position than it was 12 months ago with modest debt levels, a simpler and focused structure, and improvements in safety and operating performance. However, I am conscious there is still a long way to go until shareholders will view our performance as acceptable. The board is confident that the right foundation is in place to create value for its stakeholders and is committed to providing the appropriate level of guidance, oversight and support to the management team and employees in achieving this goal. I look forward to sharing our progress with you. Hutch Ranck Chairman Chairman Hutch Ranck speaks with Walcha trainee Sam Gemmell, Roma trainee Jake Smith, Chairman Hutch Ranck speaks with Walcha trainee Sam Gemmell, Roma trainee Jake Smith, Geraldton trainee Chad Golding, Clermont territory sales manager Jake Kennedy and Geraldton trainee Chad Golding, Clermont territory sales manager Jake Kennedy and Ballarat trainee Kirsty Taylor at a workshop in Albury. Ballarat trainee Kirsty Taylor at a workshop in Albury. 10 REPORT BY THE MANAGING DIRECTOR Mark Allison 2014 has been a year of significant change for Elders and the focus of management has been on four key priorities: safety performance, operational performance, leadership renewal and capital management. When I outlined those priorities as Chairman 12 months ago, Elders was still very much in survival mode. However, it was abundantly clear that a dedicated focus on these priorities at all levels of the organisation was what was needed to ensure we established a strong platform from which to create value for all stakeholders. I’m pleased to report that progress has been made against each of those four priorities and we now have that strong platform in place. Safety performance: A continued focus on safety has seen lost time injuries reduce by nearly half. This means 14 less of our people have been hurt during the year and is a good step in our journey to zero injuries. Operating performance: At the underlying profit level we have achieved a $77.3 million turnaround in performance over the previous year and all areas of the business have lifted contribution. Leadership renewal: With the appointment of two new non-executive directors we now have a board with an agribusiness focus and we have aligned our management structure with our strategy and business segmentation. Capital management: Our debt has been reduced, the completion of the equity raising in October will allow working capital to be optimised in line with seasonal and market demand and the normalised banking terms now in place set the stage for growth. 2014 has also been a year of recognising our proud 175 year history. Elders has been a part of the Australian rural landscape for generations and as current custodians of the Elders brand we owe it to our employees, clients, shareholders and all other security-holders to ensure we continue to play an important role in growing this country’s agricultural wealth and prosperity into the future. I’m confident that our current position as a focused agribusiness will assist in achieving this aim. Financial performance Elders’ improved financial performance in the 2014 financial year, incorporating a $3 million reported profit and a $8.8 million net underlying profit, is a significant highlight. All products and geographies contributed to the $8.8 million underlying profit, a $77.3 million turn- around on the previous year. This represents a strong platform to operate our business from in the future. 11 Operational results Elders’ operations contributed an underlying EBIT profit of $27.3 million, a $76.2 million improvement on the previous year’s $(48.9) million EBIT loss. This improvement was largely driven by a $13.7 million increase from Agency Services, a $30.4 million increase in Live Export Services and $28.5 million in cost savings. The major contributor in the Agency Services business was a recovery in cattle and sheep prices and volumes, driven by turnoff and live export demand. Included in the Live Export Services result is a $24.2 million balance sheet adjustment recorded in the 2013 financial year. Notwithstanding this adjustment live export still saw an improvement of $6.2 million, driven by strong demand in Asian markets. The cost savings are the result of initiatives undertaken at the end of last financial year to refocus and simplify the business. As outlined above, capital management has been a priority for the business and we have seen a 27 percent reduction in working capital usage from the previous year. A $40 million reduction was achieved through lower retail debtors and inventory levels and the divestment of non-core businesses contributed approximately $36 million. These gains offset a $12 million increase in working capital as a result of restocking the live export business. Improvements in working capital also translate to strong operating cash flows for the year, with the core business generating more than $50 million in cash flows before taking into account non-recurring restructuring and Forestry exit payments. As stated by the Chairman in his report, reducing debt levels has been a significant achievement for the Company. The proceeds from the sale of Elders New Zealand, JS Brooksbank, Charlton Feedlot, Elders Insurance, Kilcoy Pastoral, Australian Fine China and AWH were applied to debt reduction. During the reporting period we also completed our Forestry exit program which significantly reduces our commitments to approximately $2 million per annum. The Company’s operational results are outlined in further detail in the Operating and Financial Review which begins on page 15. Eight Point Plan Underpinning our ability to continue our turnaround journey is our Eight Point Plan; our strategic vision for becoming an efficient user of capital and a business that produces acceptable returns for all our stakeholders while servicing our customers’ needs. In tangible terms we have set ourselves a strategic target of $60 million EBIT and 20 percent return on capital in 2017. The Eight Point Plan was developed by more than 40 leaders from across our business who identified what we exist for, what we excel at and how we want to deliver on the needs of our clients. Through that process we were able to identify eight tangible and achievable agribusiness objectives that we feel confident we can execute over the next three years. An overview of the Eight Point Plan is available on page 5 of this report. It is not practical to outline each Eight Point Plan initiative in this report as some are still in development but I will detail some initiatives that are already underway and are likely to offer the greatest opportunity for improvement. Values, Performance and Brand In 2015 a key priority is managing the performance of our workforce to lift productivity. Underpinning a performance culture is a workforce where all employees understand what is expected of them through realistic, achievable performance objectives. To bring transparency and consistency to the performance process, for the 2015 financial year we have introduced a structured, online performance management system. This system enables us to cascade performance objectives from our Eight Point Plan into individual goals for employees, right to the front line. To support the performance process we will continue to focus on developing leadership capability throughout 2015. Geographical coverage and distribution channels By conducting a comprehensive benchmarking and branch improvement plan across our business we can identify underperforming branches and work on ways that we can lift performance, or identify a more beneficial ownership structure or geographical coverage model. We’ll also be looking at a wholesale business model, a new channel to market. Retail products In the farm supplies and fertiliser space we’re seeking to develop and implement a capital light/return on capital driven business model. This means working very closely with our supply partners to develop mutually beneficial business models. Agency services Livestock is the largest component of our business and of course there are many seasonal and market factors that can impact pricing and volumes. Our focus is therefore on managing the things we can control – like looking at ways to grow volume and share though the expansion and investment in our current people and attracting new people to our business. Redeveloping our remuneration model to make sure it rewards the high performers and drives sales performance is one way to achieve this. It will also help to realign our cost base giving us variability during times of unfavourable market conditions. 12 We’re also piloting a facility to allow our clients to access funding for trading livestock. Traditionally, this service had been funded by Elders; however, capital constraints have limited our capacity to fund it. Using a third party to facilitate this will allow for an increased turnover of trading stock. Whilst it is still in its infancy we’re seeing some promising results. Financial Services Our financial services business incorporates our distribution arrangements with Rural Bank and Elders Insurance, plus the additional joint ventures of Elders Financial Planning and Elders Home Loans. The focus for 2015 will be on continuing new business growth together with driving cross-referrals and maximising opportunities throughout the portfolio. Feed and Processing Services Developing and implementing a disciplined return on capital based feedlot capacity utilisation model will be a focus for the coming year. We also plan to explore opportunities to expand and establish integrated domestic and international red meat supply chains. Live Export Services We continue to see strong demand for live export in both long-haul and short-haul markets. The priority for 2015 will be to maintain controlled growth and to investigate opportunities in Eastern European and Middle Eastern markets. Furthermore, all agreed actions arising from the PPB Advisory investigation as outlined in the 2013 annual report have been actioned with the next step to implement an automated inventory management system. These measures ensure appropriate and robust controls and systems are in place. Cost, capital and efficiency As a seasonally-based business, it is important for Elders to have an appropriate cost and capital base to allow it to generate earnings in good and bad seasons. A number of cost-saving initiatives associated with the use of property, information technology and vehicles have been identified and a methodical and ongoing approach will be taken with regards to efficiency gains and cost reduction. Safety Safety continues to be a significant focus for our business and our ultimate goal is to be injury free. For the 12 months to 30 September 2014, Elders achieved an improvement in the Lost Time Injury Frequency Rate (LTIFR), from 7.4 in 2013 to 4.7. The number of lost time injuries (LTIs) reduced by 39.4 percent. This is a step in the right direction towards our goal, but there is still work to be done. A large component of Elders’ injuries stem from our livestock areas and manual handling branches so these areas will continue to be a focus for us going forward. In 2015, a safety communication and engagement plan will be implemented to develop an industry- leading safety culture within Elders and further reduce workplace injuries. People Elders employed 1,937 full time equivalent (FTE) persons at 30 September 2014 compared with the previous corresponding figure of 2,340 persons. The decline in headcount is attributable to the divestment of assets and the organisational restructure undertaken at the start of the financial year to assist the company in becoming a simpler, more focused agribusiness. The number of FTEs in Australia as at 30 September 2014 is 1,760. Our annual employee engagement and effectiveness survey conducted by Hay Group showed Elders’ overall engagement and enablement levels are above other Australian organisations (+3 and +6 respectively). This provides a very solid foundation upon which to build on the overall effectiveness of our workforce. Elders prides itself on investing in the training and development of its people, particularly young people in rural and regional areas. Elders’ Traineeship Program, in place since 2009, is continually reviewed to ensure it remains aligned with business, graduate and industry priorities. The current program focuses on livestock and builds stock and station agency skills over an 18 month period through on-the-job training and study of a Certificate IV in Agriculture. The traineeship program is a successful tool for building the talent pipeline as 90 percent of graduate trainees from the current model have been placed in permanent roles. Since 2012 30 trainees have graduated from the program, with another 12 trainees active in the current intake. The success of this program is reinforced by the number of applications which continue to increase with each intake. Training and development isn’t just a focus at the start of our employees’ careers. The Branch Manager Development Program has continued to build leadership capability amongst managers responsible for the individual performance of Elders branches. In 2014, 59 branch managers completed the program. As discussed by the Chairman in his report, Elders continues to work towards improving the diversity of its workforce, particularly in regards to gender diversity. The representation of women within Elders’ workforce is 35 percent which is comparable to the agricultural sector; however, the representation of women in leadership roles is lower than we desire. This is an area of specific focus that will be addressed through our Diversity Action Plan, outlined on page 35 of this report, and will be underpinned by driving cultural change throughout the organisation in order to achieve a step change in our diversity outcomes. 2015 will see a continuation of the trainee program and learning and development opportunities for employees in our business. In addition, the Company’s new online learning and performance management tools will ensure the training needs of our employees are identified, and that all employees and managers have a structured approach to managing performance, and importantly that individual goals align with the Company’s priorities. 13 Community As a focused agribusiness, Elders is a large part of rural life. Our employees live and work in the communities where we operate, whether that be in Australia, Indonesia or China, and as a company we are committed to supporting those communities. At a community level, Elders branches support local initiatives and charities and our employees participate in community service. At a corporate level, Elders supported a number of charities and non-government organisations that have relevance to our client base. Elders supports the Royal Flying Doctor Service and their work in providing medical assistance to people living, working and visiting rural and remote Australia. Elders is also a sponsor of the Little Heroes Foundation in its work to provide funding for equipment and services for seriously ill children and their families. Elders is a member of a number of industry organisations where it helps to advance the interests of agriculture and primary producers. Closing remarks As you can see, 2014 has been about establishing the foundation to create value for our stakeholders. In 2015 the focus will be on embedding the initiatives that create that value. In order for us to continue towards our goal of becoming Australia’s leading agribusiness that creates value for all stakeholders, we need to maintain our disciplined approach to running the Company. Like we did in 2014, we have again identified four key priorities that will guide the management of Elders in 2015; they are: • Safety Performance; • Operational Performance; • Key Relationships; and • Growth and Efficiency. The achievements of the past year are indeed significant so in closing, I’d like to make special mention of our people. Thank you for your dedication and hard work in helping Elders achieve its turnaround. Thank you also to our clients, suppliers, financiers and of course, our security-holders for your ongoing support during what has been a challenging period. We look forward to continuing our journey with you. Mark Allison Managing Director Managing Director Mark Allison inspects potato varieties Managing Director Mark Allison inspects potato varieties at the Adelaide Central Markets. Elders has exclusive at the Adelaide Central Markets. Elders has exclusive rights to certain potato varieties in Australia. rights to certain potato varieties in Australia. 14 OPERATING AND FINANCIAL REVIEW Elders is now operating as a pure and focused agribusiness, having completed its divestment of non-core assets. In Australia, primary producers work closely with Elders to access products, marketing options and specialist technical advice across retail, agency and financial product categories. Our feed and processing business operates a top-tier beef cattle feedlot in New South Wales, an integrated beef supply chain in Indonesia and a premium food distribution model in China. Elders also extends our service to international markets through our live export business. Elders’ vision is to be Australia’s leading agribusiness that creates value for all stakeholders in both Australian and international markets. Elders’ operations include the following product and service offerings: cash-based grain marketing options through an accumulation agreement with ADM Trading Australia. Retail Products Elders is one of Australia’s leading suppliers of rural farm inputs including seeds, fertilisers, agricultural chemicals, animal health products and general rural merchandise, backed by professional production advice. Agency Services Elders provides a range of marketing options for livestock, real estate, wool, and grain. The Elders livestock network comprises approximately 400 livestock agents and staff operating across the entire pastoral area of Australia and together they conduct on-farm sales to third parties, regular physical and online public livestock auctions and direct sales into Elders-owned and third-party feedlots and livestock exporters. Elders’ real estate agency and property management services are primarily conducted in the broadacre, rural residential and livestock property markets through its rural branches and real estate offices. Residential and metropolitan real estate services are mostly conducted through Elders’ network of 144 franchise offices. Elders is one of the largest agents for the sale of Australian greasy wool and operates a brokering service for wool growers. Our team of dedicated wool specialists assist clients with wool marketing, in-shed wool preparation, ram selection and sheep classing. Elders offers grain growers a range of Financial Services Elders distributes a wide range of financial services through its Australian network. Our banking and insurance activities are undertaken in partnerships with Rural Bank and Elders Insurance (a QBE subsidiary) respectively, whilst Elders Financial Planning is facilitated through a joint venture. Collectively they facilitate a broad spectrum of activities from various banking products such as deposits, loans, seasonal finance and livestock trading facilities; and financial planning products such as succession planning, risk management, and superannuation and wealth creation. Feed and Processing Services In Australia, Elders operates a beef cattle feedlot near Tamworth in New South Wales. In China, Elders imports and distributes premium Australian products throughout China and operates an integrated feedlot, abattoir and meat distribution business in Indonesia. Live Export Services Elders exports live dairy, feeder, slaughter and breeding cattle and breeding sheep to well-developed and, where relevant, ESCAS approved, supply chains in a range of international markets. Livestock are transported by sea or air freight depending on the market requirements. 15 2014 2013 1,431.5 1,422.1 Change 9.4 51.0 4.6 5.1 (33.4) 27.3 (15.7) 11.6 (1.1) (1.7) 8.8 (5.8) 3.0 2014 107.9 117.9 25.8 15.3 11.7 (251.3) 27.3 2014 19.3 36.3 15.4 6.2 (49.9) 27.3 15.6 4.2 (27.5) (41.2) (48.9) (15.8) (64.7) (1.8) (2.0) (68.5) (436.8) (505.3) 2013 106.1 104.2 25.8 13.5 (18.7) (279.8) (48.9) 2013 13.1 17.4 9.6 (25.8) (63.2) (48.9) 35.4 0.4 32.6 7.8 76.2 0.1 76.3 0.7 0.3 77.3 431.0 508.3 Change 1.8 13.7 (0.0) 1.8 30.4 28.5 76.2 Change 6.2 18.9 5.8 32.0 13.3 76.2 Financial Overview Profit: Reported and Underlying $m 12 months ended 30 September: Sales Underlying EBIT: Australian Network Feed and Processing Live Export Corporate Services Underlying EBIT Net underlying finance costs Underlying profit/(loss) before tax Tax on underlying profit/(loss) Non-controlling interests Underlying profit/(loss) to shareholders Items excluded from underlying profit/(loss) Reported profit/(loss) after tax to shareholders Underlying EBIT by Product $m 12 months ended 30 September: Retail Products Agency Services Financial Services Feed and Processing Services Live Export Services Costs Underlying EBIT Underlying EBIT by Geography $m 12 months ended 30 September: Northern Australia Southern Australia Western Australia International Functional and Technical Underlying EBIT 16 The statutory result included a number of items that are either attributable to discontinued operations or unrelated to operating financial results. Measurement and analysis of financial results excluding these items is considered to give a meaningful representation of like-for-like performance from ongoing operations (“underlying profit”). Items excluded from underlying profit Underlying profit is a non-IFRS measure and is not audited or reviewed. Items excluded from underlying profit are: $m after tax 12 months ended 30 September: 2014 Explanation of items AWH divestment Other divestments Forestry related Tax Other Items excluded from underlying profit Underlying Profit Underlying profit by product $ million (16.5) Net impact on divestment of AWH Net impact of other divestments during the year Relates to operating losses for the period Reassessment and recognition of previously impaired tax balances on temporary differences based on Elders improvement in profitability (1.0) (2.1) 15.6 (1.8) (5.8) 0.1 1.0 8.8 Product margin 28.5 (68.5) 0.0 1.8 13.7 1.8 6.2 24.2 FY13 Retail Products Agency Services Financial Services Feed & Live Export SG&A Interest Tax & NCI FY14 Processing Services Services Elders improved underlying profit by $77.3 million from a loss of $68.5 million in FY13 to a profit of $8.8 million in FY14. This significant improvement resulted from: • Retail Products: Despite a very hot and dry start to the financial year, solid autumn rainfall provided a positive start to the winter cropping season in Southern and Western Australia. This provided farmers with confidence to sow their full winter seeding program. The Northern zone remained dry with reduced demand for farm inputs in 2014. In addition, benefits were also realised through reduced warehousing and freight costs from decentralisation of retail management. • Agency Services: FY14 saw strong performance by Livestock and Real Estate agency businesses. Strengthening of sheep and cattle prices and volumes through drought induced turnoff and robust live export demand contributed to improved earnings across all zones. • Financial Services: Earnings from Banking distribution has remained steady with significant new lending levels offsetting strong seasonal inflows to existing clients across southern Australia and a generally subdued Northern market. • Feed and Processing Services: Uplift from improvement in Killara occupancy, offset by lower margins from Indonesia due to increasing competitive pressures. • Live Export Services: There was strong demand from short and long haul destinations in FY14. In addition, $24.2 million of improvement relates to balance sheet adjustment in FY13. • Costs: Costs have reduced by 10% through benefits realised from the FY13 restructure. Savings have been made through decentralisation of retail management, restructure of network and corporate support and continued focus on discretionary spending. 17 Cash Flow Cash Flow $m 12 months ended 30 September: 2014 2013 Change Operating cash flow 15.1 (81.6) 96.7 Investing cash flow 93.7 84.6 9.1 Financing cash flow (126.2) (55.1) (71.1) Highlights from FY14 operating cash flows are: • $69.0 million cash flow generation from core Elders business. This was partly driven by lower working capital levels and a stronger bias in less capital intensive revenue streams in the Agency segment. • $18.9 million outflows relating to payments for interest and tax offset by dividends received from investments. Total cash flow (17.4) (52.0) 34.7 • $14.7 million outflows associated with restructuring 2014 operating cash flow $ million 69.0 (18.9) (14.7) (20.4) Operating EBITDA Interest, Restructuring Forestry tax and and working dividends capital 15.1 Operating cash flow initiated in FY13. • $20.4 million outflows associated with the discontinuing Forestry operation. This includes lease, grower and redundancy payments made during the year. A small number of rural property leases, with varying maturities, remain with an annual aggregate lease and cost payments of approximately $2 million per annum. Cash flow of $93.7 million from investing activities mainly relates to proceeds from disposal of non-core assets during the year. These proceeds were used to repay term debt. Financing cash flows also include $22.7 million outflow resulting from lower working capital facilities usage, offset by $10.2 million placement proceeds from capital raising completed in September 2014. Balance Sheet Balance Sheet: key items $m as at end: Inventory Livestock Trade and other receivables Trade and other payables Working capital Investments Provisions Borrowings: term debt Borrowings: working capital and other facilities Debt related financial derivatives Cash and cash equivalents Net debt Shareholders' equity Sep 14 84.8 41.1 302.1 (249.6) 178.4 7.1 (47.1) (34.1) (126.1) - 22.5 (137.6) 57.0 Sep 13 116.3 36.7 345.4 (255.1) 243.3 82.2 (81.5) (143.8) (150.9) (0.4) 39.9 (255.2) 46.2 Change (31.5) 4.4 (43.3) 5.5 (64.9) (75.1) 34.4 109.7 24.8 0.4 (17.4) 117.6 10.8 18 Working capital Net debt Working capital has decreased 27% from last year. Main reasons for the decrease are: • Reduced Retail working capital usage by $40 million through lower debtors and inventory. • Divestment of non-core businesses during the year reducing working capital by approximately $36 million. • Offset by $12 million increase in Live Export working capital with the restocking in this business during the year. Investments During the year, as part of the non-core asset divestment strategy, Elders has successfully divested its investments in Kilcoy Pastoral, AWH, Elders Insurance and Australian Fine China; and disposed of its Charlton feedlot, New Zealand network and wool trading businesses. The non-core asset divestment program is now completed. Provisions Reduction in provisions during the year were for payments relating to the Forestry exit program and project Horizon restructure announced in 2013. Pro-forma Balance Sheet $m as at end: Cash and cash equivalents Other assets Total assets Borrowings: term debt Borrowings: working capital and other facilities Other liabilities Total liabilities Issued capital Other equity Total equity Gearing Net debt as at 30 September 2014 of $137.6 million is lower by $117.6 million (46%) from last year. This has been driven by the amortisation of debt using proceeds from divestment activities. Remaining term debt of $34.1 million has subsequently been repaid through recapitalisation proceeds received in October 2014, resulting in a pro-forma drawn net debt of $92.6 million at balance date. Elders completed its refinance on 21 October 2014. The new finance package comprises $308 million working capital facilities with zero term debt. Shareholders’ equity Elders undertook a capital raising in September 2014 with a $10.2 million placement and $47.1 million 3-for-5 shares non-renounceable entitlement offer. The placement was completed prior to year end with the net proceeds of $9.8 million recorded in shareholders’ equity at balance date. New shares for the entitlement offer, with net proceeds of $45.0 million, were issued post balance date on 14 October 2014 and have not been reflected in equity. Pro-forma balance sheet reflecting the receipt of the entitlement offer proceeds as at 30 September 2014 is as follows: Sep 14 Entitlement offer Pro-forma Sep 14 22.5 492.5 515.0 (34.1) (126.1) (297.9) (458.0) 1,277.8 (1,220.8) 57.0 241% 11.0 - 11.0 34.1 - - 34.1 45.0 - 45.0 33.5 492.5 526.0 - (126.1) (297.9) (424.0) 1,322.8 (1,220.8) 102.0 91% 19 Operational Review Retail Products 1. Workplace Health, Safety and Environmental Performance Regulation 1.1 Workplace Health and Safety Safety has been identified as the most important operational priority for the business, with an aspirational goal of a zero injury workplace. During the year, there were 20 lost time injuries reported in the business, down from 33 in the prior year. In March, Elders conducted its first national safety survey to gauge the safety culture in the business. The results of this survey were prioritised and will be used to improve poor performance and benchmark future surveys. 1.2 Environmental Performance Regulation Elders’ operations are subject to a range of environmental legislation across the areas in which it operates. Detail of Elders’ performance in relation to the various regulations and our operations are as follows. Elders’ retail operations are subject to state environmental regulations governing the storage, handling and transportation of dangerous goods such as agricultural and veterinary chemicals and fertilisers. The majority of Elders’ retail operations are accredited under the Agsafe co-regulatory accreditation program. The program provides accreditation for premises and training and accreditation for individuals in the safe transport, handling and storage of agricultural and veterinary chemicals. The regulatory environment for the transporting, handling, storage, sale and use of dangerous goods and chemicals is complex and subject to the legislation and regulatory oversight separately applied in each state or territory. Agsafe provides assistance through the provision of accredited training and safety programs. No material incidents were reported in relation to the handling and storage of dangerous goods during the year or to the date of this report. Feedlots Live Export Services Elders operates a feedlot in Killara (New South Wales) having divested its Victorian feedlot at Charlton in July 2014. Feedlots are subject to local and state government environmental as well as animal welfare legislation, and are subject to a quality assurance program under the National Feedlot Accreditation Scheme (NFAS). The NFAS is independently administered and audited annually by Aus-Meat. In addition, the operations are conducted under the provisions of the Australian Model Code of Practice for the Welfare of Animals – Cattle (2004). No breaches of any relevant Act, code of practice or accreditation scheme under which Killara or Charlton feedlots are approved and operate were reported during the year ended 30 September 2014 or to the date of this report. Saleyards Saleyards owned and/or operated by Elders are subject to various State, Territory and local government regulations particularly in relation to effluent management, dust and noise. These regulations vary from state to state and generally only apply to saleyards above a prescribed size. No breaches of these environmental regulations were reported during the year ended 30 September 2014 or to the date of this report. Elders is engaged in the export of cattle to international markets, namely the supply of feeder and slaughter cattle in Indonesia and Vietnam as well as long haul live export of dairy and breeding cattle to distant markets seeking to supplement their local herds. All live export operations are subject to Australian Government regulation and standards including: • The Australian Standards on the Export of Livestock (ASEL version 2.3) which provides comprehensive and detailed standards on the sourcing, preparation, management and transportation of livestock through the supply chain to the point of disembarkation, including various aspects relating to the environment. • The Exporter Supply Chain Assurance System (ESCAS) which requires exporters to demonstrate they have control and traceability throughout the supply chain to the point of slaughter in the destination country. Other than minor breaches of ESCAS self-reported by Elders (and in connection with which no action was taken by regulators), no breaches of regulatory or legislative environmental requirements were recorded by Elders’ live export operations in the year to 30 September 2014 or to the date of this report. 20 2. Operational Review 2.1 Retail Products Retail Products Margin 107.9 Gross margin for Retail increased by 2% in FY14. 106.1 The Retail product had a slow start for the remainder of calendar year 2013 with very dry weather conditions across Australia. Lack of weed and disease pressure over summer resulted in decreased demand for agricultural chemicals. Livestock turnoff in the North also reduced the demand for animal health inputs during this period. Good rainfalls in late autumn and winter provided a solid start to the winter cropping season in the West and South zones. This allowed farmers in the area to sow their full program, improving fertiliser and seed sales. Dry conditions through summer and winter in the cropping areas of Queensland and Northern New South Wales continue to subdue sales and margin in the North. A lack of water allocation and rainfall resulted in lower than average cotton and sorghum plantings this year. Strategy To improve the business model of our farm supplies and fertiliser products. Strategy Plan Capital light • Review business model • Rationalise product lines Focus on return on capital • Improve margin controls • Renegotiate supplier terms FY13 FY14 Margin by Product Debtor Interest 5% Fertiliser 19% Farm Supplies 76% Margin by Geography West 20% North 37% and purchase models South 43% 2.2 Agency Services Agency services delivered a significant improvement from FY13 with an increase in earnings of 13%. This was predominantly attributable to recovery of sheep and cattle prices during the financial year driven by strong live export demand. Livestock volumes also increased with dry weather turnoff and increased supply to international markets. Livestock contributed an increase of $14.3 million in earnings for the year. Real Estate earnings remained stable during the year, with good economic conditions having a positive impact on consumer confidence in the rural and residential property markets. Wool clip size continued to decline, impacted by dry conditions and increased slaughter rates. Price was also softer, particularly for finer wools, resulting in a $1.3 million decline in earnings compared to last year. Strategy To strengthen and expand our wool, livestock, real estate and grain products. Strategy Plan Operating model • Development and implementation Agency Services Margin 117.9 104.2 FY13 FY14 Margin by Product Grain 2% Wool 13% Real Estate 23% Livestock 62% of innovative and mutually beneficial operating models across all products Margin by Geography Recruitment • Develop strategies to retain high performing staff • Identify and recruit for talent gaps across products West 14% North 35% Remuneration • Development and implementation of an innovative and mutually beneficial remuneration model South 51% 21  2.3 Financial Services Financial Services Margin Financial services generated steady earnings in FY14. The significant investment in our banking team in recent years saw excellent results with a strong uplift in new lending activities. Whilst the loan book increased only marginally, the new business result in fact has been critical in maintaining the loan book as strong seasonal returns across southern Australia saw significant reductions of existing borrowings as clients consolidated their positions. Strategy To strengthen and expand our banking, insurance and financial planning products. Strategy Plan Operating model • Refine long term joint venture agreements • Develop and implement innovative operating models Recruitment • Development of our teams, 25.8 25.8 FY13 FY14 Margin by Product Insurance and Financial Planning 18% Banking 82% identifying gaps and opportunities as they may arise Margin by Geography Cross referrals • Review current capability West 25% North 29% and develop cultural shift in this area South 46% 2.4 Feed and Processing Services Feed and Processing Services Margin The Killara feedlotting business saw an improvement in performance compared to FY13. Dry conditions drove larger numbers of cattle into the feedlot system, which was well supported by strong export demand. Higher occupancy at Killara feedlot increased overhead efficiencies which in turn resulted in better margins. Killara experienced a 26% improvement in margin for the year. In Indonesia, favourable market and trading conditions from last year have continued to buoy the demand for beef. However, prices have fallen as supply constraints have eased, resulting in a lower margin of $1.1 million in FY14. Strategy To improve and expand our feed and processing business. Strategy Plan Robust systems • Build capability of management team • Operational excellence review of processes and systems • Optimise existing business model • Consider alternative asset ownership options • Investigate demand and opportunities for integrated supply chain domestically and in Asia Return on capital focus Integrated red meat supply chain 22 13.5 15.3 FY13 FY14 Margin by Product China 15% Killara 54% Indonesia 31% Margin by Geography China 15% Australia 54% Indonesia 31%  2.5 Live Export Services Live Export Services Margin Included in margin improvement for live export services is the impact of the negative $24.2 million balance sheet adjustment recorded in FY13. Notwith- standing this adjustment, live export still saw an improvement of $6.2 million in FY14. Short haul volumes rose by 87% as a result of Indonesia ending its volume-based import quota restrictions in September 2013. Earnings improved by $2.0 million with supply competition leading to lower margin per head. Demand for breeding cattle continues to remain strong, particularly diary heifers from Australia and New Zealand for Chinese milk production and herd building. This contributed to higher margins in the long haul business. Strategy To maintain controlled growth of our live export business. Strategy Plan Robust systems • Build capability of management team • Improve inventory management system Return on capital focus • Thorough evaluation and approval of live export contracts prior to execution (18.7) FY13 5.5 FY13 excluding balance sheet adjustment 11.7 FY14 Margin by Product Long Haul 62% Short Haul 38% Margin by Geography Other 17% Indonesia 33% Customer satisfaction New markets • Develop shipment based customer satisfaction reviews • Comprehensive investigation into growth opportunities for Eastern European and Middle Eastern markets China 50% Outlook The future financial performance of Elders will, as always, be subject to the influence of seasonal, market and international trade relation factors that affect the Australian farm sector. At the date of this report, the following conditions are forecast: • Retail Products: ° Dry spring and summer conditions for most of Australia ° Assume average winter cropping season • Agency Services: ° Upward pressure on cattle prices with tightening supply and robust global demand ° Increase in sheep flock to support export demand ° Positive real estate activity driven by local and foreign investment ° Wool volumes easing driven by weaker pricing and the continuation of high slaughter rates • Financial Services: Continued uplift in activity within the Banking business and development of long term strategic agendas with joint venture businesses • Feed and Processing: Feedlot well utilised and growing demand for meat in Indonesia and China • Live Export: Strong demand for live cattle and sheep from Indonesia, Vietnam and China. Material Business Risks Elders is committed to developing a culture where risks that could affect our people, shareholders’ value, community, environment, reputation, operating assets, financial and legal status, or prevent the achievement of our objectives are identified and actively managed. The Board is responsible for oversight of the risk management framework. Executive management has responsibility for applying the framework, and is accountable to the Board and Board Audit, Risk and Compliance Committee for designing, implementing and monitoring the process of risk management and integrating it into the day-to-day activities of the business. All Elders’ people are responsible for identifying and managing risks in their areas of responsibility. A range of strategic, operational and financial risks are outlined below. The risks noted are not exhaustive and are in no particular order. Strategic Risks • Reputation and brand: Elders has over 175 years of tradition and the brand is important to the success of the business. General performance issues and other factors could lead to Elders’ capabilities and credibility being diminished or lost amongst our key stakeholders. Key stakeholders include employees, clients, shareholders, rural and regional communities, bankers, investors, suppliers, politicians and regulators. This is managed through marketing activities, brand guidelines, client monitoring and disclosure committee. • Political: The Australian political system, although stable, has regular election cycles that can result in changes in macro policy settings such as climate change, industrial relations and free trade. Elders also operates in a number of foreign jurisdictions where the local political risk can affect business operations. 23 • Seasonal Weather Conditions: Uncharacteristically high or low rainfall and temperatures can affect our business. Natural events, caused or affected by weather, such as frost, drought, flood and fire can also have impacts. Such conditions can influence the demand for rural products and services provided by Elders, resulting in varied revenue levels. To limit the impact of the above risks Elders maintains both a geographical spread of operations and a diverse product and service range. Financial Risks • Working Capital: Elders’ operations are subject to a level of working capital volatility against budget which may result from seasonal weather conditions, commodity price fluctuations or variations in the time taken to convert short term assets into cash. Elders classifies this risk as liquidity risk. Liquidity risk is mitigated by a range of management practices including prudent working capital management, active liquidity management and daily cash flow forecasting. • Capital: Elders’ ability to operate its business and effectively implement its strategic plan over time will depend in part on its ability to meet the terms of its financing agreement and maintain ongoing securitisation arrangements. Elders completed a refinance in October 2014 and believes that the new financing facilities provides sufficient capital to grow our business in line with the Eight Point Plan. • Credit risk: Elders grants credit to approved counterparties to allow them to purchase goods and services from us and may be exposed to losses associated with a client’s inability to repay debt. This risk is managed by maintaining policies and procedures, oversight by Credit Committee, stringent debtor monitoring and reporting, trade credit insurance in place for major debtor processors, and high level reviews of significant credit issues by the CEO and CFO. • Fraud: Fraud is defined as some form of deceit, theft, trickery, false statements, breach of trust and guilty intention with the object of obtaining money or other benefit. Elders is not only exposed to traditional financial fraud, but also to the potential misrepresentation of goods and services. Elders has in place Code of Conduct, compliance policies, procedures and training, reconciliations process, management representation process and Internal Audit program to manage the risk of fraud. • Market: The performance of Elders is influenced by the business’ ability to respond to changes in financial market conditions. This includes movements in financial markets, including foreign exchange, commodity prices and interest rates. Prices of agricultural commodities fluctuate and are affected by a variety of regional and global factors that are beyond the control of Elders. Elders manages Market Risk through the Treasury Department, Financial Risk Management Policy, monitoring of agribusiness indicators and establishment of governance committees. • Taxation: There are four main areas of tax risk: strategic, operational, compliance, and financial. Tax risks are managed by the tax department in accordance and application of the tax risk management policy and philosophy. • Workforce Capability: The attraction and retention of skilled and engaged staff can be affected by competition, shortage of skilled people within industry and ability to engage people during periods of change. Elders actively manages the ongoing development of capability and leadership through workforce planning and a range of formal and informal development activities. Operational Risks • Safety: Safety risk is inherent in Elders’ business activities. The safety of Elders’ people, clients and the general community is our number one priority. Elders has a safety strategy in place to drive continuous improvement and compliance with safety management system. • Livestock Inventory: The nature of Elders’ live export activities includes risk associated with inventory management, leading to an accounting discrepancy in 2013. The business is currently reliant on a number of manual and interim controls, and a whole of Live Export business review is underway to improve systems and processes. Implementation of an end-to-end livestock inventory and traceability system has been approved and will be completed by 2015. • Live Export: Adverse market conditions created by the quantity and/or quality of stock available impacting upon our forward bought / sold position thus creating a price exposure. Government intervention can also influence the Live Export business. Controls for this risk include effective supply chain relationships, regular contract reviews with suppliers and customers, and maintaining ongoing relationships with regulators. • Retail: Elders is involved in a number of key parts of the supply chain within its Retail business. To manage supply chain risks, Elders maintains effective relationships with our suppliers and ensures inventory levels in our branches are actively monitored and are a measurable target for management. • Business Systems: Current business systems are custom written, purpose built applications. These applications are serviceable, but require continued investment to keep pace with the commercial applications that leverage large customer bases and new technologies, and drive functional improvements to the user base. • Legal and Regulatory: Elders operates nationally and internationally and is therefore impacted by various pieces of legislation. Risk arises from the potential of breach of legislation, or failure to abide by contracts/ licences. Elders’ compliance framework supports management in the maintenance of these obligations. • Biosecurity: An outbreak of a systemic animal or plant disease can lead to quarantine conditions in rural Australia and reduce producers’ need for goods and services or affect their ability to operate. To limit the impact, Elders has in place employee training and disease management protocols. Elders also has a business continuity framework in place to respond to the risk of disruption. • Business Interruption: A significant event or incident could affect core operations, including weather event, IT security threat, activist attack, loss of shipping or transport, etc. Elders has established a business continuity framework including crisis management, emergency response and disaster recovery. The aim of the framework is to minimise the extent and duration of any disruption or impairment of services and supply to Elders and our clients. 24 BOARD OF DIRECTORS Mr James Hutchison (Hutch) Ranck, BS Econ, FAICD Mr Mark Charles Allison, BAgrSc, BEcon, GDM, FAICD Mr James Andrew Jackson, B Com, FAICD Mr Ian Wilton, FCPA, FAICD, FCCA (UK) Age 66 – Appointed Chairman in April 2014. Non-executive director of the Board since June 2008. He is also Chairman of the Work Health and Safety Committee and the Nomination and Prudential Committee, and a member of the Remuneration and Human Resources Committee and the Audit, Risk and Compliance Committee. Hutch retired as Managing Director of DuPont (Australia) and Group Managing Director of DuPont ASEAN in May 2010. In his 31 years with DuPont Hutch led businesses in ANZ and Asia Pacific in Agriculture, Pharmaceuticals, and Industrial Chemicals. In the last 10 years Hutch served as a director in a variety of companies and organisations including, The Business Council of Australia, an Australian Government Statutory Authority – APVMA, The Chemical and Plastics Association – PACIA, and The Crop Chemical Association – Crop Life. From 2000 until 2010 Hutch was a member of the Prime Minister’s Science, Engineering and Innovation Council – PMSEIC. Currently Mr Ranck is a director of Iluka Resources and the CSIRO. Mr Ranck is a resident of New South Wales. Age 53 – Appointed Chief Executive Officer and Managing Director in May 2014. He has extensive experience spanning 30 years in the agribusiness sector. He is a former Managing Director of Wesfarmers Landmark Limited and Wesfarmers CSBP Limited and executive director of GrainGrowers Limited. Prior to his appointment at Wesfarmers in 2001, Mr Allison held senior positions with Orica Limited as General Manager of Crop Care Australasia and with Incitec Limited as General Manager – Fertilisers. Between 1982 and 1996 Mr Allison performed a series of senior sales, marketing and technical roles in the Crop Protection, Animal Health and Fertiliser industries. Mr Allison was the Managing Director of Makhteshim Agan Australasia Pty Ltd from 2005 to 2007 and Managing Director and Chief Executive Officer of Jeminex Limited from 2007 to 2008. Mr Allison is a resident of South Australia. Age 52 – Non-executive director and Deputy Chairman of the Board since April 2014. He is also Chairman of the Remuneration and Human Resources Committee and a member of the Work Health and Safety Committee, the Audit Risk and Compliance Committee and the Nomination and Prudential Committee. Mr Jackson has more than 25 years experience in capital markets and agribusiness, both in Australia and overseas. He held a Senior Vice President role with investment bank SG Warburg (now part of UBS) in New York and was a director of MSF Sugar Limited from 2004 to 2012, including being Chairman from 2008. He is currently Chairman of Australian Rural Capital Limited. Mr Jackson owns and operates a beef cattle enterprise in northern New South Wales and is a resident of New South Wales. Mr Jackson brings strong skills and knowledge in capital markets, agricultural production and supply chains, corporate governance, corporate and financial strategy and hands on experience in the rural agency business. Age 62 – Non-executive director of the Board since April 2014. He is also Chairman of the Audit, Risk and Compliance Committee and a member of the Work Health and Safety Committee, the Nomination and Prudential Committee and the Remuneration and Human Resources Committee. Ian Wilton is a Certified Practising Accountant with senior executive experience across the agricultural sector. He has held Chief Financial Officer positions with the sugar division of CSR Limited, Ridley Corporation and GrainCorp Limited and was President and Chief Executive Officer of GrainCorp Malt. Mr Wilton is currently Chief Financial Officer for Allied Mills Pty Limited, a joint venture between GrainCorp Limited and Cargill. Mr Wilton is a resident of New South Wales. Company Secretaries Mr Peter Gordon Hastings BA LLB GDLP Mr Hastings was appointed Company Secretary in February 2010. He held the position of Group Solicitor with the Elders Group between 1995 and 1999 and again between 2003 and 2010, and has held the position of General Counsel since February 2010. Ms Nina Margaret Abbey Ms Nina Abbey was appointed joint Company Secretary on 20 February 2014. She also holds the position of Head of Risk and Assurance, since August 2012. 25 CORPORATE GOVERNANCE STATEMENT This corporate governance statement summarises the key elements of the Company’s governance framework and practices. The Company continues to maintain a robust governance framework and comply with the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations 2nd Edition (ASX Recommendations). The Board strongly believes that the governance arrangements in place for the Company are effective but, because governance practices are dynamic, remains committed to building on the existing framework through regular review. As an example, mindful of the absolute need for ethics and integrity in business, the Board has continued to enhance the Company’s Code of Conduct. This Corporate Governance Statement reflects those governance arrangements, including updates made through the year, and describes the current policies and practices of the Company since the Board’s last report to shareholders. A comparison of the Company’s governance practices with the ASX Recommendations appears on our website at www.elderslimited.com along with other complementary information such as key policies and charters discussed in this governance statement. On 27 March 2014, the ASX Corporate Governance Council released the 3rd Edition of the Corporate Governance Principles and Recommendations which take effect for a company’s first full financial year commencing on or after 1 July 2014. The Company notes that it will adopt the 3rd Edition in its next financial year commencing 1 October 2014. 1. Board Structure and Operation Relevant policies and charters: – Board Charter − Company Constitution − Prudential Criteria − Director Independence Policy − Board Performance Assessment − Director Induction and Ongoing Education The Board The Board is ultimately responsible for the governance of the Company. The key responsibilities of the Board include: • provide input into, and adopt, the strategic plan and budget of the Company as prepared by management; • monitor performance against the business plan and budget; • approve and monitor the progress of all material acquisitions, divestments, contracts and capital expenditure; • approve debt or equity raisings by the Company; • oversee the audit, compliance, financial and operational risk management functions of the Company; • oversee the Company’s financial reporting and communication to the Company’s shareholders and the investment community and shareholder- relations generally; • appoint and remove the Chief Executive Officer (CEO) and determine that person’s remuneration (including termination benefits); • review the performance of the Board as a whole and of individual directors; and • monitor and assess the performance of the CEO and the Company’s senior executive team. 26 The Board has adopted a Board Charter that, in addition to the above main responsibilities, defines those duties reserved for the Board and its Committees and those that are delegated to the CEO. The Board delegates responsibility for the day-to-day operation and administration of the Company to the CEO, Mr Mark Allison. The Board monitors the CEO’s performance on an ongoing basis through regular management reporting and through the reporting of the various Board Committees. The Company has in place comprehensive Delegations of Authority under which the CEO and executive management operate. The Board regularly reviews the obligations set out in the Board Charter and the Delegations of Authority. The Chairman The Board Charter prescribes that the Chairman of the Board should be an independent director and details his responsibilities. Hutch Ranck was elected Chairman on 1 May 2014 having replaced Mark Allison who was appointed CEO on the same day. Mr Ranck is a non-executive and has been determined by the Board to be independent. The Chairman’s role includes: • providing effective leadership to the Board in all Board matters; • publicly representing the Board’s views to stakeholders; • promoting effective relations between the Board and management; • leading the process of review of the performance of the Board, Committees and individual directors; • guiding the setting of agenda items and conduct of Board and shareholder meetings; and • overseeing succession of non-executive directors and the CEO. Board Composition The composition of the Board is determined by the Company’s Constitution and by Board policy, which includes the following requirements: • the number of directors may not be less than 3 and not more than 12; • the majority of directors must be independent non- executive directors; • the Chairman should be an independent director; and • the Board be comprised of directors who are financially literate and who together have an appropriate mix and depth of skills, experience and knowledge. There are currently four directors on the Board, comprising three non-executive directors and the CEO. The qualifications, experience, special responsibilities and period of office of each director can be found on page 25 of this report. FY14 saw several changes to Board membership. Malcolm Jackman resigned as CEO and Managing Director on 27 November 2013. Mark Allison resigned as Chairman and was appointed CEO on 1 May 2014. Hutch Ranck was elected Chairman on 1 May 2014. Josephine Rozman retired as a non- executive director on 25 March 2014 and two new non-executive directors, Ian Wilton and James Jackson, were appointed to the Board on 13 April 2014. Appointment of Directors and re-election The composition of the Board is reviewed on an annual basis coinciding with the Annual General Meeting (AGM) cycle to ensure that the Board has the appropriate mix of expertise and experience. At each AGM of the Company, one third of directors (other than the managing director and directors who have been appointed since the previous AGM) and any other director who will at the conclusion of the meeting have been in office for 3 or more years and AGMs since they were last elected to office are required to retire and may stand for re-election. There were no directors obliged to retire under this rule in financial year 2014. When a vacancy exists, or when it is considered that the Board would benefit from the services of a new director with particular skills, the Nomination and Prudential Committee selects candidates with appropriate expertise and experience for consideration by the full Board. The Committee also takes into account the prudential criteria and may seek advice from external consultants if necessary in selecting candidates for board positions. The Board then appoints the most suitable candidate who must stand for election at the next general meeting of shareholders and re-election at three yearly intervals. Both non-executive directors Ian Wilton and James Jackson having been appointed since the last AGM will stand for election in 2014. Formal letters of appointment setting out key terms and conditions of appointment are in place for all directors. Fit and Proper Person Policy The Company continues to adopt and comply with its fitness and propriety regime given its distribution arrangements with Rural Bank Limited (a prudentially regulated Authorised Deposit Taking Institution) and its two Australian Financial Services Licences, which ensures a robust selection process for directors generally consistent with the standards set by APRA. The criteria set down in the Company’s Fit and Proper Policy are available on the Company’s website at www.elderslimited.com. The Company’s Fit and Proper Person Policy and process provide the Company with assurance that existing and potential directors and persons appointed to senior executive positions within the Company are able to satisfy appropriate fitness and propriety standards that will enable them to discharge their governance responsibilities throughout the term of their appointment. Director Induction and Training All new directors are given a detailed briefing on key board issues, including appropriate background documentation coordinated by the Company Secretary and by the CEO on the nature of the Company’s business and its key drivers. Directors undertake training and development on an “as needs” basis. Directors are also regularly briefed on the Group’s businesses and on industry, technical and legislative issues impacting the Group. Directors aim to have at least one meeting a year in conjunction with a tour of one of the Company’s operations. At all other times, non-executive directors are encouraged to visit the Company’s operations. In FY14, directors conducted board meetings (outside of its traditional Adelaide head office) at several of the Company’s branches and client operations in Western Australia. 27 Director Independence Company Secretary The Company has adopted an Independence Policy that is published on the Company’s website. The Policy states that the majority of the Board must comprise independent directors. The Company Secretary is accountable to, and reports directly to, the Board (through the Chairman where appropriate) on all governance matters. All Directors have unfettered access to the Company Secretary. In determining whether or not a director is considered independent, the Board will have regard to whether the director: The Board is supported in governance and administration matters by the Company Secretary. During the financial year, Nina Abbey was appointed Joint Company Secretary. • is a substantial shareholder in the Company; • within the last 3 years, has been an employee of the Company, a material adviser to the Company or a principal or employee of any material adviser to the Company; • is a material supplier to, or a material customer of, the Company; • is directly or indirectly associated with any of the above persons; • is otherwise free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Company; and • is of independent character and judgment. Materiality is assessed on a case-by-case basis, taking a qualitative approach rather than setting strict quantitative thresholds from the perspective of both the Company and the relevant director. Each of the current non-executive directors is considered by the Board to be independent. Access to Management and Independent Professional Advice All directors have complete access to senior management through the Chairman, CEO and Company Secretary at all times and may seek information from the Company’s External and Internal Auditors provided that all such enquiries are first advised to the Chairman and the CEO. Directors may obtain independent, professional advice, at the Company’s expense, on matters relevant to the Company’s affairs to assist them in carrying out their duties as directors, subject to providing prior notice to the Chairman. Board meetings During the financial year, Directors held 20 Board meetings. The attendance of Directors at Board meetings is set out in the table on page 29. Where directors are unable to attend meetings either in person or by telephone (e.g. if they are overseas) the Chairman or the CEO endeavours to canvass their views on key matters prior to the meeting in order to represent their views at the meeting. The CFO has a standing invitation to attend all Board meetings with relevant senior executives and management invited on occasion to give presentations and inform the Board of important issues and developments within their area of responsibility. The Chairman sets the agenda for each meeting, in conjunction with the Company Secretary and CEO. All directors are welcome to suggest to the Chairman that particular items of business be included in the agenda. Standing items at all full scheduled Board meetings include Non-Executive Director only and Non-Executive Director and CEO only sessions. Papers are distributed to all Directors in advance of the meetings. 2. Board Committees Relevant policies and charters: − Nomination and Prudential Committee Charter − Remuneration and Human Resources Committee Charter − Audit, Risk and Compliance Committee Charter − Work Health and Safety Committee Charter Board Performance Assessment Purpose The Board reviews its own performance and that of its Committees on an ongoing basis. The Chairman also holds individual discussions with each director to discuss their performance on a needs basis. The non-executive directors are responsible for evaluating the performance of the CEO, who in turn evaluates the performance of all other senior executives. The evaluations are based on specific criteria, including the Company’s business performance, whether long-term strategic objectives are being achieved and the attainment of individual performance objectives. A formal review was not conducted in FY14 due to the restructuring of the Board during the year. A review is planned for the second quarter of financial year 2015. The Board Charter prescribes that before a director is recommended for re-election, the Chairman consults with the other directors regarding the director’s effectiveness. Based upon the outcome of these consultations, the Board then determines whether or not to recommend the director for re-election. The Nomination and Prudential Committee assists in this review process. To increase the effectiveness of the Board’s functioning and to allow the Board to spend additional and more focused time on specific issues, the Board has four standing committees, being the Nomination and Prudential Committee, the Remuneration and Human Resources Committee, the Audit, Risk and Compliance Committee and the Work Health and Safety Committee. Membership and attendance Each of the Board Committees, other than the Nomination and Prudential Committee (which includes the CEO as a member), is comprised solely of independent Non-Executive Directors. The CEO has a standing invitation to attend all Board Committee meetings – except where the relevant Committee is discussing the CEO’s employment arrangements or non-executive director only sessions are being held – and may participate in discussions on matters concerning the main Board but has no voting rights with respect to such matters. Other senior executives are regularly invited to attend Board Committee meetings where the Committee Chairman believes that person’s attendance would be useful and relevant. 28 The members of each Board Committee during the financial year are set out below. Committee membership Audit, Risk and Compliance Committee Remuneration and Human Resources Committee Nomination and Prudential Committee WHS Committee J H Ranck Member M C Allison1 - I Wilton Chairman J A Jackson Member J M Rozman2 M G Jackman3 - - Member - Member Chairman - - Chairman Member Member Member - - Chairman - Member Member - - 1 Mr Allison was a member of each Committee up until his appointment as CEO and Managing Director on 1 May 2014. He remains a non-voting member of the Nomination and Prudential Committee on Board matters. 2 Ms Rozman retired during FY14. She was Chairman of the Audit, Risk and Compliance Committee and a member of the remaining board committees. 3 Mr Jackman retired as CEO during FY14. Each Board Committee has a formal Charter which details the Committee’s role and responsibilities. The main responsibilities of each Board Committee are detailed further in this report, commencing on page 30. Board Committee meetings Board Committee meetings are held at scheduled intervals during the year, with additional meetings convened as required. The number of meetings and attendance at those meetings is set out below. Following each Committee meeting, the Board receives a report from that Committee Chairman on its deliberations, conclusions and recommendations. Minutes of each Board Committee meeting are included in the papers provided to the subsequent Board meeting. Other ad hoc committee meetings are convened as and when required to consider matters of special importance or to aid the efficient functioning of the Board. Attendance at meetings by Directors Attendance by directors at Board and Committee meetings held during the financial year is detailed below. Attendance in the table is only recorded where a director is a member. Board of Directors WHS Committee Audit, Risk and Compliance Committee Attended No. of meetings held during relevant period Attended No. of meetings held during relevant period Attended No. of meetings held during relevant period 6 3 4 3 2 - 6 3 4 3 2 - Other Committees** J H Ranck M C Allison I Wilton J A Jackson J M Rozman M G Jackman 20 19 11 11 9 4 20 20 11 11 9 5 4 2 2 3 1 - 4 2 2 3 1 - Remuneration and Human Resources Committee Nomination and Prudential Committee Attended No. of meetings held during relevant period Attended No. of meetings held during relevant period J H Ranck M C Allison I Wilton J A Jackson J M Rozman M G Jackman 4 1 3 4 0 - 4 1 3 4 0 - 1 1 0 0 0 0 1 1 0 0 0 0 29 Work Health and Safety Committee Nomination and Prudential Committee The Board continued its commitment to the Company’s vision that nothing is so important it cannot be done safely. The Work Health and Safety Committee (WHS Committee) exists to assist the Board in meeting this vision. Role The Committee’s objectives are to: • ensure the appropriate policies and procedures are in place to assist the Company to meet its statutory obligations and the Board’s commitment to health and safety; • ensure appropriate policies, procedures and systems are in place to effectively manage, measure and improve WHS activities; and • oversee the provision by management of a healthy and safe working environment and culture for all employees, contractors, clients and other visitors to the Company’s work premises. The Committee meets its objectives by discharging the responsibilities set out in its charter, namely reviewing and making recommendations to the Board on: • the plans and targets for WHS management; • cultural initiatives designed to build and foster WHS leadership and demonstration of appropriate WHS behaviours consistently at all levels; • Company performance in relation to WHS matters; • the adequacy, integrity and effectiveness of management processes and procedures used to manage WHS as well as the performance of the Company’s WHS function and management; • the adequacy, integrity and effectiveness of Company management’s processes for ensuring and monitoring compliance with WHS statutory and reporting obligations; • the internal process for determining and managing key WHS risk areas, particularly compliance with laws, regulations, standards and best practice guidelines; • the impact of changes and emerging issues in WHS legislation, community expectations, research findings and technology; • reports by Company management on WHS performance and issues including reports on material WHS issues associated with the Company’s operations; and • WHS issues associated with the operations on Company controlled sites (including, if feasible, visits to those sites). Key Activities During the Year The Committee oversaw the following significant activities during the reporting period: • development and implementation of Safety Strategy FY14 Objective The Board’s objective in relation to Board nomination and review is to ensure that: • the Company has adopted selection, appointment and review practices that result in a board: > with an effective composition, size, mix of skills and experience and commitment to adequately discharge its responsibilities and duties and add value to the Company and its shareholders; > that has a proper understanding of, and competence to deal with, the current and emerging issues of the businesses of the Company; and > that can effectively review and challenge the performance of management and exercise independent judgement. • shareholders and other stakeholders understand and have confidence in the Company’s selection, appointment and review practices. Responsibilities The Committee’s principal responsibilities are to regularly review and make recommendations to the Board on: • the necessary and desirable competencies of members of the Board of the Company and its committees; • appropriate processes for the review of the performance of the Board of the Company and its committees; • appropriate policies with respect to the maximum period of service and retirement age for directors; • appropriate succession plans for directors and the CEO; • the appropriate size of the Board so as to encourage efficient decision-making; • recommendations for the appointment (including re-appointment in the case of directors retiring by rotation) and removal of directors of the Company; • the scope and content of letters of appointment of non- executive directors; skills development and continuing education programs for directors of the Company; and • appropriate induction procedures designed to allow new directors to participate fully and actively in board decision-making at the earliest opportunity and the effectiveness of those procedures. Remuneration and Human Resources Committee Objective The Board’s objective is to ensure that the Company has adopted remuneration and human resources policies that meet the needs of the Company and encourage a performance oriented culture. A summary of the Company’s remuneration policies and practices is set out in the Remuneration Report commencing on page 40. • continued analysis of the Company’s obligations under harmonised WHS laws; and • continued focus on high risk activities undertaken throughout the Group. The CEO has a standing invitation to attend Committee meetings but must leave the meeting during those periods in which consideration is being given to his employment arrangements. The Company notes that the composition of the Remuneration and Human Resources Committee meets the requirements of Recommendation 8.2 of the 2nd edition of the ASX Recommendations. 30 Role The objectives of the Committee are to: • ensure the appropriate policies and procedures are in place to assess the remuneration levels of the CEO, executive management, the Company’s employees generally and the Board; • succession planning for executive management; • policies regarding diversity, including measurable objectives for achieving diversity; • policies regarding equal treatment of employees; • policies regarding workplace behaviour expected of employees; and • disclosures in the Company’s annual report on • ensure the appropriate policies and procedures are in remuneration matters. place to attract and retain the Chairman, Non-Executive Directors, Executive Directors, CEO and executive management; • ensure the Company (which includes all subsidiaries and, as appropriate, associated companies) adopts, monitors and applies appropriate remuneration policies and procedures that align with the creation of shareholder value; • engage and motivate directors and senior executives to pursue the long-term growth and success of the Company; • ensure a clear relationship between business performance and the key performance indicators and remuneration of the CEO and executive management; • align executive incentive awards with the creation of shareholder value; • ensure that the Company’s human resources strategy, policies and procedures are appropriate to the Company’s needs and clearly designed and executed; and • to achieve diversity in the Company’s workplaces and on the Board and to achieve equal treatment of employees and Directors regardless of sex, race, age, disability, religion, sexual orientation or family responsibilities. The Committee meets its objectives by reviewing and making recommendations to the Board on: • appropriate policies for compensation arrangements for the CEO, executive management, the Company’s employees generally and the Board itself; • the remuneration package for the CEO; • KPIs relevant to the remuneration of the CEO and the performance of the CEO against those KPIs; • the CEO’s recommendations with respect to the remuneration of executive management; • the CEO’s plans for the remuneration of employees in general; Key Activities During the Year The Committee oversaw the following significant activities during the reporting period: • performance against measurable diversity objectives; and • ongoing review and simplification of the remuneration arrangements, policy and structure for the Group. Audit, Risk and Compliance Committee Objective The Board is concerned to ensure the integrity of the Company’s financial reporting, its management of risk and its legal, regulatory and policy compliance. The Audit, Risk and Compliance Committee assists the Board in achieving this objective. At least one member of the Committee is required by the Committee Charter to be a qualified accountant or other financial professional with experience of accounting and financial matters. Ms Rozman retired as Chairman of the Committee during the first half of the financial year and was replaced by Ian Wilton. Mr Wilton is a Certified Practicing Accountant with extensive experience in the agricultural sector. His background in running and managing large successful businesses brings a depth of strong financial management skills to the Elders Board with key understanding of agriculture specific risks. Details of the members’ qualifications can be found on page 25 of this report. The CEO, CFO and the Head of Risk and Assurance all have standing invitations to attend (and are expected to attend) meetings of the Committee. In addition, the audit engagement partner from the Company’s auditors also has a standing invitation to attend the meetings of the Committee. • the annual remuneration review applying generally Responsibilities across the Company; • the competitiveness and appropriateness of the Company’s remuneration policies and practices; • remuneration of Company employees by gender; • human resources policies and procedures to ensure alignment between remuneration and shareholder value creation; • remuneration of directors; • employee share, option and rights schemes and other The Audit, Risk and Compliance Committee assists the Board to meet its oversight responsibilities in relation to: • the Company’s financial statements and financial reporting; • the Company’s financial risk management processes, accounting and control systems; • the Company’s internal and external audit arrangements; performance incentive programs; • the Company’s compliance with legal, regulatory and • recruitment, retention, retirement and termination internal policy requirements; and policies and benefits; • the Company’s risk management programmes. • Company superannuation arrangements; • human resources strategy, policies and procedures (but not work health and safety); • employment contracts for all directors, the CEO and those executive management contracts which are outside normal parameters; • organisational development, including training and education; The Committee does this by discharging its responsibilities set out in its charter, namely: • monitoring the effectiveness of the Company’s financial reporting and internal control policies and its procedures for the identification, assessment, reporting and management of financial risks; • approving the appointment of the head of internal audit; 31 • approving the terms of reference of the internal Key Activities During the Year audit department, requiring advice of the planned programme of audits and the reason for any change or delay in the programme; • reviewing the management of financial matters and the freedom allowed to the internal auditors; • reviewing reports on the Company from the internal auditors; • considering and making recommendations to the Board about the appointment and retirement of the Company’s external auditors, and ensuring that the audit partner from the firm providing audit services is rotated in accordance with all applicable regulation and Company policy; • meeting with the external auditors (including in the absence of management); • reviewing any auditor’s letters addressed to management and management’s responses; • approving the scope of the audit, the terms of the annual audit engagement letter and audit fees; • monitoring the independence, objectivity and performance of the External Auditors; • monitoring the nature and quantum of non-audit services provided by the External Auditor, including the amount of fees paid for such services; • reviewing any recommendations made by the External Auditor; • coordinating internal and External Auditors and reviewing and approving any integrated audit plans; • monitoring the consistency and application of accounting policies; • reviewing the Company’s statutory half and full year financial statements; • monitoring the effectiveness of the Company’s compliance programme; • reviewing specific policies, systems and processes for addressing compliance with applicable laws and Company policy; • reviewing the Company’s material corporate governance policies including the Delegations of Authority and the Financial Risk Management Policy; • receiving reports from management regarding compliance with laws; • receiving recommendations from management on compliance policies, systems and processes relating to significant legal, compliance or regulatory matters; • overseeing the Company’s process for dealing with the reporting of unacceptable conduct; • overseeing the Company’s policies, processes and frameworks for identifying, analysing and addressing complaints and reviewing material complaints; • assessing the adequacy of the Company’s internal risk control systems; • reviewing and approving the Company’s Risk Management Framework, including risk appetite, and processes for identifying and monitoring significant areas of risk for the Company; • reviewing and assessing management information systems and internal control systems; • regularly reviewing the Company’s risk profile; and • reviewing the corporate insurance program and risk coverage. 32 The Committee provided oversight over the following key activities during the course of the year: •The preparation of the statutory financial accounts of the company, including the review of those accounts and the application of accounting policies in accordance with Australian Accounting Standards • The independence of external and internal auditor arrangements • The approval and performance of the internal audit plan and related assurance activities designed to assess the effectiveness of the Company’s internal control environment • Periodic assessments of the significant risks of the Company; and • Review, update and approval of the Risk Management Policy and Framework. 3. External Audit Independence Policy Relevant policies and charters: Non-Audit Services Policy The Company has in place a policy that: • details the Group’s position in respect of the key issues which may impair, or appear to impair, external audit independence; • details the internal procedures implemented to ensure the independence of auditors; and • establishes a framework that enables the Audit, Risk and Compliance Committee to evaluate compliance with the policy and report to the Board on compliance. The key principles of the policy are: • An auditor is not independent if: > an employment relationship exists or could be deemed to exist, between the Company and the auditor, its officers or former officers, employees or former employees or certain relatives; > a financial relationship exists between the auditor and the Company; and > specific non-audit services (including information technology and human resources services) are provided to the Company by the auditor. • In relation to the provision of other non-audit services the following guidelines must be followed: > management must consider the actual, perceived and potential impact upon the independence of external audit prior to engaging external audit to undertake any non-audit service; > the outsourcing of any internal audit project to the external auditors or the undertaking of any joint internal/external audit review will require prior Audit, Risk and Compliance Committee approval; > the Audit, Risk and Compliance Committee must consider whether the provision of such non-audit services is compatible with maintaining the external auditor’s independence, by obtaining assurance and confirmation that the additional services provided by the external auditor are not in conflict with the audit process. In order to assist with this assessment, management will provide the Audit, Risk and Compliance Committee with details of the amount of non-audit services undertaken by the external auditors as a proportion of all audit and non-audit engagements entered into by the Group for the period; and > as a general rule, the Company does not utilise external auditors for internal audit purposes or consulting matters, other than services which are in the nature of audit, such as review of tax compliance and acting as independent accountants in connection with prospectuses. The Audit, Risk and Compliance Committee is responsible for ongoing review of the External Audit Independence Policy and reports to the Board on the continuing suitability of the policy and recommended changes to the existing policy as and when required. 4. Risk Management Relevant policies and charters: − Risk Management Policy and Framework − Management Risk Committee Charter − Financial Risk Management Policy − Tax Risk Management Policy The Board reviews its Risk Management Policy and Framework annually to assist the Company in achieving its risk management objectives. These include ensuring the Group’s assets are protected against financial loss, business risks are identified and properly managed, legal and regulatory obligations are satisfied, and business risks are appropriately monitored by the Board. Under the Risk Management Policy the Board is responsible for oversight of the risk management process and framework. Senior executive management has primary responsibility for identification and management of material risks within the Group’s businesses and is accountable to the Board for designing, implementing and monitoring the process of risk management and integrating it into the day to day activities of the Group’s businesses. Business Unit Managers are responsible for monitoring and managing key business risks for their respective businesses. All personnel are responsible for managing risks in their respective areas. The Audit, Risk and Compliance Committee is responsible for assessing the effectiveness of internal processes for determining and managing key risks and compliance obligations while the WHS Committee is responsible for assessing the effectiveness of internal process for determining and managing key WHS risks. Responsibilities The Committee operates under the Risk Management Policy and is responsible for: • oversight of the risk management process; • reviewing and monitoring the Company’s risk profile; • considering and where appropriate making recommendations to the Board with respect to risk appetite, risk framework and policy; • establishing, approving and reviewing corporate risk management strategy in line with the Risk Management Policy; • reviewing and monitoring adherence to the Company’s risk management framework; • reviewing credit committee functions of Elders and its subsidiaries; • monitoring the risk management activities of business divisions and subsidiaries through receipt and consideration of risk reports from the Company; • overseeing compliance by the Company with applicable regulatory obligations and significant related internal policies; • providing regular advice to the Audit, Risk and Compliance Committee about MRC activities and making appropriate recommendations; • approving the corporate insurance program; and • providing an escalation point for identification of matters (material business risks) to be drawn to the attention of the CEO, Board Audit, Risk and Compliance Committee or Board. During 2014 the MRC reviewed Elders’ top material business risks and reported to the Audit, Risk and Compliance Committee and the Board on the effectiveness of the Company’s management of those material business risks. Management Certificates In connection with the financial reports of the Company for the financial year ended 30 September 2014, the Board received from the CEO and the CFO a certificate stating that: • the declaration provided under section 295A of the Corporations Act is based on a sound system of risk management and internal control; and • that the system is operating effectively in all material respects in relation to financial reporting risks. Management Risk Committee Financial Risk Management Policy The Management Risk Committee (MRC) meets quarterly and assists the Audit, Risk and Compliance Committee and the Board in the application of the Company’s Risk Management Policy and monitoring of compliance with the Policy. Membership The MRC comprises the CEO, the Company’s senior executives, Company Secretary and senior risk personnel. Specialist support to the committee is provided by internal experts as required, including the General Counsel and General Manager Credit. The MRC reports to the Board through the Audit, Risk and Compliance Committee. Minutes of each MRC meeting are also included in the papers to the Audit, Risk and Compliance Committee. The Company has a formal Financial Risk Management Policy for management of liquidity and funding, commodity, currency, interest rate and basis risks. The primary objective of this Policy is to manage the risk of financial loss to Elders measured in terms of impact on earnings arising from unfavourable movements in the financial and commodity markets. The Board is provided with reports on compliance with the Policy, including on an immediate basis in the case of material breaches. 33 5. Conduct and Ethics Relevant policies: − Code of Conduct − Securities Dealing Policy − External Disclosure and Market Communications Policy − Fraud Policy − Whistleblower Policy − Diversity Policy − Discrimination, Bullying and Harassment Policy − Workplace Health & Safety Policy Copies of each of these documents may be found on the Company’s website, www.elderslimited.com Code of Conduct The Board has adopted a code of conduct that details standards for acceptable practices by Elders and Elders People, and the behaviour and responsibilities expected of them. The Code exists to ensure that all Elders People act in the best interests of Elders, manage any potential conflicting interests, act in the best interests of their customers and colleagues (absent any conflict with their duties to Elders), ensure all business is undertaken safely, fairly, honestly, and ethically, maintain confidentiality, comply with company policy and behave in accordance with the underpinning values of Elders. The Board is committed to promoting conduct and behaviour that is honest, fair, legal and ethical and respects the rights of the Company’s shareholders and other stakeholders, including clients and customers, suppliers, creditors and employees. The Board has also adopted a Whistleblower Policy to encourage and facilitate disclosure of unacceptable conduct, including fraud or illegal activity, occurring in the Company. The Policy and the associated reporting process address the issues associated with alleged improper conduct including reporting, responsibility, confidentiality and effective investigation. The Fraud Policy also underpins the Whistleblower Policy and processes, and the Code. Securities Dealing Policy The Board believes non-executive directors and employees should own the Company’s securities to further align their interests with the interests of other shareholders. Details of directors’ shareholdings in the Company can be found on page 52 of this Report. The Company’s Securities Dealing Policy prescribes trading windows during which directors and employees may trade in the Company’s securities. Trading windows run for 6 weeks from announcement of the Company’s full year results and half year results, 6 weeks from the Company’s AGM and for the duration of an offer period of any pro-rata issue of securities by the Company. Directors or staff must not deal in the Company’s securities during any periods other than a trading window or at any time when that staff member or director is in possession of unpublished information that, if generally available, might materially affect the price of the Company’s securities. Prior to dealing in a window, a director or senior executive must seek clearance from 34 the Company Secretary, or if the Company Secretary wishes to trade, the Chairman. The Securities Dealing Policy also prohibits contractors from trading in the Company’s securities if they are in possession of price-sensitive information. Continuous Disclosure and Communication with Shareholders The Board is committed to timely disclosure of information and communicating effectively with its shareholders. The External Disclosure and Market Communications Policy is designed to implement effective communication strategies to enable timely disclosure of both market sensitive information and other information enabling both shareholders and prospective new investors to make informed investment decisions. The policy includes processes to ensure that Directors and management are aware of, and fulfil, their obligations. The Company communicates with its shareholders and the investment markets through a number of channels, including the ASX announcements platform and its website. The website in particular is useful in assisting shareholders to easily access information relating to: • briefings on Company developments and events; • information released to the ASX by way of an announcement; • historical market announcements, annual reports and briefings of half and full year results for a limited number of years; and • electing to receive ASX and media announcements electronically as they are posted on the Company’s website. Further engagement with the investment community occurs by way of: • interaction by senior management with members of the investment community and financial and business media through a variety of forums including results briefings, ‘one on one’ meetings and discussions; and • provision of background and technical information to institutional investors, market analysts and the financial and business media to support announcements made to the ASX and announcements made about the Company’s on-going business activities. Each of the above means of engagement takes place in the context of the Company’s External Disclosure and Market Communications Policy described below. External Disclosure and Market Communications Policy Under this Policy the Company has instituted (and monitors) procedures designed to ensure: • the Company’s compliance with continuous disclosure obligations contained in applicable ASX Listing Rules and the Corporations Act 2001. Procedures followed to achieve this include the maintenance of a Disclosure Committee comprised of senior management to consider disclosure issues (where circumstances permit, in conjunction with the Chairman of the Board), the communication of disclosure requirements and procedures to senior management together with procedures to facilitate the timely flow of relevant information to the Disclosure Committee; • the timely release and dissemination of information (within the requirements of continuous disclosure obligations) necessary for the formation of an informed and balanced view of the Company; • information disclosed in investor or media briefings is not “market sensitive”. If market sensitive information is inadvertently disclosed during a briefing it will immediately be released to the market at large through the ASX; and • that stakeholders have equal opportunity, subject to reasonable means, to access information issued externally by the Company. This is addressed through a broad range of media including the Company’s website, audio, audio-visual or slide webcasts of the Company’s AGM and full year and half year results briefings (which are announced in advance to the market and also archived and available for viewing or listening on the Company’s website). Significant investor briefings (other than the AGM and the half and full year result briefings which are webcast and stored as video or audio on the Company’s website) are generally held by recorded telephone conference which requires registration so that attendees’ details can be recorded. The Company generally allows investors to access the recorded facility by telephone for a short period after the event (usually 7 days) and thereafter to obtain a copy of the transcript or digital audio recording. The Board is also concerned to ensure that shareholders participate effectively in general meetings and to this end: • the Company has adopted in all substantial respects the ASX Recommendations for communication with shareholders and improving shareholder participation at general meetings; and • it is a term of engagement of the Company’s external auditors that they attend the Company’s AGM and are available to answer questions about the conduct of the audit of the Company and the preparation and content of the auditor’s report in respect of the relevant reporting period. Diversity Our Diversity Policy sets out the key elements of what makes a diverse organisation as well as the values and benefits that stem from incorporating diversity into business practices. The Board endorsed measurable diversity objectives in FY12, and our progress in achieving them is detailed below. Objective 2: Strengthen the talent pipeline by increasing women’s participation in development and mentoring programs and target 50/50 gender balance in the trainee intake. In 2014 Elders’ Agricultural Traineeship program recruited 19 participants, 26% of whom were female. The challenge remains in attracting women to an industry which has traditionally been male dominated. Recruitment of women to trainee roles will remain a focus in the coming year with the same aim of achieving 50/50 gender balance in future intakes. Objective 3: Maintain the number of female non-executive Board directors at a minimum 25% through to 2016. The retirement of Josephine Rozman on 25 March 2014 has resulted in the Board having no female non-executive directors for the remainder of FY14. The Board is conscious of the importance of attracting and retaining female non-executive directors, and will focus, amongst other matters, on diversity in its FY15 board review planned for the second quarter of the year. Discrimination, Bullying and Harassment Elders is committed to providing an environment that is free from discrimination, harassment, workplace bullying and victimisation and will not tolerate such behaviour under any circumstance. This commitment extends to a workplace that promotes equal opportunity and fair treatment of staff, contractors, visitors and customers. The policy defines procedures for investigating and dealing with complaints, including the use of impartial contact officers to receive and advise on complaints. Work Health and Safety Elders maintains a work health and safety management system, inclusive of corporate standards, policies and procedures. This system reflects the requirements of work health and safety legislation and is monitored and evaluated to ensure its integrity and effectiveness. We strongly believe that nothing done in the course of employment is so important that it cannot be done safely. The Board and officers of Elders are committed to running an integrated work health and management system based on best practice and continuous improvement to provide a safe and healthy environment for employees, contractors, clients and visitors. Objective 1: Increase the representation of women in management positions as follows: FY14 Target Actual Sept 14 FY15 Target FY16 Target Senior Executives Senior Managers Middle Managers Managers 12% 15% 10% 12% 15% 22% 7% 7% 15% 25% 12% 13% 15% 25% 15% 15% 35 DIRECTORS’ REPORT The directors present their report for the year ended 30 September 2014. Directors Current Directors The directors of the Company in office during the financial year and until the date of this report were: Principal Activities The principal activities of Elders during the year were: (a) the provision of livestock, real estate and wool agency services to rural and regional customers; (b) the provision of services and farm inputs to the Non-Executive Directors: rural sector; James Hutchison Ranck (elected Chairman on 1 May 2014) Ian Wilton (appointed 13 April 2014) James Andrew Jackson (appointed 13 April 2014) Executive Director: Mark Charles Allison (retired as Chairman, and appointed Chief Executive Officer and Managing Director on 1 May 2014) Ceased Directors: The following directors ceased to be a director during the financial year: Malcolm Geoffrey Jackman, Chief Executive Officer and Managing Director since 29 September 2008, retired on 27 November 2013. Josephine Mary Rozman, a non-executive director since 15 November 2011, retired on 25 March 2014. Company Secretaries: Peter Gordon Hastings Nina Margaret Abbey, appointed joint Company Secretary on 20 February 2014. A summary of the experience, qualifications and special responsibilities of each Director and Company Secretary is provided on page 25 of this annual report. (b) the provision of financial services to rural and regional customers; (c) real estate franchisor; (d) live export trading operations; (e) feedlotting of cattle; and (f) red meat supply chains in Indonesia and China Results and Review of Operations The Group recorded a profit for the year, after tax and non-controlling interests, of $3.0m (2013: loss of $505.2m). A review of the operations and results of the consolidated entity and its principal businesses during the year is contained in pages 15 to 24 of this report. Significant Changes in the State of Affairs There were a number of significant changes in the state of affairs of the consolidated entity during the year. These are referred to on pages 15 to 24 of this report. Events Subsequent to Balance Date On 14 October 2014, Elders issued 313,967,179 new shares under a 3 for 5 non renounceable entitlement offer announced by Elders to the ASX on 15 September 2014. The total number of shares on issue following completion of the entitlement offer is 837,232,507. Total funds raised from this offer were approximately $47 million (before costs). 36 On 22 October 2014, Elders completed the refinance of its existing senior debt arrangements with a new syndicated working capital facility provided by ANZ, NAB and Rabobank. The new facilities include, in addition to the syndicated lines, bilateral contingent and transactional lines and an extension of the retail debtor funding facility. Gross debt immediately following the refinance close was comprised entirely of debtor funding facilities. The facility limits are structured to meet the anticipated working capital requirements of Elders over the tenor of the facilities which range between 12 and 36 months. There is no other matter or circumstance that has arisen since 30 September 2014 which is not otherwise dealt with in this report or in the consolidated financial statements, that has significantly affected or may significantly affect the operations of Elders, the results of those operations or the state of affairs of Elders in subsequent financial periods. Likely Developments and Future Results Discussion of likely developments in the operations of the consolidated entity and the expected results for those operations in future financial years is included in the information on page 23 of this report. Share and Other Equity Issues During the Year No employee options were granted over unissued shares or unissued interests during the year. No ordinary shares were issued under the Company’s employee share plans during the year. 68,251,999 ordinary shares were issued to sophisticated investors during the year pursuant to the Company’s 15% placement capacity under ASX Listing Rule 7.1. Dividends and Other Equity Distributions No dividends or hybrid distributions were declared or paid during the 12 months to 30 September 2014. Share Options No options over unissued shares in the entity exist. Directors’ Interests At the date of this report, the relevant interests of the directors in shares and other equity securities of the Company are: No. of ordinary shares No. of hybrids No. of performance rights Non-Executive Directors J H Ranck I Wilton J A Jackson Executive Director M C Allison 1,000,000 800,000 300,000 160,000 - - - - - - - - At the date of this report, there are no options on issue to directors. Directors’ Meetings Details of the number of meetings held by the Board of Directors and Board committees and the attendance at those meetings is provided in the Corporate Governance section of this report on page 29. Indemnification of Officers and Auditors Insurance arrangements established in previous years concerning officers of the consolidated entity were renewed during the period. The consolidated entity paid an insurance premium in respect of a contract insuring each of the directors of the Company named earlier in this report and each full time executive officer, director and secretary of Australian Group entities against all liabilities and expenses arising as a result of work performed in their respective capacities, to the extent permitted by law. The terms of the policy prohibit the disclosure of the premiums paid. Each director and other officer has entered into a Deed of Access, Insurance and Indemnity which provides: • that the Company will maintain an insurance policy insuring the officer against any liability incurred by the officer in the officer’s capacity as an officer of the Company to the maximum extent allowed by law; • for indemnity against liability as an officer, except to the extent of indemnity under the insurance policy or where prohibited by law; and • for access to company documents and records, subject to undertakings as to confidentiality. The consolidated entity has provided a limited indemnity to its auditor, Ernst & Young, for loss suffered by Ernst & Young from claims by a third party related to the audit service provided by Ernst & Young, excluding losses resulting from the proven negligent, wrongful or wilful acts or omissions of Ernst & Young. No payments have been made to indemnify Ernst & Young during or since the financial year. 37 Remuneration of Directors and Senior Executives Details of the remuneration arrangements in place for directors and senior executives of the Group are set out in the Remuneration Report commencing on page 40. In compiling this report the Group has met the disclosure requirements prescribed in the Australian Accounting Standards and the Corporations Act 2001. Environmental Performance Regulation Details of the Company’s environmental performance is provided on page 20 of the Operating and Financial Review section of this report. Rounding of Amounts The parent entity is a Group of the kind specified in Australian Securities and Investments Commission class order 98/0100. In accordance with that class order, amounts in the financial report and Directors’ report have been rounded to the nearest thousand dollars unless specifically stated to be otherwise. Non-Audit Services Non-audit services provided by the Group’s auditor, Ernst & Young, to the Group during the course of the financial year are disclosed below. Based on advice received from the Audit, Risk and Compliance Committee the Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed under the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit, Risk and Compliance Committee to ensure they do not impact on the impartiality or objectivity of the auditor; and • the nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received or is due to receive the following amounts for the provision of non-audit services: Tax services (primarily compliance) $131,764 Other compliance and assurance services $161,472 A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on the next page. This report has been made in accordance with a resolution of directors. J H Ranck Chairman 17 November 2014 M C Allison Managing Director 38 Auditor’s Independence Declaration to the Directors of Elders Limited In relation to our audit of the financial report of Elders Limited for the financial period ended 30 September 2014, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Mark Phelps Partner Adelaide 17 November 2014 39 ELDERS LIMITED REMUNERATION REPORT 2014 The Directors of Elders Limited present the Remuneration Report for the consolidated entity for the year ended 30 September 2014. The information provided in this report has been audited, unless otherwise indicated, as required by the Corporations Act 2001 (Cth) and forms part of the Directors’ Report. Section 1 Key Management Personnel Section 2 Remuneration governance and strategy Section 3 Non-executive Director remuneration Section 4 Executive Director and Senior Executive remuneration Section 5 Executive Director and Senior Executive contract terms Section 6 Executive Director and Senior Executive remuneration details Section 7 Equity instruments, loans to and transactions in relation to Key Management Personnel 42 42 43 44 50 51 52 40 Chief Executive Officer and Senior Executive remuneration outcomes for 2014 Figure 1 below sets out certain items of remuneration paid or payable to the Chief Executive Officer and Managing Director (CEO) and Senior Executives in respect of the 2014 financial year. The information in Figure 1 is unaudited and is different from and additional to that required by Accounting Standards and statutory requirements. Table 6 on page 51 provides the audited remuneration disclosures as required under Accounting Standards and statutory requirements. Elders however believes that the information provided in Figure 1 is useful to investors as it provides a simple overview of the remuneration paid or payable to the CEO and Senior Executives, and is consistent with the Productivity Commission’s recommendation in its Report on Executive Remuneration in Australia. Figure 1 includes information on base salary, STI, superannuation, other monetary benefits, other non-monetary benefits and termination benefits identical to that contained in Table 6, but omits the information on the issue of shares, share rights and options and long-term payments contained in Table 6. Additionally, Figure 1 provides information on LTI based on rights vesting or options exercised during the financial year, which is not provided in Table 6. Figure 1. Remuneration outcomes for 2014 (unaudited and non-IFRS) $ Base Salary STI2 LTI3 Superannuation Other (monetary) Other (non-monetary)5 Termination benefits6 Total M G Jackman1 164,085 290,0008 M C Allison1 334,132 300,000 H S Browning1 74,322 0 R I Davey J H Cornish1 G I Dunne1 355,047 28,000 105,597 11,667 113,597 10,000 D W Goodfellow1 567,290 0 0 237,003 113,946 16,667 C C Hall1 M L Hunt1 0 0 0 0 0 0 0 0 0 4,444 7,658 4,444 18,027 6,177 6,177 0 0 0 0 0 0 418 1,117,740 1,576,686 0 632 2,640 440 1,218 0 0 0 0 0 641,790 79,398 403,714 123,880 130,992 18,027 27,5004 0 648,441 1,261,259 12,939 25,0007 6,177 0 1,722 7,969 0 0 276,665 144,759 1 Figures relate to part-year service as a KMP. Jackman, Browning and Goodfellow ceased employment 27 November 2013, 27 December 2013 and 29 August 2014 respectively. Allison and Hall commenced employment 1 May 2014 and 15 January 2014 respectively. Cornish, Dunne and Hunt became KMP from 2 June 2014. 2 STI that will be paid for performance in the 2014 financial year. For Cornish, Dunne and Hunt the STI amount relates to period of service as a KMP. 3 Value of any performance rights that vested during the 2014 financial year based on the closing share price on the date of vesting, and options that were exercised during the 2014 financial year based on the difference between the exercise price and the closing share price on the date of exercise. This figure does not represent the value of rights or options granted during the 2014 financial year. 4 Travel allowance. 5 Provision of leased car parking and company leased vehicle. 6 These benefits comply with Part 2D.2 of the Corporations Act 2001 (Cth). 7 Qualifying payment subject to completion of probation period as at 15 April 2014. 8 The STI paid to Mr Jackman in respect of the 2014 financial year was for achievement of company divestments and was 29% of his FY14 maximum STI opportunity. 41 Section 1. Key Management Personnel The disclosure in this Remuneration Report relates to the remuneration of Key Management Personnel (KMP) of both the Company and the consolidated entity (being those persons with authority and responsibility for planning, directing and controlling the activities of the Company during the financial year). Key Management Personnel for the purposes of this report include the following persons who were Non-executive Directors and Senior Executives during the financial year: Name Non-executive Directors J H Ranck M C Allison J A Jackson J M Rozman I Wilton Executive Director and Senior Executives M G Jackman M C Allison H S Browning R I Davey J H Cornish G J Dunne D W Goodfellow C C Hall M L Hunt Position held Period held in 2014 (if not full year) Chairman Chairman Director Director Director Non-executive Director from 1 October 2013 to 30 April 2014 Chairman from 1 May 2014 1 October 2013 to 30 April 2014 From 13 April 2014 1 October 2013 to 25 March 2014 From 13 April 2014 Chief Executive and Managing Director 1 October 2013 to 27 November 2013 Chief Executive and Managing Director From 1 May 2014 General Manager Trading Chief Financial Officer Zone General Manager West Zone General Manager North 1 October 2013 to 27 December 2013 From 2 June 2014 From 2 June 2014 Group General Manager Australian Network 1 October 2013 to 29 August 2014 GM Elders International Zone General Manager South From 15 January 2014 From 2 June 2014 Section 2. Remuneration governance and strategy A. Role of Remuneration and Human Resources Committee The Remuneration and Human Resources Committee assists the Board in ensuring that the Company establishes and maintains remuneration strategies and policies aligned with the Company’s overall objectives and in accordance with the practice set out in the ASX Corporate Governance Council’s Principles and Recommendations. The role and responsibilities of the Remuneration and Human Resources Committee are set out in the Corporate Governance Statement on page 30 of this Annual Report and the Committee’s Charter is published on the Company’s website at www.elderslimited.com. The Committee is comprised entirely of Non-executive Directors. B. Independent remuneration advice The Remuneration and Human Resources Committee is briefed by management, but makes all decisions free of the influence of management. To assist in its decision-making, the Committee may, from time to time, seek independent advice from remuneration consultants, and in so doing will directly engage with the consultant without management involvement. In the year ending 30 September 2014, the Committee engaged AON Hewitt to provide recommendations in respect of Executive long term incentive plan design. These recommendations also covered key management personnel. Under the terms of the engagement, AON Hewitt was paid $11,660 for these services. The following arrangements were made to ensure that the remuneration recommendations were free from undue influence: • AON Hewitt was engaged by, and reported directly to, the Chairman of the Remuneration and Human Resources Committee. The agreement for the provision of remuneration consulting services was executed by the Chairman of the Remuneration and Human Resources Committee under delegated authority on behalf of the Board. • The report containing the remuneration recommendations was provided by AON Hewitt directly to the Chairman of the Remuneration and Human Resources Committee; and AON Hewitt was permitted to speak to management throughout the engagement to understand Company processes, practices and other business issues and obtain management perspectives. However, AON Hewitt was not permitted to provide any member of management with a copy of their draft or final report that contained the remuneration recommendations. As a consequence, the Board is satisfied that the recommendations were made free from undue influence from any members of the key management personnel. No other remuneration recommendations from any other external party were sought or received or fees paid during the year. 42 C. Remuneration strategy Elders’ remuneration strategy seeks to encourage a performance-orientated culture that will: • provide competitive reward opportunities to attract and retain high calibre executives and to motivate them to pursue sustainable long-term growth and success for the Company, its employees and shareholders; • align the rewards and interests of Directors and Senior Executives with the long-term growth and success of the Company within an appropriate control framework; • demonstrate a clear relationship between Senior Executive performance and remuneration; and • be consistent and responsive to the needs of each business unit and Elders as a whole. Section 3. Non-executive Director remuneration A. Board policy Non-executive Directors are remunerated by way of fees in the form of cash and superannuation, and generally in accordance with Recommendation 8.2 of the ASX Corporate Governance Council’s Principles and recommendations. Executive Directors do not receive director’s fees. Non-executive Directors do not participate in the Company’s cash or equity incentive plans and do not receive retirement benefits other than superannuation contributions disclosed in this report. Non-executive Directors have formal letters of appointment with the Company. Length of tenure is governed by the Company’s Constitution and the ASX Limited Listing Rules, which provides that all Non-executive Directors are subject to re-election by shareholders in the manner set out in the Corporate Governance Statement on page 27 of this Annual Report. Non-executive Director fees are reviewed by the Board on an annual basis, taking into consideration the accountability and time commitment of each Director, supported, where appropriate and necessary, by advice from external remuneration consultants. The Board believes Elders’ Non-executive Directors should own securities in the Company to further align their interests with the interests of other shareholders. Details of Non-executive Directors’ shareholdings in the Company can be found in Table 7a(i) of this Report. B. Non-executive Director remuneration in 2014 Total fees for the financial year ended 30 September 2014 remain well within the aggregate fee limit of $1,800,000 per annum approved by shareholders at the Company’s 2006 Annual General Meeting. Statutory superannuation guarantee contributions are included in the aggregate fee limit. At the Company’s 2013 Annual General Meeting the Company made a commitment to reduce the aggregate fee limit to a level aligned to current business requirements. In line with that commitment the Board has reduced the aggregate fee limit to $1,200,000 per annum (excluding superannuation costs). Current fees remain within this limit. Each Non-executive Director was entitled to an annual base fee of $100,000, except the Chairman who was entitled, for the period 1 October 2013 to 30 April 2014, to an annual composite fee of $300,000. The Chairman’s composite fee was reduced to $240,000 effective 1 May 2014. All amounts exclude superannuation paid up to the maximum contribution base inline with Superannuation Guarantee legislation. During the financial year ended 30 September 2014, as compensation for time spent on committee business, the following fees applied: • Each member of the Audit, Risk and Compliance Committee was entitled to $16,000 per annum; except for the Committee Chair who was entitled to $30,000 per annum to reflect the significant workload associated with this position. • Each member of the Work Health and Safety Committee was entitled to $10,000 per annum. • Each member of the Remuneration and Human Resources Committee was entitled to $10,000 per annum. 43 Actual Committee fees paid are provided as “Board Committee Fees” in Table 3 below. Table 3: Non-executive Director remuneration details Short Term Payments Post Employment Total Base Board Fee Board Committee Fees Subsidiary Fees and Other Fees Superannuation Other M C Allison J C Ballard J A Jackson I G MacDonald J H Ranck J M Rozman I Wilton Total 20141 2013 2014 2013 20141 2013 2014 2013 2014 2013 20141 2013 20141 2013 2014 2013 175,000 151,667 n/a 225,000 46,591 n/a n/a 16,667 158,333 100,000 50,000 100,000 46,591 n/a 476,493 593,334 0 25,071 n/a 0 15,985 n/a n/a 4,333 21,000 33,394 70,000 2 48,371 22,311 n/a 129,318 111,169 0 0 n/a 0 0 n/a n/a 0 0 0 0 0 0 n/a 0 0 10,369 13,477 n/a 12,421 5,873 n/a n/a 1,890 15,001 12,090 7,912 13,447 6,467 n/a 45,622 53,325 0 0 n/a 0 0 n/a n/a 0 0 0 0 0 0 n/a 0 0 185,369 190,215 n/a 237,421 68,449 n/a n/a 22,890 194,334 145,484 127,912 161,818 75,369 n/a 651,433 757,828 1 Figures relate to part year service (see Section 1). 2 Includes temporary increase to Chair of Audit, Risk and Compliance Committee fee from $30,000 to $75,000. Section 4. Executive Director and Senior Executive remuneration A. Board policy The Board seeks to align employee remuneration with the strategic objectives of the Company and the commercial needs and performance of each business unit. The Board has delegated oversight of the Company’s remuneration policies and practices to the Remuneration and Human Resources Committee. Remuneration policies and practices are benchmarked to the market by independent external consultants to ensure that remuneration for Executives meets a range of criteria, including: • that executives are appropriately rewarded having regard to their roles and responsibilities; • an appropriate balance between fixed and at-risk remuneration components is maintained; and in relation to the at-risk component, that there is an appropriate balance between short and long-term incentives; • that performance measures reflect long-term drivers of shareholder value; • paying for performance, where superior or upper quartile remuneration is only paid for demonstrable superior performance; and • that remuneration is competitive when compared to both internal and external relativities. On an annual basis the Board reviews and approves the performance and remuneration plans and outcomes for the CEO on the recommendation of the Chairman and the Remuneration and Human Resources Committee. The plans and outcomes for the CEO’s direct reports are reviewed and approved annually by the Committee on the recommendation of the CEO, and the CEO approves the plans and outcomes for positions reporting to his direct reports. The Committee reviews the key elements of Senior Executive employment contracts as well as the CEO’s recommendations for equity incentives to Senior Executives and other senior managers in the Company. The Committee also reviews major remuneration policies and programs applying to the Company. B. Remuneration structure The remuneration structure has been designed to support the Board’s remuneration policy. Executive remuneration is made up of three elements: • Total Fixed Remuneration (TFR); • Short-term incentives (STI); and • Long-term incentives (LTI). A description of each component is set out below. Remuneration packages are structured to ensure a portion of an Executive’s reward depends on meeting individual, business unit or Company targets and objectives, including maximising returns for shareholders. 44 Remuneration structure 100% 80% 60% 40% d r a w e R l a t o T f o % 33% 33% 25% 25% 25% 25% 20% 33% 50% 50% 0% CEO CFO Senior Executives LTI STI TFR The above assumes the at-risk remuneration components are at their maximum, and represents the Company’s intended policy in respect of remuneration structure. C. Total Fixed Remuneration Total Fixed Remuneration (TFR) is made up of base salary, superannuation and any other benefits (including Fringe Benefits Tax) that the Executive has nominated to receive as part of his or her package. These benefits may include motor vehicle leases, car parking and any additional superannuation contributions beyond the statutory maximum. The level of TFR is set by reference to market activity for like positions and is determined by the level of knowledge required to perform the position, the problem solving complexities of the position, level of autonomy to make decisions and the particular capabilities, talents and experience the individual brings to the position. TFR is reviewed annually and is adjusted according to market relativity, Company performance and the executive’s performance over the previous year, as assessed through the Company’s Performance and Development Planning (PDP). PDP assesses employee performance against a number of agreed key performance indicators, including measures for safety, operational performance, capital management, people and Company values. D. Short-term incentive The key features of the STI plan applying to Executive Director and Senior Executives during the year are set out in the table below: KMP participants and maximum STI opportunity as % of TFR Performance measure(s) M G Jackman (86%) M C Allison (100%) D W Goodfellow, C C Hall (80%) Plan R I Davey, H S Browning (60%) J H Cornish, G J Dunne, M L Hunt (40%) Key Performance Indicators namely: Net Profit After Tax Return on Funds Employed Safety Operational Performance Capital Management People Nine financial and non-financial Key Performance Indicators related to: Nine financial and non-financial Key Performance Indicators namely: Budgeted EBIT Working Capital Company Divestments Safety Underlying EBIT SG&A Reduction Net Working Capital Term Debt Strategic Development Business Refinancing Recapitalisation Business Engagement Governance Assessment of Mr Jackman’s performance against the relevant KPIs is assessed by the Chairman with recommendation for STI payment referred to the Board for approval. Assessment of Mr Allison’s performance against the relevant KPIs is assessed by the Chairman with recommendation for STI payment referred to the Board for approval. Assessment of performance against the above measures and individual KPIs is assessed by the CEO with recommendation for STI payment referred to the Board for approval. 45 Exercise of discretion The CEO, in conjunction with the Chairman, may recommend discretionary bonus payments to Executives (except himself) for approval by the Remuneration and Human Resources Committee. Plan (continued) Service condition Payment STI outcomes for 2014 Any STI payable to Executives who become eligible to participate in STI during the course of the year, either through joining the Company or being promoted within the Company, will be pro-rated accordingly. Payments are made in cash which participants may elect to sacrifice to acquire the Company’s shares in the Deferred Employee Share Plan. All STI payments for 2014 performance were paid according to plan performance measures. Of the KMP participants who received an STI payment in 2014: Incentive payment as a % of Maximum STI opportunity M C Allison J H Cornish R I Davey G J Dunne M L Hunt 88%1 26% 12% 21% 35% 1 % of maximum STI opportunity is based on period of service as CEO & MD E. Long-term incentive The Company has a number of Long-term Incentive (LTI) and equity participation plans in place. These plans are summarised below. E1. Current Equity Schemes Name of Plan Description Eligibility Criteria Number of participants as at 30 September 2013 Number of participants as at 30 September 2014 Number of shares /options/rights outstanding as at 30 September 2013 Number of shares /options/rights outstanding as at 30 September 2014 Elders Long Term Incentive Rights Plan (ELTIRP) Rights to Elders shares are granted to selected eligible Executives at the 10-day Volume Weighted Average Price subject to a minimum of 12 months’ service and performance conditions (see below) determined by the Board at the time of grant. This plan replaced the EESOP and the ELSP described below. 1 12 CEO (M G Jackman) Senior Executives by invitation. 0 10 1,706,270 0 3,111,412 1,381,293 E2. Discontinued Equity Schemes in which one or more past or present KMP participates Name of Plan Description Eligibility Criteria Number of participants as at 30 September 2013 Number of participants as at 30 September 2014 Number of shares /options/rights outstanding as at 30 September 2013 Number of shares /options/rights outstanding as at 30 September 2014 By invitation. 986 659 630,394 441,326 The ELSP was suspended in 2009 and will be discontinued. Elders Loan Share Plan (ELSP) The ELSP was designed to provide an equity participation opportunity for all selected eligible employees. Shares were provided and paid for by way of a non-recourse, interest-free loan. Dividends are used to repay the loan. Shares vest three years after issue once loan is fully repaid. There are no performance conditions once issued. No shares were issued under the ELSP during the financial year. Note: The Elders Employee Share Option Plan (EESOP) previously disclosed in 2013 was discontinued once all options lapsed in 2013. 46 E3. Current equity saving schemes in which one or more KMP participates Name of Plan Description Eligibility Criteria Number of participants as at 30 September 2013 Number of participants as at 30 September 2014 Number of shares /options/rights outstanding as at 30 September 2013 Number of shares /options/rights outstanding as at 30 September 2014 All permanent employees. 48 38 1,082,410 727, 763 Deferred Employee Share Plan (DESP) This plan enables participants to salary sacrifice remuneration of up to $5,000 to acquire restricted shares. Tax can be deferred up to 7 years. Elders makes no contribution to this plan other than funding the costs of administration. No shares were issued under the DESP during the financial year. Note: There are no current retention schemes in operation, the previously disclosed retention schemes were finalised in 2013, with the applicable service rights vesting as shares and cash retention incentives paid in 2013. E4. Discussion of long-term incentive plans (a) General The ELTIRP is the Company’s principal long-term incentive plan. The ELTIRP is based on the performance rights scheme for the CEO approved by shareholders at the AGM of the Company on 18 December 2009. Participation in ELTIRP is at the Board’s discretion through individual invitation to KMP and other selected senior managers up to certain percentages of TFR (which differ by position). During the 2014 financial year, no award under the ELTIRP was made while the Company reset as a pure play agribusiness and recapitalised. (b) Dealing in securities KMP are not permitted to deal in the Company’s securities without prior permission from the Company and only during trading windows and are required to disclose all dealings on an annual basis. The measures are designed principally to manage insider trading risk, but also go some way to aligning the interests of KMP with the Company’s security holders generally. (c) Performance Hurdles The Company has adopted a relative Total Shareholder Return (TSR) performance hurdle to align the interests of senior management with those of shareholders. This performance measure was selected following consultation with external remuneration experts as being the most appropriate and widely used measure of shareholder value. 47 Summaries of LTIP grants are provided below. Issue Date Number of performance rights granted Denominator Hurdle description Senior Executive grants 10 November 2010 5,546,587 $0.646 10 November 2011 4,525,000 $0.269 Performance rights granted to Senior Executives as at 10 November 2010 will be tested as set out below. Tranche 1 (2010 Allocation) TSR performance is measured over the two years from 10 November 2010 to 10 November 2012. This tranche has been tested and resulted in nil vesting. Tranche 2 (2010 Allocation) TSR performance is measured over the three years from 10 November 2010 to 10 November 2013. This tranche has been tested and resulted in nil vesting (see below). Tranche 3 (2010 Allocation) TSR performance is measured over the four years from 10 November 2010 to 10 November 2014. The vesting of these performance rights depend on the Company’s Total Shareholder Return (TSR) performance relative to the ASX/S&P 200 Accumulation Index, as determined by the following schedule: Relative TSR Below 50th percentile At 50th percentile 50th to 74th percentile 75th percentile and above % of Tranche that vests Nil 50% Pro-rata 100% Performance rights granted to Senior Executives as at 10 November 2011 will be tested as set out below: Tranche 1 (2011 Allocation) TSR performance is measured over the two years from 10 November 2011 to 10 November 2013. This tranche has been tested and resulted in nil vesting (see below). Tranche 2 (2011 Allocation) TSR performance is measured over the three years from 10 November 2011 to 10 November 2014. Tranche 3 (2011 Allocation) TSR performance is measured over the four years from 10 November 2011 to 10 November 2015. These performance rights will vest according to the same performance condition applying to the 2010 allocations. Note: All rights granted to the prior CEO (M G Jackman), and previously disclosed, lapsed when he ceased employment on 27 November 2013. Performance testing of Tranche 2 of 2010 Senior Executive grant and Tranche 1 of 2011 Senior Executive grant Following completion of their measurement periods, Tranche 2 of the 2010 Senior Executive grant and Tranche 1 of the 2011 Senior Executive grant were tested against their performance hurdles, resulting in nil vesting and lapsing of 1,199,962 performance rights valued at $137,996 (number of rights multiplied by closing share price of $0.115 as at 11 November 2013). E5. Relationship between Elders’ financial performance and Executive reward (a) Short-term incentive STI payments are awarded to executives on achievement of a range of financial and non-financial performance targets. The following table shows the Company’s performance in relation to a number of financial and operational performance measures over a five-year period. Performance measure ($ millions) Sales revenue Underlying EBIT Statutory profit Cashflow from operating activities 2014 1,431.1 27.3 3.0 15.1 2013 1,422.1 (48.9) (505.3) (81.6) 2012 2,157.9 38.8 (60.6) 2.5 2011 2,358.7 33.7 (395.3) (23.8) 2010 2,154.4 34.0 (217.6) (110.5) Note: Details of KMP STI outcomes for 2014 are provided on page 46. 48 (b) Long-term incentive LTIs only vest when the Company achieves superior returns for shareholders as measured by relative TSR. Relative Total Shareholder Return (TSR) Elders’ TSR has underperformed the ASX/S&P 200 Accumulation Index (All and Industrials) over the 2014 financial year and on a cumulative basis over the period from 2010 to 2014. Elders’ relative TSR performance against these two comparator groups is as follows: Absolute TSR % Cumulative TSR % 100% 50% 0% -50% % R S T e t u o s b A l 100% 60% 20% -20% -60% ) % ( R S T e v i t a u m u C l -100% 2010 2011 2012 2013 2014 -100% 2010 2011 2012 2013 2014 Elders ASX200 ASX200 Industrials Elders ASX200 ASX200 Industrials The method used to calculate the cumulative TSR is on a compound basis. Factors contributing to the calculation of TSR include dividends and share price. The history of both for the last five years is set out below: Source: Thomson Reuters Dividend history No dividends have been declared or paid (interim or final) over the last five years from 2010 to 2014. Elders Share price history 2009-2014 ($) 7 6 5 4 3 2 1 0 9 0 l i r p A 9 0 y l u J 9 0 y r a u n a J 9 0 r e b o t c O 0 1 y r a u n a J 0 1 l i r p A 0 1 y l u J 0 1 r e b o t c O 1 1 y r a u n a J 1 1 l i r p A 1 1 y l u J 1 1 r e b o t c O 2 1 y r a u n a J 2 1 l i r p A 2 1 y l u J 2 1 r e b o t c O 3 1 y r a u n a J 3 1 l i r p A 3 1 y l u J 3 1 r e b o t c O 4 1 y r a u n a J 4 1 l i r p A 4 1 y l u J 4 1 r e b o t c O 49 Section 5. Executive Director and Senior Executive contract terms In 2014, the Company had employment agreements with the Executive Director and Senior Executives. The agreements are ongoing until terminated by either party. In a Company-initiated termination: • the company is required to give Mr M C Allison notice as follows: • 6 months where less than or equal to 1 year of service has been completed; • 9 months where greater than 1 years’ service but less than or equal to 2 years of service has been completed; and • 12 months where greater than 2 years of service has been completed: • the Company is required to give the Senior Executive 6 months’ notice, and Mr M L Hunt has an additional contractual termination condition where the Company will provide him 12 month’s notice if Ruralco Holdings Limited or a Related Body Corporate of Ruralco Holdings Limited obtains control of Elders Limited or Elders Rural Services Australia Limited within the first three years of his employment with Elders which commenced 2 July 2012. • the Company may make a payment in lieu of notice equivalent to the remuneration the Senior Executive would have received over the notice period; • for serious misconduct, the Company may terminate immediately whereupon no payment in lieu of notice or other termination payments are payable under the employment agreement; • due to genuine redundancy, as defined by the Fair Work Act 2010, the Senior Executive is entitled to a retrenchment payment in accordance with Company policy. This payment is also subject to the rules and limitations specified in the Corporations Act 2001 and Corporations Regulations; • the Senior Executive may be entitled to a payment under a short-term or long-term incentive plan in accordance with plan rules. If Mr M C Allison initiates termination of employment he is required to give the Company 6 months notice, all other Senior Executives are required to provide 3 months’ notice. With the exception of Messrs Hall and Allison, in the event of a Change of Control or Disposal of Business (i.e. a shareholder gains voting power greater than 50% or a sale of substantially all of the Company occurs) resulting in a material diminution in the roles and responsibility of the Senior Executive, the Senior Executive may terminate his contact on 3 months’ notice. If the Senior Executive exercises that right of termination, the Company will pay the equivalent of up to 12 months’ TFR except for Mr Hunt who will be paid the equivalent of 3 months base salary. 50 Section 6. Executive Director and Senior Executive remuneration details Table 6. Details of Executive Director and Senior Executive remuneration for the 2013 and 2014 financial years Short-term payments Post employment Share- based payments Long-term payments Base salary STI Other2 Super- annuation Options Share Rights Long Service Leave Other3 Termination benefits4 Total % performance - related5 0 n/a 0 n/a 0 n/a 0 n/a 0 n/a 641,790 n/a 0 (75,884) (93,889) 0 1,117,740 1,406,913 M C Allison 20141 334,132 300,000 0 2013 n/a n/a n/a M G Jackman 20141 164,085 290,000 418 2013 1,146,536 0 2,640 H S Browning 2014 74,322 20131 42,031 0 0 J H Cornish 20141 105,597 11,667 A T Dage 2013 2014 n/a n/a n/a n/a n/a 632 362 440 n/a 7,658 n/a 4,444 16,796 4,444 2,437 6,177 n/a n/a 0 43,475 41,120 0 (31,548) (43,617) 0 0 n/a n/a 73,830 7,729 3,933 2,403 n/a n/a n/a n/a 20131 572,061 0 1,927 16,796 0 127,447 (4,827) R I Davey 2014 355,047 28,000 2,640 18,027 20131 237,127 0 101,760 11,306 0 0 5,196 7,893 9,804 37,300 M G De Wit 2014 n/a n/a n/a n/a n/a n/a n/a n/a 2013 610,964 0 0 23,467 G J Dunne 20141 113,597 10,000 1,218 6,177 0 0 0 22,458 115,038 3,819 2,451 137,261 10% 47% n/a 15% 3% 0% 58% 12% n/a n/a 9% 8% 2% n/a 0% n/a 0% 3% 0% n/a n/a 22% 11% n/a 0 0 0 0 n/a n/a 0 0 0 0 1,250,567 0 0 0 n/a n/a 4,233 126,389 130,217 n/a n/a 669,456 1,382,860 0 0 416,803 397,297 n/a 0 0 n/a n/a 771,927 n/a 648,441 1,258,988 0 0 n/a n/a 688,078 276,665 n/a n/a 715,000 1,191,905 0 144,978 n/a n/a 0 n/a 0 0 0 n/a n/a 0 0 n/a 2013 n/a n/a n/a n/a n/a n/a n/a D W Goodfellow 20141 567,290 0 27,500 18,027 2013 615,511 23,500 30,000 16,796 C C Hall 20141 237,003 0 26,722 12,939 2013 M G Hosking 2014 n/a n/a 20131 227,366 n/a n/a 0 n/a n/a 880 M L Hunt 20141 113,946 16,667 7,969 2013 n/a n/a n/a Total 2014 2,065,019 656,333 67,538 2013 3,451,596 23,500 137,569 1 Figures relate to part-year service (see Section 1). n/a n/a 6,177 n/a 84,070 93,088 0 0 0 n/a n/a 0 0 0 n/a n/a (2,271 ) 2,271 0 n/a n/a 0 n/a 0 n/a 219 n/a 5,490 0 259,883 (16,714) 0 (94,484) (126,811) 0 1,766,181 4,417,848 0 514,439 89,337 115,038 1,384,456 5,809,023 2 Comprising the provision of leased car parking (Jackman, Browning, Cornish, Dage, Davey, Dunne, Hall, Hosking, Hunt), company leased vehicle (Hunt), completion bonus (Davey), travel allowance (Goodfellow), qualifying payment (Hall). 3 Expense relating to participation in the Futuris Automotive Exit Incentive Plan, being a cash-based long-term incentive plan to retain key employees critical to the sale of the business as well as to provide an incentive for increasing the market value of the business over the period to 30 September 2013. This payment was paid when the sale of Futuris Automotive Interiors was finalised on 30 August 2013. 4 These benefits, which comprise redundancy payments under the Company’s redundancy policy and payments in lieu of notice, comply with Part 2D.2 of the Corporations Act 2001 (Cth). 5 Performance related remuneration consists of STI and Share Rights as a percentage of total remuneration. Share Rights includes Performance Rights disclosed in Table 7b(i). 51 Section 7. Equity instruments, loans to and transactions in relation to Key Management Personnel Table 7a(i). Non-executive Director share movements Shares held at start of year Other shares acquired (disposed of) during the year Balance of shares held at end of financial period Balance of shares held at date of signing Remuneration Report (see Note) J H Ranck J A Jackson I Wilton J M Rozman1 J C Ballard I G MacDonald Total 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 430,000 430,000 0 n/a 0 n/a 20,000 20,000 n/a 1,000,000 n/a 52,668 550,000 1,602,668 312,000 0 240,000 n/a 500,000 n/a 0 0 n/a 0 n/a 0 1,052,000 0 742,000 430,000 240,000 n/a 500,000 n/a 20,000 20,000 n/a 1,000,000 430,000 300,000 n/a 800,000 n/a 20,000 20,000 n/a 1,000,000 1,000,000 n/a 52,668 1,602,000 1,602,688 n/a 52,668 2,280,000 1,602,688 Note: No other changes occurred during the year. 1 Cessation dates were used for Non-executive Directors who retired or resigned before the date the Remuneration Report was signed, as follows: J M Rozman 25 March 2014 52 Table 7a(ii). Executive Director and Senior Executive share movements Shares held at start of year Shares acquired during the year as part of remuneration Shares acquired during the year through the vesting of LTIP Other shares acquired (disposed of) during the year Balance of shares held at end of financial period Balance of shares held at date of signing Remuneration Report M C Allison R I Davey1 J H Cornish G J Dunne C C Hall M L Hunt M G Jackman2 D W Goodfellow2 H S Browning2 A T Dage M G De Wit Total 1 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 100,000 100,000 2,530 2,530 260,241 n/a 345,328 n/a 35 n/a 25 n/a 221,755 188,676 173,356 173,356 290,667 20131 1,081 2014 2013 2014 2013 2014 2013 n/a 90,000 n/a 18,537 1,293,937 474,180 0 0 0 0 0 n/a 0 n/a 0 n/a 0 n/a 0 0 0 0 0 0 n/a 0 n/a 0 0 0 0 0 0 0 0 n/a 0 n/a 0 n/a 0 n/a 0 0 0 0 0 289,586 n/a 1,214,391 n/a 0 0 0 0 0 0 0 n/a 0 n/a 0 n/a 0 n/a 0 33,079 0 0 0 0 n/a 0 n/a 0 0 100,000 100,000 2,530 2,530 160,000 100,000 2,530 2,530 260,241 260,241 n/a n/a 345,328 405,328 n/a 35 n/a 25 n/a 221,755 221,755 173,356 173,356 290,667 290,667 n/a n/a 35 n/a 25 n/a 221,755 221,755 173,356 173,356 290,667 290,667 n/a 1,304,391 1,304,391 n/a 18,537 n/a 18,537 1,293,937 1,353,937 1,503,977 33,079 2,011,236 2,011,236 1 The 2013 number has been restated to reflect the number of shares only, and not performance rights as previously included. 2 Cessation dates were used for Executive Director and Senior Executives who ceased employment with Elders before the date the Remuneration Report was signed, as follows: M G Jackman D W Goodfellow 29 August 2014 H S Browning 27 December 2013 27 November 2013 Note: No other changes occurred during the year. No shares were issued on exercise of options or performance rights during the 2014 financial year. 53 Table 7b(i). Current long-term Incentive plan opportunities (by offer) – Performance Rights 2014 Granted Performance Rights (number) Vested Performance Rights (number) Grant date Tranche(s) Value per right at grant date ($) Total value at grant date ($) Vesting, last exercise and expiry date Expensed at 30 September 2014 ($) Performance Rights % of remuneration 10 November 2009 10 November 2009 10 November 2009 10 November 2009 10 November 2009 10 November 2009 23 December 2011 3 2 3 1 2 3 0.12 34,130 0.12 33,836 0.12 35,008 0.11 30,052 (see note) (75,884) 0% 0.12 32,138 0.12 33,251 2,3 0.15 to 0.16 30,267 (see note) (31,548) 0% 29 June 2011 3 0.21 to 0.24 45,833 23 December 2011 2,3 0.15 to 0.16 15,150 29 June 2011 3 0. 21 to 0.24 46,141 23 December 2011 2,3 0.15 to 0.16 11,350 29 June 2011 3 0.21 to 0.24 18,395 2,3 0.15 to 0.16 15,150 23 December 2011 29 June 2011 0 0 0 3 0 0 0 11,800 7% 5,196 1% 11,458 7% 9 November 2014 to 9 November 2015 10 November 2014 9 November 2014 to 9 November 2015 10 November 2014 9 November 2014 to 9 November 2015 10 November 2014 0. 21 to 0.24 43,868 0 0 0 0 0 0 0 0 0 0% 0% 0% M G Jackman 285,603 292,951 292,951 278,255 278,255 278,255 H S Browning 200,000 305,551 J H Cornish 150,000 307,607 R I Davey 75,000 122,630 G J Dunne 150,000 292,456 D W Goodfellow 0 C C Hall M L Hunt 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 54 Table 7b(i). Current long-term Incentive plan opportunities (by offer) – Performance Rights (continued) 2013 Granted Performance Rights (number Vested Performance Rights (number) Grant date Tranche(s) Value per right at grant date ($) Total value at grant date ($) Vesting, last exercise and expiry date Expensed at 30 September 2013 ($) Performance Rights % of remuneration 43,475 3% M G Jackman 285,603 292,951 292,951 278,255 278,255 278,255 278,255 278,255 0 10 November 2009 0 10 November 2009 0 10 November 2009 0 10 November 2009 0 10 November 2009 0 10 November 2009 0 10 November 2009 0 10 November 2009 3 2 3 1 2 3 2 3 0.12 0.12 0.12 0.11 0.12 0.12 0.12 0.12 34,130 10 November 2013 33,836 10 November 2013 35,008 10 November 2014 30,052 10 November 2013 32,138 10 November 2014 33,251 10 November 2015 32,138 10 November 2014 33,251 10 November 2015 H S Browning 200,000 0 23 December 2011 1,2,3 0.15 to 0.16 30,267 25,145 20% 9 November 2013 to 9 November 2015 305,551 0 29 June 2011 2,3 0. 21 to 0.24 45,833 10 November 2013 to 10 November 2014 A T Dage 600,000 0 23 December 2011 1,2,3 603,482 0 29 June 2011 2,3 R I Davey 75,000 0 23 December 2011 1,2,3 122,630 0 29 June 2011 2,3 M G De Wit D W Goodfellow 0 0 M G Hosking 700,000 0 0 0 0 0 23 December 2011 0 0 1,2,3 696,325 0 29 June 2011 2,3 0.15 to 0.16 0.21 to 0.24 0.15 to 0.16 0.21 to 0.24 0 0 0.15 to 0.16 0.21 to 0.24 90,800 (see note) (76,713) 0% 9,804 2% 124,720 11,350 9 November 2013 to 9 November 2015 18,395 10 November 2013 to 10 November 2014 0 0 0 0 105,933 (see note) (88,890) 0% 0% 0% 143,907 Note: Details of the performance rights in Tranche 2 of the 2010 Senior Executive grant and Tranche 1 of the 2011 Senior Executive grant that lapsed are provided in Section 4.E4(c). No other performance rights lapsed and no performance rights were exercised during the 2014 financial year. All unvested Performance Rights held by Messrs Jackman, Browning, Dage, and Hosking lapsed when they ceased employment with Elders. 55 7b(ii) Long Term Incentive Rights held by Directors and Senior Executives (Number) 2014 M G Jackman H S Browning J H Cornish R I Davey G J Dunne Total Balance at beginning of period Rights exercised Rights granted Rights lapsed/ forfeited Balance at end of period Vested at end of period 1,706,270 403,700 355,073 156,754 344,972 2,966,769 - - - - - - - - - - - - (1,706,270) (403,700) (152,534) (65,875) (147,484) - - 202,539 90,879 197,488 (2,475,863) 490,906 - - - - - - 7(c) Loans to and transactions with Directors and other executives 2014 C Hall Type of Transaction Purchase of Product through Elders Purchase of Property through Elders Real Estate Providing agistment services of cattle to Elders International as Director of Tazach Trading Pty Ltd Aggregate Amount $407 $9,091 excl GST $15,500 excl GST D W Goodfellow Purchase of Product through Elders under DW & AM Goodfellow and Koranui Pty Ltd $99,983 Note: All of the above transactions were provided under normal terms and conditions on arm’s length terms. No other loans were granted to, and no other transactions were entered into with, KMP in either the 2013 or 2014 financial years. 56 ELDERS LIMITED ANNUAL FINANCIAL REPORT 30 SEPTEMBER 2014 Consolidated Statement of Comprehensive Income 58 Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements 1 Corporate Information 2 Summary of Significant Accounting Policies 3 Significant Accounting Judgements, Estimates and Assumptions 4 Revenue and Expenses 5 Income Tax 6 Receivables 7 Biological Assets 8 Inventory 9 Other Financial Assets 10 Equity Accounted Investments 11 Property, Plant and Equipment 12 Brand Name 13 Trade and Other Payables 14 Interest Bearing Loans and Borrowings 15 Provisions 16 Contributed Equity 17 Hybrid Equity 18 Reserves 19 Retained Earnings 20 Dividends 21 Cash Flow Statement Reconciliation 22 Expenditure Commitments 23 Contingent Liabilities 24 Segment Information 25 Auditors Remuneration 26 Investments in Controlled Entities 27 Key Management Personnel 28 Related Party Disclosures 29 Earnings Per Share 30 Financial Instruments 31 Business Combinations – Changes in the Composition of the Entity 32 Discontinued Operations 33 Parent Entity 34 Subsequent Events Directors’ Declaration Independent Auditor’s Report 59 60 61 62 62 62 69 70 71 73 75 77 77 77 79 80 81 81 82 83 83 83 84 85 85 86 86 87 89 90 93 94 95 96 100 101 102 102 103 104 57 Consolidated Statement of Comprehensive Income For the Year ended 30 September 2014 Continuing operations Sales revenue Cost of sales Gross profit from continuing operations Other revenues Distribution expenses Administrative expenses Finance costs Other expenses Profit/(loss) from continuing operations before income tax expense Income tax (expense)/benefit Profit/(loss) from continuing operations after income tax expense Net profit/(loss) of discontinued operations, net of tax Net profit/(loss) for the period Items that may be reclassified to profit and loss Foreign currency translation Net gains/(losses) on cash flow hedges Income tax on items of other comprehensive income Other comprehensive income/(loss) for the period, net of tax Total comprehensive income/(loss) for the period Profit/(loss) for the period is attributable to: Non-controlling interest Owners of the parent Total comprehensive income/(loss) for the period is attributable to: Non-controlling interest Owners of the parent Reported operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Continuing operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Discontinued operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) The accompanying notes form an integral part of this consolidated statement of comprehensive income. 58 Note 2014 $000 2013 $000 4 1,431,515 1,422,056 (1,153,383) (1,191,432) 278,132 230,624 493 245 (217,961) (238,599) (33,343) (23,342) 3,967 7,946 14,703 22,649 (41,164) (30,490) (204,915) (284,299) (64,440) (348,739) 4 4 4 5 32 (17,294) (153,131) 5,355 (501,870) (2,310) 399 (128) (2,039) 2,869 1,423 (53) 4,239 3,316 (497,631) 2,373 2,982 5,355 2,497 819 3,316 0.6¢ 0.2¢ 4.2¢ 1.5¢ (3.6)¢ (1.3)¢ 3,385 (505,255) (501,870) 4,225 (501,856) (497,631) (99.6)¢ (99.6)¢ (69.1)¢ (69.1)¢ (30.4)¢ (30.4)¢ 19 29 29 29 29 29 29 Consolidated Statement of Financial Position As at 30 September 2014 Current assets Cash and cash equivalents Trade and other receivables Livestock Inventory Non current assets classified as held for sale Current tax assets Total current assets Non current assets Receivables Plantations Other financial assets Equity accounted investments Property, plant and equipment Brand Name Deferred tax assets Total non current assets Total assets Current liabilities Trade and other payables Interest bearing loans and borrowings Provisions Total current liabilities Non current liabilities Interest bearing loans and borrowings Deferred tax liabilities Provisions Total non current liabilities Total liabilities Net assets Equity Contributed equity Hybrid equity Reserves Retained earnings Total parent entity equity interest Non-controlling interests Total equity The accompanying notes form an integral part of this consolidated statement of financial position. Note 21(b) 6 7(a) 8 32 5 6 7(b) 9 10 11 12 5 13 14 15 14 5 15 16 17 18 19 2014 $000 2013 $000 22,477 302,137 41,123 84,817 -  743 39,927 345,353 36,671 116,311 6,100 1,363 451,297 545,725 - 4,175 4,588 1,269 5,877 25,750 5,615 20,616 -  19,538 62,700 35,096 5,615 8,068 63,715 135,192 515,012 680,917 249,677 159,982 36,572 255,023 268,116 73,630 446,231 596,769 121 1,116 10,514 11,751 26,569 3,468 7,911 37,948 457,982 634,717 57,030 46,200 1,277,813 1,269,153 145,151 145,151 (20,069) (21,825) (1,347,225) (1,350,520) 55,670 41,959 1,360 4,241 57,030 46,200 59 Note 2014 $000 2013 $000 4,949,295 5,534,358 (4,912,289) (5,570,544) 4,901 (22,649) (3,076) (1,127) 21(a) 15,055 16,344 (32,653) (27,588) (1,503) (81,586) (2,455) (13,622) -  -  -  18,454 38,271 10,994 97 -  (280) (1,261) (14,994) -  63,298 27,390 413 566 24,067 15,597 -  4,282 -  (189) 2,917 4,813 93,710 84,648 10,238 (408) -  -  -  10 13,158 62,333 (145,904) (113,847) (457) (2,842) (430) (3,170) (126,215) (55,104) (17,450) (52,042) 39,927 22,477 91,969 39,927 21(b) Consolidated Statement of Cash Flows For the Year ended 30 September 2014 Cash flow from operating activities Receipts from customers Payments to suppliers and employees Dividends received Interest and other costs of finance paid GST (paid)/refunded Income taxes (paid)/refunded Net operating cash flows Cash flow from investing activities Payment for property, plant and equipment Purchase of equity accounted investments Payment for controlled entities, net of cash acquired Payment for design and development capitalised Proceeds from sale of other financial assets held at cost Proceeds from sale of non current assets held for sale Proceeds from sale of equity accounted investments Proceeds from sale of property, plant and equipment Proceeds from sale of intangibles Proceeds from disposal of controlled entity Payment for acquisition of non-controlling interest Repayment of loans by associated entities Loans repaid by growers Net investing cash flows Cash flow from financing activities Proceeds from issue of shares Share issue costs Proceeds from sale of reserved shares Proceeds from borrowings Repayment of borrowings Principal repayments of lease liabilities Partnership profit distributions/dividends paid Net financing cash flows Net increase/(decrease) in cash held Cash at the beginning of the financial year Cash at the end of the financial year The accompanying notes form an integral part of this consolidated statement of cash flows. 60 Consolidated Statement of Changes in Equity For the Year ended 30 September 2014 $000 As at 1 October 2013 Profit/(loss) for the period Other comprehensive income/(loss): Foreign currency translation Net gains/(losses) on cash flow hedges Income tax on items of other comprehensive income Total comprehensive income/(loss) for the period Transactions with owners in their capacity as owners: Shares issued Transaction costs on share issue (net of tax) Tax effect on share issue costs Partnership profit distributions/dividends paid Amounts derecognised on sale of controlled entity Cost of share based payments Reallocation of equity As at 30 September 2014 As at 1 October 2012 Profit/(loss) for the period Other comprehensive income/(loss): Foreign currency translation Net gains/(losses) on cash flow hedges Income tax on items of other comprehensive income Total comprehensive income/(loss) for the period Transactions with owners in their capacity as owners: Tax effect on share issue costs (1,170) Proceeds from sale of reserved shares Partnership profit distributions/dividends paid Derecognition of subsidiary Excess paid for purchase of non-controlling interest Cost of share based payments Reallocation of equity As at 30 September 2013 Issued capital Hybrid equity Reserves Retained earnings Non- controlling interest 1,269,153 145,151 (21,825) (1,350,520) - 2,982 4,241 2,373 Total equity 46,200 5,355 - - - - - 10,238 (408) (1,170) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (2,434) 399 (128) - - - 124 (2,310) - - 399 (128) (2,163) 2,982 2,497 3,316 - - - - 4,285 (53) (313) - - - - - - 313 - - - (2,842) (2,536) - - 10,238 (408) (1,170) (2,842) 1,749 (53) - 2,029 1,423 (53) - - - 840 - - 2,869 1,423 (53) 3,399 (505,255) 4,225 (497,631) - 10 - - 12 818 - - - - - - 1,246 (1,236) - - (3,170) (4,461) - - - (1,170) 10 (3,170) (4,461) 12 818 10 1,277,813 145,151 (20,069) (1,347,225) 1,360 57,030 1,270,323 145,151 (27,310) (844,029) - (505,255) 7,647 3,385 551,782 (501,870) 1,269,153 145,151 (21,825) (1,350,520) 4,241 46,200 The accompanying notes form an integral part of this consolidated statement of changes in equity. 61 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 1. Corporate Information The consolidated financial report of Elders Limited for the year ended 30 September 2014 was authorised for issue in accordance with a resolution of the Directors on 17 November 2014. Elders Limited (the Parent) is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Company are described in the Directors’ Report and note 24. References in this consolidated financial report to ‘Elders’ are to Elders Limited and each of its controlled entities unless the context requires otherwise. Note 2. Summary of Significant Accounting Policies (a) Basis of preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). The financial report has also been prepared on a historical cost basis, except for derivative financial instruments which have been measured at fair value, and biological assets that are measured at fair value less costs to sell. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($000) unless otherwise stated. The financial report has been prepared on a going concern basis. (b) Compliance with IFRS The financial report also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. (c) New accounting standards and interpretations (i) New and Revised Accounting Standards A number of new amendments to standards and interpretations became operative for the financial year ended 30 September 2014 and have been applied in preparing these consolidated financial statements. None of these have materially impacted Elders and its policies: • AASB 10 Consolidated Financial Statements introduces a new definition of control and addresses whether an entity should be included in the consolidated financial statements of the parent company. • AASB 11 Joint Arrangements introduces only two forms of joint arrangements, a joint venture or joint operation. • AASB 12 Disclosure of Interests in Other Entities relates to disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. • AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 introduce new guidance on fair value measurement and disclosure requirements when fair value is permitted by accounting standards. • The amendments to AASB 119 Employee Benefits and AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 introduces changes to the presentation of employee benefits. • AASB 7 Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities – Amendments to AASB 7 provides new guidance on offsetting financial assets and liabilities. The Company has not elected to early adopt any new standard, interpretation or amendment that has been issued but is not yet effective. (ii) Accounting Standards and Interpretations issued but not yet effective Certain new accounting standards and interpretations have been published that are not mandatory for the financial year ended 30 September 2014 but are available for early adoption and have not been applied in preparing this report. None are expected to have a significant effect to Elders and its policies. The impact of AASB 9 Financial Instruments and IFRS 15 Revenue Recognition has not yet been fully assessed. (d) Basis of consolidation The consolidated financial statements comprise the financial statements of Elders Limited and its subsidiaries as at 30 September 2014. Control is achieved when Elders is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, Elders controls an investee if and only if Elders has: • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) • Exposure, or rights, to variable returns from its involvement with the investee, and • The ability to use its power over the investee to affect its returns When Elders has less than a majority of the voting or similar rights of an investee, it considers all relevant facts and circumstances in assessing whether it has power over an investee, including: • The contractual arrangement with the other vote holders of the investee • Rights arising from other contractual arrangements • Elders voting rights and potential voting rights Elders re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when Elders obtains control over the subsidiary and ceases when it loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date Elders gains control until the date Elders ceases to control the subsidiary. 62 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 2. Summary of Significant Accounting Policies (continued) Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of Elders and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with Elders’ accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of Elders are eliminated in full on consolidation. (e) Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, Elders elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When Elders acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with AASB 139 either in profit or loss or as a charge to other comprehensive income. If the contingent consideration is classified as equity, it shall not be remeasured until it is finally settled within equity. In instances where the contingent consideration does not fall within the scope of AASB 139, it is measured in accordance with the appropriate AASB standard. (f) Foreign currency translation (i) Functional and presentation currency Both the functional and presentation currency of Elders Limited and its Australian subsidiaries is Australian dollars (AUD). Subsidiaries incorporated in countries other than Australia (see note 26), which have a functional currency other than Australian dollars, are translated to the presentation currency. (ii) Transactions and balances Transactions in foreign currencies are initially recorded by subsidiaries at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit and loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. (iii) Translation of Subsidiary Companies’ functional currency to presentation currency The results of subsidiaries incorporated in countries other than Australia, are translated into Australian dollars (presentation currency) as at the date of each transaction. Assets and liabilities are translated at exchange rates prevailing at reporting date. Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity. On consolidation, exchange differences arising from the translation of net investments in overseas subsidiaries are taken to the foreign currency translation reserve. If such a subsidiary was sold, the proportionate share of exchange differences would be transferred out of equity and recognised in profit or loss. (g) Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less. For the purposes of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash deposits as defined above, net of outstanding bank overdrafts. (h) Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less an allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the Company will not be able to collect the receivable. Financial difficulties of the debtor, default payment or debts greater than 60 days overdue are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. 63 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 2. Summary of Significant Accounting Policies (continued) (i) Inventory Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. (j) Biological assets Elders holds biological assets in the form of livestock and plantations. Livestock is measured at fair value, which has been determined based upon various assumptions, including livestock prices, less costs to sell. These assumptions reflect the different categories of livestock held. The market value increments or decrements are recorded in profit and loss. Plantations are measured at anticipated fair value less point of sale costs. These assumptions forecast plantation growth and yields at the current average annual growth rates, prices based on the current price plus indexation and forecast of the net present value of future net cash flows from harvest and costs of maintaining plantations to maturity. (k) Derivative financial instruments and hedging Elders uses forward currency contracts to hedge risks associated with foreign currency rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value. Derivatives are carried as financial assets when their fair value is positive and as financial liabilities when their fair value is negative. Derivative assets and liabilities are classified as non-current in the statement of financial position when the remaining maturity is more than 12 months, or current when the remaining maturity is less than 12 months. The fair values of forward currency contracts are calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Any gains or losses arising from changes in fair value of derivatives are taken directly to profit and loss. (l) Non-current assets and disposal groups held for sale and discontinued operations Non-current assets and disposal groups are classified as held for sale and measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction instead of use. This condition is regarded as met when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Property, plant and equipment and intangible assets once classified as held for sale are not depreciated or amortised. An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group). A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of de-recognition. A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the statement of comprehensive income and the assets and liabilities are presented separately on the face of the statement of financial position. (m) Investments and other financial assets Investments and financial assets are categorised as either financial assets at fair value through profit or loss, loans and receivables, held to maturity investments, or available for sale assets. When financial assets are recognised initially, they are measured at fair value, plus, in the case of assets not at fair value through profit and loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e. the date that Elders commits to purchase or sell the asset. Subsequent measurement (i) Financial assets at fair value through profit or loss Financial assets classified as held for trading are included in the category “financial assets at fair value through profit or loss”. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term with the intention of making a profit. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on financial assets held for trading are recognised in profit or loss and the related assets are classified as current assets in the statement of financial position. (ii) Loans and receivables This category is most relevant to Elders as it refers to loans and receivables which are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method, less impairment. Gains and losses are recognised in profit and loss when the loans and receivables are derecognised or impaired. These are included in current assets, except for those with maturities greater than 12 months after balance date, which are classified as non-current. Elders has not designated any investments or financial assets as held to maturity investments. 64 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 2. Summary of Significant Accounting Policies (continued) (n) Investments in associates and joint ventures Elders’ investments in its associates (equity accounted investments) are accounted for using the equity method of accounting in the consolidated financial statements and at cost in the parent. Associates are entities over which Elders has significant influence and that are neither subsidiaries nor joint ventures. Elders generally deem they have significant influence if they have over 20% of the voting rights. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Under the equity method, equity accounted investments are carried in the consolidated financial statements at cost plus post acquisition changes in Elders share of net assets of the investment. Goodwill relating to the investment is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The income statement reflects Elders’ share of the results of operations of the associate. When there has been a change recognised directly in the equity of the associate, Elders recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between Elders and the associate are eliminated to the extent of the interest in the associate. The share of profit of an associate is shown on the face of the income statement. This is the profit attributable to equity holders of the associate and, therefore, is profit after tax and non-controlling interests in the subsidiaries of the associate. After application of the equity method, Elders determines whether it is necessary to recognise any impairment loss with respect to an additional impairment loss on its net investment in its associate. Elders determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, Elders calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value. Upon loss of significant influence over the associate, Elders measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit and loss. The reporting dates of the equity accounted investments are disclosed in note 10 and the equity accounted investment accounting policies conform to those used by Elders for like transactions and events on similar circumstances. (o) Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such costs include the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, Elders recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. All other repairs and maintenance are recognised in profit or loss as incurred. Property, plant and equipment, excluding freehold land and assets under construction, are depreciated over the estimated useful economic life of specific assets as follows: Buildings Leasehold improvements Plant and equipment – owned Plant and equipment – leased Network infrastructure Life 50 years Lease term 3 to 10 years Lease term 5 to 25 years Method Straight line Straight line Straight line and units of production Straight line Straight line The useful lives are consistent with those of the prior period. The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate at each financial year end. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Gains and losses on disposal are determined by comparing the proceeds with the carrying amount. These are included in the statement of comprehensive income. (p) Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date, whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in the arrangement. 65 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 2. Summary of Significant Accounting Policies (continued) (i) Elders as a lessee Finance leases, which transfer substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that Elders will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability. (ii) Elders as a lessor Leases in which Elders retains substantially all the risks and benefits of ownership of the leased asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. (q) Impairment of non financial assets other than goodwill and indefinite life intangibles Non financial assets other than goodwill and indefinite life intangibles are tested for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. At each reporting date, Elders conducts an internal review of asset values, which is used as a source of information to assess for any indicators of impairment. External factors, such as changes in expected future processes, technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated. An impairment loss is recognised for the amount by which the asset’s carrying value exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Non financial assets other than goodwill that suffered impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that impairment may be reversed. (r) Brand Name The Brand Name intangible is deemed to have an indefinite useful life and is not amortised. The Brand Name is tested for impairment at each reporting date. Impairment is determined by assessing the recoverable amount of the group of cash-generating units, to which the Brand Name relates. When the recoverable amount of the group of cash-generating units is less than the carrying amount, an impairment loss is recognised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in accounting estimate and is thus accounted for on a prospective basis. (s) Trade and other payables Trade and other payables are carried at amortised cost and due to their short term nature they are not discounted. They represent liabilities for goods and services provided by Elders prior to the end of the financial year that remain unpaid and arise when Elders becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within supplier terms. Financial guarantees Financial guarantee contracts issued by Elders are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specific debtor fails to make a payment when due in accordance with the terms of the debt instrument. Financial guarantee contracts are recognised initially at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation. (t) Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Borrowings are classified as current liabilities unless Elders has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. 66 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 2. Summary of Significant Accounting Policies (continued) Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalised as part of the cost of that asset. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. (u) Provisions and employee benefits Provisions are recognised when Elders has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When Elders expects some or all of the provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs. Employee benefits (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ service up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. Restructuring and redundancy Provisions are only recognised when general recognition criteria provisions are fulfilled. Additionally, Elders needs to follow a detailed formal plan about the business or part of the business concerned, the location and the number of employees affected, a detailed estimate of the associated costs, and appropriate time line. The people affected have a valid expectation that the restructuring is being carried out or the implementation has been initiated already. Make Good (Restoration) Where Elders has entered leasing arrangements that require the leased asset to be returned at the end of the lease term in its original condition, an estimate is made of the costs of restoration or dismantling of any improvements and a provision is raised. Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of complying with the contract. Before a provision is established, Elders recognises any impairment loss on the assets associated with that contract. (v) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are included in equity as a deduction, net of tax, from the proceeds. (w) Earnings per share Basic earnings per share amounts are calculated by dividing net profit or loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all dilutive potential ordinary shares into ordinary shares. (x) Revenue recognition Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent that it is probable that economic benefits will flow to Elders and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (i) Sale of goods Revenue from the sale of goods is recognised when there has been a transfer of risks and rewards to the customer (through the execution of a sales agreement at the time of delivery of the goods to the customer), no further work or processing is required, the quantity and quality of the goods has been determined, the price is fixed and generally title has passed (for shipped goods this is the bill of lading). 67 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 2. Summary of Significant Accounting Policies (continued) (ii) Rendering of services Revenue from the rendering of services is recognised as the service is provided. (iii) Interest income Revenue is recognised as it accrues using the effective interest rate method. (iv) Dividend income Revenue is recognised when Elders’ right to receive the payment is established. Dividends received from associates are accounted for in accordance with the equity method of accounting. (y) Income tax and other taxes Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which the applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: • where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • when the taxable temporary difference is associated with investments in subsidiaries or associates and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax assets and unused tax losses can be utilised except: • when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • when the deductible temporary difference is associated with investments in subsidiaries or associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. 68 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 3. Significant Accounting Judgements, Estimates and Assumptions The preparation of Elders’ consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which forms the basis of the carrying value of assets and liabilities that are not readily apparent from other sources. Management has identified the following critical accounting policies for which significant judgement, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect the financial result or the financial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable the future taxable profit will be available to utilise those temporary differences. Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and the level of future taxable profits together with future tax planning strategies. Impairment of non-financial assets other than goodwill and indefinite life intangibles Elders assesses impairment of all assets at each reporting date by evaluating conditions specific to the company and to the particular asset that may lead to impairment. These include product performance, technology, climate, economic and political environments and future product expectations. If an impairment trigger exists the recoverable amount of the asset is determined. It is Elders’ policy to conduct bi-annual internal reviews of asset values, which is used as a source of information to assess for any indicators of impairment. Assets have been tested for impairment in accordance with the accounting policies, including the determination of recoverable amounts of assets using the higher of value in use and fair value less cost to sell. Impairment of Brand Name Elders determines whether the Brand Name is impaired on a bi-annual basis. This requires an estimation of the recoverable amount of the associated cash-generating units, using a value in use discounted cash flow methodology, to which the Brand Name is allocated. The assumptions used in this estimation of recoverable amount are discussed in note 12. Classification of assets and liabilities as held for sale Elders classifies assets and liabilities as held for sale when the carrying amount will be recovered through a sale transaction. The assets and liabilities must be available for immediate sale and Elders must be committed to selling the asset either through entering into a contractual sale agreement or the activation and commitment to a program to locate a buyer and dispose of the assets and liabilities. Estimation of useful lives of assets The estimation of useful lives of assets has been based on historical experience as well as lease terms (for leased assets). In addition, the condition of assets is assessed bi-annually and considered against the remaining useful life. Adjustments to useful lives are made when considered necessary. 69 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 4. Revenue and Expenses Sales revenue Sale of goods and biological assets Debtor interest associated with sales Commission and other selling charges Discontinued operations Other revenues Share of profit of associates Discontinued operations Other expenses Forestry fair value adjustments Gain on divested assets Impairment of assets retained Restructuring, redundancy and other write offs Discontinued operations Finance costs Interest expense Other finance costs Discontinued operations Specific expenses: depreciation and amortisation Depreciation and amortisation Discontinued operations Specific expenses: employee benefit expense Salaries and wages Superannuation and other employee costs Share based payments Discontinued operations Operating lease expenditure Foreign exchange net gains/(losses) Provision for doubtful debts expense - trade debtors Provision for doubtful debts expense - associate entities and other receivables 70 Note 2014 $000 2013 $000 1,203,041 1,235,263 5,578 7,069 222,896 179,724 1,431,515 1,422,056 32 138,289 486,730 1,569,804 1,908,786 32 32 32 493 493 4,342 4,835 245 245 9,126 9,371 (1,125) (2,243) (7,422) - - 154,628 (599) 57,709 (3,967) 204,915 20,363 16,396 181,839 386,754 17,645 5,697 23,342 (183) 23,159 3,245 3,245 461 3,706 26,244 4,246 30,490 2,731 33,221 5,501 5,501 13,683 19,184 128,811 158,537 24,829 28,268 (53) 818 153,587 187,623 9,831 73,687 163,418 261,310 47,880 1,428 2,591 14 74,207 1,160 13,028 11,711 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 5. Income Tax (a) Major components of income tax expense are: Income statement Current income tax expense/(benefit) Adjustments in respect of current income tax of previous years Deferred income tax expense/(benefit) Income tax expense/(benefit) reported in the statement of comprehensive income Statement of changes in equity Deferred income tax Income tax expense/(benefit) reported in equity 2014 $000 1,537 104 (16,197) (14,556) 2013 $000 3,099 (3,414) 40,131 39,816 1,298 1,223 (b) Reconciliation of income tax expense applicable to accounting profit/(loss) before income tax at the statutory income tax rate to income tax expense at Elders’ effective income tax rate is as follows: Accounting profit/(loss) before tax from: - Continuing operations - Discontinued operations Total Accounting profit/(loss) before tax Income tax expense/(benefit) at 30% (2013: 30%) Adjustments in respect of current income tax of previous years Share of associate (profits)/losses Non assessable (profits)/losses Non deductible other expenses Impairment expense Non assessable dividends Capitalised research and development Losses available not otherwise brought to account (Recognition)/derecognition of deferred tax assets on previously unrecognised/recognised temporary differences Other Income tax expense/(benefit) as reported in the statement of comprehensive income Aggregate income tax expense/(benefit) is attributable to: - Continuing operations - Discontinued operations Current tax receivable 7,946 (284,299) (17,147) (177,755) (9,201) (462,054) (2,760) (138,616) 104 (1,110) (6,995) 984 6,332 (341) - 3,316 (10,875) (3,211) (14,556) (14,703) 147 (14,556) 743 (3,415) (2,081) 19,376 5,606 48,826 (325) (1,702) 87,807 22,150 2,190 39,816 64,440 (24,624) 39,816 1,363 71 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 5. Income Tax (continued) Deferred income tax liabilities Revaluations of investment properties to fair value Shares in associated entities Exchange rates to fair value Non assessable accrued income Forestry assets (standing timber) Plant and equipment temporary differences Research and development Other debtors Other Gross deferred income tax liabilities Deferred income tax assets Statement of Financial Position Statement of Comprehensive Income 2014 $000 (740) -  -  -  (81) -  -  -  2013 $000 (1,074) (1,259) (355) -  -  -  -  -  2014 $000 (334) (1,259) (355) -  81 -  -  -  (295) (1,116) (780) (3,468) (485) (2,352) 2013 $000 (182) 430 (89) (14,042) (580) (1,463) (8,597) (5,658) (1,073) (31,254) Losses available to offset against future taxable income - - - 52,000 Provision for employee entitlements 10,481 10,759 Other provisions Accrued expenditure Deferred borrowing costs Other capitalised expenses Plant and equipment temporary differences Derecognition of deferred tax assets Other Gross deferred income tax assets Deferred income tax charge 4,159 1,112 377 14,709 798 8,038 2,027 2,584 4,398 2,330 278 3,879 915 2,207 (10,311) 1,532 (11,275) (22,150) (10,875) 255 20,616 82 8,068 (173) (12,548) (14,900) 4,893 4,050 (192) 2,411 (1,886) (2,330) 22,150 411 81,507 50,253 Tax losses Elders has tax losses for which no deferred tax asset is recognised in the statement of financial position of $250.6 million (2013: $232.1 million) which are available indefinitely for offset against future taxable profits subject to continuing to meet relevant statutory tests. Unrecognised temporary differences At 30 September 2014, there are no unrecognised temporary differences associated with investment in subsidiaries, associates or joint ventures, as Elders would have no additional tax liability. Tax Consolidation Elders and its 100% owned Australian resident subsidiaries are in a tax consolidated group. Elders Limited is the head entity of the tax consolidated group. Members of the Group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote. Wholly owned Australian subsidiaries are required to make contributions to the head entity for tax liabilities and deferred tax balances arising from external transactions occurring after the implementation of tax consolidations. The contributions are calculated as a percentage of taxable income as if each subsidiary is a stand alone entity. Contributions are payable following payment of the liabilities by Elders. The assets and liabilities arising under the tax funding agreement are recognised as intercompany assets and liabilities with a consequential adjustment to income tax expense or benefit. 72 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 6. Receivables Current Trade debtors Allowance for doubtful debts Amounts receivable from associated entities Other receivables Allowance for non-recovery Total current receivables Non current Total non current receivables Movements in the allowance for doubtful debts – trade debtors Opening balance of allowance for doubtful debts Trade debts written off Amounts derecognised as part of sale of business Trade debts provided for during the year Closing balance of allowance for doubtful debts Movements in allowance for non-recovery – amounts receivable from associated entities and other receivables Opening balance of allowance for non-recovery Amounts written off Amounts provided for during the year Closing balance of allowance for non-recovery 2014 $000 2013 $000 298,552 328,712 (6,631) (9,214) 291,921 319,498 331 331 5,261 5,261 9,885 21,007 - (413) 9,885 20,594 302,137 345,353 - 4,175 9,214 (5,174) -  2,591 6,631 413 (427) 14 - 12,710 (14,924) (1,600) 13,028 9,214 1,910 (13,208) 11,711 413 (i) Included in trade debtors is $62.6 million (2013: $38.9 million) which is subject to credit insurance with various terms and conditions. Trade receivables are generally on 30 to 90 day terms with the exception of livestock receivables which are on 10 day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. An impairment loss of $2.6 million (2013: $13 million) has been recognised by Elders. During the period, no individual amount within the impairment allowance is considered material. 73 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 6. Receivables (continued) The ageing analysis of trade debtors is as follows: 0-30 days Trade debtors past due but not considered impaired 31-60 days 61-90 days +91 days Trade debtors past due and considered impaired 31-60 days 61-90 days +91 days Total trade debtors The ageing analysis of other current receivables is as follows: 0-30 days Other current receivables past due and considered impaired +91 days Total other current receivables Related party receivables For terms and conditions of related party receivables refer to note 28. 2014 $000 2013 $000 280,327 298,901 3,554 2,046 5,994 11,594 - - 6,631 6,631 4,392 1,223 14,982 20,597 337 61 8,816 9,214 298,552 328,712 9,885 20,594 - 413 9,885 21,007 Fair value and credit risk Due to the short term nature of trade and other current receivables, their carrying value is assumed to approximate their fair value. For other receivables the carrying amount is not materially different to their fair values. The maximum exposure to credit risk is the fair value of each class of receivables. Details regarding credit risk exposure are disclosed in note 30. Foreign exchange and interest rate risk Details regarding the foreign exchange and interest rate risk exposure are disclosed in note 30, including those relating to derivative related balances. 74 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 7. Biological Assets (a) Livestock Current Fair value at the end of the period 2014 $000 2013 $000 41,123 36,671 The below table discloses the fair value of livestock assets in their fair value hierarchy: Fair Value Input Cattle Type $000 Head $000 Head 2014 2013 Level 1 Level 2 Level 3 None None All - - - - - - - - 41,123 41,123 34,507 34,507 36,671 36,671 44,440 44,440 All Elders’ cattle are valued at fair value, using Level 3 Price Inputs. Cattle are held for live export and feedlotting purposes, which means that quoted prices in active markets for identical cattle are not available, nor are there other input prices other than quoted prices which are available. Fair Value Inputs are summarised as follows: • Level 1 Price Inputs – are quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date. • Level 2 Price Inputs – are input prices other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3 Price Inputs – are unobservable inputs for the asset or liability. At balance date 34,507 head of cattle (2013: 44,440) are included in livestock. This includes: • 16,321 cattle held in Australia and New Zealand destined for the Chinese and Indonesian live export markets; • 18,186 cattle held in Australia and Indonesia for feedlotting purposes. Cattle are held for short term trading and feeding purposes, and at period end an unrealised $1.7 million (2013: $1.5 million) fair value increment was recognised. In regard to Live Export cattle, as Elders has access to different active markets, Elders has used the most relevant one, being the market that is going to be used, in determining fair value. Fair value has been determined internally by Elders based on the estimated selling price of cattle (allowing for breed and specifications of the cattle), less costs to sell, including associated shipping and transportation costs. Feedlot cattle are valued internally by Elders as there is no observable market for them. The value is based on the estimated exit price per kilogram and the value changes for the weight of each animal as it progresses through the feedlot program. The key factors affecting the value of each animal are price/kg, days on feed and the feed conversion ratio. The average daily gain of weight is in the range of 1.5kgs to 2.0kgs. The value is determined by applying the average weight gain per day by the number of days on feed from induction to exit at which point the cattle are delivered to market. The value per animal is based on the breed and specifications of the animal and the market it is destined for. Significant increases/(decreases) in any of the significant unobservable valuation inputs for feedlot cattle in isolation would result in significantly lower/(higher) fair value measurement. The group is exposed to a number of risks related to its livestock: Regulatory and environmental risks Elders is subject to laws and regulations and has established environmental policies and procedures aimed at compliance with local environmental and other laws. Management performs regular reviews to identify environmental risks and ensure systems in place are adequate to manage those risks. Supply and demand risk Elders is exposed to financial risk in respect of livestock activity. The primary financial risk associated with this activity occurs due to the length of time between expending cash on the purchase and ultimately receiving cash from the sale to third parties. Elders’ strategy to manage this financial risk is to actively review and manage its working capital requirements. Elders is exposed to risks arising from fluctuations in price and sales volumes. Where possible, Elders manages these risks by aligning volumes with market supply and demand. Other risks Elders’ livestock are exposed to the risk of damage from disease and other natural forces. Elders has extensive processes in place aimed at monitoring and mitigating those risks, including regular health inspections and industry pest and disease surveys. 75 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 7. Biological Assets (continued) (b) Plantations As at 1 April 2014, the remaining forestry assets were reclassified as held for use after it became apparent that efforts to exit certain associated leases were unsuccessful. Non current Fair value at classification as held for use Costs incurred in respect of forestry plantations Unrealised fair value increment in period Fair value at the end of the period The below table discloses the fair value of plantation assets in their fair value hierarchy: Fair Value Input Level 1 Level 2 Level 3 2014 $000 4,588 4,101 217 270 4,588 - - 4,588 4,588 2013 $000 - - - - - - - - - Plantations are valued at fair value, using Level 3 Price Inputs. Fair Value Inputs are summarised as follows: • Level 1 Price Inputs – are quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date. • Level 2 Price Inputs – are input prices other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3 Price Inputs – are unobservable inputs for the asset or liability. Physical quantity of forestry plantation timber at the end of the 2014 year was 2,699ha. Residual lease obligations are estimated to be $1.6 million a year and these costs have been fully provided for. The fair value methodology for forestry assets is detailed in note 2(j). The assumptions used in the valuation model to determine fair value less costs to sell are as follows: CPI: Discount rate: Period to harvest: Current woodchip FOB price: 2.5% to 4% 14.5% Between 5 to 7 years, depending upon year of establishment and current harvest schedule for the individual property. $170 per BDMT (Bone Dry Metric Tonne) Elders is exposed to a number of risks related to its plantations: Regulatory and environmental risks Elders is subject to laws and regulations and has established environmental policies and procedures aimed at compliance with local environmental and other laws. Management performs regular reviews to identify environmental risks and ensure systems in place are adequate to manage those risks. Supply and demand risk Elders is exposed to financial risk in respect of forestry activity. The primary financial risk associated with this activity occurs due to the length of time between expending cash on the purchase or planting and maintenance of the plantations and ultimately receiving cash from the sale of timber to third parties. Elders’ strategy to manage this financial risk is to actively review and manage its working capital requirements. Elders is exposed to risks arising from fluctuations in price and sales volumes. Where possible, Elders manages these risks by aligning harvest volumes with market supply and demand. Climate and other risks Elders’ plantations are exposed to the risk of damage from climatic changes, diseases, forest fires and other natural forces. Elders conducts regular plantation health inspections and is involved in industry pest and disease surveys. 76 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 8. Inventory Current Inventory – at net realisable value 2014 $000 2013 $000 84,817 116,311 Inventories recognised as an expense for the year ended 30 September 2014 totalled $856.0 million (2013: $1,259.6 million). This expense has been included in the cost of sales line item as a cost of inventories. In addition inventory write-downs recognised as an expense totalled $2.7 million (2013: $6.6 million). Note 9. Other Financial Assets Non current Unlisted investments 1,269 19,538 On 8 May 2014, the Company sold its remaining 10% shareholding in Elders Insurance (Underwriting Agency) for $18.5 million, resulting in an immaterial gain on sale. Note 10. Equity Accounted Investments Name of equity accounted investment Balance date Ownership interest Consolidated entity investment Contribution to net profit/(loss) AWH Pty Ltd Kilcoy Pastoral Company Limited Elders Financial Planning Pty Ltd Elders Insurance (Underwriting Agency) Pty Limited Auctions Plus Agricultural Land Trust Other investments Share of profit of investments: Continuing operations Discontinued operations 2014 2013 % - - 49 - 50 - % 50 20 49 10 50 52 30 Jun 30 Jun 30 Sep 31 Dec 30 Jun 30 Jun 2014 $000 -  -  5,151 -  726 -  -  2013 $000 49,671 7,120 5,278 - 631 - - 2014 $000 2,378 828 (126) -  619 -  -  2013 $000 4,278 1,435 (65) 5,517 310 (2,968) (137) 5,877 62,700 3,699 8,370 493 3,206 245 8,125 3,699 8,370 All equity accounted investments are Australian resident companies. During the period, a $2.4 million profit on sale of Elders’ investment in Kilcoy Pastoral Company was recognised. On 8 May 2014, Elders sold its 10% equity holding in Elders Insurance (Underwriting Agency) Pty Ltd (refer to note 9). The Company’s investment in AWH Pty Ltd was impaired at 31 March 2014 by $20.4 million and subsequently sold, resulting in a gain on sale of $3.9 million. Elders’ investment in Agricultural Land Trust was classified as held for sale at 30 September 2013 and impaired to nil value in this period as part of the divestment of Forestry related assets. Due to the nature of this sales transaction Elders still holds an immaterial ownership interest in Agricultural Land Trust which will be cancelled in the near future. 77 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 10. Equity Accounted Investments (continued) (a) Share of Associates and Joint Ventures Share of associates’ and joint ventures’ statement of financial position Current assets Non current assets Current liabilities Non current liabilities Share of net assets of associates Share of associates’ and joint ventures’ profit or loss Revenue Profit before income tax Income tax (expense)/benefit Profit after income tax Share of net results of associates Share of associates’ and joint ventures’ commitments and contingent liabilities Capital expenditure commitments (contracted) Operating lease commitments 2014 $000 2,088 6,188 8,276 1,363 1,036 2,399 5,877 2013 $000 50,628 31,689 82,317 37,758 4,618 42,376 39,941 47,625 183,861 5,144 (1,445) 3,699 3,699 12,810 (4,440) 8,370 8,370 - 617 10,028 27,415 78 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 11. Property, Plant and Equipment Reconciliation of carrying amounts at beginning and end of period: Non current 2014 Freehold land Buildings Leasehold improve- ments Plant and equipment (owned) Plant and equipment (leased) Assets under construction Total $000 $000 $000 $000 $000 $000 $000 Carrying amount at beginning of period 6,425 11,434 5,471 10,731 Additions Disposals Disposals through entities sold Depreciation expense Impairment Exchange fluctuations Transfers from assets under construction Other -  -  316 (9) (592) (3,093) -  (798) (812) (1,096) 60 -  -  30 -  339 129 (98) (10) (1,050) (1,085) -  -  -  1,772 (168) (1,161) (1,701) (869) 88 201 233 Carrying amount at end of period 5,081 7,123 3,357 9,126 834 432 (51) -  (157) -  -  -  (233) 825 201 238 -  -  -  -  -  (201) -  35,096 2,887 (326) (4,856) (3,706) (3,862) 178 -  339 238 25,750 Cost 5,081 13,551 9,232 29,210 1,022 238 58,334 Accumulated depreciation and impairment -  5,081 (6,428) 7,123 (5,875) (20,084) 3,357 9,126 (197) 825 -  (32,584) 238 25,750 2013 Carrying amount at beginning of period 6,669 14,722 10,928 50,227 Additions Disposals Disposals through entities sold Depreciation expense Impairment Exchange fluctuations Transfers from assets under construction Other -  (113) -  -  (18) (25) -  (88) 83 (44) 852 (67) 1,698 (238) (2,883) (475) (25,777) (950) (103) 30 486 93 (2,029) (10,696) (3,975) (17,833) 18 224 (5) 32 12,993 325 Carrying amount at end of period 6,425 11,434 5,471 10,731 1,412 387 -  (443) (197) -  -  -  (325) 834 11,726 10,602 95,684 13,622 -  (462) (6,362) (35,940) -  (13,872) (1,208) (23,137) 101 (13,703) (955) 201 156 -  (955) 35,096 Cost 6,443 20,315 11,411 39,149 1,009 201 78,528 Accumulated depreciation and impairment (18) (8,881) (5,940) (28,418) 6,425 11,434 5,471 10,731 (175) 834 -  (43,432) 201 35,096 The impairments in 2014 relate to writedowns to the New Zealand Network prior to its disposal. This was recognised in the operating segment titled ‘Other’. Refer to note 32 for details relating to discontinued operations. All Property, plant and equipment is pledged as security, refer to note 14 for interest bearing loans and borrowings. 79 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 12. Brand Name Brandname (a) Description of Elders Brand Name 2014 $000 5,615 2013 $000 5,615 The Brand Name value represents the value attributed to the Elders Brand when acquired through business combinations and is carried at cost less accumulated impairment losses. The Brand Name has been determined to have an indefinite useful life due to there being no foreseeable limit to the period over which it is expected to generate net cash inflows, given the strength and durability of our Brand and the level of marketing support. The Brand has been in the rural and regional Australian market for many years, and the nature of the industry Elders operates in is such that Brand obsolescence is not common, if appropriately supported by advertising and marketing spend. The Brand Name is not amortised but is subject to impairment testing on an bi-annual basis or whenever there is an indication of impairment. Expenditure incurred in developing, maintaining or enhancing the Brand Name is expensed in the year that it occurred. (b) Impairment test for the Brand Name For the purposes of impairment testing, the Brand Name has not been allocated to individual CGU’s but rather assessed against all CGU’s expected to benefit from it. The recoverable amount of the cash generating units to which the Elders’ Brand Name has been allocated to have been determined based on a value in use calculation using cash flow projections approved by management that covers a period of 5 years. Future cash flows are based on budgets and forecasts taking into account current market conditions and known future business events that will impact cash flows. The discount rate applied to the cash flow projections is 13.2% pre-tax (2013: 13.7% pre-tax) which has been determined based on a weighted average cost of capital calculation which incorporates the specific risks relating to the cash generating units identified. Management has determined that there is no impairment loss in the current year in relation to the brand name. In 2013 $54.8m of Brand Name was impaired, along with a further $189.5m relating to goodwill associated with the Branch Network and Automotive cash generating units. In 2013, a further impairment of $25.5 million was recognised as a result of the cancellation of the Elders IT modernisation project. The calculation of value in use for the cash generating units expected to benefit from the Brand Name was based on the following key assumptions: Gross margins Gross margins are expected to increase as a result of: • Increased livestock agency commission driven through increases in livestock pricing and volumes. • A return to normal summer rainfall patterns improving sales of agricultural chemicals, seed and fertiliser, and likely restoration of margins to historic levels as demand increases. • Continued strong demand for cattle in overseas markets. Selling, general and administrative expenses Significant cost savings were achieved in the 2014 financial year as a result of the successful implementation of the reorganisation plan and new business model focused on agribusiness. Further cost saving initiatives which offset inflationary pressure are expected over the next 3 years. Growth rate estimates Year 1-3 cash flows are based on a forecast model. No EBIT growth for years 4 to 5 has been incorporated in the discounted cash flow. Discount rates Discount rates reflect management’s estimate of the time value of money and the risk specific to each unit that are not already reflected in the cash flows. With regard to the assessment of the value in use of the cash generating units which benefit from the Brand Name, there are reasonably possible changes in key assumptions that could cause the carrying value of the unit to materially exceed its recoverable amount: • a decrease in expected future cash flows in excess of 11% across all years of the discounted cash flow model could result in an impairment; or • an increase in the discount rate by more than 1.7%, could result in impairment. 80 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 13. Trade and Other Payables Current Trade creditors Other creditors and accruals Payables to associated companies 2014 $000 2013 $000 226,583 220,398 23,094 - 31,744 2,881 249,677 255,023 Fair Value Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value. Financial guarantees Information regarding financial guarantees is set out in note 23 and 30. Related party payables For terms and conditions of related party payables refer to note 28. Interest rate, foreign risk and liquidity risk Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 30, including those relating to derivative forward contracts. Note 14. Interest Bearing Loans and Borrowings Current Secured loans Trade receivables funding Lease liabilities Non current Secured loans Unsecured loans Lease liabilities Total current and non current (a) Financing arrangements The Company has access to the following financing facilities with a number of financial institutions: 2014 Secured loans - term debt Trade receivables funding Lease liabilities Total 2013 Secured loans - term debt Trade receivables funding Unsecured loans and lease liabilities Total 34,050 125,631 118,449 149,380 301 287 159,982 268,116 - - 121 121 24,720 1,733 116 26,569 160,103 294,685 Accessible $000 Drawn $000 Unused $000 34,050 34,050 - 197,100 125,631 71,469 422 422 - 231,572 160,103 71,469 143,169 143,169 - 207,216 149,380 57,836 2,136 2,136 - 352,521 294,685 57,836 The Company also has an ancillary facility in relation to contingent funding, such as bank guarantees, of $45.0 million. As at 30 September 2014, $32.2 million had been issued. The parent entity and certain controlled entities have potential financial liabilities which may arise from certain contingencies disclosed in note 23. However the Directors do not expect those potential financial liabilities to crystallise into obligations and therefore financial liabilities disclosed in the above table are the Directors’ estimate of amounts that will be payable by Elders. No material losses are expected and as such, the fair values disclosed are the Directors’ estimate of amounts that will be payable by Elders. 81 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 14. Interest Bearing Loans and Borrowings (continued) (b) Assets pledged as security Secured loans are secured by various fixed and floating charges over all the assets of Elders Limited (either directly or indirectly). Lease liabilities are secured by a charge over the leased assets. (c) Fair value The carrying value of interest bearing liabilities approximates fair value. Note 15. Provisions Reconciliation of carrying amounts at beginning and end of period: Employee entitlements Restructuring and redundancy $000 $000 Make good $000 Onerous contracts Other Total $000 $000 $000 39,563 17,130 30,009 4,469 6,531 600 - (20,476) (23,610) (100) (300) 369 - (1,342) - 34,944 31,699 3,245 34,944 52,838 25,031 (23,704) (214) (350) -  (14,038) -  (3,275) (2,829) - 750 - (3,874) 229 - - - 600 1,769 600 440 - 1,329 600 1,769 17,702 26,607 13,100 707 (23,147) (3,861) (563) (5,246) -  (400) (1,218) 11,028 376 -  (547) (60) - (2,995) (2,463) 281 - - 7,974 9,328 3,388 5,940 9,328 59,212 6,641 (24,053) (22,026) 521 -  (10,968) 39,563 30,009 4,469 6,531 36,712 2,851 39,563 30,009 -  2,088 2,381 30,009 4,469 3,852 2,679 6,531 969 3,479 81,541 21,209 (1,086) (48,267) - - - - (2,917) (8,867) 879 750 (1,342) 1,183 445 47,086 445 - 445 36,572 10,514 47,086 3,122 1,613 (954) (384) -  -  145,974 60,599 (75,719) (28,433) 547 (400) -  969 969 -  969 -  81,541 73,630 7,911 81,541 (2,796) (2,428) (21,027) 2014 As at beginning of period Arising during year Utilised Unused amounts reversed Discount rate adjustment Provisions transferred to held for sale assets Disposals of controlled entities Other Disclosed as: Current Non current Total 2013 As at beginning of period Arising during year Utilised Unused amounts reversed Discount rate adjustment Provisions allocated to other assets Disposals of controlled entities Other Disclosed as: Current Non current Total 82 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 16. Contributed Equity 2014 $000 2013 $000 Issued and paid up capital 523,265,328 ordinary shares (September 2013: 455,013,329) 1,277,813 1,269,153 The movement in the dollar balance of share capital is a result of: • A $1.2 million decrease due to the unwinding of the tax effect of the equity raising costs incurred in the 2010 financial year; and • A $9.8 million increase as a result of placement of 68,251,999 shares at $0.15c per share on 18 September 2014. Gross proceeds were $10.2m with associated costs totalling $0.4m. Effective 1 July 1998, the Corporations legislation abolished the concepts of authorised capital and par value shares. Accordingly the Company does not have authorised capital nor par value in respect of its issued capital. Capital management The Company considers both capital and net debt as relevant components of funding, hence, part of its capital management. When managing capital and net debt, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. Note 17. Hybrid Equity Issued and fully paid up 145,151 145,151 1,500,000 perpetual, subordinated, convertible unsecured notes (“Hybrids”) were issued in April 2006 at $100 each. If the Board resolves to pay them, distributions will be paid quarterly in arrears on 31 March, 30 June, 30 September and 31 December each year. Distributions are frankable. Until 30 June 2011 (the first remarketing date) the distribution rate was the 3 month bank bill swap rate plus a margin of 2.20% pa. On 30 June 2011, Elders accepted a one-off step up of 250bps in margin. No distributions were declared or paid during the year. The Hybrids may, on the occurrence of certain events, be converted or resold by Elders at its election or pursuant to a request of holders. The terms of such conversion or resale can be found in the Futuris Hybrids Prospectus dated 28 February 2006, which is available on Elders’ website. Hybrid holders rank after all creditors but before ordinary shareholders on a winding up to the face value of the Hybrids plus unpaid Hybrid distributions for the prior 12 months. Note 18. Reserves Reconciliation of carrying amounts at beginning and end of period: Business combination reserve Employee equity benefits reserve Foreign currency translation reserve Net unrealised gains reserve Reserved shares reserve Total 2014 Carrying amount at beginning of period Foreign currency translation Non-controlling interest share of movement $000 (16,503) - - Amount derecognised on sale of controlled entity 275 Net gains/losses in cash flow hedges Income tax on items taken directly or transferred to equity Cost of share based payments Transfer to retained earnings - - - - Carrying amount at end of period (16,228) $000 627 - - - - - (53) (313) 261 $000 (5,678) (2,310) (124) 4,010 - - - - (4,102) $000 (271) - - 399 (128) - - - $000 $000 - - - - - - - - (21,825) (2,310) (124) 4,285 399 (128) (53) (313) (20,069) 83 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 18. Reserves (continued) Business combination reserve Employee equity benefits reserve Foreign currency translation reserve Net unrealised gains reserve Reserved shares reserve Total 2013 Carrying amount at beginning of period Foreign currency translation Non-controlling interest share of movement Net gains/losses in cash flow hedges Income tax on items taken directly or transferred to equity Sale of reserved shares Excess paid for purchase of non-controlling interest Cost of share based payments Transfer to retained earnings Transfers to reserved shares reserve $000 (16,169) $000 397 - - - - - 12 - (346) - - - - - - - 818 (985) 397 627 Carrying amount at end of period (16,503) Nature and purpose of reserves $000 (7,707) 2,869 (840) - - - - - - - $000 (1,641) - - 1,423 (53) - - - - - $000 $000 (2,190) (27,310) - - - - 10 - - 2,577 (397) 2,869 (840) 1,423 (53) 10 12 818 1,246 - (5,678) (271) - (21,825) (i) Business combination reserve The reserve is used to record the differences between the carrying value of non-controlling interests and the consideration paid/received, where there has been a transaction involving non-controlling interests that do not result in a loss of control. (ii) Employee equity benefits reserve This reserve is used to record the value of equity benefits provided to employees, including key management personnel as part of their remuneration. (iii) Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. (iv) Net unrealised gains reserve This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge. (v) Reserved Shares Reserve This reserve represents shares that have been forfeited by employees that were issued under the discontinued employee share loan plan. Note 19. Retained Earnings Retained earnings at the beginning of the financial year Net profit/(loss) attributable to owners of the parent Transfer from business combinations reserve Transfer from employee equity benefits reserve Transfer from reserved shares reserve Other 2014 $000 2013 $000 (1,350,520) (844,029) 2,982 (505,255) - 313 - - 346 985 (2,577) 10 Retained earnings at the end of the financial year (1,347,225) (1,350,520) 84 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 20. Dividends (a) Dividends proposed No final dividend will be paid (2013: Nil) (b) Dividends paid during the year Current year interim - No interim dividend was be paid (2013: Nil) Previous year final - No final dividend paid (2013: Nil) Subsidiary equity dividends on ordinary shares: Dividends paid to non-controlling interests during the year (c) Franking credit balance 2014 $000 - 2013 $000 - - - - - 2,842 3,170 Franking credits available to the parent for subsequent financial years based on tax rate of 30% (2013: 30%) 19,690 16,570 The above amounts represent the balance of the franking account as at the end of the financial period, adjusted for: • franking credits that will arise from the payment of the amount of the provision for income tax; • franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; • franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date; and • franking credits that may be prevented from being distributed in subsequent financial years. Note 21. Cash Flow Statement Reconciliation (a) Reconciliation of net profit/(loss) after tax to net cash flows from operations Profit/(loss) after income tax expense Adjustments for non cash items: Depreciation Share of associates earnings Dividends from associates Fair value adjustments to financial assets Other fair value adjustments Fair value adjustments and impairments Movement in provision for: - doubtful debts - employee entitlements - other provisions Other write downs Net (profit)/loss on sale of non-current assets Net (profit)/loss on sale of controlled entity Deferred tax asset Deferred income tax Provision for tax Other non cash items - (Increase)/decrease in receivables and other assets - (Increase)/decrease in inventories - Increase/(decrease) in payables and provisions Net cash flows from operating activities 5,355 (501,870) 3,706 (3,699) 3,765 (15) (1,508) 24,307 2,605 17,199 (3,978) 2,688 (5,967) (328) (12,781) (2,352) 620 (1,223) 28,394 14,119 9,874 19,184 (8,370) 15,237 2,923 - 309,576 24,739 24,467 8,246 6,638 (23,569) 37,908 72,140 (30,425) (2,731) (1,565) (47,472) 89,944 (612) (37,332) (123,446) 15,055 (81,586) 85 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 21. Cash Flow Statement Reconciliation (continued) (b) Cash and cash equivalents Cash at bank and in hand Cash includes $5.1 million (2013: $4.3 million) of cash held in trust on behalf of certain controlled entities. (c) Non cash financing and investing activities During the financial year, and the previous financial year, there were no non cash financing and investing transactions. 2014 $000 2013 $000 22,477 39,927 Note 22. Expenditure Commitments Operating lease commitments – Elders as a lessee Elders’ operating lease commitments relate to property leases associated with the branch network, the remaining forestry leases, and vehicle and shipping leases. The lease commitments comprise base amounts adjusted where necessary for escalation clauses primarily based on inflation rates. Leases generally provide the right of renewal at the end of the lease term. Operating lease commitments: - Within one year - After one year but not later than five years - After more than five years Total minimum lease payments Property, plant and equipment commitments Capital expenditure contracted for but not otherwise provided for in these accounts: - Within one year Total property, plant and equipment commitments Note 23. Contingent Liabilities 43,404 47,722 9,522 59,417 117,255 57,530 100,648 234,202 324 324 - - Contingent liabilities at balance date, not otherwise provided for in the financial statements, are as follows: Guarantees issued to third parties arising in the normal course of business 32,237 39,638 There are potential legal matters that occur in the ordinary course of business that are being considered by Elders’ legal advisors. Based on the current information available, the following applies: Unquantifiable contingent liabilities • Elders has contingent obligations in respect of real property let or sub-let by subsidiaries of Elders. • Elders has contingent obligations in respect of real property sub-let to the purchaser of Elders’ former Sandalwood estate. • Benefits are payable under service agreements with executive Directors and other employees of Elders under certain circumstances such as achievement of prescribed performance hurdles, occurrence of certain events or termination of employment for reasons other than serious misconduct. • Elders has provided a guarantee to a third party in relation to certain obligations of Caversham Property Developments Pty Limited, a former subsidiary of Elders Limited. The Directors are of the view that Elders’ liability under the guarantee is unquantifiable and remote. • A wholly owned subsidiary of Elders is party to a put option in connection with a third party’s holding in B&W Rural Pty Ltd, an incorporated joint venture in which Elders is the 75% shareholder. If exercised, Elders will own all the issued capital in B&W Rural Pty Ltd. It is not known whether the third party will exercise its rights pursuant to that put option, nor is it presently ascertainable what the consideration for the option shares might be. • Subsidiaries of Elders have, from time to time and in the ordinary course, provided parent company guarantees in respect of certain contractual obligations of their subsidiaries. • Subsidiaries of Elders have from time to time provided warranties and indemnities in connection with the disposal of assets. The Directors are not aware at the present time of any material exposures under the warranties or indemnities. • Various legal claims for damages resulting from the use of products or services of Elders are in existence for which no provision has been raised as it is not currently probable that these claims will succeed or it is not practical to estimate the potential effect of these claims. The Directors are of the view that none of these claims based on the net exposure are likely to be material. • Elders is assisting certain regulators in connection with enquiries either specific to the activities of Elders or to certain markets in which Elders operates. The Directors are of the view that it is not yet known what the outcome of the enquiries will be and it is not presently ascertainable whether any liabilities will arise from these enquiries. 86 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 23. Contingent Liabilities (continued) Other guarantees As disclosed in note 26, the parent entity has entered into a Deed of Cross Guarantee with certain controlled entities. The effect of this Deed is that Elders Limited and each of these controlled entities has guaranteed to pay any deficiency of any of the companies party to the Deed in the event of any of those companies being wound up. The parent entity and certain subsidiaries of Elders are parties to various guarantees and indemnities pursuant to bank facilities and operating lease facilities extended to Elders. Note 24. Segment Information Identification of reportable segments Elders has identified its operating segments to be Network, Feed and Processing, Live Export, Forestry, Automotive Components (divested during the period up to 30 September 2013) and Other. This is the basis on which internal reports are reviewed and used by the Chief Executive Officer (the chief operating decision maker) in assessing performance and in determining allocation of resources. Discrete financial information about each of these operating businesses is reported to the Chief Executive Officer on at least a monthly basis. Elders operates predominantly within Australia. All other geographical operations are not material to the financial statements. Type of product and service • Network includes the provision of a range of agricultural products and services through a common distribution channel. • Feed and Processing includes the Australian cattle feedlot near Tamworth in New South Wales (Killara Feedlot), the Indonesian cattle feedlot near Lampung (PT Elders Indonesia), and Elders Fine Foods which is involved in the importation and distribution of Australian and New Zealand food products throughout China. • Live Export facilitates principle position trades of dairy, beef feeder, beef slaughter and beef breeding cattle from Australia and New Zealand to international markets by sea or air freight. • Forestry includes the Group’s interests in forestry plantations and forestry related investments. • Automotive Components include the manufacturing and sales of automotive components of which the key components are seating, interior trim, and insulation packages. The Automotive segment was divested during the period up to 30 September 2013. • The Other segment includes the general investment activities not associated with the other business segments and the administrative corporate office activities. Accounting policies and intersegment transactions The accounting policies used by the company in reporting segments internally are the same as those contained in note 2 to the accounts. Segment results have been determined on a consolidated basis and represent the earnings before corporate net financing costs and income tax expense. Changes have been made to the composition of the Rural Services and Investment & Other segments to reflect changes in internal reporting. The comparative segment information has been restated to reflect these changes. 87 (23,159) (9,201) 13,958 17,330 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 24. Segment Information (continued) 2014 External sales Other revenues Share of profit of associates Total revenue Network Feed and Processing Live Export Forestry $000 $000 $000 $000 1,111,289 188,843 205,982 1,136 2,871 - 828 - - 1,115,296 189,671 205,982 - - - - Other $000 Total $000 63,690 1,569,804 - - 1,136 3,699 63,690 1,574,639 Earnings before interest, tax, depreciation & amortisation 41,629 11,722 (1,053) (1,973) (32,661) 17,664 (1,934) (1,121) - - (651) (3,706) 39,695 10,601 (1,053) (1,973) (33,312) 13,958 Depreciation & amortisation Segment result Corporate net interest expense Profit/(loss) from ordinary activities before tax Segment result Discontinued operations results 39,695 12,799 10,601 (1,053) (1,973) (33,312) (6,250) - 2,543 8,238 Continuing profit/(loss) before net borrowing costs and tax expense Corporate net interest expense Continuing profit/(loss) before tax expense 52,494 4,351 (1,053) 570 (25,074) 31,288 (23,342) 7,946 Segment assets Segment liabilities Net assets 377,801 41,184 35,088 4,588 56,351 515,012 208,974 1,458 12,074 7,765 227,711 457,982 168,827 39,726 23,014 (3,177) (171,360) 57,030 Carrying value of equity investments Acquisition of non current assets Non cash income/(expense) other than depreciation and amortisation Profit/(loss) on sale of non current assets and controlled entities 5,877 1,761 - 822 (25,617) 1,738 6,145 5,843 - 92 - - - - - 212 5,877 2,887 (230) (15,966) (40,075) (130) (5,563) 6,295 88 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 24. Segment Information (continued) 2013 External sales Other revenues Share of profit of associates Total revenue Network Feed and Processing Live Export Forestry Automotive Compon- ents Other Total $000 $000 $000 1,147,860 206,733 171,478 - - 10,040 1,435 - - $000 1,412 1,001 (2,968) $000 $000 $000 304,130 77,173 1,908,786 - (137) - - 1,001 8,370 1,157,900 208,168 171,478 (555) 303,993 77,173 1,918,157 Earnings before interest, tax, depreciation & amortisation 62,034 5,452 (28,897) (17,414) (186,883) (243,941) (409,649) Depreciation & amortisation (3,034) (1,743) (4) - (12,654) (1,749) (19,184) Segment result 59,000 3,709 (28,901) (17,414) (199,537) (245,690) (428,833) Corporate net interest expense Profit/(loss) from ordinary activities before tax (33,221) (462,054) Segment result 59,000 3,709 (28,901) (17,414) (199,537) (245,690) (428,833) Discontinued operations results (53,109) (2,549) - 24,635 199,537 6,510 175,024 5,891 1,160 (28,901) 7,221 - (239,180) (253,809) Continuing profit/(loss) before net borrowing costs and tax expense Corporate net interest expense Continuing profit/(loss) before tax expense Segment assets Segment liabilities Net assets 482,162 70,098 21,884 6,112 194,471 1,870 13,435 21,003 287,691 68,228 8,449 (14,891) (30,490) (284,299) - - - - 100,661 680,917 403,938 634,717 (303,277) 46,200 - 62,700 (25,676) (103) (30,159) 55,580 (3,935) 7,120 (445) (193,878) (3,260) - - - - - 11,457 (180,189) (9,278) (375,148) 24,543 262 116 (2,594) (37,684) 1,018 (14,339) Carrying value of equity investments Acquisition of non current assets Non cash income/(expense) other than depreciation and amortisation Profit/(loss) on sale of non current assets and controlled entities Note 25. Auditors’ Remuneration The auditor of Elders Limited is Ernst & Young. Amounts received or due and receivable by Ernst & Young (Australia) for: - auditing or review of financial statements - tax services (primarily compliance) - other compliance and assurance services Amounts received or due and receivable by related practices of Ernst & Young (Australia) for: - auditing or review of financial statements - other services 2014 $ 2013 $ 860,296 1,222,176 131,764 161,472 361,413 631,824 1,153,532 2,215,413 - - - 140,015 25,532 165,547 89 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 26. Investment in Controlled Entities (a) Schedule of controlled entities Acehill Investments Pty Ltd Agricultural Land Management Limited Agsure Pty Ltd Country of Incorporation Australia Australia Australia AI Asia Pacific Operations Holding Limited Hong Kong SAR Air International Asia Pacific Operations Pty Ltd Air International Vehicle Air Conditioning (Shanghai) Co Ltd Albany Woolstores Pty Ltd APO Administration Limited APT Finance Pty Ltd APT Forestry Pty Ltd APT Land Pty Ltd APT Nurseries Pty Ltd APT Projects Ltd Argo Trust No. 2 Ashwick (Vic) No 102 Pty Ltd Australian Plantation Timber Pty Ltd Australian Retirement Managers Pty Ltd Australian Topmaking Services Pty Ltd B & W Rural Pty Ltd BWK Australia Pty Ltd BWK Holdings Pty Ltd Carbon Bid Co Pty Ltd Charlton Feedlot Pty Ltd E Globulus Pty Ltd Elders Automotive Group Limited Elders Burnett Moore WA Pty Ltd Elders Card Ltd Elders China Trading Company Elders Communications Pty Ltd Elders Direct Ltd Elders Esperance Woodchip Terminal Pty Ltd Elders Finance Pty Ltd Elders Financial Services Group Pty Ltd Elders Fine Foods (Shanghai) Company Elders Forestry Finance Pty Ltd Elders Forestry Holdings Pty Ltd Elders Forestry Land Holdings Elders Forestry Management Ltd Elders Forestry Pty Ltd Elders Global Wool Holdings Pty Ltd Elders Insurance Limited Elders International Australia Pty Ltd Elders Management Services Pty Ltd Elders Meat Processing Pty Ltd Elders Merchandise Limited Elders Mortgage Brokers Pty Ltd 90 Australia China Australia Hong Kong SAR Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand China Australia New Zealand Australia Australia Australia China Australia Australia Australia Australia Australia Australia New Zealand Australia Australia Australia New Zealand Australia (f) (h) (a) (f) (f) (e) (c) (c) (h) (c) (f) (g) (f) (c) (h) (h) (h) (c) (f) (c) (h) (c) (f) (h) (f) (h) (f) (a) (h) (c) (c) (c) (c) (c) (h) (a) (f) (h) (h) (f) % Held by Group 2014 100 - 100 100 100 100 100 100 100 100 - 100 100 100 100 100 - - 2013 100 100 100 100 100 100 66 100 100 100 100 100 100 100 100 100 100 100 75.5 75.5 - 100 100 100 - 100 100 - 100 100 - 100 100 - 100 100 100 100 100 100 100 - 100 100 - - 100 100 100 100 100 100 100 100 50 100 100 50 100 100 100 100 100 100 100 100 100 100 50 100 100 100 50 100 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 26. Investment in Controlled Entities (continued) Elders Primary Wool Limited Elders PT Indonesia Elders Real Estate (NSW) Pty Ltd Elders Real Estate (Qld) Pty Ltd Elders Real Estate (Tasmania) Pty Ltd Elders Real Estate (WA) Pty Ltd Elders Real Estate Franchise (Vic) Pty Ltd Elders Real Estate Ltd Elders Rural Holdings Limited Elders Rural Services Australia Limited Elders Rural Services Limited Elders Services Company Pty Ltd Elders Stock (SI) Ltd Elders Tasmanian Fibre Pty Ltd Elders Telecommunications Infrastructure Pty Ltd Elders Webster Pty Ltd Elders Wool International Pty Ltd Elderstock Limited EVIA Rural Finance Ltd Family Hospitals Pty Ltd Fares Exports Management Mexico, S.A. de C.V. Fares Exports Pty Ltd Fares Exports Trading Mexico, S.A. de C.V. Geelong Wool Combing Pty Ltd Gisborne Farmers Ltd Hollymont Pty Ltd ITC Portland Woodchip Terminal Pty Ltd ITC Timerlands Pty Ltd JS Brooksbank Pty Ltd JS Brooksbank & Co Australasia Ltd JSB New Zealand Limited Keratin Holdings Pty Ltd Killara Feedlot Pty Ltd Manor Hill Pty Ltd Marybrook Development Company Pty Ltd Masterfund (WA) Pty Ltd Milltoc Pty Ltd Mutual Benefit Consulting Pty Ltd New Ashwick Pty Ltd North Australian Cattle Company Pty Ltd Pitt Son & Keene Pty Ltd Prestige Property Holdings Pty Ltd Primac Exports Pty Ltd Primac Holdings Pty Ltd Primac Pty Ltd Rachid Fares Enterprises of Australia Pty Ltd Redray Enterprises Pty Ltd Country of Incorporation New Zealand Indonesia Australia Australia Australia Australia Australia New Zealand New Zealand Australia Australia Australia New Zealand Australia Australia Australia Australia New Zealand New Zealand Australia Mexico Australia Mexico Australia New Zealand Australia Australia Australia Australia New Zealand New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia (h) (h) (f) (f) (f) (h) (h) (a) (f) (h) (c) (f) (f) (c) (h) (f) (f) (h) (h) (f) (c) (f) (c) (a) (f) (h) (f) (h) (h) (f) (a) (h) (c) (f) (f) (f) (h) (f) % Held by Group 2014 2013 - 100 - 100 100 100 - - 100 100 100 100 - 100 100 100 100 - 100 100 100 100 100 - 100 - 100 100 100 100 100 100 100 100 - 100 - - 100 100 - 100 100 100 100 - 100 25 100 100 100 100 100 100 50 50 100 100 100 35 100 100 100 100 35 50 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 91 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 26. Investment in Controlled Entities (continued) SA Bid Co Pty Ltd Seed Production Limited Sydney Woolbrokers Limited Treecrop Pty Ltd Ultrasound Australia Pty Ltd Victorian Producers Co-operative Company Pty Ltd Vockbay Pty Limited WA Bid Co Pty Ltd Wool Exchange (WA) Pty Ltd Wool Marketing Enterprises Pty Ltd Country of Incorporation Australia New Zealand Australia Australia Australia Australia Australia Australia Australia New Zealand (h) (h) (f) (h) (a) (f) (h) (f) (h) (h) % Held by Group 2014 - - 53 - 100 100 - 100 - - 2013 100 50 53 100 100 100 100 100 67 25 • The parties that comprise the Closed Group are denoted by (a). Parties added to the Closed Group during the year are denoted by (b). Parties removed from the Closed Group during the year are denoted by (c). • Entities acquired or registered during the period are denoted by (d). • Entities exempted from audit requirements due to overseas legislation or non-corporate status are denoted by (e). • Entities classified by the Corporations Act as small proprietary companies relieved from audit requirements are denoted by (f). • Entity denoted by (g) is a controlled special purpose entity related to trade receivable financing program. • Entities denoted by (h) are entities that were disposed of, deregistered or liquidated during the year. (b) Deed of cross guarantee Pursuant to Australian Securities and Investments Commission Class Order 98/1418 (as amended) dated 13 August 1998, relief has been granted to these controlled entities of Elders Limited from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and directors’ reports. As a condition of the Class Order, Elders Limited, and the controlled entities subject to the Class Order, entered into a Deed of Cross Guarantee. The effect of the deed is that Elders Limited has guaranteed to pay any deficiency in the event of the winding up of any member of the Closed Group, and each member of the Closed Group has given a guarantee to pay any deficiency, in the event that Elders Limited or any other member of the closed group is wound up. Certain members of the Closed Group, in addition to certain controlled entities, are guarantors in connection with the consolidated entity’s borrowings facilities disclosed at note 14. A consolidated statement of comprehensive income and consolidated statement of financial position, comprising the Company and the controlled entities which are a party to the deed, after elimination of all transactions between parties to the Deed of Cross Guarantee, for the year ended 30 September is set out as follows: 2014 $000 2013 $000 (27,511) (1,606,459) 3,121 4,672 (24,390) (1,601,787) - 399,812 (24,390) (1,201,975) - 645 (24,390) (1,201,330) (1,369,468) (958,147) 27,350 792,246 313 (1,592) (1,366,195) (1,369,468) Statement of comprehensive income and retained earnings of the Closed Group Profit/(loss) from continuing operations before income tax Income tax benefit/(expense) Profit/(loss) after income tax from continuing operations Profit/(loss) after tax from discontinued operation Net profit for the period Other comprehensive income Total comprehensive income for the period Retained earnings at the beginning of the period Impact of entities exiting or joining closed group Transfers to and from reserves Retained earnings at the end of the period 92 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 26. Investment in Controlled Entities (continued) Consolidated statement of financial position of the Closed Group Current assets Cash and cash equivalents Trade and other receivables Livestock Inventories Non current asset classified as held for sale Total current assets Non current assets Receivables Other financial assets Investments in associates Property, plant and equipment Total non current assets Total assets Current liabilities Trade and other payables Interest bearing loans and borrowings Provisions Total current liabilities Non current liabilities Interest bearing loans and borrowings Total non current liabilities Total liabilities Net assets Equity Contributed equity Hybrid equity Reserves Retained earnings Total equity 2014 $000 2013 $000 4,503 26,505 18,957 6,317 - 4,894 21,286 13,585 6,687 17,247 56,282 63,699 - 902 60,682 108,017 - 6,672 67,354 123,636 18,980 46,215 1,411 51,973 13,829 174,721 238,420 32,723 120,448 14,329 66,606 167,500 - - 66,606 57,030 24,720 24,720 192,220 46,200 1,277,813 1,269,153 145,151 145,151 261 1,364 (1,366,195) (1,369,468) 57,030 46,200 Note 27. Key Management Personnel Remuneration of specified Directors and other Key Management Personnel For information on the Remuneration Policy, Structure and the relationship between remuneration payment and performance please refer to the Remuneration Report. Short term Long term Post employment Termination benefits Share based payments 2014 $ 2013 $ 3,394,703 4,317,168 (126,811) 204,375 129,692 146,413 1,766,181 1,384,456 (94,484) 514,439 5,069,281 6,566,851 93 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 28. Related Party Disclosures (a) Ultimate controlling entity The ultimate controlling entity of the Group is Elders Limited. (b) Transactions between Elders Limited (Parent Entity) and related parties in the wholly owned group Transactions with related parties in the wholly owned group: Recharges – other Impairment of intercompany loans 2014 $000 2013 $000 -  -  1,500 283,987 There are no balances between the parent entity and related parties in the wholly owned group. Transactions with related parties in the wholly owned group are made in arms length transactions both at normal market prices and on normal commercial terms. (c) Transactions between controlled entities wholly owned and controlled entities not wholly owned Details of entities not wholly owned are set out in note 26. Transactions with controlled entities not wholly owned: Intercompany loan movements Dividends received Amounts relating to loan balances to entities which were disposed of during the period Balances with controlled entities not wholly owned: Owing to the Group Owing from the Group (3,937) 2,917 -  4,056 (654) 3,402 10,802 4,683 (2,033) 4,989 (567) 4,422 Transactions with controlled entities not wholly owned are made in arms length transactions both at normal market prices and on normal commercial terms. (d) Transactions between controlled entities and partly owned entities (associates) Details of associates are set out in note 10. Transactions with partly owned entities: Loan movements Interest charged Dividends received Entity no longer partly owned Impairment of loans Balances with partly owned entities: Owing to the Group Owing from the Group (4,494) -  3,765 -  (436) 331 -  331 (2,898) 1,414 13,561 (213) (10,084) 5,261 (2,881) 2,380 Loans made to partly owned entities are priced on an arms length basis. None of the balances are secured. Transactions with partly owned entities are made in arms length transactions both at normal market prices and normal commercial terms. 94 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 29. Earnings Per Share Weighted average number of ordinary shares (‘000) used in calculating basic EPS Dilutive share options (‘000) 2014 2013 509,352 507,521 779,853 1,425,161 Adjusted weighted average number of ordinary shares used in calculating dilutive EPS (‘000) 1,289,205 1,932,682 On 14 October 2014, Elders issued 313,967,179 shares under a 3 for 5 non renounceable entitlement offer announced by Elders to the ASX on 15 September 2014. After this issue, the number of ordinary share on issue is 837,232,507. The weighted average number of ordinary shares as described above has been adjusted to incorporate the effects of this issue. The following reflects the net profit/(loss) and share data used in the calculations of earnings per share (EPS): Reported operations Basic Net profit/(loss) attributable to members (after tax) Dilutive Net profit/(loss) attributable to members (after tax) Reported operations earnings per share: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Continuing operations Basic Net profit/(loss) attributable to members (after tax) Less: Net loss/(profit) of discontinued operations (net of tax) Net profit/(loss) of continuing operations (net of tax) Dilutive Net profit/(loss) of continuing operations (net of tax) Continuing operations earnings per share: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Discontinued operations 2014 $000 2013 $000 2,982 (505,255) 2,982 (505,255) 0.6 ¢ 0.2 ¢ (99.6)¢ (99.6)¢ 2,982 18,275 21,257 (505,255) 154,491 (350,764) 21,257 (350,764) 4.2 ¢ 1.5 ¢ (69.1)¢ (69.1)¢ Net profit/(loss) of discontinued operations (net of tax) (18,275) (154,491) Discontinued operations earnings per share: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) (3.6)¢ (1.3)¢ (30.4)¢ (30.4)¢ 95 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 30. Financial Instruments The Company’s principal financial instruments comprise cash, receivables, payables, interest bearing loans and borrowings, and derivatives. Risk exposures and responses Elders manages its exposure to key financial risks, including interest rate and currency risk in accordance with its financial risk management policy. The objective of the policy is to support the delivery of financial targets while protecting future financial security. The main risks arising from Elders financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The Company uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rate and foreign exchange prices. Ageing analysis and monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored through the development of future rolling cash flow forecasts. The Board reviews and agrees policies for managing each of these risks as summarised below. (a) Interest rate risk Elders’ exposure to market interest rates relates primarily to short term debt obligations. The level of debt is disclosed in note 14. At balance date, Elders had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk: Financial assets Cash and cash equivalents Amounts receivable from associated entities Financial liabilities Secured loans Unsecured loans Net exposure 2014 $000 22,477 331 22,808 2013 $000 39,927 -  39,927 (159,681) (172,549) -  (1,733) (159,681) (174,282) (136,873) (134,355) Elders constantly analyses its interest rate exposure so as to manage its cash flow volatility arising from interest rate changes. Within this analysis consideration is given to potential renewals of existing positions, alternative financing, alternative hedging positions and the mix of fixed and variable interest rates. The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date. At 30 September 2014, if interest rates had moved as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows: Post Tax Profit/equity Higher/(Lower) 2014 $000 2013 $000 (1,369) (1,344) 1,369 1,344 + 100 basis points - 100 basis points 96 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 30. Financial Instruments (continued) (b) Liquidity risk Liquidity risk arises from Elders’ financial liabilities and the subsequent ability to meet our obligations to repay their financial liabilities as and when they fall due. Elders’ objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and committed available lines of credit. The Company manages its liquidity risk by monitoring the total cash inflows and outflows expected on a weekly basis. Elders has established comprehensive risk reporting covering its business units that reflect expectations of management of the expected settlement of financial assets and liabilities. A. Non derivative financial liabilities The following liquidity risk disclosures reflect all contractually fixed pay-offs, repayments and interest resulting from the recognised financial liabilities and financial guarantees as of 30 September 2014. For the other obligations the respective undiscounted cash flows for the respective upcoming fiscal years are presented. The timing of cash flows for liabilities is based on the contractual terms of the underlying contract. However, where the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which we can be required to pay. When Elders is committed to make amounts available in instalments, each instalment is allocated to the earliest period in which we are required to pay. For financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee can be called.The risk implied from the values shown in the table below, reflects a balanced view of cash inflows and outflows of non-derivative financial instruments. 2014 Non derivative financial assets: Cash and cash equivalents Trade and other receivables Non derivative financial liabilities: Interest bearing loans and borrowings Trade and other payables Financial guarantees Net inflow/(outflow) 2013 Non derivative financial assets: Cash and cash equivalents Trade and other receivables Non derivative financial liabilities: Carrying amount Contractual cash flows 6 months or less $000 $000 $000 6-12 months $000 1-5 years $000 22,477 308,768 331,245 22,477 308,768 331,245 22,477 308,768 331,245 - - - - - - (160,103) (160,757) (160,485) (151) (121) (249,545) (249,545) (249,545) - (32,237) (32,237) (409,648) (442,539) (442,267) (78,403) (111,294) (111,022) - - (151) (151) - - (121) (121) 39,927 357,935 397,862 39,927 357,935 397,862 39,927 347,170 387,097 - 6,590 6,590 - 4,175 4,175 Interest bearing loans and borrowings (294,685) (304,433) (200,074) (77,199) (27,160) Trade and other payables Financial guarantees Net inflow/(outflow) (254,530) (254,530) (254,530) - (39,638) (39,638) - - - - (549,215) (598,601) (494,242) (151,353) (200,739) (107,145) (77,199) (70,609) (27,160) (22,985) B. Derivative financial instruments Due to the unique characteristics and inherent risks to derivative instruments, Elders separately monitors liquidity risk arising from transacting in derivative instruments. The table below details the liquidity risk arising from derivative financial liabilities held by the Company at balance date. Net settled derivative liabilities comprise forward exchange and interest rate hedges. 97 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 30. Financial Instruments (continued) 2014 Derivative liabilities – net settled Total inflow/(outflow) 2013 Derivative assets – net settled Derivative liabilities – net settled Total inflow/(outflow) (c) Credit risk Carrying amount Contractual cash flows 6 months or less $000 $000 $000 6-12 months $000 1-5 years $000 (132) (132) 1,220 (493) 727 (132) (132) 1,220 (493) 727 (132) (132) 1,220 (493) 727 -  -  -  -  -  -  -  -  -  -  Credit risk arises from Elders’ financial assets, which comprise cash and cash equivalents, trade and other receivables, and derivative instruments. The Company’s exposures to credit risk arise from potential default of the counterparty, with the maximum exposure equal to the carrying amount of the financial assets. The ageing of trade and other receivables at balance date is reported at note 6. The credit risk associated with cash and derivatives is located primarily in Australia. Elders minimises concentrations of credit risk by undertaking transactions with a large number of debtors in various locations. The credit risk amounts do not take into account the value of any collateral or security. The creditworthiness of counterparties is regularly monitored and subject to defined credit policies, procedures and limits. The amounts disclosed do not reflect expected losses and are shown gross of provisions. The maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Trade and other receivables Location of credit risk Australia New Zealand Asia Total gross receivables (d) Foreign currency risk 2014 $000 22,477 308,768 331,245 2013 $000 39,927 359,155 399,082 302,455 328,365 - 6,313 25,357 5,433 308,768 359,155 Elders is exposed to movements in the exchange rates of a number of currencies. The predominant exposure is to movements in the AUD/USD exchange rates. These are primarily generated from the following activities: • Purchase and sale contracts written in foreign currency, • Receivables and payables denominated in foreign currencies; • Commodity cash prices that are partially determined by movements in exchange rates; • Costs of sale such as transportation and commission denominated in foreign currency; and Foreign exchange risk is managed within Board approved limits using forward foreign exchange and foreign currency contracts. Where possible, exposures are netted off against each other to minimise the cost of hedging. Hedge accounting is not applied, with foreign currency contracts fair valued at balance date with gains and losses recognised immediately through the statement of comprehensive income. At 30 September 2014, the Company had the following AUD exposures to foreign currencies that were not designated in cash flow hedges: 98 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 30. Financial Instruments (continued) Financial assets Cash and cash equivalents – USD Cash and cash equivalents – CNY Cash and cash equivalents – IDR Cash and cash equivalents – other Receivables – USD Receivables – CNY Receivables – IDR Receivables – other Financial liabilities Payables – USD Payables – CNY Payables – IDR Payables – other Interest bearing loans and borrowings – USD Interest bearing loans and borrowings – NZD Net exposure 2014 $000 72 319 446 155 12,928 3,356 2,957 -  20,233 2013 $000 297 981 338 9,476 2,621 1,453 1,360 25,357 41,883 (3,229) (7,790) (587) (906) (98) (12,166) - (136) (582) (20,560) (1,342) (2,831) (16,986) (33,241) 3,247 8,642 Given the foreign currency balances included in the Statement of Financial Position at balance date, if the Australian dollar at that date strengthened by 10% with all other variables held constant, then the impact on post tax profit/(loss) arising on the balance sheet exposure would be as follows: USD CNY IDR Other Post Tax Profit Higher/(Lower) 2014 $000 240 (309) (250) (6) 2013 $000 621 (230) (230) (112) A 10% weakening of the Australian dollar against the above currencies would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables are held constant. 99 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 30. Financial Instruments (continued) (e) Fair value of financial assets and liabilities Elders use various methods in estimating the fair value of a financial instrument. The methods comprise: • Level 1 – the fair value is calculated using quoted prices in active markets. • Level 2 – the fair value is estimated using inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). • Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. All forward exchange derivative contracts were measured at fair value using the level 2 method. Fair value of derivative instruments approximates the carrying value. The fair values of forward currency contracts are calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Any gains or losses arising from changes in fair value of derivatives are taken directly to profit and loss, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income. The fair value of financial instruments as well as the method used to estimate the fair values are summarised in the table below: 2014 2013 Quoted market price (Level 1) $000 Valuation technique – market observable inputs (Level 2) $000 Valuation technique – non market observable inputs (Level 3) $000 Quoted market price (Level 1) $000 Valuation technique – market observable inputs (Level 2) $000 Valuation technique – non market observable inputs (Level 3) $000 Financial assets Derivatives Financial liabilities Derivatives -  -  -  -  (132) (132) -  -  -  -  -  -  1,220 (493) 727 -  -  -  Note 31. Business Combinations – Changes in the Composition of the Entity (a) Controlled entities acquired During the current and prior period no entities were acquired. (b) Controlled entities disposed Elders’ investments in Charlton Feedlot, New Zealand Network, Wool Trading and Vet Supplies were disposed of during the period. Proceeds received on disposal of assets/shares: Cash The carrying amounts of assets and liabilities disposed of by major class are: Cash Trade and other receivables Inventories Investments Property, plant and equipment Intangibles Tax assets and liabilities Trade and other payables Provisions Interest bearing loans and liabilities Net assets/(liabilities) of entity sold Non-controlling interests Reclassification of other comprehensive income Total profit/(loss) on disposal of controlled entities 100 2014 $000 2013 $000 28,469 43,633 4,402 19,595 18,932 8 4,856 -  233 (18,481) (1,342) (1,811) 26,392 (2,536) 4,285 328 28,036 120,193 44,969 674 35,940 1,041 8,340 (89,304) (21,027) (39,200) 89,662 (4,461) (3,660) (37,908)   Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 31. Business Combinations – Changes in the Composition of the Entity (continued) Prior period disposals Elders disposed of the Futuris Automotive group of Companies on 31 July 2013 to affiliates of Clearlake Capital Group, L.P. Futuris Feltex (Proprietary) Limited was also disposed of in the period, for which the assets and liabilities disposed, and the cash proceeds were of an immaterial amount. Note 32. Discontinued Operations Financial period 30 September 2014 Elders’ investments in Kilcoy Pastoral, AWH Pty Ltd, Elders Insurance (Underwriting Agency) Pty Ltd, Charlton Feedlot, New Zealand Network, Wool Trading, Australian Fine China and Agricultural Land Trust were disposed of during the period. The Forestry divestment was largely completed, with all the assets previously classified as held for sale sold. As required by AASB 5 Non-current Assets Held for Sale and Discontinued Operations the 2013 comparative discontinued operations disclosed below have been re-presented to show the effects of this classification. Financial period 30 September 2013 Elders’ investment in the Futuris Automotive segment was disposed of during the period. Additionally the Group’s investment in Australian Fine China and Agricultural Land Trust were classified as held for sale. The prior year balance of $6.1 million represented the Groups investment in Forestry, Australian Fine China and Agricultural Land Trust. Sales revenue Cost of sales Gross profit Other revenues Distribution expenses Administration expenses Other expenses Cont 2014 $000 Disc 2014 $000 Total 2014 $000 Cont 2013 $000 Disc 2013 $000 Total 2013 $000 1,431,515 138,289 1,569,804 1,422,056 486,730 1,908,786 (1,153,383) (111,093) (1,264,476) (1,191,432) (424,494) (1,615,926) 278,132 27,196 305,328 230,624 62,236 292,860 493 4,342 4,835 245 9,126 9,371 (217,961) (26,840) (244,801) (238,599) (23,876) (262,475) (33,343) (1,665) (35,008) (41,164) (40,671) (81,835) 3,967 (20,363) (16,396) (204,915) (181,839) (386,754) Profit/(loss) before borrowing costs and tax expense 31,288 (17,330) 13,958 (253,809) (175,024) (428,833) Finance costs (23,342) 183 (23,159) (30,490) (2,731) (33,221) Profit/(loss) before tax expense 7,946 (17,147) (9,201) (284,299) (177,755) (462,054) Income tax benefit/(expense) Net profit/(loss) for year Net profit/(loss) attributable to non-controlling interest Net profit/(loss) attributable to members of the parent entity 14,703 22,649 1,392 (147) 14,556 (64,440) 24,624 (39,816) (17,294) 981 5,355 2,373 (348,739) (153,131) (501,870) 2,025 1,360 3,385 21,257 (18,275) 2,982 (350,764) (154,491) (505,255) Revenue and expenses Sales revenue: Sale of goods and biological assets 1,203,041 131,424 1,334,465 1,235,263 475,344 1,710,607 Debtor interest associated with sales 5,578 371 5,949 7,069 554 7,623 Commission and other selling charges 222,896 6,494 229,390 179,724 10,832 190,556 1,431,515 138,289 1,569,804 1,422,056 486,730 1,908,786 Other expenses: Forestry fair value adjustments 1,125 - 1,125 7,422 6,664 14,086 Write down of assets to be divested or discontinued - (24,645) (24,645) Gain/(loss) on divested assets Impairment of assets retained Restructuring, redundancy and other writeoffs 2,243 4,282 6,525 - - (173,213) (173,213) (14,290) (14,290) - 599 - - - (154,628) - (154,628) 599 (57,709) (1,000) (58,709) 3,967 (20,363) (16,396) (204,915) (181,839) (386,754) 101 Notes to the Consolidated Financial Statements For the Year ended 30 September 2014 Note 32. Discontinued Operations (continued) The net cash flow of the discontinued operations is as follows: Operating activities Investing activities Financing activities Net cash inflow / (outflow) Note 33. Parent Entity Information relating to the parent entity of the Group, Elders Limited: Results: Net profit/(loss) for the period after income tax expense Total comprehensive income/(loss) Financial position: Current assets Non current assets Total assets Current liabilities Total liabilities Net assets Issued capital Hybrid equity Retained earnings Employee equity reserve Total equity 2014 $000 (16,815) 93,703 (913) 75,975 2013 $000 (33,259) 61,515 1,268 29,524 2,223 2,223 (530,744) (530,744) 3,053 55,942 58,995 1,965 1,965 57,030 2,145 48,407 50,552 4,352 4,352 46,200 1,277,813 1,269,153 145,151 145,151 (1,366,195) (1,368,731) 261 57,030 627 46,200 Guarantees As disclosed in note 26, the parent entity has entered into a Deed of Cross Guarantee with certain controlled entities. The effect of this Deed is that Elders Limited and each of these controlled entities has guaranteed to pay any deficiency of any of the companies party to the Deed in the event of any of those companies being wound up. The parent entity is a party to various guarantees and indemnities pursuant to bank facilities and operating lease facilities extended to the Group. Note 34. Subsequent Events On 14 October 2014, Elders issued 313,967,179 new shares under a 3 for 5 non renounceable entitlement offer announced by Elders to the ASX on 15 September 2014. The total number of shares on issue following completion of the entitlement offer is 837,232,507. Total funds raised from this offer were approximately $47 million (before costs). On 22 October 2014, Elders completed the refinance of its existing senior debt arrangements with a new syndicated working capital facility provided by ANZ, NAB and Rabobank. The new facilities include, in addition to the syndicated lines, bilateral contingent and transactional lines and an extension of the retail debtor funding facility. Gross debt immediately following the refinance close was comprised entirely of debtor funding facilities. The facility limits are structured to meet the anticipated working capital requirements of Elders over the tenor of the facilities which range between 12 and 36 months. There is no other matter or circumstance that has arisen since 30 September 2014 which is not otherwise dealt with in this report or in the consolidated financial statements, that has significantly affected or may significantly affect the operations of Elders, the results of those operations or the state of affairs of Elders in subsequent financial periods. 102 Directors’ Declaration In accordance with a resolution of the Directors of Elders Limited, the Directors declare: 1. In the opinion of the Directors: (a) the financial statements and notes of Elders Limited for the financial year ended 30 September 2014 are in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of its financial position as at 30 September 2014 and of its performance for the year ended on that date; and (ii) Complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2(b) (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the year ended 30 September 2014. 3. In the opinion of the Directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in note 26 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the deed of cross guarantee. On behalf of the Board J H Ranck Chairman M C Allison Managing Director Adelaide 17 November 2014 103 104 105 ASX Additional Information (a) Distribution of Equity Securities as at 31 October 2014 No of Shares No. of Holders No. of Hybrids No. of Holders 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - Maximum 3,898,358 14,145,486 18,409,114 154,391,444 646,388,105 837,232,507 The number of holders holding less than a marketable parcel (b) Voting rights (i) Ordinary Shares: all ordinary shares carry one vote per share without restriction. (ii) Elders Hybrids: Hybrids do not carry any voting rights under the Company’s Constitution. (c) Stock Exchange quotation 15,474 5,265 2,375 4,909 892 296,199 174,369 89,502 449,724 490,206 28,915 1,500,000 Ordinary Shares 18,599 1,245 87 12 11 2 1,357 Hybrids 4 The Company’s ordinary shares and Elders Hybrids are listed on the Australian Securities Exchange. The Home Exchange is Melbourne. (d) Twenty Largest Shareholders as at 31 October 2014 The twenty largest holders of Elders Ordinary Shares were as follows: No. of Shares % of Shares Citicorp Nominees Pty Limited J P Morgan Nominees Australia Limited RBC Investor Services Australia Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Bell Securities Pty Limited Brispot Nominees Pty Ltd National Nominees Limited AMP Life Limited HSBC Custody Nominees (Australia) Limited - A/C 2 BNP Paribas Noms Pty Ltd Merrill Lynch (Australia) Nominees Pty Limited UBS Nominees Pty Ltd Venn Milner Superannuation Pty Ltd CS Fourth Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited - A/C 3 Hishenk Pty Ltd Tintern (Vic) Pty Ltd National Nominees Limited Hyecorp Property Fund No 1 Pty Ltd Pacific Agrifoods Investments Pty Ltd Total 68,957,643 42,377,322 34,787,787 30,595,209 23,946,741 21,261,661 19,418,080 18,773,318 16,549,524 15,386,053 15,218,396 14,232,989 10,000,000 7,201,937 6,123,791 6,000,000 5,839,511 4,976,902 3,500,000 3,354,557 8.24 5.06 4.16 3.65 2.86 2.54 2.32 2.24 1.98 1.84 1.82 1.70 1.19 0.86 0.73 0.72 0.70 0.59 0.42 0.40 368,501,421 44.01 Total held by twenty largest ordinary shareholders as a percentage of this class is 44.01% The twenty largest holders of Elders Hybrids were as follows: No. of Hybrids % of Hybrids J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited - A/C 2 Mr Robert Lee Petersen National Nominees Limited The Australian National University BNP Paribas Noms Pty Ltd Brazil Farming Pty Ltd HSBC Custody Nominees (Australia) Limited ABN Amro Clearing Sydney Nominees Pty Ltd Ayersland Pty Ltd Luton Pty Ltd Mr Giuseppe Pulitano + Mrs Verona Pulitano Mr Guthrie John Williamson Wyllie Funds Management Pty Ltd Equitas Nominees Pty Limited Di Iulio Homes Pty Limited Sidmouth Pty Limited Mr Kui She Hung Leithner & Company Pty Ltd Total 281,652 208,554 95,917 72,256 67,520 50,000 37,416 27,000 26,791 22,073 22,004 18,000 10,747 10,000 10,000 9,081 9,000 8,000 7,171 7,000 18.78 13.90 6.39 4.82 4.50 3.33 2.49 1.80 1.79 1.47 1.47 1.20 0.72 0.67 0.67 0.61 0.60 0.53 0.48 0.47 1,000,182 66.68 Total held by twenty largest hybrid holders as a percentage of this class is 66.68% (e) There were no substantial shareholders listed on the Company’s register of substantial shareholders as at 31 October 2014. 106 Shareholder Information Share Registry Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street, Adelaide, South Australia, 5000 Telephone: 1300 55 61 61 Facsimile: +61 (0)8 8236 2305 Website: www.computershare.com.au Enquiries Shareholders with enquiries about their shareholdings should contact the Company’s share registry, Computershare Investor Services, on the above contact details. Online shareholder information Shareholders can obtain information about their holdings or view their account instructions online, as well as download forms to update their holder details. For identification and security purposes, you will need to know your Holder Identification Number (HIN/SRN), Surname/Company Name and Post/Country Code to access. This service is accessible via the Investor Centre on the Company’s website or direct via the Computershare website at www.investorcentre.com. Tax and dividend/interest payments Elders is obliged to deduct tax from dividend/interest payments (which are not fully franked) to holders registered in Australia who have not quoted their Tax File Number (TFN) to the Company. Shareholders who have not already quoted their TFN can do so by contacting Computershare. A notification form is available from either the Company’s or Computershare’s website. Change of address Shareholders who have changed their address should advise Computershare in writing. Written notification can be mailed or faxed to Computershare at the address given above and must include both old and new addresses and the security holder reference number (SRN) of the holding. Change of address forms are available for download from either the Company’s or Computershare’s website. Alternatively, holders can amend their details on-line via Computershare’s website. Shareholders who have broker sponsored holdings should contact their broker to update these details. Annual Report mailing list Shareholders who wish to vary their annual report mailing arrangements should advise Computershare in writing. Electronic versions of the report are available to all via the Company’s website. Annual Reports will be mailed to all shareholders who have elected to be placed on the mailing list for this document. Report election forms can be downloaded from either the Company’s or Computershare’s website. Forms for download All forms relating to amendment of holding details and holder instructions to the Company are available for download from either the Company’s or Computershare’s website. Investor information Information about the Company is available from a number of sources: • Website: www.elderslimited.com • Subscribe: Shareholders can nominate to receive company information electronically. This service is hosted by Computershare and holders can register via the Investor Centre on the Company’s website or direct via Computershare’s website. • Publications: the annual report is the major printed source of company information. Other publications include the Half-yearly report, company press releases, presentations and Open Briefings. All publications can be obtained either through the Company’s website or by contacting the Company. 107 Notes 108 Company Directory Directors Mr James H Ranck, BS Econ, FAICD, Chairman Mr Mark C Allison, BAgrSC, BEcon, GDM, FAICD Mr James A Jackson, BCom, FAICD Mr Ian Wilton, FCPA, FAICD, FCCA(UK) Secretaries Mr Peter G Hastings, BA LLB GDLP Ms Nina M Abbey Registered Office Level 3, 27 Currie Street Adelaide, South Australia, 5000 Telephone: (08) 8425 4000 Facsimile: (08) 8410 1597 Email: information@elders.com.au Website: www.elderslimited.com Share Registry Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street Adelaide, South Australia, 5000 Telephone: 1300 55 61 61 Facsimile: +61 (0)8 8236 2305 Website: www.computershare.com.au Auditors Ernst & Young Bankers Australia & New Zealand Banking Group National Australia Bank Coöperative Centrale Raiffeisen – Boerenleenbank (Rabobank Australia) Stock Exchange Listings Elders Limited ordinary shares and subordinated convertible unsecured notes (Elders Hybrids) are listed on the Australian Securities Exchange under the ticker codes “ELD” and “ELDPA” Trustee for Elders Hybrids The Trust Company (Australia) Limited Level 3, 530 Collins Street Melbourne, Victoria, 3000 LOOKING TO THE FUTURE In our 175th year we’re recognising where we’ve been and we’re celebrating where we’re going. The one constant throughout the years has been our people; their pride and passion for the Elders brand and the commitment to the work they do. As we look towards the future we’re firmly focused on building on our strong platform and creating value for all stakeholders. Father and son livestock team Lindsay and Aaron Hill at the annual Hamilton weaner sales. Since 1839 Elders has been an integral part of Australia’s rural landscape and in 2014 has celebrated 175 years of knowledge, experience and advice. In celebrating this special milestone we’ve recognised our proud history and contribution to Australian rural life and have also looked to the future, reinforcing our ongoing commitment to Australian agriculture. We thank our loyal employees, clients, shareholders and all those who have joined us on our journey over the last 175 years. We look forward to the future. 2 0 1 4 A N N U A L R E P O R T 2014 ANNUAL REPORT