Namoi Cotton Limited
Annual Report 2018

Plain-text annual report

2018 ANNUAL REPORT NAMOI COTTON LIMITED 2018 ANNUAL REPORT | a Namoi Cotton Limited ABN 76 010 485 588 CONTENTS 1. Namoi Cotton Limited Profile .......................................................................................................... 3 2. The 2018 Financial Year in Review ................................................................................................... 4 3. Chairman & Chief Executive Officer Report .................................................................................... 6 4. Board of Directors .......................................................................................................................... 12 5. Executive Management Team ........................................................................................................ 14 Financial Report ............................................................................................................................. 15 6. 7. ASX Additional Information ...........................................................................................................100 8. Directory ........................................................................................................................................103 2018 ANNUAL REPORT | 1 2018 ANNUAL REPORT | 2 NAMO I COTTON LIMITE D PROFI LE Namoi Cotton was established in 1962 as a co-operative. On the 10 October 2017 Namoi Cotton transitioned from a co-operative with grower members to a company listed on the ASX with ordinary shareholders. Namoi Cotton is Australia’s leading cotton processing and marketing organisation. Namoi Cotton has an extensive network of origination, ginning, marketing and logistics operations throughout the cotton growing regions of New South Wales and southern Queensland. As part of its business operations Namoi Cotton is a participant in the Namoi Cotton Alliance joint venture, which owns and operates warehouse and commodity packing facilities in Wee Waa, Warren and Goondiwindi. NAMO I COTTON LIMITE D OBJE CT IV ES Our Vision – To be the leading processor, marketer and service provider to cotton farmers and customers of the Australian cotton industry. Our Mission – To deliver quality products and services to our customers. OU R VALUES OUR LOCATIONS Shareholder Value – To deliver superior financial results and build wealth for our shareholders. Quality – Continuously improve the reliability and consistency of our processes, products and services. People – Create an environment where people are satisfied and motivated to achieve high levels of performance. Safety – Working safely is more important than time, production and costs. Customer Service – Deliver products and services that meet and exceed customer expectations. Environment – Ensure we respect and protect the environment. Emerald N o g o a Riv er N Warrego River QUEENSLAND i F t zroy Riv er Moura Biloela Theodore Daws o n e r R i v n C o d a mine River Dalby n i e R i v e r Mo o Toowoomba (CORPORATE) BRISBANE nne River alo B Paroo River Menindee g R iv e r a rlin D NEW SOUTH WALES Hillston r e Culg o a R i v Mungindi Wathagar Walgett Moomin St George M a c intye River Ashley Goondiwindi MacIntyre 2 Moree Gwydir Riv e r Glenlyon Dam Pindari Dam Merah North Yarraman Namoi Wee Waa Boggabri Gunnedah Narrabri Split Rock Dam Keepit Dam Copeton Dam Bourke North Bourke (HEAD OFFICE) M a c q u a ri e Riv er Warren Trangie Dubbo Condoblin Lachlan River Burredong Dam Namoi Cotton Offices Namoi Cotton Gins Namoi Cotton Joint Venture Gins NCA Joint Venture Warehouse NCA Commodities Packing Site Hay Griffith Wyangala Dam SYDNEY Public Irrigation Dams Murrumbidgee River River Murray VICTORIA Marjo Major cotton growing centres Murray-Darling Basin 0 125 250 km 2018 ANNUAL REPORT | 3 THE 2018 FINANCIAL YEAR IN R EV IEW F Y 2 0 1 8 S U M M A R Y Financial Summary Revenue from continuing operations EBITDA1 EBIT2 Income Tax Benefit/(Expense) Net profit/(loss) after tax Earnings per Namoi Capital Stock Diluted earnings per Ordinary Share Distribution per Namoi Capital Stock (unfranked) Distribution per Ordinary Shares Rebate payable to Grower Members Total assets Interest bearing debt Term (core) debt Stakeholders equity Net tangible assets per Namoi Capital Stock Diluted net tangible assets per Ordinary Share Capital expenditure3 FY2018 ($,000) 483,938 20,181 12,232 (2,905) 6,769 N/A 4.7 cents N/A 1.9 cents N/A 205,823 50,002 42,000 131,756 N/A 103 cents 6,654 FY2017 ($,000) 355,344 8,855 2,649 245 283 FY2016 ($,000) 279,713 (1,877) (8,048) 3,140 (7,558) 0.3 cents (6.9) cents N/A Nil N/A Nil 210,713 59,920 47,480 123,828 N/A Nil N/A Nil 199,852 60,679 47,481 123,545 113 cents 112 cents N/A 5,267 N/A 6,093 1EBITDA defined as earnings before interest, tax, depreciation and amortisation. 2EBIT defined as earnings before interest and tax. Both of the above terms are non IFRS financial information. 3Includes $1,203k (FY2018), $821k (FY2017) and $418k (FY2016) acquisitions by means of finance leases. General note Namoi Cotton restructured from a co-operative with Namoi Capital Stock and Grower Members to a public listed company with Ordinary Shareholders on 10 October 2017 2018 ANNUAL REPORT | 4 A U S T R A L I A N C O T T O N P R O D U C T I O N Region NSW Upper Namoi Lower Namoi Gwydir Mungindi Walgett Macquarie Bourke Lachlan Tandou Murray Murrumbidge TOTAL NSW QLD MacIntyre Valley Central Queensland Dawson-Callide Darling Downs St George Dirranbandi TOTAL QLD GRAND TOTAL 2018 Season Forecast(1) Production Bales 2017 Season Actual(2) Production Bales 2016 Season Actual(3) Production Bales 241,000 477,500 672,000 106,500 140,250 456,500 49,350 209,000 66,000 51,750 798,000 3,267,850 536,800 183,500 50,100 433,750 146,400 36,300 1,386,850 4,654,700 233,500 429,000 580,000 86,000 163,500 254,000 90,000 124,000 - - 425,500 2,385,500 504,000 162,500 42,000 490,000 177,000 139,250 1,514,750 239,030 238,375 327,120 94,050 37,970 146,505 32,003 118,020 - - 513,172 1,746,245 232,358 132,561 33,005 407,380 126,000 35,000 966,304 3,900,250 2,712,548 (1) Namoi Cotton’s estimate of the total Australian production for 2018 as at 1st June 2017 (2) 2017 Adjusted Figures from The Australian Cotton Grower, Cotton Yearbook 2017 (3) 2016 Adjusted Figures from The Australian Cotton Grower, Cotton Yearbook 2016 2018 ANNUAL REPORT | 5 CHAIRMAN & CHIEF EXECUTIVE OFFICER REPORT RESULT IN RE VIEW FO R 2 0 17/18 SEASON OPERATIONS IN REV IEW Namoi Cotton recorded a consolidated net profit after tax from continuing operations of $6.8 million for the full year ended 28 February 2018, compared to a net profit of $0.3 million for the year ending 28 February 2017. Positive cash flows from operating activities were recorded at $17.3 million. The consolidated net profit after tax and positive cash flow from operating activities result included $1.6 million in pre-tax costs associated with the Restructure. The consolidated net profit after tax also includes the $0.7 million non-cash fair value increment to the Grower Member Share liability. Financial performance improved by $6.5 million year on year underpinned by a 38% increase in the 2017 Australian crop size. Namoi Cotton’s ginning and cotton seed volumes increased by 47% and 54% respectively, whilst Namoi Cotton Alliance’s (NCA) lint procurement volumes increased by 25%. Cotton seed trading margins improved considerably through effective risk and position management, market volatility related trading opportunities and contractual seed yield management. Ginning margins were pressured through increased unit variable costs associated with reduced productivity from poorer quality seed cotton. The contribution from NCA improved from the prior year due to increased volumes and enhanced derivative position management. NCA’s commodity packing volumes declined from the previous record year primarily due to reduced chickpea yields. Management of fixed costs remained a priority for the business throughout the financial year. These factors all combined to deliver a $11.8 million improvement from the prior year in net cash flows from operating activities. 2017 AUSTRALIAN COTTON PRODUCTION The overall 2017 Australian cotton crop production was recorded at 3.75 million bales representing a 38% increase from the 2.71 million bales 2016 crop. Sufficient cotton was planted to yield an estimated 4.5 million bales however, the exceptionally hot conditions in January and February 2017 combined with limited in-crop rainfall resulted in significant negative impacts to dryland crops and reduced yields of irrigated crops. Irrigated yields have averaged approximately 10 bales per hectare compared with 11.5 bales per hectare, the previous year. The quality of the 2017 crop was adversely impacted by the wet planting conditions, end of growing period weather and challenging defoliation parameters. 2017 Ginning Season Namoi Cotton ginned 1,015,000 bales, including 100% of joint venture bales of the 2017 crop compared to 689,000 bales of the 2016 crop. The 47% increase in ginning volumes was directly related to the larger crop size. The quality of the cotton crop resulted in a reduction in ginning throughput rates to maximize cotton quality output and limit discounts for the grower. The slower throughput rates have been the primary driver of a 11% increase in unit ginning variable costs from the prior year reducing ginning gross margins. Overall, ginning contribution improved by 32%. Ginning achievements for 2017 included: • • • • • • • a $1 million upgrade to the Merah North gin yard, doubling its static storage capacity; an upgrade to the hydraulic press system at Merah North; the installation of a fourth gin stand and associated line of cleaning and processing equipment and press upgrade at Boggabri; the installation of a third gin stand and associated line of cleaning and processing equipment at North Bourke; installation of a new gin stand and associated Australian industry first cleaning equipment at the Ashley gin; a 35% improvement in our health and safety performance through our lost time injury frequency rate; and extensive offseason maintenance and efficiency improvement related projects. The continued investment in our ginning network and infrastructure is critical to delivering industry leading ginning services for the Australian cotton grower and improved economic returns for our business. Cotton Seed Business and Cargill Oilseeds Australia Partnership Our cotton seed business traded 266,000Mt compared with 172,000Mt the previous year this reflects the larger Australian crop size. The seed business was a strong contributor to the overall results increasing by $8.0 million from the previous year. Seed prices remained firm into the commencement of ginning supported by the dry conditions and Chinese demand. Market prices in China along with a slowing of Chinese demand associated with the continuing Bollgard III cotton seed import restrictions resulted in cotton seed being sold back into the domestic market. This slowed the movement of cotton seed from gin sites. Whilst placing downward pressure on prices in the second half of the ginning period and through to the end of the financial year. Effective risk management combined with contractual yield management have significantly widened cotton seed trading margins from the previous year. 2018 ANNUAL REPORT | 6 Namoi Cotton’s 15% interest in the Cargill Oilseeds Australia business contributed a loss of $1.4 million compared to a loss of $0.8 million in the preceding year. Whilst year on year volumes improved for both the Narrabri (cotton seed) and Footscray (canola) crush facilities, margins were significantly impacted. Early year high priced cotton seed combined with competing market challenges in the feed sector for meal and hulls reduced cotton seed crush margins. Aggressive origination competition for canola seed combined with soybean meal imports and oil price reductions due to alternate stocks and supplies lowered canola crushing margins. Cotton Market Review The cotton market opened the financial year with the spot May 2017 cotton futures contract trading above 76 US cents per pound. This was well above the 56 US cents per pound one-year prior. Once combined with the Australian dollar (AUD), grower harvest prices of $540 AUD per bale could be achieved. This compares to the previous year when Australian growers could only achieve $430 AUD per bale. Growers achieved between $470 and $570 AUD per bale for the 2017 season. Cotton drifted sideways in the last month of the 1st quarter, as speculative buying took futures to their highest level since 2014. The second quarter started with a sharp selloff, though grower pricing remained unchanged as the Australian basis and AUD held prices around $540 AUD per bale. The growing number of certified bales against the US cotton futures board, the large speculative long and order flow associated with the May contract moving into its notice period pressured cotton futures lower. The speculator then proceeded to once again increase their long position with the back drop of tight US ending stocks and a large mill on call position. The July contract then posted its high for the season above 87 US cents per pound. This was short lived as the back drop of a big US new crop combined with a large US carry out saw the speculative community liquidate their position and cotton futures posted their lows for the year with the December contract finding support just above 66 US cents per pound. Cotton drifted sideways for most of the third quarter as the bigger US crop and favourable growing conditions weighed on prices. The new crop Australian grower prices spent most of the quarter trading around $475 AUD per bale, except for the three-week rally at the start of September. The US had two hurricanes hit two of their growing regions and cotton futures quickly priced in a weather premium. This gave the Australian cotton growers an opportunity to market new crop bales above $500 AUD per bale just before the new crop planting was about to begin. The fourth quarter saw futures steadily move higher. The US crop continued to progress well under favourable conditions, though the US sales pace was such that the large carry out was coming under pressure as the USDA updated its monthly export forecast. Over this period Australian growers watched new crop prices firm $70 AUD per bale and could achieve $550 AUD per bale by Christmas. Cotton made a final push higher in the first three weeks of the 1st quarter calendar year with new crop grower pricing reaching $565 AUD per bale or 84 US cents per pound, before the growing speculative long weighed on futures and eased back just below 83 US cents per pound (May 2018 contract) at the end of February 2018. The Australian Dollar (AUD) started March trading at 76 cents against the USD and spent the month trading sideways. April and May saw the AUD slide lower as commodities and more particularly oil slid lower. May saw the AUD post its lows for the year below 74 cents. June through to September saw commodities firm and the USD index drift lower, which supported the AUD above 80 cents. The USD index then found some support and the AUD drifted lower as the market adjusted to the expectations of the Federal reserve and their interest rate guidance. The AUD then spent December and January moving higher as the Australian government forecasted a narrower budget deficit and the US congress struggled to move pro-growth policies through the houses. The AUD then posted its high for the year at the end of January above 81 cents and finished February at 77.5 cents. Namoi Cotton Alliance (NCA) NCA’s total cotton lint marketing volumes procured for the 2017 season reflected 636,000 bales compared with 507,000 bales for the 2016 season. The increased Australian crop size provided an opportunity for NCA to increase its marketing volumes by 25% from the prior year. Lint marketing gross margins continued to be pressured through stiff competition to secure cotton. Improved derivative position management throughout the year however, ensured this margin pressure was more than offset in overall marketing contributions. This resulted in a $0.45 million improvement in Namoi Cotton’s share of NCA’s lint business in the financial results over the prior year. 2018 ANNUAL REPORT | 7 NCA’s commodity packing business packed 168,000Mt in 2017 compared to 226,000Mt in 2016. Packing included principally chickpeas and cotton seed. Packing volumes declined from the record volumes achieved in the preceding year impacted by the slowdown in cotton seed demand from China, reduced chickpea yields impacted by adverse agronomic conditions and the Indian government’s import policy decisions implementing a 60% import tariff restriction on Australian chickpeas. Chickpea packing volumes were supported by carryover 2016 crop packing and new 2017 crop Bangladesh and Pakistan chickpea demand. The Indian situation however leaves more than 30,000Mt of chickpeas in stock to be packed in the FY 2019. Strategy During the year we continued implementation of our strategic plan to grow the Namoi Cotton business including completing the acquisition of Twynam Agricultural Group Pty Ltd’s 50% participating interest in the Australian Classing Services joint venture for $0.7 million and PJ & JM Harris Pty Ltd’s 25% participating interest in the Moomin Ginning Company joint venture for $2.0 million. These acquisitions are anticipated to deliver increased earnings before interest, taxation and depreciation of $0.4 million in the year ending 28 February 2019. LOOKING FORWARD 2018 Season The final cotton area planted was 371,000 hectares irrigated and 81,000 hectares dryland. Since planting through late February/early March 2018 the rainfall normally associated with La Niña conditions has not eventuated. The weather conditions in the early part of 2018 have been more favourable than those of the same period in 2017 with not as prolonged excessive heat periods and cooler overnight temperatures and as a result the fruit retention of irrigated crops was very encouraging. Water shortages for irrigated cotton in the St George, Dirranbandi areas and some parts of the Gwydir valley will impact overall production yield to conserve irrigation water supplies. The dryland planting has been more heavily impacted due to no rainfall. Early ginning results would suggest an improvement upon the poor yields associated with the 2017 crop. Considering all these factors, we estimate the 2018 Australian cotton crop will at this stage still produce approximately 4.7 million bales. Namoi Cotton anticipates it will gin between 1.15 million and 1.2 million bales of the 2018 crop, including 100% of joint venture gins. This represents an improvement of between 13% and 18% from the 2017 crop. In preparation for 2018 season ginning operations, Namoi Cotton has committed to delivery of the following projects: • • • • installation of new pre-cleaning, drying and moisture equipment at Wathagar Ginning Company to provide improved service levels and more rounded capacity; a $1 million installation of a fourth gin stand and associated line of cleaning and processing equipment and press upgrade at Trangie providing greater throughput and volume capacity; construction of 8,000Mt cotton seed sheds at both Hillston and Trangie gins to provide support to our trading business, improved margin opportunities and storage options for growers in this lower seed price environment; and construction of a mote bale storage shed at Yarraman to facilitate greater volumes, supply chain efficiencies and improved economic returns in mote processing. It is expected that our cotton seed business will trade approximately an equivalent amount of tonnage to the 2017 crop. The industry carryover of 2017 crop cotton seed combined with the inability to export Bollgard III cotton seed to China from the middle of 2017, the lower value of cotton seed and likely reduced 2018 crop seed yields will likely pressure cotton seed contributions over the course of the 2018 crop. NCA’s lint marketing volumes are estimated to be between 700,000 and 800,000 bales from the 2018 crop, representing an increase of between 10% and 26% from the prior crop. Significant competition for marketing volumes is anticipated to continue to pressure marketing gross 2018 ANNUAL REPORT | 8 margins in 2018 albeit they remain supported by strong demand from Bangladesh and healthy forward Chinese sales. Gross margin recovery is expected to be achieved through improved supply chain organization and logistics. NCA’s containerized commodity packing volumes are now forecast to be down on the 2017 year with a lack of Autumn/ Winter rainfall significantly impacting winter crop and pulse plantings. Namoi Cotton’s operations in 2018 are predicted to deliver another strong financial result from incremental volume increases. Improved unit contributions are also expected to flow from the commissioning of key gin upgrades and the assumption of improved seed cotton quality from the 2018 crop. Consistent earnings are anticipated from Namoi Cotton’s 51% investment in NCA, whilst lower contribution is forecast from the cotton seed trading business. 2019 Season and Beyond The lack of general rainfall since planting of the 2018 crop stretched water supplies with some production areas being short of water and sacrificing crop. Other areas have significantly drawn down on farm storage water reserves and public storage water allocations resulting particularly in the Northern basin of the Murray Darling System low current levels of available irrigation water. In the Southern basin, significant water has also been utilised, however, public storages are better placed than their Northern Basin counterparts and will benefit from the winter snow conditions. Based on the current available irrigation water, our current estimate of the 2019 Australian cotton crop would reflect 2.5 million bales of production underpinned by strong production in the Lachlan, Murrumbidgee and Murray valleys. There remains time for a rainfall event to significantly change the production outlook particularly when you consider the current forward price of 2019 crop cotton at more than AUD$600/bale. With the northern cotton valleys current water availability more negatively impacted than the southern cotton valleys, the present outlook would reflect lower ginning volumes in 2019 for Namoi Cotton given most infrastructure is in the central and northern cotton valleys. Namoi Cotton will be focused on maximising market share in both ginning and cotton seed trading volumes along with further operational efficiencies. NCA will be targeting increased market share through greater competitive focus in the southern valleys, effective position management and a proactive export sales management campaign. The commodity packing business will be looking to increase volumes and broader commodity exposure. A strong focus will be on maximising financial performance in the 2019 season. BOARD AND STR AT EGY On 26 September 2017 Grower Members and Namoi Capital Stockholders overwhelmingly approved the proposed restructure of Namoi Cotton from a Co-operative to an ASX listed public company with a single class of quoted ordinary shares for Grower Members and Namoi Capital Stockholders to be named Namoi Cotton Limited. The NSW Supreme Court approved the restructure on 3 October 2017 and on 10 October 2017 Namoi Cotton was incorporated as Namoi Cotton Limited, a fully listed public company (Restructure). The Board continues to work through the details of a capital raising to enable full implementation of Namoi Cotton’s strategic plan. CORPORATE GOV ERNA NCE AND BOARD The Board is committed to achieving and demonstrating the highest standards of corporate governance. Namoi Cotton complies with the Australian Securities Exchange Corporate Governance Principles and Recommendations 3rd Edition (the ‘ASX Principles‘). Namoi Cotton’s corporate governance practices are outlined in the Corporate Governance Statement available on the Namoi Cotton website www.namoicotton.com.au In developing the governance framework for Namoi Cotton the Board has considered the Corporate Governance Principles and Recommendations (“ASX Governance Principles”) published by the ASX Corporate Governance Council (“ASX CGC”). Copies of all the Namoi Cotton Key Policies and Charters for Namoi Cotton and the Board and its current Board Sub Committees referred to in the statement are available in the Corporate Governance section of Namoi Cotton’s website at www.namoicotton. com.au (collectively such policies are known as the “Corporate Governance Documents”). A copy of the 2018 Annual Report is available on the Namoi Cotton website. The Board during 2018 undertook a skills matrix process, which identified areas of expertise which would strengthen the existing Directors and Board. The Nomination and Remuneration Committee with the oversight of the Board, undertook a search for new Directors to fill casual vacancies and the additional director position eventuating from the corporatisation. On 7 June 2018, the Chairman and the existing Directors welcomed Mr James Jackson, Mrs Juanita Hamparsum and Mr Joseph Di Leo to the Board. Each of the new Directors were appointed following an extensive recruitment process. Each new Director is standing for election at the Namoi Cotton Limited Annual General Meeting to be held on 31 July 2018 at 10.00am in Toowoomba. 2018 ANNUAL REPORT | 9 OUR PE OPLE Namoi Cotton has a strategy to attract and retain top talent who can make a positive contribution to the operations of Namoi Cotton, which are innovative, dynamic and focused to implement the Namoi Cotton strategy. We strive to employ people who hold health and safety highly, and which are culturally minded to working in a team environment and willing to learn about the cotton industry. We have a permanent workforce of 150 employees and our casual employees can range from 350 employees to 400 employees at peak operating times. Our employees bring a wealth of knowledge and innovation and expertise to the operations daily. The health and safety of our staff is paramount and we are committed to a values-based health and safety culture that harmonises with our overall organisational culture. At the completion of the 2018 Financial Year (28 February 2018), women represented 31% of the Company’s permanent workforce. Namoi Cotton’s focus (as opportunities arise) and the company’s aim is to increase the percentage of women at all levels of management. The Namoi Cotton culture and values as an organisation has been developed over 56 years of operations. Namoi Cotton’s employees are integral to achieving its business goals and longevity. We believe in our people, and the cotton ginning, commodity packing, cotton marketing and logistics management expertise they bring to the organisation. Namoi Cotton openly promotes innovation, productivity, efficiency, inclusiveness and ideas generation across all levels of the business. Onboarding, Professional Development Frameworks and Continuing Professional Development Programs have commenced their implementation phase at Namoi Cotton. CORP ORATE SOCIAL RESPON SIBI LI TY Namoi Cotton being a regionally based Australian operation, holds highly the value of corporate social responsibility, and remains committed to conducting business ethically while contributing to the social, environmental and economic wellbeing of such regional communities. We acknowledge the commitments we make in these three key areas can have on our employees, residents of regional communities and our shareholders. We are committed to being a responsible member of the international business community, our operations utilise strong governance practices to comply with the various international standards and laws when undertaking and completing sales of cotton and cottonseed to foreign counterparties. 2018 ANNUAL REPORT | 10 Namoi Cotton assists its employees to become active participants of charitable, sporting and social organisations outside the workplace. ENVIR ONMENTAL, SOCIA L AND GOVERNANCE Namoi Cotton has focussed on improving yearly on it’s Environmental, Social and Governance responsibilities within its ginning, cotton seed and joint venture marketing, warehousing and packing operations. The Company conducts annual audits and improvements to raise the standards of Namoi Cotton’s Environmental, Social and Governance responsibilities internally and throughout its community interaction. WORKPLACE H EALTH , SAFETY AND THE ENVIR ONMENT Safety before all else is the commitment Namoi Cotton makes to its employees, contractors and visitors. Through the “Cotton on to Safety” initiative Namoi Cotton has rebranded its safety and environmental focus within the organisation to coincide with the release of the Work Health Safety and Environment (“WHSE”) Application, a mobile device platform utilised by all staff to manage daily WHSE tasks ranging from compliance recording, incident reporting and environmental monitoring to ongoing safety and environmental improvement programs. Alongside the industry leading WHSE Kiosk, which captures daily digital records of Personal Protective Equipment (“PPE”) compliance, Fatigue Management and Respiratory Management Plans, Namoi Cotton implemented an initiative to commence installation of Medical and Fatigue centres at all operational ginning sites and the adoption of defibrillation devices in those same facilities is class leading. Reporting on safety performance and communicating Namoi Cotton safety and environmental messages is performed utilising daily “tool box talks”, site safety meetings, digital notifications of incidents, fatigue risks, respiratory risks, driver safety alerts and our Continuous Action Improvement Plan (“CIAP”) which drives safety improvement and expenditure from the ground up right through to Board analysis utilising Injury Illness Statistical Index (“IISI”) data and Lost Time Injury Frequency Rate (“LTIFR”) analysis, recording and reporting. Namoi Cotton incorporates both internal and external safety audits on an annual and bi-annual basis to ensure our continuing improvement and adoption of industry leading practices. Alongside the safety based initiatives, Namoi Cotton undertakes a program of seasonal environmental internal audits at all operational sites and undertakes recycling of knowledge, gender and experience. The Namoi Cotton recruitment process is structured to provide equality in recruitment and unbiased selection and promotion decisions A workplace that values and respects its diversity and is free from discrimination or bias is more productive. The Namoi Cotton existing diversity policies include the recruitment policy, paid parental leave, carer’s leave, flexible work arrangements and mentoring programs. COMMUNITY E NGAGE ME NT Namoi Cotton is an active supporter of efforts to raise money, support charitable events and causes in regional Australia. During the 2017 and 2018 Namoi Cotton has supported the Cancer Council of Australia, Westpac Rescue Helicopter Service, Wee Waa Community Hospital, Wee Waa Public and Private Schools and Regional and District sporting clubs. Namoi Cotton encourages employees to participate in charity causes and within regional locations participates in local, state and national charity events. Each year Namoi Cotton hosts a charity golf day in Wee Waa, NSW as its signature charity event for the distribution of funds to local communities. RETIR EMENT OF BE N COU LTON AND MICHAEL BOYCE In January 2018 Mr Ben Coulton retired from the Namoi Cotton Board. The Chairman and his fellow Directors thank Mr Coulton for his services of 12 plus years. His contribution from a cotton industry prospective was outstanding and his long tenure should be recognised highly. Mr Coulton contributed heavily on industry matters to ensure Namoi Cotton remained a leader in the ginning and marketing of Australian cotton. In April 2018 Mr Michael Boyce retired from the Namoi Cotton Board. During his tenure of 16 plus years Mr Boyce served on the Audit and Compliance Committee overseeing the yearly and half yearly audit and financial results. Mr Boyce’s financial skills and acumen and cotton industry knowledge served the organisation well. all round module wrap, waste cotton bale strap, waste oil recycling, scrap steel recycling and where available within the local community, general waste recycling. Namoi Cotton’s focus on energy savings has seen the gradual conversion of operational sites to energy saving lighting options, variable speed drive adoption, low energy bale press installations and the recent commissioning of gas efficiency technology utilising a grant from the Office of Environment and Heritage based on an in house designed and constructed moisture monitoring and gas efficiency system. Namoi Cotton is committed to providing a safe and healthy working place as set out in the WHSE Policy for all persons in the workplace, including employees, contractors and visitors, and to minimising our environmental impact. The requirements and goals in the Namoi Cotton WHSE are achieved by: • • • • all levels of management and employees working together to identify, assess and suitably control hazards that may cause injury and may adversely impact the environment; daily reporting of the WHSE performance to Senior Management; monthly reporting of the WHSE performance to the Board; and annual WHSE presentations for all employees of the Company. As the agricultural industry is evolving with a heavy focus on technology in agriculture, Namoi Cotton is monitoring how it can undertake activities to minimise the environmental impact of its activities. DIVE RS ITY Namoi Cotton has a diversity and inclusiveness strategy. Diversity within Namoi Cotton is created by an inclusive working environment. Namoi Cotton has a publicly released Diversity Policy on its website which promotes gender, cultural and leadership diversity. Namoi Cotton appointed Mrs Juanita Hamparsum to the Namoi Cotton Board, as its first female Non-Executive Director. The intention is to achieve the objectives over time as employment positions become available. Namoi Cotton’s Workplace Gender Equality Act public report is available on its website. Namoi Cotton at the time of this report has 31% of women employed on a full-time basis across all sites and locations. Namoi Cotton is committed to a diversity strategy aimed to promote the appointment of qualified, experienced and diverse Directors, Management and Employees to achieve Namoi Cotton’s objectives on diversity. Namoi Cotton supports equal opportunity in the recruitment, selection and promotion of employees from different backgrounds, 2018 ANNUAL REPORT | 11 Robert Green – Non-Executive Director – 61 B Bus (QAC), MAICD Mr Green was appointed to the Namoi Cotton Board as a Non-Grower Director on 24 May 2013. He was most recently re-elected at the 2016 general meeting. Mr Green has considerable board relevant experience working as a Senior Executive and General Manager in the Australian and International agricultural industry over the past 30 years. Key areas of experience include operations management and business development, including his current role as Chief Executive Officer of Louis Dreyfus Company. Tim Watson – Non-Executive Director – 56 GAICD Mr Watson joined the Namoi Cotton Board in December 2014 as a Grower Director. He was most recently re- elected at the 2015 general meeting. He grows cotton in the Hillston Region and has been involved in the cotton industry since 2000 and is a member of the Hillston District Irrigators Association and the Lachlan River Customer Service Committee. Currently he is also a representative of the Lachlan Valley Water Users Association. He brings with him extensive industry and commercial expertise for the cotton and general agricultural industry. He was also recognised by the cotton industry by being the recipient of the 2014 Australian Cotton Grower of the Year Award. BOARD OF DIRECTORS Stuart Boydell – Chairman, Non- Executive Director – 71 Mr Boydell joined the Namoi Cotton Board as a Grower Director in June 1994 and has been Chairman since December 1995. He was most recently re-elected at the 2017 general meeting. He has grown cotton on “Cooma” near Moree, New South Wales for over 20 years and is Chairman of the nomination and remuneration committee, a member of the audit and compliance committee and MFRM committee. Richard Anderson – Non- Executive Director – 72 OAM, B.Com, FCA, FCPA Mr Anderson joined the Namoi Cotton Board as a Non-Grower Director in July 2001. He was most recently re- elected at the 2016 general meeting. Mr Anderson previously held the position of managing partner of PricewaterhouseCoopers in Queensland. Mr Anderson is a member of the audit and compliance committee, the MFRM committee and the nomination and remuneration committee. During the past three years Mr Anderson has held ASX listed company directorships at Data#3 Limited (current), Lindsay Australia Ltd (current) and Villa World Limited (current). He is also currently president of the Guide Dogs for the Blind Association of Queensland. Glen Price – Non-Executive Director – 62 B Rural Science (Hons), GAICD Mr Price joined the Namoi Cotton Board in July 2009 as a Grower Director. Mr Price has previously grown cotton in the Mungindi region for 34 years and in the St continues to grow cotton George region and has done so for 28 years. He has been involved in the cotton industry since 1978. He brings with him extensive industry and commercial expertise. Mr Price is a member of the MFRM committee. He was most recently re-elected at the 2015 general meeting. Mr Price is a member of the Mungindi Cotton Growers and Water Users Association. 2018 ANNUAL REPORT | 12 2016 ANNUAL REPORT | 12 Juanita Hamparsum – Non- Executive Director – 47 B Bus (UTS), CA, FPCT, GAICD Mrs Hamparsum was appointed to the board as a Grower Director on 7 June 2018. She grows cotton and grains in the Upper Namoi region and has been involved in the cotton industry since 1998. Mrs Hamparsum has extensive financial, agricultural and natural resource management experience. She is a chartered accountant and currently a director and chair of board audit committee of Cotton Seed Distributors Ltd and Chair of Great Artesian Basin Coordinating Committee. Her former positions include chair of Cotton Innovation Network, director of Cotton Research and Development Corporation and Deputy Chair of Namoi Catchment Management Authority. James Jackson – Non-Executive Director – 56 B. COM, FAICD Mr Jackson was appointed to the board on June 7, 2018 as a Non-Executive Director. He has more than 25 years in capital markets and experience in Australia and agribusiness, both overseas. He held a Senior Vice President role with investment bank SG Warburg (now part of UBS) in New York. He was a director of MSF Sugar Limited from 2004 to 2012 and was Chairman from 2008 to 2012. He also served as the Deputy Chairman of Elders Limited (ASX: ELD) from 2014 to 2017, and is currently Chairman of Australian Rural Capital Limited, (ASX:ARC) an investment company focussed on Agriculture. Mr Jackson has experience and skills in capital markets, agricultural supply chains, financial risk management, the development and implementation of strategy and public company corporate governance. Joseph Di Leo – Non-Executive Director – 61 M.Bus.Acct. & Fin., FAICD Mr Di Leo was appointed to the Board as a Non – Executive Director on 7 June 2018. Mr Di Leo has an extensive career in Agriculture, and is a former Managing Director of Allied Mills Pty Ltd, a national manufacturer of flour and bakery products. He is also a former Chief Operating Officer of GrainCorp Limited, and previously held a number of executive freight positions with the NSW State Rail Authority. Mr Di Leo has also previously been a Non – Executive Director of the Port Kembla Port Corporation and Teys Australia Pty Ltd. He is currently a Director of LUCRF Super. Retired Directors Mr Michael Boyce a Non-Executive Director resigned on 24 April 2018. Mr Ben Coulton a Non-Executive Director resigned on 31 January 2018. 2018 ANNUAL REPORT | 13 EXECUTIVE MANAGEMENT TEAM Bailey Garcha - Company Secretary / General Counsel BLLB, BFA, GAICD, ACIS, FACIS Bailey joined Namoi Cotton in 2003. He has previously held legal and corporate positions with Sparke Helmore Lawyers, Minter Ellison Lawyers and the New South Wales Treasury. His duties include major contract negotiations, management of litigation, ASIC and ASX compliance, insurance, superannuation, employment law management, joint venture, board and investor relations, corporate governance, internal legal advice, commercial law and management of transactions for Namoi Cotton. Bailey is involved in the implementation of commercial, corporate and operational projects for Namoi Cotton. Bailey brings over 20 years of legal, corporate and commercial experience to the senior management team. David Lindsay - General Manager Grower Services and Marketing BAppSci, Dip Exp Man, MBA in David joined Namoi Cotton in 1991. David has previously held a number of positions with Namoi Cotton the Grower Services and Trading departments. Prior to joining Namoi Cotton, David held an agricultural management position with National Mutual Rural Enterprises. David is responsible for domestic marketing, grower finance, risk management with growers, pool management and joint venture management. David brings over 25 years of specialised cotton industry experience to the senior management team. Shane McGregor - Chief Operations Officer MBA - Master Business Admin, MPM - Masters of Project Management, USDA Accredited Cotton Classifier Shane joined Namoi Cotton in 1999. Shane has previously held cotton and cottonseed management positions with Cotton Trading Corporation Pty Ltd and has been involved in the cotton industry in various management capacities since 1991. He has significant management experience in domestic marketing, commodities exports, logistics, cotton classing and commodities packing operations and brings over 20 years of specialised cotton industry experience to the senior management team. Shane was previously the General Manager Commodities for Namoi Cotton and in November 2013 became the Chief Operations Officer with responsibility for the performance of the ginning, ginning technical support services, cotton seed trading, occupational health and safety and environmental business functions. Jeremy Callachor – Chief Executive Officer BFA (Hons), CA, MAICD Appointed Chief Executive Officer in November 2010 and responsible for all of Namoi Cotton’s business operations. Between January 2008 and November 2010, Jeremy held the role of General Manager – Operations & Human Resources and was responsible for Namoi Cotton ginning operations, occupational health & safety and human resources management. Between June 2003 and January 2008 Jeremy was Chief Financial Officer managing financial, taxation, treasury and statutory reporting activities. Jeremy has had previous financial management experience with Harvest Haul Australia and Rolls Royce Marine in Scotland, UK. Jeremy has been involved with Namoi Cotton for more than 20 years and brings a strong knowledge of Namoi Cotton’s various business operations and strategic capability to Namoi Cotton Limited. Jeremy is also on the board of Cotton Australia, a NCA Joint Venture Committee member and a Director of CPL. Stuart Greenwood – Chief Financial Officer B.FIN. Admin, CA Stuart joined Namoi Cotton in 2001. He was appointed Chief Financial Officer in January 2008, following four years as Financial Controller, prior to this various senior accounting holding positions within Namoi Cotton. Stuart has previously held financial management positions within the cotton industry for CSD and Pursehouse Rural. Stuart oversees and manages all financial, taxation, treasury and statutory reporting activities for Namoi. Stuart brings over 20 years of agricultural financial and management experience to the senior management team. Stuart is also a NCA Joint Venture Committee member. 2018 ANNUAL REPORT | 14 NAMOI C OTTON LIMITE D (Formerly Namoi Cotton Co-Operative Ltd) ABN 76 010 485 588 FINANCIAL REPORT – Y E A R EN DED 28 FEBRUARY 2018 2018 ANNUAL REPORT | 15 FINAN CIAL REPORT – CON TE NT S Appendix 4E .......................................................................................................................... 17 Directors’ Report .................................................................................................................. 18 Auditor’s Independence Declaration .................................................................................... 33 Independent Auditor’s Report .............................................................................................. 34 Directors’ Declaration .......................................................................................................... 39 Statement of Profit and Loss and Other Comprehensive Income ......................................... 40 Balance Sheet ....................................................................................................................... 41 Statement of Cash Flows ...................................................................................................... 42 Statement of Changes in Equity ............................................................................................ 43 Notes to the Financial Statements ....................................................................................... 44 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. Summary of Significant Accounting Policies ............................................................. 44 Revenue and Expenses.............................................................................................. 56 Income Tax ................................................................................................................ 57 Acquisitions ............................................................................................................... 59 Earnings per Share ................................................................................................... 62 Distributions Paid or Provided on Ordinary Shares/Co-operative Capital Units ....... 63 Cash and Cash Equivalents ....................................................................................... 64 Trade and Other Receivables..................................................................................... 66 Inventories ................................................................................................................ 68 Derivative Financial Instruments .............................................................................. 68 Investments in Associates and Joint Ventures using the equity method .................. 69 Interest in Joint Operations ....................................................................................... 72 Interest in Jointly Controlled Assets ......................................................................... 72 Intangible Assets ....................................................................................................... 72 Property, Plant and Equipment ................................................................................. 73 Trade and Other Payables ......................................................................................... 75 Interest Bearing Liabilities ........................................................................................ 76 Provisions .................................................................................................................. 78 Co-operative Grower Member Shares ...................................................................... 78 Contributed Equity .................................................................................................... 79 Nature and Purpose of Reserves .............................................................................. 81 Segment Information ................................................................................................ 81 Commitments and Contingencies ............................................................................. 84 Significant Events after Balance Date ....................................................................... 85 Related Party Disclosures ......................................................................................... 86 Directors’ and Executive Disclosure .......................................................................... 87 Remuneration of Auditors ......................................................................................... 88 Financial Risk Management Objectives and Policies ................................................ 88 Other Non-Financial Information .............................................................................. 99 2018 ANNUAL REPORT | 16 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Appendix 4E The information contained in this report is for the full-year ended 28 February 2018 and the previous corresponding period, 28 February 2017. RESULTS FOR ANNOUNCEMENT TO MARKET Revenues from ordinary activities Profit/(Loss) from ordinary activities after tax attributable to members Net profit/(loss) for the period attributable to members Dividends (distributions) Final distribution - (Refer Note 6) Interim distribution % Change $'000 Up 36% to 483,938 Up 2292% Up 2292% 6,769 6,769 Amount Unfranked Amount per Security per Security 1.90c - 1.53c# - Record date for determining entitlements to the final dividend 03 July 2018 # Provisional amount pending conversion of remaining residual capital stock Brief explanation of any of the figures reported above and short details of any bonus or cash issue or other item(s) of importance not previously released to the market: Financial performance has improved significantly by $6.5 million year on year underpinned by a 38% increase in the 2017 Australian crop size. Namoi Cotton’s ginning and cotton seed volumes increased by 47% and 54% respectively year on year whilst Namoi Cotton Alliance’s (NCA) lint procurement volumes increased by 25%. Cotton seed trading margins improved considerably through effective risk and position management, market volatility related trading opportunities and contractual seed yield management. Ginning margins were pressured through increased unit variable costs associated with reduced productivity from poorer quality seed cotton. The contribution from NCA improved from the prior year due to increased volumes and enhanced derivative position management. NCA’s commodity packing volumes declined from the previous record year primarily due to reduced chickpea yields. Management of fixed costs remained a priority for the business throughout the financial year. These factors all combined to deliver a $11.8m improvement from the prior year in net cash flows For further explanation of the annual financial results please refer to the Review of Operations from operating activities. shown in Page 4 of this report. Earnings per share Basic earnings per ordinary security Diluted earnings per ordinary security 28 February 2018 28 February 2017 5.3 cents* 0.2 cents* 4.7 cents* 0.2 cents* Net tangible assets per security 28 February 2018 28 February 2017 Net tangible asset backing per ordinary security 103 cents* 97 cents* * Adjusted retrospectively for conversion of grower member shares and Namoi capital stock for both periods. The above specific requirements of Appendix 4E should be read in conjunction with the complete final report. This financial report has been audited. Year Ended 28 February 2018 Appendix 4E Page 3 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Appendix 4E The information contained in this report is for the full-year ended 28 February 2018 and the previous corresponding period, 28 February 2017. RESULTS FOR ANNOUNCEMENT TO MARKET Revenues from ordinary activities Profit/(Loss) from ordinary activities after tax attributable to members Net profit/(loss) for the period attributable to members Dividends (distributions) Final distribution - (Refer Note 6) Interim distribution % Change $'000 Up 36% to 483,938 Up 2292% Up 2292% 6,769 6,769 Amount per Security Unfranked Amount per Security 1.90c - 1.53c# - Record date for determining entitlements to the final dividend 03 July 2018 # Provisional amount pending conversion of remaining residual capital stock Brief explanation of any of the figures reported above and short details of any bonus or cash issue or other item(s) of importance not previously released to the market: Financial performance has improved significantly by $6.5 million year on year underpinned by a 38% increase in the 2017 Australian crop size. Namoi Cotton’s ginning and cotton seed volumes increased by 47% and 54% respectively year on year whilst Namoi Cotton Alliance’s (NCA) lint procurement volumes increased by 25%. Cotton seed trading margins improved considerably through effective risk and position management, market volatility related trading opportunities and contractual seed yield management. Ginning margins were pressured through increased unit variable costs associated with reduced productivity from poorer quality seed cotton. The contribution from NCA improved from the prior year due to increased volumes and enhanced derivative position management. NCA’s commodity packing volumes declined from the previous record year primarily due to reduced chickpea yields. Management of fixed costs remained a priority for the business throughout the financial year. These factors all combined to deliver a $11.8m improvement from the prior year in net cash flows from operating activities. For further explanation of the annual financial results please refer to the Review of Operations shown in Page 4 of this report. Page 19 of this report. Earnings per share 28 February 2018 28 February 2017 Basic earnings per ordinary security Diluted earnings per ordinary security 5.3 cents* 0.2 cents* 4.7 cents* 0.2 cents* Net tangible assets per security 28 February 2018 28 February 2017 Net tangible asset backing per ordinary security 103 cents* 97 cents* * Adjusted retrospectively for conversion of grower member shares and Namoi capital stock for both periods. The above specific requirements of Appendix 4E should be read in conjunction with the complete final report. This financial report has been audited. Year Ended 28 February 2018 Appendix 4E Page 3 2018 ANNUAL REPORT | 17 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) DIRECTORS’ REPORT Financial report for the year ended 28 February 2018 Your directors present their report on the consolidated entity consisting of Namoi Cotton Limited and the entities it controlled at the end of or during the year ended 28 February 2018. Principal activities Namoi Cotton is a public company listed on the Australian Stock Exchange Ltd that is domiciled in Australia. The principal activities of the entities in the economic entity during the course of the year were ginning and marketing cotton. Restructure On 26 September 2017 Grower Members and Namoi Capital Stockholders overwhelmingly approved the proposed restructure of Namoi Cotton from a Co-operative to an ASX listed public company with a single class of quoted ordinary shares for Grower Members and Namoi Capital Stockholders to be named Namoi Cotton Limited. The NSW Supreme Court approved the restructure on 3 October 2017 and on 10 October 2017 Namoi Cotton was incorporated as Namoi Cotton Limited, a fully listed public company. Refer to Note 20 for further details. The Board is now working through the details of a capital raising to enable implementation of Namoi Cotton’s strategic plan. 2017-2018 full year financial results Namoi Cotton recorded a consolidated net profit after tax from continuing operations of $6.8 million for the full year ended 28 February 2018 (2017: a net profit of $0.3 million). Positive cash flows from operating activities were recorded at $17.3 million (2017: positive $5.5 million). The consolidated net profit after tax and positive cash flow from operating activities result include $1.6 million in pre-tax costs associated with the Restructure. The consolidated net profit after tax also includes the $0.7 million non-cash fair value increment to the Grower Member Share liability (Refer Note 20). Financial performance has improved significantly by $6.5 million year on year underpinned by a 38% increase in the 2017 Australian crop size. Namoi Cotton’s ginning and cotton seed volumes increased by 47% and 54% respectively year on year whilst Namoi Cotton Alliance’s (NCA) lint procurement volumes increased by 25%. Cotton seed trading margins improved considerably through effective risk and position management, market volatility related trading opportunities and contractual seed yield management. Ginning margins were pressured through increased unit variable costs associated with reduced productivity from poorer quality seed cotton. The contribution from NCA improved from the prior year due to increased volumes and enhanced derivative position management. NCA’s commodity packing volumes declined from the previous record year primarily due to reduced chickpea yields. Management of fixed costs remained a priority for the business throughout the financial year. These factors all combined to deliver a $11.8m improvement from the prior year in net cash flows from operating activities. Net assets during the period have increased by $7.9 million (2017: increased by $0.3 million) representing a net tangible asset backing of $1.03 per ordinary share (2017: $0.97 per ordinary share adjusted retrospectively due page 31). to the Restructure, refer table on page 17). Dividends The directors have announced that Namoi Cotton will pay a final dividend of 1.9 cents per ordinary share on 24 July 2018 which, assuming full conversion of Residual Capital Stock by the proposed record date of 3 July 2018, will equate to $2.7 million and would represent a payout ratio of 40% of the net profit after tax. The dividend is expected to be franked to 19.6%. In the prior year, no distributions were declared per unit of Namoi Capital Stock. No interim dividend was declared in respect of ordinary shares (2017: no interim distribution was declared in respect of Namoi Capital Stock). Review of operations The overall 2017 Australian cotton crop production was recorded at 3.75 million bales (2016 crop: 2.71 million bales) representing a 38% increase. Sufficient cotton was planted to yield an estimated 4.5 million bales however, the exceptionally hot conditions in January and February 2017 combined with limited in-crop rainfall resulted in significant negative impacts to dryland crops and reduced yields of irrigated crops. Irrigated yields have averaged approximately 10 bales per hectare compared with 11.5 the previous year. In addition to the lower yields, the quality of the 2017 crop has been negatively impacted by the wet planting conditions, end of growing period weather and challenging defoliation parameters. Namoi Cotton ginned 1,015,000 bales (including 100% of joint venture bales) of the 2017 crop (2016 crop: 689,000 bales) representing a 47% increase from the 2016 crop. The increased ginning volumes are directly related to the larger crop size. The quality of the cotton crop resulted in a reduction in ginning throughput rates to maximize cotton quality output and limit discounts for the grower. The slower throughput rates have been the primary driver of a 11% increase in unit ginning variable costs from the prior year reducing ginning gross margins. Overall, ginning contribution improved by 32%. Namoi Cotton has continued to invest in its ginning network to improve service offerings to growers and drive productivity improvements in the ginning business completing significant projects prior to the commencement of ginning of the 2017 crop. These projects included a $1m upgrade of the Merah North gin yard doubling its static storage capacity combined with a press upgrade, the addition of a fourth gin stand and associated cleaning equipment combined with a press upgrade at Boggabri catering for the expanding southern upper Namoi valley production, the addition of a third gin stand and associated cleaning equipment at North Bourke and an upgrade to lint cleaning equipment at the Ashley gin. Post the ginning season, Namoi Cotton has commenced significant projects at its Trangie gin with the addition of a fourth gin stand and associated cleaning equipment combined with a press upgrade to support incremental volumes along with a significant upgrade to the cleaning and moisture capacity equipment of the Wathagar cotton gin. Namoi Cotton’s continued commitment to workplace health and safety as a priority has resulted in a 35% improvement in our lost time injury frequency rate compared to the previous year. Our cotton seed trading business shipped and handled 266,000Mt (2016 crop: 172,000Mt) with contribution from the seed business a strong contributor to the overall results increasing by $8.0 million from the previous year. Seed prices remained firm into the commencement of ginning supported by the dry conditions and Chinese demand. Market prices in China along with a slowing of Chinese demand associated with the continuing Bollgard III cotton seed import restrictions resulted in cotton seed being sold back into the domestic market and slowed the movement of cotton seed from gin sites pressuring prices in the second half of the ginning period and through to the end of the financial year. The lower prices have slowed contracting of 2018 crop ginning volumes as growers wait for improved price levels. Effective risk management combined with contractual yield management have significantly widened cotton seed trading margins from the previous year. In the second half of the financial year Namoi Cotton has invested in a significant increase in cotton seed storage capacity at its Hillston and Trangie gins to provide support to our trading business, improved margin opportunities and storage options for growers in this lower priced environment. Namoi Cotton’s 15% interest in the Cargill Oilseeds Australia business contributed a loss of $1.4 million (2017: loss of $0.8 million). Whilst year on year volumes improved for both the Narrabri (cotton seed) and Footscray (canola) crush facilities, margins were significantly impacted. Early year high priced cotton seed combined with competing market challenges in the feed sector for meal and hulls reduced cotton seed crush margins. Aggressive origination competition for canola seed combined with soybean meal imports and oil price reductions due to alternate stocks and supplies lowered canola crushing margins. NCA’s total cotton lint marketing volumes procured for the 2017 season were 636,000 bales (2016 season: 507,000 bales). This reflects a 25% improvement in volume traded which was largely associated with larger Australian production. Lint marketing gross margins continued to be under pressure through competition to secure cotton. Improved derivative position management throughout the year however ensured this margin pressure was more than offset in overall marketing contributions. This resulted in a $0.45 million improvement in Namoi Cotton’s share of NCA’s lint business in the financial results over the prior year. NCA’s commodity packing business packed 168,000Mt in 2017 (2016 crop: 226,000Mt) including principally chickpeas and cotton seed. Packing volumes declined from the record volumes achieved in the preceding year impacted by the slowdown in cotton seed demand from China, reduced chickpea yields impacted by adverse agronomic conditions and the Indian government’s import policy decisions implementing a 60% import tariff restriction on Australian chickpeas. Chickpea packing volumes were supported by carryover 2016 crop packing and new 2017 crop Bangladesh and Pakistan demand. The Indian situation however leaves more than 30,000Mt of chickpeas in stock to be packed in the FY 2018/19 financial year. Year Ended 28 February 2018 Directors’ Report 2018 ANNUAL REPORT | 18 Page 4 Year Ended 28 February 2018 Directors’ Report Page 5 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) DIRECTORS’ REPORT Financial report for the year ended 28 February 2018 Your directors present their report on the consolidated entity consisting of Namoi Cotton Limited and the entities it controlled at the end of or during the year ended 28 February 2018. Namoi Cotton is a public company listed on the Australian Stock Exchange Ltd that is domiciled in Australia. The principal activities of the entities in the economic entity during the course of the year were ginning and Principal activities marketing cotton. Restructure On 26 September 2017 Grower Members and Namoi Capital Stockholders overwhelmingly approved the proposed restructure of Namoi Cotton from a Co-operative to an ASX listed public company with a single class of quoted ordinary shares for Grower Members and Namoi Capital Stockholders to be named Namoi Cotton Limited. The NSW Supreme Court approved the restructure on 3 October 2017 and on 10 October 2017 Namoi Cotton was incorporated as Namoi Cotton Limited, a fully listed public company. Refer to Note 20 for further details. The Board is now working through the details of a capital raising to enable implementation of Namoi Cotton’s strategic plan. 2017-2018 full year financial results Namoi Cotton recorded a consolidated net profit after tax from continuing operations of $6.8 million for the full year ended 28 February 2018 (2017: a net profit of $0.3 million). Positive cash flows from operating activities were recorded at $17.3 million (2017: positive $5.5 million). The consolidated net profit after tax and positive cash flow from operating activities result include $1.6 million in pre-tax costs associated with the Restructure. The consolidated net profit after tax also includes the $0.7 million non-cash fair value increment to the Grower Member Share liability (Refer Note 20). Financial performance has improved significantly by $6.5 million year on year underpinned by a 38% increase in the 2017 Australian crop size. Namoi Cotton’s ginning and cotton seed volumes increased by 47% and 54% respectively year on year whilst Namoi Cotton Alliance’s (NCA) lint procurement volumes increased by 25%. Cotton seed trading margins improved considerably through effective risk and position management, market volatility related trading opportunities and contractual seed yield management. Ginning margins were pressured through increased unit variable costs associated with reduced productivity from poorer quality seed cotton. The contribution from NCA improved from the prior year due to increased volumes and enhanced derivative position management. NCA’s commodity packing volumes declined from the previous record year primarily due to reduced chickpea yields. Management of fixed costs remained a priority for the business throughout the financial year. These factors all combined to deliver a $11.8m improvement from the prior year in net cash flows from operating activities. Net assets during the period have increased by $7.9 million (2017: increased by $0.3 million) representing a net tangible asset backing of $1.03 per ordinary share (2017: $0.97 per ordinary share adjusted retrospectively due to the Restructure, refer table on page 17). Dividends The directors have announced that Namoi Cotton will pay a final dividend of 1.9 cents per ordinary share on 24 July 2018 which, assuming full conversion of Residual Capital Stock by the proposed record date of 3 July 2018, will equate to $2.7 million and would represent a payout ratio of 40% of the net profit after tax. The dividend is expected to be franked to 19.6%. In the prior year, no distributions were declared per unit of Namoi Capital Stock. No interim dividend was declared in respect of ordinary shares (2017: no interim distribution was declared in respect of Namoi Capital Stock). Review of operations The overall 2017 Australian cotton crop production was recorded at 3.75 million bales (2016 crop: 2.71 million bales) representing a 38% increase. Sufficient cotton was planted to yield an estimated 4.5 million bales however, the exceptionally hot conditions in January and February 2017 combined with limited in-crop rainfall resulted in significant negative impacts to dryland crops and reduced yields of irrigated crops. Irrigated yields have averaged approximately 10 bales per hectare compared with 11.5 the previous year. In addition to the lower yields, the quality of the 2017 crop has been negatively impacted by the wet planting conditions, end of growing period weather and challenging defoliation parameters. Namoi Cotton ginned 1,015,000 bales (including 100% of joint venture bales) of the 2017 crop (2016 crop: 689,000 bales) representing a 47% increase from the 2016 crop. The increased ginning volumes are directly related to the larger crop size. The quality of the cotton crop resulted in a reduction in ginning throughput rates to maximize cotton quality output and limit discounts for the grower. The slower throughput rates have been the primary driver of a 11% increase in unit ginning variable costs from the prior year reducing ginning gross margins. Overall, ginning contribution improved by 32%. Namoi Cotton has continued to invest in its ginning network to improve service offerings to growers and drive productivity improvements in the ginning business completing significant projects prior to the commencement of ginning of the 2017 crop. These projects included a $1m upgrade of the Merah North gin yard doubling its static storage capacity combined with a press upgrade, the addition of a fourth gin stand and associated cleaning equipment combined with a press upgrade at Boggabri catering for the expanding southern upper Namoi valley production, the addition of a third gin stand and associated cleaning equipment at North Bourke and an upgrade to lint cleaning equipment at the Ashley gin. Post the ginning season, Namoi Cotton has commenced significant projects at its Trangie gin with the addition of a fourth gin stand and associated cleaning equipment combined with a press upgrade to support incremental volumes along with a significant upgrade to the cleaning and moisture capacity equipment of the Wathagar cotton gin. Namoi Cotton’s continued commitment to workplace health and safety as a priority has resulted in a 35% improvement in our lost time injury frequency rate compared to the previous year. Our cotton seed trading business shipped and handled 266,000Mt (2016 crop: 172,000Mt) with contribution from the seed business a strong contributor to the overall results increasing by $8.0 million from the previous year. Seed prices remained firm into the commencement of ginning supported by the dry conditions and Chinese demand. Market prices in China along with a slowing of Chinese demand associated with the continuing Bollgard III cotton seed import restrictions resulted in cotton seed being sold back into the domestic market and slowed the movement of cotton seed from gin sites pressuring prices in the second half of the ginning period and through to the end of the financial year. The lower prices have slowed contracting of 2018 crop ginning volumes as growers wait for improved price levels. Effective risk management combined with contractual yield management have significantly widened cotton seed trading margins from the previous year. In the second half of the financial year Namoi Cotton has invested in a significant increase in cotton seed storage capacity at its Hillston and Trangie gins to provide support to our trading business, improved margin opportunities and storage options for growers in this lower priced environment. Namoi Cotton’s 15% interest in the Cargill Oilseeds Australia business contributed a loss of $1.4 million (2017: loss of $0.8 million). Whilst year on year volumes improved for both the Narrabri (cotton seed) and Footscray (canola) crush facilities, margins were significantly impacted. Early year high priced cotton seed combined with competing market challenges in the feed sector for meal and hulls reduced cotton seed crush margins. Aggressive origination competition for canola seed combined with soybean meal imports and oil price reductions due to alternate stocks and supplies lowered canola crushing margins. NCA’s total cotton lint marketing volumes procured for the 2017 season were 636,000 bales (2016 season: 507,000 bales). This reflects a 25% improvement in volume traded which was largely associated with larger Australian production. Lint marketing gross margins continued to be under pressure through competition to secure cotton. Improved derivative position management throughout the year however ensured this margin pressure was more than offset in overall marketing contributions. This resulted in a $0.45 million improvement in Namoi Cotton’s share of NCA’s lint business in the financial results over the prior year. NCA’s commodity packing business packed 168,000Mt in 2017 (2016 crop: 226,000Mt) including principally chickpeas and cotton seed. Packing volumes declined from the record volumes achieved in the preceding year impacted by the slowdown in cotton seed demand from China, reduced chickpea yields impacted by adverse agronomic conditions and the Indian government’s import policy decisions implementing a 60% import tariff restriction on Australian chickpeas. Chickpea packing volumes were supported by carryover 2016 crop packing and new 2017 crop Bangladesh and Pakistan demand. The Indian situation however leaves more than 30,000Mt of chickpeas in stock to be packed in the FY 2018/19 financial year. Year Ended 28 February 2018 Directors’ Report Page 4 Year Ended 28 February 2018 Directors’ Report Page 5 2018 ANNUAL REPORT | 19 With the northern cotton valleys water availability more negatively impacted than the southern cotton valleys, the current outlook would reflect lower ginning volumes in 2019 for Namoi Cotton given most infrastructure is in the central and northern cotton valleys. Namoi Cotton will be focused on maximising market share in both ginning and cotton seed trading volumes along with further operational efficiencies. NCA will be targeting increased market share through greater competitive focus in the southern valleys, effective position management and a proactive export sales management campaign. The commodity packing business will be looking to increase volumes and broader commodity exposure. A strong focus will be on maximising financial performance in the 2019 season. Significant events after balance date There have been no significant events after balance date other than as disclosed in Note 24 in this report. There has been no significant change in the state of affairs of the consolidated entity during the year other than Significant changes in the state of affairs as disclosed elsewhere in this report. Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Finance costs have reduced by $0.05 million, with the continuing low interest rate environment prevailing throughout the period and further reductions to term debt. Namoi Cotton completed a term debt repayment of $5.5 million during the financial year. Term debt at balance date stands at $42 million with further amortisation anticipated from free cash flow from operating activities in FY 2018/19. During the year we continued implementation of our strategic plan to grow the Namoi Cotton business including completing the acquisition of Twynam Agricultural Group Pty Ltd’s 50% participating interest in the Australian Classing Services joint venture for $0.7 million and PJ & JM Harris Pty Ltd’s 25% participating interest in the Moomin Ginning Company joint venture for $2.0 million. These acquisitions are anticipated to deliver increased earnings before interest, taxation and depreciation of $0.4 million in the year ending 28 February 2019. Likely developments 2018 Season The final cotton area planted was 371,000 hectares irrigated and 81,000 hectares dryland. Since planting through late February/early March 2018 the rainfall normally associated with La Niña conditions has not eventuated. The weather conditions in the early part of 2018 have been more favourable than those of the same period in 2017 with not as prolonged excessive heat periods and cooler overnight temperatures and as a result the fruit retention of irrigated crops looks very encouraging. Water shortages for irrigated cotton in the St George, Dirranbandi areas and some parts of the Gwydir valley will impact overall production yield to conserve irrigation water supplies. The dryland planting has been more heavily impacted due to no rainfall. Early ginning results would suggest an improvement upon the poor yields associated with the 2017 crop. Considering all these factors, we estimate the 2018 Australian cotton crop will at this stage still produce approximately 4.6 million bales. Namoi Cotton anticipates that it will gin between 1.10 million and 1.20 million bales from the 2018 crop, including 100% of joint venture gins, representing an improvement of between 8% and 18% from the previous year. It is expected that our cotton seed trading volumes will increase proportionally in line with the increase in ginning volumes. The industry carryover of 2017 crop cotton seed combined with the inability to export Bollgard III cotton seed to China from the middle of 2017, the lower value of cotton seed and likely reduced 2018 crop seed yields will likely to pressure cotton seed contributions over the course of the 2018 crop. NCA’s lint marketing volumes are estimated to be between 700,000 and 800,000 bales from the 2018 crop, representing an increase of between 10% and 26% from the prior crop. Significant competition for marketing volumes is anticipated to continue to pressure marketing gross margins in 2018 albeit they remain supported by strong demand from Bangladesh and healthy forward Chinese sales. Gross margin recovery is expected to be achieved through improved supply chain organization and logistics. NCA’s containerized commodity packing volumes are forecast to be consistent with the current year, supported by Autumn/Winter rainfall and a return to improved yields in chickpea production. Namoi Cotton’s operations in 2018 are predicted to deliver another strong financial result from incremental volume increases. Improved unit contributions are also expected to flow from the commissioning of key gin upgrades and the assumption of improved seed cotton quality from the 2018 crop. Consistent earnings are anticipated from Namoi Cotton’s 51% investment in NCA, whilst lower contribution is forecast from the cotton seed trading business. 2019 Season The lack of general rainfall since planting of the 2018 crop stretched water supplies with some production areas being short of water and sacrificing crop. Other areas have significantly drawn down on farm storage water reserves and public storage water allocations resulting particularly in the Northern basin of the Murray Darling System low current levels of available irrigation water. In the Southern basin, significant water has also been utilised, however, public storages are better placed than their Northern Basin counterparts and will benefit from the looming winter snow conditions. Based on the current available irrigation water, our current estimate of the 2019 Australian cotton crop would reflect 3.0 million bales of production underpinned by strong production in the Lachlan, Murrumbidgee and Murray valleys. It is anticipated a repeat of the dry winter conditions from 2017 will not be repeated in 2018 and winter rainfall will improve this outlook. Year Ended 28 February 2018 Directors’ Report 2018 ANNUAL REPORT | 20 Page 6 Year Ended 28 February 2018 Directors’ Report Page 7 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) With the northern cotton valleys water availability more negatively impacted than the southern cotton valleys, the current outlook would reflect lower ginning volumes in 2019 for Namoi Cotton given most infrastructure is in the central and northern cotton valleys. Namoi Cotton will be focused on maximising market share in both ginning and cotton seed trading volumes along with further operational efficiencies. NCA will be targeting increased market share through greater competitive focus in the southern valleys, effective position management and a proactive export sales management campaign. The commodity packing business will be looking to increase volumes and broader commodity exposure. A strong focus will be on maximising financial performance in the 2019 season. Significant events after balance date There have been no significant events after balance date other than as disclosed in Note 24 in this report. Significant changes in the state of affairs There has been no significant change in the state of affairs of the consolidated entity during the year other than as disclosed elsewhere in this report. Finance costs have reduced by $0.05 million, with the continuing low interest rate environment prevailing throughout the period and further reductions to term debt. Namoi Cotton completed a term debt repayment of $5.5 million during the financial year. Term debt at balance date stands at $42 million with further amortisation anticipated from free cash flow from operating activities in FY 2018/19. During the year we continued implementation of our strategic plan to grow the Namoi Cotton business including completing the acquisition of Twynam Agricultural Group Pty Ltd’s 50% participating interest in the Australian Classing Services joint venture for $0.7 million and PJ & JM Harris Pty Ltd’s 25% participating interest in the Moomin Ginning Company joint venture for $2.0 million. These acquisitions are anticipated to deliver increased earnings before interest, taxation and depreciation of $0.4 million in the year ending 28 February 2019. Likely developments 2018 Season The final cotton area planted was 371,000 hectares irrigated and 81,000 hectares dryland. Since planting through late February/early March 2018 the rainfall normally associated with La Niña conditions has not eventuated. The weather conditions in the early part of 2018 have been more favourable than those of the same period in 2017 with not as prolonged excessive heat periods and cooler overnight temperatures and as a result the fruit retention of irrigated crops looks very encouraging. Water shortages for irrigated cotton in the St George, Dirranbandi areas and some parts of the Gwydir valley will impact overall production yield to conserve irrigation water supplies. The dryland planting has been more heavily impacted due to no rainfall. Early ginning results would suggest an improvement upon the poor yields associated with the 2017 crop. Considering all these factors, we estimate the 2018 Australian cotton crop will at this stage still produce approximately 4.6 million bales. year. Namoi Cotton anticipates that it will gin between 1.10 million and 1.20 million bales from the 2018 crop, including 100% of joint venture gins, representing an improvement of between 8% and 18% from the previous It is expected that our cotton seed trading volumes will increase proportionally in line with the increase in ginning volumes. The industry carryover of 2017 crop cotton seed combined with the inability to export Bollgard III cotton seed to China from the middle of 2017, the lower value of cotton seed and likely reduced 2018 crop seed yields will likely to pressure cotton seed contributions over the course of the 2018 crop. NCA’s lint marketing volumes are estimated to be between 700,000 and 800,000 bales from the 2018 crop, representing an increase of between 10% and 26% from the prior crop. Significant competition for marketing volumes is anticipated to continue to pressure marketing gross margins in 2018 albeit they remain supported by strong demand from Bangladesh and healthy forward Chinese sales. Gross margin recovery is expected to be achieved through improved supply chain organization and logistics. NCA’s containerized commodity packing volumes are forecast to be consistent with the current year, supported by Autumn/Winter rainfall and a return to improved yields in chickpea production. Namoi Cotton’s operations in 2018 are predicted to deliver another strong financial result from incremental volume increases. Improved unit contributions are also expected to flow from the commissioning of key gin upgrades and the assumption of improved seed cotton quality from the 2018 crop. Consistent earnings are anticipated from Namoi Cotton’s 51% investment in NCA, whilst lower contribution is forecast from the cotton seed trading business. 2019 Season The lack of general rainfall since planting of the 2018 crop stretched water supplies with some production areas being short of water and sacrificing crop. Other areas have significantly drawn down on farm storage water reserves and public storage water allocations resulting particularly in the Northern basin of the Murray Darling System low current levels of available irrigation water. In the Southern basin, significant water has also been utilised, however, public storages are better placed than their Northern Basin counterparts and will benefit from the looming winter snow conditions. Based on the current available irrigation water, our current estimate of the 2019 Australian cotton crop would reflect 3.0 million bales of production underpinned by strong production in the Lachlan, Murrumbidgee and Murray valleys. It is anticipated a repeat of the dry winter conditions from 2017 will not be repeated in 2018 and winter rainfall will improve this outlook. Year Ended 28 February 2018 Directors’ Report Page 6 Year Ended 28 February 2018 Directors’ Report Page 7 2018 ANNUAL REPORT | 21 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Directors The names, qualifications and experience of the company’s directors that held office throughout the financial year and up to the date of this report, unless otherwise indicated, are as follows. Stuart C Boydell, Chairman, Non-executive Director, 71 Mr. Boydell joined the board of directors as a grower director in June 1994 and has been chairman since December 1995. He was most recently re-elected at the 2017 general meeting. He has grown cotton on “Cooma” near Moree, NSW for over 20 years and is chairman of the remuneration committee and a member of the audit and compliance committee and marketing and financial risk management committee. Richard Anderson, Non-executive Director, 72, OAM, B. Com, FCA, FCPA Mr. Anderson joined the board as a non-grower director in July 2001. He was most recently re-elected at the 2016 general meeting. Mr Anderson previously held the position of Managing Partner of PricewaterhouseCoopers in Queensland. He is the chairman of both the audit and compliance committee and the marketing and financial risk management committee and is a member of the remuneration committee. During the past three years Mr Anderson has held ASX listed company directorships at Data#3 Limited (current – appointed 27 October 1997) and Lindsay Australia Ltd (current – appointed 16 December 2002). He is also currently president of the Guide Dogs for the Blind Association of Queensland. Michael Boyce, Non-executive Director, 75, FCA, FAICD, B Com, HDA Mr. Boyce joined the board as a non-grower director in October 2002. He was most recently re-elected at the 2015 general meeting. He was the founding partner of BOYCE Chartered Accountants. He is currently a director of Monbeef Pty Ltd, Hazeldean Pty Ltd, Fugen Hardware Group and Birdnest Pty Ltd. Mr. Boyce is a member of the audit and compliance committee and the remuneration committee. Ben Coulton, Non-executive Director, 63 Mr Coulton joined the board of directors in July 2006 as a grower director. He was most recently re-elected at the 2015 general meeting. Mr Coulton has been growing cotton in the MacIntyre region since 1976. He brings with him extensive industry and commercial expertise. Mr Coulton resigned from the board on 31 January 2018. Glen Price, Non-executive Director, 62, B Rural Science (Hons), GAICD Mr Price joined the board of directors in July 2009 as a grower director. He was most recently re-elected at the 2015 general meeting. Mr Price grows cotton in both the Mungindi and St George regions and has been involved in the cotton industry since 1978. He brings with him extensive industry and commercial expertise. Mr. Price is a member of the marketing and financial risk management committee. Robert L Green, Non-executive Director, 61, B Bus (QAC), MAICD Mr Green was appointed to the Board as a non-grower director on 27 May 2013. He was most recently re-elected to the Board at the 2016 general meeting. Mr Green has considerable board relevant experience working as a Senior Executive and General Manager in the Australian and International agricultural industry for more than 28 years. Key areas of experience include trading, marketing, operations management and business development, including his current role as Chief Executive Officer of Louis Dreyfus Commodities Australia Pty Ltd. Mr Green is a member of the audit and compliance committee and the remuneration committee. He has been past President of the Australian Oilseeds Federation and Australian Grain Exporters Association. Tim Watson, Non-executive Director, 56, GAICD Mr Watson joined the Board in December 2014 as a grower director. He was elected to the Board at the 2015 general meeting. He grows cotton in the Hillston Region and has been involved in the cotton industry since 2000 and is a member of the Hillston District Irrigators Association and the Lachlan River Customer Service Committee. Currently he is also a representative of the Lachlan Valley Water Users Association. He brings with him extensive industry and commercial expertise for the cotton and general agricultural industry. He was also recognised by the cotton industry as the recipient of the 2014 Australian Cotton Grower of the Year Award. Company secretary Bailey Garcha, 44, BLLB, BFA, Dip Legal Studies, Dip Legal Practice, ACIS, GAICD Mr Garcha joined Namoi Cotton in July 2003 and has previously held legal and commercial positions with Minter Ellison Lawyers, Sparke Helmore Lawyers and NSW Treasury. Board & committee meeting attendance Meetings held and attended by each of the directors during the financial year were as follows: Directors' Meetings1 Audit and Financial Risk Compliance Management Remuneration Committee Meetings1 Marketing and 4 4 3 - - 4 - 4 4 4 4 - - - - 4 4 4 3 - - 4 - 4 SC Boydell (Chairman) RA Anderson M Boyce B Coulton (resigned 31 January 2018) G Price R Green T Watson Total number of meetings held 22 19 18 20 21 22 22 22 1 All board members were available to attend directors’ meetings and relevant committee meetings. Prior to resigning B Coulton was available to attend 20 meetings of 20 Directors’ meetings held. Committee membership As at the date of this report, the company had an audit and compliance committee, a marketing and financial risk management committee and a remuneration committee. Members acting on the committees of the Board during the year were: Audit and Compliance Marketing and Financial Risk Remuneration RA Anderson (Chairman) RA Anderson (Chairman) SC Boydell (Chairman) Management SC Boydell G Price RA Anderson R Green M Boyce M Boyce SC Boydell R Green There have been no changes to the CEO or other KMP in the period after the reporting date and prior to the date when this financial report was authorised for issue. Year Ended 28 February 2018 Directors’ Report 2018 ANNUAL REPORT | 22 Page 8 Year Ended 28 February 2018 Directors’ Report Page 9 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Directors The names, qualifications and experience of the company’s directors that held office throughout the financial year and up to the date of this report, unless otherwise indicated, are as follows. Stuart C Boydell, Chairman, Non-executive Director, 71 Mr. Boydell joined the board of directors as a grower director in June 1994 and has been chairman since December 1995. He was most recently re-elected at the 2017 general meeting. He has grown cotton on “Cooma” near Moree, NSW for over 20 years and is chairman of the remuneration committee and a member of the audit and compliance committee and marketing and financial risk management committee. Richard Anderson, Non-executive Director, 72, OAM, B. Com, FCA, FCPA Mr. Anderson joined the board as a non-grower director in July 2001. He was most recently re-elected at the 2016 general meeting. Mr Anderson previously held the position of Managing Partner of PricewaterhouseCoopers in Queensland. He is the chairman of both the audit and compliance committee and the marketing and financial risk management committee and is a member of the remuneration committee. During the past three years Mr Anderson has held ASX listed company directorships at Data#3 Limited (current – appointed 27 October 1997) and Lindsay Australia Ltd (current – appointed 16 December 2002). He is also currently president of the Guide Dogs for the Blind Association of Queensland. Michael Boyce, Non-executive Director, 75, FCA, FAICD, B Com, HDA Mr. Boyce joined the board as a non-grower director in October 2002. He was most recently re-elected at the 2015 general meeting. He was the founding partner of BOYCE Chartered Accountants. He is currently a director of Monbeef Pty Ltd, Hazeldean Pty Ltd, Fugen Hardware Group and Birdnest Pty Ltd. Mr. Boyce is a member of the audit and compliance committee and the remuneration committee. Ben Coulton, Non-executive Director, 63 Mr Coulton joined the board of directors in July 2006 as a grower director. He was most recently re-elected at the 2015 general meeting. Mr Coulton has been growing cotton in the MacIntyre region since 1976. He brings with him extensive industry and commercial expertise. Mr Coulton resigned from the board on 31 January 2018. Glen Price, Non-executive Director, 62, B Rural Science (Hons), GAICD Mr Price joined the board of directors in July 2009 as a grower director. He was most recently re-elected at the 2015 general meeting. Mr Price grows cotton in both the Mungindi and St George regions and has been involved in the cotton industry since 1978. He brings with him extensive industry and commercial expertise. Mr. Price is a member of the marketing and financial risk management committee. Robert L Green, Non-executive Director, 61, B Bus (QAC), MAICD Mr Green was appointed to the Board as a non-grower director on 27 May 2013. He was most recently re-elected to the Board at the 2016 general meeting. Mr Green has considerable board relevant experience working as a Senior Executive and General Manager in the Australian and International agricultural industry for more than 28 years. Key areas of experience include trading, marketing, operations management and business development, including his current role as Chief Executive Officer of Louis Dreyfus Commodities Australia Pty Ltd. Mr Green is a member of the audit and compliance committee and the remuneration committee. He has been past President of the Australian Oilseeds Federation and Australian Grain Exporters Association. Tim Watson, Non-executive Director, 56, GAICD Mr Watson joined the Board in December 2014 as a grower director. He was elected to the Board at the 2015 general meeting. He grows cotton in the Hillston Region and has been involved in the cotton industry since 2000 and is a member of the Hillston District Irrigators Association and the Lachlan River Customer Service Committee. Currently he is also a representative of the Lachlan Valley Water Users Association. He brings with him extensive industry and commercial expertise for the cotton and general agricultural industry. He was also recognised by the cotton industry as the recipient of the 2014 Australian Cotton Grower of the Year Award. Company secretary Bailey Garcha, 44, BLLB, BFA, Dip Legal Studies, Dip Legal Practice, ACIS, GAICD Mr Garcha joined Namoi Cotton in July 2003 and has previously held legal and commercial positions with Minter Ellison Lawyers, Sparke Helmore Lawyers and NSW Treasury. Board & committee meeting attendance Meetings held and attended by each of the directors during the financial year were as follows: Committee Meetings1 Marketing and Financial Risk Management Remuneration Audit and Compliance Directors' Meetings1 SC Boydell (Chairman) RA Anderson M Boyce B Coulton (resigned 31 January 2018) G Price R Green T Watson Total number of meetings held 22 19 18 20 21 22 22 22 4 4 3 - - 4 - 4 4 4 - - 4 - - 4 4 4 3 - - 4 - 4 1 All board members were available to attend directors’ meetings and relevant committee meetings. Prior to resigning B Coulton was available to attend 20 meetings of 20 Directors’ meetings held. Committee membership As at the date of this report, the company had an audit and compliance committee, a marketing and financial risk management committee and a remuneration committee. Members acting on the committees of the Board during the year were: Audit and Compliance RA Anderson (Chairman) M Boyce SC Boydell R Green Marketing and Financial Risk Management RA Anderson (Chairman) SC Boydell G Price Remuneration SC Boydell (Chairman) RA Anderson R Green M Boyce There have been no changes to the CEO or other KMP in the period after the reporting date and prior to the date when this financial report was authorised for issue. Year Ended 28 February 2018 Directors’ Report Page 8 Year Ended 28 February 2018 Directors’ Report Page 9 2018 ANNUAL REPORT | 23 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Remuneration report (audited) This remuneration report outlines the director and executive remuneration arrangements of the company and the consolidated entity in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report Key Management Personnel (KMP) of the group are defined as those having the authority and responsibility either directly or indirectly for planning, directing and controlling the major activities of the company and the group, including any director of the company. a) Details of Directors and Executives Directors Mr S C Boydell Mr R A Anderson Mr M Boyce Mr B Coulton Mr G Price Mr R Green Mr T J Watson Executives Mr J Callachor Mr S Greenwood Mr D Lindsay Mr B Garcha Mr S McGregor Chairman, non-executive Director, non-executive Director, non-executive Director, non-executive (resigned 31 January 2018) Director, non-executive Director, non-executive Director, non-executive Chief Executive Officer (CEO) Chief Financial Officer (CFO) General Manager – Grower Services and Marketing General Counsel and Company Secretary Chief Operations Officer (COO) b) Compensation of KMP Compensation Policy The performance of Namoi Cotton depends upon the quality of its directors and executives. To prosper and deliver maximised stakeholder returns, Namoi Cotton must attract, motivate and retain highly skilled and qualified directors and executives. To this end, Namoi Cotton embodies the following principles in its compensation framework: • • • A portion of executive compensation is ‘at risk’, dependent upon the company and individual executive Provide competitive rewards to attract high calibre executives; Link executive rewards to company performance and shareholder value; meeting pre-determined performance benchmarks; and Establish performance hurdles in relation to variable executive compensation. • Remuneration Committee The remuneration committee of the board of directors of Namoi Cotton is responsible for determining and reviewing compensation arrangements for all KMP, including the directors, the CEO and other members of the senior executive team. The remuneration committee assesses compensation arrangements of KMP annually, by reference to relevant employment market conditions and available independent external remuneration data. The overall objective of this assessment is to ensure maximisation of stakeholder returns from the retention of a high quality board and executive team employees. Compensation Structure In accordance with best practice corporate governance, the structure of non-executive director and executive compensation is separate and distinct. i) Non-executive Director Compensation Objective Structure The board seeks to set aggregate compensation at a level that provides the company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The previous co-operative rules specified that the Members at each general meeting shall determine compensation of non-executive directors. The latest amendment was at the general meeting held on 27 July 2005 when the Members approved an aggregate compensation of $310,000 per year plus applicable committee fees. The new Constitution for Namoi Cotton Limited provides for aggregate directors’ fees of up to $850,000 per annum to be paid to Directors. It is proposed following the Restructure the current fees paid to the Directors will be reviewed to determine if they are consistent with market rates for an ASX listed company of the size and complexity of Namoi Cotton under its new governance structure. Any increase in fees paid to the Directors following the review will be accommodated within the aggregate cap set out in the Constitution. The amount of compensation and the manner in which it is apportioned amongst directors is reviewed annually. The board may consider advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process. Each director receives a fee for being a director of the company. An additional fee ($2,500 per committee, $7,500 to chair a committee) is also paid for each board committee on which a director sits. The payment of additional fees for serving on a committee recognises the additional time commitment required by directors who serve on one or more sub-committees. director on market. Non-executive directors have been encouraged by the board to hold shares in the company purchased by the Any Director in office at 10 October 2017 which has or will serve two terms is entitled to a retirement benefit equivalent to two year’s remuneration based on their remuneration for the 2017-18 financial year. The compensation of non-executive directors for the period ending 28 February 2018 is detailed on page 14 of ii) Executive Compensation this report. Objective • • • • Structure The company aims to reward executives with a level and mix of compensation commensurate with their position and responsibilities within the company so as to: reward executives for performance against targets set by reference to appropriate benchmarks; align the interest of executives with those of shareholders; link rewards with the strategic goals and performance of the company; and ensure total compensation is competitive by market standards. Employment agreements have been negotiated with the CEO and other KMP. Details of these contracts are provided on pages 12 and 13 of this report. Each KMP agreement includes compensation which consists of the following key elements: • Fixed Compensation; • Variable Compensation comprising Short Term Incentives (STI) The remuneration committee establishes the proportion of fixed and variable (potential STI) compensation for KMP. Year Ended 28 February 2018 Directors’ Report 2018 ANNUAL REPORT | 24 Page 10 Year Ended 28 February 2018 Directors’ Report Page 11 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) i) Non-executive Director Compensation Objective The board seeks to set aggregate compensation at a level that provides the company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. Structure The previous co-operative rules specified that the Members at each general meeting shall determine compensation of non-executive directors. The latest amendment was at the general meeting held on 27 July 2005 when the Members approved an aggregate compensation of $310,000 per year plus applicable committee fees. The new Constitution for Namoi Cotton Limited provides for aggregate directors’ fees of up to $850,000 per annum to be paid to Directors. It is proposed following the Restructure the current fees paid to the Directors will be reviewed to determine if they are consistent with market rates for an ASX listed company of the size and complexity of Namoi Cotton under its new governance structure. Any increase in fees paid to the Directors following the review will be accommodated within the aggregate cap set out in the Constitution. The amount of compensation and the manner in which it is apportioned amongst directors is reviewed annually. The board may consider advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process. Each director receives a fee for being a director of the company. An additional fee ($2,500 per committee, $7,500 to chair a committee) is also paid for each board committee on which a director sits. The payment of additional fees for serving on a committee recognises the additional time commitment required by directors who serve on one or more sub-committees. Non-executive directors have been encouraged by the board to hold shares in the company purchased by the director on market. Any Director in office at 10 October 2017 which has or will serve two terms is entitled to a retirement benefit equivalent to two year’s remuneration based on their remuneration for the 2017-18 financial year. The compensation of non-executive directors for the period ending 28 February 2018 is detailed on page 14 of this report. page 28 To this end, Namoi Cotton embodies the following principles in its compensation framework: ii) Executive Compensation Objective The company aims to reward executives with a level and mix of compensation commensurate with their position and responsibilities within the company so as to: • • • • reward executives for performance against targets set by reference to appropriate benchmarks; align the interest of executives with those of shareholders; link rewards with the strategic goals and performance of the company; and ensure total compensation is competitive by market standards. Remuneration report (audited) This remuneration report outlines the director and executive remuneration arrangements of the company and the consolidated entity in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report Key Management Personnel (KMP) of the group are defined as those having the authority and responsibility either directly or indirectly for planning, directing and controlling the major activities of the company and the group, including any director of the company. a) Details of Directors and Executives Directors Mr S C Boydell Mr R A Anderson Mr M Boyce Mr B Coulton Mr G Price Mr R Green Mr T J Watson Executives Mr J Callachor Mr S Greenwood Mr D Lindsay Mr B Garcha Mr S McGregor b) Compensation of KMP Compensation Policy Director, non-executive (resigned 31 January 2018) Chairman, non-executive Director, non-executive Director, non-executive Director, non-executive Director, non-executive Director, non-executive Chief Executive Officer (CEO) Chief Financial Officer (CFO) General Manager – Grower Services and Marketing General Counsel and Company Secretary Chief Operations Officer (COO) The performance of Namoi Cotton depends upon the quality of its directors and executives. To prosper and deliver maximised stakeholder returns, Namoi Cotton must attract, motivate and retain highly skilled and qualified directors and executives. Provide competitive rewards to attract high calibre executives; Link executive rewards to company performance and shareholder value; • A portion of executive compensation is ‘at risk’, dependent upon the company and individual executive meeting pre-determined performance benchmarks; and Establish performance hurdles in relation to variable executive compensation. • • • The remuneration committee of the board of directors of Namoi Cotton is responsible for determining and reviewing compensation arrangements for all KMP, including the directors, the CEO and other members of the Remuneration Committee senior executive team. The remuneration committee assesses compensation arrangements of KMP annually, by reference to relevant employment market conditions and available independent external remuneration data. The overall objective of this assessment is to ensure maximisation of stakeholder returns from the retention of a high quality board and executive team employees. Compensation Structure compensation is separate and distinct. In accordance with best practice corporate governance, the structure of non-executive director and executive Each KMP agreement includes compensation which consists of the following key elements: Fixed Compensation; • • Variable Compensation comprising Short Term Incentives (STI) The remuneration committee establishes the proportion of fixed and variable (potential STI) compensation for KMP. Year Ended 28 February 2018 Directors’ Report Page 10 Year Ended 28 February 2018 Directors’ Report Page 11 2018 ANNUAL REPORT | 25 Structure Employment agreements have been negotiated with the CEO and other KMP. Details of these contracts are provided on pages 12 and 13 of this report. 26 27 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Fixed Compensation Objective The remuneration committee reviews fixed compensation annually. The process consists of a review of companywide, business unit and internal and market comparative individual performance, relevant compensation and, where appropriate, independent external remuneration data of equivalent industry sectors. Structure Executives are given the opportunity to receive their fixed remuneration in a variety of forms including cash, superannuation, remote rent, motor vehicles, housing, income protection insurance and any associated fringe benefits. The form chosen will be optimal for the recipient without creating undue cost for the company. iii) Variable Compensation – STI Objective The objective of the STI program is to link the achievement of the company’s operational and financial targets with the compensation received by the executives charged with meeting those targets. Structure Actual STI payments depend on the achievement of specific operating targets set at the beginning of the financial year. The operational targets consist of a number of Key Performance Indicators (KPI’s) covering both financial and non-financial measures of performance. STI compensation includes an ‘at risk’ element which constitutes fifty percent of the executives’ overall available STI compensation. This element is wholly dependent on Namoi Cotton achieving a pre-determined level of financial performance, is discretionary, is additional to the fixed compensation noted below and is not subject to any predefined KPI’s. The remaining fifty percent of each executive’s STI compensation was dependent upon the achievement of financial and non-financial KPI’s in the prior year. The review of individual performance usually occurs within two months of the balance date. The financial and non-financial KPI’s include but are not limited to critical operational, profit, safety and developmental targets. KMP STI payments are ultimately subject to the discretion of the remuneration committee. However, when taking into account this discretion, the remuneration committee considers the above criteria in determining the appropriate allocation. The senior management team in aggregate are entitled to a short-term incentive payment of $100,000 due to the successful completion of the Restructure, this is by virtue of a portion of the normal short-term incentive program. The incentive payments included in the 2018 cash bonus payable to senior management are: J Callachor $60,000, B Garcha $18,000 and S Greenwood $20,000. For the 2018 financial year, 78% (2017: 0% amounting to $nil) of the STI compensation (both components) was accrued in the financial statements. iv) Contract for Services Major provisions of KMP employment agreements are set out below. Mr Jeremy Callachor, Chief Executive Officer • • Term of agreement - open Fixed compensation, inclusive of superannuation, for the year ended 28 February 2018 of $450,000 (28 February 2017: $450,000) Term of agreement – open February 2017: $265,423) fixed compensation Term of agreement – open February 2017: $286,307) fixed compensation Mr Stuart Greenwood, Chief Financial Officer Term of agreement – open Fixed compensation, inclusive of superannuation, for the year ended 28 February 2018 of $266,500 (28 • Variable compensation, for the year ended 28 February 2018 of $37,500 (28 February 2017: $nil) Payment of a retention benefit in the event of takeover, acquisition or merger, equal to 1.1 times annual February 2017: $260,595) fixed compensation Payment of a termination benefit on termination equal to 50% of annual fixed compensation Period of notice to be given by employee or employer – 4 weeks Mr Bailey Garcha, General Counsel and Company Secretary Fixed compensation, inclusive of superannuation, for the year ended 28 February 2018 of $271,500 (28 • Variable compensation, for the year ended 28 February 2018 of $35,000 (28 February 2017: $nil) Payment of a retention benefit in the event of takeover, acquisition or merger, equal to 1.1 times annual Payment of a termination benefit on termination equal to 50% annual fixed compensation Period of notice to be given by employee or employer – 4 weeks Mr David Lindsay, General Manager - Grower Services and Marketing Fixed compensation, inclusive of superannuation, for the year ended 28 February 2018 of $292,500 (28 • Variable compensation, for the year ended 28 February 2018 of $30,000 (28 February 2017: $nil) Payment of a retention benefit in the event of takeover, acquisition or merger, equal to 1.1 times annual Payment of a termination benefit on termination equal to 50% of annual fixed compensation Period of notice to be given by employee or employer – 4 weeks Mr Shane McGregor, Chief Operations Officer Term of Agreement - open Fixed compensation, inclusive of superannuation, for the year ended 28 February 2018 of $300,111 (28 • Variable compensation, for the year ended 28 February 2018 of $50,000 (28 February 2017: $nil) Payment of a retention benefit in the event of takeover, acquisition or merger, equal to 1.1 times annual February 2017: $293,725) fixed compensation Payment of a termination benefit on termination equal to 50% of annual fixed compensation Period of notice to be given by employee or employer – 4 weeks • • • • • • • • • • • • • • • • • • • • • Variable compensation, for the year ended 28 February 2018 of $120,000 (28 February 2017: $nil) • Payment of a retention benefit in the event of takeover, acquisition or merger, equal to 50% of annual commencing fixed compensation Payment of a termination benefit on termination equal to 50% of annual commencing fixed compensation Period of notice to be given by employee or employer - 12 weeks • • Year Ended 28 February 2018 Directors’ Report 2018 ANNUAL REPORT | 26 Page 12 Year Ended 28 February 2018 Directors’ Report Page 13 • • • Variable compensation, for the year ended 28 February 2018 of $35,000 (28 February 2017: $nil) • Payment of a retention benefit in the event of takeover, acquisition or merger, equal to 1.1 times annual fixed compensation Payment of a termination benefit on termination equal to 50% annual fixed compensation Period of notice to be given by employee or employer – 4 weeks Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Mr Stuart Greenwood, Chief Financial Officer • • Term of agreement – open Fixed compensation, inclusive of superannuation, for the year ended 28 February 2018 of $266,500 (28 February 2017: $260,595) • Variable compensation, for the year ended 28 February 2018 of $37,500 (28 February 2017: $nil) • Payment of a retention benefit in the event of takeover, acquisition or merger, equal to 1.1 times annual fixed compensation Payment of a termination benefit on termination equal to 50% of annual fixed compensation Period of notice to be given by employee or employer – 4 weeks • • Mr Bailey Garcha, General Counsel and Company Secretary • • Term of agreement – open Fixed compensation, inclusive of superannuation, for the year ended 28 February 2018 of $271,500 (28 February 2017: $265,423) Fixed Compensation Objective Structure Objective Structure The remuneration committee reviews fixed compensation annually. The process consists of a review of companywide, business unit and individual performance, relevant internal and market comparative compensation and, where appropriate, independent external remuneration data of equivalent industry sectors. Executives are given the opportunity to receive their fixed remuneration in a variety of forms including cash, superannuation, remote rent, motor vehicles, housing, income protection insurance and any associated fringe benefits. The form chosen will be optimal for the recipient without creating undue cost for the company. iii) Variable Compensation – STI The objective of the STI program is to link the achievement of the company’s operational and financial targets with the compensation received by the executives charged with meeting those targets. Actual STI payments depend on the achievement of specific operating targets set at the beginning of the financial year. The operational targets consist of a number of Key Performance Indicators (KPI’s) covering both financial and non-financial measures of performance. STI compensation includes an ‘at risk’ element which constitutes fifty percent of the executives’ overall available STI compensation. This element is wholly dependent on Namoi Cotton achieving a pre-determined level of financial performance, is discretionary, is additional to the fixed compensation noted below and is not subject to any predefined KPI’s. The remaining fifty percent of each executive’s STI compensation was dependent upon the achievement of financial and non-financial KPI’s in the prior year. The review of individual performance usually occurs within two months of the balance date. The financial and non-financial KPI’s include but are not limited to critical operational, profit, safety and developmental targets. KMP STI payments are ultimately subject to the discretion of the remuneration committee. However, when taking into account this discretion, the remuneration committee considers the above criteria in determining the appropriate allocation. The senior management team in aggregate are entitled to a short-term incentive payment of $100,000 due to the successful completion of the Restructure, this is by virtue of a portion of the normal short-term incentive program. The incentive payments included in the 2018 cash bonus payable to senior management are: J Callachor $60,000, B Garcha $18,000 and S Greenwood $20,000. For the 2018 financial year, 78% (2017: 0% amounting to $nil) of the STI compensation (both components) was accrued in the financial statements. iv) Contract for Services Major provisions of KMP employment agreements are set out below. Mr Jeremy Callachor, Chief Executive Officer Term of agreement - open February 2017: $450,000) Fixed compensation, inclusive of superannuation, for the year ended 28 February 2018 of $450,000 (28 • Variable compensation, for the year ended 28 February 2018 of $120,000 (28 February 2017: $nil) Payment of a retention benefit in the event of takeover, acquisition or merger, equal to 50% of annual commencing fixed compensation Payment of a termination benefit on termination equal to 50% of annual commencing fixed compensation Period of notice to be given by employee or employer - 12 weeks • • • • • Mr David Lindsay, General Manager - Grower Services and Marketing • • Term of agreement – open Fixed compensation, inclusive of superannuation, for the year ended 28 February 2018 of $292,500 (28 February 2017: $286,307) • Variable compensation, for the year ended 28 February 2018 of $30,000 (28 February 2017: $nil) • Payment of a retention benefit in the event of takeover, acquisition or merger, equal to 1.1 times annual fixed compensation Payment of a termination benefit on termination equal to 50% of annual fixed compensation Period of notice to be given by employee or employer – 4 weeks • • Mr Shane McGregor, Chief Operations Officer • • Term of Agreement - open Fixed compensation, inclusive of superannuation, for the year ended 28 February 2018 of $300,111 (28 February 2017: $293,725) • Variable compensation, for the year ended 28 February 2018 of $50,000 (28 February 2017: $nil) • Payment of a retention benefit in the event of takeover, acquisition or merger, equal to 1.1 times annual fixed compensation Payment of a termination benefit on termination equal to 50% of annual fixed compensation Period of notice to be given by employee or employer – 4 weeks • • Year Ended 28 February 2018 Directors’ Report Page 12 Year Ended 28 February 2018 Directors’ Report Page 13 2018 ANNUAL REPORT | 27 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Details of the nature and amount of each element of the emoluments of each director and each of the executive officers of Namoi Cotton and the consolidated entity for the financial year are as follows: c) Shareholdings of KMP1 v) Compensation of Key Management Personnel for the Year Ended 28 February 2018 Year ended 28 February 2018 Year ended 28 February 2018 CCU's Shares CCU's Shares CCU's Shares Ordinary CCU's Shares Ordinary Short-term Employee benefits Post-employment Benefits Salary & Fees Cash Bonus4 Non- Monetary Benefits Superannuation Retirement Benefits 1 75,288 60,231 47,683 102,442 37,644 47,683 35,135 430,941 266,548 254,544 228,645 289,772 1,876,556 - - - - - - - - - - - - - - 120,000 30,000 35,000 37,500 50,000 272,500 (941) 608 1,771 31,974 5,423 38,835 7,152 5,722 4,530 3,082 3,576 4,530 3,338 22,465 21,010 16,993 16,637 23,238 - - - (70,000) - 4,750 10,500 - - - - - 132,273 (54,750) Long-term Benefits Employee Leave Benefits 2 - - - - - - - 9,302 5,181 4,750 4,173 (2,101) 21,305 Directors SC Boydell RA Anderson M Boyce B Coulton 3 G Price R Green T Watson Executives J Callachor D Lindsay B Garcha S Greenwood S McGregor 2 1. Movement in accrued retirement benefits for the year ended 28 February 2018. 2. Negatives relate to the taking of accumulated leave greater than one year's entitlement. 3. Resigned on 31 January 2018 and was paid previously accrued retirement benefits. 4. Includes Restructure bonus as per variable compensation disclosure in Directors' Report. Termination Benefits Total % Performance Related - - - - - - - - - - - - - 82,440 65,953 52,213 35,524 41,220 56,963 48,973 581,767 323,347 313,058 318,929 366,332 2,286,719 - - - - - - - 20.6% 9.3% 11.2% 11.8% 13.6% vi) Compensation of Key Management Personnel for the Year Ended 28 February 2017 Year ended 28 February 2017 Short-term Employee benefits Post-employment Benefits Salary & Fees Cash Bonus Non- Monetary Benefits Superannuation Retirement Benefits 1 Directors SC Boydell RA Anderson M Boyce B Coulton G Price R Green T Watson Executives J Callachor 2 D Lindsay 2 B Garcha S Greenwood S McGregor 75,288 60,231 47,683 35,135 37,644 47,683 35,135 432,803 257,863 249,482 223,874 270,305 1,773,126 - - - - - - - - - - - - - - - - - - - - (2,044) 14,884 816 17,763 4,047 35,466 7,152 5,722 4,530 3,338 3,576 4,530 3,338 17,974 24,176 16,599 14,825 25,283 - - - - - 14,250 7,000 - - - - - 131,043 21,250 1. Movement in accrued retirement benefits for the year ended 28 February 2017. 2. Negatives relate to the taking of accumulated leave greater than one year's entitlement. Long-term Benefits Employee Leave Benefits 2 - - - - - - - (12,312) (1,730) 7,522 4,515 4,960 2,955 Termination Benefits Total % Performance Related - - - - - - - - - - - - - 82,440 65,953 52,213 38,473 41,220 66,463 45,473 436,421 295,193 274,419 260,977 304,595 1,963,840 - - - - - - - - - - - - Directors SC Boydell (Chairman) RA Anderson M Boyce B Coulton G Price R Green T Watson Executives J Callachor D Lindsay B Garcha S Greenwood S McGregor terms. d) Loans to KMP Balance held 1 March 2017 Net Change Other Grower Member Grower Member Net Change Restructure Grower Member Balance held 28 February 2018 Grower Member - - - - - 4,000 25,000 6,000 2,000 - - - - - - - - 555,883 800 (555,883) (800) 714,387 775,272 373,292 800 1,600 (775,272) (373,292) (800) (1,600) 775,272 158,504 690,300 407,720 800 141,405 (549,125) (800) 707,629 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (4,000) (25,000) (6,000) (2,000) - - - - - - - - - - - - - - 4,000 25,000 6,000 2,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 714,387 775,272 158,504 690,300 707,629 4,000 25,000 6,000 2,000 2,149,167 4,000 141,405 (2,290,572) (4,000) 3,083,092 - 3,083,092 No Ordinary Shares, CCU's or Grower Member Shares were granted as remuneraton or issued on exercise of an option. 1Includes CCU/shares/ordinary shares that are held directly, indirectly and beneficially by KMP. All shares above are held in the disclosing parent entity Namoi Cotton Limited. All ordinary share transactions by the company with KMP are made through the ASX on normal commercial The following loans remain outstanding from KMP as part of the Employee Incentive Scheme that was suspended in August 2004 (refer to note 20 to the financials). The amounts owed by KMP at year end were D. Lindsay $2,630 (2017: $2,630) and S. McGregor $nil (2017: $30). These amounts will be repaid by 31 May 2018. e) Marketing and ginning transactions and balances with KMP Transactions with directors and their related parties were in accordance with the constitution, under terms and conditions applicable to all members. Under the former Co-operative Rules, grower directors were required to conduct a minimum of 20% of their total cotton business with Namoi Cotton. In accordance with that rule, Directors entered into marketing contracts and ginning contracts with Namoi Cotton. Amounts paid/received or payable/receivable from/to directors and their respective related parties were as follows: Name Mr SC Boydell Mr B Coulton Mr G Price Mr T Watson Consolidated and Parent entity Cotton Purchases Ginning Charges Levied Grain & Seed Purchases 28 Feb 2018 $ 1,381,884 6,810,479 2,915,452 614,611 28 Feb 2017 $ 308,479 3,489,599 2,120,215 752,413 28 Feb 2018 $ 157,433 1,134,241 353,515 610,211 28 Feb 2017 $ 38,633 569,508 267,297 543,066 28 Feb 2018 $ 183,672 1,477,306 452,466 252,951 28 Feb 2017 $ 64,388 899,036 395,138 455,345 11,722,426 6,670,706 2,255,400 1,418,504 2,366,395 1,813,907 Year Ended 28 February 2018 Directors’ Report 2018 ANNUAL REPORT | 28 Page 14 Year Ended 28 February 2018 Directors’ Report Page 15 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Details of the nature and amount of each element of the emoluments of each director and each of the executive officers of Namoi Cotton and the consolidated entity for the financial year are as follows: c) Shareholdings of KMP1 v) Compensation of Key Management Personnel for the Year Ended 28 February 2018 Short-term Employee benefits Post-employment Benefits Salary & Fees Cash Bonus4 Superannuation Non- Monetary Benefits Long-term Benefits Employee Leave Benefits 2 Retirement Benefits 1 Termination Benefits % Performance Total Related Year ended 28 February 2018 Directors SC Boydell RA Anderson M Boyce B Coulton 3 G Price R Green T Watson Executives J Callachor D Lindsay B Garcha S Greenwood S McGregor 2 75,288 60,231 47,683 102,442 37,644 47,683 35,135 430,941 266,548 254,544 228,645 289,772 Year ended 28 February 2017 Directors SC Boydell RA Anderson M Boyce B Coulton G Price R Green T Watson Executives J Callachor 2 D Lindsay 2 B Garcha S Greenwood S McGregor 75,288 60,231 47,683 35,135 37,644 47,683 35,135 432,803 257,863 249,482 223,874 270,305 1,773,126 (70,000) 4,750 10,500 9,302 5,181 4,750 4,173 (2,101) 21,305 120,000 30,000 35,000 37,500 50,000 (941) 608 1,771 31,974 5,423 38,835 1,876,556 272,500 132,273 (54,750) 1. Movement in accrued retirement benefits for the year ended 28 February 2018. 2. Negatives relate to the taking of accumulated leave greater than one year's entitlement. 3. Resigned on 31 January 2018 and was paid previously accrued retirement benefits. 4. Includes Restructure bonus as per variable compensation disclosure in Directors' Report. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7,152 5,722 4,530 3,082 3,576 4,530 3,338 22,465 21,010 16,993 16,637 23,238 7,152 5,722 4,530 3,338 3,576 4,530 3,338 17,974 24,176 16,599 14,825 25,283 - - - - - - - - - - - - - - - - - - - 14,250 7,000 (12,312) (1,730) 7,522 4,515 4,960 2,955 (2,044) 14,884 816 17,763 4,047 35,466 1. Movement in accrued retirement benefits for the year ended 28 February 2017. 2. Negatives relate to the taking of accumulated leave greater than one year's entitlement. 131,043 21,250 - - - - - - - - - - - - - - - - - - - - - - - - - - 82,440 65,953 52,213 35,524 41,220 56,963 48,973 581,767 323,347 313,058 318,929 366,332 2,286,719 82,440 65,953 52,213 38,473 41,220 66,463 45,473 436,421 295,193 274,419 260,977 304,595 1,963,840 20.6% 9.3% 11.2% 11.8% 13.6% - - - - - - - - - - - - - - - - - - - vi) Compensation of Key Management Personnel for the Year Ended 28 February 2017 Short-term Employee benefits Post-employment Benefits Salary & Fees Cash Bonus Superannuation Non- Monetary Benefits Long-term Benefits Employee Leave Benefits 2 Retirement Benefits 1 Termination Benefits % Performance Total Related Balance held 1 March 2017 Year ended 28 February 2018 CCU's Grower Member Shares Net Change Other Grower Member Shares CCU's Net Change Restructure Grower Member Balance held 28 February 2018 Grower Member CCU's Shares Ordinary CCU's Shares Ordinary Directors SC Boydell (Chairman) RA Anderson M Boyce B Coulton G Price R Green T Watson Executives J Callachor D Lindsay B Garcha S Greenwood S McGregor 555,883 - 775,272 - 373,292 - 407,720 - 4,000 25,000 - 6,000 2,000 800 - - 800 1,600 - 800 - - - - - - 141,405 - - - - - - - - - - - 2,149,167 4,000 141,405 - - - - - - - - - - - - - - (555,883) - (775,272) - (373,292) - (549,125) - (4,000) (25,000) - (6,000) (2,000) (800) - - (800) (1,600) - (800) - - - - - - - 714,387 - 775,272 158,504 690,300 - 707,629 - 4,000 25,000 - 6,000 2,000 (2,290,572) (4,000) 3,083,092 - - - - - - - - - - - - - - - - - - - - - - - - - - 714,387 - 775,272 158,504 690,300 - 707,629 - 4,000 25,000 - 6,000 2,000 - 3,083,092 No Ordinary Shares, CCU's or Grower Member Shares were granted as remuneraton or issued on exercise of an option. 1Includes CCU/shares/ordinary shares that are held directly, indirectly and beneficially by KMP. All shares above are held in the disclosing parent entity Namoi Cotton Limited. All ordinary share transactions by the company with KMP are made through the ASX on normal commercial terms. d) Loans to KMP The following loans remain outstanding from KMP as part of the Employee Incentive Scheme that was suspended in August 2004 (refer to note 20 to the financials). The amounts owed by KMP at year end were D. Lindsay $2,630 (2017: $2,630) and S. McGregor $nil (2017: $30). These amounts will be repaid by 31 May 2018. e) Marketing and ginning transactions and balances with KMP Transactions with directors and their related parties were in accordance with the constitution, under terms and conditions applicable to all members. Under the former Co-operative Rules, grower directors were required to conduct a minimum of 20% of their total cotton business with Namoi Cotton. In accordance with that rule, Directors entered into marketing contracts and ginning contracts with Namoi Cotton. Amounts paid/received or payable/receivable from/to directors and their respective related parties were as follows: Name Mr SC Boydell Mr B Coulton Mr G Price Mr T Watson Cotton Purchases Consolidated and Parent entity Ginning Charges Levied Grain & Seed Purchases 28 Feb 2018 $ 1,381,884 6,810,479 2,915,452 614,611 11,722,426 28 Feb 2017 $ 308,479 3,489,599 2,120,215 752,413 6,670,706 28 Feb 2018 $ 157,433 1,134,241 353,515 610,211 2,255,400 28 Feb 2017 $ 38,633 569,508 267,297 543,066 1,418,504 28 Feb 2018 $ 183,672 1,477,306 452,466 252,951 2,366,395 28 Feb 2017 $ 64,388 899,036 395,138 455,345 1,813,907 Year Ended 28 February 2018 Directors’ Report Page 14 Year Ended 28 February 2018 Directors’ Report Page 15 2018 ANNUAL REPORT | 29 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) The nature of the terms and conditions of the above other transactions with directors and director related entities are consistent with the terms of Namoi Cotton’s standard products, and are as follows: • Marketing contracts require delivery of a quantity of lint cotton. The contract price per bale may be fixed in Australian or United States dollars, determined under a pool arrangement, set as a guaranteed minimum price or by way of basis fixations, cotton futures and foreign currency hedging. Price is adjusted for grade. Payment may be made by Namoi Cotton either within 14 days of ginning, or on a deferred schedule. The actual sales to spinning mills are made by the NCA joint venture. • Ginning contracts require the delivery of a quantity or acreage of seed cotton gin landed. The price is a fixed amount per bale. Payment is either effected by the grower as an offset against marketing proceeds, or collected from the marketing merchant in the case of contract ginning with Namoi Cotton. Seed contracts require the delivery of a quantity or acreage of seed gin landed. The price is a fixed amount per bale. Payment is either made by Namoi Cotton in conjunction with marketing proceeds, or in conjunction with ginning costs in the case of contract ginning with Namoi Cotton. Growers have the option of retaining their seed for a handling fee. • f) Other transactions with KMP Directors and director related entities also entered into transactions with the economic entity which occurred within a normal customer or supplier relationship on terms and conditions no more favourable than those which it is reasonable to expect the entity would have adopted if dealing with the director or director-related entity at arm's length in the same circumstances, which do not have the potential to adversely affect decisions about the allocation of scarce resources made by users of the financial report, or the discharge of accountability by the directors. These transactions include: • Buybacks of marketing contracts as a result of production shortfalls; • Currency, cotton futures, options and brokerage costs, losses and profits charged or credited directly to the account of the director; • Purchase of grower supplies; • Marketing and ginning rebate; • Costs associated with the provision of crop finance; and • Grower member share fixed capital entitlement in aggregate $nil (2017: $10,800). g) Compensation Options Namoi Cotton does not currently and has not historically offered any options over its shares. As such, no options have either been granted or exercised during the period or are on offer at the end of the period. Year Ended 28 February 2018 Directors’ Report 2018 ANNUAL REPORT | 30 Page 16 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) The nature of the terms and conditions of the above other transactions with directors and director related entities are consistent with the terms of Namoi Cotton’s standard products, and are as follows: Group financial performance and position The following table highlights key components of the group’s financial performance for the last 5 years. • Marketing contracts require delivery of a quantity of lint cotton. The contract price per bale may be fixed in Australian or United States dollars, determined under a pool arrangement, set as a guaranteed minimum price or by way of basis fixations, cotton futures and foreign currency hedging. Price is adjusted for grade. Payment may be made by Namoi Cotton either within 14 days of ginning, or on a deferred schedule. The actual sales to spinning mills are made by the NCA joint venture. • Ginning contracts require the delivery of a quantity or acreage of seed cotton gin landed. The price is a fixed amount per bale. Payment is either effected by the grower as an offset against marketing proceeds, or collected from the marketing merchant in the case of contract ginning with Namoi Cotton. • Seed contracts require the delivery of a quantity or acreage of seed gin landed. The price is a fixed amount per bale. Payment is either made by Namoi Cotton in conjunction with marketing proceeds, or in conjunction with ginning costs in the case of contract ginning with Namoi Cotton. Growers have the option of retaining their seed for a handling fee. f) Other transactions with KMP Directors and director related entities also entered into transactions with the economic entity which occurred within a normal customer or supplier relationship on terms and conditions no more favourable than those which it is reasonable to expect the entity would have adopted if dealing with the director or director-related entity at arm's length in the same circumstances, which do not have the potential to adversely affect decisions about the allocation of scarce resources made by users of the financial report, or the discharge of accountability by the directors. These transactions include: • Buybacks of marketing contracts as a result of production shortfalls; • Currency, cotton futures, options and brokerage costs, losses and profits charged or credited directly to the account of the director; • Purchase of grower supplies; • Marketing and ginning rebate; g) Compensation Options • Costs associated with the provision of crop finance; and • Grower member share fixed capital entitlement in aggregate $nil (2017: $10,800). Namoi Cotton does not currently and has not historically offered any options over its shares. As such, no options have either been granted or exercised during the period or are on offer at the end of the period. 2018 2017 0.2 - 49.0 N/a Earnings per CCU (cents) Distribution per CCU (cents) 1 CCU/share price at year end (cents) CCU buyback average (cents) Earnings per Ordinary Share (diluted) Dividend per Ordinary Share (cents/share) Share price at year end (cents) Net assets ($m) Net assets per CCU (cents) Net assets per ordinary share (cents) - basic2 Net assets per ordinary share (cents) - diluted3 1 Represents amounts paid during the financial year (refer note 6). 2 Ordinary shares on issue at balance date. Calculated retrospectively for 2017 (127.4m). 3 Diluted for conversion of residual capital stock to ordinary shares. Calculated retrospectively for 2017 (142.7m). 123.8 112.7 97.2 86.8 5.3 - 53.0 131.8 103.4 92.4 2016 5.7 0.5 34.0 N/a 2015 (0.1) - 31.0 N/a 2014 (70.7) - 29.0 N/a 124.6 112.5 118.8 113.4 109.9 110.4 Directors’ interests in ordinary shares of the company As at the date of this report, the interest of the directors and their related parties in the ordinary shares of the 29. company were as set out on page 15. Environmental performance & regulation The directors regularly review the business activities of the company to ensure it operates within the environmental laws established by regulatory authorities. Indemnification and insurance of directors and officers Under the Constitution, every person who is or has been a director of the company is indemnified, to the maximum extent permitted by law, out of the property of the company against any liability to another person (other than the company) as such a director unless the liability arises out of conduct involving any negligence, default, breach of duty or breach of trust of which that person may be guilty in relation to the company. During the financial year, Namoi Cotton has paid a premium in respect of a contract providing insurance for every person who is or has been a director or officer against losses arising from any actual or alleged breach of duty, breach of trust, neglect, error, misstatement, misleading statement, omission, breach of warranty of authority, or other act done or wrongfully attempted, or any liability asserted against them solely because of their status as directors or officers of the economic entity. Disclosure of the premium paid is not permitted under the terms of the insurance contract. Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. Risk management The board includes a marketing and financial risk management committee (MFRMC), which identifies and monitors the company’s risk profile on a timely basis in addition to reviewing management of portfolio exposures. The MFRMC ensures Namoi Cotton’s financial and risk management policies are aligned to its corporate philosophies and principles. The MFRMC regularly reports to the full board. Given the nature of our business, Namoi Cotton has a potential exposure to a number of business risks, including movements in commodity and currency markets. To prudently manage these exposures, the MFRMC has developed comprehensive policies and procedures to monitor, assess and manage all our major business risks. Year Ended 28 February 2018 Directors’ Report Page 16 Year Ended 28 February 2018 Directors’ Report Page 17 2018 ANNUAL REPORT | 31 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Key responsibilities of the MFRMC include: • Monitoring and reviewing the policies and limits in the Risk Management Policy; • Monitoring and reviewing the performance of management’s marketing committee; • Monitoring and reviewing procedures for treasury and hedging functions; • Monitoring and reviewing marketing products; • Monitoring and reviewing hedging strategies; • Monitoring and reviewing company-wide value at risk results; • Receiving external reports relative to risk management activities; • Monitoring and reviewing funding and liquidity structure and management; and • Monitoring the development of long-term strategic initiatives for marketing and risk management. Corporate governance In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Namoi Cotton support and have complied with the principles of corporate governance. The company’s corporate governance statement is to be published in the 2018 Annual Report due in June 2018 and is also available on Namoi Cotton’s public website at www.namoicotton.com.au Non-audit services Non-audit services were provided by the entity’s auditor, Ernst & Young, as described in Note 25 of the financial report. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Auditor’s independence declaration The auditor’s independence declaration is included on page 19 of the financial report. 33 Rounding The amounts contained in this report and in the financial statements have been rounded to the nearest thousand dollars (where rounding is applicable) in accordance with ASIC Corporations (Rounding in Financial Directors Reports) Instrument 2016/191. The company is an entity to which this legislative instrument applies. Signed in accordance with a resolution of the directors on behalf of the board. On behalf of the board S C BOYDELL Director Brisbane 24 April 2018 Year Ended 28 February 2018 Directors’ Report 2018 ANNUAL REPORT | 32 Page 18 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Key responsibilities of the MFRMC include: • Monitoring and reviewing the policies and limits in the Risk Management Policy; • Monitoring and reviewing the performance of management’s marketing committee; • Monitoring and reviewing procedures for treasury and hedging functions; • Monitoring and reviewing marketing products; • Monitoring and reviewing hedging strategies; • Monitoring and reviewing company-wide value at risk results; • Receiving external reports relative to risk management activities; • Monitoring and reviewing funding and liquidity structure and management; and • Monitoring the development of long-term strategic initiatives for marketing and risk management. Corporate governance In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Namoi Cotton support and have complied with the principles of corporate governance. The company’s corporate governance statement is to be published in the 2018 Annual Report due in June 2018 and is also available on Namoi Cotton’s public website at www.namoicotton.com.au Non-audit services Non-audit services were provided by the entity’s auditor, Ernst & Young, as described in Note 25 of the financial report. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Auditor’s independence declaration The auditor’s independence declaration is included on page 19 of the financial report. Rounding The amounts contained in this report and in the financial statements have been rounded to the nearest thousand dollars (where rounding is applicable) in accordance with ASIC Corporations (Rounding in Financial Directors Reports) Instrument 2016/191. The company is an entity to which this legislative instrument applies. Signed in accordance with a resolution of the directors on behalf of the board. On behalf of the board S C BOYDELL Director Brisbane 24 April 2018 Year Ended 28 February 2018 Directors’ Report Page 18 2018 ANNUAL REPORT | 33 Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Ernst & Young 111 Eagle Street Brisbane QLD 4000 Australia GPO Box 7878 Brisbane QLD 4001 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 ey.com/au Independent auditor's report to the members of Namoi Cotton Limited report on the audit of the financial report Opinion Independent auditor's report to the members of Namoi Cotton Limited We have audited the financial report of Namoi Cotton Limited (the Company) and its subsidiaries (collectively the Group), which comprises: report on the audit of the financial report ► the Group consolidated and Company statements of financial position as at 28 February 2018; Opinion ► the Group consolidated and Company statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended We have audited the financial report of Namoi Cotton Limited (the Company) and its subsidiaries ► (collectively the Group), which comprises: notes to the financial statements, including a summary of significant accounting policies; and a) ► the directors' declaration. the Group consolidated and Company statements of financial position as at 28 February 2018; ► ► In our opinion, the accompanying financial report is in accordance with the Corporations Act 2001 , ► including: the Group consolidated and Company statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended giving a true and fair view of the Company’s and the Group's financial position as at 28 February notes to the financial statements, including a summary of significant accounting policies; and 2018 and of their financial performance for the year ended on that date; and the directors' declaration. complying with Australian Accounting Standards and the Corporations Regulations 2001 . ► b) In our opinion, the accompanying financial report is in accordance with the Corporations Act 2001 , including: Basis for opinion a) giving a true and fair view of the Company’s and the Group's financial position as at 28 February 2018 and of their financial performance for the year ended on that date; and We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial b) complying with Australian Accounting Standards and the Corporations Regulations 2001 . Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Basis for opinion Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under fulfilled our other ethical responsibilities in accordance with the Code. those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Report section of our report. We are independent of the Group in accordance with the auditor for our opinion. independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also Key audit matters fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Key audit matters are those matters that, in our professional judgement, were of most significance in for our opinion. our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 2018 ANNUAL REPORT | 34 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the procedures performed to address the matters below, provide the basis for our audit opinion on the Financial Report section of our report, including in relation to these matters. Accordingly, our audit accompanying financial report. included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. Fair value of ginning assets 1. Fair value of ginning assets Why significant 1. The Company and the Group measure ginning infrastructure assets (“ginning assets”) at fair Why significant value as disclosed in Note 1(n) to the financial statements. Ginning assets represent 60.4% of The Company and the Group measure ginning total assets of the Company and 58.88% of total infrastructure assets (“ginning assets”) at fair assets of the Group. value as disclosed in Note 1(n) to the financial statements. Ginning assets represent 60.4% of The Group uses an internally generated total assets of the Company and 58.88% of total discounted cash flow model to determine the fair assets of the Group. value of the ginning assets supported by periodic valuations conducted by external experts on a The Group uses an internally generated three year rolling basis. The latest external discounted cash flow model to determine the fair valuation was performed as at 29 February value of the ginning assets supported by periodic 2016. The valuation of the ginning assets at fair valuations conducted by external experts on a value is highly dependent on estimates and three year rolling basis. The latest external assumptions, such as sustainable bales, discount valuation was performed as at 29 February rates, market knowledge, bale contributions and 2016. The valuation of the ginning assets at fair revenue growth rates. value is highly dependent on estimates and assumptions, such as sustainable bales, discount The assumptions relating to the valuations are rates, market knowledge, bale contributions and disclosed in Note 15 and Policy Note 1(n). Given revenue growth rates. the quantum and complexity of the valuation of ginning assets and the level of the disclosures The assumptions relating to the valuations are relating to the assumptions used in the disclosed in Note 15 and Policy Note 1(n). Given valuation, this was determined to be a key audit the quantum and complexity of the valuation of matter. ginning assets and the level of the disclosures relating to the assumptions used in the valuation, this was determined to be a key audit matter. How our audit addressed the key audit matter We evaluated the input assumptions and estimates made by the Group in the valuation methodology How our audit addressed the key audit matter including sustainable bales and earnings against average production and earnings over the previous We evaluated the input assumptions and estimates six years (covering a broad spread of high and low made by the Group in the valuation methodology production seasons) to take into account the including sustainable bales and earnings against seasonal variations. We also evaluated any changes average production and earnings over the previous or lack of changes in assumptions or estimates since six years (covering a broad spread of high and low the prior year and since the last external valuation production seasons) to take into account the including growth rates and discount rates. seasonal variations. We also evaluated any changes We involved our valuation specialists to assist in or lack of changes in assumptions or estimates since assessing the modelling used by the Group to support the prior year and since the last external valuation the valuation, by evaluating the model calculation including growth rates and discount rates. methodology and discount rates used. Our evaluated We involved our valuation specialists to assist in the competence, capabilities and objectivity of the assessing the modelling used by the Group to support valuation expert and evaluated the appropriateness the valuation, by evaluating the model calculation of the expert’s work. methodology and discount rates used. Our evaluated We also assessed the adequacy of the disclosures the competence, capabilities and objectivity of the relating to the assumptions utilised and related valuation expert and evaluated the appropriateness of the expert’s work. sensitivity disclosures. We also assessed the adequacy of the disclosures relating to the assumptions utilised and related sensitivity disclosures. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 2018 ANNUAL REPORT | 35 2. Investment in Namoi Cotton Alliance Joint Venture Why significant 2. Investment in Namoi Cotton Alliance Joint Venture How our audit addressed the key audit matter At 28 February 2018 the Group held a 51% stake Why significant in the Namoi Cotton Alliance joint venture (“NCA)”. At 28 February 2018 the Group held a 51% stake in the Namoi Cotton Alliance joint venture As explained in Note 1 to the financial (“NCA)”. statements, this investment was accounted for using the equity method of accounting in As explained in Note 1 to the financial accordance with Australian Accounting statements, this investment was accounted for Standards. An investment of $40.5m was using the equity method of accounting in recorded on the Group’s consolidated balance accordance with Australian Accounting sheet. This is reflected in the Company balance Standards. An investment of $40.5m was sheet in Trade and Other Receivables where a recorded on the Group’s consolidated balance loan was made to a controlled entity which holds sheet. This is reflected in the Company balance the interest in NCA. An equity accounted profit sheet in Trade and Other Receivables where a of $0.6m contributed to the overall result of the loan was made to a controlled entity which holds Group. the interest in NCA. An equity accounted profit of $0.6m contributed to the overall result of the The carrying value of NCA in the Group and the Group. recoverability of the associated receivable in the Company was a key audit matter due to the The carrying value of NCA in the Group and the significance of the investment, NCA’s recoverability of the associated receivable in the contribution to Group profit, and its significance Company was a key audit matter due to the to the valuation of assets referred to in Key significance of the investment, NCA’s Audit Matter #1 above. Details of the Group’s contribution to Group profit, and its significance investment in this joint venture are outlined in to the valuation of assets referred to in Key note 11 to the consolidated financial statements. Audit Matter #1 above. Details of the Group’s investment in this joint venture are outlined in note 11 to the consolidated financial statements. Our audit procedures related to the carrying value of How our audit addressed the key audit matter Namoi Cotton’s investment in NCA and the equity accounted result included the following: Our audit procedures related to the carrying value of Namoi Cotton’s investment in NCA and the equity ► We audited the financial statements of NCA for accounted result included the following: the year ending 28 February 2018 and issued a separate audit report to the joint venturers. ► We audited the financial statements of NCA for In the context of the audit of the Company and the year ending 28 February 2018 and issued a ► the Group, we evaluated the scope of the NCA separate audit report to the joint venturers. audit and the execution of audit procedures, In the context of the audit of the Company and significant areas of estimation and judgement the Group, we evaluated the scope of the NCA and audit findings. audit and the execution of audit procedures, Enquired of NCA management in relation to significant areas of estimation and judgement areas of judgement and movements in the and audit findings. balance sheet and income statement at year end Enquired of NCA management in relation to and through to the date of this report areas of judgement and movements in the Considered the monthly results reported by NCA balance sheet and income statement at year end to the group during the year. and through to the date of this report ► ► ► ► ► ► ► ► ► Recalculated the Group’s share of the equity- Considered the monthly results reported by NCA accounted result with reference to the audited to the group during the year. financial statements of NCA for the year ended Recalculated the Group’s share of the equity- 28 February 2018 and ensured these were accounted result with reference to the audited correctly reflected in the carrying value of NCA. financial statements of NCA for the year ended Considered whether any indicators of 28 February 2018 and ensured these were impairment were present with respect to the correctly reflected in the carrying value of NCA. Group’s carrying value of the investment in NCA Considered whether any indicators of or in the Company’s carrying value of the related impairment were present with respect to the receivable balance in the Company. Group’s carrying value of the investment in NCA or in the Company’s carrying value of the related receivable balance in the Company. Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2018 Annual Report other than the financial report and our Information other than the financial report and auditor’s report thereon auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual The directors are responsible for the other information. The other information comprises the Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the information included in the Company’s 2018 Annual Report other than the financial report and our Annual Report after the date of this auditor’s report. auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual Our opinion on the financial report does not cover the other information and we do not and will not Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the express any form of assurance conclusion thereon. Annual Report after the date of this auditor’s report. In connection with our audit of the financial report, our responsibility is to read the other information Our opinion on the financial report does not cover the other information and we do not and will not and, in doing so, consider whether the other information is materially inconsistent with the financial express any form of assurance conclusion thereon. report or our knowledge obtained in the audit or otherwise appears to be materially misstated. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 2018 ANNUAL REPORT | 36 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are Responsibilities of the directors for the financial report required to report that fact. We have nothing to report in this regard. The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the Responsibilities of the directors for the financial report financial report that gives a true and fair view and is free from material misstatement, whether due to The directors of the Company are responsible for the preparation of the financial report that gives a fraud or error. true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 In preparing the financial report, the directors are responsible for assessing the Company’s and and for such internal control as the directors determine is necessary to enable the preparation of the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going financial report that gives a true and fair view and is free from material misstatement, whether due to concern and using the going concern basis of accounting unless the directors either intend to liquidate fraud or error. the Company or Group or to cease operations, or have no realistic alternative but to do so. In preparing the financial report, the directors are responsible for assessing the Company’s and Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate Auditor's responsibilities for the audit of the financial report the Company or Group or to cease operations, or have no realistic alternative but to do so. Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an Auditor's responsibilities for the audit of the financial report audit conducted in accordance with the Australian Auditing Standards will always detect a material Our objectives are to obtain reasonable assurance about whether the financial report as a whole is misstatement when it exists. Misstatements can arise from fraud or error and are considered material free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that if, individually or in the aggregate, they could reasonably be expected to influence the economic includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an decisions of users taken on the basis of this financial report. audit conducted in accordance with the Australian Auditing Standards will always detect a material As part of an audit in accordance with the Australian Auditing Standards, we exercise professional misstatement when it exists. Misstatements can arise from fraud or error and are considered material judgement and maintain professional scepticism throughout the audit. We also: if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. ► Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit As part of an audit in accordance with the Australian Auditing Standards, we exercise professional evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not judgement and maintain professional scepticism throughout the audit. We also: detecting a material misstatement resulting from fraud is higher than for one resulting from Identify and assess the risks of material misstatement of the financial report, whether due to error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the fraud or error, design and perform audit procedures responsive to those risks, and obtain audit override of internal control. evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not Obtain an understanding of internal control relevant to the audit in order to design audit detecting a material misstatement resulting from fraud is higher than for one resulting from procedures that are appropriate in the circumstances, but not for the purpose of expressing an error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the opinion on the effectiveness of the Company’s or the Group’s internal control. override of internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting Obtain an understanding of internal control relevant to the audit in order to design audit estimates and related disclosures made by the directors. procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s or the Group’s internal control. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to Evaluate the appropriateness of accounting policies used and the reasonableness of accounting events or conditions that may cast significant doubt on the Company’s or Group’s ability to estimates and related disclosures made by the directors. continue as a going concern. If we conclude that a material uncertainty exists, we are required Conclude on the appropriateness of the directors’ use of the going concern basis of accounting to draw attention in our auditor’s report to the related disclosures in the financial report or, if and, based on the audit evidence obtained, whether a material uncertainty exists related to such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit events or conditions that may cast significant doubt on the Company’s or Group’s ability to evidence obtained up to the date of our auditor’s report. However, future events or conditions continue as a going concern. If we conclude that a material uncertainty exists, we are required may cause the Company or the Group to cease to continue as a going concern. to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company or the Group to cease to continue as a going concern. ► ► ► ► ► ► ► A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 2018 ANNUAL REPORT | 37 2018 ANNUAL REPORT | 38 Namoi Cotton Co-operative Limited (formerly Namoi Cotton Co-operative Ltd) DIRECTORS’ DECLARATION In accordance with a resolution of the directors of Namoi Cotton Limited, I state that: In the opinion of the directors: a) the financial statement, notes and the additional disclosures included in the directors’ report designated as audited, of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including: i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 28 February 2018 and of their performance for the year ended on that date; and ii) complying with Accounting Standards and Corporations Regulations 2001; b) c) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1(a); there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. 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 financial year ended 28 February 2018. On behalf of the board S C BOYDELL Director Brisbane 24 April 2018 Year Ended 28 February 2017 Directors’ Declaration Page 25 2018 ANNUAL REPORT | 39 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 28 February 2018 BALANCE SHEET as at 28 February 2018 Consolidated $'000 Parent $'000 Note 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 Revenue 2a 483,938 355,344 483,711 355,043 Financial instrument gains/(losses) Currency derivatives Cottonseed purchase contracts Cottonseed sales contracts Net financial instrument gains/(losses) Other income Share of profit/(loss) of associates and joint ventures Changes in inventories of finished goods Raw materials and consumables used Employee benefits expense Depreciation Finance costs Other expenses Profit/(loss) before income tax Income tax (expense)/benefit Profit/(loss) attributable to the members of Namoi Cotton Limited Profit/(loss) and total comprehensive income attributable to the members of Namoi Cotton Limited 323 (22,614) 22,548 257 557 19,400 (18,471) 1,486 323 (22,614) 22,548 257 557 19,400 (18,471) 1,486 470 60 (697) (90) (734) (422,333) (25,618) (7,949) (2,558) (15,102) 9,674 993 (320,203) (18,309) (6,206) (2,611) (10,426) 38 470 54 60 56 (734) (422,304) (25,604) (7,942) (2,586) (15,027) 10,295 1,011 (320,169) (18,309) (6,206) (2,639) (10,424) (91) (2,905) 245 (3,158) 6,769 283 7,137 26 (65) 2b 11 2c 2d 2e 3 6,769 283 7,137 (65) Total assets 205,823 210,713 211,598 215,943 Current assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Derivative financial instruments Total current assets Non-current assets Trade and other receivables Intangibles Property, plant and equipment Total non-current assets Investments in associates and joint ventures Current liabilities Trade and other payables Interest bearing liabilities Provisions Derivative financial instruments Total current liabilities Non-current liabilities Interest bearing liabilities Provisions Deferred tax liabilities (net) Co-operative grower member shares Total non-current liabilities Total liabilities NET ASSETS Equity Parent entity interest Contributed equity Reserves Retained earnings Total parent entity interest in equity TOTAL EQUITY Consolidated $'000 Parent $'000 Note 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 7 8 9 10 8 11 14 15 16 17 18 10 17 18 3 19 20 21 1,493 4,012 9,521 1,292 8,493 24,811 - 40,969 961 139,082 181,012 7,845 6,776 2,791 8,556 25,968 43,226 874 3,999 - 2,256 5,288 7,614 541 14,665 30,364 - - 41,876 138,473 180,349 8,401 16,590 1,979 14,141 41,111 43,330 863 1,134 447 1,352 9,266 9,506 1,289 8,493 29,906 41,820 1,380 - 138,492 181,692 25,551 6,776 2,707 8,556 43,590 45,275 865 3,553 - 2,135 10,540 7,614 541 14,665 35,495 41,820 155 - 138,473 180,448 26,131 16,590 1,979 14,141 58,841 45,379 863 394 447 48,099 45,774 49,693 47,083 74,067 86,885 93,283 105,924 131,756 123,828 118,315 110,019 37,639 66,463 27,654 131,756 1,098 101,845 20,885 123,828 37,639 66,463 14,213 118,315 1,098 101,845 7,076 110,019 131,756 123,828 118,315 110,019 The above statement of profit and loss and other comprehensive income should be read in conjunction with the accompanying notes. The above balance sheet should be read in conjunction with the accompanying notes. Year Ended 28 February 2018 Statement of Profit and Loss and Other Comprehensive Income 2018 ANNUAL REPORT | 40 Page 26 Year Ended 28 February 2018 Balance Sheet Page 27 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME for the year ended 28 February 2018 BALANCE SHEET as at 28 February 2018 Consolidated $'000 Parent $'000 Note 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 Revenue 2a 483,938 355,344 483,711 355,043 Financial instrument gains/(losses) Currency derivatives Cottonseed purchase contracts Cottonseed sales contracts Net financial instrument gains/(losses) Other income Share of profit/(loss) of associates and joint ventures Changes in inventories of finished goods Raw materials and consumables used Employee benefits expense Depreciation Finance costs Other expenses Profit/(loss) before income tax Income tax (expense)/benefit Profit/(loss) attributable to the members of Namoi Cotton Limited Profit/(loss) and total comprehensive income attributable to the members of Namoi Cotton Limited 323 557 323 557 (22,614) 19,400 (22,614) 19,400 22,548 (18,471) 22,548 (18,471) 257 470 (697) (734) 1,486 60 (90) 993 257 470 54 1,486 60 56 (734) 1,011 (422,333) (320,203) (422,304) (320,169) (25,618) (18,309) (25,604) (18,309) (7,949) (2,558) (6,206) (2,611) (7,942) (2,586) (6,206) (2,639) (15,102) (10,426) (15,027) (10,424) 9,674 (2,905) 6,769 38 245 283 10,295 (3,158) 7,137 (91) 26 (65) 2b 11 2c 2d 2e 3 6,769 283 7,137 (65) Current assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Derivative financial instruments Total current assets Non-current assets Trade and other receivables Investments in associates and joint ventures Intangibles Property, plant and equipment Total non-current assets Total assets Current liabilities Trade and other payables Interest bearing liabilities Provisions Derivative financial instruments Total current liabilities Non-current liabilities Interest bearing liabilities Provisions Deferred tax liabilities (net) Co-operative grower member shares Total non-current liabilities Total liabilities NET ASSETS Equity Parent entity interest Contributed equity Reserves Retained earnings Total parent entity interest in equity TOTAL EQUITY Consolidated $'000 Parent $'000 Note 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 7 8 9 10 8 11 14 15 16 17 18 10 17 18 3 19 20 21 1,493 4,012 9,521 1,292 8,493 24,811 - 40,969 961 139,082 181,012 2,256 5,288 7,614 541 14,665 30,364 - 41,876 - 138,473 180,349 1,352 9,266 9,506 1,289 8,493 29,906 41,820 1,380 - 138,492 181,692 2,135 10,540 7,614 541 14,665 35,495 41,820 155 - 138,473 180,448 205,823 210,713 211,598 215,943 7,845 6,776 2,791 8,556 25,968 43,226 874 3,999 - 48,099 8,401 16,590 1,979 14,141 41,111 43,330 863 1,134 447 45,774 25,551 6,776 2,707 8,556 43,590 45,275 865 3,553 - 49,693 26,131 16,590 1,979 14,141 58,841 45,379 863 394 447 47,083 74,067 86,885 93,283 105,924 131,756 123,828 118,315 110,019 37,639 66,463 27,654 131,756 1,098 101,845 20,885 123,828 37,639 66,463 14,213 118,315 1,098 101,845 7,076 110,019 131,756 123,828 118,315 110,019 The above statement of profit and loss and other comprehensive income should be read in conjunction with the accompanying notes. The above balance sheet should be read in conjunction with the accompanying notes. Year Ended 28 February 2018 Statement of Profit and Loss and Other Comprehensive Income Page 26 Year Ended 28 February 2018 Balance Sheet Page 27 2018 ANNUAL REPORT | 41 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) STATEMENT OF CASH FLOWS for the year ended 28 February 2018 Cash flows from operating activities Receipts from customers Currency derivative flows Payments to suppliers and employees Payments to growers Interest received Borrowing costs Net cash inflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Purchase of business and JV assets (net of cash acquired) Loans advanced Proceeds from loans receivable Net cash outflow from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Loans advanced to growers Proceeds from repayment of grower loans Repayment of finance lease and hire purchase Net cash inflow from financing activities Consolidated $'000 Parent $'000 Note 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 534,688 761 (101,309) (414,420) 23 (2,426) 391,605 165 (66,742) (316,437) 1 (3,114) 534,275 765 (100,778) (414,402) 23 (2,453) 391,300 165 (66,507) (316,455) 1 (3,142) 7b 17,317 5,478 17,430 5,362 (5,451) (3,648) (5,365) (3,648) 203 195 203 195 (1,701) (18) 14 - (23) 16 (1,916) (17) 13 - (23) 16 (6,953) (3,460) (7,082) (3,460) 10,553 (19,539) (360) 360 (1,340) 28,530 (28,027) (2,287) 2,287 (802) 10,553 (19,539) (360) 360 (1,344) 28,530 (28,026) (2,287) 2,287 (803) 7c (10,326) (299) (10,330) (299) Net increase in cash Add cash at the beginning of the financial year Cash at end of the financial year 7a 38 1,437 1,475 1,719 (282) 1,437 18 1,316 1,334 1,603 (287) 1,316 STATEMENT OF CHANGES IN EQUITY for the year ended 28 February 2018 CCU Asset Premium Revaluation Issued Capital Reserve (Note 21) Reserve (Note 21) Retained Earnings Total Equity Consolidated $'000 Total equity at 1 March 2017 1,098 35,382 66,463 20,885 123,828 Net profit for the period CCU's converted to residual capital stock Residual Capital Stock/Ordinary Shares Equity dividends Total equity at 28 February 2018 (35,382) (1,098) 37,639 37,639 6,769 6,769 (36,480) 37,639 - 66,463 27,654 131,756 Total equity at 1 March 2017 1,098 35,382 66,463 - - - - 1,098 - 1,098 1,098 - 1,098 - - - - - - 7,076 7,137 Total Equity 110,019 7,137 (36,480) 37,639 - CCU Asset Premium Revaluation Issued Capital Reserve (Note 21) Reserve (Note 21) Retained Earnings (35,382) (1,098) 37,639 37,639 66,463 14,213 118,315 CCU Asset Premium Revaluation Issued Capital Reserve (Note 21) Reserve (Note 21) Retained Earnings Total Equity 35,382 66,463 20,602 123,545 35,382 66,463 283 20,885 283 123,828 CCU Asset Premium Revaluation Issued Capital Reserve (Note 21) Reserve (Note 21) Retained Earnings Total Equity 35,382 66,463 7,141 110,084 35,382 66,463 (65) 7,076 (65) 110,019 - - - - - - - - - - - - - - - - - - - - Parent $'000 Net profit for the period CCU's converted to residual capital stock Residual Capital Stock/Ordinary Shares Equity dividends Total equity at 28 February 2018 Consolidated $'000 Total equity at 1 March 2016 Net profit for the period Total equity at 28 February 2017 Parent $'000 Total equity at 1 March 2016 Net profit for the period Total equity at 28 February 2017 The above statement of cash flows should be read in conjunction with the accompanying notes. The above statement of changes in equity should be read in conjunction with the accompanying notes. Year Ended 28 February 2018 Statement of Cash Flows 2018 ANNUAL REPORT | 42 Page 28 Year Ended 28 February 2018 Statement of Changes in Equity Page 29 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) STATEMENT OF CHANGES IN EQUITY for the year ended 28 February 2018 Consolidated $'000 Issued Capital CCU Asset Premium Revaluation Reserve (Note 21) Reserve (Note 21) Total equity at 1 March 2017 1,098 35,382 Net profit for the period CCU's converted to residual capital stock Residual Capital Stock/Ordinary Shares Equity dividends Total equity at 28 February 2018 - (1,098) 37,639 - 37,639 - (35,382) - - - 66,463 - - - - 66,463 Parent $'000 Issued Capital CCU Asset Premium Revaluation Reserve (Note 21) Reserve (Note 21) Total equity at 1 March 2017 1,098 35,382 Net profit for the period CCU's converted to residual capital stock Residual Capital Stock/Ordinary Shares Equity dividends Total equity at 28 February 2018 - (1,098) 37,639 - 37,639 - (35,382) - - - 66,463 - - - - 66,463 STATEMENT OF CASH FLOWS for the year ended 28 February 2018 Cash flows from operating activities Receipts from customers Currency derivative flows Payments to suppliers and employees Payments to growers Interest received Borrowing costs Net cash inflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Purchase of business and JV assets (net of cash acquired) Loans advanced Proceeds from loans receivable Net cash outflow from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Loans advanced to growers Proceeds from repayment of grower loans Repayment of finance lease and hire purchase Net cash inflow from financing activities Net increase in cash Consolidated $'000 Parent $'000 Note 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 534,688 391,605 534,275 391,300 761 165 765 165 (101,309) (66,742) (100,778) (66,507) (414,420) (316,437) (414,402) (316,455) 23 1 23 1 (2,426) (3,114) (2,453) (3,142) 7b 17,317 5,478 17,430 5,362 (5,451) (3,648) (5,365) (3,648) 203 195 203 195 (1,701) (18) 14 - (23) 16 (1,916) (17) 13 - (23) 16 (6,953) (3,460) (7,082) (3,460) 10,553 28,530 10,553 28,530 (19,539) (28,027) (19,539) (28,026) (360) 360 (1,340) (2,287) 2,287 (802) (360) 360 (1,344) (2,287) 2,287 (803) 7c (10,326) (299) (10,330) (299) Add cash at the beginning of the financial year Cash at end of the financial year 7a 38 1,437 1,475 1,719 (282) 1,437 18 1,316 1,334 1,603 (287) 1,316 Consolidated $'000 Total equity at 1 March 2016 Net profit for the period Total equity at 28 February 2017 Parent $'000 Total equity at 1 March 2016 Net profit for the period Total equity at 28 February 2017 Issued Capital 1,098 - 1,098 Issued Capital 1,098 - 1,098 CCU Asset Premium Revaluation Reserve (Note 21) Reserve (Note 21) 35,382 - 35,382 66,463 - 66,463 20,602 123,545 283 20,885 283 123,828 CCU Asset Premium Revaluation Reserve (Note 21) Reserve (Note 21) 35,382 - 35,382 66,463 - 66,463 Retained Earnings Total Equity 7,141 110,084 (65) 7,076 (65) 110,019 Retained Earnings Total Equity 20,885 123,828 6,769 - - - 27,654 6,769 (36,480) 37,639 - 131,756 Retained Earnings Total Equity 7,076 110,019 7,137 - - - 14,213 7,137 (36,480) 37,639 - 118,315 Retained Earnings Total Equity The above statement of cash flows should be read in conjunction with the accompanying notes. The above statement of changes in equity should be read in conjunction with the accompanying notes. Year Ended 28 February 2018 Statement of Cash Flows Page 28 Year Ended 28 February 2018 Statement of Changes in Equity Page 29 2018 ANNUAL REPORT | 43 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) NOTES TO THE FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Namoi Cotton Limited as an individual entity (under CO 10/654) and the consolidated entity consisting of Namoi Cotton Limited and its subsidiaries. For the purposes of disclosure of events occurring after balance date the Directors have authorised this financial report for issue on 24 April 2018 in accordance with a resolution of the Board of Directors. The nature of the operations and principal activities of the group are described in the Directors’ Report. a) Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with standards, other authoritative pronouncements of the Australian Accounting Standards Board and Corporations Act 2001. The financial statements have been prepared on a going concern basis under the historical cost convention, except for ginning assets, derivative financial instruments, and cotton seed inventory which are measured at fair value. Deficiency of Current Assets to Current Liabilities The Group’s current liabilities exceed current assets. The net current liability position is mainly caused by the classification of the working capital finance facility as current. This facility is renewed each year for seasonal reasons and is not required to be repaid in the next 12 months. After balance date Namoi Cotton completed execution of its 2018 finance facility renewal. The renewal included the extension of the working capital finance facility from March 2018 to March 2019 and other minor reporting obligations (refer to note 17). Statement of compliance The financial report complies with Australian Accounting Standards and International Financial Reporting Standards as issued by the International Accounting Standards Board. Significant accounting judgments, estimates and assumptions The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements over the following primary areas: • Determination of fair value on cotton seed inventory (refer to Note 1k) and derivative financial instruments (refer to Note 1l); Fair value of ginning assets (refer Note 1n); Impairment testing of property plant and equipment (refer to Note 1n); Classification of associates (refer to Note 1c); Treatment of deferred tax balances including tax loss recognition (refer to Note 1g); and • • • • • Assessment of the useful lives of assets (refer to Note 1n) New accounting standards and interpretations New standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 March 2017 have been adopted by the Group. The adoption of these standards had no material financial impact on the current period or any prior period and is not likely to affect future periods. • AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112] effective 1 March 2017; • AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 Statement of Cash Flows effective 1 March 2017; Certain new accounting standards and interpretations have been published that are not mandatory for 28 February 2018 reporting periods and have not yet been applied in the consolidated Financial statements. These new Standards are as follows and where appropriate commentary as to their likely impact has been included: • AASB 9 Financial Instruments effective 1 March 2018; • AASB 15 Revenue from Contracts with Customers effective 1 March 2018; • AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture effective 1 March 2018; • AASB 16 Leases effective 1 March 2019. Review of Standards AASB 9 Financial Instruments. AASB 9 contains changes to the principal classification categories for financial assets: amortised cost, Fair value through Other Comprehensive Income (FVOCI) and fair value through profit and loss (FVTPL). The standard eliminates the existing AASB 139 categories of held to maturity, loans and receivables. The Group is currently assessing the implications on adoption particularly for the Parent entity which may impact the receivables due from other group entities and the subsequent classification. This assessment has not yet been finalised. AASB 9 replaces the ‘incurred loss’ model in AASB 139 with a forward looking ‘expected credit loss’ (ECL) model. This will require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new impairment model will apply to financial assets measured at amortised cost or FVOCI except for investment in equity instruments and to contract assets. Based on its preliminary assessment, the Group has identified that the application of the new guidance requires an earlier assessment of the likelihood of ECLs rather than its existing losses for its financial assets. However, the Group has not yet quantified the potential impact. The full impact of the disclosures required by the standard remains in progress. AASB 15 Revenue from Contracts with Customers. AASB 15 introduces a five step process for revenue recognition with the core principle of the new Standard being for entities to recognise revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the entity expected to be entitled in exchange for those goods or services. Accounting policy changes will arise in timing of revenue recognition, treatment of contract costs and contracts which contain a financing element. AASB 15 will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. The group has undertaken a high level review of the current recognition practices for individual revenue streams. This indicated there may be limited impacts to the existing recognition practices. However, a detailed analysis of the underlying contracts has yet to be completed and, therefore, the Group are unable to determine if there is a material impact. The full impact of the disclosures required by the standard remains in progress. b) Seasonality of operations Cotton Ginning, one of Namoi Cottons business segments, operates on a seasonal basis whereby ginning normally occurs between March to July each year. Accordingly, that segment traditionally generates profits in the first half year and incurs losses in the second half year during the ensuing maintenance period. Namoi Cotton’s marketing segment, represented by sales to NCA and its residual 51% share in the joint venture, generally takes delivery of lint cotton from growers in the first half of the year predominately from March to Year Ended 28 February 2018 Notes to the Financial Statements 2018 ANNUAL REPORT | 44 Page 30 Year Ended 28 February 2018 Notes to the Financial Statements Page 31 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) NOTES TO THE FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Namoi Cotton Limited as an individual entity (under CO 10/654) and the consolidated entity consisting of Namoi Cotton Limited and its subsidiaries. For the purposes of disclosure of events occurring after balance date the Directors have authorised this financial report for issue on 24 April 2018 in accordance with a resolution of the Board of Directors. The nature of the operations and principal activities of the group are described in the Directors’ Report. a) Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with standards, other authoritative pronouncements of the Australian Accounting Standards Board and Corporations Act 2001. The financial statements have been prepared on a going concern basis under the historical cost convention, except for ginning assets, derivative financial instruments, and cotton seed inventory which are measured at fair value. Deficiency of Current Assets to Current Liabilities The Group’s current liabilities exceed current assets. The net current liability position is mainly caused by the classification of the working capital finance facility as current. This facility is renewed each year for seasonal reasons and is not required to be repaid in the next 12 months. obligations (refer to note 17). Statement of compliance The financial report complies with Australian Accounting Standards and International Financial Reporting Standards as issued by the International Accounting Standards Board. Significant accounting judgments, estimates and assumptions The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements over the following primary areas: • Determination of fair value on cotton seed inventory (refer to Note 1k) and derivative financial instruments (refer to Note 1l); Fair value of ginning assets (refer Note 1n); • • • • Impairment testing of property plant and equipment (refer to Note 1n); Classification of associates (refer to Note 1c); Treatment of deferred tax balances including tax loss recognition (refer to Note 1g); and • Assessment of the useful lives of assets (refer to Note 1n) New accounting standards and interpretations New standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 March 2017 have been adopted by the Group. The adoption of these standards had no material financial impact on the current period or any prior period and is not likely to affect future periods. • AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112] effective 1 March 2017; • AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 Statement of Cash Flows effective 1 March 2017; Certain new accounting standards and interpretations have been published that are not mandatory for 28 February 2018 reporting periods and have not yet been applied in the consolidated Financial statements. These new Standards are as follows and where appropriate commentary as to their likely impact has been included: • AASB 9 Financial Instruments effective 1 March 2018; • AASB 15 Revenue from Contracts with Customers effective 1 March 2018; • AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture effective 1 March 2018; • AASB 16 Leases effective 1 March 2019. Review of Standards AASB 9 Financial Instruments. AASB 9 contains changes to the principal classification categories for financial assets: amortised cost, Fair value through Other Comprehensive Income (FVOCI) and fair value through profit and loss (FVTPL). The standard eliminates the existing AASB 139 categories of held to maturity, loans and receivables. The Group is currently assessing the implications on adoption particularly for the Parent entity which may impact the receivables due from other group entities and the subsequent classification. This assessment has not yet been finalised. AASB 9 replaces the ‘incurred loss’ model in AASB 139 with a forward looking ‘expected credit loss’ (ECL) model. This will require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new impairment model will apply to financial assets measured at amortised cost or FVOCI except for investment in equity instruments and to contract assets. Based on its preliminary assessment, the Group has identified that the application of the new guidance requires an earlier assessment of the likelihood of ECLs rather than its existing losses for its financial assets. However, the Group has not yet quantified the potential impact. The full impact of the disclosures required by the standard remains in progress. After balance date Namoi Cotton completed execution of its 2018 finance facility renewal. The renewal included the extension of the working capital finance facility from March 2018 to March 2019 and other minor reporting AASB 15 Revenue from Contracts with Customers. AASB 15 introduces a five step process for revenue recognition with the core principle of the new Standard being for entities to recognise revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the entity expected to be entitled in exchange for those goods or services. Accounting policy changes will arise in timing of revenue recognition, treatment of contract costs and contracts which contain a financing element. AASB 15 will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. The group has undertaken a high level review of the current recognition practices for individual revenue streams. This indicated there may be limited impacts to the existing recognition practices. However, a detailed analysis of the underlying contracts has yet to be completed and, therefore, the Group are unable to determine if there is a material impact. The full impact of the disclosures required by the standard remains in progress. b) Seasonality of operations Cotton Ginning, one of Namoi Cottons business segments, operates on a seasonal basis whereby ginning normally occurs between March to July each year. Accordingly, that segment traditionally generates profits in the first half year and incurs losses in the second half year during the ensuing maintenance period. Namoi Cotton’s marketing segment, represented by sales to NCA and its residual 51% share in the joint venture, generally takes delivery of lint cotton from growers in the first half of the year predominately from March to Year Ended 28 February 2018 Notes to the Financial Statements Page 30 Year Ended 28 February 2018 Notes to the Financial Statements Page 31 2018 ANNUAL REPORT | 45 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) August. Under NCA’s accounting policies, profits on lint marketing occur when the joint venture takes delivery of the lint cotton from the grower. The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. Namoi’s investments in its associate and joint venture are accounted for c) Basis of consolidation The consolidated financial statements comprise the financial statements of Namoi and its subsidiaries as at 28 February 2018. Control is achieved when Namoi 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, Namoi controls an investee if and only if the group 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 Namoi has less than a majority of the voting or similar rights of an investee, Namoi 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; and • The Namoi’s voting rights and potential voting rights. Namoi 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 Namoi obtains control over the subsidiary and ceases when Namoi 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 Namoi gains control until the date Namoi ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of Namoi 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 Namoi’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of Namoi are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If Namoi loses control over a subsidiary, it: • De-recognises the assets (including goodwill) and liabilities of the subsidiary; • De-recognises the carrying amount of any non-controlling interests; • De-recognises the cumulative translation differences recorded in equity; • Recognises the fair value of the consideration received; • Recognises the fair value of any investment retained; • Recognises any surplus or deficit in profit or loss; and • Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if Namoi had directly disposed of the related assets or liabilities. Investment in associates and joint ventures An associate is an entity over which Namoi has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in Namoi’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The statement of profit or loss reflects Namoi’s share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Namoi’s OCI. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, Namoi recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between Namoi and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture. The aggregate of Namoi’s share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as Namoi. When necessary, adjustments are made to bring the accounting policies in line with those of Namoi. After application of the equity method, Namoi determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, Namoi determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, Namoi calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, then recognises the loss as ‘Share of profit of an associate and a joint venture’ in the statement of profit or loss. Upon loss of significant influence over the associate or joint control over the joint venture, Namoi measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. Joint operations Namoi determines its interest in the assets and liabilities relating to each joint operation on the basis of its rights and obligations in a specified proportion in accordance with the contractual arrangement. Namoi recognises the following at its share: • Assets, including its share of any assets held jointly Liabilities, including its share of any liabilities incurred jointly • Revenue from the sale of its share of the output arising from the joint operation Share of the revenue from the sale of the output by the joint operation Expenses, including its share of any expenses incurred jointly. • • • Interests in jointly controlled assets have been incorporated in the financial statements under the appropriate Jointly controlled assets headings. d) Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of Year Ended 28 February 2018 Notes to the Financial Statements 2018 ANNUAL REPORT | 46 Page 32 Year Ended 28 February 2018 Notes to the Financial Statements Page 33 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. Namoi’s investments in its associate and joint venture are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in Namoi’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The statement of profit or loss reflects Namoi’s share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Namoi’s OCI. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, Namoi recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between Namoi and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture. The aggregate of Namoi’s share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as Namoi. When necessary, adjustments are made to bring the accounting policies in line with those of Namoi. After application of the equity method, Namoi determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, Namoi determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, Namoi calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, then recognises the loss as ‘Share of profit of an associate and a joint venture’ in the statement of profit or loss. Upon loss of significant influence over the associate or joint control over the joint venture, Namoi measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. Joint operations Namoi determines its interest in the assets and liabilities relating to each joint operation on the basis of its rights and obligations in a specified proportion in accordance with the contractual arrangement. Namoi recognises the following at its share: August. Under NCA’s accounting policies, profits on lint marketing occur when the joint venture takes delivery of the lint cotton from the grower. c) Basis of consolidation The consolidated financial statements comprise the financial statements of Namoi and its subsidiaries as at 28 February 2018. Control is achieved when Namoi 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, Namoi controls an investee if and only if the group 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 Namoi has less than a majority of the voting or similar rights of an investee, Namoi 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; and The Namoi’s voting rights and potential voting rights. • • • • • Namoi 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 Namoi obtains control over the subsidiary and ceases when Namoi 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 Namoi gains control until the date Namoi ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of Namoi 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 Namoi’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of Namoi are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If Namoi loses control over a subsidiary, it: • De-recognises the assets (including goodwill) and liabilities of the subsidiary; • De-recognises the carrying amount of any non-controlling interests; • De-recognises the cumulative translation differences recorded in equity; • Recognises the fair value of the consideration received; • Recognises the fair value of any investment retained; • Recognises any surplus or deficit in profit or loss; and • Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if Namoi had directly disposed of the related assets or liabilities. Investment in associates and joint ventures An associate is an entity over which Namoi has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Year Ended 28 February 2018 Notes to the Financial Statements Page 32 Year Ended 28 February 2018 Notes to the Financial Statements Page 33 2018 ANNUAL REPORT | 47 Jointly controlled assets Interests in jointly controlled assets have been incorporated in the financial statements under the appropriate headings. d) Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of • Assets, including its share of any assets held jointly • • Revenue from the sale of its share of the output arising from the joint operation • • Share of the revenue from the sale of the output by the joint operation Expenses, including its share of any expenses incurred jointly. Liabilities, including its share of any liabilities incurred jointly Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. e) Foreign currency translation Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Australian dollars, which is Namoi Cotton Limited’s functional and presentation currency. Transactions denominated in foreign currencies are initially recorded in the functional currency at the exchange rates prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of foreign currency denominated monetary assets and liabilities using rates of exchange applicable at balance date are recognised in the statement of comprehensive income. 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. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. f) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. Namoi Cotton Limited is the head entity of the tax consolidated group comprising all wholly owned controlled entities. The group has applied the group allocation method in determining the appropriate amount of current and deferred taxes to allocate to the members of the tax consolidated group. Sale of lint cotton, cotton seed and grain commodities Sales revenue is brought to account when the terms of delivery under the sales contract have been satisfied. Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: Fair value of forward cotton seed commodity sale contracts is determined with reference to prevailing prices at reporting date. Derivatives Derivatives including forward cotton seed commodity purchase and sale contracts and forward exchange contracts are stated at fair value with any gains or losses arising from changes in fair value taken directly to the statement of comprehensive income. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Ginning revenue Ginning charges are invoiced to growers for services connected with the processing of seed cotton to lint cotton. Revenue is brought to account on all production performed during the period. Interest revenue Interest revenue is brought to account when entitlement to interest occurs using the effective interest method. Dividend revenue Dividend revenue is brought to account when the group’s right to receive is established. Rental revenue Rental income is brought to account when received. g) Taxes Income Tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based upon the prevailing income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and as to available carried forward taxation losses. The carrying amount of deferred income tax assets is reviewed at each balance 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 balance sheet date and are recognised to the extent that it has become probable that future taxable profits 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 balance date. Deferred tax assets and deferred tax liabilities are offset only where such offset is enforceable and where the asset and liability relate to the same taxpaying entity and the same taxation authority. Income taxes relating to items recognised directly in equity are recognised in equity and not in the statement of comprehensive income. Tax consolidation legislation • 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. h) Leases Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Finance leases, which transfer to the group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated in accordance with the depreciation methodology applicable for the type of asset subject to the lease. However, if no reasonable certainty exists to indicate the asset will be acquired Year Ended 28 February 2018 Notes to the Financial Statements 2018 ANNUAL REPORT | 48 Page 34 Year Ended 28 February 2018 Notes to the Financial Statements Page 35 After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. e) Foreign currency translation Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Australian dollars, which is Namoi Cotton Limited’s functional and presentation currency. Transactions denominated in foreign currencies are initially recorded in the functional currency at the exchange rates prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of foreign currency denominated monetary assets and liabilities using rates of exchange applicable at balance date are recognised in the statement of comprehensive income. 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. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. f) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. reporting date. Derivatives Ginning revenue Interest revenue Dividend revenue Fair value of forward cotton seed commodity sale contracts is determined with reference to prevailing prices at Derivatives including forward cotton seed commodity purchase and sale contracts and forward exchange contracts are stated at fair value with any gains or losses arising from changes in fair value taken directly to the statement of comprehensive income. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Ginning charges are invoiced to growers for services connected with the processing of seed cotton to lint cotton. Revenue is brought to account on all production performed during the period. Interest revenue is brought to account when entitlement to interest occurs using the effective interest method. Dividend revenue is brought to account when the group’s right to receive is established. Rental revenue Rental income is brought to account when received. Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in g) Taxes administrative expenses. Income Tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based upon the prevailing income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and as to available carried forward taxation losses. The carrying amount of deferred income tax assets is reviewed at each balance 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 balance sheet date and are recognised to the extent that it has become probable that future taxable profits 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 balance date. Deferred tax assets and deferred tax liabilities are offset only where such offset is enforceable and where the asset and liability relate to the same taxpaying entity and the same taxation authority. Income taxes relating to items recognised directly in equity are recognised in equity and not in the statement of comprehensive income. Tax consolidation legislation Namoi Cotton Limited is the head entity of the tax consolidated group comprising all wholly owned controlled entities. The group has applied the group allocation method in determining the appropriate amount of current and deferred taxes to allocate to the members of the tax consolidated group. Sale of lint cotton, cotton seed and grain commodities Sales revenue is brought to account when the terms of delivery under the sales contract have been satisfied. Goods and services tax (GST) 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. h) Leases Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Finance leases, which transfer to the group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated in accordance with the depreciation methodology applicable for the type of asset subject to the lease. However, if no reasonable certainty exists to indicate the asset will be acquired Year Ended 28 February 2018 Notes to the Financial Statements Page 34 Year Ended 28 February 2018 Notes to the Financial Statements Page 35 2018 ANNUAL REPORT | 49 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) at the end of the lease term the asset is depreciated over the shorter of the estimated useful life of the asset or the lease term. The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight-line basis over the period of the operating lease. i) Cash and cash equivalents Cash on hand and in banks and short-term deposits are stated at nominal value. For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments readily convertible to cash within two working days, net of outstanding bank overdrafts. Bank overdrafts are carried at the principal amount. Interest is recognised as an expense as it accrues. j) Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment for any uncollectible debts. Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. The recoverability of trade and grower loans is reviewed on an ongoing basis. An estimate for doubtful debts is made when collection of the full nominal amount is no longer probable. Bad debts are written off as incurred. k) Inventories Cotton seed Cotton seed inventory is carried at fair value less costs to sell. Fair value reflects the price at which an orderly transaction to settle same inventory in the principle (or most advantageous) market for that inventory would take place between market participants at the measurement date. Costs to sell incorporate anticipated future delivery costs, commissions and brokerage. Fair value less costs to sell may be higher or lower than cost with any differences taken to the statement of comprehensive income. Grain commodities and consumables Grain commodities and consumables (operating supplies and spares) are carried at the lower of average 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. l) Derivative financial instruments The group uses derivative financial instruments such as foreign exchange contracts to manage the risks associated with foreign currency contracts to manage the risks associated with foreign currency. Such derivative financial instruments are stated at fair value with any gains or losses arising from changes in fair value taken directly to the statement of comprehensive income. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of cotton futures and options contracts is determined by reference to commodity prices with similar maturity profiles. Forward commodity purchase and sale contracts are classified as derivatives measured at fair value. Fair value is determined with reference to prevailing prices at reporting date. The group uses interest rate derivatives to manage its risks associated with interest rate fluctuations. These derivatives have not been designated as hedging instruments and are accordingly initially recognised at fair value on the date on which the contract is entered into and are subsequently remeasured to fair value. Changes in fair value are recognised directly in the statement of comprehensive income as finance costs. Fair value is determined by reference to market values for similar instruments. m) Recoverable amounts of assets At each reporting date, the group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the n) Property, plant and equipment Cost and valuation Gin, warehouse, other infrastructure and major equipment assets are measured at fair value (refer to Note 1n) less accumulated depreciation and any impairments recognised after the date of revaluation. Valuations are performed frequently to ensure that the fair value of revalued assets does not differ materially from its carrying Any revaluation surplus is recorded in other comprehensive income and hence, credited to the asset revaluation reserve in equity (less the income tax effect), except to the extent that it reverses a revaluation decrease of the same asset previously recognized in the income statement, in which case, the increase is recognized in the income statement. A revaluation deficit is recognized in the income statement, except to the extent that it offsets an existing surplus on the same asset recognized in the asset revaluation reserve. Upon disposal or derecognition, any revaluation reserve relating to the particular asset being sold is transferred to retained Other assets are carried at cost less accumulated depreciation and any accumulated impairments in value. Ginning infrastructure assets are depreciated on a units of production basis over their rolling estimated remaining useful lives of 20 years of sustainable bales (2017: 20 years). All other property, plant and equipment, other than freehold land, is depreciated on a straight-line basis at rates calculated to allocate the cost less estimated residual value at the end of the useful lives of the assets against revenue over their estimated useful asset. value. earnings. Depreciation lives. Major depreciation rates are: Ginning assets Other assets Impairment events. 20 years (2017: 20 years) 3 to 44 years The recoverable amounts of plant and equipment are compared to carrying values when indicators of potential impairment exist. These indicators include but are not limited to significant industry, economic and agronomic Year Ended 28 February 2018 Notes to the Financial Statements 2018 ANNUAL REPORT | 50 Page 36 Year Ended 28 February 2018 Notes to the Financial Statements Page 37 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) at the end of the lease term the asset is depreciated over the shorter of the estimated useful life of the asset or the lease term. The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight-line basis over the The group uses interest rate derivatives to manage its risks associated with interest rate fluctuations. These derivatives have not been designated as hedging instruments and are accordingly initially recognised at fair value on the date on which the contract is entered into and are subsequently remeasured to fair value. Changes in fair value are recognised directly in the statement of comprehensive income as finance costs. Fair value is determined by reference to market values for similar instruments. period of the operating lease. i) Cash and cash equivalents Cash on hand and in banks and short-term deposits are stated at nominal value. For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments readily convertible to cash within two working days, net of outstanding bank overdrafts. Bank overdrafts are carried at the principal amount. Interest is recognised as an expense as it accrues. j) Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment for any uncollectible debts. Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. The recoverability of trade and grower loans is reviewed on an ongoing basis. An estimate for doubtful debts is made when collection of the full nominal amount is no longer probable. Bad debts are written off as incurred. k) Inventories Cotton seed Cotton seed inventory is carried at fair value less costs to sell. Fair value reflects the price at which an orderly transaction to settle same inventory in the principle (or most advantageous) market for that inventory would take place between market participants at the measurement date. Costs to sell incorporate anticipated future delivery costs, commissions and brokerage. Fair value less costs to sell may be higher or lower than cost with any differences taken to the statement of comprehensive income. Grain commodities and consumables and net realisable value. l) Derivative financial instruments Grain commodities and consumables (operating supplies and spares) are carried at the lower of average cost 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. The group uses derivative financial instruments such as foreign exchange contracts to manage the risks associated with foreign currency contracts to manage the risks associated with foreign currency. Such derivative financial instruments are stated at fair value with any gains or losses arising from changes in fair value taken directly to the statement of comprehensive income. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of cotton futures and options contracts is determined by reference to commodity prices with similar maturity profiles. Forward commodity purchase and sale contracts are classified as derivatives measured at fair value. Fair value is determined with reference to prevailing prices at reporting date. m) Recoverable amounts of assets At each reporting date, the group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. n) Property, plant and equipment Cost and valuation Gin, warehouse, other infrastructure and major equipment assets are measured at fair value (refer to Note 1n) less accumulated depreciation and any impairments recognised after the date of revaluation. Valuations are performed frequently to ensure that the fair value of revalued assets does not differ materially from its carrying value. Any revaluation surplus is recorded in other comprehensive income and hence, credited to the asset revaluation reserve in equity (less the income tax effect), except to the extent that it reverses a revaluation decrease of the same asset previously recognized in the income statement, in which case, the increase is recognized in the income statement. A revaluation deficit is recognized in the income statement, except to the extent that it offsets an existing surplus on the same asset recognized in the asset revaluation reserve. Upon disposal or derecognition, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Other assets are carried at cost less accumulated depreciation and any accumulated impairments in value. Depreciation Ginning infrastructure assets are depreciated on a units of production basis over their rolling estimated remaining useful lives of 20 years of sustainable bales (2017: 20 years). All other property, plant and equipment, other than freehold land, is depreciated on a straight-line basis at rates calculated to allocate the cost less estimated residual value at the end of the useful lives of the assets against revenue over their estimated useful lives. Major depreciation rates are: Ginning assets Other assets 20 years (2017: 20 years) 3 to 44 years Impairment The recoverable amounts of plant and equipment are compared to carrying values when indicators of potential impairment exist. These indicators include but are not limited to significant industry, economic and agronomic events. Year Ended 28 February 2018 Notes to the Financial Statements Page 36 Year Ended 28 February 2018 Notes to the Financial Statements Page 37 2018 ANNUAL REPORT | 51 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) The recoverable amounts of plant and equipment are the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. u) Share-based payment transactions The group has provided benefits to permanent employees (not including directors) in the form of participation in the employee share plan after a qualifying period. Shares are issued under the plan at a 5% discount to the average market price of the five days preceding the offer. The plan was suspended in August 2004. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. v) Employee benefits Where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. Disposal An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year the asset is derecognised. o) Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. p) Trade and other payables Liabilities for trade creditors and accruals are carried at cost, which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the entity. q) Interest-bearing loans and borrowings All interest-bearing liabilities are initially measured at fair value of the consideration received less attributable transaction costs and subsequently at amortised cost using the effective interest method. Interest is charged on non-related party borrowings as an expense as it accrues. r) Provisions Provisions are recognised when the economic entity has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events, it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation. A provision for distribution is recognised as a liability when the dividends are declared, determined or publicly recommended on or before the reporting date. s) Capital stock On 10 October 2017 a Restructure was completed and capital stock were initially converted to residual capital stock and upon receipt of a valid conversion notice converted to ordinary shares. Refer Note 20. t) Grower member share capital On 10 October 2017 a Restructure was completed and capital stock and grower member shares were converted to ordinary shares. Refer Note 19. Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave, sick leave and long service leave. Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the interest rates attaching to high quality corporate bonds that have terms to maturity approximating the terms of the related liability are used. Employee benefits are recognised against profits when they are respectively paid or payable. w) Finance costs Finance costs are recognised as expenses in the periods in which they are incurred with the exception of interest rate derivatives recognised at fair value and the amortisation of ancillary costs incurred with the arrangement of borrowings, which are amortised over the period of the facility. Finance costs include: interest on bank overdrafts and short term and long-term borrowings using the effective interest method; • • and x) Earnings per share fair value movements in interest rate derivatives. Basic earnings per share is determined by dividing the profit attributable to members, adjusted to exclude costs of servicing equity (other than distributions) by the weighted average number of shares. Diluted earnings per share is determined by dividing the profit attributable to members, adjusted to exclude costs of servicing equity (other than distributions) by the weighted average number of shares and potential dilutive shares. y) Segment reporting An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the CEO as the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start-up operations which are yet to earn revenues. Management considered other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors. The group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in each of the following respects: • Nature of the products and services; • Nature of the production processes; • Type or class of customer for the products and services; • Methods used to distribute the products or provide the services; and if applicable • Nature of the regulatory environment. Year Ended 28 February 2018 Notes to the Financial Statements 2018 ANNUAL REPORT | 52 Page 38 Year Ended 28 February 2018 Notes to the Financial Statements Page 39 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) The recoverable amounts of plant and equipment are the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the u) Share-based payment transactions The group has provided benefits to permanent employees (not including directors) in the form of participation in the employee share plan after a qualifying period. Shares are issued under the plan at a 5% discount to the average market price of the five days preceding the offer. The plan was suspended in August 2004. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. v) Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave, sick leave and long service leave. Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the interest rates attaching to high quality corporate bonds that have terms to maturity approximating the terms of the related liability are used. Employee benefits are recognised against profits when they are respectively paid or payable. w) Finance costs Finance costs are recognised as expenses in the periods in which they are incurred with the exception of interest rate derivatives recognised at fair value and the amortisation of ancillary costs incurred with the arrangement of borrowings, which are amortised over the period of the facility. Finance costs include: • • interest on bank overdrafts and short term and long-term borrowings using the effective interest method; and fair value movements in interest rate derivatives. q) Interest-bearing loans and borrowings x) Earnings per share Basic earnings per share is determined by dividing the profit attributable to members, adjusted to exclude costs of servicing equity (other than distributions) by the weighted average number of shares. Diluted earnings per share is determined by dividing the profit attributable to members, adjusted to exclude costs of servicing equity (other than distributions) by the weighted average number of shares and potential dilutive shares. y) Segment reporting An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the CEO as the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start-up operations which are yet to earn revenues. Management considered other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors. The group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in each of the following respects: • Nature of the products and services; • Nature of the production processes; • • Methods used to distribute the products or provide the services; and if applicable • Nature of the regulatory environment. Type or class of customer for the products and services; asset. Disposal Where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year the asset is derecognised. o) Intangible assets p) Trade and other payables Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Liabilities for trade creditors and accruals are carried at cost, which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the entity. All interest-bearing liabilities are initially measured at fair value of the consideration received less attributable transaction costs and subsequently at amortised cost using the effective interest method. Interest is charged on non-related party borrowings as an expense as it accrues. r) Provisions Provisions are recognised when the economic entity has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events, it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation. A provision for distribution is recognised as a liability when the dividends are declared, determined or publicly recommended on or before the reporting date. s) Capital stock t) Grower member share capital to ordinary shares. Refer Note 19. On 10 October 2017 a Restructure was completed and capital stock were initially converted to residual capital stock and upon receipt of a valid conversion notice converted to ordinary shares. Refer Note 20. On 10 October 2017 a Restructure was completed and capital stock and grower member shares were converted Year Ended 28 February 2018 Notes to the Financial Statements Page 38 Year Ended 28 February 2018 Notes to the Financial Statements Page 39 2018 ANNUAL REPORT | 53 The Directors, in conjunction with reports from external valuers, also compares changes in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable. The Directors present the valuation results to the Audit and Compliance Committee and Namoi’s independent auditors. This includes a discussion of the major assumptions used in the valuations. For the purpose of fair value disclosures, Namoi has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. aa) Rounding of amounts This financial report is presented in Australian dollars and all values have been rounded to the nearest thousand dollars (where rounding is applicable) in accordance with ASIC Corporations (Rounding in Financial Directors Reports) Instrument 2016/191. The company is an entity to which this legislative instrument applies. bb) Changes to comparatives Changes to comparative figures are made where there is a conflict with the current-year accounts. Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category “unallocated segment”. z) Fair value measurement Namoi measures financial instruments, such as, derivatives, and non-financial assets, at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • • In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible to Namoi. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Namoi uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: • • • Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities; Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, Namoi determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Namoi’s Directors determine the policies and procedures for both recurring fair value measurement, such as property, plant and equipment and derivatives, and for non-recurring measurement. External valuers are involved for valuation of significant assets, such as ginning assets and derivatives, and significant liabilities, such as derivatives. Involvement of external valuers is decided upon annually by the Directors after discussions with and approval by the Company’s Audit and Compliance Committee. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. The committee decides, after discussions with the Group’s external valuers, which valuation techniques and inputs to use for each case. At each reporting date, the Directors analyse the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per Namoi’s accounting policies. For this analysis, the Directors verify the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents. Year Ended 28 February 2018 Notes to the Financial Statements 2018 ANNUAL REPORT | 54 Page 40 Year Ended 28 February 2018 Notes to the Financial Statements Page 41 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) The Directors, in conjunction with reports from external valuers, also compares changes in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable. The Directors present the valuation results to the Audit and Compliance Committee and Namoi’s independent auditors. This includes a discussion of the major assumptions used in the valuations. For the purpose of fair value disclosures, Namoi has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. aa) Rounding of amounts This financial report is presented in Australian dollars and all values have been rounded to the nearest thousand dollars (where rounding is applicable) in accordance with ASIC Corporations (Rounding in Financial Directors Reports) Instrument 2016/191. The company is an entity to which this legislative instrument applies. bb) Changes to comparatives The principal or the most advantageous market must be accessible to Namoi. Changes to comparative figures are made where there is a conflict with the current-year accounts. • • • • • Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category “unallocated segment”. z) Fair value measurement balance sheet date. Namoi measures financial instruments, such as, derivatives, and non-financial assets, at fair value at each Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Namoi uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities; Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, Namoi determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Namoi’s Directors determine the policies and procedures for both recurring fair value measurement, such as property, plant and equipment and derivatives, and for non-recurring measurement. External valuers are involved for valuation of significant assets, such as ginning assets and derivatives, and significant liabilities, such as derivatives. Involvement of external valuers is decided upon annually by the Directors after discussions with and approval by the Company’s Audit and Compliance Committee. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. The committee decides, after discussions with the Group’s external valuers, which valuation techniques and inputs to use for each case. At each reporting date, the Directors analyse the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per Namoi’s accounting policies. For this analysis, the Directors verify the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents. Year Ended 28 February 2018 Notes to the Financial Statements Page 40 Year Ended 28 February 2018 Notes to the Financial Statements Page 41 2018 ANNUAL REPORT | 55 Statement of Comprehensive Income Accounting profit from continuing operations before income tax expense At the Group's statutory income tax rate of 30% (2017: 30%) Non-assessable income Non-allowable expenditure Tax loss incurred - not recognised Filing differences Tax losses previously not recognised 1 Income tax expense/(benefit) recorded in the statement of comprehensive income 1 Tax losses previously unrecognised for individual entities outside the tax consolidated group. Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 9,674 38 10,295 (91) 2,902 (203) 295 - 2 (91) 2,905 11 (20) 52 - (8) (280) (245) 3,089 (144) 211 - 2 - 3,158 (27) 28 - - (8) (19) (26) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 2. Revenue and Expenses 3. Income Tax a) Revenue from continuing operations Sale of goods at fair value Rendering of services Rental revenue Financial service provider revenue Finance revenue Breakdown of finance revenue: Interest revenue from grower finance Interest revenue from non-related entities b) Other income Net gain on disposal of property, plant and equipment Business combination revaluation gain1 c) Employee benefits expense Salaries, wages, on-costs and other employee benefits Defined contribution benefits expense d) Finance costs Interest on bank loans and overdrafts Interest expense - interest rate derivatives e) Other expenses Maintenance Insurance Motor vehicle Consulting Safety Travel Minimum operating lease payments Strategic restructuring-consulting 2 Other Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 426,529 56,952 212 222 23 483,938 315,310 39,620 213 200 1 355,344 426,302 56,952 212 222 23 483,711 315,009 39,620 213 200 1 355,043 - 23 23 (10) 480 470 (2) 3 1 60 - 60 - 23 23 (10) 480 470 (2) 3 1 60 - 60 24,173 1,445 25,618 17,116 1,193 18,309 24,160 1,444 25,604 17,116 1,193 18,309 2,465 93 2,558 4,861 714 1,449 856 699 497 571 2,307 3,148 15,102 2,596 15 2,611 3,681 725 964 368 447 403 554 620 2,664 10,426 2,493 93 2,586 4,856 711 1,448 852 699 497 561 2,307 3,096 15,027 2,624 15 2,639 3,681 725 964 368 447 403 554 620 2,662 10,424 1 Gain on revaluation of existing associate investment in Australian Classing Services P/L prior to acquisition of the remaining 50%. 2 Includes the engagement of external corporate, legal, accounting and taxation advisors in relation to the corporate Restructure and fair value increment to grower member shares (Refer Note 20). Year Ended 28 February 2018 Notes to the Financial Statements 2018 ANNUAL REPORT | 56 Page 42 Year Ended 28 February 2018 Notes to the Financial Statements Page 43 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 3. Income Tax Statement of Comprehensive Income Accounting profit from continuing operations before income tax expense At the Group's statutory income tax rate of 30% (2017: 30%) Non-assessable income Non-allowable expenditure Tax loss incurred - not recognised Filing differences Tax losses previously not recognised 1 Income tax expense/(benefit) recorded in the statement of comprehensive income Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 9,674 38 10,295 (91) 2,902 (203) 295 - 2 (91) 2,905 11 (20) 52 - (8) (280) (245) 3,089 (144) 211 - 2 - 3,158 (27) - 28 - (8) (19) (26) 1 Tax losses previously unrecognised for individual entities outside the tax consolidated group. Year Ended 28 February 2018 Notes to the Financial Statements Page 43 2018 ANNUAL REPORT | 57 a) b) realised; 2 The benefits in respect of tax losses will only be obtained if: future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be the conditions for deductibility imposed by tax legislation continue to be complied with; and c) no changes in tax legislation adversely affect the consolidated entity in realising the benefit. Tax consolidated group and tax sharing arrangements Namoi Cotton Limited is the head entity of the tax consolidated group comprising all wholly owned controlled entities. The group has applied the group allocation method in determining the appropriate amount of current and deferred taxes to allocate to the members 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 these financial statements in respect of this agreement on the basis that the possibility of default is remote. 4. Acquisitions Two acquisitions arose from transactions settling within the financial year. a) Australian Classing Services Pty Ltd (“ACS”) – business combination Namoi Cotton Limited acquired the remaining 50% interest in the shares of ACS taking its ownership interest to 100%. ACS is a company based in Australia which provides cotton classing services to the Australian cotton industry. The transaction was effected by a share transfer dated 6 February 2018 with cash consideration of $690,000 paid to the non-controlling shareholders. b) Moomin Ginning Company (“MGC”) Namoi Cotton Limited acquired an additional 25% interest in the MGC partnership taking its ownership interest to 75%. MGC owns and operates the cotton ginning facility at Merrywinebone via Rowena in north west New South Wales. The transaction was effected by a Joint Venture Participation Interest and Ginning Commitment Agreement which was executed on 22 December 2017 with a cash consideration of $2.0m paid on 25 January 2018. Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 3. Income Tax 1 Tax losses recognised for individual entities in the tax consolidated group Deferred Tax Liabilities Accelerated depreciation for tax purposes and revaluations Timing of Joint Venture and Investments Income recognition Statement of Comprehensive Income Accounting profit from continuing operations before income tax expense Deferred Tax Assets Deferred costs Provisions and accruals Recognised losses available for offsetting against future taxable income 1, 2 At the Group's statutory income tax rate of 30% (2017: 30%) Non-assessable income Non-allowable expenditure Tax loss incurred - not recognised Filing differences Tax losses previously not recognised 1 Income tax expense/(benefit) recorded in the statement of comprehensive income Net deferred tax assets/(liabilities) Deferred tax expense/(income) Unrecognised deferred tax assets Unrecognised deferred tax liabilities Unrecognised tax losses Unrecognised net deferred tax assets Consolidated $'000 28 Feb 2018 28 Feb 2017 (27,913) (548) (28,461) (28,532) (897) (29,429) 649 1,655 22,118 24,422 419 1,658 26,218 28,295 (4,039) (1,134) 20 (47) 1,061 1,034 18 (76) 1,182 1,124 Balance Sheet Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2018 28 Feb 2017 28 Feb 2017 Parent $'000 Statement of Profit and Loss and Other Comprehensive Income Parent $'000 Consolidated 28 Feb $'000 2018 28 Feb 2018 28 Feb 2017 28 Feb 2017 28 Feb 2018 28 Feb 2017 187 66 253 (130) 529 (195) 204 457 (27,875) (531) 9,674 (28,406) 639 1,655 2,902 22,560 (203) 24,854 295 - (3,552) 2 (91) - - 2,905 - - (28,532) (352) (28,884) 38 619 349 968 10,295 419 1,658 26,413 28,490 (394) 11 (20) 52 - (8) (280) - - (245) - - 229 (3) 4,084 4,310 5,278 3,089 (144) 211 - 2 - 3,158 187 (756) (569) (130) 529 (499) (100) (669) 845 (114) 731 (91) 90 526 (27) (443) - 173 28 - (8) 904 (19) (26) 1 Tax losses previously unrecognised for individual entities outside the tax consolidated group. Reconciliation of net deferred tax assets/(liabilities) Opening balance as of 1 March Tax income/(expense) during the period recognised in profit or loss Tax income/(expense) during the period recognised in other comprehensive income Closing balance as at 28 February Consolidated $'000 Parent $'000 28 Feb 2018 (1,134) (2,905) - (4,039) 28 Feb 2017 (1,379) 245 - (1,134) 28 Feb 2018 (394) (3,158) - (3,552) 28 Feb 2017 (420) 26 - (394) Year Ended 28 February 2018 Notes to the Financial Statements Page 44 Year Ended 28 February 2018 Notes to the Financial Statements 2018 ANNUAL REPORT | 58 Page 43 Year Ended 28 February 2018 Notes to the Financial Statements Page 45 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 3. Income Tax Statement of Comprehensive Income Accounting profit from continuing operations before income tax expense At the Group's statutory income tax rate of 30% (2017: 30%) Non-assessable income Non-allowable expenditure Tax loss incurred - not recognised Filing differences Tax losses previously not recognised 1 Income tax expense/(benefit) recorded in the statement of comprehensive income Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 9,674 38 10,295 (91) 2,902 (203) 295 - 2 (91) 2,905 11 (20) 52 - (8) (280) (245) 3,089 (144) 211 - 2 - 3,158 (27) 28 - - (8) (19) (26) 1 Tax losses previously unrecognised for individual entities outside the tax consolidated group. 1 Tax losses recognised for individual entities in the tax consolidated group 2 The benefits in respect of tax losses will only be obtained if: a) future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised; the conditions for deductibility imposed by tax legislation continue to be complied with; and b) c) no changes in tax legislation adversely affect the consolidated entity in realising the benefit. Tax consolidated group and tax sharing arrangements Namoi Cotton Limited is the head entity of the tax consolidated group comprising all wholly owned controlled entities. The group has applied the group allocation method in determining the appropriate amount of current and deferred taxes to allocate to the members 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 these financial statements in respect of this agreement on the basis that the possibility of default is remote. 4. Acquisitions Two acquisitions arose from transactions settling within the financial year. a) Australian Classing Services Pty Ltd (“ACS”) – business combination Namoi Cotton Limited acquired the remaining 50% interest in the shares of ACS taking its ownership interest to 100%. ACS is a company based in Australia which provides cotton classing services to the Australian cotton industry. The transaction was effected by a share transfer dated 6 February 2018 with cash consideration of $690,000 paid to the non-controlling shareholders. b) Moomin Ginning Company (“MGC”) Namoi Cotton Limited acquired an additional 25% interest in the MGC partnership taking its ownership interest to 75%. MGC owns and operates the cotton ginning facility at Merrywinebone via Rowena in north west New South Wales. The transaction was effected by a Joint Venture Participation Interest and Ginning Commitment Agreement which was executed on 22 December 2017 with a cash consideration of $2.0m paid on 25 January 2018. Year Ended 28 February 2018 Notes to the Financial Statements Page 43 Year Ended 28 February 2018 Notes to the Financial Statements Page 45 2018 ANNUAL REPORT | 59 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Assets acquired and liabilities assumed The contribution made to the group by the acquired business from the date of acquisition was: The fair values of the identifiable assets and liabilities of the above transactions as at the effective date of the transactions were provisionally: Assets Cash at bank Trade receivables Inventory Other current assets Property, plant and equipment Deferred tax asset Liabilities Trade creditors Borrowings Provisions Goodwill arising on acquisition Total fair value Consideration paid Carrying value of existing 50% interest Revaluation gain on exisiting 50% investment Existing investment at fair value Consideration paid for remaining 50% Fair value of 100% of ACS Consideration paid net of 100% of cash acquired ACS (100%) $'000 MGC (25%) $'000 774 - - - 2,057 - 2,831 (831) - - (831) - 2,000 214 5 15 15 512 40 801 (40) (250) (92) (382) 961 1,380 ACS $'000 210 480 690 690 1,380 476 No separately identifiable intangibles were identified and it is not expected that the goodwill will be deductible for income tax purposes. Transaction costs incurred of $53,528 were expensed into other expenses. The contribution made to the group by the acquired business had it been acquired from the beginning of the Revenue Profit/(Loss) after tax period (1 March 2017): Revenue Profit after tax Analysis of cash flows on acquisition: Net cash acquired with the acquisition Cash paid Impairment Net cash flow on acquisition ACS $'000 - (24) ACS $'000 712 158 ACS $'000 214 (690) (476) The goodwill arising from the ACS business combination has been derived from applying the discounted earnings technique to the revenue stream from the continuing operation of the classing business. The carrying value and impairment assessment criteria are based upon: • An assumed discount rate of 12.5% • A ten-year cash flow period including a six times multiple allowed as a terminal value and • Indexation of costs at 2.2% per annum and income at 1.65% per annum Goodwill For the purpose of impairment testing, goodwill is allocated to each of the consolidated entity’s cash generating units (CGU), or groups of CGUs, that are expected to benefit from the synergies of the combinations. Each unit or groups of units to which goodwill is allocated represents the lowest level at which assets are monitored for internal management purposes. Goodwill acquired through the business combination during the financial year was allocated to the ACS CGU which is part of the marketing segment. Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually (at year end) for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Year Ended 28 February 2018 Notes to the Financial Statements Page 46 Year Ended 28 February 2018 Notes to the Financial Statements Page 47 2018 ANNUAL REPORT | 60 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Assets acquired and liabilities assumed The contribution made to the group by the acquired business from the date of acquisition was: The fair values of the identifiable assets and liabilities of the above transactions as at the effective date of the transactions were provisionally: ACS (100%) $'000 MGC (25%) $'000 Revenue Profit/(Loss) after tax ACS $'000 - (24) The contribution made to the group by the acquired business had it been acquired from the beginning of the period (1 March 2017): Revenue Profit after tax Analysis of cash flows on acquisition: Net cash acquired with the acquisition Cash paid Net cash flow on acquisition ACS $'000 712 158 ACS $'000 214 (690) (476) Impairment The goodwill arising from the ACS business combination has been derived from applying the discounted earnings technique to the revenue stream from the continuing operation of the classing business. The carrying value and impairment assessment criteria are based upon: • An assumed discount rate of 12.5% • A ten-year cash flow period including a six times multiple allowed as a terminal value and • Indexation of costs at 2.2% per annum and income at 1.65% per annum Goodwill For the purpose of impairment testing, goodwill is allocated to each of the consolidated entity’s cash generating units (CGU), or groups of CGUs, that are expected to benefit from the synergies of the combinations. Each unit or groups of units to which goodwill is allocated represents the lowest level at which assets are monitored for internal management purposes. Goodwill acquired through the business combination during the financial year was allocated to the ACS CGU which is part of the marketing segment. Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually (at year end) for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Assets Cash at bank Trade receivables Inventory Other current assets Property, plant and equipment Deferred tax asset Liabilities Trade creditors Borrowings Provisions Goodwill arising on acquisition Total fair value Consideration paid Carrying value of existing 50% interest Revaluation gain on exisiting 50% investment Existing investment at fair value Consideration paid for remaining 50% Fair value of 100% of ACS Consideration paid net of 100% of cash acquired 774 - - - - - - - 2,057 2,831 (831) (831) 2,000 214 5 15 15 512 40 801 (40) (250) (92) (382) 961 1,380 ACS $'000 210 480 690 690 1,380 476 No separately identifiable intangibles were identified and it is not expected that the goodwill will be deductible for income tax purposes. Transaction costs incurred of $53,528 were expensed into other expenses. Year Ended 28 February 2018 Notes to the Financial Statements Page 46 Year Ended 28 February 2018 Notes to the Financial Statements Page 47 2018 ANNUAL REPORT | 61 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Intangibles The recoverable amount of the ACS CGU has been determined based on the discounted earning technique being applied to revenue. The calculation of fair value in use is most sensitive to the following assumptions (level three assumptions): • Forecast Revenue; • Discount rates; and • Growth rates (revenue and expenses) Based on these calculations, the recoverable amount is in excess of the carrying value of the ACS CGU and therefore, no impairment was recorded. 5. Earnings per Share Basic earnings per share is calculated by dividing the consolidated net profit after tax for the year by the number of ordinary shares at year end. The following reflects the income and equity data used in the basic and diluted earnings per share computations: Consolidated Profit attributable to ordinary share holders of the parent Weighted average number of ordinary shares - basic Earnings per share - basic (cents) Weighted average number of ordinary shares - diluted Earnings per share - diluted (cents) Consolidated $'000 28 Feb 2018 28 Feb 2017 6,769 283 No. 127,427,307 1 No. 127,427,307 1 5.3 0.22 142,653,607 1 142,653,607 1 4.7 0.20 1 Retros pecti vel y a djus ted a s i f the res tructure ha d occurred from the begi nni ng of ea ch peri od. 6. Distributions Paid or Provided on Ordinary Shares/Co-operative Capital Units Distributions declared and paid during the year (unfranked) Interim distribution for the year ended 28 February 2018 of 0.0 cents per ordinary share (2017: 0.0 cents) Final distribution for the year ended 28 February 2017 of 0.0 cents per unit of Capital Stock (2016: 0.0 cents) Net distributions during the year - - - Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 Franking credits available for subsequent financial years based on a tax rate of 30% (2017: 30%) 530 - 530 Franking account credits have arisen from the acquisition of subsidiary (ACS) and the tax payable from its final return prior to entering the tax consolidated group. Consolidated $'000 28 Feb 2018 28 Feb 2017 - - - - Year Ended 28 February 2018 Notes to the Financial Statements Page 48 Year Ended 28 February 2018 Notes to the Financial Statements Page 49 2018 ANNUAL REPORT | 62 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 6. Distributions Paid or Provided on Ordinary Shares/Co-operative Capital Units Distributions declared and paid during the year (unfranked) Interim distribution for the year ended 28 February 2018 of 0.0 cents per ordinary share (2017: 0.0 cents) Final distribution for the year ended 28 February 2017 of 0.0 cents per unit of Capital Stock (2016: 0.0 cents) Net distributions during the year Consolidated $'000 28 Feb 2018 28 Feb 2017 - - - - - - Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 Franking credits available for subsequent financial years based on a tax rate of 30% (2017: 30%) 530 - 530 - Franking account credits have arisen from the acquisition of subsidiary (ACS) and the tax payable from its final return prior to entering the tax consolidated group. The recoverable amount of the ACS CGU has been determined based on the discounted earning technique being Intangibles applied to revenue. The calculation of fair value in use is most sensitive to the following assumptions (level three assumptions): • Forecast Revenue; • Discount rates; and • Growth rates (revenue and expenses) Based on these calculations, the recoverable amount is in excess of the carrying value of the ACS CGU and therefore, no impairment was recorded. 5. Earnings per Share of ordinary shares at year end. Basic earnings per share is calculated by dividing the consolidated net profit after tax for the year by the number The following reflects the income and equity data used in the basic and diluted earnings per share computations: Consolidated Profit attributable to ordinary share holders of the parent Weighted average number of ordinary shares - basic Earnings per share - basic (cents) Weighted average number of ordinary shares - diluted Earnings per share - diluted (cents) 1 Retros pecti vel y a djus ted a s i f the res tructure ha d occurred from the begi nni ng of ea ch peri od. Consolidated $'000 28 Feb 2018 6,769 No. 5.3 4.7 28 Feb 2017 283 No. 0.22 0.20 127,427,307 1 127,427,307 1 142,653,607 1 142,653,607 1 Year Ended 28 February 2018 Notes to the Financial Statements Page 48 Year Ended 28 February 2018 Notes to the Financial Statements Page 49 2018 ANNUAL REPORT | 63 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 7. Cash and Cash Equivalents (c) Disclosure of financing activities (a) Reconciliation to Statement of Cash Flows For the purposes of the Statement of Cash Flows, cash comprises the following items: Cash at bank and in hand Bank Overdraft (b) Reconciliation of net cash provided by operating activities to operating profit after income tax. Operating profit/(loss) after income tax Adjustments for non-cash items: Depreciation (Gain)/loss on sale of property, plant and equipment Provision for bad debts Provision for employee benefits Provision other Fair value increment on revaluation of grower member shares Revaluation gain on acquisition Share of associates (profits)/losses Changes in operating assets and liabilities (Increase)/decrease in accounts receivable (Increase)/decrease in inventories (Increase)/decrease in other assets (Increase)/decrease in derivatives Increase/(decrease) in creditors Increase/(decrease) in other liabilities Increase/(decrease) in deferred tax asset Net cash inflow/(outflow) from operating activities Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 1,493 (18) 1,475 2,256 (819) 1,437 1,352 (18) 1,334 2,135 (819) 1,316 6,769 283 7,137 (65) 7,949 10 67 731 - 712 (480) 697 9,686 751 (1,892) (285) 587 (1,086) (118) 2,905 17,317 6,206 (60) (449) (19) (200) - - 90 5,568 (272) (1,513) (169) (1,635) 3,329 132 (245) 5,478 7,942 10 20 730 - 712 (480) (54) 8,880 1,058 (1,892) (297) 587 (1,083) (118) 3,158 17,430 6,206 (60) (449) (20) (200) - - (56) 5,421 (92) (1,532) (169) (1,635) 3,328 132 (26) 5,362 1 March 2017 $'000 Cash flows $'000 Foreign exchange movement $'000 New leases $'000 28 February 2018 $'000 Other $'000 Current interest-bearing loans 15,000 (8,980) (20) 6,000 Current obligations under finance leases Current other borrowings Non-current interest bearing loans Non-current obligations under finance leases 771 38 (774) (6) 204 557 758 32 41,980 - 20 42,000 1,350 (566) 59,139 (10,326) 999 1,203 (557) 1,226 1 March 2016 $'000 Cash flows $'000 Foreign exchange movement $'000 New leases $'000 Other $'000 - - - - - - - - - - 50,016 28 February 2017 $'000 771 38 (5,500) 41,980 686 798 (639) 1,350 59,139 - - - - - - - - - - - - Current interest-bearing loans 9,000 500 5,500 15,000 (697) 112 639 Current obligations under finance leases Current other borrowings Non-current interest bearing loans Non-current obligations under finance leases 717 34 47,480 1,409 58,640 4 - (106) (299) (d) Disclosure of non-cash financing and investing activities (i) Equipment Finance Transactions During the financial year, the consolidated entity acquired plant and equipment with an aggregate fair value of $1,203,050 (2017: $798,081) by means of finance leases. (ii) Distribution Reinvestment Plan No distributions were paid via the issue of units/shares in 2018 (2017: nil). Refer note 6 and note 20. (e) Fair Value All cash balances are reflective of fair value based on observable market data. Year Ended 28 February 2018 Notes to the Financial Statements Page 50 Year Ended 28 February 2018 Notes to the Financial Statements Page 51 2018 ANNUAL REPORT | 64 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 7. Cash and Cash Equivalents (c) Disclosure of financing activities (a) Reconciliation to Statement of Cash Flows For the purposes of the Statement of Cash Flows, cash comprises the following items: Cash at bank and in hand Bank Overdraft (b) Reconciliation of net cash provided by operating activities to operating profit after income tax. Operating profit/(loss) after income tax Adjustments for non-cash items: Depreciation (Gain)/loss on sale of property, plant and equipment Provision for bad debts Provision for employee benefits Provision other Fair value increment on revaluation of grower member shares Revaluation gain on acquisition Share of associates (profits)/losses Changes in operating assets and liabilities (Increase)/decrease in accounts receivable (Increase)/decrease in inventories (Increase)/decrease in other assets (Increase)/decrease in derivatives Increase/(decrease) in creditors Increase/(decrease) in other liabilities Increase/(decrease) in deferred tax asset Net cash inflow/(outflow) from operating activities Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 1,493 (18) 1,475 2,256 (819) 1,437 1,352 (18) 1,334 2,135 (819) 1,316 6,769 283 7,137 (65) 7,949 6,206 7,942 6,206 9,686 5,568 10 67 731 - 712 (480) 697 751 (1,892) (285) 587 (1,086) (118) 2,905 17,317 (60) (449) (19) (200) - - 90 (272) (1,513) (169) (1,635) 3,329 132 (245) 5,478 10 20 730 - 712 (480) (54) 8,880 1,058 (1,892) (297) 587 (1,083) (118) 3,158 17,430 (60) (449) (20) (200) - - (56) 5,421 (92) (1,532) (169) (1,635) 3,328 132 (26) 5,362 1 March 2017 $'000 Cash flows $'000 Foreign exchange movement $'000 New leases $'000 28 February 2018 $'000 Other $'000 Current interest-bearing loans 15,000 (8,980) Current obligations under finance leases Current other borrowings Non-current interest bearing loans Non-current obligations under finance leases 771 38 (774) (6) 41,980 - 1,350 (566) 59,139 (10,326) - - - - - - - (20) 6,000 204 - - 557 - 758 32 20 42,000 999 1,203 (557) 1,226 - 50,016 1 March 2016 $'000 Cash flows $'000 Foreign exchange movement $'000 New leases $'000 28 February 2017 $'000 Other $'000 Current interest-bearing loans 9,000 500 Current obligations under finance leases Current other borrowings Non-current interest bearing loans Non-current obligations under finance leases 717 34 47,480 1,409 58,640 (697) 4 - (106) (299) - - - - - - - 5,500 15,000 112 - - 686 798 639 - 771 38 (5,500) 41,980 (639) 1,350 - 59,139 (d) Disclosure of non-cash financing and investing activities (i) Equipment Finance Transactions During the financial year, the consolidated entity acquired plant and equipment with an aggregate fair value of $1,203,050 (2017: $798,081) by means of finance leases. (ii) Distribution Reinvestment Plan No distributions were paid via the issue of units/shares in 2018 (2017: nil). Refer note 6 and note 20. (e) Fair Value All cash balances are reflective of fair value based on observable market data. Year Ended 28 February 2018 Notes to the Financial Statements Page 50 Year Ended 28 February 2018 Notes to the Financial Statements Page 51 2018 ANNUAL REPORT | 65 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 8. Trade and Other Receivables Current Trade debtors1 Less: allowance for impairment loss Trade debtors from an associate Loans to growers2 Less: allowance for impairment loss Funds due from futures brokers3 Less: allowance for impairment loss Loans to associates 4 Loans to employees5 Loans to controlled entities 6 Non-current Loans to controlled entities 6 Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 4,030 (71) 4 3,963 12 - 12 - - - - 37 - 4,012 - - 4,955 (5) - 4,950 302 - 302 - - - 3 33 - 5,288 3,949 (20) 4 3,933 12 - 12 - - - 4,955 - - 4,955 302 - 302 - - - 265 37 5,019 9,266 3 33 5,247 10,540 - - 41,820 41,820 41,820 41,820 1 Trade debtors arise from the following: Domestic sales of white cotton seed, grain commodities and ginning by-products. These debtors are settled under a range of agreed payment terms. These debtors are non-interest bearing. The group maintains trade credit insurance over non-related party domestic debtors to minimise credit risk. 2 Grower loans represent interest bearing crop finance facilities offered to growers secured by crop mortgage. Interest rate margins are determined based on the level of risk associated with the individual loan. As at 28 February 2018 Namoi Cotton had committed $nil (2017: $nil) in credit term facilities to growers which had not been drawn. 3 Funds due from futures brokers represent funds on deposit to offset unfavourable futures mark-to-market values and futures contract maintenance margins. Funds are denominated in United States dollars and bear a nominal rate of interest. 4 Loans to associates represent working capital financing provided to Australian Classing Services Pty Ltd. The loan bears interest at a fixed rate of 7.0% (2017: 7.0%) and is repayable on demand. 5 Loans to employees represent non-interest-bearing loans advanced under the Namoi Cotton employee incentive share plan (refer note 20) and other staff advances. Year Ended 28 February 2018 Notes to the Financial Statements 2018 ANNUAL REPORT | 66 Page 52 Page 53 6 Loans to controlled entities that are participants in joint ventures, are non-interest-bearing and are repayable from the proceeds generated by the joint venture. The loans are carried at amortised cost, however, have not been discounted given that the loan has an undefined term. Allowance for impairment loss An allowance for impairment loss is recorded where objective evidence exists that an individual receivable is impaired taking into account the likelihood of recovery of any collateral and/or trade credit insurance. Individual receivables are written off only upon exhaustion of all means of recovery and only with Board approval. Impairment losses have been recognised in the current year by the group of $71,240 (2017: $nil) and the parent entity of $19,685 (2017: $nil). These amounts were included in the other expenses item in the statement of profit and loss and other comprehensive income. At balance date the ageing analysis of trade and other receivables is as follows: At 1 March 2017 Charge for the year Foreign exchange translation Amounts written off Recoveries At 28 February 2018 Total outstanding Unimpaired Within terms Past Due 1 - 30 days Past Due 31 - 60 days Past Due 60+ days Impaired Past Due 60+ days Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 5 67 - - - 71 454 - (22) (427) - 5 28 Feb 2017 450 (450) - - - - 20 - - - - 20 Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 4,083 5,000 51,106 52,067 3,759 77 15 161 4,525 355 5 110 71 5 50,905 51,592 56 15 110 20 355 5 115 - Receivables past due but not considered impaired are: Group $252,679 (2017: $470,115); Parent $180,677 (2017: $474,650). Payment terms on these debts have not been renegotiated however discussions with the counterparties and/or receipts subsequent to reporting date reflect that payment will be received in full. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected these other balances will be received when due. Fair value, foreign exchange and credit risk All receivables are carried at fair value based on observable market data. Details regarding foreign exchange and interest rate risk are disclosed in Note 28. The maximum exposure to credit risk is the fair value of receivables less insurance recoverable. Year Ended 28 February 2018 Notes to the Financial Statements Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 8. Trade and Other Receivables Current Trade debtors1 Less: allowance for impairment loss Trade debtors from an associate Loans to growers2 Less: allowance for impairment loss Funds due from futures brokers 3 Less: allowance for impairment loss Loans to associates 4 Loans to employees5 Loans to controlled entities 6 Non-current Loans to controlled entities 6 Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 4,030 4,955 3,949 4,955 3,963 4,950 3,933 4,955 (20) 4 12 12 - - - - 302 302 - - - - - - 37 3 33 4,012 5,288 265 37 5,019 9,266 3 33 5,247 10,540 41,820 41,820 41,820 41,820 (71) 4 12 12 - - - - - - - - (5) 302 302 - - - - - - - - 1 Trade debtors arise from the following: Domestic sales of white cotton seed, grain commodities and ginning by-products. These debtors are settled under a range of agreed payment terms. These debtors are non-interest bearing. The group maintains trade credit insurance over non-related party domestic debtors to minimise credit risk. 2 Grower loans represent interest bearing crop finance facilities offered to growers secured by crop mortgage. Interest rate margins are determined based on the level of risk associated with the individual loan. As at 28 February 2018 Namoi Cotton had committed $nil (2017: $nil) in credit term facilities to growers which had not been drawn. nominal rate of interest. 3 Funds due from futures brokers represent funds on deposit to offset unfavourable futures mark-to-market values and futures contract maintenance margins. Funds are denominated in United States dollars and bear a 4 Loans to associates represent working capital financing provided to Australian Classing Services Pty Ltd. The loan bears interest at a fixed rate of 7.0% (2017: 7.0%) and is repayable on demand. 5 Loans to employees represent non-interest-bearing loans advanced under the Namoi Cotton employee incentive share plan (refer note 20) and other staff advances. 6 Loans to controlled entities that are participants in joint ventures, are non-interest-bearing and are repayable from the proceeds generated by the joint venture. The loans are carried at amortised cost, however, have not been discounted given that the loan has an undefined term. Allowance for impairment loss An allowance for impairment loss is recorded where objective evidence exists that an individual receivable is impaired taking into account the likelihood of recovery of any collateral and/or trade credit insurance. Individual receivables are written off only upon exhaustion of all means of recovery and only with Board approval. Impairment losses have been recognised in the current year by the group of $71,240 (2017: $nil) and the parent entity of $19,685 (2017: $nil). These amounts were included in the other expenses item in the statement of profit and loss and other comprehensive income. At 1 March 2017 Charge for the year Foreign exchange translation Amounts written off Recoveries At 28 February 2018 Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 5 67 - - - 71 454 - (22) (427) - 5 - 20 - - - 20 450 - - (450) - - At balance date the ageing analysis of trade and other receivables is as follows: Total outstanding Unimpaired Within terms Past Due 1 - 30 days Past Due 31 - 60 days Past Due 60+ days Impaired Past Due 60+ days Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 4,083 5,000 51,106 52,067 3,759 77 15 161 4,525 355 5 110 50,905 56 15 110 51,592 355 5 115 71 5 20 - Receivables past due but not considered impaired are: Group $252,679 (2017: $470,115); Parent $180,677 (2017: $474,650). Payment terms on these debts have not been renegotiated however discussions with the counterparties and/or receipts subsequent to reporting date reflect that payment will be received in full. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected these other balances will be received when due. Fair value, foreign exchange and credit risk All receivables are carried at fair value based on observable market data. Details regarding foreign exchange and interest rate risk are disclosed in Note 28. The maximum exposure to credit risk is the fair value of receivables less insurance recoverable. Year Ended 28 February 2018 Notes to the Financial Statements Page 52 Year Ended 28 February 2018 Notes to the Financial Statements Page 53 2018 ANNUAL REPORT | 67 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 9. Inventories Cotton seed (at fair value less costs to sell) Operating supplies and spares (at cost) Consolidated $'000 Parent $'000 28 Feb 2018 1,077 8,444 9,521 28 Feb 2017 1,792 5,822 7,614 28 Feb 2018 1,077 8,429 9,506 28 Feb 2017 1,792 5,822 7,614 Refer to Note 28 for further information relating to the valuation techniques for determining the fair value of Cotton Seed. 10. Derivative Financial Instruments Current assets Foreign exchange contracts Cotton seed sale contracts Cotton seed purchase contracts Current liabilities Foreign exchange contracts Interest rate swap contracts Cotton seed sale contracts Cotton seed purchase contracts Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 86 8,407 - 8,493 111 52 - 8,393 8,556 444 - 14,221 14,665 - - 14,141 - 14,141 86 8,407 - 8,493 111 52 - 8,393 8,556 444 - 14,221 14,665 - - 14,141 - 14,141 Derivatives are used by the group to manage trading and financial risks as detailed in note 28. Fair value of foreign exchange contracts are determined by comparing the contracted rate to the market rates for contracts with the same term to maturity. All movements in fair value are recognised in the profit within the statement of comprehensive income in the period they occur. The net fair value loss on foreign exchange contracts at year end was $25,125 for the group (2017: $444,464) and $25,125 (2017: $444,464) for the parent entity. Cotton seed sales contracts are forward dated and deliverable contracts with customers. The fair value of cotton seed commodity contracts is determined by reference to market prices and foreign exchange rates. The fair value of the open cotton seed sale contracts at year end was a derivative asset (unrealised gain) of $8,406,942 for the group (2017: Loss $14,141,183) and $8,406,942 (2017: Loss $14,141,183) for the parent entity. Cotton seed commodity purchase contracts are forward dated and deliverable contracts with cotton growers or brokers. The fair value of cotton seed commodity contracts is determined by reference to market prices and foreign exchange rates. The fair value of the open cotton seed purchase contracts at year end was a derivative liability (unrealised loss) of $8,393,213 for the group (2017: Gain $14,220,718) and $8,393,213 (2017: Gain $14,220,718) for the parent entity. Interest bearing loans of the group incurred an average variable interest rate of 3.0% (2017: 3.1%). Swaps in place at the comparative reporting date accounted for approximately 41.7% (2017: nil%) of the principal outstanding. The average fixed interest rates were 2.1% (2017: nil%) and the average variable rates were 1.98% (2017: nil%) at balance date. The net fair value loss on interest rate swaps was $51,780 (2017: $nil). 11. Investments in Associates and Joint Ventures using the equity method Investment in associates (material) Investment in joint ventures (material) Investment in joint ventures (non material) (a) Ownership interest Investments in Associates Cargill Oilseeds Australia Partnership (COA) Cargill Processing Ltd (CPL) 1 Investments in Joint Ventures Australian Classing Services Pty Ltd (ACS) 1, 2 Namoi Cotton Alliance (NCA) NC Packing Services Pty Ltd (NCPS) 1 1 Incorporated in Australia Consolidated $'000 28 Feb 2018 1,292 40,521 (844) 28 Feb 2017 2,671 40,010 (805) 40,969 41,876 Parent $'000 28 Feb 2018 28 Feb 2017 - - 1,380 1,380 - - 155 155 % Ownership interest held by 28 Feb 2018 28 Feb 2017 15% 15% - 51% 51% 15% 15% 50% 51% 51% 31 May 31 May 28 February 28 February 28 February Name Balance Date consolidated entity 2 The remaining 50% of ACS was acquired as at 31 January 2018 and therefore became a subsidiary (Refer Note 4) (b) The principal activities of the associates and joint ventures are: COA processes and markets cotton seed, canola and other oilseeds. • • CPL owns facilities used in the processing and marketing of cotton seed, canola and other oilseeds by COA. • ACS provides independent classing services to the Australian cotton industry. • NCA markets Australian lint cotton and owns significant up-country warehousing and logistics facilities to • NCPS operates containerised commodity packing facilities primarily packing cottonseed, coarse grains and support the marketing operations pulses. NCA and NCPS are 51% owned, however, the two entities are jointly controlled due to the joint venture agreement terms in relation to committee decision making etc. Year Ended 28 February 2018 Notes to the Financial Statements Page 54 Year Ended 28 February 2018 Notes to the Financial Statements Page 55 2018 ANNUAL REPORT | 68 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 9. Inventories Cotton seed (at fair value less costs to sell) Operating supplies and spares (at cost) Consolidated $'000 Parent $'000 28 Feb 2018 1,077 8,444 9,521 28 Feb 2017 1,792 5,822 7,614 28 Feb 2018 1,077 8,429 9,506 28 Feb 2017 1,792 5,822 7,614 Refer to Note 28 for further information relating to the valuation techniques for determining the fair value of Cotton Seed. 10. Derivative Financial Instruments Current assets Foreign exchange contracts Cotton seed sale contracts Cotton seed purchase contracts Current liabilities Foreign exchange contracts Interest rate swap contracts Cotton seed sale contracts Cotton seed purchase contracts Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 86 8,407 - 8,493 111 52 - 8,393 8,556 444 - 14,221 14,665 - - - 14,141 14,141 86 8,407 - 8,493 111 52 - 8,393 8,556 444 - 14,221 14,665 - - - 14,141 14,141 Derivatives are used by the group to manage trading and financial risks as detailed in note 28. Fair value of foreign exchange contracts are determined by comparing the contracted rate to the market rates for contracts with the same term to maturity. All movements in fair value are recognised in the profit within the statement of comprehensive income in the period they occur. The net fair value loss on foreign exchange contracts at year end was $25,125 for the group (2017: $444,464) and $25,125 (2017: $444,464) for the parent entity. Cotton seed sales contracts are forward dated and deliverable contracts with customers. The fair value of cotton seed commodity contracts is determined by reference to market prices and foreign exchange rates. The fair value of the open cotton seed sale contracts at year end was a derivative asset (unrealised gain) of $8,406,942 for the group (2017: Loss $14,141,183) and $8,406,942 (2017: Loss $14,141,183) for the parent entity. Cotton seed commodity purchase contracts are forward dated and deliverable contracts with cotton growers or brokers. The fair value of cotton seed commodity contracts is determined by reference to market prices and foreign exchange rates. The fair value of the open cotton seed purchase contracts at year end was a derivative liability (unrealised loss) of $8,393,213 for the group (2017: Gain $14,220,718) and $8,393,213 (2017: Gain $14,220,718) for the parent entity. Interest bearing loans of the group incurred an average variable interest rate of 3.0% (2017: 3.1%). Swaps in place at the comparative reporting date accounted for approximately 41.7% (2017: nil%) of the principal outstanding. The average fixed interest rates were 2.1% (2017: nil%) and the average variable rates were 1.98% (2017: nil%) at balance date. The net fair value loss on interest rate swaps was $51,780 (2017: $nil). 11. Investments in Associates and Joint Ventures using the equity method Investment in associates (material) Investment in joint ventures (material) Investment in joint ventures (non material) (a) Ownership interest Consolidated $'000 Parent $'000 28 Feb 2018 1,292 40,521 (844) 40,969 28 Feb 2017 2,671 40,010 (805) 41,876 28 Feb 2018 28 Feb 2017 - - 1,380 1,380 - - 155 155 Name Balance Date % Ownership interest held by consolidated entity 28 Feb 2018 28 Feb 2017 Investments in Associates Cargill Oilseeds Australia Partnership (COA) Cargill Processing Ltd (CPL) 1 Investments in Joint Ventures Australian Classing Services Pty Ltd (ACS) 1, 2 Namoi Cotton Alliance (NCA) NC Packing Services Pty Ltd (NCPS) 1 31 May 31 May 28 February 28 February 28 February 15% 15% - 51% 51% 15% 15% 50% 51% 51% 1 Incorporated in Australia 2 The remaining 50% of ACS was acquired as at 31 January 2018 and therefore became a subsidiary (Refer Note 4) (b) The principal activities of the associates and joint ventures are: COA processes and markets cotton seed, canola and other oilseeds. CPL owns facilities used in the processing and marketing of cotton seed, canola and other oilseeds by COA. • • • ACS provides independent classing services to the Australian cotton industry. • NCA markets Australian lint cotton and owns significant up-country warehousing and logistics facilities to support the marketing operations • NCPS operates containerised commodity packing facilities primarily packing cottonseed, coarse grains and pulses. NCA and NCPS are 51% owned, however, the two entities are jointly controlled due to the joint venture agreement terms in relation to committee decision making etc. Year Ended 28 February 2018 Notes to the Financial Statements Page 54 Year Ended 28 February 2018 Notes to the Financial Statements Page 55 2018 ANNUAL REPORT | 69 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) (c) Significant influence Significant influence exists over the Cargill associate’s, despite less than 20% ownership, due to the agreed one third representation upon the Board of Directors and management committees. Namoi Cotton is also a significant supplier of the primary input product for the Narrabri cotton seed crushing facility. (d) Material Investments in Associates (i) Associates results Revenue Profit/(Loss) Consolidated $'000 28 Feb 2018 COA CPL 28 Feb 2017 COA CPL 315,085 (10,097) 24,441 911 250,872 (5,777) 23,417 670 Group share of associates profit/(loss) (1,515) 137 (867) 101 (ii) Associates assets and liabilities: Current assets Non-current assets Current liabilities Non-current liabilities Associates net assets 55,935 - (71,067) - (15,133) 5,703 19,061 (1,016) - 23,749 52,731 - (57,629) - (4,899) 5,640 19,152 (1,955) - 22,837 Group share of associates net assets (2,270) 3,562 (735) 3,426 (iii) Carrying amount of investments in associates: Balance at the beginning of the financial year Distribution paid out of retained earnings Share of associates profits/(losses) for the financial year (755) - (1,515) 3,425 - 137 117 - (872) 3,355 - 70 Carrying amount of investment in associates at the end of the financial year (2,270) 3,562 (755) 3,425 (iv) Share of contingent liabilities of associate: (iv) Share of associates commitments: - - - - - - - - Consolidated $'000 28 Feb 2018 28 Feb 2017 365,467 281,989 (2,530) (1,468) 229 1,001 - 1,001 511 (2,315) (995) 186 118 - 118 60 32,856 57,838 58,799 11,755 58,093 62,027 (64,330) (47,028) (4,013) (4,276) (1,630) (2,027) (67) (92) 79,453 40,521 78,452 40,011 40,011 39,950 - - - - - - - - - - (e) Material Investments in Joint Ventures: NCA (i) Joint Venture results (for the period since inception) Revenue Depreciation and Amortisation Interest Expense Interest Income Profit/(loss) before income tax expense Income tax expense(a) Joint Venture net profit/(loss) (a) The Joint Venture is a partnership for tax puposes accordingly is not a taxable entity Group share of joint venture net profit/(loss) (ii) Joint venture assets and liabilities: Current assets Cash and cash equivalents Other Non-current assets Current liabilities Financial liabilities Non-current liabilities Financial liabilities Other Other Joint Venture net assets Group share of joint venture net assets (iii) Carrying amount of investments in joint ventures: Balance at the beginning of the financial year Acquisition of joint venture Contribution to working capital Distribution paid out of retained earnings (iv) Share of contingent liabilities of joint venture: (v) Share of joint venture commitments: Share of joint venture profits/(losses) for the financial year 511 60 Carrying amount of investments in joint ventures at the end of the financial year 40,521 40,011 (f) Share of Non Material Investments in joint venture entities: ACS 1 and NCPS (i) Non Material Joint Venture Results Profits/(Losses) and total comprehensive income from continuing operations 170 652 1 Includes share of ACS profit before acquisition of remaining 50% interest from joint venture partner. Year Ended 28 February 2018 Notes to the Financial Statements Page 56 Year Ended 28 February 2018 Notes to the Financial Statements Page 57 2018 ANNUAL REPORT | 70 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) (c) Significant influence Significant influence exists over the Cargill associate’s, despite less than 20% ownership, due to the agreed one third representation upon the Board of Directors and management committees. Namoi Cotton is also a significant supplier of the primary input product for the Narrabri cotton seed crushing facility. (d) Material Investments in Associates (i) Associates results Revenue Profit/(Loss) Group share of associates profit/(loss) (ii) Associates assets and liabilities: Current assets Non-current assets Current liabilities Non-current liabilities Associates net assets Consolidated $'000 28 Feb 2018 COA CPL 28 Feb 2017 COA CPL 315,085 (10,097) (1,515) 24,441 250,872 23,417 911 137 (5,777) (867) 670 101 55,935 52,731 5,703 19,061 (71,067) (1,016) (57,629) 5,640 19,152 (1,955) - (15,133) 23,749 (4,899) 22,837 - - - - - - - - - - - - - - Group share of associates net assets (2,270) 3,562 (735) 3,426 (iii) Carrying amount of investments in associates: Balance at the beginning of the financial year Distribution paid out of retained earnings Share of associates profits/(losses) for the financial year (1,515) Carrying amount of investment in associates at the (755) 3,425 - 137 117 - (872) 3,355 - 70 (iv) Share of contingent liabilities of associate: (iv) Share of associates commitments: (e) Material Investments in Joint Ventures: NCA (i) Joint Venture results (for the period since inception) Revenue Depreciation and Amortisation Interest Expense Interest Income Profit/(loss) before income tax expense Income tax expense(a) Joint Venture net profit/(loss) (a) The Joint Venture is a partnership for tax puposes accordingly is not a taxable entity Group share of joint venture net profit/(loss) (ii) Joint venture assets and liabilities: Current assets Cash and cash equivalents Other Non-current assets Current liabilities Financial liabilities Other Non-current liabilities Financial liabilities Other Joint Venture net assets Group share of joint venture net assets end of the financial year (2,270) 3,562 (755) 3,425 (iii) Carrying amount of investments in joint ventures: Balance at the beginning of the financial year Acquisition of joint venture Contribution to working capital Distribution paid out of retained earnings Share of joint venture profits/(losses) for the financial year Carrying amount of investments in joint ventures at the end of the financial year (iv) Share of contingent liabilities of joint venture: (v) Share of joint venture commitments: Consolidated $'000 28 Feb 2018 28 Feb 2017 365,467 (2,530) (1,468) 229 1,001 - 1,001 511 281,989 (2,315) (995) 186 118 - 118 60 32,856 57,838 58,799 11,755 58,093 62,027 (64,330) (4,013) (47,028) (4,276) (1,630) (67) 79,453 (2,027) (92) 78,452 40,521 40,011 40,011 - - - 511 39,950 - - - 60 40,521 40,011 - - - - (f) Share of Non Material Investments in joint venture entities: ACS 1 and NCPS (i) Non Material Joint Venture Results Profits/(Losses) and total comprehensive income from continuing operations 170 652 1 Includes share of ACS profit before acquisition of remaining 50% interest from joint venture partner. Year Ended 28 February 2018 Notes to the Financial Statements Page 56 Year Ended 28 February 2018 Notes to the Financial Statements Page 57 2018 ANNUAL REPORT | 71 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 12. Interest in Joint Operations 15. Property, Plant and Equipment (a) Ownership interest Name Wathagar Ginning Company (WGC) Moomin Ginning Company (MGC) Balance Date 28 February 28 February % Ownership interest held by consolidated entity 28 Feb 2018 50% 75% 28 Feb 2017 50% 50% (b) Principal activities The joint operations provide ginning services to cotton growers in the Gwydir valley located in NSW. (c) Impairment No assets employed in the jointly controlled operation were impaired during the year (2017: $nil). (d) Accounting for joint operations The joint operations have been accounted for using the share of rights to assets and obligations for liabilities method. 13. Interest in Jointly Controlled Assets Namoi Cotton holds a 40% joint ownership interest in the white cotton seed handling and storage facilities at Mungindi, NSW with a book carrying value of $2.22m at 28 February 2018 (2017: $2.28m). Namoi Cotton pays for its proportion of the operating costs of the facility. There were no material contingent liabilities or capital expenditure commitments in respect of jointly controlled assets at balance date. 14. Intangible Assets Goodwill Written down value - 1 March 2017 Acquisition of a subsidiary1 Written down value - 28 February 2018 1Acquisition during the year Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 - 961 961 - - - - - - - - - The remaining 50% of shares in Australian Classing Services Pty Ltd were acquired effective 31 January 2018 valuing the company at $1.38m. (Refer Note 4). Goodwill is carried at cost. No amortisation or impairment of goodwill has been recorded for the year. Closing written down value at fair value 118,570 122,694 118,570 122,694 Ginning infrastucture and major equipment Gin Assets at fair value Provision for depreciation and impairment Revaluation to fair value Other ginning equipment Cost Provision for depreciation and impairment Closing written down value at cost Net Gin Assets Other Assets at fair value Other infrastucture and major equipment Provision for depreciation and impairment Revaluation to fair value Other equipment Cost Net Other Assets Provision for depreciation and impairment Closing written down value at cost Capital work in progress ('CWIP') at cost Total written down value at fair value Total written down value at cost Total written down value for property, plant & equipment Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 129,353 (10,783) 118,570 127,388 (4,694) 122,694 129,353 (10,783) 118,570 127,388 (4,694) 122,694 - - - - 14,040 (5,081) 8,959 9,002 (4,430) 4,572 14,040 (5,081) 8,959 9,002 (4,430) 4,572 127,529 127,266 127,529 127,266 6,353 (487) 5,866 - 6,353 (243) 6,110 - 6,353 (487) 5,866 - 6,353 (243) 6,110 - 10,568 (8,173) 2,395 8,261 3,292 10,183 (8,420) 1,763 7,873 3,334 9,426 (7,621) 1,805 7,671 3,292 10,183 (8,420) 1,763 7,873 3,334 124,437 14,646 128,804 9,669 124,437 14,056 128,804 9,669 139,082 138,473 138,492 138,473 Closing written down value at fair value 5,866 6,110 5,866 6,110 Year Ended 28 February 2018 Notes to the Financial Statements Page 58 Year Ended 28 February 2018 Notes to the Financial Statements Page 59 2018 ANNUAL REPORT | 72 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 12. Interest in Joint Operations (a) Ownership interest % Ownership interest held by 28 Feb 2018 50% 75% 28 Feb 2017 50% 50% Name Balance Date consolidated entity Wathagar Ginning Company (WGC) Moomin Ginning Company (MGC) 28 February 28 February The joint operations provide ginning services to cotton growers in the Gwydir valley located in NSW. (b) Principal activities (c) Impairment No assets employed in the jointly controlled operation were impaired during the year (2017: $nil). The joint operations have been accounted for using the share of rights to assets and obligations for liabilities (d) Accounting for joint operations method. 13. Interest in Jointly Controlled Assets Namoi Cotton holds a 40% joint ownership interest in the white cotton seed handling and storage facilities at Mungindi, NSW with a book carrying value of $2.22m at 28 February 2018 (2017: $2.28m). Namoi Cotton pays for its proportion of the operating costs of the facility. There were no material contingent liabilities or capital expenditure commitments in respect of jointly controlled assets at balance date. 14. Intangible Assets Goodwill Written down value - 1 March 2017 Acquisition of a subsidiary1 Written down value - 28 February 2018 1Acquisition during the year Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 - 961 961 - - - - - - - - - The remaining 50% of shares in Australian Classing Services Pty Ltd were acquired effective 31 January 2018 valuing the company at $1.38m. (Refer Note 4). Goodwill is carried at cost. No amortisation or impairment of goodwill has been recorded for the year. 15. Property, Plant and Equipment Gin Assets Ginning infrastucture and major equipment at fair value Provision for depreciation and impairment Revaluation to fair value Closing written down value at fair value Other ginning equipment Cost Provision for depreciation and impairment Closing written down value at cost Net Gin Assets Other Assets Other infrastucture and major equipment at fair value Provision for depreciation and impairment Revaluation to fair value Closing written down value at fair value Other equipment Cost Provision for depreciation and impairment Closing written down value at cost Net Other Assets Capital work in progress ('CWIP') at cost Total written down value at fair value Total written down value at cost Total written down value for property, plant & equipment Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 129,353 (10,783) 118,570 - 118,570 127,388 (4,694) 122,694 - 122,694 129,353 (10,783) 118,570 - 118,570 127,388 (4,694) 122,694 - 122,694 14,040 (5,081) 8,959 9,002 (4,430) 4,572 14,040 (5,081) 8,959 9,002 (4,430) 4,572 127,529 127,266 127,529 127,266 6,353 (487) 5,866 - 5,866 10,568 (8,173) 2,395 8,261 3,292 6,353 (243) 6,110 - 6,110 10,183 (8,420) 1,763 7,873 3,334 6,353 (487) 5,866 - 5,866 9,426 (7,621) 1,805 7,671 3,292 6,353 (243) 6,110 - 6,110 10,183 (8,420) 1,763 7,873 3,334 124,437 14,646 128,804 9,669 124,437 14,056 128,804 9,669 139,082 138,473 138,492 138,473 Year Ended 28 February 2018 Notes to the Financial Statements Page 58 Year Ended 28 February 2018 Notes to the Financial Statements Page 59 2018 ANNUAL REPORT | 73 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) If the above categories of assets were still measured using the cost model, the carrying amount (WDV) would be as follows: the carrying values exceed the estimated recoverable amount (refer to Note 1), the assets or cash-generating units are written down to their recoverable amount. Ginning infrastucture and major equipment Other infrastucture and major equipment Consolidated and Parent $'000 $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 63,552 3,638 67,190 59,891 3,422 63,313 63,552 3,638 67,190 59,891 3,422 63,313 Revaluation of Ginning Assets Effective 29 February 2012, the group changed its accounting policy for the measurement of ginning assets from deemed cost to fair value. The methodology used in determining the fair value of the relevant properties and assets was the Discounted Cash Flow (DCF) approach as the primary method and the Net Maintainable Earnings approach as the secondary method. The DCF method provides a valuation based on the formulation of projected future cash flows over a ten-year period (plus a terminal value), which was then discounted at an appropriate discount rate. The Net Maintainable Earnings approach was used to support the DCF method results. Effective 29 February 2016 an independent valuation of the ginning assets was commissioned by the Group to provide external support for the Directors assessment of fair value for financial reporting purposes. Colliers International (“Colliers”) were engaged for this purpose. The methodology applied by Colliers to value the ginning assets was a net maintainable earnings approach. An assessed sustainable EBITDA was multiplied by an appropriate earnings multiple derived from market sources. The external valuation obtained for the ginning assets was then used to support the results of a DCF model for the prior year. The directors continue to utilise this DCF method to determine the fair value of ginning assets. Management calculated the fair value as at 28 February 2018 and determined that the carrying value of the assets is in line with the fair value and, therefore, no further revaluations were recorded. The fair value measurement of ginning assets outlined above uses significant unobservable inputs and are classified as level 3 in the financial reporting fair value measurement hierarchy. Significant unobservable valuation inputs as at 28 February 2018 included: • Sustainable bales. The average annual sustainable ginning bales have been included following a grower by grower assessment of production areas, seasonal rotation, estimated yields and reliability of contracting. The measure is inclusive of Namoi’s respective shares of throughputs of the joint venture cotton gins. The number being approximately a 28 % (2017: 28%) market share of an Australian sustainable crop size of 3.2 million bales (2017: 3.2 million bales) which also approximates the average number of bales achieved over the last 7 years, noting that individual seasons can fluctuate significantly dependent upon water availability; • Growth rate - revenues 1.65% (2017 - 1.65%) • Growth rate - expenses 2.20% (2017 - 2.20%) • Pre-tax discount rate of 16% (2017 – 16.0 %) Any significant increases/(decreases) in sustainable bales volumes, changes to EBITDA from ginning revenue per bale, or throughput rate (production cost impact) or changes to the discount rate, in isolation, would result in a significantly higher/(lower) fair value. Impairment of Assets at Cost Impairment losses are determined with reference to the items recoverable amount calculated as the greater of fair value less costs to sell or its value in use. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Where Reconciliations Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current financial year are set out below. Year Ended 28 February 2018 ($'000) Gins Other CWIP Year Ended 28 February 2017 ($'000) Gins Other CWIP Consolidated and parent entity Written down value - 1 March 2017 Acquisition of subsidiary Additions and Transfer to/(from) CWIP Disposals Depreciation1 Written down value - 28 February 2018 Consolidated and parent entity Written down value - 1 March 2016 Additions and Transfer to/(from) CWIP Disposals Depreciation Written down value - 28 February 2017 16. Trade and Other Payables Current Trade creditors and accruals 1 Grower deposits Customer deposits Trade creditors to an associate Funds due to futures brokers 2 Loans from controlled entities 127,266 - 7,321 (65) (6,993) 127,529 7,873 511 981 (149) (955) 8,261 3,334 (42) 3,292 130,657 1,968 (39) (5,320) 127,266 8,565 290 (96) (886) 7,873 1,688 1,646 3,334 - - - - - Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 7,799 7,938 7,773 7,936 32 14 - - - 38 132 293 - - 32 14 - - 38 132 293 - 7,845 8,401 17,732 25,551 17,732 26,131 1 Ginning infrastructure assets are depreciated on a units of production basis over their rolling estimated remaining useful lives of 20 years of sustainable bales. 1 Trade and other payables are non-interest bearing and are settled under a variety of terms dependent upon the transaction arrangements and the counterparty. The carrying amount of trade and other payables approximates their fair value. Year Ended 28 February 2018 Notes to the Financial Statements Page 60 Year Ended 28 February 2018 Notes to the Financial Statements Page 61 2018 ANNUAL REPORT | 74 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) If the above categories of assets were still measured using the cost model, the carrying amount (WDV) would be as follows: the carrying values exceed the estimated recoverable amount (refer to Note 1), the assets or cash-generating units are written down to their recoverable amount. Consolidated and Parent $'000 $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 63,552 3,638 67,190 59,891 3,422 63,313 63,552 3,638 67,190 59,891 3,422 63,313 Ginning infrastucture and major equipment Other infrastucture and major equipment Revaluation of Ginning Assets deemed cost to fair value. Effective 29 February 2012, the group changed its accounting policy for the measurement of ginning assets from The methodology used in determining the fair value of the relevant properties and assets was the Discounted Cash Flow (DCF) approach as the primary method and the Net Maintainable Earnings approach as the secondary method. The DCF method provides a valuation based on the formulation of projected future cash flows over a ten-year period (plus a terminal value), which was then discounted at an appropriate discount rate. The Net Maintainable Earnings approach was used to support the DCF method results. Effective 29 February 2016 an independent valuation of the ginning assets was commissioned by the Group to provide external support for the Directors assessment of fair value for financial reporting purposes. Colliers International (“Colliers”) were engaged for this purpose. The methodology applied by Colliers to value the ginning assets was a net maintainable earnings approach. An assessed sustainable EBITDA was multiplied by an appropriate earnings multiple derived from market sources. The external valuation obtained for the ginning assets was then used to support the results of a DCF model for the prior year. The directors continue to utilise this DCF method to determine the fair value of ginning assets. Management calculated the fair value as at 28 February 2018 and determined that the carrying value of the assets is in line with the fair value and, therefore, no further revaluations were recorded. The fair value measurement of ginning assets outlined above uses significant unobservable inputs and are classified as level 3 in the financial reporting fair value measurement hierarchy. Significant unobservable valuation inputs as at 28 February 2018 included: • Sustainable bales. The average annual sustainable ginning bales have been included following a grower by grower assessment of production areas, seasonal rotation, estimated yields and reliability of contracting. The measure is inclusive of Namoi’s respective shares of throughputs of the joint venture cotton gins. The number being approximately a 28 % (2017: 28%) market share of an Australian sustainable crop size of 3.2 million bales (2017: 3.2 million bales) which also approximates the average number of bales achieved over the last 7 years, noting that individual seasons can fluctuate significantly dependent upon water availability; • Growth rate - revenues 1.65% (2017 - 1.65%) • Growth rate - expenses 2.20% (2017 - 2.20%) Pre-tax discount rate of 16% (2017 – 16.0 %) • significantly higher/(lower) fair value. Impairment of Assets at Cost Any significant increases/(decreases) in sustainable bales volumes, changes to EBITDA from ginning revenue per bale, or throughput rate (production cost impact) or changes to the discount rate, in isolation, would result in a Reconciliations Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current financial year are set out below. Year Ended 28 February 2018 ($'000) Gins Other CWIP Consolidated and parent entity Written down value - 1 March 2017 Acquisition of subsidiary Additions and Transfer to/(from) CWIP Disposals Depreciation1 Written down value - 28 February 2018 127,266 - 7,321 (65) (6,993) 127,529 7,873 511 981 (149) (955) 8,261 3,334 - (42) - - 3,292 Year Ended 28 February 2017 ($'000) Gins Other CWIP Consolidated and parent entity Written down value - 1 March 2016 Additions and Transfer to/(from) CWIP Disposals Depreciation Written down value - 28 February 2017 130,657 1,968 (39) (5,320) 127,266 8,565 290 (96) (886) 7,873 1,688 1,646 - - 3,334 1 Ginning infrastructure assets are depreciated on a units of production basis over their rolling estimated remaining useful lives of 20 years of sustainable bales. 16. Trade and Other Payables Current Trade creditors and accruals 1 Grower deposits Customer deposits Trade creditors to an associate Funds due to futures brokers 2 Loans from controlled entities Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 7,799 32 14 - - - 7,845 7,938 38 132 293 - - 8,401 7,773 32 14 - - 17,732 25,551 7,936 38 132 293 - 17,732 26,131 Impairment losses are determined with reference to the items recoverable amount calculated as the greater of fair value less costs to sell or its value in use. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Where 1 Trade and other payables are non-interest bearing and are settled under a variety of terms dependent upon the transaction arrangements and the counterparty. The carrying amount of trade and other payables approximates their fair value. Year Ended 28 February 2018 Notes to the Financial Statements Page 60 Year Ended 28 February 2018 Notes to the Financial Statements Page 61 2018 ANNUAL REPORT | 75 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 17. Interest Bearing Liabilities The extent to which the economic entity’s finance facilities provided by Commonwealth Bank of Australia (CBA) were utilised at 28 February 2018 is listed below. Current AUD Facility Use Short term Working capital finance 1 Term debt 2 Lease liability Non Current Loans from controlled entities Term debt 2 Lease liability Facility Use - AUD $'000 Consolidated 28 Feb 2018 28 Feb 2017 Parent 28 Feb 2018 28 Feb 2017 18 6,000 - 6,018 758 758 819 9,500 5,500 15,819 771 771 18 6,000 - 6,018 758 758 819 9,500 5,500 15,819 771 771 6,776 16,590 6,776 16,590 - 42,000 1,226 43,226 - 41,980 1,350 43,330 2,049 42,000 1,226 45,275 2,049 41,980 1,350 45,379 Total Current and Non-Current 50,002 59,920 52,051 61,969 1 Working capital lines are utilised to fund day to day expenses of the business including specific funding needs for cotton seed inventory and debtors. 2 Term debt lines are utilised to fund capital projects relating to the plant, property and equipment of the business. Other liabilities Interest bearing liabilities are carried at amortised cost. Hire purchase contracts on equipment have an average term of 2.2 years with the average interest rate implicit in the contracts of 4.7% (2017: 4.9%). Details of interest rate risk, foreign exchange risk and liquidity risk are disclosed in Note 28. Facility limits The seasonal finance facilities limit, excluding term debt, at 28 February 2018 was $12.5 million (2017: $12.5 million) including operating overdrafts. In the current year a higher limit of $17.5 million applied from 1 March 2017 to 30 June 2017. At balance date CBA had provided Namoi Cotton with a secured $42.0 million (2017: $47.5 million) debt facility with core components maturing on 28 February 2020. Security is provided by a fixed and floating charge over the assets and undertakings of the group. Facility Limit - AUD $'000 Consolidated 28 Feb 2018 28 Feb 2017 Parent 28 Feb 2018 28 Feb 2017 2,500 10,000 35,000 7,000 54,500 2,500 10,000 35,000 12,480 59,980 2,500 10,000 35,000 7,000 54,500 2,500 10,000 35,000 12,480 59,980 AUD Facility Limit Short term Working capital finance 3 Term debt - A 1 Term debt - B 2 Financing arrangements capital facility to 31 March 2019. The Seventh Variation Deed was executed on 26 March 2018 extending the facility end date of the working Finance renewal Finance facility limits negotiated with CBA as per above: 1Committed term debt facility (non-amortising) - facility limit of AUD$35 million (2017: AUD$35 million) with a 2Committed term debt facility (non-amortising) - facility limit of AUD$7.0 million (2017: AUD$12.5 million) with facility end date of 28 February 2020; a facility end date of 28 February 2020; and 3Committed cotton seed, ginning consumables and general working capital needs under a multi option working capital facility (non-amortising) - facility limit of AUD$10 million (2017: AUD$10 million) with a facility end date of 31 March 2019. previous facilities. With the exception of the maturity of the facilities, the terms and conditions are materially consistent with the The group has agreed to certain financial covenants with CBA under the new finance facilities at what are considered appropriate levels to meet the needs of the business. Financial covenants under the previous agreements were complied with during the year. The Directors at the date of this report expect the working capital facility will be renewed thereafter and at appropriate levels for FY 2019/20 operations. Year Ended 28 February 2018 Notes to the Financial Statements Page 62 Year Ended 28 February 2018 Notes to the Financial Statements Page 63 2018 ANNUAL REPORT | 76 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 17. Interest Bearing Liabilities The extent to which the economic entity’s finance facilities provided by Commonwealth Bank of Australia (CBA) were utilised at 28 February 2018 is listed below. Current AUD Facility Use Short term Working capital finance 1 Term debt 2 Lease liability Loans from controlled entities Non Current Term debt 2 Lease liability Facility Use - AUD $'000 Consolidated 28 Feb 2018 28 Feb 2017 Parent 28 Feb 2018 28 Feb 2017 18 6,000 758 758 - - 42,000 1,226 43,226 6,018 15,819 6,018 15,819 819 9,500 5,500 771 771 18 6,000 - 758 758 819 9,500 5,500 771 771 6,776 16,590 6,776 16,590 - 41,980 1,350 43,330 2,049 42,000 1,226 45,275 2,049 41,980 1,350 45,379 Total Current and Non-Current 50,002 59,920 52,051 61,969 1 Working capital lines are utilised to fund day to day expenses of the business including specific funding needs for cotton seed inventory and debtors. 2 Term debt lines are utilised to fund capital projects relating to the plant, property and equipment of the business. Other liabilities Interest bearing liabilities are carried at amortised cost. Hire purchase contracts on equipment have an average term of 2.2 years with the average interest rate implicit in the contracts of 4.7% (2017: 4.9%). Details of interest rate risk, foreign exchange risk and liquidity risk are disclosed in Note 28. The seasonal finance facilities limit, excluding term debt, at 28 February 2018 was $12.5 million (2017: $12.5 million) including operating overdrafts. In the current year a higher limit of $17.5 million applied from 1 March Facility limits 2017 to 30 June 2017. At balance date CBA had provided Namoi Cotton with a secured $42.0 million (2017: $47.5 million) debt facility with core components maturing on 28 February 2020. Security is provided by a fixed and floating charge over the assets and undertakings of the group. AUD Facility Limit Short term Working capital finance 3 Term debt - A 1 Term debt - B 2 Facility Limit - AUD $'000 Consolidated 28 Feb 2018 28 Feb 2017 Parent 28 Feb 2018 28 Feb 2017 2,500 10,000 35,000 7,000 54,500 2,500 10,000 35,000 12,480 59,980 2,500 10,000 35,000 7,000 54,500 2,500 10,000 35,000 12,480 59,980 Financing arrangements The Seventh Variation Deed was executed on 26 March 2018 extending the facility end date of the working capital facility to 31 March 2019. Finance renewal Finance facility limits negotiated with CBA as per above: 1Committed term debt facility (non-amortising) - facility limit of AUD$35 million (2017: AUD$35 million) with a facility end date of 28 February 2020; 2Committed term debt facility (non-amortising) - facility limit of AUD$7.0 million (2017: AUD$12.5 million) with a facility end date of 28 February 2020; and 3Committed cotton seed, ginning consumables and general working capital needs under a multi option working capital facility (non-amortising) - facility limit of AUD$10 million (2017: AUD$10 million) with a facility end date of 31 March 2019. With the exception of the maturity of the facilities, the terms and conditions are materially consistent with the previous facilities. The group has agreed to certain financial covenants with CBA under the new finance facilities at what are considered appropriate levels to meet the needs of the business. Financial covenants under the previous agreements were complied with during the year. The Directors at the date of this report expect the working capital facility will be renewed thereafter and at appropriate levels for FY 2019/20 operations. Year Ended 28 February 2018 Notes to the Financial Statements Page 62 Year Ended 28 February 2018 Notes to the Financial Statements Page 63 2018 ANNUAL REPORT | 77 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 18. Provisions Current Employee leave entitlements Employee variable compensation Provision for tax Non-current Employee leave entitlements 19. Co-operative Grower Member Shares Grower member shares - fixed capital entitlement 1 cent Grower member shares (fully paid) Shares at the beginning of the financial year Shares issued during the year Shares converted to residual capital stock1 Shares at the end of the financial year Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 2,235 578 60 2,873 874 874 1,979 - - 1,979 863 863 2,226 563 - 2,789 865 865 1,979 - - 1,979 863 863 Consolidated $'000 28 Feb 2017 447 28 Feb 2018 - No. Parent $'000 28 Feb 2018 - No. 28 Feb 2017 447 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 165,600 - (165,600) - 165,600 - - 165,600 165,600 - (165,600) - 165,600 - - 165,600 1 Each grower member holding 800 grower member shares converted to 158,504 residual capital stock and subsequently to ordinary shares on a one-for-one basis under the Restructure. Total ordinary shares issued to grower members was 32,810,328. Terms and conditions (previously): • Grower shares may only be held by active members; • Grower shareholders have one vote at member meetings, regardless of the number of grower shares held; • Grower shares can be issued and are redeemable for a fixed amount of $2.70 per share, but have no entitlement to surplus repayments; • Grower shares have no dividend entitlement; • Grower shareholders appoint the directors of Namoi Cotton, subject to the stockholders right to nominate up to three non-grower directors; • Grower shareholders are entitled to a rebate, if applicable, for each bale of cotton ginned and/or marketed with Namoi Cotton. Minimum holding and forfeiture rules (previously): Rule 6 of the rules of the co-operative required active members to hold 800 shares, produce cotton from a minimum 40 hectares and conduct a minimum 20% of the member’s cotton business with the co-operative in order to be eligible for a rebate of ginning and marketing charges levied by the co-operative. The board could declare membership of a member cancelled where the grower was inactive for two years, whereby grower shares were forfeited and the grower was repaid an amount equal to the initial issue price. 20. Contributed Equity Ordinary Shares/Capital Stock 37,639 1,098 37,639 1,098 Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 Consolidated and Parent No. '000 $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 1 cent Capital Stock (fully paid) Capital stock at the beginning of the financial year 109,843 109,843 Capital stock converted as part of restructure Capital stock at the end of the financial year (109,843) 109,843 1,098 (1,098) 1,098 1,098 1 cent Residual Capital Stock (fully paid) Residual capital stock at the beginning of the financial year Grower member shares converted as part of restructure Residual capital stock at the end of the financial year Ordinary Shares (fully paid) Capital stock converted as part of restructure Residual capital stock converted to ordinary shares (127,427) Ordinary shares at the beginning of the financial year Residual capital stock converted to ordinary shares Ordinary shares at the end of the financial year 127,427 127,427 - - - 32,810 109,843 15,226 - - - - - - - - - - 328 1,098 (1,274) 152 - 1,274 1,274 - - - - - - - - On 26 September 2017 Namoi Cotton Co-operative Ltd grower members and co-operative capital unit holders voted in favour of schemes of arrangement to convert the Co-operative (registered under the Co-operatives National Law) to a company limited by shares (registered under the Corporations Act). The vote received final regulatory approval and became effective on 10 October 2017. The Restructure also resulted in the grower member shares (previously recorded as a financial liability) being settled via the issuance of ordinary shares. In accordance with accounting standards, the financial liability was revalued to fair value prior to being settled with ordinary shares. The fair value of the grower member shares was determined to be $7.00 per share at the restructure date, by an Independent Expert. The increase in the Year Ended 28 February 2018 Notes to the Financial Statements Page 64 Year Ended 28 February 2018 Notes to the Financial Statements Page 65 2018 ANNUAL REPORT | 78 Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 2,235 578 60 2,873 874 874 1,979 - - 2,226 563 - 1,979 - - 1,979 2,789 1,979 863 863 865 865 863 863 Consolidated $'000 28 Feb 2018 28 Feb 2017 447 Parent $'000 28 Feb 2018 28 Feb 2017 447 No. No. 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 - - - - - - 18. Provisions Current Employee leave entitlements Employee variable compensation Provision for tax Non-current Employee leave entitlements 19. Co-operative Grower Member Shares Grower member shares - fixed capital entitlement grower members was 32,810,328. Terms and conditions (previously): entitlement to surplus repayments; • Grower shares have no dividend entitlement; up to three non-grower directors; with Namoi Cotton. 1 cent Grower member shares (fully paid) Shares at the beginning of the financial year 165,600 165,600 165,600 165,600 Shares issued during the year Shares converted to residual capital stock1 Shares at the end of the financial year (165,600) (165,600) 165,600 165,600 - - - - 1 Each grower member holding 800 grower member shares converted to 158,504 residual capital stock and subsequently to ordinary shares on a one-for-one basis under the Restructure. Total ordinary shares issued to Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Minimum holding and forfeiture rules (previously): Rule 6 of the rules of the co-operative required active members to hold 800 shares, produce cotton from a minimum 40 hectares and conduct a minimum 20% of the member’s cotton business with the co-operative in order to be eligible for a rebate of ginning and marketing charges levied by the co-operative. The board could declare membership of a member cancelled where the grower was inactive for two years, whereby grower shares were forfeited and the grower was repaid an amount equal to the initial issue price. 20. Contributed Equity Ordinary Shares/Capital Stock 37,639 1,098 37,639 1,098 Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 Consolidated and Parent No. '000 $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 109,843 (109,843) - 109,843 - 109,843 1,098 (1,098) - 1,098 - 1,098 1 cent Capital Stock (fully paid) Capital stock at the beginning of the financial year Capital stock converted as part of restructure Capital stock at the end of the financial year 1 cent Residual Capital Stock (fully paid) Residual capital stock at the beginning of the financial year Grower member shares converted as part of restructure Capital stock converted as part of restructure Residual capital stock converted to ordinary shares Residual capital stock at the end of the financial year - 32,810 109,843 (127,427) 15,226 Ordinary Shares (fully paid) Ordinary shares at the beginning of the financial year Residual capital stock converted to ordinary shares Ordinary shares at the end of the financial year - 127,427 127,427 - - - - - - - - 328 1,098 (1,274) 152 - 1,274 1,274 - - - - - - - • Grower shares may only be held by active members; • Grower shareholders have one vote at member meetings, regardless of the number of grower shares held; • Grower shares can be issued and are redeemable for a fixed amount of $2.70 per share, but have no On 26 September 2017 Namoi Cotton Co-operative Ltd grower members and co-operative capital unit holders voted in favour of schemes of arrangement to convert the Co-operative (registered under the Co-operatives National Law) to a company limited by shares (registered under the Corporations Act). • Grower shareholders appoint the directors of Namoi Cotton, subject to the stockholders right to nominate The vote received final regulatory approval and became effective on 10 October 2017. • Grower shareholders are entitled to a rebate, if applicable, for each bale of cotton ginned and/or marketed The Restructure also resulted in the grower member shares (previously recorded as a financial liability) being settled via the issuance of ordinary shares. In accordance with accounting standards, the financial liability was revalued to fair value prior to being settled with ordinary shares. The fair value of the grower member shares was determined to be $7.00 per share at the restructure date, by an Independent Expert. The increase in the Year Ended 28 February 2018 Notes to the Financial Statements Page 64 Year Ended 28 February 2018 Notes to the Financial Statements Page 65 2018 ANNUAL REPORT | 79 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) carrying value of the grower member shares from $2.70 to $7.00 per share resulted in a fair value decrement to profit and loss of $0.712 million. The grower share liability of $1.16 million, co-operative capital unit premium reserve of $35.38 million and the contributed equity of $1.098 million were reclassified to share capital in accordance with the Restructure subsequent to 31 August 2017. At balance date some 15.2m Residual Capital Stock had not been converted to ordinary shares. Under the terms of the Restructure in October 2017 and the Constitution of Namoi Cotton Limited the redemption of Residual Capital Stock is permitted. The conditions of such redemption include that redemption cannot occur until the earlier of a minimum of 90% of Residual Capital Stock have being converted to Ordinary Shares or the 30th June 2018. The number of residual capital stock available to redeem is expected to be immaterial given the redemption is at market price less a 10% discount, they are not entitled to any dividends, are non-transferrable and are not listed on the ASX. The Board has discretion in determining whether, and if so when, to redeem the outstanding residual capital stock. Capital stock terms and conditions (previously): Capital stock holders are entitled to distributions as declared by the directors; Capital stock holders have no right to vote at any general meeting of Namoi Cotton; • • • Matters relating to the appointment of the non-grower directors must be approved by capital stock holders prior to submission to a general meeting of Namoi Cotton for approval; • On winding up, capital stock holders are entitled to the proceeds from surplus assets after payment of grower paid up share capital. Ordinary shares terms and conditions: • Ordinary shareholders are entitled to dividends as declared by the directors; • • On winding up, ordinary shareholders are entitled to the proceeds from surplus assets. Each ordinary shareholder is entitled to one vote per one share; Namoi Cotton Employee Incentive Share Plan The Employee Incentive Share Plan was suspended in August 2004. All full-time employees who were continuously employed by Namoi Cotton for a period of one year were eligible to participate in the plan after the finalisation of the full year results for the year ended 29 February 2004. The issue price was at a 5% discount to the average market price of Namoi capital stock over the 5 trading days preceding the offer date. Under the terms of the plan, employees are provided with an interest free loan to finance the issue price of the units. A minimum of 75% of the amount of all distributions paid in relation to units issued under the plan must be applied as a repayment of the loan. In any event, the loan must be repaid on the earlier to occur of termination of employment and 10 years. At the end of the financial year employee loans totalled $24,411 (2017: $24,441). Units issued under the plan are placed in escrow until the later to occur of three years from issue and when the employee loan has been fully repaid. At the end of the financial year there were 141,000 residual capital stock (2017: 141,000 units) under escrow. Capital management Namoi Cotton manages capital through the payment of dividends and participation in the buy back or issuance of ordinary shares. Decisions on capital management are made having regard to compliance with externally imposed capital requirements principally through maintaining a minimum level of net assets. 21. Nature and Purpose of Reserves Capital stock (CCU) premium reserve (previously) By virtue of rule 15.2 of the co-operative rules, the capital stock premium reserve is used to record amounts received in respect of capital stock issued at a premium and are to be regarded as paid up capital of the co- operative. operative; • • • The balance standing to the credit of this account may be applied in any one or more of the following ways: In the payment of dividends if those dividends are satisfied by the issue of shares to the members of the co- In writing off the preliminary expenses of the co-operative; or In providing for the premium payable on redemption of shares, debentures or co-operative capital units. Asset revaluation reserve The asset revaluation reserve is used to record increases in the fair value of ginning assets and decreases to the extent that such decreases relates to an increase on the same asset previously recognised in equity. The reserve can only be used to pay dividends in limited circumstances. 22. Segment Information Identification of reportable segments The group has identified its operating segments based on the internal reports that are reviewed and used by the chief executive officer (the chief operating decision maker) with the executive management team in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on the manner in which the product is sold, whether retail or wholesale, and the nature of the services provided, the identity of service line manager and country of origin. Discrete financial information about each of these operating businesses is reported to the executive management team on at least a monthly basis. The reportable segments are based on aggregated operating segments determined by the similarity of the products and sold and/or the services provided, as these are the sources of the group’s major risks and have the most effect on the rates of return. Types of products and services Ginning The ginning business operates 12 cotton gins (incorporating 2 joint venture gins, referred to in note 12) located in the key growing areas of NSW and Queensland. The ginning service provided to the growers during the production process includes the separation of lint cotton from seed and other foreign matter and the conversion of cotton in module form to bale form. Grower customers are also able to sell the white cotton seed by-product to Namoi Cotton or elect to retain their white cotton seed. Marketing The marketing business involves the purchase of lint cotton from Australian growers using a variety of forward contracts that offer differing combinations of price, delivery and risk characteristics. Subsequent to the formation of NCA, bales procured by Namoi from growers are on-sold to NCA with approximately 99% of NCA sales ultimately being to Asia. The NCA joint venture manages its marketing risks by utilising cotton futures and options and foreign currency contracts under strict risk management policies. The controlled entity ACS provides classing services for the NCA joint venture and other cotton merchants. Year Ended 28 February 2018 Notes to the Financial Statements Page 66 Year Ended 28 February 2018 Notes to the Financial Statements Page 67 2018 ANNUAL REPORT | 80 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) carrying value of the grower member shares from $2.70 to $7.00 per share resulted in a fair value decrement to 21. Nature and Purpose of Reserves profit and loss of $0.712 million. The grower share liability of $1.16 million, co-operative capital unit premium reserve of $35.38 million and the contributed equity of $1.098 million were reclassified to share capital in accordance with the Restructure subsequent to 31 August 2017. At balance date some 15.2m Residual Capital Stock had not been converted to ordinary shares. Under the terms of the Restructure in October 2017 and the Constitution of Namoi Cotton Limited the redemption of Residual Capital Stock is permitted. The conditions of such redemption include that redemption cannot occur until the earlier of a minimum of 90% of Residual Capital Stock have being converted to Ordinary Shares or the 30th June 2018. • • • The number of residual capital stock available to redeem is expected to be immaterial given the redemption is at market price less a 10% discount, they are not entitled to any dividends, are non-transferrable and are not listed on the ASX. The Board has discretion in determining whether, and if so when, to redeem the outstanding residual capital stock. Capital stock terms and conditions (previously): Capital stock holders are entitled to distributions as declared by the directors; Capital stock holders have no right to vote at any general meeting of Namoi Cotton; • Matters relating to the appointment of the non-grower directors must be approved by capital stock holders prior to submission to a general meeting of Namoi Cotton for approval; • On winding up, capital stock holders are entitled to the proceeds from surplus assets after payment of grower paid up share capital. Ordinary shares terms and conditions: • Ordinary shareholders are entitled to dividends as declared by the directors; Each ordinary shareholder is entitled to one vote per one share; • On winding up, ordinary shareholders are entitled to the proceeds from surplus assets. Namoi Cotton Employee Incentive Share Plan The Employee Incentive Share Plan was suspended in August 2004. All full-time employees who were continuously employed by Namoi Cotton for a period of one year were eligible to participate in the plan after the finalisation of the full year results for the year ended 29 February 2004. The issue price was at a 5% discount to the average market price of Namoi capital stock over the 5 trading days preceding the offer date. Under the terms of the plan, employees are provided with an interest free loan to finance the issue price of the units. A minimum of 75% of the amount of all distributions paid in relation to units issued under the plan must be applied as a repayment of the loan. In any event, the loan must be repaid on the earlier to occur of termination of employment and 10 years. At the end of the financial year employee loans totalled $24,411 (2017: $24,441). Units issued under the plan are placed in escrow until the later to occur of three years from issue and when the employee loan has been fully repaid. At the end of the financial year there were 141,000 residual capital stock (2017: 141,000 units) under escrow. Capital management Namoi Cotton manages capital through the payment of dividends and participation in the buy back or issuance of ordinary shares. Decisions on capital management are made having regard to compliance with externally imposed capital requirements principally through maintaining a minimum level of net assets. Capital stock (CCU) premium reserve (previously) By virtue of rule 15.2 of the co-operative rules, the capital stock premium reserve is used to record amounts received in respect of capital stock issued at a premium and are to be regarded as paid up capital of the co- operative. The balance standing to the credit of this account may be applied in any one or more of the following ways: • • • In the payment of dividends if those dividends are satisfied by the issue of shares to the members of the co- operative; In writing off the preliminary expenses of the co-operative; or In providing for the premium payable on redemption of shares, debentures or co-operative capital units. Asset revaluation reserve The asset revaluation reserve is used to record increases in the fair value of ginning assets and decreases to the extent that such decreases relates to an increase on the same asset previously recognised in equity. The reserve can only be used to pay dividends in limited circumstances. 22. Segment Information Identification of reportable segments The group has identified its operating segments based on the internal reports that are reviewed and used by the chief executive officer (the chief operating decision maker) with the executive management team in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on the manner in which the product is sold, whether retail or wholesale, and the nature of the services provided, the identity of service line manager and country of origin. Discrete financial information about each of these operating businesses is reported to the executive management team on at least a monthly basis. The reportable segments are based on aggregated operating segments determined by the similarity of the products and sold and/or the services provided, as these are the sources of the group’s major risks and have the most effect on the rates of return. Types of products and services Ginning The ginning business operates 12 cotton gins (incorporating 2 joint venture gins, referred to in note 12) located in the key growing areas of NSW and Queensland. The ginning service provided to the growers during the production process includes the separation of lint cotton from seed and other foreign matter and the conversion of cotton in module form to bale form. Grower customers are also able to sell the white cotton seed by-product to Namoi Cotton or elect to retain their white cotton seed. Marketing The marketing business involves the purchase of lint cotton from Australian growers using a variety of forward contracts that offer differing combinations of price, delivery and risk characteristics. Subsequent to the formation of NCA, bales procured by Namoi from growers are on-sold to NCA with approximately 99% of NCA sales ultimately being to Asia. The NCA joint venture manages its marketing risks by utilising cotton futures and options and foreign currency contracts under strict risk management policies. The controlled entity ACS provides classing services for the NCA joint venture and other cotton merchants. Year Ended 28 February 2018 Notes to the Financial Statements Page 66 Year Ended 28 February 2018 Notes to the Financial Statements Page 67 2018 ANNUAL REPORT | 81 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Commodities The controlled entity Namoi Cotton Commodities Pty Ltd procures various grain and pulse crops from Australian growers and sells these into various domestic and international markets. Accounting policies The accounting policies used by the group in reporting segments internally are the same as those contained in note 1 to the accounts and in the prior period. The following items (or a portion thereof) of income and expenditure are not allocated to operating segments as they are not considered part of the core operations of any segment: Share of profit from associate (other than NCA and Cargill); Finance costs; • Interest Revenue; • Rental Revenue; • • • Corporate employee benefits expense; • Corporate depreciation; and • Other corporate administrative expenses. A segment balance sheet and cashflow is not reported to the chief operating decision makers and are, therefore, not disclosed as part of this report. Business Segments Year ended 28 February 2018 Revenue Sales to external customers Other revenues from external customers Total consolidated revenue Non-segment revenues Interest revenue Rental revenue Results Profit/(loss) before tax and finance costs Finance costs Share of profit from associates Net Profit before tax Other segment information Depreciation Ginning Marketing 1,2 Commodities Unallocated Consolidated $'000 $'000 $'000 $'000 $'000 158,495 222 158,717 - - 158,717 19,620 (2,540) (1,378) 15,702 324,759 - 324,759 - - 324,759 2,543 - 681 3,224 227 - 227 - - 227 16 28 - 44 - - - 23 213 236 (9,250) (46) - (9,296) 483,481 222 483,703 23 213 483,939 12,929 (2,558) (697) 9,674 (7,385) (52) (134) (378) (7,949) Included in the unallocated results for the period are: Interest Revenue Rental Revenue Total Unallocated Revenue Share of profit/(loss) of other associates Employee benefits expense Depreciation Finance costs Other corporate administrative expenses Total Unallocated Result 1 Marketing revenue remains inclusive of lint sales values upon transfer of bales from Namoi to NCA. 2 Marketing results include the net result for the NCA joint venture. Year Ended 28 February 2018 Notes to the Financial Statements 2018 ANNUAL REPORT | 82 23 213 236 - (3,673) (378) (46) (5,435) (9,296) Page 68 Business Segments Year ended 28 February 2017 Ginning $'000 Marketing Commodities Unallocated Consolidated $'000 $'000 $'000 $'000 Revenue Sales to external customers Other revenues from external customers Total consolidated revenue Non-segment revenues Interest revenue Rental revenue Results Profit/(loss) before tax and finance costs Finance costs Share of profit from associates Net Profit before tax Other segment information Depreciation Included in the unallocated results for the period are: Interest Revenue Rental Revenue Total Unallocated Revenue Share of profit/(loss) of associates Employee benefits expense Depreciation Finance costs Other corporate administrative expenses Total Unallocated Result 112,222 200 112,422 242,407 242,407 112,422 242,407 - - - - 1,291 712 2,003 - - 8,054 (2,556) (802) 4,696 301 301 - - - 301 105 28 - 133 - - - 1 213 214 (6,710) (84) - (6,794) (5,684) (35) (142) (345) (6,206) 354,930 200 355,130 1 213 355,344 2,740 (2,612) (90) 38 1 213 214 - (3,426) (345) (84) (3,153) (6,794) Geographic Area The economic entity operates in two separate geographic areas. Namoi Cotton procures lint cotton and white cotton seed and provides cotton ginning activities to and from growers located solely within Australia. A portion of cotton seed sales are made to a variety of countries in Asia with similar trading terms and conditions and risk profiles. As such for the purposes of this note Namoi Cotton’s geographic areas are considered to be Australia and Asia with consolidated revenues as follows: Geographic Areas Year ended 28 February 2018 Revenue Sales to external customers Other revenues from external customers Total consolidated revenue Geographic Areas Year ended 28 February 2017 Revenue Sales to external customers Other revenues from external customers Total consolidated revenue Australia $'000 Asia $'000 Consolidated $'000 465,057 222 465,279 18,425 18,425 483,482 222 483,704 Australia $'000 Asia $'000 Consolidated $'000 338,109 200 338,309 16,821 16,821 354,930 200 355,130 - - Year Ended 28 February 2018 Notes to the Financial Statements Page 69 The controlled entity Namoi Cotton Commodities Pty Ltd procures various grain and pulse crops from Australian growers and sells these into various domestic and international markets. Commodities Accounting policies The accounting policies used by the group in reporting segments internally are the same as those contained in note 1 to the accounts and in the prior period. The following items (or a portion thereof) of income and expenditure are not allocated to operating segments as they are not considered part of the core operations of any segment: Share of profit from associate (other than NCA and Cargill); Interest Revenue; • Rental Revenue; Finance costs; • • • • Corporate employee benefits expense; • Corporate depreciation; and • Other corporate administrative expenses. Business Segments Year ended 28 February 2018 Ginning Marketing 1,2 Commodities Unallocated Consolidated $'000 $'000 $'000 $'000 $'000 not disclosed as part of this report. Revenue Sales to external customers Other revenues from external customers Total consolidated revenue Non-segment revenues Interest revenue Rental revenue Results Profit/(loss) before tax and finance costs Finance costs Share of profit from associates Net Profit before tax Other segment information Depreciation Included in the unallocated results for the period are: Interest Revenue Rental Revenue Total Unallocated Revenue Share of profit/(loss) of other associates Employee benefits expense Depreciation Finance costs Other corporate administrative expenses Total Unallocated Result 158,495 222 158,717 324,759 324,759 - - 158,717 324,759 19,620 (2,540) (1,378) 15,702 2,543 681 3,224 - - - - 227 227 - - - 227 16 28 - 44 - - - 23 213 236 (9,250) (46) - (9,296) (7,385) (52) (134) (378) (7,949) 483,481 222 483,703 23 213 483,939 12,929 (2,558) (697) 9,674 23 213 236 - (3,673) (378) (46) (5,435) (9,296) Page 68 1 Marketing revenue remains inclusive of lint sales values upon transfer of bales from Namoi to NCA. 2 Marketing results include the net result for the NCA joint venture. Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Business Segments Year ended 28 February 2017 Ginning $'000 Marketing Commodities Unallocated Consolidated $'000 $'000 $'000 $'000 Revenue Sales to external customers Other revenues from external customers Total consolidated revenue Non-segment revenues Interest revenue Rental revenue Results Profit/(loss) before tax and finance costs Finance costs Share of profit from associates Net Profit before tax Other segment information Depreciation 112,222 200 112,422 - - 112,422 8,054 (2,556) (802) 4,696 242,407 - 242,407 - - 242,407 1,291 - 712 2,003 301 - 301 - - 301 105 28 - 133 - - - 1 213 214 (6,710) (84) - (6,794) 354,930 200 355,130 1 213 355,344 2,740 (2,612) (90) 38 (5,684) (35) (142) (345) (6,206) A segment balance sheet and cashflow is not reported to the chief operating decision makers and are, therefore, Included in the unallocated results for the period are: Interest Revenue Rental Revenue Total Unallocated Revenue Share of profit/(loss) of associates Employee benefits expense Depreciation Finance costs Other corporate administrative expenses Total Unallocated Result 1 213 214 - (3,426) (345) (84) (3,153) (6,794) Geographic Area The economic entity operates in two separate geographic areas. Namoi Cotton procures lint cotton and white cotton seed and provides cotton ginning activities to and from growers located solely within Australia. A portion of cotton seed sales are made to a variety of countries in Asia with similar trading terms and conditions and risk profiles. As such for the purposes of this note Namoi Cotton’s geographic areas are considered to be Australia and Asia with consolidated revenues as follows: Geographic Areas Year ended 28 February 2018 Revenue Sales to external customers Other revenues from external customers Total consolidated revenue Geographic Areas Year ended 28 February 2017 Revenue Sales to external customers Other revenues from external customers Total consolidated revenue Australia $'000 Asia $'000 Consolidated $'000 465,057 222 465,279 18,425 - 18,425 483,482 222 483,704 Australia $'000 Asia $'000 Consolidated $'000 338,109 200 338,309 16,821 - 16,821 354,930 200 355,130 Year Ended 28 February 2018 Notes to the Financial Statements Year Ended 28 February 2018 Notes to the Financial Statements Page 69 2018 ANNUAL REPORT | 83 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows: After one year but within five years Within one year After five years Total minimum lease payments Unexpired finance charges Present value of minimum lease payments Consolidated $'000 Parent $'000 28 Feb 2018 825 1,301 - 2,126 (142) 1,984 28 Feb 2017 844 1,379 44 2,267 (146) 2,121 28 Feb 2018 825 1,301 - 2,126 (142) 1,984 28 Feb 2017 844 1,379 44 2,267 (146) 2,121 The weighted average interest rate implicit in the contracts for both the group and parent is 4.7% (2017: 4.9%). Contingent liabilities Namcott Investments Pty Ltd, a controlled entity of the company, is a partner of the COA, Namcott Investments Pty Ltd is jointly and severally liable for the COA liabilities. At 28 February 2018 the liabilities of COA exceeded its assets. Refer to Note 11, Investments in Associates and Joint Ventures. 24. Significant Events after Balance Date No events of a material nature have occurred between balance date and the date of this report, other than as disclosed elsewhere in this report. 23. Commitments and Contingencies Commitments for capital expenditure Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 Property, plant and equipment Estimated capital expenditure contracted for at balance date but not provided for: Payable within one year 9,931 5,870 9,931 5,870 Operating lease commitments – group as lessee The group has entered into commercial leases in respect of land and buildings which have an average life of less than 1 year. Options to renew are included in the contracts for commercial buildings only. There are no restrictions placed upon the lessee by entering into these leases. The future minimum rentals payable under the non-cancellable operating leases are as follows: Operating lease commitments - Group as lessee Not later than 1 year Later than 1 year and not later than 5 years Operating lease commitments receivable – group as lessor 66 - 66 307 - 307 66 - 66 307 - 307 The group has entered into non-cancellable commercial property leases on its surplus office building and into cancellable residential accommodation leases for certain employees in remote areas. The commercial lease allows for an annual increase in line with Consumer Price Index movements while residential leases are subject to periodic market assessment. Future minimum rentals receivable under non-cancellable operating leases as at 28 February 2018 are as follows: Operating lease commitments receivable - Group as lessor Not later than 1 year Later than 1 year and not later than 5 years 5 - 5 44 - 44 5 - 5 44 - 44 Finance lease and hire purchase commitments – group as lessee The group has finance leases and hire purchase contracts for gin packaging and logistics supply chain equipment with a carrying value of $2,330,645 (2017: $2,701,735) for both the group and the company. The equipment is mainly presented in Gin Assets in Note 15. Property, Plant and Equipment. Year Ended 28 February 2018 Notes to the Financial Statements Page 70 Year Ended 28 February 2018 Notes to the Financial Statements Page 71 2018 ANNUAL REPORT | 84 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows: Within one year After one year but within five years After five years Total minimum lease payments Unexpired finance charges Present value of minimum lease payments Consolidated $'000 Parent $'000 28 Feb 2018 825 1,301 - 2,126 (142) 1,984 28 Feb 2017 844 1,379 44 2,267 (146) 2,121 28 Feb 2018 825 1,301 - 2,126 (142) 1,984 28 Feb 2017 844 1,379 44 2,267 (146) 2,121 The weighted average interest rate implicit in the contracts for both the group and parent is 4.7% (2017: 4.9%). Contingent liabilities Namcott Investments Pty Ltd, a controlled entity of the company, is a partner of the COA, Namcott Investments Pty Ltd is jointly and severally liable for the COA liabilities. At 28 February 2018 the liabilities of COA exceeded its assets. Refer to Note 11, Investments in Associates and Joint Ventures. 24. Significant Events after Balance Date No events of a material nature have occurred between balance date and the date of this report, other than as disclosed elsewhere in this report. 23. Commitments and Contingencies Commitments for capital expenditure Property, plant and equipment Estimated capital expenditure contracted for at balance date but not provided for: Payable within one year Operating lease commitments – group as lessee Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 9,931 5,870 9,931 5,870 The group has entered into commercial leases in respect of land and buildings which have an average life of less than 1 year. Options to renew are included in the contracts for commercial buildings only. There are no restrictions placed upon the lessee by entering into these leases. The future minimum rentals payable under the non-cancellable operating leases are as follows: Operating lease commitments - Group as lessee Not later than 1 year Later than 1 year and not later than 5 years Operating lease commitments receivable – group as lessor 66 - 66 307 - 307 66 - 66 307 - 307 The group has entered into non-cancellable commercial property leases on its surplus office building and into cancellable residential accommodation leases for certain employees in remote areas. The commercial lease allows for an annual increase in line with Consumer Price Index movements while residential leases are subject to periodic market assessment. Future minimum rentals receivable under non-cancellable operating leases as at 28 February 2018 are as follows: Operating lease commitments receivable - Group as lessor Not later than 1 year Later than 1 year and not later than 5 years 5 - 5 44 - 44 5 - 5 44 - 44 Finance lease and hire purchase commitments – group as lessee The group has finance leases and hire purchase contracts for gin packaging and logistics supply chain equipment with a carrying value of $2,330,645 (2017: $2,701,735) for both the group and the company. The equipment is mainly presented in Gin Assets in Note 15. Property, Plant and Equipment. Year Ended 28 February 2018 Notes to the Financial Statements Page 70 Year Ended 28 February 2018 Notes to the Financial Statements Page 71 2018 ANNUAL REPORT | 85 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 25. Related Party Disclosures The consolidated financial statements include the financial statements of Namoi Cotton Limited and the subsidiaries listed in the following table. All subsidiaries were incorporated in Australia. Namoi Cotton Limited is the ultimate parent entity of the group. Ownership and investment Name of entity Equity Interest % Investment $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 Australian Classing Services Pty Ltd 1 Australian Raw Cotton Marketing Corp. Pty Ltd Namcott Investments Pty Limited Namoi Cotton Superannuation Pty Ltd Namoi Cotton Pty Ltd Namcott Marketing Pty Ltd Namoi Cotton Commodities Pty Ltd Namoi Cotton Finance Pty Ltd Cotton Trading Corporation Pty Limited 1,380 - - - - - - - 1,830 3,210 (3,210) - 1 Formerl y di s cl os ed a s a n a s s oci a te the a cqui s i ti on bei ng di s cl os ed i n the Bus i nes s Combi na ti ons Note 4. 50% 100% 100% 100% 100% 100% 96% 100% 100% 100% 100% 100% 100% 100% 100% 96% 100% 100% Investments held in controlled entities eliminated 28 Feb 2017 - - - - - - - - 1,830 1,830 (1,830) - Principal activities: • Namcott Investments Pty Ltd, a subsidiary of Namoi Cotton, is the beneficial owner of the interests in CPL and COA Partnership. Namoi Oilseeds Trust formerly held the interest in the partnership. • Namoi Cotton Superannuation Pty Ltd is trustee of the company’s former superannuation fund, which was wound up in June 2000. • Namoi Cotton Pty Ltd is a non-trading company. • Namcott Marketing Pty Ltd, a subsidiary of Namoi Cotton, is the beneficial owner of the interests in NCPS shares and NCA Partnership. • Namoi Cotton Finance Pty Ltd secures funding for the group. • Namoi Cotton Commodities Pty Ltd has main trading activities of sale and logistics of plastic waste from ginning activities. Cotton Trading Corporation Pty Limited is controlled by Namcott Investments Pty Ltd. • • Australian Raw Cotton Marketing Corp Pty Ltd is a non-trading company. • Australian Classing Services Pty Ltd trading activities are mainly the provision of classing services. Transactions with subsidiaries Transactions between members of the wholly owned group were minimal. Amounts receivable by and payable to the parent entity are included in the respective notes to this financial report. Transactions with other related parties ACS leased HVI machines from the parent during the period for $35,906 (2017: $35,906). Sales of white cotton seed to the COA Partnership were $33,007,226 (2017: $19,454,562) and purchases of white cotton seed from the COA Partnership were $2,205,890 (2017: $nil). Year Ended 28 February 2018 Notes to the Financial Statements Page 72 Year Ended 28 February 2018 Notes to the Financial Statements Page 73 2018 ANNUAL REPORT | 86 Management fees received by Namoi for services provided to Namoi Cotton Alliance $3.3m (inclusive of bale Transactions with NCA handling fees) (2017: $2.5m). Lint Cotton Sales from Namoi to Namoi Cotton Alliance $321.2m (2017: $239.9m). Insurance on-charged by Namoi to Namoi Cotton Alliance $0.6m (2017: $0.4m). Contingent liabilities Namcott Investments Pty Ltd, a controlled entity of the company, is a partner of the COA, Namcott Investments Pty Ltd is jointly and severally liable for the COA liabilities. At 28 February 2018 the liabilities of COA exceeded its assets and therefore has contributed to a negative investment in COA. Refer to Note 11. Investments in Associates and Joint Ventures. 26. Directors’ and Executive Disclosure Compensation by category of KMP Short-term Post Employment Other Long-term Consolidated Parent 28 Feb 2018 $ 28 Feb 2017 $ 28 Feb 2018 $ 28 Feb 2017 $ 2,187,891 1,808,592 2,187,891 1,808,592 77,523 21,305 152,293 2,955 77,523 21,305 152,293 2,955 2,286,719 1,963,840 2,286,719 1,963,840 Marketing and ginning transactions and balances with KMP Transactions with directors and their related parties were in accordance with the rules of the co-operative, under terms and conditions applicable to all members and the Constitution of Namoi Cotton Limited. Under the rules of the co-operative, grower directors were required to conduct a minimum of 20% of their total cotton business with Namoi Cotton. In accordance with that rule, directors entered into marketing contracts and ginning contracts with Namoi Cotton. Amounts paid/received or payable/receivable from/to directors and their respective related parties were as follows: Consolidated and Parent entity Cotton Purchases Ginning Charges Levied Grain & Seed Purchases 28 Feb 2018 $ 28 Feb 2017 $ 28 Feb 2018 $ 28 Feb 2017 $ 28 Feb 2018 $ 28 Feb 2017 $ 11,722,426 6,670,706 2,255,400 1,418,504 2,366,395 1,813,907 The nature of the terms and conditions of the above other transactions with directors and director related entities are consistent with the terms of Namoi Cotton’s standard products. Refer to the Remuneration Report within the Directors’ Report for more information. The consolidated financial statements include the financial statements of Namoi Cotton Limited and the subsidiaries listed in the following table. All subsidiaries were incorporated in Australia. Namoi Cotton Limited 25. Related Party Disclosures is the ultimate parent entity of the group. Ownership and investment Name of entity Australian Classing Services Pty Ltd 1 Australian Raw Cotton Marketing Corp. Pty Ltd Namcott Investments Pty Limited Namoi Cotton Superannuation Pty Ltd Namoi Cotton Pty Ltd Namcott Marketing Pty Ltd Namoi Cotton Commodities Pty Ltd Namoi Cotton Finance Pty Ltd Cotton Trading Corporation Pty Limited Investments held in controlled entities eliminated Equity Interest % 28 Feb 2018 28 Feb 2017 100% 100% 100% 100% 100% 100% 96% 100% 100% 50% 100% 100% 100% 100% 100% 96% 100% 100% Investment $'000 28 Feb 2018 1,380 28 Feb 2017 - - - - - - - - - - - - - - - - - 1,830 3,210 1,830 1,830 (3,210) (1,830) 1 Formerl y di s cl os ed a s a n a s s oci a te the a cqui s i ti on bei ng di s cl os ed i n the Bus i nes s Combi na ti ons Note 4. Principal activities: • Namcott Investments Pty Ltd, a subsidiary of Namoi Cotton, is the beneficial owner of the interests in CPL and COA Partnership. Namoi Oilseeds Trust formerly held the interest in the partnership. • Namoi Cotton Superannuation Pty Ltd is trustee of the company’s former superannuation fund, which was wound up in June 2000. • Namoi Cotton Pty Ltd is a non-trading company. • Namcott Marketing Pty Ltd, a subsidiary of Namoi Cotton, is the beneficial owner of the interests in NCPS shares and NCA Partnership. • Namoi Cotton Finance Pty Ltd secures funding for the group. • Namoi Cotton Commodities Pty Ltd has main trading activities of sale and logistics of plastic waste from ginning activities. • Cotton Trading Corporation Pty Limited is controlled by Namcott Investments Pty Ltd. • Australian Raw Cotton Marketing Corp Pty Ltd is a non-trading company. • Australian Classing Services Pty Ltd trading activities are mainly the provision of classing services. Transactions with subsidiaries Transactions between members of the wholly owned group were minimal. Amounts receivable by and payable to the parent entity are included in the respective notes to this financial report. Transactions with other related parties Sales of white cotton seed to the COA Partnership were $33,007,226 (2017: $19,454,562) and purchases of white cotton seed from the COA Partnership were $2,205,890 (2017: $nil). Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Transactions with NCA Management fees received by Namoi for services provided to Namoi Cotton Alliance $3.3m (inclusive of bale handling fees) (2017: $2.5m). Lint Cotton Sales from Namoi to Namoi Cotton Alliance $321.2m (2017: $239.9m). Insurance on-charged by Namoi to Namoi Cotton Alliance $0.6m (2017: $0.4m). Contingent liabilities Namcott Investments Pty Ltd, a controlled entity of the company, is a partner of the COA, Namcott Investments Pty Ltd is jointly and severally liable for the COA liabilities. At 28 February 2018 the liabilities of COA exceeded its assets and therefore has contributed to a negative investment in COA. Refer to Note 11. Investments in Associates and Joint Ventures. 26. Directors’ and Executive Disclosure Compensation by category of KMP Short-term Post Employment Other Long-term Consolidated 28 Feb 2018 $ 28 Feb 2017 $ Parent 28 Feb 2018 $ 28 Feb 2017 $ 2,187,891 1,808,592 2,187,891 1,808,592 152,293 2,955 2,286,719 1,963,840 2,286,719 1,963,840 152,293 2,955 77,523 21,305 77,523 21,305 Marketing and ginning transactions and balances with KMP Transactions with directors and their related parties were in accordance with the rules of the co-operative, under terms and conditions applicable to all members and the Constitution of Namoi Cotton Limited. Under the rules of the co-operative, grower directors were required to conduct a minimum of 20% of their total cotton business with Namoi Cotton. In accordance with that rule, directors entered into marketing contracts and ginning contracts with Namoi Cotton. Amounts paid/received or payable/receivable from/to directors and their respective related parties were as follows: Cotton Purchases 28 Feb 2018 $ 11,722,426 28 Feb 2017 $ 6,670,706 Consolidated and Parent entity Ginning Charges Levied Grain & Seed Purchases 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 $ 2,255,400 $ 1,418,504 $ 2,366,395 $ 1,813,907 The nature of the terms and conditions of the above other transactions with directors and director related entities are consistent with the terms of Namoi Cotton’s standard products. ACS leased HVI machines from the parent during the period for $35,906 (2017: $35,906). Refer to the Remuneration Report within the Directors’ Report for more information. Year Ended 28 February 2018 Notes to the Financial Statements Page 72 Year Ended 28 February 2018 Notes to the Financial Statements Page 73 2018 ANNUAL REPORT | 87 Risk Exposure and Responses Price risk sale contracts. Financial Assets Derivatives Financial Liabilities Derivatives Net Exposure Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 8,407 8,407 14,221 14,221 8,407 8,407 14,221 14,221 (8,393) (8,393) (14,141) (14,141) (8,393) (8,393) (14,141) (14,141) 14 80 14 80 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) 27. Remuneration of Auditors Consolidated and Parent Entity 28 Feb 2018 28 Feb 2017 Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each derivative financial instrument are disclosed in note 1e to the financial statements. Remuneration for the audit and review of the financial reports of the parent entity and the consolidated entity 222,100 173,900 Namoi Cotton is potentially exposed to movements in the price of lint cotton as a result of fixed price purchases and sales of lint cotton respectively in contracts with growers and mills principally through its investment in the NCA JV. The company is also exposed to movements to price of cotton seed through fixed price purchases and Remuneration for other services provided to the parent entity and the consolidated entity: - Other assurance services 28. Financial Risk Management Objectives and Policies 191,500 27,000 413,600 200,900 Cotton seed price risk is managed principally through imposition of physical trading limits. It is a risk management requirement to utilise foreign currency derivatives to minimise the impact of USD/AUD fluctuations on fixed price sales contracts. It is the risk management policy that no derivatives will be entered into until such time as a fixed price purchase or sale commitment exists. Lint cotton, cotton seed and grains commodities price risk; The nature of Namoi Cotton’s business involves the potential exposure to a number of major financial and non- financial risks. The major financial market business risks exposed to by Namoi or later by the NCA joint venture are: • • Cotton basis risk; • Cotton spread risk; • • • Credit risk; • Foreign exchange risk; Interest rate risk; Funding and liquidity risk. Accordingly, Namoi Cotton conducts its business with a focus on risk management in order to ensure the alignment of returns achieved from its business activities for stakeholders with the risk capital applied to fund these activities. The key elements of Namoi Cotton’s risk management policy that facilitate the management of these risks include various derivative financial instruments, physical risk position limits and techniques and Value at Risk modelling. Namoi Cotton is exposed to price risks through entering commodity purchase and sale transactions. To limit potential impacts upon the trading margin achieved on those transactions Namoi Cotton and later NCA enters into derivative transactions, including principally cotton futures and options contracts and forward currency contracts. Where derivatives instruments do not exist for a particular commodity the risk management policy sets physical limits over trading positions. Forward rate agreements and interest rate swaps are entered into to manage interest rate risks that exist in Namoi Cotton’s financing activities. The MFRMC ensures the effective management of each of these risks through the implementation and adherence to a risk management policy. The risk management policy of Namoi Cotton requires all risk to be managed at a crop (i.e. season) level. The key extracts from the risk management policy for managing Namoi Cotton’s major financial market business risks are summarised below. Year Ended 28 February 2018 Notes to the Financial Statements Page 74 Year Ended 28 February 2018 Notes to the Financial Statements Page 75 2018 ANNUAL REPORT | 88 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each derivative financial instrument are disclosed in note 1e to the financial statements. Risk Exposure and Responses Price risk Namoi Cotton is potentially exposed to movements in the price of lint cotton as a result of fixed price purchases and sales of lint cotton respectively in contracts with growers and mills principally through its investment in the NCA JV. The company is also exposed to movements to price of cotton seed through fixed price purchases and sale contracts. Cotton seed price risk is managed principally through imposition of physical trading limits. It is a risk management requirement to utilise foreign currency derivatives to minimise the impact of USD/AUD fluctuations on fixed price sales contracts. It is the risk management policy that no derivatives will be entered into until such time as a fixed price purchase or sale commitment exists. Financial Assets Derivatives Financial Liabilities Derivatives Net Exposure Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 8,407 8,407 14,221 14,221 8,407 8,407 14,221 14,221 (8,393) (8,393) (14,141) (14,141) (8,393) (8,393) (14,141) (14,141) 14 80 14 80 27. Remuneration of Auditors Remuneration for the audit and review of the financial reports of the parent entity and the consolidated entity 222,100 173,900 Remuneration for other services provided to the parent entity and the consolidated entity: - Other assurance services Consolidated and Parent Entity 28 Feb 2018 28 Feb 2017 191,500 27,000 413,600 200,900 28. Financial Risk Management Objectives and Policies The nature of Namoi Cotton’s business involves the potential exposure to a number of major financial and non- financial risks. The major financial market business risks exposed to by Namoi or later by the NCA joint venture Lint cotton, cotton seed and grains commodities price risk; are: • • • • • Cotton basis risk; • Cotton spread risk; Foreign exchange risk; Interest rate risk; • Credit risk; Funding and liquidity risk. Accordingly, Namoi Cotton conducts its business with a focus on risk management in order to ensure the alignment of returns achieved from its business activities for stakeholders with the risk capital applied to fund these activities. The key elements of Namoi Cotton’s risk management policy that facilitate the management of these risks include various derivative financial instruments, physical risk position limits and techniques and Value at Risk modelling. Namoi Cotton is exposed to price risks through entering commodity purchase and sale transactions. To limit potential impacts upon the trading margin achieved on those transactions Namoi Cotton and later NCA enters into derivative transactions, including principally cotton futures and options contracts and forward currency contracts. Where derivatives instruments do not exist for a particular commodity the risk management policy sets physical limits over trading positions. Forward rate agreements and interest rate swaps are entered into to manage interest rate risks that exist in Namoi Cotton’s financing activities. The MFRMC ensures the effective management of each of these risks through the implementation and adherence to a risk management policy. The risk management policy of Namoi Cotton requires all risk to be managed at a crop (i.e. season) level. The key extracts from the risk management policy for managing Namoi Cotton’s major financial market business risks are summarised below. Year Ended 28 February 2018 Notes to the Financial Statements Page 74 Year Ended 28 February 2018 Notes to the Financial Statements Page 75 2018 ANNUAL REPORT | 89 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Cotton seed price risk Cotton seed price risk potentially arises when Namoi Cotton enters into a forward commitment to purchase or sell physical cotton seed without simultaneously entering into the opposing transaction. Namoi Cotton managed cotton seed price risk by adhering to physical limits in respect of its cotton seed open positions. The following sensitivity analysis is based upon seed pricing that existed at 28 February 2018 and 28 February 2017, whereby if the cotton seed price had moved, as illustrated in the table below, with all other variables held constant, post-tax profit and equity (excluding the effect of net profit) would have changed as follows: Consolidated +$10/Mt (cotton seed) -$5/Mt (cotton seed) Parent entity +$10/Mt (cotton seed) -$5/Mt (cotton seed) Post Tax Profit Higher/(Lower) $'000 Equity Higher/(Lower) $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 (234) 117 (234) 117 51 (25) 51 (25) - - - - - - - - Consolidated +100 basis points -50 basis points Parent entity +100 basis points -50 basis points Interest rate risk At reporting date, the group had the following financial assets and liabilities exposed to Australian variable interest rate risk. Financial Assets Cash and cash equivalents Trade and other receivables Financial Liabilities Interest bearing loans and borrowings Derivatives Net Exposure Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 1,493 65 1,558 2,176 349 2,525 1,352 65 1,417 2,055 349 2,404 (50,002) (52) (50,054) (59,840) - (59,840) (50,002) (52) (50,054) (59,840) - (59,840) (48,496) (57,315) (48,637) (57,436) Interest rate swap contracts, with a fair value loss of $51,780 (2017 $nil) at reporting date to both the group and parent, are exposed to value movements if interest rates change. At reporting date, after taking into account the effect of interest rate swaps, 41.7% (2017: nil%) of the group’s borrowings are at a fixed rate of interest 2.1% (2017: nil%). The group continually monitors its interest rate exposure with regard to existing and forecast working capital and term debt requirements. The following sensitivity analysis is based upon interest rate exposures that existed at 28 February 2018 and 28 February 2017, whereby if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity (excluding the effect of net profit) would have changed as follows: Post Tax Profit Higher/(Lower) $'000 Higher/(Lower) Equity $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 (280) 140 (280) 140 (576) 288 (576) 288 - - - - - - - - The movements in post-tax profit and equity are due to higher/lower finance costs from variable rate debt offset by fixed rate derivatives and interest bearing financial assets. Sensitivity analysis was performed by applying a 100-basis point movement in interest rates to all non-fixed interest-bearing assets and liabilities at reporting date. As a result of recent global market volatility, 100 basis points has been utilised in the absence of reliable data predicting reasonably possible movements of interest rates. Year end balances are not reflective of interest bearing assets and liabilities throughout the year, due to the seasonal nature of the business. Foreign exchange risk Namoi Cotton has transactional currency exposures predominantly arising from some cotton seed sales being denominated in United States dollars (USD) as opposed to the group’s functional Australian dollar (AUD) currency, which denominates all payments to growers. Potentially foreign currency denominated financial assets and liabilities may be adversely affected by a change in the value of foreign exchange rates. Namoi Cotton requires all net foreign exchange exposures to be managed with either forward currency contracts or foreign exchange options contracts. The group’s policy is to enter into forward exchange contracts at the time it enters into a firm purchase commitment for lint cotton (through NCA) or a US dollar cotton seed sale commitment. Year Ended 28 February 2018 Notes to the Financial Statements Page 76 Year Ended 28 February 2018 Notes to the Financial Statements Page 77 2018 ANNUAL REPORT | 90 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Cotton seed price risk Cotton seed price risk potentially arises when Namoi Cotton enters into a forward commitment to purchase or sell physical cotton seed without simultaneously entering into the opposing transaction. Namoi Cotton managed cotton seed price risk by adhering to physical limits in respect of its cotton seed open positions. The following sensitivity analysis is based upon seed pricing that existed at 28 February 2018 and 28 February 2017, whereby if the cotton seed price had moved, as illustrated in the table below, with all other variables held constant, post-tax profit and equity (excluding the effect of net profit) would have changed as follows: At reporting date, the group had the following financial assets and liabilities exposed to Australian variable Consolidated +$10/Mt (cotton seed) -$5/Mt (cotton seed) Parent entity +$10/Mt (cotton seed) -$5/Mt (cotton seed) Interest rate risk interest rate risk. Financial Assets Cash and cash equivalents Trade and other receivables Financial Liabilities Interest bearing loans and borrowings Derivatives Net Exposure Post Tax Profit Higher/(Lower) $'000 Higher/(Lower) Equity $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 (234) 117 (234) 117 51 (25) 51 (25) - - - - - - - - Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 1,493 65 1,558 2,176 349 2,525 1,352 65 1,417 2,055 349 2,404 (50,002) (59,840) (50,002) (59,840) (52) - (52) - (50,054) (59,840) (50,054) (59,840) (48,496) (57,315) (48,637) (57,436) Interest rate swap contracts, with a fair value loss of $51,780 (2017 $nil) at reporting date to both the group and parent, are exposed to value movements if interest rates change. At reporting date, after taking into account the effect of interest rate swaps, 41.7% (2017: nil%) of the group’s borrowings are at a fixed rate of interest 2.1% (2017: nil%). The group continually monitors its interest rate exposure with regard to existing and forecast working capital and term debt requirements. The following sensitivity analysis is based upon interest rate exposures that existed at 28 February 2018 and 28 February 2017, whereby if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity (excluding the effect of net profit) would have changed as follows: Consolidated +100 basis points -50 basis points Parent entity +100 basis points -50 basis points Post Tax Profit Higher/(Lower) $'000 Equity Higher/(Lower) $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 (280) 140 (280) 140 (576) 288 (576) 288 - - - - - - - - The movements in post-tax profit and equity are due to higher/lower finance costs from variable rate debt offset by fixed rate derivatives and interest bearing financial assets. Sensitivity analysis was performed by applying a 100-basis point movement in interest rates to all non-fixed interest-bearing assets and liabilities at reporting date. As a result of recent global market volatility, 100 basis points has been utilised in the absence of reliable data predicting reasonably possible movements of interest rates. Year end balances are not reflective of interest bearing assets and liabilities throughout the year, due to the seasonal nature of the business. Foreign exchange risk Namoi Cotton has transactional currency exposures predominantly arising from some cotton seed sales being denominated in United States dollars (USD) as opposed to the group’s functional Australian dollar (AUD) currency, which denominates all payments to growers. Potentially foreign currency denominated financial assets and liabilities may be adversely affected by a change in the value of foreign exchange rates. Namoi Cotton requires all net foreign exchange exposures to be managed with either forward currency contracts or foreign exchange options contracts. The group’s policy is to enter into forward exchange contracts at the time it enters into a firm purchase commitment for lint cotton (through NCA) or a US dollar cotton seed sale commitment. Year Ended 28 February 2018 Notes to the Financial Statements Page 76 Year Ended 28 February 2018 Notes to the Financial Statements Page 77 2018 ANNUAL REPORT | 91 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) At reporting date, the group had the following exposure to USD foreign currency that is not designated as cash flow hedges: Financial Assets Cash and cash equivalents Trade and other receivables Derivatives Financial Liabilities Trade and other payables Interest bearing loans and borrowings Derivatives Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 177 127 86 390 (14) (349) (111) (474) 464 659 444 1,567 (118) (379) - (497) 177 127 86 390 (14) (349) (111) (474) 464 659 444 1,567 (118) (379) - (497) Net Exposure (84) 1,070 (84) 1,070 The group has USD denominated leasing contracts of USD $272,392 (2017: USD $291,061) over certain ginning equipment supplied from the United States. Foreign exchange contracts that are subject to fair value movements through the statement of comprehensive income as foreign exchange rates move. Notional Amount AUD $'000 Average Exchange Rate 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 rates. Credit risk Foreign exchange contracts held at balance date Group Sell US$/Buy AUD$ maturity 0-12 months Buy US$/Sell AUD$ maturity 0-12 months Parent Sell US$/Buy AUD$ maturity 0-12 months Buy US$/Sell AUD$ maturity 0-12 months 5,838 (3,335) 24,878 (7,925) 0.7794 0.7796 0.7658 0.7670 5,838 (3,335) 24,878 (7,925) 0.7794 0.7796 0.7658 0.7670 Priced cotton seed sales contracts are treated as financial instruments under AASB 139. The following sensitivity analysis is based upon foreign currency exposures that existed at 28 February 2018 and 28 February 2017, whereby if the AUD had moved (relative to the USD), as illustrated in the table below, with all other variables held constant, post tax profit and equity (excluding the effect of net profit) would have changed as follows: Consolidated AUD/USD +100 basis points AUD/USD -50 basis points Parent entity AUD/USD +100 basis points AUD/USD -50 basis points Post Tax Profit Higher/(Lower) $'000 Higher/(Lower) Equity $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 (42) 21 (42) 21 (34) 17 (34) 17 - - - - - - - - The sensitivity results in the table are considered immaterial to the group. It is the group’s risk management policy to maintain foreign exchange contracts to a 95% to 105% band relative to exposures. Management believe the reporting date risk exposures are representative of the risk exposure inherent in the financial instruments. Sensitivity analysis was performed by taking the USD foreign exchange rate as at balance date, moving this rate by 100 basis points and then converting all USD denominated assets and liabilities. This calculation reflects the translation methodology undertaken by the group. As a result of recent global market volatility, 100 basis points has been utilised in the absence of reliable data predicting reasonably possible movements in foreign exchange Namoi Cotton and later NCA exports the majority of lint cotton and some cotton seed to international counterparties. These export sales are concluded under contract and the potential risk exists for a counterparty to default on its contractual obligations and expose Namoi Cotton (seed) or NCA (lint cotton) to a financial loss. Trade receivables outstanding from international counterparties are settled through high-ranking credit instruments such as irrevocable letters of credit and cash against documents. In respect of its cotton seed and grain commodity sales to major domestic counterparties, Namoi Cotton has trade credit indemnity insurance policies for non-related parties. The group is normally entitled to recover loans to growers and deferred costs through an offset to lint cotton, seed proceeds and other credits to a growers account. Where a formal finance facility has been established, the exposures are typically covered by crop mortgage and in some cases by real estate mortgages and/or guarantee. In addition, trade debtor balances are monitored frequently, minimising Namoi Cotton’s exposure to bad debts. Namoi Cotton’s maximum exposure to credit risk at balance date in relation to each class of recognised financial asset is the carrying amount of these assets as indicated in the balance sheet less relevant trade credit insurance recoverable. The group utilises only recognised and creditworthy third parties in respect to derivative transactions. These parties are regularly reviewed by the Board. Year Ended 28 February 2018 Notes to the Financial Statements Page 78 Year Ended 28 February 2018 Notes to the Financial Statements Page 79 2018 ANNUAL REPORT | 92 Financial Assets Cash and cash equivalents Trade and other receivables Derivatives Financial Liabilities Trade and other payables Interest bearing loans and borrowings Derivatives Net Exposure Consolidated $'000 Parent $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 177 127 86 390 (14) (349) (111) (474) 464 659 444 1,567 (118) (379) - (497) 177 127 86 390 (14) (349) (111) (474) 464 659 444 1,567 (118) (379) - (497) (84) 1,070 (84) 1,070 The group has USD denominated leasing contracts of USD $272,392 (2017: USD $291,061) over certain ginning equipment supplied from the United States. Foreign exchange contracts that are subject to fair value movements through the statement of comprehensive income as foreign exchange rates move. Notional Amount Average Exchange AUD $'000 Rate 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 Foreign exchange contracts held at balance date Group Parent Sell US$/Buy AUD$ maturity 0-12 months Buy US$/Sell AUD$ maturity 0-12 months 5,838 (3,335) 24,878 (7,925) 0.7794 0.7796 0.7658 0.7670 Sell US$/Buy AUD$ maturity 0-12 months Buy US$/Sell AUD$ maturity 0-12 months 5,838 (3,335) 24,878 (7,925) 0.7794 0.7796 0.7658 0.7670 Priced cotton seed sales contracts are treated as financial instruments under AASB 139. Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) At reporting date, the group had the following exposure to USD foreign currency that is not designated as cash flow hedges: The following sensitivity analysis is based upon foreign currency exposures that existed at 28 February 2018 and 28 February 2017, whereby if the AUD had moved (relative to the USD), as illustrated in the table below, with all other variables held constant, post tax profit and equity (excluding the effect of net profit) would have changed as follows: Consolidated AUD/USD +100 basis points AUD/USD -50 basis points Parent entity AUD/USD +100 basis points AUD/USD -50 basis points Post Tax Profit Higher/(Lower) $'000 Equity Higher/(Lower) $'000 28 Feb 2018 28 Feb 2017 28 Feb 2018 28 Feb 2017 (42) 21 (42) 21 (34) 17 (34) 17 - - - - - - - - The sensitivity results in the table are considered immaterial to the group. It is the group’s risk management policy to maintain foreign exchange contracts to a 95% to 105% band relative to exposures. Management believe the reporting date risk exposures are representative of the risk exposure inherent in the financial instruments. Sensitivity analysis was performed by taking the USD foreign exchange rate as at balance date, moving this rate by 100 basis points and then converting all USD denominated assets and liabilities. This calculation reflects the translation methodology undertaken by the group. As a result of recent global market volatility, 100 basis points has been utilised in the absence of reliable data predicting reasonably possible movements in foreign exchange rates. Credit risk Namoi Cotton and later NCA exports the majority of lint cotton and some cotton seed to international counterparties. These export sales are concluded under contract and the potential risk exists for a counterparty to default on its contractual obligations and expose Namoi Cotton (seed) or NCA (lint cotton) to a financial loss. Trade receivables outstanding from international counterparties are settled through high-ranking credit instruments such as irrevocable letters of credit and cash against documents. In respect of its cotton seed and grain commodity sales to major domestic counterparties, Namoi Cotton has trade credit indemnity insurance policies for non-related parties. The group is normally entitled to recover loans to growers and deferred costs through an offset to lint cotton, seed proceeds and other credits to a growers account. Where a formal finance facility has been established, the exposures are typically covered by crop mortgage and in some cases by real estate mortgages and/or guarantee. In addition, trade debtor balances are monitored frequently, minimising Namoi Cotton’s exposure to bad debts. Namoi Cotton’s maximum exposure to credit risk at balance date in relation to each class of recognised financial asset is the carrying amount of these assets as indicated in the balance sheet less relevant trade credit insurance recoverable. The group utilises only recognised and creditworthy third parties in respect to derivative transactions. These parties are regularly reviewed by the Board. Year Ended 28 February 2018 Notes to the Financial Statements Page 78 Year Ended 28 February 2018 Notes to the Financial Statements Page 79 2018 ANNUAL REPORT | 93 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Funding and liquidity risk The group’s objective in managing liquidity is to maintain a balance between continuity of funding, competitive pricing and flexibility so as to ensure sufficient liquidity exists to meet all short, medium and long term financial obligations. This is achieved through the utilisation of working capital facilities, term debt and bank overdrafts. Year ended 28 February 2018 $'000 $'000 ≤6 Months 6-12 Months 1-5 Years $'000 >5 Years $'000 Total $'000 Consolidated Financial Assets Cash and cash equivalents Trade and other receivables Derivatives1 Financial Liabilities Trade and other payables Interest bearing loans and borrowings 2 Derivatives1 Co-operative grower member shares Net Exposure 1,493 3,900 5,550 10,943 - 24 2,942 2,966 (7,513) (237) - - - - - (6,437) (5,618) - (19,568) (8,625) (339) (2,938) - (3,514) (43,226) - - (43,226) (548) (43,226) Year ended 28 February 2017 $'000 $'000 ≤6 Months 6-12 Months 1-5 Years $'000 >5 Years $'000 Consolidated Financial Assets Cash and cash equivalents Trade and other receivables Derivatives1 Financial Liabilities Trade and other payables Interest bearing loans and borrowings 2 Derivatives1 Co-operative grower member shares 2,256 5,264 14,566 22,086 - 24 99 123 (8,244) (157) - - - - - (10,736) (9,192) - (28,172) (5,853) (4,949) - (10,959) (43,288) - - (43,288) Net Exposure (6,086) (10,836) (43,288) Year Ended 28 February 2018 Notes to the Financial Statements 2018 ANNUAL REPORT | 94 - - - - - - - - - - - - - - - (43) - (447) (490) (490) 1,493 3,924 8,492 13,909 (7,750) (50,002) (8,556) - (66,308) (52,399) Total $'000 2,256 5,288 14,665 22,209 (8,401) (59,920) (14,141) (447) (82,909) (60,700) Page 80 Year ended 28 February 2018 $'000 $'000 $'000 ≤6 Months 6-12 Months 1-5 Years >5 Years $'000 Total $'000 Net Exposure (3,486) (18,280) (43,226) - - (19,542) (21,246) (43,226) (2,049) (2,049) Year ended 28 February 2017 $'000 $'000 $'000 ≤6 Months 6-12 Months 1-5 Years >5 Years $'000 Total $'000 Parent Financial Assets Cash and cash equivalents Trade and other receivables Derivatives1 Financial Liabilities Trade and other payables Interest bearing loans and borrowings 2 Derivatives1 Co-operative grower member shares Parent Financial Assets Cash and cash equivalents Trade and other receivables Derivatives1 Financial Liabilities Trade and other payables Interest bearing loans and borrowings 2 Derivatives1 Co-operative grower member shares 1,352 9,154 5,550 16,056 - 24 2,942 2,966 (7,487) (17,969) (6,437) (5,618) (339) (2,938) (43,226) (2,049) 2,135 10,516 14,566 27,217 - 24 99 123 (8,242) (17,889) (10,736) (9,192) (5,853) (4,949) (43,288) (2,092) - - - - - - - - - - - - - - Net Exposure (953) (28,568) (43,288) - - (28,170) (28,691) (43,288) (447) (2,539) (2,539) (447) (102,688) (75,348) 1 Derivatives reflect the actual cashflow and are net settled. 2 In addition to the maturity profile of interest bearing loans and borrowings, there are actual cashflows in relation to interest for the 6-month period of $1.03 million (2017: $1.32 million), for the 6-12 month period of $0.90 million (2017: $1.09 million) and for the 1-5 year period $3.52 million (2017: $3.77 million). Namoi Cotton’s risk management policy in respect to funding and liquidity risk reflects actual and forecast seasonal borrowing requirements not exceeding 95% of the group’s total approved banking facilities. Namoi Cotton is unable at this time to provide guidance on individual components of liquidity for the financial year ended 28 February 2019 due to the cash flow components being contingent on forward crop commodity purchase and sale contracts. Year Ended 28 February 2018 Notes to the Financial Statements - - - - - - - - - - - - - 1,352 9,178 8,492 19,022 (25,456) (52,051) (8,556) - (86,063) (67,041) 2,135 10,540 14,665 27,340 (26,131) (61,969) (14,141) Page 81 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Funding and liquidity risk The group’s objective in managing liquidity is to maintain a balance between continuity of funding, competitive pricing and flexibility so as to ensure sufficient liquidity exists to meet all short, medium and long term financial obligations. This is achieved through the utilisation of working capital facilities, term debt and bank overdrafts. Year ended 28 February 2018 $'000 $'000 $'000 ≤6 Months 6-12 Months 1-5 Years >5 Years $'000 Total $'000 1,493 3,900 5,550 10,943 - 24 2,942 2,966 (7,513) (237) (6,437) (5,618) (339) (2,938) (43,226) - - (19,568) (3,514) (43,226) Consolidated Financial Assets Cash and cash equivalents Trade and other receivables Derivatives1 Financial Liabilities Trade and other payables Interest bearing loans and borrowings 2 Derivatives1 Co-operative grower member shares Consolidated Financial Assets Cash and cash equivalents Trade and other receivables Derivatives1 Financial Liabilities Trade and other payables Interest bearing loans and borrowings 2 Derivatives1 Co-operative grower member shares - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,493 3,924 8,492 13,909 (7,750) (50,002) (8,556) - (66,308) (52,399) 2,256 5,288 14,665 22,209 (8,401) (59,920) (14,141) (447) (82,909) (60,700) Net Exposure (8,625) (548) (43,226) Year ended 28 February 2017 $'000 $'000 $'000 ≤6 Months 6-12 Months 1-5 Years >5 Years $'000 Total $'000 2,256 5,264 14,566 22,086 - 24 99 123 (8,244) (157) (10,736) (9,192) (5,853) (4,949) (43,288) (43) Net Exposure (6,086) (10,836) (43,288) - - (28,172) (10,959) (43,288) (447) (490) (490) Year ended 28 February 2018 $'000 $'000 ≤6 Months 6-12 Months 1-5 Years $'000 >5 Years $'000 Total $'000 Parent Financial Assets Cash and cash equivalents Trade and other receivables Derivatives1 Financial Liabilities Trade and other payables Interest bearing loans and borrowings 2 Derivatives1 Co-operative grower member shares 1,352 9,154 5,550 16,056 - 24 2,942 2,966 (7,487) (17,969) (6,437) (5,618) (339) (2,938) - (19,542) - (21,246) - - - - - (43,226) - - (43,226) Net Exposure (3,486) (18,280) (43,226) - - - - - (2,049) - - (2,049) (2,049) 1,352 9,178 8,492 19,022 (25,456) (52,051) (8,556) - (86,063) (67,041) Year ended 28 February 2017 $'000 $'000 ≤6 Months 6-12 Months 1-5 Years $'000 >5 Years $'000 Total $'000 Parent Financial Assets Cash and cash equivalents Trade and other receivables Derivatives1 Financial Liabilities Trade and other payables Interest bearing loans and borrowings 2 Derivatives1 Co-operative grower member shares 2,135 10,516 14,566 27,217 - 24 99 123 (8,242) (17,889) - - - - - (10,736) (9,192) - (28,170) (5,853) (4,949) - (28,691) (43,288) - - (43,288) Net Exposure (953) (28,568) (43,288) - - - - - (2,092) - (447) (2,539) (2,539) 2,135 10,540 14,665 27,340 (26,131) (61,969) (14,141) (447) (102,688) (75,348) 1 Derivatives reflect the actual cashflow and are net settled. 2 In addition to the maturity profile of interest bearing loans and borrowings, there are actual cashflows in relation to interest for the 6-month period of $1.03 million (2017: $1.32 million), for the 6-12 month period of $0.90 million (2017: $1.09 million) and for the 1-5 year period $3.52 million (2017: $3.77 million). Namoi Cotton’s risk management policy in respect to funding and liquidity risk reflects actual and forecast seasonal borrowing requirements not exceeding 95% of the group’s total approved banking facilities. Namoi Cotton is unable at this time to provide guidance on individual components of liquidity for the financial year ended 28 February 2019 due to the cash flow components being contingent on forward crop commodity purchase and sale contracts. Year Ended 28 February 2018 Notes to the Financial Statements Page 80 Year Ended 28 February 2018 Notes to the Financial Statements Page 81 2018 ANNUAL REPORT | 95 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Fair value hierarchy The group uses various methods in estimating the fair value of a financial instrument. The methods comprise: in the table below: The fair value of the financial instruments as well as the methods used to estimate the fair value are summarised Level 1 The fair value is calculated using quoted prices in active markets. Quoted market price represents the fair value determined based on quoted prices on active markets as at the reporting date without any deduction for transaction costs. 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). For financial instruments not quoted in active markets, the group uses various valuation techniques that compare to other similar instruments for which market observable prices exist and also other relevant models used by market participants. These valuation techniques use both observable and unobservable market inputs. Level 3 The fair value is estimated using inputs for the asset or liability that are not based on observable market data. Application of fair value hierarchy to Namoi’s financial statements The carrying amounts of cash and cash equivalents, trade and other receivables, trade and other payables, and interest-bearing liabilities approximate their fair value. The fair value of Cotton Seed Contracts (Purchase and Sale) and Cotton Seed Inventory (at fair value less cost to sell) is determined with reference to an observable market, reports and adjustments for freight premiums and discounts which are unobservable. During the period there has not been a change in unobservable inputs (i.e. freight premiums, discounts and cost to sell), accordingly no gains or losses have been recognised as a result in changes of unobservable inputs during the year. (2017: nil). The nature of the market used to determine the Cotton Seed Price is assessed as being illiquid given the low volume of transactions, accordingly the contracts are classified as level 3. The fair value of unlisted debt securities is based on valuation techniques using market data that is not observable. Year ended 28 February 2018 Consolidated Current assets Foreign exchange contracts Cotton seed sale contracts Current liabilities Foreign exchange contracts Interest rate swap contracts Cotton seed purchase contracts Year ended 28 February 2017 Consolidated Current assets Foreign exchange contracts Cotton seed purchase contracts Current liabilities Cotton seed sale contracts Level 1 Quoted market prices $'000 Level 2 Market observable Level 3 Non-market observable inputs $'000 inputs $'000 Total $'000 86 - 86 (111) (52) - (163) 8,407 8,407 - - - (8,393) (8,393) 86 8,407 8,493 (111) (52) (8,393) (8,556) Level 1 Quoted market prices $'000 Level 2 Market observable Level 3 Non-market observable inputs $'000 inputs $'000 Total $'000 444 444 - - - - 14,221 14,221 444 14,221 14,665 (14,141) (14,141) (14,141) (14,141) - - - - - - - - - - - - Year Ended 28 February 2018 Notes to the Financial Statements Page 82 Year Ended 28 February 2018 Notes to the Financial Statements Page 83 2018 ANNUAL REPORT | 96 Fair value hierarchy Level 1 transaction costs. Level 2 The fair value is calculated using quoted prices in active markets. Quoted market price represents the fair value determined based on quoted prices on active markets as at the reporting date without any deduction for 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). For financial instruments not quoted in active markets, the group uses various valuation techniques that compare to other similar instruments for which market observable prices exist and also other relevant models used by market participants. These valuation techniques use both observable and unobservable market inputs. Level 3 The fair value is estimated using inputs for the asset or liability that are not based on observable market data. Application of fair value hierarchy to Namoi’s financial statements The carrying amounts of cash and cash equivalents, trade and other receivables, trade and other payables, and interest-bearing liabilities approximate their fair value. The fair value of Cotton Seed Contracts (Purchase and Sale) and Cotton Seed Inventory (at fair value less cost to sell) is determined with reference to an observable market, reports and adjustments for freight premiums and discounts which are unobservable. During the period there has not been a change in unobservable inputs (i.e. freight premiums, discounts and cost to sell), accordingly no gains or losses have been recognised as a result in changes of unobservable inputs during the year. (2017: nil). The nature of the market used to determine the Cotton Seed Price is assessed as being illiquid given the low volume of transactions, accordingly the contracts are classified as level 3. observable. The fair value of unlisted debt securities is based on valuation techniques using market data that is not Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) The group uses various methods in estimating the fair value of a financial instrument. The methods comprise: The fair value of the financial instruments as well as the methods used to estimate the fair value are summarised in the table below: Year ended 28 February 2018 Consolidated Current assets Foreign exchange contracts Cotton seed sale contracts Current liabilities Foreign exchange contracts Interest rate swap contracts Cotton seed purchase contracts Year ended 28 February 2017 Consolidated Current assets Foreign exchange contracts Cotton seed purchase contracts Current liabilities Cotton seed sale contracts Level 1 Quoted market prices $'000 Level 2 Market observable inputs $'000 Level 3 Non-market observable inputs $'000 Total $'000 - - - - - - - - - - - - 86 - 86 (111) (52) - (163) - 8,407 8,407 - - (8,393) (8,393) 86 8,407 8,493 (111) (52) (8,393) (8,556) Level 2 Market observable inputs $'000 Level 3 Non-market observable inputs $'000 Total $'000 444 - 444 - - - 14,221 14,221 444 14,221 14,665 (14,141) (14,141) (14,141) (14,141) Level 1 Quoted market prices $'000 Year Ended 28 February 2018 Notes to the Financial Statements Page 82 Year Ended 28 February 2018 Notes to the Financial Statements Page 83 2018 ANNUAL REPORT | 97 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Year ended 28 February 2018 Parent Current assets Foreign exchange contracts Cotton seed sale contracts Current liabilities Foreign exchange contracts Interest rate swap contracts Cotton seed purchase contracts Year ended 28 February 2017 Parent Current assets Foreign exchange contracts Cotton seed purchase contracts Current liabilities Cotton seed sale contracts Level 1 Quoted market prices $'000 Level 2 Market observable inputs $'000 Level 3 Non-market observable inputs $'000 Total $'000 - - - - - - - - - - - - 86 - 86 (111) (52) - (163) - 8,407 8,407 - - (8,393) (8,393) 86 8,407 8,493 (111) (52) (8,393) (8,556) Level 2 Market observable inputs $'000 Level 3 Non-market observable inputs $'000 Total $'000 444 - 444 - - - 14,221 14,221 444 14,221 14,665 (14,141) (14,141) (14,141) (14,141) Level 1 Quoted market prices $'000 Year Ended 28 February 2018 Notes to the Financial Statements Page 84 2018 ANNUAL REPORT | 98 Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Namoi Cotton Limited (formerly Namoi Cotton Co-operative Ltd) Year ended 28 February 2018 Parent Current assets Foreign exchange contracts Cotton seed sale contracts Current liabilities Foreign exchange contracts Interest rate swap contracts Cotton seed purchase contracts Year ended 28 February 2017 Parent Current assets Foreign exchange contracts Cotton seed purchase contracts Current liabilities Cotton seed sale contracts Level 1 Quoted market prices $'000 Level 2 Market observable Level 3 Non-market observable inputs $'000 inputs $'000 Total $'000 86 - 86 (111) (52) - (163) 8,407 8,407 - - - (8,393) (8,393) 86 8,407 8,493 (111) (52) (8,393) (8,556) Level 1 Quoted market prices $'000 Level 2 Market observable Level 3 Non-market observable inputs $'000 inputs $'000 Total $'000 444 444 - - - - 14,221 14,221 444 14,221 14,665 (14,141) (14,141) (14,141) (14,141) - - - - - - - - - - - - 29. Other Non-Financial Information Namoi Cotton Limited ABN 76 010 485 588 AFSL 267863 Registered Office Pilliga Road Wee Waa NSW 2388 Principal place of business Pilliga Road Wee Waa NSW 2388 Phone: Facsimile: 61 2 6790 3000 61 2 6790 3087 Share Register Computershare Investor Services Pty Ltd GPO Box 7045 Sydney NSW 1115 Investor Inquiries: 1300 855 080 Bankers Commonwealth Bank of Australia Auditors Ernst & Young Brisbane, Australia Year Ended 28 February 2018 Notes to the Financial Statements Page 84 Year Ended 28 February 2018 Notes to the Financial Statements Page 85 2018 ANNUAL REPORT | 99 ASX ADD ITION AL IN FO RMATION FOR T HE YE A R E ND ED 28 F EBRUARY 2018 Additional information required by the Australian Stock Exchange. This information is current as at 1 June 2018. DIS TRIBUTIO N OF SHAREH OLDE R S 1 -1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total Number of holders 70 325 180 385 332 1,292 Number of Namoi Capital Stock 35,053 988,723 1,478,968 14,232,075 121,662,210 138,397,029 % 0.03 0.71 1.07 10.28 87.91 100.00 TOP 2 0 SHAREHO LDERS Rank Name Number of Namoi Capital Stock 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. LOUIS DREYFUS COMMODITIES ASIA PTE LTD AUSTRALIAN RURAL CAPITAL LIMITED NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED JVH COTTON PTY LIMITED BRAZIL FARMING PTY LTD MR ROSS ALEXANDER MACPHERSON MR MARK JOSEPH PANIZZA + MRS SUSAN KATHLEEN PANIZZA ‹SUMA SUPER FUND A/C› MR ALBERT JOHN PANIZZA + MS KIM DIANNA BROADFOOT ‹ALKIRA SUPER FUND A/C› MRS FRANCES CLAIRE FOX ‹THOMAS J BERESFORD WILL A/C› BELFORT INVESTMENT ADVISORS LIMITED GRANTULLY INVESTMENTS PTY LIMITED BRUCE CLYDE BAILEY + JANET BEATRICE SHAFIK BAILEY DUDDY MANAGEMENT PTY LTD AVENUE 8 PTY LIMITED ‹GAN SUPER FUND A/C› BOYCE FAMILY SUPERANNUATION FUND PTY LIMITED ‹BOYCE FAMILY S/F A/C› HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED GIBBS FAMILY SUPER PTY LTD ‹MICHAEL GIBBS FAMILY S/F A/C› RATHVALE PTY LIMITED MR FRANKLIN C HADLEY 14,327,384 13,471,111 8,915,981 5,473,335 4,110,353 2,018,265 1,250,000 1,200,225 1,063,089 1,009,386 840,929 839,000 820,122 809,720 800,000 775,272 745,500 740,291 669,172 642,605 % held 10.35 9.73 6.44 3.95 2.97 1.46 0.90 0.87 0.77 0.73 0.61 0.61 0.59 0.59 0.58 0.56 0.54 0.53 0.48 0.46 Total 60,521,740 43.73 2018 ANNUAL REPORT | 100 RESTRICTED SECURITIES Namoi Cotton Employee Incentive Plan The Board of Namoi Cotton suspended the Namoi Cotton Employee Incentive Plan indefinitely from 28 August 2004. Namoi Capital Stock previously issued under the Plan is subject to a three year restriction period from the date of allotment (or until the interest free loan provided under the Plan to acquire the Namoi Capital Stock has been repaid in full). The Namoi Capital Stock has been converted to ordinary shares in this category with the ordinary shareholders with outstanding loans restricted from trading. There are 135,000 ordinary shares with employee loans of $24,411. The employee share loans are due and payable by 1 October 2018. The following Namoi Capital Stock was allotted pursuant to offers made under Employee Incentive Plan and quoted on the ASX. No. of Namoi Capital Stock allotted and issued Issue Price - $ Allotment Date 141,000 151,000 140,000 99,500 104,000 69,000 55,000 50,000 34,000 57,000 TOTAL 900,500 0.8000 0.7500 0.6700 0.5024 0.3700 0.2213 0.2480 0.2150 0.2906 0.3895 31 March 1998 31 December 1998 31 January 2000 6 December 2000 19 June 2001 End of restriction date* 31 March 2001 31 January 2001 31 January 2003 6 December 2003 19 June 2004 13 December 2001 13 December 2004 12 June 2002 4 December 2002 29 May 2003 18 June 2004 12 June 2005 4 December 2005 29 May 2006 18 June 2007 OTHER SHAREH OLDER INFORMAT ION Distribution - lodge your tax file number (TFN), Australian Business Number (ABN) or exemption You are strongly recommended to lodge your TFN, ABN or exemption with our Share Registry. If you choose not to provide these details to the Share Registry, then we are required to deduct tax at the highest marginal tax rate (plus the Medicare levy) from any distribution payment. To lodge your details, you should contact our Share Registry or download a form from the Computershare website at www.computershare.com.au (under investors/investorservices/downloadableforms). Change of Address Changes of address of shareholders or other key details should be notified to the Share Registry in writing without delay. Change of address and other forms can be downloaded from the Computershare website at www.computershare.com.au (under investors/investorservices/downloadableforms). Shareholdings, which are broker sponsored on the CHESS sub- register, should contact their broker without delay. Distribution Payments Dividend and distribution payments can be credited directly into any nominated bank, building society or credit union account in Australia. To request this service, you should contact our Share Registry or download a form from the Computershare website at www.computershare.com.au (under investors/investorservices/downloadableforms). 2018 ANNUAL REPORT | 101 MA JOR ASX ANN OUN CEMENTS FOR 2 01 7 - 20 1 8 Date ASX Releases Date ASX Releases 08/06/2018 Initial Director’s Interest Notice - James Andrew Jackson 10/10/2017 Change of Director’s Interest Notice - G Price 08/06/2018 Initial Director’s Interest Notice - Joseph Di Leo 10/10/2017 Change of Director’s Interest Notice - B Coulton 08/06/2018 Initial Director’s Interest Notice - Juanita Hamparsum 10/10/2017 Change of Director’s Interest Notice - S Boydell 07/06/2018 Non-Executive Director Appointment - 10/10/2017 Share Trading Policy Joseph Di Leo 07/06/2018 Non-Executive Director Appointment - Juanita Hamparsum 07/06/2018 Non- Executive Director Appointment - James Andrew Jackson 01/06/2018 Appendix 3B 01/05/2018 Appendix 3B 10/10/2017 Constitution 10/10/2017 AGM Results 10/10/2017 AGM Meeting 10/10/2017 Company Certificate 10/10/2017 Top 20 securityholders 10/10/2017 Appendix 3B 27/04/2018 Final Director’s Interest Notice 10/10/2017 Namoi Cotton Restructure Completed 27/04/2018 Final Director’s Interest Notice 24/04/2018 Director Appointment/Resignation 24/04/2018 Dividend/Distribution - NAM 24/04/2018 FY2018 Financial Results Release 24/04/2018 Full Year Statutory Accounts 05/04/2018 Change in substantial holding 04/04/2018 Change in substantial holding 04/04/2018 Appendix 3B 01/03/2018 Appendix 3B 02/02/2018 Appendix 3B 06/10/2017 Conversion of Namoi Capital Stock & Trading Ordinary Shares 05/10/2017 ASX Notice - Restructure 04/10/2017 Lodgement of Court Approval Co-ops Registrar 03/10/2017 Namoi Cotton Obtains Court Approval 27/09/2017 Namoi Cotton Investor Presentation 26/09/2017 Namoi Cotton Restructure Results 26/09/2017 Order of Meeting Slides 26/09/2017 Order of Meeting - Namoi Cotton Restructure 31/01/2018 Director Appointment/Resignation 16/08/2017 Proxy Forms 16/01/2018 Change in substantial holding from ARC 16/08/2017 Namoi Cotton Report on Affairs 04/01/2018 Appendix 3B 04/12/2017 Appendix 3B 06/11/2017 Change in substantial holding 03/11/2017 Capital Raising Update 02/11/2017 Change in substantial holding 02/11/2017 Change in substantial holding from ARC 01/11/2017 Appendix 3B 24/10/2017 Namoi Cotton Limited records strong half year results 24/10/2017 Half Yearly Report and Accounts 17/10/2017 Notice of Initial Substantial Holder - WCM 12/10/2017 Becoming a substantial holder from ARC 12/10/2017 Becoming a substantial holder Louis Dreyfus Company Asia 16/08/2017 Certified Namoi Cotton Final Report - 28 February 2017 16/08/2017 Proposed Constitution - Namoi Cotton Limited 16/08/2017 Implementation Deed 16/08/2017 Restructure Booklet 16/08/2017 Restructure Update & Booklet 28/07/2017 AGM Results 2017 28/07/2017 CEO AGM Presentation 28/07/2017 Chairman’s Address to Shareholders 14/07/2017 Letter to Grower Members - Update 12/07/2017 Business and Restructure Update 30/06/2017 Appendix 4G Corporate Governance 23/06/2017 Annual Report to shareholders 11/10/2017 Tax Ruling Namoi Cotton Capital Stock 23/06/2017 Notice of Annual General Meeting/Proxy 11/10/2017 Grower Member Tax Ruling 11/10/2017 Becoming a substantial holder 10/10/2017 Change of Director’s Interest Notice - T Watson 10/10/2017 Change of Director’s Interest Notice - M Boyce Form 22/06/2017 Investor Presentation June 2017 30/05/2017 Change of Director’s Interest Notice 17/05/2017 2017 AGM DETAILS 27/04/2017 FY2017 Media Release 27/04/2017 Full Year Statutory Accounts 22/02/2017 Market Update and Restructure Update 2018 ANNUAL REPORT | 102 DIRE CTORY OFFICES Wee Waa (Head Office) Pilliga Road Wee Waa NSW 2388 Telephone: 02 6790 3000 Fax: 02 6790 3087 Goondiwindi 139 Marshall St Goondiwindi QLD 4390 Telephone: 07 4671 6900 Fax: 07 4671 6999 Moree 49 Greenbah Rd Moree NSW 2400 Telephone: 02 6752 5599 Fax: 02 6752 5357 Trangie Trangie Gin Old Warren Road Trangie NSW 2823 Telephone: 02 6888 9611 Fax: 02 6888 9678 Toowoomba (Corporate Office) 1B Kitchener St Toowoomba QLD 4350 Telephone: 07 4631 6100 Fax: 07 4631 6184 GINS Ashley Cotton Gin Mungindi Road Ashley NSW 2400 Telephone: 02 6754 2150 Boggabri Cotton Gin Blairmore Road Boggabri NSW 2382 Telephone: 02 6743 4084 Hillston Cotton Gin Roto Road Hillston NSW 2675 Telephone: 02 6967 2951 Macintyre Cotton Gin Kildonan Road Goondiwindi QLD 4390 Telephone: 07 4671 2277 Merah North Cotton Gin Middle Route Merah North NSW 2385 Telephone: 02 6795 5124 Mungindi Cotton Gin Boomi Road Mungindi NSW 2406 Telephone: 02 6753 2145 North Bourke Cotton Gin Wanaaring Road North Bourke NSW 2840 Telephone: 02 6872 1453 Trangie Cotton Gin Old Warren Road Trangie NSW 2823 Telephone: 02 6888 9729 Yarraman Cotton Gin Burren Road Wee Waa NSW 2388 Telephone: 02 6795 5196 NAMOI COTTON ALLIANCE JOINT VENTURE Macintyre Warehouse Kildonan Road Goondiwindi QLD 4390 Telephone: 07 4671 1449 Warren Warehouse Red Hill, Warren NSW 2824 Telephone: 02 6847 3746 Wee Waa Warehouse Pilliga Road Wee Waa NSW 2388 Telephone: 02 6790 3139 Jakarta, Indonesia Jakarta Representative Office Gedung Manggala Wanabakti Blok IV, Lantai 5, Ruang no. 511 B Jln. Gatot Subroto, Senayan Jakarta 10270 Indonesia Telephone: 62 21 5790 2977 Fax: 62 21 5790 2945 JOINT VENTURE GINS Moomin Cotton Gin Moomin Ginning Co (Namoi Cotton/Harris Joint Venture) Merrywinebone Via Rowena NSW 2387 Telephone: 02 6796 5102 Wathagar Cotton Gin Wathagar Ginning Co (Namoi Cotton/ Sundown Pastoral Co Pty Ltd) Collarenebri Road Moree NSW 2400 Telephone: 02 6752 5200 CLASSING ROOMS Australian Classing Services Pilliga Road Wee Waa NSW 2388 Telephone: 02 6790 3053 Fax: 02 6790 3030 2018 ANNUAL REPORT | 103 REGISTE RED OFF ICE Registered Office Namoi Cotton Limited ABN 76 010 485 588 AFSL 267863 Pilliga Road Wee Waa NSW 2388 Australia Telephone: 61 2 6790 3000 Facsimile: 61 2 6790 3087 www.namoicotton.com.au Share Registry Computershare Investor Services Pty Ltd GPO Box 7045 Sydney NSW 1115 Investor inquiries: 1300 855 080 Facsimile: 61 2 8234 5050 Auditors Ernst & Young Key Bankers Commonwealth Bank of Australia Namoi Cotton’s Shareholding Limit and Grower Director Representation Rule The Constitution of Namoi Cotton contains provisions that limit a person’s shareholdings until at least Namoi Cotton’s 2021 AGM (and thereafter, subject to renewal). If a shareholder acquires ordinary shares in excess of the Shareholding Limit, all rights (including voting rights, dividend rights and rights in a winding up) in respect of the excess shares are suspended and the excess shares are subject to divestment. The shareholder must also refund a dividend or distribution to which the shareholder is not entitled to as a result of its holding of the excess shares. The Constitution of Namoi Cotton also contains provisions that require the Board to be comprised of an equal number of Grower Directors and Non-Grower Directors until at least Namoi Cotton’s 2022 AGM (and thereafter, subject to renewal). For a summary of these provisions please refer to Namoi Cotton’s website. The provisions can also be found in the Constitution. 2018 ANNUAL REPORT | 104 2018 ANNUAL REPORT | 106 

Continue reading text version or see original annual report in PDF format above