Nufarm Limited Annual Report 2000

FY2000 Annual Report · Nufarm Limited

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Nufarm Limited 2000 Annual Report

Nufarm Limited

ACN 091 323 312
103-105 Pipe Road Laverton North Victoria 3026 Australia
Telephone: 61 3 9282 1000 Facsimile: 61 3 9282 1001 Website: http://www.nufarm.com

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We care

Nufarm Limited manufactures and markets a wide range of quality crop protection,
industrial, fine and performance chemicals. Our mission is to meet the interests of
all stakeholders in a manner that shows we care • about the growth and success
of the business • about the wellbeing of our employees • about the environment
and the communities in which we operate • about our customers and suppliers
and • about the reputation and performance of our products and service.

Nufarm is

Nufarm Limited is an Australian-based
company with core capabilities in chemical
synthesis and marketing. Through a global
network of manufacturing and formulation
facilities, the company operates in two
key areas of business activity:

• crop protection; and
• industrial, fine and performance chemicals.

Nufarm employs more than 2,000 people at
its various locations in Australia, New Zealand,
Asia, Africa, Europe and North America.
Products manufactured and supplied by the
company are used to help farmers protect crops
from damage caused by weeds, insects and
disease, as well as in a variety of other
industries such as manufacturing,
pharmaceuticals and consumer products.

Nufarm has a primary listing on the
Australian Stock Exchange (symbol NUF).
Its head office is located in Melbourne.

Contents

Mission statement

Nufarm is

Proud history

Key events and comparative data

Managing Director and Chief Executive’s review

The board of directors

The global organisation

The global management team

Corporate governance

Business review

Crop protection

Industrial, fine and performance chemicals

Research and development and new technologies

Health, safety and environment

Measuring corporate performance

Directors’ report

Financial statements

Supplementary information

Shareholder and statutory information

Directory

IFC

Nufarm Limited

ACN 091 323 312
103-105 Pipe Road Laverton North Victoria 3026 Australia
Telephone: 61 3 9282 1000 Facsimile: 61 3 9282 1001

Website: http://www.nufarm.com

Cover: Nufarm has developed a strong capability in formulation
technology. Crop protection products formulated as water soluble
granules provide ease of use and safety benefits for farmers.

Nufarm encourages innovation in all aspects of its operations, and
is supported in this objective by a capable and committed group of
employees throughout the world.

NUFARM 2000 ANNUAL REPORT 1

Proud history in New Zealand,
an exciting future around the world

After more than 80 years of trading as a New Zealand-based company, the directors decided
during the 2000 financial year to relocate the head office of the group to Australia.
The migration was completed on 27 January 2000 and included a change in the company’s name
from Fernz Corporation Limited to Nufarm Limited. This name change reflects the strong, global
branding of Nufarm’s crop protection business and will be adopted progressively across all relevant
business subsidiaries.

Facts in brief

Trading results

Operating profit after tax

(12 months to 31 July)

Net profit attributable to members

of the parent entity

(14 months to 31 July 2000/

2000

$000

1999

$000

51,984

43,949

12 months to 31 May 1999)

52,834

54,493

Sales revenue

1,369,974

1,148,144

Ratios

Earnings per ordinary share
(weighted average, excluding
non-operating and extraordinary
items) for 12 months to
31 July 2000 and 12 months
to 31 July 1999

Operating profit after tax
(12 months to 31 July) to
average shareholders’ equity

Net tangible assets per
ordinary share

Distribution to shareholders

34.4

29.9

14.0%

13.2%

$1.81

$1.62

Dividend per ordinary share

17¢

14¢

Staff employed

2,215

2,137

The company was originally
incorporated and listed on the
New Zealand Stock Exchange
in 1916. It has a long and
proud history of trading,
particularly in the fertiliser
business which has been sold.

The trans-Tasman and later
international expansion began
with the initial investment in
Nufarm Limited in 1983.

The migration to Australia will
deliver important long-term
benefits to shareholders.
It recognises that the business
base of the company’s
operations is centred on
Australia and in other
international markets.
The move also provides access
to a larger capital market to
better support continued
growth of the company
and shareholder value.

Global sales growth

The company’s head office and
global management are based
now at Laverton in Melbourne’s
western suburbs, the site of
Nufarm’s largest
manufacturing facility.

In association with the
migration, the former Managing
Director of Fernz,
Kerry Hoggard, retired as Chief
Executive Officer (CEO) and was
appointed Chairman of Nufarm
Limited. Kerry contributed
43 years of dedicated service
to the company, the last 12
as CEO. Management, staff and
shareholders acknowledge the
major contribution made by
Kerry to the success and growth
of the company.

Douglas Rathbone, previously
Managing Director of Nufarm
Limited, was appointed Chief
Executive Officer. Doug has
been an executive director of
the company since 1987.

1,400

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2 NUFARM 2000 ANNUAL REPORT

Key events and comparative data

• Record operating profit of $51.98 million for 12 months

to 31 July 2000

• Total revenue increased 2.7 per cent on previous 12 months

• First full year contribution from Riverdale Chemical

Company (USA)

• Acquisition of Florigene Limited

• Migration of the company from New Zealand to Australia

• Primary listing on ASX

• Change of balance date to 31 July

• Completion of social plan in France

Earnings per share

Operating profit after tax

Capital funds ratio

Return on shareholders’ equity

cents

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NUFARM 2000 ANNUAL REPORT 3

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Nufarm is well positioned to maintain business growth and now has established international market
positions in most of the important geographical areas. We have excellent manufacturing facilities with good
synthesis and formulation capabilities and a wide product range. The experienced management team is well
coordinated and focussed and the opportunities from increased research and development should provide
important new products for the market.

Managing Director and
Chief Executive’s review

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An excellent result built on strong organic growth

The reporting period ended 31 July 2000 has produced a very good result for Nufarm in what has
been an eventful 14 months. The migration of the company from New Zealand to Australia was
completed in January 2000. At the same time, the company changed its name to Nufarm Limited
(formerly Fernz Corporation Limited) and achieved a primary listing on the Australian Stock Exchange.

On completion of the migration
of the company’s head office,
the balance date was changed
to 31 July to achieve a more
equal spread of profit between
the two halves of the full
year reporting period.
The company’s statutory
accounts included in this report
therefore reflect a 14 month
period compared to 12 months
in the previous period.

The reconciliation on page 6 has
been included so shareholders
can directly compare the trading
performance of the company in
the two 12 month periods ended
31 July. It also highlights the non-
operating gains achieved after-tax
in each of the periods and shows
the migration costs incurred as
an extraordinary item.

Shareholders are also directed to
the supplementary financial
information on pages 68 to 72,
which provides additional 12
month to 31 July comparisons.

Included in the net
non-operating gain in the
current period is the residual
profit on the sale of the
company’s construction
chemicals business.
This business was operating
very strongly but was non-core
to the Nufarm group and the
sale to the French-based Lafarge
Group was perceived to be at
the top of the business cycle.

The costs associated with
relocation of the United
States-based formulation
facilities from St Joseph to
Chicago and the write-off of
certain intangible assets relating
to various research projects,
including Pharma Pacific and
Biological Wool Harvesting, have
been deducted from this gain.
The Auckland-based
manufacturing facilities for
Pharma Pacific’s low dose
interferon product have also
been written off. In the previous
period, the majority of the gain
reflected the sale of the
company’s investment
in BOP Fertiliser Ltd.

The comments that follow
specifically relate to the trading
performance of the company
in the two 12 month periods
to 31 July and the statement
of financial position as
at 31 July 2000.

The tax paid operating profit
from trading in the 12 months
ended 31 July 2000 of
$51.98 million represents an
increase of 18.3 per cent on
the previous comparable
12 months and was achieved
on total revenue of
$1.268 billion
(up 2.7 per cent on the
previous 12 months).

Of the total group turnover in
the 2000 period, 55 per cent
was generated in Australasia,
20 per cent in North America,
and 25 per cent in Europe.
This reflects the fact that
Nufarm is now firmly
established as a global player
in the markets where
it operates.

NUFARM 2000 ANNUAL REPORT 5

Managing Director and
Chief Executive’s review continued

2000
$000

1999
$000

52,834
(14 months)

54,493
(12 months)

3,356
–
56,190
(5,075)
869

51,984

(3,356)
1,590
52,727
(12,939)
4,161

43,949

88,690
162,900

64,194
142,600

762,839
57,728
802,489

450,118
24,767
262,436

91
586
74,011

687,366
36,124
640,666

431,274
21,473
361,666

3,957
8,826
55,033

1,213,048
83,081
1,138,936

1,122,597
66,423
1,057,365

Group tax paid result as discussed in this annual report

Adjustment June-July 1999
Adjustment June-July 1998
12 month comparison 31 July years
Net non-operating profit after taxation
Extraordinary items after taxation

Net profit after taxation from trading in the 12 months ended 31 July

Statistics on the same 12 month comparisons

Net operating cash flows
Earnings before interest, tax, depreciation and amortisation (EBITDA)

Industry segments

Crop protection
Sales to outside customers
Operating profit
Value of assets employed
Chemicals
Sales to outside customers
Operating profit
Value of assets employed
Corporate
Sales to outside customers
Operating profit
Value of assets employed
Group
Sales to outside customers
Operating profit
Value of assets employed

6 NUFARM 2000 ANNUAL REPORT

Final dividend with full
franking credits

The directors have approved a
final dividend for the 2000
trading period of 11 cents per
share. This dividend, which will
carry full franking credits for the
benefit of Australian resident
shareholders, will be paid on
Friday 3 November 2000 to the
holders of all fully paid ordinary
shares in the company at the
close of business on Friday
20 October 2000.
It is anticipated that all
future dividends will carry
full franking credits for the
benefit of Australian
resident shareholders.

The company paid a dividend
of NZ 8 cents per share in
January 2000 just prior to
migration and the full year
dividend in the previous year
was NZ 18 cents per share.
Expressed in Australian dollars,
the 2000 full year dividend
is 21 per cent higher than
the dividend paid in the
previous period.

Share buy back part
of overall capital
management

At the time of the preliminary
announcement, the company
also advised the market of a
limited on-market share buy
back program. This program
may see the company purchase
up to five per cent of its issued
capital over a six month period,
ending in March 2001.

The company’s share price has
fluctuated since the migration to
Australia but – in the view of
directors – remains significantly
below the level which reflects
the value of the business and
the strong growth prospects for
Nufarm. The buy back initiative
is consistent with this view and
was implemented as part of
an overall capital
management program.

Major contribution by
management and staff

In association with the
migration to Australia, the
Melbourne-based global
management team was
increased to include Bob Ooms,
who will manage the industrial,
fine and performance chemicals
division. Bob brings significant
senior management experience
to the group in these areas.

Effective 1 October 2000,
Brian Benson joined the
company as Group General
Manager Marketing.

As in past years, the company’s
staff has made a major
contribution to the strong
results. Across all areas of the
business our staff has continued
to set high standards in every
aspect of our production, sales
and administration activities.
A number of employees have
taken advantage of the
opportunity to take up positions
in different geographic locations
and this will continue to
be encouraged.

The financial position of the
company strengthened in the
period and, post balance date,
has improved further from
the receipt of business sale
proceeds of $20 million
included in Receivables as
at 31 July 2000.

Operations outlook for
growth under global
management

A commentary on the various
operating divisions of the
company is included as a
separate section in this annual
report. In overall terms, the
period saw strong organic
growth across the key divisions
and business activities.

While the current trading period
should see further growth, any
improvement in earnings will
again be affected by losses
associated with the Fernz
SulFer Works project and
difficult climatic conditions in
parts of Australia (particularly
northern NSW and
Queensland), which will
constrain crop protection sales
in those regions.

The outlook in North America
and Europe is generally positive
for the crop protection business
and a continuation of growth
in the fine and performance
chemicals area will be achieved
as this division expands under a
global management focus.

The nature of Nufarm’s business
remains seasonal and, in spite
of the change of balance date,
the profit generated in the 2001
year is expected to be weighted
in the order of 30 per cent for
the first half and 70 per cent
in the second half.

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Excellent prospects
and confidence for
sustained growth

The company has reviewed
its medium and long-term
strategic direction and has
reaffirmed its objective to
continue the global expansion
of both its crop protection
and fine and performance
chemicals divisions.

Nufarm is well positioned to
maintain business growth and
now has established
international market positions
in most of the important
geographical areas. We have
excellent manufacturing
facilities with good synthesis
and formulation capabilities
and a wide product range.
The experienced management
team is well coordinated and
focussed and the opportunities
from increased research and
development should provide
important new products
for the market.

It is anticipated that an
additional reduction
in working capital employed
in the business can be
achieved in 2001.

The future prospects for the
company are excellent and
there is confidence that the
growth experienced in recent
years will be sustained.

DJ Rathbone

Managing Director
and Chief Executive

NUFARM 2000 ANNUAL REPORT 7

The board of directors

Following the company’s migration to Australia, Doug Curlewis and
Graeme McGregor joined the board in January 2000.

8 NUFARM 2000 ANNUAL REPORT

Kerry Hoggard
Chairman

Kerry Hoggard, 59, joined the board in 1987.
He has a financial background, beginning his career with the
company in 1957 as office junior and rising, through a
number of accounting, financial and commercial promotions
to be Chief Executive Officer in 1987. On his retirement in
October 1999, he was appointed Chairman of the board.

Doug Rathbone
Managing Director and Chief Executive

Doug Rathbone, 54, joined the board in 1987.
His background is chemical engineering and commerce and
he has worked for Nufarm Australia Limited for over 25 years.
Doug was appointed Managing Director of Nufarm Australia in
1982 and Managing Director of Nufarm Limited
in October 1999.

Doug Curlewis

Doug Curlewis, 59, joined the board in January 2000.
He has a Master of Business Administration and was formerly
Managing Director of National Consolidated Ltd.
He is also a director of Pacifica Group Ltd, Hamilton Island
Limited, National Foods Ltd, Remunerator Australia Pty Ltd
and IAMA Ltd.

Dr Bruce Goodfellow

Bruce Goodfellow, 48, joined the board, representing the
holders of the "C" shares, in 1991. Following the conversion
of the "C" shares into ordinary shares, he was elected a
director in 1999. He has a Doctorate in Chemical
Engineering and experience in the chemical trading business.
He is a director of Sulkem Co Ltd (Group) and
Refrigeration Engineering Co Ltd (Group).

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Graeme McGregor AO
Graeme McGregor, 61, joined the board in January 2000.
He is a Bachelor of Economics and was formerly an
Executive Director of The BHP Co Ltd. He is a director of
Foster’s Brewing Group Ltd, Santos Ltd and Were
Securities Ltd. Graeme is also on the board of Community
Foundation Network Ltd, is National Treasurer of the
Australian Institute of Company Directors and a member of
the Financial Reporting Council.

Sir Dryden Spring
Sir Dryden Spring, 60, joined the board in 1981.
He has a farming background and is Chairman of
Wel Energy Ltd and Ericsson Communications (NZ) Ltd,
and Deputy Chairman of Goodman Fielder Ltd. He is a
director of Fletcher Challenge Ltd, Maersk New Zealand
Ltd and The National Bank of New Zealand Ltd. Sir
Dryden is also on the New Zealand Advisory Board of
PA Consulting Group Ltd.

Dr John Stocker AO
Dr John Stocker, 55, joined the board in 1998.
He has a medical, scientific and management background
and was formerly Chief Scientist of the Commonwealth of
Australia. He is a Principal of Foursight Associates Pty Ltd
and Chairman of Sigma Company Ltd and the Grape and
Wine Research and Development Corporation. He is a
director of Telstra Corporation Limited, Cambridge Antibody
Technology Group plc and Circadian Technologies Ltd.

John Storey

John Storey, 61, joined the board in 1980.
He has a farming background and is Past Chairman
of the New Zealand Dairy Board, a director of Bank of
New Zealand and New Zealand Dairy Foods Limited, as
well as Past President of The New Zealand
Institute of Directors.

Richard Warburton
Richard Warburton, 59, joined the board in 1993.
He has a business management background and is a
member of the board of the Reserve Bank of Australia.
He is also Chairman of David Jones Ltd
and Goldfields Ltd, as well as a director of Southcorp
Ltd, Caltex Australia Ltd, IAMA Ltd and Tabcorp
Holdings Ltd. He is National President of the Australian
Institute of Company Directors and Chairman of the
Board of Taxation.

NUFARM 2000 ANNUAL REPORT 9

The global organisation

Nufarm's global operations
employ more than 2,000 people
in Australia, New Zealand,
Asia, Africa, Europe and
North America.

The manufacturing and
formulation facilities leverage
Nufarm's core capabilities
of chemical synthesis
and manufacturing.

Crop protection

Industrial chemicals

Fine and
performance chemicals

Nufarm's crop protection
business operates through a
network of locations in:

Australia
• Adelaide
• Dubbo
• Kwinana
• Laverton
• Lytton
• Sydney
New Zealand
• Auckland
Asia
• Jakarta,

Indonesia

• Kuala Lumpur,

Malaysia
• Singapore

Africa
• Cairo, Egypt
• Durban,

South Africa

Europe
• Barcelona, Spain
• Belvedere, UK
• Botlek,

Netherlands
• Gaillon, France
• Linz, Austria
• Paris, France
North America
• Calgary, Canada
• Chicago, USA
• Lobeco, USA
• St Joseph, USA

Nufarm's industrial chemicals
business has operations in:

Australia
• Kemerton
• Kwinana
• Sydney
New Zealand
• Auckland

Europe
• Paris, France
North America
• Calgary, Canada

Nufarm's fine & performance
chemicals businesses are in:

Europe
• Beuvry-la-Forêt,

North America
• Lobeco, USA

France

• Gaillon, France
• Mulhouse,
France

• Paris, France

Jakarta

Kwinana
Kemerton

Kuala Lumpur
Singapore

Lytton
Dubbo

Adelaide

Laverton

Sydney

Auckland

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Botlek

Belvedere

Gaillon

Chicago

Paris
Barcelona

Lobeco

Mulhouse
Beuvry-la-Foret
Linz

Calgary

St Joseph

Cairo

Durban

The global
management team

The Nufarm operations are coordinated by an Australian-based global
management team with extensive experience in the business.
Doug Rathbone, Managing Director and Chief Executive, and the team
have the support of a strongly committed group of managers and staff
across all its business activities.

12 NUFARM 2000 ANNUAL REPORT

John Allen

Group General Manager Crop Protection

Joined 1984

Brian Benson

Group General Manager Marketing

Joined 2000

Dr Mike Dalling

Group General Manager Research and Development

Joined 1999

Rodney Heath

Group General Manager Corporate Services

and Company Secretary

Joined 1980

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Kevin Martin

Chief Financial Officer

Joined 1994

Bob Ooms

Group General Manager Chemicals

Joined 1999

David Pullan

Group General Manager Operations

Joined 1985

Robert Reis

Group General Manager Corporate Affairs

Joined 1991

NUFARM 2000 ANNUAL REPORT 13

Corporate governance

The Board of Directors of Nufarm Limited has adopted the following set of principles for the corporate
governance of the company. These principles, together with the following committees, establish the
framework of how the board carries out its duties and obligations on behalf of the shareholders.

Board of directors

The board is the governing body
of the company with primary
responsibility to oversee all
corporate governance matters.
It has clearly defined policies
detailing its individual and
collective responsibilities and
describing those responsibilities
delegated to management.

The general principles are to
ensure that the business of
Nufarm Limited is carried out
in the best interests of all
shareholders and with proper
regard to corporate
responsibility to
other stakeholders.

The board has specific
responsibility for adopting all
business plans and budgets,
approving strategic plans for the
company and its business units
and approving major capital
expenditure, acquisitions,
divestments and corporate
funding, as well as overseeing
audit and compliance.

The board also is responsible
for the appointment and
remuneration of the Managing
Director and Chief Executive
and for remuneration policy of
senior executives.

Review of the performance of
the board and individual
directors is completed regularly.

The board is comprised of
individuals with an appropriate
range of proficencies,
experience and skills to ensure
that all governance

responsibilities are completed
in a manner consistent with
the best possible management
of the business.

Profiles of each board member
are set out on pages 8 and 9
of this report.

The company’s constitution
specifies that:

• the number of directors may
be not less than three, nor more
than 11. At present there are
eight non-executive directors
and one executive director;

• at each annual general
meeting, one third of directors
(other than the Managing
Director and Chief Executive
and directors who have been
appointed to fill casual
vacancies since the previous
annual general meeting) are
required to retire and may stand
for re-election; and

• directors who have filled
casual vacancies are required to
be elected at the first annual
general meeting following their
appointment by the board.

The board supports the concept
of the separation of the roles
of Chairman and Managing
Director and Chief Executive.

The processes by which the
board operates and aims to
achieve best practice in matters
of governance, include:

• monthly reports by senior
executives covering the financial
standing, operating results and
business risks of the group;

• a continuous disclosure
protocol to ensure that the
company complies with current
legislative requirements.
The reporting and review
procedure is monitored
periodically by the
audit committee;

• formal policies and charters
on issues such as:
– treasury activities;
– dealing in company securities;

• board committees.

Board committees

The board has three
sub-committees: the audit
committee, the remuneration
committee and the scientific
review committee.

All directors are entitled to
attend any meetings of the
sub-committees.

Details of the attendance at
meetings of board and
committees of the board are
detailed on page 30 of
this report.

Audit committee

The audit committee operates
under a formal charter from the
board and primarily it aims to:

• act as an objective body to
review the financial information
presented by management to
shareholders, the stock
exchanges, regulators and the
general public and to ensure
compliance with
statutory responsibilities;

14 NUFARM 2000 ANNUAL REPORT

• review corporate risk
assessment and the adequacy
of accounting and
financial controls;

• enable the external auditors
to communicate any concerns
to the board via
the committee;

• review the quality and cost of
the audits carried out by the
company’s external auditors; and

• provide written reports on a
regular basis to the full board.

Messrs GW McGregor
(Chairman), KM Hoggard,
DJ Rathbone, HM Titter
(adviser to the board)
and W Wilson (adviser to the
board) are members of the
audit committee.

Remuneration committee

The functions of the
remuneration committee are:

• definition of the levels at
which the Managing Director
and Chief Executive must make
recommendations to the
committee on proposed changes
to remuneration and employee
benefit policies; and

• remuneration (including
incentive schemes and any
other forms of reward) for the
Managing Director and Chief
Executive and his direct reports
and annual review of
those arrangements.

The committee reports to the
board on all matters and all
decisions are made by the
board, except when power to
act is delegated expressly to
the committee.

Messrs RFE Warburton
(Chairman), GDW Curlewis,
KM Hoggard, DJ Rathbone and
W Wilson (adviser to the board)
are members of the
remuneration committee.

Scientific review committee

The scientific review committee
reviews all research and
development programs testing
each project for scientific
application, progress against
objectives and potential
commercial viability.

Dr JW Stocker (Chairman) and
Messrs KM Hoggard and
DJ Rathbone are members of
the scientific review committee.

Remuneration of
non-executive directors

The fees payable to
non-executive directors are
determined by the board within
the aggregate amount approved
by shareholders. Shareholder
approval will be sought at the
2000 annual general meeting
to increase the aggregate to
$750,000 per annum.
Fees paid to a director are
$50,000 per annum and for
the Chairman, $150,000 per
annum. Non-executive directors
are entitled to retirement
benefits, with an escalating
scale of benefits up to a
maximum, after ten years of
service, of three times average
annual emolument in the three
years preceding retirement.

Remuneration of directors
and executives

A key feature of the past
12 months is the work the
board remuneration committee
has undertaken to develop a
new approach to reward
management. The board
engaged external human
resource consultants to assist
in the design of strategies and
frameworks that would reflect
and support Nufarm’s values
and business direction.

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NUFARM 2000 ANNUAL REPORT 15

Corporate governance continued

This work has resulted in a fully
integrated global reward strategy
which establishes specific
frameworks and principles to
apply in deciding individual
reward levels across all reward
components. This ensures
Nufarm is well positioned, from
a reward perspective, to attract
and retain the talent needed for
the achievement of
business objectives.

Reward is structured in three
components being:

• fixed reward – comprising
cash and benefits reflecting
local market conditions and
individual contribution.
The level of reward for the role
is set relative to relevant and
prevailing executive
employment market conditions
for high calibre talent in the
respective geographies in which
the company operates;

• short-term variable reward –
reflecting performance over
specific business outcomes over
six to 12 month periods and
paid in cash. Variable reward
opportunity levels are set with
reference to relevant
market conditions;

• long-term variable reward –
reflecting increases in the
returns on funds employed in
the business in excess of the
cost of those funds over a three
year time frame. This reward is
delivered through shares, or a
mixture of shares and options.

The remuneration levels of the
Managing Director and Chief
Executive and other senior
executives are recommended by
the remuneration committee
and approved by the board,
having taken advice from
independent external advisers.

Each year the board will
establish performance hurdles
for the short-term and long-term
variable reward programs.
These hurdles reflect targets
for specific objectives and
increasing company value
consistent with the business
and investment strategies.

The board has also recently
decided to introduce various
employee share plans.
An employee share plan will
apply to all staff globally.
A bonus match plan will allow
nominated participants to
receive all or part of any
bonus entitlement in the form
of shares in the company and
where this decision is made
the company will provide an
additional 30 per cent of the
number of shares taken
as a bonus.

The new executive share plan
will provide for annual offers of
shares or a mixture of shares
and options to senior executives
including the Managing
Director and Chief Executive.
Such shares or options will
vest subject to performance
indicators linked to the
company’s financial
targets being met.

The purpose of Nufarm’s
reward strategies and
philosophies is to more closely
align individual rewards with
corporate performance and
increased shareholder value.
This purpose is achieved
through the sharing of rewards
from good commercial
performance with the Nufarm
executive managers and staff
who created that performance.

16 NUFARM 2000 ANNUAL REPORT

Risk identification
and management

Environment, health
and safety

The company is committed to
identifying, monitoring and
managing risks associated with
its business activities. It has a
number of management
procedures to deal with risks
including financial, business,
interest rate, foreign exchange,
regulatory and environmental.
Nufarm also closely monitors
international risks associated
with its global activities.

Management limits
of authority

The board has set specific limits
to management’s ability to incur
expenditure, enter contracts or
acquire or dispose of assets or
businesses without full board
approval. Reporting procedures
ensure that there is monthly
review by the full board
of these limits.

Treasury policy

Exposure to foreign exchange
and interest rate risks is
managed in accordance with a
comprehensive board-approved
treasury policy which sets limits
of management authority.
Derivative instruments are used
by the company to manage
specific business risk.
They are not used for
speculative purposes.

The board receives
management reports covering
compliance with environmental
policy and health and safety
issues. Any variance with
legislative or corporate policy
is reported immediately to the
board. Audit of corporate policy
and compliance is completed
regularly and is reported fully
to the board.

Ethical standards

All Nufarm directors and
employees are required to adopt
standards of business conduct
which are ethical and comply
with all legislative requirements.
Where there are no legislative
requirements, the company
endeavours to ensure
appropriate standards through
policy statements as they relate
to stakeholders in the business
and by careful selection and
promotion of employees.

The board has endorsed the
principles of the Code of
Conduct for Directors issued
by the Australian Institute of
Company Directors.

Conflicts of interest

Board members are required to
identify any conflict of interest
they may have in dealing with
the company’s affairs and
subsequently to refrain from
participating in any discussion
or voting on these matters.
Directors and senior executives
are required to disclose in
writing any related
party transactions.

Executives are obliged to
disclose to the Managing
Director and Chief Executive
any activities in which they are
involved that might be in
conflict with the company’s
activities or interests.

Purchase and sale
of company shares

The company has a share
trading policy that prohibits
directors and management
from dealing in the company’s
shares at any time the
directors or management are
aware of unpublished,
price-sensitive information.

In addition, directors and senior
management may only buy or
sell shares during the six week
period commencing 48 hours
after the respective release of
the company’s half-year and
annual results to the Australian
Stock Exchange.

Political activities

The company maintains a
position of political impartiality
except in circumstances where
there is deemed to be an
obligation to make a statement
because of major impact on the
company’s stakeholders.
Nufarm operates in accordance
with the social and cultural
beliefs appropriate in each
country of operation. It does
not fund any political group.

Directors’ access to
independent advice

Directors have the right, with
the approval of the Chairman or
by resolution of the board, to
seek independent legal or
financial advice at the expense
of the company.

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Shareholder relations

The company’s shareholders
are responsible for voting on
the appointment of directors.
The board seeks to inform
shareholders of all major
developments affecting the
company by:

• preparing half-yearly financial
reports and making these
available to all shareholders;

• advising shareholders of
the key issues affecting
the company;

• submitting proposed major
changes in the company’s
affairs to a vote of shareholders,
as required by the Corporations
Law; and

• holding an annual general
meeting each year to enable
shareholders to receive reports
by the board of the company’s
activities. All shareholders who
are unable to attend these
meetings are encouraged to
communicate issues or ask
questions by writing to
the company.

NUFARM 2000 ANNUAL REPORT 17

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Crop protection

Nufarm is a major producer of agricultural chemicals used by farmers to protect their crops from damage caused by weeds, insects and disease.
The company is a global leader in the manufacture, supply and marketing of ‘phenoxies’, a class of herbicides used to control and eradicate
broad-leafed weeds. These products are manufactured in plants in Australia (Melbourne), England (Belvedere), Austria (Linz) and
the Netherlands (Botlek). A range of other crop protection products is produced at facilities in Western Australia and France where the CFPI
Nufarm subsidiary is based. Nufarm also has manufacturing facilities in Australia, New Zealand, Asia, South Africa, Europe and North America.
The Riverdale operations in Chicago produce a range of agricultural chemicals that are sold into non-crop markets such as lawn care, golf courses,
railways and municipal parks, as well as the North American crop protection market which is serviced by Nufarm Inc. Nufarm is an industry
leader in crop protection in Australia, where it began operations in Melbourne some 45 years ago.

Crop protection

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Nufarm’s crop protection business produced an excellent result with turnover increasing by 11 per cent
to $763.5 million (over the comparable 12 month period) and operating profit before taxation increasing
to $57.7 million. The Australasian-based business performed particularly well, capitalising on favourable
climatic conditions and aggressive marketing of the company’s key products.

The North American-based
operations also performed well
and showed solid growth in
crop protection sales.
The first full year of results from
Riverdale Chemical Company
(Chicago) produced an above
budget profit and substantial
growth in sales
into high margin non-crop
markets including golf courses,
railways, rights-of-way and
municipal parks.

Glyphosate sales into this
market were modest as Nufarm
established a presence for its
branded product and looked to
expand its customer base in key
cropping regions. Sales of
Nufarm branded product into
Canada were strong and this
market represents a key growth
opportunity for the North
American business. Also, the
establishment of an expanded
sales force in this region will
assist in the expansion of the
business and a stronger focus
on sales and marketing activity.

The European crop protection
operations achieved satisfactory
results, although short of
forecast overall. The completion
of the social plan in France was
a significant milestone in the
integration and restructuring of
the CFPI Nufarm operations
and a new sales and marketing
joint venture, formed in the
United Kingdom with the
Whytes organisation, will
strengthen our position in
that market.

Important supply agreements
were also finalised with several
other major crop protection
companies for key products
that are produced at the
company’s European-based
manufacturing plants.

The trading conditions in
Europe were, and remain, very
competitive, and the 13 week
closure of the Austrian plant in
the first half, to complete
productivity and quality
improvements, adversely
affected European
overhead recoveries.

Sales into Asia were ahead of
budget and the acquisition of
40 per cent of Mastra
Corporation will help our
continuing push into the
region’s growth markets.
Mastra operates formulation
plants in Australia and Malaysia
and Nufarm has leveraged its
stake in Mastra to access new
customers for Nufarm products.
Assisted by the general recovery
of most regional economies
during the period, both PT
Nufarm Indonesia and Nufarm
Malaysia Sdn Bhd experienced
sales growth and the further
establishment of branded
product in the local markets.

Nufarm acquired a substantial
shareholding in the listed
Australian-based rural
merchandising and distribution
company, IAMA Ltd. The
distribution sector is in need of
some rationalisation and
Nufarm’s position in IAMA will
allow the company to help
influence change in the sector.

Global sales

800

600

400

200

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NUFARM 2000 ANNUAL REPORT 19

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Industrial, fine and performance chemicals

Building on its core capabilities in chemical manufacture and synthesis, Nufarm produces a range of intermediate and finished products that are
used in a wide variety of industries. The company operates two chlor alkali plants in Western Australia, feeding chlorine to titanium dioxide
producers. The Lobeco operations in North America (South Carolina) and the SEAC subsidiary in France (Beuvry-la-Forêt) produce a variety of
fine and performance chemicals used by, among others, pigment manufacturers, the explosives and fertiliser industries, the construction business
and pharmaceutical companies. This division of the company has multi-step synthesis capabilities and meets customers’ needs from bench top
and pilot batch scale through to full scale commercial production.

Industrial, fine and
performance chemicals

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Industrial, fine and performance chemicals also improved its performance compared to the previous
year with a four per cent increase in turnover. Good results were generated by the West Australian chlor
alkali plants, the timber protection business and construction chemicals.

The chemical trading division
result in New Zealand was
unsatisfactory and that
operation has been restructured
and, in future, will be
coordinated as part of the
Australian trading business.

Fernz SulFer Works in Canada
had a disappointing result in its
first full year of operation and
generated a tax paid loss of
$5.7 million, $4.0 million
higher than forecast.
The domestic and international
sales from the plant were well
short of budget. Progress has
been made in resolving
manufacturing and quality
related issues but the operation
is capital intensive and needs a
substantial volume lift in sales
to achieve acceptable returns.
This will be the emphasis
in 2001.

The fine and performance
chemicals results, especially in
the United States of America,
were excellent. The South
Carolina-based Lobeco
operations, which produces
chemical intermediates,
returned a very good result and
a capital development program
was approved to allow this
business to further expand.

The strong US economy drove
unexpected increases in toll
manufacturing of pigments,
contributing to both product
expansion and earnings growth
in fine chemicals. Four new
performance chemical products
were introduced successfully
and we secured new customers
– especially in South America –
for existing products.
Performance chemicals has
built a strong foundation and
will continue to grow as the
business is managed
on a global basis.

The SEAC subsidiary in France
also made progress on securing
new customers and product
opportunities. A lower than
forecast off-take, relating to a
high margin pharmaceutical
intermediate, had an impact on
the results but the company is
confident that this business
can be replaced.

Global sales

500

400

300

200

100

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NUFARM 2000 ANNUAL REPORT 21

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The principal focus of Nufarm’s research and development (R&D) effort
is on new product development and improving manufacturing
efficiencies. Nufarm has strong capabilities in formulation technology
and innovative packaging design and the company successfully
leverages these skills to add value to existing products.

Research and development
and new technologies

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Nufarm released more than 20 new products during the reporting year.
This was supported by some 100 new registrations around the world.

One of these was a unique
glyphosate formulation,
trademarked as “Credit”, and
based on proprietary technology
developed by our Australian
R&D team. The product was
released in Australia in March
and it is undergoing extensive
trials in North America and
Europe to achieve registrations
in those important markets.

New technologies are having a
major impact on many of the
major markets where we do
business. Farmers, particularly
in North America, are
embracing the genetic
enhancement of crops to resist
insects and disease and to
tolerate the application of
herbicides. The second
generation of agricultural
biotechnology will produce food
crops with improved levels of
nutrition and other features to
enhance health and provide
tangible benefits to both farmers
and consumers.

During the year, Nufarm
acquired Florigene Ltd, an
unlisted biotechnology company
with expertise in the genetic
modification of flowers and
other plants. The acquisition,
costing some $2 million,
provides Nufarm with a strong
technology platform that will
help secure our participation in
these developments.

The Nugrain project, a joint
venture between Nufarm and
Australia’s major grain handling
organisations, has made
considerable progress.
The alliance was expanded to
include Wesfarmers Dalgety.
There are now national systems
in place to ensure quality
assurance and provide storage
systems that underpin identity
preservation between
genetically modified (GM)
and non-GM crops.

E-commerce opportunities were
also evaluated, with a decision
to incorporate appropriate
business to business and
business to consumer initiatives
across various parts of the
business in due course.

The Pharma Pacific (human
health) operations were wound
back and the directors
confirmed Nufarm’s intention to
exit this area of biotech activity
through licensing or
collaborative arrangements that
should provide an acceptable
return on capital currently
employed in this business.

NUFARM 2000 ANNUAL REPORT 23

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Health, safety and environment policy

Nufarm Limited is committed to ensure that its activities present a high level of protection for the health and safety of its employees, customers,
the public and the environment. A personal commitment from all employees is essential in promoting and achieving this objective. The company
will ensure it has safe working conditions, define safe work practices, train its employees and provide the information necessary for the control
of hazards in the workplace and for protection of the environment. Supervisors and managers will be held accountable for the safety and
occupational health of their people and for the environmental protection measures in activities over which they have control. The company’s
objective is to carry out its business with no adverse effect on its people, the community and the environment, and to strive for sustainable
development and continual improvement.

Health, safety
and environment

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Global success means highest standards of health,
safety and environmental care
Nufarm’s directors are acutely conscious that achieving global success in manufacturing and marketing
complex chemicals that are widely used – including in the food chain – means adhering to the highest
standards of health, safety and environment protection.

Our policy sets out our
objectives and accountabilities –
we are committed to conducting
our business activities without
adverse impact on our
neighbours or the community
and to continually improving
our products and processes.

Nufarm commissions detailed
annual medical assessments for
staff in the company’s various
locations and the research
indicates that the health of our
employees is similar to that
in like populations in the
general community.

The company believes that
seeking superior performance in
these areas demonstrates our
commitment not only to
implementing our HS&E policy,
but also to effective risk
management to improve overall
business performance and
returns to shareholders.

Putting policy and
systems into effect

This must be supported by
good management practices
which translate the objectives
into effect in the workplace, in
distribution and in the use of
our products. A particular
challenge is to develop effective
management systems and
standards across the company
while providing flexibility for
manufacturing sites to
accommodate specific needs.

Nufarm is a foundation member
of the international chemical
industry’s Responsible Care
program. Responsible Care is
implemented in 45 countries
and increasingly is seen
as the benchmark for
superior health, safety
and environmental
(HS&E) performance.

NUFARM 2000 ANNUAL REPORT 25

Health, safety and
environment continued

Priority to integrating
HS&E issues

Before any new business is
acquired, Nufarm conducts
thorough due diligence on
HS&E performance and, if
needed, actions for
improvement are initiated once
the acquisition has been made.
Newly acquired businesses
often have different ways of
addressing HS&E issues and
the integration of these with
Nufarm’s systems receives
high priority.

Several of our Australian sites
are covered by the recent Major
Hazard Facilities legislation; the
Laverton site and the two chlor
alkali plants are preparing
safety cases for the authorities.
Belvedere in the United
Kingdom is doing likewise
under similar legislation
(COMAH) and other locations
are doing so under the EU
Seveso II regulations.
Nufarm considers these formal
safety systems valuable in
ensuring the safety of its plant,
employees and the public.

We require all other sites to
have – and regularly test – an
emergency plan that takes into
account the hazards and
potential risks of that site.

Our chemical formulation plants
around the world operate with a
zero emissions release target
from formulation and continued
reduction in other wastes such
as packaging. The synthesis
operations are achieving
process improvements aimed at
waste minimisation and
process efficiency.

Nufarm is working towards
sustainable development by
continuous improvement in its
processes, reducing waste by
making plants more efficient
and by designing products that
are more effective.

Global performance
objective to better
Australian rates

One measure of assessing
workplace safety is to compare
injury rates. In 1998, Nufarm’s
worldwide lost time injury rate
(LTIFR) was 10.4 injuries per
million hours worked with a
severity rate of 0.116 days lost
per thousand hours worked. In
1999, during a time of major
acquisitions, the LTIFR rose to
13.4 injuries per million hours
worked, with a decline in
severity to 0.081 days lost per
thousand hours worked. In
2000 to the end of September,
the respective figures are
LTIFR of 11.6 with a severity
of 0.139. The poor severity rate
is due to some serious traffic
accidents to employees in
South East Asia this year.

26 NUFARM 2000 ANNUAL REPORT

Our objective is continuous
improvement globally to meet –
and then better – the
performance of the chemical
industry in Australia (LTIFR
5.6, severity of 0.069).

A number of our sites have not
incurred a lost time injury
for some years.

In locations where safety
performance is below industry
standard or has deteriorated,
Nufarm is working to improve
awareness by investing in plant
safety improvements to improve
operational safety and in
training, monitoring and
safety equipment.

Most manufacturing sites have
licences regulating discharges
to air and, in some cases, to
water. There is regular
monitoring to measure
compliance with licences –
in 1999, 99.4 per cent of tests
were within the consent limits.
There were no significant
releases from any plants.

When non-compliance occurs,
preventative action is taken and
investments made in improved
plant and equipment to
control emissions.
Process improvements are
focused on minimising waste,
treating wastes, recycling and
preventing releases to
the environment.

Fernz Construction Materials Ltd
was fined $50,000 under the
New South Wales Occupational
Health and Safety Act over an
accident that occurred before
we acquired the business in
1996. There were no other
prosecutions regarding any
HS&E matters in the 2000
financial period.

The company publishes an
annual report describing our
performance on HS&E in
more detail.

This report is available
on application to the
Company Secretary.

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NUFARM 2000 ANNUAL REPORT 27

In 2000, as shown in the graph
below, the EVA from current
operations (excluding associated
investments) was $18.7 million.

This result indicates that the
company generated significantly
greater returns from the same
level of resources. However, we
are targeting further reductions in
working capital in the current
year to increase future returns.

The directors are confident that
the business is soundly
positioned and will achieve
further improvements in the
current financial year.

Nufarm endeavours to monitor
its performance in achieving
the objectives of its mission
statement for all of the
stakeholders in the business.

Some of these objectives are
financial and can be measured
while others are non-financial
and performance measurement
is more subjective. In these
non-financial aspects, it is
possible to rely – to some extent
– on peer and industry sector
comparisons, public perceptions,
staff turnover and the like to form
judgments of performance.
Generally, Nufarm can be
satisfied with its performance
in these areas.

The company is guided in its
financial performance
measurement using the concept
of economic value added (EVA).
This is defined as the corporate
return on total operating capital
less the charge for the cost of that
capital provided by
shareholders and lenders.

EVA measures the annual
progress in adding value to
the total capital invested in
the business.

Measuring corporate
performance

Economic value added

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

*
0
0
0
2

Source: Ireland, Wallace & Associates Limited

*All previous years are to 31 May.
Year 2000 is to 31 July.

28 NUFARM 2000 ANNUAL REPORT