Nufarm Limited Annual Report 2001

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FY2001 Annual Report · Nufarm Limited

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NUFARM LIMITED 2001 ANNUAL REPORT

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Contents

Facts in brief
Nufarm is
Key events and comparative data
Managing director’s review
Board of directors
Corporate governance
Management team
Organisation
Business review

Crop protection
Industrial, fine and performance chemicals
Research and development
Health, safety and environment
Measuring corporate performance
Directors’ report
Statement of financial performance
Statement of financial position
Statement of cash flows
Notes to the financial statements
Directors’ declaration
Independent audit report
Supplementary information

Trend statement
Consolidated statement of financial performance
Consolidated statement of cash flows
Industry segments
Geographic segments

Shareholder and statutory information
Directory

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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

Produced by Reporting Reputation. Designed by Simmer Design & Production

Facts in brief

Trading results

Operating profit after tax

2001

$000

2000

$000

(12 months to 31 July)

51,138

51,984

Net (loss) profit attributable to members

of the parent entity

(12 months to 31 July 2001/

14 months to 31 July 2000)

(4,526)

52,834

Sales revenue

1,323,232

1,369,974

Ratios

Earnings per ordinary share (weighted

average, excluding non-operating

and extra-ordinary items,) for

12 months to 31 July

33.1

34.4

Operating profit after tax

(for 12 months to 31 July)

to average shareholder equity

13.8%

14.0%

Net tangible assets per

ordinary share

Distribution to shareholders

$1.42

$1.81

Dividend per ordinary share

18¢

17¢

Staff employed

2,203

2,215

NUFARM’S wholly owned subsidiary, Chicago-based Riverdale Chemical Company, is a major manufacturer

and supplier of turf and specialty chemicals for use on golf courses, home lawns and gardens, municipal parks,

rights-of-way and in the forestry market.

NUFARM 2001 ANNUAL REPORT 1

Nufarm Limited is an Australian-based company with core

capabilities in chemical synthesis, marketing and sales.

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 2,200 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 is listed on the Australian Stock Exchange (symbol NUF).

Its head office is located at Laverton in Melbourne.

Earnings per share (from operations)

cents

2001

2000

1999

1998

1997

1996

Capital funds ratio

2001

2000

1999

1998

1997

1996

Chemical synthesis,
marketing and sales

Crop protection

Industrial, fine
and performance
chemicals

NUFARM 2001 ANNUAL REPORT 2

Key events

• Operating profit of $51.1 million for the 12 months

ended 31 July 2001

• Record group sales of $1.32 billion, up 9%

on previous 12 months

• Strong growth in North American crop

protection operations

• Poor result from Australian crop protection business

• Acquisition of Agtrol International fungicides business

• Write-off of loss making Sulfer Works business

in Canada ($59.2m)

Operating profit after tax

2001

2000

1999

1998

1997

1996

Return on shareholders’ equity

2001

2000

1999

1998

1997

1996

Global sales growth

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

200

400

600

800

1,000

1,200

1,400

NUFARM 2001 ANNUAL REPORT 3

The genetic modification (GM) of plants is a controversial area of research and development as the community

debates the pros and cons of GM, particularly GM food. Nufarm’s Melbourne-based subsidiary, Florigene, uses

GM technology to develop novel coloured flowers which are sold into markets in the US, Japan and Australia.

NUFARM 2001 ANNUAL REPORT 4

Managing director’s review

The key business challenge is clear: we must rebuild the
profitability of our Australian crop protection business...

Doug Rathbone

Nufarm Limited generated a group operating profit of
$51.1 million for the 12 months ended 31 July 2001.
Non-operating items, including a $59.2 million write-off
associated with the Canadian-based Sulfer Works
business and a $3.6 million gain, primarily the sale of
the timber treatment business, resulted in a reported
audited group loss of $4.5 million for the period.

The 2001 group operating profit is in line with the
comparable operating result reported for the previous period.

Due to a change in balance date last year, the company’s
statutory accounts reflect 12 months for the current year
compared to 14 months in the previous period. To enable
a relevant comparison of year-to-year performance, the
financial statements in this report include additional
financial data relating to the operating results of the
company over the two comparable 12-month periods
ending 31 July.

The remainder of the comment in this report compares
the financial and operational performance in the two
12-month periods.

Group sales amounted to $1.32 billion compared to
$1.21 billion achieved in the previous year (up by
nine per cent). The year 2000 sales, however, included
revenues from two businesses – construction chemicals
and timber treatment chemicals – that have since
been sold. Comparing the same business base and
excluding foreign exchange impacts, sales increased
by 4.4 per cent in the 2001 reporting period.

Australasia accounted for 46 per cent of total group sales,
with 26 per cent of sales generated in Europe and 28 per
cent in North America. This is the first year in which the
revenues generated by Nufarm’s overseas businesses
have exceeded those of the Australia and New Zealand
operations and reflects the increasingly global nature of
the group.

Nufarm’s Australian-based crop protection business was
down significantly on its performance for the previous
year and was the principal factor responsible for a flat
2001 profit result for the group. The other major
operating divisions reported increased profit contributions.

NUFARM 2001 ANNUAL REPORT 5

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.

Managing director’s review

In the statement of financial position, current interest
bearing liabilities include the company’s capital notes on
issue, which are due to be repaid in the 2002 year. The
year before, these notes were shown as non-current liabilities.

Sulfer Works Canada

In July 2001, the board informed the market of a
decision to write off the investment in the Sulfer Works
business in the year ended 31 July 2001. The total
write off associated with this business is $59.2 million.
This includes a complete write off of the operations, a
write down of the fixed assets to a conservative,
realisable value and a write back of tax losses previously
recognised in the accounts. Negotiations with potential
purchasers are nearing completion but any recovery will
be small and is recognised in the written down value of
the fixed assets.

This business has been plagued with difficulties since the
fire that occurred during the original commissioning of the
plant in 1998. The subsequent capital investment in
rebuilding the plant – including an extensive safety
redesign – proved unsustainable and required production
and sales levels that the business has not achieved.
While some progress has been made in addressing
various production and product development issues, the
best estimate is that it would take at least two to three
years before sales could increase to a level where
continuing cash losses could cease.

Given this situation, the board is not prepared to allow
the adverse results from this business to have an impact
on the company going forward, nor for management to
be distracted from the challenges and opportunities
presented by the core business.

Operations

An overview of the 12-month performance and general
outlook in the two key operating divisions – crop
protection and industrial, fine and performance chemicals
– is included as a separate section in this report. Also,
commentary on the important areas of research and
development and health, safety and environment
performance is included.

The key business challenge facing the company is clear:
we must rebuild the profitability of our Australian crop
protection business. We have taken a number of
measures to meet this challenge and I have a strong
expectation that we will see an improved result from this
part of the business in 2002.

Elsewhere, the crop protection operations showed positive
growth. The increased market share we achieved in
North America is particularly pleasing as we invested a
substantial effort and resources in building awareness of
the Nufarm brand and strengthening our distribution
relationships in this market in the first half of the year.

The industrial, fine and performance chemicals division
returned creditable results, given the depressed nature of
some of the key markets serviced by these businesses.
While market conditions will continue to be difficult, our
focus on expanding high value synthesis activity, such as
the development and manufacture of pharmaceutical
intermediates, should see further growth from these
operations.

New Zealand delisting

In August, after the end of our 2001 financial year,
shareholders approved a proposal to cease trading of the
company’s shares on the New Zealand Stock Exchange.
Directors recommended the delisting as a means of
maximising the trading volume of Nufarm shares on the
Australian Stock Exchange (ASX). The liquidity of the
company’s stock helps determine index rankings that, in
turn, can influence investment decisions by larger fund
managers. The company is seeking to satisfy criteria that
will see it returned to the top 200 companies index.

New capital notes issue

The existing capital notes, issued in 1996 at a total value
of NZ$170 million, are due for renewal in April 2002.
The company has retained CS First Boston and UBS
Warburg as joint managers of a new notes issue to be
launched in November 2001. The new programme will
seek to raise NZ$210 million (A$170 million).
Shareholders will receive a prospectus outlining
details of the offer.

NUFARM 2001 ANNUAL REPORT 6

Managing director’s review

Dividend

Directors have approved a final dividend for 2001 of
11 cents per share. The dividend will carry full franking
credits for Australian shareholders and will be paid on
9 November 2001 to the holders of all fully paid shares
in the company as at the close of business on 26
October 2001. This brings the total dividend payment for
2001 to 18 cents per share (17 cents paid in 2000).

Management and staff

As in previous years, Nufarm employees have shown a
strong commitment to the company and their efforts have
directly contributed to the growth achieved in various
parts of the business.

During the review period, we offered a number of new
training and development programmes and these were
welcomed enthusiastically by both management and staff.
Also, we launched a new international global share plan
and now more than 30 per cent of employees have direct
ownership in the company.

We continue to encourage opportunities for our people to
work in different global locations and across different
areas of the business.

Also a number of new employees joined the company
during the year, particularly as a consequence of the
acquisition of Agtrol International in the US and France.

Future prospects

While it is difficult to make future predictions at this time
of international uncertainty, directors are confident that
the company can – given reasonable trading conditions –
return to double digit profit growth for financial year
2002. The company has budgeted for a positive
turnaround in the Australian crop protection business and
– following a thorough review of these operations – is
confident that measures are being implemented to
achieve a significantly improved result.

While the Australian market remains extremely competitive,
with consequent downward pressure on pricing, Nufarm is
focusing on initiatives that secure and expand access to
market, eliminate unnecessary costs from the business and
facilitate the speedy introduction of new products.

In August, the company announced an agreement with
Wesfarmers Landmark to acquire the Victorian-based
manufacturing assets of Artfern Limited and establish a
50 per cent joint venture to own and manage the Artfern
agricultural chemical supply business.

We are confident of continued growth in both sales and
profit contributions from the North American and
European crop protection operations as those businesses
take advantage of a broader product range (provided by
the Agtrol fungicides business acquisition in May 2001,)
and increased recognition of and loyalty to the Nufarm
brand. Also, we are targeting the important growth
markets of Asia and Latin America for an increase in
sales and we now operate from offices in Japan and
Argentina to build Nufarm’s presence in these regions.

Current economic conditions are likely to dampen growth
prospects in the fine and performance chemicals division.
However a strong focus on contract synthesis
development for the pharmaceutical industry is
expected to provide increased returns from the SEAC
operations in France.

In the current year, management’s major priority is to
operate the business from the lowest possible capital base
to reduce the net level of working capital and maximise
free cash flow. Also, capital expenditure requirements will
be critically reviewed. It is important for the company to
strengthen its financial position at a time when there is so
much international uncertainty.

The continued growth of the business in the northern
hemisphere has accentuated the seasonality of results in the
two half years. In the 2002 year, Nufarm expects to generate
in excess of 80 per cent of its profit in the second half.

In summary, the future prospects for the Nufarm group
are sound and management is confident of, and
committed to returning the company to positive profit
growth in the current year and beyond.

DJ Rathbone
Managing Director
11 October 2001

NUFARM 2001 ANNUAL REPORT 7

Board of directors

The board is the governing body of Nufarm Limited with primary responsibility to oversee all corporate

governance matters.

Kerry Hoggard
Chairman

Doug Rathbone
Managing Director and
Chief Executive

Doug Curlewis

Dr Bruce Goodfellow

Graeme McGregor AO

Sir Dryden Spring

Dr John Stocker AO

Richard Warburton

NUFARM 2001 ANNUAL REPORT 8

Board of directors

KM (Kerry) Hoggard
Chairman
Kerry Hoggard, aged 60 years, 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.

GDW (Doug) Curlewis
Doug Curlewis, aged 60 years, 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 and Remunerator
Australia Pty Ltd.

DJ (Doug) Rathbone
Managing Director
Doug Rathbone, aged 55 years, joined
the board in 1987. His background is
chemical engineering and commerce
and he has worked for Nufarm
Australia Ltd for over 25 years. Doug
was appointed Managing Director of
Nufarm Australia in 1982 and
Managing Director of Nufarm Limited
in October 1999.

Dr Bruce Goodfellow
Bruce Goodfellow, 49, 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).

GW (Graeme) McGregor, AO
Graeme McGregor, aged 62 years,
joined the board in January 2000. He
is a Bachelor of Economics and was
formerly an Executive Director with
BHP Co Ltd. He is a director of
Foster’s 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, aged 62 years, joined
the board in 1981. He has a farming
background and is Chairman of Fletcher
Challenge Forests Ltd, Wel Energy Ltd
and Ericsson Communications (NZ) Ltd,
and Deputy Chairman of Goodman
Fielder Ltd. He is a director of Ericsson -
Synergy Limited, Fletcher Building Ltd,
Maersk New Zealand Ltd and The
National Bank of New Zealand Ltd. Sir
Dryden is also Chairman of the New
Zealand delegation to the APEC Business
Advisory Council (ABAC).

Dr JW (John) Stocker AO
Dr John Stocker, aged 56 years, 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.

RFE (Richard) Warburton
Richard Warburton, aged 60 years,
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, Caltex Australia Limited,
Goldfields Ltd and HIH Claims Support
Ltd, as well as a director of Southcorp
Ltd and Tabcorp Holdings Ltd. He is
Chairman of the Board of Taxation and a
past National President of the Australian
Institute of Company Directors.

NUFARM 2001 ANNUAL REPORT 9

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 for the
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 proficiencies, 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 page 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 each annual general meeting, one third of directors
(other than the managing director 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;

At present there are seven non-executive directors and
one executive director. The board has currently
determined that, apart from the incumbent managing
director, no other company executive will be invited to
join the board.

Annually the board reviews the composition and terms of
reference for the board, chairman, board committees and
managing director. The chairman annually assesses the
effectiveness of the board and its committees.

The board supports the separation of the roles of
chairman and managing director.

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 detailing the
company’s disclosure obligations. This is
communicated to business unit managers and requires
them to provide regular reports pursuant to the
protocol. The audit committee periodically monitors
the reporting and review procedure;

• 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.

The company does not have a nominations committee as
this function is deemed to be the responsibility of the
board. Any action required is delegated to the chairman
of the board, the chairman of the remuneration
committee and the managing director.

• directors who have filled casual vacancies are required

to be elected at the first annual general meeting
following their appointment by the board.

Details of the attendances at meetings of board and
committees of the board are detailed on page 34
of this report.

NUFARM 2001 ANNUAL REPORT 10

Corporate governance

Audit committee
The audit committee operates under a formal charter
from the board. Its principal task is to ensure that all
financial statements released to shareholders, lenders or
any regulatory body comply with accounting standards,
are true and fair and not misleading. Conducting its
duties, the committee:

• considers the accounting effect of major transactions;

• reviews systems of internal control;

• reviews audit systems in group companies;

• reviews the significant risks facing the company and
determines the controls and procedures in place to
mitigate those risks;

• reviews the taxation position of the group is in

compliance with relevant tax law;

• reviews management’s dividend recommendations to

ensure compliance with board guidelines;

• reviews with the chief financial officer and external
auditors, the group’s audit plan and budget for the
ensuing year; and

• periodically monitors the procedures contained in the

company’s continuous disclosure protocol.

The committee also annually reviews the audit
committee charter.

At the date of this report, GW McGregor (committee
chairman), KM Hoggard and Sir Dryden Spring are
members of the audit committee.

Remuneration committee
The functions of the remuneration committee are:

• to define the levels at which the managing director
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 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.

At the date of this report, RFE Warburton (committee
chairman), GDW Curlewis and KM Hoggard, are
members of the remuneration committee.

Scientific review committee

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

At the date of this report, Dr JW Stocker (committee
chairman), Dr WB Goodfellow and KM Hoggard are
members of the scientific review committee.

Remuneration of non-executive directors
The board determines the fees payable to non-executive
directors, within the aggregate amount of $750,000
approved by shareholders at the Nufarm Limited
2000 Annual General Meeting. 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 10 years of service – of three times average annual
emoluments in the three years preceding retirement.

Remuneration of directors and executives
The board remuneration committee reviews the total
remuneration reward for the managing director and senior
executives, and engages external human resource
consultants to assist in the review of strategies and
frameworks that reflect and support Nufarm’s values and
business direction.

The company has a fully integrated global reward
strategy. It establishes specific frameworks and principles
– across all reward components – to apply in deciding
individual reward levels. This ensures Nufarm is well
positioned, from a reward perspective, to attract and
retain the talent needed to achieve its business
objectives.

Reward is structured in three components:

• fixed reward – of cash and benefits that reflects 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 – reflects performance over

specific business outcomes over six to 12 month
periods and is paid in cash. Variable reward
opportunity levels are set with reference to relevant
market conditions;

• long-term variable reward – reflects increases in the

returns on funds employed in the business in excess of
the cost of those funds over a three year timeframe.
This reward is delivered through shares or a mixture of
shares and options.

The remuneration levels of the managing director and
other senior executives are recommended by the
remuneration committee and approved by the board,
having taken advice from independent external advisors.
Each year the board establishes performance hurdles for
the short-term and long-term variable reward
programmes. These hurdles reflect targets for specific
objectives and increasing company value consistent with
the business and investment strategies.

The company has implemented various employee share
plans. An employee share plan applies to all staff globally.

NUFARM ANNUAL REPORT 2001 11

Corporate governance

The executive share plan provides for annual offers of
shares or a mixture of shares and options to senior
executives, including the managing director. Such shares
or options vest, subject to performance indicators linked
to meeting the company’s financial targets.

The board has also approved a bonus match share plan,
but currently no offers have been made under this plan.

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
executive managers and staff – throughout Nufarm
– who created that performance.

Risk identification and management
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 the full board reviews
these limits monthly.

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.

Environment, health and safety
The board receives management reports covering
compliance with environmental policy and health and
safety issues. Any variance with legislative or corporate
policy is reported to the board immediately. Corporate
policy and compliance are audited regularly with a full
report to the board.

Ethical standards
All 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 endorses 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 an executive director
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 employees are aware
of unpublished, price-sensitive information.

In addition, directors and senior management may only
buy or sell shares during the six (6) 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 company’s expense.

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 Act; 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 2001 ANNUAL REPORT 12

Management team

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

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 ANNUAL REPORT 2001 13

Organisation

Nufarm operates manufacturing and

formulation facilities in 13 countries and

employs 2,200 people. It provides customers

with a networked production capability to

supply the many markets around

the world.

Similarly Nufarm’s global sales and

marketing operations are based strategically

to service those markets and provide the

necessary technical support to our

customers.

CROP PROTECTION

INDUSTRIAL CHEMICALS

FINE & PERFORMANCE CHEMICALS

Nufarm has manufacturing operations in:

• Australia
• Austria
• Canada
• Egypt
• France
• Indonesia
• Malaysia
• Netherlands
• New Zealand
• South Africa
• Spain
• UK
• USA

SOUTH-EAST ASIA

AUSTRALIA

NEW ZEALAND

Tokyo

Auckland

Kwinana
Kemerton

Lytton

Sydney

Laverton

Kuala Lumpur
Singapore

Jakarta

NUFARM 2001 ANNUAL REPORT 14

NORTH AMERICA

EUROPE

AFRICA

Cairo

Calgary

Chicago

Gaillon

Belvedere

Botlek
Mulhouse
Linz

Paris

Beuvry-la-Forét

Lobeco

Barcelona

Houston

Durban

NUFARM 2001 ANNUAL REPORT 15

Business review

Crop protection

Nufarm has extensive global operations producing and supplying a range of agricultural chemicals that help

farmers protect their crops against damage caused by weeds, pests and disease.

NUFARM 2001 ANNUAL REPORT 16

NUFARM 2001 ANNUAL REPORT 17

Crop protection

The pre-tax operating result for the crop protection business was
$52.0 million, down on the previous year’s $57.7 million. This
was achieved on sales to outside customers of $919.2 million
($762.8 million in 2000), an increase of just over 20 per cent.

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 Australia, France,

New Zealand, Asia, South Africa, Europe

and North America.

The Chicago-based Riverdale operations

produce a range of products that are sold into

the turf and specialty markets, including lawn

care, golf courses, municipal parks, rights-of-way

and the forestry sector. The Chicago facility

also manufactures agricultural chemicals for

the North American crop protection market,

where Nufarm branded product is achieving

increased market share.

Global sales

2001

2000

1999

1998

1997

1996

200

400

600

800

1,000

The overall result from this part of the business was
affected adversely by a poor performance in Australia.
While sales and market share were maintained, the
Australian business suffered from significantly lower
margins. Strong competition, industry rationalisation, a
lower exchange rate on the Australian dollar and drought
conditions in Western Australia during the reporting
period had a combined impact on profitability.

Growth in North America was excellent with an overall
increase in sales of 22 per cent. Both the agricultural
chemicals business and the turf and specialty business
(Riverdale Chemicals) increased sales and profitability.
We have invested considerable effort in establishing the
Nufarm brand in the United States and in securing
access to market through a strengthening of distribution
relationships. These measures helped achieve an
increase in both branded phenoxy herbicide sales and
glyphosate sales in a very competitive market.

The Riverdale business, based in Chicago, was again a
very strong performer with increased product sales into
the turf (golf courses, home lawns, municipal parks)
and specialty (railways, forestry, aquatic) sectors.

There was also substantial progress on upgrading the
Chicago manufacturing facilities that produce product for
both the crop and non-crop sectors.

Latin America was the focus of substantial registration
and marketing activity during the 12-month period and
remains an excellent prospect for future growth. Nufarm’s
2,4-D acid, which is the technical material for one of the
company’s key herbicides, received a regulatory approval
in Brazil – now the world’s second largest agricultural
chemical market behind the US. A number of additional
product registrations were progressed in Latin American
markets and the company acquired a distribution
company, Marman, through which product is supplied to
Central America.

In Europe, all operations recorded good results. The UK,
Netherlands and Austrian businesses increased sales and
profit contributions, as did the French-based crop
protection business, in spite of difficult market conditions.

NUFARM 2001 ANNUAL REPORT 18

Crop protection

Flooding, particularly in the UK and France, affected the
timing and extent of overall industry sales. The Austrian
operations, based in Linz, turned around strongly after
the previous year’s prolonged shutdown of the
manufacturing facility.

The European business benefited from an improved sales
performance in a number of regional markets such as
Spain, several new product registrations and the launch of a
strong branding strategy in the important German market.

In Asia, our crop protection sales increased by 34 per cent,
which translated into a higher profit contribution from this
expanding part of the business. Sales into the Indonesian
plantation market were particularly strong. We also opened
a new office in Japan to assist with Nufarm’s business
development in that important, high value market.

The May 2001 acquisition of Agtrol International, a US-
based fungicides business, facilitates Nufarm’s entry into a
valuable new sector of the global crop protection business.
We now offer a broader product range and service new
industry sectors such as horticulture. The Agtrol business
has been integrated into Nufarm’s management and sales
and marketing structure.

Nufarm acquired the US-based Agtrol

International fungicides business in May, 2001.

The acquisition facilitated Nufarm’s entry into

the valuable fungicides sector of the crop

protection industry and allows the company to

offer a broader product range in a number of

important geographic markets.

Agtrol’s products have strong market positions

in the global grape and apple markets, as well

as growing sales in the citrus, potato and

general fruit and vegetable markets in the US.

While sales are predominantly in North

America and Europe, Latin America – where

Agtrol has established a presence in Argentina

and Mexico – and Asia are seen as key growth

regions for the company’s products.

NUFARM 2001 ANNUAL REPORT 19

Business review

Industrial, fine and performance chemicals

Businesses owned by Nufarm make and market a wide range of products and chemical intermediates used in

other industries. Nufarm’s Lobeco Products Inc subsidiary in South Carolina manufactures special red pigments

which, when used in automotive paints, retain shine and lustre and prevent colour fading.

NUFARM 2001 ANNUAL REPORT 20

NUFARM 2001 ANNUAL REPORT 21

Industrial, fine and
performance chemicals

The industrial, fine and performance chemicals division increased
pre-tax operating profit by some 33 per cent.

This was achieved on lower sales ($403.3 million in
2001 compared to $450.1 million in 2000), due to the
divestment of both the construction chemicals business at
the end of the year 2000 reporting period and the timber
treatment chemicals business in January 2001.

The Western Australian chlor alkali plants generated
excellent results, benefiting from strong world pricing for
caustic soda. The chemicals trading businesses (Australia
and New Zealand) and the New Zealand health and
sciences division all improved performance, the latter
from a substantial increase in the production of the
Captec controlled release animal health product.

The South Carolina-based Lobeco Products subsidiary
also performed well, with higher sales of its fine and
performance chemicals and an increased profit
contribution. This was in spite of difficult trading
conditions for the fine and performance chemicals
market, with high US energy costs and other general
economic factors that depressed demand from industries
we supply.

Lobeco secured new business in South America and
benefited from an upturn in the low density ammonium
nitrate market to support coal exploration in the US.
Overall demand for high nitrogen fertilisers dropped but
the company’s Galoryl brand is now established as a
market leader and is positioned strongly to take
advantage of future growth in this sector.

US-based fine chemical sales were down as a number of
key customers cut orders in response to weak market
conditions for the end products in which Lobeco’s
intermediates are used. In particular, the dyestuff and
pigment intermediate markets suffered intense price
pressure from Asian-based competitors.

Progress was achieved on the development of a number
of new water-soluble fertiliser and anti-caking products
and urea processing additives.

The European-based fine and performance chemicals
operations were down on their year 2000 results.
Deferment of key orders for high value pharmaceutical
intermediates affected the French-based SEAC subsidiary,

Nufarm’s performance chemical division is a

global leader in the development, manufacture

and supply of additives and coatings to combat

physical product deficiencies. These innovative

products are sold into the explosives and

fertiliser industries where they help prevent

caking, dust emissions and moisture pick up.

Sold under the Galoryl brand, they draw on

Nufarm’s core strengths in chemical synthesis

and formulation.

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) have multi-step

synthesis capabilities and meet customers’

needs from bench top and pilot batch scale

through to full scale commercial production.

NUFARM 2001 ANNUAL REPORT 22

Industrial, fine and
performance chemicals

while downturns in the construction and fertiliser
industries meant lower demand for intermediates by
those sectors.

The Lobeco plant was expanded during the year with the
installation of a new multi-staged reactor train. The new
plant has increased production capacity and has added
flexibility in terms of product and synthesis mix. We also
made major improvements to the site’s waste water
treatment plant, increasing the operational efficiency and
accommodating a broader range of product
manufacturing processes.

Capital investment at SEAC included the commissioning
of a new multi-purpose pilot synthesis plant with capacity
for making kilogram product batches for the
pharmaceutical industry. This plant is GMP (Good
Manufacturing Practice) approved to the highest
international standards and has synthesis capability
under a wide variety of process conditions. Already the
new plant is producing extensive pilot scale batches of
pharmaceutical intermediates

A number of pilot synthesis projects were secured by
SEAC in the second half of the year and these facilities
are now working at full capacity, with increased revenue
and profit contributions expected to be evident in the
2002 year as these projects continue. Also the specialist
capabilities of SEAC were marketed to potential new
customers in the US and a strengthened commercial
presence in that market will result in increased business
in ensuing years.

Global sales

2001

2000

1999

1998

1997

1996

100

200

300

400

500

Nufarm's health and science division, in New

Zealand, performs contract manufacturing for

some of the world's largest animal health

companies. In 2001, we produced in excess

of 10 million units of Captec controlled release

capsules for the first time.

A new sterile injectable facility was also

commissioned during the year and the first

product order was delivered in July. The plant

uses modern technology and equipment and

will be audited for European and USA Good

Manufacturing Practice (GMP) accreditation

to take advantage of export potential into those

key markets.

The new plant has an annual capacity of

50,000 litres of injectable product, with room

for future expansion if required.

NUFARM 2001 ANNUAL REPORT 23

Business review

Research and development

Working with James Cook University in Northern Queensland and the Australian Institute of Marine Science,

Nufarm has identified natural herbicides by screening organisms living on the Great Barrier Reef. Now work

is proceeding to synthesise these molecules in the hope of developing a novel class of important new

weed killers.

NUFARM 2001 ANNUAL REPORT 24

NUFARM 2001 ANNUAL REPORT 25

Research and development

With more and more proprietary crop protection products coming
off patent, companies are turning their attention to development
programmes that allow generic products to be differentiated in an
increasingly competitive market.

Nufarm has developed strong, innovative capabilities in
formulation and packaging that respond to the needs of
end users and provide the opportunity to compete on
improved product benefits rather than just price.

A number of new mixtures, incorporating Nufarm’s key
range of phenoxy herbicides and various other actives,
were released commercially during the year. These
products allow farmers to achieve broad and effective
weed control with fewer applications.

Several new actives – which have recently come off
patent or are soon scheduled to do so – entered synthesis
and manufacturing development.

Two new fungicide products were released onto the
market via the Agtrol research and development pipeline.
Champ Dry Prill is produced by a unique process, which
results in a particle that eliminates dust, yet disperses
readily. This eliminates clogging and improves loading,
mixing and spraying characteristics.

The advanced copper technology of Champ Dry
Prill provides the highest level of disease control
while reducing the amount of metallic copper applied
per hectare.

Phostrol is also an original formulation which provides
systemic protection against Phytopthora species and
encourages the plant’s own defense mechanisms against
disease organisms.

Important progress was also made on a large number of
new formulations that will provide efficacy, safety or
environmental improvements.

Pharmaceutical intermediates are a key growth

business for Nufarm’s fine chemicals

subsidiary, SEAC, based in France. SEAC has

been contracted by a number of major

pharmaceutical companies to synthesise new

molecules and has the facilities to take

potential new products from laboratory scale

development work, through pilot projects and

into commercial production. Increasingly, large

pharma companies are contracting out this

highly specialised component of product

development and SEAC is well positioned to

take advantage of that trend.

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.

NUFARM 2001 ANNUAL REPORT 26

Research and development

Florigene Ltd

Nufarm’s 90 per cent owned subsidiary, Florigene Ltd, is
concerned with the genetic enhancement of plants, with
a particular focus on the development of novel coloured
flowers. This business was acquired in January 2000.
The 2001 financial year saw the rebuilding of Florigene’s
research and development team and the successful
launch of several new products.

Three new standard carnations were released
commercially in Australia, North America and Japan.
These flowers have singular colours that have been
received enthusiastically by the market. The colour
modification programme was also extended to gerbera,
one of the world’s most popular cut flowers.

Florigene’s GM capabilities will be applied to other
plants, including food crops, as public acceptance of
the technology increases and the benefits are more
widely understood.

Registration activity

The Agtrol acquisition included 271 product registrations
in Europe, the Americas, Africa/Middle East and
Australasia. Nufarm now has more than 2,000 product
registrations in some 100 countries.

A number of important new registrations were approved
during the year in review, including Nufarm’s herbicide
2,4-D acid in Brazil, the world’s second largest market for
2,4-D. Regulatory approval of other products also
progressed in Latin America and there are currently some
60 product registration projects underway in these
regional markets including Brazil, Argentina, Chile,
Mexico, and Ecuador.

Product development and registration activity in Europe
focused on formulation development, new label
extensions and residue studies. Some eight new product
registrations were initiated in Germany to support
Nufarm’s commercial expansion into that market.

In August 2000, Nufarm began a research and

development collaboration with the James Cook

University and the Australian Institute of

Marine Science to discover new herbicides.

Thousands of marine micro-organisms and

extracts from other marine species are being

screened to try to identify those with natural

herbicidal activity.

Researchers determined that the absence of

weeds on Queensland’s Great Barrier Reef –

where high nutrient levels and warm, shallow

water provide an ideal environment for weed

growth – could be attributable to the natural

weed killing properties of marine organisms.

Preliminary results are very encouraging. The

most promising candidate molecules so far

identified are in synthesis development at

Nufarm’s French laboratories and indicate that

these organisms could be a rich source of novel

crop protection products.

Nufarm has secured funding from the Australian

Government’s R&D Start Programme to support

this project.

NUFARM 2001 ANNUAL REPORT 27

Business review

Health, safety and environment policy

Nufarm 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 information for the

control of hazards in the workplace and for

the protection of the environment.

Supervisors and managers will be held

accountable for the safety and occupational

health of their people and for the environment

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

Nufarm makes special pigments which help produce the fluorescent properties in a range of products

including highlighting pens, tennis balls and safety signs.

NUFARM 2001 ANNUAL REPORT 28

NUFARM 2001 ANNUAL REPORT 29

Health, safety and environment

Like all employers, Nufarm has a fundamental responsibility to provide
a workplace where high standards of safety exist across all operations
of the company. Every Nufarm employee who arrives at work healthy
should also return home healthy.

Key indicators

• Lost time injury frequency rate up to 13.8 (1999:13.0)

• Medical treatment injury frequency rate 29.9 (1999:29.1)

• Severity rate increases to 0.180 (1999:0.081)

• Seven manufacturing sites free of lost time injuries

for a year (1999: nine)

• Safety expenditure increases to $A8.68 million

(1999:$A4.9 million)

• Total estimated CO2 release decreases to 261,280

equivalent tonnes (1999:264 097 tonnes)

• Total waste generated increases to 50,018 tonnes

(1999:44,600 tonnes)

• Total waste excluding salt decreases to 18,075 tonnes

(1999:19,017 tonnes)

• Environmental complaints 35 (1999:36)

Safety is a fundamental workplace requirement

The most recent reporting period indicates the need for
further improvement in several key indicators
of health, safety (HSE) and environment performance

HSE data is collected and reviewed on a calendar year
basis. In the year 2000, the lost time injury frequency rate
increased to 13.8, the severity rate to 0.180 and the
number of lost time and medical treatment injuries to 29.9.

We are working hard to embed a strong culture of safety
among all employees and contractors and to ensure that
this responsibility also extends to the safety of our
products, plants, equipment, and the environment.

To help set the direction for this improvement, the company
is setting new targets for Nufarm to achieve by 2003. Using
the year 2000 figures as a base, we are targeting:

• a 50 per cent reduction in the frequency of serious

injury by 2003; and

• a 50 per cent reduction in severity of injuries by 2003.

Nufarm is focused on continued global expansion and
a return to strong profit growth. Health, safety and
environment performance is a key indicator of the
success of our expansion.

With acquisitions in different countries, it is vital that we
set and achieve appropriate standards and that we collect
and publish reliable information to give a fair picture of
our performance. We do this through the annual Health,
Safety and Environment Report (available at
www.nufarm.com) and the individual reports published for
most sites (available from individual Nufarm locations).

Increasingly governments are taking initiatives to control
major hazard facilities. Eight of Nufarm’s sites, three in
Australia and five in Europe, are included in this
classification and we are working hard to prepare the
detailed safety cases for those facilities. Year 2000 saw
an increase in investment in expenditure on health, safety
and environment, a trend continuing into 2001.

Using instant information capabilities of
technology to improve

Nufarm has installed a global communications system
that enables better management of HS&E matters.
Injuries and unusual incidents (near misses, unplanned
events) are reported on the system and investigations and
actions to prevent future occurrences are being managed
through the system.

Responsible Care

Nufarm is a foundation member of the international
chemical industry’s Responsible Care commitment which
now operates in 46 countries. Details of the Responsible
Care‚ guiding principles are available on the website of
the International Council of Chemical Associations:
www.icca-chem.org

Spending to improve safe working conditions

Of Nufarm’s expenditure of $23.3 million for safety
related matters since 1998, 54 per cent went to capital
investment such as improving plant. Spending on
training, guidance and monitoring has increased.

We are committed strongly to continual improvement,
and we aim to have every plant in the group, whether a
new acquisition or not, operating at high standards as
soon as is practicable.

NUFARM 2001 ANNUAL REPORT 30

Health, safety and environment

In some cases this means upgrading plant and equipment,
in others changing attitudes and operating systems.

Safety related expenditure 1998-2000

Total

Capital
Workers insurance
Monitoring
Equipment and people
Training

1998-2000
$23.3 million

54.0%
11.5%
4.2%
24.1%
5.9%

How we are managing the environment

Environment related expenditure 1998-2000

Total

Capital
Capital for rehabilitation
Clean-up costs
Monitoring costs internal
Monitoring costs external
Environment training
Licences
Other

1998-2000
$A36.1 million

72.5%
5.8%
0.8%
7.7%
6.6%
1.8%
3.3%
1.5%

Protecting our environment is high on our list of priorities
and we audit our operations regularly to measure our
progress and define areas for improvement. As well as
the $36.1 million Nufarm has spent on environmental
matters since 1998, largely for capital improvement to
sites, plant and equipment, our employees have made a
substantial contribution by using their creativity, ingenuity
and knowledge of their work to ensure that there are
always other improvements happening.

Rehabilitation of some of the plants acquired by Nufarm
has been essential, such as the $US 1.2 million spent at
Riverdale in 2000, with further work authorised for 2001.

Prosecutions and penalties

In England, during maintenance on an old reactor at
Belvedere, contractors removing glass fibre insulation
uncovered older insulation that was found to be asbestos.

Reducing greenhouse gas emissions

Around the world Nufarm uses large amounts

of electricity, principally to produce chlorine

and, to a lesser extent, for chemical processing.

Our three chlorine plants account for 62 per cent

of the total energy consumed, mostly electricity.

The plant design is highly energy efficient and we

keep abreast of developments in energy

efficiency, incorporating them whenever possible.

Most Nufarm plants are working to minimise

energy use, sometimes in association with

government as in Australia. Nufarm is a partner

with the Australian Government to abate

greenhouse gas emissions through the

Greenhouse Challenge. The Challenge has been

effective in achieving lower greenhouse gas

emissions and in building on the capacity of both

Government and industry to identify, monitor,

manage and report greenhouse gas emissions.

Total estimated CO2 released

2000

1999

1998

Total Nufarm tonnes 261 280

264 097

245 964

From processes

0.5%

From fuel combustion

15.4%

Electricity equivalent

84.1%

1.0%

21.0%

78.0%

1.2%

16.8%

81.9%

Nufarm was prosecuted by the Health and Safety
Executive (HSE) in relation to this incident and fined
£26,000 with £9,526 costs ($A88,800).

In Irricana, Canada, our Fernz Sulfer Works management
overlooked the requirement to analyse and report
stormwater release. The result was an administrative
penalty of C$8,500 ($A9,900). After the incident, we
hired an environmental coordinator for the plant to ensure
that all of our environmental measurement and reporting
obligations are met.

NUFARM 2001 ANNUAL REPORT 31

Measuring corporate performance

Nufarm uses a number of measurements to assess the company’s
corporate and financial performance over a 12–month period.
The performance goals are tied to specific objectives relating
to the various stakeholders identified in Nufarm’s mission
statement on page 5.

A number of these assessments are based on objective
financial and economic outcomes, while others relate to
areas such as the health, safety and environment
performance of the company. Like a number of
companies, Nufarm is increasingly focused on triple
bottom line performance (economic, social and
environmental) and is looking at appropriate ways to
report this performance.

The company also looks to its industry peers, the broader
industries in which we operate, our employees and
commentary from the business community, market analysts
and shareholders to form views on where certain aspects of
our operations and communication can be improved.

It was encouraging to receive a highly commended
certificate in the independently-judged Australian Investor
Relations Awards (best overall investor relations for a
non-ASX 100 company) for the 2001 financial year.

Nufarm uses the economic value added (EVA) concept to
measure the financial performance of its various
businesses, and to evaluate new acquisition opportunities.
EVA is defined as the corporate return on 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.

In 2001, as shown on the graph below, the EVA from
operations (excluding non-operating items) was A$15.8
million compared to $17.7 million for the 12 months to
31 July 2000. The slight decrease is due to higher
capital usage than the prior year. The company is
addressing this as a matter of priority in the 2002 year.

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

Economic value added

2001

2000

1999

1998

1997

1996

NUFARM 2001 ANNUAL REPORT 32

Source: Ireland, Wallace & Associates Limited